Online Extra: Q&A with HSBC's John Bond
Britain's HSBC Holdings may be the world's second most-profitable bank, but that's not buying much respect from investors these days. Its stock is down 18% in dollar terms this year, though its earnings are only marginally below industry leader Citigroup's, which has taken much less of a hit. Analysts want HSBC to beef up its services in areas such as insurance -- and they continue to speculate on the prospect of HSBC's acquiring Merrill Lynch. Bond says "no conversations" are going on with Merrill regarding an acquisition, but he maintains that HSBC's strong capital position makes it well placed to outperform its competition. He met recently with BusinessWeek London Correspondent Kerry Capell to discuss HSBC's strategy going forward. Edited excerpts of their conversation follow:
Q: What's your view on the global economy? A:
Q: What's your view on the global economy?
A:There has been a pretty widespread slowdown in demand, and that translates into lower production, lower demand for funds, and in certain markets and certain sectors, lower employment. Our view is this slowdown could last longer than we would wish. The key is finding the economies with good growth prospects and then finding the right clients within them. We won't be able to outperform the economy, but what we aim to do is outperform the competition in any given set of circumstances.
Q: How are you positioned to do that? A:
Q: How are you positioned to do that?
A:HSBC is entering this period with one of the strongest capital -- and I suspect cash -- positions in the business. We have a policy of keeping at least 5% of shareholders funds at the center in cash, and we have comfortably more than that at the moment. We also have very low leverage -- only 44% of our total assets are in loans, compared to around 60% for most of our competitors.
Q: What's your growth strategy? A:
Q: What's your growth strategy?
A:This period will produce some opportunities. We've got the liquidity, which gives us huge flexibility, if we see the opportunity, to market for niches of business. We've been able to [add] a substantial amount of credit cards in Asia in the last year, for instance. We've also got the flexibility to make acquisitions when others might be pulling their horns in.
Q: Have there been any discussions with Merrill Lynch about extending your relationship beyond your online-banking partnership? A:
Q: Have there been any discussions with Merrill Lynch about extending your relationship beyond your online-banking partnership?
A:There have been no conversations [between HSBC and Merrill]. We set out to be partners in a joint venture. We have the greatest respect for one another. There are lots of people out there who we respect and admire, but that doesn't mean we are going to become united.
Q: Has the slowdown in global equity markets effected the joint venture? A:
Q: Has the slowdown in global equity markets effected the joint venture?
A:The business case remains absolutely valid. The only thing is, we are going to go through a slower period because people don't feel like investing because they don't know where the bottom is.
Q: What's at the top of your agenda these days? A:
Q: What's at the top of your agenda these days?
A:We are doing a lot of work in private banking and making sure we attract good account executives, who in turn attract top-quality clients. We're also tightening up on expenses. We're skinnying down the number of companies in the group from 1,250 prior to Republic and CCF to around 500. Each company brings with it a considerable expense. So we just said, "Unless you can show what customers it has and what importance it has for HSBC, it goes." Because we operate in 78 countries, we have to deal with more than 300 regulators. I can't do anything about that, but I can do something about having 1,250 companies.
Q: What has been the main advantages of last year's acquisition of France's CCF? A:
Q: What has been the main advantages of last year's acquisition of France's CCF?
A:From their viewpoint, we've added a lot of strength to CCF outside France, which they can bring to bear on their clients in France. HSBC gained clout in the euro zone. It has been a huge success in debt capital markets. If we hadn't had CCF, some of the companies we've been involved with would never have looked to us [to handle their euro-debt business], they would have looked to someone in the euro zone.
It has also been an advantage in euro-zone clearing. I mean, how much of that is going to be done in the City of London if Britain remains outside the euro? It is going to be done inside, and we have a euro-payments capability that sets us apart from nearly everybody else outside the euro zone.