HSBC steps up Asia shift with Singaporean insurance acquisition

HSBC’s $575m acquisition of insurance giant Axa’s Singapore arm, which was announced on August 16, represents a ramping up of the bank’s ambitious ‘pivot to Asia’ strategy. As part of this strategy, HSBC is also looking to expand its wealth management services across the region.

The UK-based banking group plans to invest $6bn in Asia as part of a restructuring, which has also seen it withdraw from the US retail banking market and sell off some of its European operations. Significantly, Asia made up 59% of the group’s pre-tax profits in the first half this year, compared to 22% in Europe, according to its latest results. The bank is relocating senior executives from London to Hong Kong — including the global heads of investment banking, commercial banking and wealth management — as part of this shift. 

Developing insurance services, which currently generate about 12% of HSBC’s global profits, fits into the bank’s wider strategies, says Tom Mouhsian, a Singapore-based analyst covering financial services at Forrester Research.

“Asia is the fastest-growing life insurance market in the world,” he says, citing the so-called  ‘protection gap’ — the difference between the amount of insurance that is economically beneficial and the amount of coverage purchased — which he suggests provides HSBC’s insurance unit with huge opportunities for growth in Singapore.

“Singapore has an ageing population and retirement planning is [among] people’s priorities. On top of that, the Covid-19 pandemic has accelerated demand for life insurance because people have been worried about their health,” he adds. “There’s a lot of potential upside.”

Wealth management competition

Beyond insurance, more than half of HSBC’s budget for the Asian expansion over the next five years has been set aside for developing wealth management services, as the bank seeks to tap into the growing middle class in mainland China, south-east Asia and India. The bank plans to hire 5000 wealth managers to support this push.

Overall, however, the bank plans reduce its global workforce by about 35,000 as part of the restructuring. According to The Banker Database, total headcount fell to 226,059 at the end of 2020 from 235,351 in 2019. 

“The overall strategy involves an enormous amount of restructuring,” says Fern Wang, director, financial institutions ratings at S&P Global. “They are delayering a massive organisation and trying to find efficiencies; it will not be easy.”

Several other banks are also bolstering their wealth management businesses in Asia, and HSBC’s strategy will see it compete with Swiss banking groups Credit Suisse and UBS, which are pursuing similar strategies, as well as established regional players such as Nomura and DBS.

“The competition for business will be pretty fierce,” says Mr Mouhsian.

“Every bank in the region is trying to expand their wealth management business,” Ms Wang says. “One of the challenges HSBC will face is finding the right people.”

China tensions

Another challenge will be how the UK-headquartered bank handles rising tensions between China and the West.

China is in the process of introducing legislation in Hong Kong that could ban foreign companies and individuals operating in the territory from complying with sanctions against it, which could leave Western multinationals, such as HSBC, caught in a difficult position.  

“HSBC could find itself the meat in the sandwich, politically,” says Russ Mould, investment research director at AJ Bell. “It’s something that the bank’s management and board will need to handle extremely carefully.

“The bank may find itself having to placate the Chinese authorities and China-based customers, while at the same time placating Western politicians who may not wish to see Western companies doing as much business with China. There are likely to be some complications.”

HSBC did not respond to a request for comment.