HSBC is testing even its most loyal backers’ patience. “I’m tearing my hair out,” says one City fund manager who has owned shares in the bank for two decades.
With shares close to their lowest ebb in 25 years, and a seemingly intractable political crisis about which the bank has little to say, pressure is mounting on chairman Mark Tucker. For him, the pandemic is only one item on a lengthy list of serious challenges. Coronavirus is not the only one beyond his control, either.
Having acted as a financial bridge between the East and West since it was founded in Hong Kong in 1865, the bank is caught in the middle of tensions between the West and Beijing. It has been repeatedly criticised by Mike Pompeo, the US secretary of state, for backing a controversial law in Hong Kong and there are fears US sanctions could block HSBC from the dollar.
Meanwhile China has threatened to put HSBC on its list of “unreliable entities” over its role supplying evidence to a US investigation of the telecoms equipment maker Huawei.
After five months of strife, Tucker’s strategy of keeping quiet may be compounding the crisis.
“HSBC is currently sitting on several different horses all pulling in different directions,” says the bank’s veteran investor. “They are all becoming increasingly hard to manage with more and more difficult regulatory positions. It is on the bank to explain why it is not splitting itself up. They need to explain why this is not a logical solution.”
Another institutional money manager gives a blunt assessment: “The board has lost control.”
Tucker, a former insurance boss, became the first outsider to chair HSBC three years ago. As the bank grapples with geopolitics, the pandemic and major restructuring, former colleagues say he has struggled with his move away from the executive front lines.
Analysts point out that when he ran Hong Kong-based insurer AIA, the former professional footballer “walked on water” in the eyes of investors, who had high expectations when he joined the bank.
His removal of HSBC chief executive John Flint last summer thrust him into the limelight and sent a signal to the market that he was in charge. Now it means HSBC’s crisis is Tucker’s crisis.
“Maybe the old ways of appointing an internal chair weren’t so bad after all?” asks Jupiter’s veteran stock picker Richard Buxton, who sold all his shares in the bank this year.
“Tucker arrived with great fanfare as HSBC’s first ever external chair, a huge Asia-phile to help with its pivot to Asia, but then appointed Flint, fired him, dithered over Noel [Quinn, Flint’s replacement] for months, presided over severe worsening of relations with Beijing and the share price has collapsed.”
Born in London in 1957, Tucker started his career on the football pitch as a professional player for Barnet, Rochdale and Wolverhampton Wanderers before going on to qualify as an accountant at PwC.
After a stint in the banking world as the group finance director of HBOS (he has also been on the board of Goldman Sachs), he then rejoined FTSE 100 insurer Prudential where he made a name for himself as chief executive from 2005 to 2009, before going on to run AIA.
John McFarlane, the ex-chair of Barclays, once described him as one of the industry’s “most outstanding and respected” figures.
Now he faces his biggest test yet as some shareholders suggest the only way to properly tackle HSBC’s China problem is to split the bank. It is an idea that only months ago was widely viewed as unnecessary and risky. Now doing nothing may be riskier.
“Talk of a break-up is something we’re hearing more and more from investors,” says Joseph Dickerson, a banking analyst at Jefferies.
“They are asking if there are ways to make this business simpler and have higher returns. What are they going to do in the US to get their market share up so it will be meaningful to HSBC Group? They can’t acquire JP Morgan. Their retail branch business in the US is not very profitable, there are banks in the US that might be interested in that side of the business.”
Some of those who are against a split claim a board overhaul, including a new chairman, is required to steady the ship.
One investor detects splits between Tucker and some non-executive directors, while another feels the board is “too Tucker centric” and that a rejig may help HSBC work out how to turn its global scale into an advantage against the giants of Wall Street.
He is yet to face open revolt, however. Aviva was the only UK shareholder to publicly criticise HSBC when it signalled support for Beijing’s “national security” clampdown on Hong Kong.
“Tucker seems to have a very good relationship with a handful of large investors which I would suggest is the critical element,” says one senior fund manager. “But how long can his position be tenable given the performance of the bank? They might have got it wrong in appointing John Flint but we will never know as he was not there long enough. The real problem now is Tucker.”
Few in the City are willing to put their name to discussions of HSBC, even as its political crisis draws the attention of regulators. There is no suggestion that the bank is unstable, but HSBC is working with officials to put contingency plans in place in case it is caught up in further US sanctions against China.
Some are looking to Andrew Bailey, Governor of the Bank of England, to take Tucker to task.
“If I was Andrew I would be very concerned that HSBC and Standard Chartered backed that law without showing me and the foreign office the draft,” says one senior figure with first-hand knowledge of banking regulation. “If I was taken completely by surprise then my boiling level would be so high I’d need to be scraped off the ceiling.”
The growing tensions between the West and China make HSBC and Tucker “pawns in the greatest geopolitical game for 50 years”, he adds. “If I was Andrew I’d be talking to the Prime Minister, in rooms that were completely secure. But I’d say we don’t need to decide anything around HSBC until we see who wins the election in the US and we’re able to establish some kind of dialogue if there’s a change of administration.”
Although Donald Trump’s relationship with China has long been troubled, experts suggest that Joe Biden’s approach would be just as tough and more likely to engage an international effort.
Tucker’s sympathisers suggest that even without such forces in play, his task at HSBC would be unenviable. The bank’s reputation continues to be undermined by past transgressions, including allegations last month that it allowed money from a Ponzi scheme to be transferred around the world in 2013 and 2014.
NEW: Together with @buzzfeednews and 108 other media organizations we reveal the #FinCENFiles – our latest cross-border investigation.
Using super secretive bank documents and months of reporting, we expose how banks fail to stop dirty money flows. https://t.co/hBG1poGsho
— ICIJ (@ICIJorg) September 20, 2020
Like most major lenders, it is counting the cost of coronavirus loans that may never be paid back, and labouring under tight margins with the threat of negative interest rates rising. HSBC is also axing 35,000 staff amid claims by analysts that tens of thousands more on top of that will need to go to meet profitability targets.
The more immediate impact of the pandemic will be laid bare this week as HSBC reports its third quarter results. At little more than $2.1bn (£1.6bn), pre-tax profits are expected to be only 44pc of last year’s level. Investors are braced for another $2bn provision for Covid loans that will not be repaid.
It is perhaps little wonder that rumours are flying that Tucker could bow out of HSBC.
He has spent much of the pandemic in New York, stoking speculation he may seek a US government role in a new administration.
Colleagues dismiss such rumours as false, but other insiders are already pointing to board members Pauline van der Meer Mohr and David Nish as potential successors to steer HSBC through whatever comes next. The bank declined to comment this weekend.
At a dinner in London to mark the Lunar New Year in January, Tucker said after more than 30 years living in Asia, he knows many things are best expressed by ancient Chinese proverbs.
“Every door is an entrance as well as an exit,” he said. “I believe it is particularly relevant to UK-China relations.”