Hodge; Head Dementor of HSBC

Commons Public Accounts Committee - Head Dementor

The insipid performance of Rona Fairhead the other day in front of the Commons Public Accounts Committee was less than inspiring. She allowed herself to be bullied to the point of evisceration by its chair, Margaret Hodge. Rona Fairhead is a director of HSBC and heads the BBC Trust. Mrs Hodge suggested, or demanded, that “you should consider your position and you should think about resigning, and if not, I think the government should sack you.” Fair and even handed then.

HSBC is a global behemoth which is reaping the reward for the stupid Republic National Bank purchase in  1999, for that I suspect is the source of so much of the recent Swiss allegations. After the takeover all those years ago it only took two years for the first fines to appear, $606m in restitution for cheating Japanese customers. That was a $10bn purchase which is right up there in the stupid stakes with the $16bn purchase of Household International, a company that was a serial offender, a few years later. More fines are just inevitable, notwithstanding the growing reputation damage.   

Let’s face it, given the jaw dropping fees and mundane advice received from Swiss Private Banks there are only three reasons to have an account in one. First, to hide money, second, to avoid taxation or third, because you have lost confidence in your country of origins prudential management of its financial system and regard inherent risks as too high not to have a safe bolt hole. Perhaps, all three play a part. On that basis then, Rona Fairhead’s ability to do the “smell test,” of what is reasonable looks impaired and her and other executives excuse that “they didn’t know,” excuses nothing. 

The 2012 300 page Senate report on HSBC, which described its woeful money laundering controls, described the banks compliance culture as “pervasively polluted for a long time.” HSBC is a bank that the UK needs, not least of all because of its long standing Asian links but it is, like many banks, just too big to manage. The organisation badly needs an imaginative go-forward plan. It is unwieldy, inflexible and massively bureaucratic, (someone told me they have 1500 people in change management whatever the hell that is). The shares may be occasionally attractive to short duration traders but as an investment I’m not sure how one begins to attempt to fathom out the complexities of the investment case. There is more we don’t know than there is that we do. 

Mrs Fairhead is by all accounts a decent person but diligence and detail is everything when in a position of responsibility in banks, the personal compliance risks are simply too high for it to be otherwise which is why its becoming increasingly challenging to hire the right people, many of who only see potential reputational downside in accepting senior posts. Moreover, the blank refusal of the previous Labour administration to accept any responsibility for the GFC (Great Financial Crisis), is simply deluded. 

No matter, I’m here to help and Mrs Fairhead may wish to take advice from the brilliant Bird & Fortune in their handling of post crisis interviews.