HSBC: When Economics Meets Geo-Politics, Realpolitik Raises Its Head, and Wins!

What can one say about HSBC’s first half-year recent results. Nothing too much apart from: “Oh dear, poor HSBC. What a mess!”
Well, just take a look:
  • 35,000 employees to be axed
  • Profits fallen by 65% to USD $4.3bn
  • Bad loan provisioning up to USD $13bn; (GBP £9.8bn)
  • Flat interest rates squeezing profit margins on loans, when the bank has already provided in excess of 700,000 payment holidays on loans, credit cards, and mortgages
  • A complete slump in retail and commercial banking globally, which is in part due to individual geographical “lock-downs” and Covid-19, and the latter’s resurgence in a number of countries
And all the above, alongside additional pressures from individual governments for HSBC to support struggling local businesses, households and families stretched to their limits.
So, what is the answer?
Well it looks like more cost reductions as the inevitable result of HSBC’s aim to achieve a return on equity of 10%-12% by 2022. In other words, more redundancies.
However, although clearly not good news, this could potentially all be considered a mere side-show when one looks at the growing tensions between Washington and Beijing; given HSBC finds itself stuck in the middle!
The might of geopolitics reigns supreme when it comes to true international power. It reminds me of what happened to the CEO of Cathay Pacific about a year ago once the Hong Kong demonstrations started. He lost his job at the time because he refused to ensure that the well-known Far East airline – for which he was ultimately responsible – adheres to Beijing’s political requests with regards to Hong Kong’s demonstrations. HSBC clearly took notice! Consequently, the bank’s Head of Asia has now agreed to sign a petition backing China’s intervention in Hong Kong, which has completely estranged the HSBC’s local Hong Kong customers. It is these same customers that account for a large segment of the bank’s Asian activities, revenues and profits.
There is nothing more embarrassing and commercially uncomfortable than “biting the very hand that feeds you” when the hand itself (i.e. Hong Kong) is threatened by an authoritarian power (i.e China); and this same power is supposedly only allowing you to continue your commercial affairs if  you comply to their “request” to undertake “the physical biting!”
When it comes to international financial and commercial affairs, “realpolitik” trumps all; that is to say; it lords it over the wishes, aims and policies of the multinational entity and weak governments every time; and of course the local populace, irrespective of the end-results.
But as an HSBC shareholder, one perhaps should not be too disappointed. It is not totally bad news; because as a shareholder of theirs, you are certainly not alone. Lloyds, Barclays and Nat West all have made huge bad-loan provisioning contingencies currently, amounting in total to what could be as much as GBP £40bn over the next two to three years!

Eliot Charles Heilpern

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