HSBC’s results this morning were overshadowed by the bank’s decision to sack CEO John Flint after just 18 months at the helm.
Just a few hours later, HSBC confirmed it is looking to cut 5,000 jobs at the bank as it chases savings.
Flint is leaving the high street lender “by mutual agreement” – but his short-term tenure has raised many eyebrows., especially amid a solid set of results.
Profit before tax climbed 16 per cent year on year to $12.4bn (£10.2bn) while revenue hit almost $30bn.
Shareholders appeared equally bemused, sending the bank’s share price down 1.3 per cent after the decision.
So why has the bank sacked Flint? Here’s three possible reasons behind the CEO’s departure.
Trade war and global economic challenges
First of all, in its results HSBC called for a change against a “challenging” global backdrop.
Brexit remains a “highly uncertain” risk to HSBC’s balance sheet, leading to the bank posting a cautious outlook for 2020.
Meanwhile, the US-China trade war looms over Asia, where the bank does around 80 per cent of its business.
“In the increasingly complex and challenging global environment in which the bank operates, the board believes a change is needed to meet the challenges that we face and to capture the very significant opportunities before us,” said chairman Mark Tucker.
“We think the very cautious outlook statement might provide the explanation,” Hargreaves Lansdown’s equity analyst, Laith Khalaf, said.
“With macroeconomic and geopolitical headwinds mounting, the HSBC board could be looking for more radical reform, what that will look like remains to be seen.”
But he added that the decision could add to the tumult HSBC believes it will experience.
“Flint’s only been in the role 18 months, and while his strategy might not be revolutionary, it’s certainly not been a disaster,” he said.
“It seems strange to be changing leadership again before reforms have had a chance to bed in.
“With the retail bank doing well when others are struggling, and the outlook for the investment bank set to improve, the change of leadership could be particularly confusing.”
Slow turnaround in the US
Tucker is reported to have fallen out with Flint over the speed of HSBC’s turnaround in the US – and how quickly the bank meets profit targets in particular.
Instead the bank has dropped its US profitability target – a return on tangible equity of six per cent by next year – due to lower interest rates.
But Russ Mould, investment director at AJ Bell, suggested Flint should have been given more time in the role.
“[He] only started in the job at the beginning of 2018 and you would expect it to take much longer to turn around such a super-tanker of a business,” Mould said.
Mould added that market surprise at the decision could suggest that Flint did not mesh well with the Asia-focused bank’s way of doing things.
“The relatively abrupt move, apparently taking place by mutual consent, is not typical for HSBC,” he pointed out.
“For all the emollient words around his departure, [it] hints at some kind of culture clash between senior management or a background issue.”
However, he added that this would be “surprising” given Flint’s veteran status in banking.
The lack of clear reasons given by HSBC for Flint’s departure is the most concerning aspect for shareholders, The Share Centre said.
“When a CEO leaves suddenly with no explanation it is always unsettling for investors, especially in the case of a major global company,” investment research analyst Ian Forrest said.
“The bank is considering cutting thousands of more senior roles as it faces a worsening global outlook. It remains a significant dividend payer and offers a decent 6.4 per cent yield so we continue to suggest the shares as a medium risk ‘buy’ for an income geared portfolio, although in the current climate we would favour a drip feed approach.”