Citi and HSBC: A tale of two wealth strategies
Citi’s sale of its China consumer wealth portfolio to HSBC for $3.6 billion is a nuanced tale of two banks with increasingly different strategies. As HSBC tilts ever more toward Asia, Citi proves ever more inclined to see all financial services through a global prism.
The sale by Citi of its China consumer wealth portfolio earlier this month raised some eyebrows. It wasn’t the transaction itself – that was telegraphed in December 2022, when the US bank announced plans to wind down its consumer business in Asia’s largest economy.
It was the identity of the buyer that was the surprise.
HSBC will acquire Citi’s onshore retail wealth management portfolio, made up of $3.6 billion in client assets and deposits as of August 2023, plus associated wealth customers across 11 mainland cities. The deal is slated to close in the first half of next year.
At first glance, it looks like an easy-to-spin narrative: HSBC ushers in a sizeable number of new private wealth customers at the expense of its main regional rival.
Not surprisingly, the London-headquartered bank seems happy. When you buy good assets that fit a stated strategy and are sure to cheer investors, it lets you play offense with the message. HSBC wasn’t going to pass that chance up.
The investment would “allow us to further build out our core wealth business” in the country, says Nuno Matos, chief executive of wealth and personal banking at HSBC.
He adds: “Mainland China is central to our ambition to be the leading wealth manager in Asia.”
David Liao, the bank’s Asia Pacific co-chief executive, calls the agreement “a testament to our confidence in” China’s progress, despite recent economic uncertainty, and key to its push to plug mainland wealth customers into the bank’s global trade and investment flows.
It also marks the latest in a series of carefully targeted bolt-on deals in the region, including its $425 million acquisition of India’s L&T Investment Management, announced in December 2021, and the $529 million purchase of Axa Singapore two months later.
While HSBC’s press release emitted aspiration, Citi adopted a more passive stance. It emphasized the deal’s capacity to “simplify” its wealth offering, calling it an “excellent outcome” for soon-to-be-former clients and their relationship managers.
The US bank took the chance to remind the world it wasn’t exiting the market. Citi said it will “continue to serve the needs” of Chinese ultra-high net-worth clients out of Singapore and Hong Kong, while remaining committed to global institutions onshore.
Of course, it is harder to spin a sale as an optimal outcome. When Jane Fraser became Citi’s chief executive in early 2021, she unveiled plans to exit 13 Asian and Europe, Middle East and Africa retail markets, and to redeploy that capital to parts of the business with a clearer pathway to higher returns.
Few global lenders are shedding assets in China, particularly in wealth management, which offers so much scope for long-term reward
As Euromoney wrote at the time, many of those markets – including China, where its consumer business is dwarfed by mainland rivals and a few global peers – had generated no profitability at all the previous, Covid-afflicted, year.
But as we also pointed out, precious few global lenders are actively shedding assets in China, particularly in wealth management, a sector that offers so much scope for long-term reward.
According to research from HSBC, China accounts for half of all financial wealth in Asia, up nine-fold since 2006. The bank tips the number of mainland adults with at least $250,000 in net wealth to double to 350 million by 2030. The potential in Wealth Management Connect, a cross-border scheme that binds Hong Kong to Guangdong, is immense.
To a neutral observer, the sale of this country-specific asset – a slice of a slice of a slice of Citi’s global wealth business – may look perfectly logical. At the same time, one might ask why any bank would say zài jiàn, or goodbye, to exactly the kind of customer it always says it values: up-and-coming mass- and super-affluents with the potential to be tomorrow’s high net-worth.
Particularly when the beneficiary of that decision is another global lending institution.
But there is another angle to this story. Citi’s willingness to sell part of a business line to HSBC also shows how different the two banks are becoming.
There is a lot of overlap between the two – there always will be with multinational banks that manage the finances of global corporates, fund managers and family offices. But the schism is undeniable. Though both still bandy around the word ‘global’ at will, neither can honestly lay claim to being a true ‘universal’ lender today.
Each is in the middle of a multi-year shake-up. Both are paring back in similar ways: Citi by exiting retail services in multiple markets; HSBC by selling or winding down its retail presence in Canada, France and New Zealand.
At the same time, they are reallocating the capital they raise to different things. HSBC will retain its international reach so long as it has breath in its corporate body, yet it is Asia that dominates its thinking, with a special focus on wealth management.
The UK firm has relaunched onshore private-banking services in India and is busy expanding its footprint in Thailand and mainland China, where it recently secured licences to offer insurance brokerage and fund sales. It wants to be Asia’s bank, and more specifically, Asia’s leading wealth-management institution.
That, HSBC feels, is its destiny.
Citi if anything is headed in the opposite direction. In September, it unveiled plans for a flatter operating structure that eliminates management layers and cuts jobs, with the aim of boosting profits and its ailing stock price, which is down 13.32% in the year to October 20.
Regional leadership roles will be cut, with the heads of five interconnected businesses – called services, markets, banking, wealth and US personal banking – reporting direct to Fraser.
Citi’s view is that in a fast-changing and complex world, Brazil’s economy has more in common with China’s, say, than neighbouring Argentina’s.
So as HSBC tilts ever more toward Asia, with China at the heart of that internal conversation, Citi is inclined to see everything with which its clients engage – wealth, capital markets, corporate banking needs – through a global prism.
In this light, the sale of a medium-sized pot of private-wealth assets from one big lender to another looks surprisingly nuanced. In a world where binary issues divide and rule, it is easy to see this transaction through a simple filter: a zero-sum game where one institution’s gleaming gain comes at another’s red-faced expense.
This time at least, there probably isn’t a winner and a loser. Just two very big international banks following increasingly divergent strategies.