HSBC (LSE: HSBA) (NYSE: HSBC.US) is reinventing itself. The bank is slimming itself down, selling assets to boost its capital ratios, leaving risky markets and retraining staff to put the customer first.
The banking giant’s latest disposal is the sale of its Swiss private banking assets to Liechtenstein’s LGT Group, as part of HSBC’s retreat from international markets.
Reducing risk
The Swiss banking industry has attracted much unwanted attention from global regulators recently. Indeed, as regulators look to uncover the darkest secrets of the banking world, Switzerland is coming under increasing pressure to make its notorious banking industry more transparent.
Unfortunately, a drive to increase transparency has increased regulatory costs and hurdles for international banking groups — the reason for HSBC’s exit.
What’s more, HSBC in particular needs to be especially careful. The bank’s $2bn fine in 2012 — the result of admitting that it processed drug trafficking proceeds through Mexico, and transmitted funds from sanctioned countries, including Iran — is still fresh in the minds of many investors.
So, this recent disposal is designed to reduce HSBC’s exposure to the murky Swiss banking industry, while improving profit margins.
The disposal will cut the number of countries where HSBC’s Swiss business has clients, from 150 to 70. In asset terms, this latest deal will remove $12.5bn of assets from HSBC’s Swiss bank, around 15% of assets under management.
Gaining support
HSBC’s drive to de-risk its balance sheet after past mistakes, has won the bank plenty of support from the City. Since 2011 the bank has sold more than 60 businesses around the world, significantly curbing its global exposure.
Further, the retreat from non-core markets has improved HSBC’s profit margins, as costs have dropped. The bank expects to shave another $2bn off its cost base during 2014, as more non-essential businesses are closed.
Moreover, HSBC’s disposal program has been structured to ensure that the bank comes out on top where possible, reducing risk but retaining business.
For example, earlier this year HSBC sold 400,000 British pensions to Admin Re, a subsidiary of Zurich-based international reinsurance giant Swiss Re.
The total value of the deal was £4.2bn, allowing HSBC to reduce its liabilities. However, the day-to-day management of the pension assets remains the responsibility of HSBC Global Asset Management.
So, HSBC has been able to bolster the balance sheet but keep the income rolling in.
