US Business

HSBC on Tuesday said pre-tax profit slipped more than 40 percent in the third quarter, with the bank citing an impairment on the planned disposal of its retail banking operations in France.

However results were better than analyst estimates and were boosted by rising interest rates making lending more profitable.

The Asia-focused giant said pre-tax profit fell by $2.3 billion to $3.1 billion on year while net profit dropped 46 percent to $1.91 billion.

In a statement to the Hong Kong stock exchange, HSBC said it was looking to offload its French retail arm “as part of our actions to simplify our operations” in Europe adding that it hoped the sale would go through in the second half of 2023.

While reclassifying the French division the bank “recognised an impairment of $2.4 billion”, which impacted the third-quarter figures. 

But adjusted pre-tax profit rose 18 percent to $6.5 billion, beating Bloomberg News analyst estimates.

The bank’s net interest income, which measures what it makes from lending minus interest paid on deposits and is a key measure of profitability, came in at $8.6 billion, its best third quarter in more than eight years.

International banks face a mixed bag. 

Rising interest rates make lending more profitable but at the same time much of the world is staring at a pronounced downturn. 

“Macroeconomic headwinds, including higher inflation and a weaker outlook, continue to weigh on the global economy,” HSBC said, adding it had set aside more provisions against bad loans and had expected credit losses of $1.1 billion for July-September.  

The bank specifically cited global uncertainty sparked by Russia’s invasion of Ukraine, the fall of the pound in Britain and the grim condition of China’s real estate sector.

– Hong Kong and China –

But chief executive Noel Quinn said the bank was focused on delivering a returns target of at least 12 percent for next year as well as keeping costs down.

“We retained a tight grip on costs, despite inflationary pressures, and remain on track to achieve our cost targets for 2022 and 2023,” he said in the earnings report.

HSBC is headquartered in London but makes the vast majority of its profits in Asia, especially China and Hong Kong.

The lender is under pressure from Ping An, which has a 9.2 percent stake, to spin off its Asian operations, in a bid to unlock shareholder value amid tensions between China and the west.

So far HSBC’s leadership have rejected those calls.

Senior executives from the bank are expected to be in Hong Kong next week for a bankers’ summit that is being hosted by the city, which only last month lifted mandatory quarantine for all international arrivals. 

Over the weekend Chinese leader Xi Jinping tightened his grip on power by securing a third five-year term in office, handing top jobs to a number of loyalists who back his strict zero-Covid strategy.

The policy of lockdowns and other strict measures has been a major cause of the country’s economic woes and the prospect of more upheaval has sent chills through trading floors.

HSBC has vowed to accelerate a multi-year pivot to Asia and the Middle East, with ambitions to lead Asia’s wealth management market.

The bank said it would invest $6 billion in Hong Kong, China and Singapore and hire more than 5,000 wealth advisers — while slashing 35,000 jobs and cutting less profitable operations in other markets including France and the United States.

In Tuesday’s earnings report HSBC said it was “exploring the potential sale” of its Canadian division.

Hong Kong and Shanghai stocks saw big swings Tuesday following the previous day’s rout after Xi Jinping tightened his grip on power in China, while other Asian markets extended gains on hopes the Federal Reserve will slow down its pace of rate hikes.

Optimism about upcoming corporate earnings was also providing support, with Wall Street chalking up another strong day ahead of reports this week from big-name firms including Apple, Amazon and Microsoft.

Investors were keeping a wary eye on developments in China after Xi at the weekend was handed another five year term as leader and gave top jobs to a number of loyalists who back his strict zero-Covid strategy.

The policy of lockdowns and other strict measures has been a major cause of the country’s economic woes and the prospect of more upheaval has sent chills through trading floors.

The uncertainty resulted in a drop of more than six percent in Hong Kong on Monday, with tech firms — which have been hardest hit by Xi’s crackdown on a range of private-sector companies — taking the brunt of it.

And the selling spread to New York later in the day, with the Nasdaq Golden Dragon China Index of 65 Chinese stocks diving 14 percent — its biggest fall on record — wiping more than $90 billion off their market value.

Alibaba, JD.com and Tencent all saw double-digit losses, matching the selling earlier in Hong Kong.

Any hopes for a bounce from bargain-buying on Tuesday appeared to be short-lived with wild fluctuations in the city seeing the Hang Seng Index swing from gains to losses.

Shanghai struggled to get out of negative territory, while the onshore yuan sank to its weakest level since 2007 and the offshore yuan hit a record low.

“We’re certainly staying away from the Chinese market right now because the political scene is not favourable,” Laila Pence, of Pence Wealth Management, told Bloomberg TV.

“There’s a lot less risk in the US and just as much upside.”

