Rise from local bank to a global financial giant

David Kynaston believes that although HSBC may have been sheltered from the financial crisis, a consequence of it has been a fundamental shift in balance from West to East. [NICK J.B. MOORE/China Daily]

Historian charts the rise of HSBC and recounts how it avoided the worst aspects of financial crisis

David Kynaston believes many underestimate just how Hong Kong has transformed itself over the past 35 years.

Back in 1980, some two-thirds of its workforce was involved in the manufacture of cheap goods - from textiles to plastic toys - and the future special administrative region was a long way from emerging as one of the world's major financial hubs.

The territory is very much the backdrop of the historian's new book, The Lion Wakes: A Modern History of HSBC, which he co-authored with Richard Roberts. It charts the bank's rise from essentially a local bank to a global financial institution.

"In the 1970s, the dominant narrative about Hong Kong was that it was this post-war economic miracle reliant on manufacturing and exporting," he said.

"The 1980s was a transformative decade for finance with less deregulation and liberalization, and HSBC was part of that and the subsequent development of Hong Kong."

Kynaston, who was speaking at the offices of his publishers in Holford Yard near London's King's Cross, had just hotfooted it from the Bank of England Archives, where he had spent his day.

Despite working most of his life anonymously in the subterranean world of one archive or another, the 63-year-old is one of the United Kingdom's most high-profile historians.

His books on UK post-war social history, Austerity Britain, Family Britain and Modernity Britain, often told through the lives of ordinary people, have received many accolades (the first in the series being the Sunday Times' Book of the Decade) and have been serialized on BBC Radio.

The latest book charts the history of HSBC from the 1970s to the present day, although it ends before the recent furor over tax evasion at its Swiss private bank subsidiary. It takes over chronologically from the four-volume history produced by the late Frank King.

"We were trying not to be Frank King Volume 5, however, because his was essentially a history by an economist," he said.

HSBC or Hongkong Bank, as it was widely known in the late 1970s, was still very much a local or regional bank. Most of its major customers, including Jardine Matheson and Swire, dated back to origins of the British colony in the 19th century.

Under the ambitious chairmanship of Michael Sandberg (1977-86) and Willie Purves (1986-98), however, the bank set out to be a global bank, largely through acquisitions.

This included the purchase of the 12th largest bank in the United States, Midland Marine, in 1980, and one of the UK's big four banks, the Midland, in the early 1990s (after previously being rebuffed by Royal Bank of Scotland), which led to the bank being headquartered in London.

"It all dates back to Sandberg taking over the chairmanship. He made the point the bank was only the 75th-biggest in the world (it now is the seventh-largest with a market capitalization in May of $185.4 billion) and to create a three-legged stool with a leg each in Asia, North America and Europe," Kynaston said.

Like with the Swiss private bank subsidiary, the strategy has not always gone smoothly. The acquisition of banks in Mexico - a 75-percent cash economy - led it to becoming embroiled in drug cartel money laundering, while the purchase of Household, the US consumer finance business, left it partly exposed to the US subprime crisis.

"This was quite a difficult part of the book to write in terms of the analysis of what went wrong. I think HSBC's official explanation that it had grown too fast and that its decentralized approach was no longer fit for purpose is essentially true. We also argue, however, there was a problem with the broader culture - which HSBC among the banks was far from the worst - of the dominance of shareholder value and the bottom line at the expense of the reputational aspect," he said.