“Break up the banks” used to be the rallying cry from left-wing politicians and anti-capitalists railing against the excesses of the financial classes in the post-crisis austerity years. Now it seems to have been adopted by the bankers themselves.
In Europe, where the regulatory pressure has been the heaviest, many banks are considering spinning off businesses that used to be presented as part of the “one-stop-shop” business model of banking.
Lloyds of Britain and Santander of Spain are two banks considering floating off parts of their businesses, while many others are selling bits here and there, both to comply with tougher banking regulations and to simply raise cash in an era of more demanding capital adequacy rules.
We’ve seen the side-effects in the UAE as well, with Barclays, Lloyds and Royal Bank of Scotland all selling or closing down parts of their local operations.
But news that HSBC is contemplating the sale, via an initial public offering, of its United Kingdom business is a rather different matter, and it has further lessons for the UAE.
HSBC was one of the few on the global banking scene to have had what was generally regarded as “a good crisis”. It did not have to seek government bailouts or big injections of capital from outside.
Of course, the convulsions of 2008 and 2009 seriously affected its business. HSBC then added to its own problems by having to cough up billions to regulators and others as the penalty for some glaring breaches of the international banking rules, such as providing banking facilities for Mexican drug cartels and Iranian sanctions busters.
But by and large, it seemed it had overcome these problems. So why should it now be considering so radical a step as the sale of its British banking operation?
The reason appears to be the recommendations of the Vickers commission set up by the UK government to help to prevent a repetition of the crisis, which told banks to “ring-fence” their retail banking businesses from the other riskier parts, like investment banking.
HSBC is debating whether it might be easier and less costly to hive off the UK banking business altogether. It could also generate up to £20 billion (Dh120.71bn) worth of value via a stock market listing.
But in some ways HSBC’s big presence in the UK market is a historical anomaly. Until 1992, when the Hong Kong and Shanghai Banking Corporation took over the Midland Bank, it had no significant British presence and was best known as a Chinese bank, as its name suggested, facilitating trade between the home country and what the British still call the “Far East”.
If head office in London’s Canary Wharf is considering such a radical move as the separation of the UK arm from the rest of the business, there is another part of HSBC’s global empire that also lends itself to the same treatment.
HSBC Middle East is a strange entity that has never quite sat properly within the global operation.
It was formerly the British Bank of the Middle East, having been through various names during Britain’s imperial decline. HSBC acquired it in 1959, then built the rather grand headquarters that today sits beside the Creek in Dubai.
But in 1994, after HSBC bought Midland and became in effect a British high street bank, something strange happened. The British Bank of the Middle East was renamed HSBC Middle East and was domiciled in Jersey, one of the Channel Islands that lie as convenient tax havens between the UK and France.
There it is still. So although HSBC Middle East is the biggest foreign bank in the region, has main offices in Dubai both “onshore” in Bur Dubai and Emaar Square, and “offshore” in Dubai International Financial Centre, its official address as a corporate entity is quaintly The Esplanade, St Helier, Jersey.
It is also regulated by the Jersey Financial Services Authority, as well as the Dubai Financial Services Authority.
In UAE terms, it’s a big operation. In the past half-year, it made profits of US$540 million, local accounts show. It is also at the heart of the UAE and Arabian Gulf corporate scene, as a major corporate lender to regional companies big and small.
If HSBC executives are considering breaking up bits of the bank, the Middle East business seems an obvious one to include. Float it on a local market, say Nasdaq Dubai, and it would inject a big chunk of liquidity into the local scene.
Just a thought.