HSBC's own 'internal activist' seen as top candidate as next CEO

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There's an in-house candidate to succeed John Flint as chief executive officer of HSBC, and it's not Noel Quinn, the manager holding the top job for the interim.

Chief Financial Officer Ewen Stevenson, who has been in place only since January after joining from Royal Bank of Scotland, has established himself as the dominant force in the 154-year-old bank's executive suite, say current and former HSBC officials. Stevenson's straight-talking approach helped him forge a strong partnership with Chairman Mark Tucker, whose loss of confidence in Flint led to his ouster after just 18 months, they say.

When asked directly just hours after Quinn was named temporary CEO, Stevenson didn't close the door on his next step up the ladder: "I've got a huge job to do in my current job," he said. "I've had a great six months working with John, I'm really looking forward to working with Noel. I think both of us agree there's enormous upside, and that's why I joined."

A lumbering giant, HSBC, Europe's biggest bank by market value, has been shrinking its international footprint, a strategy shift that has yet to pay off for investors. The shares have lagged benchmark indexes in both London and Hong Kong over the past few years. However, revenues and profits are still solid compared to European peers.

While Stevenson's lack of experience running a bank may be a handicap at an institution that derives about 80% of its profits from Asia, he hasn't hesitated to shake things up.

Tough love

Stevenson played bad cop to Quinn's good cop in a conference call to managers this week following Flint's abrupt departure discussing what had gone wrong.

"When I first got here I used to keep count, I've stopped now, but I used to sit in these meetings with 25 people and I would actually make a note of who actually spoke," said the 53-year-old New Zealander at one point in the 50-minute call, according to comments recounted to Bloomberg News.

"I never got to more than seven or eight people, so I was kind of wondering why the other 12 or 13 were sitting there."

There was more.

While the bank has forecast an 11% return on tangible equity for next year, analysts are predicting that key measure of profitability to fall short of that goal, with a consensus 9.8% estimate in 2020. That's a sign the markets "actually don't believe us," Stevenson said on the call with HSBC managers earlier this week.

"They don't really care if we've got a tougher operating environment, they just think we've made them a promise to deliver that," he said. "So, have we done everything that we can possibly do to continue to stick to our promises?"

Stevenson's tough love approach has been a hallmark of his brief tenure. According to one bank insider, staff have taken to calling the former investment banker the company's "internal activist," an apparent reference to the type of investor who agitates for change.

His head-on style contrasted with the ex-CEO's approach. The chairman Tucker was infuriated by the amount of time Flint spent on projects such as his signature "Healthiest Human System" initiative to promote work-life balance and a focus on mental health, according to people familiar with the situation.

For an internal video promoting the project, a camera crew shadowed Flint over his first year in the job and the former CEO gave his own insight into how he calmed his nerves by touching a purple toy monkey his son had given him that he always kept in his pocket. "If I'm speaking and I'm nervous, my habit is I reach into my pocket, make sure it's there and I feel better."

Ruthless operator

Stevenson had developed a reputation as a ruthless operator even before he got to HSBC's Canary Wharf headquarters. During his four years at RBS, he oversaw a 40% reduction in the state-controlled lender's headcount. An insight into his determination came last year, when he told RBS employees about the time he woke up from an operation gone wrong.

The CFO found he had gone deaf in one ear, and was forced to relearn how to walk in a straight line. "You just have to get on with it, because if you don't get on with it you will sort of collapse."

Eric Moore, a fund manager at Miton Group, which owns HSBC shares, said Stevenson is "certainly ambitious." "Quinn has been appointed as interim, which suggests he is not necessarily going to get the job permanently," he said. "HSBC has often promoted up from the CFO role, so he will definitely be a candidate."

He was not a cheap hire. HSBC spent about 10.6 million pounds ($13 million) to buy him out of his unvested RBS options and his 2018 bonus. A former investment banking colleague of Stevenson's, who declined to be identified, said he was regarded as one of the best finance directors.

Before quitting RBS, he had been viewed by the London market as a potential successor to CEO Ross McEwan, who last month announced he had accepted a job at National Australia Bank Ltd. One person familiar with the thinking of the RBS board said Stevenson was liked for his diligence and work ethic, in particular his lack of emotion and ability to deliver bad news to staff when it was needed.

A similar pattern has been seen at HSBC, according to current and former employees. Two people familiar with the bank said Stevenson had eschewed some of the trappings of his senior position, such as his right to fly first-class. His decision to avoid costly flights is part of his own effort to lead by personal example on costs.

Cut costs

In parts of HSBC's London headquarters, posters have been put up asking staff to "Stop and Simplify." The campaign launched by Stevenson is part of his focus on getting everyone at the bank to look for ways to cut costs. His efforts have some way to go in an institution that this year thought nothing of commissioning French electronic music producer Jean-Michel Jarre to compose a corporate song titled "Together We Thrive."

Speaking to managers this week, he said they all needed to keep a close eye on what they spent: "We could do an enormous amount on cost control if people would just be more thoughtful about not rehiring, combining roles when people leave and just being more thoughtful about that rather than us having to announce programs like we announced yesterday," according to comments from the call recounted to Bloomberg.

The question for HSBC is whether an ability to cut costs is all their next CEO needs. Tucker spoke this week of a need for a broader vision for the bank, and it will be here that Stevenson, and other potential candidates, will have to convince board members they've got the answer that a three-decade insider like Flint lacked. The bank declined to comment on potential CEO candidates.

In some cases, HSBC has been effectively run by its chairmen and it could be that Tucker is more interested in finding a CEO who can do his bidding, while he sets the wider strategy. "Mark Tucker has been a CEO in Asia for decades so it's possible he takes over the more global responsibilities and Stevenson focuses on execution," said Fahed Kunwar, analyst at Redburn in London.

"That team can work quite well, but it depends on how hands-on Tucker wants to be as chairman."

Bloomberg News