Monday, 29 November 2010

The Men at The Top - Stephen Hester

Stephen Hester was born on 14 December 1960 and went to Easingwold Comprehensive in North Yorkshire before moving on to Oxford University. Here he was chairman of the Tory Reform Club and obtained first-class honours in politics and economics.

On leaving university, his first job was as assistant to the chairman of Credit Suisse First Boston (CSFB). Clearly of no mean ability or indeed ambition, he impressed his colleagues enough to become the youngest-ever managing director when aged only 35. Following this, he became Chief Financial Officer, then Head of Fixed Income and co-Head of European Investment Banking. He left when John Mack (aka "the Knife") took over. There are different versions of the reasons behind this, with Hester claiming that Mack didn’t want anyone who might be competition!

From CSFB he moved to Abbey National where he oversaw a major overhaul (“slash and burn” was how he described it in a 2007 interview with The Sunday Times) resulting in disposals and a successful sale before changing direction briefly for the job of Chairman of British Land after a fortuitous meeting with Sir John Ritblat in Venice. Despite his lack of experience, he successfully modernised BL.

In 2008 he was appointed non-executive Deputy Chairman of Northern Rock – a position he had to relinquish some eight months later as he was nominated for the top job in RBS in November 2008.

Apparently, when asked what he would do if he took over RBS (This Is Money October 2008), he listed six actions:

1. Make the business less risky; (because it needed to be);
2. Re-engineer the retail versus wholesale businesses mix, with more bias towards retail;
3. Introduce a higher customer component with less proprietary involvement;
4. Be completely international;
5. Grow the group - after shrinking, then grow but carefully;
6. Ensure the bank kept and attracted good employees (the most challenging?).

As a person, Hester could be characterised as:

Ambitious: apparently fellow students at Oxford remember his drive for a First and his colleagues at CSFB will also have seen this in his rise to almost the top. He has been quoted as saying, "If you are a footballer you want to play in the Champions League final. It's the same in business... you want to test yourself against the biggest and most complicated challenges."

Realistic: "Jobs like this are unbelievably stressful, leaving you open to unpleasant scrutiny, and there is a 50% chance it ends in tears, because that is the way the world works. But, as they say, if you can't stand the heat, get out of the kitchen." (The Guardian January 2009).

Ruthless (Abbey National) is how some would see him at Abbey National as he cut costs and disposed of what he felt were non-core businesses.

Open: unlike Fred Goodwin at RBS, he has made himself as available as is possible “for someone struggling to wrest a bank from the brink of collapse” (The Guardian). He has also been described (again by The Guardian) as “transparent in his management style” and as leaving “people in no doubt what is expected of them”. .

In terms of successes: at British Land, he introduced a more transparent culture, rationalised its structure and moved its offices from Regent’s Park to Marble Arch as well as making several good acquisitions.

At Abbey National he helped rescue this former building society with disposals and rationalisations before selling it to Banco Santander.

At RBS he has stopped a 10-year long expansion drive and has raised more than £1.65billion from exiting or selling over 20 businesses.

On the other side, he can be seen as “unclubbable” and lacking intuition about other people (not unusual in highly intelligent and able people).

Hester is not doing the RBS job because he needs the money – he made this before joining during his 19 years at CSFB. He has properties in Verbier, London and Oxfordshire. Yes, he’s taking a £1.2million salary from RBS (not out of line with his peers) but the real payback will come from the 10.4m shares he was granted on arrival if he can turn RBS around. Some question on this though - they were priced at £0.65 (the price at which the government subscribed for shares in October 2008) and are languishing well below this at the time of writing. Contrast this with the £6+ high enjoyed in 2007!

His real challenge is to create the conditions for the government (read “Taxpayer”) to start selling its 83% stake which he wants to do from 2011. This does look tricky at the moment, and RBS will need some spanking good news to achieve this.

Hester has a long way to go, but seems to be the right man for what must be one of banking’s most poisoned chalices. He’s putting the building blocks for RBS’ recovery in place, but with the current banking headwinds, expect his to be a longer and tougher job than at first expected.

