HSBC’s Play for Mideast Wealth Marred by Exits, Regulatory Curbs

(Bloomberg) — At HSBC Holdings Plc, a star hire who was supposed to reinvigorate the firm’s private banking business in the Middle East is facing a reality check. 

Aladdin Hangari’s efforts to build HSBC’s wealth offerings in the region have been hindered by a bevy of high profile departures — including his predecessor Sobhi Tabbara — and fresh regulatory restrictions that will limit his ability to bring on Gulf royals and their associates as new customers, according to people familiar with the matter. 

For years, HSBC has topped the league tables for capital markets in the Middle East. It’s landed plum appointments on most of the region’s highest-profile fundraisings, from Aramco’s historic share sale to Abu Dhabi National Oil Co.’s mega initial public offering of its natural gas business.

But there’s always been one problem with the bank’s business in the region: While Gulf royals have long turned to the bank for their underwriting needs, they largely haven’t chosen HSBC to manage their hundreds of billions of dollars in wealth. Instead, they’ve parked their fortunes with the likes of Credit Suisse, UBS Group AG and Julius Baer Group Ltd.

That’s had HSBC looking to Hangari, who was Credit Suisse’s top wealth-management executive in Qatar before he joined the British bank late last year, to reignite the business. To pull it off, Hangari made a series of pledges, including that he’d double his division’s roughly $50 billion in assets under management in the coming years, according to one of the people familiar with the matter, who asked not to be named discussing non-public information.

“In wealth, in Hong Kong, we’re already a powerhouse,” Georges Elhedery, who will take over as HSBC’s chief executive officer later this year, told investors in March. “But we recognize we can do more in other parts of Asia and the Middle East.”

Tabbara’s exit angered several ultra-wealthy customers, who yanked about $4 billion dollars from HSBC at the start of the year, according to the people familiar with the matter. While that’s now stabilized, the people said, it’s a sign of some of the challenges Hangari has faced in his first few months on the job.

“Staff turnover is natural and we’re not seeing anything out of the ordinary,” a spokesman for HSBC said, declining to comment on individual employees. “HSBC continues to invest in expanding our franchise in the Middle East. We’re growing our business and actively recruiting talent in the region.”

Explosion of Wealth

This account is based on conversations with more than a dozen people familiar with the matter, who asked not to be named discussing non-public or personnel information. 

HSBC’s private banking woes in the Middle East can be traced back to the years immediately following the financial crisis, when the lender was forced to cleave off businesses — including many of its wealth operations across the Persian Gulf — as it sought to rein in risk and boost profits. 

Those moves came as the region was on the cusp of experiencing an explosion in the number of billionaires and millionaires making their way to its shores and they were also at odds with rivals like UBS and Barclays Plc, which were boosting their wealth management operations in Dubai at the time.

Back then, HSBC was leaning on Tabbara to lead the private banking business across the Middle East and North Africa. A passionate mountaineer who would often take client calls while on his treks through Nepal, Tabbara spent his years atop the business trying to deepen the bank’s ties to wealthy individuals. 

But the Lebanese native struggled to get support from HSBC’s top brass, who favored plowing more investment into the bank’s operations in Asia, according to the people familiar with the matter. There, HSBC has convinced clients to give it hundreds of billions of dollars of their assets, making it one of the continent’s biggest wealth managers.

Tabbara ultimately built his business by cultivating relationships with the wealthy heads of companies and merchant families in Saudi Arabia and Dubai, capitalizing on HSBC’s strength in wholesale banking. 

Over the course of the 11 years that he led the business, assets under management climbed to around $50 billion. While that was a five fold increase from when Tabbara took over in 2012, it paled in comparison to the riches that rivals like UBS and Credit Suisse were managing. 

Separate Perch

Meanwhile, from his perch at Credit Suisse, Hangari spent those years courting top Qatari royals who, in turn, handed him billions of dollars of their wealth to manage. To his advantage, Hangari was backed by a bank with an appetite for risk-taking and was sitting on a platform that was able to deliver complex products for wealthy individuals. 

