Hang Seng Bank Ltd.

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Hang Seng Bank Ltd.

83 Des Voeux Road, Central
Hong Kong
Telephone: (+852) 2198-1111
Fax: (+852) 2868-4047
Web site: http://www.hangseng.com

Public Company
Incorporated: 1933 as Hang Seng Ngan Ho
Employees: 7,200
Sales: HK$10.68 billion ($3.65 billion)(2002)
Stock Exchanges: Hong Kong
Ticker Symbol: HSNGY
NAIC: 522110 Commercial Banking

Hang Seng Bank Ltd. is Hong Kong's second-largest bank, behind the Hong Kong and Shanghai Banking Corporation, which, like Hang Seng, is majority controlled by the United Kingdom's HSBC. Hang Seng operates throughout Hong Kong, with more than 155 branches, including locations in Mass Transit Railway stations and a strong network of automated teller machines. Hang Seng provides the full range of commercial banking services for the both the retail and corporate sectors, as well as credit and debit card services, insurance policies, home mortgages and automobile loans, and investment services. With the slowing down of Hong Kong's economy following its return to Chinese control, Hang Seng has joined its compatriots in seeking new expansion opportunities on the mainland. Since the mid-1990s, the group has opened a number of branches in Chinese cities, including in Shenzhen, Shanghai, Fuzhou, Najing, and Guangzhou. The company also operates representative offices in Beijing, Xiamen, and Taiwan. In 2003, the group began negotiations to acquire an equity stake in Minsheng Bank, the largest privately held bank in mainland China. Although initial negotiations failed to reach an agreement, a future alliance between the two banks has not been ruled out. HSBC controls just over 62 percent of Hang Seng, which trades on the Hong Kong Stock Exchange and is a member of its Hang Seng Indexcreated by the bank in the late 1960s. The group posted an operating profit of HK$10.68 billion ($3.65 billion) in 2002.

Exchange Shop Origins in the 1930s

If Hang Seng emerged as one of Hong Kong's most powerful banks in the late 20th century, its origins could not have been more humble. Founded in 1933, Hang Seng started out as a money changing booth in Hong Kong's Wing Lok Street, in the city's Sheung Wan district. The company, Hang Seng Ngan Ho, was profitable from the start, posting earnings of more than HK$10,000 its first year.

Hang Seng proved true to its name, which means "evergrowing" in Chinese, and soon developed a wider range of banking services, especially after the Chinese Revolution and Hong Kong's separation from the Communist-controlled mainland. By 1952, the company reincorporated, taking on the status of a private limited company (plc), and launching its commercial banking operation. Hong Kong, which became a major destination for China's wealthy expatriates, emerged as one of the Asian region's primary banking centers and banks such as Hang Seng grew quickly servicing the city-state's fast growing economy. By the late 1950s, the bank had come under the control of some of the island's most prominent businessmen.

Hang Seng went public in 1960, although not yet on the Hong Kong Stock Exchange, and ranked among the largest Chinese banks in Hong Kong. In 1965, it caught the attention of the large Hong Kong and Shanghai Banking Corporation. Later known as HSBC, that group had been founded in 1865 by Thomas Sutherland, from Scotland, who launched a banking partnership in order to finance trade between the United Kingdom and Shanghai. Through the first half of the 20th century, HSBC created a banking empire that extended throughout much of mainland China, Southeast Asia, and the Middle East, with offices in London as well. Following the Communist takeover of China, HSBC was forced from the mainland and refocused its operations on its U.K. and Hong Kong branches.

When Hang Seng bank suffered a run on its deposits in 1965, HSBC came to the rescue, buying up a 51 percent share in Hang Seng, the equivalent of £200 million at the time. HSBC later raised its stake in the company to more than 62 percent. By the beginning of the new century, HSBC's initial investment in the bank had been multiplied by more than 50.

