HSBC Will Refocus on Emerging Markets, Asia CEO Says

June 21 (Bloomberg) -- HSBC Holdings Plc, the world's third- largest bank by market value, will step up expansion in emerging markets such as India after mounting mortgage defaults at its U.S. unit crimped profit, the company's incoming Asia chief said.

``We're going to have a finance-led emerging markets focus,'' shifting away from developed markets, said Sandy Flockhart in a phone interview from Johannesburg. Flockhart, who takes over HSBC's Asia operations next month, said he plans to increase hiring in countries including India and China.

The London-based bank, which gets almost 40 percent of its pretax profit from Asia, is putting more emphasis on emerging markets to counter slower growth and rising consumer loan defaults in the U.S. and U.K. Flockhart should invest more in countries such as India, Taiwan and South Korea, analysts including Kevin Chan at Nomura International (HK) Ltd. said.

``They need to put more emphasis in particular on India,'' Chan said. ``Competition is increasing every day.''

HSBC yesterday said Flockhart will take control of its Asia unit, The Hongkong and Shanghai Banking Corp. Ltd., in July. The 55-year-old has headed HSBC's Latin American and Caribbean unit since October. He replaces Michael Smith, who's joining Australia & New Zealand Banking Group Ltd. as chief executive.

The biggest banks in India, the world's second-fastest growing major economy, may raise a combined $10 billion selling stock in the year through March 2008 as they seek to finance growing demand for loans. HSBC has 69 offices in the country, according to its Web site, trailing Standard Chartered Plc's 81.

`Growing Middle Class'

HSBC will focus on building its consumer and private banking business in India, Flockhart said. ``The middle class is growing, so that's where we can focus a lot of our efforts.''

It is too early to say how many branches HSBC will open in India or how much money it will spend there, he said. The bank will also consider buying minority stakes in competitors, he said. A foreign bank faces limits on how many branches it can open in the country and can't buy more than 10 percent of an Indian bank.

Flockhart, who last served in Asia as chief executive of HSBC's Thailand business from 1992 to 1994, has also worked for 12 years in Hong Kong, where two of his four children were born.

Flockhart needs to be more aggressive in South Korea and Taiwan, where HSBC has expanded at a slower pace than Standard Chartered, Krista Yue, a Hong Kong-based analyst at Deutsche Bank AG, said by phone yesterday.

Valuation Gap

``I think clearly the market is affording Standard Chartered a better valuation as a result,'' she said. ``They have been very aggressive at a very good time.''

Standard Chartered shares trade at 2.7 times book value; for HSBC, the ratio is 1.99, according to Bloomberg data.

HSBC has 14 outlets in South Korea and the same number in Taiwan, according to its Web site. That's dwarfed by Standard Chartered's 403 branches in South Korea and 86 in Taiwan, according to its annual report. Standard Chartered bought Korea First Bank for $3.7 billion in 2005 and Taiwan's Hsinchu International Bank for $1.2 billion in October.

Citigroup Inc. bought Taiwan's Bank of Overseas Chinese for NT$14.1 billion ($428 million) in April. ABN Amro Holding NV this month agreed to take over failed Taitung Business Bank in return for a NT$6.9 billion subsidy from the island's government.

Taiwan and South Korea ``are important growing economies,'' Flockhart said. ``We want to play a part in developing their economic growth.''