Business World

Tuesday 20 August 2019

'Technology is rapidly developing. You have to ensure you keep up with these changes, while listening to clients'

In person: Jeroen Bakhuizen

Key market: HSBC’s Jeroen Bakhuizen has hailed the success of Ireland as an operations hub
Key market: HSBC’s Jeroen Bakhuizen has hailed the success of Ireland as an operations hub
Ellie Donnelly

Ellie Donnelly

After joining banking giant HSBC six years ago as head of international subsidiary banking (ISB) focusing on the Benelux, Jeroen Bakhuizen's rise through the company has been rapid. Today, the political science graduate is the global co-head of the division.

In layman's terms, ISB's job is to deliver consistently smooth and reliable banking for companies that are operating across multiple countries.

We are chatting in Dublin, where Alan Duffy, chief executive of HSBC Ireland, sits in to provide local context.

Ireland is seen as one of the bank's key ISB markets, and one of the main European treasury hubs, alongside the Netherlands, France, Switzerland and the UK.

HSBC's roots as the Hong Kong Shanghai Banking Corp date back to the era of the British empire, and in the age of globalisation, it is now operating across more than 50 countries. After the great crash, when many big banks pulled in their horns and retrenched to home markets, HSBC made a virtue of its global status.

Its border-spanning activities have not always been easy to manage. In 2012, the bank was fined $1.9bn (€1.7bn) by authorities in the United States after a Senate investigation.

The bank was accused of "playing fast and loose with US banking rules" between 2004 and 2010 by senator Carl Levin, at the time an influential ally of president Barack Obama. The Levin report linked the bank to Mexican money laundering and Iranian sanction-busting.

It was a big blow for a bank whose reputation had, if anything, been enhanced during the financial crisis, when it was far less exposed than its main rivals to issues like US sub-prime.

Since 2012, the bank has moved to centralise its internal controls, regardless of where in the world, and who in the world, it is banking with, Bakhuizen explains.

"We umbrella under global standards," he says. "[That is] making sure that financial crime and the knowledge about financial crime is embedded, not only within the relationship management side of the business, but all the way to middle- office and back-office, so compliance, payments."

The kinds of issues thrown up at HSBC in 2012 have since emerged for banks operating in the Baltic states, and by extension across the Nordic region, where some of those lenders are owned. It is a huge challenge for the industry.

"I think if you take the biggest change in day-to-day banking, it is this aspect where you will spend a lot of time making sure the global standards are looked after; that means processes, checks, controls. It's part of the day-to-day now," Bakhuizen says in a soft Dutch accent.

It is not just a change in attitude; banks have had to change how they work, he says. "This is a combination of mentality and also systems. Systems are very important; can you really screen payments, make sure that you know everything about your client inside out? That's the day-to-day specifics."

He describes it as the "new dynamics of banking". For HSBC, "it's a journey we embarked on some time ago", Bakhuizen adds.

"The other is you need to change mentality and culture. The advantage we have is because we know our clients not only at headquarters and subsidiary level, we know a lot about them, and make sure we connect all these dots."

That is in part because the US findings had precipitated a major change within HSBC, Irish head Duffy says.

"There was a huge five-year deep review of the business, and certainly we have emerged stronger and better-protected, and know our customers even better than we did before," he continues.

In some cases, the bank quit markets and sectors in the wake of those reviews, but not Ireland, which was selected as one of HSBC's hubs for managing operations across the wider region, Bakhuizen says.

"Dublin is definitely such a hub in Europe. There are a couple of others - Singapore is an important one in Asia, so is Hong Kong, but Dublin is quite successful."

The importance of Ireland for the bank reflects the importance of the country to its client base of multinationals, Bakhuizen explains. HSBC is here because they are. The bank tries to mirror the clients' structures, he says.

"If the client wants to control everything here in Dublin, then we make sure that our systems are capable of doing that.

"But it can also be having relationship management with the person who has responsibility for doing that for [clients] across Europe. That person here on the team that literally takes care of all the needs of that client in the region.

"It is up to the client where they place their regional headquarters because that decision is a much broader decision than only banking; it has to do with legal and tax structures, with a lot of other aspects that come into play.

"We follow the client to that location and make sure we service them in the best way possible."

While it sounds simple, few banks actually have the scale to do it, he thinks.

"Very few institutions out there can offer the kind of coverage we do, and Dublin is evolving as a key hub location, as well as Amsterdam, and other jurisdictions in Europe, to fulfil that function for corporates. There are great advantages here in terms of time zones, access to talent and so on," Duffy adds.

Often, large businesses will follow certain trends, be it to diversify, to outsource, expand overseas, and so on.

The same trends drive the grouping of financial services, the team says.

"[US] multinationals for decades have already embarked on this journey - of hubbing - and you would see very professional treasury departments in them, and European companies the same," Bakhuizen says.

"And now we see Asian companies becoming more and more global as well.

"The ones that embarked on the journey some time ago are now starting to look at how they can professionalise finance departments.

"We see more and more companies from Asia start to embark on that hubbing structure."

The challenge for the bank becomes, according to Bakhuizen, "how can you follow your clients and make sure all your systems are aligned"?

"Technology is rapidly changing and developing. [You have to] make sure that you keep up with these changes, while also making sure that you listen carefully to what your client wants, because we can bring all kinds of features to the market, but obviously our clients should have a wish and a need for that as well," he adds. "Technology is the biggest challenge but at the same time, an opportunity."

In the Irish market, Duffy says the key development has been "diversification", as the mix of multinationals here has changed.

"The Ireland/US trade corridor has been so strong since the late 1960s. We are seeing more Asian investment come into Ireland, and that's in pharma, real estate as well, and also the aircraft leasing sector, so those three areas are attracting much more inward investment from Asia," Duffy says.

However, he warns that the country has a "big infrastructure deficit, in terms of housing, transport. We really need to address that; we are at a disadvantage in that area". Recruitment is tough too. There is "big pressure on hiring people with the right skill set", Duffy says.

For Bakhuizen though, a lot of the success of Ireland is also "the mentality" of people. "Why are the hubs like Ireland, Singapore and the Netherlands so successful? It is that combination of workforce and structure," he says.

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