Putting the 'Shanghai' back in HSBC

PUBLISHED : Tuesday, 11 August, 2009, 12:00am
UPDATED : Tuesday, 11 August, 2009, 12:00am

In the run-up to 1997, foreign investors and local residents were both nervous. Half a million people left the colony before the handover, many of whom have since returned armed with foreign passports.

On a corporate level, old institutions such as Jardine Matheson and the Hongkong and Shanghai Banking Corporation also moved headquarters, the former to Bermuda and the latter to Britain, where it emerged with a new identity, HSBC.

But, 16 years after it set up shop in London, the institution previously known simply as 'Hongkong Bank' is as involved in this part of the world as ever. It is still by far the biggest issuer of Hong Kong banknotes, and its shares are traded on the local stock exchange, unlike Jardines, which gave up its listing here for Singapore.

A few months ago, when HSBC made a rights issue, the take-up by shareholders in Hong Kong was 98.2 per cent, higher than anywhere else in the world. This was solid proof that in the hearts of many Hongkongers, HSBC remains Hongkong Bank.

With a network of some 220 branches throughout Hong Kong, HSBC accounts for 75 per cent of retail bank accounts here. Not surprisingly, affection for the bank, which was first established in both Hong Kong and Shanghai in 1865, runs deep and, evidently, is reciprocated.

In 2003, following the Sars outbreak, HSBC launched a scheme, of which HK$4 billion was committed to Hong Kong companies, to keep money flowing to small and medium-sized enterprises at a time when credit was drying up.

Although HSBC has worked to establish itself outside Asia, the results have been decidedly mixed. For example, it has had to write off billions of dollars in bad debts as a result of its involvement in the US sub-prime mortgage market.

Meanwhile, its earnings in emerging markets in Asia are strong, with Hong Kong and the region accounting for more than half the bank's profits. And it has big plans for expansion in the mainland.

The bank is now working for an initial public offering in Shanghai next year when, hopefully, China will lift the ban on foreign companies listing on its exchanges. Already, HSBC has chosen China International Capital Corp and Citic Securities Co to advise it on an IPO in Shanghai.

And China is making it clear that it will put out the welcome mat for HSBC. When that happens, the 'Shanghai' in the Hongkong and Shanghai Banking Corporation will be back, with the bank being listed in both cities. After an interruption of more than six decades, it will have returned to its roots in both cities.

Late last year, amid reports that HSBC was thinking of relocating its headquarters from London because of tax considerations, there were reports that Beijing would welcome the move. However, Vincent Cheng Hoi-chuen, executive director and Asia-Pacific chairman, denied that the bank had any plan to relocate its headquarters, pointing out that, nowadays, 'we can all communicate with a Blackberry or a telephone' regardless of where the headquarters may be.

That is true as far as it goes. And it may well be true also that in the realistic world in which bankers reside, there is little room for sentiment. However, there is more than sentiment involved.

If HSBC were to relocate its headquarters to Hong Kong, it would certainly be interpreted as a sign of confidence, just as its departure in 1993 loudly signalled a lack of such confidence.

Beijing's stance is already clear. 'The central government would welcome HSBC moving its headquarters to Hong Kong and is willing to do anything that would help realise this,' Fan Laifa, the head of the People's Bank of China's Hong Kong, Macau and Taiwan division, said last December.

It's hard to see how China, Hong Kong or HSBC can lose in such a move.

Frank Ching is a Hong Kong-based writer and commentator.


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