Blain’s Morning Porridge – June 4th 2020 – The Tragedy of HSBC
“A waiter, again unbidden, brought the chessboard and the current issue of The Times, with the page turned down at the chess problem.”
While America burns, the dollar tumbles, stock markets soar, Germany announces a massive bailout programme which dwarfs the pennies Italy desperately needs, the ECB gets ready for another money dump, and UK politicians grumble about queues… life goes on.
There is something deeply tragic about yesterday’s announcements from HSBC and Standard Chartered supporting the imposition of China’s Security Law in Hong Kong. We can all act shocked and damn them for supping with the devil, but neither bank had any real choice but to make the unpalatable decision to support the unsupportable. Both know their futures depend too much on China’s patronage to survive without kow-towing.
Yesterday, they each wrote the first lines of the final few paragraphs of their own obituaries.
10-years ago I wrote in the Porridge why HSBC was my top bank stock. I said something along the lines of while other banks will remain vulnerable, HSBC had the franchise, strength and depth to survive and thrive. Its dividend policy was strong and would provide dull, boring, predictable returns for the long-term. The Long-term is so over.
Read the comments following any article about the two Hong Kong banks this morning and are they full of earnest virtue signalling from angry clients who say they will close their accounts. I will probably switch mine.. but only because now there is zero chance the service will get any better.
Timing is everything. I laughed out loud at a post on Linked-In from HSBC claiming leadership in ESG matters and Green funding. Really… this is not the time for HSBC to be bragging about its ethical credentials.
The sad reality is HSBC has become a patron of the Chestnut Tree Café – the bar where the purged characters from 1984 spend their last few months in isolation, irrelevancy and waiting for the axe to fall. HSBC and Standard Chartered’ future is window dressing the new Hong Kong. HSBC has become as yesterday as Deutsche Bank.
It could have been so different.
In the early 2000s HSBC’s tag line was The World’s Local Bank. The Hexagon Logo dominated airports and appeared everywhere. Its ambition was to generate one third of its profits from each of the main global markets; Asia, Europe and North America. By market capitalisation it was the largest bank on the planet. When it bought US sub-prime credit lender Household in 2002, it was a clear signal the bank was on the move with expansion plans everywhere.
I joined HSBC in 2002. It was a bit of a shock after 10 years at an aggressive but highly innovative US investment bank.
HSBC people were lovely. They were friendly, they were nice. Yet, they were fiercely tribal and regional in their mindset. There was a cadre of International Officers who’d been drilled in the HSBC tau of things since they joined straight from school. The regarded outside hires as mere hired hands. You could not argue with the IOs – they knew best. And then there were the old Hong Kong hands, trading hotshots from Hong Kong who knew even better. They’d been big fish in the small pool that was then Asia. They couldn’t grasp that Wall Street and City traders swam in much larger more aggressive oceans. The firm was naturally hierarchical in the way only a thoroughly English bank could be – even though its DNA was broadly Presbyterian Scots!
Yet, the bank failed to make much a mark on the global markets. It owned multiple diverse and unconnected business, united only by the logo. The way the bank’s independently minded German operation operated had nothing to do with the London hub. The Paris operation delighted in doing things differently. Asia had little interest in what New York or London were doing. It sold global clients a grand vision of access to Asia – but any second rate US firm knew more of the top Asian accounts.
Successive waves of hired guns were hired to enliven its sub-par investment banking activities, but without much enthusiasm from across the firm which remained siloed. The senior management were good, knew the issues and the bank– they were some of the best in the business. But they were trying to run an enormous bloated bureaucracy of dissimilar banking businesses, investment and commercial banking operations, consumer banking around the globe, an Asian franchise, while trying to grow new businesses in areas they perceived the bank understrength. They faced pushback from local fiefdoms, and became jacks of all and masters of nothing.
The crunch came following the global financial crisis in 2007/08. HSBC was the only UK bank that avoided disaster and bailout. (So did Barclays, but by the skin of their teeth and some dubious chicanery which Amanda Stavely will no-doubt shortly reveal in court.) Household went from being an inspired purchase to toxicity overnight – and dragged the whole North American operation down. A succession of banking scandals in Latin America followed – HSBC discovering to their shock that putting the logo on a Mexican bank did not suddenly cleanse it of endemic corruption and drug money laundering.
The result was a bank that was no longer managed from growth and the future, but in order to placate the regulators.
