HSBC's New U.S. Leaders Taking Over at a Crucial Moment

Irene Dorner has been widely praised for turning around HSBC's troubled U.S. operations, but her successors still have a lot of work to do to finish the job.

The announcement that Dorner will step down Nov. 1 as the British bank's top U.S. executive comes midway through the bank's efforts to strengthen internal controls and regain credibility with U.S. regulators, following violations of U.S. anti-money-laundering regulations that led to a record $1.92 billion in penalties.

In seeming recognition of that fact, HSBC decided to name two people to fill her shoes.

Patrick Burke, a senior executive in the firm's consumer finance business, will succeed her as president and chief executive of HSBC US.

At the same time, HSBC said it appointed Rhydian Cox, currently the company's chief risk officer for the Asia-Pacific region, to the new role of head of regulatory remediation of HSBC US, effective June 30.

But it would seem to have to fall to someone outside the bank to fill a broader industry role that Dorner had grown into, as both an advocate and a role model for diversity at the senior-most levels of banking.

Dorner's career with HSBC spans more than three decades; trained at Oxford, she became in 1982 an in-house lawyer at the merchant bank Samuel Montagu & Co., which later became part of the HSBC Group. She held numerous leadership positions throughout the organization and rose to CEO of HSBC Bank Malaysia Berhad before being dispatched to the United States as president and CEO of HSBC Bank USA. Within a year, she had taken responsibility for all of HSBC's U.S. businesses; in 2013 she was made a group managing director of London-based HSBC Holdings PLC.

Dorner, No. 1 on American Banker's 2012 list of the 25 Most Powerful Women in Banking, and No. 2 in 2013, speaks frequently about the importance of authenticity and accountability in leadership. Her charisma and frankness were seen by her bosses in Europe as essential ingredients to motivating a U.S. employee base that had suffered under several years of missteps in strategy and in execution.

"HSBC has faced a lot of criticism lately and so has our industry," Dorner said at an American Banker event in 2012. Trust "takes years to be earned and a matter of seconds to destroy."

HSBC's problems in the United States began with the 2003 acquisition of subprime lender Household International. The fallout from the distress in that business was eclipsed, though, by the impact of a Department of Justice investigation into the firm's compliance deficiencies. According to Justice, HSBC's U.S. and Mexican operations allowed drug traffickers to launder more than $880 million through its systems between 2006 and 2010. The bank also was accused of processing payments for customers in Iran and Sudan, in violation of U.S. sanctions.

In its 2012 deferred prosecution agreement with the bank, Justice noted that HSBC "has made significant strides in improving 'tone from the top' and ensuring that a culture of compliance permeates the institution,'' and credited management for having "dramatically improved" programs to address AML, Bank Secrecy Act and the Office of Foreign Assets Control requirements.

Under Dorner, HSBC enacted a risk review of all U.S. customers, resulting in HSBC's exit from several hundred correspondent banking relationships, and reportedly expanded its compliance staff by about 1,800 people last year.

But in a court filing this April summarizing a report from the independent compliance monitor assigned to review HSBC's progress, Justice noted that while leadership was found to be "appropriately committed" to fixing longstanding compliance deficiencies, it was "clear" that the company "has much work to be done."

It will now be up to Burke, an American with degrees from Northern Illinois University and the Kellogg School of Management at Northwestern University, to finish the job. A longtime Household executive — he joined the firm in 1989 as deputy director of mergers and acquisitions and vice president of strategy and development — he is currently CEO of HSBC Finance Corp. and an HSBC Holdings PLC group general manager.

Before overseeing the wind-down of the legacy Household business, Burke, 52, held various senior roles at HFC Bank in the United Kingdom, HSBC Financial Corp. Canada and HSBC Card and Retail Services.

On June 30, Burke will assume the titles of president and chief executive-designate of HSBC US; and he will also become an executive director of HSBC North America Holdings, HSBC USA Inc. and the $180 billion-asset HSBC Bank USA NA. The president and CEO titles will become permanent when Dorner retires Nov. 1.

Cox will report to both Burke and to Marc Moses, the parent company's chief risk officer.

Andy Peters contributed to this article.