Chief Financial Officer Georges Elhedery told reporters in his first interview since taking the position that HSBC is considering a potential exit from as many as 1 in 5 of the nations the institution operates in order to focus its emphasis on Asian expansion.
Following pressure from Chinese shareholder Ping An Insurance, which wants HSBC to prioritize expansion in its cash-cow Asian sector that accounts for 78% of group profit, these reviews, which may result in the British bank choosing to sell or streamline companies in 12 countries, are being conducted.
Elhedery said, refusing to say which markets were being examined or how long the processes would take, “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.”
The continuous HSBC pivot to Asia has already prompted previously announced sales of all or portions of its businesses in France, Greece, Russia, and Canada.
Even though the markets under evaluation may be small, the decision is significant because it demonstrates the pressure HSBC is under to downsize it’s formerly globe-spanning local banking activities in order to boost returns and please its investors.
Finding underperforming markets is difficult because HSBC does not separately report the performance of each country in which it conducts business.
But its operations in Europe and Latin America could come under close scrutiny, with the former region expected to post a net loss in 2022 as a result of restructuring and expenses related to its regional headquarters.
Less than 5% of the profits for the group came from Latin America.
Mexico is one nation that is not currently being considered, despite disagreement among experts and investors on the bank’s potential presence there, according to Elhedery.
The seasoned banker declared, “Mexico is performing very well for us,” citing the China Plus One strategy and the U.S.-Mexico-Canada trade deal as factors supporting economic growth in Mexico.
There are substantial synergies between the wholesale and retail businesses, and the package as a whole makes sense for us, he continued. “Approximately 70% of customer acquisition in the retail sector is through workers of the multinational corporations that HSBC banks in Mexico.
Greater challenges come with bigger deals.
At HSBC’s annual shareholder meeting on May 5, Ping An was the sole significant stakeholder to support suggestions requiring the bank to disclose periodic evaluations of the merits of separating its franchise along Asian and Western lines.
Ping An’s representative stated that there were no additional comments.
In order to pursue higher profit growth on their terms, HSBC Chairman Mark Tucker, Chief Executive Noel Quinn, and recently promoted Elhedery now have some breathing room thanks to Ping An’s inability to garner additional support for a split.
“It’s overwhelmingly clear what the vast majority of our shareholders, bar one, expect from us, and therefore all our focus is now on delivering for the business and for our customers,” Elhedery added.
Executing crucial asset sales, controlling a price war with rivals as interest rate hikes peak, and handling escalating political tensions between the East and West are some of the larger concerns, according to analysts and investors.
On April 14, the bank warned that a nominal 1 euro ($1.10) deal to sell its French retail business might not go through because rising interest rates will increase the amount of cash that My Money, a bidder funded by Cerberus, will need to obtain regulatory permission. If the sale proceeds, HSBC has previously stated that it will suffer a loss on the deal of about $2.3 billion.
Elhedery stated that although talks are still in progress, HSBC is prepared to back out of the agreement in order to preserve shareholder value.
As it struggles to assure a seamless transfer of systems to the buyer, Royal Bank of Canada, HSBC’s larger $10 billion sale of its Canada’s arm has also been postponed until next year.
If one of those transactions were to fall through, HSBC might face more severe repercussions.
“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.
The bank is attempting to grow revenue by offering fee-based goods and services, particularly in China and Hong Kong, where economies are starting to return to normal after limitations tied to COVID-19 were lifted.
Elhedery stated that HSBC is on track to introduce 1,000 more private wealth managers to the insurance industry in China over the next two years.
