HSBC (HSBA.L) has said goodbye to CEO John Flint and is swinging the axe on thousands of jobs, as the bank looks to escape a performance “rut” and economic storm clouds gather on the horizon.
HSBC announced on Monday that Flint was leaving “by mutual agreement with the Board.” He spent 30 years at the bank but only 18-months as CEO.
At the same time, HSBC also announced plans to axe about 5,000 jobs as it seeks to cut costs. It joins Deutsche Bank, Nomura, and Societe Generale in announcing deep cuts so far this year.
HSBC blamed a worsening global economic outlook for both decisions. Analysts said Flint’s departure suggests the board wants a more radical strategy as the bank looks to navigate the US-China trade war, Brexit, and falling global interest rates.
‘More about style’
Flint was former HSBC CEO Stuart Gulliver’s chosen successor and was seen as a continuity candidate. His appointment met with relatively little fanfare and the bank has not deviated from Gulliver’s strategy.
However, the outlook for global banking has worsened significantly since Flint’s appointment in February 2018. Global trade tensions continue to rise, a no-deal Brexit looks increasingly likely, and central banks have gone into reverse around the world, signalling rate cuts rather than rises.
HSBC chairman Mark Tucker said “the increasingly complex and challenging global environment ” called for a change at the top. JPMorgan analyst Raul Sinha said “a potentially rapid deterioration in outlook” was behind Flint’s departure.
“HSBC want more than a safe pair of hands and perhaps Mr Flint was a little too cautious in the way he wanted the bank to operate going forward,” Michael Hewson, the chief market analyst at CMC Markets, told Yahoo Finance UK.
Flint’s exit came despite a solid set of first-half results that saw HSBC beat first half profit forecasts. Pre-tax profit rose by 15.8% to $12.4bn (£10.2bn), 8% ahead of forecasts.
“The numbers look good which suggests that the change in management isn’t about performance and could well be more about style,” Hewson said.
The Financial Times reported last week that HSBC had angered Chinese officials by providing evidence to US prosecutors as part of the detention of Huawei executive Meng Wanzhou.
Hewson said HSBC may have sacrificed Flint to preserve business relations with the Chinese, but said “it’s hard to see how any other CEO could have handled it differently.”
AJ Bell investment director Russ Mould said Flint’s exit was a “shock” and suggested a “culture clash between senior management.”
HSBC chairman Mark Tucker took the helm at the bank’s board just four months before Flint became CEO and Bill Blain, chief strategist at Shard Capital and a former HSBC banker, said this may have been key.
“Having the first external chairman seems to have galvanised the rest of board to understand just how sub-optimal its satisfied approach has been,” Blain told Yahoo Finance UK.
“It’s clear HSBC is stuck in a rut. Its UK businesses are going nowhere. Its poor retail and business banking offerings are a bloated unimaginative bureaucracy, while it has simply sat on its Hong Kong business.”
Whatever the reasons for Flint’s departure, “the task for his replacement could be a tall one,” AJ Bell’s Mould said.
HSBC’s share price has been relatively flat this year and the entire investment banking industry is suffering from a fall in market and M&A activity.
The outlook is worsening rather than improving. The Bank of England cut its growth forecasts for the UK last week and the latest Chinese GDP numbers showed the slowest quarterly growth in almost 30 years. Pro-democracy protests in Hong Kong show no signs of slowing, with potential implications for economic activity there.
“HSBC's key challenges are obvious,” UBS analyst Joel Napier said. “The Fed cut by 25bps in July and the rate curve implies two more cuts before year end. Other curves say much the same. Volatile geopolitics could also significantly impact HSBC's two biggest markets: Hong Kong and mainland China (trade, domestic volatility), and the UK (Brexit).”
Napier said HSBC’s new leadership would likely try to slash costs in response. The cost squeeze is already underway. The job cuts announced by HSBC on Monday are set to reduce the bank’s global salary bill by 4% and will cost up to $700m in severance costs, HSBC chief finance officer Ewan Stevenson said on a call with analysts.
“With macroeconomic and geopolitical headwinds mounting, the HSBC board could be looking for more radical reform,” Nicholas Hyett, an equity analyst at Hargreaves Lansdown, said.
HSBC’s head of global commercial banking Noel Quinn has taken over as CEO for the time being while the bank searches for a permanent replacement. Given the surprise nature of the departure, no immediate names were offered as potential successors.
Oscar Williams-Grut covers banking, fintech, and finance for Yahoo Finance UK. Follow him on Twitter at @OscarWGrut.