HSBC Americas CEO on Returning to Office, Rates, China

Michael Roberts, good to see you this morning. Thank you for welcoming us on to your new trading floor, you new building down in Hudson Yards. This is in many ways a statement of if I look at the bank and the organization, you spent a number of years deconstructing HSBC in the US, selling assets on the East and West Coast. Is that deconstruction done and you are fit for purpose today? Yeah. Thank you, Manas, for being here and answer the question is definitely yes. We had a transformation plan that we started in 2020, unfortunately right as COVID had, but we persevered. We got through it and we really took the bank down to its core and rebuilt it in an image that we think is going to be much more successful, focusing on our international core capabilities. We are in the main international bank, focusing on trade, focusing, focusing on entrepreneurs. Before that, we were a little more scattered. We weren't as focused, we weren't as disciplined. Now we are in both in our wholesale businesses and our retail businesses. We focus on serving international clients and doing So what we think is a very unique way. So it is done. We're very happy about that. This building is in fact the last piece of the puzzle. It's the culmination of all the efforts. If I said to you then where is the concentration going to be? Is it going to be build up commercial banking here in North America to service into Asia and China complementary with wealth management? It is a double top. Yeah, it is definitely that. So we are unique in that. We certainly serve wholesale clients on an international basis. So think of American clients and they may be small clients up to the largest, the largest multinationals. We serve them into Asia, into the Middle East and into Europe. That works quite successfully. Similarly, we serve those foreign clients operating in the United States and think about a European company or an Asian company. the US is the biggest market in the world. They want to be here. They have to be here for their own strategies. And so we can give them that platform as well. What really makes us unique, however, is our business and retail and wealth management. It is extraordinary because we can serve international affluent wealth management type of clients in a way that no other bank can. So think of you're sitting in Hong Kong, you want to buy property in the United States, maybe your son goes to a University of the United States. We can provide the mortgage, we can provide you a credit card. Ever trying to get a credit card without a FICO score in the United States? I have, I have, I have, I have tried that. But let's just pick up on that because of course, you bought SVB in the UK and then you picked up 40 bankers from SVB, you know, in the wreckage of that time over a year ago. Do you want to build and buy more wealth management? How do you build the wealth management structure here in the US? What is the prime objective we're going to build organically, focus really on a very, I think, well defined target market of international clients. We have sort of five personas. So think about expats moving to the United States. Think about people have business opportunities in the United States, but maybe they live elsewhere. Think about expats that are American expats moving abroad. So we have all those 3 personas there, in fact, 5 in total that are there to really be served by us in a very unique way. If we think then about the commercial bank, I'm curious to get a sense on this. We're in the foothills of a Cold War, whatever way you look at it. There's more tariffs than Biden administration, maybe more to come from a new administration. We have got tariffs. We've got angst. Is that stymieing any of the commercial banking flow from America into China or into Asia? Is there any diversion or flow or slowdown? Yeah. And look, it's a great question. And clearly, we're in a period of rising tariffs, rising quotas. I don't know what the Chinese response will be to the latest terrorists put on by the US. But, you know, trade liberalism is certainly in a different phase than it was in the past. So I think we have to accept that. Our companies have to accept that. So a couple of responses. One, we're there to provide that advice. We're the largest trade bank in the world. We have abilities to really help companies manage their trade wherever they may be. So if a client is exporting from China as an example and wants to move that productive that production capacity outside of China, we can help them. We're the largest foreign bank in India. We're a significant bank in Vietnam, a very big bank in Mexico. So we're really there to help them navigate through this unpredictability. I think that will continue regardless of what happens in the elections. We will have more tariffs, more quotas, a less easy trade environment to navigate going forward. If I said to you, what's the biggest lever for the business in the near term? Yeah. Is it going to be rate cuts from the Fed or a clarity in politics and tariffs? I think it's both. I think you need predictability. Companies need predictability to make their investments. Investors need predictability. What we haven't had really is that predictability. Lots of discussion on interest rates, lots of discussion of when and by how much. Now you've got the quote, uncertainties. I think policy needs to be predictable. So if there's a rate cut, fine. If there's not, then it's the question of how companies didn't react to that. How do they then build their businesses to exist in any rate environment which is higher than it has been the last 15 years. But I would argue that the last 15 years have been an abnormal rate environment. So if they have that predictability, they can adjust