Although it may have a shot at retail banking on an industrial scale in Mexico, it cannot claim that in many of the other 30-odd countries in which it still operates retail banks: Australia, France, Canada, the US, India, Malaysia, Singapore, the UAE and the rest.
“They may make a modest contribution to profit in their own right, but their key contribution comes in asset and liability management by gathering deposit funding. This is a bank that always thinks: ‘Deposits first, then loans,’” says Gulliver. “We need the retail banking business in India or Malaysia or the US because it brings in the funding the commercial bank needs to support local currency loans without ever relying on the wholesale markets, which we have seen, can close at any time, at short notice and for unpredictable periods.”
Most of these are also, crucially, nations that rely on and promote trade – the traditional starting point of many of HSBC’s financial relationships.
In retail banking, HSBC is now making its big play in the Pearl River Delta, seeking to expand from its base in Hong Kong into a market of 45 million Cantonese speakers with per capita GDP roughly where it was in Hong Kong 25 years ago. It is also expanding in Mexico, where it has market share within sight of the fourth largest bank.
And overseeing a diffuse portfolio has not stopped Gulliver running retail banking according to certain common global standards. HSBC has discontinued over 1,000 products previously sold through the branch network since 2011 and it stopped paying branch staff commissions based on sales everywhere in the world in 2013.
“That had some very interesting impacts in different countries,” says Gulliver. “In Hong Kong, we didn’t miss a beat. We are the aspirational employer, and local managers easily convinced staff that they would be paid fairly on a mixed scorecard. In Brazil, our revenues initially collapsed. Sales commission is part of the culture and we were the only bank that stopped paying it.”
It was not a hard decision to sell out of Brazil in retail. HSBC simply did not have the scale to compete with the top four or five banks in the country. Its network there offered far more value to its eventual buyer, fourth-ranked Bradesco.
Selling when the real was at a low, however, imposed a hit on HSBC’s reported earnings in 2016, as did goodwill write offs on Republic National Bank, the private bank founded by Syrian billionaire Edmond Safra and sold to HSBC in 1999.
Republic had quite a colourful client base and HSBC began work on that as soon as Gulliver took over in 2011 but found it could not just exit people’s trusts and financial arrangements overnight without giving them a chance to find alternative providers. By last year, there were almost no original Safra clients left and the right thing to do was write off acquisition goodwill to reflect that.
Why bother continuing with private banking when it has been such a source of reputational risk, while contributing less than 5% of group revenues?
“If you deal with the companies of wealthy tycoons as HSBC does and you don’t also have a private bank that can help manage their personal wealth when they crystallize it through a sale, say, or an IPO, then rival global banks and investment banks that do offer ultra-high net-worth private banking will take that business and try and reverse down into the corporate business,” says Gulliver. “So, in part, private banking acts as a defensive play to protect those corporate relationships.”
While it has kept private banking and retail banking in some countries where it lacks scale, Gulliver has not hesitated to sell businesses that no longer fit the portfolio through lack of connection to the rest of the network. HSBC sold its US cards business and its upstate New York branches and has looked for buyers of its bank in Turkey.
For a company sweating under a deferred prosecution agreement with the US Department of Justice, one can readily appreciate its reasons for exiting countries such as Iraq, Pakistan and Kazakhstan.
