HSBC can stand strong in a fragmenting world
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
By Liam Proud
LONDON, Nov 7 (Reuters Breakingviews) -When HSBC HSBA.L,0005.HK opened its doors in Hong Kong and Shanghai in 1865, Chinese trade flows were just bubbling up again after the Second Opium War between the ruling Qing dynasty and British and French imperial powers. Tensions between East and West aren’t quite that bad today, but tariff talk and widening geopolitical rifts nonetheless threaten the cross-border banking model epitomised by the UK-based group. How new CEO Georges Elhedery handles those challenges will be closely watched by rival globe-trotting banks such as Citigroup C.N and Standard Chartered STAN.L. There’s every reason to think that the 159-year-old lender can stand strong.
HSBC is the archetypal global bank. Headquartered in London, its biggest market by pre-tax profit is Hong Kong, accounting for just over a third of the 2023 total. No country housed more than a fifth of its 221,000 total employees as of last December, the largest being India at 19%. Insiders like to joke that it is the only bank in the world where most staff are working when the CEO is asleep.
A recent reshuffle by Elhedery, who took charge in early September, underscores the lender’s global nature. Granted, the former finance chief divided the geographic businesses into Eastern and Western clusters, which at first glance looks like a possible prelude for a split. Yet in HSBC’s new structure, those regional divisions are secondary to the main reporting lines – Hong Kong, the United Kingdom, international wealth and corporate and institutional banking. The latter two are global businesses.
The corporate and institutional division, in particular, is inherently cross-border. HSBC facilitated $850 billion of global trade in 2023, according to the bank’s estimates, which is about 4% of the total volume of merchandise trade in that year, based on World Trade Organization figures. The bank disclosed in 2022 that 45% of its wholesale revenue was international, referring to transactions that take place outside of its clients’ home market.
HSBC also estimated at the time that it was collecting about one-fifth of the transaction banking fees up for grabs from Western European, North American and Middle Eastern companies operating in Asia, excluding Japan. Meanwhile, it has said that investment banking and markets clients whose business straddles both East and West offered considerably higher returns for HSBC. Internationally mobile retail banking clients are also twice as lucrative as local ones. In other words, the group’s fortunes are tied to globalisation, and there’s not much Elhedery can do about it.
That might sound like a problem at a time when political and trade tensions are rising between China, the United States and Europe. U.S. President-elect Donal Trump has threatened a 60% tariff on Chinese goods. Beijing and Brussels risk a tit-for-tat over electric-vehicle duties.
Yet the recent past offers hope for Elhedery and his investors. HSBC’s wholesale-focused businesses held up well during the last U.S.-China tit-for-tat starting in 2018, which saw then-President Donald Trump’s administration slap tariffs on $380 billion of products, according to the Tax Foundation. Beijing responded in turn, and by the end of 2019 the new levies covered more than half of bilateral trade, based on calculations by the Peterson Institute for International Economics. At the same time, Trump also hit Europe with tariffs.
The commercial-banking division of HSBC, though, grew at a handy 9% compound annual rate between 2017 and 2019. Admittedly, rising U.S. interest rates over that period helped, but even the most tariff-sensitive bit of the division kept expanding. Revenue from trade and receivables financing grew at 1% in compound annual terms over the same period. Trade-focused revenue in the investment bank, which typically handles larger corporate clients than the commercial division, posted a 4% rate of expansion.
That resilient performance reflects the fact that global import and export volumes kept rising even as tariffs ramped up. Trade as a percentage of global GDP was 27.9% in 2017, before the tit-for-tat, and 28.1% two years later after all the China-U.S. levies, according to World Trade Organization estimates. Even during 2020, when the pandemic locked down much of the world for months, the figure only dipped by a few percentage points. HSBC’s own trade and receivables finance revenue in the commercial bank dipped just 4% that year. The implication is that even as supply chains move around, the overall volume of goods crossing borders is hard to budge.
