Keith Whitson, Group CEO, HSBC Holdings

He was knighted last year and is the number two man in the HSBC Group. Yet, Keith Whitson doesn't think twice about taking the "tube" (the London underground) to work every day. But then that's Whitson, and HSBC, for you. Conservative and cautious, but global and focussed. It may not have Citigroup's aggression, but it is the world's second-most valuable bank by market cap. Whitson, whose bank manages assets worth more than $695 billion (Rs 33,36,000 crore), was in India recently, and spoke to Business Today's Abir Pal at HSBC's landmark office in Mumbai. Excerpts:

In the past, HSBC was dismissed time and again as being old fashioned and slow moving. Do you think that today, in the view of controversies that Citigroup has managed to embroil itself in, that may actually be a virtue?

I think that having a track record of a group with integrity, that's trustworthy and not always seeking the limelight (is a virtue). (We have) stuck to a business that we know, put our customers first, and put them on a pedestal. But above all else, (we) always pursue an act of total integrity and that I would say is a quality that distinguishes us in conditions we've seen perhaps over the last couple of years. Indeed, perhaps some of those traditional values have come through very strongly.

So you wouldn't say its necessary to be very aggressive or even compromise on ethics in order to grow fast?

I don't think it's a question of aggression. I think even we've been aggressive in a number of markets. We've also taken the lead and shown a great deal of initiative. I think if you look at our track record in India and other countries, you'd see that we've been at the forefront, pioneering...we've often been leaders. But perhaps there's a slightly more conservative style that we bring to our business, and we believe that it's this mix of qualities-knowing how to temper your aggressiveness with a degree of conservatism-that's most important.

HSBC is known not to pay stratospheric salaries like some other banks do, and not create stars out of its analysts and investment bankers. Does that become an issue when attracting really talented people?

I think we tend to keep our feet firmly on the ground. We don't get carried away by what we see as excesses in the market. But I think we pay competitively and some of our top performers and most talented people are handsomely rewarded. They may not be out there in the stratosphere, but we're certainly in the top end of the market. We definitely believe in paying for performance. One has to remember that bonuses come out of profits, and sometimes we've seen in the past in some entities, not so much in HSBC, that bonuses get irrespective; whether the profits get produced or not, and that's something we've not done at HSBC.

What happens when you are trying to deal with corporate clients who would like you to be, let's just say, accommodating in your banking and investment banking deals? Do you lose out on customers?

I think the mix of investment and commercial banking is a very powerful blend of qualities and capabilities, but one has to once again be sensible because we're also in the commercial bank using our capital and we're risking our depositors' money at times in making advances and we have to do that prudently. We don't believe in jeopardising our strength on the commercial banking side in order to simply gain the fees on the investment banking side. We see them as very complementary, but we certainly see both businesses having to justify the bank's commitment independently and as separate businesses in order to gain the complementarity.

Is it difficult to juggle both these priorities?

We haven't found it particularly difficult. In the market, there are one or two of our competitors who've struggled with that conundrum, if you like. Not so much in India, but certainly in the US we've seen examples of that. But I think by and large we've found that by sticking to prudent credit and risk management we've been able to bring the best of the commercial bank to bear in order to gain confidence and gain the relationships on a transactional basis with some of the investment banking requirements.

Mr Whitson, is HSBC still overdependent on Hong Kong for its earnings? With the Hong Kong economy not reviving, how do you diversify and maintain profit growth?

HK continues to be a very important part of our group. That's where we had our roots, our foundation if you like. Of course, today, with China developing so dynamically and successfully we continue to view Hong Kong as a very vital part of our operations and it's something we're enormously proud of and most of our competitors would give an enormous amount to have the presence in HK and China we have today. So no way do we ever belittle the importance of that in our group.

But in terms of percentage, it's in the lower 30s and so we've diversified a lot from our original roots. It started with the acquisition of what was Midland Bank in the UK. And as we rebuilt Midland, the percentage contribution towards group profitability has grown substantially and, of course, we've also grown in the States and more recently in France and to some extent in Latin America. So we diversified away from the HK roots, though HK itself has continued to grow. It's just that the group itself has also grown and diversified. It's vitally important. When the Household deal (HSBC is in the process of acquiring US-based financial services company Household International) goes through we'll have a split of income across the group that'll almost be a third, a third and a third between Asia, Europe and the Americas. I think that's a pretty comfortable and strong position to be in.

