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Asia remains a lucrative market for global banks looking for growth. HSBC will take over Citigroup’s China consumer wealth portfolio to accelerate its expansion there. The Asia-focused lender has made the right move.
The deal between the two lenders includes total deposits and investment assets under management of about $3.6bn. The timing is good: Citi is winding down its consumer banking business in China and HSBC wants to grow its own operation.
The deal is a small one. It contrasts with the wealth management business of China’s largest lender ICBC with about $400bn in assets under management. Local peer Bank of China has more than $330bn.
Asia’s two largest financial hubs, Hong Kong and Singapore, are saturated markets for wealth management. Hong Kong is already HSBC’s largest revenue contributor. It has a strong presence in Singapore. DBS is a formidable rival in the city-state. It has about two-thirds of the local market for savings deposits.
That leaves China as the next big target. The potential there is massive. China’s gross savings rate as a percentage of gross domestic product is more than 46 per cent. That is more than twice the figure for the US. There are more than 2.6mn people in the country with a net worth of more than $1.5mn.
HSBC needs to fend off Asia-focused rival Standard Chartered. StanChart is gaining traction in China after receiving approval from local regulators this year to set up a securities unit in the mainland. The new operation will offer a wide range of services including in underwriting and asset management.
StanChart made an early bet on mainland China that has been paying off. Earnings beat analysts’ expectations in the second quarter despite turmoil in financial markets in the US and Europe.
Shares of both lenders are up about a fifth this year. HSBC trades at 1.1 times tangible book, a premium of 45 per cent to StanChart. Steady expansion in China’s growing wealth management sector will help it maintain its lead.
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