Chillin' out till it needs to be funded
The growth strategem adopted by Stuart Gulliver for HSBC’s next decade does envisage the continuing dominance of Asia with 2010 contributing nearly $9 bln to HSBC’s profits from the continent and in 2011 also , Asia profits before tax excluding business from associates for the first nine months are again just less than $ 9 bln out of the total around $14.4 bln and the $1.1 bln from associates in China is also part of the pie it is keeping in China. The HSBC business in Asia is divvied up into Rest of Asia Pacific and Hong kong businesses.
The European deleveraging, however has not hit banks in Hongkong as European banks hold only 8% of the assets and Global assets from US UK and mainland China 17% of the island SAR’a bank loan asssets according to a Fitch report being quoted in the region. In the Rest of Asia Pacific region , the bank has grown loan assets based on growth in India, China and singapore. Asian interbank markets continue to show a 50% uptick in borrowing costs in Asia since deleveraging started in earnest in Q4 of 2011 Hongkong itself has been growing credit at 15% compared to 30% in Singapore ( lowest in three years) to nearly $2 tln
In the first half of the year, apart from its sales of Credit card businesses and 195 of its 350 odd US branches it had also sold its Private Equity businesses and the motor insurance business in UK, apart from retail banking rationalisation in East Europe and middle east. Its MENA business that includes Africa and the Arab peninsula is the smallest piece of the pie right now at a PBT of $1.1 bln.
As of now, despite a low cost income ratio of 44% in Hong Kong and loan assets growing only in India, China and Singapore, Asia is also party to a few strategic rationalisation in its portfolio. The first half of the year saw job cuts in Hong Kong which likely continue though mainly in businesses in Latin America and the USA where the Cost Income ratio is more than 53% and 61% respectively as of September.
While the bank has a strong presence in China and India, limited growth because of the slowdown is hurting revenue globally, and it is unlikely to maintain its first half achievement of 54% of Cost Income ratio. In the mean time, the bank wants to sell off non life insurance businesses, having asserted that each piece in Asia or latin America could be sold separately to interested parties like AXA and MS+D. Its three non life insurance businesses were put on ratings watch immediately in Asia as the units HSBC Insurance (Asia) rated AA and cnAAA, HSBC Insurance (Singapore) and Hang Seng Insurance will likely be cut off from the group for further capital drawings. HSBC Insurance in Singapore is mostly life insurance and holds an A+ rating
HSBC targets exiting 2 out of 5 of its 60 retail banking businesses for lack of profitability and sustainability. While 5 -6 were sold in the firtst half and another 5000 job cuts are likely in Latin America and US till 2013 in pursuit of its $3 bln cost savings by December 2013, it has also sold off retail banking business in Asia , selling vaunted Private Banking assets for $2.7 bln to Credit Suisse
Also, likely on the chopping block, despite profitability, would be property loans in Hongkong ( not residential mortgages but loans to developers) Mortagges are 75% of HSBC’s book in Hongkong and more than 60% of its book in Asia The bank is cutting 1200 jobs in India as retail is barely breaking even.