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Wednesday, 17 November 2010

The Men At The Top: Douglas Flint

Douglas Flint is one of the first top men that I’ve come across without his own Wikipedia profile – not that this makes a difference (in fact, it may even be a strength).

From his HSBC CV, he was born in Scotland in July 1955, carrying on the tradition of HSBC having Scots at its head.

HSBC tells us that he was educated at Glasgow University where he gained a B.Acc (Hons) degree. He also completed the PMD course at Harvard Business School in 1983. He is a member of the Institute of Chartered Accountants of Scotland and the Association of Corporate Treasurers. He is a Fellow of The Chartered Institute of Management Accountants

Flint began his accounting career with what is now known as KPMG where he qualified as an accountant. In 1988, he made partner. His specialities were banking, multinational financial reporting, treasury and securities trading operations, group re-organisations and litigation support. He joined the HSBC Group as Group Finance Director-Designate in September 1995 and was appointed to the Board on 1 December 1995.

In June 2006 he was honoured with a CBE (Commander of the British Empire) by the Queen in recognition of his services to the finance industry.

In a recent article on the succession to the Lloyds Banking Group Chief Executive position, Flint was described as “A good man going nowhere” – David Buik - (how things change!). From other information, though, he is clearly respected by regulators – important as the financial services industry extracts itself from its current mire. He’s been involved with and/or led a number of high-profile committees and panels, e.g.:

• Chaired the Financial Reporting Council’s review of the Turnbull Guidance on Internal Control 2004-2005;
• Co-chaired the Group of Thirty report on Enhancing Public Confidence in Financial Reporting;
• Served on The Accounting Standards Board and the Advisory Council of the International Accounting Standards Board from 2001-2004;
• Served on The Shipley Working Group on Public Disclosure.

The above have brought him a number of high-profile connections Mr Flint, 55, in contrast to Mr Geoghegan's reputation for hot-headedness, is seen as a safe pair of hands for a bank that while one of the financial crisis's great survivors, also faces numerous threats to its business model from regulators around the world.

One of Flint’s tasks was to sort out Household Finance Corporate at the very start of the subprime crisis. This succeeded in enhancing HSBC’s reputation, despite the heavy write-offs that it suffered. According to the London Evening Standard, this resulted in his being “consulted by government as the planning for the bailouts began in earnest” (24 September 2010). Although The Observer commented in September that this hasn’t helped his CV, one has to point out where he’s ended up…

As a recognised expert in the highly technical area of financial regulation, Flint's move to the top is a clue as to the importance to HSBC of having someone with connections in the right regulatory places.

He is said to be a strong believer in teamwork and that is people who make an organisation. No doubt, this networking ability will help overt the next few years.

In terms of remuneration, he receives a rise from £700,000 a year to approximately £1.25million. His shares in HSBC are reportedly worth £6million. Despite this, He’s a far cry from the “flashy banker” of the type vilified by the likes of Vince Cable and the popular press. This may well have served to endear him among “traditionalists” at HSBC and elsewhere. He is seen as a “safe pair of hands”.

Flint was seen as a chairman-in-waiting (he was tipped for Eric Daniels’ job at Lloyds Banking Group) but not at HSBC. He has been there some 15 years and is seen by some as too close to bring the independent view that bank shareholders need. However, he has been accepted by The City. There are those that say that HSBC continues to defy corporate governance best practice by continuing to promote their Chairmen from within, but given the size and complexity of the group, it is just as (if not more) risky to have a rank outsider. Flint is balanced by a large and diverse board, although it looks as though he will not keep John Thornton – a renowned China expert who was passed over for his job.

The years ahead will be challenging as the global financial services industry regroups and rethinks its strategy. Flint, given his experience and connections, is the right person to keep HSBC on the road to growth.

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Thursday, 4 November 2010

The Men At The Top: Stephen Green

Stephen Keith Green was born in November 1948. Wikipedia and The Telegraph can’t seem to agree whether on 3rd or 7th, but his official CV on the HSBC website declares that it was the latter.

