Hong Kongâs Private Wealth Bankers Should Be Anxious
(Bloomberg Opinion) -- Shortly after Hong Kong narrowly overtook Switzerland as the worldâs largest offshore wealth management hub, the sustainability of this business is already
(Bloomberg Opinion) -- Shortly after Hong Kong narrowly overtook Switzerland as the worldâs largest offshore wealth management hub, the sustainability of this business is already being called into question. The seismic event is Chinaâs recent crackdown on cross-border stock trading. Steep penalties aside, Beijing has asked three online brokers, the biggest of which is based in Hong Kong, to liquidate all existing accounts held by mainland Chinese within two years. In a concurrent move, the cityâs securities watchdog put out a statement warning against poor due diligence with client onboarding and demanding close monitoring of dormant accounts. For now, Beijingâs ire is aimed at the three retail-facing online securities firms, Futu Holdings Ltd., Up Fintech Holding Ltd.âs Tiger Brokers and Longbridge Securities Ltd. But the bigger question is whether Hong Kongâs prized private banking business will be affected, too. The move is widely interpreted as China tightening controls on capital flight from the mainland, fearing that unchecked outflows would weaken the yuan and destabilize its financial system. Some institutions are already treading with caution. The Shanghai branch of Hong Kong-based Bank of East Asia Ltd. has suspended offshore account openings for its high-net-worth clients, reported the South China Morning Post.
UBS Group AG has postponed a midyear wealth outlook event in China, while HSBC Holdings Plc is discouraging non-essential mainland travel for Hong Kong-based private bankers. Managing money for affluent individuals is highly lucrative. At HSBC, this business can notch up a 35% return on equity, well above the company average of 17%, according to Goldman Sachs Group Inc.âs estimates. Last year, Hong Kongâs cross-border wealth rose 10.7% to $2.9 trillion, with mainland flows representing 59% of assets under management, per the Boston Consulting Group Inc. That easy money can disappear overnight. I see at least three big hurdles. First, China alleged that the online securities firms broke the law because they didnât have the licenses to solicit mainland clients for cross-border stock trading. Publicly listed Futu said that it would fully cooperate with the government and is entitled to present defenses and request a hearing. In the past, global banksâ Hong Kong-based wealth managers would travel to the mainland to socialize and deepen their relationship with clients. But discussions over account openings or specific investment products wouldnât take place until their customers visited the financial hub themselves. Will China allow this practice to continue?
The BriefWire