Management

Nisha Gopalan is a Bloomberg Gadfly columnist covering deals and banking. She previously worked for the Wall Street Journal and Dow Jones as an editor and a reporter.

In selecting AIA Group Ltd.'s Chief Executive Officer Mark Tucker as its new chairman, HSBC Holdings Plc has gotten the right guy. Let's hope the bank's rather insular culture gets him.

To understand why HSBC has gone outside its fold for the first time in its 152-year history, take a look at AIA's profitability. The insurer's stock has more than doubled since American International Group Inc. spun it off in 2010, a few months after Tucker, the former head of Prudential Plc, joined. Although the two companies share an Asia focus, earnings at AIA have surged while London-headquartered HSBC, grappling with low interest rates and legal wranglings, has seen its return on equity fall to well below banks' 10 percent theoretical cost of capital.

Profitability Problem
HSBC's return on equity, which topped AIA's five years ago, is now below 1 percent
Source: Bloomberg

It's perhaps also a sign of Tucker's value that AIA shares in Hong Kong fell on news of his plan to depart, while HSBC rose as much as 2.4 percent.

With Tucker at the helm, there's an opportunity for HSBC to tighten its Asia focus, something a London domicile doesn't quite cut. Asia has become an ever more important region for HSBC over the years, accounting for 74 percent of the bank's adjusted pretax profit in 2016 versus 65 percent in 2014, according to Bloomberg Intelligence analyst Francis Chan. Hong Kong alone is a huge revenue source for both firms, comprising 35 percent of AIA's income last year and 28 percent for HSBC.

But, as Tucker's successor at Prudential, Tidjane Thiam, is finding in his current role as chief executive officer of Credit Suisse Group AG, running an institution that spans everything from retail lending to investment banking isn't easy. At Credit Suisse, Thiam has presided over two consecutive years of losses plus thousands of job cuts.

Tucker's experience of banking hasn't been particularly rosy. Egg, Prudential's one-time bank, shrank in value and wound up being sold to Citigroup Inc. in 2007 for less than half its IPO value. It later ended up in the arms of Yorkshire Building Society, although to be fair its demise was partly caused by the dotcom bust.

Whatever his past, Tucker is known as a decisive and strong manager. He could use HSBC's robust capital base to reinvigorate lending and take some risks that don't get the bank into trouble with regulators for a change. His identifying of a successor to Chief Executive Officer Stuart Gulliver will play a huge part in that direction.

HSBC's bet on growth in the Pearl River Delta could also do with a bit of the AIA Greater China touch. The Hong Kong-based insurer navigated Beijing's crackdown on mainland buying of insurance policies in the city nicely, while the value of its new business in China increased 54 percent last year.

Regional Miss
HSBC's revenue from Asia slipped last year
Source: Bloomberg

Operational issues aside, one of Tucker's biggest challenges will be being the newbie in an institution that's renowned for cultivating inside talent. Tucker replaces Douglas Flint, who joined HSBC from KPMG LLP in 1995 and spent the next 15 years holding various positions before being made chairman in 2010.

HSBC has attempted to embrace outsiders before with mixed results. It tried to become more of a Wall Street risk taker back in the early years of the last decade when it hired several Morgan Stanley rainmakers. That strategy largely disintegrated after HSBC's commercial and retail banking stalwarts resisted the change.

Tucker is a former professional footballer, so he knows a thing or two about strategy and getting teams to work together. He'll need all those skills to succeed in this role, too.

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

To contact the author of this story:
Nisha Gopalan in Hong Kong at ngopalan3@bloomberg.net

To contact the editor responsible for this story:
Katrina Nicholas at knicholas2@bloomberg.net