HSBC's 'bull' eyeballs glare again

HSBC has succeeded to perform its first job of building the Hong Kong economy to such a high level that by the weight of sheer example it is dismantling by degrees communism in China. HSBC is not conspiring to bring down communism in China, which though having its fair share of corruption like capitalism, has never reached the level of absolute corruption as was manifest in Russian Communism. In the former Soviet Union mighty billionaire oligarchs sprouted overnight with communism's fall. They had been hibernating for some time.

In these last few days we have seen China pass laws in favour of the integrity of private property, which is the base of all progress under any system. China is becoming prosperous because of the respect for capitalism that the banking integrity of HSBC brought to that part of the world.

As long as 40 years ago it was foretold in a great London club by real estate billionaire Sir Charles Clore and his circle that Hong Kong would take over China economically. There was a Maltese caterer present when that incredible procrastination was uttered. It is now fast becoming a fact.

The English poet Lord Byron sang that Barings and Rothschild's were one of the powers of Europe, and put simply HSBC has a track record in nation building. Its recent press declarations reveal that it intends to live up to the challenge of its great destiny, as established by its track record in nation building however unintended it might have been.

Bloomberg reported on Wednesday that it plans to double its China branch network this year, and to focus its attention on emerging markets. Its China ambitions are smouldering again.

High ambition

So the 'bull' eyeballs of HSBC are glaring again. High ambition and great adventure are eating at its vitals and beckoning for a China desirous of winning for itself the high position it deserves among the more advanced nations.

It was the first, two thousand years ago, to provide the Indians and later the Arabs with numbers as we know them. The west is now with its philosophy helping China unwind from its thirst for cultural certainties. This, as the Maltese philosopher Edward Debono has pointed out, was the cause of the downward spiral of the achievement levels of that incredible civilisation.

At one time it was far ahead of the West. These dramatic opportunities for western high finance in China are what is provoking the glare in HSBC's 'bull' eyeballs. The time for an investment is not when the market is overreaching itself in an upward direction but when it is doing so in an opposite sense.

The market overreaches itself all the time. The HSBC share price has been performing worse in recent months than some of its competitors, although that bank itself enjoys better financial ratios. This is an anomalous situation, though hardly unexplainable in terms of banking history. The greatest name in English banking is Rothschild and it has been able to build an incredible mystique, which is far beyond its actual financial weight in the world.

Has HSBC ever tried to build this sort of mystique? I will not care to answer this question in detail, but whatever HSBC thinks about it there certainly exists a certain splendour in the name of HSBC. Otherwise men like Clore and his friends would not have talked like that about it in the London clubs 40 years ago.

Clore praised HSBC and its Hong Kong achievements as if he were some little known historian writing a nice, thick, profitable book on the Rothschild banking saga. There is quite a collection of these superficial laudatory books on great banking families. I do not think that HSBC ever paid Clore in all his moneyed glory to carry out promotion in the London clubs on their behalf.

It would not be amiss however if more people, especially in Malta, were to know how many all over the world have crossed the threshold of HSBC's local banks as poor men, and come out years later to be counted among the rich of their country.

Subprime lending

Subprime mortgage lending means the lending of money to people who do not normally qualify for a mortgage. This is what caused great losses to HSBC in the United States, and also to many other US banks. The difference has been that HSBC could take the losses but many other American banks could not.

There is not much room for subprime lending in this country. The lending of the National Bank of Malta in the Sixties could hardly have been called subprime. It was venture capital based on very sound projections, which later proved correct.

Everyone knows how mightily hotels like the Preluna, the Sheraton and the Corinthia subsequently flourished. The point is that bank finance in the US dares to rush in where its European counterparts fail even to tread.

There is some speculation that there could have been criminals in America meddling in this great subprime meltdown, which is still going on. A lot has been made of HSBC's top man Stephen Green and of the fact that he is a saintly and culturally refined man, as well as an officiating Church of England lay minister.

I have known several Jewish bankers in America but none of them was a Rabbi. Some bank practices are sharp but they need not be called corrupt. Has Green noticed how Goldman Sachs, the investment bank, is openly challenging the primacy of HSBC's position in the Chinese banking world? It took up five per cent of the Industrial and Commercial Bank of China and beat the competition.

The participation of Goldman Sachs is behind the recent stupendous success of ICBC, which however is trading at an unsatisfactory P/E ratio, which would make some HSBC shareholders conscious of the fact that Chinese banks have yet a lot to learn about what made HSBC a top world bank starting from its Hong Kong base not so long ago.

Chinese banks would do well to imitate HSBC's banking ratios. The enlightening message HSBC conveys to us is that, coming from its splendid 2006 ratios displayed in four prominent points in its recent Economist full page advertisement.

The US subprime loan blizzard did hurt HSBC but it was a blizzard, which blew over a tower of strength. It did not smash down an HSBC house of straw. There is no need to indulge in hyperboles. The following facts speak for themselves.

Malta rides high

There are many reasons why HSBC Bank Malta plc did not share at all its parent's unpleasant subprime loan experience in the US. This is despite the fact that property loans form such a large part of local banking activity. It used to be 80 per cent in my Mid-Med consultancy years 15 years ago.

It was noted correctly that Shaun Wallis, chief executive officer, radiated confidence on the day not so long ago when HSBC (Malta) results were first announced in the splendid golden decorated venue of our Chamber of Commerce.

