HSBC Bets Big on China as Pressure Mounts in London
(Bloomberg Markets) -- The interrogators lit into Noel Quinn, as if he were a latter-day Neville Chamberlain. Where were his ethics? asked members of the U.K. Parliament. His morals? His stand against totalitarianism? Comparisons with 1930s Germany often seem “mad,” one politician allowed, but is any country “so evil and wicked” that Quinn would pull his business?
Quinn might have expected a warmer welcome, congratulations even. He’d only recently become chief executive officer of a 156-year-old bank, the biggest in the U.K. and one of largest in the world.
On that January afternoon, a poster from the play Richard II loomed behind one British MP while he was chastising Quinn via Zoom. The image from a Shakespearean history of power and betrayal was appropriate for the contemporary drama unfolding that day in the Foreign Affairs Committee. On orders from Hong Kong’s police, Quinn’s bank, HSBC Holdings Plc, had frozen the accounts of democracy activists protesting China’s crackdown on freedom of expression in Hong Kong. Some on the committee were outraged and had called for an investigation.
Quinn, 59, an HSBC lifer, is an accountant by training, and he answered like one. “As a banker, I am not in a position to be able to judge the motives or the validity of a legal instruction from a law enforcement authority,” he said in his quiet, even voice. “I am not a politician,” Quinn added later.
For sure. It played terribly in HSBC’s hometown of London. And yet, Quinn delighted another constituency: the Chinese Communist Party. The state-run Global Times praised Quinn as standing up against smears from the Western politicians, “a bunch of arrogant laymen.”
Conflicting reactions in the two countries illustrate the existential crisis confronting HSBC and its leader. More than any other global financial institution—and as much as any other company—the bank is torn between the traditions of the West and the rise of China. Its name alone speaks volumes: the Hongkong & Shanghai Banking Corp., a legacy of a British colonial past when the company essentially ran China—and the U.K. ran much of the world.
HSBC still has an empire, if a humbled one. It has 40 million customers in more than 60 countries and almost $3 trillion in assets, among the most of any bank in the world. Its peers include JPMorgan Chase, Citigroup, and Bank of America. The leaders of all those banks, as well as many global businesses, are eager to tap the growth of China, the world’s second-largest economy. All must weigh the potential rewards against the risk of China’s reassertion of its authority over companies operating in the country.
Few organizations, and no other non-Chinese bank, has more at stake than HSBC. Last year, the bank generated $10.8 billion in pretax profit from its operations in China and Hong Kong, which more than compensated for substantial losses in Europe. HSBC’s history, its whole reason for being, is tied up in the East. Since the end of 2017, in part because of concern that HSBC had run afoul of the Chinese government, its shares have lost half their value, making them among the worst performing of major bank stocks.
So Quinn sticks to his conciliatory, technocratic approach toward China and shrugs off warnings from British politicians and the likes of billionaire financier George Soros, who’s called investing in the country “a tragic mistake” that will lead to a “rude awakening.”
For HSBC, a decision to leave China would be like the CEO of Bank of America Corp. deciding his company would decamp from the U.S. Quinn said as much to the exasperated MPs in the hearing. They asked whether he’d consider pulling up stakes because of human-rights abuses in China. “If the question was whether I am willing to walk away from Hong Kong, the answer is no,” he said. “We are too committed as an institution.”
Quinn cuts an unusual figure as a leader in world finance. He’s no blue-blooded British banker who read history or literature at Oxbridge, no denizen of the Davos set. Quinn grew up in Birmingham, the U.K.’s second-largest city, a place known for its gritty manufacturing past. His family, who trace their roots to Ireland, worked in construction; his first job was digging holes on a building site. He earned an accounting degree from vocational Birmingham Polytechnic. Quinn loves rugby, a middle-class favorite, often attending matches at London’s Twickenham Stadium. Square-jawed and thickset, he looks a bit like a rugby player, though a friend says he has slimmed down recently so he can take on the demands of the job.
Quinn started his career in 1987 at a company called Forward Trust Group, a subsidiary of Midland Bank in Birmingham. He worked in a decidedly unglamorous field, equipment leasing. Five years later, HSBC bought Midland—acquiring Quinn as well. Leasing cars and trains became a springboard to specialized finance, where he led divisions in the U.S. and Europe before heading east to manage commercial banking in Asia.
