Whistle-blower memo calls out poor performance, ‘failure of leadership’ in HSBC’s investment banking unit

Memorandum by unnamed HSBC executives says senior leaders have ‘failed to create a successful strategy’ for its investment bank

PUBLISHED : Friday, 21 September, 2018, 10:58pm
UPDATED : Saturday, 22 September, 2018, 2:06am

A leaked memorandum purportedly written by unnamed HSBC executives has called out its investment banking division, saying there is an “utter failure of leadership” in the business and that senior executives have “failed to create a successful strategy”.

The memo, dated August 25, is being circulated within the investment banking community in London and in Hong Kong, and cites the departure of a number of senior bankers in recent years and the lender’s ranking in annual league tables as a sign of problems within the business.

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“We are entirely fed up and demoralised, and have no confidence at all in the existing leadership,” said the memo, which was addressed to HSBC Chairman Mark Tucker, chief executive John Flint and the bank’s board. “Unlike any other bank, there is no proper and effective route to provide upwards feedback: hence this memo, which is whistle-blowing on incompetence.”

HSBC, which is based in London but generates more than half of its revenue in Asia, declined to comment on whether it was treating the unsigned memorandum as a whistle-blowing complaint.

But the Financial Times reported on Tuesday that the memo was being reviewed under the bank’s formal whistle-blowing protocol.

“We are proud of our Global Banking business and of what Robin [Phillips, co-head of global banking] and his senior leadership team have achieved over the past few years,” HSBC said in a statement.

The bank’s handbook for UK employees, which is available online, notes that it has several routes for employees to raise grievances: whether through their normal reporting line, or confidentially by telephone, email or the post. According to the handbook, the bank endeavours to protect the identity of individuals who use its confidential reporting system and advised the individual of this before any disclosure, if that is deemed necessary.

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“While an individual may raise concerns anonymously, the ability to investigate, ask follow up questions or provide feedback will be reduced if the individual cannot be contacted,” the bank said in its handbook. “Furthermore, it will be more difficult to put steps in place to protect the individual if their identity is not known.”

The memo, which has been seen by the South China Morning Post, was previously reported by Financial News and the Financial Times.

It also singles out by name Phillips, who has served as global co-head of HSBC’s investment banking operations since 2013, after previously heading its Asia-Pacific banking and markets business.

Phillips declined to comment through a company spokesman.

“Changing things for the better simply cannot be done under the existing leadership,” the anonymous memo said. “Senior HSBC Group management has to get an immediate grip on this problem, or should exit the investment banking business.”

The bank has had a number of high-profile departures in recent years, including Matthew Westerman, who left the bank in 2017 less than two years after he joined from Goldman Sachs, and Philip Noblet, HSBC’s vice-chairman for global banking who is moving along with two other HSBC bankers to Jefferies Group.

The internal strife comes as Flint tries to put his stamp on the bank after replacing Stuart Gulliver, the bank’s long-time chief executive who retired in February.

Flint said earlier this year that he wanted HSBC “to get back into growth mode” after the lender, which once branded itself as “the world’s local bank”, was forced to slash tens of thousands of jobs, sell businesses and exit more than a dozen countries in the years following the financial crisis. Bloomberg reported in April that HSBC was considering reducing the number of countries in which it operates even further.

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The bank, which was founded in Hong Kong in 1865, also has shrunk its global investment bank and pivoted to Asia as part of a reshaping that began under Gulliver.

In June, Flint said the bank would invest up to US$17 billion to expand its operations in Hong Kong, the Pearl River Delta in China and its wealth management business in Asia, as well as to improve its technology.

Based on fees earned from mergers and acquisition advice, HSBC was the 38th ranked firm, earning an estimated US$102.2 million this year, according to data from Thomson Reuters. By comparison, the top three firms globally – Goldman Sachs, JP Morgan and Morgan Stanley – earned a combined US$4.79 billion this year, according to Thomson Reuters.

HSBC views itself as a universal bank that can provide a range of services to clients beyond just mergers and acquisitions advice.

The bank advised China Chemical National Corporation, or ChemChina, on its US$43 billion deal for the Swiss agricultural chemicals and seed company Syngenta in 2016 and the 2015 reorganisation of companies owned by Li Ka-shing, Hong Kong’s richest man.

This year, it advised on AkzoNobel’s US$12.5 billion sale of its speciality chemicals business to The Carlyle Group, the US private equity giant, and was an adviser on UK cinema operator Cineworld’s US$3.6 billion reverse takeover of Regal Entertainment.

HSBC is one of three lenders that issue bank notes in Hong Kong. It employs more than 228,000 people in 67 countries worldwide and its shares are widely held by retail investors in Hong Kong.

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The memo also comes at a time when banks with ties to Britain are treating whistle-blowing cases with extreme care after James E. Staley, the Barclays chief executive, was investigated last year by British regulators after he sought to learn the identity of a whistle-blower.

Staley, who apologised for the incident, retained his job, but was fined in April over the incident by the Financial Conduct Authority and the Prudential Regulation Authority, a regulatory arm of the Bank of England.