HSBC’s weak investment bank softens China backlash

3 minute read

A Chinese national flag flies in front of HSBC headquarters in Hong Kong, China, July 28, 2020.

Register now for FREE unlimited access to Reuters.com

HONG KONG, June 28 (Reuters Breakingviews) - Asian bank bosses have long feared HSBC (HSBA.L), (0005.HK) would get serious about building up its investment bank in the region. The lender is now making another push, moving one of the unit’s leaders to Hong Kong and hiring senior dealmakers. Yet the drive comes as several state-owned Chinese firms are shunning HSBC amid unhappiness with the bank in Beijing, Reuters reported on Monday. At least other banking relationships are harder to dislodge.

HSBC has been walking a tightrope in China for several years. Its recent travails began in 2019 after it was revealed to have passed information to U.S. authorities about Huawei executive Meng Wanzhou, who was arrested in Vancouver in 2018. Invites from Chinese companies to pitch for investment banking work began to dry up, while several state-owned companies became non-committal on previously firm plans, Reuters reported citing sources. The bank told Reuters it did not recognise Reuters’ description of its client relationships.

Mainland China produced $2.6 billion in profit before tax for the bank last year, second only to the $8.2 billion HSBC earned in Hong Kong. Indeed, Chief Executive Noel Quinn is scaling back and selling operations in Europe and the United States to fund expansion in Asia.

Register now for FREE unlimited access to Reuters.com

Not all Chinese state companies are pulling in the same direction, though. Soon after giant China Baowu Steel blacklisted HSBC in November, according to Reuters, $53 billion state-backed Bank of Communications (601328.SS) described its 16-year relationship with the lender as “so perfect”. HSBC holds 19% of BoComm, receiving $633 million in dividends last year.

Beefing up its Asian investment bank was going to be hard work even without Beijing’s ire. Regional league tables from Refinitiv show HSBC has ranked in the top 10 in Asia for mergers and acquisitions or equity-raising just once in the in the last five years. Though it is Asia’s top international bank in syndicated lending and arranging bond sales, its wholesale push depends on winning broader mandates.

HSBC’s other saving grace in China is its strong presence in lucrative and sticky businesses like trade finance. Unplugging the bank from a company’s cash management systems is far harder than blacklisting it from a bond or equity issue. And Chinese banks are ill-prepared to handle such transactions for multinationals. HSBC’s investment banking push, however, has become harder. The only benefit is that it didn’t start earlier.

Follow @JennHughes13 on Twitter

CONTEXT NEWS

- Many Chinese state-owned enterprises have shunned UK-based HSBC, Reuters reported on June 28, citing people inside those enterprises and HSBC.

- The blacklisting is part of a growing disenchantment in Beijing with the lender over several issues including its role in the U.S. indictment of a Chinese technology executive and China’s increasing influence over Hong Kong, Reuters said.

- HSBC has been selling assets in Europe and the United States to fund investment in its Asian stronghold. Hong Kong and China were its two biggest profit generators in 2020.

- In response to questions from Reuters, HSBC said it did not comment on clients, but added that it did not recognise Reuters’ description of its client relationships.

Register now for FREE unlimited access to Reuters.com
Editing by Peter Thal Larsen and Karen Kwok

Our Standards: The Thomson Reuters Trust Principles.

Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.