Posted on 6-3-2002

Buenos Buck Bounces
Jill Treanor, Guardian, Tuesday March 5, 2002

HSBC yesterday warned it would dramatically scale back its business in
Argentina if the country's economic crisis, which the bank admitted
yesterday had cost it $1.2bn (£850m) last year, worsened. At this stage the
rest of the world can carry Argentinian losses. A loss of confidence is a
different thing altogether, and hasn't happened ... yet.

The hefty provision against losses in Argentina made a big contribution to
the 14% fall in HSBC's pretax profits to $8.8bn in 2001, announced
yesterday. But despite the fall in profits, the bank's 280-page annual
report showed that HSBC's senior board executives received pay rises last
year and were still regarded as being underpaid in comparison with their
peers. Sir John Bond, the chairman, was paid £220,000 more than last year,
taking his pay and bonus to £1.8m, while Keith Whitson, the chief
executive, also took home an increase in pay and bonuses which took his
total salary to £1.5m. Even after the move in 2000 by HSBC's remuneration
committee - headed by Lord Marshall, the chairman of British Airways - to
boost executive pay after a review of the remuneration of their peers, the
annual report shows their pay remains outside the target area. The pay is
supposed to be in the 75th percentile of that of their peers. As a result,
UK executive directors will receive average pay increases of 2.45% and the
opportunity to earn cash bonuses worth as much as 250% of basic salary in
2002.

Sir John admitted the economic situation in Argentina might take some time
to resolve. International Monetary Fund officials were flying to the
crisis-hit country last night for talks about a new loan. But, Sir John
said, while the bank's policy was to invest for the long term, "it is
entirely possible that political events in Argentina could cause us to
reassess this policy". The bank broke out the cost of its exposure to
Argentina in two forms: $520m (£367m) as a direct result of the currency
changes and $600m for general exposure. The bank's profits were also hit by
a $575m provision in relation to the alleged frauds at Republic, the
banking group formed by the late billionaire Edmund Safra, which it bought
last year. In total its provisions against bad debt rose by $1bn to $2bn.

The bank insisted it remained committed to its investment banking operation
despite speculation that its decision not to pay bonuses to some bankers
last year was a sign that it intended to run down the business. Stephen
Green, the executive director who heads the investment bank, said the
decision not to pay bonuses in businesses where profits were lower was a
sign of the "real world". Overall, he said the newly integrated corporate,
investment banking and markets division, had a record year, producing $4bn
of profits. The bank's high street operation in Britain is included in the
HSBC Bank plc division, which reported a rise in pretax profits to £2.2bn.

The bank, along with Bar clays, Lloyds TSB and Royal Bank of Scotland, is
one of the "big four" players which have faced scrutiny from a number of
government inquiries, which Douglas Flint, the finance director, yesterday
described as "a pity". It is also scaling back its Merrill Lynch joint
venture to provide banking services to wealthier people. HSBC shares gained
59p to 837p after the results produced no unexpected surprises outside the
size of the provision for Argentina.