HSBC Returns CEO to Hong Kong, China's "Local"

UNCLAS SECTION 01 OF 02 HONG KONG 001875 SIPDIS STATE FOR EAP/CM, TREASURY FOR OASIA E.O. 12958: N/A TAGS: ECON EFIN EINV HK CH SUBJECT: HSBC Returns CEO to Hong Kong, China's "Local" International Bank ¶1. SUMMARY AND COMMENT: Hong Kong Shanghai Banking Corporation's (HSBC) decision to shift its CEO from London to Hong Kong reflects the increasing importance of the Asia market in the bank's strategy. Hong Kong officials praised the move as a vote of confidence in the strength of Hong Kong's financial and regulatory framework and a boost to their efforts to become Asia's international financial center. The timing of the announcement, just several days before the 60th Anniversary of the founding of the PRC, is widely seen as a "gift" to China from HSBC, which is keen to expand its business in China and is eager to be among the first international companies to list on the Shanghai Stock Exchange. While the CEO's return is primarily symbolic, it shows clearly HSBC's commitment to engage the PRC government on expansion plans for China. The announcement not only boosts HSBC's profile in China but bolsters its identity as a "local" international bank. END SUMMARY AND COMMENT ¶2. HSBC Holdings announced September 25 that its Chief Executive Officer Michael Geoghegan, will move from London to Hong Kong on February 1, 2010. HSBC is Europe's largest bank, but was founded in Hong Kong and Shanghai in 1865. Its CEO moved from Hong Kong to London in 1992, when HSBC acquired Midland Bank. At that time, many saw HSBC's move to London as a hedge against the impending return of Hong Kong to PRC control in 1997. In a press release, HSBC denied that it was pulling away from London, noting the move "further positions the group for the shift in the world's center of economic gravity, from West to East." About 30 percent of HSBC shares are listed in Hong Kong where it is the biggest of three currency printing banks. HSBC Move Bolsters Hong Kong's IFC Claims -------------- ¶3. The Hong Kong Special Administrative Region (HKSAR) Government welcomed HSBC's decision. Chief Executive Donald Tsang said, "HSBC's decision is a clear and timely "thumbs up" for Hong Kong as a stable, reliable and vibrant base for the banking industry." Financial Secretary John Tsang also noted that "not only does HSBC's decision represent a clear vote of confidence in Hong Kong as an International Financial Center, it also demonstrates the Bank's long-term commitment to our city." Others noted that HSBC's move indicated it saw Hong Kong as the best platform from which to further expand into China. China's Growth is HSBC's Future -------------- ¶4. Senior HSBC executives in Hong Kong are bullish on the Bank's opportunities for growth in the Chinese market and are trying to position themselves as a transparent, sophisticated international bank with local roots. Their analysts believe Asia's economy will outperform the rest of the world by over three percent for the next several years. HSBC currently has the largest branch network in China of any foreign bank, accounting for about 25 percent of international bank branches. In 2007, it was among the first to be allowed to incorporate locally. It has significant investments in Bank of Communications and, through its subsidiary Hang Seng Bank, in August 2009 established HSBC Life Insurance Company in Shanghai. ¶5. Asia has been the bright spot for HSBC over the past year. 2009 interim results, published on August 3, show HSBC's profit before tax for the first six months was down 51 percent from a year ago to USD 5 billion, with a USD 3.7 billion loss reported from North America. Hong Kong and the rest of Asia were up USD 2.5 billion and USD 2.0 billion respectively. HSBC's European business reported a USD 3.0 billion profit before tax. A Symbolic Gift to China -------------- ¶6. While some international press called the move "symbolic" and noted the dangers of splitting senior management between Hong Kong and London, Hong Kong press was almost uniformly positive about the announcement. The pro-Beijing Wen Wei Po said HSBC's decision was just "facing the facts" that the Asia Pacific region would continue to grow more rapidly than the West. The Hong Kong Commercial Daily called HSBC's announcement on the eve of the 60th anniversary of the founding of the People's Republic of China "a big National Day gift for Hong Kong people and Mainland compatriots." ¶7. While Geoghegan's move to Hong Kong will not take place until February 2010, many observers noted that the timing of the announcement, just four days before Chinese National Day, was clearly designed to affirm HSBC's recommitment to China and the region. Since May, HSBC executives have been publicly discussing HONG KONG 00001875 002 OF 002 the bank's desire to be among the first international companies to list shares on the Shanghai Stock Exchange. MARUT