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.

China Daily (Canada) - - FRONT PAGE -

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 an­drew­moody@chi­

David Ky­nas­ton

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