Hang Seng introduced seven-year home mortgages in 1967; by the end of the decade, the bank confirmed its status as a major Hong Kong bank with the launch of the Hang Seng Index, which became the Hong Kong Stock Exchange's primary market indicator, tracking the shares of the colony's top 33 firmsincluding Hang Seng itself, which joined the Hong Kong Stock Exchange in 1972. The bank's initial public offering valued Hang Seng at HK$2.8 billion.

Hang Seng earned a reputation as a cautious lender, helping it build a solid foundation for itself through the 1980s. The bank also expanded strongly in the consumer retail market, particularly after it was granted the franchise for Hong Kong's Mass Transit Railway system. The company began opening new branches in the city's train stations. By the end of the 1980s, the company boasted some 150 branches in Hong Kong alone.

Mainland Aspirations for the New Century

The 1984 agreement reached between the British and Chinese governments, restoring China's control over Hong Kong, led Hang Seng to make a first, if tentative, approach to establishing operations on the mainland. In 1985, the bank opened its first representative office outside of Hong Kong in the newly created Shenzhen free trade zone. It was not until 1995, however, that Hang Seng opened its first official branch office in mainland China, extending the group's operations into Guangzhou. Two years later, after Hong Kong was reunited with the mainland, Hang Seng opened its second mainland branch, this time in Shanghai.

While Hong Kong was renewing its relationship with the Chinese mainland in the late 1990s, Hang Seng's relationship with HSBC was also strengthened. This was particularly true after the appointment of two officials from Hongkong & Shanghai Banking Corporation, the main HSBC arm in Hong Kong, to corresponding positions with Hang Seng. In 1997, Hongkong Bank's chief executive, David Eldon, was appointed chairman of Hang Seng. The following year, after Hang Seng CEO Alexander Au left the bank to take up a similar position at Standard Chartered, a major HSBC rival in the Asian region, the company named Vincent Cheng, executive director at Hong-kong Bank, as the new Hang Seng CEO.

The move raised questions as to Hang Seng's future status amid a difficult economic climate, brought on by the financial crisis that swept through most of Asia in the late 1990s. At the same time, China's fast-growing economy had led to a shifting of the region's financial focus away from Hong Kong and onto the mainland. Analysts questioned Hang Seng's long-term viability, in part because HSBC's own ambitions for growth on the Chinese mainland appeared to limit Hang Seng's maneuverability outside of Hong Kong. For the time being, however, both Hang Seng and HSBC remained committed to maintaining Hang Seng as the independently operating, publicly listed Hong Kong wing of HSBC. Indeed, Hang Seng remained one of HSBC's only publicly listed subsidiaries.

As Hang Seng entered the new century, its role within HSBC's regional ambitions became more clear, as HSBC targeted the growing number of multinational corporations entering the Chinese mainland. Hang Seng, on the other hand, focused its efforts on winning the mainland financial business of the Hong Kong-based business community as it stepped up its own investment on the mainland. Hang Seng's strategy appeared to be paying off, as its net profits soared past HK$10 billion by 2000.

Hang Seng continued to seek new operating sectors, particularly higher margin business. In 2000, the group went online, introducing its own e-banking services. In 2001, Hang Seng introduced a new Prestige Banking department, providing asset management, securities trading, and other services for customers presenting portfolios of at least HK$500,000 (US$64,000). The following year, Hang Seng began offering services based on the Chinese renminbi currency, a service originally reserved for foreign passport holders and foreign-invested companies, and for citizens of Hong Kong SAR, Macau, and Taiwan. By the end of the year, however, the group appeared to have come full circle, as it began offering renminbi currency services to mainland Chinese customers as well.

Company Perspectives:

Our corporate tagline'Hang Seng Bank. Exceed. Excel.'highlights the high standards we have set ourselves to exceed your expectations and excel in our operations. We shall continue to grow with you and with Hong Kong in the years ahead, helping you realize your financial aspirations and scaling new heights as the 'ever-growing bank.'

