The Evening Standard - March 3, 2008

March 3, 2008

The Evening Standard

NO EXCUSES, HSBC MUST GET RID OF HOUSEHOLD
Chris Blackhurst
3 March 2008

FIVE times, the latest as recently as last week, Stephen Green, chairman of HSBC has met with Eric Knight, head of Knight Vinke, the fund manager.

By all accounts the sessions were cordial, but there was no denying the tension. Knight Vinke is the activist HSBC shareholder, or troublemaker, intent on giving the bank chief a hard time. In the past, the old Honkers and Shankers would not give someone like Knight the time of day. But this a different, troubled HSBC.

There's the position of Green himself. By combining the roles of senior executive and chairman he remains vulnerable to attack. That, plus the view in the City that he is not really a dyed-in-the-wool banker (he's a former management consultant), leaves him vulnerable to attack.

Then there's HSBC itself. The bank may look like a global powerhouse and may trot out adverts with the slogan 'the world's local bank', but in truth HSBC is two banks. In Asia, its original heartland, it really is a force to be reckoned with and stands easy comparison with Standard Chartered. In the West, it's nowhere near as strong as its image suggests. Worse, in the US, its Household subprime lender, is little different from Northern Rock.

There is no excuse - however HSBC dresses it up - for continuing to own Household, or HFC as it's known. Since it paid $14 billion for HFC five years ago, before Green's tenure, the bank has been forced to write off an even greater sum in bad loans.

HSBC 's subprime exposure is different from that of other UK banks. Theirs has come from speculating in bundles of risky mortgages, from playing the capital markets, but HSBC 's derives from being on the front line, from actually making the loans in the first place to hard-pressed American homeowners.

Asia accounts for half of HSBC 's revenue. Standard Chartered shares trade on a multiple almost twice that of HSBC. It's the US arm that drags down HSBC - if Green ditched it, as Knight Vinke wants him to, the bank's shares would rise. The only reason for maintaining it is to shore up his own reputation - HFC has outstanding debt of $150 billion and Green argues he can't just walk away from that.

But he could. HFC is a dead business - it has no future. If Green had bottle he would scrap it and watch the bank's shares, and his personal standing, soar.