HSBC, the international bank headquartered in London’s Canary Wharf, is deep in crisis. On the London stock market, its shares have fallen by 50 per cent since January to their lowest level for a quarter of a century.
Twenty years ago they stood at around £10. They are now hovering around £2.80, in a catastrophic destruction of value. Obviously, this is worrying for investors and customers, but also for UK plc and for our banking industry.
If HSBC’s stability were to be threatened – and we are a long way from this – it would be a danger to the UK’s financial system.
Concern: If HSBC’s stability were to be threatened it would be a danger to the UK’s financial system
The problems facing chairman Mark Tucker and chief executive Noel Quinn are multi-faceted and look intractable. The most recent blow is the allegation that the bank allowed fraudsters to launder millions of dollars of dirty money. Quinn may feel confident these accusations will not lead to enforcement action, given that they date back years and the bank has taken action.
But it touches a raw nerve.
HSBC has run foul of the regulators several times including incurring a £1.5billion fine in the US for acting as a conduit for Mexican drug lords and a huge tax evasion enterprise via its Geneva branch.
Worryingly for the top brass, investors in Hong Kong are losing faith. Unusually, some have even gone public. Hong Kong shareholders were furious at the suspension of the dividend, at the behest of the Bank of England. No conclusion will be reached on whether or not the divi will be restored in 2021 until the end of this year: if it is not, there will be trouble.
Along with the other banks, HSBC is exposed to the risks that the global economy will tank in a second wave, piling up even more bad debts on top of the £10billion or so of write-offs already expected.
Changes to accounting rules mean the banks must cordon off money to cover possible nonrepayments at an early stage, and HSBC believes it has made ample provision. Events may prove otherwise.
The biggest difficulty, however, is that HSBC is piggy in the middle in tensions between Beijing and the White House.
This situation is delicate. HSBC cannot afford to lose its licence to operate in the US, given the dollar’s central role in world trade. Nor can it offend the Chinese, since the lion’s share of profits is made in Asia.
Quinn, whose job it is to sort it all out, is a quietly impressive Midlander. The pandemic means he runs the global bank partly from home and partly from the virtually empty Canary Wharf nerve-centre. A programme of 35,000 job cuts was put on hold due to the virus but has now resumed.
He is also looking to slash costs, including from the $400m travel budget. Quinn will seek to dispose of buildings in London and elsewhere as staff work from home. He may sell off the bank’s emergency premises. Working from home, rather than a back-up office, is now the contingency plan.
Quinn’s approach to strife in Hong Kong and to the US-China conflict has been to keep a low profile and not to choose sides.
The bank has 155 years of history and a wealth of expertise in its ranks. But its raison d’etre is international trade, which is being challenged as never before – by protectionism in the White House, belligerence in Beijing, Brexit and the pandemic.
HSBC’s woes hold up a worrying mirror to the world.