Wednesday 11 May 2011

Backing Out of Russia

HSBC have recently announced the closure of their Russian retail banking operations (having invested USD200million of shareholders’ money to do so) due to overwhelming competition from local rivals. This is a shame as apparently banks benefit from a 9 percentage point spread on the difference between mortgage and deposit rates there.

So what happened? Without being privy to the details just yet, but knowing the market, I suspect that HSBC both went in too late (almost 10 years too late) and did not have the critical mass that a Citibank or Raffeisenbank has locally. Yes, it’s easy for them to get out as they have only a “handful” of branches, so exiting will be relatively painless.

The main question is, why did they go in so late, when it should already have been clear what they were up against? The best time to have gone in was just after the “GKO Crisis” of 1998 when Russia was crying out for well-run foreign banks (who could be trusted). Except for HSBC’s Rep Office, there were no British banks with a presence at the time, the foreigners were fewer, and Russian banks were still trying to recover.

A well-capitalised, respected HSBC coming in at that time could have done well. Coincidentally, they had just acquired Republic National Bank of New York which had a banking license in Moscow thanks to its Moscow branch there. Hiring well-qualified, knowledgeable local staff would have been easy, and support from the government (desperate to re-establish an aura of respectability) may well have been forthcoming.

So why didn’t it happen? As the meerkats would say, “Simples”. HSBC was not known for taking risks. Russia was seen by senior management at the time as “too dangerous”, although the rewards were greater at the time. They had a local base, with people who knew the market, where the real risks lay, and who could have helped to avoid them.

Instead, they waited until it was too late. Russia was well on the road to recovery, costs were rising, the local banks were reforming, and Citibank and Raffeisenbank had stayed the course.

Not one of their best decisions, but sad.


I was born overseas and have spent more than half my life working in different world markets from the most developed to “emerging” economies. With more than 20 years in the world financial services industry running different service, operations and lending businesses, I started my own Performance Management Consultancy and now work with individuals, small businesses, charities, quoted companies and academic institutions across the world. An international speaker, trainer, author and fund-raiser, I can be contacted by email. My website provides an excellent picture of my rich and varied portfolio of services.

Labels: , , ,

0 Comments:

Post a Comment

Subscribe to Post Comments [Atom]

<< Home