Growth from within the HSBC machine

Chris Meares, CEO for Group Private Banking at HSBC, spends most of his time on the road. The bank’s Canary Wharf, London headquarters, where he often holds court over tea and biscuits for clients and contacts on the 15th floor, is a welcome but temporary refuge.

One of his key tasks is spearheading the bank’s renewed global recruitment drive for relationship managers. Following a surge of new recruits in 2007, there was a certainly a “stop and think” moment in the summer of 2008, although the worst of the uncertainty seems to be over.

“We had a period in the middle of [that] year, when we didn’t quite know when the markets would recover,” admits Mr Meares, a 26-year veteran of the group, who has served time in Asia, the UK, the Channel Islands and Luxembourg.

Although there was talk of “right sizing” the operation, responsible for profits of nearly $1.5bn (E1.1bn) in 2008, this soon gave way to a new hiring spree at the turn of the decade, with staff being added predominantly in the emerging markets of the Middle East, Asia and Latin America.

Local service

The group is present in 90 countries, where branches were either acquired from other institutions or created from scratch and the aim is to provide a private banking service in each location. “You build a local bank with local management and then you put in some of your own management. Working in this way, we were the first bank in many Middle Eastern countries,” says Mr Meares, who sees UBS, JP Morgan and Credit Suisse as his key competitors globally. Citigroup would once have been in this coterie, but appears to have slipped off his radar.

It is the ability to service clients onshore, on a local level, which he believes will power private banking growth. The expected end of Swiss banking secrecy – though there may be a few twists along the way – will certainly put a dent in the old offshore model, believes Mr Meares.

Although Switzerland, where the operating platforms for his private bank, managing assets of more than $350bn, are based, following a delicate merger between the 150 year-old Swiss-German Guyerzeller bank with the recently acquired Safra and Republic organisations, will doubtless re-assert itself.

“Longer-term, Switzerland will remain an attractive destination from which wealth will be managed. The expertise and systems, the pool of labour and skills – you won’t find these elsewhere,” says Mr Meares. There is still a logic to being based in Europe, though Mr Meares is expected to transfer in the very near future, once more to Hong Kong, to work alongside HSBC’s chief executive Michael Geoghegan and former asset management boss Mark McCombe, who have both relocated to Asia.

In 2003, HSBC started growing its domestic private banking operations, investing in China, India, Latin America and the Middle East in particular. “For the first few years, you tend to lose money, but the investments are important for the long-term,” he says.

Islamic expansion

This strategy of a building a global business through local roots involves leveraging trends, such as Islamic banking, which has been identified at group level as a major element of expansion plans, particularly in the Middle East. HSBC already owns 40 per cent of Riyadh-based Saudi-British Bank, which conducts the majority of its business on an Islamic basis. “It has become the default option for them,” reveals Mr Meares. “There have been competitors pulling out of these markets, which has certainly helped us.”

Now individuals need to be identified to service clients and assets being sourced from both within HSBC and externally. “We already have 7,000 people, but we need to add relationship managers to win new business and to handle business coming from the group,” says Mr Meares, whose policy to separate relationship from portfolio management means that as a relationship gets more complex, a larger team of specialists such as hedge fund advisers and wealth planners, dealing with family and business succession issues, are needed to service client needs.

This emphasis on tapping business from within the group, often before other, external opportunities, is also central to the bank’s expansion policy. Yet it works both ways, with the private banking arm expected to sell internally-created products to wealthy clients, as well as reaping rewards of referrals. “For HSBC Asset Management, the primary task is to pick the low-hanging fruit,” ventures Mr Meares.

“They need to create, sell and distribute products through the whole of our group network. But the private bank represents just a small part of that network.”

In terms of inter-group referrals, HSBC’s commercial and retail banking arms, rather than the capital markets-led Global Bank, have been the key counterparties for the private banking division.

“There are one-off deals, where we might get a referral from the Global Bank & Markets division,” says Mr Meares. “But the sweet spot is working with our commercial banking colleagues, who have known their corporate clients for a number of years. There are three million owner managers handled by our commercial bank, so we always try and get a referral, as they create wealth over the years.”

HSBC has had a programme tapping into these sources for the last seven years, he adds. “You can only do it with a systematic process and you need to keep banging on. You can’t just make an announcement and do it in one year.”

But Mr Meares is keenly aware that despite the huge success of his business and the admiration in which his global strategy is held by rivals and consultants, it is still buried deep within the HSBC machine, which unlike the wealth-centred Swiss banks like UBS, Credit Suisse and Julius Baer, always has other, more lucrative priorities.

“This is an attractive business to the group in terms of return on equity and is a good place for the group to invest its capital in,” he says, with contributions from wealth management increasing from 3 to 7 per cent during his watch, although he is aiming for a stable 10 per cent contribution eventually.

It is not expected that expansion targets will be met purely through organic growth. Further acquisitions are definitely on the cards and while he is not able to comment on individual targets, it is no secret that Mr Meares ran the rule over ING. “Back in 2007, valuations were very high. Now they are coming down, for good reasons, so we are keeping our eyes open,” he says.

Big-bank ethos

While Mr Meares has been praised externally for the speed and diplomacy with which he integrates new acquisitions, there has been criticism before of HSBC’s absorbtion of smaller private banks. One example was the buyout of Banque du Louvre in Paris in 2003, after which most of

the French bank’s investment team fled to Ofivalmo and quickly ended up gathering in more assets than they had managed at HSBC. He knows, more than most, the importance of “getting the culture right”, but admits that if dissenters don’t like the HSBC big-bank ethos, they can’t be stopped from leaving.

Further acquistions will usually be expected to fit into the group strategy of expansion in emerging markets. But there is also a deep probe into the type of client joining the bank, rather than just the size of assets added in a corporate action. “Whether you go with it or not, depends on which client you are acquiring with an institution,” reveals Mr Meares.

“Ideally, we like wealthy clients, and we expect them to have an average wealth in a portfolio of $5m or more,” he explains. “These people are typically coming to us from emerging markets, or markets where there is a prospect of continuing growth in wealth. But we don’t overlook the classic integration at a good price with a good book of clients. It doesn’t have to be an emerging market. If we can do it, we will.”

Chris Meares

HSBC