In the ever-evolving global financial landscape, HSBC Holdings PLC (GB:HSBA) stands tall as the largest bank in Europe (in terms of assets), generating most of its profits in Asia. Originating from Hong Kong and Shanghai and currently based in the UK, this British banking giant ranks among the world’s largest banks. HSBC serves around 42 million customers across the world and has a network covering 62 countries.
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A Brief History
HSBC’s journey began in 1865 when it was established as the Hong Kong and Shanghai Banking Corporation Limited to finance trade between Asia and Europe. Over the years, the bank has expanded its operations globally while maintaining its roots in Asia.
In 1991, HSBC Holdings PLC was formed as a holding company, unifying its various subsidiaries under a single entity. Since then, HSBC has grown into a global banking powerhouse, known for its extensive network and diverse range of financial services.
HSBC’s Global Reach and 2023 Performance
HSBC’s extensive global network sets it apart in the financial industry. With operations spanning across Europe, Asia, the Americas, the Middle East, and Africa, HSBC serves a diverse clientele, including individuals, corporations, governments, and institutional clients.
The bank serves its customers through three global businesses; Commercial Banking, Wealth and Personal Banking, and Global Banking and Markets. Its Personal and Wealth services cater to millions of customers, while its Commercial banking division supports businesses of all sizes with financing, trade, and cash management solutions. Additionally, HSBC’s Global Markets arm provides clients with access to capital markets, advisory services, and risk management solutions.
As per its 2023 annual report, Global Banking and Markets contributed 24% to the total revenues, while the Wealth and Personal Banking and Commercial Banking businesses accounted for 41% and 35% of the topline, respectively. The bank’s non-interest income rose by $10 billion in 2023, primarily due to a $6.4 billion increase in trading and fair value income, mainly in Global Banking and Markets.
Overall, HSBC’s Chairman, Mark Tucker, praised the bank’s impressive performance in 2023, noting it was the strongest in the past decade. The bank’s total revenue increased by 30% year-over-year to $66.1 billion, and its pre-tax profits surged by 78% to $30.3 billion in 2023.
Challenges and Opportunities
Despite its strong global presence, HSBC faces a myriad of challenges in today’s financial landscape. Regulatory scrutiny, geopolitical tensions, technological disruption, and evolving customer expectations pose significant hurdles for the bank. Moreover, the COVID-19 pandemic introduced more volatility and uncertainty, impacting economic growth and financial markets worldwide.
However, amid these challenges lie opportunities for HSBC to adapt and thrive. The rise of digital banking, the emergence of new markets, and the increasing focus on sustainability present avenues for growth and differentiation.
HSBC Gears Up for Hurdles in 2024
Like its counterparts, HSBC reaped the benefits of higher interest rates over the last two years. In 2023, the bank reported a $5.4 billion growth in its net interest income (NII) across all global businesses, driven by the elevated interest rate environment.
As we progress into 2024, the interest rate cycle nears its peak, signaling a slowdown in rate-driven earnings growth. Consequently, the bank is preparing for the challenges that lie ahead.
Regionally, the difficulties in its primary markets of China and Hong Kong also signal significant hurdles. The ongoing troubles in China’s property market will likely continue to drag on global economic growth. Moreover, the recessionary fears in Europe and the ongoing geopolitical tensions promise more episodes of market volatility in the future.
HSBC’s Strategy: Prioritizing Asia for Future Growth
With most of its profits coming from Asia, the bank remains dedicated to prioritizing its core operations in this region while scaling back its global activities.
In 2022, Ping An Insurance Company of China (HK:2318), the top shareholder in HSBC, recommended that the bank separate its operations into Asia and the rest of the world, stating that this would enhance shareholder value. However, in May 2023, HSBC rejected a proposal from Hong Kong-based shareholders, backed by Ping An, that sought to potentially spin off its lucrative Asian business.
Most recently, Ping An sold HSBC shares worth HK$391.5 million, cutting its stake from 8.01% to 7.98%. According to Bloomberg reports, Pink An intends to further trim down its stake in the bank.
Meanwhile, pressured by Ping An, HSBC has accelerated its divestment efforts. The bank is now contemplating its exit from about 12 countries to concentrate on better growth opportunities in Asia. Most recently, in March 2024, HSBC completed the sale of its Canadian unit to the Royal Bank of Canada (NYSE:RY).
Ending Thoughts
In an era of unprecedented change and uncertainty, HSBC continues to play a pivotal role in shaping the future of banking and finance on a global scale.
With its rich history, extensive global network, and commitment to innovation, HSBC is well-positioned to navigate the challenges and opportunities that lie ahead.
