By Goh Eng Yeow
Markets Correspondent
engyeow1@sph.com.sg

 

IT IS quite ironic Singapore's three local banks are now more valuable than their far bigger peers in Britain such as Barclays Bank or Lloyds Bank.

Each one is also worth slightly less than the beleaguered banking giants in the United States which they used to admire and emulate in their drive to grow their regional footprints.

In contrast, investors of HSBC Holdings – which successfully grew into one of the world’s largest banks with its relentless globalisation drive – must be wondering when their nightmare will end. Its stock price had, so far, slumped 25 per cent this year.

When the now-retired bosses of the then staid Hongkong and Shanghai Banking Corporation – Sir Michael Sandberg and his successor Sir William Purves - embarked on their ambitious plan to expand the lender’s global footprint, the shadow of Hong Kong’s handover to China was never far from their minds.

Over the years, the strategy had succeeded beyond their wildest dreams, as HSBC Holdings, as the bank is now known, escaped from its strict confines in Hong Kong.

With operations in over 100 countries, it proudly calls itself the world’s local bank - rivalled only by Citigroup, another acquisitive global empire builder.

But Citigroup has now fallen from its pedestal and is in the midst of breaking itself up in an effort to become fit again.

Royal Bank of Scotland – another aggressive empire-builder, is in danger of being taken over completely by the British government, after a ill-fated takeover of ABN Amro Bank saddled it with the biggest loss in UK corporate history.

And HSBC Holdings has been rattled as well.

Pointed questions are being raised over whether the bank has sufficient capital to stay healthy, as the US and UK financial markets sour.

For the many thousands of HSBC shareholders in Hong Kong and the rest of Asia, the collapse in the bank’s share price is painful to behold.

Some have held on loyally to their shares for generations. Many have even opted to get shares, instead of cash, for their dividend payout believing that the bank could earn a higher return for them.

But globalisation brings with it problems which Sir Michael and Sir William could not have foreseen those years ago, as they shored up confidence in the bank when the biggest threat was the uncertainty over Hong Kong’s future under China’s rule.

HSBC became a big lender in the UK market because of its acquisition of Midland Bank nearly 20 years ago.

To be all things to all men, the bank, under John Bond, emulated large US lenders by reaching to the poorest people in the United States with its purchase of Household Finance in 2005.

Both acquisitions have turned out to be the bank’s Achilles heel, as the worst financial crisis in decades hit both markets simultaneously.

And the end-game for HSBC 

I believe that it will stay as the world’s local bank, for no reason other than the fact that its global rivals are in an even worse shape. But operations in the US and Europe will be scaled back, as the bank looks east again.

As for its need for more capital, I suppose that the call will not be long in coming. Like beleaguered borrowers who are now counting the number of banks which are truly their friends, HSBC will be keeping its fingers crossed on the loyalty of its shareholders.

And what about China’s attempt to gain a stake in the bank?

HSBC was believed to have turned down an offer last year, but it may be more difficult to rebuff another knocking on the door, if it materialises.

HSBC’s travails provide an objective lesson for local lenders as they expand their operations overseas.

UOB chairman Wee Cho Yaw once remarked that he might not see a global Singapore lender emerging during his life-time. Not even the then four local banks together could add up to the Hongkong bank, he said.

But as a new financial world order emerges from the chaos now besieging the global banking system, who really knows what lies beyond the horizon

Mr Wee could be wrong. And HSBC may not turn out to be so invulnerable after all.