When a group of senior HSBC executives from around the world met in Hong Kong last month, at least two big priorities for the next few years were discussed: reducing its dependence on higher interest rates to boost income, and cutting costs.
In the background a more pressing question loomed — who would succeed Noel Quinn as chief executive after the shock announcement of his exit in April.
Georges Elhedery had been widely seen as Quinn’s heir apparent since unexpectedly being made chief financial officer shortly after returning from a six-month sabbatical in 2022.
Still, the focus on costs and management’s desire to grow its wealth management business led some people to conclude that Nuno Matos, who runs the bank’s lucrative wealth and personal banking division, had a strong chance.
Known as a cost-cutter, the Portuguese executive has a close relationship with the bank’s chair Mark Tucker, two people who know both men said.
Ultimately, the die was cast in favour of Elhedery, whom the bank said on Wednesday would become chief executive in September.
“This is a more politicised appointment than virtually any other bank given the need for any CEO to have the capability to get on with clients, regulators and politicians globally,” said Thomas Moore, a fund manager at Abrdn.
Elhedery, who joined the bank almost two decades ago, had barely had time to settle into the finance role when Quinn announced his departure after five years at the helm, despite multiple public and private reassurances that he had no plans to leave.
Over the past two months, many inside and outside the bank considered the CEO’s job as Elhedery’s to lose. HSBC has a reputation for elevating insiders — though Tucker, himself the first outsider to chair the bank in its 159-year history, has also tried to attract external talent.
Prior to making Quinn the permanent chief executive in 2020, Tucker wanted Jean-Pierre Mustier to take the top job but the then UniCredit chief turned it down. This time, he approached Charlie Nunn, a former HSBC executive who had left to lead Lloyds Bank, according to two people familiar with the matter.
Appointing Matos or an outsider would have risked Elhedery leaving, said one person who knows HSBC well, and could have resulted in the second abrupt departure of a finance director in quick succession after Ewen Stevenson’s surprise exit in 2022.
“Being blunt about it, Tucker couldn’t afford to lose the CFO”, the person said, adding that “ideally, he would’ve been in the [CFO] job for another year or so” before being elevated to chief executive.
The top job at HSBC is a tough sell to many external candidates. Aside from a gruelling travel schedule that involves almost as much time spent in the air as on the ground, people inside the bank say much work is still left to do in reshaping Europe’s largest lender.
Quinn framed his departure as a natural transition point for HSBC, calling it “the end of the current transformation phase.” His three-year plan to overhaul the bank included slashing tens of thousands of jobs, cutting back its investment bank and agreeing the sale of units in Canada, France, Greece, Mauritius and Argentina.
Other tests were unexpected such as the pandemic, worsening geopolitical tensions between Washington and Beijing, and a hard-fought battle with HSBC’s largest shareholder Ping An over whether to break up the bank. Quinn also jumped on the opportunity to buy Silicon Valley Bank’s UK unit in a fire sale after the California-based lender imploded.
While Quinn has received credit for steering the bank through these events, one senior figure inside HSBC described the transformation plan as “halfway done”, particularly when it comes to costs.
Elhedery — who has been informally mentored and backed by Samir Assaf, a former senior HSBC banker who now advises Tucker — will have to roll up his sleeves to solve some of the crucial challenges still facing the bank.
“The focus on costs has to amp back up again,” said the senior executive. “[HSBC] has kind of lost its way a little bit there and you can just see it in the numbers in the last couple of years. It’s easy to blame it on inflation but . . . in a world where technology should be replacing a lot of existing functions it shouldn’t be as reliant on headcount as it is today,” they added.
Quinn in 2020 set out a plan to reduce the number of full-time employees to around 200,000 within three years — a cut of 35,000 jobs — though the bank did not set a formal target. However, HSBC still had 221,000 full time workers as of December last year, which has become a source of frustration internally.
HSBC reported a six per cent increase in costs last year and said it was targeting a further five per cent rise in 2024. Belt-tightening will be crucial if HSBC is going to sustain the profits it has made in recent years, which have been boosted by interest rate rises as central banks try to combat inflation.
More than half of HSBC’s $66bn in revenue last year came from net interest income. Its personal banking and payments businesses brought in $20.5bn and $12.4bn respectively, also helped significantly by higher rates.
That has now become a vulnerability that Elhedery will have to address, according to people inside the bank. The new leadership team will have to find a way to diversify the bank away from rate-sensitive businesses.
HSBC has already said it plans to expand its business targeting affluent customers in four jurisdictions. The bank wants to tap into India’s affluent middle class as well as “affluent and international” customers in places such as Singapore and the United Arab Emirates. It will also aim to build on its presence in mainland China, where last month it bought Citi’s retail wealth management portfolio.
Its securities unit in mainland China made a profit in 2023 after years of losses, at a time when rivals — the securities units of most other western banks — either made a loss or reported falling profits.
But building its business in China will require Elhedery to achieve a complex feat of diplomacy. The job is “at the intersection of business and foreign policy”, a former senior HSBC executive said.
Staying simultaneously on the right side of authorities in the mainland, the UK and, crucially, the US — on which it depends for its dollar clearing licence — is likely to become more complicated as geopolitical tensions rise.
Elhedery’s ability to make conversation in Mandarin Chinese might help with that effort, one person who knows him said. Another said he had the qualities of a good diplomat, being “softly spoken, highly able and very smart”.
Those diplomatic skills might also be needed to manage the relationship with Tucker. He has built a reputation as a tough chair who is closely involved with the bank’s operations, and Elhedery will be the fourth chief executive in Tucker’s seven years in the role.
Elhedery is also likely have to navigate the appointment of a new chair, when Tucker reaches the nine-year term limit for non-executives in 2026.
The bank has long benefited from its dominant role in businesses, including the Hong Kong market, where it has more than half a trillion dollars in customer deposits, and the unglamorous worlds of trade financing and payments processing.
After years of retrenchment, some shareholders view a dramatic pivot from Elhedery as unlikely. “We won’t be expecting any material strategic shifts,” one top-ten shareholder said. “Just steadfast execution.”
