HSBC's future is unlikely to be in a shrinking post-Brexit Britain or even in Europe. Nor can it be in the US where it has been in retreat for many years. Photo / 123RF
HSBC's future is unlikely to be in a shrinking post-Brexit Britain or even in Europe. Nor can it be in the US where it has been in retreat for many years. Photo / 123RF
COMMENT:
Every year, senior executives at HSBC host a lunch for the bank's mainland state-owned enterprise clients. At the largest of such recent meals an energy business paid tribute to HSBC, describing it as the first Chinese company to go global.
Indeed. For decades, both management and investors purchasing HSBC shares regarded it as a proxy for the rise of Asia as the export engine of a world that was embracing global trade.
Stuart Gulliver, chief executive until 2018 who said he felt far more at home in Hong Kong than in London and spent most of his career in Asia, further refined the bank's strategy to focus on the Pearl River Delta, across the border from Hong Kong, when he took up the role in 2010.
That strategy seemed prescient as Shenzhen and its environs flourished — to the point that last year, its GDP eclipsed that of Hong Kong. But today, as globalisation stutters, HSBC has become an object of Beijing's wrath, part of the collateral damage from the wide-ranging friction between China and the west.
What does that mean for the future of one of the world's biggest banks?
Despite current tensions, there are many senior HSBC executives who think its future has to be in China, simply because there are not many alternatives to the course Gulliver set.
Regardless of who replaces Noel Quinn, the interim chief executive who took over after the ousting of John Flint last month, any process of elimination suggests that China and Hong Kong are the best options for the bank, even if it is somewhat beleaguered at the moment.
If HSBC is to have a bright future, it is unlikely it would be in a shrinking post-Brexit Britain or even in Europe. Nor can it be in the US where it has been in retreat for many years. That leaves Asia.
HSBC still holds a lot of value for Beijing. Photo / HSBC
Today, a senior executive says the bank is once more considering moving its domicile from the UK to Hong Kong as a gesture of goodwill towards China, even though public relations staff at the bank deny this.
But in so doing would it be increasing or reducing its vulnerability? And if the bank's future lies with China, does that mean ultimately transforming itself into a Chinese bank?
When HSBC shares were at lows some years ago, Industrial and Commercial Bank of China drew up an investment thesis with HSBC as its target, according to one senior HSBC executive. Today ICBC could swallow HSBC, thanks to its market capitalisation of almost Rmb1.9 trillion (US$266b) compared with HSBC's US$155b.
Meanwhile, a Chinese company, Shenzhen-based Ping An Insurance, has already become the largest investor in the bank. The second largest is BlackRock, whose holdings are spread across its funds. Ping An could conceivably be asked to buy HSBC as part of the national service to which any wealthy company in China can be subject.
After all, there is a lot of value still in HSBC for Beijing, thanks to its ability to raise dollar funding for China and its banks. That will become even more crucial as the Chinese export machine slows, and fewer dollars come into the mainland.
Today, HSBC, is one of three note-issuing banks in the territory, along with Standard Chartered and Bank of China. The Chinese have already considered making a bid for Standard Chartered.
In 2015, China Citic Bank was seriously considering purchasing Standard Chartered Bank, according to several people with direct knowledge of the situation. But first the stock market and then the renminbi started to weaken and the approach died.
It has suddenly become a lot more conceivable that in five years' time all three note issuers could be Chinese-owned. This is just one more scenario that a few months ago would have seemed impossible and now seems credible — if not likely.
