HSBC in charm offensive to woo China skeptics

Wed Apr 20, 2016 1:59am EDT
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By Lisa Jucca and Sinead Cruise

HONG KONG/LONDON (Reuters) - Battling against skeptical Western investors, HSBC (HSBA.L: Quote) (0005.HK: Quote), is on a mission to explain why its push into a slowing China is good for the global bank’s future growth.

HSBC which reported flat annual pre-tax profit in 2015, is betting that the Pearl River Delta region in southern China is succeeding in rapidly upgrading its economy from low-value manufacturing to high-growth industries, creating big opportunities to provide banking services.

But overall negative sentiment towards China has meant its shares, have dropped 26 percent over the past year.

In the run up to its annual shareholder meeting in London on Friday, HSBC took analysts and investors on a three-day tour of the Pearl River Delta, an area with 60 million people just across the border from Hong Kong. It's UK-based board went on a similar tour of the region last year, according to people familiar with the situation.

HSBC, which is the largest bank in Hong Kong and currently has 65 bank outlets in Guangdong province, which includes the Pearl River Delta, is hoping to produce $1 billion a year in pre-tax-profit from the area. But some investors are doubtful given the economic slowdown in China and a spike in Chinese bad bank debt.

HSBC's growth plan envisages adding 4,000 employees to the Pearl River Delta area over the next three-to-five years, and it also plans to redeploy capital from other regions into Asia, though it is unclear how much of that will target southern China. It currently has around 1,500 bank employees and 13,000 IT and support staff in the Pearl River Delta.

Citi analyst Andrew Coombs, who was on the trip, says HSBC is looking to grow its branch network in the region to 100 outlets, but HSBC will not comment on that.

"The bank’s Pearl River Delta strategy is perfectly sensible," said Ian Gordon, who heads bank research at Investec bank and was on the trip. "However it will likely be three-plus years before we see any meaningful incremental contribution. It does nothing to soften the impact of near-term headwinds."   Continued...

HSBC headquarters building is seen in Pudong financial district in Shanghai December 8, 2010.   REUTERS/Carlos Barria/File Photo