Eldon-Online

HSBC; A Question of Balance

HSBC, my university, my "home", my employer, played a large part in my life for 37 years. We eventually parted company on good terms when I retired almost four years ago. In time-honoured HSBC tradition, a retiring Chairman severs links with the old organisation - mostly for good reasons, although for some not so good reasons. Like losing the accumulated knowledge of, in my case, 37 years of "corporate history", and contacts built up particularly in the later years. On balance, however, it is the right thing to do. Your successor, for example, does not want you looking over his or her shoulder all the time. No, you move on.

Fast forward to today, and into the ongoing media "feeding frenzy", as the world tries to work out just how deep the economic hole is that we have dug for ourselves. All of a sudden my past associations with "The Bank" have been re-visited by some, especially in Hong Kong. In the last few weeks I have been sought out for comment on HSBC, presumably as a last resort and because the institution itself has been sensibly tight lipped. But as I have explained on many occasions before, most notably in Korea last year, I have no association with the organisation other than maintaining contact with a few friends. (By the way as a digression, and even though the SCMP report has not been confirmed yet, when Margaret Leung does become CEO of Hang Seng Bank, that Bank will have put a very talented person in the right place! I believe yesterday's positive stock market uptick in HASE's shares reinforces that view.)

Still, despite my lack of qualification to comment on figures I know nothing about, or policies of which I only have an historic knowledge, I do occasionally speak out if only to try and bring some sense of perspective back to the world of banking in general and HSBC in particular. Things like complaining about the analysts who make wild predictions - and who then some weeks later revise their figures in "the light of more detailed research". Please. Don't you see the damage this does?

The latest bout of silliness happened yesterday, and in advance of HSBC's results announcement due on Monday. I received a very polite email from a lady who identified herself as Fiona Law from Mingpao who wanted to ask me for my comments on a couple of issues. But the question that really caught my eye was:

"Do you think management should step down to bear the responsibility for the group's deteriorating performance?"

Wow! Can you ask that again? I suggested to Ms Law that the question was not terribly intelligent and pre-judged the results which I assumed she had not seen. What, I asked her, was the performance bad in relation to - other global banks? Had other management stepped down in roughly comparable banks? I did not say - although I would have hoped she could have worked it out for herself - that of all the banks, both HSBC and Standard Chartered seemed to be judged to have done reasonably well under the circumstances.

Perhaps I should have asked Ms Law if in fact her editor should not consider stepping down to bear responsibility for the deteriorating quality of his or her reporters questions. Or if the head of Morgan Stanley should step down for allowing his analysts to make comments based on insufficient information, which they seemed to admit to (Morgan Stanley analysts backtrack) after the damage had been done.

What has happened to our perspective? To our balance? The Moody Blues album "A Question of Balance" , released in 1970, is one of my all time favourites and, as my wife will testify, one of my favourite tracks from it is "Melancholy Man". If we keep allowing the media and others to sift through the debris to try and find every morsel of news that they can turn into something that sounds bad, I shall be listening to "Melancholy Man" a lot more frequently.

As for HSBC? Go for it. On Monday be your traditional,usual steadfast, frankly honest selves. If there is bad news, and there must be lots especially from the USA, you will tell us clearly, and you will sort it out. Do the right things, but don't expect your audience to treat you with "balance".

...And "Mary" (Real Name) Is Surprised!

I want to say thank you.

My Blog "With All Due Humility, A Job's A Job" received an unprecedented number of hits during the week - so much so that I was quite overwhelmed. It was not that so many people have read it (and still are doing so), but the messages I received. Not just those that appeared on the site, and thank you for those too - but people who I never expected to comment. People who tracked me down. Some who I knew and many I didn't. But the comments were universally in praise of a resilient and resourceful woman who actually "sacrificed" much of her own potential happiness to ensure that I was able to take whatever opportunities came my way, (and for starters my leaving school at 16 didn't help!)

I did speak to her on the evening I published the blog, to tell her what I had done - and of course got told off in the process - but then I'm proud of my Mother, not ashamed of her!! But during the week, as I told her what was unfolding, she showed rare flashes of emotion and was herself really surprised that so many people had taken an interest in her story. I have promised to take her a printed copy of the blog when I go to see her next week but, in her soft Scottish brogue she said "But don't tell them where I live dear, I'm not ready for visitors".

Thank you.

With All Due Humility, A Job's A Job...

