Flint sets new course to return HSBC to top-line growth

The new strategy John Flint presented to HSBC investors on Monday is in many ways what you would expect from someone elevated to chief executive after a 28-year career at the bank: continuity and incremental improvement.

But look more closely and it is clear that Mark Tucker has had a significant influence on the strategic trajectory of Europe’s biggest bank since being recruited from Asian insurer AIA last year to become its first external chairman.

As well as building on the platform the duo have inherited from their predecessors as chief executive and chairman — Stuart Gulliver and Douglas Flint — their new eight-point plan also aims to correct some of the flaws left by the previous leadership team.

HSBC is the supertanker of British banking with $2.65tn of assets, close to 230,000 employees and 3,900 offices in 67 countries. So anyone expecting Mr Flint to unveil radical changes was kidding themselves.

Instead, Mr Flint promised to press on with the work started three years ago when Mr Gulliver presented his “pivot to Asia” strategy. The new boss said he would continue to redeploy capital from areas with low return on equity to more promising ones, notably in its main profit engine of Hong Kong and in China’s fast-growing Pearl River Delta region.

He committed to keep the dividend unchanged at 51 cents a share, disappointing some analysts who had hoped for a slight uplift. There was also a promise to continue the policy of buying back shares, at least to offset those it pays out for the scrip part of its dividend.

“This was about John Flint demonstrating that he is a safe pair of hands and doing nothing revolutionary,” said Joseph Dickerson, banking analyst at Jefferies. “His tone was one of someone who is focused on getting the job done and getting the returns up.”

So where are the signs of Mr Tucker’s fresh eyes in all this? Firstly, as someone who was widely praised for the double-digit annual revenue growth he consistently produced at AIA, Mr Tucker had told colleagues he was keen to return HSBC to top-line growth after a decade of shrinking revenues. While the bank’s revenues rose last year, they were still down 37 per cent in the past decade, weighed down by disposals, restructuring and low interest rates.

Given his background, the chairman’s natural instinct was always to look at HSBC’s insurance and asset management operations as an opportunity to grow, particularly in Asia. Mr Flint duly promised that these would be key areas of investment.

“One can see signs of Tucker in the plan’s ambition,” said Mr Dickerson at Jefferies. “Clearly there is a focus on growing the insurance and wealth management businesses, and you can imagine that with Tucker at the helm the board would welcome a plan that includes that element.”

Second, Mr Tucker seems to have been taken aback by the level of bureaucracy in HSBC. The new plan aims to simplify the bank’s multi-layered organisation, streamline decision-making and speed up service for customers.

This includes reducing board committees from seven to five, cutting the time it takes to sign up wealthy clients at the private bank from 65 days to 10, and slashing the approval process for small business loans from up to two months to one day.

Finally, the new chairman has encouraged a laser-like focus on the longstanding effort to turn round the bank’s perennial underperformers, in particular its US business.

For the first time, investors have been given a target for return on equity in its US unit to be lifted from a paltry 0.9 per cent last year to at least 6 per cent by 2020. It aims to achieve this with a mixture of increased unsecured lending to American consumers, expansion among international-focused customers and a return of excess US capital back to the group.

Yet, while Mr Tucker has undoubtedly had a strong influence, Mr Flint is the main architect of the plan designed to drive HSBC’s return on tangible equity above 11 per cent for the first time in a decade.

As the former head of retail banking and wealth management, Mr Flint was always going to channel more capital into that operation at the expense of global banking and markets — HSBC’s investment banking unit — which has consistently had a lower return on equity.

So the investment bank’s share of group capital is set to fall from 34 per cent to 30 per cent, while the retail banking unit will increase its share from 14 per cent to as much as 20 per cent. Mr Gulliver may have been an investment banker at heart, but he had already started making this switch.

The previous management team spent much of its time cleaning up the mess left by their predecessors’ ill-judged acquisition spree before the financial crisis. This led to heavy fines for misconduct from regulators and accusations that the bank was “too big to manage”.

Mr Flint made it clear he was unlikely to release the purse strings for another round of takeovers, which he said would be a distraction. Instead, he put the emphasis on self-help. Shares in HSBC dipped on Mondayin response to Mr Flint’s plan. He will hope to win investors round soon, otherwise his chairman’s influence may become even more apparent.

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