HSBC (HSBA.L) named Georges Elhedery as its new chief financial officer on Tuesday in a surprise shift that puts the former head of its investment bank in pole position to eventually succeed Noel Quinn as chief executive.
The change came as HSBC reported a 42% slide in third quarter profit, hit by loan losses and charges from the sale of its French business as it seeks to placate investors including its largest, China’s Ping An Insurance Group (601318.SS).
HSBC’s shares fell 5% in London, after a 2.5% drop in its Hong Kong stock despite a firm broader market (.HSI), as investors digested the sudden management change and rising bad loan charges.
Elhedery’s sudden elevation comes after the 48-year-old took a six-month sabbatical from HSBC in January, citing a desire to travel with his family and explore personal interests.
Quinn told Reuters that while departing CFO Ewen Stevenson had done a good restructuring job over the last three years, the London-headquartered bank’s move was done with succession in mind, effectively putting Elhedery at the front of the queue.
“There is no change in strategy as a consequence of these leadership changes,” said Quinn, 60. “This is about how the group executive committee is positioned with potential succession options for the future,” he told Reuters.
Since his return to Europe’s biggest bank in September, Elhedery has been working on projects for Quinn. He is one of several Lebanese bankers to rise to the top ranks at HSBC, including his predecessor at the investment bank, Samir Assaf.
Former investment banker Stevenson, 56, who will leave HSBC next year, told Reuters he was “looking forward to some time off and thinking about future options”.
“Stevenson was undoubtedly seen as doing a great job amongst the investor community,” said John Cronin, analyst at Goodbody.
“His exit is most certainly a surprise and it smells of a fallout at the top management level in terms of direction of travel for HSBC – which will raise many questions,” he said.
UNDER PRESSURE
HSBC posted a pretax profit of $3.15 billion for the three months ended Sept. 30, which was down from $5.4 billion a year ago, but well above analysts’ forecasts.
The results included a $2.4 billion hit from the sale of the bank’s business in France, part of a wider strategy by HSBC to excise parts of its once globe-spanning empire to boost profits.
HSBC has come under pressure from shareholder Ping An to explore options including spinning off and listing its mainstay Asia business to increase shareholder returns.
It is also exploring a potential sale of its Canadian unit, as it tries to streamline operations in order to lift profits.
“We remain on track to achieve our cost targets for 2022 and 2023,” said Quinn, who has been running HSBC on a permanent basis for more than two years since the surprise ousting of John Flint.
The turnover at the top for HSBC reflects in part the challenges of improving profits at a sprawling bank whose fortunes are closely tied to global interest rates, and to Asia’s economy where it makes the bulk of its profits.
Rising rates traditionally buoy bank profits as they can make more from lending than the sums they pay to savers, but the current picture is clouded by the threat of an economic downturn that could cause hefty losses for lenders.
HSBC’s net interest income swelled by 30% to $8.6 billion, the highest in eight years mainly due to rising interest rates. Net interest margin rose to 1.57%, climbing 22 basis points from the second quarter.
On the downside, HSBC said performance was affected by credit provisions of $1.1 billion, more than expected and compared with the release of $659 million of cash reserves set aside for expected credit losses in the same quarter a year ago.
The bank also faces a darkening outlook in its key market of China, after President Xi Jinping’s appointment of loyalists sparked a share selloff this week on fears Beijing will continue its growth-stifling zero-COVID strategy.
“China is an important market not just for HSBC but the world, and we are keen to see the economy continue to develop,” Quinn said when asked how the COVID-busting lockdowns are hitting growth and HSBC’s business.
HSBC on Tuesday reported a snag in its plan to woo long-suffering shareholders with increased payouts, saying it needs to boost its core capital level of 13.4% back above 14% before it can resume buybacks and dividends.
Analysts had expected the dip in capital, which largely reflected the loss from the French sale.
Quinn said he was “very confident” HSBC could get the ratio above 14% by the first half of 2023, by increasing revenue and managing costs.
