26 October 2016
HSBC has been restructuring its business in recent years while slowing expansion in the US and Latin America. Photo: Internet
HSBC has been restructuring its business in recent years while slowing expansion in the US and Latin America. Photo: Internet

Here’s why global banks are shifting their focus to core regions

HSBC Holdings Plc. (00005.HK) has announced 10.4 percent growth in interim net profit, within the top end of market expectations.

The British lender has been restructuring its business in recent years while slowing expansion in the US and Latin America.

Its switch to Asia rewarded it with a 69 percent contribution by the region to its earnings.

Hong Kong is its biggest profit center. The whole Europe contributed just 16 percent of profit.

Which is why the bank decided to sell its Brazil unit and redeploy half of its resources to Asia and other high-growth regions.

That shows its global expansion is merely a fantasy. Asia, in particular Hong Kong, is the best place to be after all.

Take Jardine Matheson Holdings and Hong Kong Land Holdings.

After they moved to Bermuda and listed in Singapore, they have seen little trading volume compared with their peak in Hong Kong.

By contrast, Swire Properties, which used to lag behind Jardine Matheson before 1997, has surpassed the latter in both reputation and business in Hong Kong and mainland China.

This reflects the significance of Hong Kong for these British companies.

HSBC put down roots in Shanghai and Hong Kong before expanding its footprint worldwide.

Asia pullback

Another British bank, Barclays, welcomed a new chairman, John McFarlane, in May.

McFarlane’s vision for the bank triggered the departure of chief executive Antony Jenkins.

McFarlane believes the bank should no longer act as a global bank after the financial crisis. Instead, it should focus on Britain, the US and Africa.

And the bank should also reduce its presence in Asia and the Middle East to cut costs.

McFarlane wants Barclays’ investment banking business withdrawn from countries where it has no clear edge.

The bank’s return on equity is about 5.9 percent, far below its 10.5 percent cost of equity.

McFarlane is ramping up profit growth, cutting or selling non-core assets as well as winding down risk weighted assets from 57 billion pounds to 20 billion pounds by 2017.

Similarly, HSBC has disposed of its Brazil business and slashed its RWA to focus on high-growth core activities to create more value for shareholders.

Return on financial assets has now exceeded growth in the real economy after the financial crisis.

Financial assets such as stocks, bonds, foreign exchange and property have been inflated as a result of central bank intervention.

But real economic growth continues to disappoint.


GIC, Singapore’s sovereign wealth fund, has set an annual investment return target of 4.9 percent for its massive US$300 billion portfolio.

The world’s largest sovereign wealth fund has realized 6.1 percent annual return.

The fund has 50 percent of its assets in stocks, 30 percent in bonds and cash and the remaining 20 percent in property, start-ups, inflation-linked bonds etc.

It boosted its Asian investments to 30 percent of its portfolio from 27 percent while slashing its Europe investments to 25 percent from 29 percent.

Beijing’s market rescue measures have had little impact on GIC’s investment decisions.

North Asia accounts for 15 percent of its portfolio while Japan represents 10 percent.

GIC believes the Chinese government is determined to press on with reform which will not be thwarted by any short-term disruptions.

This article appeared in the Hong Kong Economic Journal on August 6.

Translation by Julie Zhu

[Chinese version中文版]

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Founder and Managing Director of Pegasus Fund Managers Ltd.

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