New HSBC Bermuda CEO Richard Moseley on business in Bermuda, our economy and the bumpy road ahead.
Richard Moseley became chief executive officer of HSBC Bank Bermuda Limited on May 10, succeeding Philip Butterfield. Moseley joined HSBC Bermuda on December 1, 2009.
He has spent 32 years in the HSBC organisation in a variety of roles, including senior executive within HSBC’s group head office, global head of payments and cash management, chief operating officer for global transaction banking, general manager for corporate and institutional banking as well as general manager for card services.
Moseley has also served as CEO and country manager for Midland Bank SA and Midland Bank plc, Paris branch, and head of group private banking, United Kingdom.
He sat down with our correspondent, Duncan Hall, to discuss the state of the economy, his expectations for the remainder of 2012 and more.
Congratulations on becoming chief executive officer. How will your role at the bank change now that you are in the top job?
Whilst my focus has been very much on the customer side since I arrived a little over two years ago, I have also spent a lot of time looking at the rest of the bank and working very closely with Phil. We have also set up a small executive committee, with the chief financial and risk officers, to ensure that the big decisions are discussed among the four of us. Therefore, I think it is going to be a very smooth transition. I have had plenty of time for this. I have really gotten to know many of our staff and many of our customers. People are enthusiastic about moving the bank on to the next stage.
As deputy chief executive officer, you had oversight and responsibility for commercial banking at HSBC Bermuda. That makes you better positioned than most to gauge the effects of the recession on Bermuda businesses. Is there more pain to come?
Regrettably, we are not yet seeing an upturn, so conditions will continue to be challenging. We need the United States to grow sustainably for Bermuda to benefit. Whilst there is some good economic data coming out of the U.S., it is not solid, and there is still a lot of uncertainty. So I don’t think we are going to see much improvement, regrettably, in 2012.
Do you see any recovery coming in terms of increased employment?
We don’t see that yet. I think it will be linked to the overall growth in the economy, and at this stage people are nervous about investing because they are unsure in terms of what the economy is going to look like next year. They might be replacing people, but they are certainly not building or taking on extra people on the assumption that things will get better. It is too risky.
How has the market crash of 2008–2009 affected your customers’ approach to investing? Are you seeing a more risk-averse approach in terms of their saving and investment philosophies?
Since 2008-2009, many people have been burnt, and since then they have been far more cautious. We have seen quite a growth recently in the equity markets from the lows in October 2011. We are finding that quite a few people today are more focused on making sure they get their monies back. Even though interest rates are very low today, at least they know that if they place their money with a good bank, they will get their money back at the end of the period. We have developed a few structured products that are principal-protected, so that people have the certainty of getting their principal back, and then the rate of return over and above that is linked to, say, the emerging market index, commodity index, the S&P low-volatility index or floating interest rates. We are trying to give people some degree of certainty in a risk-averse world. Wealth preservation is very, very important. We have other customers who are investing in long-term funds, we have seen growth in those areas, and we also have many who are taking part in what we call a monthly savings plan, drip-feeding on a monthly basis into the markets in order to take away some of the volatility.
When can those who are risk-averse expect to begin receiving a higher rate of return on funds deposited with Bermuda banks? It wasn’t long ago that savings accounts were paying 7 percent annually.
Many people remember those good old days with great enthusiasm. They also remember when there were more local companies paying good dividends. The world has changed, and what we are all looking for is a higher rate of economic activity resulting in higher interest rates. At the moment, in the United States, rates are very low because that is the way to keep the economy moving forward slowly. When the economy picks up a lot, then rates will start to move up, which will be very helpful for depositors.
Bermuda’s real-estate sector has taken a significant hit. How is the bank working with its mortgage holders who have, for example, lost a tenant due to a redundancy or are holding a mortgage that is greater than the value of their property?
The first thing is to get customers to talk to us early on. We can look at their financial budgeting and we can help them understand the options that are available to them. Sometimes they can make certain economies which will enable them to get through. Sometimes they might have to consider renting their property and living in a cheaper property for a period of time, or maybe getting out of the property market in totality. There is no one answer. It is about an early dialogue. We want to help people because, at the end of the day, it is far better for us to keep the customer happy and to keep the property owned by the customer.
In some jurisdictions, record-low interest rates have had the effect of giving the real-estate market a boost. Why do mortgage rates in Bermuda continue to sit at around 7 percent when the interest rate on savings accounts is at a historic low? Do you see a future where mortgage rates drop to stimulate the real-estate market?
