- HSBC’s exit from US retail banking places Hong Kong and China center stage.
- This is a move that points to a more profitable future, but is threatened by an increasingly complex geopolitical landscape.
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The decision accelerates a shift away from its beleaguered US operations and follows the shuttering of 80 branches across the country in 2020. HSBC is considering selling its remaining 150 US locations to enable its broader focus on Asia. It plans to invest around $6 billion into the region over the next five years and allocate half of its total capital there in the next three to six years.
HSBC is doubling down on its China and Hong Kong roots—and Insider Intelligence believes that the region’s outsized importance could create significant opportunities for growth and profitability.
- Hong Kong and mainland China are the heart of its Asia operations. Asia accounted for over half of HSBC’s total revenues in 2020, with Hong Kong and China alone comprising 38.5%. Hong Kong remains an important global financial hub and houses an extremely affluent client base: As of 2019, it ranked second globally after Switzerland in wealth per adult, and tenth in the number of people with more than $50 million in assets. Meanwhile, mainland China has already rebounded past pre-pandemic levels and expects GDP to grow 7.5% in 2021. A more streamlined account opening process could help HSBC capitalize on these conditions and accelerate customer growth: For example, it could leverage the biometric verification and onboarding technology it had slated for its US offerings.
- The bank has struggled to find a strategy that works outside of Asia. HSBC’s $547 million pre-tax loss on its US retail business in 2020 capped off a string of setbacks for the bank over the past two decades, according to the Journal. Even with a substantial retail footprint stateside, the bank was never able to adequately compete against better-positioned incumbents, hamstrung by long-lasting effects of a bad transaction: Its 2003 acquisition of subprime consumer lender Household International eventually led to billions in writedowns and legal costs in the wake of the financial crisis. Similarly, the bank has struggled to find its stride in Europe, and shared plans to divert capital from its investment banking operations there to Asia alongside the US exit. The bank has also been considering the sale of its French retail bank since 2019, per the Journal.
But geopolitical tensions in China and Hong Kong could pose a significant threat to HSBC’s future profits. This past summer, the bank publicly supported China’s controversial influence over Hong Kong’s national security law that was vehemently opposed by the US and the UK governments.
Given its already substantial exposure to the region, further escalation of the international dispute could push the US and UK to increase tariffs and sanctions on China, negatively impacting economic growth and potentially HSBC’s ability to generate profit.
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