Business View: How many risks can HSBC take and still be a safety play? Not this many

C&W must be joking

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Fuming C&W investors move to oust Wallace this week

The old saying that "no one ever got sacked for buying IBM" was, of course, betrayed as a lie more than a decade ago. But there are still fund managers who stick to the mantra that "no one ever regretted holding HSBC".

The UK's largest banking group – and the world's No 2 – is also the fourth biggest constituent of the FTSE 100 and by most people's reckoning the lowest risk play in both the financial sector and the upper echelons of the stock market. It is the safety play, the widows and orphans stock, the bluest of chips.

But, even if it was all that, which I always doubted, it isn't now.

Some would say the leopard has changed its spots. Others that the leopard has merely revealed the rather racy spots it always sported.

Those who say HSBC is Mr Solid argue that its geographical and product balance smooth the cyclical peaks and troughs that afflict banking. HSBC is seen as a three-legged stool – rooted in the Far East, Europe and the Americas in a way that no one, save perhaps Citigroup, can replicate.

This is fine if you are a moderately full service bank – which, to be fair, HSBC is in Hong Kong and the UK. However, elsewhere HSBC is a cherry picker and has garnered some rather surprising assets and exposures.

For a start it has rolled the dice heavily in South America. Argentina is already a problem, Brazil is following rapidly behind it and Mexico, where HSBC has recently committed a cool $1bn, is about as solid as the English batting line-up.

Then it is big in high net worth individuals. The Safra bank and CCF acquisitions saw HSBC spending as much as £10,000 per customer to break into the private banking market.

But since it struck those deals, tragic accidents, fraud and a world recession have afflicted those businesses.

What's more, it is investing heavily in China in the expectation that banking reform will allow well-capitalised Western banks to exploit the weakness of the local financial institutions. But reform was pushed through by President Jiang Zemin, who retired on Thursday, and who can predict what his successor, Hu Jintao, will do?

And finally, who can fathom what HSBC is doing in the US? Having sorted out the basket case that was Marine Midland, the ultimate rustbelt bank, it then bought Republic Bank of New York, which no doubt is feeling some post-9/11 effects. Then this week it spent $16.2bn – more than £10bn – on a troubled low-grade lender called Household International. Leaving aside the question of how a bank that lends to blue collar workers in trailer parks fits in with the strategy of managing portfolios for tax exiles in Monaco, this seems another large throw of the dice for a supposedly conservative bank.

But it is in keeping with the way HSBC does things. Modern-era bankers, such as Matt Barrett at Barclays or Fred Goodwin at Royal Bank of Scotland, believe that the key to dealing with diversified, difficult-to-control financial organisations is to manage risk all the way down the line, making sure that not only does the centre know what risk the subsidiaries are taking on, but that the subsidiaries know to "lay off" the bets as much as possible.

HSBC appears to be different. Perhaps because it is so big, it seems to allow its businesses to take larger bets, and so get larger returns, in the hope and expectation that the net effect should be for the risks to balance themselves.

But I don't buy it. Just as two wrongs don't make a right, so two, or three or a hundred risks don't make for security. HSBC is not a safe bet.

C&W must be joking

I'm all for companies resisting the fickle demands of the City but Cable & Wireless is taking the mickey. It resisted siren calls from shareholders to give back its cash mountain a couple of years ago and instead, well, blew it.

Now, in the face of open demands for the resignation of its chief executive, Graham Wallace, it is defiant.

"If we got a new chief executive, then it would take three months to find one and he'd take six months to work out a new strategy," came the message. "That's nine months of inertia."

It's an interesting argument. But a large number of shareholders would prefer that to nine months more of Mr Wallace.

j.nisse@independent.co.uk