Eldon-Online

Asia Rising - But Not So Fast!

The Financial Times of Monday March 23rd provided one of the most graphically legible league tables of current times, showing where the future financial power of the world may lie. Lending some strength perhaps to the already widely held views that this could be the Asia Century.

In 1999, of the top 20 banks by market capitalisation, 11 of them were American. The Europeans had 7 and the last two were from Japan. By 2009, a mere ten years later, 8 were from the Asia Pacific (China, Japan, Australia) - with the top 3 spaces taken by Mainland China, and another 2 Chinese banks in the top 20. In addition, and with tongue only slightly in cheek, it could actually be 9 from AsiaPac if you still believe that HSBC is fundamentally an Asian bank!

Citigroup at present has a market cap lower than that of my friends at Hang Seng Bank in Hong Kong, and lower than 5 Canadian Banks, none of whom even featured in the top 50 just 10 years ago. A shift in geographies where in 1999 Asian institutions comprised 16% of the total and today make up 32%.

I may be old, but I'm not that stupid! Of course these positions have been taken at a "snapshot" in time and use just one measure of comparison. Of course they can, and will, change over time - although how much time is anyone's guess.

The point is this. Asian banks have risen to the fore. I do believe that they have better structured balance sheets than before and that they are generally much better regulated than before - or have continued to be well regulated over time in the case of the Australian and Hong Kong banks.

But they must continue to pay attention to their businesses and their risks if they are going to seize advantage of the ratings they currently enjoy. The tables only tell a part of the story. The Asian banks have, in overall terms, come to the top quickly, but they will make more progress with less haste I suspect.

Given the financial resources available in the Middle East, it now needs some appropriate consolidations to put a couple of GCC banks into the league tables. And then the ancient silk road will, with the combined energy of both the Middle East and Asia, once again become a formidable trading empire. Some may think this fanciful given the current situation but it was already happening before the crisis, Ties were building and now continue. Singapore is still thinking 20 years ahead, while others think about the weekend.

And even Dubai (I am in the Gulf right now - watch this space), with a cooperative rest of the UAE, an awakening Saudi Arabia and other countries expanding, might yet spring some surprises.

Phones Off - Please!...(Or Are You Special?)

I don't know about you, but even though many people believe that flying with a mobile phone switched on is actually safe, I still get slightly nervous when phones are left on until the last minute. This, despite the exhortations of the safety video and the cabin crew to turn mobile phones off as they posed a risk.

Perhaps when the airlines agree that safety is not a problem for mobiles and allow them to be left on all the time, our only concern will be noise pollution within the plane.

Today I flew to Beijing on the 9 a.m.flight and was, very fortunately, seated in the front section of the Dragonair plane. One of my fellow passengers appeared to be rather important. He was wearing some insignia which suggested that he might have something to do with the Hong Kong Government. He was accompanied by a number of other passengers, but they were seated in another part of the aircraft - not seat 1H, where this passenger was sitting. And on arrival in Beijing, while one of his traveling companions carried his bags and suit bag off the plane, there was a large collection of people at the aircraft door to greet him. 

But what really got my attention was the take-off from Hong Kong. While the cabin crew were safely seated out of the line of sight, and as the aircraft wheels came off the ground, passenger "1H" calmly opened his phone, dialled a number, and had a conversation. It was relatively brief - and would have been a lot briefer if I had been sitting closer to him! But the fact was, it happened.

The Dragonair cabin crew, when they were able to move about the cabin, were helpful and courteous as I explained my concerns (by which time "1H" had conveniently gone to sleep) and promised to speak to him in due course - and to write my complaint in their book. I am sure they will do the latter, as they did carry out the the former, and they have no idea whether I will write an official complaint to Dragonair or not - so better safe than sorry.

I am told that "1H" travels a lot with the airline, that when confronted he admitted using his phone, and that he promised not to do it again. Yeh; right!! 

But the point surely is that if a lady can be arrested for not being willing to put her bag up in the overhead locker, as happened some time ago, should we just ignore a passenger who - if we are to believe the announcements - willingly puts everyone at risk by using his phone? Or is he too important, and therefore must be treated differently.

