HSBC sees US$45b opportunity for China JV

[LONDON] HSBC sees US$45bn of industry revenues to target for its new Chinese securities joint venture, which launched in December and is part of the Anglo-Asian bank's push to expand investment in China's southern region.

The bank officially launched HSBC Qianhai Securities in December after winning approval to own 51% of the venture. It is the first Chinese securities joint venture to be majority owned by a foreign bank.

The industry wallet HSBC Qianhai can address from its current offering of brokerage and underwriting and sponsoring is US$27b, according to a presentation to analysts and investors by HSBC last week.

There is a further US$13.6b of potential revenue from trading and another US$4.9b from asset management, according to slides of the presentation, which used data from the Securities Association of China.

HSBC Qianhai needs regulatory approval to expand into trading, asset management and financial advisory.

The JV, in Shenzhen's Qianhai financial district, is led by former Ping An Securities president Irene Ho and has been rapidly scaling up in recent months through a mixture of external hires and internal relocations. HSBC's partner is Qianhai Financial Holdings, the investment arm of the Qianhai administration bureau, which holds the remaining 49 per cent.

HSBC Qianhai has 120 staff and aims to expand to 300. It is ramping up its research capabilities, and expects to increase its research coverage from about 20 onshore firms now to about 400.

The slides were part of a presentation by Gordon French, head of global banking and markets for Asia-Pacific. HSBC's three-day presentation on its Asia operations indicated new management will maintain the "pivot to Asia" theme that has been a core part of recent strategy, including in investment banking.

John Flint took over as chief executive at the end of February, five months after Mark Tucker became chairman.

Asia accounted for 77% of HSBC's adjusted profits last year, up from 61% in 2010. And while the bank's global risk-weighted assets grew by a modest 2% last year, GBM's loans and advances in Asia jumped 22% to US$129bn. The unit's revenues rose 4% from 2016 to US$6.1b and profits increased 5% to US$3.4b.

French said the business is well placed for growth, and cited forecasts that wholesale banking revenues in Asia-Pacific will grow by 4% a year to hit US$179b in 2020, outpacing annual growth of 3% in the Americas (to reach US$215b in 2020) and 2% in Europe, Middle East and Africa (to US$164b).

The Qianhai venture is part of a wider plan whereby HSBC is targeting big expansion in the Pearl River Delta and work related to China's Belt and Road infrastructure initiative.

HSBC said in December it expected PRD-related business, which includes retail and commercial banking as well as the new securities business, to produce US$1b in cumulative pre-tax profit in the next three to five years and add about US$500m annually after that.

Flint told investors at a shareholders meeting in Hong Kong last week he will outline his strategy around the time of half-year results in August, and more focus is going on growth than cost-cutting and restructuring.

"We're now in a different environment to the one we've been navigating since the global financial crisis," said Flint.

"With tailwinds instead of headwinds, we're going to be better able to invest in growing the business, but we will not be loosening our grip on costs. Investing in the business requires revenue growth and gaining efficiencies across the group," he said.

REUTERS