HSBC’s group chairman, Stephen Green, believes the
importance of a strong retail banking franchise has been
underscored by the recent credit crisis.
Green, during a speech at a British Bankers’ Association
conference in London, said the drying up of liquidity in capital
markets signalled the end of highly leveraged business models – a
strategy he described as “bankrupt”.
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After the speech, he told RBI: “Yes, I do think retail
business and the importance of retail deposits have been
underscored by some of the experiences we have had recently. The
level of core deposits was something I was taught many years ago in
my banking career and we have been taught of the risks of reliance
on securitisations and wholesale funding – and that’s a very
important lesson. I might add small business and the business of
small business is often about deposits.
A profound shift
In a difficult economic
climate – and Green said he does not think the current credit
crisis is over – there would need to be a return to the basics of
banking, like good customer service, streamlined processes and
capital strength.
He said: “We are seeing a profound shift, and this is a secular
rather than a cyclical trend. The huge build up of leverage has
stretched balance sheets over the last five years. Where profit
depended on high and ever increasing leverage, that model is gone –
and that’s because it’s bankrupt.”
He added: “That means success and profitability growth has to
come from the basic tenants of the banking profession. Customer
relations, operating efficiency and being in emerging markets are
going to be key. We have also been reminded of capital strength.
These are a reminder of the fundamentals of banking.”
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By GlobalDataHSBC has suffered as much as anyone in the credit crunch. But
its positioning in emerging markets meant the damage it caused was
limited. In 2007, the group made a $24.21 billion annual profit
even after it wrote down a massive $17.24 billion.
Its retail bank saw profit increase 24.4 percent year-on-year to
$5.9 billion, making up 24.4 percent of the bank’s total profit
before tax. HSBC’s main consumer banking strategy is to take
advantage of its global scale to grow profitability, something
which has proved tricky so far.
Strong growth in Asia-Pacific
But its geographical and business diversity has at least helped
HSBC offset terrible results in its US operations with strong
growth in Asia-Pacific.
Green wants HSBC to generate 60 percent of its income from
emerging markets by 2010. One of the most significant steps it took
towards that aim in 2007 was its incorporation in mainland China,
where it doubled its branch network.
Plans to increase the share of insurance in its income stream
have also been helped by its recent deal with Allianz, the German
insurer (see RBI 593) and
numerous acquisitions across Europe and Asia-Pacific over the last
year.
Green wants HSBC to up insurance income from the current 13
percent of group profit before tax to 20 percent. The bank says it
is now the 13th-largest insurer in the world with 30 million
customers following a series of recent acquisitions in Europe and
Asia.
William Cain
