HSBC CASE EXERCISE

BMG 311

DR. ROBERT J. PALMER

PURPOSE OF ASSIGNMENT

• Using HSBC as your client, I want you to go through the entire Kotters’s Theory
• I would like you to ONLY use the information found in this presentation – but if you
know something already about HSBC, you can use it
• Answer each question fully if possible (atleast two to three paragraphs per answer)
OVERVIEW OF BUSINESS
THEIR STAKEHOLDERS
THEIR VALUE TO SHAREHOLDERS
MARK TUCKER GROUP CHAIRMAN
BOARD SUPPORT FOR CHANGE
• An impairment of historical goodwill caused our reported profit before tax to fall by 33%, but the strength and resilience of our
business model delivered an adjusted profit before tax of $22.2bn, up 5%.
• Retail Banking and Wealth Management, Commercial Banking and Global Private Banking performed well, while our leading
transaction banking franchise again demonstrated the effectiveness of our global network. This, alongside the Group’s capital
strength, has given the Board the confidence to approve an unchanged dividend of $0.51 for 2019.
• Strategy
• At the time of Noel Quinn’s appointment as interim Group Chief Executive in August 2019, the Board gave him full authority to
address areas of weakness, improve performance and create capacity to invest. Since then, he has worked closely with the
Board to begin delivering against this mandate. The Board has endorsed a plan that aims to reallocate capital to areas that can
deliver stronger returns, to reduce costs across the Group, and to simplify the business.
• Even in this increasingly challenging competitive environment, there are many opportunities for a bank of HSBC’s scale and
reach. We have made a good start in capturing these opportunities, but we need to go further and faster to capitalise fully on
our heritage, network and financial strength. We are intent on driving through the necessary change at pace.
MARK TUCKER GROUP CHAIRMAN
EACH OF THEIR KEY MARKETS IS FACING SIGNIFICANT
CHALLENGES
• The global economy

• HSBC is a global bank, albeit one closely associated with mainland China, Hong Kong and the UK. Each of these continues to face major challenges.

• We continue to monitor the coronavirus outbreak very closely. Our priority is always the well-being of our customers and staff, and we will continue to do all
we can to ensure their safety and support them through this difficult time.

• Social unrest in Hong Kong has weighed on the local economy and caused significant disruption. We deplore all violence and support a peaceful resolution under
the framework of ‘one country, two systems’.

• I am enormously proud of the dedication and perseverance of our people in Hong Kong, who have continued to support our customers to their utmost ability in
spite of the difficulties they have faced.

• Now that the UK has officially left the EU, negotiations can begin on their future relationship. This has provided some
certainty, but no trade negotiation is ever straightforward. It is essential that the eventual agreement protects and fosters the many benefits that financial services
provide to both the UK and the EU. At the same time as remaining close to Europe, the UK must also strengthen its links with other key partners, including the
US, China and south-east Asia. We look forward to working with governments to help achieve this.

• The macroeconomic environment as a whole remains uncertain. As a result of the impact of the coronavirus outbreak, we have lowered our expectations for
growth in the Asian economy in 2020.
Q1 CREATE A SENSE OF URGENCY
• HSBC has long recognised its responsibilities to its stakeholders. Being a responsible corporate citizen is
a principle that must sit at the heart of any sustainable business.
• I welcome the renewed focus and debate around corporate purpose in the media and elsewhere over
the last 12 months. We are committed to creating long-term value for all those we work with and for –
our investors, customers, employees, suppliers and the communities we serve.
• Business also has a critical role to play in the transition to a low-carbon future, and we believe that we
have an opportunity to be a leader. Sustainability features prominently in our strategy, as well as in the
way we run the business. We are absolutely committed to working closely with our customers,
regulators and governments to accelerate progress towards a cleaner and more sustainable world.
NOEL QUINN
GROUP CHIEF EXECUTIVE
• Our immediate aims are to increase returns, create the capacity to invest in the future, and build a platform for sustainable
growth. We intend to do this in three ways.
• First, we plan to materially reshape the underperforming areas of the Group. Around 30% of our capital is currently allocated to
businesses that are delivering returns below their cost of equity, largely in Global Banking and Markets in Europe and the US.
We intend to focus these businesses on our strengths as a leading international bank and to simplify our footprint, exiting
businesses where necessary and reducing both risk-weighted assets
and costs.
• Second, we aim to reduce Group costs by increasing efficiencies, sharing capabilities and investing in automation and digitisation.
• Third, we intend to simplify HSBC to increase the pace of execution and agility. This includes changing our matrix structure and
reducing fragmentation, simplifying the geographical organisation of the Group, and combining Retail Banking and Wealth
Management and Global Private Banking to create one of the world’s largest wealth management businesses.
Q2 2 BUILD A GUIDING COALITION
NOEL QUINN
GROUP CHIEF EXECUTIVE
• For our retail customers, we introduced more than 160 new digital features in 2019 to make everyday banking easier, including
improved digital account opening, loan and mortgage applications, and instant money transfers.
• In Hong Kong, we have made it simpler and faster for our Hong Kong customers to make payments through our redesigned
PayMe app, and launched PayMe for Business, expanding the PayMe ecosystem for the 1.9 million individual account holders
who use it as part of their daily lives.
• Global Banking and Markets launched MyDeal in 2019 to make the deal execution process in our primary capital markets
business more efficient for our clients. Our Global Private Banking business also launched a new online investment services
portal to give our customers more control over the service they receive.
• Commercial Banking launched Serai in 2019 to simplify international trade for SMEs with global trade ambitions. It provides
both a digital lending product and a networking platform to match buyers and sellers andbuild trusted business relationships.
• We also remained at the forefront of international efforts to commercialise blockchain technology to make trade finance easier,
faster and safer for businesses. As part of this, we completed 11 letters of credit transactions using blockchain technology in
2019, including the first cross-border transaction in China.
NOEL QUINN
GROUP CHIEF EXECUTIVE
• In our June 2018 Strategy Update, we outlined eight strategic priorities across the themes of ‘Deliver growth from areas of strength’, ‘Turnaround of low-
returning businesses’, ‘Build a bank for the future that puts the customer at the centre’ and ‘Empower our people’. We ended 2019 on track in five of our eight
strategic priorities, partly on track in two and off track in one. (The following comparisons are against the previous year, unless stated otherwise.)

