Bankers for months have offered optimism — nay, prayers — that commercial lending will shake off its doldrums. But their hopes have generally gone unrewarded as banks have relied on higher interest rates to compensate for tepid loan growth.

But Martin Richards, the head of corporate banking for HSBC USA, says he sees something in the numbers on middle-market companies that justifies an upbeat attitude for 2018. U.S. companies with annual sales of $50 million to $500 million are growing faster than their foreign peers, he said, and they have a lot of upside if they more aggressively pursue international markets.

For that reason, London-based HSBC’s $191.9 billion-asset U.S. arm is making middle-market businesses a cornerstone of its broader growth plan, which includes expanding to new cities beyond its traditional bases in New York and San Francisco.

“We’re in growth mode,” says Richards, who describes customer attitudes as “optimistic or at least sanguine.”

He derives additional confidence from a survey HSBC recently conducted in conjunction with Oxford Economics. As part of their research, they surveyed 1,400 decision-makers at middle-market companies in 14 countries, including the U.S., to get a sense of their priorities.

Among other findings, U.S. middle-market companies said their priorities lie in collaborating with external partners (50%) and finding financing (41%). They are also slightly less confident in their local economy than non-U.S. companies (65% versus 69%), and a majority (59%) identified skill shortages as one of the biggest threats to their businesses.

In an interview with American Banker, Richards shared a little bit about what those results could mean for HSBC’s U.S. business. He also discussed the impact of U.S. policy fights over immigration and trade on customers’ attitudes. The following has been edited for length and clarity.

What were the most striking takeaways from the survey, from your point of view as a commercial banker?

MARTIN RICHARDS: Two things — when we look at U.S. middle-market companies, they are growing faster than other middle-market companies around the world, about 5.6% compared to the rest of the world being at about 4%. Going forward, they believe they’re going to be up around 7.5% versus the rest of the world getting up to 5%. So you’re seeing growth faster than the GDP of the country, but also faster in the U.S. than in other countries. And the expectation is that growth will accelerate, and as it accelerates it will of course stay ahead of the GDP of the country.

The second thing is, even though those are some heady numbers, as far as U.S. middle-market growth goes, only 7% of their revenue comes from international activity. As the globe gets smaller, we expect that number to get higher and higher.

We’re seeing more and more smaller companies source or sell internationally, and as they do that, we feel that’s a real opportunity for us to add expertise around trade finance, financing, treasury management, foreign-exchange risk, all of the different areas that smaller companies need to consider when they go international.

If you’re a large multinational, you’ve probably been overseas for decades and you have a large finance team built out. When you’re a smaller middle-market company, you might be going overseas for the first time, you might be going into a country for the first time, and you probably don’t have a large finance team to help you with all the concerns around setting up your treasury system, getting loans in the right currencies, exchange rates, etc.

Do you anticipate that banks will finally see some stronger growth in commercial loans this year?

In my personal conversations with clients, most range from sanguine to optimistic, so not much pessimism. We would expect that to be a good growth year for the industry in banking and for HSBC particularly. Clients are optimistic.

HSBC commercial loans and deposits over five quarters.

On top of that, we also have the tax bill that’s just put in place, and there is potential for repatriation of cash, and we’ve started some conversations with different clients about those, and some of the larger names are in the press about what they’re going to do.

It’s too early to actually tell right now, but I think if a lot of tax is repatriated in the short term, it could put pressure on banks’ loan balances. If you repatriate $100 million and you’ve got $200 million on your revolver and you’re not going to spend it on the day you repatriate it, you pay down the revolver and deal with it later. I do think in the short term, there could be that. In the longer term, most clients seem to be optimistic and talking about growth plans, whether it’s expansion of plants or hiring people or moving into new markets. We’d expect that increase in economic activity to drive loans and balances.

What is HSBC doing to drive more growth in commercial banking?

I would say we have two major strategies. We’re very big right now on both coasts, between New York and San Francisco, but we still see real opportunity in a lot of other cities where we don’t have as big a market share, that have plenty of companies that have international operations or international aspirations. We’re trying to build out around L.A., Chicago, greater Dallas, Atlanta and Boston. In all of those cities, we have people and we have clients, but we feel there’s a lot more opportunity for us to grow.

The second thing is, we think understanding our clients as they get into an industry and compare to their competitors helps us make better decisions on credit decisions. It also positions us to better serve the client because we understand what’s happening in their industry, why they might want or need a trade finance product or a supply-chain product. We know about their industry, and we know what’s happening

We’re focusing on 10 industries where we feel like we can make real differences for companies by having that extra expertise. And those are technology, apparel, nonbank financial institutions, professional services, auto, nonprofits and higher education, clean tech, food and beverage, med tech, and we also are covering venture capital firms here in the valley. We feel like those initiatives, one around industries and one around underdeveloped spots in the country, are where we’re putting our energy. That comes about in the form of hiring people, opening new offices, developing industry expertise, etc.

There’s a lot of optimism that the Trump administration will be friendly to the business community in terms of reg relief and tax reform, but we’re also hearing a lot of tough rhetoric around issues like trade and immigration. What impact does all that have on HSBC, and what are you hearing from some of your internationally minded clients?

We have not experienced a slowdown in global trade, and we have not heard from our clients that they’re having trouble doing business in global trade. However, with the posture and the commentary — we don’t really know what’s going to happen.

I’ll take auto as an industry example. The supply chain for auto companies is so interwoven between Canada, Mexico and the U.S., where you might have a manufacturer buying from a Tier 1 supplier down the street in Detroit, Mich., who’s buying from a Tier 2 in Canada who’s buying from a Tier 3 in Mexico. Some of these industries are so intertwined and across border that if something were to happen, that were to make it harder to do business, it could be very impactful.

There’s a lot of talk, but I don’t think there has been any activity heretofore that has dampened actual performance yet.

Along those lines, HSBC’s survey identified a skills shortage as a potential business threat. Do you worry at all that tighter immigration policies could exacerbate that?

I would say there is concern [among clients] about that. I’m sitting here in San Francisco and one of the industries we cover is technology, and it’s a very skilled workforce that works in a lot of these technology firms. There are definitely concerns that if we had, and I’ll take the extreme, no one with visas from other countries allowed to come here, what would we do? If we had no legal immigration, what would we do? I’m not saying we would get to that extreme, but there are definitely concerns about that.

I don’t know that we have a general skill shortage across the country and in all industries, and the reason you can kind of tell that is, we haven’t started seeing the run up in wage inflation. But definitely in certain sectors and certain geographies, you’re starting to see that and I think that absolutely would be exacerbated if we were to dramatically cut down on skilled immigration, whether it be to universities or later after universities or if you were to just go straight to not allowing or granting visas to people coming in.

I would say that’s probably just like some of the NAFTA trade discussions: It’s heavily debated, but I’m not sure we’ve actually seen a dramatic change in what’s actually happening on the ground yet.

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