Cablegate: Hsbc Returns Ceo to Hong Kong, China's "Local"

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FM AMCONSUL HONG KONG
TO RUEHC/SECSTATE WASHDC 8681
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UNCLAS SECTION 01 OF 02 HONG KONG 001875

SIPDIS

STATE FOR EAP/CM, TREASURY FOR OASIA

E.O. 12958: N/A
TAGS: ECON EFIN EINV HK CH
SUBJECT: HSBC Returns CEO to Hong Kong, China's "Local"
International Bank

1. SUMMARY AND COMMENT: Hong Kong Shanghai Banking Corporation's
(HSBC) decision to shift its CEO from London to Hong Kong reflects
the increasing importance of the Asia market in the bank's strategy.
Hong Kong officials praised the move as a vote of confidence in the
strength of Hong Kong's financial and regulatory framework and a
boost to their efforts to become Asia's international financial
center. The timing of the announcement, just several days before
the 60th Anniversary of the founding of the PRC, is widely seen as a
"gift" to China from HSBC, which is keen to expand its business in
China and is eager to be among the first international companies to
list on the Shanghai Stock Exchange. While the CEO's return is
primarily symbolic, it shows clearly HSBC's commitment to engage the
PRC government on expansion plans for China. The announcement not
only boosts HSBC's profile in China but bolsters its identity as a
"local" international bank. END SUMMARY AND COMMENT

2. HSBC Holdings announced September 25 that its Chief Executive
Officer Michael Geoghegan, will move from London to Hong Kong on
February 1, 2010. HSBC is Europe's largest bank, but was founded in
Hong Kong and Shanghai in 1865. Its CEO moved from Hong Kong to
London in 1992, when HSBC acquired Midland Bank. At that time, many
saw HSBC's move to London as a hedge against the impending return of
Hong Kong to PRC control in 1997. In a press release, HSBC denied
that it was pulling away from London, noting the move "further
positions the group for the shift in the world's center of economic
gravity, from West to East." About 30 percent of HSBC shares are
listed in Hong Kong where it is the biggest of three currency
printing banks.

HSBC Move Bolsters Hong Kong's IFC Claims
-----------------------------------------

3. The Hong Kong Special Administrative Region (HKSAR) Government
welcomed HSBC's decision. Chief Executive Donald Tsang said,
"HSBC's decision is a clear and timely "thumbs up" for Hong Kong as
a stable, reliable and vibrant base for the banking industry."
Financial Secretary John Tsang also noted that "not only does HSBC's
decision represent a clear vote of confidence in Hong Kong as an
International Financial Center, it also demonstrates the Bank's
long-term commitment to our city." Others noted that HSBC's move
indicated it saw Hong Kong as the best platform from which to
further expand into China.

China's Growth is HSBC's Future
-------------------------------

4. Senior HSBC executives in Hong Kong are bullish on the Bank's
opportunities for growth in the Chinese market and are trying to
position themselves as a transparent, sophisticated international
bank with local roots. Their analysts believe Asia's economy will
outperform the rest of the world by over three percent for the next
several years. HSBC currently has the largest branch network in
China of any foreign bank, accounting for about 25 percent of
international bank branches. In 2007, it was among the first to be
allowed to incorporate locally. It has significant investments in
Bank of Communications and, through its subsidiary Hang Seng Bank,
in August 2009 established HSBC Life Insurance Company in Shanghai.

5. Asia has been the bright spot for HSBC over the past year. 2009
interim results, published on August 3, show HSBC's profit before
tax for the first six months was down 51 percent from a year ago to
USD 5 billion, with a USD 3.7 billion loss reported from North
America. Hong Kong and the rest of Asia were up USD 2.5 billion and
USD 2.0 billion respectively. HSBC's European business reported a
USD 3.0 billion profit before tax.

A Symbolic Gift to China
------------------------

6. While some international press called the move "symbolic" and
noted the dangers of splitting senior management between Hong Kong
and London, Hong Kong press was almost uniformly positive about the
announcement. The pro-Beijing Wen Wei Po said HSBC's decision was
just "facing the facts" that the Asia Pacific region would continue
to grow more rapidly than the West. The Hong Kong Commercial Daily
called HSBC's announcement on the eve of the 60th anniversary of the
founding of the People's Republic of China "a big National Day gift
for Hong Kong people and Mainland compatriots."

7. While Geoghegan's move to Hong Kong will not take place until
February 2010, many observers noted that the timing of the
announcement, just four days before Chinese National Day, was
clearly designed to affirm HSBC's recommitment to China and the
region. Since May, HSBC executives have been publicly discussing

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the bank's desire to be among the first international companies to
list shares on the Shanghai Stock Exchange.

MARUT

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