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Inside HSBC Private Banking’s quiet renaissance

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When Peter Boyles steps down as HSBC’s chief executive of global private banking at the end of this year, his successor, António Simões, will take the reins of a business that looks very different from that which Boyles inherited back in 2012.

Tarnished by scandals and oddly disconnected from the rest of the group, HSBC’s private banking arm, in the past, has struggled to articulate its raison d’être. Its thick carapace and hands-off approach to the media haven’t helped matters, prompting many to blindly ask why HSBC bothers with a business whose contribution to the P&L is slight and the risk it brings significant.

But as it turns out, a quiet renaissance has been transforming the private bank from the inside out, and nowhere more so than here in Asia.

“We see ourselves as the glue that holds the entrepreneurs and next generation close to the bank,” Boyles told Asian Private Banker on the eve of his retirement notice and around the time the private bank announced a massive hiring drive in the region. It intends to bring in 120 new frontline staff by the end of this year and a staggering 700 additional full-timers over a five-year period amid plans to beat the market in terms of AUM growth.

Siew Meng Tan, HSBC Private Banking

“We want to increase our market share because there is no reason why we shouldn’t given our extensive network — not just in Asia but also throughout the world,” added Siew Meng Tan, HSBC’s regional head of global private banking, APAC, and, notably, the individual responsible for setting a target so ambitious that Boyles himself challenged Tan’s vision.

Evidently, then, the private bank is back in growth mode — a year ahead of schedule no less — and it wants the market to know.

But why now and what has changed?

“We were intent on fixing issues and refocusing on core markets to the group in places where we had scale and a right to win — which usually means a fully universal banking presence — and focusing on clients from countries where we had a group presence and therefore were able to get comfortable with the background of the client,” said Boyles, addressing head-on the private bank’s silence in the market over the past four or five years.

“So we didn’t want to be overly vocal until we were absolutely confident we had really solid foundations, which required us to put every single client through a deep due diligence exercise, from both global compliance standards and tax transparency perspectives.”

Put crudely, this has meant shrinking the business in order to grow it. The private bank has exited booking centres and markets, including in Latin America and Central Eastern Europe, shed client assets, and pushed through hefty structural changes. The Swiss holding company that held most of the private bank has been unpicked and, in line with the group-wide transition towards global business divisions set in motion by former group CEO Stuart Gulliver, HSBC Private Banking is no longer run on a standalone basis. Rather, it functions as an integral part of a universal banking group that is run as a global business supported by country management.

“We’ve divisionalised and subsidiarised [the private bank] back into the mothership,” explained Boyles, alluding to why HSBC Private Bank became HSBC Private Banking last year — a change that would ordinarily be chalked up to bureaucratic fiddle, except, in this case, it is emblematic of a shift in both structure and mindset.

“In Asia, we sold the private banking business back to the region and it is now a division of the Asia Pacific business,” he continued. “So everyone here has a stake in its success.”

That’s important because effective universal banking requires a structure that incentivises cross-collaboration and, ultimately, institutionalises the alignment of interests across divisions and geographies. Boyles, a 43-year veteran of HSBC, is better placed than most to understand that this is “easier said than done”.

“There were some initial challenges in that every global business was focused on looking after their interests, but that was short-lived because there was a constant messaging that we needed to look outside our silos and think across,” he said.

Within the private banking division itself, the three regional heads, including Asia’s Tan, are expected to look beyond their own P&Ls and find opportunities to further connect clients. Wary of cultivating multiple baronies, Boyles’ goal is to achieve a global consistency in the business, but with regional nuances.

“Overall, I’m very sensitive to regional differences and I am very sensitive to us not making the same mistakes others have,” Boyles said. “In cases where you are a follower, the secret is not just to follow blindly but to listen, learn, and implement in a way that supports the business.”

In effect, then, there has been a wholesale shift away from setting hard targets to referral-driven business, which in turn has placed a premium on efficient information flows across divisions and geographies.

The private bank’s investment in Avaloq and a digital wealth platform will go some way to achieving this. The core banking system has been rolled out in Switzerland, Luxembourg, and the Channel Islands, and will go live in the UK this year and Asia in 2019, where the bank has pledged to invest US$100 million on information technology and digital solutions.

Plans are also in place to link up the private bank’s digital systems with retail and wealth management, thereby providing clients with access to mobile technology used in Premier and Jade and a consolidated view of their positions.

Meanwhile, the product platform has been flushed out. Boyles said the private bank has reviewed all third-party suppliers to reduce the number of partners it works with down to a select core.

What all this suggests is that HSBC Private Banking, as an integrated business division, no longer considers uncoordinated, brute force growth a viable way forward. Rather, a decision has been made to do more with group-connected clients, especially those families and entrepreneurs that have relationships on the commercial and corporate sides of the bank. And that’s meant introducing more ‘farmers’ to the mix. Especially here in Asia, the bold shift to an IC model in 2017, overseen by Tan during her first year in the role, is beginning to pay off.

“As with any change, there is always a certain level of resistance, but we were committed and we delivered,” she said. “And we are now seeing the benefits across investment revenues, transactions are getting bigger insofar as US$100 million-200 million client transactions are now regular, and we are seeing an increase in our share of wallet and client referrals.”

Boyles has also noticed an improvement in client satisfaction as a direct result of the team-based servicing they receive, which is driving up activity.

“When I joined this business it felt quite mercenary, but the beauty of this approach is that clients have become much more institutionalised and stickier,” Boyles said.

Accordingly, the private bank’s ambitious hiring plans extend to ICs — a rare breed in Asia — product specialists, and solutions specialists to supplement ICs in the ultra and family office space. Globally, too, HSBC Private Banking’s credit advisory team, whose strengths were traditionally concentrated in Switzerland, has undergone a significant transformation amid a drive to increase loans penetration.

Make no mistake: HSBC Private Banking remains a work in progress. Boyles and Tan would say so themselves. But after four years of soul searching and tough decisions, a swagger has returned to the business and its ambitions remain global. The Swiss business, which went through the most significant remediation needs to return to profitability and will be built off its Middle East business; there are expectations that growth will strengthen in the UK, France, and Germany; and in the US, the private bank is repositioning.

But it is here in Asia where HSBC Private Banking has the most to gain after losing ground on its home turf, and despite ranking as one of the region’s largest wealth managers by client assets.

“You might have thought we had exhausted our growth potential, but that’s not the case,” said Tan. “There’s still a lot of room for us to grow. Take China, for example, where the bank has invested massively. Our brand resonates strongly there, so from the perspective of group-connected clients, there is a tremendous opportunity for us to grow.”

Boyles, predictably, agrees: “Because the growth in the region is so exciting, and because our market share in Asia is below what it should be, if you marry our ambition to rectify this with the underlying growth, you can work out where we are heading as a business.”

HSBC Private Banking’s quiet renaissance just got louder.

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