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HSBC: the path ahead

Niall Booker, chairman and CEO, HSBC Bank Middle East, speaks to Mayank Singh about emerging opportunities

Niall Booker, chairman and CEO, HSBC Middle East joined the HSBC group in 1981 as an international manager. Over the years he has gained extensive experience and skills in building businesses and infrastructure in various positions within the HSBC group. He has worked in retail banking in Brunei and the UK, syndicated loans and specialised finance in Hong Kong, banking operations in Abu Dhabi and trade finance and corporate banking in Japan. During his three tenures in the US, Booker worked in treasury, was responsible for working out the assets for Concorde leasing and was CEO, International Private Banking, Americas. Booker moved to Mumbai, India, in July 2002 as deputy CEO, HSBC, and took over as CEO and country head, India, in November the same year. In January 2004, Booker was appointed as a group general manager. Educated at Trinity College, Glenalmond, Booker has a masters degree in History and Law from Gonville and Caius College, Cambridge University. His interests include golf, cricket, reading and theatre.

BusinessToday: You have spent over 25 years with HSBC. What are your thoughts when you look back?

Booker: These have been very short years. I look at it this way – I trained as a lawyer and thought I will do a banker’s job for a few years and then go back to being a barrister. But I never went back to that profession. I have had enormous challenges, a lot of fun and met some great people during my time in the bank. We have grown from being a big bank in Hong Kong and a small one in the global context to being the second or third largest bank in the world with trillions of dollars in assets. When I joined the bank, I could not have imagined that we would acquire this size and may be that was partly my fault. While not every day is exciting, I have had the luck to work with good people and have contributed to the bank in my own small way. It has been a jolly good ride.

BusinessToday: Does the Middle East present a number of opportunities?

Booker: We are focused on organic growth. In the customer segment we see a number of opportunities in the retail space both amongst Omanis and other Arabs and the non-resident Indian space. We have always been a strong bank amongst western expatriates but in the other two areas there are opportunities for us to attract new customers. In the wholesale space we see governments playing a bigger role in recycling petro-dollars domestically. For example, Dubai has planned projects worth US$180bn, Qatar US$120-130bn and Saudi Arabia, US$150bn. With such projects on the anvil, there is an increasing demand for project finance. In the treasury space, particularly in the area of derivatives, there is a lot more that can be done in these markets. One of the most exciting areas is the smaller corporate business. With the local population in these countries getting better educated, an increasing number of them are learning about business in schools and universities. Most governments and rulers too are encouraging a business friendly environment. Tax structures and older businesses are morphing into larger businesses requiring capital. History shows us that smaller industries are big drivers of economic growth so we want to get these businesses early. We can render investment advice through our private bank to owners and managers (as a number of them are quite wealthy). While Oman is an exception from a regulatory point of view, we see a growing interest in Shariat compliance and Islamic finance and that is another strong opportunity for us. I think if we can focus on these areas we would have covered most of the emerging opportunities. I think it is the sma-ller things which make the difference.

BusinessToday: What are your plans for HSBC in the Middle East?

Booker: We have to ensure that our service standards are high and we continue to deliver what our customers want. In the older model followed by the bank, the senior management decided on the products to be sold to customers, the systems people built the systems required to sell them while the compliance people made sure that it works from a regulatory point of view. But that is a thing of the past: With the arrival of the Internet the customer has become the driver of all things. The model now is to go to the customer and ask him what he needs and then decide on products around it. So it is a customer driven structure compared to what I would call a (the earlier) CEO imperialist structure. We, as a bank, took a policy decision in 1998 – policy of managing value – to de-risk the bank by putting more of an emphasis on our retail business. So, if you concentrate on a few large corporates, there is an inherent risk that when the credit cycle turns you are in for some big hits, compared to a scenario when you have more eggs in the retail business. Generally, banks that have a larger business in the retail space have been rewarded with a higher stock market rating.

BusinessToday: Having moved from India, a country which is experiencing fast paced economic growth, to the Middle East which is also a region that is witnessing a lot of economic activity, are there certain similarities that you see between the two?

