StanChart, HSBC focus more on European Union to help clients

Just as Britain moves to sever its ties with the European Union (EU), two of its biggest banks, HSBC and Standard Chartered, are building up their operations in the bloc in a bid to win more business helping clients grappling with red tape and Brexit.

HSBC this month launched an internal ‘Europe Means Business’ campaign aimed at building internal awareness of its capabilities in the region and prompting staff to pitch the Asia-focused bank’s abilities to clients in other markets.

StanChart has in the last year and a half increased its staff in Frankfurt from 90 to 200, its head of corporate and institutional banking Simon Cooper said.

“Brexit was the catalyst for us to set up a local subsidiary in Europe; but strategically it makes sense anyway,” said Cooper, adding that StanChart plans to hire ‘tens’ more in the German financial hub, as well as in Paris.

The loss of some EU market access for British financial firms resulting from Brexit means many large companies that have traditionally run all their European finances from London, now need a bank that can help them operate between multiple hubs.

For HSBC and StanChart, which make more than two thirds of their revenues in Asia and have seen Europe as less important, that means refocusing on the world’s largest trading bloc.

Europe and the Americas contributed just 11 per cent of StanChart revenues in 2018, while for HSBC, Europe including its very large British business, contributed 30 per cent.

Both banks hope to lean on existing relationships in their strongholds in Asia, as well as a growing client base in other parts of the world to feed their European operations.

Their bids for more European business are aimed not so much at investment banking such as advice on mergers, but the more day-to-day activities of trade finance and cash management known as ‘transaction banking’.

This is a lucrative business, with overall revenues for the Europe, Middle East and Africa region climbing to $10 billion in 2018, from $9.5 billion the previous year, data from industry analytics firm Coalition shows.

HSBC vies for a top 3 spot in competing for that pot with US rivals Citigroup and JP Morgan, while StanChart ranks between seventh and tenth, Coalition data reveals.

Firms working in Europe are seeking guidance on dealing with evolving EU regulations such as a new payment services directive which is set to transform banking by allowing customers to manage their finances through third party providers.

On the flipside, StanChart is also targeting smaller corporates in EU countries that have significant business in its core markets of Asia, Africa and the Middle East, Cooper said.

“A quick analysis showed there are something like 1,000 companies in Germany that operate in three or more of our markets, we’re very under-penetrated among this European client base and so there’s a real opportunity there,” he said.

For HSBC, the renewed focus on Europe is less about hiring new staff in its 12 continental EU markets than galvanising them to work more closely together, James Emmett, the bank’s Chief Executive for the region, said.

“Our priority is to build the leading international bank in Europe, and we have a unique opportunity to do that because the franchise is already in place,” he said.

Emmett said that companies from countries including China and the U.S. are increasingly seeking to work with a single bank in continental Europe to manage their cash flow, financing and other needs, especially as Brexit looms.

“Chinese companies, for example, aren’t saying they’ll pull out of the UK into Europe, but they want us to help them manage between the two,” Emmett said.

Meanwhile, an annual stress test of banks introduced by US regulators after the 2007-09 financial crisis to prevent taxpayer bailouts has become a fight over how quickly lenders can return capital to shareholders.

Helped by a buoyant US economy, tax cuts and record profits, the country’s biggest banks are ramping up payouts to shareholders through dividends and share buybacks. But their plans to return capital are pushing the boundaries of what regulators will tolerate, analysts and regulatory sources say.

The Federal Reserve on Thursday approved the capital plans of 18 banks in this year’s test, although it placed conditions on the US operations of Credit Suisse Group after identifying weaknesses in its capital planning.

JPMorgan Chase & Co, one of the best capitalized US banks, had to resubmit its proposal after the Fed assessed its initial plan would result in it falling below the minimum capital it is required to hold to cope with a downturn.

Reuters