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The Bonding of HSBC

John Bond turned a local bank into a global institution. Now his era is passing.

From Singapore to Sao Paolo, peripatet­ic John Bond, chair­man of “the world’s local bank,” feels at home. In Kuala Lumpur, he stops to admire a fiery paint­ing of a roaring lion, the symbol of HSBC, the banking behemoth he has led for nearly nine years. As a photographer starts to click away, Bond beams almost on cue. And when the photographer asks him for one more shot, Bond fires back in Bahasa Indonesia: “Satu lagi (One more), huh?”

Bond is the archetypal global banker. A year ago, he took the entire board of the world’s third-largest financial services group to Shanghai and Beijing to show them China. In November, he hosted the bank’s board in Bombay and Del­hi. “My job is basically to do two things: plant the seeds for tomor­row’s revenues, and make sure we have in place several generations of managers, each better than their predecessors,” says Bond.

But the curtain is falling on the Bond era. Bond, 64, executive chairman of HSBC and the chief architect of its heady growth, will retire in late May after the bank’s annual meeting. Bond will leave behind one of the world’s most profitable money machines. With assets of $1.5 trillion, 9,700 offices in 77 countries and 115 million customers, HSBC has enviable heft. Analysts expect it to report net profits of more than $18 billion this year. Only Citigroup and Bank of America make more money.

But of all major financial firms, HSBC is certainly the most trans­formed. “HSBC management under Bond has been the gold standard for corporate stewardship and ownership management,” says Ganesh Ratnam, a New York-based analyst with Morningstar.

Bond’s legacy is that he took what was essentially a Hong Kong British bank, operating in old colonies like Singapore and Malaysia, and turn­ed it into a global franchise. Be­tween 1993 and 2005 when he was at the helm, HSBC spent nearly $47 billion in a worldwide shopping spree. Bond spent $14.2 billion to buy consumer finance giant House­hold International in the U.S. in 2002 while expanding retail franchis­es in Latin America, Canada and the U.S. He expanded the company’s global credit card business, grew con­sumer banking and built a large pri­vate banking franchise on the back of its Republic Bank acquisition.

The geographical transformation of the bank is even more stunning. Twenty years ago, the entity estab­lished in 1865 as Hongkong and Shanghai Banking made 75 percent of its profits from its home base in Hong Kong and the remainder from the rest of the world. After Bond began overseeing HSBC’s operations as its de facto chief oper­ating officer a decade ago, Hong Kong made up 40 percent of total profits; Britain was 40 percent; and the rest of the world was 20 percent.

Today, Bond says proudly, HSBC’s biggest profit generator is the U.S., which accounts for nearly 36 percent of profits. The next biggest is Hong Kong with 23 percent, and the U.K. is third with 18 percent; fourth and fifth are Mexico and France, neither of which existed as major markets for HSBC five years ago. Indeed, HSBC today is probably the only truly glob­al financial services group. “Our own calculations show that over 50 per­cent of what Citigroup does is in North America, 70 percent of what Royal Bank of Scotland does is in the United Kingdom, and Bank of America is nearly 90 percent in America,” says Bond.

HSBC has doggedly stuck to a strategy of going global yet staying local. “What we have done essen­tially is that we have used the prof­its from emerging markets in Asia to create a formidable position in the West, as well as the Middle East and Latin America. Now, we are gradually using profits from developed markets to expand our geographical footprint in markets like China and India,” says Bond.

Paul Dowling, a director with banking consultancy East & Part­ners in Sydney, says, “HSBC is by far the biggest regional provider of financial services in Asia and the biggest investor in China.” That and its efforts to penetrate India give it an overall position well at the top of Asia’s financial pyramid. HSBC and its Hang Seng Bank subsidiary have put more than $5 billion into Chinese financial assets, including the purchase of Ping An Insurance and 20 percent of the Bank of Communications, China’s fifth-largest lender.

Bond’s 25-year view is that China and India will become dominant global economies. With 140 years of experience in Asia, the folks at HSBC have a sense of perspective.

“We know that 200 years ago, Chi­na and India were half of the world’s economy,” Bond says. “So what we believe is happening is not some­thing that’s new but restoration of a world order that existed two centuries ago.” That’s why he says it was impor­tant for him to take the board to Chi­na and India to meet clients, senior government leaders and policymak­ers so that they can sense the oppor­tunities themselves.

“We have used profits from emerging markets in Asia to create a formidable position in the West.” -JOHN BOND

“We are always looking at opportu­nities in Asia-not just China and India, but we believe Malaysia is another,” Bond says. “We have grown faster than the overall market in Malaysia and Singapore over the last few years, and we expect to keep grow­ing in Southeast Asia. You will see us put our foot on the accelerator when­ever we can, wherever we are.”