Booker: In parts of this region there are similarities to India. Egypt, which has a population of 70mn and a per capita GDP of US$1,200, is not quite on the scale of India but it is a large market and it is getting richer. In Qatar and the UAE, there are 1.2mn people out of whom 700,000 are expatriates while the other 500,000 are very wealthy with a per capita GDP, which is equal or bigger than the US. So it is a slightly different model for each country. In the retail space I don’t see too many similarities: for example India has a mass-market retail sector where you have to drive to be the lowest cost producer. And the history of corporate India is littered with success stories of low cost products like Hindustan Lever’s low priced shampoo sachets. I am not sure whether this is the model here. So while we can transport the Indian model to Egypt, it is less true for the other Gulf states. I suspect in time the model that will be most like India will be Iraq when it comes out of this cycle and probably Iran, which is another country with a rich history of education. Manmohan Singh, the Prime Minister of India, has said that the country needs US$150bn-170bn of investments in infrastructure. GCC countries have US$1.3tn worth of assets and most states are looking for opportunities to invest this money. I believe that there are opportunities east of here and if India can work on its foreign direct investment approach then there are pools of money in the Middle East which are waiting to go into the right projects. East-East trade has a huge potential and an opportunity for effective intermediaries and HSBC should be in that space.

BusinessToday: Looking ahead, are there any regions or countries that HSBC expects rapid growth to come from and does the Middle East have a role in such a scenario?

Booker: Well, I can speak only till June 2006. Over the last 18 months we have seen a lot of growth in profitability in the Middle East. Our return on equity is within the top 25-30 per cent of all the group areas but we account for a small part, around five per cent, of the group’s overall profits. Despite this, the Middle East is an important market for HSBC and we saw that with the appointment of my predecessor David Hodgkinson to a senior role in the group. We are aware that emerging markets have their pitfalls but they are also engines of rapid growth and we need to make sure that we maximise these opportunities. I am reasonably optimistic about the Gulf region over the next 12 months. Though there has been a cooling of oil prices, most countries will end up having budgetary surpluses in 2007. If you look at the macro picture there is increasing investment happening in these countries. Then if you look at the US$1.3tn of assets, I am sure recycling of these petro-dollars will not be followed by stagflation and other problems like we had in the 70s and 80s. The caveat is to wait and see what happens.

BusinessToday: HSBC has witnessed steady growth over the years. What are the factors that account for this trend?

Booker: We have definitely had a strong international presence and it has been a focal point. But the point is not to be stuck in the past. In our initial years we were a bank that was run by British expatriates. These were professionals who learnt to be sensitive towards the cultures in which they operated. And the model worked 20 years ago. But since then the model has changed. We now have people from diverse nationalities working for us. Though we still have a mobile senior managerial workforce, it is no longer a homogenous group of British people and it comes from all countries. According to the latest recruitment statistic, only 20 per cent of the people being recruited at HSBC were UK nationals. We are supplementing this pool with people from countries where we have acquired businesses, like in the US, France and other nationalities. My successor in India, Naina Lal Kidwai, is an Indian lady. I don’t think we would have seen this situation too often 20 years ago. We also have a Turkish lady running our Turkish business and these two would be amongst the top 50 people in HSBC worldwide. Thus we are giving opportunities to people from diverse backgrounds, genders and skill sets and this is a huge positive step. This means that we are not only international in outlook but we are also getting international by composition. And that is a key shift. Opportunities are coming up beyond the original cadre of people, giving us an international flavour, a broader perspective and a new thought process. We have definitely had steady profit growth. The only hiccup that we had was a couple of years ago in Argentina and again some good stuff came out of it. We are a bank that stays through the tough times whether it is Lebanon or Argentina. In a way, I think we have not been rewarded enough by the market for that steadiness. The market perhaps approaches some of that steadiness rather cautiously. Our stocks have not moved recently and they have been in a fairly narrow range. We have had a fairly good yield, but in my younger days we would call it a widows and orphans stock. There is a lot more sizzle in our steak than we are given credit for.