HSBC is reviewing a possible exit from as many as 1 in 5 of the countries the lender operates in to sharpen its focus on Asian expansion, Chief Financial Officer Georges Elhedery told Reuters in his first interview since taking the role.
These reviews, which could see the British bank deciding to sell or streamline businesses in 12 countries, follow pressure from Chinese shareholder Ping An Insurance, which wants HSBC to prioritise growth in its money-spinning Asian business which generates 78% of group profit.
“Some of these will have slower progress than others, and none of them is material enough on its own to change the profile of the overall business, but as we progress through and execute on these assessments, we do expect them to contribute towards that shift to Asia,” Elhedery said, declining to disclose which markets were under review or the time frame for the processes.
HSBC’s ongoing pivot to Asia has already triggered planned sales of all or parts of its businesses in France, Greece, Russia and Canada, announced in the last two years.
While the markets under review may be relatively small, the move is significant in showing the pressure HSBC faces to shrink its once globe-spanning local banking businesses in order to lift returns and appease its investors.
HSBC does not break out the results of every individual country in which it operates in its overall results, making identifying underperforming markets challenging.
But its businesses in Europe and Latin America may be particularly under the microscope, with the former region making a net loss in 2022 thanks to restructuring and the costs booked to its headquarters in the region.
Latin America contributed just under 5% of group profit.
One country not currently under review is Mexico, Elhedery said, despite debate among analysts and investors on the bank’s future presence in the country.
“Mexico is performing very well for us,” the veteran banker said, pointing to the U.S.-Mexico-Canada trade agreement and to the China Plus One strategy, which have supported economic growth in Mexico.
“Some 70% of client acquisition in the retail business is through employees of the multinational companies that HSBC banks in Mexico, so there are strong synergies with the wholesale business and the package as a whole makes sense for us,” he added.
BIGGER DEALS PRESENT WIDER CHALLENGES
Ping An was the only major HSBC investor backing proposals to force the bank to publish regular assessments on the merits of dividing its franchise along Asian and Western lines at HSBC’s annual shareholder meeting on May 5.
A spokesperson for Ping An said the company had no further comment.
The failure of Ping An to secure further backing for a split has afforded HSBC Chairman Mark Tucker, Chief Executive Noel Quinn and newly-promoted Elhedery some breathing space to pursue greater profit growth on their terms.
“It’s overwhelmingly clear what the majority of our shareholders bar one expect from us, and therefore all our focus now is on delivering for the business and for our customers,” Elhedery said.
Wider challenges include executing critical asset sales, managing a price war with rivals as interest rate hikes peak, and dealing with rising political tensions between East and West, analysts and investors said.
The bank on April 14 said a nominal 1 euro ($1.10) deal to offload its French retail business could falter after interest rate hikes upped the amount of capital Cerberus-backed buyer, My Money, will need to secure regulatory approval. HSBC had said it expected to incur a loss of around $2.3 billion on the disposal should it go ahead.
Elhedery said negotiations are ongoing but HSBC would walk away from the deal to protect shareholder value if necessary.
HSBC’s larger $10 billion sale of its Canada unit has also been delayed until next year, as it battles to ensure a smooth transition of systems to the buyer, Royal Bank of Canada.
Failure to complete either of those deals could have wider consequences for HSBC.
“In the short term, the risk that the French and Canadian disposals don’t complete … could put a spanner in the works of its Asia pivot and spark a fresh wave of activism,” said Susannah Streeter, head of money and markets at Hargreaves Lansdown.
Beyond dealmaking, Elhedery said the medium-term challenge is sustaining momentum in revenue growth, with the fillip from rising central bank interest rates worldwide already tapering off.
The bank is trying to increase income through fee-based products and services, especially in China and Hong Kong where economies are beginning to normalise following the lifting of COVID-19 related restrictions.
HSBC is on track to hire around 2,000 private wealth managers in China’s insurance sector over the next two years, adding to the 1,000 hired last year, Elhedery said.
