The Bond between east and west - interview with HSBC Holdings CEO John Bond - Cover Story - Interview

Chief Executive, The, June, 1997 by J.P. Donlon

HSBC Holdings plc, is well placed to capitalize on the economies of Hong Kong and emerging Asia. After a period of inertia the owner of Hongkong and Shanghai Bank, Midland, Marine Midland, and others is making headway. Outwardly John Bond, the group's CEO, appears serene about the region's future - but he's watching it very closely.

In Quicksilver Capital: How the Rapid Movement of Wealth Has Changed the World, Richard McKenzie and Dwight Lee, both adjunct fellows at the Center for the Study of American Business at Washington University, remark that capital itself has undergone a metamorphosis of major proportions. It has "become more like a butterfly - flighty and elusive, much more capable of evading the grip of governments, and the charges they try to exact." This globalization of capital was captured somewhat poignantly by former Citicorp CEO Walter Wriston: "Borders that were once the cause of wars are now becoming porous. Money moves over, around, and through them with the speed of light. The flows of capital are now in the range of 30 to 50 times greater than world trade. The world's capital market that moves along this electronic highway goes where it is wanted and stays where it is well-treated."

Although Wriston's Citicorp is a dominant conduit for global capital in the emerging markets, it is closely followed by HSBC Holdings, the London-based group with a strong capital base and long pedigree in Asia. With [pounds]237 billion ($402 billion) in assets and after-tax profit of [pounds]3.1 billion ($4.9 billion) at year end 1996 - a 26 percent increase over 1995 - the group is one of the largest banking and financial services organizations in the world. Hong Kong accounts for 31 percent of the group's assets and 39 percent of its pre-tax profits, and HSBC Group's presence in China - as that country's leading foreign bank - continues to grow. The group comprises more than 5,000 offices in 78 countries, operating under a number of well-established names, including Hongkong and Shanghai Bank Corp. in Asia-Pacific, Midland Bank in the U.K., Marine Midland in the U.S., and British Bank of the Middle East.

HSBC Investment Banking rebrands the operations of James Capel and Samuel Montagu, which it had previously acquired. The purchase of J.P. Morgan's international U.S. dollar-clearing operation in 1996 secures HSBC Financial Institutions among the top five participants in CHIPS, the New York interbank clearing house, a less than glamorous, but essential service with about 1,600 customers globally. In 1989, HSBC teamed up with Wells Fargo to form a California-based trade bank and non-equity alliance providing access to banking services through more than 1,900 Wells Fargo branches in 10 Western states. A pioneer in electronic banking, HSBC's automated teller machine network enables customers to access their accounts in more than 100 countries, while its Hexagon system allows individuals and corporate subscribers around the world to conduct international banking transactions via PCs.

Salomon Brothers' John Leonard expects the group, which has posted strong volume gains in Asia and at least modest increases in Europe, to demonstrate strong earnings momentum. Lehman Brothers' Robert Law reckons HSBC shares look cheap. Shareholders' average returns increased from 20.7 percent in 1995 to 21.3 percent in 1996, with after-tax return on assets moving up from 1.28 percent to 1.45 percent during the same period. A reputation for cost consciousness is reflected in cost-to-income ratio of 52.9 percent - a 3-point increase since last year.

Both the group chairman, Sir William Purvis, and the group CEO, John R.H. Bond, are British yet steeped in Asian experience. Bond, 55, joined Hongkong Bank in 1961 and worked in Asia for 25 years and in the U.S. for four years before coming to London in January 1993 as CEO. He became executive director of Hongkong Bank in 1988, assumed responsibility for the group's commercial banking operations two years later, then returned to the U.S. in 1991 as president and CEO of Marine Midland. An American executive who worked with him in New York reports that, "he read more and learned more about the history of the U.S. and New York State than any American I ever knew." Seeking a perspective on emerging markets, particularly China and Hong Kong, CE visited with him in HSBC Holdings' Lower Thames St. headquarters in London. - J.P. Donlon

What do you consider the global business consequences of Hong Kong being restored to the Chinese? Will your firm operate differently?

Hong Kong may well be entering a new era where it manages its own relationship with Beijing, which could lead to further business success for Hong Kong. It's going to be important for Hong Kong to maintain English as the language of business, which is something that we and other companies have focused on. It makes sense if you want to expand your business into China to have a Chinese partner.

At HSBC, every year we hope to operate with sharper pencils and more customer focus, but other than that we regard it as Hong Kong as usual. We see Hong Kong - and developing our business in China - as key long-term areas.