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HSBC’s Acquisition of Citigroup China’s Consumer Wealth Portfolio

Acquisition Overview

It was announced on the 9th October 2023 that HSBC Bank had entered into an agreement to buy Citi’s retail wealth management portfolio in Mainland China, with the agreement set to close in 1H24. HSBC is a London-headquartered bank, and Citi’s retail wealth management portfolio in mainland China comprises $3.6bn in assets and deposits. The transaction will be another milestone in HSBC’s strengthening of wealth capabilities in Asia and is consistent with Citi’s winding down of consumer banking businesses in China - first announced in December 2022. 

Deal Structure

Citi, as of writing, has not disclosed any details relating to the price tag or structure of the deal. While the financial details of the transaction are not immediately known, HSBC will take over ‘a few hundreds’ of Citi’s China-based staff (around 400, across 11 cities in China). Citi also reported that the deal includes its clients, assets under management (AUM) and deposits- valued at $3.6bn. This is not a $3.6bn acquisition, but rather the purchase of $3.6bn worth of assets and deposits from Citi. 

HSBC Overview

HSBC is a global bank and financial services group headquartered in London but with offices and branches in 62 countries. Its global outreach has historically been its USP with its slogan being the ‘world’s local bank’ after an international acquisitions spree between 1985 and 2000.

Founded in 1865

Number of employees: 223,770 (2022)

EV: $24.8bn

LTM Revenue: $67.74bn

Market Cap: $116.77bn

Citi Overview

Citi is one of the largest investment banks and financial services corporations in the USA and has been struggling particularly more, since the financial crisis, than its competitors. Citi operates with two main divisions- institutional clients group, which offers investment banking and corporate banking services; as well as treasury and trade solutions, which offers wealth management and personal banking. Citi first opened in China in 1902 and became one of the first global banks to incorporate locally in 2007. Today, Citi serves 70% of Fortune 500 companies in the market, as well as over 300 leading local enterprises. 

Founded in 1812

Number of employees: 240,000

EV: -$81.3bn

LTM Revenue: $76.34bn

Market Cap: $73.19bn

Industry Insight

The wealth management industry in China is coming to a critical juncture globally: heightened geopolitical tensions, inflation and a looming recession will cause additional pressure on wealth management firms as lower AUM growth strains profitability. This means that wealth managers must recalibrate their strategy to deal with the intense competitive pressures and evolving client demands. 

Strategic Rationale

This deal is a strategic ‘no-brainer’ for both firms involved. Citi- while it seems that HSBC has ushered in a sizeable number of new private wealth customers at the expense of their rival- have claimed that they would continue to serve the needs of their ultra-high-net-worth clients out of Singapore and Hong Kong. When Jane Fraser became CEO in 2021, she unveiled plans to exit 13 Asian and African retail markets, including China, India, and Vietnam. This was part of a strategic overhaul to redeploy capital to parts of the business with a clear pathway to higher returns. Citi’s China wealth management operations has been looking to exit since 2021 and this deal simply is a rationalisation of that strategy. Titi Cole, Citigroup’s head of legacy franchises said: ‘we are taking important steps forward in exiting our consumer banking business in China and continue to make progress in our divestitures as part of our strategy to simplify Citigroup’. 

This was also a ’no-brainer’ for HSBC. This is just the latest transaction accelerating the expansion of HSBC in China. HSBC said it has pursued organic and inorganic initiatives to scale up its capabilities of its mainland China wealth customers, with a focus on the affluent and emerging affluent sectors. These include the acquisition of the remaining 50 per cent stake in HSBC Life China for full ownership, the launch of Global Private Banking across six cities in mainland China, and the ongoing buildout of a team of more than 1,400 Pinnacle mobile wealth planners. Earlier this year, HSBC said it became the first financial institution in mainland China to hold licences for both insurance brokerage and fund sales.

“Mainland China is central to our ambition to be the leading wealth manager in Asia. This investment will allow us to further build out our core wealth business in HSBC Bank China," Nuno Matos, CEO, wealth and personal banking at HSBC, said. HSBC vowed to exit less profitable geographies and focus on its key revenue generator- Asia, specifically, China. This is because mainland China accounts for almost 50% of Asia’s wealth – an almost ninefold increase since 2006 and expects the number of adults in mainland China, with at least $250,000 in net wealth, to double to around 351 million by 2030.  Further, China’s gross savings rate as a percentage of gross domestic product is more than 46%- that is more than twice the figure for the US and there are more than 2.6mn people in the country with a net worth of more than $1.5mn. 

Moreover, HSBC’s investment into China makes sense given that Asia’s other largest financial hubs- Honk Kong and Singapore are oversaturated wealth management markets and HSBC already has a suitable presence there. 

Long-Term Prospects

Citi’s willingness to sell this business line to HSBC showcases how divergent the two banks are becoming. Interestingly, Citi is contracting its operations in Asia and HSBC is also winding down its retail services, but in Canada, France, and New Zealand- not Asia. In future, HSBC wants to be seen as Asia’s leading wealth management institution and thus, after years of offering a global outlook as its USP, HSBC has narrowed its focus on Asia. This deal, although small, is more symbolic of HSBC gaining confidence in its strategy and venturing into a geopolitically uncertain area. While there are looming political uncertainties about doing business in China (there are fewer banks following new national security restrictions on data transfers), HSBC’s chairman told Beijing officials during a visit in July that an "ice-breaking" spirit adopted by British businesses historically would help the UK and China overcome challenges and geopolitical tensions. Furthermore, steady expansion in China’s growing wealth management sector will help to maintain its lead over competitive rivals in future- such as Standard Chartered. Standard Chartered is gaining traction in China after receiving approval from local regulators this year to set up a securities unit in the mainland. The new operation will offer a wide range of services including underwriting and asset management. Standard Chartered made an early bet on mainland China that has been paying off as earnings beat analysts’ expectations despite turmoil in financial markets in the US and Europe. 

Written by Sahil Shah (Lincoln College)

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