Interview with Standard Chartered
McCabe and Wu Muse on Merger
The CEO of Standard Chartered Bank in Taiwan and the chairman of HIB talk about what makes a successful merger, and the importance of international consolidation in the future of Taiwan's banks.
McCabe and Wu Muse on MergerBy Maxine S. C. Yang
From CommonWealth Magazine (vol. 369 )
Half a year ago British banking giant Standard Chartered Bank bought Hsinchu International Bank in the first foreign takeover of a local Taiwanese lender. Since then the two sides have completed most of the work to integrate Hsinchu International’s 83 branches in Taiwan with Standard Chartered’s global network of more than 1,400 outlets. The merged entity, “Standard Chartered Bank (Taiwan) Ltd.,” will be the foreign bank with the most branches on both sides of the Taiwan Strait.
In the following interview with CommonWealth magazine, Standard Chartered CEO James F. McCabe, who was dispatched to Taiwan to oversee the merger, and Hsinchu International Bank chairman Chih-wei (“C.W. ” ) Wu for the first time jointly addressed the press. As the two men told the story behind the merger, they often laughed and joked with each other, showing that at the executive level the merger has been a good match.
Q: When did the two of you meet for the first time?
McCabe: I met C.W. for the first time in July 2006.
Q: I heard it was about two years before you announced the merger.
McCabe: No, I think what you mean is our previous CEO Mervyn Davis came to Taiwan in 2005, I think, and he made some public announcements about the Standard Chartered Bank’s desire to expand in the country. So Standard Chartered had announced for a while its intention to try and expand its business.
Q: People in the banking industry say it takes about two years to make a decision in a merger and acquisition operation.
McCabe: I think every acquisition, every set of circumstances, is always different. Some transactions can take forever, some transactions happen quickly. It really, really depends. There is no exact way of how these things happen.
Q: What was your first impression about each other?
McCabe: Outstanding, it was an instant identification with a top-notch businessman who had been very successful in his own company, but also had a very solid international view and perspective and knew what he wanted for his company. It was a wonderful first impression and it’s been that way ever since.
Wu: Jim is very outgoing, very pleasant, he has a very pleasant personality and very importantly he is very straightforward, and knowledgeable in banking. Not that much in golf, but in banking.
McCabe: He is the best golfer in Taiwan. He’s a professional. I am just so-so.
Wu: Jim’s international experience in the banking business will help this organization in a big way. He has assured all employees that the future corporate culture will be good, will be pleasant. Of course, it needs a lot of hard work
Q: How is the merger going? What’s the impact on both sides, and what can you learn from each other?
McCabe: The merger is going well, but it’s a very delicate combination of many, many people. You must maintain outstanding communication. You must constantly communicate. When you think everybody understands what’s going on, communicate it again, because they don’t. Remember, everybody hears what they want to hear, so you must constantly translate, translate, translate. I’m not talking about Chinese and English – I’m saying your message, because there is a tremendous amount of emotion in any kind of merger like this, and that emotion can be very positive, if it is going in the right direction, or else it can become an obstacle. That’s why the challenge for the management team is to be as clear as possible, but also as frequent as possible. That’s a big aspect of having a successful merger.
Q: Could you give us an example?
McCabe: One of the first things we try is to win the hearts and minds of all of our people. We do that through different kinds of programs, gatherings, contests. Sometimes silly little games are ways of breaking the barriers, showing each other that we are not that different, even though we may think we’re very different. But also listening and understanding each other and understanding the backgrounds, so it makes it easier then to come together. Whether it’s a business discussion, a product discussion, or a human resources benefit discussion, everything has to be done with a lot of sensitivity. If you do it that way, your staff calms down and then they start to listen. Staff only will listen if they are calm.
Q: What have the Standard Chartered employees learned from HIB?
McCabe: I’ll tell you, every single employee at Standard Chartered Bank has commented on how much they enjoy meeting the staff at HIB, their enthusiasm, their receptivity to learning about new things, their desire to come together very quickly. It’s been everything you would hope for. So many times you worry about cultures and culture clashes. It’s been a little bit the opposite.
Wu: Coming from a local bank and joining an international bank, the first thing you find out is that their resources are so much wealthier. All kinds of technology, product capability, human resources, international channels, the ability to serve your clients much, much better in the future. These things excite everyone. Secondly, it’s about professionalism. The precision of each working procedure, working processes, the degree of precision is much greater than anything we know. There’s a lot of things that our employees can learn from and benefit from. Of course, to be frank, many systems, be it the managerial system or the HR system, are more reasonable. At least, HIB people will find out eventually that the management system is more humane, more reasonable and takes care of individual career planning much better than domestic banks. Of course, working for an international bank you find that corporate governance is much tighter. It’s absolutely absolute, no question about that. It’s a working environment that you appreciate and need to adjust to, even people like me.
Q: What did you need to adjust to in the past few months?
Wu: The biggest difference between an international organization compared to a domestic organization is the matrix system. You get involved in more things, but you have to involve more people in all these decision-making processes to prevent any wrongdoing, or we have more thought-through thinking before any decision is made. But that also means adjustment of your working habits or in your mind.
Q: What about your customers, what have they said since the merger?
McCabe: First of all, we are still running two separate businesses, and therefore our customers don’t mix, cannot mix yet. Regulations won’t allow it until the official legal day that we combine. The customers are very curious, very interested. I think they all expect what we are offering, which is enhanced opportunities, be it greater products, greater services, or a greater international reach.
Q: Do you expect some change in your customer base after the merger?
