ALEX BRUMMER: Why HSBC’s efforts to become the world’s local bank have fallen flat
The legacy of Sir John Bond still hangs heavily over HSBC, more than a decade after the buccaneering chairman left the hot seat at Britain’s biggest bank.
In a year when American rivals JP Morgan, Citibank and Bank of America recovered much of their pre-crisis poise, HSBC is still struggling with the past.
Bond’s £8billion deal to buy Republic National Bank of New York and Safra Republic Holdings in 1999 has proved almost as debilitating as its venture into the US domestic market with the purchase of sub-prime lender Household.
Struggles: In a year when American rivals JP Morgan, Citibank and Bank of America recovered much of their pre-crisis poise, HSBC is still struggling with the past
HSBC has sought to clear the decks by absorbing big write-offs on European private banking and its Brazilian bank bought from Lloyds. Overall, efforts to become the world’s local bank have fallen flat.
Much of the continuing success is a spin-off from its Asian operations, which are responsible for around half the group’s £140billion of capital, and deliver the returns on capital which most banks can only dream of.
If HSBC is really to justify the sharp rise in its share price this year, it will need to find ways of making sure North American and European banking are similarly up to snuff. HSBC is also hamstrung by regulatory strong arming.
The annual report includes seven pages of regulatory risks ranging from its involvement with US fraudster Bernard Madoff to litigation stemming from sub-prime US mortgages.
President Trump’s efforts to put Dodd-Frank and the re-regulation of Wall Street on hold are unlikely to provide much relief from lawsuits and enforcement baked in the cake.
As a Brexit precaution, chief executive Stuart Gulliver has said the bank could shift 1,000 of the group’s 43,000 UK workers to Paris.
The bank has suggested half of these are likely to be French, concerned about the safety of their working arrangements when Britain finalises its divorce.
The modest number suggests that much of the risk of a financial drain from the City to Frankfurt and Paris is overdone.
The other big issue for HSBC is the struggle to find the right outside successor to chairman Douglas Flint.
It has promised shareholders that it will do so by the end of this year. Until that is done the succession to Gulliver as chief executive will remain on hold.
Markets don’t like surprises so HSBC shares were marked down after the results despite a further share buyback.
One has to believe that the tide will flow HSBC’s way in the coming years as Pacific expansion gains momentum and a return to more normalised interest rates delivers higher earnings.
All it requires is a little patience.
Is the near decade-long nightmare for Lloyds Banking Group coming to an end?
Today the bank is finally expected to start reaping rewards from its disastrous 2008 takeover of HBOS when it reports profits of around £4billion and seeks to mollify disgruntled shareholders (including this writer) with a special dividend.
After £17billion of provisions, the cost of wrongful selling of payment protection insurance (PPI) looks to have been capped.
Lloyds cannot totally escape the ghastly HBOS legacy in the shape of the compensation it must pay to small business victims of fraud at the Reading branch.
It is unfortunate for chief executive Antonio Horta Osorio that his achievement in stabilising the bank partly is obscured by his personal life.
Ironically, Horta Osorio’s Singapore fling could mean the frisky banker stays at Lloyds longer than might have been expected.
He has probably scuppered his chances of walking into one of the other top jobs in prudish Anglo-Saxon banking.
That could also mean he will still be around to suffer the slings and arrows when the true costs of the MBNA credit card takeover are known. As Lloyds should know from HBOS, deals rarely are trouble free.
As an economics trainee straight from university, I spent a period working in the ‘operations research’ department of J. Walter Thompson, one of the agencies in Sir Martin Sorrell’s WPP group.
Among my tasks was to help prepare short-term economic forecasts which would accompany the market research reports on Unilever products.
It was also my job to cart computer tapes in metallic cases from JWT headquarters in London’s Berkeley Square to the imperial grandeur of the Unilever building at Blackfriars.
On my calculations, the relationship between JWT and Unilever must date back more than four decades.
No wonder, then, that Sorrell, with his steely eye on the bottom line, was more than a little anxious that Kraft Heinz did not get its evil way with one of WPP’s most venerated global clients.