How Lee built Hang Seng's street cred

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The bank for Hongkongers has long been overshadowed by big brother HSBC, but even rivals consider it the best investment the global giant ever made. What legacy does soon-to-retire chief executive Rose Lee leave?

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What is the point of Hong Kong’s Hang Seng Bank?

It’s a reasonable question, and one often pondered by Hong Kong’s bankers. After all, this is a town that’s dominated by HSBC, the London-domiciled, note-issuing giant still known here simply as ‘The bank’ even though it is 20 years since China reclaimed Hong Kong.

It’s an even more pertinent question considering HSBC controls 62% of Hang Seng Bank, and for all its much-advertised globalness, books close to a half of its profits from its extensive heartland in Hong Kong, a base shared to a considerable degree by, well, its own Hang Seng Bank.

For culturally inclined local gourmands, one answer might be Hang Seng Bank’s famous Cantonese chefs. An invitation to lunch at chief executive Rose Lee Wai Mun’s boardroom table on the 24th floor is much coveted by local bankers and clients; the highlight of this gastronomic pilgrimage is to slurp up the chefs’ famous snake soup, a Chinese symbol of success which – local lore has it – re-energises one’s qi, or life energy.

But for the myriad Hongkongers who ride the subway system each day, the answer might be: it’s where we meet our friends. That’s a nod to Hang Seng’s lime-green branches that are very conspicuously sited in the concourses of most of Hong Kong’s Mass Transit Railway’s stations, serving as the preferred meeting point for many of the MTR’s 5 million daily users as they emerge from their commutes.

And there is, of course, corporate Hong Kong’s most enduring symbol. The Hang Seng Index measures the performance of the stock market’s biggest companies by capitalization and has included Hang Seng Bank ever since it went public in 1972.

Both answers help explain how Hang Seng Bank has become arguably HSBC’s most valuable franchise, even though the two banks, hanging out their shingle together as neighbours on the same streets, might appear to be cannibalistic.


We have to rethink, remodel our own mind set and [ask] what is local business? It’s the business for the neighbourhood, including the people from the mainland 
 - Rose Lee

When a paternalistic HSBC rescued Hang Seng Bank during a banking crisis in 1965, acting as a de facto central bank in colonial-era Hong Kong, it paid HK$51 million for a controlling 51%. Today, Hang Seng Bank has a stock-market capitalization of more than HK$300 billion ($38.5 billion), valuing HSBC’s now 62% stake at nearly HK$190 billion. 

“It’s been the only money they’ve ever paid in,” says Lee, Hang Seng Bank’s formidable chief executive, noting that Hang Seng means ‘ever-growing’ in Cantonese.

Hang Seng’s not-so-ever-growing rivals also take note.

“It’s been HSBC’s best-ever investment,” says Sir David Li, long-time chairman of his family’s Bank of East Asia, at a May luncheon he hosted for Asiamoney. While Bank of East Asia (BEA) lays some claim to being Hang Seng Bank’s main competitor, albeit with a longer history but a considerably less impressive valuation, Li and a tableful of his advisers murmur approvingly and even covetously when the subject of Hang Seng Bank comes up during lunch. “It’s an incredible franchise,” says Li’s son Brian, an executive director of BEA.

“Hang Seng is HSBC’s Cantonese street cred,” is how one Hong Kong banking observer describes it. “It’s the bank for the real Hong Kong, the bank that reaches the local Chinese on the street in a way HSBC doesn’t.”

There’s something in that. Through a vernacular Hong Kong prism, HSBC has traditionally been the gweilo (Cantonese slang for westerner) bank, a bank owned and run in a mostly Cantonese-speaking town by gweilos for Hongkongers, with gweilo-related business conducted in English.

'Clear distinction'

Lee, who has run Hang Seng Bank since 2012 and will retire in July, doesn’t quite put it in such terms but her sentiment is the same. The defining point of Hang Seng Bank, she says, is clear when viewed at Hong Kong street level, and she refutes any suggestion that Hang Seng should be absorbed into HSBC.

Lee insists there is a clear distinction between HSBC and Hang Seng in market and cultural terms, even as the former pushes into Hang Seng’s traditional retail and small and medium-sized enterprise domain, while Hang Seng moves into HSBC’s more corporate franchise.

“HSBC is one of our key competitors,” she says. “We compete, but we also complement each other.” Can she ever see a day when Hang Seng is 100% owned by HSBC? “Not at this point.”