their own production, they can adjust how they run their companies and I think they'll do much better, but they need policy predictability. But herein lies the point for the commercial bank. Let's just square that away, which is many people say to me that refinance, a great deal of refinance on the retail, retail, private side. Do you think that's the same for corporates? Are they holding back on doing deals, doing M&A, doing debt capital markets as a result of uncertainty? Yeah, I think they were in the past. I think last year was certainly a reflection of that uncertainty and we've jumped over that night. We have jumped over it. And if you look today, the capital markets are on fire. We've had $750 billion of issuance in the debt capital markets for investment grade spreads are the tightest they've been in a long, long time. The lot of CLO, formation of capital for the non investment grade market, which I think will continue. Even the equity market. We've seen a lot more IPOs led by the tech sector of course, but IPOs are trading very nicely now, a lot more activity. So I think that sense of predictability is coming back. Yes. And people have gotten over whether it be 654321, you know, interest rate cuts. I think they're saying you know what, it's going to be a 3 1/2 to 5 1/2 percent interest rate environment. We just need to adjust to that. Put your market on rate cuts this year. I think if you get one, you're probably doing pretty well and that's what a health view is. My personal view, you'll get one maximum. So that kind of a bullish, I'd like them. What is the flow, what is the flow and the book look like here on the on the floor because that's a very bullish statement about the market. Where are you in quarter two? Yeah, we're doing well. I mean there's been a lot more activity both in the debt and equity capital markets. So we feel very comfortable where we are and our goal really is to support international companies coming into the United States and as well as helping those companies raise capital here, helping our companies raise capital elsewhere as well. If I said let's push back on that a little bit, because if you look at where you are in debt capital markets and equity capital markets, I would say to you, look, you're not in the top five. You know, you're quite away from the top five. Do you want to be in the top five? What is the ambition for DCM and ECM in that? In that sense, I want to be good for our clients. I've never been a league table guy. I want to focus on helping our clients in the way that we need for them to help. So as an example, we're going to support a company from the emerging markets who's going to be buying a company in the United States that we need to do from an advisory perspective. We're going to raise debt in the United States. That is exactly the type of transaction that we're going to focus on. Similarly, we're helping a company, U.S. company buy a company in the UK. So we'll use our expertise and our insights, our capabilities in the UK market to raise that capital as well. So league tables don't really look at them. It's really how do we serve our clients? Do we do it well and do we do it in such a way that we provide them value? But then the natural corollary is that is if you're not sort of focused on being on the top five, my question would be is, do you have the right scale to fill this house down in Hudson Yards? Because obviously it's not the same story in Asia as it is here. This is a very different capital markets to what's happening in Asia the right at this moment in time. So are you again going back to fit for purpose, right size on those teams here in the US completely. In fact, as you look around this trading floor, it's pretty full. We've got about 400 traders here. So you would say no cuts in America, in jobs in those businesses. I would say we're fit for purpose, you know, and we will always, you know, change will always react to it's a dynamic process. But we're fit for purpose because you have to really look at our operations are here to serve not only our, you know what we do in the US, but globally. So if there is need to raise capital around the world, you've got to come to the US markets. So we serve HSBC as the centre of an activity in the largest capital markets in the world. I would argue you can't be a global bank without being very relevant in the United States. We are relevant to our clients, the United States. We're also relevant and very important for HSBC to accelerate that bump that you had in business. Do you think rate cuts will re accelerate that? I know you're on the table for for for limited cuts, but do you think a shift in the rate environment can materially shift the business? I think rate cuts will be important, but not determinate. So I think yes, it's important to have rate cuts. Again, I'll go back to this predictability statement. If rate cuts come, it provides predictability. I think you'll see the capital markets grow even more. I, I think they're poised to do so. As I mentioned, lots of capital formation money sitting on the sidelines, but it wants to be put to work. So as, as soon as we can see predictability, I think you'll have even greater growth in the capital markets with debt and equity. And I think we're well positioned to take advantage of that. We've got lots of discussions going on. Lots of sentiment is turning positive today and they're looking for that opportunity to, to fully exploit. So we caught up with David Solomon. We wrote a story from him yesterday and we caught up with him in Paris. What is what can you tell me about middle America, corporate and middle America? Because he says higher rates, higher for longer is beginning to bite. Is it? I think it's beginning to bite, certainly for consumers. And you know, if you think