Household HSBC Watch

Mr Buffett tells us he looks at four things before buying anything.

1. Is it a business we understand? 2. Does it have favourable long-term economics? 3. Is the management able and trustworthy? 4. Is it a sensible price tag?

With the benefit of hindsight, HSBC’s answers to those questions as it was poised to write the £9 billion cheque five years ago, should should have been: 1. No. We do not understand the credit-scoring methodology used by Household and we are ignorant of the methods used by third-party brokers to gull the poor into contracts they can’t possibly honour.

2. No. Sub-prime lending was and should have remained a niche business. Generations of bankers past understood this and would have nothing to do with it. It will shrink back to a niche business once again. There is a simple reason why the poor default. They have no money.

3. Trustworthy? Well, they had just been fined almost $500 million to settle allegations of predatory pricing. Able? No. HSBC subsequently paid tens of millions of dollars in severance pay to rid itself of them.

4. In the light of questions 1, 2 and 3 - emphatically no.

This material is courtesy of Patrick Hosking of the Times Online