Huawei Needs Wall Street More Than Vice Versa

(Bloomberg Opinion) -- Just when you thought things couldn't get any worse for Huawei Technologies Co., another problem pops up.

HSBC Holdings Plc and Standard Chartered Plc won’t be providing the Chinese telecom giant with any new banking services or funding after deciding that it’s too high risk, according to the Wall Street Journal. That comes after Huawei’s chief financial officer and the daughter of its founder, Meng Wanzhou, was arrested earlier this month for allegedly conspiring to defraud banks and violating U.S. sanctions against Iran. The fracas has further frayed ties between the U.S. and China, already tense amid the trade war. 

At first blush, you might think this isn't a big deal for the Chinese national champion: Huawei has plenty of cash (with free cash flow of around $2.5 billion last year) and a roster of lenders that have been eager to give it money.  Citigroup Inc. continues to provide the company with day-to-day banking services outside the U.S. 

But having less access to global banks should be worrying to Huawei – even if the chances of facing temporary sanctions, like smaller rival ZTE Corp., are slim. With such a large global footprint, the company remains reliant on the almighty U.S. dollar system – for everything from cash management to paying its staff.   

That means that while Citigroup is still Huawei’s global transaction banker, it will be undoubtedly cautious about taking on new work from the telecom-equipment maker. It doesn't matter how big Huawei is – with its $87 billion in 2017 sales outpacing Boeing Co.’s – no bank will want to take too many risks, especially an American one like Citi that’s still in the regulatory crosshairs.

No problem, you say, China’s banks have plenty of cash and will be keen to help out a national champion. Maybe, but they’ll be wary of losing access to Swift, the Belgium-based bank-messaging network that’s critical for any bank to do business overseas, particularly in dollars. Industrial & Commercial Bank of China Ltd., the country’s largest lender, is now a go-to dealer in repurchase agreements – the market for borrowing and lending against U.S. Treasuries, the world’s most liquid security. That’s not a role it will give up easily. 

What’s more, no Chinese bank has the kind of global footprint of an HSBC, Citi or even StanChart, which dominate corporate banking in Asia. Those banks with which they have correspondent relationships in regions like Africa may be wary of engaging should Huawei be deemed too risky. 

It’s the unsexy part of financing that Huawei should be most worried about losing: the plumbing of its operations. 

To contact the editor responsible for this story: Rachel Rosenthal at rrosenthal21@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Nisha Gopalan is a Bloomberg Opinion columnist covering deals and banking. She previously worked for the Wall Street Journal and Dow Jones as an editor and a reporter.

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