HSBC is halfway through exits and revamping its global business and is betting on expanding its wealth management offering in the Middle East and Asia to boost growth, its group chief executive said on Tuesday.
Europe’s biggest lender by assets has already announced 11 exits from non-core businesses, and the redeployment of cash to businesses and markets with higher growth potential remains a medium-term target, Georges Elhedery told The National on the sidelines of the Future Investment Initiative in Riyadh.
“What we announced so far this year is 11 exits,” said Mr Elhedery, who took the helm of the Asia-focused bank in September last year. “These are activities that are non-strategic or non-accretive for the group and broadly speaking, we're probably halfway on that journey … and those 11 are at different stages of execution.”
There are more changes to come as HSBC has set a target of freeing up $1.5 billion of investment and aims to channel that amount to areas such as its rapidly expanding wealth offering from the UAE.
But being halfway through the revamp does not mean there will be another 11 exits, he said.
“Broadly, the 11 we have announced will be [worth] around half of that [target of] $1.5 billion. It's not the number of deals, it is just half of what we want to free up, in the medium term,” he said.
As part of the global revamp launched last year, HSBC is winding down some of its business in Europe and the Americas, including its mergers and acquisitions and some equities businesses. The lender is also in the process of strategic reviews of its retail businesses in Australia, Indonesia, Sri Lanka, Bangladesh and Bahrain.
Last week, HSBC announced a review of its Egyptian retail banking and said the lender “will consider all options”. Egypt remains a vital market through and the review will not include wholesale banking operations, HSBC said at the time.
“All I can say at the stage is that we want to move at pace to come to a conclusion,” Mr Elhedery said. “We announced it because we wanted to be transparent about it.”
It is difficult to quantify the timescale, he said when asked if the bank will be able to finish the sale before the end of this year.
Earnings drop
On Tuesday, HSBC reported a 14 per cent drop in its third quarter earnings after an unexpected $1.1 billion provision linked to Bernard Madoff’s fraud case more than 10 years ago. The lender’s pretax profit for the reporting period fell to $7.3 billion, offsetting the rise HSBC recorded in its key wealth management business.
The earning is the first since Mr Elhedery announced a $14 billion plan to buy out the minority interest in its subsidiary, Hang Seng Bank, which gives it a stronger foothold in Hong Kong, a market he is bullish about.
“Two home markets: the UK and Hong Kong [and] in both we're a leading bank. In Hong Kong, we're leading substantially and in the UK, we're top three … very profitable markets, high return … and good growth.”
Middle East growth potential
HSBC, Mr Elhedery said, has benefited from some of its international exits and it has “actually differentiated by doubling down on Asia and the Middle East, doubling down in regions when others exited”.
The broader Middle East, he said is “extremely important”, for HSBC’s global growth ambitions. It is among the markets exhibiting some of the best growth opportunities.
“The nexus of global growth runs through the Middle East, in both directions. We are investing, mobilising and connecting to capture these flows,” he said. “It's economically resilient, strong and it has ambition.”
The Arab world’s two largest economies, Saudi Arabia and the UAE, remain the key growth drivers for HSBC in the region, and the bank plans to continue investing in technology and nurturing local talent.
“And all that investment is because we really anticipate and we really aspire to be able to carry on growing at an even faster pace [than in the past five years],” he said.
“We have the desire, we have the appetite, and we have the ambition to invest and follow through our plans for growth in the broader region in next five years.”
The International Monetary Fund expects economies in the broader Middle East and North Africa region, which includes the oil-rich economic bloc of Gulf countries, to grow 3.3 per cent this year and 3.7 per cent in 2026.
The region, whose economic outlook has been marred by a series of conflicts over the past few years, is still vulnerable to economic headwinds, despite demonstrating “surprising resilience”, the IMF said in its World Economic Outlook report released this month.
