In a year of ups and downs, one bank showed improvement across asset classes, reinforced its commitment to Asia and sealed landmark deals in China. For using its network to its full potential, and for doing more with less, HSBC is IFR Asia’s Bank of the Year.
HSBC continued to make inroads in Asian investment banking in 2015, adding equity financing and advisory wins to its formidable debt platform. It won deals despite pressure to shrink its balance sheet and ramped up investments in China, gaining first-mover advantage in the onshore debt market and laying the foundations for a fully licensed securities business.
As the group works hard to churn its balance sheet and improve returns, the bank’s strategy review in June made it clear that Asia is the example for the rest of the group to follow.
HSBC has become a perennial feature at the top of the Asian bond underwriting tables, and it built on that presence again in 2015. The bank handled 25% more bond offerings in dollars, euros and yen than any of its competitors, notching up 140 deals during IFR’s 12-month review period in Asia Pacific, including Australia but not Japan. Combined with another 204 issues in the local currency markets, HSBC’s tally put it head and shoulders above any of its rivals in the region.
The real progress, however, came in equity and advisory, showing the efforts taken to improve collaboration between its lending operations and the investment bank are beginning to pay off.
“2015 was in many ways the culmination of years of work,” said Gordon French, head of global banking and markets (GBM) for Asia Pacific. “Our collaboration with the commercial bank paid off in DCM and RMB business, and we added to areas where we have been traditionally weaker, in M&A and ECM.”
HSBC outperformed in Asia against a challenging backdrop, with a volatile China and the threat of higher US rates roiling markets throughout the year. It also did so despite mounting internal pressures, lifting confidence in the group’s renewed effort to boost return on equity. Notably, the bank’s strategy update called for a significant reallocation of capital towards Asia.
Chief executive Stuart Gulliver in June unveiled plans to cut global risk-weighted assets in the GBM division by US$140bn, taking US$40bn from the banking business, which includes capital financing. While that target will tighten lending standards globally, the Asia franchise has been left largely intact. Most of the RWA reduction will be outside of Asia, with up to US$100bn coming from rates and legacy credit positions in the UK and Europe, leaving Asia with a much bigger share of the GBM business by capital allocation.
Much of the cost savings are to be redeployed in Asia, underlining the group’s confidence that the region can drive future growth.
“We’re going to pivot the firm further to Asia, particularly into the Pearl River Delta and the ASEAN region,” Gulliver told investors in June, announcing a target to earn US$1bn a year from the South China region and generate revenues of US$2bn from the international renminbi markets.
The bank’s performance in Asia – where every major business line under GBM reported year-on-year revenue growth in the first half of 2015 – will lift confidence that it can continue to deliver on those promises even as the group tightens its focus on costs and shrinks its risk-weighted assets.
“We have to do our part, but it’s clear that Asia has favoured nation status,” said French. “That puts a premium on the assets coming in.”
HSBC made the most of its long-standing Asian relationships in 2015, underlining the power of its universal banking model by converting numerous lending clients into investment banking mandates.
To the horror of its bulge-bracket rivals, HSBC picked up a coveted sole mandate on the restructuring of Li Ka-shing’s business empire, with a total deal value of US$81bn. The merger of Hutchison Whampoa and Cheung Kong Holdings, alongside a joint advisory role on the spinoff of Cheung Kong Property, sent HSBC racing up the league tables as Asia’s second-biggest M&A arranger, up from 12th in 2014.
It followed that up with lead advisory roles on Hutchison’s bid for Telefonica’s UK unit O2 and Cheung Kong Infrastructure’s planned buyout of Power Assets Holdings, cementing its position as the group’s bank of choice for major strategic transactions.
Rivals grumbled that the bank’s lending relationships with Li Ka-shing’s group made it an obvious choice for any mandate.
“HSBC lends more to that group than we do to the entire country of Italy,” quipped one regional head of investment banking.
HSBC banks Hutchison in 32 countries, manages its cash in 17 and has a relationship with the group spanning almost 60 years. But that fails to explain why it missed out on previous advisory mandates. The elder Li’s decision to appoint HSBC on a sole basis also points to growing confidence that the bank can deliver a complex and sensitive transaction.
“Five years ago that call would have gone to Goldman Sachs,” said one insider.
HSBC has worked hard to win more revenue from the companies it lends to – a key part of its strategy to improve its return on risk-weighted assets. The Cheung Kong deal also showed how it is recycling its balance sheet faster: HSBC replaced a giant bridge loan with a syndicated term facility within a matter of months.
Globally, HSBC distributed 49% of its loans at origination in the first part of 2015, it said in June, up from 25% in 2013 and 32% in 2014.
While Cheung Kong is the ultimate vindication of the bank’s universal strategy, HSBC’s Asian franchise can point to many similar instances where it has helped clients access new markets or expand overseas.
It brought Dalian Wanda Commercial Properties to the equity markets as sponsor of its US$4bn Hong Kong IPO, the world’s biggest real estate listing, and was joint global coordinator on the US$1.1bn listing of Fuyao Glass Industry Group, originally a commercial banking client.
HSBC also used its commercial banking relationships to win new business from Xinyi Solar, as sole bookrunner on a US$148m top-up equity placement for the Hong Kong-listed company. Biostime International also picked HSBC as sole financial adviser on its bid for Australian vitamin maker Swisse Wellness.
A similar collaboration initiative led to numerous mandates from local government-linked companies in China, who were looking to broaden their sources of funding.
Beijing Capital Group, Tianjin Binhai New Area Construction, Beijing Infrastructure Investment – among others – all rewarded HSBC with global coordinator mandates on overseas bond issues during IFR’s review period.
Gulliver’s strategy review left investors in no doubt that China is central to HSBC’s growth strategy, and the bank’s achievements in 2015 stand it in good stead to build on that promise.
HSBC has been consistently the leader in the international renminbi capital markets, and it added to those credentials in 2015 as the top underwriter of Dim Sum bonds for another year.
In a year when China began opening its domestic markets to more foreign participation, HSBC’s first onshore renminbi bond
set a landmark for global issuers. The Rmb1bn 3.5% three-year Panda bond, the first from a foreign-owned commercial bank, was the fruit of over a year’s preparation, and laid the ground for a market that is expected to grow quickly following the renminbi’s inclusion in the International Monetary Fund’s basket of reserve currencies.
2015 also marked the success of another long-held ambition, as HSBC sealed a deal to open the first foreign-owned joint venture securities firm in China. HSBC will own up to 51% of a partnership with Shenzhen Qianhai Financial Holdings, giving it a unique foothold in China’s domestic capital markets.
It also benefited from increased trading volumes under the Hong Kong-Shanghai Stock Connect equity trading link, added overseas renminbi specialists and brought first-time investors to the renminbi markets.
HSBC’s focus on returns means its bankers will remain under pressure to boost their return on assets, but the bank’s progress in Asia in 2015 makes it clear that its future in the region is sound.
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