Wall Street has chance to put Hong Kong to work

HONG KONG, Oct 13 (Reuters Breakingviews) – Leaders from the West’s biggest financial firms will land in Hong Kong next month — in most cases their first trip to the city in three years — with some tough questions for their hosts. The top one will probably be: what have you done for us lately?

Goldman Sachs (GS.N) and KKR (KKR.N) are among over 30 global firms sending their chairs or chief executives to the Hong Kong Monetary Authority’s hastily arranged confab next month, designed to be a sort of second coming-out party for the Greater Chinese financial hub. They arrive amid the worst U.S.-Sino ties in decades, with Hong Kong unhappily stuck in the middle, bringing frustration for companies who have invested much capital and time in the country.

Investment banking fees have dried up everywhere, but it’s particularly bad in mainland China and Hong Kong. Most Chinese property developers and technology firms have been shut out of Hong Kong’s capital markets due to Beijing-led crackdowns on their sectors. Investment banking fees earned from offshore Chinese clients dropped 83% year to date for the top five U.S banks, namely JPMorgan (JPM.N), Goldman Sachs (GS.N), Morgan Stanley (MS.N), Citigroup (C.N) and Bank of America (BAC.N).

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Foreigners are also doing worse than their local peers. The U.S. top five’s combined investment banking market share nearly halved from last year to 21%, according to Dealogic. In the mainland itself, their share shrank two thirds to a derisory 1%. JPMorgan’s China asset management joint venture lost 12% of its funds in the first half, making it the second-worst performing among competitors of similar size, data from Chinese research outfit Jian Financial Information shows.

China could still be a big prize to Western banks, if the authorities were to loosen restrictions on derivatives trading, or open up the market for underwriting bonds, which is mostly reserved for Chinese banks. The country’s high-net-worth individuals may have 214 trillion yuan ($30 trillion) of investable assets by 2030, reckons UBS, so businesses like private banking still boast enormous growth potential. But progress has been slow. Gaffes like JPMorgan boss Jamie Dimon quipping that his bank would outlast the Communist Party cannot help.

That’s where Hong Kong comes in. The city’s government may only have limited sway over Beijing’s regulators and financial policymakers, but it could still make a helpful ally in lobbying on their behalf. And the banks are well placed to ask for a favour: the U.S. top five alone have over 13,000 employees in the city. Many could be moved to other locations like Singapore, which is one reason the HKMA is rolling out the red carpet with its November summit.

Big Western financial firms have paid their dues to China, in lip service at least. Back in 2018, when Beijing said it would open up its financial sector, JPMorgan’s Jamie Dimon laid out his 100-Year China vision. Goldman later made a five-year plan to double down on China hires, while BlackRock (BLK.N) urged investors to increase their exposure drastically. Hong Kong has been a big beneficiary of their ambitions. It would be only rational of them to ask for a favour in return.

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CONTEXT NEWS

The Hong Kong Monetary Authority will host the Global Financial Leaders’ Investment Summit on Nov. 2.

Attendees will include financial leaders from over 100 institutions including banks, securities firms, asset managers, private equity and venture capital firms, hedge funds, and insurers.

More than 30 of these institutions are represented by their group chairmen or CEOs, according to the HKMA.

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Editing by John Foley and Thomas Shum

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Beijing, crunching economic data, interviewing high-level officials, and travelling to far-flung provinces to visit factory floors and talk to local shopkeepers. Before that, she spent nearly three years in Santiago, Chile, where she built a trade news website reporting on the produce industry – and developed Spanish as a third language alongside Mandarin Chinese and English.

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