This morning news from Hong Kong, the original home of HSBC (Hong Kong Shanghai Bank) tells us something we already knew back when William F. Aldinger III sold predatory lender Household International to HSBC. One JPMorgan analyst, Sunil Garg, said HSBC Finance Corp, the bank’s consumer-lending subsidiary in the United States, is an “unviable business” in the current environment. Lending spreads are inadequate to run a business like HSBC Finance that is beset with excessive risk, he said.
We tried to tell that to HSBC through the OCC open comment period, back before the sale was completed. HSBC did not listen, and in fact HSBC has an argument for most of the points we raised. Suck it up and drive on pal, but I do like to say “I told you so” every now and then. Aldinger knew exactly what he was doing, how long he could stay with HSBC, and when to leave. Aldinger’s partner in crime, Sir John Bond, also knew when to abandon ship. They both knew the plan was not viable.
The chief risk officer, formerly an OCC employee, abandoned ship. Aldinger went away, Bobby Mehta was fired, Sandra Derickson was dismissed, but Tom Detelich stayed. What’s the reason for that? If Detelich thinks he will be rewarded for staying on board the ship until it goes down he is sadly mistaken. Detelich will be the one, with long-term insider knowledge, to be grilled by Congress, subpoenaed by attorneys, and sued.
Flash back to August 2005, when this was said: “Tom Detelich, president of North American consumer lending at HSBC Corp., says another source of fuel for subprime lending is the rise of computerized risk-pricing, so that factors beyond debt and income, such as type of employment and number of years at a job, are used to assess the likelihood that a borrower will repay a loan. “We are seeing better pricing for the same level of risk,” he says. “Customers that may have been on the sidelines can now buy a home. That is absolutely a good thing.””
I know you are reading Tom, so let me be perfectly clear. Detelich has no future at Wells Fargo, or any other company other than a predatory lender, with thoughts like that. Crazy ideas like that which caused the subprime crisis to begin with. When that quote becomes famous enough, and when Americans clearly see HSBC as a subprime lender, lawyers will want to know how much HSBC put into CDO’s and other products with no regard for the validity of the loans. Who better to tell them under oath than Tom Detelich? No way pal - you will never be CEO of HSBC USA unless they need a sacrificial lamb. A common misperception of D&O insurance is that it allows directors or officers able to engage in acts they know to be wrong. That is not true. Intentional acts are not covered in D&O insurance. Only negligence by directors or officers would be covered.
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