HSBC MD Eichhorst Discusses Banking in China
Gordon Eichhorst is Head of Industrials and Technology Sector and Managing Director, Global Investment Banking, Asia-Pacific for HSBC. Prior to moving to Shanghai, Mr. Eichhorst worked for Morgan Stanley in London as head of the Technology Banking Group for Europe. He earned his MBA at the University of Chicago Graduate School of Business in 1997.
Q: You have been banking all over the world. Why have you decided to reside in Shanghai at this time?
The clear comment that I received from so many international clients prior to relocating to China was “How can you help me learn more about China?”
Obviously many companies are involved with developing China operations either to extend their own supply chain or to access the huge market potential. International companies are much less familiar however with the financial environment in China. The Chinese security markets are expanding rapidly and it is fascinating to watch this development first-hand.
Although there is a lot of interest from international companies, my posting in China also gives me the opportunity to work with Chinese companies many of whom are experiencing the capital markets for the first time. As the most senior investment banker in Shanghai, I have a natural advantage in simply being more available to either local firms or to the regulators of the financial markets who are still in the middle of making key policy decisions.
Although my role is regional and I do spend a lot of time traveling to other Asian cities and meeting other Asian clients, the chance to live in Shanghai and be more directly involved with its development was too good to pass up.
Q: How would you say, today, the banking experience differs between London, Greater China and Wall Street? How would you imagine responding to this question 5 years from now?
Having been an investment banker in Europe during the mid-90s I see many parallels between where Asia is today and where Europe was 10 years ago. At that time many European countries were transforming their securities markets to be more open and the roles of commercial banks as the primary provider of financial support was diminishing. Investment bankers played a dual role of providing the execution for transactions and also, to a much greater degree than in the US, were required to educate their clients on the nature of independent capital markets.
Asia is now at a similar stage. Most clients do not have first hand experience with the capital markets and there is a great deal of misinformation about what investors demand and what the implications are for poor corporate governance. In some ways it is a more difficult task for the Asian markets because the participants in the global financial marketplace are much savvier than they were in the mid-90s.
The rapid development of hedge funds and private equity funds, which in many cases have open mandates to make money any way they can, allow a much more rapid relocation of capital.
During the last 10 years I have seen numerous and unpredictable changes in financial markets. The one prediction I would make with regards to 5 years out is that the financial markets will no doubt transform significantly and many financial professionals will need to reinvent themselves again. It is the nature of this industry.
Q: HSBC has been expanding the ranks of its investment banking practice. I also understand you have changed your full-time training quite a bit recently. What can an associate fresh out of B-school expect to experience when she/he heads to join HSBC?
I have had the opportunity to observe and be involved with MBA recruiting since joining the industry out of B-School. In the last 2 years the most disturbing trend that I have observed is that many students no longer believe that investment banking is an exciting career and many don’t even bother to interview or learn more about the firms. I think some of the fault clearly lies with the firms and that many of the former investment banking analysts are being much more vocal in describing their bad experiences which is tainting the perception of the industry.
Investment Banking associates are a critical part of any deal team and this 3-4 year track should be an incredible learning experience and an opportunity to interact with senior client executives to help shape and execute their strategy for the future.
My belief is that one of the core areas where investment banks have failed recently is in their training and mentoring of new associates. We also believe that the involvement of the most senior bankers in the early stages of associate careers is critical to getting people off to the right start. Associates who join us should expect that they will get a lot of training and mentoring but in return we are also very demanding of their commitment to our firm and clients.
Q: You have just announced your results for the quarter. What are HSBC’s plans for making inroads in investment banking globally?
HSBC’s advance in the league tables is impressive.
Although the results in investment banking often appear binary in reality the advances that you mention are really a function of meetings and client relationships that have been formed over at least a 9-12 month period. We have been and continue to be encouraged by the great client response we get concerning our ability to offer a broader range of products and services than our competitors. I anticipate future wins in the near future while our plans for making inroads remains relatively unchanged.
Q: There is a record amount of capital being raised by Mainland companies in Hong Kong and a steady stream of IPOs that has resulted in such headlines as “Hong Kong Back in the Boom.” What are your thoughts?
One of the great indicators of the excitement in the Hong Kong market is real estate prices. I was in Hong Kong in late 2003 when I was in the process of planning my move to Asia and the difference between rental prices then and now is staggering. Since Hong Kong is now primarily a services economy this bodes very well for the future as companies only spend more money on services when they perceive a lot of growth opportunities. There will certainly be some bumps along the road in the China economic story but growth rates averaging upwards of 7% are easily foreseeable for the next 5-10 years.
Q: Now we have had the appearance of the Geely, a Chinese-branded car at a recent auto show in Detroit. Will we witness a trend for Chinese firms to start marketing higher value added products and acquiring assets globally in the near future?
It is no secret that the Chinese Government is encouraging the development of Intellectual Property within China and that the acquisition of Intellectual Property is also an acceptable route.
Many parallels have been drawn between the Japanese and Korean manufacturing bases and their evolution from third rate to world beating. My view is that this will happen even faster in China. China has been very open to allowing foreign firms set up manufacturing facilities in China and there has been a lot of technology transfer and subsequent training of engineers and managers.
This coupled with direct government policy to move up the value chain and the continuing development of the domestic China market means that international brands like Haier and Lenovo will soon become much more the norm than the exception. Chinese firms have a built in advantage when it comes to catering to Chinese tastes and their rise in the domestic economy and internationally is inevitable.
Q: What is your advice for all the first-year students going into their investment banking summer internships? What about us FT bankers?
As I remarked earlier investment banking is all about change. When I reflect on the last 10 years in the industry it is truly remarkable how much change there has been. In the mid-90s there was no hedge fund industry to really talk about and similarly the Private Equity industry was relatively small and did not offer summer internships. So the first piece of advice is to make sure that you are the type of person that embraces change and is willing to reinvent yourself as necessary. Remember Darwin said it is not the strongest that survive but those that are most capable of adapting to change.
The second piece of advice links with the first in that I would highly recommend that those interested in investment banking spend time learning the fundamentals. Trends will come and go (Junk Bonds in the 80s, Tech in the late 90s, Real Estate today) but those who can analyze and predict the financial implications and offer sage advice or act upon their convictions are the ones with long term potential in this industry.
Stuart Bradley can be reached at Stuart.email@example.com.
Reprinted for Wharton Journal 4/17/06