As the controversy over the arrest of Huawei CFO Meng Wanzhou rages (driven in part by Beijing's retaliatory arrest of three Canadian citizens living in China) and more US allies agree to limit their exposure to telecoms equipment manufactured by the Chinese giant in accordance with the wishes of the US, the Wall Street Journal has reported on yet another consequence of allegations that Huawei violated US and EU sanctions on Iran: The same global banks that helped facilitate Huawei's rise into a multinational giant that does business in more than 170 countries are now limiting or cutting their ties with Huawei.
According to WSJ, HSBC (the bank that initially flagged potential sanctions violations involving Huawei and its subsidiary, Skycom, to US regulators) and Standard Chartered (another massive British bank with a large book of business in Asia) have decided that they won't offer any new business or funding to Huawei after determining that the company is too much of a risk.
Two banks that helped power the Chinese company’s rise as a global technology supplier, HSBC Holdings PLC and Standard Chartered PLC, won’t provide it with any new banking services or funding after deciding that Huawei is too high risk, people familiar with those decisions said.
While HSBC made its decision last year, Standard Chartered moved more recently as concerns about Huawei escalated this year from a Justice Department investigation into whether the company violated U.S. sanctions on Iran, some of the people said.
Meanwhile, Citigroup, which continues to offer day-to-day banking services to Huawei, has decided that any new business would be "subject to review."
A third key bank, Citigroup Inc. continues to provide Huawei with day-to-day banking services outside the U.S., people familiar with that relationship said. New banking business would be subject to review, and Citigroup is monitoring developments in the U.S., the people said.
Citigroup’s relationship with Huawei has included global transaction banking and trade financing outside of the U.S., in countries such as Mexico, Pakistan and Bangladesh, according to public disclosures and people familiar with the relationship. It also shared the lead role arranging several Huawei loan and bond deals in recent years, Dealogic data shows.
HSBC decided to back away from its relationship with Huawei last year after it flagged the sanctions violations, while StanChart's decision came more recently.
Standard Chartered recently decided it had to sever business with Huawei, people familiar with the matter said. Its relationship with the company dates back to the 2000s, and includes providing regional and global cash pools that free up excess cash in local Huawei units and let the company pay suppliers in multiple currencies.
HSBC stopped working with Huawei last year, people familiar with the matter said, after the bank and a court-appointed monitor flagged suspicious transactions by the company to U.S. prosecutors in 2016.
The shunning of Huawei by both of these banks shows just how much pressure Western governments are putting on the company, because in the past, Huawei would have been the type of client that either bank "would have bent over backwards for" - particularly because of Huawei's close ties to the Chinese government, which bankers believe guaranteed a level of stability and helped mitigate risk.
"It’s the kind of client Standard Chartered or HSBC would bend over backwards for," said a former Standard Chartered executive. "They are everywhere, and need help everywhere."
However, since at least 2007, some U.S. government officials feared Huawei’s telecommunications gear and security software, if exploited by Beijing, could pose risks to national security.
The wariness of western banks could become a major problem for Huawei because Chinese banks simply can't offer the level of global banking support that the company needs.
Huawei, active in about 170 countries, relies on international banks to manage cash, finance trade and fund its operations and investments. For more than a decade, HSBC, Standard Chartered, and Citigroup plugged Huawei into the global financial system as it entered new markets, providing the maker of telecommunications equipment with everything from foreign currencies to bond funding from Western investors.
Chinese banks finance Huawei in some markets but don’t have the reach to service it globally.
But in what would be perhaps the biggest indicator of Huawei's toxicity, Goldman Sachs opted not to take on Huawei as a client back in 2013 - back when it seemingly had no problem helping facilitate one of the biggest financial frauds in Asian financial history by underwriting 1MDB bond deals.
Goldman Sachs Group Inc. considered extending financing to the Chinese company in 2013, people familiar with the matter said, but decided not to, in part because Goldman executives received negative feedback from the U.S. Treasury.
In a rebuttal published Friday, Communist Party mouthpiece the Global Times claimed that the WSJ story is false.
#Huawei denied @wsj reports Friday about some global banks breaking ties. “We’re cooperating continuously with our financial partners globally and we value our business relations,” a @Huawei spokesperson told the Global Times. pic.twitter.com/i9QBGlcK27— Global Times (@globaltimesnews) December 21, 2018
But as scrutiny of the Asia telecoms giant intensifies, if western banks haven't entirely cut it off from the financial system already, it will likely happen soon enough. But instead of hamstringing Huawei, this will likely create more incentive for China, Russia and others to build out their alternative to the US dollar-based global trade-settlement system.