HSBC's 'buying opportunity'

Last Wednesday, a Merrill Lynch statement on the Bloomberg screen stated that there could be logic in the HSBC bid for Sociéte Générale.

The French bank is presently enveloped with its head Bouton in a bonfire of vanities. HSBC's international banking vitality has received a signal recommendation from one of the world's top brokers.

This could be an HSBC investment recommendation even for modest savers. Its present share price is improbably low. This has fallen about 27 per cent in 13 months.

This is not due, however, to money trading vanity, as is definitely the case with SocGen. The SocGen vanity has bluffed millions of investors around the world with tall tales about its earnings. The website of Risk magazine had just named SocGen as its equity derivatives house of the year. The main reason for HSBC's decline is over-ambitious bank acquisition policy. Bank takeovers initially lower share-prices of the predator bank.

Certain hedge fund objections to its strategy have been met with international ridicule because they were made after that bank had already taken a new course.

Merrill Lynch has, for practical purposes, invited HSBC to revitalise banking in France, and in particular, the great SocGen. The fundamental damage at this last bank was not corruption, neither on the part of its head Bouton, nor on that of Jerome Kervial, the so-called rogue broker, or rather deranged mathematician. It was his vanity along with that of his mentor Bouton which elevated mathematics as a top equity derivatives tool.

French intellectual vanity is a great pleasure in art. In banking it has created the present bonfire of vanities, which can only be put out if a bank like HSBC moves in with its well-known Anglo-Saxon understanding of banking micro-management.

HSBC does not pride itself on earning money by mathematical wizardry. It calls itself the world's local bank. Bouton is a typical product of the French business elite and of the country's capitalist system.

He had exploited the French education system's talent for producing exceptional mathematicians; 14 years ago I wrote how the over-use of the derivatives banking instrument was bound to lead to disaster. World central bankers in their drunken riot of vanity have ignored this possibility.

Last Thursday at 4 a.m., CNBC broadcast the voting at the DAVOS conference where 59 per cent of the world's central bankers declared that they were to blame for the world's present banking woes.

The present banking meltdown cannot be compared with what happened in 1986, when the market fell 20 per cent. It sometimes happens that there are signs of impending bank fraudulent actions, which investors cannot recognise, but which are obvious to a banker. A great world bank like HSBC must have experience and success in facing the corruption menace.

The paradox is that now may be the best time for Maltese investors to put their money in SocGen, and not when advertisements bearing that great bank's name appeared in the local media.

Last Thursday's Financial Times stated: "Société Générale also bucked the wider sector, rising 3.2% to €81.75 amid speculation it was a takeover target.

"Merill Lynch stoked the bid talk with a note that said London-based HSBC, Europe's largest bank, could boost revenues by bidding for its French peer. Such a deal would give HSBC access to SocGen's businesses in the Middle East and North Africa, and create the largest bank in the world, wrote Merrill analyst John-Paul Crutchley."

This article is cultural and not advisory. John Azzopardi Vella, economic consultant with DBR Investments Ltd, has promoted the Malta Development Fund and advised S & P; e-mail: johnazzopardivella@hotmail.com.