• We accelerated growth from our Asia franchise and grew market share in our UK ring-fenced bank, HSBC UK, which we established in 2018. We
improved capital efficiency by growing our revenue over risk-weighted assets ratio. The Group made efficiency gains that helped achieve positive adjusted
jaws in 2019. We also sustained a top-three rank and/or improved by two ranks in customer satisfaction in most of our key RBWM and CMB markets
compared with 2017.

• We had mixed results in our priority to deliver growth from our international network. We gained market share in two of our four transaction banking
products, and grew transaction banking revenue and international

• client revenue below our target of mid-to-high single digits. When it came to simplifying the organisation and investing in future skills, we delivered a
mixed outcome, with employee engagement unchanged at 66%, falling below our target of improving each year. However, we achieved a medium environmental,
social and governance (‘ESG’) risk rating, outperforming a group of peers. Our ratings provider, Sustainalytics, updated its methodology during 2019.

• We remained off track in turning around our US business and do not expect to achieve a US RoTE of 6% by 2020. We will need to reshape the US business
in order to improve returns.

• With the provision of our 2020 business update below, we conclude reporting on our eight strategic priorities. In their place, we will report on our updated
performance programme going forward, which we set out in the following section.
Q3 STRATEGIC VISION AND INITIATIVES
EMPLOYEES AND EMPLOYEE SATISFACTION
Q4 – BUILDING A VOLUNTEER ARMY
ENABLE ACTION BY REMOVING BARRIERS

• Investing in our opportunities and areas of strength

The Group will continue to invest in our growth opportunities, our customer experience and delivering value to all of our stakeholders. We intend to reinvest
the RWAs saved as a consequence of our restructuring in our high-returning Asia and Middle East businesses, HSBC UK, our market-leading transaction banking
franchise and the international wealth opportunity. As part of our customer experience initiatives, we plan to improve digital capabilities to improve customer
satisfaction, evolve our product suite and strengthen our internal processes. As an example, we plan for the full launch of HSBC Kinetic for small businesses in the
UK in 2020. We plan to continue to support the global transition to a low-carbon economy, demonstrated by our continued commitment to provide and
facilitate $100bn of sustainable finance and investment by 2025.

• Creating a simpler, more efficient and empowered organisation

Our remodelling plans will be accompanied by a substantial cost reduction programme and a number of steps to simplify HSBC.
These aim to reduce our overall cost base and to accelerate the pace of change. There are three broad parts to these plans. First, we aim to remove costs linked
to discontinued activities. Second, through further investments in technology, we intend to re-engineer processes to take out costs and improve the customer
experience. Third, we plan to simplify our matrix organisational structure.

• As part of this, we intend to move from four lines of business to three, by merging GPB and RBWM to create one new organisation, Wealth and Personal
Banking. We also plan to merge the operational support infrastructure of CMB and Global Banking, while maintaining separate front-line teams, which should
improve collaboration between the two businesses. Furthermore, we intend to reduce the number of geographies represented on the Group Management Board
from seven to four. In order to match the size and new structure of our organisation, we plan to reorganise our global functions and head office.
Q5 ENABLE ACTIONS BY REMOVING BARRIERS
SHORT TERM ACHIEVEMENTS

• The Group’s updated plan will have three overarching 2022 targets. We will target a gross
RWA reduction of more than $100bn; we intend to reduce our cost base to $31bn or less;
and we will target a RoTE in the range of 10% to 12% in 2022 with the benefit of our cost
reductions and redeployed RWAs flowing into subsequent years. Our gross RWA reductions
are expected to largely come from the non-ring-fenced bank in Europe and the
UK, and the US.
• We also plan to redeploy over $100bn to higher returning areas, which will deliver strong
growth in the rest of our business. As a result, we intend for the Group’s net RWA position to
be similar to today, but have a higher earning asset mix. We intend to sustain our dividend
policy and plan to suspend share buy-backs in 2020 and 2021 as we go through the period of
restructuring.
Q6 SHORT TERM ACHIEVEMENTS
SUSTAIN ACCELERATION

• Our risk appetite is articulated in our risk appetite statement, which is approved by the Board. Key elements include:
– risks that we accept as part of doing business, such as credit risk, market risk, and capital and liquidity risk, which are controlled
through both active risk management and our risk appetite;
– risks that we incur as part of doing business, such as non-financial risks, which are actively managed to remain below an
acceptable appetite; and
– risks for which we have zero tolerance, such as knowingly engaging in activities where foreseeable reputational risk has not been
considered.
• In 2019, we continued to refine and evolve our risk appetite, by enhancing both the financial and non-financial aspects of our
risk appetite statements to ensure we are able to support
• our strategic goals against a backdrop of economic and geopolitical uncertainty. A specific emphasis was placed on capital risk
and non-financial risks, with the inclusion of third-party risk management and enhanced model risk oversight.
Q7 SUSTAIN ACCELERATION
Q8 INSTITUTE CHANGE