Loans Bad Credit Online – HSBC Earnings Show the Money Is in Hong Kong, but Home Remains Elusive
HQ is in London, the money in Asia.
Photographer: Luke MacGregor/Bloomberg
Photographer: Luke MacGregor/Bloomberg
Where does HSBC Holdings Plc really belong?
Never satisfactorily answered, this question has swirled inside and outside the bank for nearly three decades. When the global institution moved its headquarters to London ahead of Hong Kong’s 1997 handover to China, it was for all practical purposes the quasi-central bank of the Asian financial hub. The only control the city’s newly established monetary authority had over interbank liquidity was via HSBC.
Of late, though, the issue of belongingness has expanded beyond operational efficiency and strategic rationale to where HSBC stands in the ongoing multidimensional conflict between China and the West.
Commercially, the answer is clear. The bank’s full-year results Tuesday bear ample evidence that Hong Kong — from where it garnered more than two-thirds of its 2020 pretax profit — is the only thing that HSBC has going for it. The North America subsidiary is a shambles, with problem assets at 5% of total loans. Thomas J. Monaco, a former Mizuho Securities Asia analyst, noted on the research website Smartkarma that the business there is starting to resemble Indian state-run banks, notorious for their piles of bad debt.
France is doing badly. The UK. operations, protected from more risky wholesale and investment banking, brought in a little under $5.9 billion of net interest income during the year. But $2.7 billion was eaten up by bad loans. The more resilient Hong Kong business fetched $9 billion in net interest income, and sacrificed only about $800 million to credit losses.
After a 50% drop in the final quarter, overall HSBC pretax profit for the year came in at $12.1 billion. As reported earlier by Bloomberg News, the bank is now launching a “pivot to Asia,” moving senior staff into the region. It may also have to accelerate the three-year plan to cut 35,000 jobs that Covid-19 put on the back burner.
HSBC has been facing a stark choice of masters. That became clear when it scrapped its dividend for the first time in 74 years under pressure from the Bank of England, dealing a blow to its loyal investor base in Hong Kong and China. More recently, Chief Executive Officer Noel Quinn was grilled by British parliamentarians for freezing the account of a pro-democracy former Hong Kong lawmaker. Quinn was asked point blank if he would split off the bank’s China business. As my colleague Elisa Martinuzzi wrote, an eventual breakup of the company along regional lines shouldn’t surprise investors.
In the absence of anything dramatic, HSBC will have to trim its bloated workforce, deploy digital technologies more aggressively, and hope that its main units are able to compete. Nothing much is expected from global markets, where the bank has to incur operating expenses of $3 to earn pre-provision net operating income of $5. Commercial banking holds the promise of going back to 13% return on tangible equity, which the division achieved before the pandemic. (It got decimated to 1.3% last year.) But for this revival to occur, the current liquidity glut must recede, making it more profitable for the bank to deploy corporate cash.
Wealth management is more attractive for garnishing shareholder returns. Although it’s something everyone wants to do in Asia, HSBC has the advantage of being entrenched in the mass-affluent section, where the bulk of future growth might come. Hong Kong’s broader economy may be facing both pandemic-related turmoil and a long-term question mark over its historical role in channeling capital and know-how to China. But the number of residents with liquid assets of $1 million or more is expected to increase by 12% annually over five years.
As the bank that runs the dollar clearing market in Hong Kong, HSBC can’t extricate itself from the U.S.-China standoff and its ramifications for Hong Kong’s financial future. Still, by exiting U.S. retail operations, selling the bank in France, and deploying more of its senior talent and capital to Asia — particularly to Hong Kong and the Greater Bay Area that Beijing has planned around it — HSBC would perhaps be able to engineer a de facto homecoming. So that, over time, the question of whether it belongs in the West or East becomes moot.
That’s not great news for impatient shareholders, who would like nothing better than HSBC to stop restructuring and pivoting and start earning. To keep belonging in their portfolios, the bank is at least reinstating the dividend.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
To contact the editor responsible for this story:
Patrick McDowell at pmcdowell10@bloomberg.net
Loans Bad Credit Online – HSBC Earnings Show the Money Is in Hong Kong, but Home Remains Elusive
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