The gloomy mood in China cast a shadow over an otherwise positive start to the week elsewhere as investors were cheered by a report suggesting the Fed could discuss at next week’s policy meeting the possibility of slowing down its pace of interest rate hikes.

The bank’s policy of ramping up borrowing costs to fight decades-high inflation has hammered global markets this year as investors worry that they will send the economy into recession.

“Investors are getting more confident that inflation will soften as the consumer rethinks massive purchases,” said OANDA’s Edward Moya.

“Fed rate hike expectations will remain volatile, but expectations are growing that a weaker economy will let the Fed pause their tightening after the February policy meeting.”

Tokyo, Sydney, Seoul, Singapore, Wellington, Manila and Jakarta all rose, though Taipei fell.

Focus is now on the release of earnings, with a sense of hope that the results will not be as bad as feared.

A fifth of S&P 500 companies have so far released their figures, with more than half beating expectations, according to Bloomberg News.

The yen hovered around 149 to the dollar after rallying Friday and Monday, with speculation swirling that Japanese authorities had intervened to support the struggling currency.

However, there are expectations it will continue to drop owing to the divergence between the Bank of Japan’s ultra-loose monetary policy and the Fed’s tightening.

The pound was also sitting around $1.13 as the choice of former chancellor Rishi Sunak as Britain’s next prime minister provided a sense of stability after weeks of uncertainty caused by former leader Liz Truss’s controversial debt-fuelled budget.

– Key figures around 0230 GMT –

Tokyo – Nikkei 225: UP 0.8 percent at 27,201.37 (break)

Hong Kong – Hang Seng Index: DOWN 1.3 percent at 14,977.72

Shanghai – Composite: DOWN 0.8 percent at 2,954.65

Pound/dollar: UP at $1.1301 from $1.1281 on Monday

Dollar/yen: DOWN at 148.92 yen from 148.95 yen

Euro/dollar: UP at $0.9880 from $0.9876

Euro/pound: DOWN at 87.44 pence from 87.56 pence

West Texas Intermediate: UP 0.1 percent at $84.62 per barrel

Brent North Sea crude: DOWN 0.1 percent at $93.21 per barrel

New York – Dow: UP 1.3 percent at 31,499.62 (close)

London – FTSE 100: UP 0.6 percent at 7,013.99 (close)

When Pinky Tam lost her job in Macau last year, she found herself among the many thousands cast adrift as the city’s casino industry crumbled beneath the twin forces of politics and a pandemic.

The former Portuguese colony has been limping for nearly three years as coronavirus restrictions have kept away mainland Chinese tourists, depriving the gaming sector of its chief revenue source and tanking the wider economy.

“Back when things were good, it would be almost too crowded to walk,” Tam, who used to work at the gambling operator Suncity Group, recalled of the narrow streets leading from the Ruin of St Paul’s, Macau’s most famous landmark.

“Now you can find maybe one or two locals passing through. I think the people of Macau are frustrated about the economy and future prospects,” she told AFP.

The crisis comes at a sensitive time for Macau’s oligopoly of casinos.

Officials are currently renegotiating the six concessions, which will expire by the end of the year.

It is an industry reshuffle that will shape Macau’s next decade, raising questions over whether the city can return to being the world’s top casino hub, whether it must seek an alternative path, and whether its golden years are over. 

Since its handover to Chinese rule in 1999, Macau has been the only place in the country where casinos are legal, growing to the point two decades later where it was generating nearly six times the annual gaming revenue of Las Vegas.

It was a heady time of extraordinary growth and riches.

– ‘Junket King’ arrest –

But even before the pandemic emerged, its wings were being clipped by President Xi Jinping’s anti-corruption drive.

Then last November, authorities arrested Suncity boss Alvin Chau — nicknamed the “Junket King” for his success in bringing in Chinese high-rollers — and charged him with fraud, money laundering and running a crime syndicate.

It was the clearest sign yet of Beijing’s crackdown on officials and wealthy tycoons who used Macau as a conduit to siphon cash out of China.

“Up until now, 90 percent of our visitors and 90 percent of our revenue comes from China… We basically are a hub to attract mainland Chinese gamblers,” Macau-based gaming analyst Ben Lee told AFP.

“So the Macau government is obviously being pushed to try and redirect the industry away from China.”

Until recently, the renewal of concessions seemed like a done deal for the six companies permitted to operate casinos, which include the subsidiaries of three Las Vegas giants — Sands China, MGM China and Wynn Macau.

But at the last minute, a surprise contender, Malaysia’s Genting Group, threw its hat into the ring.

With the concession renewal taking place at a time of spiralling tensions between Washington and Beijing, Lee posits that one of the US companies may well lose out.

“Why would (China) let the Americans keep 50 percent of the gaming industry in Macau,” said Lee, founder of Macau gaming consultancy IGamiX.

