HSBC Private Bank, in the middle of a rebranding exercise, is determined to claim the mantle of a truly global player.

Some private banks put so much focus on discretion that none but the wealth management cognescenti will have heard of them. There is little chance of that happening in the case of HSBC Private Bank, however.

In the space of little more than a decade, HSBC Private Bank has risen rapidly as a private banking house – if not yet to the very highest echelons – and is currently going through a rebranding exercise to become still better known. As the Hong Kong/UK-listed parent bank has strong historical links to Asia and the Middle East, executives hope the firm can exploit the still-expanding ranks of high net worth individuals in these regions. And even in the hard-hit West, the bank, while expecting some slowdown in wealth generation, still sees opportunities for growth.

HSBC Private Bank – which up until five years ago was known as HSBC Republic – likes to stress its global reach, arguing that it has a footprint unmatched by any of its competitors, even the big, if bruised, wealth management house of UBS. HSBC certainly has been hit by the financial turmoil but unlike some of its listed UK peers such as Royal Bank of Scotland and Lloyds, it has not had to call on taxpayer’s money for assistance and thereby risk the restrictions of government oversight. This is a fact of which the bank no doubt likes to remind its clients. In April, the bank completed a record £12.5 billion ($19.8 billion) rights issue after an overwhelming number of investors subscribed to the new shares. Such a market vote of confidence helps to allay a lot of nerves. And HSBC, ranked by Bloomberg in 2008 as the world’s third largest bank by market capitalisation, has plenty of balance sheet strength to back up the private bank’s client requirements.

A review of performance numbers is a good starting point. Earlier in May, HSBC said its private bank logged lower fees in the first three months of this year as the value of assets under management declined and as investors showed less appetite for items such as structured products. In its full-year results for 2008, issued in March, HSBC said its private banking division made a pre-tax profit in 2008 of $1.447 billion, a fall from the record $1.51 billion in 2007. Meanwhile, HSBC’s overall group pre-tax profit, excluding goodwill impairment, was $19.9 billion, a fall of 18 per cent over the year.

The private bank, faced with lower revenues, has cut costs; it is making 100 Hong Kong staff redundant although, even in this roller-coaster Asian market, HSBC is still looking to acquire staff that fit specific requirements. There have been some other changes: HSBC is to reorganise its onshore private banking operations in Canada. Its service for high net worth individuals will revert to being delivered by another division, although the service will be largely unchanged.

Until the late 1990s and the acquisition of Republic National Bank of New York and part of the Edmund Safra Group, HSBC did not have a large private banking business, largely confining such activity to Asia and the Samuel Montagu business that HSBC had bought with Midland Bank in 1992. Before the Republic deal was done, HSBC was generating around only $150 million in pre-tax profits from private banking.

Developments have occurred rapidly, as Chris Meares, chief executive of the private bank, told WealthBriefing at the firm’s gleaming headquarters in London’s Canary Wharf district. Mr Meares took over from Clive Bannister, who became a group managing director responsible for insurance late in 2006. Mr Meares has worked as an international manager for the HSBC group for 28 years, spending most of his career in Hong Kong, the Middle East and the UK and Channel Islands. He has also worked in New York. For the last nine years, he has been working in private banking.

He certainly sees the benefits to the private bank of its sitting within such a large, international banking group. “There was a conscious decision to create a private bank so that client relations [in the rest of HSBC] could be passed on. It [the Republic acquisition] gave us the platform throughout Europe, and America...it was a transformational acquisition in terms of scale,” Mr Meares said.

The expansion of the private bank in recent years has embraced locations such as Brazil, Mexico, Panama, the Middle East, Turkey, Russia, China and India. The firm, of course, has had long associations with centres such as Singapore and Hong Kong. The reach is long and wide: HSBC Private Bank operates in over 90 locations in some 43 countries and territories in Europe, the Americas, the Asia-Pacific region, the Middle East and Africa. Mr Meares pointed out that HSBC Private Bank had genuine grounds for claiming to be a global business.

Mr Meares, while he is confident of success, is not expecting all the offices to shoot the lights out straight away and turn a big profit, however. “Some of them [offices] will take a while to become profitable…the capital markets in some places are sometimes slower to develop than their economies.”

“We are still, however, hiring in various markets, in Asia, the Middle East, Latin America and yes, in the UK,” he said.

The UK/Ireland market has seen a conscious move in recent years to open more targeted regional offices to capture the growth of wealth across the country. In addition to their flagship office in St James’ Street, HSBC has offices in Birmingham, Manchester, Leeds, Dublin, Cardiff, Bristol and Edinburgh.

