(June 29): HSBC Holdings Plc has lost about a third of its debt capital markets team covering Chinese state-owned enterprises, a sign the bank is still struggling to win back favor in Beijing three years after becoming embroiled in geopolitical spats between China and the West.
The departures in recent weeks include two managing directors, John Hai and Jiang Song, who led client coverage of Chinese investment-grade issuers including SOEs, according to people familiar with the matter who asked not to be named discussing internal information.
Both bankers plan to join competing firms after more than a decade at HSBC, where Hai was the head of China debt capital markets. Two other bankers on HSBC’s China investment-grade team, which had about 12 people prior to the departures, are also leaving.
HSBC began missing out on dollar bond deals from SOE clients after the bank became entangled in a U.S. probe of Huawei Technologies Co.’s finance chief in late 2018, the people familiar said. Tensions between China and the U.K. over issues including political freedoms in Hong Kong have also affected the London-based bank’s ability to win deals, one of the people said.
HSBC has fallen to 12th place so far this year from second in 2020 among managers of investment-grade dollar bond deals in China, a market segment where the biggest issuers are SOEs and technology titans, according to Bloomberg-compiled data.
The bank wasn’t mandated on dollar bonds sold by SOEs including China Petroleum & Chemical Corp., China Huaneng Group Co. and China Cinda Asset Management Co. this year after being part of prior sales by those companies. Reuters reported on Monday that it had identified nine SOEs that have ended or cut back on their business with HSBC.
The banker departures underscore the challenges still facing HSBC in China despite recent efforts to improve relations with Beijing. Among the most notable was a move by Peter Wong, HSBC’s top executive in Asia until he retired from the role in June, to sign a petition last year in support of Hong Kong’s National Security Law. The legislation has been used to silence critics of Beijing and has drawn condemnation from politicians in the U.S. and the U.K.
In a response to questions from Bloomberg, HSBC said China is “critical” to the bank’s bond-market strategy in Asia.
“We continue to invest in our mainland China business -- both onshore and offshore -- and have seen recent strong momentum for our China DCM business, particularly in public sector, FIG and high yield,” an HSBC spokesman said. “As the leading foreign bank in mainland China, we are proud of our track record, and confident and optimistic about our ability to serve the financial and banking needs of our Chinese clients.” HSBC’s entire China DCM team includes about 20 people.
Hai and Song declined to comment.
Investor concerns about HSBC’s position in China have been fading in recent months. The bank’s shares have jumped 61% since hitting a 25-year low in September, outpacing gains in Hong Kong’s benchmark Hang Seng Index. HSBC’s nadir came just a few months after the Communist Party-run People’s Daily newspaper accused it of being an accomplice of the U.S. and fabricating evidence on Huawei. The bank has denied those claims, saying it only provided information to the U.S. Department of Justice when it was compelled to do so.
HSBC has scored some notable wins since then, including a role on the Chinese government’s euro-denominated bond sale in November. A month earlier the bank had been excluded from the government’s dollar issuance for the first time since China returned with big annual deals in 2017.
HSBC remains an active arranger for property firms and many of China’s biggest state-owned lenders. It also continues to top league tables regionally, ranking first in Asia excluding Japan for all debt offerings in dollars, euros and yen, Bloomberg-compiled data show.
Still, the bank’s waning position in China investment-grade bonds has contributed to a drop in its Asia ex-Japan market share by 1.1 percentage points so far in 2021 to 7.6%, the biggest year-over-year decline among the top 10 managers by amount of bonds sold.
Expanding in China will be key for HSBC Chief Executive Officer Noel Quinn’s efforts to revive the bank’s fortunes after several years of turbulence.
He’s betting big on the country as part of a pivot to Asia that will see the bank invest billions of dollars in the region while curbing or exiting unprofitable operations in the U.S. and Europe. HSBC said earlier this year it’s moving three of its most senior executives to Hong Kong from London. Recent managing director-level hires in Asia include Matthew Ginsburg, global co-head of capital financing and investment banking coverage, and Heidi Chan, head of consumer and retail.
While HSBC is far from the only international bank to face a tricky balancing act as it tries to do business in both China and the West, few firms have so much riding on the former. In 2020, China and Hong Kong accounted for more than 90% of HSBC’s adjusted pretax income.
As Chinese President Xi Jinping continues to tighten his government’s grip on Asia’s largest economy, it may only become more important for HSBC to get back into Beijing’s good graces.