Bet on Investment Banking

Where HSBC has bet big in recent years is in invest­ment banking, building scale to compete with Morgan Stan­ley, Goldman Sachs, and Merrill Lynch. Though HSBC still isn’t a huge player in global M&As and still lags the U.S. giants, it has built mar­ket share and a hugely profitable busi­ness almost from scratch. “To their credit, they have refused to spend tens of billions on an acquisition,” says Richard Staite, an analyst for SG Securities in London. “Building an investment bank organically takes a lot longer, but it’s far cheaper and a lot less risky.”
 
Another area where HSBC has carved out a perhaps unique niche is Islamic banking. It is reportedly now the biggest transnational bank doing Islamic banking business globally, making hundreds of millions in prof­its. “Islamic banking is a huge oppor­tunity for us because we have had a long history of doing business in Mus­lim countries and a good understand- ing of the markets,” says Bond. HSBC is now looking beyond Islamic bank­ing into Islamic insurance and wealth management products.

Hired by the bank at age 21, Bond went to Hong Kong in 1961 as a man­agement trainee. He slowly moved up the ranks. After stints in Indonesia, Singapore and Thailand, Bond re­turned to Hong Kong to head Ward-ley, the bank’s investment banking arm then reeling under ’80s-era cor­porate disasters. From Wardley, he went to the U.S. to head what was then Marine Midland Bank.

In 1993, the year HSBC moved its headquarters to London after pur­chasing control of troubled Midland Bank, Bond was appointed CEO of HSBC. That made him heir appar­ent to the legendary William Purves. In HSBC parlance, executive chair­man is essentially the CEO, and the “CEO” title is more akin to chief operating officer. In 1998, he took the helm and quickly began remaking it in his own mold as an aggressive glob­al powerhouse.

Bond is nothing if not frugal. HSBC has never been accused of overpaying for an acquisition or being too generous at anything. Even today, Bond, who often works fairly late in his Canary Wharf penthouse office in London, insists on person­ally switching off all unnecessary lights on his floor including any far off corridors. He is not chauffeured to work. Bond often takes the Lon­don Underground train to his office. When he needs to be in continental Europe, instead of calling for a cor­porate jet, he often takes the Eurostar express train from London because it’s cheaper. A recent survey that compared salaries of top 20 Euro­pean bank CEOs found Bond was paid lowest, even though HSBC is by far the most profitable financial services institution outside the U.S.

HSBC’s culture revolves around how to spend as little as possible and squeeze as much value or revenues out of everything. “It’s all about costs,” he says. “If you can rein in the costs, you can squeeze more profits out of the business.”

But Bond has spent big on estab­lishing the HSBC brand. He had to take the diverse parts of what was once “a federation of banks” and mesh them into a greater whole. There were something like 500 different entities inside HSBC-Hongkong and Shanghai Banking Corp., Mid­land Bank, Marine Midland, British Bank of the Middle East, Wardley, Wayfoong Finance, and James Capel, among others. The branding exercise cost several hundred million dollars, according to one estimate, though HSBC refuses to comment. “We were very fortunate that the branding exer- cise went well,” says Bond.

The hexagon-shaped logo is now ubiquitous in financial centers and main streets of global capitals. Bond says the next, more challenging phase of branding is just beginning. “How to make the brand an experience- giving customers wherever they are in the world, whoever they are, an expe­rience that they think is different from other financial institutions,” he says.

Fear of Failure

What makes Sir John tick? “Look, I am just an ordi­nary bloke who got in­credibly lucky,” he says, then pauses. “Clearly, I don’t ever want to let a client, or our shareholders or my colleagues down. You could say that the fear of failure has been among the biggest motivators in my life, [more] than any sense of personal aggrandizement.”

Yet 43 years of the jet-setting expa­triate lifestyle have taken their toll. “I need to travel because we are a glob­al bank, and our clients and business­es are spread around the world.” Bond says that last year he spent just 12 weekends out of 52 at home in Britain and traveled more than 138 days.

How does he do it? “I have a very understanding wife,” Bond says. He keeps in touch with his three chil­dren-two daughters and a son-by phone, but obviously doesn’t see as much of them as he’d like. “When I took on this job, I realized that you either give it your all or shouldn’t take it on,” he explains.

His successor is Stephen Green, an HSBC veteran who has been Bond’s deputy for nearly four years. “Retirement is going to be a new chapter of life for me,” says Bond. “Having worked in HSBC for 43 years, I guess you could say I am looking forward to a new chapter.” Even though Bond will be stepping down from the HSBC board, he has no plans to fade away from the corpo­rate scene. He was recently elected chairman of the board of Vodafone. “I think when you are as active as I have been, it is difficult to go from working 16 to 18 hours a day, 24/7, to doing absolutely nothing,” he says. “That doesn’t seem to me a good recipe for a healthy life. I’d like to be involved in corporate stuff in some way but obviously at a far slower pace.

So in late May, Bond will leave his chairman’s office for the last time, no doubt personally switching off the room’s lights and any other lights he might see on the way out.

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