Blain’s Porridge Extra – 5th August 2019 – HSBC – Time to Sell?

Blain’s Morning Porridge EXTRA – August 5th 2019

HSBC Special Comment


It’s not often I write a Porridge Extra – but lots of questions from readers this morning asking about the departure of John Flint as CEO from HSBC. What does it mean for the bank?

Some even think HSBC is shaping up as the UK’s Deutsche Bank! I do hope not – and sincerely doubt it. It’s got problems, but it’s not terminally broken – yet. (As for the Wag who suggested they hire Anshu Jain from BGC.. well that’s just not funny.. (actually.. it is..)

I would start by referring readers back to—feb-27th-2019—british-banks-in-asia

The key criticisms I made then remain valid:

· Its’ management are inbred, bureaucratic and inflexible – being an HSBC lifer is seen as a career plus within the bank, not a handicap in terms of a lack of experience of other banking approaches.

· HSBC has been/is lazy – it’s been milking it dominant banking position in Hong Kong, and its’ deposit base to fund underperformance elsewhere.

· Its position in Hong Kong and Southern China is not the sinecure it claims. It’s very competitive – from China state entities will not hesitate to push it out. Its vulnerable to China backlash against the west – which is happening.

· Its product line offerings from personal, business, commercial, investment and private banking are all sub optimal, and will not compete in Asia – especially as others are selectively targeting the space.

· Then there is all the usual business stuff, including the wasted years it spent managing itself to avoid the US regulatory cosh after laundering Mexican drug money.

In short, I suggested HSBC is a dinosaur, and its only hope was to “demonstrate an as yet undiscovered talent for change.” 

Maybe it is beginning. Chairman Mark Tucker is the bank’s first external chairman – it used to be you polished the handles of the big brass door till you became CEO then Chairman. He seems to have shocked the board into action. The board is “interesting” – take a look and you’ll get my drift: banking ecosystem rather than business strategy.

Off goes John Flint – a perfectly able administrator in the HSBC sense of not moving too much of the furniture around. They say the perfect bank investment is “dull, boring and predictable”. Not any more. His departure by “Mutual Agreement” hints at a pretty serious board battle. Flint’s photo has already gone from the Leadership page on the company website – replaced for the interim by another HSBC lifer.

However, the challenges facing the bank may be getting tougher.

There is a story circulating that the Chinese Foreign Ministry is preparing to put HSBC on its “unreliable entity list” as a result of HSBC helping US authorities re Huawei. The Chinese claim HSBC gave confidential client information about Hauwei CFO Meng Wanzhou re Iran investments to US prosecutors. I discount that story as being responsible for Flint’s departure – it’s well known he and Chairman Mark Tucker did not see eye-to-eye for some time.

Is it time to re-rate the stock? If HSBC is classed as “unreliable” in the part of the world where it makes 90% of its profit, you have to wonder just how solid it is. Its also clear HSBC dominance in HK is under-threat, and its poorly positioned to compete in the market. I can imagine it was faced with an impossible choice over Huawei: play to the US where its only just getting out the regulatory sin-bin, or China. Interestingly it’s got a former US SEC commissioner and a former Chinese Securities regulator on its board!

HSBC is one to watch in coming days… At the moment it looks a sell.

(For full disclosure on HSBC, I spent 5 years as a senior banker in HSBC’s Fixed Income origination, but got booted out in 2007 for being a square peg in a round hole. I remained close to many of the senior management, and invested in the bank through the financial crisis, correctly anticipating it would not renege on its preferred debt, and foresaw it remaining a leading global bank well positioned to maintain high dividends. I do not have any personal grudge here, but since 2015 my faith in the bank has declined dramatically. I have no positions in the stock or bonds.)

Back to day job… would be very interested in client views on HSBC.

Bill Blain

Shard Capital