Sixth in an occasional series on the Big Bang financial reforms
While many financial institutions have begun to review their operations to better position themselves ahead of the “Big Bang” of deregulation, Hongkong and Shanghai Banking Corp. feels no need to rush in and change right away, the head of the bank’s Japan operations said.
Hongkong Bank’s chief executive officer for Japan, Stuart Pearce, said in a recent interview that “it would be arrogant” for him to say the bank is perfectly positioned for the impending Big Bang, because the world of banking is always changing. “You can never say you will never do something — I don’t doubt that if we saw an opportunity that made commercial sense, then we would put some more money on the table and bring more resources in. But I think perhaps we are lucky as much as we have the ability to sit back and watch and see what happens rather than perhaps rush into something,” Pearce said.
Some financial institutions that made hasty decisions in adapting to the Big Bang financial reforms implemented in the City of London in 1986 ended up regretting their actions, he added.
Pearce, who assumed his current post in April, observed that Tokyo’s version of the Big Bang is a major step forward and that there is more to the reforms than a simple reduction of financial regulations. He said it could be seen as a “major cultural shift” in Japan that would be more far-reaching than just liberalization of financial and capital markets and affect Japan in general as well.
“The Big Bang in the U.K. created huge opportunities and change, and I suppose in Tokyo you’ll find the same. Many foreign banks are already starting to position themselves for the Big Bang to take advantage of such changes,” he said.
Over the past few months, many business alliances have been forged between Japanese and foreign financial institutions. Such a phenomenon is the result of a match in these firms’ needs — Japanese institutions hope to gain the expertise of their foreign counterparts, and foreign financial companies wish to secure a firmer footing in the domestic market to take advantage of budding opportunities. “Whether such an opportunity will present itself to (us), I don’t know, but a group of our size would like to further develop its business” in Japan, Pearce said.
Hongkong Bank is the key member of the London-based financial conglomerate HSBC Group, one of the largest financial services organizations in the world, which as a group logged pretax profits of roughly $7.07 billion in 1996. The bank began business in Japan in 1866, one year after it was established in Hong Kong and Shanghai to finance the growing trade between China and Europe and North America.
Earnings reports for the year that ended in March showed that the three Japanese branches of Hongkong Bank together incurred pretax losses of 203 million yen, a figure that company officials attribute largely to the high costs of operating here.
Citing the bank’s long presence in Japan and its history as an Asian bank as strong advantages in this rapidly changing environment, however, Pearce expressed confidence that further financial liberalization would be a good opportunity for the Hongkong Bank to further develop its business.
On the one hand, clients with business in other Asian countries who want to enter Japan would look to HSBC because of its long-standing relationship here. Conversely, since many Japanese tend to view Asia “as almost their back yard,” they would naturally view HSBC as their main provider in doing business elsewhere in Asia, he said. “We have our roots in Asia, and as a result there is a perception that the bank has significant strength in Asia. Therefore, perhaps clients would regard us as their first choice if they want an Asian capability,” Pearce said.