The pandemic has minted a record number of billionaires — nowhere more so than in Asia. For HSBC, that rise validates a bet on regional wealth management.
The Asia-focused bank is aggressively expanding in the region, adding more than 5,000 staff and investing $3.5bn in wealth management operations. Over the medium to long term, it hopes to grow wealth revenues at a compound annual growth rate of more than 10 per cent.
Demand is there. Asia-Pacific accounted for 38 per cent of the world’s billionaires as of July last year, according to a UBS report. Of those, half are in mainland China.
But in a country where relationships matter, foreign banks have a significant disadvantage. Local lenders such as China Merchants Bank and the Bank of China dominate the wealth management market, valued at an estimated $17tn.
Overseas rivals have poured in money to compete. UBS and Credit Suisse, which earn about a tenth of group revenues from wealth management in Asia, have invested heavily to build up their client base. Goldman Sachs has partnered with Industrial & Commercial Bank of China, China’s biggest lender, for a wealth management joint venture.
Still, HSBC has an edge. It benefits from its dominant position in Hong Kong, which wealthy Chinese picked as a preferred location to park funds. Before political unrest, more than half of the $1tn private wealth in Hong Kong is estimated to have come from the mainland.
Existing relationships coupled with lower interest rates have increased demand for HSBC’s investment products. This gives the bank a head start. Its profits from Asian wealth and private banking reached $5.1bn last year, the highest among foreign peers. A financial connection scheme between the mainland and Hong Kong would help too.
Its shares trade at a less than 0.7 price-to-book value, a discount to global peers such as UBS. Heavy investment will mean a short-term hit to profits as HSBC builds up its wealth management market share. But the rapidly growing pool of Asian billionaires should accelerate the pace of returns.