Executive Interview - David Morton - Head of Commercial Banking, HSBC
HSBC head of Commercial Banking David Morton speaks to East & Partners senior consultant Paul Bartholomew about HSBC’s progress and plans for the Australian market and how the Bank intends building on its strong Trade franchise as well as its Cash and Payments business.
I’ve come across quite a few people both in Australia and overseas who don’t realise how big HSBC is in Australia. In the business and corporate banking markets you’ve settled into a natural "number six" position behind the Big Four and St George.
They seem to realise how big we are offshore. We certainly have ambitions to be a lot bigger here. If you have a look at our organic growth over the last three to four years, and I’m specifically talking about HSBC’s commercial business, we were probably sub one percent market share five years ago, and we’re now three to four percent depending on which section of the market you’re looking at. In Trade, HSBC has above 10 percent. We’re steadily progressing about half a percent every six months and that’s just the organic growth.
What kind of market share targets has the Bank set itself?
We don’t have a market share target as such, but I think without doing anything else other than just growing our existing customer base with our existing product suite, we could probably get to about 10 percent, but our real drive is profitable growth. HSBC doesn’t want to be one of these banks that comes into the market and makes a big splash, loses a pot of dough, and then leaves again. We’re all about building a consistently growing business in Australia that can deliver and execute.
That seems quite a different strategy to another major British bank in the Australian market, HBOS, which is aggressively seeking market share.
It will be interesting to see how that plays out. They’re also competing head to head with the Big Four. Everything we do strategically is about differentiation, about niche, segments, markets, products, so that we don’t compete head to head with the Big Four. We put ourselves in the spaces where we have competitive edge because of our international network, our Trade products, where we’ve got global systems that are first class, our global payments and cash management, and export debtor finance. Within that middle market and upper SME segment, ours is a market beating offer.
HSBC picked up the award for Best Foreign Bank at the Australian Banking & Finance Awards this year. Are you happy to be viewed as a "foreign bank" in the Australian market?
We are one of the original licensees in 1986 and have hung in there through good times and bad. I’m actually very comfortable with the tag ‘foreign bank’ because it helps with the definition of our branding and our strap line, no doubt about it. But at the end of the day, we are looking at building a sustainable domestic franchise off the back of that. That’s where HSBC has got to in the UK, that’s where we have got to in several other countries. We have 35 distribution points in the country at the moment and we do need to expand that distribution capacity whether that is by internet channels or other means. But in the meantime we continue to grow organically at a steady rate; it is a growth rate that we can manage comfortably.
On the subject of distribution, Trade is obviously a big area for the Bank and lot of Trade activity occurs in regional Australia, in regional Western Australia, for example. How well placed is the Bank distribution wise?
I’m really glad that you asked that question. One of our points of differentiation is the fact that we have kept our state-based Trade operating offices, so that people can actually check and pay on the documentation in person. They are small groups of people spread around the country but it means from a customer service point of view we can actually pick up problems and talk to the customers directly. We have noticed that other banks have centralised their Trade processing. We have noticed customers saying that there has been a drop off in service standards and the fact that we have kept our people local has really been a point of differentiation and competitive advantage.
Is it necessary for HSBC to grow a footprint in regional Australia?
Over the longer term we will. We do some marketing in Newcastle at the moment but if you actually have a look at the demographics of where your importers and exporters are placed, most of them are pretty close to the coast. That’s obviously where the growth populations are, it’s where the capital cities are, so we are reasonably well placed to capture most of that.
How do the physical distribution networks and your e-Trade platform complement each other?
At the large end of town we have HSBCnet as a delivery channel with an internet Trade module included which is world class, and it’s winning regional and global Trade mandates from some of the larger corporates, which is fabulous. We have won some great mandates in the last year or two, so we are really happy with that. We actually now need to make that more accessible further down the market, but in the meantime there are still quite a few customers whose needs aren’t sophisticated enough or who are prepared to spend enough money to buy that sort of capability.
But Trade is in the DNA of HSBC; it’s the thing the bank was set up to do. If you look at our branding exercises, most of our marketing is centred on Trade. We focus on that theme because our global network is a key differentiator.
What is HSBC doing to grow its share of the Trade market?
