HSBC Holdings PLC's plan to invest $6 billion to grow its top business segments in Asia, with a special focus on wealth management, will likely face the complex regional diversities across the continent that is already fiercely competitive.
More than half of the budget for the Asian expansion over the next five years is earmarked for its wealth management business, eyeing the rising incomes in Greater China, Southeast Asia and India, HSBC announced on Feb. 23. Europe's largest lender by assets also said that it is considering to move more senior executives to the region. The bank expects its assets under management to grow 8.5% on a compounded annual growth rate basis annually through 2025 for Asia Pacific ex-Japan, far outpacing other regions. The growth estimate for global assets under management is 4.7% CAGR.
That is a part of the bank's strategy to focus on Asia, wealth management and fee income operations for future growth. The move puts HSBC up against non-Asian competitors such as Credit Suisse Group AG and UBS Group AG, which have also been beefing up their wealth management businesses in Asia-Pacific in recent years, as well as established regional players such as Nomura Holdings Inc. and DBS Group Holdings Ltd.
"It is good to move to a higher growth, higher margin, better demographic market, for any bank, generally," said Daniel Tabbush, founder at Tabbush Report, a provider of research and consultancy services on banking. However, it "presupposes that there will be significant growth in some aspects of the business in Asia due to its pivot. We are not certain this is the case," he said.
Complex organization
The bank's pivot strategy may help mitigate the drag on its revenue from lower interest rates and build upon it strengths in Asia. But it still has to grapple with its organizational complexity, a bloated workforce and higher competition.
"HSBC has been a bank that tends to operate less efficiently, less profitably than local banks in many regions ... it seems to us that the bank is simply too big, too complex and still very much run in a silo-like environment," Tabbush said.
The bank is aiming to double its asset under management in Asia to $30 trillion over the next five years, by focusing on Hong Kong, mainland China, Southeast Asia and India, the company's Asia chief Peter Wong said. Within mainland China, HSBC expects to hire more than 3,000 wealth managers to capture the growing middle class.
"The key story in Asia is rapid wealth creation," Wong said. Apart from wealth management and supporting trade, the bank sees opportunities in using its global scale to better connect the rest of the world with Asia. "Our international competitors lack our footprint and deep connection to Asia and our Asia competitors lack our international network," he said.
However, its Swiss rivals in the wealth management business too are expanding in China. UBS said on Jan. 11 it intends to double its staff count in its China investment banking business over the next three to five years to over 400 people. Credit Suisse is seeking to increase its stake in its Chinese joint venture to 100% from the current 51%.
Among other key markets for HSBC, Singapore saw double-digit asset under management growth in HSBC's business from wealthier clients last year, and Wong said he would increase the resources "to build on the momentum." The bank announced the appointment Kee Joo Wong, its chief of global liquidity and cash management for Asia-Pacific as the CEO for its Singapore business on Feb. 23.
The Asia pivot makes "strategic sense" for HSBC as China, Hong Kong, and Singapore are important pools of wealth and growing trade corridors, said Michael Wu, senior equity analyst at Morningstar.
"We believe the restructuring plan allows HSBC to focus on its strengths in Asia," Wu wrote in a Feb. 24 note. The bank's strong presence in Hong Kong positions it to take advantage of growth in the Pearl River Delta, he said, adding that it can tap asset management, yuan internationalization, and consumer and corporate lending in the area.