about it, over the last years, we've had successive years of inflation, call it 15% on a cumulative basis, wages haven't gone up by 15%. So, yeah, it is biting for certain segments of the population, which is policymakers and as bankers we have to be very sensitive to. I think for our clients, they've adjusted, you know, again, historically these are rates that we have historically seen, you know, 3 1/2, four percent, 5%. And so they can adjust to those rates. I think they can do pretty well. So we don't see a lot of stress in our credit books. We don't see companies, you know, giving up and saying that it's too difficult environment. They're, I think, being a little cautious until they see rates and where they're going. But they're not stopping doing business. They're not stopping to grow. And they have a view that as long as they can manage in this rate environment, they know where the race are going. They know where the economy is going. They have policy predictability. I think they'll be OK. So let's talk about the Alvin in the room. The chairman will be here. I have it on good authority. The chairman will be here today, a little bit later on. He's searching for his third CEO in seven years. Yes. The three predecessors were Brits. Yeah. Is it time for a Yank, time for you? I don't know. Thank you very much. As an American, I appreciate that. I'd say this one. Noel was a great boss. Noel Quinn, he and I took our respective roles about the same time, so we worked very closely. He was a great supporter of me, was a great supporter of this franchise, and it really an inspiring boss to work for. It did a fabulous job. Mark Tucker is leading an effort along with the board. They're very focused on getting the right person. I don't think, I mean, look, you've been here, you've, you've reconstructed this bank in North America. Do you think it is better culturally for the people of HSPC to have an internal person versus another new person come in? Yeah. And look, I think we've got a lot of good internal candidates. I think there clearly is an advantage for having someone who knows the the institution. I think the board's going to take that into consideration. They already had a succession plan worked out. They were very focused on making sure that they would have a very quick, efficient and very targeted succession plan. They're looking at both external and external candidates. Their decision obviously, but I think, you know, very important that you bring the right person in who has the right culture, the right mindset and the right set of skills. Have you put your hat in the ring? How do you intimate to Tucker that you are interested? I love my job here. Thank you very much for that. You know, clearly got a lot more to do here, lots of opportunity. So I'm very content of what I'm doing today. Do you hope then that the next CEO has bigger ambitions for America? I mean, on, on a sort of quite a serious note, it is not you. Will you lobby hard to grow in size here in the US? Is that important in the next CEO for you? I, I think it's important that we have the right size business here. Yeah. And that we, we get the resources, we get the attention, we get the support, which we have been. I think it fits in, however, with the overall strategy of the firm. So there's not going to be an America's only strategy. It's really about how do we fit in, how do we provide that value, How do we provide and those capabilities that the firm needs to really be the truly global bank that it is. And so I think we can continue to be a very vital part of that. We will continue to grow. You mentioned innovation banking, which we're growing already very, very quickly and we're very pleased with that. When there is opportunities, when it fits the strategy, when it makes, creates value for the company, that's how we'll grow. So he tapped you on the shoulder. Would you be happy to say this? I would say I'm really happy with my job here today. So thank you very much. I got lots to do, and I'll be spending a lot of time with him today. Oh, well, defected. Listen, we have one debate going on in New York about getting everybody back on into offices, back into trading floors. FINRA, FINRA are fighting back saying we're offering flexible working. You're probably one of the most flexible banks in the world. How do you see that for Wall Street? How important is it for Wall Street getting back in five days a week? What do you say to that? Yeah, So FINRA has, as you mentioned, changed the rules and we're adjusting a court like so. And we're going to follow the rules like everyone else. We are a hybrid bank. What we did not want to do is to force people to come back simply out of decree. So what we did is we built a building, this building, Hudson Yards in the, you know, financial capital of the world, which really reflects a lot of input from our employees of why they want to come to the office. Because we did this during COVID and we didn't know if anybody ever wanted to come to the office again. And so we built something that is very, I think conducive to people coming back. They wanna come back. And so today our overall attendance levels are 80% before we moved less than 40. We're running out of space very quickly. And luckily we just took some additional space in this building. So I think it we will just to the federal rules, we'll make sure that whoever needs to be here five days a week will be here five days a week. But I don't want to decree people coming back. I want them to come back because they want to come back and they do so and they're productive. They feel good about it. And that's essentially the environment we have built today. Michael, thank you so much for joining me and thank you for inviting us here to Hudson Yards. Thank you very much for coming as well.