He grew up in Brighton, attending church with his father, a partner in a local solicitors' firm, and mother. After school at nearby Lancing (where apparently he was “good at music” but “bad at sport”) he went to Exeter College Oxford where he started reading modern languages but switched to PPE (Philosophy, Politics and Economics). He still speaks French and German.

He is a practising and “performing” Christian, having become a deacon in Hong Kong in 1988 after studying by correspondence. An ordained Anglican priest, he preaches regularly and has written a book – Serving God? Serving Mammon? Christians and The Financial Market. It was apparently at Oxford that his religion strengthened, though he credits no single incident or person.

After university he took a gap year, working at an alcoholics' hostel in Spitalfields in London's East End. It was there he met his wife Joy, a nurse who was also a volunteer. They married in 1971 and have two daughters.

Green didn’t go straight into banking. He started his career with the Ministry of Overseas Development, which also gave him the opportunity to do two years' study in America. He took a masters in political science and business at Massachusetts Institute of Technology to add to his Oxford credentials.

In 1977 he joined McKinsey & Co and carried out projects in Europe, North America and the Middle East. This and his US exposure must have helped when he joined what was then The Hongkong and Shanghai Banking Corporation Limited in 1982 with responsibility for corporate planning activities. In 1985, he was put in charge of the development of the bank’s global treasury operations. In 1992 he became Group Treasurer of HSBC Holdings plc, with responsibility for the HSBC Group’s treasury and capital markets businesses globally.

After this in 1998 he was appointed to the Board of HSBC Holdings plc as Executive Director, Investment Banking and Markets responsible for the investment banking, private banking and asset management activities of the Group, and took on the added responsibility for the Group’s corporate banking business in May 2002. He became Group Chief Executive on 1 June 2003 and Group Chairman on 26 May 2006.

Green is clearly a different sort to what you might expect from a banker. Indeed, The Telegraph described him as “the unlikely banker” in a profile in 2007 and said of him “He is so faceless that when he was promoted The Guardian had to carry one of its famous apologies for using a photo of the wrong person.” In the same profile, they said “He is cerebral and academic - so thoroughly civilised you would expect to encounter him in an Oxbridge common room rather than the top of an international bank.” What is the underlying message about bankers here?

He had a reputation for watching costs. One thing for which he is remembered was cutting bonuses in 2001 when he was head of investment banking which saw more than 40 staff walk out after receiving no bonus (something which would have endeared him to Vince Cable).

Green was no stranger to controversy during his early days CEO. HSBC’s acquisition of America’s Household International was dogged by controversy concerning payouts to executives and a $484million settlement due to accusations of predatory lending by U.S. regulators. In the UK he became the object of opprobrium after deciding to shift around 4,000 call-centre and back-office from the UK Asia. At the time, this was the largest job migration of any British financial-services company.

Thankfully, he has shoulders broad enough to absorb criticism from inside and from without. He may have been seen as an “unlikely banker”, but he will clearly stand firm on what’s important to him. Following on from Sir John Bond would not have been easy. The latter was seen as more of an international statesman – how was the cerebral Green to succeed him? Succeed he did, however, and cum laude.

Green has a code of dealing fairly with customers, employees and community. He feels that one needs as an employee (whatever your religion, creed or colour) to espouse the importance of morality and integrity in business life. "I happen to believe it is the only basis of sustainable success over the long term," he said (Guardian , October 18, 2003). Would that some of his peers in the financial services world had taken the same view, instead of pursuing short-term gain.

In terms of his successes, he saw the significance of emerging markets in Asia, Mexico, and elsewhere to HSBC's continued success (especially in terms of their potential consumer business). Despite this, he didn’t ignore Europe, overseeing the launching of a credit-card business in Poland – a growing economy that had joined the European Union.