The height of humiliation, according to the South China Morning Post, is to work as a domestic helper. Try telling that to the thousands of Filipinas in Hong Kong and around the world, many with university degrees they can't put to good use. But, it seems, taking a job as a housekeeper is too embarrassing in China.

Let me tell you a true story. The only two points of significant difference between this story and the one in the newspaper are that firstly the subject (let's call her Mary) did not have a University degree, and secondly her life commenced many years ago.

Mary was born in one of the toughest parts of Glasgow, one of six children. Her Father, she said, was a good man because he always made sure his children had something to wear on their feet when they went to school, unlike many of the other children around them. The soles of the shoes were changed regularly, when there was a new piece of cardboard available. Mary was a bright child. Never out of the top two or three at school and where her worst subject was geography where she "only" got marks in the 70 and 80 percent levels. This, despite receiving punishment (usually the strap) almost every day for being late in the classroom. It was only some years later her teacher found out that Mary was late because she had to take her younger sister to school first, and the younger one started later than Mary. But, said Mary, she didn't want to go around making excuses. 

When she was 14 years old Mary had to stop school because the family needed her to work to earn money, so she entered domestic service as a housekeeper.

Ultimately the second world war intervened, and Mary joined the army where, due to her skill and intelligence, she rapidly rose through the ranks and became a gunnery sergeant, receiving high commendations and top marks wherever she went. As the war was coming to a close Mary married another sergeant - a commando who she had met when he was doing some training. Sadly he died just before the war ended leaving Mary a widow with a child on the way.

To cut what could be a very long story into a manageable tale, Mary found work as a cook/housekeeper to a family who were prepared to take her on with a baby. The job, managing an extremely large house was, to say the least, demanding. The employers were reasonable, but they entertained large numbers frequently and it was not uncommon for Mary to be up at 6 in the morning and not be in bed until 11 at night having had a full day cleaning and cooking. She was never known to complain - accepting (rightly or wrongly) that you play with the deck you are dealt. You take the opportunities when they arise, but you get on with life.

Mary was involved with the same family, parents and children, until at the age of 72 she decided she should slow down and stop full time work. Throughout her working life she never asked for an increase in pay - preferring instead to rely on the provision of a roof over her head and the pension she received from the army for the loss of her husband, as well as by then an old age pension.

Her intelligence never wavered. She reached the London finals of The Times crossword puzzle in her 70s, but declined to attend them because she did not want to be in any form of public eye, or the pressure that went with it.

Her humility, her grounding, her loyalty and her total lack of selfishness have provided for others a base from which to work. But humiliation for working as a domestic helper?? It would not have crossed her mind. A job, she would say, is a job - and if you can do something with the few opportunities you can find in life, then grasp them.

Happily, Mary today is in her 90th year and as sharp and as fiercely independent as ever. She lives comfortably and quietly, but of the headline in the newspaper today she would probably have a few choice things to say about "too high expectations", and to stop whining - be happy you even have a job, as there are many who don't.

I shall speak about it to "Mary" when I call her tonight - although I will call her Mum!

    

A Small Plank In A New Bridge?

The announcement last night by U S President Obama of a package that is aimed at keeping people in their homes is, to me at least, a refreshing change of thinking that has some real significance. At last.

The suggestion that the US housing and mortgage market was probably the most fundamental issue which needed resolution - not at the lender, but the borrower/occupier level - came from friend and influential international economist, Ken Courtis. He said it many months ago. For myself, never being one to shy away from passing on perceived wisdom that I agree with, I subscribed to his views, and have been making the same point ever since. It has been reported in the Hong Kong media and most recently appeared last month in HK Trader.

"Ah ha!", I can imagine you saying, "he's only put this is in because he got something right for a change!" Well, I won't deny that one does take some pleasure in doing so. Epecially when you have been told that your views overall have been vocally decried by an expatriate senior member of the financial community, who is about to leave his position in Hong Kong, as coming from someone who is "obviously retired and out of touch". Maybe not as out of touch as you might think, when I've got good advice!!

But personal little digs aside, what's the point of having a blog if you can't enjoy it?

I seriously do think that the measures announced last night (and I haven't spoken to Ken yet!), whilst small, are in the right direction. If stability is to be created in the USA, which will then pave the way for more sensible and broader actions to be taken, we need some certainty in the mind of the general public, and this seems to mean the housing market at this point in time. 

