Great unity: A pedestrian walks past a HSBC branch in Hong Kong. The new CEO made Hong Kong is his port of call after assuming the reigns of the London-headquartered bank. — Reuters
LONDON: With just two weeks under his belt as the new chief executive officer (CEO) of HSBC Holdings Plc, Georges Elhedery has made it clear he’s looking to make his mark on the bank.
Since he took over, Elhedery has weighed kicking off what could amount to HSBC’s most significant restructuring in more than a decade.
He’s also considered disposing of a couple of non-core businesses, and he’s been pleading with employees to keep costs in check.
It’s no wonder the former chief financial officer (CFO) is looking to move swiftly.
As central banks around the world cut interest rates – moves that will eat away at the revenue of big, global lenders like HSBC – Elhedery will have to find a way to shave off US$2bil in costs in order to sustain a key measure of the bank’s profits, according to Bloomberg Intelligence.
Investors are now hoping Elhedery will either offer new targets for expenses or detail his plans for keeping a lid on the company’s efficiency ratio – a metric that shows how much it costs to produce a dollar of revenue – by the end of the year.
The Lebanese-born executive will get his first chance to update the market when HSBC reports its third-quarter earnings next month.
“Job cuts, further disposals and organisation streamlining are all potential options on the table,” said Tomasz Noetzel, an analyst at Bloomberg Intelligence.
“The new CEO may need to dial up focus on cost cuts as there is little or no room to bolster revenue in a declining rate environment.”
More disposals
“We estimate it may need to trim its US$35bil mid-term cost base by at least 5% to sustain its efficiency ratio while maintaining productivity.
“That means the new strategy, expected by the end of the year, is likely to focus on head count and more disposals,” said Noetzel.
In his first week as CEO of Europe’s largest bank, Elhedery wasn’t getting comfortable at HSBC’s headquarters in London’s Canary Wharf.
Instead, dressed in a Hugo Boss suit, he was on a whirlwind tour around Hong Kong.
He made a pit stop at an HSBC branch and wealth centre. Alongside David Liao, the co-head of the lender’s Asia-Pacific business, Elhedery spent time with the firm’s commercial banking staff.
He also met with government officials and regulators.
Starting his tenure in the business hub was meant to be a clear signal that while Elhedery had largely made his career outside of Asia, he recognised the importance of the region to the bank.
“Hong Kong is an incredibly important market for us, and Georges was keen to spend his first few days here,” an HSBC spokesperson said in a statement about Elhedery’s first days on the job.
The company declined to comment on his early deliberations about the bank’s strategy going forward.
While making his rounds, Elhedery, who has spent the past couple of years learning Mandarin, told workers in a town hall there would be a continued spotlight on costs across the banking behemoth, according to people who attended the event.
Still, he told employees his bigger focus would be ensuring the company is spending wisely rather than spending less, the people said.
That coincides with what investors are hoping to see from HSBC.
In 2026, the lender’s cost base needs to remain flat with current levels at about US$33bil – as opposed to the US$35bil that analysts are currently expecting – for the bank to maintain its current efficiency ratio, Bloomberg Intelligence found.
Closest rivals
“Responding to a slowing Asian economy and lower interest rate environment, HSBC’s new CEO is using this opportunity to make many strategic cuts and structural changes,” said Mark Williams, a master lecturer in the finance department at Boston University’s Questrom School of Business.
Investors are still digesting some of Elhedery’s early moves.
HSBC’s stock has barely budged since the start of the year, rising just 3% through the close of trading last Friday.
That compares with the 15% advance of the FTSE All-Share Bank Index, a basket of its closest rivals.
HSBC is no stranger to restructuring. Under Elhedery’s predecessor Noel Quinn and other previous chief executives, the bank sold some of its largest operations and pivoted toward core markets in Asia.
Above target
Those moves saw the company trim more than 50,000 jobs in the last decade.
Still, previous reorganisations left HSBC with 214,000 employees – about 7% above target, according to Bloomberg Intelligence.
That’s, in part, what led Elhedery to begin weighing combining HSBC’s commercial and investment bank divisions in recent weeks.
The effort would bring together HSBC’s global banking and markets business, its least profitable unit, with its most efficient one – the commercial banking arm.
The combined division would generate about US$40bil of revenue a year and bring together a more than 90,000-person strong workforce to go out and win business with companies of all sizes.
“He’s not hanging around,” said John Cronin, founder of the consultancy Seapoint Insights.
“The pros are that it leads to greater unity across the bank in the longer term, albeit, I suspect it would be quite disruptive in the short term, with much internal resistance.”
Employees at the bank are already gearing up for the change, which will likely coincide with a new drive to strip out layers of middle management.
As part of the recent deliberations, the company has weighed cutting country managers, who are increasingly seen as a layer of bureaucracy the lender can ill afford as interest rates begin to fall.
“Overall, it’s good news for HSBC investors,” said Tom Kirchmaier, professor at the Centre of Economic Performance at the London School of Economics.
“He’s an insider, so he can make the changes quickly.”
Just days before he started, Elhedery announced that his main rival for the CEO job – Nuno Matos, head of wealth and personal banking – would depart with the lender’s chief operating officer and head of human resources.
The moves meant Elhedery has had a chance to remake much of his executive team to his liking.
He’s still hunting for someone to take over his former CFO role as well as for a new leader of the commercial bank after moving the unit’s former head, Barry O’Byrne, to take over from Matos. For now, he’s placed interim executives in those jobs.
Further asset sales also look likely. The bank said this week it had begun a strategic review of its business on the small Mediterranean island of Malta.
HSBC is also looking to offload its operations across South Africa and is in talks to sell its corporate banking unit in the country to FirstRand Ltd’s Rand Merchant Bank.
Challenging times
“There is likely a clear message for the investors behind the CEO’s strong approach – given the challenging times ahead, they are keen to be seen as able to take difficult decisions,” said Angela Gallo, a senior finance lecturer at Bayes Business School at City University of London.
Having developed a reputation as a consensus-building and collegiate executive, Elhedery is now showing a different side as he takes quick action to rightsize the lender.
“He is keeping people who he feels are instrumental at developing business and also reducing overheads,” said Allan Zeman, a Hong Kong business tycoon and a longtime client of the bank.
“He’s just making the moves,” added Zeman. — Bloomberg
