International -- Finance: Banking
HSBC: Stuart Gulliver's New Travels (int'l edition)
The investment banking chief is on a rescue mission
What does the venerable HSBC need with "a pit bull with an IQ of 180"? That's how one former colleague describes Stuart Gulliver, a 41-year-old Englishman who was promoted to chief executive of HSBC Investment Banking & Markets in Hong Kong in May. The answer is simple: Despite the bank's 135-year presence in Asia and its $220 billion in assets there, HSBC Holdings PLC last year ranked only 13th out of 14 in the region (excluding Japan) for equity research. It had been losing deals to U.S. rivals and watching much of its senior talent walk out the door. "It had become dysfunctional," says an executive who recently resigned.
Already, Gulliver is credited with building up HSBC's debt capital markets business from nothing--largely because of his no-holds-barred approach to management. When Gulliver took charge in 1994, it was at the bottom of the rankings, but since then it has placed either first or second in the Asia-Pacific league tables. "Stuart has done a remarkable job in the treasury side of the business," says HSBC chairman John Bond. "I have no doubt that he will do exactly the same job for us in pure investment banking."ONE BOSS. But this time Gulliver has to prove his skill as a conciliator between the investment bankers and the securities sales force. Each group accuses the other of being all but incompetent. The problems stem from a poorly managed merger with the James Capel brokerage in 1992 that essentially left the securities and the investment banking arms operating independently. "Most houses are integrated, so when bankers find a deal, brokers are singing from the same hymn sheet," says one bank executive. But at HSBC, "the two sides weren't even talking."
That disharmony is evident in Asia's share of HSBC's global profits. Asian banking operations as a whole accounted for more than 50% of HSBC's $5.2 billion in pretax profits for the first half of 2000. And global investment banking contributed 10.9% of HSBC's $3.5 billion in after-tax profits. But only 2.8%, or $99 million, of that was generated in Asia. "Our corporate finance business outside of Hong Kong has not been as well positioned as the rest of our business divisions there," says Stephen Green, chairman of HSBC Investment Bank PLC.
That's where Gulliver comes in. He's running Asia's investment banking, equity capital markets, and securities operations. The idea: One boss should be able to integrate those businesses better than three. "We definitely have the legacy of the past mixed performance to overcome," says Gulliver, "but it's not a Herculean task."
Nevertheless, he has a steep hill to climb. HSBC has lost out on deals even with its biggest Asian commercial clients. It has been conspicuously absent from the megadeals involving privatizations of mainland Chinese companies. And despite Hong Kong's frenzy of initial public offerings earlier this year, HSBC has been the lead underwriter in just four listings, which have left the bank with a mixed record.
HSBC does still command some respect. In July, it advised Japan's NTT DoCoMo in a tie-up with Hong Kong's Hutchison Whampoa and the Netherlands' Royal KPN to acquire third-generation wireless-service licenses in Europe. The deal brings HSBC prestige but not the fat fees that its competitors have been earning from work on mergers, public offerings, and private placements. "There is a credibility issue to overcome," says Gulliver.
He has set an ambitious goal of moving the bank into the top five for advisory and equity issuance by 2003. That means winning back business lost in its own backyard. Gulliver plans to capitalize on the HSBC brand name and make the group's top 50 commercial banking clients the focus of corporate finance, research, and brokerage efforts. "The whole point of being owned by HSBC is being owned by HSBC," he says. "It's access to those people we have close relationships with."
Another crucial task is to stanch the hemorrhaging of staff. Since January, the bank has lost most of its South Korea research team, the head of research in Taiwan, as well as several bankers and salespeople. And many have left since Gulliver took over. He says he's increasing some salaries. "But it's not just the money that should keep people," he says. "It's belief in the mantra: `If only HSBC got its act together in investment banking, it would be a serious player."' If Gulliver's past performance is anything to go by, he may be able to help the troubled investment bank live up to its billing.By Frederik Balfour in Hong Kong