From local bank to global finance giant
Historian charts the rise of HSBC and recounts how it managed to avoid the worst of the financial crisis, Andrew Moody reports.
David Kynaston believes many underestimate just how Hong Kong has transformed itself over the past 35 years. Back in 1980, some two-thirds of its workforce was involved in the manufacture of cheap goods — from textiles to plastic toys — and the future Special Administrative Region was a long way from emerging as one of the world’s major financial hubs.
The territory is very much the backdrop of the historian’s new book, The Lion Wakes: A Modern History of HSBC, which he coauthored with Richard Roberts. It charts the bank’s rise from essentially a local bank to a global financial institution.
“In the 1970s, the dominant narrative about Hong Kong was that it was this post-war economic miracle reliant on manufacturing and exporting,” he said.
“The 1980s was a transformative decade for finance with less deregulation and liberalization, and HSBC was part of that and the subsequent development of Hong Kong.”
Despite working most of his life anonymously in the subterranean world of one archive or another, the 63-year-old is one of the UK’s most high-profile historians.
His books on British post-war social history, Austerity Britain, Family Britain and Modernity Britain, often told through the lives of ordinary people, have received many accolades (the first in the series being the Sunday Times’ Book of the Decade) and have been serialized on BBC Radio.
The latest book charts the history of HSBC from the 1970s to the present day, although it ends before the recent furor over tax evasion at its Swiss private bank subsidiary.
It takes over chronologically from the four-volume history produced by the late Frank King.
“We were trying not to be Frank King Volume 5, however, because his was essentially a history by an economist,” he said.
HSBC or Hongkong Bank, as it was widely known in the late 1970s, was still very much a local or regional bank. Most of its major customers, including Jardine Matheson and Swire, dated back to origins of the British colony in the 19th century.
Under the ambitious chairmanship of Michael Sandberg (1977-86) and Willie Purves (1986-98), however, the bank set out to be a global bank, largely through acquisitions.
This included the purchase of the US’ 12th largest bank, Midland Marine, in 1980, and one of the UK’s big four banks, the Midland, in the early 1990s (after previously being rebuffed by Royal Bank of Scotland), which led to the bank being headquartered in London.
“It all dates back to Sandberg taking over the chairmanship. He made the point the bank was only the 75th biggest in the world (it now is the seventh largest with a market capitalization in May of $185.4 billion) and to create a three-legged stool with a leg each in Asia, North America and Europe.”
Like with the Swiss private bank subsidiary, the strategy has not always gone smoothly. The acquisition of banks in Mexico — a 75-percent cash economy — led it to becoming embroiled in drug cartel money laundering, while the purchase of Household, the US consumer finance business, left it partly exposed to the US subprime crisis.
“This was quite a difficult part of the book to write in terms of the analysis of what went wrong. I think HSBC’s official explanation that it had grown too fast and that its decentralized approach was no longer fit for purpose is essentially true. We also argue, however, there was a problem with the broader culture — which HSBC among the banks were far from the worst — of the dominance of shareholder value and the bottom line at the expense of the reputational aspect.”
HSBC was the major international bank perhaps least affected by the financial crisis, and by delving through the archives Kynaston gained insight into this.
“Doing a book like this involves plowing through huge quantities of material, and there was one eureka moment for us. There was a minute of the holdings board in early 2006 when there was a discussion about why the HSBC share price was flatlining, despite making record profits and being international bank of the year three years running,” he said.
“They debated whether they should follow their rivals and go down the leveraged route or stay with the traditional HSBC model of relying on deposits. They decided not to change. Gosh, didn’t that pay off.”
Kynaston, who was brought up in Shropshire and is half German, went to Wellington College before obtaining a first class degree in history from New College, Oxford.
Although he is a visiting professor at Kingston University, his career has been writing books, mainly as a financial historian. He has produced a four-volume definitive history of the City of London, a history of the Financial Times newspaper and also of Cazenove bank.
“I did precious little economic history at Oxford, where it was mainly high history, political, diplomatic, ecclesiastical and intellectual, to a degree. I come to this as a social historian and amateur anthropologist,” he said.
Kynaston believes that although HSBC may have been sheltered from the financial crisis, a consequence of the crisis has been a fundamental shift of balance from West to East.
“The West has struggled since 2008. You have unemployment rates in Europe that are appalling, and I think in all sorts of worlds you have witnessed a (Oswald) Spengler-like decline in the West. It was clearly coming anyway, but it has been accelerated,” he said.
He also believes the financial crisis has led to Western banks being less dynamic.
“If you look at HSBC, some onesixth of its workforce now work in compliance. Given low interest rates as well, it is hard to see this as a very dynamic sector.”
Kynaston wondered how many bankers can still justify their telephone number salaries when many of the general public think some of them should have gone to jail for crashing the system.
“People are rightly perturbed, offended or amazed by the kind of money that is earned by top bankers,” he said.
“In the old days bankers didn’t necessarily live on the same streets as ordinary workers but there wasn’t this stratospheric difference. I was in hospital two or three years ago for three months and thought then that some of the staff would not be getting paid in a year what a banker would get in a day.”
Kynaston believes the general public are not yet so agitated about inequality — also an issue in the Chinese mainland — and that the views of French economist Thomas Piketty and others about the subject have yet to gain traction.
He cited the recent UK election in which Labour leader Ed Miliband was defeated as highlighting the issue.
“There may be an analogy between the Wall Street Crash of 1929 and the financial crisis of 2008. It took 16 years, in Britain, at least, when more collectivist and egalitarian ideas came to the fore when Labour won the election in 1945. We may be looking at 2025 this time. All is not lost for the left in Britain and across Europe.”
In the book, Kynaston highlights the role HSBC has played in the Chinese mainland in the reform of the banking system, particularly in training its bankers when Liu
The Ingmar Bergman trilogy, ThroughaGlassDarkly (1961), WinterLight (1962) and TheSilence (1963), and FarFromTheMaddingCrowd (1967, directed by John Schlesinger).
Leonard Cohen, particularly his SongsofLove andHate album, and Bob Dylan’s later period, including the song, NotDarkYet. “His preoccupations of an aging man seem to start to fit with mine, even though I am 10 years younger.”
Korean. “Stone bowls with rice, veg and beef with an egg on top. I live in New Malden in London, where there are more Koreans than anywhere outside of Korea.” Ming-kang was chairman of the China Banking Regulatory Commission in the 2000s.
One big question is how Chinese HSBC will be in the future and whether it will move its headquarters back from London to Hong Kong.
“For what it is worth, if I had to put money on it, I think they will stay put in London,” he said. Contact the writer at firstname.lastname@example.org