Mocked by shareholders in the pre-bubble years, HSBC Holdings’ (LSE: HSBA.L) group finance director Douglas Flint is now having the last laugh, as the huge bank performed magnificently while their competitive rabble around them begged their respective governments in order to cover up their gross incompetence. I do use the term ‘competitive’ loosely here.
Much of the indignation with Flint from HSBC shareholders was in reference to how much cash he kept on the books of the company. Now he’s looked upon as a hero in the industry and shareholders, being hailed as one of the “finest bean counters the banking industry has ever had,” according to an interview with Flint by Economic Times.
Another wise move Flint made was in his decision to face the exposure of the bank to sub-prime mortgages by taking gigantic write-downs at the beginning rather than wait around, which many of his colleagues did.
Flint says the reason the company didn’t need government assistance was founded upon its strong capital base and the diversified business model used to conduct its business. Add that to the scale of the company and you have the secret of the success of HSBC, according to Flint.
Another solid practice referred to by Flint is the way they take their time in lending out money when they enter into a new market. First they work on building up deposits before they even think of lending money out, giving them a strong capital foundation to work from. The simple and effective strategy is why they are so highly respected in the banking industry today.
As far as its future prospects, HSBC, like many industries and sectors, are looking toward emerging markets as the engine of growth for the years ahead.
While they are now evenly generating revenue from the U.S., Europe and Asia, Flint sees that changing going forward, with the majority of new business coming from Asia, Latin America and the Middle East, which will change the percentages dramatically.
Somewhat ominous for the United States was the statement by Flint that once the U.S. division returns to profitability, it will never be the size it was before the economic crisis. He added that a lot of the business in the United States is winding down, while emerging market business is continually expanding to be a larger portion of their revenue.
What this means is he doesn’t see much growth in the U.S. market, and that confirms what a lot of other people have been stating for some time. American business will need to adjust accordingly to that new reality.
As far as HSBC, they have shown the rest of the banking industry how to run themselves, and they need to take their cue from them and follow suit. While I don’t believe the governments should have ever bailed out the poorly run banks, if more would have been expertly run like HSBC, it would have been a moot point, as the perceived need wouldn’t have been there.