He also sought new opportunities outside Europe. One was supporting HSBC's development of a Islamic financial services business in Asia, with a comprehensive range of products and services at Amanah Finance - HSBC's Islamic division. Apart from Asia, he felt and stated that this service needed to be aggressively marketed throughout HSBC's global banking network. In the end, he pushed the group to develop products that gave HSBC a significant stake in the Islamic finance industry. The results were that in 2003 HSBC was the first international bank in the UAE to provide Islamic personal-finance products when it launched Amanah Personal Finance. In the same month, it was the first "high street" (finance district) bank in the United Kingdom to launch Islamic personal finance services under its Amanah brand. He also launched a British-based Islamic finance program and expanded the program to over 70 branches in the United Kingdom.

His expansion in Asia focused heavily on China. Unlike others who looked for short-term gain, Green felt that HSBC had to take a long-term perspective in China and told Brian Kelleher in a Reuters news-service report "China is going to become more and more important on a global scale. I think you will see us constantly growing our business there" (August 11, 2004).

Green also oversaw a successful £12.5billion rights issue in 2009 to shore up the bank’s capital base following a hectic year and the write-downs that it and previous years had bought – particularly from the US. He also successfully defused a highly-publicised challenge from Eric Knight of Knight Vinke - a vocal opponent of the US venture.

In terms of bankers’ compensation, Green is unequivocal. He has been quoted as saying:

"Compensation practices ran out of control and perverse incentives led to dangerous outcomes. There is genuine and widespread anger that the contributors to the crisis were in some cases amongst the biggest beneficiaries of the system," The Independent

“The industry has done many things wrong. It is important to remember that many ordinary bankers have always sought to provide good service to their customers, but we must also recognise that there have been too many who have profoundly damaged the industry’s reputation.” The Sunday Times

Too many people had “abandoned asking whether something was the right thing to do and focused only on whether it was legal and complied with the rules.” The Sunday Times

The money will not be as important to him, judging from his character, although no doubt his HSBC pension and shareholdings should keep the wolves at bay.

Green will leave HSBC by the end of 2010 to become an unsalaried “Trade Minister” for David Cameron (although it is believed that he will receive a peerage). However, it may be that the Prime Minister has engaged Green for his banking experience. Vince Cable, the Business Secretary, who was initially in favour of splitting investment and retail bank activity, has apparently already had discussions with him as to how banks can change their structure without this forcing them to relocate overseas. No easy task, given that if he gets it wrong, we may yet see HSBC, Standard Chartered, Barclays and a large portion chunk of the UK financial services business defect to parts abroad where regulation is lighter, taxes lower and politicians altogether more accommodating.

In conclusion, Green has had his share of the “slings and arrows of outrageous fortune” but deserves credit for steering the behemoth that is HSBC through some remarkably challenging times and not taking government support. He deserves all success in his next role.

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Tuesday, 2 November 2010

The Men At The Top: Bob Diamond

Robert Edward Diamond Junior (to give his full name) was born in 1951 in Concord Massachusetts, so is slightly older than John Varley whom he will replace as Group Chief Executive of Barclays in March 2011. He was one of nine children with both parents being teachers. Perhaps he developed a competitive streak as he had eight siblings to compete with! On the sporting side, he is reputed to be “obsessed” with baseball, football and golf as well as playing tennis and skiing. He credits his love of sports with helping him to run his businesses.

He has three children and has been married to his wife Jennifer (whom he met in 1983) for 24 years. She is (apparently) a “scion” of the Barclays family. He is a strong family man.

Diamond was educated at Colby College – a well-regarded liberal arts institution in Waterville, Maine USA. Here he specialised in economics and earned his BA in 1974 before taking his MBA at the University of Connecticut (graduating first in his class in 1977). UConn again is highly regarded. His Barclays official biography also advises that he was awarded Doctor of Humane Letters from the University of Connecticut in 2006 and Doctor of Laws from Colby College in 2008. In all, an impressive academic background!

He began his career as a lecturer at the School of Business at his Alma Mater from 1976-1977, after which he joined Morgan Stanley where he stayed for 13 years and finished as Managing Director and Head of Fixed Income Trading.

