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For more than 150 years HSBC has promoted its leaders from a tight circle of mostly white, British men, many trained in the military-style “international officer” programme that produced Stuart Gulliver, Sir John Bond and Sir William Purves. Now Mark Tucker has broken the mould by becoming the first person hired externally as the bank’s chairman. Investors hope he will bring the fresh ideas needed to solve the problems that have plagued Europe’s biggest bank since the financial crisis. Investors and analysts have identified five big challenges ahead.
Mr Gulliver has told the HSBC board that he plans to step down as chief executive in 2018 and Mr Tucker will take charge of the process of finding his successor. This could well be the most important decision he makes at HSBC and he must start work on it while still getting to grips with the complexities of a bank with more than $2.3tn of assets and operations in more than 70 countries. Board members say the bank will look at internal and external candidates. But most observers think the shock of hiring outsiders as both CEO and chairman would be too much for a conservative group such as HSBC, which was founded by Scottish Presbyterians in 1865. The early favourites to replace Mr Gulliver are John Flint, head of its retail banking and wealth management division, and António Simões, head of Europe.
With profit margins dragged down by record-low interest rates and regulators adding layers of extra costs on the world’s biggest banks, Mr Gulliver has missed a string of financial targets and last year HSBC’s return on equity slumped below 1 per cent. While the bank has paid more than $50bn of dividends in the past six years, its shares are flat since Mr Gulliver took over. With Mr Tucker boasting strong knowledge of Asia, where HSBC generates almost three-quarters of its profit, investors are hopeful he will help lead the bank back to growth, after five years of falling revenues. “Mark does have relevant experience and I think he is a deeply practical and hands-on guy,” says Hugh Young at Aberdeen Asset Management, a top 10 shareholder in both AIA and HSBC. “On reflection it could be quite an inspired appointment.”
A slowdown in Asian economic growth disrupted Mr Gulliver’s new “pivot to Asia” strategy that was launched in 2015 to cut poorly performing businesses and reinvest in more promising areas, such as China’s Pearl River Delta. Investors believe the drawbacks of the bank’s sheer size and complexity may outweigh the benefits and hope Mr Tucker will take a more brutal approach to its underperforming operations in the US, Europe and the private bank. “They have tried to show the synergies are there, but it is pretty clear there are dis-synergies,” says one top 20 investor in HSBC.
The to-do-list for big banks over the next two years include completion of the Basel III capital reforms, introduction of ringfenced retail banks in the UK, setting up of intermediate holding companies in the US and dealing with Brexit. Given all this, it is understandable that Douglas Flint spent most of his time as chairman dealing with regulators. One HSBC board member hopes Mr Tucker — who has first hand experience of banking regulation from his three years on the Court of the Bank of England — will need to spend less time on these issues as most of the heavy lifting has already been done, freeing him up to think more strategically.
A serious cloud still hangs over HSBC in the form of a deferred prosecution agreement (DPA) that it signed with US regulators in 2012 to avoid criminal charges for allegedly laundering at least $881m for Mexican drug barons and handling transactions for countries under US sanctions, such as Iran, Libya and Sudan. However, HSBC warned in its annual report that the monitor appointed by the DoJ had “expressed significant concerns” about the pace of HSBC’s attempts to clean up its act in its latest report. The US Department of Justice is due to decide whether to extend the DPA when its five-year term ends early next year, which may provide an early test for Mr Tucker. This area may not be his strong suit. “He’s good at driving an organisation forward and he’s driven AIA well, but he’s not good at dealing with compliance and bureaucracy,” says one person who knows Mr Tucker well.