“I cannot see any good reason.”

– Industry shakeup –

Macau’s government has long been keen to diversify away from gaming into tourism and leisure.

For the new concessions, it is demanding “much more non-gaming investment”, Credit Suisse analysts wrote in a research note last week.

“An increase in investment commitment would inevitably put more stress into the already stretched balance sheet of certain operators, as well as lowering the long-term margin for the sector,” it added.

For Macau’s 680,000 residents, the cycle of lockdowns, testings and border closures have been some of the roughest years since the handover in a city where one in five people in the labour force works in gaming.

The biggest test came in July when much of the city, including casinos, was locked down to fight an outbreak of the Omicron coronavirus variant.

“It was an extreme situation for a relatively free and open city like Macau,” former lawmaker Sulu Sou told AFP, adding that the economy emerged from the lockdown “on life support”.

Tam, the former Suncity worker, said she took a one-third pay cut to land a new secretarial job, adding that similar openings were routinely advertised with a monthly wage of just $1,100.

Even if Chinese tourists return en masse under tentative plans to kickstart tour groups in November, Macau’s gaming revenue this year will only be 15 percent of 2019 levels, while the following year will reach 35 percent, according to Credit Suisse estimates.

“In the last two to three years, Covid-19 has really put a spotlight on the need to diversify,” said Glenn McCartney, an associate professor in integrated resort and tourism management at the University of Macau.

“(Diversification) won’t happen overnight, it’s a slow progression.”

The recent visit of a Russian megayacht to Hong Kong has sparked warnings from corruption investigators that the city could become a haven for oligarchs and officials hiding from Western sanctions.

The Nord — a $500 million vessel linked to Russian billionaire Alexei Mordashov — spent a little over three weeks in the Chinese territory before leaving last Thursday.

Mordashov is among tycoons close to Russian President Vladimir Putin who have been sanctioned by the United States, the European Union and Britain following Moscow’s invasion of Ukraine.

Multiple jurisdictions have seized Russian oligarchs’ yachts and other assets this year. But Hong Kong made clear it would not do the same, saying it only implements United Nations sanctions, not “unilateral” ones.

That prompted a rebuke from Washington that Hong Kong’s reputation as an international business hub could be damaged.

But Maira Martini, a corrupt money flows expert at Transparency International, said the city has long been a useful jurisdiction for those “wanting to hide assets and launder dirty money”.

She cited Hong Kong’s “easy incorporation of shell companies that can be used to layer funds and obscure the real owners”.

“The government’s recent declaration that it has no interest in implementing sanctions makes Hong Kong an even more enticing option for Russian elites,” she told AFP.

Hong Kong is increasingly taking its cue from Beijing, a key ally of Moscow, said Anthony Ruggiero, an expert on nonproliferation at the Foundation for the Defense of Democracies. 

“I think at this moment and level, we have to treat Hong Kong really as China when it comes to their willingness to cooperate on proliferation, or in this case, the willingness to cooperate on pressuring Russia,” he told AFP.

City leader John Lee and other senior officials are themselves blacklisted by Washington for their role in a crackdown on political freedoms.

– Shell companies –

A major part of Hong Kong’s appeal is how easy it is to set up companies — about 1.4 million businesses are domiciled in the city.

Directors do not need to live there and companies can register addresses via secretarial businesses making it easier to mask true ownership.

The Panama Papers in 2016 exposed how crucial front companies in Hong Kong were for those wanting to hide wealth and avoid tax.

Businesses registered in Hong Kong have also repeatedly appeared on US and other sanctions lists.

Companies helping North Korea evade sanctions were cited by the Treasury and United Nations experts in 2017 and 2018.

More recently the focus has shifted to Iran.

Last month the Treasury named 10 companies allegedly involved in helping Iran sell petroleum products, mostly to China. Three were based in Hong Kong. 

When AFP checked their filings with the city’s Companies Registry, all were registered to secretarial company addresses. 

Two had directors who were Indian nationals, the other was owned by a Dominican Republic national living in China’s Zhejiang province. Very little other public data was available.

– ‘Plenty of competition’ –

Ruggiero, a former US national security advisor, said he expects Moscow to “unleash a network of front companies” around the world as Western sanctions gather pace.

“The Russians have expertise in doing this,” he said. “They’re probably going to be better at it than North Korea and Iran — and North Korea and Iran are pretty good at it.”

David Webb, a Hong Kong activist investor, said the city will have “plenty of competition for being a safe haven, including Dubai and Singapore”.

Nonetheless banks, law firms and other businesses that rely on access to international markets will still be wary of Russian clients lest they face scrutiny.

“Financial institutions that have a United States or European nexus will need to assess their compliance in view of any relevant domestic sanctions,” Syren Johnstone, from the University of Hong Kong’s law school, told AFP.

