Stephen Green, global chairman of HSBC spoke to Paul McNamara about the bank's recent performance and plans for the future
It is almost inevitable that tall poppies come in for a bit of criticism from time to time, therefore no one is very surprised when HSBC comes in for a bit of stick. HSBC is, after all, the second largest bank in the world by market value.
While other mighty banks have fallen foul of the summer's credit squeeze, HSBC escaped relatively lightly setting aside only $925 million against leveraged loans and credit trading business. The bank has done rather well, outperforming the global banking sector by almost 5 per cent since the beginning of August, although the bank's Household International division in the US is still a source of some pain, caught up as it is in the subprime shenanigans.
Not everyone is happy with the bank's performance, least of all Eric Knight from Knight Vinke, who has expressed some serious concerns over the bank's performance and management. One thing for sure, Knight Vinke is not going to go away quickly or quietly and it will be some time before the bank is out of that particular thicket.
We met up with Stephen Green, global chairman of HSBC, for an exclusive interview to talk about the bank and its vision for the region.
It is a testament to the importance that the bank places on the MENA region that you are here now
We have been here a long time. We were the first bank in Dubai.
You have some experience working here in the region, in Saudi Arabia?
Yes, I worked in Saudi Arabia in 1978.
There has been some speculation recently over whether there is more value in a bank having a global investment banking presence rather than a global retail banking presence. Any thoughts on how that fits with HSBC in the region?
My thoughts are very simple: we should have both, not one or the other. For us we have a full service business in any number of Gulf countries, including in the kingdom. We are here as a bank that provides personal financial services; that provides corporate investment banking services; that provides commercial mid-market business banking services and private banking services.
I have never seen the force in the argument that says that we should be in just one of them. I think the important thing is whether you have a competitive advantage in each of them, then it makes sense to be there. Our view is that in the Middle East we do have that advantage and is absolutely makes sense for us to be there.
This is not about being global versus being local. It is very important to us to be both things and I think this plays to what is happening in the world at large. There is an increasing number of individuals who travel and who need banking services in more than one country, particularly here in the Middle East. There is an increasing number of large corporates and an increasing number of businesses, large, medium and small that are involved in international trade or international investment that need to look beyond their own borders. That internationalism, which goes to the heart of what we are, I think speaks to what is going on in the market.
The Middle East is becoming not only highly liquid, but also increasingly sophisticated in its capital markets and its infrastructure requirements and the way that they are financed. And of course there is a growing demand from individuals for good financial services.
There was a time when most Sukuk issuance from this region or from Malaysia had HSBC or HSBC Amanah working on it. My feeling is that this has dropped off of late and there are many more issues where HSBC is not involved.
I think the market has grown and we were there at the early stages of it, which is why we were involved in almost every transaction. But as the market has become bigger there is no more reason to expect us to be involved in every single transaction any more than there would be an expectation for us to be involved in every conventional bond market transaction.
Standard Chartered, for example has taken a lead position in domestic Pakistan rupee denominated issuance
We are in Pakistan, but Standard Chartered has a much larger presence than we have there, but for global Sukuk issuance I think it would be a different picture.
Is this under the Amanah brand?
Sukuk is something that we do under the Amanah brand. Amanah is not a separate brand it is a kind of a sub-brand.
What is the position with the Amanah brand in relation to the HSBC brand?
When you are starting off a business or a product area you need to give it special visibility or a special platform. Gradually, as it develops momentum and matures into a much more regularly used product area, you need to pull it into the mainstream and that is what we did. In terms of the brand it has always been HSCB Amanah. It is not a separate brand.
I thought the issue with windows was that there had to be a ring fencing of funds to make sure that there was no cross contamination of Shari'ah compliant and conventional funds?
You do need to make sure that your balance sheet in Shari'ah business is segregated and is identifiably different whether you use a window or a separately incorporated entity.
Many private banks moving to the region seem to focus on the Indian segment, or the European segment or the local segment? Where does HSBC fit?
We are the third largest international private bank in the world and you do tend to focus, both here and elsewhere, on different kinds of customers in different markets but in essence you are looking for very wealthy investors.
Are you finding that clients are asking you to get them out of dollars at the moment because of the weakness of the currency?
We have ongoing conversations with many people about their portfolio of investments and how do they invest for best returns in the equity market, fixed investments in real estate or whatever and of course they want to maintain the real value of their investments and they are worried about the dollar.
Do you have a solution for them?
These things are very tailored for the individual and the weak dollar does not mean that there are no good dollar investments. People will always look for strategic fixed investments and we will often have conversations with people about which markets we think have real growth, which ones we think they should get into, what is the regulatory condition of the market and so on. So I think it is very hard to generalise about the kinds of conversations that we would have with a client. Some are looking for liquidity and some enjoy playing the market.
How nervous is HSBC about its share price, bearing in mind that just about every bank around is having issues at present?
We tend not to comment too much on our trading statement, but the markets remain very skittish about the effects of the subprime situation on our peer group. There are times when it is good to be in the banking business with a very robust capital base, strong balance sheet and a diversified income stream.
Do you think Stan O'Neal and Chuck Prince will be the first of many to walk?
I am not sure there is value in speculating about things like that. You have seen large institutions take writedowns of structured products and eventually the market is going to get to the point where people will say, 'There is value here. I am prepared to buy'. But that will depend on the performance of the underlying asset. But we are not out of the woods yet.
What are your plans for China?
I think China is a hugely exciting growth story for as far ahead as any of us can foresee. I think its emergence, or re-emergence, as an economic force in the world is the event of the first half of this century and it has implications for everybody, including the Middle East, Europe, America, and South America. This is a big shift in the balance of the world economy.
From our point of view, in many ways China is our home, after all the Hong Kong and Shanghai Banking Corporation started out in Hong Kong and Shanghai. We have deep roots there and in the last few years we have been investing in businesses there and developing our own network. We own 19 per cent of the Bank of Communication as well as other major investments. We have also incorporated HSBC China.
Is HSBC China the retail brand?
HSBC China is the name of the company. HSBC is a very well known brand in China. It is certainly the best known foreign financial brand in China and I see China as being a very considerable strategic opportunity.
You have been acquiring banks throughout Asia, the most recent in South Korea, is this a strategy you will be pursuing in the Middle East?
There are two ways of growing the business. The first is through acquisition and the other is through investment in your existing business. I do not feel that we need to acquire to break into a market, but what we do need to do, and what we are doing, is investing in the businesses here.
© Banker Middle East 2007
