Interpreting Middle East Economic News and Analyzing Market Trends

HSBC mulls Iraq exit as management continues to flip-flop on its strategy

HSBC Bank, which took a hit on its earnings last year to settle allegations of money-laundering in the US, is still trying to stay focused after several poor decisions made over the past decade.  See our earlier posts here and here for details.  Management’s latest strategy move is trying to determine whether or not to stay in Iraq.

  

HSBC Holdings is reviewing its operations in Iraq while continuing to invest in Egypt despite a challenging near-term environment there, the bank’s regional chief executive said on Sunday.

“In terms of Iraq, it’s a market that we will continue to review,” Simon Cooper, chief executive for the Middle East and North Africa, told reporters at a media event in Dubai.

He did not elaborate and declined to comment when asked for clarification.

HSBC operates in Iraq through a 70 per cent holding in Dar Es Salaam Investment Bank.

The lender’s presence in Iraq has been the subject of speculation in recent months.

It had been due to be a bookrunner on a $1.35 billion initial share sale of telecom firm Asiacell but its name was absence from the deal when it took place in January.

Iraq’s security and political situation has put off many international banks, although some Middle Eastern lenders have operations there, including Abu Dhabi Islamic Bank and Qatar National Bank.

Its banking sector is also dominated by two state-owned lenders – Rafidian and Rashid.

BUMPS IN THE ROAD

HSBC is in the last year of a three-year restructuring plan under chief executive Stuart Gulliver. It has closed or sold 47 businesses and cut 38,000 jobs around the world in an attempt to reduce costs and improve profitability.

Cooper said that Egypt was experiencing a number of “bumps in the road” as it transitioned to democracy but that the bank was continuing to invest in the country, pointing to a couple of branch openings in the first quarter of 2013.

Egypt’s central bank introduced foreign exchange auctions at the end of December as part of efforts to stave off a currency crisis triggered by a run on the pound, which has lost around a tenth of its value this year.

The bank’s regional priorities remain Saudi Arabia, the UAE, Qatar and Oman because of favourable economic conditions and high levels of planned infrastructure spending, Cooper said.

Read the full article from TradeArabia.

  

HSBC continues to fumble on its strategy.  Restructuing is taking a toll on the bank, with more layoffs expected and more exits from smaller markets, but these latest statements from HSBC highlight the fact that management still doesn’t have a long-term plan.  Here’s a statement from HSBC in 2005 just before acquiring a majority stake in Dar Es Salaam Investment Bank:

 

“HSBC is committed to playing its part in the reconstruction of Iraq and to investing in the country in the long-term.” You can read the full story from BBC News.

 

What management knows for sure is that it will go after big ticket items in as short a time as possible.  Sticking with the wealthiest GCC markets and focusing on infrastructure and other big-ticket items.  Iraq was never going to be an easy market, especially with the local government preferring to deal with its cronies at the two state banks.  The decision to enter Iraq without being fully aware of what doing business there is like or by expecting large deals to be thrown at them was poor judgment.

This highlights the fact that the bank has no long-term commitment to any market or any business.  This, unfortunately, is the nature of global banking today.  As for Iraq and Egypt, HSBC will exit both in due course.