Georges Elhedery will take over as group CEO of HSBC in September 2024, the banking giant has announced. He will take over the reins from the departing boss Noel Quinn.
After almost five years in charge, Quinn’s departure from HSBC was abruptly announced in late April. Georges Elhedery’s appointment as CEO, on the other hand, comes less than two years after he was promoted to CFO in January 2023.
According to a statement from the company, he will carry on in his role as group CFO during the transition. His appointment comes as the bank tries to shift from restructuring to growth, at a time when helpful interest rate hikes may have peaked and geopolitical tensions simmer.
Iain Pyle, senior investment director at HSBC shareholder Abrdn, told Reuters that Georges Elhedery had made a good impression on the market over his 18 months as the CFO, and was “a clear communicator”.
“It’s a continuity appointment, but a strong candidate and I think will be taken well today,” he said.
HSBC defeated a resolution in 2023 backed by Chinese insurance giant Ping An and other Hong Kong-based shareholders who were seeking a spin-off of its lucrative Asia business.
Meet Georges Elhedery: A Proven Performer
In 2005, Georges Elhedery joined HSBC. Until January 2023, he served as co-CEO of Global Banking and Markets at HSBC. He then assumed the position of chief financial officer. Apart from this, from July 2016 to February 2019, he oversaw the bank’s operations in Turkey, North Africa, and the Middle East.
After that, he was the co-head of the Global Banking and Markets business, the division that houses HSBC’s trading and investment banking advisory businesses, and accounted for 24% of the group’s revenues in 2023.
HDBC Chairman Mark Tucker stated that Georges Elhedery has a proven track record of leading through change, driving growth, delivering simplification, controlling costs, and bringing a strong focus on execution.
In October 2022, he was unexpectedly appointed CFO, just weeks after returning from a sabbatical, a move that groomed him for the top job.
“I am deeply honoured by the trust placed in me to lead this great institution into the future. Working together with our talented team, I look forward to delivering exceptional value to our clients and investors by driving strong performance on a sustainable growth trajectory,” Georges Elhedery told the media, while reacting upon his promotion as the HSBC CEO.
Quinn, who led HSBC for five years, will remain CEO until Georges Elhedery starts in the role. At the time of his surprise exit announcement in April 2024, he had said he wanted a better work-life balance and planned to pursue a portfolio career. Quinn oversaw a raft of asset sales, navigated a global pandemic and the push by rebel investors to break up the bank, guiding the lender to record profit.
Challenges Await New HSBC CEO
HSBC made a record profit of USD 30 billion in 2023 thanks to two years of interest rate hikes during the global inflation fight. The bank makes more money when it can lend at higher rates than it pays on its USD 1.7 trillion base of deposits.
Half of HSBC’s revenue comes from net interest income, which increased by USD 5.04 billion to almost USD 36 billion in 2023. However, as central banks lower rates, analyst forecasts indicate that it will return to USD 33 billion this year and in 2025.
“For HSBC, like many banks, a key reason for the sub-par valuation is an inherent scepticism around the sustainability of earnings as interest rates come off their peak. Demonstrating the alternative growth levers that can be pulled will be a key to support a re-rating going forward,” Benjie Creelan Sandford, financial equity portfolio manager at Algebris Investments, which holds HSBC shares, said.
If interest-based revenue declines, HSBC will be under more pressure to increase revenue from fee-based services like wealth management. According to the bank’s wealth head Nuno Matos, in a June 2024 investor presentation, net new invested assets rose by 6% to USD 84 billion in 2023, with a 7% gain in wealth revenue from Asia.
In addition to expanding its onshore private banking presence, the bank has invested billions in joint ventures involving securities and insurance in China. Executives said that the company is on track to meet a target of 3,000 wealth managers by 2025, having hired about 1,700 of them in China since 2021.
In China, however, HSBC’s wealth and personal banking division reported an operating loss of USD 90 million for 2023. The wealth pool is predicted to increase much more slowly even as Beijing continues its “common prosperity” campaign to narrow the growing wealth gap in the world’s second-largest economy.
Similarly in its early stages is a plan by the European head of HSBC to focus on inbound expansion by Asian corporate clients. HSBC is particularly vulnerable to deteriorating ties between China and the West because more than half of its yearly profit comes from Hong Kong and Britain. Although it is looking into ways to fully take over its Chinese fund management unit, there are worries Beijing won’t approve it until its tensions with Washington subside.
HSBC’s business model is based on robust international trade flows and increased cross-selling between its regional offices; it fiercely defended this approach in response to demands for a split from its largest shareholder. Even though it is considering reducing its position, the Chinese investor still owns an 8.9% stake in the bank and could cause more issues, according to media reports.
The ongoing bad loan crisis in China, which resulted in a shocking USD 3 billion impairment charge on HSBC’s ownership of Bank of Communications (BoCom) in February 2024, will also be Georges Elhedery’s responsibility to manage. It has been suggested that the indebted property sector in China has peaked, but in May 2024, house prices dropped at the quickest rate in almost ten years.
At the end of 2023, BoCom’s non-performing loan ratio for real estate lending was 4.49%, up from 2.8% at the end of 2022. In general, weaker markets and a slowing Chinese economy have affected HSBC’s performance in Asia. It reported a USD 24 billion decline in assets in the first quarter of this year across Asian customer accounts, primarily at its Hong Kong-based legal entity.
The bank stated that certain customers’ risk aversion and competitive pressures in its commercial, wealth, and international markets businesses were the causes of the decline.
Georges Elhedery has relatively little direct work experience in Asia, having spent the bulk of his HSBC career in roles across its Middle East and Africa businesses, but did learn Mandarin during his six-month sabbatical, according to sources at the bank and media reports.
HSBC, which marketed itself as “the world’s local bank,” has shrunk its empire by selling assets in markets like the United States, France, and Canada. However, some believe that more work needs to be done.
“I think it’s the question of whether the geographical divestments HSBC has already completed…are enough for it to maximise its medium-term returns,” Mike Makdad, senior equity analyst at Morningstar said.
Makdad stated that although global bank capital requirements have been gradually tightened since the 2008 financial crisis, the business model of a multinational bank with retail operations across multiple nations has grown increasingly complex, and HSBC’s profitability is still heavily biased towards Hong Kong.
“So the question for the new CEO is: what kind of bank should HSBC be so that the combination of parts generates the best synergies?” he said.