Bank

While talking about HSBC, I would be selfish if I keep to myself two recent emails from my friend.

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Dear Szeto,

I have glanced through the report of 5 and do some simple calculations on the right issue.

Although the “actuarial” earning of 2008 is much better than reported (YOY down 30% rather than 70%) and the right issue will ultimately be a very bargain one in 5 years time, the projected figures are in fact extremely unfavorable in the coming 2-3 years.

That means, if I accept the right issue of HSBC, the opportunity cost will be very high because I will miss the chance of having at least 30% equity + dividend growth through investing on China Construction Bank in the same period (modest estimate of 1.5 times of GDP= 1.5 x 6.5% in the next 3 years).

So I will decline the offer and put the same amount of money to CCB instead.

Warren

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(Email to another friend of mine.)

Dear L,

With further meltdown of financial system in US and Europe, those foreign banks will beg you to buy their holdings of CCB at very bargain price in the next several months. There is no need to rush.

I am still confident that HSBC’s economic franchise and monopoly will ultimately be realized with the fall of all other international banks and even insurance companies….. but there is mounting evidence suggesting that the worst of HSBC hasn’t arrived yet and the proposed price of right issue is actually unsafe. I am also quite disappointed with the decline in its corporate governance, which does not match its track record in 20th century.

If it falls further, I am sure the 3 big brothers (CCB, BOC and ICBC) will become the major shareholders of HSBC before British government can take any action (because it will be going bankrupt as well).

How can we Chinese find a better way to revenge the Opium War by acquiring HSBC as a Chinese bank?

Warren

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I may not absolutely agree with what he says, but there seems much truth in it - and Warren is usually right.