From Emotional Appeal to Rational Reasoning: Should We Support HSBC?

Christine Chan 

For as long as any of us can remember, the Hongkong and Shanghai Banking Corporation Limited (HSBC), also known as simply “Hong Kong Bank” to the public, has been an icon of our city. To every single Hong Kong citizen, the bank is part of the furniture of the city.

However, the credibility of the 144-year-old bank is being put to test as the financial crisis hits the international banking industry. Sandy Flockhart, the Chief Executive Officer of HSBC, announced the bank’s capital-raising plan in early March after the drop in last year’s net profits. Requiring US$17.7 billion for development in future, Hong Kong’s biggest bank has offered all citizens the opportunity to subscribe to the mega rights issue at the price of HK$28.

HSBC’s proposal has provoked discussion among citizens on whether to take part in it or not. A number of Hong Kong tycoons, businessmen and small investors welcomed the idea, believing that this offers them an opportunity to buy shares in the bank at a cheaper price. “I believe that HSBC is a very strong and prudent bank, and the subscription price is really low,” said Lee Shau Kee, chairman of Henderson Land Holdings. In addition to that, celebrities such as Carol Cheng recommended us to show our support to the bank by joining the subscribing to the rights issue. “I guess every citizen must have invested in HSBC since it is the ‘big elephant’ of Hong Kong,” she said.

Watching Hong Kong’s premier financial institution suffer from the financial downturn, most citizens would have a whisper of compassion for it, hence deciding to offer it a helping hand. The huge capital raised will definitely bring hope to HSBC. One line of argument says this will benefit not only the bank itself but also Hong Kong, in which the bank is authorized to issue banknotes. That way the international financial centre can maintain its reputation despite the financial crisis. The success will also benefit Hong Kong people, since we can all live in the city with a stable economy.

But look into the case and think again. On 9th March, HSBC shares suffered their worst drop in more than two decades, losing over HK$127 billion in market value when the share price dropped to HK$33. To deeply troubled shareholders and some citizens, the news serves as a signal, reminding us that the price movement of the share can be extreme. What if the share collapses after many have subscribed to it? If the share performs badly in future, a large number of citizens will probably lose a substantial amount of their savings. That could result in disaster and chaos in society.

So, other than carrying out the capital-raising plan, in what ways can the bank overcome the coming crisis? As world finance is getting worse, HSBC should not hesitate to upgrade itself in all aspects in order to survive in the changing world. One way to achieve this would be to raise its deposit rates, which will increase the bank’s competitiveness and eventually attract more depositors as well as soothe the situation it’s now facing. Furthermore, HSBC may also make an attempt to bring back lost convenience to depositors, for instance, by re-providing ATMs and branches that were previously closed from the mid-1990s onwards.  

As a Hongkonger, I wish the bank the best of luck and future prosperity. However, let us remember that the bank’s first purpose is to make money. We have no obligation to it, nor it to us. It must succeed or fail on its own, without taking our money and losing it in foolhardy gambles. 
 

References:

1. HSBC hit by worst fall for 2 decades (South China Morning Post, 10th March 2009, A1)

2. HSBC seeks US$17.7b in new funds (South China Morning Post, 3rd March 2009, A1)

3. Lai See–Darwinian moment as elephant turns crustacean (South China Morning Post, 7th March 2009, B10)

4. Tycoons line up to take advantage of rights issue (South China Morning Post, 3rd March 2009, A3)

5. Unrequited love affair with the ‘Big Elephant’ is over (South China Morning Post, 7th March 2009, B10)

6. Tycoons rush to make a killing on HSBC’s rights issue (South China Morning Post, 5th March 2009, B10)

7. www.kc.frb.org/publicat/fip/prs01-4.pdf

 

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