HSBC hurt by the US curse
HSBC is enormously proud of its history and culture with a Hong Kong heritage dating back to 1865 when it was spun off from P&O a maritime background still reflected in its ensign style logo.
So it was an enormous wrench for such a proud enterprise to admit its numbers were wrong in December.
The mortgage services book at sub-prime lender Household in America turns out to have been a total dog. Credit controls were slack and management supervision so weak it appears to have written its mortgage book in a vacuum. The result is a whopping £5.4bn bad debt charge.
Chairman Stephen Green believes that the 20% rise in provisions should cover the damage. He had better hope so. Bank chairman have been turfed out for less. In the context of HSBC's vast scale, the write down represents just 2% of the bank's assets and HSBC is adamant that the problem is confined to mortgage services and that the credit card and personal lending books are unaffected.
That had better be the case otherwise investors may well question whether they were duped when they gave the green light to the £9bn purchase of Household in 2002.
HSBC has a reputation as a benign owner of foreign banking assets. But not all its overseas deals have been brilliant. Its first purchase of a commercial bank in North America, Marine Midland, ended up with huge loan losses in commercial property and there were problems when it first took control of the Safra private banking empire. So its acquisition culture does not look as robust as it might appear.
What will be most frustrating for HSBC's consumers and investors is that a bank, which has frequently been critical of over regulation in the British banking market, has so easily frittered away funds overseas.
The £37m pay package earned by William Aldinger, the American executive in charge when HSBC bought Household, now looks to have been outrageous.
Leighton switch
What do the Royal Mail and J Sainsbury have in common? The postal service is chaired by former Asda boss Allan Leighton. He would like nothing better than to jettison the troublesome Royal Mail, lead a buyout of J Sainsbury and encourage chairman Philip Hampton to take charge of the post.
Turning around the Royal Mail has been harder than Leighton could ever have imagined. It possibly has been made more difficult by his frequent absence as he helps the Galen Weston family, owners of Selfridges, to sort out the Loblaw supermarket chain and other food interests in North America.
Having failed to persuade the government that the ownership of the Royal Mail needs changing, so that a rebellious workforce is part of the recovery, he has had to settle for a half-way house under which 190,000 workers will receive a shadow dividend payment of £5,300 over the next five years.
He is hoping that his promise of a capital pot will help as he starts to tackle the difficulties of shaking up Mail's pension fund. As at British Airways, the final-salary scheme is to be closed to new members and the benefits almost certainly ratcheted down.
Leighton is determined not to blink first in the negotiations with the unions. He believes it is no longer possible to service a pension fund soaking up £730m in the current year, up from £280m.
As serious though is the drip, drip of lost commercial contracts. The Royal Mail likes to boast of its service levels, which it says have improved enormously. Yet if this were really the case the telecoms operator BT, once part of the Post Office, would not be taking its business elsewhere.
Leighton's clear hope is that the £1.7bn modernisation plan, together with a borrowing facility of £1.1bn, will finally allow him and his chief executive Adam Crozier to respond to a more competitive market. Whether Leighton will be there to see through the changes is questionable.
Bank pause
It was too much to expect the Bank of England to tighten the interest rate screw again after January's surprise. But the Monetary Policy Committee may yet regret its caution. The nightmare is that it will squeeze too hard and do serious damage to housing and credit markets.
Yet the Bank's sole function is to hit the 2% inflation target and it is still some way off. today it may receive some help from British Gas, which have begun to cut prices. There are optimistic suggestions that this could wipe 0.4% of the consumer prices index.
There are worrying signs that energy prices have become deeply embedded. Wage deals have moved up from 3% to 3.5% and Income Data Services reports several deals at 4%. Most recent business surveys have pointed to upward price pressure. Former dove Roger Bootle believes that rates will have to rise to 5.5% next month and 6% beyond that. A pre-emptive move would have saved pain later.
Industrial cheer
The assumption that in a global market manufacturing will thrive better under foreign ownership is rubbish. Among the slew of financial results just released to the market, Roll-Royce, ICI and GSK, demonstrate that UKplc can do just fine on its own.
R-R's order book climbed 10% in the last year to £26.1bn and who knows it may yet be part of BA's plans to update its fleet. As for ICI, it would be daft to sell the chemical firm now that it has regained its stride, raised underlying profits of 17% and outlined ambitions to use restructuring savings to boost its standing in Asia and Latin American markets.
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