Dedicated readers will know that I am a committed curmudgeon with pessimistic tendencies. Surely all this seasonal cheer and chatter about turbo-charged bonuses has to be the perfect contrarian indicator? Record merger and acquisition volumes, frenetic private equity activity and buoyant debt markets must be exciting if youre a financier. However, who believes this environment is sustainable for the whole of 2007? Within every investment bankers corpulent chest, beats a reedy voice that rasps: It cant last! Indeed, Jamie Dimon, chief executive of JP Morgan Chase, is on record as saying: The very benign credit environment can only get worse.
A source who was obviously finding it hard to settle back in to the work groove sent me the following e-mail.
I had a nasty dream the other night. I was reading the Lex column in the Financial Times and it went like this:
In Strictly Come Dancing and other reality TV voting shows, the number 10 is usually good for contestants. For Daniel Davies at Exane BNP Paribas, it is also his current year (2007) estimated PE for HSBC, now the fourth largest global bank by capitalisation after the meteoric rise of ICBC. In spite of well-publicised consumer-debt worries in the UK and US, this does seem extraordinarily cheap. The worlds local bank contains some good businesses: corporate and consumer banking in France (CCF) and the UK (Midland), a stunning Asian business and a Middle East franchise any bank would die for. Chuck in a decent private bank (remember Republic?), a quality mix of other emerging markets franchises, a sensibly run asset manager and a sub-prime business in the US bought on the cheap, and you might begin to think that the sum of the parts was greater than the whole.
What might unlock value? A leveraged private equity bid could be one step too far, since even at this humble PE the bank weighs in at a market capitalisation of over £107 billion. Regulators might also protest, especially given HSBCs enormous retail client base.
But a break up bid? Bank of America is supposedly sniffing around for European assets. Perhaps ICBC could be enticed to look at the Asian portfolio, moving dramatically beyond its recent toe-dipping in Indonesia. Any number of US banks would consider either the Latin American assets or the Household business, and there would be no shortage of bidders for the emerging markets operations, particularly those in the Middle East, India and Turkey. The recent comment by a retiring fund manager that chairman Green was asleep on the job was regarded as rude. How much ruder would it be to argue that if a driver is asleep at the wheel, he should be removed from the bus entirely?
Sources email finished abruptly with this image of Green disguised as a bus-driver and he refused to return my calls seeking clarification. Perhaps there are similarities between working for London transport and being an HSBC employee. A break-up of HSBC is certainly an interesting idea for 2007. What do you think?
Green is also apparently a lay preacher of the Church of England. I suppose churchman to chairman is an acceptable transition. Everybody knows that the name of the game today is re-invention.
Next week: My coveted Abigail with Attitude awardscause controversy, and another global local bank annoys me.