HSBC Hong Kong

Following the global financial crisis, many banks with international footprints took strategic decisions to pull out of certain markets. However, many foreign-owned subsidiaries are now proving essential sources of profit for their parents. 

Knowing which markets to stay in and which ones to exit is a constant dilemma for global banks managing large networks of foreign-owned subsidiaries (FOS). Profit generation is one metric that feeds into the decision-making matrix and can be an indication of future growth potential.

Only 24 banks in the Top 100 FOS ranking by total assets saw a percentage increase in profits during 2020. Deutsche Bank’s US subsidiary, DB USA, reported the largest rise in pre-tax profits (PTP), of 165.2%. In addition, two other US subsidiaries are among the top five for PTP increases, Mizuho Americas and BNP Paribas USA. With significant investment banking businesses, they have benefited from strong market conditions over the past year.

JPMorgan Germany also figured in the top five by PTP growth, reporting a 144.7% rise. In addition, it topped the ranking for asset growth, chalking up a more than 500% increase, which allowed it to jump from outside the top 50 to eighth in the ranking. In September 2020, Reuters reported that JPMorgan was moving €200m of its assets from the UK to Germany as a result of Britain’s exit from the EU.

But it is HSBC’s Hong Kong subsidiary that continues to dominate the FOS ranking, both in terms of assets and profits. With $1.2tn in assets, HSBC Hong Kong is more than twice the size of TD Bank US, which comes in second in the ranking. And despite experiencing a 34% fall in PTP in 2020, it still recorded profits of $11.6bn – almost three times that of Bank of China Hong Kong, the second biggest generator of profits in the top 100. HSBC Hong Kong also reported one of the best return-on-capital ratios in the cohort.

A global force

In addition to ranking the largest 100 FOS by assets, The Banker examines the biggest 15 FOS networks by assets, as well as highlighting the regions generating the most PTP during 2020. Of the 15 banks, four have half or more of their global assets sitting within their FOS network: HSBC (82%), Standard Chartered (78%), Banco Santander (62%) and ING (50%).

Impressively, seven of the 15 generated the majority of their PTP from their FOS networks in 2020. Société Générale, for example, has just 10% of the group’s total assets sitting in its foreign subsidiaries, yet the network generated more than 90% of its total global profits, mainly in the central and eastern European region.

With $2.4tn in assets and $15.4bn in PTP, the world’s most formidable overseas network is run by HSBC. The UK-headquartered banking group’s network has more than double the assets of the second largest FOS grouping, which is run by Banco Santander; it also reaped almost double the profits of BNP Paribas’s network, in second place by PTP.

Fuelled by HSBC Hong Kong, Asia-Pacific is the region that generates the greatest profits in HSBC’s FOS network – a total of $16.1bn. It is unsurprising that in early 2021 CEO Noel Quinn announced plans to accelerate the group’s pivot to Asia.

Regional differences

Asia-Pacific is also a growth region for Bank of America’s FOS network. While comprising a tiny proportion of the parent’s overall business, the region holds 15% of the FOS network’s assets and generates 55.6% of its profits. Likewise for JPMorgan, which holds just 1.9% of its global network’s assets in Asia-Pacific but these bring in 24% of FOS total PTP. A similar story holds true for the foreign networks of Japanese lenders, Mitsubishi UFJ Financial Group and Sumitomo Mitsui.

Latin America, on the other hand, has proven to be a profit generator for players such as BBVA, Citi and Banco Santander (although for the latter this shows up as a loss in the annual report due to adjustment for goodwill impairment at the bank holding level).

Western Europe is a region of low profitability for many banks’ FOS networks. JPMorgan, for example, holds almost 90% of its foreign network assets in Europe, yet these generate less than 35% of the network’s profits. Crédit Agricole, which holds 83% of its FOS assets in western Europe outside France, saw those assets generate just 19% of the network’s PTP. Similarly, Credit Suisse has 69% of its FOS assets in the region, which bring in less than 20% of total FOS profits.

BBVA managed to buck this trend. Holding 20% of its FOS network’s assets in western Europe, these assets generated 41% of the network’s PTP and almost a third of BBVA’s total global profits.


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