As Bank of East Asia turns 100, chairman David Li plots digital future, says he’ll stay on until March 2021
- BEA chairman David Li Kwok-po, 79, says he has no plans to step down before his contract ends in March 2021
- The bank, Hong Kong’s oldest, celebrated the 100th anniversary of its founding on Wednesday
David Li Kwok-po, the third-generation scion of Hong Kong’s oldest home-grown bank, Bank of East Asia, said he will remain active in managing the bank’s 200 global outlets at least until 82 years old, showing no signs of handing the reins over to the next generation for the next three years.
Li, 79, is the longest serving and one of the highest paid bankers in Hong Kong, taking home HK$46.9 million (US$5.99 million) in compensation last year. His contract as chairman and chief executive of BEA will end on March 31, 2021, when he turns 82.
“I have a retirement plan in my head but I have not received approval from my wife. As such, I can not disclose anything,” Li said, during a lighthearted moment on Wednesday, as his bank celebrated the 100th anniversary of its founding.
“It does not matter when I will retire. The bank’s management has succession planning on all important roles. The management reviews succession planning from time to time subject to the approval by the board,” Li said.
Li declined to say if his two sons – Adrian Li Man-kiu, 45, and Brian Li Man-bun, 44 – who are both deputy chief executives of the bank, will take on either of his two roles at the bank.
“It would be up to the board, and not me, to decide the future roles of my two sons at the bank,” Li said.
By 2021, he will have worked at the bank for 52 years – including 40 years as chief executive and 24 years as chairman.
“We do not believe there would be any negative impact to the bank if Mr David Li retires as both Adrian and Brian have been managing the bank for quite some time,” said Michael Wu, senior equity analyst of Morningstar, an independent research firm headquartered in Chicago.
“There are many challenges for the succession planning of family business in Hong Kong,” said Joe Ngai, McKinsey's managing partner for Greater China.
“A McKinsey study showed family run business could have smooth succession as long as the family find the right personnel. In many cases, family businesses run by shareholders have more stable management,” Ngai said.
Li faces a set of complex challenges as he enters his sixth decade at the bank that was co-founded by his grandfather Li Koon-chun, great uncle Li Tse-fong and seven others on November 14, 1918, just three days after the end of the first world war.
In addition to furthering its growth strategy and the roll out of the next generation of digital technology, Li will need to address criticism by activist hedge fund Elliott Management that top management has suffered corporate governance failings.
Elliott Management, an activist investor with an 8.37 per cent stake in BEA, has been mounting a campaign since 2015 to reform the bank's shareholding structure, describing it as “sclerotic” and unresponsive to change. A dispute involving the two parties was last heard in Hong Kong’s High Court in October, with the verdict pending.
At present, Sumitomo Mitsui Financial Group has a 19 per cent stake in BEA and Criteria Caixa a 17.3 per cent stake. Li owns 3.25 per cent while other Li family members own almost 3 per cent. The bank’s third largest shareholder, Malaysian conglomerate Guoco owns a 14.15 per cent stake.
Li declined to comment about the allegations made by Elliott Management.
Li started work at BEA in 1969 at the age of 30, earning a monthly salary of HK$2,400 as a junior accountant.
“I rejected three others offer as I believed in the future of the bank,” Li said.
Li was among the first group of businessmen to visit the mainland in 1974 – four years before major economic reforms following the Cultural Revolution.
The bank now has 100 branches and over 5,000 staff in the mainland, making it one of the largest foreign banks. The lender also has about 70 branches in Hong Kong, employing 4,600 staff. Beyond China, the banks maintains offices in the US, Canada, UK, Singapore, Malaysia, and Cambodia.
“When we toured the mainland by train in 1974, we never imagined that the country could achieve what it has done in terms of infrastructure projects and economic growth,” he said.
Li oversaw two acquisitions to expand the bank’s operational footprint, taking over the United Chinese Bank in 1995 and First Pacific Bank in 2000.
“If I could have bought more other lenders, Bank of East Asia would be much bigger,” he said.
“Now I would not buy any other banks but I would prefer to set up an alliance with technology companies to boost our fintech. The future of banking is all about digital,” he said.
“When I first joined the bank, there were no computers. Some accountants still used an abacus. We computerised our branches in the 1970s. Now we need to offer mobile phone apps and the internet to serve our customers,” he said.
Last year, Li’s sons led a push to team up with Tencent Holding’s WeBank and online travel provider Ctrip to offer credit related services.
In August, the bank teamed up with Australia's Airwallex and Sequoia Capital China to apply for a virtual bank licence in Hong Kong.
“It is now in the hands of the Hong Kong Monetary Authority to decide if Bank of East Asia will have a new virtual bank licence,” Li said.
While adding new mobile apps and other tech services, the bank has trimmed its Hong Kong branch network from 92 to 70 by closing unprofitable outlets.
The bank reported first half earnings of HK$3.99 billion, reflecting a rise of 26 per cent year on year. This came after the bank's net profit peaked in 2017 at HK$9.35 billion.
BEA shares have fallen 2.8 per cent in the past month, becoming the biggest loser out of 20 Hong Kong-listed bank stocks, compared with 0.2 per cent average gain. The share has fallen by almost 23 per cent during the past year.
Of the 15 analysts who cover the bank, only one has a buy recommendation while six recommend investors sell the share.
“BEA has material exposure to mainland private companies and individuals, where non-performing loans have slowed but remain elevated, ” said Anil Agarwal, an analyst of Morgan Stanley. He has an underweight rating on the bank and a target price of HK$22.
BEA closed at HK$25.7 on Wednesday, easing 0.4 per cent during the session.
J.P. Morgan analyst Jemmy Huang also said: “Unfavourable operating performance in China would cap earnings upside and there is limited chance for a meaningful increase in the cash payout ratio or dividend yields despite a strong capital position.”
Morningstar’s Wu has a hold recommendation and a target price of HK$28.60.