HSBC triggers mortgage war in bid to double size
Bank reveals expansion plan that could catapult its UK earnings to £13billion a year
HSBC has drawn up plans to double the size of its British bank in an audacious bid to close the gap on the country’s biggest lender Lloyds.
In an interview with The Mail on Sunday today, HSBC’s UK chief executive Ian Stuart says the UK has been identified as a major growth opportunity for HSBC – just as the bank scales back in mainland Europe.
The Scot reveals that the former Midland Bank will invest heavily in mortgages in a move that will intensify a price war in the New Year as it tries to wrestle borrowers away from rivals.
The bold strategy also involves investing in state- of- the- art digital technology to impress customers and woo top corporate clients from other big banks.
HSBC has 14.5 million customers in the UK and took £6.5 billion in revenues last year. Doubling in size would mean attracting millions of new customers and catapulting revenue to £13 billion a year, putting the bank second only to Lloyds in terms of scale in Britain.
Stuart’s comments will provide some relief in the City amid fears of vast job cuts across the global HSBC empire.
Interim group chief executive Noel Quinn – appointed in August by chairman Mark Tucker after veteran John Flint was ousted – last month indicated that Europe and the US would take the brunt of a rumoured 10,000 job losses.
Stuart says: ‘I’ve got a group chairman who would like us to be double the size we are in the UK.
‘I say, “OK Mark – but there’s a way to get there. It costs money, it costs capital and you’ve got to invest.” I wouldn’t be here unless it was a growth strategy.’ Stuart has committed to ploughing an extra £35 billion into mortgages to boost its market share from 7 per cent to nearer 10 per cent. Lloyds already has a market share of 20 per cent.
He says HSBC is punching well below its weight and has a clear opportunity to grow. ‘For 20 years while I was at rival banks I had been l ooking at HSBC, and I thought, “If these guys ever get their act together, we’re in trouble,”’ he says.
HSBC has already invested in technology to make it faster to get a mortgage – it now takes seven days, down from 49 days – and has started selling home loans through brokers.
Three top 20 investors told The Mail on Sunday that it made sense for HSBC to increase its presence in the UK in the hunt for profits.
One said: ‘They could split off the UK bank, but I think what’s interesting is that UK banking is actually pretty profitable. If you look at the returns across the group, and look at the UK bank, that’s the bit you want to keep.’
Last month HSBC, Europe’s biggest bank, said pre-tax profit fell 18 per cent to $4.8 billion (£3.8 billion) in the three months to the end of September, compared to last year.
But Quinn has been broadly positive about the UK since taking over. ‘We are committed to supporting both Hong Kong and the UK through the current challenges they face,’ he has said.
IAN STUART, the boss of HSBC in the UK, is reminiscing about one of his finest moments as a banker – and it’s a surprising choice. The former head of Barclays’ corporate bank calls to mind a crunch meeting with his then boss, Bob Diamond, and other senior executives after the bank had been fined £290 million for trying to rig interest rates.
Barclays had said the actions of a handful of rogue traders in manipulating the key Libor rate, which influences the cost of loans and mortgages, ‘fell well short of standards’. Diamond had even offered to give up his £2 million-plus bonus.
The top brass, Stuart reveals, were convinced that their contrition would leave them in the clear. But he had some news for them.
‘The view in this room was: we [the executive team] have done no wrong ... [because] the bank was the whistleblower,’ Stuart, 56, says. ‘I felt sorry for the guys because they felt they’d done the right thing. But I told them: “We’re British. If you skip the queue in this country – if you cheat – you’re going to get told. And I think we cheated.” They said I was overreacting. So I bowed out of the meeting very, very quickly.’
Just days after those heated discussions, Stuart was proven right. His high- flying American chief executive Diamond and his righthand man, Jerry del Missier, were fired and chairman Marcus Agius was allowed to stay on only to help find a new chief executive.
Facing the toughest challenge of his career to date, Stuart and his team called thousands of Barclays’ corporate clients to convince them not to leave.
‘I would say the Libor crisis was one of the highlights of my career because we lost [only] two customers. I know who they are because I went to see both of them. It was a humbling experience because customers showed incredible loyalty.’
Over the course of our interview it becomes clear that surviving those tumultuous days was the making of Stuart, who just seven years later is running HSBC’s entire UK operation.
We meet on the top floor of the bank’s vast new ten-storey office in Birmingham. HSBC has moved 1,500 retail and commercial bank employees here as a wave of bigname City firms look for UK bases outside of London. The group will maintain an office in Canary Wharf, but Birmingham felt like a natural choice for a bank which entered the UK by acquiring the old Midland Bank in 1992.
