HSBC shake-up not a bad thing

Finance | Ivan Tong 12 Aug 2019

Last Friday it was revealed that Helen Wong Pik-kuen, HSBC's (0005) chief executive for Greater China and the bank's highest ranked woman, had thrown in the towel, hot on the heels of the ouster of chief executive John Flint last Monday.

The surprise departures of the two top executives sparked a flurry of rumors amid the current politics-focused situation and conspiracy theories abounded in the market but there was nothing to substantiate any of them.

However, instead of making wild guesses, investors would be well advised to analyze the management changes from a perspective of the bank's development and prospects.

Flint departed after just 18 months on the job, and this unusual move sparked intense speculation, the most popular theory being that Flint left because he didn't get on with chairman Mark Tucker.

But there are two sides to every story and senior management changes in a big company is not necessarily a bad thing and may even be good for its prospects and stock price.

Greater China head Wong meanwhile had been with HSBC for 27 years, only three less than Flint.

HSBC says that Wong won't be replaced and regional chief executives in Hong Kong, mainland China, Macau and Taiwan, will take up the slack.

This reflects HSBC is serious about streamlining its operations.

Hong Kong's retail investors must understand that HSBC is in the throes of change.

Europe's biggest bank currently operates with a huge civil service-like structure and the lender's performance has been mediocre, despite maintaining an attractive dividend yield at above 6 percent.

HSBC appointed AIA's (1299) Tucker as chairman in 2017, showing its desire to undergo major surgery and make bold changes in its strategy and operating style, and the bank is expected to be more proactive in the future and operate more on the lines of an American bank.

This explains why global commercial banking unit head Noel Quinn, who will be interim chief executive, said he wants "less process and more action" and more focus on growth, in his first call with senior managers last Tuesday.

Tucker is a hard taskmaster and he will put more emphasis on efficiency and cost savings.

So no matter whether Flint got fired or resigned, under Tucker's tough style, there's a good chance that HSBC will hire an outsider to the top post.

Don't forget HSBC broke with tradition by hiring Tucker, who was an outsider, as chairman instead of promoting someone from within its ranks.

An outsider would have freer reign for bold and wide-ranging reforms, so the list of candidates is likely to include not only HSBC veterans but also other top European bankers.

Insider candidate Ewen Stevenson, who serves as chief financial officer, has been in his role only since January after joining the bank from the Royal Bank of Scotland and he could find his hands tied by other seniors in the bank.

HSBC's interim results were not bad but its share price has dropped to around HK$60 because of gloomy market sentiment and not because of its own sins.

However, even if the management shake-up benefits HSBC, the true value, as reflected by elevated share prices, will only be realized over the longer term. But for now, the bank faces a lot of uncertainties such as the threat of a hard Brexit and the negative impact on interest margins with the US entering a rate-cutting cycle, so the stock faces further downward pressure below HK$60.

If we assume its price drops to HK$50 and HSBC still maintains a dividend payout ratio at that time, the dividend yield would rise to 8 percent from 6.59 percent, providing more value for mid- to long-term investment.

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