HSBC cases suggest it is better to be hung for a lamb

Listen to this article


Congratulations, HSBC. A US watchdog, prompted by a burning love of justice, or perhaps just burning political ambition, is having a go at you. The good news is that alleged offence is the kind that banks habitually get in trouble over. And for HSBC that marks a kind of moral rehabilitation.

Last year the bank was fined almost $2bn for offences that, according to regulators, included laundering the profits of Mexican drugs cartels. Moral relativism has turned badly toxic when it allows a bank to issue current accounts to mass murderers responsible for undermining civil society.

In contrast, New York attorney-general Eric Schneiderman is now attempting to throw the book at HSBC for allegedly bungling paperwork relating to US home foreclosures. The limited global significance of the story is apparent in its strategic leakage to Buffalo News. This is a local newspaper, rather than a periodical for bison fanciers.

One naturally empathises with Rebecca Karm, “the Erie County resident” cited in Mr Schneiderman’s folksy press release. She was supposedly charged superfluous mortgage fees of $23,000. But that’s better than being beheaded by a narcotraficante, who then commissions his favourite mariachi to write a song about it.

If you are looking for a broader theme, you might reflect that laws to protect US homeowners from unfair foreclosure were enacted following the popping of an asset bubble pumped up by the Federal Reserve as well as greedy subprime lenders.

Doubtless HSBC will contest the lawsuit filed by Mr Schneiderman with vigour. But were it to lose, that outcome would, in global banking terms, equate to getting done for an outdated tax disc, compared with the shaming hit-and-run conviction of last year’s money laundering case.

Three to strike out

ISS deserves credit for assimilating the mind-bending back story of troubled FTSE 100 miner Eurasian Natural Resources Corp. But the corporate voting consultancy pulls its punches in urging investors to vote against just two items – the remuneration report and the financial statements.

Well-chronicled problems with governance and transparency occurred during the lengthy watches of chief executive Felix Vulis, finance director Zaure Zaurbekova and auditor PwC. Independent investors should vote to oust all three.

The appointment of Mr Vulis, a candidate favoured by three oligarchs with a combined stake of 44 per cent, precipitated the resignation of chairman Sir David Cooksey, the City grandee who lent his credibility to the group’s initial public offering in 2007. A disagreement between Mr Vulis and Mehmet Dalman, a “chairman with enhanced powers”, triggered the resignation of the latter earlier this year. PwC meanwhile signed off the accounts for the IPO, despite alleged falsification by Russian sales agents of audit confirmations sketchily admitted to in the prospectus.

Minorities have no chance of defeating a Kazakh concert party with well over 50 per cent of the votes that is intent on taking the company private. But a protest vote is certainly called for.

Medical report

Patient: AstraZeneca, a pharma company of mature years, with all the debilities they bring.
Doctors: The City’s sawbones.
Symptoms: Historic share price weakness and investor discontent.
Diagnosis: A weak pipeline and resulting financial incontinence has proved resistant to treatment with new drugs. These have mostly failed.
Treatment: Surgical extraction of chief executive David Brennan in 2012. Transplanted Roche boss Pascal Soriot stemmed cash leakage and rallied the share price, up 8.5 per cent against GSK and 6.8 per cent higher compared with the FTSE 100 over one year.
Condition: Serious. The failure of fostamatinib, an arthritis drug with forecast annual sales of over $1bn, was widely expected. Investors have shrugged off the flop, which entails a $140m write-off. But the setback signals that AstraZeneca remains heavily exposed to R&D risks as a pure play drug developer, even as rivals diversify. New treatments for conditions such as psoriasis and gout need to work. Otherwise City sawbones could end up scrawling “Do not resuscitate” on AstraZeneca’s bed chart.
Outlook: Shares trading at a forward earnings multiple of 9.3 times lag behind peers by some 28 per cent. A deserved discount. will deepen, unless new drugs deliver or the group moderates its high-risk lifestyle.

Copyright The Financial Times Limited 2017. All rights reserved. You may share using our article tools. Please don't copy articles from and redistribute by email or post to the web.