In Hong Kong, Quinn gained a reputation as an executive who knew how to break down silos, especially the battles between executives at HSBC’s commercial banking and Wall Street-focused divisions. Quinn knew no one and didn’t speak Mandarin or Cantonese. He managed to win over the staff with his financial expertise and work ethic, according to a senior executive familiar with his time in Asia.
Yet Quinn was often overlooked and sidelined. In the fall of 2015 a memo announced he was being replaced as the head of the Asia-Pacific Commercial Bank, without mentioning what he’d do next. Some insiders thought—wrongly, it turned out—that he was on the way out. Two years later, when Quinn was worldwide head of commercial banking, the board didn’t even consider him when the CEO’s job opened up, according to a person familiar with the search.
But the board’s choice, John Flint, another longtime HSBC executive, lasted only 18 months in the job. HSBC was in crisis. Brexit had eroded its position in Europe, where business was sluggish. Its U.S. operations weren’t paying off, either. China’s rising hostility to Western businesses made investors uneasy.
In August 2019, HSBC appointed Quinn to be its interim CEO, and the board kept looking for a permanent replacement. Although Quinn was the only internal candidate, the bank courted at least three high-profile outsiders, including then-boss of Italy’s UniCredit SpA, Jean-Pierre Mustier, who turned down the job, according to those with knowledge of the discussions. Only then, in March 2020, did Mark Tucker, HSBC’s chairman, ask Quinn to become the honest-to-goodness CEO.
Even now, current and former senior executives at the bank, who requested anonymity to share their private concerns, question whether Quinn is really in charge. They say Tucker, a former insurance company CEO who’s traveled extensively in China, is making key decisions.
Other CEOs might chafe at being a fallback or the subject of that kind of chatter. Quinn, who declined to be interviewed for this article, has thick skin and lacks ego, according to friends and colleagues. At a recent online appearance, he brushed aside the significance of a June meeting with Prince Charles at the Group of Seven meeting of world leaders in Cornwall. “We were the warmup act,” he said.
Quinn is taking much of HSBC down a peg, too. He’s dismantled the executive suites on the 42nd floor of HSBC’s headquarters in London’s Canary Wharf. Instead of occupying his own corner office, with floor-to-ceiling views of the city, Quinn will “hot desk,” like everyone else; his spot, in the middle of a nondescript floor, has a computer screen and a chair that would look at home in Ikea. While his predecessor commissioned a documentary film crew to follow him around and articulate his vision, Quinn prefers to communicate through the social media site LinkedIn.
It’s all in keeping with one of his main strategies as CEO: ruthless cost-cutting. In February 2020, Quinn said the bank over three years would eliminate 35,000 jobs, or 15% of its workforce—a move slowed only briefly when the Covid-19 pandemic made such cutbacks politically unpopular.
Allan Zeman, chairman of Lan Kwai Fong Group, a major landlord in Hong Kong’s bar district, says Quinn has a deep understanding of the China banking market from his years in Hong Kong. In his view, Quinn was the leader willing to take tough steps others wouldn’t. “Noel was kind of a hatchet man, the one that had to go in and make things happen,” says Zeman, who’s been an HSBC commercial banking client for decades.
In May, HSBC agreed to sell 90 branches in the U.S., all but exiting mass-market banking in the country. In June the bank said it would dispose of its French retail-banking business, resulting in a $3 billion loss. Quinn says he wants to slash HSBC’s “office footprint” by 40%, with every employee sharing a desk. He plans to cut business travel in half. In an interview in September with Bloomberg Television, Quinn staked out a different position from many Wall Street CEOs on whether employees will ever return to the office as before. He said no.
With all these cost savings, financial results have stabilized. But HSBC’s shares have hardly budged this year, while other big bank stocks soar in a bull market. Ian Gordon, a bank analyst at Investec Securities, says Quinn is making the right moves but that a turnaround could take years. “Sensible progress,” Gordon says, “but, really, really quite challenging.”
HSBC’s Hong Kong headquarters rises 48 stories over downtown, with sweeping views of the city’s harbor. Renowned in architectural circles for its sunbathed atrium, flexible floor plan, and incorporation of feng shui, it was built from prefabricated steel modules shipped from the U.K. When it was completed in 1986, it was one of the most expensive office towers ever. The building embodies HSBC’s commitment to China.
