Transcription
Is the easy stuff done, like this? The stock's had a great run. You've reorganised the business into four divisions. The market broadly has been on board so far. But as it does, the tough bit now comes. You've got to deal with the expenses. You've got to figure out exactly what the wealth division is and how it's going to function to become this kind of global leader.
Yeah, no, it's a great question. A lot has been done. In fact, I think we're very proud about the speed, about the scope of what we've been able to achieve in really a very short time. It's been less than a year, and I think no one would argue that we probably have done more transformation, more change at HSBC, particularly in its history. And so we're very, very proud of what we've achieved. I would love to say the easy things have always been done. There's always tougher things to do, in particular in an ever-changing environment. But we have done it quite a lot, in particular around the organisational aspects of the change.
So what does year two bring you, or to? I think in particular for my business brings much more focus on simplification and much more focus on really just efficiencies. And by that, I mean not just cost efficiencies, but just being a better bank, being able to respond quicker, to be more agile, all the things that really take a long time.
Do you think some of that's already in the price, in terms of the share price performance thus far? I don't know. I mean, I think a lot of it is certainly in there. I think you mentioned the cost. You know, as George has said many times, we will achieve the cost savings that we have set out to achieve. We're very confident the management team will do that. And so that's fully in train right now. But clearly, you know, we have to respond to the environment, clearly to respond to all of the policy changes that are coming out of in various places. So, yes, I think we have done a lot. I think we will do more to do. I think it will be focused on really making the bank just a better bank, operating more efficiently. I think probably the stock market understands it. In fact, it's a 22-year high, is what it is. So it's an extraordinary, I think, positive response for the market. But we clearly will always have more to do.
HSBC has exited a series of businesses lately to focus in on that kind of restructuring that you've just outlined in the cost efficiencies. As you would say, there might be a little bit of FOMO there. Do you think you're missing out on this big moment for Europe, this big moment for the UK, as people look to diversify away from the States?
No, and I think you're referring to what the investment bank, the changes there, because we have actually had a lot more disposals of various types. Not really, no. And I think the reason being is that we were never a bulge bracket investment bank, and that is something for everybody to understand. We were a good investment bank, in particular where we have scale and relevance. Asia and the Middle East being those regions. And if you look at how we really perform and what our value added, it is really the cross-border nature of our business, and it is really in regions where we have an undeniable leadership position. Asia, the Middle East being those two regions. And thirdly, those are the reasons for the future. Those are the regions that will grow. I think about ten years from now, it's not going to be the same. And, you know, I grew up in investment banking. I understand exactly what anybody is talking about. 60% of the fees are in the United States, and we are in the United States in our debt business, by the way. We've just reduced our M&A and equity business, so we can still utilize the value of the capital markets, which are the largest capital markets in the world. Obviously, very important to be there. So we have a lot of deals that go to the US capital markets. That's great. But the future is really Asia, the Middle East.
So critics of that argument would suggest that the experience of five years ago during COVID, when Asian markets were largely closed and a lot of the investors that were very bullish on Asia kind of learned their lesson and really pulled out from that kind of exposure. It's taken a while to even dip a toe back in. Why, not necessarily in COVID, but in another circumstance, should people increase their exposure to a region that has historically not always been the most sure bet?
Because I think that's an enormous amount of wealth creation occurring right now in Asia, whether it be India or China. I think Hong Kong will become even more important capital markets, or a centre for capital markets around the world. I think that you see a huge amount of capital and trade flows going between the Middle East and Asia. You have two regions that have an enormous amount of capital, and they're exchanging capital back and forth. But any of it coming from the States or from Europe, it's much less. Well, still, there always will be. Yeah. I mean, if you look at where American companies are expanding, they're expanding in those two regions. If you look at where European companies are expanding, they're not expanding in Europe. I think the US is largely done. They're expanding in those two regions. The interesting thing, however, is the amount of money going from the Middle East into Asia and vice versa. I think we have underestimated that. It is a significant and I think permanent trend. And that's where we're there is to capture those flows as you have a reordering of the world's capital flows.
Michael, all talk about staffing. You talked about some of the headwinds floating around the world diplomatically. Many of them come from the White House. Got this change on the H-1B visa. How much does that affect you? Because we know it affects tech. It affects finance.
It does. You know, our operations in the United States are about 6,000 people. So relatively, it's much less than if you're Microsoft or Google or some of the big tech companies or some of our American competitors. We had a flurry of activity this weekend, like everyone else. I think it was unfortunate because the initial policy was unclear as to whether it was retroactive or prospective. They've now clarified that it is prospective, so that makes it much easier. I think it was going to be very disconcerting for a lot of people, in particular those holders of those visas who were traveling abroad.
But are you having, are you instructing staff to stay put? Do you think, in the longer term, you'll have more staff based, say, in Asia or in Europe?
