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David Hodgkinson, who is moving to London as HSBC MD, discusses his new role and the bank’s plans for the region
Mayank Singh

BusinessToday: Despite moving to HSBC’s group headquarters in London, your involvement with the Middle East continues, are there any initiatives for the region that you are looking at implementing?

Hodgkinson: I am moving to London with a feeling that we still have work in progress. We have undergone expansion and a phase of transformation, like making inroads into Kuwait. HSBC has improved its position in a number of markets, but we are looking at other opportunities in North Africa, Libya and Algeria, as these are areas which have a good strategic potential. We have the greatest regional coverage of any international bank in the Middle East. There is a lot of cross border investment and activity happening in the region and we are keen to join up both sides of the transactions and investments that are taking place.

BusinessToday: You mentioned trans-formation, how is the financial services industry in the Middle East changing?

Hodgkinson: The world of financial services is becoming all encompassing. The region represents a market, which in many ways is in its early stages of development. For example, the equity market, though very active, still has the potential for technical and volume related growth. There is an opportunity in joining up these markets and we can assist in that process. Islamic financing is becoming an important component in some markets while insurance remains an underdeveloped sector. So there are fascinating opportunities.

BusinessToday: Looking at expansion, is HSBC Middle East open to mergers and acquisitions (M&A) or will it pursue purely organic growth?

Hodgkinson: I believe that if a company does not have organic growth then it needs to question its suitability as a partner for acquisitions. So we aim for organic growth in all markets but we are always open to the possibilities that an acquisition might present. In these heady times, banks are pretty expensive in the region and as a general rule HSBC is not noted for paying very high prices. But we are offered opportunities and we do consider them very seriously.

BusinessToday: Would it be fair to say that HSBC will aggressively pursue M&As in the Middle East?

Hodgkinson: I would be careful with the words ‘aggressively pursue’, but if we deem that it is strategically appropriate and the potential partner is in the right price range then we would actively pursue the deal.

BusinessToday: HSBC stands out in the banking industry for its steady growth over the years, unlike other banks which have gone through their highs and lows?

Hodgkinson: I would say it has been steady and good together. First, our background and history has always been genuinely international. Though Hong Kong was our home base we were never a domestic bank which tried to get involved with international business. Secondly, we believe that banks are a leverage play on underlining economies in which they operate. So we try and choose economies that present a good long term potential. We have been fortunate to have a significant part of our growth in the Asia Pacific and the Middle East which have witnessed rapid economic growth. Moreover, we have integrated our acquisitions successfully which means that the best people in the companies that we acquired have gone on to bigger jobs within the enlarged group. And this has been a key reason for our success. We also tend to take a long-term perspective of the markets that we operate in.

BusinessToday: You stressed on HSBC’s international focus. Was this driven partly by necessity or was it a matter of choice?

Hodgkinson: If you look at the evolution of business practices in banking there was a period in the 1990s when being an international bank was seen as a model that did not work. So a number of banks shrunk their international operations to concentrate on their domestic markets leaving only two significant international banking entities – Citigroup and HSBC. The percentage of profits that Citigroup makes from the US is over 60 per cent, so it is dependant on the US market. Compared to this none of our markets make up more than 30 per cent of our profits. Coming to why we made that choice (of being international) firstly, there were external factors, like with Hong Kong being our home base and having grown to over 40 per cent market share, there was a definite need to grow out. Secondly, with Hong Kong’s future in the early 90s involving a certain amount of uncertainty we had to look into expanding into environments, which offered greater political security along with our operations in Hong Kong and the Asia Pacific.

BusinessToday: In the Middle East, HSBC is up against banks identified as national entities and having a strong local relationship. Does this make it more difficult for an international bank to make inroads into the market?

Hodgkinson: It makes it very difficult for a new entrant to come in and break new ground. But we expect and encourage competition in the markets where we operate. Any country that has a vibrant and successful banking system generally has a better economy and environment for everybody, so it is not merely about winners and losers. Hong Kong has 500 different banks in a population of six million and this is the most extreme form of competition that one can come across. In the Middle East there has been a history of favouring the national entity but it has also proved to people that it is useful to deal with a bank with a strong international connectivity. Now a number of people, especially companies, try to bank with multiple banks. Our market research shows that a number of customers in the region use us as their main bank.

BusinessToday: Having worked with HSBC since 1969, what are your thoughts on the 37 years that have gone by?

Hodgkinson: It has been fascinating. I have literally seen the transformation of our company and the banking industry. I remember that when I first worked in Hong Kong in 1971, we could fit all executives working at the head office around two large dining tables. So it would be around 50 people. Now we are a bank which has over 250,000 employees. So for the shareholders it has been a great story, it has been a fascinating journey from a small local and regional bank to a major global player. And if I were to point out a couple of factors which have driven this, I would say it is our international perspective and our comfort with other cultures. Personally, it has been an enriching journey. People often ask me as to why I didn’t change jobs and I will not deny that there were times when I contemplated moving. But the reality is that the different countries that I worked in, the different jobs that I handled gave me a variety of experiences and challenge which were very satisfying. I seem to have worked harder in every successive job that I have had at the bank and it has been thoroughly enjoyable.