By Sinead Cruise and Lawrence White
LONDON (Reuters) – HSBC’s European chief is betting on rising regional wealth and overseas expansion by Asian client companies to boost his unit’s contribution to group profits after a multi-year reboot transformed the activity from slowing down to driving profit.
The turnaround in Europe, some details of which are reported here for the first time, helped HSBC overcome investor skepticism about its “network strategy” after a 2022 campaign by the number one shareholder Ping An Insurance Group of China raised concerns that HSBC’s Asian business growth was being held back by its massive presence in slower-growing Western markets.
At the heart of the strategy is the idea that large corporate clients in Asia, many of whom already borrow from HSBC, will use a wider range of services in Europe as they expand in the region, as well as turning to HSBC for advice on local issues. agreements and fundraising.
As well as profiting from Europe-bound revenue from other HSBC hubs, the bank wants to boost the income of high-net-worth families, Colin Bell, chief executive of HSBC Europe, told Reuters in his first interview since assumed office in February. 2021. “With international wholesale banking at the core, we are much more targeted from a strategic standpoint,” Bell said, pointing to a rise in return on tangible capital to 6.7% in 2023 from less than ‘1% in 2019 at HSBC. Europe, which contributes just under a tenth of HSBC’s overall profit.
“We’re starting to see the results of everything working in the numbers.” Ping An has called on the bank to spin off its most profitable Asian business, but other investors have rejected the call. Alastair Ryan, an analyst at Bank of America, said investors have stopped questioning the bank’s network strategy for now. “People feel it goes without saying that companies would be better off having someone who can take care of trade finance, foreign currency payments, cash management, all the cross-border transactions.” GREATER PROFIT Bell, a former British army officer who joined HSBC in July 2016, has been given the mandate to turn around the long-troubled European business. Between 2019 and 2023, HSBC Europe increased annual pre-tax profit from $1 billion to $2.6 billion, Bell said. A big chunk came from reducing headcount, from around 17,000 to just 10,600, with the offloading of businesses such as the French retail banking unit.
It also increased revenue originated in Europe but booked elsewhere in the bank’s vast global network by 40% to $3 billion in 2023 compared to 2022, Bell said.
Bank of America’s Ryan said rising interest rates have also boosted income from the bank’s vast $1.7 trillion global deposit base, which fuels its international strategy. It may prove more difficult for European unity to continue growing at the same pace. A campaign to attract more European businesses with the domestic slogan “Europe means business”, reported by Reuters in June 2019, was widely seen as a failure as cross-border collaboration with other regions was slow to materialise, HSBC sources said.
The headwinds became stronger. Competition for European businesses between banks such as BNP Paribas (OTC:), Deutsche Bank and Santander (BME:) is intensifying. The war in Ukraine and tensions between China and the West could also hamper the company’s business.
FRESH FOCUS Bell, however, is confident there is still more business to be had. Bullish clients with idle capital in Europe may look to grow in places like Southeast Asia as supply chains reconfigure, he said. “We are well positioned to support (customers) as they look to navigate uncertain conditions in Europe with expansion elsewhere,” he said. Companies from India, China and other parts of Southeast Asia are also looking west for new opportunities, Bell added. The bank will seek to increase assets under management at its Switzerland-based wealth unit by 50%, or about 40 billion Swiss francs ($44.3 billion) over five years, Bell said, prioritizing clients with a very high net worth.
To achieve the goal, former UBS executive Gabriel Castello, appointed to run that business in June 2022, is expected to rely on the bank’s corporate banking relationships. Further growth is expected for HSBC’s businesses in the Channel Islands and Isle of Man, where assets under management are expected to increase by around 70% over five years and targeted hiring is underway. “We have gone through a complex and intense transformation in Europe over the last three years,” Bell said.
“So now is the time to meet with customers and have the right conversations about the capabilities we have.”
($1 = 0.9031 Swiss francs)