The abrupt departure of HSBC chief executive John Flint shows the "increased ruthlessness" of HSBC's directors and their unwillingness to tolerate middling performance by the bank, S&P Global Ratings said on Tuesday.
On Monday, HSBC said that Flint, a career HSBC executive, had stepped down by mutual agreement with the company's directors after 18 months in the top job and the board of directors believed a change was needed to navigate "an increasingly complex and challenging global environment".
The unexpected change in leadership came on the same day that HSBC reported its pre-tax profit rose 4 per cent in a challenging second quarter and beat analysts' expectations.
"The revamp of key positions indicates that the board has become less tolerant of relative financial underperformance, in our view," S&P said in a bulletin published on Tuesday. "Still, we don't believe this ruthlessness suggests a broader strategic shift away from its approach to its balance sheet, which is generally more prudent and disciplined than most global banks."
HSBC declined to comment on the S&P report on Tuesday.
Shares of HSBC fell 2.6 per cent in Hong Kong and 3 per cent in London on Monday, following the leadership change. The drop in HSBC shares came as civil unrest in Hong Kong weighed on the city's benchmark Hang Seng Index and increased tensions between the US and China sent shares down globally.
The company's stock, which dropped 23 per cent during Flint's tenure, was down a further 1.5 per cent to HK$60.10 in the morning trading in Hong Kong on Tuesday.
Flint, who spent almost 30 years at HSBC, took over as CEO in February 2018, following the retirement of long-time top executive Stuart Gulliver.
He was tasked with improving the profitability and growth of the bank. HSBC, once known in its own ad campaign as the "world's local bank", shrunk under his predecessor as it navigated a scandal over its money-laundering controls, including accusations it moved money for Mexican drug cartels and clients from countries facing US sanctions, and a less forgiving regulatory landscape following the global financial crisis.
The lender, which was founded as The Hongkong and Shanghai Banking Corporation in Hong Kong in 1865, pivoted to Asia as part of its reworked strategy and bet on an improved interest rate environment. The bank's Asian business accounts for more than half of its revenue and Hong Kong is its biggest market.
John Flint abruptly stepped down as chief executive of HSBC, according to statements released on Monday. Photo: Reuters alt=John Flint abruptly stepped down as chief executive of HSBC, according to statements released on Monday. Photo: Reuters
But, there were questions about cost controls and the pace of the strategy shift under Flint.
In 2018, HSBC missed a key target for Flint, reporting negative jaws " the difference between revenue growth and cost growth. The company reported positive adjusted jaws of 4.5 per cent in the first half of this year and said it expected positive jaws for the year.
And, the macroeconomic environment shifted as a trade war raged between the US and China for more than a year and central banks became more dovish.
HSBC said on Monday that it would cut 2 per cent of its workforce as it looks to reduce its cost growth to meet its 2020 return targets in a more challenging outlook.
The bank also has faced the ire of Beijing officials recently after it provided information to US authorities investigating Huawei Technologies. Meng Wanzhou, Huawei's chief financial officer and the daughter of its founder, was arrested in Canada and has been charged with bank fraud by US authorities as part of the investigation.
HSBC has declined to comment publicly on the case.
There have been calls in China for HSBC to be added to an "unreliable" foreign entities list that is being drawn up by the Ministry of Commerce.
"We are confident about our China business and we don't comment on speculation," Mark Tucker, the HSBC chairman, said on Monday, noting that the bank has supported several of China's initiatives, including opening up its financial services sector, the Greater Bay Area development plan and the internationalisation of the yuan.
The decision for Flint to step down was a mutual one and was unanimously approved by the board, Tucker said. There was no disagreement over strategy, job cuts or a personality conflict that led to Flint's departure, he said.
Noel Quinn was named interim chief executive of HSBC on Monday. Photo: Handout alt=Noel Quinn was named interim chief executive of HSBC on Monday. Photo: Handout
The bank named Noel Quinn, the head of global commercial banking, as interim CEO on Monday, with Tucker repeatedly citing Quinn's "pace, ambition and decisiveness" as why he was the right choice.
HSBC is expected to look at both internal and external candidates in a search process over the next six to 12 months, with Tucker rejecting the idea of taking charge himself.
Tucker joined HSBC in 2017 after serving as CEO of British insurer Prudential and Asian insurer AIA Group, and one of his first agenda items was finding Gulliver's successor.
"We made the best decision at the time. John has done a good job taking the organisation forward," Tucker said. "But, there's a belief the environment we're going into needs a different person to be able to take that forward."
This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2019 South China Morning Post Publishers Ltd. All rights reserved.
Copyright (c) 2019. South China Morning Post Publishers Ltd. All rights reserved.