Credit Suisse, for instance, once securitized a portfolio of loans it had made to its super-rich clients for buying yachts and private jets using derivatives. It’s long been known for arranging esoteric deals to help clients manage their tax bills. Swiss banking laws – which largely prevent bankers from revealing details about their clients – also helped to give Credit Suisse the upper hand when luring customers to its ranks.

HSBC, on the other hand, is more known for its staid culture that prioritizes traditional banking products like deposit-taking and lending. While that makes it a crucial cog in the global economy, it’s not the kind of offerings that typically lure in the ultra-wealthy.

“They know they have to over commit as a signal to current and potential clients as to how vested they are,” said Michael Ashley Schulman, partner and chief investment officer of multifamily office Running Point Capital Advisors. “With real dedication, and office locations in multiple capitals and major cities, they know that they can take a pole position in managing and guiding the regional explosion of private wealth.”

Along with Hangari, HSBC also brought on another Credit Suisse veteran – Patrick D’Amico – as its new global market head of Qatar. The company also added Christian Hiller, Thomas Schaad and Simon Aeschlimann as relationship managers.

They were part of the 100 private bankers the bank added in 2023 as it sought to expand its business in the Middle East. Already Hangari has publicly vowed that the lender is looking to further hire “opportunistically” in the energy-rich region in the coming months.

Keeping Promises

From the start, Hangari was looking to make good on the promises he made to grow the unit’s assets under management when he was joining HSBC. He had planned to do so, in part, by bringing business from the Qatari royal family, which has an estimated $150 billion fortune, according to the Bloomberg Billionaires Index. Key among them is former Prime Minister Sheikh Hamad bin Jassim bin Jaber Al Thani, who’s a longtime client of Hangari.

Those efforts have been thwarted recently after a Swiss regulator ordered HSBC not to enter into any new business relationships with politically exposed persons, or PEPs, one of the people familiar with the matter said. The move came after Switzerland’s banking watchdog found the lender’s private bank failed to carry out adequate checks on ‘high-risk’ accounts owned by such persons. 

The restriction is especially challenging for Hangari’s part of the business because many of the wealthiest individuals across the Middle East are considered PEPs.  

Hangari’s division has also been hamstrung by a series of high profile departures. For starters, his hiring was seen as a blow to Tabbara, who left the bank within months of Hangari starting. He’s since joined the Geneva-based asset manager HBK Investments Advisory as a partner and has sought to attract some of his former clients, the people familiar with the matter said.

Four bankers along with Rana Al Emam, the head of HSBC’s private banking business in Abu Dhabi, and Ali Khunji, the head of global private banking in Bahrain, have also exited in recent months. Kamran Butt, another top executive, recently joined Banco Santander SA as chief investment officer for the Middle East region.

Diego Pivoz, a senior relationship manager covering Saudi Arabia from Geneva, is also leaving as well as Momin Jaffar, who led the on-shore private banking business for the United Arab Emirates. 

High Stakes

Hangari is also contending with the fact that his former employer — which has since been subsumed into UBS — is actively trying to retain its business across the region, making it hard to bring over his old clients. Iqbal Khan, one of the leaders of UBS’s global wealth management arm, has made several trips to Qatar to meet with clients and keep them happy.

“You’re not going to end up doing business with anyone that you haven’t had dinner with in their home — that is when the real relationship starts,” said Christina Wing, whose advisory business for billionaire families Wingspan Legacy Partners started laying the groundwork to expand in the Middle East three years ago. 

For HSBC, the stakes are high. The business of wealth management is less capital intensive than corporate lending and underwriting and it comes with a steady stream of fees that investors crave. Executives have touted the business as a key driver of revenue growth so far this year.

But like most businesses in banking, it’s an area where scale matters. 

Hangari has at least one advantage that his predecessor didn’t: plenty of support from HSBC’s top management to make greater inroads in the region. Elhedery, who speaks Arabic and spent nearly half his two-decade long career at the bank in the Middle East, takes over as CEO in September.

“It’s all about personal relationships,” added Wing. “They are going to have to be really patient.”

–With assistance from Laura Noonan.

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