And despite all the gloomy news about job cuts in some institutions, there are still talent shortages, especially in Asia and the Middle East, although temporarily, some of the pressure has eased, he said.

When the subject of expansion comes up, Mr Meares chooses his words carefully but is not ruling out further acquisitions if he and more importantly, the shareholders, think the deal will add a genuine strength to the private bank. “For the first time, we have seen some valuations [of banks] that might be more attractive than in the past,” he said, talking about the chance of possible acquisitions in the next few years.

Some of those [M&A] opportunities are demonstrated by how some of the brokerage-type businesses have seen their cost-income ratios surge because of the rapid decline in turnover and deal-flow, a problem that is not replicated by a private bank with a broader source of revenues, he said.

“The group is happy to look at them [acquisitions]…if something comes up that fits the strategy of growth in emerging markets,” Mr Meares said.

The structure

There are geographical divisions, each with their own heads: Asia; Europe and the Middle East; UK and Channel Islands, and the Americas. They report to Mr Meares, who in turn reports to HSBC’s Group CEO, Michael Geoghegan.

The Americas region is headed by Marlon Young; Europe and the Middle East by Alexandre Zeller; Asia is led by Monica Wong, and the UK and Channel Islands by Declan Sheehan, while market heads for the Middle East (led by Pierre Pissaloux) and Global South Asian Disapora (Raj Parmar), report into Mr Zeller.

The Private Wealth Solutions Group, a distinct sector that caters for family succession and wealth planning issues, is headed by Declan Sheehan. Two other sectoral client groups: Sport and Media, are headed by Mark Pannes and Nick Price respectively, both based in London.

This structure already gives some indication of how HSBC segments its clients. As with many of its peers, the private bank does not adopt a rigid money rule when it comes to the minimum size of investable assets that a client must have to fall into a particular segment, but a rule of thumb applies in the following way, with the bare minimum being around £1 million and more of investable wealth or £1 million of lending. Three broad segments based on size: £1 million – 10 million; £10 to £50 million and £50 million and over.

In terms of functions, the private bank covers three broad service lines: Banking (regular current accounts, chequebooks, lending, custody); wealth management (such as advisory, discretionary and alternatives) and private wealth solutions.

Influences

Although hotspots remain, Mr Meares recognises that the role of a private bank has in some ways got harder as the financial crisis has taken its toll, driving demands for higher, and inevitably, more expensive regulation of financial services generally.

“Wealth creation is going to slow down for a period of time. Investors have seen a loss of wealth…you are not going to see these liquidity events take place quite as much as in the last 10 years, so fewer people will be looking to exit their businesses now and will be hanging on for another five years. ” he said.

Regulations such as the European Union’s MiFID directive on financial services, for example, will impose a higher cost burden, relatively speaking, on smaller firms, perhaps encouraging consolidation in the sector, he said.

Being such a global bank, HSBC Private Bank is keeping a close watch on the continual pressure, legal and rhetorical, that is being brought to bear on offshore financial centres. Mr Meares is relatively sanguine about the outlook and how many of these jurisdictions are reinventing themselves to avoid falling foul of the OECD.

“Once all the hype is over… people need to realise that countries that have been put under pressure to change their laws need to go through constitutional changes first and then bilateral agreements…the G20 countries need to sit down with these offshore centres and go through the changes. Most of these places are reputable international centres with good regulation,” he said.  

“Some jurisdictions are better for some clients than others…Switzerland will continue to be a very important financial centre, they are part of the financial plumbing with a lot of accumulated skills there.”

As for the credit crunch and the huge bailout programmes by various Western governments, Mr Meares says this continues to present problems, such as of a two-tier banking industry split between completely private institutions and semi or wholly nationalised ones.

“We do still have a distorted situation in the market, where banks are state-supported and have not yet restored their funding ratios. We will have this bifurcated market until governments are repaid. The [HSBC] group made it clear that it never envisaged having to do so [raise money from government],” he said.

The freedom to set corporate remuneration has not been a big driver of the reason why the bank chose to avoid any state assistance, he said. “The Group believes in paying discretionary bonuses based on balanced scorecard performance but these have always included long term deferred terms.”

And HSBC Private Bank, while it is not immune to broader economic trends, is doing relatively well. By deliberately modelling itself as a truly global bank, the firm is hoping to take advantage of demand by an increasingly footloose global affluent workforce for its services. A recession creates many headaches for financial services firms but if HSBC Private Bank can get its strategy right in the current difficult times, then it should be set fair to significantly push ahead when or if the good times return.