Yahoo Finance China tensions rise to the surface as HSBC seeks its next boss
HSBC chief executive Noel Quinn and chairman Mark Tucker were in an unusually jovial mood in the early hours of Tuesday morning.
Rather than focusing on Quinn’s unexpected departure after five years at the helm, the two bankers spent time on a media call joshing about their respective football teams, Aston Villa and Chelsea.
However, lurking beneath this levity is a broader question of whether Quinn’s exit will tilt the London-based bank’s centre of gravity more firmly towards its dominant market in Hong Kong.
When asked about Quinn’s successor on Tuesday, Tucker refused to be drawn on whether the new chief could come from the ranks of its Asian businesses, where the lender makes the bulk of its profits.
“We will go through a proper process and we’ll let you know as soon as we come to a conclusion,” he said.
Several internal candidates are already in the frame, including finance chief Georges Elhedery. But the shake-up is likely to reignite the long-running debate over whether HSBC needs to pivot away from the West towards Asia and China.
Quilter Cheviot analyst Will Howlett said: “Managing the geopolitics between the West and the East is going to be a big skill for the next chief executive. It’s a very delicate balancing act that the next successor will have to manage.”
HSBC, known in banking circles as “Honkers and Shankers”, is well-acquainted with geopolitical scrutiny.
Formed as the Hong Kong Shanghai Banking Corporation in 1865 when the territory was still a British colony, it has long sought to maintain strong ties with China.
However, this deft art has become a growing challenge in recent decades after the country took back control of Hong Kong in 1999.
As for its UK presence, the lender cemented this by acquiring the Midland Bank in 1992.
However, this only further enhanced HSBC’s divide between East and West, with operations split across across a single corporate animal.
Recent political flare-ups have since renewed focus on the bank’s global make-up.
The bank’s top government affairs executive Sherard Cowper-Coles was forced to resign last year after criticising the UK for mirroring America’s hardline approach to China.
Inevitably, Quinn’s successor will have to tread the line carefully.
“HSBC has always been a huge bureaucracy, says Shore Capital analyst Gary Greenwood. “You need a political operator who can come in and navigate that.”
As one of the largest banks on earth, with a balance sheet almost equivalent to UK GDP, the bank’s significance spans way beyond its London headquarters and a FTSE 100 listing.
This is evident given that Hong Kong represents a bigger proportion of HSBC’s profits, accounting for $10.7bn versus $8.3bn for the UK.
The bank’s customer deposits in Hong Kong also tip the scales at $544bn, against $340bn in Britain.
However, despite the Asian focus, the bank’s management and board have long skewed towards the UK. HSBC chief executives have historically come from the Western side of the bank.
Quinn’s predecessors, including John Flint, Stuart Gulliver, Michael Geoghegan, Stephen Green, Keith Whitson, John Bond and William Purves, have all ascended through HSBC’s UK ranks.
According to HSBC’s ethnic diversity report, 69pc of its executive committee are white British or white.
Could Tucker decide to rip up the rulebook and base the new chief executive in Hong Kong?
The likelihood is slim, say analysts.
“Whoever comes in will need to have a good knowledge of the Hong Kong market albeit they will have supporting management entrenched in the region,” says Greenwood.
“HSBC’s headquarters are still in London so if they were going to have the chief executive out in Asia they’d need to move the headquarters in Asia as well.”
One source of pressure to tilt more towards Hong Kong could come from the bank’s Asian shareholder base.
Ping An, HSBC’s largest shareholder, has been trying to persuade the bank to spin off its Asian business for a number of years.
Tensions burst into the open last year when Ping An signalled it would support a resolution at the HSBC annual meeting demanding the bank regularly review its structure.
It was a shot across the bow for the lender and masked deeper concerns from Ping An about how HSBC was run.
The Asian insurer, which owns 8pc of the FTSE 100 giant, has also previously demanded HSBC Asia be spun off and listed on the stock market, with HSBC maintaining a controlling stake in the group.
Last November, Ping An Asset Management chairman Michael Huang waded into the debate by claiming the group would support HSBC if it pushed through a break-up.
Inside Hong Kong, where HSBC has a sizable army of armchair investors, there is also unrest about the lack of an explicit Asian presence.
Retail investor Ken Lui, leader of the Spin-Off HSBC Asia Concern Group, has long spearheaded a campaign against the Western-centric nature of the lender.
Discontent led to Lui last year leading a shareholder rebellion at the group’s annual meeting over the bank’s rescue of SVB Capital, suggesting it had failed to do enough due diligence on the lender.
To placate the pro-Asian voices, Tucker and Quinn have in recent years sought to provide HSBC with a stronger Asian footprint.
In 2021, Quinn unveiled plans to move some of his senior management to Hong Kong, including Nuno Mates and Barry O’Byrne, who run HSBC’s main banking and commercial businesses.
Meanwhile, for Quinn, the 62-year-old’s departure is likely to end a tiring cycle of trips to Asia and questions about how he will handle geopolitical pressures.
KBW analyst Perlie Mong claims this will be a relief to the veteran banker.
“We never felt he looked completely comfortable in the role and suspect that Covid was a particularly brutal period running an international business like HSBC,” she said in a note to clients.
Quinn will now have time to watch his beloved Aston Villa, who drew 2-2 with Tucker’s Chelsea last week after they were denied a late penalty.
“Clearly Mark was unhappy because he almost won in the last minute,” said Quinn on Tuesday.
“We were robbed,” Mr Tucker responded.
Will HSBC’s Asian shareholders be saying the same once Quinn’s successor is appointed?
