Finance

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

(Updated )

With one of the biggest balance sheets in the world, at $2.5 trillion, HSBC isn't a bank conducive to radical change. So it's not too surprising that internal candidate John Flint -- no relation to ex-chairman Douglas, apparently -- is said to be the bank's pick for its next CEO, according to weekend press reports.

Some might grumble that a continuity candidate is a missed opportunity for a bank whose adjusted profits have fallen more than one-third since 2013. The shares barely budged on Monday. Flint is an HSBC lifer with decades of top roles in asset management, group strategy and retail banking. But the bank's growth outlook is improving, the world economy is recovering and regulation is steadying. More of the same -- issuing more loans, cutting costs and returning cash to investors -- might not be so bad.

More Of The Same, Please
HSBC's share price has benefited from a buyback program and an improving growth outlook
Source: Bloomberg

The world looks somewhat less daunting today for HSBC than in early 2016, when jittery stock markets, record-low interest rates and slumping oil prices were eating into profits across all geographies and most business lines. The bank's first-half 2017 results pointed to a rosier end to outgoing CEO Stuart Gulliver's tenure, with revenue on the rise and costs under control.

Much of the hard work of cutting risk-weighted assets and selling operations like Brazil has been done. With U.S. interest rates normalizing and oil prices stabilizing, there's less pressure to change course and more reason to seek organic growth.

That's why the timing looks right for an old Asia hand like Flint, as Gadfly colleague Nisha Gopalan has noted. Flint spent 14 years in the region at the start of his career, and that's where the growth is. HSBC wants to pivot investment to Asia, gain market share and increase revenue faster than global GDP rates -- meaning growth could be 6.5 percent or more in China this year, according to Bloomberg Intelligence.

Time for Growth
Adjusted net income has troughed at HSBC and is set to grow, according to analyst forecasts
Source: Bloomberg adjusted data

Flint is presently at the helm of HSBC's loan-growth engine, heading a division that accounts for 30 percent of HSBC's revenue and whose top-line has outpaced the wider group over the past year. Had China or Hong Kong's economy taken a downward turn, there might have been less enthusiasm for a known quantity at the tiller.

Growth Engine
HSBC's retail and wealth management revenue growth has outpaced the overall group's
Source: Company filings

Obviously, with so much expectation baked into HSBC's shares, as well as the buyback bonanza, any incoming management team will have a difficult job defending an expensive valuation. HSBC trades at a multiple of 1.22 times book value, an almost Scandinavian price tag for a bank that's above the European average.

There's clearly hope that the benign environment will let the bank keep flinging cash at shareholders: Morgan Stanley estimates HSBC can deliver a total buyback program of $15 billion for 2017 to 2019. But that still depends on the bounce-back in global trade continuing and emerging markets' ability to shrug off tighter U.S. monetary policy.

Still, it's looking more and more probable that HSBC won't have a duo of outsiders running the bank -- and that's maybe no bad thing. Chairman Mark Tucker will be expected to provide a counterweight to an insider candidate like Flint. But with Gulliver having steered the U.K.'s banking goliath through hard times, investors will probably swallow more of the same. 

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

(Updates with share price detail.)

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

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