Hang Seng’s point of difference, Lee says, is that it serves Hong Kong’s local people, the smaller entrepreneurs, hawkers and stallholders that populate its crowded streets. HSBC has traditionally dealt with international commerce, banking Hong Kong’s famous business conglomerates or hongs, and the successors of the influx of Chinese industrialists and shipping moguls, particularly from Shanghai and its surrounds who re-located their empires to the then-British colony after China submitted to Mao Zedong’s communist revolution in 1949. 

“These are the natural customers of the Hongkong and Shanghai Bank,” Lee says.

The distinction between the two is evident today in the locations of the two banks’ respective headquarters. While the soaring towers of HSBC, Standard Chartered and Bank of China dominate the central district on Hong Kong island, Hang Seng’s head office is a little further west, symbolically close to its roots.

In Hong Kong, a town that understands location more than most, such things matter. The distance is a matter of metres but, importantly, says Lee, it is equidistant from Hang Seng Bank’s HQ the other way to the teeming streets and wet markets of the island’s historic west. It’s a district where the cosmopolitan sophisticates of Hong Kong Central didn’t much venture, dismissively referring to it as a Chinatown of local merchants and hawkers with their origins in southern China’s Pearl River Delta. “We were here to bank the small shopkeeper,” Lee says. “This is a very local neighbourhood.”

Lee says that despite Hong Kong’s rising prosperity and HSBC’s own expansion of its branch network and business in Hong Kong, Hang Seng’s market position and separation from HSBC is still very much in evidence. Hang Seng owes some of its wealth to its property holdings, as it owns about half of its 300-odd branches.

For HSBC’s part, it has maintained a largely hands-off approach to Hang Seng. HSBC’s heft is evident at senior levels, but the touch is subtle, the banking experience separate. Senior management at Hang Seng Bank is entirely local, and similarly the board is a mix of Hongkongers and mainland Chinese, save for the well-placed Sarah Legg, HSBC’s group financial controller, who is ethnically half-Chinese. Some members on the Hang Seng board have HSBC career connections like Lee herself, but many don’t. Hang Seng has never had a non-Chinese running the bank.

Lee claims that it’s not essential for Hang Seng’s most senior management to hail from the parent HSBC, and insists that appointments to Hang Seng’s upper echelons are based on merit. That may well be the case, but it is also true that not since the 1993 to 1998 reign of Alexander Au, who worked his way up Hang Seng and later defected to Standard Chartered, has a Hang Seng Bank chief executive not sprung from a previous career at HSBC. And Lee’s successor, Louise Cheang, is also from HSBC, where she was group head of retail banking until recently.

Humble beginnings

Hang Seng Bank grew from humble beginnings in the 1930s, starting as a modest shop front moneychanger and gold trader just a few streets away from its current HQ. It added outlets in pre-war Shanghai and neighbouring Canton, now modern-day Guangzhou, where it also traded currencies for the then-Kuomintang government.

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While the soaring towers of HSBC, Standard Chartered and Bank of
China dominate the central district on Hong Kong island, Hang Seng’s
head office is a little further west, symbolically close to its roots

Banking in Hong Kong was then the fiefdom of the big British colonial banks, and they paid scant attention to local street traders, with their absence of education, guarantors and introducers, much less Western-style notions such as modern bookkeeping, collateral and, as Lee puts it, suits. Even today, Lee evokes Hang Seng’s humble beginnings by describing herself as a shopkeeper, pointing out that her parents had a Hang Seng account back in the day.

“Hang Seng has always had a very high degree of trust from the beginning – and that infuses our culture today. Many (customers) were illiterate, so the bank had to help them and they had to trust the bank, and then they would come to the bank with their family needs: a new home, education, business expansion from one shop to two, so the bank grows with them, and we understand each other. This is how it all started,” she says. “Nobody was banking them, but they were making money, and that was the opportunity Hang Seng’s founders saw.” 

It may suit Hang Seng’s ethos for Lee to portray herself as a shopkeeper but that can’t disguise her long career as a senior banker at HSBC, particularly on the China side of its business. Indeed, a conversation with Lee is a journey through modern Hong Kong’s commercial relationship with China.

“Are you a shareholder?” Lee asks, as Asiamoney’s correspondent meets her for a 90-minute discussion at Hang Seng’s headquarters. No, he answers, but he once owned a few shares in Wayfoong, as Hongkongers call HSBC in the local patois, and they did quite well, thanks in part to contributions from Hang Seng. Lee beams.

Born on Hong Kong island, Lee is an HSBC lifer. She joined in Hong Kong in 1977 as a trainee in Wardley, which was then the Hongkong and Shanghai Banking Corporation’s corporate finance division and today is part of HSBC Global Asset Management.

