Delay in approval blunts edge of HSBC’s Chinese expansion
HSBC’s ambitions to establish an investment banking franchise in China have hit a roadblock, with the bank still awaiting approval for its partnership with a stateowned fund more than a year after it announced the venture.
The partnership is a key part of the bank’s ambition to increase profit in fast-growing southern China from $100m to $1bn in the medium term, and HSBC has had to delay other expansion plans it said would help achieve that goal.
HSBC announced the proposed venture with Shenzhen Qianhai Financial Holdings in November 2015, with HSBC set to own a majority 51% stake. At present, foreign peers are capped at a maximum of 49% in Chinese partnerships.
The bank was expected to get the go-ahead for the venture eventually, sources familiar with the matter said, but the delay had reduced the advantage HSBC could have had over rivals as China relaxed rules on foreign players in its markets.
A spokesman for HSBC in Hong Kong said the bank continued to seek the required approval and declined to comment on the timing.
The proposed firm would be able to trade as well as underwrite stocks and bonds for Chinese firms. Foreign rivals operate under more restrictions
“HSBC a year ago was saying ‘here we go’. It was all guns blazing, but we are still waiting,” said a Hong Kong-based consultant who works with the bank.
HSBC did not publicly set out a timeline for when it expected to receive the go-ahead, but the process is taking longer than analysts expected.
Chirantan Barua of Bernstein Research wrote in April 2016 that he expected approval by the July-September quarter.
The HSBC joint venture has had the longest wait of any pending Sino-foreign securities joint venture, and two such ventures have received approval since HSBC submitted its application, according to data compiled by Hong Kong consultancy firm Quinlan & Associates.
Qianhai is a free trade zone in Shenzhen, a fast-growing city neighbouring Hong Kong that China has earmarked for development as a financial hub.
RIVALS RAISE STAKES
HSBC has a potential edge over foreign bank rivals in China thanks to its ownership of a Hong Kong-based subsidiary, The Hongkong and Shanghai Banking Corporation, allowing it to own and control its planned new Chinese joint venture.
But banks including Morgan Stanley and Credit Suisse were set to raise their stakes in their securities joint ventures to the current 49% limit in expectation of being able to have majority control soon, sources said.
On December 30, China unveiled plans to allow more foreign investment in banking, insurance, securities and credit ratings firms, paving the way for HSBC’s rivals to enjoy controlling stakes despite the lack of a Hong Kong base.
CHINA STRATEGY DELAYED
The slow progress of HSBC’s investment banking ambitions comes alongside other setbacks for Europe’s biggest bank. Decelerating economic growth in China has delayed HSBC’s plans to hire 4,000 new staff and to do more business in the country’s southern region.
HSBC in June 2015 said it would invest in the southern Pearl River Delta region, banking on China’s rapid growth.
But HSBC has since revised its ambitions for the scale and speed of that investment as China’s growth has slowed.
CEO Stuart Gulliver said in February 2016 that the bank’s plans to hire 4,000 staff in the region would happen over five years instead of three.
In August he cited “changing views on where the renminbi would be” and said that “China’s GDP has slowed, so all we are saying is the redeployment will take longer”.