With about 10 percent market share there’s still a lot more to be done. It’s only probably in the last three or so years that we have really increased our marketing and increased our sales resources in the Trade area. We are now seeing that where historically the larger corporates have always done their trade business as part of their overall financing, they are now finding there are more efficient ways of doing it. Now they’re actually taking on board trade specific lines, so there is market growth there.
In the middle market, there is a lot of the market to be captured, and we have recently opened our Parramatta Trade office and there is a lot of business out in western Sydney that we can now touch. Part of that is the whole branding exercise, making sure people know who we are and what we do. There is still a proportion of the business community who recognise us when they go offshore but don’t realise that we are in Australia.
So there’s plenty of low hanging fruit to keep you growing?
That’s right. And a lot of the smaller business and corporate customers, middle market and lower middle market are now turning to offshore markets for growth. They are tapping into China or putting a toe in the water in India or South America. It’s when they do that they recognise the HSBC brand. When they come back to Australia they say "we saw that you were there and we will take on an international bank to go with our domestic banking relationship".
Aside from Trade, what are other strong product areas for HSBC?
Our lead products are Trade, global payments and cash management and debtor finance. There is nobody in this market who can put the bank accounts in 20 countries onto your computer and help you move the money around the way that we can. That has been a significant driver of our business. Debtor finance is doing really well; we have an edge there in terms of export debtor finance. The competition is pretty strong on domestic, but the growth is selling product to Tesco and Wal-Mart.
But at the end of the day we are not selling a product, we are providing a solution. Every treasurer should be trying to minimise their working capital, and manage that capital cycle better, and it means treasurers in offshore locations don’t have to hold onto two to three million dollars cash because they are worried about liquidity.
You noticed I am not mentioning debt as a lead product because at this moment, debt is the greatest commodity product around and pricing seems to only be going one way. Some of the structures that we are seeing in some of the deals being put to market at the moment, would suggest that when the economy deteriorates it is going to be very painful.
You mentioned China a moment ago, how do you view that market for HSBC?
We certainly think China is a 30 year story; it won’t be a straight line but it will be massive growth over a long period of time. HSBC is the oldest foreign bank in China, we’ve got the biggest branch representation, and we’ve also got almost 20 percent of Bank of Communications, which is the fifth largest retail bank in the country with over 3000 branches. So our access points in China are just fantastic and that is a real point of differentiation for us, the whole Asian footprint. But we can also be a bit of a chameleon as well; sometimes we position ourselves as having the Asian footprint, but sometimes we represent ourselves as the UK and European bank. The Bank has great representation there, and also in South America and the Americas. Alongside Citibank, we’re probably the only true global bank, and that’s our tag line ‘the world’s local bank’ and it plays really well.
There has been talk of HSBC shelving its plans for the SME segment and going a bit cold on the segment. What does the Bank have planned for its SME business?
I’m very glad that you asked that question as 40 percent of my existing customer base is SME and we are still growing that segment and customer base quite rapidly. What we stopped doing was preparing a bundled product to come out into market on both the liability and asset side. In the process of production, we saw that the market started to really tighten up, squeezing margins on both sides and we decided we wouldn’t get the returns we thought we would. We’re not in the business of cross subsidising a loss making business, so we just stopped it. We’re definitely still in the SME business and definitely still growing. The work we carried out has just been moth balled until we require it.
And engagement of Trade among SMEs is still low, so it’s not a great product as a cross-sell platform?
Increasingly, SMEs are using Trade products and becoming more sophisticated on the internet and we will have a system capable of supporting them. As part of a global roll out in 2007, we’ll have a platform capable of supporting a low cost initiative and we’ll have another good look at it around then. But in the meantime people who want to Trade and move cash around – surprisingly SMEs are quite liquid, they’ve got good deposit business often in foreign currencies – we’re well set up to take care of that.
What is the general HSBC world view of Australia? How is it viewed as a market?
HSBC sees Australia as an attractive market to be in. It’s the 12th largest economy in the world so if you’re a global bank you have to be in this market. You can’t ignore Australia, it’s too big, too wealthy, and it is the source of significant amounts of world commodities and Trade. But it’s also a very competitive space at the moment; it probably ranks up there with the Netherlands and Spain as having really strong domestic banking competition.
What are the Bank’s ambitions? To be the "number five" Bank in Australia?
