HSBC is on the hunt for growth in Asia, though it will have to do so delicately, so as not to invite the political scrutiny of the Biden administration or a retail backlash in Hong Kong.
Top HSBC executives are reported to be relocating to Asia, as HSBC extricates itself from its struggling French and US retail banking arms, and plans an expansion in Singapour.
These moves come after a tricky year for the bank, founded in Hong Kong. HSBC recorded a 34% drop in annual profits during the pandemic, with their performance mired by a squeeze on net interest rates and bad Covid loans.
Susannah Streeter, Senior Investment and Markets Analyst at Hardgreaves Lansdown, said though the annual profit were better than expected, “the bank has recognised longer-term income growth is likely to be a struggle.”
“Instead of aiming for a return on equity of 10-12%, over the medium term, it will target 10%. The interim dividend is back at $0.15 a share but it’s a small consolation given that HSBC has shown a new conservative hand, and will no longer pay a quarterly dividend, with the pay-out ratio lower than in previous years.”
The ‘refocus’ on Asia aligns with the banks refocus on its investment arm and offers access to the region with the highest potential for growth. HSBC also performed a flurry of trading and hedging activity during the pandemic, which will likely help the firm weather further turbulence.
Streeter commented on the political implications of the shift, “Further turbulence could come in the form of fresh political risk given how relations between the West and China have taken a fragile turn in recent years. Although a swift recovery helped by a massive stimulus programme launched by Beijing has been good for business there are uncertain times ahead and the bank says it does not yet know how Joe Biden’s inauguration will affect geopolitical tensions.
“Right now the bank is walking tight rope between being seen to uphold new controversial laws imposed by Beijing and not provoking a retail consumer backlash in Hong Kong which could cause significant damage financially and in terms of its reputation.”