The lion which broke the bond of its history
Weak due diligence – the failure of executives and boards to do their homework – has been a huge feature of Britain’s l ong running banking crisis.
Fred Goodwin went ahead with the suicidal takeover of ABN amro, after a warning from the run on Northern Rock, on the most cursory access to its books.
Former Co-operative Group chief executive Peter Marks pressed ahead with the disastrous merger with the Britannia that almost brought the whole edifice tumbling down after some very poor due diligence. When the masters of the universe have a glint of a big deal in their sights power- crazed egos cannot restrain them. Much the same can be said of the way in which Sir Victor Blank and eric Daniels seized the chance to control HBOS, without any real recognition that they were destroying shareholder value on a giant scale.
Those looking for explanations as to how a historically conservative bank such as HSBC could have become involved in tax evasion in Switzerland, private banking for african dictators and money laundering need to look no further than the inflated ambitions of past executives.
In the new 768-page history of HSBC by Richard Roberts and David kynaston, The Lion Wakes (perhaps it should stayed asleep), the authors describe how City dealmaker Rodney Leach approached John Bond in the February 1999 with the opportunity to buy Republic New York Corporation. It stood at the centre of private banking empire built by edmond Safra, part of the celebrated aleppo, Syria banking dynasty.
Bond took the bait and with Safra in bad health he rushed into a $10bn deal, representing almost 10pc of HSBC’s market value.
Bond told his colleagues at HSBC: ‘The fit is on paper superb. Real leap in private banking.’ as he pushed the deal through the board in rapid time, so as to beat the ticking time clocks of Safra’s unfortunate health, Bond waxed ever more lyrical. ‘We are acquiring a very talented team,’ he told his senior coll eagues. ‘ In many ways Republic’s staff will be more talented than ours.’
But as even as the deal was being done the random nature of some of Republic’s behaviours was evident. The bank indirectly became the target of Japanese regulators over an alleged securities fraud committed against Japanese investors. So anxious was Safra to complete the deal that he personally offered to foot the cost of the Japanese investigation, some $700m, rather than allow it to slip away.
arguably the episode should have raised red flags for Bond and HSBC but they ploughed on regardless despite failures of management oversight by Republic in Japan. The reality was that Republic was a totally different enterprise to anything HSBC had ever dealt with before. It largely consisted of around 30,000 high rolling clients drawn from the Sephardi Jewish community and high arab rollers from the rich Gulf states. It was immersed in secrecy and the Geneva office, now exposed as a centre of tax avoidance, evasion and worse, was at the vortex of the operation.
Bond and those who did the due diligence seemed blissfully unaware of what they were really buying, which was as far away from the careful, colonial history of HSBC as it was possible to travel.
When edmond Safra died in a fire in Monaco on December 3, 1999, just as the final regulatory approvals were coming in, Bond declared: ‘HSBC will uphold the banking tradition and integrity which were the hallmarks of edmond’s life.’
In in his search for grandeur Bond had recklessly taken HSBC into a shadowy area of banking which would deliver devastating reputational damage to his successors.
China syndrome
THOMAS Cook l ong has been associated with adventure even though in modern times it has veered towards the devalued currency of package holidays.
It has now rediscovered some of that old buccaneering spirit by entering a partnership with Fosun, the Chinese owners of ClubMed. In addition to Fosun acquiring a stake up to 10pc in Cook the two firms are forming a joint venture to develop a €500m hotel portfolio. Cook tours will go on sale in China and ClubMed will be marketed by Cook. all very cosy, and Fosun has made an undertaking not to go the whole hog and take out the British travel firm. Where have we heard that before?
Casino Royale
IT takes the politicians a long time to catch on. The strategy inaugurated by former chief executive Stephen Hester of trading Royal Bank of Scotland out of danger using its second rate investment banking arm was always bonkers.
Seven years after the state took control, George Osborne says he wants RBS out of ‘casino’ banking.
Such insight.