So far, you see, no-one has really identified the bottom of this crisis. It's like swimming in the sea, and you're a long way offshore. When you don't know what's beneath you, or how deep the ocean is, you tend to panic. As you get closer to the shore the panic eases, and you start to get a sense that you might just make it. I think these measures are one stroke closer to the shore.

But let's not delude ourselves, please. This in no way suggests that the world's problems have an early solution. I have already written off 2009 as being a year for any real sign of recovery (and this is the optimist in me!). There are just too many global problems to be resolved in the short term. Too many solutions required.

If it's not the auto manufacturers in the USA, (a problem that will probably result in a socio-political compromise with a temporary economic band aid), then it will be the depth of China's recession and their ability to deal with it successfully. Then there is the necessary deleveraging of the financial markets versus the aspirations of the lenders (read "Governments") to the banks  who want to see more activity by those banks leading to stimulation of their economies - ahead of the inevitable inflation that will follow. It will be Prime Minster Brown's ability to persuade a sceptical and increasingly vocal audience that his administration can bring Britain through the crisis (hard to do, seeing as many thought he partly created the problem) - and the situation within Continental Europe, with the rather worrying realisation by some (a little late perhaps) that Eastern Europe is in really serious trouble. 

The list, sadly, goes on.

Despite the brave words being spoken about "no protectionism", the first shoots are already coming through. "Buy American" sounds rather close to a protectionist war cry to me - one that may well be taken up elsewhere. It should not be a surprise to anyone.

But the work to find solutions must continue. Economic real solutions, whilst not taking our eye off potential political shenanigans in South America, Asia and elsewhere, or trying to find a way of dealing with the continuing troubles in the Middle East. All these need attention. It was hard enough to manage them before the Global Financial Crisis (GFC) came along. 

Consequently I do not know how we are going to build the necessary bridges. What I do know is that there is a role for everyone to contribute to the rebuilding, and perhaps President Obama has just laid the first plank in that bridge.

Blame It On Education!

Amidst all the doom and gloom-laced newspaper headlines foretelling the end of the world, isn't it "refreshing" to discover that there are some people who really don't worry about the current state of affairs? Take the story that broke at the end of last week of the 13 year old British boy who has become a father after having had sex with a 15 year old girl. When asked what he would do to support the baby financially he said "what does financially mean"? 

Come on, at least he's honest. It would surely not be too far fetched to suggest there are quite a few people out in the world today who are considerably older, apparently better educated - if length of time at it is any measure - and in receipt of huge dollops of money regularly (unlike our young father who "occasionally gets £10 pocket money" from his dad!), of whom it might be said were similarly confused by the meaning of the word "financially".

But it's the fatherhood rather than the financials I am considering here, in addition to wondering out loud whether there will be any legal action as a result of underage sex!

 Of course the "blame-game" has already started. This is clearly the fault of promoting sex education in schools, say some critics. If you didn't teach them about these things, the children wouldn't have an urge to go off and try it for themselves, they say. (Yeh, right!). Other "experts"  wade in and say that you must have sex education in schools. Presumably because they remember their own uneducated exploratory fumblings in the corner of a long forgotten school yard, which they tried to relate to some story their parents told them about birds and bees. The necessity for this type of education, they continue, is because parents no longer seem to take this responsibility on, preferring to leave it to the schools. 

And in relation to that last point, it seems that no criticism on this child's fatherhood has been levelled at the parents. So, whichever camp you are in with regard to sex education/no sex education in schools, the fundamental point must be the fact that parents are now failing in their own basic responsibilities towards their children. They are the ones who should be doing the educating, not leaving it to the schools and then blaming them when something goes wrong.

Don't blame it on education.

(As a brief aside, on sex education, if you are ever in Bangkok have a meal at "Cabbages and Condoms", you won't be sorry, for a number of good reasons). 

Now, while I am on the subject of education, and moving from Britain to Asia, it appears that Hong Kong is playing host to the daughter of one of the worlds most reviled "leaders". Bona Mugabe has apparently been studying under an assumed name at the University of Hong Kong since the autumn and I am partly - or perhaps I should say minutely - sympathetic to the views of the University spokesman who said we should put education above politics. There is now some doubt about exactly which establishment she has been at, or is intending to attend, but no smoke without fire! She must have been/be around here somewhere!!

Maybe by exposing Miss Mugabe to the feelings of the entire world about her father, she will experience some sort of remorse and work towards making a difference. But, sadly, I suspect not.

