Why the US is a mere peripheral province for HSBC
By Francesco GuerreraPublished: December 13 2010 18:38
HSBC’s ads are hard to forget.
Three identical shots of a shaved head with the captions: Style. Soldier. Survivor.
Two pictures of a computer alternating with two pictures of a baby: Work. Play. Play. Work.
A man in a suit and a man in jeans and vice versa: Leader. Follower. Follower. Leader.
Plastered on strategic airport walls and street corners where the eyes of global commuters are likely to land, they convey the message that, whatever the difference in culture and opinion, “the world’s local bank” will be there for you.
In Europe and Asia that is certainly true. Thanks to historical and colonial legacies and a series of acquisitions, HSBC is a force to be reckoned with from Shoreditch to Shanghai.
Out of every dollar the bank earned in the first half of this year, 84 cents came from either the Old World continent or its fastest growing one. The big gap in HSBC’s profit footprint can be found just south of Canada and north of Mexico.
The US – the world’s largest economy and home of the most sophisticated financial markets – has been a black hole for HSBC in recent years. In 2008 and 2009 alone, the North American operations recorded a combined pre-tax loss of $22.8bn – enough to sink a lesser company than HSBC.
That “return” was largely due to the disastrous acquisition of Household Finance in 2003. For a mere $14bn, HSBC gained access to the – wait for it – US subprime mortgage and credit card markets.
While the costs of Household continue to mount, albeit at a reduced rate, HSBC’s business in the States has been plagued by other mishaps, including probes by the Federal Reserve, the Department of Justice and the tax authorities into alleged compliance and regulatory issues possibly stemming from another purchase, the $10bn takeover of the private bank Republic in 1999.
Last week, Irving Picard, the trustee charged with recovering money for Bernard Madoff’s victims, sued HSBC for $7bn claiming that it poured clients’ money into Madoff’s funds in spite of repeated warnings about their potentially fraudulent nature.
HSBC has denied the claims, pledged to defend itself “vigorously” and makes the point that the Madoff-related liabilities stemmed from its acquisition of Bank of Bermuda in 2003. But no amount of vigour can negate the fact that the US has been more minefield than gold mine for the bank.
Bad luck has no doubt played a part. Many foreign lenders have had trouble with US acquisitions (try mentioning the words “DLJ” and “PaineWebber” to Credit Suisse and UBS executives respectively). And getting entangled with US regulators is quite common for financial groups – as Goldman Sachs and, once again, UBS can attest.
But I wonder if HSBC’s problems betray a more structural flaw in its approach. The common thread between Household, the Madoff involvement, repeated failed attempts to build a full-service investment bank and even some of the regulatory probes is that HSBC has seemed to lack a good sense of what was happening on the ground in the US.
It is not a coincidence that few established US financial groups expressed an interest in Household or Republic, or put money into Madoff – they knew something was amiss. Call it informed gossip or due diligence, the reality is that Citigroup and others had it and HSBC didn’t.
HSBC’s new top management team of chief executive Stuart Gulliver and chairman Douglas Flint might want to consider this issue: “the world’s local bank” did not have enough local knowledge to avoid huge potholes on the American road.
Until Mr Gulliver and Mr Flint spell out their strategy, the US will remain a peripheral province in the HSBC empire.
In a good year, it will end up contributing some 15 per cent to the group’s bottom line, mostly serving individuals and companies who want to move money around the world. More than a rep office – HSBC employs thousands and has billions in assets in the US – but not quite a stronghold.
Unless, that is, HSBC hits the acquisition trail again and buys a bank or a wealth management business such as PaineWebber when UBS gets tired of it. That is unlikely, though, given HSBC’s record in the US and the alternative opportunities offered by emerging markets.
Being big in the US is not obligatory even for an international bank, as Standard Chartered has proved.
But perhaps the next HSBC ad should juxtapose aerial shots of the US with pictures of the globe.
Core. Non-Core. Non-Core. Core.
Two pictures of a computer alternating with two pictures of a baby: Work. Play. Play. Work.
A man in a suit and a man in jeans and vice versa: Leader. Follower. Follower. Leader.
Plastered on strategic airport walls and street corners where the eyes of global commuters are likely to land, they convey the message that, whatever the difference in culture and opinion, “the world’s local bank” will be there for you.
In Europe and Asia that is certainly true. Thanks to historical and colonial legacies and a series of acquisitions, HSBC is a force to be reckoned with from Shoreditch to Shanghai.
Out of every dollar the bank earned in the first half of this year, 84 cents came from either the Old World continent or its fastest growing one. The big gap in HSBC’s profit footprint can be found just south of Canada and north of Mexico.
The US – the world’s largest economy and home of the most sophisticated financial markets – has been a black hole for HSBC in recent years. In 2008 and 2009 alone, the North American operations recorded a combined pre-tax loss of $22.8bn – enough to sink a lesser company than HSBC.
That “return” was largely due to the disastrous acquisition of Household Finance in 2003. For a mere $14bn, HSBC gained access to the – wait for it – US subprime mortgage and credit card markets.
While the costs of Household continue to mount, albeit at a reduced rate, HSBC’s business in the States has been plagued by other mishaps, including probes by the Federal Reserve, the Department of Justice and the tax authorities into alleged compliance and regulatory issues possibly stemming from another purchase, the $10bn takeover of the private bank Republic in 1999.
Last week, Irving Picard, the trustee charged with recovering money for Bernard Madoff’s victims, sued HSBC for $7bn claiming that it poured clients’ money into Madoff’s funds in spite of repeated warnings about their potentially fraudulent nature.
HSBC has denied the claims, pledged to defend itself “vigorously” and makes the point that the Madoff-related liabilities stemmed from its acquisition of Bank of Bermuda in 2003. But no amount of vigour can negate the fact that the US has been more minefield than gold mine for the bank.
Bad luck has no doubt played a part. Many foreign lenders have had trouble with US acquisitions (try mentioning the words “DLJ” and “PaineWebber” to Credit Suisse and UBS executives respectively). And getting entangled with US regulators is quite common for financial groups – as Goldman Sachs and, once again, UBS can attest.
But I wonder if HSBC’s problems betray a more structural flaw in its approach. The common thread between Household, the Madoff involvement, repeated failed attempts to build a full-service investment bank and even some of the regulatory probes is that HSBC has seemed to lack a good sense of what was happening on the ground in the US.
It is not a coincidence that few established US financial groups expressed an interest in Household or Republic, or put money into Madoff – they knew something was amiss. Call it informed gossip or due diligence, the reality is that Citigroup and others had it and HSBC didn’t.
HSBC’s new top management team of chief executive Stuart Gulliver and chairman Douglas Flint might want to consider this issue: “the world’s local bank” did not have enough local knowledge to avoid huge potholes on the American road.
Until Mr Gulliver and Mr Flint spell out their strategy, the US will remain a peripheral province in the HSBC empire.
In a good year, it will end up contributing some 15 per cent to the group’s bottom line, mostly serving individuals and companies who want to move money around the world. More than a rep office – HSBC employs thousands and has billions in assets in the US – but not quite a stronghold.
Unless, that is, HSBC hits the acquisition trail again and buys a bank or a wealth management business such as PaineWebber when UBS gets tired of it. That is unlikely, though, given HSBC’s record in the US and the alternative opportunities offered by emerging markets.
Being big in the US is not obligatory even for an international bank, as Standard Chartered has proved.
But perhaps the next HSBC ad should juxtapose aerial shots of the US with pictures of the globe.
Core. Non-Core. Non-Core. Core.
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