You know, again, we don't have a huge amount of H-1B visa holders. Yes. I think for all companies, you know, to pay an extra $100,000 on top of everything else, it is going to change the way we look at staffing. I think it for us, it's it's manageable. I think for maybe other financial services companies, similarly, I think for tech companies, that is a much bigger issue.
To kind of come back to this question of the relationship between the Middle East and Asia and the changing kind of nature of global trade. He was criticized at three weeks in D.C. talks about decolonisation. That's now a process that is unfolding. This concern that there exists in the United States about that. Do you think that? Do you think that relationship is enduring? Do you think it's been created to a certain extent by the Trump administration? Are we seeing a reordering in bigger, bigger, in sort of in in the sort of tectonic plates of the world as a result of what is happening out of D.C. and forcing other people together?
Yeah. Look, it's a very good question. The answer is, I don't know, because I think the policy changes quite a lot. I think clearly, if you're not going to have the dollar as the reserve currency, that forces a major reordering of the world's economic structure as we have today. I think there is concern. I've talked to many investors, those in Asia and elsewhere, who are quite concerned as to what this means. There is no alternative. That is the reality. There will not be an alternative for many, many years. And so tomorrow, if the US dollar is not the reserve currency, what is not? It's not the renminbi, it's not the euro. I mean, the actual relative change between currencies, reserve currencies, has not changed for the last 20 or 30 years. In order to have a significant change, I think it takes a long time to do so. If, however, there is a major policy change, there is, for instance, you know, some discussion of taxing holders, foreign holders of U.S. Treasuries, as an example, that would send a signal that, yes, I think you'll have an evolutionary change. Just because a practical reality, you can't do it quickly. Yeah, but that would introduce a significant amount of uncertainty in the world's economic work.
You talk about Asia and the Middle East be coming to fall and guys question this kind of new sphere of growth. Can it still hold the level of innovation, financial innovation that you still see from the States? I'll give you an example. In the private markets, for example, yes, they're expanding, but the driver of that financial market innovation, things like democratizing for 1Ks, in terms of getting access to private markets, in terms of the IPOs, in terms of some of the structured products that are out there, is still driven by the large scale American players. Are you still seeing some of that innovation being done more organically from the Middle East or Asia? Or is this about adopting what starts in the States?
Yeah, look, I think clearly from a financial perspective, the US capital market is still the dominant capital market. A lot of the financial innovation comes from the US, having been there for most of my career, so very well aware of that. However, I think you'll see one, a very quick adoption of many of those type of changes into both the Middle East, in particular in Asia. I think it's not only, by the way, financial innovation. I think it's also industrial innovation, technology, which is coming out of places like China, fast and furious. I mean, I was also in Silicon Valley the week before last. I was in Israel last week. I will go to China. And just to see all of that innovation is pretty extraordinary that's going on. And it's just not American innovation anymore. So I think that's one thing everyone should understand. Financially, yes, you certainly benefit in the United States by having the largest, most liquid financial markets, and you have some of the largest banks in the world. So that's very helpful as well. But I don't, I don't think that will be confined to the U.S. And I think more and more you'll see US players focusing on places like Asia. We see a huge amount of that, the inflow of US capital into Asia. They will bring technology with their capitalism.
What's HSBC doing in the private markets? Are you growing as fast as maybe some of your peers?
Yeah, we are, yeah. And we look like part of our restructuring is to put all of our private credit activities in one place. It was not in one place before. So we're doing that as we speak. And that gets to your question about what are the things we're going to be doing going forward. It's what I call debottlenecking a lot of those issues. Every bank has this is a problem, by the way, is how do you respond to private credit, which is a new type of financing, which doesn't really necessarily fit with the conventional way banks have been structured.
Is there systemic risk in private credit?
We looked at it very closely. In fact, we've had lots of discussions internally. And even with our board, you know, there clearly will always be systemic risk. The question is how much leverage there is. You know, what would be the trigger for that systemic risk is something that we look at very quickly, or very closely.
Michael, I started by asking you about the restructuring for a year, and I figured it would just morale.
I look, fine. I mean, no one likes to go through restructuring. And the reason we've moved as quickly as we have, which I must say again, is as quick as we could possibly do it, is very, very sensitive to morale issues, very sensitive to being distracted. That is very distracting. I think we're in a position now to say that first phase, that organizational change phase, is coming to an end. And that's probably the most important thing. Not that we don't have more to do, as Guy asked before, we will continue to, I think, improve the place, make it easier for our bankers and our traders and our salespeople. That's what we're going to focus on going forward. That rewiring and that plumbing, by its very nature, is not quick. And I just told a group the other day, bear with us, we know what we're doing, but it will take a while. But we're doing, I think it's a very interesting things around AI, doing it. Very interesting, the digitization. That will make their jobs easier, but also plays through right to the clients. That is really where we see a lot of value going forward.