HSBC sends in A-Team on US homeloans

By Lucy Farndon
Updated: 03:52 EDT, 23 February 2007

HSBC has booted out its American bosses and brought in a British/Irish combo to try and sort out its troubled US mortgage business.

Chief executive Michael Geoghegan is well aware his own neck will be on the line if he doesn't take drastic action, though the clearout won't come cheap.

Bobby Mehta has stepped down as chief executive of HSBC North America to 'pursue more entrepreneurial interests' after a shock profit warning from the division.

He is likely to walk away with a near £10m payoff and could net millions more from his shares and options.

Sandy Derickson, chief executive of HSBC Bank USA, is also leaving with a handbag full of cash. She said: 'This is a good time for me to take a long desired break from work so that I have more time for my own interests and my family.'

Geoghegan better hope he has parachuted in the A-team, because investors aren't in the mood for more mistakes. They are fed up with the underperformance of HSBC's shares, down 1½p to 907p.

Dublin-born Brendan McDonagh, who joined HSBC in 1979 as a graduate trainee, has been promoted to replace Mehta. Last September he moved from New York to Chicago to deal with HSBC's Household 'sub-prime' lending business. New York-based Paul Lawrence, who graduated from Leicester University and joined HSBC as a trainee in 1982, will replace Derickson.

Two weeks ago Geoghegan had hinted at a shake-up, after the bank warned that bad debt charges would surge to £5.4bn. This was 20% more than it had previously said because it had misjudged US mortgage arrears.

'The buck stops with me,' Geoghegan said at the time. 'I don't like losing money. We will put this right.'

A downturn in America's housing market has hit all lenders, but analysts believe the problems run deeper at HSBC. It seems to be struggling to estimate the size of its bad debts, which suggests its internal controls are not tight enough.

Changing the executive team is just the first step. HSBC is also likely to bring in some heavyweight non-executive directors to ensure that Geoghegan himself remains under the microscope.