HSBC Focus On Emerging Markets Has Risks
HSBC plans to refocus on emerging markets as the bank’s experiment with Household International taught them to play elsewhere. The problem with emerging markets is that they are emerging. Take the case of China’s equivalent of the US Food and Drug Administration chief. Within three weeks the man was charged with fraud, found guilty, and executed. China has executed four people for bank fraud as part of its crackdown on white-collar crime ahead of a string of bank sell-offs. In June Huang Yantian, the ex-president of an investment firm that collapsed owing $5bn in 1999 was sentenced to 14 years in jail for fraud.
HSBC talked for years about exporting their “Household Model” to emerging nations. Named after Household International – America’s most famous predatory lender – there are limitations in other countries. As a global bank HSBC certainly knows better. In the United States a company like Household International can hurt customers and defraud them for years, while Federal regulators never did much, if anything. State Attorney’s General stopped Household International.
Intelligent minds suggest that if customers in other countries are treated like Household International treated Americans, those who perpetrate the crimes will certainly be executed, imprisoned, or told to leave the country. Just look at Japan as an example of risk.
Japan’s 20 trillion-Yen consumer finance industry is in turmoil as debt- burdened borrowers take advantage of a government crackdown on the nation’s lenders, including subsidiaries of Citigroup and General Electric. Citigroup said this month it will shut about 80 percent of its consumer finance branches in Japan, leaving it with 50 outlets and 700 automated loan machines. The largest U.S. bank boosted its loan-loss reserves by $375 million and announced an 8-cent-a-share reduction in fourth-quarter profit. Citigroup’s Japanese banking operations are not affected.
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For one thing, investors are getting jumpy. This means emerging markets will start to look less attractive and outflows from our debt and equity markets are likely to continue. The argument that emerging markets are a good place to hide when the first world falls apart is rubbish. As one market expert said, U.S. investors (retail investors, particularly) tend to swap between U.S. bonds and U.S. equities depending on the climate. They rarely think that climbing into far-off places in times of trouble is a good idea.
Americans knew Household International was not a good idea but Bond, Aldinger, and HSBC knew best. They know now, don’t they?
Every new loan that is larger than the last contributes to increasing over-all economic instability. The outcome of such has historically been a crash corresponding to the magnitude of this debt distortion. HSBC knew what Household International was doing, and now we see the crash. HSBC Finance has a team of 150 PhD’s that knew full well the historical data. They should bear much of the responsibility for what is happening today around the world.