It was in the often-difficult cauldron of emerging China that she forged her standing at HSBC. That would eventually catapult her to the top of HSBC’s most valuable offshoot, Hang Seng Bank, and onto myriad boards, notably inside the empire of Hong Kong’s richest man, Li Ka-shing, and of British-owned Swire Pacific, parent of Hong Kong’s flag-carrier airline Cathay Pacific.

When Lee joined Wardley in 1977, she had just completed a business degree at Honolulu’s University of Hawaii. When she returned home to Hong Kong, she found a city buffeted by the changes taking place in China in the aftermath of the decade-long Cultural Revolution and the leadership vacuum created by the death of revolutionary ruler Mao Zedong the previous year.

At the time, Mao’s great rival of his later years, the twice-purged Deng Xiaoping, was making another bid to become China’s paramount leader. Among Hong Kong’s army of China-watchers, there were murmurings of economic reform if the wily Deng, then best known for his black cat, white cat aphorism (it doesn’t matter if the cat is white or black; if it catches mice, it’s a good cat) of 1961 to describe a pragmatic socialism, could prevail. Lee recalls that even in 1977, with the earliest hints of communist China’s then-unimaginable opening up, her office at Wardley was receiving inquiries from clients wanting to position themselves for business in China.

Deng’s impact on China would come to define Lee’s career, both as a banker and as a Hongkonger. By 1979, Lee had been seconded to HongkongBank’s China desk, crucially as a speaker of Cantonese, Mandarin and English in a bank largely run by monolingual colonials.

Trade fair

For years, the only really big commercial activity, mostly through Hong Kong, between doctrinaire China and the outside world, was the Canton Trade Fair, which was staged twice a year in neighbouring Guangzhou, China’s third-biggest city and a few hours from Hong Kong.

Since 1957, the fair had been communist China’s sole commercial outlet to the world, the only venue in a largely closed country where foreigners could meet and deal with Chinese state enterprises, all under the strict eye of the Ministry of Foreign Trade. It was also China’s primary source of foreign exchange.

Lee has vivid memories of her sorties for HSBC to the trade fair, where she was part-translator, part-fixer, part-dealmaker, making early-day connections to negotiate through Beijing’s stultifying bureaucracy. 

“We would serve our customers whatever they needed,” she recalls, “whether it was an LC (letter of credit), or transportation, or this and that.” 

The gulf between Hong Kong and China was huge. 

“It was a culture shock but it was very interesting, and very challenging,” she says. “We didn’t have a formal office, we operated from the old Dongfang Hotel, and there was nothing to do after 6pm. In fact, we eventually financed the renovation of that hotel, and they used the money to buy limousines. We had to tell them that the money was for the renovation of the hotel, not to buy limousines. China was really quite raw in those days.” 

The opening up of China for business presented all kinds of uncertainties: “We started financing these activities, and it came with many questions – who can I joint venture with? What rights do I have? How can I take my profit out?”

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Rose Lee Wai Mun joined Hang Seng as chief executive in 2012 at a time
when the bank was servicing more and more new mainland customers
in Hong Kong

Lee opens a photo album, showing her with various Hong Kong tycoons in the late 1970s and early 1980s onsite during the construction of Guangzhou’s landmark White Swan Hotel. Built by Hong Kong mogul Henry Fok and opened in 1983, a year before the agreement between Beijing and London on Hong Kong’s future, it was Beijing’s prestigious experiment of the time. The White Swan Hotel was one of the first Western-standard hotels built in China to house the expected rush of business travellers exploring Deng’s new reformist China. Lee’s album underlines the depth of her long-standing connections in Hong Kong and across the border.

Deng’s sustained open-door policy proved to be a crucial opportunity for Hong Kong, as its manufacturers moved production to the low-cost special economic zones that China had established in neighbouring Shenzhen and Zhuhai, and which spilled over into Guangdong province and beyond. Millions of jobs were created in China through the 1980s, as business costs for expensive Hong Kong were halved.

“These risk takers prospered so much they reinvested their profits in Hong Kong property, and wealth expanded and accumulated,” Lee says. “It’s been very robust. We have served these people when they needed funding in moving their operations to China, for new plant there. And when they made money, we helped them manage that too.”

As Hong Kong’s economy boomed, the residential towers of new towns sprouted in Kowloon and the New Territories and secured the rising prosperity derived from China. The Mass Transit Railway system followed the construction boom and has taken Hang Seng Bank with it. The bank has also established branches in Hong Kong’s new universities, where the children and grandchildren of its early stallholder customers are now being educated.

Today, Hang Seng has a necessary presence in Beijing and Shanghai, but its branch network in China is overwhelmingly tilted toward Hong Kong’s booming hinterland in Guangdong province, notably in the so-called sai yap (four counties) claimed by many Hongkongers and millions among the Chinese diaspora as their ancestral homeland. “We go where our customers go to do business,” Lee says.

