Exclusive-HSBC puts global footprint under fresh scrutiny, considers dozen exits

By Lawrence White

LONDON (Reuters) – HSBC is reviewing a possible exit from as many as a dozen countries, or one in five of the markets it operates in, to sharpen its focus on Asian expansion, Chief Financial Officer Georges Elhedery told Reuters in his first interview since taking the role.

The reviews follow pressure from Chinese shareholder Ping An Insurance, which wants HSBC to prioritise growth in Asia, where the British bank generates 78% of its total 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.

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 all of its individual country performances, making identifying underperforming markets tough.

But its Europe and Latin American operations may be under the microscope, with the former recording a net loss in 2022.

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 deal and the China Plus One strategy, which have supported its growth.

“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.”

HSBC’s shares have risen 16.5% this year, as higher interest rates lifted its income and it began to restore share buybacks and dividend payments curbed during the COVID-19 pandemic.

WIDER CHALLENGES

Ping An was the only major HSBC investor to back proposals to force it to publish regular assessments on the merits of dividing its franchise along Asian and Western lines.

A spokesperson for Ping An said it had no further comment.

Ping An’s failure to win more support 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 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.

Elhedery said negotiations are ongoing, but HSBC would not sell the business at any price if the current deal fails.

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 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.

HSBC will grow its balance sheet by a mid single digit percentage if not in 2023 then in the next few years, he said.

“We have growth opportunities whether through the Silicon Valley Bank UK acquisition, or India, the Middle East… and we expect fee income through the wealth business especially to become a bigger and bigger component of how we generate revenue,” he said.

HSBC is trying to increase income through such wealth services especially in China and Hong Kong, where economies are beginning to normalise after the lifting of COVID-19 curbs.

The bank 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 added last year, Elhedery said.

($1 = 0.9084 euros)

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