Awards for Excellence 2014: Best emerging markets bank

Best emerging markets bank: HSBC

How do you compete with a bank like HSBC? With a balanced global business model, providing some hedge against market volatilities, HSBC, like Citi, is tightly chained to the emerging market growth cycle.

While revenue growth at the group level might not be reaching the levels some shareholders expect for an institution that captures 85% of global trade flows, the global lender has made concerted steps to become the proverbial nimble elephant.

In recent years, HSBC has streamlined its multi-product international network, centred on locally capitalized business units, by exiting retail operations in some low margin markets, identifying growth markets, including China, India, Singapore, Brazil and Mexico, and allocating greater resources to FX and equities, in particular.

Key to the streamlining in recent years has been the strengthening of collaboration between global businesses, in particular, cross-sales from the global banking and markets (GMB) division to commercial banking (CMB), which grew 11% in 2013, principally driven by FX products. HSBC says greater collaboration between businesses has garnered $1.3 billion in incremental revenues since 2010.

Client review has paid off Samir Assaf

In short, over the past year, HSBC has empowered key investment bankers, positioned the lender to achieve greater capital market shares, such as ECM in Asia and global FX, and maximized the wallet share of corporate clients by capitalizing on its extraordinary array of corporate and investment banking products. Global banking and markets was HSBC’s most profitable business in 2013, with reported profit before tax at $9.4 billion, up 11% on 2012 full year.

In Latin America project and export finance, for example, HSBC continues to provide market-leading expertise in risk advisory, providing $3 billion of hedged notional contrasts across rates and FX, while writing a slew of renminbi deals, and arranging bespoke trades. HSBC also wins Euromoney’s best investment bank in the Middle East award for its dominant position in DCM, with a deal value of $26.93 billion during our review period, equivalent to 60% of all relevant deals in the region, and project financing, including the $19.3 billion Sadara Chemical financing. HSBC also made meaningful long-sought after growth in M&A, including advising Kuwait Petroleum on its acquisition of Shell’s retail assets in Italy.

In EM, more generally, HSBC also sharpened its flow business with new FX products, including passive and dynamic hedging, and revenue growth in Asian rates. But HSBC’s strength lies in its unique role as a facilitator of China’s liberalization of its capital account and the growth of the renminbi-denominated fixed-income market, the biggest shift in the global capital markets in the post-crisis landscape. HSBC is the market leader in the offshore RMB market, with around 15% market share, ranked number one in the dim sum bond market and a key custodian bank for renminbi clearing.

Despite the volatility in FICC and investment banking revenues amid the rout in emerging markets over the awards period, HSBC’s move deserves credit. An increasingly sophisticated EM client base demands increasingly complex and diverse corporate and financing strategies. What’s more, the boom in emerging market bond issuance highlights pent-up demand for capital market financing. This should serve HSBC in good stead in its emerging market bond pipeline, in particular, having arranged 412 hard and local currency deals in total over the awards period, the largest market share at 5.35%.

Meanwhile, new regulatory demands have reinforced the allure of low-risk, relatively capital-lite products, such as trade finance, to achieve cross-selling fee opportunities in corporate and investment banking. Samir Assaf, chief executive of HSBC’s global banking and markets division, says: “Our business model ensures we run a client-first approach while maintaining a competitive cost-to-income ratio. Our review of client segmentation from a geographic and product perspective has paid off. Relationship managers and supporting teams across global banking and markets are empowered and incentivized to offer product-neutral, client-centric solutions.” He adds: “We are looking to be a top five player in ECM in key emerging markets.”

As yet, there is no emerging market bank with a substantial corporate banking franchise in at least two regions, let alone one with a market leading sales and trading platform, backed by capabilities in global advisory and origination. However, this year, Singaporean lender DBS has been shortlisted for its move to grab an historic opportunity to capture portfolio and trade flows from China amid European deleveraging, and its growing role in Asian investment banking.

Amid the shift in global financial power, well-capitalized regional franchises in Asia, such as DBS, are firms to watch while Citi remains HSBC’s natural multi-product competitor.

But for it efforts to maximize corporate and investment banking opportunities through an efficient client-centric model, HSBC has entrenched its status as the pre-eminent universal banking champion that’s essential to the plumbing of the financial system in so many emerging markets.