HSBC was started in Hong Kong and Shanghai in 1865 and grew into a global enterprise. But with 74% of profits now coming from Asia it seems to have come full circle, writes Brian Caplen.

Behind the headlines of HSBC’s improved results is one of the largest and most comprehensive restructurings in banking history. Its first-half 2017 performance showed adjusted profit before tax of $12bn, up 12% compared with the first half of 2016, and ahead of analysts’ expectations.

In normal times, these would be considered good numbers but not exactly stellar for a bank of HSBC’s stature. Their significance is that they mark the beginning of a new era based on the bank’s comprehensive restructuring in the aftermath of the financial crisis.

The new HSBC is a slimmed down version with an asset base that has come down from $2692bn in 2012 to $2374bn in 2016, a drop of 12%, on a capital base that is 50% higher than before the financial crisis, according to thebankerdatabase.com.

Ten years ago, in its 2007 annual report, HSBC talked about having 128 million customers with a network of 10,000 properties in 83 countries and territories. Currently, the bank says it serves 38 million customers with 3900 offices in 67 countries.

Make no mistake, this is still a global operation and the bank says that its network covers 90% of global GDP. But the painful journey over the past six years – involving a reduction of 20% in staff numbers and $6bn in annual cost savings – has resulted in a different looking HSBC. 

Back in 2006, Asia accounted for less than 40% of profits, Europe 31.5%, North America 21.1% and Latin America 7.9%. In first-half 2017, HSBC made 74.5% of its profits in Asia, 9.3% in North America and 5.6% in Europe (see table). These days HSBC looks a lot more like a representation of its original name, the Hong Kong and Shanghai Banking Corporation. 

HSBC Table

Over the past six years, major operations such as those in Brazil have been disposed of as have US subprime and credit card assets. There have been large write-downs on goodwill such as in European private banking. Management layers have been stripped out, capital boosted, risk reduced, litigation settled and compliance beefed up. 

Importantly, during this process, and unlike some other banks, HSBC has not been forced to sell core assets. So while much has been made of poor acquisitions – US consumer finance company Household in 2003, for example – other purchases such as the 20% stake in China’s Bank of Communications in 2004 have paid off handsomely. Similar things can be expected of the latest China initiative, the recently approved HSBC Qianhai Securities. This is the first securities house in China to be majority owned by a foreign group.

With China and the rest of Asia becoming increasingly international and the focus of world growth, the new HSBC is poised to reap the benefits. 

HSBC dumped its long-running advertising slogan “the world’s local bank” in 2016. Even though it was hugely successful in marketing terms, the slogan never really reflected the reality of HSBC’s business, which is predominantly commercial banking, capital markets and wealth management rather than retail (so not local). On the current figures, “the world’s regional bank” would be a more fitting description.

Brian Caplen is the editor of The BankerFollow him on Twitter @BrianCaplen

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