Real Money | Tyme for Asia as HSBC and South African Online Bank Expand

Real Money | Tyme for Asia as HSBC and South African Online Bank Expand

Real Money | Tyme for Asia as HSBC and South African Online Bank Expand 2560 1440 TymeGlobal

The bank HSBC has bent over backwards to keep the leaders of the Chinese Communist Party happy. It’s very clear why, after the bank announced it would intensify its shift to Asia, moving the heads of several key business lines to Hong Kong from London.

Britain’s biggest bank is also well down the line in offloading its U.S. retail banking operations. It wants to sell that 150-branch operation, keeping its U.S. corporate and investment banking, and is also close to shedding its 200-branch consumer bank in France.

It is not alone. The South African online-banking startup TymeBank is making the Philippines its first major overseas market for expansion. TymeBank is selling minority stakes in the company to the Filipino conglomerate JG Summit and the British private-equity group Apis Partners. That has raised US$108 million to fund the South African company’s Asian push.

Banks both big and small are focusing on Asia, in other words, the part of the world with the strongest growth. It’s a seismic shift. Banking is by nature a pretty boring business. You hardly expect revolutionary change to come from within the industry. So it’s a process that comes as the banks follow their customers, and where economies are strongest.

HSBC is the largest European bank by assets and market capitalization, and among the 10 biggest in the world. It’s technically based in London, but listed both there and here in Hong Kong, where it got its start. The Hongkong and Shanghai Banking Corp. started life with one branch along the Hong Kong waterfront in 1865, funding trade between Europe and Asia’s bustling port cities.

On Tuesday, it said 2020 pre-tax profits were down 34% to US$8.8 billion, from US$13.3 billion in 2019. To be honest, it was better than expected, and the bank is still making good money during a horrible pandemic and recession. Of the profits, 90% come in Asia. Revenue last year fell only 8%, to US$50.4 billion.

There has recently been plenty of tension between the U.K. regulatory and political oversight it must endure, and pressure from Beijing, which it must keep happy so it can continue to make money in China. The bank is also looking to expand its presence in Singapore.

Singapore is benefiting from a flood of private capital as rich Hong Kongers look to move money out of town. The Communist Party has embarked on a draconian crackdown in Hong Kong, revealing its hand as a brutal enforcer that will cut down any critics, large or small, and tolerate no political dissent. Tuesday it announced changes to ensure all civil servants and political candidates, big and small, must be “patriots,” by which the Communist Party essentially means they must love the Communist Party. It’s a sign that the Communist Party will bar pro-democracy candidates from running in upcoming elections, and in fact wants one-party rule. Beijing’s lackeys in the Hong Kong government will be itching to remove district councillors after pro-democracy candidates swept those small-scale elections across the territory in November 2019, at the tail end of the anti-government protests here. Citywide elections for congress were delayed by a year due to the “pandemic.” Of democracy.

HSBC prominently allowed its Hong Kong CEO to be photographed signing a petition in support of a terrible “national security” law, which inhibits civil liberties in all manner of ways, and allows the Chinese secret police to operate unhindered in Hong Kong. Since its passage, without the input of any Hong Kongers at all, the law has been used to round up hundreds of dissidents and critics of the Communist Party, wrapping them up in incessant court cases about obscure or fringe infractions.

The British bank is in a tough spot, for sure. The hard-line pro-Beijing former chief executive of Hong Kong, C.Y. Leung, pointedly asked on his Facebook page why this foreign interloper should be allowed to make so much money in Hong Kong if it itself doesn’t demonstrate the right kind of patriotism, too.

HSBC has frozen accounts of activists in Hong Kong as well as charity accounts raising money to support democracy activists facing criminal charges. It is not clear that its deference to Beijing accomplishes much.

