Global private banking may only account for 2.9 percent of HSBC’s total group profits. But unlike most of its big UK peers it does provide a detailed geographical breakdown of the source of these profits.
The UK and Hong Kong are HSBC’s most profitable markets, at least according its interim statement (see thewealthnet 04/08/2014). The UK generated pre-tax profits of $112 million for the first half of 2014. Hong Kong recorded a profit of $99 million.
These are both lower than the results recorded a year ago when the UK registered a profit of $132 million and Hong Kong $137 million.
The good news is, however, that the problems afflicting HSBC’s Swiss, and “other” operations appear to have diminished. Both market areas moved back into profit after recording big losses a year ago. Switzerland registered profits of $14 million compared to the $42 million loss recorded in the first half of 2013. “Other” posted a $35 million profit, a huge improvement on the $225 million recorded a year ago.
As a consequence of these improvements HSBC’s European private banking operations moved back into profit. Profits came out at $176 million compared to a loss of $114 million recorded a year ago.
This means that Europe is currently HSBC’s most profitable private banking market. Overall Europe posted $176 million of profits compared to Asia’s $133 million. This is a reversal of the situation a year ago when Asia posted profits of $177 million. This made it HSBC’s most important regional market. Europe posted a loss of $114 million.
Although HSBC global private banking registered a significant improvement in profits these reflect the impact of a variety of one-off events and accounting adjustments made in the first half of 2013. Once these are taken into account the underlying trend is downwards. Most markets in which HSBC currently offers private banking services either registered falls in profitability, or moved into losses.
The US market provided a significant exception, however. Here profits improved by over 60 percent from the $31 million registered a year ago to $50 million.
Like its other big UK peers HSBC is in restructuring mode. So a significant part of overall profits decline probably represents a deliberate attempt to reposition the business. This is especially the case as far as its European activities are concerned. Indeed HSBC has even sold-off client portfolios to other banks. During the first half of 2014, for example, it sold a $12.5 billion portfolio of client assets to LGT Bank (Switzerland).
Nonetheless, unlike Barclays, Lloyds and Royal Bank of Scotland (RBS) global private banking still remains a core group business.
Going forward, however, it seems that the business focus will be on existing HSBC clients and customers.
“We remain focused on clients with wider group connectivity who meet our segmentation thresholds within our home and priority markets while also reducing the number of clients in non-priority markets,” HSBC said in its interim report.
The refocusing appears to have affected HSBC Global Private Banking revenue generating activities. At $536 million and $533 million respectively both net interest income and net fee income were both lower than the $575 million and $602 million recorded for the first half of 2013.