HSBC Holdings plc
) is exiting from its retail banking and wealth management
businesses in South Korea. This comprises the closure of 10
banking units, subject to regulatory approval. The company,
however, intends to retain the comparatively profitable global
banking and markets unit for catering to client needs.
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Let's dig a little deeper to find out the reasons for this
Dominance of Local Banks in South Korea
South Korea, one of the most prominent emerging G-20 economies,
unfortunately did not add to HSBC's success. Since the inception
of this wing in 1998, attempts to restructure and enhance South
Korean retail banking remained as a subscale, inefficient
business for the company.
Foreign banks find it difficult to establish in the fiercely
competitive South Korean market, which is largely dominated by
Standard Chartered PLC
) faced a similar plight of failed operations in South Korea, due
to decreasing profitability and rising debt.
Notably, KDB Financial Group, a government owned banking group in
South Korea, wanted to acquire HSBC's South Korean Unit. However,
negotiations failed as KDB did not agree to retain all the
present employees after the merger.
Cost Saving Measures
The latest winding down announcement is part of HSBC's global
strategic review to reduce costs and will reduce 230 employees.
These staff may choose to accept a redundancy package or work
with the bank till the winding down is complete.
Notably, HSBC has exited 52 businesses globally since May 2011,
going by its global review plan. Further, on May 15, 2013, Stuart
Gulliver, Chief Executive Officer (CEO) of HSBC, announced cost
saving measures of $3.0 billion, which includes 14000 jobs cuts.
Since Gulliver became the CEO, there have been 46,000 job cuts
worldwide - resulting in annual cost savings of $4.0 billion.
HSBC is striving to boost its profitability in the challenging
market environment by disposing economically unprofitable
business units. The company now intends to primarily focus on
mature economies such as the U.S., Germany, France and emerging
economies including China, Indonesia and Brazil. Moreover, it
seeks to strengthen its home operations in the U.K. and Hong
We expect HSBC's new cost saving initiatives, diversified revenue
sources, strong capital position and meaningful capital
deployment activities to boost investors' confidence in the
company. Nevertheless, weak revenue growth in its mature markets,
the Eurozone crisis, litigation costs and regulatory restrictions
remain matters of concern.
Currently, HSBC carries a Zacks Rank #3 (Hold). Some better
performing foreign banks include
Mitsubishi UFJ Financial Group, Inc.
Sumitomo Mitsui Financial Group Inc.
), both holding a Zacks Rank #1 (Strong Buy).