Soon accountancy giant PwC and tax officials at HM Revenue & Customs will join HSBC as neighbours in Birmingham’ s Centenary Square, which is undergoing a £16 million redevelopment to bring a total 7,000 jobs to the area. It is from here HSBC will launch its
Huge numbers of customers will not go online to do their banking...we have to look after them
most ambitious expansion plan in the UK to date, Stuart reveals. Unlike in mainland Europe – where the bank is rumoured to be selling its French arm and slashing jobs as it focuses on the Asian market – the UK has been identified as a major growth opportunity.
‘I’ve got a group chairman [Mark Tucker] who would like us to be double the size we are in the UK,’ Stuart reveals to The Mail on Sunday. ‘I say, “OK Mark – but there’s a way to get there. It costs money, it costs capital and you’ve got to invest”.’
HSBC already has 14.5 million customers and makes £6.5 billion in revenues. Doubling in size would mean attracting millions of new customers and lifting revenue to £13 billion a year. This would put HSBC on a par with RBS, which makes £13.4 billion in revenues. The bank would be second only to Lloyds, which makes £22 billion a year.
‘I wouldn’t be here unless it was a growth strategy,’ Stuart says. It’s quite an ambition amid rumours of 10,000 European job cuts. He outlines plans in four key areas of the corporation’s business empire.
The first is mortgages. HSBC believes it is nowhere near what it could achieve in terms of market share. Lloyds has cornered 20 per cent of the market, for example, while HSBC has just 7 per cent.
A sales drive would almost certainly mean lower rates to attract borrowers – intensifying a price war with rivals. But Stuart insists the bank will be savvy in i ts approach, carefully targeting specific groups of customers, as opposed to slashing rates across the board. The second growth area will be corporate clients, where the chief executive has an enviable contact book. The third – and where Stuart is suddenly at his most animated – is digital services. He is particularly proud that HSBC has launched technology to sign up mortgage customers in just seven days, down from 49 days, and says more announcements are due in the New Year.
Stuart is quick to stress that he won’t abandon existing customers to get new ones through the door. The new digital services will not be funded by closing branches, his fourth key area.
‘Huge numbers of customers will not go online [to do their banking] and my mother is one of them,’ he says. ‘They go to the branch and they go on the phone – and we’ve got to look after them. We wouldn’t dare forget our position in society.’
That promise will come at a huge cost to the bank. HSBC stumps up almost £780 million a year to maintain its 625-strong branch network – far more than it makes in branch sales, Stuart says. His local branch in Gerrards Cross in Buckinghamshire, for example, costs £650,000 a year to run but only brings in sales of £9,000 a year.
Stuart declined to go into specifics on customer deals, saying these will be revealed over the next year.
It’s the sort of fighting talk that will send shivers down the spines of rival bosses at Lloyds, Barclays and
RBS. A pumped-up HSBC competing at full tilt for new customers could be one of the most important developments in UK banking for decades. After all, Stuart explains, this is a company that has never realised its full potential in Britain.
‘For 20 years while I was at rival banks I had been looking at HSBC, and I thought, “If these guys ever get their act together, we’re in trouble,’” he says.
So how did Stuart come to be leading the charge himself? He was in Portugal on holiday – about to head out for dinner with his wife and children – when he got the fateful call from executive search firm Russell Reynolds.
He told the recruiter he had absolutely no interest in moving jobs (he was secretly working on his own detailed plan to overhaul Barclays) – unless it was JP Morgan or HSBC asking. Five minutes later he was on the phone with Simon Cooper, HSBC’s global head of commercial banking, and joined in 2014 as head of its UK commercial bank.
He was leading its European operations within a year and stepped into the UK chief executive role in April 2017. It’s quite an ascent for a boy who left school at 16 with six O-levels to become a Bank of Scotland cashier where he grew up in Dunkeld, 15 miles north of Perth. He spent 22 years at NatWest before joining Barclays in 2007.
Stuart readily admits that his background left him with a chip on his shoulder in the City, where most senior executives brim with the confidence that comes with a degree from a top-flight university. So he went to Reading University at the age of 38 to get a diploma in business management.
‘All I wanted was to get a picture taken with a scroll and a mortarboard,’ he says. ‘My wife ribs me relentlessly that it’s not really a degree. I don’t really care – because I’ve got that photograph.’
But he says it was watching his seniors failing to ask the right questions as they headed for the financial crisis, which culminated with the Libor meeting in 2012, that gave him the final push to rise to the top.
‘I was never that comfortable in my own skin when I was younger,’ he says. ‘But I was 46 and I thought if I ever didn’t understand something again, I would always ask.’