We have bigger ambitions than that but one step at a time. We look at those market share statistics and look at our rate growth compared to the others, and if we continue on the current path we will move into the top five in several areas in the next few years. For us it is about the long run in Australia; it’s about positioning ourselves well for whenever the inevitable downturn hits so we are in great shape to then respond appropriately to whatever happens in the financial environment.
They seem to realise how big we are offshore. We certainly have ambitions to be a lot bigger here. If you have a look at our organic growth over the last three to four years, and I’m specifically talking about HSBC’s commercial business, we were probably sub one percent market share five years ago, and we’re now three to four percent depending on which section of the market you’re looking at. In Trade, HSBC has above 10 percent. We’re steadily progressing about half a percent every six months and that’s just the organic growth.
What kind of market share targets has the Bank set itself?
We don’t have a market share target as such, but I think without doing anything else other than just growing our existing customer base with our existing product suite, we could probably get to about 10 percent, but our real drive is profitable growth. HSBC doesn’t want to be one of these banks that comes into the market and makes a big splash, loses a pot of dough, and then leaves again. We’re all about building a consistently growing business in Australia that can deliver and execute.
That seems quite a different strategy to another major British bank in the Australian market, HBOS, which is aggressively seeking market share.
It will be interesting to see how that plays out. They’re also competing head to head with the Big Four. Everything we do strategically is about differentiation, about niche, segments, markets, products, so that we don’t compete head to head with the Big Four. We put ourselves in the spaces where we have competitive edge because of our international network, our Trade products, where we’ve got global systems that are first class, our global payments and cash management, and export debtor finance. Within that middle market and upper SME segment, ours is a market beating offer.
HSBC picked up the award for Best Foreign Bank at the Australian Banking & Finance Awards this year. Are you happy to be viewed as a "foreign bank" in the Australian market?
We are one of the original licensees in 1986 and have hung in there through good times and bad. I’m actually very comfortable with the tag ‘foreign bank’ because it helps with the definition of our branding and our strap line, no doubt about it. But at the end of the day, we are looking at building a sustainable domestic franchise off the back of that. That’s where HSBC has got to in the UK, that’s where we have got to in several other countries. We have 35 distribution points in the country at the moment and we do need to expand that distribution capacity whether that is by internet channels or other means. But in the meantime we continue to grow organically at a steady rate; it is a growth rate that we can manage comfortably.
On the subject of distribution, Trade is obviously a big area for the Bank and lot of Trade activity occurs in regional Australia, in regional Western Australia, for example. How well placed is the Bank distribution wise?
I’m really glad that you asked that question. One of our points of differentiation is the fact that we have kept our state-based Trade operating offices, so that people can actually check and pay on the documentation in person. They are small groups of people spread around the country but it means from a customer service point of view we can actually pick up problems and talk to the customers directly. We have noticed that other banks have centralised their Trade processing. We have noticed customers saying that there has been a drop off in service standards and the fact that we have kept our people local has really been a point of differentiation and competitive advantage.
Is it necessary for HSBC to grow a footprint in regional Australia?
Over the longer term we will. We do some marketing in Newcastle at the moment but if you actually have a look at the demographics of where your importers and exporters are placed, most of them are pretty close to the coast. That’s obviously where the growth populations are, it’s where the capital cities are, so we are reasonably well placed to capture most of that.
How do the physical distribution networks and your e-Trade platform complement each other?
At the large end of town we have HSBCnet as a delivery channel with an internet Trade module included which is world class, and it’s winning regional and global Trade mandates from some of the larger corporates, which is fabulous. We have won some great mandates in the last year or two, so we are really happy with that. We actually now need to make that more accessible further down the market, but in the meantime there are still quite a few customers whose needs aren’t sophisticated enough or who are prepared to spend enough money to buy that sort of capability.
But Trade is in the DNA of HSBC; it’s the thing the bank was set up to do. If you look at our branding exercises, most of our marketing is centred on Trade. We focus on that theme because our global network is a key differentiator.
What is HSBC doing to grow its share of the Trade market?
With about 10 percent market share there’s still a lot more to be done. It’s only probably in the last three or so years that we have really increased our marketing and increased our sales resources in the Trade area. We are now seeing that where historically the larger corporates have always done their trade business as part of their overall financing, they are now finding there are more efficient ways of doing it. Now they’re actually taking on board trade specific lines, so there is market growth there.
