Let’s hear it for the old Hongkong and Shanghai Banking Corp., which fessed up today that the global banking sector didn’t have a clue about the junk it was peddling to similarly clueless investors.
HSBC chairman Stephen Green took on the financial crisis with the release of the British bank’s 2008 results. It’s net income of $5.7B in '08 (albeit down 70 percent from '07) is a performance that Bank of America’s Ken Lewis and Citi’s Vic Pandit would die for.
Here is what Green said of securitization.
"The complexity and opacity of certain financial instruments reached a point where even senior and experienced bankers and professional investors had trouble understanding them. This meant that people were selling and buying assets whose risks they had not properly assessed.”
On “failings” in the banking industry:
"The industry has done many things wrong. It is important to remember that many ordinary bankers have always sought to provide good service to their customers; but we must recognize that there have been too many who have profoundly damaged the industry’s reputation. Inappropriate products were sold inappropriately by many. Compensation practices ran out of control and perverse incentives led to dangerous outcomes. There is a genuine and widepresad anger that the contributors to the crisis were in some cases amongst the biggest beneficiaries of the system.”
“It is as if, too often, people had given up asking whether something was the right thing to do, and focused only whether it was legal and complied with the rules The industry needs to recover a sense of what is right and suitable as a key impulse for doing business."
Green knows HSBC is “not immune from the crisis.” It got stung by the U.S. subprime panic, which resulted in a $15.5B charge and ensuing retrenchment in America’s consumer market.
HSBC, to its credit, has not taken a pound in bailout money from the British Government. That's unlike archrival, Royal Bank of Scotland, which is now a ward of the state. HSBC rocked the worldwide global markets today with announcment of a rights offering aimed at raising $19B in fresh (and private) capital.
Green’s candor is refreshing and would be greatly appreciated here. Wonder if he would be interested in becoming Citi chief or U.S. Treasury Secretary? At the very least, Green could scoop up some of the units of taxpayer-owned American International Group. We'd love to get them off our hands.