Finance

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

(Updated )

HSBC is ripe for management change, if a recent survey by Autonomous Research is to be believed.

The results of a poll of 74 investors singled out Chief Executive Stuart Gulliver as the top choice for removal, according to the Financial Times. This might make sense, on the face of it, because the outlook for the U.K. bank isn't great. 

Adjusted net interest income fell 6.7 percent in 2015, the steepest drop in three years, according to Bloomberg. Group revenues are expected to fall some 10 percent this year, according to consensus analyst forecasts.

Super-Tanked
HSBC shares have underperformed peers as cost-cutting efforts fail to offset a bleak revenue outlook
Source: Bloomberg

In addition, HSBC's core capital ratio of 11.9 percent is lower than that of most big U.K. rivals, according to Bernstein analysts.

An obvious response to the woes facing the bank would be for a new team to swoop in and make a lot of cuts, move to new businesses and make a drive to build up capital. But the problem with that thinking is that's pretty much what HSBC is already doing. 

The longest-running duo at the helm of a major European bank -- Gulliver and Chairman Douglas Flint -- has already done a lot to shrink the bank over the last five years, announcing a total of 87,000 job cuts and exiting at least 80 businesses.

Staying Power
HSBC has the longest CEO tenure of the current crop of top European banks by market cap
Source: Bloomberg data

The global economy is sluggish, and volatility has spooked clients -- the wealthy ones have moved away from trading and into cash, a hit seen at other banks like UBS. That dents the prospect for fee income to offset pressure on loan interest margins from low interest rates.

The most recent solution offered by Gulliver and his team has been yet another spoonful of cost-cutting medicine -- 25,000 job cuts, the sale of its Brazil unit and restructuring in Turkey.

There really aren't many other levers left to pull besides cutting the dividend, which while sensible would also mean admitting the bank was in crisis mode. While there has also been talk of investing in a "pivot to Asia," Gulliver has been fairly prudent and made clear the bank may slow the pace of hiring.

His caution belies the broader point: in a world of deepening negative interest rates, an exceptionally slow U.S. recovery and a cooling Hong Kong property market, there just aren't many havens for HSBC to pivot to.

Shareholders certainly have reason to be more demanding: HSBC's return on tangible equity this year is expected at 8.02 percent, according to Bloomberg Intelligence, below a peer group average of 8.63.

While ordinarily a new leader would promise a path to a higher dividend, that's already happening under Gulliver. In fact, the biggest break with the past on the dividend would be to cut it -- hardly an enticing prospect to calm restive shareholders.

Capital Drag
HSBC's core Tier 1 capital ratio lags that of other U.K. banks
Source: Company reports

And the rough market environment that doesn't bode well for moves to raise capital, regardless of who leads the charge. 

It's worth pointing out that the bank's investors certainly haven't been gunning for change. More than 90 percent of shareholders approved the bank's executive pay at the latest annual general meeting, a larger majority than the previous year. The package included a cut to Gulliver's bonus.

Changing management might soothe frustration over potentially painful years to come -- but an alternative strategy isn't obvious. It's hard to see that a different CEO would play it any other way. 

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

(Updates with information on shareholder approval of executive pay in penultimate paragraph. An earlier version of this story was corrected to show that HSBC is restructuring, and not selling, its Turkish operations.)

  1. Large shareholders were asked to name three banks in Europe "most in need of a change in CEO."

To contact the author of this story:
Lionel Laurent in London at llaurent2@bloomberg.net

To contact the editor responsible for this story:
Jennifer Ryan at jryan13@bloomberg.net