HSBC's management acknowledged a string of shortcomings in its performance as the bank set a new target for expanding in emerging markets.
Stephen Green, HSBC's chairman, admitted to analysts yesterday that the bank's shares had underperformed and that some of its expansion into new markets and businesses had gone badly. He said the bank was prepared to get rid of businesses that were not performing well.
Mr Green said the bank was aiming to make about 60 per cent of its profit from emerging markets, up from about 50 per cent now. HSBC's renewed focus on Asia would include listing the bank's shares in Shanghai if possible, he added.
HSBC is under pressure from Knight Vinke, an activist shareholder which accuses the bank of being spread too thinly around the world and being complacent about creating value for shareholders. The investor has criticised HSBC for ignoring its Asian roots for growth in the US and Europe.
Under Mr Green, HSBC had already refocused on Asia and emerging markets before Knight Vinke's assault started in September.
Knight Vinke has been particularly critical of HSBC's acquisition in 2003 of Household, a US sub-prime lender whose bad debts have rocketed as borrowers defaulted on mortgages. HSBC allowed Household's management to run the business but fired them and put the bank's own people in last year after loan defaults surged.
Mr Green acknowledged the mistake, saying HSBC would put its own people in to run any acquisition from the outset. "A test will clearly be: are we capable of handling the management implications of an acquisition," he said.
Michael Geoghegan, HSBC's chief executive, said: "Household clearly hasn't performed the way we wanted it to." But he insisted HSBC would remain in the consumer finance business and reap the rewards when the market recovered.
Mr Green said the bank's US business was not balanced and that HSBC had not done a good job of servicing customers from Latin America, where it has a big operation. HSBC will build up branches in US states such as Florida with big Latin American populations but will not buy a big US bank, he added.
The tone of Mr Green's comments was a far cry from that of his predecessor, Sir John Bond, who was impatiently dismissive of HSBC's critics. Sir John drove the takeover of Household and the abandoned attempt to turn HSBC's investment bank into a competitor for Wall Street giants.
Analysts asked tough questions about the bank's strategy and how HSBC would demonstrate its performance in future. One analyst thanked Mr Green for his candour in acknowledging past underperformance.
In a further concession to investors, Mr Green and Mr Geoghegan promised to give investors targets on which to judge management's performance.
Mr Green said HSBC was keen to list in Shanghai as soon as possible. "We would clearly be interested and we have made that clear to all concerned, including in the mainland," Mr Green said.
Knight Vinke has accused HSBC of being in too many unprofitable businesses and of using its capital inefficiently. Mr Green said he would be "tough-minded" with businesses that use too much capital and cannot be restructured. "There will be instances where we free up capital," he said.
HSBC gave a warning about the future profitability of the UK banking sector in the face of customers shopping around and regulatory clampdowns. He said people were underestimating the possible impact of the banks losing a court battle with the Office of Fair Trading, which is trying to cut overdraft fees.
"[The case] could well change the economics of retail banking in this country," Mr Green said. In 10 years' time, there will be many fewer bank branches in the UK as lenders cut costs, he warned.Reuse content