HSBC is also under fire for handing over a PowerPoint presentation to U.S. authorities that is the basis of the case against Huawei heir and CFO Meng Wanzhou. That presentation, U.S. authorities allege, shows how she downplayed or disguised Huawei’s ownership of Skycom Tech, a Hong Kong telecom supplier that had business dealings with Iran, in contravention of U.S. sanctions. Reuters reports that Skycom used the Huawei letterhead and name on a proposed sale of Hewlett-Packard computers to the Mobile Telecommunications Co. of Iran, which would amount to selling U.S. goods to Iran. Skycom was actually owned as a subsidiary by Huawei, U.S. authorities claim, while Meng told HSBC bankers it was just a business partner — a key point, because U.S. banks should not process transactions for a company that is contravening U.S. law and doing business with Iran.

Phew. The British courts ruled HSBC was just doing its job when it handed over the PowerPoint, which Meng presented during a power lunch in Hong Kong. Still, British politicians hauled the bank’s CEO, Noel Quinn, and chief compliance officer, Colin Bell, before the foreign affairs committee to explain, politely, why the heck the bank is being so supportive of Beijing’s repression in Hong Kong.

The bank is caught in an impossible spot, but it very clearly will favor a Beijing-leaning stance if forced to make a choice. In announcing its earnings, it said is moving Greg Guyett, the co-head of global banking and markets, as well as Nuno Matos, the chief executive of wealth and personal banking, and Barry O’Byrne, the chief executive of commercial banking, to Hong Kong. These are the areas where it makes its money.

HSBC is attempting to intensify its fee-based income and reduce its dependence on interest-rate-related revenue. Wealth management is huge business in Asia, which it will serve both in Hong Kong, the money center for East Asia, and in Singapore, the financial capital of Southeast Asia. The bank said on Tuesday it will invest US$6 billion in Asian wealth management and whole banking over the next five years.

Its earnings weren’t great but weren’t awful, either. In another point of East-West tension, the bank is being sued by retail investors here in Hong Kong for eliminating its dividend last year, a move it had to make at the direction of U.K. banking regulators. It says it will now resume paying a small dividend, of US$0.15 per share for 2020, although the level for 2021 will only be evaluated at its half-year results in August.

HSBC says it aims to resume a dividend payout ratio of 40% to 55% of profits from 2022 and beyond. Many pensioners here in Hong Kong have held HSBC shares for their dividend, those regular cash payments supplementing the scant social welfare here, which explains the shareholder revolt.

HSBC has been a terrible holding for shareholders of late. It used to be a fairly accurate measure of the strength of the Hong Kong stock market as to how much above HK$100 that HSBC shares were trading. They ended Wednesday at HK$46.10, which forced me to double check they had not enacted a share split. Nope. They’re down from HK$150 in October 2007, just before the Global Financial Crisis.

For better prospects of fast growth, investors will want to watch the development of nimble nascent online banks like Johannesburg-based Tyme. No need to cut bank branches when you don’t have any.

TymeBank (“Take Your Money Everywhere”) has a deal with one of South African’s largest grocery-store chains, Pick n Pay, to run self-serve kiosks in its grocery stores, as well as in Boxer Superstores. The bank, mainly operating on your smartphone, is proving a blessing to the many South Africans who don’t have access to a conventional bank account.

I love that business model for emerging markets. So it makes perfect sense for TymeBank to expand into nations like the Philippines, a similar-sized economy to South Africa, at a similar stage of development.

Tyme will form a joint venture with the Gokongwei family’s JG Summit conglomerate, and is applying for a digital-bank license from Manila. Thanks to cheap fees and ease of use, it has signed up 2.8 million customers since it secured its banking license in South Africa in February 2019, the first cloud-based bank to do so. It’s adding 110,000 new customers per month in South Africa, and the Philippines has twice the population of its home nation.

London-based Apis, which specializes in backing fintechs and microlenders, will own around 15% of Tyme via the Apis Growth Fund II. JG Summit will own around 5% of Tyme. The South African bank was launched by the South African mining billionaire Patrice Motsepe and his Johannesburg-listed investment company African Rainbow Capital (JSE:AIL).

There will come a time — a ha ha! — when Tyme will go public in its own right, but for now investors can get indirect exposure that way.

Originally published on Feb 24 2021 on Real Money.

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