It’s not often that a large FTSE 100 company has some surprising news to tell investors. Of course, financial performance can swing higher or lower. But changes in key senior managers is usually well documented in advance, to ensure a smooth transition and to not worry shareholders. Yet that doesn’t always go to plan.
The long story short
I’m referring to the news surrounding current CEO Noel Quinn at HSBC (LSE:HSBA). Having reportedly told senior leaders in December that he wasn’t planning to go anywhere, he recently announced that he would be stepping down.
Not only stepping down, but leaving HSBC completely, after five years as CEO. This wasn’t part of any planned transition, so it caught a lot of people by surprise (myself included). Quinn commented that “it is now the right time for me to get a better balance between my personal and business life.”
The board at HSBC have commented that they are now conducting a search for the new CEO. Over the past week the stock is actually up 6.5%, but I put this down to the release of slightly better-than-expected results rather than this news story.
Why I’m concerned
The fact that Quinn has abruptly left does concern me. He could have waited until his next term was over, or even to step down as CEO but continue in another role at the bank. Yet he didn’t.
Could it be that Quinn knows that HSBC is likely to underperform over the coming year? If interest rates get cut and the net interest income drastically falls, he might not want to be there for the bad press. In other words, he might want to quit while he’s ahead.
Or could it be that there’s friction between senior management at the bank on the strategy and direction? Maybe Quinn wanted to embark on a deeper cost-cutting exercise similar to what is going on at Barclays. Any lack of togetherness at the top of a company isn’t ideal.
I have to stress that the thoughts are just my speculation. But however you spin it, it’s certainly a red flag in my book.
Positive on banking, not HSBC
Over the past year, the HSBC share price is up 19%. This has outperformed the broader FTSE 100 index. The bank has benefitted from high interest rates, as well as from a global client base and serving both retail and corporate clients.
I’m positive on the banking sector in general going forward, as I still feel it’s undervalued. However, based on the HSBC news, I’d much prefer to own alternative stock such as Lloyds Banking Group and Barclays. It might turn out to have a logical explanation. Yet I don’t see why I need to take on this risk when there are other FTSE 100 banks that can offer me the same exposure.
