HSBC Says 20% Asia Return on Equity ‘Achievable’ on Growth

Peter Wong, CEO for Asia Pacific of HSBC Holdings Plc.
Peter Wong, chief executive officer for Asia Pacific of HSBC Holdings Plc. Photographer: Jerome Favre/Bloomberg

HSBC Holdings Plc said its Asian operations can sustain return on equity of as much as five percentage points above the lender’s global target as growth outpaces other regions.

Return on equity of about 18 percent to 20 percent “is achievable” for HSBC in Asia in coming years, Peter Wong, the bank’s chief executive officer for the Asia-Pacific region, said today in an interview. London-based HSBC posted a 21.1 percent return for the region in 2010, more than double the ratio for the bank as a whole.

HSBC CEO Stuart Gulliver yesterday cut the bank’s target for return on equity to as high as 15 percent, as regulators push lenders to hold more capital in reserve after the financial crisis. Asian economies have recovered faster from the global recession than the U.S. and Europe, led by China and India.

“I’ll probably say that we will still be comfortably ahead of the range set by the bank at least for a few years,” said Wong, 59. “The most important thing is using our brand in Asia to get more out of each customer.”

HSBC said yesterday it will target a return on equity of 12 percent to 15 percent instead of 15 percent to 19 percent. The stock fell as much as 4.9 percent as of 10 a.m. in Hong Kong, the biggest drop in a year.

Different Regulations

Gulliver, 51, joined CEOs at Credit Suisse Group AG and Barclays Plc in cutting profitability targets after concluding that stricter capital rules will eat into earnings. Basel III rules scheduled to come fully into force in 2019 will require banks to hold more equity as a cushion against losses.

Large banks in Asia have typically posted return of equity of 16 percent to 19 percent in economic expansions, said Dominic Chan, an analyst at BNP Paribas SA in Hong Kong.

“I think 18 percent RoE is achievable for big players like HSBC,” said Chan, who has a “buy” rating on HSBC. “Given its size and scale, it has a funding cost advantage.”

Regulators should discuss whether the measures taken to rein in the financial industry, which included bigger capital buffers, are also needed in Asia, according to Wong. Unlike in the U.S. and Europe, where governments spent billions of dollars bailing out banks during the financial crisis, no major Asian financial institution needed state support.

“They need to come together and talk and say that what’s applicable to the western hemisphere may or may not be applicable to Asia,” he said.

Staff Costs

Efforts to bolster profit in Asia, which accounted for 61 percent of HSBC’s pretax earnings last year, may suffer as tighter competition for staff pushes pay higher. Gulliver, who was named CEO in September, said yesterday he’s paying more for bankers in Asia than in Britain.

HSBC’s staff turnover in Asia rose to 18 percent to 20 percent last year, as employees in countries like China departed for higher-paying jobs, Wong said. The promise of higher economic growth across Asia has prompted global banks to expand there, driving up demand for workers, he said.

“The turnover in Asia increased in 2010, especially in the second half,” said Wong. “As far as people are concerned, the cost is bound to go up, and I think it’s going to be like this for the next couple of years.

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