Investors React Favorably To HSBC Holdings plc (ADR) (NYSE:HSBC) (LON:HSBA)’s Move To Hire Outsider

Investors React Favorably To HSBC Holdings plc (ADR) (NYSE:HSBC) (LON:HSBA)’s Move To Hire Outsider


Shares of HSBC Holdings plc (ADR) (NYSE:HSBC) (LON:HSBA) has hired a former Prudential Executive, Mark Tucker, as chairman with effect from October 1. Current chairman, Douglas Flint, is planning to quit his position later in the year. Following the move, the stock jumped about 12 percent in Hong Kong.

The first task that Tucker will face is selecting the next chief executive. The primary question will be whether it would be insider or outsider like himself. Tucker would be paid pounds sterling 1.5 million as annual fee apart from standard benefits. Following his appointment in HSBC Holdings, AIA Group Ltd, where Tucker is working as CEO currently, has selected Ng Keng Hooi, its Regional CEO, to be the CEO-designate to succeed him, Reuters reported.

The latest move of hiring an outsider is an indication of its current efforts for steady and low-risk income streams. Currently, the company is engaged in restricting to position itself into tougher regulations environment. This meant that HSBC would have to make its retail operations as a separate identity and not work from investment bank. This follows due to alleged past misconduct or failure to adhere to compliance. There are as many as 235,000 workmen spread across the globe in 70 nations.

The company also faced pressures from investors for falling profitability forcing it to resort to restructuring. In November last, the company brought in Henri de Castries, AXA SA CEO, and Paul Walsh, a former Diageo Plc leader, as independent and non-executive directors.

As far as Tucker, he will bring in over 20 years of experience to help HSBC turnaround in the region. He was the CEO of Asian Region’s Prudential Corporation between 1994 and 2003. He joined AIA in 2010 before its listing in October the same year.

The challenges that will be before the new management, including the fresh CEO, would the restoration of investors’ confidence on HSBC and growth in the company. Currently, the company enjoys net margin of 2.2 percent for the trailing twelve-month period whereas the industry’s margin is a strong 15.4 percent. Similarly, the company’s return on assets and return on equity for the TTM period is only 0.1 percent and 0.7 percent respectively compared to the industry average of 0.5 percent and 6.4 percent respectively.