Quinn is doubling down on the headquarters and all it represents. He’s shifted his most important executives—responsible for 90% of HSBC’s business—to Hong Kong. As he cuts back elsewhere, he’s committed to investing $6 billion in Asia. He says he wants to sell China’s newly affluent on the need for banking, investments, and insurance. So he’s hiring 5,000 wealth planners over the next few years. In August, HSBC agreed to buy Axa’s Singapore insurance business for $575 million. Quinn has said investors should expect several other Asia purchases, each valued at a half-billion dollars.
Quinn is chasing the newly wealthy just as China President Xi Jinping says the country must crack down on inequality. Quinn sees no conflict. “Everyone’s interested in China as an opportunity for wealth,” he told Bloomberg Television. “And don’t just think about wealth in China as the super-rich, it’s also wealth for everybody.”
The CEO can’t afford to be on Xi’s bad side. The Chinese government has been angry that HSBC cooperated with a U.S. Justice Department investigation of Huawei Technologies Co. and its dealings with Iran, which is subject to economic sanctions. On Sept. 24, Huawei's chief financial officer, who'd been fighting extradition from Canada, struck a deal with federal prosecutors and admitted she misled HSBC about the telecom company’s business with Iran, according to a court filing. If Meng complies with the agreement, the government will ultimately dismiss the charges against her.
During a January 2020 visit to Hong Kong, Quinn saw first-hand the passion of pro-democracy demonstrations, just as China began to crack down on what was long an autonomous region. Quinn asked 30,000 employees to work from home and, in the January Parliament hearing, recalled watching people tear paving stones off streets and throw them off bridges.
Five months later, China imposed a national security law in Hong Kong that gave it broad powers to squelch dissent. HSBC faced a choice of angering China or abandoning British values. Peter Wong, then the bank’s top Asia executive, publicly backed China, infuriating protesters—and the U.K. MPs.
Even then, China was hardly satisfied. That September, the ruling Communist Party’s Global Times newspaper reported that the bank could be put on an “unreliable entity” list that punishes companies that damage national security. The same month, shares fell to a 25-year low. In a statement, HSBC said the bank is confident about its position in China and is the leading foreign bank in underwriting government debt and providing secondary-market trading.
Acceding to the demands of Hong Kong police, HSBC froze the accounts of democracy activists, including Ted Hui, a former Hong Kong legislator. Hui complained directly to Quinn, who said he’d had no choice after receiving an order from the Hong Kong police. “The international bank has put its customer service on the pillar of shame in its political toadyism,” Hui said in January.
If, as Quinn says, HSBC has no choice but to bow to China, Britain finds itself in a bind, too. HSBC is one of the U.K.’s most important companies, making up 4% of the FTSE 100 Index of the most valuable companies trading on the London Stock Exchange, among the most of any stock. Pensioners rely on its dividends.
Tom Tugendhat, a Conservative MP, illustrates Britain’s balancing act. In January he chaired the Foreign Affairs Committee, where he was among those criticizing the bank for freezing protesters’ accounts. The epitome of the British establishment, he has a master’s from the University of Cambridge and an elite private-school education. (Tugendhat worked for Bloomberg News from 2000 to 2003.) He’s also an Anglo-French former army officer with service in Iraq and Afghanistan. A century ago someone like him might have been running the British empire. Back then, HSBC basically ran the Chinese economy—before 1928, it functioned as the country’s central bank and even collected taxes.
Now, the roles are reversed. Two months after the hearing, China sanctioned Tugendhat, among others, saying they had “maliciously spread lies and disinformation.” Not long after, Tugendhat told a reporter that he sympathized with Quinn, that he understood HSBC’s importance, its need to make a profit, and the challenge of weighing corporate interests and human rights. “These are difficult decisions, not just for them, but for anybody who’s dealing with China,” he said. Tugendhat confided something else, too. For all of his misgivings about HSBC’s relationship with China, where does he have a personal bank account? HSBC.
Wilson covers U.K. finance in London. Wee reports on greater China finance in Hong Kong, and Choudhury is a senior reporter covering finance and investing in Singapore.
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