McCabe: We want to retain all our customers in both companies. Once we have combined our businesses, we will then push for growth, which will mean more customers, just like it means more products and more opportunities. This is a platform for growth – growth for our people, growth for the customers and growth in the market.
Q: Do you expect Taiwan’s banking industry to change if more and more foreign banks invest in local banks?
Wu: I think industry consolidation is a trend. Whether you look at it from a government policy point of view or a market point of view or politicians’ point of view, industry consolidation is a must. To involve an international organization is not a simple process. Both organizations need to have similar goals, similar thinking before anything can happen. Very fortunately for HIB, we had a very good engagement with Standard Chartered Bank from the very start of the negotiation processes. We had very similar thinking. For the corporate culture, the similarities were greater than the differences.
Q: I think it was a tough but smart decision for Mr. Wu to merge with a foreign bank instead of a big domestic bank. The Taiwanese government will be pushing banks to join hands with international banks to become more competitive. What’s your view on this?
McCabe: This is a business that’s very capital intensive. With the new accords like Basel II and other new methodologies such as corporate governance, the pressure on shareholders and management is very, very strong, so you have to be very good. It’s no longer an industry that maybe you casually can take advantage of. Therefore, the best practices and deep capital access are very important.
Q: Why did you choose to merge with Standard Chartered?
Wu: I thought that after consolidation our bank would be a much stronger bank. I can imagine that probably in the very near future mid-sized banks and holding companies will face greater and greater pressure. The pressure will come from, first, profitability – how do you differentiate yourself in profit-making? Since there’s always competition on price, how do you support your customers with better products? The second one is of course HR resources – better product offerings, better service channels. For mid-sized operations this is quite tough. The third one is the capability to control risk. This is also very sophisticated. With, as Jim said, Basel II approaching, the bank’s profitability in the next two years was not clear. With the Basel II requirement you have to add new capital, so you will have even greater pressure. HIB was actually a very strong mid-sized bank. We had a very good cost-income ratio. We were very efficient. Our wealth management business was doing great in comparison with other large banks. We had the capability to develop innovative products. But why did I make that decision? I think every bank must build up its own agenda. I could see a very clear picture for HIB for the next two years. But what after that, especially if consolidation would move forward? I asked myself will there still be a niche, or will your niche be squeezed and disappear? What’s the profit model in the next three years and what will be there beyond these three years?
Q: What’s Standard Chartered Bank’s secret of success?
McCabe: Standard Chartered is a very unique organization. It’s been in business for 150 years... To be successful it has created a culture that is unique – a culture of staff engagement, customer engagement, and community engagement. It’s created a working atmosphere that’s enjoyable, but productive and with a purpose. When we bring new organizations into this family, they have embraced it, and they have enjoyed joining the bank… In order to merge companies successfully, you can’t force it to happen – it has to happen naturally... We are a service industry. It’s all about people. You have to have a strong culture, you have to have a very inclusive culture. We are a very, very diverse organization. I think it’s 75 or 80 different nationalities working in the bank… It has a solid capital foundation in London, and the London stock exchange and investor community. It’s listed also on the Hong Kong Stock Exchange. It has solid access to capital. It has a wonderfully diverse workforce, and they take advantage of all these growing, developing markets. Because these markets are young, you have all this enthusiasm, all that energy, that makes it exciting for people to work… It’s not enough to be successful – you have to engage and you have to delight your staff and your customers. We have been able to do that now for quite a number of years, and that gives us the opportunity to keep growing, whether it’s organically – which is still the majority of our growth – or strategically, in the way of somebody’s acquisition.
Q: How does Taiwan and HIB fit into your China and Asia strategy?
McCabe: I think it fits extremely well. You know, our business in China is doing very well. We are the first foreign bank to incorporate – we have just announced it. We hope to have 40 outlets in China by the end of this year. China is very important to Standard Chartered Bank. And Hong Kong, of course, is as close to the home market as you can ask for and has always been strong. And now we are going to have a very strong platform in Taiwan. It kind of completes that circle in a very good way. If you are an HIB customer, you are happy that all of a sudden you work with a company that has a much broader capability.
Q: How does that fit the dream for your bank, Mr. Wu?
Wu: Banking is a service industry. It’s about how the customer appreciates your services. Taiwanese businesspeople are very dynamic, but unfortunately Taiwanese banks were not, or still are not, able to deliver all the necessary services. Big corporations are venturing into China or they have capital needs in Hong Kong, or they want to diversify into Vietnam. The IT companies are talking about India, UAE (United Arab Emirates), countries like that. Standard Chartered is very strong in every market I mentioned. For the time being, we will be the only bank that can provide all these solutions. Most of our employees are excited, and our customers from day one have been asking, what business model will you be providing, and things like that.
Q: You have both been observing Taiwan’s banking industry for more than a decade. What do you think will the biggest challenge in the next decade?
McCabe: I think consolidation is going to be a challenge, because it affects different people differently. How to face a global trend, how to deal with that from the shareholders’ point of view, the regulators’ point of view, the customers’ point of view and the employees’ point of view – everyone will have a different view on the benefits and the costs of consolidation. But I think everyone has to agree that it’s happening, and it is going to continue to happen. But exactly how and exactly when and exactly for whom, that’s the 25,000 dollar question, and that’s, I think, something to watch out for. We have made a very important, significant move. But it won’t be the last one, and there should probably be many more. And that will start to inject a lot of change. As we know, change always means there are opportunities and there are risks, and everyone looks at it from a different point of view.
Translated from the Chinese by Susanne Ganz
Chinese Version: 台灣的銀行 搭著外資才有未來