TOKYO (Reuters) - HSBC (HSBA.L) (0005.HK) is not considering acquisitions in Japan and will instead focus on growth by itself as it rolls out retail banking in the world’s second-largest economy, HSBC Chairman Stephen Green said on Thursday.
Green also said HSBC was “very comfortable” with its holding in Hang Seng Bank Ltd (0011.HK), indicating that it might not give in to an activist shareholder’s request that it consider raising its stake in the Hong Kong lender.
London-based HSBC Holdings Plc, one of several large financial firms lining up to do business with Japan’s millions of wealthy individuals, could open as many as 35 branches here over the mid to long term, Green said.
But the move is not going to be easy with competition from Japan’s so-called “megabanks” — Mitsubishi UFJ Financial Group Inc (8306.T), Mizuho Financial Group Inc (8411.T) and Sumitomo Mitsui Financial Group Inc (8316.T) — as well as from U.S. financial firm Citigroup (C.N).
“Our expansion strategy in Japan is focused essentially on organic growth,” Green said at a news conference.
“There is no need to contemplate acquisitions as part of developing our business.”
HSBC, Europe’s largest bank, plans to open its first retail branch in Japan in January to target some of the country’s estimated $13 trillion in household financial assets.
But that may be a tough strategy for cracking the notoriously fickle Japanese market, said Mitsushige Akino, chief fund manager at Ichiyoshi Investment Management.
“Japan is a difficult market. I think they would have a better chance of succeeding quickly by buying a bank or brokerage with an established customer base,” Akino said.
“Unlike the old days, Japanese companies aren’t allergic to being bought out by a foreign company.”
Despite a presence dating back 140 years, HSBC has so far been a niche player in Japan, focusing on wholesale banking, securities, private banking and asset management.
“Creating branches is possible so long as your pockets allow it,” said Akiko Kudo, an analyst at Fitch Ratings in Tokyo.
“However, the big question is the bank’s ability to grow its customer base from zero and to be profitable given the extremely competitive environment, as the megabanks are also targeting the same clients.”
HSBC will roll out its “HSBC Premier” service in Tokyo, Osaka and other large cities, to tap millions of “mass affluent” Japanese.
About 6.3 million people in Tokyo and Osaka fall into the mass affluent category, the bank estimates, meaning they have at least 10 million yen ($86,270) in liquid assets.
“We think there is room over the mid to longer term for something like 25 to 35 branches,” Green said, although he declined to give a more specific time frame.
A spokesman for HSBC in Toyko said earlier this month there might be space for as many as 50 branches and that the bank could spend up to several hundred millions of dollars.
HSBC Premier pairs customers with a financial adviser who tailors products based on the customer’s financial goals and risk appetite, said Stuart Milne, the bank’s president and chief executive in Japan.
“There’s a very strong sense that customers in Japan are reacting against the typical ‘product-push’ focus of a number of banks or securities companies,” Milne said.
HSBC has been criticized by U.S. activist investor fund Knight Vinke Asset Management, which has said management had a “fundamental lack of ambition”.
Knight Vinke has proposed that the bank increase its focus on Asia and consider buying out Hang Seng Bank’s minority shareholders, but Green appeared to oppose the latter.
“We’re very comfortable with our shareholding in Hang Seng as is,” he said.
In Japan, HSBC lags rival Citigroup in terms of branch network. The U.S. financial giant, which is targeting the same mass affluent market, in July relaunched its local unit as a Japanese bank, becoming the first foreign lender to receive approval to operate as a local entity.
Citigroup has outlined plans to list shares in Tokyo and double the number of its retail banking branches to about 60 in the next few years.
HSBC has been looking to further boost its presence in Asia and other emerging markets, Green said.
Earlier this month it said it would buy 51 percent of Korea Exchange Bank 004940.KS, Korea’s sixth-largest lender by assets, from U.S. private equity firm Lone Star LS.UL for $6.3 billion.