Outlook: Back-to-the-future banking on the cards at HSBC – or is that Midland?
Outlook: The bank has reportedly sounded out investors about the partial flotation of its UK bank
Tuesday 10 December 2013
First there was the resurrection of TSB. Now that HSBC is apparently considering spinning off its UK arm, it seems that the old Midland Bank, the core of that business, may make a return.
Will an independent Scotland lead to the resurrection of an independent NatWest south of the border from the wreckage of Royal Bank of Scotland?
If that happens it really will be back to the future in banking. The next thing you know there’ll be a fierce debate about branch closures followed by a Government-commissioned report into business banking which ministers will duly ignore when it recommends radical reform.
Come to think of it, we’re nearly there on the former, given Barclays’ recent announcement of job cuts at its branch network. As for the latter, well, it’s only a matter of time. Is Don Cruickshank available for a second outing?
Maybe the past isn’t such a foreign country after all.
Those who lived through banking’s past can’t have missed the cynicism that was regularly on display. That hasn’t gone anywhere.
Take HSBC’s supposed plan. The bank has reportedly sounded out investors about the partial flotation of its UK bank, which might appear strange given that it has previously talked about the UK and Hong Kong as its “twin homes”.
However, in theory a partial spin-off of the UK retail and small business bank has a certain logic to it. If you’ve got to ring-fence it anyway, why not go the whole hog and cut it loose, which would realise some value for the shareholders, generate some capital for the bank, and open up a host of richly remunerated new boardroom posts for ambitious bankers within the organisation. I’ll leave you to draw your own conclusions as to which of those was at the forefront of the minds of the people who cooked this one up.
But over and above that there is another motive. HSBC has long used the stick of quitting London as a lobbying lever. Reports of what is claimed to be a “routine” triennial review of domicile have a habit of appearing in sympathetic places whenever the Government or regulators in this country or in Europe are looking at doing something HSBC takes exception to.
When people got rather fed up of this, it said the review was “off the table” until regulatory changes prompted by the financial crisis had bedded in.
Now, it seems, we’re back there again because the real benefits from a spin-off would, in theory, only come if HSBC shipped its domicile over to Hong Kong at the same time, thus avoiding regulation that will cost it a bit, but probably not as much as scandals such as the money laundering affair that led to £1.2bn in fines and was attributable to the failings of HSBC’s culture and executives.
Yesterday there was apparently a memo sent around to staff saying, ‘don’t worry, it’s not going to happen’. Of course it’s not. Not now the message has been delivered.
Bonham Carter sticking around may set a precedent
Edward Bonham Carter is a rarity in the City in that he’s a chief executive who might just be worth the money.
Having played a key role in the ousting of the company’s founder John Duffield, he subsequently steered the company through a management buyout then piloted a wildly successful flotation. He’s also proved to be highly effective at the more mundane task of running the business day-to-day when the excitement of such corporate upheaval is over. On his watch Jupiter has become a force to be reckoned with, and a business with an increasingly international reach.
Given all that, it’s not especially surprising that the company wants to keep him around now he has decided that, after 14 years at the top, it’s time for an infusion of new blood.
As such it has created the position of “executive vice chairman” for him. Part of this will see him becoming a sort of Mr Jupiter; an ambassador who’ll jet around the world giving speeches and using his name to sell the Jupiter name.
But there’s a more serious job to be done too: building bridges with the international regulators which are having an ever increasing impact on the business.
That’s a role that the personable Bonham Carter would seem well suited to fulfilling. The company has also been at pains to stress that he will not be a back seat driver breathing down the neck of his successor Maarten Slendebroek, who joined from Black Rock last year. Bonham Carter will, in theory at least, be a part-time employee and he won’t hold a place on the executive committee. There oughtn’t to be any friction with his successor, at least in theory.
All the same, the title of “executive vice chairman” is at least questionable on governance grounds and for good reason.
While “comply or explain” is the rule in the City, a company like Jupiter really ought to be setting an example of best practice. In going down the route of making Mr Bonham Carter an “executive vice chairman”, a role that still leaves him with considerable power, it leaves the door open for other less well-governed companies to point to Jupiter when doing the same on rather flimsier grounds.
Say, to keep a powerful shareholder sweet, or to boost the pay and perks of a favoured son without recourse to what is in shareholders’ best interest.
Unfortunately, a shareholder like Jupiter which ought to make a fuss about such behaviour may now find it rather harder to do so.
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