HSBC Management Lashes Out at Systemic Bailouts

Here is a change, instead of blaming their problems on the credit crunch (you know the crisis they caused themselves), HSBC (HBC) executives are hitting hard at the bailouts, irresponsible behavior and the banking executives behind the whole mess.

(From the Financial Times): "The state-sponsored bail-outs of western banks risk rewarding management teams for failure, the chief executive of HSBC warned.

Michael Geoghegan’s comments on Monday reflect a deep frustration the recent bail-outs has caused among executives at HSBC, which, despite suffering heavy losses in the US mortgage market, has weathered the credit crisis in better shape than many of its rivals.

He said: “There is no question that guarantees have been given to failed managements.

“I hope these guarantees don’t last too long because they may create the wrong type of behavior by managements in those banks.”

He added that they risked distorting the market.

However, HSBC executives acknowledged the rescues in the US and Europe were necessary to stabilize the banking system and restore the flow of credit to the economy.

Mr. Geoghegan was speaking as HSBC signaled that the recovery in its US consumer finance division might take longer than the three years the bank initially forecast."

Of course there is a touch of hypocrisy here because HSBC has plenty of their own irresponsible lending problems, however it's nice to see someone in the industry being at least somewhat honest.

While I've been critical of HSBC in the past (and I still think they should dump their U.S. based subprime lending operations), I have to give them props for being able to show a YoY earnings increase (albeit helped by one time items) in an era where practically all of their rivals are either losing money or showing drastic earnings declines. Couple this with the fact that the bank has been able to shore up its capitalization position without government help, and I think that HSBC could emerge as one of the world's strongest banks after the world's economies recover.

Of course in this day and age it's always best to be a little wary of all banks, as too many of them have used all sorts of "legal chicanery" to appear significantly stronger than they are. (E.g. heavily scrutinize balance sheets and proceed with extreme caution.)

Sources

The Financial Times: "HSBC chief hits at state bank bail-outs" -- Peter Thal Larsen, November 10, 2008.

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Disclosure: at the time of publishing the author didn't own a position in any of the companies mentioned in this article; the ideas expressed are solely the opinions of the author and shouldn't be viewed as financial or investment advice.