(Reuters)On Tuesday, HSBC unexpectedly named Georges Elhedery its new chief financial officer, putting the former head of its investment bank in line to succeed Noel Quinn as CEO.
As HSBC tries to make its investors happy, including its biggest investor, China’s Ping An Insurance Group, its third-quarter profit dropped by 42% due to loan losses and costs from the sale of its French division.
Even though the market was strong, HSBC’s London shares fell 5%. This followed a 2.5% drop in Hong Kong as investors processed the sudden change in management and rising bad credit charges.
Elhedery’s sudden promotion comes after the 48-year-old took a six-month break from HSBC in January to travel with his family and pursue personal interests.
Quinn told Reuters that while departing CFO Ewen Stevenson had done a fantastic restructuring job over the last three years, the London-headquartered bank’s decision was done with succession in mind, putting Elhedery at the front of the queue.
Quinn, 60, said these leadership changes did not affect strategy. “This is about the group executive committee’s future succession choices,” he told Reuters.
Elhedery has worked on Quinn initiatives since returning to Europe’s largest bank in September. He and Samir Assaf, his predecessor at HSBC, are Lebanese bankers who rose to the top.
“Looking forward to having time off and thinking about future alternatives,” 56-year-old Stevenson told Reuters.
John Cronin, Goodbody analyst, said Stevenson was well-liked by investors.
“His exit is most certainly a surprise and it smells of a fallout at the highest management level in terms of direction of travel for HSBC—which will raise many concerns,” he said.
STRESSED
HSBC’s pretax profit for the three months ended Sept. 30 was $3.15 billion, down from $5.4 billion a year earlier but beyond analysts’ expectations.
HSBC sold its French company for $2.4 billion as part of a bigger drive to enhance profitability.
Ping An wants HSBC to spin out and list its Asia division to boost shareholder profits.
As it streamlines operations to boost profitability, it may sell its Canadian unit.
“We remain on track to achieve our cost targets for 2022 and 2023,” said Quinn, who has led HSBC since Flint’s sudden ouster.
HSBC’s high turnover reflects the problems of raising earnings at a vast bank whose fortunes are related to global interest rates and Asia’s economy, where it makes most of its revenues.
Rising rates boost bank profits because they may lend more than they pay depositors, but a recession could hurt lenders.
Rising interest rates boosted HSBC’s net interest income 30% to $8.6 billion, the highest in eight years. Net interest margin climbed 22 basis points to 1.57% from the second quarter.
HSBC said performance was hurt by credit provisions of $1.1 billion, higher than planned and compared to the release of $659 million of cash reserves set aside for projected credit losses in the same quarter a year ago.
President Xi Jinping’s selection of loyalists caused a share selloff this week on expectations Beijing will continue its growth-stifling zero-COVID plan, dimming the bank’s outlook in China.
“China is a significant market not just for HSBC but the world, and we are keen to see the economy continue to flourish,” Quinn added.
On Tuesday, HSBC said it has to raise its core capital level above 14% before it can resume buybacks and dividends.
Capital loss from the French transaction was foreseen by analysts.
By boosting income and minimizing costs, Quinn was “quite certain” HSBC could raise the ratio above 14% by the first half of 2023.