HSBC: Trump may stick with current bank rules in place since financial crisis

PUBLISHED : Thursday, 15 December, 2016, 1:01am
UPDATED : Thursday, 15 December, 2016, 1:01am

HSBC Holdings Plc Chairman Douglas Flint said he doesn’t expect President-elect Donald Trump to dismantle the regulatory framework put in place since the financial crisis, and cautioned returning to a “light-touch” approach could spell disaster for the banking industry.

While there may be some relaxation of the Volcker rule, which curbs banks’ trading with their own money, lenders don’t want to go back to the pre-crisis state, Flint said in a Bloomberg Television interview. Even if the US rules soften, Europe probably wouldn’t follow, he said.

“Our biggest risk is our own industry, so you don’t want a part of the world where people are able to do things with much less capital than is economically advisable because we are all exposed to each other,” said Flint, 61. “Light-touch regulation and competing to see who can have the lowest standards is a really, really bad form of banking.”

Flint has helped guide Europe’s largest bank, with more than 235,000 employees across 71 countries, through a raft of new regulations requiring the bank to raise billions in capital and split off its retail operations from the investment bank.

As he prepares to step down after two decades at the company, HSBC has much left to contend with. The bank remains under the watch of the Department of Justice after helping South American drug cartels launder money, and faces slowing economic growth in China and the prospect of a post-Brexit recession in the UK, its two most important regions.

HSBC stock has climbed 23 per cent this year, beating all large European rivals, as its exposure to Asia and dollar-denominated earnings proved beneficial amid a drop in the pound. Still, the bank faces questions about its profitability in the new regulatory framework, as well as its ability to increase revenue faster than costs in a low growth, low interest-rate environment.

“I see more volatility in 2017, which in many respects is good for banking in the sense that people think carefully about what they should hedge and how they should position themselves,” Flint said. “On the other hand, it’s bad for economics in the sense that it slows down making investment decisions and holding back on strategic options.”

Trump’s policies toward China are of particular concern for HSBC, which makes the vast majority of its earnings in Asia and is in the middle of a programme to redeploy as much as US$150 billion of assets to the region and hire 4,000 people in China’s Pearl River Delta. Trump has already sparred with President Xi Jinping over trade and Taiwan.

“I don’t think we will see a major trade war” because the two economies are so intertwined that corporations and consumers on both sides would be “massively impacted,” Flint said. “It’s a double sided coin and the US and China are fully aware of that.”

His comments contrast with those of Standard Chartered Plc Chief Executive Officer Bill Winters last month, who warned the US will become less important globally and the dollar less dominant in trade as China and other nations are likely to form regional trade alliances. Standard Chartered also makes most of its earnings in Asia, even though it’s based in London like HSBC.

Flint joined the board in 1995 as finance director. He and CEO Stuart Gulliver, 57, are the longest-serving duo in charge of a big European bank. The bank said in March it will nominate a successor for Flint in 2017, who in turn will starting searching for a replacement for Gulliver.

In the wide-ranging interview, Flint, who also chairs the Institute of International Finance and advises the Chinese and British governments on business and trade, said the banks need more clarity on UK lawmakers’ talks to leave the European Union. He reiterated the industry’s call for a transition period of at least two years.

“If there isn’t a belief there will be some period of transition then you have to plan for the fact there might be none, and that accelerates decisions,” Flint said.