This is the critical lesson of HSBC. The brand was brilliant but hollow. Its’ businesses were individually good, but collectively poor. Rationalising them into a strong single force was a massive ask – and would have required more than the best banking management on the planet. But that management was totally focused on placating the regulators to avoid them purging the bank. At one time the board seriously feared the US SEC might close them down as more South American scandals came to light.
While US banks thrived through the 20-Teens HSBC plodded and became more bloated. Its ambitions a global bank vanished like an early morning mist. It contracted. Asia’s share of profitability – to be blunt, Hong Kong savers – rose through 80%. It became classically squeezed in its home market. The levels of dissatisfaction with its consumer banking division means it’s among the most complained about banks.
I figured out how bad things were a few years ago when I walked into the Premier Branch of HSBC at its Canary Wharf Global HQ a few years ago. No one greeted me. There were last week’s papers sprawled across a table, and dead pot plant in the corner coated in dust. I pressed the desk bell, and a bored looking girl sauntered out to tell me to go downstairs to the public branch because she was too busy to help. I sold all my stock soon after.
Except that it is, it wasn’t the fault of senior management. They tried. But the bureaucracy won. Banks run to please regulators rather than customers seldom thrive. Across the bank the middle management are shuffling papers and waiting for the a long-delayed axe to fall as cuts are finally enacted.
It’s a shame. The Home for Scottish Bank Clerks will join the list of other banks that once were contenders…..
Meanwhile… It wasn’t just HSBC that had a crap day…
I had just about the most frustrating day of my career yesterday. It started when yesterday’s Morning Porridge bounced back. I checked my email folder, and discovered every single email I’d sent to the Porridge Readership had been blocked as Spam. I was able to resend from my personal email. When I got through to Go-Daddy, the website host and email admin, I was initially told it was because Tuesday’s Porridge was entitled “An Obscene Or*y” – thus I’d been categorised as porn spam.
I explained that I send a daily financial commentary explaining market moves to 5000 investors, traders, regulators, bankers and politicians. They use the commentary to inform their business and decision process. GoDaddy said “That’s marketing – you can’t do that unless you do it through us”. I told them it’s not marketing, but a valid business note containing insights and opinions my clients act upon. “Ah, its Spam”, they declared.
They quoted from the fine print buried deep in the agreement I signed when I set up the email with them, but contained in a contract with Microsoft saying I can’t send mass marketing mail shots. Its fine to send spam, they say, but I will have to pay extra for a licence to do so and use a mail service which they will charge me for.
My account is still blocked as Spam. Go-Daddy forced me to sign a letter acknowledging I can’t send marketing emails. I complained that’s not what I signed up to – Oh yes you did. Read the small print, they told me………… I asked for help and understanding. The best I got was “Sorry, I cant help you…”
I have no idea how long it will take to clear my account. They refused to tell me. They told me many times they were just doing their jobs, and nothing they could do. With no warning and for no comprehensible reason Go Daddy and Microsoft together have wrecked the Morning Porridge website and distribution. If I were running it as a business, they just bankrupted me on their whim.
So, when I read about governments thinking about the power of the big tech firms, I do hope the authorities go for their jugular. Rip their throats out. Tax the fe**ers till they bleed outand put every single tech executive up against a wall. I would like to be there when it comes to GoDaddy. I’d like to stare into the terror in the eyes of their CEO as the firing squad levels their rifles and tell him.. “Sorry, but I cant help you..”
I am supernaturally gifted with the Blain Curse. I discovered it years ago when my ex-wife and I got stranded by a UK airline called Dan Air. They abandoned us, and it took months to get our money back. At one point I told them I hoped they’d go bust – and shortly after, they did.
The last company that decked me around like this was WeWork. You know what happened to them. Go Daddy is now top of my “Go Broke you Fatherless Bairns” list. They were about as unhelpful and grasping as they could be. I will now be looking to build a new website and relaunch the porridge. Till then I will try to struggle on…
It would be very useful if readers could post me supportive comments explaining to GoDaddy and Microsoft that the porridge is not Marketing but something slightly more useful?
Five Things To Read This Morning
FT – Hedge Funds brace for second stock market plunge
FT – Investors should prepare for a welcome return of inflation
WSJ – Warner Music Shares Surge in Market Debut
Bloomberg – Making Money is Good. Doing Good is Even Better
ZH – “They sent the world a buy signal”: Minerd says Fed faces “day of reckoning” for unleashing the final bubble
Out of time, and back to day job!