I think the cost of many services in Bermuda is higher than in other parts of the world. When you look at our results, and the results of other banks, you will see that the losses that we have to take in relation to the loans that we have extended are higher, and so we need to ensure that there is an appropriate margin to cover some of that from a risk-return standpoint.
A really important factor is that our rates, while not fixed, are sort of semi-fixed as they tend to float within a much tighter range. So, yes, in the U.S. when rates are really low, you can get really low funding costs and quite low mortgages, but they tend to move up more. The same is true in the U.K., where there is also a lot more rate volatility than here in Bermuda. Here, in contrast, you have higher costs, higher losses and relatively sticky rates. Sticky rates in Bermuda reduce volatility and make it much easier for mortgage holders from a financial-planning standpoint. Our mortgage rate at the moment is 6.5 percent.
Stock markets have been remarkably buoyant given concerns about Greece and other countries within the Euro zone. In your view, what is driving that buoyancy?
It’s more the institutional investor. I think we will all agree that equities were oversold in October of last year. It was because people feared a potential Armageddon in the Euro zone. People have seen that there has been some resolution—perhaps only short term, but some resolution—to some of the problems, particularly in relation to Greece, and there has been a huge amount of funds on the sidelines waiting for any degree of confidence that the world is not going to crash totally. Having seen that, a lot of money has gone into equities because, frankly, the alternative
s are fairly unexciting today. People are saying, we feel we can take a bit more risk because life is a bit more certain. People have bought in quite heavily now, and I am beginning to wonder if people have bought in too heavily, and that the markets will come off again—not to the levels of October 2009, but come off a bit, because there are still some really critical structural issues, like fiscal deficit, that just don’t disappear overnight in the developed market. Those things still need to be addressed; we have not found a solution to that.
Some observers are suggesting a summer slump due to concerns about a slowdown in Chinese economic activity. Do you share those concerns?
My sense is that the market will probably fall back a little bit, pending a resolution of these fiscal deficits which I have talked about. China is one factor; as an economy, it has grown tremendously, it exports many products. In the old days, China’s exports were traditionally south-north, exporting products to Europe and to North America. Today, a lot of China’s export activity is south-south, with products going from China into Africa and Latin America. So, yes, China is an important element, but it is just one factor.
Could you provide an update on developments related to the deposit-insurance programme that has been announced by Government?
This is more a question for the Government and the Bermuda Monetary Authority, as they are looking to get a board established. We recognise that the International Monetary Fund was keen to see a deposit-insurance programme scheme in place in Bermuda, and I think that is good for Bermuda, albeit I don’t think our customers will see a particular advantage in terms of the scheme being in place for HSBC.
One of the things that people have to recognise is that it comes with a cost, and that cost will need to be reflected elsewhere, as I am sure that the banks will expect to recover the costs involved in their participation in the scheme. There is no such thing as a free lunch, but I think the concept is something that is good from a Bermuda Inc. standpoint, and good vis-à-vis the IMF.
Taking into account staff reductions and companies moving to other jurisdictions, some observers have begun to wonder whether our economy is sustainable in the current conditions. Your thoughts?
Bermuda has lots of strengths, with many fans in Bermuda and elsewhere, and we tend to forget about that. Insurance is a big business, a world leader, and there is a huge amount of intellectual capital here in that business, which means that Bermuda is very well positioned. There are other opportunities in areas like fund management. I chatted to someone last week who is a hedge-fund manager. He came here a couple of years ago because he wanted to operate in this environment, trading markets elsewhere around the world. We need more people like that coming in because that has a tremendous trickle-down benefit for all of us. On the tourism side, we have a great product and we are situated in close proximity to the eastern seaboard, which is fantastic. We have great scenery, and the friendliness of the people. We need to work out what is the right product in today’s world, but high-end people are still willing to spend good money for the right proposition, and Bermuda has got that. So, overall, yes, it is sustainable, and we will play our part in helping Bermuda.
Do you think we concentrate too much on the bad news and not enough on positive developments?
You are spot on. Any business, any country, tends to focus on things they need to do differently—they focus on the negatives. I think we need to step back and remember: top-three insurance centre, huge intellectual capital, a lot of fans around the world, does a lot to help the U.S. in terms of reinsurance, fund management—a strong position there—and people still have a love of Bermuda, and that is a great position to start from. That is why I think it is absolutely sustainable, and HSBC is excited to play a part in that. We are a play on the economy, and we will play our part to make sure that Bermuda is successful.
