In sync with its efforts to further boost its presence across Asia, HSBC Holdings HSBC is weighing exit from at least 12 countries. In an interview with Reuters, the company’s newly appointed chief financial officer Georges Elhedery noted that the strategic business review follows pressure from the Chinese shareholder Ping An Insurance.
Ping An has been wanting HSBC to prioritize growth in the Asia region, which constitutes almost 75% of the total profit, for the last few years.
Though Elhedery declined to name the countries under scrutiny or the time frame, he noted business in some countries has been making “slower progress than others” and exiting these will have no material impact on HSBC’s financials or business structure.
The countries in the loss-making regions like Europe are likely to be under review, though Elhedery specifically mentioned that Mexico is not part of this. He said, “Mexico is performing very well for us. 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 has already been undertaking several measures to increase its presence in Asia. Last year, the company acquired 100% of the issued share capital of AXA Insurance in Singapore and L&T Investment Management Limited. Further, in April 2022, HSBC raised its ownership stake in its China securities JV – HSBC Qianhai Securities Limited – to 90% from 51%.
Also, over the last two years, HSBC has announced its plan to exit fully or some parts of its businesses in France, Greece, Russia and Canada, while having already exited from the U.S. retail banking space.
In November 2022, the company signed an agreement to divest its Canada banking business to the Royal Bank of Canada RY. Per the agreement, RY will acquire all the issued common equity of HSBC Canada. This deal will increase RY’s market share in the Canada banking landscape, which is already dominated by a few large firms.
While the plan to sell HSBC’s French retail banking operations has hit a roadblock as the closure seems now less certain owing to a steady increase in interest rates, HSBC will be exiting Greek and Russian businesses once regulatory and government approvals are received.
Elhedery stated, “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.” Further, HSBC remains on track to hire additional 2,000 private wealth managers in China's insurance industry in the next two years, having already added 1,000 employees last year.
HSBC’s Asia pivot story is already in progress. As part of its business transformation plan (announced in February 2020), the company has realized gross savings of $5.6 billion as of 2022-end, with cost to achieve a spend of $6.5 billion. The company expects to achieve an additional $1 billion of gross cost savings this year because of the actions undertaken in 2022.
Over the past six months, shares of HSBC have rallied 27%, outperforming the industry’s growth of 5.4%.
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Currently, the stock carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Apart from HSBC, Citigroup C is another major global bank undertaking restructuring operations by exiting less profitable markets. As part of its major strategic action announced in April 2021, the company will exit the consumer banking business in 13 markets across Asia and EMEA, including Australia, Bahrain, China, India, Indonesia and Korea.
C has already made substantial progress on this front and identified the U.K., Russia and Mexico as other countries from where it intends to exit. These efforts are expected to free up capital, which Citigroup will likely invest in wealth management operations in Singapore, Hong Kong, the UAE and London to stoke growth.
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