VZCZCXRO1560
RR RUEHCHI RUEHCN RUEHDT RUEHGH RUEHHM RUEHNH RUEHVC
DE RUEHHK #1875/01 2780953
ZNR UUUUU ZZH
R 050953Z OCT 09
FM AMCONSUL HONG KONG
TO RUEHC/SECSTATE WASHDC 8681
INFO RUCNASE/ASEAN MEMBER COLLECTIVE
RUEHOO/CHINA POSTS COLLECTIVE
RUEHLO/AMEMBASSY LONDON 0766
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC

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 
 
HONG KONG 00001875  002 OF 002 
 
 
the bank's desire to be among the first international companies to 
list shares on the Shanghai Stock Exchange. 
 
MARUT