It is not Miss Mugabe who has snatched the headlines, however, but the reports of her mother allegedly assaulting a Sunday Times photographer in January, two journalists reportedly being threatened by guards in Hong Kong last week, and reports of a purchase by the Mugabes of a US$5.8m home in Hong Kong.

And in case you have forgotten, Zimbabwe is currently facing annual inflation of 231m%, and has just issued a $100 trillion banknote (worth US$33 - or it was at the time the note was issued!!).

So, back to education - which is where we came in. There have been calls for the Hong Kong Government to remove any approval for Bona Mugabe to study in Hong Kong. Why should we provide "cover" for a member of a corrupt family who have been banned from many other countries? We, wisely in my view, refused entry to the paedophile Gary Glitter, on the grounds of undesirability yet we seem willing so far to turn a blind eye in this case.

Likewise, shouldn't the Government be considering whether the Mugabe money (where did it come from - don't we have anti money laundering requirements here any more?) is in fact welcome? The people of Zimbabwe may find a better use for USD5.8m, and whereas they may not be allowed to raise questions, we can. I would suggest that the Government listen very carefully to the call by the people from around the world who may find our present "acceptance" of the situation to be - well - uneducated!

So, Who Can You Believe?

Jokes about second-hand car salesmen have been around for decades. A reputation they gained historically from carrying out shady deals which relied on using half-truths and then being sparing with the accuracy of the remaining information they provided to an unsuspecting buyer. Today while I am sure the trade has moved onwards and upwards, as "truth in advertising" has become a watchword, the poor reputation and the jokes still seem to be out there.

Fast forward to today and this world we live in of instant information, with deals that get done in seconds. We come to rely on third-party providers of information to give us details of deals that might be available in the market place because either we have insufficient time to do all the detailed research ourselves, or because those providers may actually have access to information we didn't even know was available. Comparison web sites in the United Kingdom and other countries have taken a lot of the hard work out of finding deals or at least providing a starting point of comparison for buyers. However, as the rather perspicacious author of the highlighted article pointed out some two and a half years ago "They are a useful starting point if you are shopping around for a financial product – but the best deals may well be elsewhere".

The "general public", it seems to me, have been dismissed for too long as an investing class. How often have you heard the expression that such and such an investment is not for "widows and orphans"? In other words it has a high degree of risk. Or that you should "only invest what you can afford to lose". Another example of don't take unnecessary risk - suggesting that the man or woman in the street is unsophisticated in investment terms and that this arcane science is best left to the professionals. But surely, since many more people have been put in charge of looking after their own wealth management - particularly their pension arrangements, for example, there has been a need for genuine independent assistance and advice.

Well, based on recent events, how well have those professionals served us?

Starting off with sub-prime debt which opened the "can of worms", whose job was it to evaluate and rate the offerings made by various investment banks? The rating agencies are not blame free, and neither should they be allowed to hide behind any "weasel" clauses that exist in agreements with their clients. How can there be no conflict of interest when rating agencies are being paid by the firms who are organising and selling debts to investors? Even rating agency staff themselves were aware of the dangers, given the contents of internal emails discovered by investigators with one such classic reading "Rating agencies continue to create and [sic] even bigger monster--the CDO market. Let's hope we are all wealthy and retired by the time this house of cards falters."

And yet the rating agencies are still out there, still providing ratings and, guess what - we still seem to be believing them!

Moving on, who else should be helping us to unravel the mysteries of investment? Analysts perhaps? Not of course that they are allowed to talk their own book because the "rules" that exist prevent such skullduggery. Or so I am told!

But you cannot blame the analysts, because they are merely "interpreting" the information they have on a particular investment, and if they get that interpretation wrong then it is "market forces" that have been the cause - not their own failings. Of course, we do bear some of our own responsibility. We became less careful in assessing our own investments and became too reliant on the words of "analysts", who could not be held accountable for their actions.

Take the news out of London yesterday from Barclays Bank - where it managed to keep its earnings drop for 2008 at less than 1% of the previous year. In a year of turmoil, credit write-downs and with others crashing and burning around them, they were almost forced to bring their results announcements out early to counter negative comment in the market. Of course, our professional analysts spotted this one - the Barclays results "beat the mean estimate of 12 analysts!" No doubt they will have more excuses for their inability to provide the public with an accurate assessment than the horse trainer who was responsible for the horse of which I was a syndicate member.

So, if the rating agencies are not exactly independent, and if the crystal ball from the analysts is as flawed as yours and mine, who can you believe?

Well,we still have the media I guess!!