The Bank That Ate the World

Scotman Thomas Sutherland, a manager at a shipping company, wisely recognized the profits to be had in the burgeoning trade in a developing market like China. The bank he helped start, Hongkong and Shanghai, now called HSBC, became one of China's top financial institutions within just a few years of its founding. That was in 1865.

Today history is going full circle. The London-based megabank--the world's second largest bank by market value in mid-January--is returning to its roots. China, the world's fastest-growing economy, is the hottest market in global finance, sending international banks on a mad scramble for acquisitions and customers.

And HSBC is sitting pretty. It boasts the most extensive branch network of any foreign bank on the mainland, with 20 outlets spread from Chengdu in the far west to Tianjin on the northeast coast. The bank has invested more than $4 billion since 2001 to buy stakes in Chinese financial institutions, including nearly 20% in both Bank of Communications, China's fifth largest bank, and Ping An Insurance, its second biggest life insurer. Compared with the same period in 2004, pretax profits in China increased sixfold, to $161 million, in the first half of 2005. As a sign of its renewed influence in the Middle Kingdom, the bank resides today in a new skyscraper called HSBC Tower in Shanghai's up-and-coming financial district of Pudong, across the Huangpu River from the bank's old, domed office on the Bund. "We've been here 140 years, and we'll be here another 140 years, at least," says Richard Yorke, CEO of HSBC in China.

Despite its history, HSBC needs to do far more business in developing markets like China to spur growth. After focusing much of its energy over the past seven years on mature economies, it is locked in a global contest with its chief rival, Citigroup, to tap the pocketbooks of the world's newly rich. From South Korea to India to Brazil, HSBC is expanding its branch network, launching new financial products and marketing its brand. In December HSBC acquired 10% of Vietnam's Techcombank; in November HSBC said it planned to launch the first independent investment bank in Saudi Arabia; and in late October it purchased 70% of an investment bank called Dar Es Salaam in, of all places, Iraq. Says Stephen Green, HSBC's global chief executive, who in November was named the bank's next chairman: "These are markets into which we should be prepared to invest significant dollars."

Much of the world remains unbanked. China's 1.3 billion people, for example, carry about 10 million credit cards, compared with 1.2 billion in the U.S. In Mexico only 1 in 5 people has a bank account. Rising middle classes in developing countries are low-hanging fruit for multinational financial-services companies. "In the next 25 years, you'll see economic wealth distributed more evenly with the world's population," says John Bond, HSBC's outgoing chairman. "Demand for financial services in emerging markets is going to grow consistently and probably grow faster than it will in the more mature markets."