HSBC HSBC Holdings PLC

High expectations for executive dashed amid rate cuts, rise in geopolitical tensions

By Margot Patrick and Quentin Webb 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (August 5, 2019).

HSBC Holdings PLC said late Sunday that Chief Executive John Flint is out and new leadership is needed to meet the bank's challenges.

The surprise announcement, just 18 months after Mr. Flint was elevated to the CEO role, signals a potential change in approach at one of the world's largest banks. With a market value of $159 billion, the London- and Hong Kong-listed lender is worth more than Citigroup Inc., even though its stock has fallen under Mr. Flint's tenure.

Mr. Flint was the top choice of the board under its then newly appointed chairman, Mark Tucker. The 51-year-old had been regarded as a safe choice because of his decadeslong career at the bank, and he made few changes to the bank's strategy during his tenure.

But his low-key style frustrated some, according to some people within the bank, and the board decided he had to go for HSBC to keep up and get ahead of business conditions and world events.

"We've made a decision by mutual agreement. In an increasingly complex and challenging global environment, the board feels a change is needed to make the most of the opportunities before us," Mr. Tucker said in an interview.

In a statement, Mr. Flint said it had been a privilege to spend his entire career at HSBC, which he joined from college as a trainee on its international manager program. "I have agreed with the board that today's good interim results indicate that this is the right time for change, both for me and the bank," he said.

HSBC said Mr. Flint will leave his role immediately but will be available to assist HSBC with the leadership transition. The bank's global commercial banking head, Noel Quinn, will take temporary charge of the CEO role while a search is carried out, HSBC said.

When he started as CEO in February 2018, Mr. Flint had been expected to ride a wave of improving profit as global interest rates started to rise and the world economy looked rosy. But those expectations were dashed as central banks began lowering rates again and geopolitical tensions roiled markets.

As of Friday's close, HSBC's Hong Kong-listed shares had fallen 24% since Mr. Flint took charge, underperforming a 20% drop in the MSCI World Banks index.

The index includes JPMorgan Chase & Co., Bank of America Corp. and other major American and European banks.

In early trading in Hong Kong on Monday, the shares fell 1.6% to HK$61.15 ($7.81) a share, their lowest since October 2018.

Parts of HSBC's business have been under pressure from trade tensions between the U.S. and China, which has curbed trade and investment for some customers, albeit to a limited degree, according to the bank.

HSBC also faces a potential deterioration in earnings in its British arm from the U.K.'s pending exit from the European Union and has lagged behind on plans to turn around its U.S. business.

As of Friday's close, HSBC shares were valued at about 0.87 times book value, according to Refinitiv data, based on consensus estimates for the coming 12 months.

A bank whose stock is trading below book value could signal that investors have questions about its capital strength or future profitability.

On the same basis, Bank of America and JPMorgan's shares trade at 1.04 and 1.47 times book value respectively, while Citigroup and Standard Chartered PLC trade below book value, Refinitiv data show.

HSBC released second-quarter earnings along with the announcement on Mr. Flint stepping down, posting $4.37 billion in net profit, up from $4.1 billion in the prior-year quarter, on higher revenue.

It said its common equity tier 1 ratio, a measure of capital strength, had risen to 14.3% as of the end of the first half, up 0.3 percentage point from yearend 2018.

The bank also said it intends to buy back up to $1 billion of its shares.

HSBC has replaced or removed several top bankers over the past year to improve the performance of key businesses.

It recently hired a Citigroup veteran to take over its lagging U.S. business, while one of its co-heads of global banking was scheduled to depart this summer.

Write to Margot Patrick at margot.patrick@wsj.com and Quentin Webb at quentin.webb@wsj.com

(END) Dow Jones Newswires

August 05, 2019 02:47 ET (06:47 GMT)

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