The Dragonair staff were, and absolutely correctly, unable to let me know the passenger's name. I respect that. But as we got off the plane and the purser said, "Goodbye Mr. Eldon", I then heard her mention the name of the passenger just behind me, from seat 1H.

I really hope he learns to set a good example in future, rather than the extremely shoddy display of ignoring rules that in his view were obviously made for everyone else!!

 

The "Cowboys" Are Back In Town - A Cautionary Tale!

Will we never, ever learn?

I had a disturbing conversation this week with an acquaintance. We were discussing the inevitability of new regulations for the financial services industry - and whether they would be "knee jerk", or rational. While the former seemed more likely given past history, obviously we preferred the second "option", but hoped they would be "appropriate regulation" rather than just papering over the cracks. After all, it has been clearly demonstrated that any old regulations do not always work; as the troubles at Fannie Mae and Freddie Mac have amply demonstrated.

But it was a follow-on conversation relating to Independent Non-Executive Directors (INED) that made me wonder just where we were headed - new regulations or not. Have we learnt anything at all from the recent past? It seems, not a lot. Here is the (true) story.

Company "A" was the subject of an offer from Company "B". Discussions had been taking place for some time, and non-disclosuree agreements obtained from all the appropriate people. On reaching a critical point in the discussions, documentation was prepared and released to interested parties one Friday evening. The following week, unusual activity was noticed in Company "A"s shares, leading the INEDs of that company to consider issuing a formal, standard statement re the price movement and transaction volumes. Unusual activity even by current volatile market standards, and particularly in comparison to a peer group of companies.

The Investment Bankers who were advisers of Company "B", when advised that this course of action (over which they admitted they had no control) was being considered, were visibly put out. Totally ignoring the reputational implications to the INEDs in Company "A" they firstly "humbly requested" a delay (until the end of that month!) of any announcements and then - when that plea appeared to fall on deaf ears - said rather petulantly that if the announcement went ahead, then perhaps the deal would have to be called off!!

Now, why would Investment Bankers want to "threaten" independently minded people unless, of course, they saw possible fat fees and rich bonuses going out of the window? Greed perhaps, or am I being unfair?

Here we are in the middle of a financial crisis. Many responsible people are doing what they can to try and recover from the situation in which they find themselves - but beware, because the "cowboys" are back already. Vultures, it is said, never move far from their prey until they have picked it clean. To Independent Non-Executive Directors be on your guard, and keep your eyes open - those are the first things the vultures go for! 

Under the circumstances I can think of some new regulations!!

Deja Vu (All Over Again)?

The title, above, of John Fogerty's (Creedence Clearwater Revival in case you had forgotten) 2004 CD, with a song of the same name, started me wondering about where we might be heading - again!

It is generally perceived wisdom that a major cause of the reason for the credit crisis in which we find ourselves was due to leverage. To the almost free availability of credit at cheap interest rates, to just about anybody who wanted to borrow. Which in turn caused the financial services industry to seek ever more innovative ways to lend money to more customers, against security that was at best slim and which allowed little margin for declines in the value of the security taken. The “health warnings” about repayments in case of job losses, falls in property values, or rises in interest rates putting a huge strain on the borrowers, were written in very small print.

I think I must point out that Asian countries were somewhat more cautious in their lending policies. This, because of the lessons learnt from the Asian financial crisis in 1997, the scare of SARS, the Korean credit card problems and the subsequent overall improvements in regulatory oversight around the region. The HKMA in Hong Kong, for example, maintained their "guideline" that lending 70% against a properly assessed value of property was appropriate - firmly not of the notion that lending 100% (or more) of a rough assessment was in the best interests of the borrowers. It is possibly also useful to point out that in Hong Kong and other countries in Asia there is recourse to the borrower in a default situation – unlike the situation that exists elsewhere.

 

Today banks are in difficulty with increasing troubled loans and declining profits. They need to de-leverage their balance sheets. Unemployment is up and increasing. Property prices continue to decline and the high street shops are closing one by one as consumers either have no money to spend or because they believe prices might fall further. Household spending patterns are changing as families try to get used, once more, to living within their means. The mood is sombre and there is no end in sight, this year at least.