Regional risk appetite
Despite the rise in geopolitical risks in the past two years with the Israel-Gaza war, the bombing of Lebanon, Syria and Qatar, and Israel and Iran trading blows in a 12-day war, HSBC “never changed” its risk appetite for the Middle East, he said.
“We always maintained the appetite for the kingdom, the UAE and other parts of the region. We have confidence in their long-term growth potential,” he said.
“The resilience of the Middle East has been tested over and over again … but we never wavered.”
The relative calm in Lebanon and Syria and the ceasefire in Palestine have improved the region’s growth outlook.
The bank does not currently do business in Syria, but continues to evaluate its position based on “developments of various sanction regimes”, Mr Elhedery said.
It is “too difficult to speculate at this stage”, he said when asked if the Syria will be a future HSBC market.
Beyond 2030
HSBC is bullish about the region's growth prospects, even beyond the turn of decade when major oil exporters in the GCC economic bloc will conclude their economic transformation programmes that involved the launch of projects worth hundreds of billions of dollars.
Saudi Arabia’s Vision 2030 programme, launched almost a decade ago, is still “amazing” and remains “energetic and vigorous”, he said.
“We have the front-row seat. Actually, I want to argue that we probably have the whole front row as the largest international bank operating in this market.”
The bank, he said, is “very optimistic all the way to 2030” and about the growth momentum in the next five years in Opec’s largest oil exporter.
“Beyond 2030, we will obviously help all the economic participants to define and design what could be the next chapter of growth,” Mr Elhedery said.
HSBC’s footprint in Saudi Arabia and the broader Middle East is unique and underpins its conviction in the potential for growth.
“No international bank has anywhere near the type of presence we have,” he said. “If you look at the number of people we have on the ground – just the investment banking, which is where the international banks are competing – we have twice the number than the next two, three and four combined,” he said.
“You look at the league tables, we've been number one in [mergers and acquisitions], equity capital markets and debt markets for as long as my memory goes, certainly in the last four to five years.”
Wealth proposition
HSBC’s rapidly growing wealth management business is what, Mr Elhedery said, will supercharge the bank's growth in the region.
In September, HSBC launched a dedicated wealth centre for affluent clients in Dubai. It was an effort to grab a larger share of the fast-growing wealth and asset management business amid a record influx of millionaires to the Emirates from around the world.
“Our ambition is to be the leading wealth services provider in Asia and the Middle East, and we're not far from being the leading wealth services provider,” Mr Elhedery said. The bank’s investments in people and technology, as well as in wealth centres and new products “all indicate our strong ambition to become the wealth manager of choice”, he said.
“Obviously, the UAE is the heart of this wealth business growth. The investment we are putting in is the biggest we have done in the past two decades … [and] it is not incremental, it is revolutionary.”
The move to launch a dedicated wealth centre in Dubai came weeks after the bank was reportedly forced to let go of 1,000 clients in the broader Middle East region amid a Swiss regulatory investigation.
“I cannot comment on specific situations that we are dealing with, wherever that may be with our regulators in the world, but it does not change the overall picture,” Mr Elhedery said when asked if the inquiry will affect growth of its wealth proposition to affluent clients in the region.
For customers in the Middle East, "Switzerland would be part of a number of booking centres they can use, including hubs such as Singapore and Hong Kong”, he added.
Policy uncertainty
Asked whether the policy and market volatility under US President Donald Trump’s regime is a threat or an opportunity for international lenders such as HSBC, Mr Elhedery said: “It's a fact of life.”
“We have to deal with it, but more importantly, we have to help our customers deal with it.”
The policy shifts in Washington, especially on trade, are a threat for market participants who do not try to “understand, adapt and adjust”, he said, but they are an opportunity for agile financial institutions.
“It's an opportunity now for us, as it is our business model to support those who are going to be affected,” he said.
“New reconfiguration is taking place, and customers are repositioning, to create supply chains or manufacturing capabilities in different jurisdictions to adjust.”
