Investors Urge HSBC to Speed Up Change
Investors are growing impatient with the bank as its share price continues to slide
LONDON— HSBC Holdings PLC’s leadership is under pressure from some of its largest shareholders who are frustrated about the pace of change at the bank as it attempts to slim down its global operations.
HSBC has promised to shed assets, slash up to 50,000 jobs in the next two years and cut costs to boost returns. But investors are growing impatient as the bank’s share price continues to slide. Some investors believe HSBC needs to cut the size of its board to speed up decision-making and act soon on the bank’s pledge to appoint a new chairman from outside the bank.
HSBC, like many large global banks, is reducing costs as it digests more stringent regulation and tougher capital requirements. The bank is also dealing with the pressure of weathering a slowdown in key Asian markets.
Four major investors said HSBC should speed up its pace of change by, for example, selling off more assets more quickly, including its business in Mexico, and considering more radical actions to make the bank easier to manage, such as spinning off its U.K. retail business. Hugh Young, a fund manager at Aberdeen Asset Management, which owns 2% of the bank, according to FactSet, said HSBC should shrink its board by not replacing some of its nonexecutive directors whose tenure is approaching 10 years. Mr. Young added that he supports HSBC’s management and thinks it is broadly doing the right things.
“Many topics were discussed around the time of our annual general meeting, when our directors received overwhelming support from investors,” said a spokeswoman for HSBC. “We maintain regular and constructive dialogue with shareholders and welcome their direct engagement on any matter they wish to bring to our attention.” The bank intends to provide an update on its strategic plan when it announces quarterly results on Nov. 2.
Earlier this year, the bank hired a recruitment firm to hunt for new nonexecutive directors, one of which is expected to eventually replace HSBC Chairman Douglas Flint, according to a person familiar with the matter. Mr. Flint has been on the bank’s board since 1995.
Since its annual general meeting in April, HSBC has brought in two new nonexecutives as it refreshes its 16 independent directors. Several others are expected to be replaced over time, including Rona Fairhead and Simon Robertson, who have been on the board for 11 years and nine years, respectively.
A plan presented this summer to cut jobs and refocus on HSBC’s Asian activities left analysts underwhelmed. Still, investors expressed support in recent days for HSBC Chief Executive Stuart Gulliver despite the bank’s shares having fallen 19% over the past year.
One major shareholder said the bank needs to announce changes, particularly regarding a replacement chairman, as soon as possible. “There’s not the sense of urgency we would like,” the shareholder said. “There’s a strong need for an outsider to come in.”
In June, HSBC said it would reduce the risk-weighted assets of the global banking and markets division to less than one-third of the group’s total, from 39% at the end of 2014. It also presented plans to pivot its business to refocus on its Asian roots and raise its return on equity, a key measure of profitability, to beyond 10% by 2017. The bank has already agreed to sell its Brazil unit. However, an economic slowdown in Asian markets is likely to hurt returns at the bank, as are increasing regulatory burdens, analysts say.
Some investors are supportive of HSBC’s actions but say the bank could go further. Alex Wright, a fund manager at Fidelity Worldwide Investment, which owns 0.6% of the bank, said HSBC’S management “has made some progress in business simplification…and I see much more opportunity for further progress.”
Another investor, Mike Fox, a fund manager at Royal London Asset Management, which owns 0.5% of the bank, told The Wall Street Journal in June that HSBC needs to speed up its hunt for an external chairman.
The calls for a revamp come at a delicate time for the lender’s board, which is currently evaluating whether to move the bank’s headquarters away from the U.K. HSBC’s board said it will make a decision by the end of the year.