“In the last few years, we have seen an integration of the Chinese and Hong Kong economies, and it has accelerated quite a lot,” she notes. “You can see the social changes. People now live in Hong Kong and work in Shenzhen, students from Shenzhen going to school in Hong Kong and coming home in the evening.” 

The China-Hong Kong border, she says, “is almost non-existent. It takes five minutes to cross. It’s seamless. We have been expanding here because of the cross-border business.”

In 1985, Lee was appointed managing director of Hongkong Bank’s China Services division and, in 1994, its deputy chief executive. Then came stints as HSBC’s head of corporate and institutional banking in Hong Kong. China Inc’s presence in Hong Kong accelerated after Britain’s handover of Hong Kong to China in 1997, and Lee became HSBC’s head of corporate and global banking for Hong Kong and China. She joined Hang Seng as chief executive in 2012 at a time when the bank was servicing more and more new mainland customers in Hong Kong.

“We are now seeing more people and more companies coming from China to Hong Kong and using it as a platform for fund-raising, managing their financial services, and then they stay here. We are picking them up as customers. They’ve become a force of growth for the Hong Kong economy,” she says. “We have to rethink, remodel our own mind set and (ask) what is local business? It’s the business for the neighbourhood, including the people from the mainland. They are local residents. At the same time, Hong Kong is now more cosmopolitan than ever.”

A few weeks before Lee joined Hang Seng in March 2012, the bank had reported profits of HK$16.7 billion for calendar 2011, up 12% from the previous year. Its share price then was around was HK$103.

In 2015, and by now well under Lee’s care, the bank reported profits of HK$27.5 billion, boosted by a gain of HK$10.6 billion from the sale of most of its 11% stake in China’s Industrial Bank.

Lee warned then that 2016 would be tougher, particularly given a softening economy in China.

In February of this year, Hang Seng reported a 41% drop in profit for 2016 to HK$16.2 billion, largely reflecting the absence of a big gain from share sales or other one-offs. Adjusting for that one-off share sale, the decline was less pronounced as profit fell from HK$16.9 billion (in 2015) to HK$16.2 billion, reflecting the impact of riskier loans in China. Though the 2016 number is below the profit levels Hang Seng enjoyed in the year before she became chief executive, the bank’s share price of around HK$160 is only fractionally shy of the HK$163.50 peak it reached in February. And the bank attracted a flurry of attention by increasing its interim dividend this year, the first such hike since 2004.

Technology

In a city of 7.3 million people, and around 6 million of bankable age, Lee says Hang Seng Bank now boasts around 3.5 million customers, ranking third after HSBC with 5.5 million customers, and the Bank of China, with 4 million. 

“The average customer would bank with three or four banks in Hong Kong,” Lee says, “and that would now include a mainland bank because they would have business in China.”

Hang Seng’s digital platforms received over 900 million page views last year, and averaged around 6 million e-banking log-ons every month. Lee says that while Hang Seng has always been an early adopter of technology, she doesn’t envisage it morphing into a virtual bank. 

“We are not expanding physical branches, but we are not reducing them either,” she says. “If I’m making a sizeable wealth management investment, I’m not just going to do it over the internet, I want to talk to somebody whose face I trust.”

Hang Seng’s local Hong Kong identity has clearly been good for business and investors. “It is the branding,” Lee says. “It is so important.”

But that very Hong Kong identity may also be the bank’s biggest future challenge, particularly as Beijing moves to snuff out any suggestion of Hong Kong’s separateness from the mainland’s mainstream.

The 1984 Sino-British Joint Declaration, the diplomatic document that decided the terms of Hong Kong’s return to communist Chinese sovereignty in 1997, held that Hong Kong’s capitalist system and way of life would remain unchanged until 2047.

The Hong Kong deal was signed in 1984, when China was still cautiously embracing Deng Xiaoping’s reforms. Though notionally communist, at least as far as the ruling party is concerned, economically China has advanced its own supercharged version of capitalism.

But the government in Beijing remains deeply hostile to any challenge to its one-party rule and to the bubbling separatist aspirations in Hong Kong. The territory seems split between the pragmatic embrace of Beijing’s rule and support for a local identity distinct from China, as demonstrated by the spontaneous umbrella movement protests in Hong Kong in 2014.

Lee’s deep China connections may prove to be more valuable than they have been so far.

“We are apolitical,” Lee says, citing the many awards Hang Seng has received from the mainland’s official business press. “When we say we are a Hong Kong local bank, and our values are the Hong Kong values of (being) ethical, trustworthy, efficient and providing service excellence, these are also all good things to China.”