HSBC revamps its operations as tensions grow between China and the West

HSBC bankers are bracing for job loss after the new boss announced the largest overhaul in decades. The lender’s operations will be divided between East and the West to reduce costs due to mounting geopolitical tensions.

Georges Elhedery took over the Asia-focused bank group in September. He said that his internal restructuring will result in Europe’s largest lender becoming “simpler, more dynamic and agile”.

Elhedery did not disclose any details about savings. However, the London based bank employing around 215,000 employees said that the overhaul “will reduce duplication of processes, and decision-making, built into the existing structure”. Pam Kaur was also promoted to finance chief. Elhedery had left this position when he became the CEO of HSBC.

Elhedery, the CEO of HSBC and one of the largest banks in the world with assets of almost $3 trillion, announced the shake-up Tuesday after weeks of speculation.

Georges Elhedery became the new CEO of HSBC in the first week of this month. His overhaul will take effect at the beginning of next year and includes a reorganisation into four divisions. One is dedicated to corporate and institutional banking, another houses the wealth management operations of the group, premier banking services for affluent clients outside of the UK and Hong Kong as well as global private banking.

The company will also create a new Eastern Markets region, which will include its Asia-Pacific, Middle Eastern, and UK non-retail operations as well as their units in Europe, the United States, and Canada.

This comes at a moment when HSBC, as a bank that straddles East & West, is facing a geopolitical dilemma. The falling interest rates also put pressure on the profits of the banking industry. This has led to a renewed focus in this area.

Founded in Hong Kong, in 1865 the former British colony is still HSBC’s largest market. The expansion of mainland China has also been a major driver for growth.

HSBC’s bosses are now on a thin line as relations between Beijing, Washington and London have soured. This tension was partly caused by China’s decision in 2020 to impose on Hong Kong a draconian law of national security that curbed civil rights. Politicians in Britain and America criticized HSBC for its support of the new law.

Ping An, a Chinese insurance company and one of HSBC’s largest shareholders, began to push the bank to spin-off its Asian business as a separate listed company by 2022. The campaign was unsuccessful after the other investors rejected the idea. Mark Tucker, HSBC’s chairman, and Noel Quinn – Elhedery’s predecessor as CEO – warned that it would destroy shareholder values.

Sources in the bank said that the restructure of HSBC wasn’t in response to Ping An, but rather a move to simplify the group. This is partly because Michael Roberts will oversee the Western Markets region which will include the wholesale business.

Roberts will run both the corporate and institution banking unit. This division will be created by combining HSBC’s Investment Banking and Markets unit with its Commercial Banking operations outside of the UK and Hong Kong. Commercial banking and Investment Banking have been separate units at HSBC for many years, with duplicate functions like Know-Your-Customer, credit approval and human resource.

Elhedery said: “By implementing these changes, we will be able to better focus on increasing market share and leadership in those businesses that have a clear competitive advantage.”

Elhedery is reducing its senior management by replacing the 18-person executive committee with a 12-person operating committee. Colin Bell, the current head of Elhedery’s European business, is leaving, as are Stephen Moss and Colin Bell. Stephen Moss is in charge of operations for the Middle East and North Africa, while Colin Bell currently heads its European Business. Greg Guyett will now be responsible for overseeing the strategic clients. He is currently the head of investment banking.

Despite the changes, shares of HSBC closed at 681 1/2p up 6p or 0.9 percent. City analysts cited a lack of details, such as estimates for restructuring costs. HSBC will announce its third-quarter results on Tuesday. However, the bank said that further details about the overhaul would only be revealed in its full-year report due out in February.

Analysts from Keefe Bruyette & Woods told their clients that the lack of numbers made it “difficult to make any meaningful judgement” regarding the overhaul. UBS analysts stated: “Unknown is the size of any restructuring charges that may be required.”

Pam Kaur, HSBC’s Chief Financial Officer, has achieved a historic moment with her promotion to this position. Her promotion is at a crucial time. She is the first female to hold the position since the lender’s founding 159 years earlier.

Georges Elhedery – the HSBC chief who previously served as its finance director – unveiled on Tuesday an ambitious plan to restructure this sprawling lender. Kaur, who is HSBC’s Chief Risk and Compliance Officer, will be a key player in this revamp.

Elhedery described her as an “exceptional” candidate for this post, among “a strong bench” of internal and external candidates.

Kaur, who was born in India, studied at the Punjab University where she earned an MBA. In 1986, she joined EY and spent four years working as a chartered account. She worked 15 years at Citigroup in the American banking sector before moving to senior positions with Lloyds Banking Group and NatWest. She joined HSBC in 2013 as the group head of internal auditors and has risen through the ranks until she reaches her current position in 2021.

Kaur, who will assume the position of finance chief at the beginning of January, will earn a salary of £803,000 per year. She will also receive an annual fixed-pay allowance in shares worth almost £1.1million, and a £80,300 pension contribution. Kaur will be entitled to an annual bonus up to 215 percent of her base salary and long-term shares awards of up to 320 percent.