Chillin' out till it needs to be funded
Though HSBC made its presence in China only in 2007, it prides itself on the local knowledge of the region and business. China’s Korea trade( that is 70% of North’s trade) and its Local government foibles apart China still has more than a 100 cities with population more than 5 m making most of them bigger than New York, which according to HSBC’s China note , is the only with with pop greater than 5m in the USA. The corollary, this research from HSBC expects at least six of its provinces to have a GDP greater than $1 Tln. HSBC research also makes a point about Kunshan and Suzhou which produce half the world’s notebook PCs and have the city’s GDP at 70% greater than that of Beijing in this useful piece of Research
When we last covered HSBC in China, the slowdown was two years away and HSBC had 60+ of its own branches with assets worth $80 bln. This year HSBC added another $420 mln in its bank in China as capital ( Tier I common) allowing it to do more than $6 bln in new assets on its balance sheet apart from another $60 bln in off balance sheet business in Trade Finance as well as Corporate and Investment Banking now that banks are allowed to raise money in Yuan in the overseas markets. The expected slowdown/breakdown in China hasn’t come yet though with the Yuan’s further rise limited, there has been a drop in the large rise in Yuan business in the first half. It also expects to be limited to not more than 400 outlets as a Foreign bank in China
HSBC had more than 51% of its pre tax profits from Hongkong and the rest of Asia Pacific in 2010 when breakup for China alone was not available and it grew to 34% of its credit from faster growing markets. The bank had a global NII of $20 bln in 2010 and its Asia markets would have brought in more share of this NII than their share of credit. China is one of its top 5 markets according to new Chair and CEO Stuart Gulliver’s stated strategy announced in 2011.
The Global Investment Banking fee pool will soon have more than 10% share from Mainland China and not Hongkong and HSBC has been there from the first Yuan denominated swaps on 6 continents in 2010 October to cross country Yuan settlement first completed in 2009(Reuters- HSBC’s second push, 2010). Companies like McDonalds and Caterpillar have been led by Stanchart and Goldman Sachs respectively to Yuan denominated bonds of a couple of billion each in the new $18 bln bonds traded this year. Deutsche Bank stepped in with a $2 bln index offering of 1 yr bonds and created their own Yuan Bond or Dimsum index for the business. HSBC also funded SAIC’s $500 mln investment in GM’s IPO in 2010 and is strong in the $5 tln a year Trading economy for China across its ASEAN, Brazil and other important trading partners
Targeted Balance Sheet Growth in China and India was its highlight of the latest quarter, alongwith credit growth in Singapore as the bank’s business benefitted from higher profitability in these three countries. Its Asia ex Hongkong business came back to its pre crisis levels in 2010 itself with its 91,900 staff in the region( plus another 30,000 in Hongkong) growing in number as more responsibilities of business with close connections to the guanxi in China and the debt markets in India and China. In China it is growing into inner Tier II cities as it expects to hit its 300 branch limit in 2015 and even as domestic demand becomes the primary driver in 2012. Outside Asia Pacific and Mainland China, the bank is reducing staff by 30,000 to improve cost efficiency to 58% for its global business.
Its associates contributed over $1.6 bln in profits in the first 6 months of 2011 incl its stake sales and other profits with only $1.1 bln profit from operations. The bank made a profit of $304 mln on its own in the same six months. Compared to a business of $53 mln in retail and wealth banking, its Mainland China business yielded $490 mln in Profits (PBT or IBIT) in retail and wealth from associates. Commercial and Investment Banking (Global Banking and Markets) thus harnessed Yuan trade for $1 bln in profits but mostly from associates for $579 mln in CMB and $248 mln in GBM and its stake dilution in PingAn got it almost $369 mln. Its own GBM profits improved to $224 mln and doubled in Commercial banking business to $78 mln from the first half of 2010
HSBC’s planned 300 branches would not compare with 18,000 ICBC branches and may not be satisfied with growth in associates, but its team has now matched up to its operation in India in Commercial banking and trading/investment banking. However Cost efficiency numbers for its Asia Pacific operation of 53% compare favorably with HongKong’s 43% ratio.
We now have 108 outlets, 16 rural bank outlets and 38 Hang Seng Bank outlets in our branch network. We were awarded the ‘Best International Trade Bank’ by Trade Finance and the ‘Best Foreign Commercial Bank’ by FinanceAsia, reinforcing our strong corporate brand in mainland China.