Everybody in that hall was impressed by the Wallis performance. I saw the jaw of many a seasoned banker drop as they listened to the words of a man who was making his impact not with fiery eloquence but with a voice displaying a business-like drawl.

It was also a voice that conveyed sense and information, the product of a personality with hands-on involvement in his bank's work. Here was a man who was not only conscious in profit terms of his bank's ratios, but who was waging a successful social battle in the housing field.

He abundantly proved his mettle when, to a difficult question from the floor on the speed of mortgage repayments in Malta, after giving a suitable answer, he ended by saying that he had personally studied the actual mortgage figures.

That is, he checked his bank's statistics by performing basic work, and not just by relying on a report placed before him. It is no wonder that the ratios of HSBC Bank Malta are displaying such buoyancy. It has brought Anglo-Saxon thoroughness into a country, which is still to some extent oriental.

The proof of the pudding is in the eating! Maltese lawyers and accountants who carry out international financial work, and they have been doing it as far away as Beijing, have stated to me categorically that HSBC Bank Malta is a great help in their activities.

I wish Maltese legal and financial professionals well in their work, especially in China, where HSBC is greatly respected. It is Coleridge's land of Xanadu where Kubla Khan did: "A stately pleasure dome decree" good luck to the exertions of our professionals! A great pleasure dome awaits them!

No pleasure dome please

The words "stately pleasure dome" call to mind with greater power the fact that HSBC Bank Malta is no such thing. It is a bank where top management is working very hard indeed and producing excellent ratios. These have outdone those of its international parent by a fat margin.

This advance will not be probably maintained unless HSBC Bank Malta opens up new development areas. Improvement in such ratios as the cost/income ratio probably represent the oriental inefficiencies of the old Mid-Med Bank.

It is nobody's fault if Malta's geographic position is what it is. This country has to fight strongly if it is not to descend into the torpor of nearby countries. It cannot fight without the help of strong allies.

The losing streak?

As I write, on my Bloomberg screen I read that HSBC's losing streak may continue for some time, provoked by the US subprime loan meltdown. As regards the HSBC Bank Malta ratios, there is no sign of a losing streak, nor is there much chance of any major difficulties in the Maltese economy coming forward.

The HSBC 'bull' eyes have not only started to glare, but a strong roar is to be heard from that bull's direction. That roar is its determination to build on its past achievements, and which will in all probability reverse the present losing streak in its share price.

There are reasons why such a turnaround is more than probable. Last month China's trade surplus was three times bigger than economists expected. This news is as good as it can be for HSBC for as Richard Lindsay, its official spokesman, stated on March 5:

"We are the largest banking organisation in Asia by most measures, and we aim to remain so. We are growing our own business as fast as we can."

If the international operation of HSBC has had a losing streak, a large part of it is due to the downsizing of the global economy. This was decided and planned by such men as US Treasury Secretary Henry Paulson.

He has gone on record as saying that the world's stock markets cannot keep rising forever in a straight line. There must be a cooling off period to fight inflation.

The talk about the losing streak of HSBC is nonsense when one sees the strength of its China position. As regards Malta, my guess is that every HSBC CEO in the world dreams of having his bank reporting progress on our scale.

According to Lindsay HSBC has spent $5 billon on Chinese acquisitions since 2002, and has an eight per cent stake in the Bank of Shanghai. HSBC also owns 19.9 per cent of Ping an Insurance (Group) Co., China's second biggest insurer; 19.9 per cent of Bank of Communications Co., China's fifth biggest lender.

As regards the advances registered by HSBC in Malta here are the figures, so readers can decide if there is evidence of a losing streak or not. The periods are not complete.

	HSBC	HSBC/Malta
Profit attributable to shareholders	Up 5%	Up 11.8%
Net operating profit	Up 10%	Up 10%
Dividends in HSBC are calculated on a three-month period, while those of HSBC Bank Malta are worked out every six months.
Earnings per share	Up 3%	Up 12%

Credit Suisse Group's rating

Any investor who ignores the rating of the Credit Suisse Group or HSBC would be doing so at his own cost. Bill Stacey of CSG gives it an "outperform" rating and a 12-month price target 24 per cent above last Friday's close.

HSBC has always been exploring new development banking areas. One area, which calls for special attention in Malta, is night-time share trading. It is preposterous that we cannot afford night-time share trading, especially on the Hong Kong market, when the major strength of HSBC is in that particular area.

This is an opportunity not just for HSBC but for all money men in Malta, including our Central Bank, whose reserves were once described to me to be enormous by Lord Balogh, development economist of international fame, one-time Minister for North Sea Oil and friend to all Maltese prime ministers of his time.

There is even more money in private hands in Malta, especially if our money, still in Switzerland, could be made to return here. That money could be made to multiply in the stock exchanges of Hong Kong, which has these days come to surpass New York in terms of world importance.

Malta can earn big money from its money. A sound underpinning for such an adventure already exists.

This article is not intended as investment advice, but aims to help produce an investment culture. John Azzopardi Vella has promoted the Malta Development Fund and advised S&P. He is currently research economist of DBR Investments Ltd, which is licensed by the MFSA. E-mail: johnazzopardivella@hotmail.com.