Coming to India, you've been in the country for a hundred years or so. Yet, relatively newcomers such as Citi and Standard Chartered are perceived by most as being more aggressive in the sector. In fact, on the BT-KPMG survey of Best Banks, HSBC shows up at #12, and both Citi and Stanchart have significantly higher profits per employee and lower NPA as a percentage of net advances. How do you view this?

Well, statistics are statistics, and I think I have a number of statistics that I can draw upon which show that HSBC is actually doing very well here. We're both the best foreign bank and best treasury bank in the country. So it depends on which particular audience and which particular poll you pay attention to, but certainly we've seen both the competitors you named, move ahead quite aggressively. But we believe that our policies are the right one and we do a lot of our traditional services and practices here. We're long-term players. We'd rather sometimes take a little bit more time, a little bit more prudence in the approach we take rather than in fits and starts. So we've embarked on what we feel to be a very satisfactory development and we're not too alarmed, if occasionally others come up in the polls. We've got a pretty good business here. We've got some good managers and we work together as a team and I feel HSBC's reputation in the market is very good. And actually, at the end of the day, it's reputation that really counts and not the level of aggressiveness.

Mr Whitson, some people are envisioning that even telecom companies will become banks in the future. Do you agree with this?

I think there is a misconception sometimes that if you have a customer base you can turn yourself into a bank. There's an awful lot more to it than that. You can do some simple banking for customers of a large base. You've seen the supermarkets and so on in the UK, one or two of the utility companies that've branched out into banking and financial services. But actually as they get into it, they realise that the assessment of credit and risk is a very sophisticated and highly technical area. And also the development of systems and the large volumes that're required in banking is also very expensive and quite often they must slow down a bit when they reach a certain scale because they realise that an enormous amount of money has to be allocated to developing the necessary infrastructure. So, of course, a customer base is very valuable and I think working together with banks gives opportunities to combine and cross-sell and offer services. But to set up independently as a bank you don't have the necessary systems and infrastructure, you don't have the depth of talent amongst your staff, and you don't have the judgements that're necessary. It can be quite difficult.

Every Indian bank seems to be rushing into retail. What'll determine success or failure in the retail space?

The most important factor unquestionably is to be customer-driven. To not only say that customers are important but also prove it. It has to be almost a religion within the bank. If the customer comes first then you have to demonstrate that your service is the best, your products are user-friendly and reliable. If you make mistakes you've got to be quick to rectify them and make compensation if it has cost the customer money. All these things add up to giving a comprehensive service on the retail front. It's not just the amount that you charge. It's not just any one thing; a panoply of qualities and quantities and the way you deliver your product. It's absolutely putting the customer up on a pedestal and making sure that he or she feel that they're important to you. And they are.

What are the factors that are going to shape the future of banking? What are the markets that HSBC is betting on?

I believe that even if size is not everything in terms of banking, there is no question that economies of scale can be achieved and one can do many many things for one's customers if one has scale around which to build. We as a global player can actually bring cheaper products to the market for our customers by making use of processing in the sense where we know that labour is capable, eager, willing, and cheaper than in another country. These are the sort of things we can do as we have the economies of scale. So globalisation, to use an hackneyed expression, is very important and beneficial. We can transfer best practices, avoid some of the mistakes and pitfalls that we see in other environments. And above all, focus on what the customer wants. There is no point doing all your work in a certain location to find that you've upset all your customers. There's no point in that. I think that that is the way you're seeing the world move. One or two other players are beginning to develop. You mentioned Citigroup. It's interesting to see links forming between Bank of America and Banco Santander-the big Spanish banking group. These are the sort of things that're beginning to emerge.

Any specific markets that HSBC is looking at?

We consider ourselves to be a truly global player. Our slogan is the world's global bank, but we've got a presence in 81 different countries. We tend to look at the countries where on the corporate side our customers require us to provide a service for them and, generally, we like to move in with that requirement. On the retail side, we look at countries where there's a large population and where either the banking system is not developed or if developed perhaps not providing a particularly competitive service. Where there's a young population that's developing with a growing need. These are the sorts of markets. We've moved into Latin America over the last 10-15 years, Brazil, Mexico. We'd like to do more in India, we'd love to be bigger here. We've opened more branches in the last few years. We hope it's going to be a trend we'll continue. China is a massively attractive market. Huge population, moving ahead very rapidly... those are the markets-and, of course, the US market-particularly attractive to us. In the country as a whole, we're not strong historically. We hope to have an opportunity to address that.