The historical figures, then, suggest that HSBC has adapted well so far to the new reality of fragmented global trade, where money and goods increasingly move between China and third countries like Vietnam before finding their way to Europe or the United States. In the group’s numbers, this shows up as a decreasing reliance on the People’s Republic. In the first half of 2024, HSBC generated more pre-tax profit in India than mainland China across its commercial banking unit and the global banking and markets division. The two countries were neck and neck a year earlier.
HSBC cannot defy geopolitical forces entirely. Its substantial Chinese operations and its status as one of the largest clearers of U.S. dollar transactions make it vulnerable to pressure from either side. The bank got tangled up in the aftermath of the 2018 arrest of Huawei finance boss Meng Wanzhou in Canada, which eventually cost it business with Chinese state-owned enterprises, Reuters reported. A full-scale U.S.-China showdown could force it to make difficult choices.
Elhedery’s job, however, is to make sure the bank keeps moving with its customers, while staying as far away from politics as possible. Provided the global trading system remains intact, Elhedery will stand a good chance of weathering the geopolitical storm.
Follow @Breakingviews on X
CONTEXT NEWS
HSBC’s new CEO Georges Elhedery on Oct. 29 said that he would present a “business update” in February, detailing his plans for the group that he took over on Sept. 2.
Elhedery on Oct. 22 said that he was restructuring the group along four new business lines: Hong Kong, the United Kingdom, corporate and institutional banking, and international wealth.
The boss of the corporate and institutional unit, Michael Roberts, will also oversee a geographic cluster of businesses known as the “Western markets”, which will comprise the non-retail banking bits of the UK business, continental Europe and the Americas.
David Liao and Surendra Rosha, joint heads of the new Hong Kong unit, will also head the “Eastern markets” geography, which includes all of Asia, Oceania and the Middle East.
HSBC's Indian wholesale unit beats Mainland China https://reut.rs/4fxGWmN
Global trade withstood the Donald Trump-era storm https://reut.rs/4f9vvlA
Geographic breakdown of HSBC 2023 pre-tax profit https://reut.rs/3YeqIbi
Editing by Peter Thal Larsen and Streisand Neto
Relaterade tillgångar
Senaste nytt
Ansvarsfriskrivning: XM Group-enheter tillhandahåller sin tjänst enbart för exekvering och tillgången till vår onlinehandelsplattform, som innebär att en person kan se och/eller använda tillgängligt innehåll på eller via webbplatsen, påverkar eller utökar inte detta, vilket inte heller varit avsikten. Denna tillgång och användning omfattas alltid av i) villkor, ii) riskvarningar och iii) fullständig ansvarsfriskrivning. Detta innehåll tillhandahålls därför uteslutande som allmän information. Var framför allt medveten om att innehållet på vår onlinehandelsplattform varken utgör en uppmaning eller ett erbjudande om att ingå några transaktioner på de finansiella marknaderna. Handel på alla finansiella marknader involverar en betydande risk för ditt kapital.
Allt material som publiceras på denna sida är enbart avsett för utbildnings- eller informationssyften och innehåller inte – och ska inte heller anses innehålla – rådgivning och rekommendationer om finansiella frågor, investeringsskatt eller handel, dokumentation av våra handelskurser eller ett erbjudande om, eller en uppmaning till, en transaktion i finansiella instrument eller oönskade finansiella erbjudanden som är riktade till dig.
Tredjepartsinnehåll, liksom innehåll framtaget av XM såsom synpunkter, nyheter, forskningsrön, analyser, kurser, andra uppgifter eller länkar till tredjepartssajter som återfinns på denna webbplats, tillhandahålls i befintligt skick, som allmän marknadskommentar, och utgör ingen investeringsrådgivning. I den mån som något innehåll tolkas som investeringsforskning måste det noteras och accepteras att innehållet varken har varit avsett som oberoende investeringsforskning eller har utarbetats i enlighet med de rättsliga kraven för att främja ett sådant syfte, och därför är att betrakta som marknadskommunikation enligt tillämpliga lagar och föreskrifter. Se till så att du har läst och förstått vårt meddelande om icke-oberoende investeringsforskning och riskvarning om ovannämnda information, som finns här.