Jeremy Warner's Outlook: HSBC's mea culpa won't satisfy Vinke</i>

Loss of public confidence in banks ... but they may be a screaming buy; Rock shareholders demand their rights; Green pulls off a corker of a deal

Stephen Green, chairman of HSBC, seemed to eat an awful lot of humble pie during yesterday's presentation to analysts. As a strategy conference, this was less interesting for what Mr Green actually said about his plans than the mood music it conveyed.

For the first time, Mr Green admitted that Household had been an essentially disastrous acquisition, that not all other diversifications had been successful, and that total shareholder return had underperformed peers. These might all seem like a statement of the bleedin' obvious, but it takes a lot of soul searching for a bank as high and mighty as HSBC to admit it has done anything wrong.

Is this the effect of Knight Vinke, the outspoken activist investor which has been lobbying for change at HSBC? Eric Knight, the chief executive of Knight Vinke, might reasonably think that he has at least helped concentrate minds.

Regrettably, it is much easier to admit mistakes than to correct them. On this latter score, Mr Green offered little of substance beyond saying that HSBC would get out of markets where it didn't have a competitive advantage.

One thing Mr Green can be sure of – that there will be no let up in pressure from Mr Knight, who seems to have the bit between his teeth. Over the next six months, Mr Green is going to have to show clear signs of progress, not easy in today's straitened banking environment.

Loss of public confidence in banks

The other day, I found my cashpoint card for one of the big five high street banks refused even though I knew there was enough money in the account to cover the withdrawal.

Rather than put this down to some kind of procedural glitch, which as it turned out was indeed the explanation, my immediate thought was either my account had fallen victim to fraud following the Government's loss of child benefit data, or that the bank was deliberately trying to conserve cash because the credit crunch had caused it to run into funding problems.

I had to pause a little before dismissing these possibilities as fanciful, yet my initial reaction was nonetheless quite reflective of the wider loss of trust we have seen over the past four months in bankers and credit markets in general. Banking depends on confidence to function, yet rarely in the post-war period has it been in such short supply as now.

Banks operate by borrowing money from the likes of you and me and then lending it on to others, such as companies or housebuyers who can put it to good use. No individual in his right mind would lend you the money to buy a house on a 25-year repayment basis, but a bank which can take multiple deposits or raise money in wholesale markets most probably would, depending on your creditworthiness.

Borrowing short and lending long – mistakenly held by some to be a highly risky practice which lies at the root of the present credit crisis – is the very essence of banking, providing an economically vital way of matching those who have money with those who might be able to put it to use.

The problem is that money lent long cannot easily be recalled. If all depositors and other lenders to a bank want their money back at the same time – a run, such as that which befell Northern Rock – then the bank is in trouble. By definition, there is never enough in the kitty to repay everyone at the same time.

The genesis of the present crisis is that confidence in certain types of credit began to seep away, causing banks to hoard what cash they had against having to meet their own liabilities.

That made them unwilling to lend to each other with the result that some banks have run into funding difficulties. The big picture is that the amount of available credit is shrinking fast. Over the months ahead, debt is going to become less easy to access and it will also become more expensive.

There is very little central bankers can do about this process. Both cutting interest rates and flooding the system with liquidity is like spitting against the wind when there is a force-10 credit squeeze. No need for alarmism, but next time your card gets refused, there may not be a benign explanation.

... but they may be a screaming buy

Briefly this week, shares in Royal Bank of Scotland sunk to such a low point that the dividend yield net of basic rate tax rose to an extraordinary 8 per cent. The best instant access deposit account currently available pays just 6.4 per cent gross, and you have to go to the Indian bank ICICI to get that. Either the shares are a raging buy, or the markets sense something about RBS that not even the management yet know about – a calamitous loss of profitability followed by a draconian cut in the dividend.

It was, I regret to say, ever thus with stock market investment. You pays your money and you takes your choice, but to my mind, the halving in earnings outlook which would need to take place to justify the fall in the shares still doesn't look like the way to bet, despite my comments in the previous note. The credit boom enjoyed by bankers in recent years is over, and may take many years to return in such buoyant form. Yet there are other forms of income besides structured credit and leveraged finance.

Rock shareholders demand their rights

In all the furore about whether Northern Rock might end up costing the taxpayer billions, it seems largely to have been forgotten that shareholders have rights too.

Now one of the hedge funds which has bought into the share register is requisitioning an extraordinary general meeting to try and protect those rights. The Government has said that it will veto any restructuring deal it doesn't like. SRM Global Fund, run by one of the market's more aggressive traders, Jon Wood, last night made plain that it will be doing exactly the same thing.

The reform in the company's articles of association that SRM seeks will make it even more difficult to impose a deal on the company which the shareholders think doesn't adequately reflect their interests. Many of the proposals put forward so far seem to fall into this category. But since none of them get the taxpayer off the hook either, it is not easy to see why the Government would want to back them.

The alternative is nationalisation, leaving the shareholders with nothing. The Government may not worry too much about the inevitable litigation if it goes down this route, but it's not easy to see the point, or even the legality, of taking the company into public ownership if, as ministers continue to insist, Northern Rock is not insolvent. Carrying on with new management still offers the best hope of a solution, even if that means embarrassingly having to go to the eurocrats to ask for state aid to be rolled over into "restructuring" aid.

Green pulls off a corker of a deal

Philip Green – no, not that Philip Green, but the other one who runs United Utilities – seems to have pulled off a corker of a deal in selling Norweb to infrastructure funds for £1.8bn. The implied premium over the "regulated asset base" is streets ahead of other recent infrastructure deals. Mr Green also gets to keep the contract for running Norweb, worth £1.5bn in revenues over eight years.

UU, which will return £1bn of the proceeds to shareholders next year, is meanwhile transformed back to its roots as a pure water and utility management company. Can it be long before one of the big infrastructure funds comes for what's left? Typically, they have been paying premiums of between 30 and 40 per cent over RAB for water companies. As Mr Green points out, UU trades on a premium of just 10-15 per cent.

j.warner@independent.co.uk