China's unquenchable thirst for oil, and its growing appetite for so-called dim sum bonds issued by Canadian firms, is pushing Canada to the front of the line at financial giant HSBC Holdings PLC.
As the British-based bank continues to restructure its operations, the Canadian subsidiary has become HSBC's third-most profitable market, behind Hong Kong and Brazil, and is within reach of claiming the second spot.
Canada's rise to such prominence within the bank is largely due the attention Canadian assets are gaining in China right now, said Paulo Maia, the newly appointed CEO of HSBC Bank Canada, in his first interview since being named to the job.
In particular, China's interest in Canadian resources, including oil-sands assets, and the growing interest in dim sum bonds – foreign debt issued in Chinese currency – has the bank looking at Canada as one of its key growth markets, Mr. Maia said.
Even as Canada debates the merits of allowing Chinese ownership of energy assets, such as the takeover of Nexen last year by the country's state-owned oil company, Mr. Maia said demand for investment opportunities hasn't taken a hit, particularly as China becomes the world's largest importer of oil.
"The opportunity is enormous. Our estimate is that there are projects worth over $500-billion, in various stages of development, associated with the opportunity in the resources and energy sector in Canada," Mr. Maia said.
"The timing is clearly good, given the demand for energy from emerging markets, particularly Asia," Mr. Maia said. "And we are allocating resources here to Canada as well to work with our customers around reviewing these opportunities."
"I think there is a great opportunity associated with the oil and resources sector. And obviously there is an ongoing discussion in the society which is very relevant, around implications for communities, for the environment and this needs to be carefully negotiated and I'm sure it will come to some kind of conclusion."
This week, HSBC Canada closed the books on a $1-billion year of operating profit in Canada, a first for the bank, and the first time a foreign bank's subsidiary has reached that level in Canada. Mr. Maia said the flow of capital between China and Canada is a key driver for the bank's growth. Based in London, with its Canadian head office in Vancouver, the bank has focused its efforts on clients and companies that do business between Asia and Canada.
HSBC is also pushing to be a leader in dim sum bonds and other transactions that are executed using China's currency, the renminbi, also known as the the yuan. The deals are increasingly more attractive to Chinese investors than bonds or deals denominated in Canadian or U.S. dollars.
A variety of companies and governments have been eyeing the dim sum bond market as a way to tap new investors outside of North America and Europe. Among them, the B.C. government conducted an investor road show in Beijing, Hong Kong and Singapore in December to assess demand for the sale of provincial bonds denominated in Chinese currency. The bonds are also seen as a way for some offshore investors to bet on China's currency.
"We are clearly playing a very important role on [dim sum bonds], given our prominence in the Hong Kong market, and China as well," Mr. Maia said. "We're not only looking at it from a trade perspective, but to also help companies diversify their funding base. So we're actively involved in discussions with a lot of potential issuers of dim sum bonds," he said. "And I think you will find that trade flows, capital flows with Aisa, will grow quite a lot with Canada."
Mr. Maia, who has been with HSBC for 20 years in five different countries, recently took over the Canadian operations from retiring CEO Lindsay Gordon. After a year that saw HSBC sell off assets in Canada and cut costs, Mr. Maia said the business is back into growth mode, with a focus on business with Asia. The bank has about 140 branches across the country. "Our agenda in Canada is a growth agenda," he said.
Earlier this week, HSBC Canada announced a net profit of $157-million for the fourth quarter, up 16 per cent from a year ago. Profit for the year was $761-million, up 8 per cent, while operating profit before taxes topped a billion. The profit was driven mostly by asset sales and cost cutting, as the company restructured the Canadian operations.
However, the Canadian results looked considerably better than the parent bank's global operations, which reported a 6-per-cent drop in profit, to $20.7-billion. Part of the drop in earnings was related to $1.9-billion (U.S) HSBC has set aside to settle money-laundering allegations, an increase of $500-million in the bank's compliance costs. As well, the bank paid a $300-million settlement on a British decision related to the improper sale of insurance on loans and swaps to clients.