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When Britain's greatest comic writer PG Wodehouse penned Psmith In The City in 1908 there was more than a touch of the autobiographical about it.
Psmith works for the New Asiatic Bank but the Old Etonian soon finds that banking is not really his true vocation and quits to watch a cricket match at Lords.
At the turn of the last century Wodehouse — unable to follow his brother to Oxford University because of his father's ailing finances — was found a post at the Hong Kong and Shanghai Banking Corporation. Like Psmith he found banking was not his forte and left after two years to pursue his journalistic and authorial life. The bank's loss was the nation's gain.
But would Wodehouse recognise the bank he worked for just more than a century later?
The chances are he would.
HSBC, as it is now known, is certainly a lot larger, has rather more computers than ledgers and makes considerably more money than it did in Plum's day. It has 250,000 employees, assets of $2.5 trillion and made a profit of $9.3 billion last year. But essentially it is much the same beast — a London-based bank with its feet firmly planted in the Far East.
Indeed, last month's announcement that chief executive Mike Geoghegan will shift his office from London to Hong Kong could not have underlined more heavily how much HSBC believes that its future lies in the East more than the West. “Operating from Hong Kong, I will be on the ground in our largest and most important region,” said Geoghegan. “It is no accident that we market ourselves globally in 86 countries as the world's local bank'. That is precisely what HSBC is.”
UBS analysts went so far as to say that the move “flags the beginning of a reversal of a westward expansion begun in 1980.”
HSBC was at the heart of the credit crunch. Indeed, many people reckon it was the first bank to alert the rest of the world to what was coming with its profits warning in early 2007 based on soaring bad debts in its US mortgage business.
Despite its position at the centre of the whirlwind — it was the first bank forced to bail out its own £17 billion structured investment vehicle — HSBC emerged as what several analysts now consider to be one of the strongest banks in the world. Its core tier-one capital ratio — the favoured measure of a bank's balance sheet strength — is 10.1 which is considerably better than that of its UK rivals.
When it launched Europe's largest rights issue — of £12.5 billion in March — it was taken up by a staggering 98% of shareholders. That was not just a ringing endorsement but also ensured HSBC had no need of government money or asset protection schemes.
As Geoghegan put it: “You can never have too much capital.”
And that capital is being put to use. By the end of the year HSBC will have 100 branches in mainland China making it the largest international player there. It is the biggest bank in the middle East, a top three bank in South America, a major insurer and one of the biggest players in private banking.
Analysts at Cazenove believe that with its US problems behind it HSBC can concentrate on the faster growth economies of the Far East and Latin America which, the broker predicts, will account for 60% of profits in 2011.
The scale of that growth is highlighted by Credit Suisse's forecasts that while underlying pre-tax profits this year will drop from $9.3 billion to $6.7 billion they will recover sharply next year to $18.8 billion and then $26.1 billion in 2011. Looking further ahead analysts believe HSBC will concentrate its firepower on the Far East. In the US HSBC is one-sixth the size of the banking giants such as Bank of America, JPMorgan and Wells Fargo. It could only get to their scale by acquisition and appears to have ruled that out.
In the East major acquisitions of banks also look difficult because most of what is left in China and India is state-controlled with limits on foreign investors.
Instead HSBC can concentrate on encouraging its Far East customers who are traditionally savers rather than borrowers to take on more debt.
Expansion will be gradual but determined — like yesterday's $105 million deal to raise its stake in Vietnamese insurer Bao Viet from 10% to 18% by buying shares from the government. As Geoghegan put it the deal was “entirely consistent with our stated strategic focus on the world's faster-growing markets and our intention to meet the insurance and wealth protection needs of our customers in these rapidly developing markets.”
The bank is also seeking a listing on the Shanghai stock market with analysts predicting it could raise some $2 billion through a new share issue there soon.
Not everyone is a fan. Activist investment fund Knight Vinke has repeatedly criticised HSBC management and demanded it get out of the US. But Geoghegan and his chairman Stephen Green have politely but firmly refused to do so.
“If we walked away from a business, there would forever be speculation about us — that we would not honour our guarantees. And you can't do that in banking — you never walk away from your depositor.”
That's an indication of the morality which seems to course through HSBC's veins. Geoghegan is one of the most vocal critics of the return of guaranteed bonuses at his rival banks. Green, a committed Christian, has called for banks to reassess their social role in the wider world and “to re-establish our industry as a major contributor to human prosperity and development”.
But Wodehouse would probably be most heartened to find Geoghegan agreeing with his decision to quit the bank: “We are a bank that runs on very simple principles. We run on the philosophy that, in fact, banking is very boring.”