Key Dates:

Founding of Hang Seng Ngan Ho as a small currency exchange office in Hong Kong.
Hang Seng acquires full commercial bank status.
First public offering of Hang Seng.
HSBC acquires a majority interest in Hang Seng.
Hang Seng is listed on the Hong Kong Stock Exchange.
Bank begins opening branches in Mass Transit Railway stations.
The first Hang Seng representative office on the Chinese mainland opens.
A branch office in Shanghai is opened.
E-banking services are introduced.
Company announces plans to invest HK$200 million to open branch office in Beijing.

A full-fledged entry into the fast-growing Chinese market became Hang Seng's major focus for the new century. In 2003, Hang Seng entered negotiations to buy an equity stake in Minsheng Bank, the largest privately held bank in mainland China. Talks collapsed after the two sides reportedly could not reach agreement on the level of management control Hang Seng was to receive after the acquisition. Thus, Hang Seng was forced to look elsewhere for its mainland entry.

Acquisitions remained a major facet in the bank's mainland expansion strategy. As CEO Cheng explained to China Daily: "We have deep pockets and are highly capitalized." Nonetheless, the bank continued to expand into the mainland market through organic growth. In November 2003, Hang Seng announced its intention to open a full branch office in Beijing, investing up to $25 million to do so. With 70 years of success in building one of Hong Kong's leading banks, Hang Seng appeared to have promising prospects in the vast Chinese market in the new century.

Principal Subsidiaries

Bankers Alliance Insurance Company Ltd.; Beautiful Fountain Investment Company Ltd.; Cheer Free Investments Ltd.; Fulcher Enterprises Company Ltd.; Full Wealth Investment Ltd.; Hang Che Lee Company, Ltd.; Hang Seng Asset Management Pte Ltd; Hang Seng Bank (Bahamas) Ltd.; Hang Seng Bank (Trustee) Ltd.; Hang Seng Bank Trustee (Bahamas) Ltd.; Hang Seng Bullion Company Ltd.; Hang Seng Credit Ltd.; Hang Seng Credit (Bahamas) Ltd.; Hang Seng Credit Card Ltd.; Hang Seng Data Services Ltd.; Hang Seng Finance Ltd.; Hang Seng Finance (Bahamas); Hang Shun Lee Company, Ltd.; Haseba International Management Ltd.; Haseba Investment Company Ltd.; Haseba Properties Holdings (USA) Inc.; Haseba Real Estate (USA) Inc.; Hayden Lake Ltd.; High Time Investments Ltd.; HSI International Ltd.; HSI Services Ltd.; Imenson Ltd.; Mightyway Investments Ltd.; Perpetual Publicity Ltd.; Wide Cheer Investment Ltd.; Yan Nin Development Company Ltd.

Principal Competitors

Westpac Banking Corporation; BOC Hong Kong Holdings Ltd.; Bank of Tokyo-Mitsubishi Ltd.; Bank of East Asia Ltd.; Dao Heng Bank Group Ltd.; Nanyang Commercial Bank Ltd.; Schroders Asia Ltd.; CITIC International Financial Holdings Ltd.; Shanghai Commercial Bank Ltd.; Overseas Trust Bank Ltd.; Industrial and Commercial Bank of China Asia Ltd.; Wing Lung Bank Ltd.; Dah Sing Bank Ltd.; Wing Hang Bank Ltd.

Further Reading

"Hang Seng Bank Expands," People's Daily, November 11, 2003.

"Hang Seng to Expand in China," China Daily, August 6, 2003.

Kynge, James, "Hang Seng Bank Deal Runs Aground," Financial Times, April 1, 2003, p. 27.

Leahy, Joe, "Hang Seng Makes a Play for Financial Services to Offset Contracting Margins," Financial Times, March 12, 2001, p. 34.

, "Hang Seng Offsets Fall in Income with New Services," Financial Times, March 5, 2002, p. 27.

M.L. Cohen