Business

Banking on Comepetition

KATHERINE MACKLEM August 13 2001
Business

Banking on Comepetition

KATHERINE MACKLEM August 13 2001

Banking on Comepetition

Business

KATHERINE MACKLEM

Even before HSBC Bank Canada opened the doors of a branch near Toronto's ritzy Bridle Path neighbourhood, the hot com-

The reason the HSBC boxes were in such hot demand is that those in the local branches of the established Big Five Canadian chartered banks sold out long ago. And that experience is at the heart of HSBC’s aggressive national expansion strategy for Canada: it hopes to win attention—and business—as domestic competitors abandon mature niches, and merge and consolidate their operations.

But even though HSBC Group, formerly the Hong Kong and Shanghai Banking Corp. Ltd., is one of the world’s most powerful financial institutions, it has a tough task ahead in this country. It’s the largest foreign-owned bank operating here, but it’s not yet a household name in Canada. “It is strange,” allows Lindsay Gordon, the bank’s chief operating officer in Canada. Gordon’s mission, along with that of the rest of the bank’s Canadian managers, is to boost the bank’s profile. As Martin Glynn, CEO of HSBC Bank Canada, puts it: “We would like to let everyone know from the rooftops that we are here.”

Already a player in British Columbia, the bank is now focused on capturing more customers in the tight, overcrowded Ontario market—and it’s aiming for two very specific groups. HSBC, now a London-based bank that operates around the world, wants to do business with wealthy Canadians, especially those who would like to tap into its international network. And, building on its origins in Hong Kong and Shanghai, it’s also targeting the Asian community in Canada. The Bayview-York Mills spot is smack in the middle of both its target clientele: according to

modity was its safety deposit boxes. As a two-storey office complex was going up at the corner of Bayview Avenue and York Mills Road, clients began phoning to reserve the boxes. To fill the demand,

branch manager-to-be Debra Beland went back to her order desk—twice—to get more. Even then, almost all the boxes were presold before the branch was open for business. “Initially,” says Beland, “it was a great draw for us.”

Statistics Canada, the average family income in one nearby census tract is $265,000. In another, adjacent one, 16 per cent of residents cite Chinese as their mother tongue.

Still, the Canadian banking market has proved to be a tough nut for foreign institutions to crack. Historically, the federal government has not permitted foreign banks to operate in Canada. But in 1980, Canada’s Bank Act was amended, allowing foreign banks to establish subsidiaries here. The following year, the newly established Hongkong Bank of Canada was among the first. Within a couple of years, there were almost 60 foreign institutions. But in the recessionary 1990s, enthusiasm for the Canadian market from abroad waned. Today, there are 45 foreign-owned banks in Canada, with roughly a third of them registered under

a category that prohibits them from offering retail accounts.

Gordon, a 49-year-old Britishborn Canadian acknowledges it is tough to make inroads into the Canadian marketplace—and a lot of that has to do with the peculiar Canadian psyche. “Canadians love to hate their banks,” Gordon says, but “when it comes to actually moving, they’re very sticky.”

With only five major national banks, there’s a perception that there’s limited competition in Canada. Not true, according to Gordon. “It’s in fact a very competitive marketplace for financial services,” he says, and then draws a comparison with the United States. Even though there are thousands of small banks competing against each other, he says profit margins are higher there. Another irony is Canadians like Canadian-owned banks. “Despite the love-hate relationship Canadians have with their banks,” he says, “they are also very nationalistic about them.”

HSBC

Canada gears up to pursue national expansion

Ranking the world’s commercial banks

(in terms of tier 1 capital, including common stock, reserves and retained earnings)

1. Citigroup

New York

2. Mizuho Financial Group

Tokyo

3. Bank of America Corp.

Charlotte, N.C.

4. JP Morgan Chase & Co.

New York

5. HSBC Holdings Ltd.

London

6. Crédit Agricole Groupe

Paris

7. Industrial and Commercial Bank of China

Beijing

8. Deutsche Bank

Frankfurt

9. Bank of Tokyo-Mitsubishi

Tokyo

lO.Sakura Bank

Tokyo

44. Royal Bank of Canada

45. Scotiabank

52. Bank of Montreal I 54. Canadian Imperial I Bank of Commerce s 69. Toronto-Dominion Bank

iness is in Western Canada; the rest is in Ontario and Quebec.

But by this fall, federal regulations setting ground rules for mergers of Canadian banks will be in place. While HSBC wont be a player in the consolidation dance (although Ottawa is upping the ownership limit in large banks to 20 per cent from 10 per cent, the new regulations effectively block a full takeover of a major Canadian bank by a foreign one), it may stand to benefit. If Canadian banks merge, they will “leave some space for HSBC,” Gordon says. “We see consolidation as a golden opportunity, particularly here in Ontario.”

Part of that opportunity may be provided by Ottawa. Finance Minister Paul Martin says competition will be a concern if there are bank mergers. “I do believe that adequate competition in the domestic banking system continues to be an essential part of the public interest test,” Martin said recently. HSBC is ready and willing to step into that breach, says CEO Glynn. With mergers, bank branches may be put up for sale, which would create an opportunity for his bank to fill in some gaps in its business, particularly in central Canada.

As a foreign-owned entity, HSBC is careful about its pitches to Canadians. On the one hand, it wants to show off the muscle and clout that comes with its bulk: with 160,000 employees, assets worth $ 1.04 trillion (Royal Bank of Canada, the largest

In the face of those hurdles, HSBC intends to pursue its goal of shifting its mix of business to become a more national Canadian bank, and less a B.C.-focused operation. Currently, about 60 per cent of its bus-

domestic bank, has assets of $314 billion), and over 6,500 offices in 79 countries and territories, HSBC is one of the few truly global financial institutions. Yet to flourish in Canada, it also must respond to Canadians’ nationalistic bent. The solution? “We talk about ourselves as Canadas leading international bank as opposed to Canada’s leading foreign bank,” Gordon says candidly. “We try to downplay the use of the word ‘foreign-owned.’ ”

Right from its start, there has been an international flavour to HSBC. It was founded in 1865, based in Hong Kong and Shanghai, and while it had offices in America and Europe, it operated mainly as an Asian regional bank. Then, it went on an aggressive acquisition spree, buying banks in Canada, the United States and Europe. The crown jewel was the 1992 acquisition of British banking giant Midland Bank PLC. With Midland in its stable, HSBC moved its head office to London. Then two years ago, it launched a massive rebranding campaign of all its diverse holdings to use the simple, straightforward HSBC name.

The one exception to the name change is in China, where the bank is known by its Chinese name, Wayfoong. In Gordons Toronto office recently, a discussion took place over the Wayfoong name, which, like many Chinese words, has more than one meaning. Gordon, his assistant Rosemary Chung and David Lee, a senior vice-president at the bank, each offered a slightly different translation—abundance of money, a good harvest, an abundance of remittance. At the comer of Bayview and York Mills, perhaps what Wayfoong means is an abundance of opportunity—and safety deposit boxes. El