On 6 Aug 2004, HSBC announced that it would pay US$1.75 billion for a strategic stake in Bank of Communications, China's fifth-largest bank. The move exemplifies HSBC's forward-looking Asia strategy that has kept the bank amongst Asia's leading financial institutions for over a century.
"We took a 19.9% stake in Bank of Communications because it was the right fit at the right price at the right time," said chairman David Eldon in a recent speech on HSBC's plans for the region. "It gives us the breadth of coverage across China we were seeking, while at the same time it is a size that appears manageable."
The investment was eight times bigger than any previous foreign investment in a Chinese bank. Bank of Communications is one of only 15 commercial banks to operate throughout all China and has branches in 137 cities across the country. "Clearly, we would never be able to gain such reach through organic growth alone," said Eldon.
The acquisition is in line with HSBC strategy to organize its operational management geographically, with business activities concentrated in locations where growth and critical mass are to be found. The bank has four regional intermediate head offices, in London, Hong Kong, TKTK and TKTK.
Asia hosts some of the world's most dynamic economies, and HSBC is perfectly positioned to take full advantage of the developments ahead. The bank's success in the region is based on careful analysis of the region that avoids lumping together countries with very different economic outlooks.
"A misplaced perception is that there has to be a winner and a loser [between China and India]," said Eldon. "Certainly HSBC doesn't [see it that way]. We believe they will both emerge as economic superpowers. We also think the two economies are quite complementary – a fact that is perhaps not as widely recognized as it should be."
Asia contributed 35.7% of pre-tax profits to HSBC's operations last year, 25.2% of which came from Hong Kong alone. "Since last year, Hong Kong has been experiencing somewhat of a boom," says Eldon. "Pent-up demand has fuelled a sharp revival in spending. Consumer confidence has also rebounded." Given that HSBC's consumer finance business saw a staggering 226% rise in profits in 2004, this development is serving the bank well.
HSBC's strategy is led by five consumer groups: Personal Financial Services; Consumer Finance; Commercial Banking; Corporate, Investment Banking; and Markets and Private Banking. Each division has a separate strategy, which reinforces HSBC's employees' commitment to customer service. A core aim of the bank is to be recognized as "giving the customer a fair deal".
A dynamic human resources policy is at the heart of achieving this goal, and HSBC emphasizes continuing training of its staff. The bank sees skill development as critical to ensuring continuous success and it maintains a strong merit-orientated rewards policy for its employees.
HSBC Bank plc has an Aa2 rating from Moody's, an AA- rating from Standard & Poor's and an AA from Fitch.