HSBC probes China Pinnacle wealth business on costs and control, say sources

Pinnacle West Capital

15/10/2024 24:40

(Repeats for Asia morning readership. No change to text.)

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      HSBC reviews Pinnacle due to cost, control issues-sources 
    

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      Pinnacle review could result in layoffs-sources 
    

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      HSBC invested $390 million in Pinnacle since launch in
2020
    

  
    By Selena  Li, Engen Tham and Sumeet Chatterjee
       HONG KONG/SHANGHAI, Oct 14 (Reuters) - HSBC Holdings Plc
 HSBA.L  is reviewing expenses and operational controls at its
China digital wealth business Pinnacle, in a move that could
result in layoffs and mark an abrupt reversal of the lender's
ambition for the unit, several sources said.  
    As part of the review, the lender is looking at staff salary
structures and probing whether suppliers inflated expenses,
contributing to a sharp spike in costs that outpaced revenues,
according to five sources familiar with the matter.
    The review, which has not been previously reported, started
a few months ago, the sources said, requesting anonymity because
the conversations are confidential. The review could result in
layoffs, two of the sources said. 
        The bank plans to complete the review by the end of this
year, one of them said.
    A spokesperson for the Asia-focussed lender declined to
comment. 
        A downsizing of Pinnacle, which was launched in 2020 and
 sells insurance and fund products, would be a setback for
Europe's largest lender by assets, which has doubled down on
Asia while divesting from less-profitable businesses elsewhere.
        Under its new CEO, Georges Elhedery, HSBC, which makes
bulk of its revenues and profits in Asia, has been looking to
rein in costs, with the bank bracing for revenue to take a hit
as major central banks start cutting interest rates.
        HSBC committed $6 billion for investments in Asia in
2021 - half of that earmarked for Hong Kong and mainland China,
as it looked to expand market share in the world's
second-fastest growing wealth market.
    Pinnacle, through its reliance on digital, was meant to
expand the bank's reach outside its limited physical branch
presence in China. 
    Since 2020, the bank has injected $390 million into the two
main operating legal entities of Pinnacle in China, a Reuters
review of official business registration records shows.
    The division employed at least 1,700 personal wealth
planners as of June, the bank said, and the headcount was set to
grow to 1,900 by the end of 2024. HSBC originally aimed to hire
3,000 wealth managers in China by 2025.
    The Pinnacle review underscores the challenges HSBC faces in
boosting revenue in China.  The Greater China region, which
includes Hong Kong and Taiwan, is the group's biggest income
generator.
    It is, however, the only market globally where HSBC's wealth
and personal banking business, which Pinnacle is part of, is not
profitable yet. In the first half of 2024, the unit reported $46
million in loss compared to $90 million in the year-ago period. 
    
    EXPENSES PROBE
    The bank's review of Pinnacle started after HSBC's global
insurance Chief Executive Ed Moncreiffe moved into his role in
April, two of the sources said. He was previously HSBC Life's
Hong Kong and Macau head.
    Moncreiffe did not respond to Reuters request for comment.
        One focus of the review is a probe into multiple
incidents of potentially inaccurate expenses incurred by the
division, mainly involving suppliers, according to the five
sources familiar with the matter. 
    The bank is trying to establish whether these expenses
violated its internal rules, the sources said.
    In one instance, for example, an external event management
company charged Pinnacle for more than two dozen customer
engagement and promotional events in one day earlier this year,
one of the sources said.
    The review is also looking into Pinnacle's staff
compensation structure, the source said.  Salespeople at
Pinnacle earn fixed salaries that are relatively higher than
others in the industry, the source said.
    That salary structure gave little incentive to agents to
ramp up sales, the source said, weighing on Pinnacle's revenue
growth. 
    As part of the business review, Hong Kong-based Global Chief
Distribution & Customer Officer for HSBC's insurance business
Alison Law and other group executives have been sent to mainland
China to study Pinnacle's practices and suggest changes, two of
the sources said.
    Law did not respond to Reuters request for comment.    

 (Reporting by Selena Li and Sumeet Chatterjee in Hong Kong and
Engen Tham in Shanghai; Editing by Paritosh Bansal and Sonali
Paul)
 ((sumeet.chatterjee@thomsonreuters.com; +852 3462 7757;))