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HSBC's bow to China stirs up internal anxiety and patience

Hong Kong employees show frustration over support of new national security law

HSBC's headquarters in Hong Kong. The bank's backing of China's new security laws for Hong Kong has hit a raw nerve in the city over the mainland's creeping control, but it has also elicited a sense of understanding among employees.   © Reuters

HONG KONG -- One evening earlier this month, an HSBC retail banking executive in Hong Kong was startled to see news alerts on his phone saying that his company was supporting China's new national security laws for the territory.

U.K.-based HSBC Holdings, which has much of its operations in Asia, had avoided choosing sides when Hong Kong was in the midst of violent anti-government protests. But things had changed.

"Of course, I was speechless," said the executive, who declined to be named and had participated in some rallies last year. "I called my closest colleagues and they were shocked, too, and we speculated about how other employees and the public will react."

HSBC management's recent public backing of the new security laws, while hitting a raw nerve in Hong Kong over the mainland's growing control, has also elicited a sense of understanding among the bank's rank and file.

Interviews with a dozen HSBC employees reveal an underlying frustration across department teams over the bank's decision to side with Beijing. At the same time, they said a majority of the staff in Hong Kong acknowledge that management had little choice but to break 155 years of political neutrality and support the masters of their largest market.

Armed undercover police officers guard a vandalized HSBC branch in Hong Kong on Jan. 1. The new security laws have raised fears of a harsher crackdown on dissent in the city and the implications for its status as a global financial center.   © Reuters

That was a bitter pill to swallow for many of the bank's 30,000 Hong Kong-based employees, who have prided themselves on working with a financial giant that has deftly navigated the East-West political divide. However, grim realities amid announced -- but temporarily suspended -- plans to slash 35,000 jobs across the bank globally are forcing them to take a tolerant view.

So far, the response in Hong Kong has been limited to whispers among colleagues, in contrast to a backlash in the U.K. and the U.S. Hundreds of employees have signed an online petition to voice their disappointment toward the bank's stance, and Hong Kong's finance sector labor union has accused the lender of "betraying" the people by aligning with the "evil authority."

"Of course, I'm not happy with the company's stance, but it's hard to get a job in Hong Kong where you're completely free from Chinese political pressure," said one employee who asked that only his surname, Chan, be used, because of the sensitive nature of the issue. The employee, who works in the markets department, was referring to positions in mainland-based financial-services firms.

Chan feels relieved that the bank did not make him, nor his colleagues, sign a petition supporting the laws, which Peter Wong, the Asia head of HSBC, endorsed. That differs from Chinese financial institutions with operations in Hong Kong. Executives of the Chinese banks were asked to add their signatures to the pro-security laws petition, and many have requested their staff in Hong Kong to sign the document as well.

One HSBC analyst said: "I'm not surprised by their move at all. They earn so much money from Hong Kong and China. What options do they have?"

After a year of sitting on the fence amid anti-government protests, and at times taking blows from China, HSBC's C-suite executives decided they had to take a stance to protect the business.

C.Y. Leung, the former chief executive of Hong Kong and a vice chairman of the Chinese People's Political Consultative Conference, Beijing's top advisory council, had publicly proposed a consumer boycott of HSBC because of its reticence over the national security laws.

Senior HSBC executives, led by Chairman Mark Tucker, who has lived in Hong Kong for decades, and Chief Executive Noel Quinn, took the position based on a survey commissioned after the bank was blamed for its role in the fallout over its involvement with Huawei Technologies, said two people familiar with the situation, adding that the board was informed of the decision.

That decision came just months after HSBC, under instruction from British regulators, canceled its dividend for the first time in 74 years, sparking a revolt from Hong Kong retail shareholders, who own a third of the bank's shares.

The lender, which was founded in 1865 as the Hongkong and Shanghai Banking Corp. to tap the growing trade between Europe, China and India, earns 40% of its revenue and more than 60% of its profit in Hong Kong and mainland China. That could increase further under Quinn's pivot toward Asia and away from Europe and the Americas to halt years of underperformance.

"Right from my first day in office over a decade ago, one constant rhetoric was we don't discuss politics amongst ourselves or our clients," said an executive in the markets business whose surname is Lo. "We can't hide behind that reputation anymore. It's a changed economic order and for now HSBC needs China and not vice versa."

