Citigroup and Goldman Sachs have expressed solidarity with the struggle of African Americans against police oppression. HSBC and Standard Chartered support Chinese legislation aimed at crushing civil rights protests in Hong Kong. The contrast reflects poorly on the two UK-listed banks. Buckling to Chinese pressure may help them less commercially than they hope.
To be fair, the banks are following the lead of trading houses Jardine Matheson and Swire. The difference is that the banks have headquarters and listings in the UK, whose government opposes the new law and where public opinion favours Hong Kong’s protesters.
That leaves HSBC and StanChart in a bind. Making a stand popular in the UK would hurt them in Hong Kong and China, which produce a bigger chunk of revenues.
More than half HSBC’s profits before tax and over a third of all its customer accounts are in Hong Kong. The lender’s central strategy for years has been to expand in China. Hong Kong is Standard Chartered’s biggest market. More than 60 per cent of its underlying pre-tax profits in Greater China and North Asia come from Hong Kong. Retail banking in the city has been a key growth driver.
Swire and Jardine have weaker ties with the UK — a country with its own grubby history as a colonial power — leaving them less exposed to criticism there. Jardine makes over 40 per cent of total revenues from south-east Asia where it gets most of its profit growth. Swire is still heavily reliant on Hong Kong, but has diversified its businesses to span office properties, marine services and soft drinks.
Fast diversification of product or geographic footprint is a lot harder for banks than trading houses. This leaves HSBC and StanChart wedded to Hong Kong as the gulf between China and the west gapes wider. They have little defence against deposit outflows. Competition will remain fierce and inflected with political patronage in mainland China.
Shares in HSBC and Standard Chartered are down over a third or more this year as they face rock-bottom interest rates and deteriorating credit outlooks. They are a bad bet.
The Lex team is interested in hearing more from readers. Please tell us what you think of the stance of HSBC and StanChart in the comments section below
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