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Quitting while ahead makes sense when things start looking tough. The surprise announcement of HSBC chief executive Noel Quinn’s departure on Tuesday comes as investor sentiment towards China has weakened.
Quinn, who took the top position in 2020 after serving as an interim CEO, is retiring. The next boss of the Asia-focused lender — and chief financial officer Georges Elhedery is a contender — will take the reins at a challenging time.
During Quinn’s tenure HSBC did well. Its share price rose about a third, slightly ahead of Asian peers. Higher interest rates boosted the bank’s net interest income. For the quarter to March pre-tax profit fell nearly 2 per cent to $12.7bn but still slightly beat expectations. Its common equity tier one capital ratio increased 0.4 percentage points to 15.2 per cent from the previous quarter.
But three years ago, Quinn doubled down on an Asian pivot strategy. Plans to invest about $6bn in the region over the next five years, while moving top executives from London to Hong Kong, had raised investors’ hopes that HSBC would deliver faster growth than its Europe-focused peers. In early 2021, before the Chinese property sector crisis started, the strategy made sense. China accounts for around half of all financial wealth in Asia.
Now, with China’s property woes still an overhang, the prospect of a quick pay-off from the country looks increasingly remote. HSBC already reported a $3bn charge on its stake in a Chinese bank earlier this year amid mounting bad loans in the country. That knocked its stock price 8 per cent in February, its sharpest loss in four years.
The shares have since rebounded but the China outlook remains dubious. Credit-rating agency Fitch cut its outlook on China’s sovereign credit rating to negative earlier this month, citing risks to public finances amid increasing economic uncertainty. Heightened geopolitical tensions with the west add to these risks.
In HSBC’s latest quarter, customer accounts decreased $41bn compared with the previous period. Meanwhile, operating expenses of $8.2bn were 7 per cent higher than the previous year. In 2024, spending on staff compensation and technology is expected to increase.
HSBC shares are up 15 per cent in the past year. Trading just over tangible book value, it carries a 60 per cent premium to Asia-focused rival StanChart. Quinn’s successor faces a tall order justifying that gap.