Notwithstanding world economic conditions, what can Bermuda do to assist a recovery in the international-business sector?
We need to demonstrate by our actions that we are open for business. We have had a couple of Class 4 insurers that are in the process of opening in the last couple of months, and the press today reports that BlackRock is looking to make its first direct foray into the insurance market in Bermuda. These are little things, but as you see more of them, people start to get more confident, and as the economy picks up, that will be very helpful to us. We don’t talk about those little things as much as we should. They won’t change our economy overnight, but if you get enough of those little things, you get a momentum going.
In your view, what must Bermuda do to continue being a significant jurisdiction for the insurance/reinsurance industry?
The BMA and the insurance industry are doing a very good job vis-à-vis Solvency II. They are working together on that, and I think it is clearly what the insurance firms believe is right for their business. Insurance is such an important part of Bermuda, and so we are all very keen to see that being progressed, and Jeremy Cox and his team at the BMA are working very hard to make that happen. What else do we need to do? Government needs to keep on demonstrating we are very much open for business. It is all the little things which make a difference in that regard.
In addition to battling a recession, Bermuda faces another challenge—that of increased gang activity. What are the long-term prospects for our international-business sector if the level of violent crime continues?
That is really something that is a matter for the police, who are working very hard to address that. I am very encouraged to see that they have had a few arrests recently, and I think the police should be given all the support possible to address the problem.
Recently, errant bullets broke some windows at Seon Place in Hamilton. As you speak to your colleagues in the international-business sector, what is their level of tolerance for incidents of that nature?
It doesn’t really come up much in discussion. If you look around the world at the crime and other issues you see in big cities—for example, the riots in London six or seven months ago—you realise that in a difficult economic situation, you are going to see a bit more crime. The key is that police continue to be diligent and take the action to keep the level of crime at an appropriate level.
If we were to speak again on December 31, what would you like to be able to say about the year just gone, and the year ahead?
I would want clients to say that they are delighted with the attention and services we have provided to them in a very difficult environment to help them to realise their ambitions, whether that is to invest for their future, or to borrow monies to meet immediate needs—for example, investing in a business. I would like the work that we have done in terms of talent management, in terms of growing our people, to be reflected. I would love to say, and I am sure I will be able to say, that we have some other high-quality Bermudians who have taken on larger roles as part of our talent management. I think that would be a great message, plus to be able to say that we have more people overseas to get them experience working outside Bermuda and have them return to Bermuda as more highly qualified Bermudians, which we have done in the past.
I would also like people to say that HSBC has played its part in helping Bermuda be more successful. We have great connections around the world, 7,200 offices operating in over 80 countries, and we are always looking to see how we can help the Bermuda economy,
as this will also help HSBC Bermuda, so it is a win-win. So if we can get the talent management right, if we can serve our clients so that they are delighted, and if we can help Bermuda to be more successful, that would be a great year for me.
Is there anything you would like to add?
We view corporate social responsibility as a very important element of what we do, and that is from the top down. Phil has been very vocal in that area and I look to be the same. We provide time off to staff so that they can support community projects like cleaning up Cooper’s Island, which I have been involved with, and also helping at T. N. Tatem Middle School with regard to homework. It is great to change out of the suit, put on a T-shirt and go over there because you can help some people who maybe aren’t given the same opportunities as others receive elsewhere. You help with homework, and you see the pleasure on the faces of the students when they have done their homework well. And the next week comes along, and they look for you, and that is a great result. That is good for Bermuda and good for our staff and good for our customers. I would like people to see that HSBC is a bank which sees its local responsibilities as something that are discharged to the full.
In terms of 2013, I would like to see some signs of recovery. It is a momentum game; I don’t think there is a magic bullet here. Unless there is an insurance catastrophe that requires a huge amount of insurance resource coming in, it will be a combination of things. Each one of those things generates momentum, e.g., more insurance investments, more hedge-fund managers, etc. All those things will start people feeling a bit more positive about Bermuda, and so perhaps there will be more talk about the positive and less coverage of the negative. At the end of the day, it’s all about working with our customers and our staff, and it is all about making HSBC Bermuda, and Bermuda generally, the place to be.