James Moore: HSBC is so sorry about the drug money – honest

Outlook

Who said sorry seemed to be the hardest word? Banks seem to be falling over each other to make ever more effusive expressions of regret, and yesterday it was the turn of HSBC.

The world's local bank wasn't attempting an impersonation of Uriah Heep for fixing interest rates like Barclays. No, it found itself in the unusual situation of coming over all 'umble in response to revelations that one of its businesses was making a fine return from pumping drug money around the world. Among other things. Which, combined, might be even worse.

"Sorry," said chief executive Stuart Gulliver, who claimed to be shocked by the affair before trotting out words to the effect of "we won't do it again and we're jolly serious about that. Honest. Cross my heart and hope to die, stick a needle in my eye".

The problem with apologies, as any parent will tell you, is that they're only worthwhile if they are accompanied by a healthy dollop of sincerity mixed in with some genuine regret. Children aged three upwards can become pictures of anguished contrition upon being spotted torturing their younger siblings. Before starting all over again once the harassed parent's back is turned. Lather, rinse, repeat.

But in the City of London they're rather more sanguine about this sort of thing. Many analysts treat fines and compensation provisions as little more than part of the cost of doing business.

Yesterday, their focus was on HSBC's results rather than a scandal about which they really ought to have been screaming. It didn't hurt that those results were actually rather good.

This meant that the questions were (broadly) about margins and the bank's prospects going forward, which aren't so bad because HSBC is in a lot of emerging markets which grow quickly.

That's the bank's compensation for the occasional difficulties they present. Like in Mexico, where the it's not just the jalapenos that cause indigestion. The $2bn (£1.3bn) of provisions is viewed as a "one-off" item with the focus on the $10.6bn of underlying pre-tax profits for the first half, down a bit but better than forecasters had expected. The juggernaut rolls on and management get a free pass.

To be fair, there are one or two senior people at HSBC who "get it" when it comes to their company's problems with regulators. Who recognise, or at least partially recognise, the mire that this bank has allowed itself to fall into and who are genuinely horrified.

The top management might even have a semi-sensible strategy for fixing things. The structure is being shaken up, more money is being spent on compliance and there will be more supervision of executives in far-flung parts of the world. There may even be intervention in future for more reasons other than a subsidiary simply not meeting its targets.

But despite the $2bn hit, HSBC's executives will still bank multi-million dollar bonuses and complain when anyone dares question their rights to them.

The same boasts about cost cuts and job cuts will be trotted out to keep the City happy next year. The same threats will also be trotted out if regulations move in a direction the bank doesn't like.

Culturally the same old song is still playing.

Part of the problem is that while $2bn looks like a huge number, it is still a drop in the ocean to a bank like HSBC.

Regulators around the world might like to medidate upon that.

Insurers have a lesson or two to teach bankers

A couple of decades ago people were writing the sort of things about insurance that they are writing about banking today.

There were even suggestions that the Bank of England might like to bail out Lloyd's of London because it was, well, too big to fail.

But the central bank didn't blink, so the market had to sort its own problems out.

This meant a lot of pain was felt, and a lot of blood was spilled and (like now) rather too many guilty men went unpunished. But the market survived and is now resilient enough to take a bad year (like 2011) on the chin and be back for more.

Hiscox is one of the survivors from the bad old days. Its share of last year's losses (in the first half) was about £86m, but this year has been a bit more cheery with a £126m profit banked so far. Others will follow over the coming weeks.

In the run up to the near collapse of Lloyd's, brokers and underwriters were frantically chasing their own tails. Ever more complicated reinsurance contracts of decidedly dubious value were chased around the system until it cracked and nearly collapsed.

The current generation is a little more cautious. It's true that the moans and wails emanating from Lime Street could be heard from as far away as New York when the market was imposing capital controls and other restrictions on syndicates. But ultimately, underwriters realised they had little choice but to assume the position.

And funnily enough they're all doing rather well now. Getting nice sun tans on the golden beaches of Bermuda too.

That's where much of the industry decamped to when it was back on its feet, largely for the purposes of avoiding tax.

Apart from the last point – and banks simply won't be allowed to set up shop in conveniently located offshore territories sheltering behind the protection of Her Majesty – one might argue that there's quite a lot that the banking industry could learn from its slightly bedraggled cousin.

Who'd have ever believed that.

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