Global BankerPete Engardio
It's only 6 a.m., but Hongkong & Shanghai Banking Corp.'s management boot camp is already in full swing. Through a chilly mist, a dozen groggy Asian yuppies wearing orange life preservers jog to a pier jutting off Hong Kong's verdant Tai Mong Chai Peninsula. One by one, the trainees from Malaysia, Saudi Arabia, Singapore, and Indonesia plunge into the water. The group dog-paddles into a circle, holds hands, and whoops in unison. Then it's off to another day of scaling walls, canoeing, and hiking in the rugged hills of the colony's New Territories.
A few years ago, no one within HSBC's $1 billion tower overlooking Victoria Harbor would have dreamed such a polyglot band could move into management. Run for more than a century by an exclusive club of white males, HSBC--known locally as The Bank--stands as one of the most enduring vestiges of Britain's imperial rule.
But things are changing rapidly. With China just over four years away from taking control of the colony, which still provides a stunning 77% of HSBC's profits, Chairman William Purves is racing the clock to remake his $258 billion banking group--from teller's cage to executive suite. In so doing, he wants to turn HSBC into a round-the-world lender rivaling Citicorp.
BALANCING ACT. This isn't the first time HSBC has entertained global ambitions. It's still licking its wounds from the 1980s, when it racked up billions in losses on a takeover of Buffalo-based Marine Midland Banks Inc. and loans to Canadian real estate developer Olympia & York Developments Ltd. and fallen Australian magnate Alan Bond. And in May, the Reserve Bank of India implicated HSBC in a $1.3 billion stock market scandal that also involved Citi, Bank of America, and dozens of other foreign banks in 1991 and 1992. HSBC has not been charged with wrongdoing. It says it's cooperating with authorities and doesn't anticipate "any material losses."
HSBC's missteps overseas raise questions about Purves' ability to control his increasingly far-flung empire and realize his global dreams. But Purves is determined to press ahead. As a 19-year-old, the rugged Scot became the first enlisted man ever to win Britain's Distinguished Service Order when his 30-man platoon survived an assault by 7,000 Chinese soldiers during the Korean War. Now 61 and nearing retirement in the next two or three years, Purves wants to leave banking with an equally distinguished record. Industry sources say that since the 1980s, he has strengthened HSBC's internal controls and placed trusted aides in sensitive overseas posts. Says Purves: "We have a lot of people pulling the rope at the same time."
Achieving Purves' vision will require a delicate balancing act: minimizing the bank's risks in Hong Kong and China while not cutting HSBC out of some of the hottest banking action in the world. With last year's $6 billion takeover of Britain's Midland Bank PLC, only 31% of the assets of HSBC Holding PLC--the holding company for Hongkong & Shanghai and the rest of Purves' global empire--remain in Hong Kong (chart). Purves has even shifted HSBC Holdings' head office to London. And he's planning to move there this fall, joining his presumed heir, 32-year veteran John R.H. Bond, who already is in London to monitor Midland.
HSBC's spread will make the group less vulnerable to gyrations in China's economy or to political changes in Beijing, neither idle concerns. But HSBC is likely to remain a strong presence on its home turf long after the Chinese takeover, if only because Beijing needs the bank's capital and knowhow to further its development agenda. Sensing this, Purves has cultivated ties with China's elite and is placing increasingly big bets on China's future. HSBC is now the leading foreign lender in Shanghai and is backing developer Gordon Y.S. Wu's $1 billion expressway connecting Hong Kong with Guangzhou. And it dominates the financing of Hong Kong's trade with the mainland.
Analysts think HSBC may even want to strengthen its ties with Beijing by eventually offering to sell a minority stake in Hongkong Bank or its affiliated Hang Seng Bank Ltd. to the Bank of China or another mainland institution. Even if that doesn't occur, Purves and others suggest Beijing appears to be willing to live with HSBC as a strong local player.
SINGLE CULTURE. That's the key to Purves' strategy--appearing to be a local bank wherever HSBC puts down roots. Behind this is a single culture steeped in Hongkong Bank tradition and driven by Purves. He has installed lieutenants from Canada and Singapore at Marine Midland and is reshaping Midland Bank, with $96 billion in assets, to capitalize on HSBC's strengths. Hongkong Bank has merged its London currency-trading floor with Midland's, making it one of the world's largest. The group coordinates trading in London, New York, and Tokyo, putting it on an equal footing with J.P. Morgan and other global superbanks.
HSBC's huge profits in Hong Kong allow Purves to pursue his global ambitions. Last year, HSBC's pretax profits soared 94%, to $2.6 billion, and Hong Kong provided $1.7 billion of the total. Now, Purves is trying to instill in his global federation some of the methods that have served HSBC so well in the Orient. Among the features: managerial versatility, a disdain for committees, and responses on everything from customer complaints to requests for major credit lines within 24 hours. But HSBC still labors under an inbred, autocratic culture. Few Asians hold fast-track positions, and of the 400 "international officers," young executives traditionally groomed for service around the empire, only nine are women.
HSBC's boot camp, which seeks to build managers of different races, sexes, and nationalities into cohesive groups, is an effort to open the bank up. But old ways still endure. Many senior officers joined straight out of British secondary school and have developed a camaraderie that lets them phone fellow execs and make multimillion-dollar decisions on the spot without agonizing paper-shuffling.
The brotherhood's undisputed chieftain is Purves, who is the most powerful man in Hong Kong next to the governor. Inside the bank, it's entirely Purves' show. Top executives cringe when "1122," the chairman's extension, flashes on their telephones. Indeed, many HSBC bankers say privately that Purves' passion for control is excessive.The Purves style works in Hong Kong, where big companies are run like family fiefdoms and tycoons expect to get their loans, on the spot, over a cup of tea. Now, Purves is attempting to put his stamp on Midland. The acquisition of Britain's third-largest lender adds everyone from London-based multinationals to midsize companies in Germany to Purves' lengthy list of customers for trade finance, long HSBC's forte. Technology will be key to making it work. By installing an HSBC-developed computer system in Midland's 1,700 branches over the next five years, for example, HSBC expects to shave $100 million a year off Midland's operating expenses.
CASH CACHE. By adding Midland's resources to HSBC's $1 billion information-technology budget, Purves thinks he has the capital and economies of scale to speed decision-making by hooking global managers into one huge data base. To do that, Purves has consolidated group research and development in Hong Kong, London, and Buffalo.
But if Purves is counting on cutting-edge technology to leapfrog rivals in coming years, he still has to prove he can make money in the U.S. Since it first bought 51% of Marine in 1980, HSBC has seen little but losses, the result of a massively misguided push into real estate and Latin American lending. That came to an end in 1991, when Purves called in longtime colleague John Bond to clean things up. Bond and James H. Cleave, a dogged cost-cutter whom Purves brought from Hongkong Bank of Canada after Bond was named Group CEO last year, have shaken Marine to its roots. With HSBC injecting $1.8 billion into Marine, they cut its staff 29% and pared its assets from $27 billion to$17 billion.
Now, with Marine making money again--it earned $34 million in the first quarter--Cleave is thinking of buying some smaller banks. He's also prodding staffers to deal with customers the quick-decision, Purves way. "I abhor committees," says Cleave. "That's Willie's philosophy."
As long as booming Hong Kong provides HSBC with a cornucopia of cash, Purves and his successors will have plenty of room to experiment their way to global might. In the twilight years of the colony that the bank helped build, Purves is forcing HSBC onto an irrevocable course of change. That may expose the bank to stresses as great as it ever has endured. But to Willie Purves, that's the price of being a global banker.