 

But, say Governments, previously oblivious to the worsening situation that was unfolding around them, we must spend. We need consumers to buy to keep businesses going, to keep manufacturers producing and therefore to keep people employed. This should be easy they say. The banks are full of liquidity, but they will not lend – not even, it seems, to each other. So, says Government, particularly to the nationalised or semi-nationalised banks, the money in the banks is taxpayer money therefore they should be forced to lend it.

 

Central Banks meanwhile have been lowering interest rates as fast, and as far as they can reasonably go, to enable borrowers to lessen the burdens they face in repayments (ignoring the elderly who were relying on interest income to shore up their pension schemes).

 

With me so far? Look I admit, this is a simplistic view but the person in the street, or at least the ones I speak to, are puzzled.

 

Low interest rates over a sustained period of time, according to banker George Rae in his book The Country Banker, written in 1885 tend to lead banks to imprudence, such as we have witnessed around 120 years later. And Central Banks have lowered interest rates again.

 

Spending beyond our means (average US household spending in 2006 as a percentage of income – 130%) is unsustainable; yet Governments now say we need to spend. Spend what? Unemployment is rising and people do not have the income to spend, so what are they going to do – borrow it? Borrow it from whom? Ah yes, the banks that are now full of taxpayer money. The same banks that are trying to de-leverage and deal with growing bad debts, and have no wish to add to them unnecessarily.

 

I think this is about where I came in: déjà vu (all over again)? 

以謙卑對待工作 (With All Due Humility.... Chinese Version)

I have been requested by a number of people to reproduce the Blog of 21 February 2009 in Chinese. Thanks to the help of a friend, a former journalist who offered to translate it for me, here it is.

據 南華早報 報道，當家庭傭工是極度丟臉的工作。你即管對數以千計在香港及全世界當傭工的菲律賓人讀出這段報道吧──他們當中不少人都擁有大學學位，只是不能善用其學識而已。然而在中國，當家庭傭工似乎是挺難為情的工作。

 

就讓我告訴你一段真人真事。這個故事與《南華早報》的報道只有兩處分別：首先是故事的主人翁（就把她稱為瑪利）沒有大學學位，其次是她從很久以前開展她的經歷。

 

瑪利生於蘇格蘭格拉斯哥其中一個最困苦的地區，家中還有五兄弟姊妹。在她的心目中，她的父親是一個好人，因為當子女上學的時候，他總會令他們的腳上有鞋可穿，不似其他小朋友般要赤腳上學。每當有新的紙皮時，就會經常更新六對鞋底。至於瑪利，則是個聰穎的女孩，經常在班上名列前茅，考試「只得」七、八十分的地理科，已是她表現最差的學科。可是瑪利幾乎每天遲到，被老師用皮條痛打。幾年之後，老師才了解她遲到的因由：原來她要先送妹妹上課才可回校，而妹妹的上課時間卻比她遲。但瑪利說，她不想為遲到找藉口。

 

由於要肩負養家的重擔，瑪利唯有在十四歲時輟學，並投身家庭傭工的行列，當起管家來。

 

後來第二次世界大戰爆發，瑪利加入軍隊服務。憑著她的技術及才智，瑪利很快便擢升為槍砲中士，無論被偏配到何方，都獲得極高的表揚及評價。隨著戰火漸漸熄滅，瑪利下嫁另一名中士──一個在訓練期間遇上的突擊隊隊員。不幸地，他在戰爭即將結束前陣亡，而瑪利及他的小兒子頓成孤寡。

 

長話短說，後來瑪利及小兒子獲一個家庭收留，更聘請了她為廚子及管家。那是一個十分寬敞的大宅，工作不可不謂繁重非常。雖然老闆是個通情達理的人，只是他們經常在家宴請大班賓客，瑪利不時都要在清早六時起床，整天不斷清潔及下廚，待晚上十一時才能就寢。然而她從未埋怨，始終逆來順受。當機會來臨時要努力爭取，同時繼續好好地過每一天。

