HSBC ‘has head start’ on foreign investment bank rivals in China, says CEO

Source:Reuters Published: 2017/12/7 22:18:40

HSBC has a three-year head start on its foreign investment banking rivals in China because of the British bank's unique position of having management control of its securities venture in the country, Chief Executive Stuart Gulliver said on Thursday.

Gulliver's comments came after China said on November 10 that it will allow foreigners to control their onshore operations. Currently non-Chinese groups are limited to 49 percent stakes in joint ventures.

HSBC's 51 percent control of HSBC Qianhai Securities is unique because it was able to use its long-established Hong Kong unit to take advantage of a rule favoring banks based in the city.

Many international banks are keen to launch new Chinese ventures with majority control or to boost their stakes in existing partnerships to help integrate those operations with their global networks and to better manage reputational risk, bankers have said.

But it will be some years before things fall into place for foreign majority-owned ventures to kick off, according to Gulliver.

"The regulations will come in two years time. Then you have to pick your partner and you've got to hire people. We think we've got a three-year head start," Gulliver told a media briefing at the launch of its securities joint venture in Shenzhen, South China's Guangdong Province.

The joint venture, with Qianhai Financial Holding Co, an investment unit controlled by the local government, is part of the UK-based bank's "pivot to Asia." This was a strategy launched in 2015 that aimed to capitalize on its strong links in the region and the closeness of China's Pearl River Delta region to HSBC's Hong Kong stronghold.

The venture's license allows HSBC to underwrite bond and equity sales in the Chinese mainland and to act as a broker for shares listed in Shanghai and Shenzhen. It can also publish research on Chinese companies to local clients. Almost 100 staff have been hired, with investment bankers making up the biggest group.

Asia accounted for 70 percent of HSBC's adjusted pre-tax profit in the first nine months of this year. Gulliver said on Thursday he expected the Pearl River Delta business, which includes retail and commercial banking as well as the new securities business, to produce $1 billion in cumulative pre-tax profit in the next three to five years and add about $500 million a year after that.

He welcomed Chinese insurer Ping An as HSBC's second-largest shareholder. Ping An began buying shares in 2016 and on Wednesday passed the 5 per cent threshold.



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