However, three employees said they were surprised that the Hong Kong public, where 3 million of the roughly 7.5 million residents are customers, have not yet gone beyond social media calls to close accounts.

Nearly two weeks after declaring support for the law, it is business as usual for HSBC -- unlike a rush by anti-government protesters in January to damage branches and the Norman Foster-designed headquarters following a move by the bank to close an account used by a group that aids the pro-democracy movement.

Even the two iconic bronze lions -- nicknamed Stephen and Stitt -- that guard the head office were set on fire at that time. The lions have been boarded up, as have many of the fronts of HSBC branches across the city, joining similar moves by mainland lenders and businesses.

Hong Kong police officers at an HSBC branch during protests last year. Staying clear of politics is a tough task for the bank with operations spread across 64 countries.     © Reuters

Customers, politicians and investors in the West have been more vocal. David Cummings, chief investment officer at the investment arm of British insurer Aviva, questioned HSBC's move to publicly back the Chinese laws without yet knowing the details, discussions for which are expected this month.

A spokesman for Aviva later said the company has had conversations with the bank.

Last week, U.S. Secretary of State Mike Pompeo also criticized HSBC's move in a statement.

Staying clear of politics is a tough task for the bank with operations spread across 64 countries, 235,000 employees and $2.7 trillion in assets. HSBC's predicament exemplifies the quandaries faced by multinational companies active in China when balancing pressures from their home governments, shareholders and staff with those coming from Beijing and its allies.

To be sure, the foundation for the bank's current plight had been laid months earlier.

Last year, HSBC launched a public-relations campaign to contain the fallout from its role in the U.S. crackdown on Huawei and defend its position as the largest foreign bank in China. The internal campaign, called "Beijing Visibility Strategy," was aimed at protecting the bank's reputation in the world's second-largest economy.

The PR offensive came after reports that Liu Xiaoming, China's ambassador to the U.K., summoned then-CEO John Flint in early 2019 to the embassy to question him over the company's role in the arrest and prosecution of Meng Wanzhou, Huawei's chief financial officer and daughter of the company's founder, Ren Zhengfei.

The bank lost out on some roles in China amid the Huawei fallout. Last year, it was not part of the committee that decides China's prime lending rates. Among the expanded panel's 18 members, only two foreign banks -- Standard Chartered and Citigroup -- were included.

Logos of Standard Chartered and HSBC on their offices in Hong Kong. Smaller rival Standard Chartered almost immediately joined HSBC in supporting the national security laws.   © Reuters

However, the bank's fortunes had turned by mid-2019, and it led China's sovereign bond issuance in November and a host of debt sales by Chinese companies and banks. It also has served as adviser for a number of large acquisitions by Chinese companies.

All that was threatened two months ago when China introduced the security bills to punish acts pertaining to "separatism, subversion, terrorism and foreign interference" and piled the pressure on companies to toe its line. Chinese financial institutions in Hong Kong even asked employees to sign the petition supporting the bills.

The new laws have raised fears of a harsher crackdown on dissent in Hong Kong and the implications for the city's status as a global financial center. Washington has threatened to revoke trade and investment privileges it grants to Hong Kong, saying it is no longer semi-autonomous.

HSBC tried steering clear of the issue, but when it was cornered, Tucker and Quinn determined that the least worst of the available options was to back China in the larger interest of the business. They decided to fall in line.

Still, it was low key. There was no public announcement. Instead, the bank's China unit posted photos on the social media platform WeChat of Wong -- HSBC's Asia head -- signing a petition outside a Hong Kong metro station in support of the security laws.

An accompanying statement in the bank's name in Chinese said: "We reiterate that we respect and support laws and regulations that will enable Hong Kong to recover and rebuild the economy."

Smaller rival Standard Chartered almost immediately joined HSBC in supporting the laws. "HSBC reduced our options to just one," said a Standard Chartered senior executive in Hong Kong.

HSBC's low-key push to join ranks with China came late in the day, and as news spread across office floors in Hong Kong, there was a sense of disbelief and shock, according to five employees at the bank.

"Even now, I'm reminded of the much-used phrase, the straw that broke the camel's back," a retail banking employee named Liu said. "Most of us feel betrayed. While we acknowledge the bank had to protect itself or risk becoming a pariah in its own backyard, we still ask: Could it have been done better?"

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