The small-town rube would have no idea what adventures, riches and power were in store for him. After his California stint ended, he found a job cleaning decks on a ship going across the Pacific and was discharged in Hong Kong. “I fell in love with Asia and I came back to this country to look for a job that would take me back to Asia. Everything led to this tiny bank with a market cap of $50-million (U.S.),” he says.
That tiny bank was HSBC. When he left the bank in 2006 as chairman and former CEO, its market value was about $200-billion. Along the way he turned HSBC Canada into a banking force and filled the gaping holes in its American portfolio. But it wasn’t bubbly and beer all along the way. Household Finance Corp., the subprime lender and credit carder issuer bought by HSBC for $15-billion in 2003, played a bit role in the U.S. financial services meltdown and almost wrecked the mighty British bank’s American ambitions.
While Mr. Bond had retired from the bank two years before the 2008 credit crunch, the Household acquisition, along with the Xstrata debacle, have marred an otherwise stellar career. Mr. Bond knows that Household and Xstrata will be forever linked with his name even though they were relatively minor incidents in nearly five decades of business life in six countries. He notes that $4-billion of investments made while he was HSBC chairman were valued at $20-billion by the time he left the bank. “You don’t read about that in the press,” he says.
HSBC was founded in 1865 by a Scotsman, Thomas Sunderland, who worked for the Peninsular and Oriental Steam Navigation Company (P&O). He realized Hong Kong and the Chinese coast needed banking services and set up offices in Hong Kong and Shanghai. The new bank’s first fortunes were made in the maritime and opium trade.
In the early 20th Century, it expanded into Bangkok and Manila and into China proper. After China’s Communist revolution and the rise of Mao Zedong, the bank refocused on Hong Kong and moved its headquarters to London just before the colony was handed over to the Chinese in 1997.
As HSBC expanded throughout Asia and into North America, Mr. Bond lived all over the map.
He had stints in Thailand, Singapore and Indonesia and later New York City, Buffalo, N.Y. (where HSBC’s Marine Midland Bank was based) and, finally, London, though he has always considered Hong Kong his home. Along the way, he emerged as HSBC’s roving troubleshooter, fixing the company’s disastrous Wardley investment banking arm, cleaning up a computer system that had gone bad and turning around Marine Midland in Buffalo, a city he and Liz did not expect to like but did. “After 18 months there, we made a profit and I told Liz about the good news,” he says. “She said, ‘You fool. We’re having a wonderful time living here. Why did you fix it so quickly?’”
In 1993, he was made HSBC’s CEO. In 1998, he was chairman. His signature American move came five years later with the Household acquisition. I ask Mr. Bond why Household went pear shaped, to use a popular British expression. He takes some of the blame, but not all.
Household, he explains, fit HSBC’s philosophy, and his own, of providing services to the unwealthy to help them move up the consumer ladder. Some 40 per cent of American households had trouble getting credit from commercial banks.
The unwealthy were Household’s market; it had 50 million customers. The default rate was high, at about 4 per cent, but the net interest margin of about 11 per cent ensured the profits kept rolling in. In fact, the core subprime lending business weathered the financial crisis fairly well. The losses came well after the acquisition, when Household, under American boss Bill Aldinger, loaded up on wholesale portfolios of subprime securities and also traded them. Their blowup cost HSBC about $10-billion of writedowns. HSBC’s controls on Household were clearly lacking. “If I knew how Household was going to unfold, I would have at least made certain I had a weekly report about post-acquisition activity,” Mr. Bond says.