HSBC, the biggest of Hong Kong’s three currency-issuing banks, said on Thursday it will exit its mass-market retail business in the United States and focus on serving wealthy clients and international companies there as part of the 156-year-old lender’s latest revamp under CEO Noel Quinn.
The London-based bank said it would sell its banking operations for the mass market and small businesses on the East Coast to Citizens Bank, part of Citizens Financial Group, and sell its West Coast retail operations to California’s Cathay Bank. Combined, those businesses held US$10.2 billion in deposits and US$3 billion in outstanding loans as of March 31.
HSBC said it would retain a small network of about 20 to 25 brick-and-mortar locations, which will be repurposed into wealth centres to service affluent and high-net-worth international customers. It will wind down the remaining 35 to 40 branches.
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“They are good businesses, but we lacked the scale to compete,” Quinn said in a statement regarding the sale. “Our continued presence in the US is key to our international network and an important contributor to our growth plans.”
Some investors argued last year that the lender should leave the US entirely after the bank found itself embroiled in rising Sino-US tensions, particularly after its top executive in Asia publicly supported a controversial national security law enacted by Beijing for Hong Kong last year.
Quinn has previously argued that the US remains a necessary market for its aspirations as an international bank, but needed to be smaller and more focused.
“We remain a global international bank. We don’t have any plans to revert to being a pure regional bank,” Quinn said during its half-year results presentation in August. “There is a role for an international bank, particularly one that is capable of bridging the East and the West.”
HSBC first entered the US retail banking market when it acquired a controlling stake in Marine Midland Bank in 1980. It took full ownership of the Buffalo, NY-based lender seven years later.
HSBC’s US retail banking business struggled to be profitable in recent years as interest rates fell to historic lows, affecting the ability of banks to make money on traditional lending and other products tied to rates.
HSBC also lacked the necessary scale to compete with its bigger American rivals. It currently has 148 American branches - JPMorgan Chase, by comparison, opened 158 new branches alone in the US last year.
Under Quinn, HSBC has improved the profitability of its American operations. Its US Wealth and Personal Banking segment - formerly its retail and wealth management business - reported its first pre-tax profit in 14 quarters in the first quarter of this year.
But, the drag of low interest rates, combined with its small footprint, made the retail operations a less attractive business to maintain.
The bank said in February that it was exploring “organic and inorganic options” for its US retail bank and was in negotiations regarding a potential sale of its French business as part of a broader shift of capital from underperforming businesses in Europe and the US to Asia, where it makes the bulk of its revenue.
That same month, the bank announced that it would hire 5,000 wealth planners and invest US$6 billion in its latest pivot to Asia, which includes relocating several of its global business leaders. The bank said in May it was on track to hire 1,000 of those roles this year.
HSBC is betting on rising affluence in Asia, particularly in the Greater Bay Area, and sees scaling back its US operations as another step in that greater focus on wealth.
“The US plays a large role in HSBC’s Asia growth strategy, particularly in support of our ambitions to become the leading wealth manager in Asia,” said Greg Hingston, HSBC’s Asia Pacific regional head of wealth and personal banking. “Our refreshed strategy in the US will allow us to better serve the needs of our international wealth clients, who continue to consider the US for international education, property, investment diversification, career and family mobility and business expansion, among others.”
Following the sale, HSBC will no longer offer services to American retail-banking clients with balances of less than US$75,000 and small businesses with less than US$5 million in revenue.
It will continue to serve more affluent and wealthy international customers in the US, as well as companies with large international businesses.
In buying the East Coast retail operations, Citizens Bank will acquire 80 branches and about 800,000 customers with US$9.2 billion in deposits and US$2.2 billion in outstanding loans.
Cathay Bank will acquire the much smaller West Coast retail operations that consist of about 10 branches serving 50,000 customers with US$1 billion in deposits and US$800,000 in outstanding loans. Cathay Bank operates a sole branch in Hong Kong on the thirtieth floor of an office block overlooking Victoria Harbour. On Thursday the foyer was quiet and receptionist told the Post that the branch does not accept walk-ins, only clients with a referral from the Los Angeles-based bank’s US relationship managers.
HSBC employees hit by the restructuring will transfer to Citizens Bank or Cathay Bank, or else transition to new roles within HSBC, according to a person familiar with the British bank’s plans.
The transactions are expected to close by the first-quarter of next year and HSBC said it expects to incur US$100,000 of pre-tax costs in connection with the sales. HSBC said it does not expect to have a “significant gain or loss” on the sales.
Additional reporting by Georgina Lee
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