Eldon banks on the long term

HSBC chairman David Eldon is confident that the bank's acquisitions in the mainland will prove their worth over time Over the past 14 years, the DHL/SCMP Hong Kong Business Awards have recognised excellence under the categories: Business Person of the Year, Executive Award, Owner-Operator Award, Young Entrepreneur Award, International Award and Enterprise Award. In our final profile of last year's winners ahead of the 2004 presentations on December 2, Stephen Seawright speaks with 2003 Business Person of the Year and HSBC chairman David Eldon about a very busy year. As HSBC chairman David Eldon sees it, buying into China's fifth-largest bank in August has put his bank well ahead of other foreign financial institutions in China. HSBC acquired a 19.9 per cent stake in Bank of Communications for 14.46 billion yuan - the largest ever foreign equity investment in a Chinese bank. Through the investment, HSBC plans to tap into Bank of Communications' 2,700 branches in 137 cities. HSBC itself has only 10 branches on the mainland. '[Acquiring a stake in] the fifth-largest bank in China ... certainly put us a long jump ahead of anybody else,' Mr Eldon says. '[China's] sixth-largest bank is about half the size of [Bank of Communications].' HSBC does not plan to acquire further stakes in mainland banks in the near term. In addition to its interest in Bank of Communications, HSBC also has an 8 per cent stake in Bank of Shanghai. 'At the moment, I think we're looking to consolidate what we've got,' Mr Eldon says. 'We'd only be spreading ourselves too thin if we then had to do the same thing for yet another bank.' However, HSBC may buy into other financial service areas such as asset management and life insurance. The bank already has a 10 per cent stake in Ping An Insurance (Group) and has formed a mainland fund-management company with Shanxi Trust and Investment. 'If there was something that made sense to us - let's say in the asset-management area - maybe we would do [it],' Mr Eldon says. 'But I think there should be a limit on the amount of stakes you take in various institutions.' HSBC expects to be more active with Bank of Communications than Bank of Shanghai because of its larger shareholding and the targets' national reach. 'Bank of Shanghai is principally a Shanghai-based bank - we went into that so that we could get a real feel for the market,' Mr Eldon says. '[With] Bank of Communications we're looking to be able to distribute products right the way through the marketplace.' HSBC, which already offers co-branded credit cards with Bank of Shanghai and plans to do the same with Bank of Communications, is placing some of its own staff with Bank of Communications but not into top management posts. 'Can you put people into manage the business when you've only got 20 per cent of it?' Mr Eldon asks. 'It's a bit of a fine line there. We may put somebody into a senior position - but not the most senior position.' Despite HSBC's leap into the mainland, Mr Eldon warns that China will not generate huge profits for foreign banks anytime soon. 'It's not a market that is going to pay you great dividends in the short term. People have got to be a little patient. They have got to understand the market ... some people who go into China do deals that they wouldn't do anywhere else in the world. They walk through immigration and they leave their common sense behind.' Closer to home, HSBC recently had to overhaul its internet banking system in Hong Kong after fraudsters used stolen identities and passwords to transfer money out of people's accounts. The bank stopped all online transfers until customers re-registered for the service at their local branch. 'There is nothing wrong with our systems,' Mr Eldon says. 'The problem has actually been in people actually responding to fraudulent requests for information. So the systems themselves are fine. 'Some people would have said [our response] was overkill. It inconvenienced a lot of people - me included - but at the end of the day, it was the right thing to do.' In the first half of the year, Mr Eldon also created a bit of stir by warning there was a risk of a property bubble forming, noting he was 'horrified' by the rapid run-up in luxury home prices. 'I had become aware that a couple of property sales that had taken place had been sold almost entirely to speculators and I have that on perfect authority,' Mr Eldon says. 'The fact they had sold for as much as they had and the fact that they were all going to speculators worried me a lot. It might not have helped the bank a great deal, but I thought there was something of a social responsibility at least to say what I felt, which is what I did.' Mr Eldon is less worried about property prices today as he believes there are fewer speculators in the market. 'If people are buying properties because they are going to use them, then they will be paying whatever the market price is. It is only when we start to get the speculators in the market that it makes me a bit nervous.' Mr Eldon is fairly optimistic about Hong Kong's economic outlook but concerned that air pollution could deter businesses. 'The only thing I am not comfortable with - and nobody in this town is comfortable with - is the pollution. And if that's going to put people off doing business here then that's not going to be good for Hong Kong.'