HSBC Asia boss to run ANZ Bank

It is rare for a banker of Michael SmithÆs stature to resign from HSBC, so when news broke yesterday that Smith will leave his post as president and chief executive officer for HSBC in Asia, the Hong Kong banking community was in shock. Smith has been poached by AustraliaÆs ANZ Bank to replace retiring chief executive officer John McFarlane on October 1.

Smith has been with HSBC for 29 years and not only runs HSBC in Asia but is also global head of commercial banking for the group and chairman of Hang Seng Bank. That puts him in charge of 60,000 staff and around $500 billion in assets. His Asian business accounts for 40% of HSBC GroupÆs pre-tax profit.

The shift to ANZ Bank follows an extensive worldwide search that took over a year and required McFarlane to consider delaying his retirement while headhunters Whitehead Mann scoured the globe for a suitable candidate. Smith's rolling 12-month contract has a minimum term of three years.

Scottish-born McFarlane has been a very popular CEO of ANZ for the past 10 years and has taken the bank from strength to strength, maintaining a total annual shareholder return of around 15%, and increasing annual profit after tax from A$1.1 billion in 1997 when he joined, to A$3.69 billion last year. He has also spearheaded the bankÆs successful expansion into Asia which includes investments in banks in Indonesia, China, Malaysia, the Philippines and Cambodia.

It is assumed that SmithÆs experience in Asia was one of his attractions. ANZ is certainly paying handsomely for SmithÆs knowledge. According to a summary of key terms in his employment contract, he will be paid A$3 million ($2.52 million) in salary per year plus a short-term incentive payment of A$3 million annually and a long-term incentive payment of another A$3 million a year after year two. Both incentive payments are to be made at the discretion of the ANZ board.

He will also receive a sign-on sum of A$9 million, one third of which will vest on the first day of October for three years starting October 2008. An ANZ statement says this sign-on arrangement is ôin recognition of the remuneration foregone by Smith as a consequence of joining ANZö. It is assumed that this is the value of SmithÆs HSBC stock that he will be leaving behind.

ANZ began its search for a new CEO in June last year when it was announced that McFarlane would retire in September 2007 after 10 years in the job. In December last year, when the search was underway, the ANZ board extended McFarlaneÆs contract beyond his planned departure date to appease shareholders who were worried about the bankÆs succession plan. At the time, it was reported that ANZ was trying to groom an internal replacement rather than hiring someone from outside.

Smith, who is aged 50, will run AustraliaÆs third largest bank (by assets) from its headquarters in Melbourne. It will be his second time living in the city, having spent five years there in the late-1980s as head of HSBCÆs fledgling wholesale banking business in Australia. ôTwo of our three children were born in Melbourne,ö says Smith, in the official statement announcing his new role.

ôI lived and worked in Australia for five years and my wife and I really look forward to coming back,ö he says. ôI am looking forward to being ANZÆs chief executive officer and building on its strengths and culture. ANZ is a significant publicly listed Australasian bank.ö

Charles Goode, ANZÆs chairman, says Smith has an impressive track record across multiple businesses and geographies with extensive experience in retail and corporate banking. ôHe has worked in most continents across the globe and brings considerable experience of the Asian market place,ö says Goode.

ANZÆs investments in Asia include a highly successful stake in IndonesiaÆs PT Panin Bank, a credit card joint venture with Metrobank in the Philippines, a joint venture bank with Royal Group in Cambodia, a 20% investment in China's Tianjin City Commercial Bank, and a 19.1% stake in MalaysiaÆs AMMB Holdings Berhad which operates AmBank. This last deal was completed as recently as May this year.

Prior to the AMMB deal, ANZ had over 8% of shareholdersÆ funds invested in alliances with Asian banks. In interviews with FinanceAsia, McFarlane said he wanted this level to increase to 10%, with 20% of the bankÆs earnings generated in the region over time.

Smith will no doubt build on this expansion strategy. He is no stranger to emerging markets having worked with HSBC in the Solomon Islands, Oman, Malaysia and Argentina. In Argentina he was the victim of an assassination attempt when the bank uncovered a corporate fraud in Buenos Aires. Smith was running HSBCÆs business in the country during the peso crisis. ôPart of the problem was that I refused to be intimidated,ö he said in an interview with FinanceAsia in 2004, just after taking over the bankÆs Asian operations.

It is very rare for HSBC to lose someone of SmithÆs calibre to another bank. As one of the bankÆs early International Officers, it was expected that he would stay married to the institution until retirement. But it is possible that Smith saw the chance to become a CEO as an opportunity that was too good to miss. ôHe was probably part of HSBCÆs succession plan and may have been in line for Mike GeogheganÆs job (HSBCÆs current chief executive) if Geoghegan were to step into Stephen GreenÆs shoes (HSBCÆs chairman), but none of this was certain,ö says an insider.

As many as 14 potential external candidates were considered by the ANZ board, with seven of these hailing from Europe, three from the US and four from Asia. ôWe eventually cut this down to a shortlist of three internal candidates and three external candidates,ö says Jonathan Baines, chairman of Whitehead Mann, the executive search firm charged with finding McFarlaneÆs replacement. ôSmith was always a favoured candidate because of his varied experience and his background in Asia.ö

Smith graduated with honours in Economic Sciences from City University of London in 1978. He is married with three children and his interests include wine, golf and classic cars.