Igor Sagitov, Moscow’s consul general in Hong Kong, said Russians were already facing difficulties.

“Some foreign financial institutions, insurance and transport companies based here discriminate Russian companies or nationals, even if they are not on the sanctions lists,” he told AFP.

But Sagitov was optimistic that the city remained a good place for business. 

“When the trade volume between Russia and China is growing rapidly, Hong Kong can for sure benefit,” he said.

Asked about Mordashov’s megayacht, he said Moscow “appreciates the approach the Hong Kong government has taken”.

“This approach is based on the rule of law, and not on the law of some imaginary rules.”

The US consumer’s love for enormous vehicles has been seen by outsiders as a curiosity and sometimes a sign of profligacy.

Either way, rising concerns about climate change seemed to create a reckoning for the behemoth-sized pickup trucks and sport utility vehicles that recently have sustained US automaker profits.

Not so, according to Detroit auto giants, who have responded to the climate crisis by launching all-electric versions of the Ford F-150 pickup, the Chevrolet Blazer SUV and other best-selling giants that seemingly promise the possibility that consumers can have it all: address global warming without sacrificing the appeal of larger autos.

Leading US environmentalists, along with the Biden administration, have praised announcements of the electric vehicle (EV) rollouts as a way to reduce greenhouse gas emissions.

Absent has been any discussion of the environmental toll of large EV trucks, which require more energy to recharge and more critical materials than do smaller EVs.

In showcasing trucks, Detroit automakers are setting the groundwork for an EV era that mirrors the current profile of US roadways and distinct from Europe, where sedans dominate.

Industry insiders like Alan Amici, president of the Center for Automotive Research, see little appetite among American consumers to go small.

“People are still clamoring for big pickups and SUVs,” Amici said. “I don’t expect a return to sedans.”

The trucks, often marketed in advertisements navigating rugged landscapes, provide lucrative profit margins to automakers and have become so ubiquitous on US roads that some consumers avoid smaller vehicles out of fear of how it would handle a crash with a much bigger auto.

Ford and General Motors, both of which report earnings this week, are positioning the vehicles as environmentally friendly based on how they contrast with gas-guzzling equivalents.

Luke Tonachel, who heads the clean vehicles program at environmental group NRDC, said electric pickups and SUVs represent a critical step in addressing climate change.

“It’s incredibly important that we eliminate tailpipe pollution from all cars as soon as possible,” Tonachel told AFP. 

“We need broad acceptance and adoption of EVs across the market. And that’s why it’s encouraging to see automakers starting to make EVs on all types of car segments, including the most popular ones.”

– Customer ‘has spoken’ –

The focus on large vehicles was apparent at last month’s Detroit Auto Show, where Biden test drove the EV Cadillac Lyriq, an SUV made by the GM brand. In previous trips to Detroit, Biden cheered on production of GM’s EV Hummer and the launch of Ford’s F-150 EV.

While GM’s display at the Detroit show included the Bolt, an EV sedan, greater prominence went to electric versions of three larger Chevies: the Silverado pickup, and the Blazer and Equinox SUVs. 

“The customer has spoken. SUVs and trucks are what the customer wants,” Chevrolet Vice President Steve Majoros told AFP at the show. 

NRDC’s Tonachel notes that some sedans still sell at substantial levels in the United States, but that they are made by companies like Japan’s Toyota and South Korea’s Hyundai.

“The different manufacturers are sort of carving out what they see as their specialty,” he said. “The Detroit three automakers, they left the compact car and most of the sedan market years ago.”

Bertrand Rakoto, global automotive practice leader at Ducker in Detroit, a consultancy, said it makes more sense to focus on trucks to fight climate change.

“You’re removing the emissions for the large vehicles that are the most emitting,” he said.

Rakoto, who is originally from France, said the contrast between the United States and Europe reflect different geographic qualities and transportation systems, with space in Europe more precious and public transit more integrated into regular life.

– Energy drain –

A December 2021 International Energy Agency report bemoaned the rise of SUVs, not only in the United States, but in India and Europe.  

Most of the vehicles still run on gasoline, meaning that “if SUVs were an individual country, they would rank sixth in the world for absolute emissions in 2021, emitting over 900 million tons of CO2,” the IEA said.

The analysis said SUV electrification helps, but noted larger vehicles require more critical materials for bigger batteries and consume around 20 percent more energy than a medium-sized car.

For Benjamin Stephan, of Greenpeace in Germany, limiting global warming remains critical, meaning “you sort of have to pull every lever available.”

“Obviously an all-electric pickup truck will have a much better carbon footprint,” he said. “But you could reduce that footprint even more by having no car at all, or a much smaller car.”