HSBC calls for interest rate hike to fight inflation

HSBC calls for interest rate hike to fight inflation


Chief executive Geoghegan warns of long-term problems unless central banks take action now


By Grace Ng


IT IS not often you hear bankers advocating higher interest rates – this can jack up the costs of lending, after all – but HSBC is making just such a call.


Chief executive Michael Geoghegan wants central banks around the world to hike rates to tackle inflation, which is becoming a key concern.


He told a conference after an informal shareholders’ meeting in Hong Kong yesterday that ‘many banks like inflation’, but warned that it poses ‘long-term problems’.


Mr Geoghegan noted that the spiralling cost of food, petrol and other basic goods will hit the poor the hardest.


At a talk earlier that afternoon organised by the Asia Society, he had also touched on the issue, arguing that while governments may not wish to face up to raising interest rates now, ‘I urge them to, because inflation out of control is a very difficult thing to control later’.


The banker warned shareholders that while HSBC expected its write-downs and losses linked to sub-prime mortgages to lessen in the coming quarters, it could not rule out further problems. It has already taken US$19.5 billion (S$26.5 billion) in write-downs and losses since the start of last year.


Nonetheless, the bank, the world’s largest by assets, posted record profits last year and stayed in the black in the first quarter of this year.


This has prompted HSBC’s remuneration committee to propose a new executive pay plan that will be unveiled at its annual meeting in London tomorrow. The Financial Times reported on Tuesday that HSBC may pay its most senior executives more than £100 million (S$269 million) over the next three years.


Mr Geoghegan said on Tuesday that HSBC’s executive pay falls within the median range for the world’s biggest banks.


He added that the bank has raised the issue with shareholders controlling about half of the group’s shares, and a ‘vast majority’ recognised that HSBC needed to offer competitive pay to retain talent.


In a separate interview on Tuesday, HSBC’s chief executive for the Asia-Pacific, Mr Sandy Flockhart, noted that the bank’s business in Singapore ‘has grown quite strongly’.


This was largely due to its focus on tapping the ‘growth in disposable income’ of customers, including clients with at least $200,000 in investible assets with a bank. HSBC said it is one of the top three banks in terms of market share for this affluent segment of Singapore.


Singapore also remains ‘an important booking centre’ for some of HSBC’s regional businesses, he said. HSBC Private Bank, which is among the world’s top five wealth management units by assets under management, has clients with high net worth from Asia and beyond who book their wealth here.


Many companies have also set up their headquarters in Singapore, said Mr Flockhart.


By offering an international network of branches and services to these companies, HSBC has grown pre-tax profit from its Singapore commercial banking services for small and medium-sized companies to more than 20 per cent.


The commercial banking unit in Singapore grew pre-tax profits to US$112 million last year, up 24 per cent on 2006.


The largest segment of HSBC Singapore’s business, the global business and markets unit, grew a whopping 65 per cent to US$240 million in pre-tax profits.


On the whole, HSBC Singapore’s pre-tax profits grew 51 per cent to US$550 million last year, making it the fourth fastest-growing market among HSBC’s Asia operations after China, Taiwan and South Korea.


Source: Straits Times


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