HSBC, Standard Chartered Face China Headwinds
Western financial institutions are facing continued pressure from regulatory challenges in China. HSBC's full-year profit is expected to fall by 10.7%, even as its dividend payout is set to rise. Meanwhile, Standard Chartered's valuation is trading well below its estimated fair value, highlighting the complex risk calculus for multinationals operating in the region.
- HSBC's 2023 pre-tax profits of $30.3 billion were significantly impacted by a $3 billion impairment on its stake in China's Bank of Communications, reflecting increasing loan losses in the Chinese banking sector. This was followed by an additional $2.1 billion write-down on the same stake in the first half of 2025. - The ongoing crisis in China's real estate sector is a major factor, with HSBC setting aside $1 billion in 2023 for expected credit losses related to mainland China's commercial property exposure. - In response to profitability challenges and high costs, HSBC is scaling back some China operations, including closing its credit card business and reducing staff at its Pinnacle digital wealth management unit by nearly half, or around 900 people. - Despite headwinds, Standard Chartered remains publicly optimistic, with plans to invest $300 million in its China-related businesses by the end of 2024 and a goal to generate $1.4 billion in profit before tax from the country. - In a significant move, Standard Chartered received approval in early 2023 to establish a wholly foreign-owned securities firm in mainland China, the first of its kind since ownership restrictions were lifted in 2020. - Both banks are navigating a complex regulatory environment overseen by multiple agencies, including the National Financial Regulatory Administration (NFRA) and the People's Bank of China (PBoC), which have been gradually opening the market but still maintain stringent licensing and capital requirements. - Standard Chartered's CEO, Bill Winters, has downplayed the direct business impact of US-China trade tensions, suggesting that international pressure could encourage further market opening by Beijing. - Mainland China represented about 11% of HSBC's group profit before tax in the first half of 2024, with two-thirds of that coming from its stake in Bank of Communications. For Standard Chartered, mainland China accounted for roughly 5% of group revenues and profits.
