Finance

Duncan Mavin is a former Bloomberg Gadfly columnist.

Lionel Laurent is a Bloomberg Gadfly columnist covering finance and markets. He previously worked at Reuters and Forbes.

A spring clean through the dusty corridors of power at HSBC would be welcome. Investors could do with some convincing of brighter days ahead.

The bank is stuck in a holding pattern under chairman Douglas Flint and chief executive Stuart Gulliver -- in place for half a decade now -- so reports that it plans to tap outgoing Axa boss Henri de Castries for the chairman role are refreshing.

De Castries has a reputation as an efficient cost-cutter, which would serve the U.K.-based bank well. He has cut 1.9 billion euros ($2.1 billion) from Axa's costs since 2011, well ahead of an initial 1.5 billion-euro target. The insurer is doing better than many of its peers on a broad range of metrics, including return on equity and solvency, according to Bloomberg data.

Wielding the AXA
The French insurer's ROE is at the top end of its peer group
Source: Bloomberg data

The shares haven't done quite so well during his tenure. The stock is down 44.7 percent during that period, though that's bang in line with European peers.

Assured Presence
Axa's share price performance has been in line with the European sector under De Castries
Source: Bloomberg

De Castries brings other qualities too. HSBC usually manages its senior succession internally, but an outsider should generate fresh ideas. As a well-connected member of Europe's business establishment, he could prove handy if the U.K. does decide to quit the EU.

And he's familiar with HSBC's international markets, especially the emerging ones. De Castries expanded Axa globally, partly through a string of acquisitions including buying HSBC's property and casualty business in Hong Kong, Singapore and Mexico.

Still, if he ends up taking the job, he'll have to find a new CEO who gets shareholders onside. That's not going to be easy. A round of bank CEO appointments across Europe in recent months means many external candidates have been ruled out or picked over already. HSBC will probably favor an internal appointment. The likes of retail banking head John Flint, finance chief Iain Mackay or head of Europe Antonio Simoes could all be in with a shout. But whoever gets the job would have to forge a strong relationship with De Castries, who was both chairman and CEO at Axa for 16 years and is used to getting his own way.

The new leadership will also inherit a raft of potential problems.

The bank's focus on Asia -- it accounts for about 40 percent of revenue -- presents some immediate concerns given the slowdown in emerging markets, especially China. There's also plenty of outstanding litigation to be dealt with. Nomura analyst Chintan Joshi notes that capital growth is likely to be constrained given the bank is potentially facing an additional $11 billion in legal bills.

Stuck in the Middle
HSBC shares are doing slightly better than European peers, but worse than global equities
Source: Bloomberg

HSBC shares trade on less than 0.8 times book tangible book value. That's not as bad as some European peers. A strong commitment to the dividend has lent support. But investors shouldn't anticipate too much excitement any time soon. Analyst target prices on HSBC shares are hovering at the lowest point since the depths of the Eurozone debt crisis.

A new arrival in the executive suite would certainly let in a little light. Though a firm hand will also be needed to shake it from the current stupor.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the authors of this story:
Duncan Mavin in London at dmavin@bloomberg.net
Lionel Laurent in London at llaurent2@bloomberg.net

To contact the editor responsible for this story:
James Boxell at jboxell@bloomberg.net