The turnaround in Europe, some details of which are reported here for the first time, has helped HSBC overcome investor scepticism about its "network strategy" after a 2022 campaign by number one shareholder Ping An Insurance Group of China (601318.SS) raised questions over whether HSBC's fast-growing Asian business was being held back by its outsized presence in slower-growth Western markets.
At the core of the strategy is the notion that big corporate clients in Asia, many of which already borrow from HSBC, will use a wider range of its services in Europe as they expand into the region, as well as tapping it for advice on local deals and fundraising.
Beside profiting from Europe-bound revenue from other HSBC hubs, the bank wants to increase income from ultra-high-net-worth families, Colin Bell, chief executive of HSBC Europe, told Reuters in his first interview since taking over the role in February 2021.
"With international wholesale banking at the core, we are so much more targeted from a strategy point of view," Bell said, pointing to a rise in return on tangible equity to 6.7% in 2023 from below 1% in 2019 at HSBC Europe, which contributes just under a tenth of HSBC's overall profit.
"We're starting to see the results of all that work in the numbers."
Ping An called on the bank to spin off the more profitable Asia business, but other investors rejected the demand.
Alastair Ryan, an analyst at Bank of America, said investors have stopped questioning the bank's network strategy, for now.
"People take it as just obviously true that companies are better off having somebody who can do their trade finance, do their foreign exchange payments, cash management, all their cross-border transactions."
INCREASED PROFIT
Bell, a former British army officer who joined HSBC in July 2016, was given a mandate to turn around the long-struggling European business.
Between 2019 and 2023, HSBC Europe grew annual profit before tax to $2.6 billion from $1 billion, Bell said. A big chunk came from shrinking headcount, to just 10,600 from around 17,000 with the offloading of businesses such as its French retail banking unit.
It also increased revenue originated in Europe but booked elsewhere in the bank's sprawling global network by 40% to $3 billion in 2023 compared to 2022, Bell said.
Bank of America’s Ryan said rising interest rates have also lifted income from the bank's vast $1.7 trillion worldwide deposit base, which powers its international strategy.
It may prove harder for the Europe unit to continue growing at the same pace. A campaign to attract more European business under the internal slogan "Europe means business", reported on by Reuters in June 2019, was largely seen as a failure as cross-border collaboration with other regions was slow to materialise, sources at HSBC have said.
Headwinds have become stronger. Competition for European business among banks like BNP Paribas (BNPP.PA), Deutsche Bank (DBKGn.DE) and Santander (SAN.MC) is hotting up. The war in Ukraine and tensions between China and the West may also stymie corporate activity.
FRESH FOCUS
Bell, however, is confident there is more business to be done. Bullish clients with idle capital in Europe may look to grow in places such as Southeast Asia as supply chains reconfigure, he said.
"We are well placed to support (clients) as they look to navigate uncertain conditions in Europe with expansion elsewhere," he said.
Firms from India, China and other parts of Southeast Asia are also looking westward for new opportunities, Bell added.
The bank will look to increase assets under management at its Swiss-based wealth unit by 50% or around 40 billion Swiss francs ($44.3 billion) over five years, Bell said, prioritising ultra-high-net-worth clients.
To achieve the target, former UBS executive Gabriel Castello, appointed to run that business in June 2022, is expected to lean on the bank's corporate banking relationships.
Further growth is eyed at HSBC's Channel Islands and Isle of Man business, where assets under management are expected to increase by around 70% in five years and targeted recruitment is underway.
"We've been going through a complex, intense transformation in Europe for the last three years," Bell said.
"So now it's time to meet clients and have the right conversations about the capabilities we've got."
($1 = 0.9031 Swiss francs)
