Remaking a global bank
Having made a hurried choice on its chief executive last time out, chairman Mark Tucker is being far more deliberate in choosing the next boss of HSBC.
Caretaker manager noel Quinn looks to be making all the right noises about putting some zip back into performance, and is being allowed to hunker down and get on with the job.
With each strategic decision he makes it will become that much harder for a bank that historically looks inside rather than outside for talent to ignore Quinn’s claims.
Disappointing third quarter results largely occurred on the watch of Quinn’s axed predecessor John Flint.
But Flint cannot be held responsible for an unbalanced business under which 93.6pc of profits are generated in asia, whereas 50pc of total assets of $426bn are deployed in Europe and the US.
This came about as HSBC has sought to become a genuinely global bank, competing with the likes of JP Morgan.
its various attempts at playing a central role in the US have been defeated by horrible mistakes, most notably the purchase of sub-prime lender Household.
But it has also suffered from behaviour issues, ranging from money laundering in Mexico to sanctions busting in the Middle East. Even if some of this can be put down to a form of US financial protectionism, it has hardly been a glorious episode. in Europe, HSBC has been constrained by UK ring-fencing of domestic banking, a subscale bank in France and a misfiring private bank in geneva that brought all sorts of grief.
Quinn is approaching the problem by cutting jobs and refocusing on growth markets in the Middle East and Pacific. He needs to convince investors there is more to asia than Hong Kong, its principal market, and that it is well placed to take advantage. Tucker, certainly, was able to demonstrate this when he was running insurer aia.
There are disappointments right across the enterprise. High inflation in argentina (as i mention below), bills for payment protection insurance and a subsidence of trading profits in fixed income and equities did not help. The global banking unit, which serves large corporate clients, is expected to take a big jobs hit.
But something even more radical, such as splitting out the UK bank – as the Prudential has done with M&g – could be an option. More technology and fewer staff might be the start of something far more courageous.
Latin lessons
CHriSTinE Lagarde left Kristalina georgieva, her successor at the international Monetary Fund, a titanic-sized problem in argentina. Lagarde backed the reformist government of Mauricio Macri by providing argentina with a $57bn credit, the biggest loan package in iMF history.
The prospects of yet another argentinian default have been greatly increased by the election of a Peronist populist alberto Fernandez with former leader Cristina Fernandez de Kirchner (no relation) occupying the vice-presidential seat.
The revival of the Peronists, who favour pro-worker policies, comes after an experiment with free market policies which saw inflation soar to 50pc, unemployment climb to above 10pc and one-third of the population sink into poverty. immediate priority for the new government will be to seek a debt deal which will see creditors – including HSBC – having to take a haircut.
The argentinian crisis is part of a Latin american earthquake. in Bolivia, Evo Morales was re- elected by a fat majority amid corruption allegations sparking riots. Chile’s president Sebastian Pinera has sacked the whole cabinet after protests inflamed by a rise in underground fares.
iMF forecasts show Latin america on the cusp of a slump, growing by 0.2pc in 2019. The hope of a pick-up next year is largely based on iMF projections of recovery in Brazil as it pulls out of deep and prolonged recession. Turmoil among the neighbours, and the possibility of argentina going belly up, is unlikely to bolster investor confidence or contribute to global recovery.
School lessons
THE London School of Economics periodically finds itself in difficulty over sources of funding. Sir Howard Davies, now at rBS, honourably resigned in 2011 over LSE funding from Libya. academics at the LSE are up in arms over a partnership with China, funded by a venture capitalist with close ties to Chinese president Xi Jinping. Director Minouche Shafik should nip this row in the bud before it harms her candidacy to be the Bank of England’s next governor.