It is a cruel irony that as the world has woken up to the huge potential of emerging markets in Asia, HSBC - whose roots in Asia go back to the 19th Century - has been trying to shore up its reputation against problems in the US, the world's most advanced economy.
HSBC tried yesterday to draw a line under the most turbulent period in its recent history by ramming home the message that emerging markets are leading the bank's growth. Britain's biggest bank announced record pre-tax profit, up 13 per cent to $14.2bn ([pound]7.0bn) for the first half of 2007, beating analysts' estimates, despite a $1.3bn profit drop in North America.
The bulk of the profit rise came from Hong Kong and elsewhere in the Asia-Pacific region, where HSBC opened its first branches in 1865. "Our roots lie in emerging markets... We will invest organically and by acquisition in developing markets," says its chief executive Mike Geoghegan.
HSBC started life in 1865 as Hongkong and Shanghai Banking Corporation and was based in Hong Kong until 1992, when it bought Midland Bank in the UK as part of a diversification spree that helped turn it into the world's third-biggest bank. After Midland, HSBC bought banks in Germany, France and the US to increase its exposure to developed economies.
HSBC is trying to reclaim its crown as investors' favourite bank for Asian and emerging markets, which have been overshadowed by its expansion into the racy market for US customers with poor credit records. This move paid off at first but the bank was hit by bad debts last year as defaults on mortgages rose with interest rates The $14.8bn purchase in 2003 of the US sub-prime lender Household International by its former chairman Sir John Bond made the bank evenly balanced between Asia, Europe and the Americas, but HSBC has lost some of its traditional premium to the UK bank sector as Household's problems have grown and investors have questioned whether HSBC is still a play on Asia's booming growth.
"I think they have missed out on some opportunities to grow organically or through acquisition in Asia," says Oriel Securities analyst Mike Trippitt. "It's not just that they have not made enough investment in Asia, but they have switched that investment into the US. They are trying to restore that balance and make it clear that they are not going to ignore the heart of the business."
The explosion in Household's bad debts came at a bad time for HSBC, just months after the new leadership of Mr Geoghegan and chairman Stephen Green took over after Sir John's departure in May 2006.
After HSBC issued its first ever profit warning, alerting the market to the scale of Household's problems, Michael Taylor, the retiring head of equities at Threadneedle Investments, spoke for many when he asked why HSBC was involved with "trailer park" loans when it had opportunities for growth in Asia. …