Sun Hung Kai Financial battles for rich clients

Venerable firm's chief sees wealth management as a major future revenue stream, but William Leung Wing-cheung faces ferocious competition

PUBLISHED : Monday, 30 September, 2013, 12:00am
UPDATED : Monday, 30 September, 2013, 4:00am

A commission price war raging among brokerages prompted Sun Hung Kai Financial's move into wealth management, but the diversification strategy is opening up new battles for one of the oldest names in finance in Hong Kong. With many international and local banks keen to expand in the fast-growing sector, SHK Financial is trying to push deeper into a crowded market.

Still, CEO William Leung Wing-cheung, a former top banker in Hong Kong, told the South China Morning Post that he expects the firm's wealth management business to become the biggest revenue driver in five years, from less than half now.

Leung sees a key point of difference between the nature of the competition in wealth management and stockbroking.

"A price war on the commission of wealth management products was unlikely because investors always need someone to talk to when making an investment with a large sum of money," says Leung, a former senior executive at Hang Seng Bank.

"Stock trading commissions have become lower because much of the human costs have been replaced by computers."

In July, another well-known major local brokerage, King Fook Securities - owned by listed King Fook Holdings - said it would close its business after sluggish transaction volumes and surging costs forced the parent company's hand. The 42-year-old local securities firm had been losing money since 2009.

Hong Kong had 507 brokerage firms at the end of June, down from 511 at the end of last year. The top 65 accounted for more than 90 per cent of market turnover at the end of April, stock exchange figures show.

Figures like that would appear to vindicate a diversification strategy, but Leung is well aware that execution of his goals in wealth management brings no shortage of challenges. Local and global banks, in particular Credit Suisse and UBS, have been engaged in a bruising competition for clients and the executive talent needed to secure and retain prized super-rich clients. Their ranks include a fast-growing number of mainland clients who fly to Hong Kong to open their offshore wealth accounts.

Leung, however, says he is not scared of the competition. Many banks do not take their clients too seriously, he says, partly because the big players may have too many clients to take care of.

"Some high-net-worth individuals were actually at the lower bottom of the wealthy customer base of private banks, and they are getting less service from banks because of cost-cutting exercises in the industry," he says. "But we welcome them with open arms."

Under SHK Financial's expansion plans for the mainland, the firm signed a strategic co-operation agreement with China Everbright Bank in June. Everbright will refer its clients to SHK for investment in Hong Kong and overseas.

Leung also says he is keeping an open mind on acquisitions that would boost synergies, but ruled out any move on securities firms, due to low margins.

Brokerages and banks in the city compete for dwindling fee income from stock trading. Online trading commission can be as low as 0.06 per cent of the transaction volume at some brokerages. Some banks, such as Citibank and Standard Chartered, are eyeing frequent stock traders for cross-selling opportunities, like insurance products.

Hong Kong Securities Professionals Association chairman Jeanne Lee Sai-yin says the price war on commission and declining market turnover have prompted a number of brokerages to diversify their operations.

Leung is well-placed to pursue his diversification strategy at SHK Financial, having served as head of personal banking at Hang Seng Bank, overseeing the wealth management division. He made this business his top priority on taking the reins at SHK early last year. Revenue from the sale of wealth management products contributed 40 per cent of the firm's total revenue, from 20 per cent last year.

Founded in 1969, SHK Financial boasts a client base of 100,000, but mainlanders account for only several hundred - a number Leung is keen to boost.

The firm believes economic developments will help boost its mainland appeal. In particular, it is keen to tap the potential of the Qianhai economic zone in Shenzhen. It has signed a letter of intent to participate in the Qianhai development with an affiliated mainland developer.

Leung says SHK would like to provide financial services in Qianhai, but notes that details for the zone are still unfolding.