 

瑪利默默地留在這個家庭，一直為同一對夫婦及其子女服務，直至七十二歲才決定放慢人生腳步，放下全職工作。在數十載的工作生涯中，她從未要求老闆加薪──她寧可要求有瓦遮頭，然後依靠丈夫去世時軍隊發放的恩恤金以及自己的養老金過活。

 

 

但瑪利的智慧從未因歲月而褪減。人到七十年華，她仍能在英國《泰晤士報》的填字比賽中打入倫敦市的決賽，只是她不願受公眾注目及承受比賽的壓力，才婉拒出席比賽。

 

瑪利的謙卑、她的慧根、她的忠誠、她的無私，為他人建立良好的工作榜樣。當家庭傭工值得羞恥嗎？這個念頭並不會在她腦海中閃過。她會說，工作就是工作──而如果在你的人生中出現其他的機遇，你就好好去把握它。

 

現在瑪利快樂地踏進人生的第九十個年頭，卻仍然一如以往般敏銳及獨立。她靜靜地過著舒適的生活，但若然她看見今天報章的標題，她應該會說「人們的期望實在太高了」，然後叫人不要再無病呻吟──在這個時世，不少人失去工作，還有工作可做的便應感到慶幸。

 

當我今晚致電瑪利時，我會告訴她這個故事──儘管她不會被稱為瑪利，我會叫她做媽媽！

HSBC: Briefly Then!

My protestations of "inappropriate for me to comment" fall on deaf ears, so the questions continue. Thus, in response - but very briefly - despite the fact that the answers should really come from the experts and the current management let me say only a few words.

The results were not great, but put into context of the financial services industry they weren't that bad. Just because some analysts take a guess in advance at what the profit figure might be, and then find they have got it wrong, does not spell disaster. I believe the results were honestly reported. No clever words disguising facts.

In fact, "extreme" questions/comments raised in Hong Kong, (see last blog) that suggested The Bank's management should be pilloried for their poor performance do not seem to have been raised elsewhere - thankfully. In addition, management comments on bonuses and the fact they are foregoing their own, (quite rightly in my view), indicates a degree of morality and common sense that does not seem to have been copied by others who should know better.

Initial reports coming from the market immediately after the results announcement have included:

"As one of the better capitalised banks,HSBC's respectable profits ..."

“They are doing the prudent thing ...if you have a reputation as being the best capitalized bank in the world you want to keep it that way.”

"Even without the rights issue, capital ratios look healthy, with tier 1 ratio of 8.3% and core tier 1 of 6.8% for 2008...."

"HSBC has still made a huge profit and is strong. It has probably thrown more in the kitchen sink than it needs to. The board will forego their bonuses. It's asking investors not taxpayers for the extra cash. 

After RBS, HBOS etc this is an encouraging story."

It was suggested to me this evening that the large discount on offer for the rights issue seemed a little like panic, and should this not have been carried out at the same time as Standard Chartered Bank raised their capital through a rights issue? (The timing issue, by the way is a separate matter and could be up for debate). Anyway, HSBC's rights were announced at a discount of 48% to Friday's London close - and I might just remind you of this note:

"In late November, Standard Chartered announced its 1.8 billion pound ($2.69 billion at that time) rights issue at a discount of 48.7%..."

...and my personal favourite

"...the rights issue is being underwritten by Goldman Sachs and JP Morgan Cazenove, NOT Morgan Stanley who advised them to buy Household..." - and who created such a fuss a few weeks ago with their subsequently amended "scary" capital requirement figures.

The capital letters, by the way, are NOT mine!!

Of course we would all have preferred better results and a happier outcome. But, frankly, in the context of the world around us the results will do. So will the rights issue. I am not authorised to give investment advice but I can tell you that for myself - I will be taking up mine!!

And as the final word on the subject of HSBC, may I assure anyone who comes across the comment I saw a few minutes ago at the bottom of one of the newspaper "blogs" which read:

"Stuff the Hong Kong and Shanghai Bank ...HSBC is now a greedy bank. David, Hong Kong"

It wasn't me!