He then joined CS First Boston in 1992 and went to Tokyo where he was Chairman, President and Chief Executive Officer of CS First Boston Pacific, responsible for Investment Banking, Equity, Fixed Income and Foreign Exchange for the Pacific region. After this, he became Vice Chairman and Head of Global Fixed Income and Foreign Exchange. He then went to New York where he was a member of the Executive Board and Operating Committee.

This would have set him up well for when he joined Barclays in 1996 where he moved up the ladder to become President of Barclays PLC and Chief Executive of Corporate & Investment Banking and Wealth Management. In 1997 he became a member of the Barclays Group Executive Committee since 1997 and is an Executive Director of the Boards of Barclays PLC and Barclays Bank PLC. Diamond is also a Board Member of BlackRock following the integration of Barclays Global Investors. He led the (controversial, some would say) initiative to purchase key assets of Lehman Brothers after its collapse in 2008, resulting in Barclays gaining a strong foothold in investment banking.

Diamond was voted the 37th in New Statesman’s annual survey of the world's 50 most influential figures Who Matter 2010.
Seen as the opposite of his predecessor, his appointment was described by Lord Oakeshott, the Liberal Democrat Treasury spokesman and a man known to be close to Vince Cable as “a great gambler but he has no experience of retail banking.” Up close, he is said to be measured and thoughtful, choosing his words carefully and showing an awareness that does not fit the brash image that some find more convenient to associate with him. John Varley has also, it appears, made sure that Diamond has been exposed to areas outside (as he puts it) his “comfort zone” in preparation for his takeover.

Diamond’s background shouts “Investment Banker” - involved in the kind of deals that Business Secretary Vince Cable dubbed “casino banking”. His success, remuneration and personal wealth have spawned critics and his elevation to succeed John Varley has caused concern and indignation. A tough customer who focuses on his goals, Peter Mandelson has described him as “The unacceptable face of banking” despite his contribution to Barclays’ success. Others describe him as “charming”, “inspiring”, “charismatic”, “a motivator” and “strong”, a “formidable builder of businesses”.

On the other side, he is also said to be “ruthless”, “aggressive”, “thin-skinned, even prickly, and is inclined to shoot from the hip” (these are all from recent press articles). He has been compared to the fictitious Wall Street character Gordon Gekko. He is said to have a number of high-profile acquaintances who can help “get things done”. He’s American, with the ebullience and aggressiveness that the Brits perceive “goes with the territory”.

John Varley said of him, “I think he’s been the progenitor of [Barclays Capital’s record performance]. When he joined Barclays, which was about ten years ago, I think that what we had then was an underperforming, subscale investment banking capability. And what we have today is an outperforming world leader. That’s quite a transformation in ten years. And Bob has personally led that.”

He is already thought to be worth around £95million but the new role will see this increase further. Mr Diamond has long been regarded as one of the top deal-makers at Barclays. He waived his bonus last year after widespread criticism of bankers. But he did receive £26million for his shares in Barclays Global Investors, the bank's fund management business, when it was sold to BlackRock. He has also been given a shares-based bonus deal over three years that could be worth £20million at completion.

Diamond faces a number of challenges as he takes over. He apparently feels that parts of the Barclays business aren’t up to standards that he would like to see. There will, it seems, be a focus on the commercial and retail divisions and their profit profile to increase their proportion of profit contribution versus BarCap (which provides the lion’s share).

On discussions about potential splits of investment and retail banking being discussed by regulators, Diamond plays his cards close to his chest, stating only that Barclays is cooperating with the government’s commission and that whatever decision it takes will be right for the UK and that Barclays will support it. All good, diplomatic stuff. One of the members of the committee, Martin Taylor, recruited Diamond to Barclays when he was CEO.

On Basle III, he wants to see a level playing field to protect against regulatory arbitrage – a valid point, considering that that the US has yet to fully implement Basel II…

The way ahead will have its challenges, but if ever there was a right man to face them, it’s Diamond. Expect to see (and hear) more of this remarkable man.

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