The expansion comes after HSBC has been criticized by U.S. and U.K. lawmakers following its public support for China’s new security law in Hong Kong.
Getty ImagesHSBC will accelerate its “pivot to Asia” strategy, unveiling plans to invest $6 billion in the region after reporting a 34% slump in annual profits.
Europe’s biggest bank said it would invest up to $6 billion in its wealth management and international wholesale business to drive growth in Asia over the next five years.
Chief Executive Noel Quinn said the bank’s 2020 performance was solid in the context of the Covid-19 pandemic “particularly in Asia—and laying firm foundations for our future growth.” HSBC already makes most of its profits in Asia but is targeting double-digit growth in the region in the next four to five years. The strategy includes investing in its wealth management business in Hong Kong, mainland China and Singapore.
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The expansion comes after the bank has been criticized by U.S. and U.K. lawmakers in recent months following its public support for China’s new security law in Hong Kong. Quinn was grilled by U.K. politicians last month over allegations the bank had frozen the accounts of Hong Kong democracy activists.
The bank’s Hong Kong-listed shares jumped in early trading before closing 0.4% up, while the London-listed stock slipped more than 2%.
The U.K. lender also reinstated its dividend—$0.15 per share—for the first time since the Bank of England banned banks from payouts last year. However, the bank posted a sharp drop in profits in 2020 and lowered its medium-term profitability target.
HSBC reported full-year pretax profits of $8.8 billion, 34% lower than 2019, and adjusted profits of $12.1 billion—a 45% drop compared with the previous year, both outperforming expectations. The fall was driven by higher-than-expected credit losses as a result of the Covid-19 pandemic and lower revenue due to the impact of lower interest rates.
HSBC said it was now targeting a return on average tangible equity of 10% in the medium term, lowering its original goal of 10% to 12% by 2022.
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The lender had been expected to announce its exit from the U.S. retail market but stopped short of such a move, instead announcing it was “exploring organic and inorganic options.” However, it did confirm negotiations over the sale of its retail banking unit in France. After announcing a restructuring plan cutting 35,000 jobs last year, HSBC said on Tuesday it would reduce its office footprint by 40% in the long term.
Looking ahead. Historically low interest rates and the pandemic have challenged the world’s largest banks over the past year. The intensified focus on Asia, which has so far led the Covid-19 economic recovery and is where growth opportunities are aplenty, and the resumption of the dividend, should be welcomed by investors.
“HSBC is finally singing the song that investors want to hear,” said AJ Bell investment director Russ Mould. “The fact that HSBC has chosen to prioritize Asia should be good enough for someone taking a view about the bank’s prospects in the medium term. It’s a decision that should have been made a long time ago,” he added.
The shift to Asia, however, could leave HSBC exposed to political risks between China and the West, noted Hargreaves Lansdown analyst Susannah Streeter. “Although a swift recovery helped by a massive stimulus program launched by Beijing has been good for business there are uncertain times ahead and the bank says it does not know how Joe Biden’s inauguration will affect geopolitical tensions.” She added that HSBC was “walking a tightrope” between being seen to uphold the new laws imposed by Beijing and not provoking a “retail consumer backlash” in Hong Kong.
Killik & Co analyst Nic Ziegelasch said HSBC was a “relatively attractive global bank” given its increasing focus on Asia, but conceded that growth was likely to be muted. He added that with the stock trading at 13.6 times consensus 2021 earnings and a prospective dividend yield of 4%, it remains “fully valued relative to U.K.-listed peers.”
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February 23, 2021 at 09:00PM
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HSBC Ramps Up ‘Pivot to Asia’ as Annual Profits Fall 34%. What That Means. - Barron's
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