In the middle market, there is a lot of the market to be captured, and we have recently opened our Parramatta Trade office and there is a lot of business out in western Sydney that we can now touch. Part of that is the whole branding exercise, making sure people know who we are and what we do. There is still a proportion of the business community who recognise us when they go offshore but don’t realise that we are in Australia.
So there’s plenty of low hanging fruit to keep you growing?
That’s right. And a lot of the smaller business and corporate customers, middle market and lower middle market are now turning to offshore markets for growth. They are tapping into China or putting a toe in the water in India or South America. It’s when they do that they recognise the HSBC brand. When they come back to Australia they say "we saw that you were there and we will take on an international bank to go with our domestic banking relationship".
Aside from Trade, what are other strong product areas for HSBC?
Our lead products are Trade, global payments and cash management and debtor finance. There is nobody in this market who can put the bank accounts in 20 countries onto your computer and help you move the money around the way that we can. That has been a significant driver of our business. Debtor finance is doing really well; we have an edge there in terms of export debtor finance. The competition is pretty strong on domestic, but the growth is selling product to Tesco and Wal-Mart.
But at the end of the day we are not selling a product, we are providing a solution. Every treasurer should be trying to minimise their working capital, and manage that capital cycle better, and it means treasurers in offshore locations don’t have to hold onto two to three million dollars cash because they are worried about liquidity.
You noticed I am not mentioning debt as a lead product because at this moment, debt is the greatest commodity product around and pricing seems to only be going one way. Some of the structures that we are seeing in some of the deals being put to market at the moment, would suggest that when the economy deteriorates it is going to be very painful.
You mentioned China a moment ago, how do you view that market for HSBC?
We certainly think China is a 30 year story; it won’t be a straight line but it will be massive growth over a long period of time. HSBC is the oldest foreign bank in China, we’ve got the biggest branch representation, and we’ve also got almost 20 percent of Bank of Communications, which is the fifth largest retail bank in the country with over 3000 branches. So our access points in China are just fantastic and that is a real point of differentiation for us, the whole Asian footprint. But we can also be a bit of a chameleon as well; sometimes we position ourselves as having the Asian footprint, but sometimes we represent ourselves as the UK and European bank. The Bank has great representation there, and also in South America and the Americas. Alongside Citibank, we’re probably the only true global bank, and that’s our tag line ‘the world’s local bank’ and it plays really well.
There has been talk of HSBC shelving its plans for the SME segment and going a bit cold on the segment. What does the Bank have planned for its SME business?
I’m very glad that you asked that question as 40 percent of my existing customer base is SME and we are still growing that segment and customer base quite rapidly. What we stopped doing was preparing a bundled product to come out into market on both the liability and asset side. In the process of production, we saw that the market started to really tighten up, squeezing margins on both sides and we decided we wouldn’t get the returns we thought we would. We’re not in the business of cross subsidising a loss making business, so we just stopped it. We’re definitely still in the SME business and definitely still growing. The work we carried out has just been moth balled until we require it.
And engagement of Trade among SMEs is still low, so it’s not a great product as a cross-sell platform?
Increasingly, SMEs are using Trade products and becoming more sophisticated on the internet and we will have a system capable of supporting them. As part of a global roll out in 2007, we’ll have a platform capable of supporting a low cost initiative and we’ll have another good look at it around then. But in the meantime people who want to Trade and move cash around – surprisingly SMEs are quite liquid, they’ve got good deposit business often in foreign currencies – we’re well set up to take care of that.
What is the general HSBC world view of Australia? How is it viewed as a market?
HSBC sees Australia as an attractive market to be in. It’s the 12th largest economy in the world so if you’re a global bank you have to be in this market. You can’t ignore Australia, it’s too big, too wealthy, and it is the source of significant amounts of world commodities and Trade. But it’s also a very competitive space at the moment; it probably ranks up there with the Netherlands and Spain as having really strong domestic banking competition.
What are the Bank’s ambitions? To be the "number five" Bank in Australia?
We have bigger ambitions than that but one step at a time. We look at those market share statistics and look at our rate growth compared to the others, and if we continue on the current path we will move into the top five in several areas in the next few years. For us it is about the long run in Australia; it’s about positioning ourselves well for whenever the inevitable downturn hits so we are in great shape to then respond appropriately to whatever happens in the financial environment.
Subscribe