BUSINESS WATCH

Hongkong Bank’s quiet invasion

One-third of the world’s 200 largest corporations are among the bank’s clients; and it has 3.4 billion issued shares

Peter C. Newman December 18 1989
BUSINESS WATCH

Hongkong Bank’s quiet invasion

One-third of the world’s 200 largest corporations are among the bank’s clients; and it has 3.4 billion issued shares

Peter C. Newman December 18 1989

Hongkong Bank’s quiet invasion

BUSINESS WATCH

One-third of the world’s 200 largest corporations are among the bank’s clients; and it has 3.4 billion issued shares

PETER C. NEWMAN

A recent decision by The Hongkong and Shanghai Banking Corp. Ltd., the largest Asian financial institution outside Japan, to build a $10million computer research centre in the Vancouver suburb of Burnaby could have farreaching consequences. Once completed, the ultramodern software development centre will be the giant bank’s first head-office function located outside the British Crown colony. Choice of Canada’s West Coast for that move could signal other, even more significant transfers by that bank.

The bank’s Canadian subsidiary, the Hongkong Bank of Canada, which bought the Bank of British Columbia for $64 million in 1986, has meanwhile quietly moved into first place among Canada’s major banks in terms of 1989 growth of assets, net income and trade financing. In total assets, it is projected to rank seventh overall, just behind the Big Five and the National Bank of Canada. Its commercial lending activity in the past year jumped more than 20 per cent, (compared with an already impressive 57 per cent during 1988); commercial deposits grew over 30 per cent (59 per cent in 1988); and trade financing (mainly providing letters of credit for importers of Asian goods) was up an astounding 50 per cent—right after a 135-per-cent leap during the preceding 12 months. Total assets are now well over $6 billion, up one-third from last year.

“During the past three years,” I was told recently by James Cleave, the bank’s Pitt Meadows, B.C.-bom Canadian president, “our increase in profits [in excess of 90 per cent for 1989] has outstripped our percentage growth in assets, which is exactly the way we want it.” Some of that expansion was earned, much of it was bought. On top of taking over the Bank of B.C., the Hong Kong head office last year acquired Buffalo, N.Y.’s 340-branch Marine Midland Bank, which includes a Canadian operation. At the same time, other units of the Hongkong Bank have invaded Canada, including Wardley Canada Inc., based in Toronto,

which provides investment advice to wealthy Far Eastern clients, and James Capel Canada Inc., an offshoot of the bank’s holding of this major British investment house, which does the same thing for Asian institutional investors. Another new arm is James Capel Canada’s 35per-cent interest in Brown, Baldwin & Nisker, an institutional securities house that operates out of Toronto and Vancouver.

Counting these operations, the Hongkong and Shanghai Bank now has 70 Canadian offices, a dozen of them replicas—right down to the stock-look travertine marble facades—of their home Crown colony storefronts. These branches are manned by tellers, accountants and managers who speak several Chinese dialects and know their customers’ financial needs. “We don’t place these operations in what used to be called the Chinatowns of Canadian cities,” says Cleave. “Instead, we strategically locate them in spots that happen to have significant Oriental populations. We have one in Calgary, one in Edmonton, seven in Metro Toronto, as well as Willowdale, Mississauga and Scarborough, with the rest in and around Vancouver. Right now, we’re looking at similar branches in Winnipeg and London, Ont.” In the past year, deposits at these spe-

cialty outlets have grown more than 50 per cent, and loans have doubled.

“We naturally target the Asian investor,” Cleave says, “but we have lots of competition, particularly from the Royal and the Commerce.” Interestingly, Cleave claims that real estate deals represent only a relatively minor fraction of the capital influx, with more and more Hong Kong funds—seeking a safe haven as the colony’s 1997 return to mainland China approaches—moving into manufacturing and distribution, especially in textiles, computers and plastics. “The media doesn’t seem to be aware of these trends,” says he, “because construction cranes have a much higher profile.”

As the Hongkong Bank of Canada expands, its focus is inevitably shifting towards Toronto. Two years ago, the bank was doing only 13 per cent of its business in Ontario; the current ratio is double that and, by 1995, nearly half its activity is expected to be in Central Canada. It is currently building its own downtown Toronto highrise to make the point. But head office will remain in Vancouver, because this is very much a Pacific institution.

The parent bank does business in 50 countries with total assets of more than $150 billion. Among other assets, it owns part of Cathay Pacific Airlines Ltd., three insurance companies and some of the Pacific Basin’s largest merchant fleets. One-third of the world’s 200 largest corporations are among its clients; the number of its issued shares is a colossal 3.4 billion. It operates an independent global communications system that uses rented satellite space and exclusive ground stations to provide instant, exclusive hookups to move short-term paper ahead of the sun. Cleave is about to introduce Hexagon in Canada, a computer-link system that allows corporate chief financial officers to move their current accounts around, negotiate letters of credit and do just about every type of fiscal transaction from their own offices. “It’s as close as anyone has come to an automated banking system,” claims Cleave, “and we have a high level of expectation for it. First in the commercial market place, later in the corporate treasurer’s home, and eventually in private houses of people who want to do home banking.”

Cleave, 47, is the last teller to rise to the head of a major Canadian bank. (The Royal’s Allan Taylor was the second last.) “I started with the Commerce in Salmon Arm, B.C., up in the Fraser Valley, but was actually lower than a teller. I began by peddling drafts. In those days—this was in the early 1960s—companies still sold things by having bankers go out and collect their bills, their accounts receivable. It was only six months later that I became a fullfledged teller. Then, the Commerce sent me to university, and I eventually became a commercial manager at its main Vancouver branch.”

Cleave later worked for the Export Development Corp. in Ottawa before returning to Vancouver and the Hongkong Bank. His is still a low profile among Canadian moneymen, but as his bank expands exponentially because of Hong Kong’s flight-capital epidemic, James Cleave seems destined for an influential future.