HSBC Says Hints of Economic Recovery May Be Signal to Expand in Third

HSBC Holdings PLC may be poised to step up its acquisitions in emerging markets, now that the worst of the Third World economic crisis seems to have passed.

HSBC chairman John Bond noted the incipient recovery during a discussion of the bank's acquisition strategy last week at the London-based banking company's U.S. banking unit here.

"The secret to expansion is timing," he said. "We don't see any point going into a market until an economy has stabilized, political structures are better, and the market is open to foreign investors.

"We're seeing different countries recovering at different speeds, but I think we've passed the nadir, and the downside is behind us."

That creates opportunity for a company that Mr. Bond said has sought to balance its business between emerging markets and developed countries. "The question is: Do you want to buy at three to four times book value in a mature market or at close to book in a market where there are opportunities for growth?"

Mr. Bond emphasized, however, that his company "can expand without acquisitions."

HSBC has more than 5,000 offices around the world, handling everything from retail banking to corporate finance. It closely resembles Citigroup, another institution similarly bent on globalizing its consumer and corporate banking.

HSBC has major presence in the United States. HSBC Americas Inc. recorded pretax income of $203.8 million for the quarter ended March 31, up 8% from a year earlier. Net income for the quarter declined by 1%, to $121.4 million.

The growth in pretax income reflected strength in commercial lending and the fourth-quarter acquisition of about $1.7 billion in commercial loans from the U.S. branches of Hongkong and Shanghai Banking Corp. In addition, pretax income benefited from a gain of $15.0 million from the sale of a student loan business in California.

On March 29 the principal U.S. subsidiary changed its name from Marine Midland Bank to HSBC Bank USA as part of a global branding initiative.

The bank has been steadily expanding outside its former home base in Hong Kong since 1987, first acquiring control over Marine Midland Banks in the United States and then taking over Midland Bank, one of the largest British banks, in 1992.

Since 1997, HSBC has been on an acquisition spree in emerging markets, spending around $5 billion to acquire banks in Brazil, Argentina, and mostly recently South Korea, where it has applied for approval to acquire a 70% stake in SeoulBank.

Though Mr. Bond said the emerging markets appear to be out of the woods, he warned that Japan still needs to reach a "political consensus" to escape a long-term recession, and that economic and political structures in other Asian countries "will have to catch up with extremely fast economic growth."

"Long-term economic recovery in Asia is still conditional on reform," Mr. Bond said.

He also cautioned that further recovery in emerging markets depends on continued low interest rates. "The great fear is over a rise in interest rates and the impact this could have on a country like Brazil," he said. "You have the whole world going to church and praying that Mr. Greenspan doesn't wake up and raise rates."

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