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HSBC: Asian wealth managers command hire power

HSBC Holdings PLC updates

HSBC’s strategy has started to bear fruit. Yet is too early for Noel Quinn, chief executive of the Asia-focused lender, to celebrate. Building a top-class Asia wealth management team at reasonable cost remains a difficult task.

The release of loan loss provisions was the main reason pre-tax profits rose to $5.1bn in the second quarter from $1.1bn the previous year. But Quinn’s main focus, Asian wealth management, supported the rebound.

Client wealth balances grew 18 per cent to $1.7tn, led by Asia. Wealth revenue for the region rose by 26 per cent. Common equity tier 1 ratio is a safe 15.6 per cent.

As a result, HSBC will pay an interim dividend of 7 cents a share and expects to hit a payout range of 40 to 55 per cent of earnings this year. That compares to lower expected payout ratios at global peers such as UBS, below 30 per cent in the next few years, according to S&P Capital data.

The battered Hong Kong-listed shares of HSBC are up 7 per cent this year and trade at 0.7 times tangible book value, a premium of about two-thirds to Standard Chartered.

Quinn has been vindicated in steering away from advisory and corporate lending. Advisory and investment banking revenues fell, the latter by more than a fifth.

Operating expenses rose on higher performance pay, despite 3,500 staff cuts this year. A talent war in Asia has made hiring and retaining business-getters costlier. HSBC is recruiting 3,000 bankers for its mainland Chinese wealth operations. It is not alone. Goldman Sachs Asset Management together with China’s largest bank ICBC has, for example, received approval to set up a wealth management unit.

As travel restrictions ease, HSBC will lose savings on travel and entertainment. A return on average tangible equity of 9.4 per cent is still below a medium-term target of 10 per cent or above. Quinn’s task is to create an unassailable franchise in Asian wealth management without creating a permanent drag on returns to go with it.

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