Why HSBC must say ‘hello’ to Hong Kong

NEW YORK: HSBC is in the final stages of deciding where it hangs its hat. Headquartered in the UK for more than two decades, the country’s biggest bank is considering a return to its birthplace 150 years ago, when it was the Hong Kong & Shanghai Banking Corp. It should go — and its smaller London-based colleague Standard Chartered should join it.

Future opportunities for HSBC to expand its consumer banking business are much richer in Asia than anywhere else. As the chief executive of one of Europe’s biggest banks told me earlier this year in an off-the-record conversation, demographics drives retail banking — and the demographic trends unequivocally favour Asia.

By 2030, Asia Pacific’s middle class will account for 66 per cent of the world’s total, up from just 28 per cent in 2009, according to figures and forecasts from the Brookings Institution. Europe’s share will slide to 14 per cent from 36 per cent in the same period, with the US more than halving to 7 per cent from 18 per cent.

Those figures suggest that in a bit more than two decades, Asia will produce an additional 2.7 billion affluent consumers eager to become bank customers. More than 1.7 billion Asians will qualify as middle class in less than a decade. For HSBC, which built its business on the slogan of being “The World’s Global Bank,” those are compelling numbers.

As I’ve noted before, HSBC already makes a staggering 80 per cent of its pretax income in Asia; for Standard Chartered, the figure is about 70 per cent. If all you knew about the two banks was where their money comes from, you would struggle to correctly identify where they’re based; on a simple revenue basis, they look nothing like their European banking peers:

It’s hard to oversee units that are operating on the other side of the world. So if most of your business is already in Asia, it makes sense to have your headquarters there.

But it isn’t just the pull of Asia that should compel HSBC to head east. There’s also the push away from the UK, which has been zealous (to say the least) in trying to solve the toobig-to-fail problem with increased regulation of the finance industry. A bank levy on global balance sheets, for example, cost HSBC £750 million last year, more than any other UK bank. The tax also absorbed 9 per cent of pretax profit for Standard Chartered.

HSBC reckons it will cost $2 billion to meet UK demands to insulate consumer from I-banking in the coming years. No wonder David Cumming, who controls 1.06 per cent of HSBC’s shares as head of equities at Standard Life Investments said on Monday that the bank is at a “competitive disadvantage” because of “ever-increasing capital requirements” in the UK.