HSBC has had a difficult 2020 navigating the challenges of Covid-19 and geopolitics.
Caught between the radically different interests of the US and China, and in an impossible situation in the fraught, pick-your-side environment of Hong Kong, it has had to tread exceptionally carefully.
Faced with this backdrop, the bank has recovered somewhat from the executive churn that characterized 2019 and has at least come up with a plan.
The new three-year restructuring strategy chief executive Noel Quinn announced in February doesn’t sound particularly visionary – slash risk-weighted assets (RWAs), focus more on Asia, invest in technology and get more out of wealth – but visionary isn’t what’s needed for this bank at this point, so much as common sense and stability.
By the time the third-quarter results were announced in October, there were some signs of progress, certainly on the slashing side.
Having targeted $100 billion of gross RWA reductions by financial 2022 and $4.5 billion of cost reductions, Quinn now believed the bank was on track to do more, having made $41 billion of RWA and $600 million of cost savings already, partly by laying off 35,000 people over three years in the aftermath of the global pandemic.
The global banking and markets division, restructured and refined under co-heads Greg Guyett and Georges Elhedery, was responsible for much of the RWA reduction.
It is a source of some pride in that division that they have managed to keep not only revenue but risk flat through the Covid crisis in an environment in which many have had to take more risk for the same income.
Most of the RWA reductions have been in Europe and the US, with the North American business continuing to evolve.
Balancing act
At the time of writing, HSBC was believed to be considering exiting US retail entirely, a move previously predicted by Euromoney. An update on the bank’s retail operations in France will come at the full-year announcement in February.
Asia then is what it’s all about, even more so than was already the case – and that’s why the balancing act the bank must perform here is so perilous. Asia accounted for 49% of reported revenue in 2019 and the figure is likely to be higher by now.
Asia is, as Quinn and CFO Ewen Stevenson observed in October, rebounding vigorously from Covid-19, much better than most of the rest of the world; client activity is strong in trade finance, FX and retail cards. Deposits are up and credit quality is stable.
HSBC is a global bank, but, in this environment, Asia is pretty much everything; it cannot afford to be derailed by the wrong choices in the eyes of politicians.
Asia has seen the fastest rate of wealth growth anywhere in the world
Greg Hingston, HSBC
Still, there’s not much the bank can do about things beyond its control, so HSBC has tried to reinforce its Asia momentum with investment, launching its VisionGo platform to connect small and medium-sized enterprise service providers and customers in Hong Kong, as well as its Pinnacle digital wealth planning and insurance service in China.
It is also prioritizing wealth through the merged wealth and personal banking division, which has $1.4 trillion in wealth balances, half of it from Asia.
“Asia has seen the fastest rate of wealth growth anywhere in the world,” says Greg Hingston, regional head of wealth and personal banking for Asia Pacific.
The region has more millionaires than anywhere else: its population of high net-worth individuals rose by 7.6% to 6.5 million during 2019, according to Capgemini, with a combined wealth of $22 trillion.
So, it’s a natural choice as a priority, but Euromoney reckons the number of institutions saying they want to be top five in Asia Pacific wealth must be around 15 by now. It is a region of great potential and equally great competition.
Global effort
Given its locations, HSBC was among the first global institutions to face Covid-19. One of its first efforts was an app that staff built in mainland China providing information on the new virus and allowing colleagues to update one another on their own health. Zhi Lao, as the app was called (it means ‘information’), was available to 5,000 China staff in the first 10 days and another 20,000 within weeks.
From that origin, a comprehensive global effort started. HSBC allowed 90% of staff to work from home while keeping 80% of branches open, supplied HK$30 billion ($3.9 billion) of relief measures for businesses in Hong Kong and launched new digital solutions in wealth, such as FlexInvest in Hong Kong for self-directed investors to invest in mutual funds.
Like many, HSBC saw a shift in digital usage through Covid; Hingston says digital wealth sales rose 52% year on year in the third quarter in Asia: “The expectation is that some of these habit changes will become permanent.”
Covid also allowed the bank to use its environmental, social and governance strengths. It raised $19.9 billion in social and coronavirus relief bonds in 2020, including the first social bond from a Chinese issuer in international markets, the Middle East’s first Covid response bond and the largest-ever issue from Panama.
HSBC’s strategy for growth is the right one, if somewhat familiar. The most worrying issues are geopolitical – things the bank’s leadership can do absolutely nothing about.
