Are HSBC shareholders in line for piles of cash?

During an acrimonious meeting on May 28, HSBC's shareholders approved a £120 million pay package for the top leadership of the global bank, which need not be a 'big deal'. It presents a reasonable financial plan for a 50 per cent increase in HSBC share price. Top bankers must justify their worth by proven effectiveness. Bonuses must be earned. They are by no means a bureaucratic salary. Banking is not a utility. It thrives on entrepreneurship.

The remuneration scheme which corporate governance expert PIRC considered 'excessive' is to have a maximum bonus payment equivalent to seven times their salary. The association of British Insurers gave it an 'amber' rating, while Knight Vinke, the activist investor warned, predictably, against executives being encouraged to abuse excessive borrowings.

There is no HSBC, however, if it does not strike out boldly to make money. There have been those who, like yours truly, have enjoyed the mostly magnificent joy ride of holding HSBC shares for the last 13 years. The present reasonable feelings of expected shareholder enrichment are based on past HSBC experience.

HSBC is asking for trust from its shareholders, based on the fact that it has, according to The Economist, the best balance sheet of the ten top global banks. It is also the first of the list by no mean margin. This 'Best Balance Sheet' is in turn derived from Dresdner Kleinwort, and is based on 10 criteria. The main ones are Tier One capital, where HSBC has eight per cent, while Barclays' is around five per cent. The European Union average is 6.5 per cent. It is to be noted that HSBC is at the top of this score, registering almost 90 out of 100 allotted points while Barclays' is slightly less than 30. The average of the 'Best Balance Sheet' score is 55. These divergences make for a preposterous international banking situation, needing immediate correction.

The Financial Times pointed out as much on May 23. There has been a massive fall in bank transparency, with the exception of HSBC. It was the first to admit its American subprime losses. The behaviour of five of the 20 top global banks as listed by the International Institute of Finance has been most objectionable, not to say 'clownish'. A bank is a clown, destroying shareholder sentiment, if one day it denies it needs to raise emergency equity, and the next day it comes out, cap in hand asking for largesse at the taxpayer's expense. The result is that wild rumours start to circulate about the global banking system, which however is doing much better than it is given credit for.

Is not the brilliant performance of BHP Billiton and China's economic growth a reflection of global banking leadership? Has not the International Commercial Bank of China performed brilliantly since it acquired the participation of Goldman Sachs?

A most objectionable theory about the subprime banking crisis appeared in the editorial of The Economist of May 14. Banking is not astrology: there is nothing 'opaque' or 'shadowy' about it, but The Economist laid an emphasis on these two words.

These are much stronger than the more appropriate words 'lack of transparency'. International banking is not a witches' sabbath. Subprime losses can also be explained in terms of excessive bank generosity, gone haywire.

The strongest antithesis to the transparency behaviour of HSBC has been that of UBS. This is making revelations about its mortgage losses which are always too little, too late. Investors should compare how the UBS and HSBC share prices have behaved consequently during the past 12 months. The common people must acquire a banking culture, and piles of cash await them as share trading and financial journalism develops in this country.

Mr Azzopardi Vella, economic consultant with DBR Investments Ltd, has promoted the Malta Development Fund and advised S & P.

johnazzopardivella@hotmail.com