HSBC Holdings Plc, Europe’s biggest bank, ended two-and-a-half weeks of speculation about who would succeed Stephen Green as chairman by replacing all three of its most senior executives.
Michael Geoghegan, chief executive officer for the past four years, will step down after missing out on the chairmanship. He will be replaced by investment banking chief Stuart Gulliver. Green, who quit on Sept. 7 to become U.K. trade minister, will be replaced by finance director Douglas Flint. Iain MacKay, an executive in the bank’s Asia-Pacific unit, will fill Flint’s job, HSBC said in a statement yesterday.
The shakeup, the bank’s biggest for decades, follows a struggle over who would replace Green as chairman. Geoghegan, who became CEO when Green was promoted, struggled to attract investor support for the chairmanship. In a Bloomberg survey of 20 HSBC shareholders this week, not one backed him. HSBC’s chairmen have been former CEOs for at least the past 33 years.
“It’s been historically that the chief executive goes on to be chairman -- but you have to be asked,” Geoghegan told reporters on a conference call yesterday. “The reality was I wasn’t asked. I was told I was a very good chief executive, and another person would be better as chairman.”
Geoghegan, who’s worked at HSBC for 37 years, said Simon Robertson, the director in charge of finding Green’s successor, told him over dinner 10 days ago that Flint would become chairman. Geoghegan, 56, had threatened to quit if he were passed over, the Financial Times said this week, a report an HSBC spokesman described as “nonsense.”
“No one is indispensable,” said Colin McLean, who helps manage 560 million pounds ($880 million) at SVM Asset Management in Edinburgh, including HSBC shares. “When someone has laid their position on the line, the board was put in an impossible position,” he added. “It’s a very satisfactory result,” he said of the Gulliver and Flint appointments.
HSBC closed up 0.4 percent at 666.3 pence in London trading before the announcement. The shares have dropped 6 percent this year, the worst performance among U.K. bank stocks.
“They haven’t been held hostage,” said Jane Coffey, head of U.K. equities at Royal London Asset Management, which manages $51 billion, including HSBC stock. “It seems like a reasonable compromise. In the end they have two pretty good people.”
Investors balked at Geoghegan’s elevation to chairman because it would break U.K. corporate governance rules dating from 2003 that were designed to foster board independence. When HSBC promoted Green to chairman two years later, it explained the move was necessary “because the company is so large,” a spokesman said at the time.
“The governance of this company has changed over the last five years,” Green told reporters yesterday. “Previously there was a very strong executive chairman, who really was the key management figure.”
Geoghegan increased his executive powers in February when he moved to Hong Kong to sharpen HSBC’s focus on Asia. In a statement published the day Green stepped down, he said he would “continue to run” HSBC, which was founded in Hong Kong and Shanghai in 1865.
“HSBC is losing its chairman and chief executive within weeks of each other in an unplanned way, which is not a good thing,” said Mike Trippitt, an analyst at Oriel Securities Ltd. in London, who has an “add” rating on the stock. “To get it so spectacularly wrong at the top level is quite worrying.”
Geoghegan will be paid 1.42 million pounds when he leaves and will be eligible for a bonus of as much as 4.2 million pounds for 2010, the lender said. He will also be a consultant for three months after his retirement. He plans to donate his 200,000-pound fee for that work to charity, HSBC said.
Gulliver will receive a 1.25 million-pound salary and an allowance to fund a pension. His bonus hasn’t been set, and his total pay will be less than the 9.8 million pounds he received in 2009, HSBC said. Flint, 55, will get 1.5 million pounds in salary and half as much again to fund a pension, HSBC said. He won’t receive a bonus or share incentives.
Gulliver, 51, runs a division that doubled operating profit between 2005 and 2009 to become HSBC’s biggest earner. Flint’s and Gulliver’s combined 45 years of experience at HSBC may help alleviate concerns that the change would hurt profit, investors and analysts said.
Revenue at Gulliver’s global corporate, investment banking and markets division almost doubled to $21.9 billion last year from $11.5 billion in 2005, according to data compiled by Bloomberg. The unit’s operating income jumped to $10.1 billion from $4.9 billion in the period.
Investment Banking Chiefs
Robin Phillips and Samir Assaf will continue to run the global banking and markets division, and report to Gulliver. Gulliver’s responsibilities for the U.K., continental Europe and the Middle East will pass to Sandy Flockhart, who will also be chairman of HSBC’s U.K. bank.
Gulliver was born in England and educated at Oxford University. He joined HSBC in 1980 and held senior roles in Hong Kong and Tokyo, running the investment bank in Asia before moving to London in early 2003. He became head of the global corporate, investment banking and markets division with John Studzinski, who departed in 2006, leaving Gulliver in charge.
The proportion of HSBC’s earnings generated from investment banking will remain stable, and the lender will continue its focus on emerging markets, Gulliver told reporters on a conference call yesterday.
“Stuart’s appointment will not signal any change in strategy for HSBC as a universal bank with future growth focused in Asia,” wrote Ian Gordon, an analyst at BNP Paribas in London who has a “neutral” rating on the stock.
Gulliver is the second investment-banking executive picked to lead one of the four biggest U.K. banks this month, following Barclays Plc’s appointment of Bob Diamond on Sept. 7. Diamond’s promotion was criticized by Business Secretary Vince Cable. His department declined to comment on Gulliver’s appointment.