HSBC Runs into Buzzsaw in Hong Kong & China, its Home Market Generating 75% of its Profits

HSBC’s pleas of innocence have won little sympathy in Beijing

Global banking behemoth HSBC has found itself on the back foot in recent months in its most important market, Hong Kong and China. The unexpected departure of three senior executives within a week, including its CEO and the head of key China business, sparked a broad sell-off of its shares, which are down 13% in just three weeks.

The world’s eighth biggest bank by assets, HSBC is also reeling from the after effects of increasingly violent political unrest on its home turf. Protracted demonstrations in Hong Kong, triggered by opposition to an amendment to the region’s extradition law, have become increasingly disruptive. The proposed bill has been suspended indefinitely, though not withdrawn. And the Asian financial center is facing its most serious crisis in decades.

At the same time, the weakening yuan is causing all sorts of problems for Hong Kong-based lenders. Citigroup analysts have even warned that it could result in a “drastic” decline in loans to mainland China clients as well as undermine asset quality. “We see bigger earnings risk to Hong Kong banks,” the bank’s analysts wrote, downgrading the rating on BOC Hong Kong to neutral.

Unlike BOC Hong Kong, HSBC’s headquarters are based in London. But it’s in Hong Kong where the bank first cut its teeth (laundering the proceeds from the British East Indian company’s opium trade) and where the lion’s share of its business is still done. In fact, as Bloomberg notes, “few if any of the world’s largest financial companies dominate a single market quite like HSBC does in Hong Kong, a city of 7.5 million people that accounted for roughly 60 percent of the bank’s pretax income in 2018.”

Continue reading the article on Wolf Street

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