Home Banking HSBC safely regards world-scale footprint; thinks about exits

HSBC safely regards world-scale footprint; thinks about exits

HSBC is currently conducting evaluations of its presence in approximately twelve countries, which represents about one-fifth of its operational markets.

The aim is to sharpen its focus on expanding in Asia, according to CFO Georges Elhedery’s recent interview.

This strategic review comes as a response to pressure from Ping An Insurance, a major Chinese shareholder, which advocates for prioritizing Asian growth. Around 78% of HSBC’s total profit is generated from the Asian market.

Elhedery stated that although certain markets may progress at different rates, each evaluation alone is not substantial enough to alter the overall business profile. However, as the assessments proceed and are executed, they are expected to contribute to the overall shift towards Asia.

Elhedery refrained from disclosing the specific markets under review or the anticipated timeline for the evaluation process.

As part of its ongoing Asian pivot, HSBC has already announced planned divestments of its businesses or parts thereof in France, Greece, Russia, and Canada over the past two years.

While the markets under review may be relatively small, this demonstrates the pressure on HSBC to streamline its once extensive local banking operations worldwide, with the aim of improving returns and satisfying investors.

Since HSBC does not disclose detailed performance information for individual countries, it is challenging to identify underperforming markets.

However, scrutiny may be placed on the European and Latin American operations, particularly as the former recorded a net loss in 2022. Latin America contributes less than 5% of the group’s total profit.

Elhedery clarified that Mexico is currently not under review, despite speculation among analysts and investors about HSBC’s future presence in the country.

He emphasized that HSBC’s performance in Mexico is strong, citing factors such as the U.S.-Mexico-Canada trade deal and the China Plus One strategy, which have supported its growth.

Notably, the retail business in Mexico benefits from strong synergies with the wholesale business, as approximately 70% of client acquisition in the retail sector comes from employees of multinational companies that HSBC banks with in Mexico.

HSBC’s shares have experienced a 16.5% increase this year, driven by higher interest rates, the resumption of share buybacks, and dividend payments that were previously curtailed during the COVID-19 pandemic.

While Ping An was the sole major investor in HSBC to support proposals for regular assessments of splitting the bank’s franchise between Asian and Western divisions, its lack of broader support has given HSBC’s Chairman, Chief Executive, and CFO the opportunity to pursue profit growth according to their own plans.

In addition to challenges associated with executing critical asset sales, managing a price war during the peak of interest rate hikes, and navigating rising political tensions between East and West, analysts and investors have highlighted wider concerns.

HSBC recently announced that the 1-euro ($1.10) deal to sell its French retail business could face obstacles due to increased capital requirements for the buyer, My Money, following interest rate hikes. Ongoing negotiations are being conducted, and HSBC is determined not to sell the business at any price if the current deal falls through.

The larger $10 billion sale of its Canadian unit has also been delayed until the following year to ensure a smooth transition of systems to the buyer, Royal Bank of Canada. Failing to complete either of these transactions could have broader implications for HSBC.

Apart from dealmaking, Elhedery emphasized the medium-term challenge of sustaining momentum in revenue growth. HSBC anticipates a mid-single-digit percentage increase in its balance sheet, either in 2023 or within the next few years.

Growth opportunities lie in various areas, including the recent acquisition of Silicon Valley.

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