HSBC bets big on China as pressure mounts in London

London

THE interrogators lit into Noel Quinn, as if he were a latter-day Neville Chamberlain. Where were his ethics? asked members of the British 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 Mr Quinn would pull his business?

Mr Quinn might have expected a warmer welcome. He'd only recently become chief executive officer (CEO) of a 156-year-old bank, the biggest in the United Kingdom and one of largest in the world.

That January afternoon, as one British MP was chastising Mr Quinn via Zoom, a poster from the play Richard II loomed behind him. The image from a Shakespearean history of power and betrayal was appropriate for the contemporary drama unfolding in the Foreign Affairs Committee.

On orders from Hong Kong's police, Mr Quinn's bank, HSBC Holdings, 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.

Mr Quinn, 59, an HSBC lifer and an accountant by training, answered in a quiet, even voice: "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. I am not a politician."

It played terribly in HSBC's hometown of London, but Mr Quinn delighted another constituency: the Chinese Communist Party. The state-run Global Times praised him 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, the bank is torn between the traditions of the West and the rise of China.

Its name alone - the Hongkong & Shanghai Banking Corp - is a legacy of a British colonial past when the company essentially ran China, and the UK 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 US$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 organisations, and no other non-Chinese bank, has more at stake than HSBC. Last year, the bank generated US$10.8 billion in pre-tax 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 Mr Quinn sticks to his conciliatory, technocratic approach toward China and shrugs off warnings from British politicians and the likes of billionaire financier George Soros.

Unusual figure

For HSBC, a decision to leave China would be like the CEO of Bank of America Corp deciding his company would decamp from the United States. Mr 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."

Mr Quinn cuts an unusual figure as a leader in world finance. He's no blue-blooded British banker; he grew up in Birmingham, the UK's second-largest city, a place known for its gritty manufacturing past.

His family, which traces its 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. Square-jawed and thickset, he looks a bit like a rugby player, a game he loves.

He started his career in 1987 at a company called Forward Trust Group, a subsidiary of Midland Bank in Birmingham. Five years later, HSBC bought Midland - acquiring Mr Quinn as well. Leasing cars and trains became a springboard to specialised finance, where he led divisions in the US and Europe before heading east to manage commercial banking in Asia.

In Hong Kong, Mr 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.

He 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.

Yet, he was often overlooked and sidelined. In the autumn 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.

Two years later, when Mr Quinn was worldwide head of commercial banking, the board didn't even consider him when the CEO's job opened up, according to a source.

But the board's choice, John Flint, lasted only 18 months in the job. HSBC was in crisis. Brexit had eroded its position in Europe, where business was sluggish. Its US operations weren't paying off, either. China's rising hostility to Western businesses made investors uneasy.

In August 2019, HSBC appointed Mr Quinn to be its interim CEO. Although he was the only internal candidate, the bank courted at least three high-profile outsiders, including then-boss of Italy's UniCredit, 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 Mr Quinn to become the honest-to-goodness CEO.

Current and former senior executives at the bank, who requested anonymity, say even now that Mr Tucker, a former insurance company CEO who's travelled extensively in China, is making key decisions.

Other CEOs might chafe at being a fallback or the subject of that kind of chatter, but Mr Quinn, who declined to be interviewed for this article, has thick skin and lacks ego, according to friends and colleagues.

He is taking much of HSBC down a peg, too. He has 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, he will "hot desk", like everyone else, taking a spot in the middle of a nondescript floor.

While his predecessor commissioned a documentary film crew to follow him around and articulate his vision, Mr Quinn prefers to communicate through LinkedIn.

It's all in keeping with one of his main strategies as CEO: ruthless cost-cutting. In February 2020, Mr Quinn said the bank over three years would eliminate 35,000 jobs, or 15 per cent of its workforce - a move slowed only briefly when Covid-19 made such cutbacks politically unpopular.

Allan Zeman, chairman of Lan Kwai Fong Group, a major landlord in Hong Kong's bar district, says Mr Quinn has a deep understanding of the China banking market from his years in Hong Kong.

In his view, Mr Quinn was 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 Mr Zeman, who's been an HSBC commercial banking client for decades.

In May, HSBC agreed to sell 90 branches in the US, 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 US$3 billion loss.

Mr Quinn says he wants to slash HSBC's "office footprint" by 40 per cent, with every employee sharing a desk. He plans to cut business travel in half. In an interview in September with Bloomberg Television, he 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 stabilised. But HSBC's shares have hardly budged this year, while other big bank stocks soar in a bull market.

Making the right moves

Ian Gordon, a bank analyst at Investec Securities, says Mr Quinn is making the right moves but that a turnaround could take years. "Sensible progress," Mr Gordon said, "but, really, really quite challenging."

HSBC's Hong Kong headquarters rises 48 storeys over downtown, with sweeping views of the city's harbour. 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 UK. When it was completed in 1986, it was one of the most expensive office towers ever. The building embodies HSBC's commitment to China.

Mr Quinn is doubling down on the headquarters and all it represents. He's shifted his most important executives to Hong Kong. As he cuts back elsewhere, he's committed to investing US$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 US$575 million. Mr Quinn has said investors should expect several other Asia purchases, each valued at a half-billion dollars.

He is chasing the newly wealthy just as China's President Xi Jinping says the country must crack down on inequality. Mr 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."

During a January 2020 visit to Hong Kong, Mr Quinn saw first-hand the passion of pro-democracy demonstrations, just as China began to crack down on what was long an autonomous region.

He 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 UK MPs.

Even then, China was hardly satisfied. That September, the Global Times 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. Mr Hui complained directly to Mr Quinn, who said he'd had no choice after receiving an order from the Hong Kong police.

If, as Mr Quinn says, HSBC has no choice but to bow to China, Britain finds itself in a bind, too. HSBC is one of the UK's most important companies, making up 4 per cent 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, going from criticising the bank for freezing protesters' accountsto telling a reporter that he sympathised with Mr Quinn, that he understood HSBC's importance, its need to make a profit, and the challenge of weighing corporate interests and human rights.

Mr 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. BLOOMBERG