What is the nationality of the HSBC group?
International. We are an unusual combination of the qualities of the British people and the qualities of the Chinese people. In 1991 we had 150,000 shareholders, many of them in Asia. At that time there was a regulation that nobody could own more than 1% of our shares. Today the majority of our shareholders would be institutions. We still have about 150,000 shareholders but by value the majority would be institutions in the UK, America, Switzerland, Germany, around the institutional world.
Does this break down the whole notion of a nationality, if your shareholders come from everywhere?
Capital is international. You can't define capital in terms of nationalism any more.
Historically the bank bet on Asian tycoons in times of trouble. There's a lot of loyalty to the bank as a result. Would you make those same bets in today's Asian climate as you have done in past recessions?
I'm not particularly enamoured of the word bet. What we exercised was judgement. We judged the character of people who didn't have a lot of capital but clearly had a tremendous amount of ability. And as you rightly say there are many names that spring to mind throughout Asia where our group has been intimately involved in the rise of a new business empire. In my conversations in Hong Kong - where clearly some western banks have cut lines - I have consistently heard, my gosh, we should be thinking very carefully about our relationship bank and we know who is there for us when it starts to rain. So if anything what is going on in Asia will buttress relationship banking and in my view that is good news.
The bank is sometimes described as being full of trappers rather than hunters. You like to acquire on the cheap.
It's fair comment to say that nearly all of the major transactions we have done have been when the market has been difficult. We have found good franchises which are going through difficult times at attractive prices, and that's when our strong capital position
has come into play. So yes, that is a fair description.
Does that mean that you are merely opportunistic?
We have a very clear strategy for the growth of this group. It is a mistake to assume that you can always use acquisition to supplement your growth. We have two ways to grow. One is very obviously doing more business with our existing client base. For example, we only sell 4% of our clients around the world an insurance product. And secondly by acquiring more clients. When we look for investment opportunities we measure what rate of return we can achieve from investing in our own business versus buying a business outside. We have consistently found that investing in our own business gets us the best opportunities. But if interesting acquisition opportunities come along, we will always look at them.
Do you think that having $50 billion under management is big enough to be a player in asset management?
Actually if you took in the funds we manage on a discretionary basis in private banking and other parts of the group the number would be over $100 billion. No. We would like the business to be larger. The question is how do you grow it. And our answer would be by selling more retail product through the 5,500 sales outlets we have around the world, rather than making an acquisition of the wholesale business which is highly competitive and very highly priced.
So going back to the analogy of being trappers would you be more interested in buying an asset management firm if there were a stock market crash, which brought down valuations.
Certainly we are more interested at lower valuations. Absolutely.
It is said that NationsBank has a group of people dedicated to looking at new acquisitions for the bank. Is there anything akin to that at HSBC?
No, because NationsBank is operating in a different environment. What you have in America is a banking system that used to have 14,000 banks, and is probably going to have below 5,000. You are witnessing what is essentially a domestic event - the consolidation of banks in America. And therefore it's perfectly natural to have a specific acquisition group. We have a very narrow group of people at the top who vet the acquisition proposals that are made to us. And we then decide if they are worth looking at and then we would take them to the CEO of the country, and say can you make this work? But to have all our people around the world combing for acquisition opportunities would be a recipe for too much down-time. We would lose focus on our existing businesses.
How did the Latin American acquisitions happen?
When we bought Midland Bank, it had something like $4 billion worth of assets in Latin America, and we were in the process of working out those assets. Rather than do a series of debt-equity swaps into canning plants, and different industrial projects, which we didn't know very much about, we decided to do debt-equity swaps into positions in banks, a business which we did know about. And out of that came a stake in Banco O'Higgins in Chile, and a 6% stake in Bamerindus in Brazil. And Midland already had a 29% investment in Banco Roberts in Argentina. When Bamerindus sadly ran into terminal difficulties, we were the people who knew more about the bank, perhaps, than any other potential investor, and out of that came the opportunity for us to buy 100%.
You seemed to get a very good deal.
We have a one-year ability to hand the assets we don't like back to the central bank. Now the central bank is pleased with the deal, I've heard that personally from the central bank governor. It solved a big problem for them, and it had a well-capitalized institution take over the third-largest delivery system in Brazil. We are happy so far with the transaction so it has worked for both Brazil and for us.
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