The HongKong and Shanghai Banking Corp.’s links with Guam will not be severed while the bank continues its loan relationship with businesses on-island.
“There was never a fixed date. There was an aim to go when we could — but we have loans outstanding ” said Christopher Underwood manager for Guam and Saipan.
In fact the bank has maturity dates on loans of 2010 and 2011. “It could be as long as that ” he said. “Certainly we have not been writing new business — to the detriment of the Guam economy.” Underwood who has been here since October 2000 did not anticipate he would remain in Guam until the closure of the bank’s loan book.
At present the bank has about 40 loan portfolios totaling about $150 million. Underwood said “I believe my commercial book is still larger than Bank of Hawaii’s — it was six months ago. About 80% of the facilities are with 20% of the clients.”
Some of the loans are what the industry calls ‘bad and doubtfuls.’ The bank has what Underwood termed smaller clients that it is “pursuing through the courts.”
HSBC first entered the Guam market in 1975 and Saipan in 1996. While the bank serviced clients seeking loans its relationship was legally limited to a lending relationship with its clients to one branch and was liable for a branch profits tax of 30%. Any ATM machine had to be within the bank’s premises. Underwood said “We were discriminated against since the day we opened.” He said the conditions imposed on HSBC had favored local banks.
The bank could in theory have managed remaining clients from an Asian office such as its Hong Kong one but other considerations came into play. “There are tax issues there are cross-border risk issues — it opens you up to more risk if you are not on the premises.”
Clients such as Mark V. Pangilinan Sr. founder and president of M.V.P. Enterprises Inc. had a constant and long-term loan facility with HSBC. While the company can perfectly well manage its cash flow Pangilinan told the Journal that other banks on island were not easily able to provide an option that allowed MVP to consider certain extremely large business transactions.
“The local banks here — Bank of Guam Bank of Hawaii — are limited to the amount they can lend to any single borrower. Our limits are far in excess of local banks. Therefore we could cater for the larger developer — of a hotel for instance. Rather than syndicate on-island or off-island they could come to one single lender ” Underwood said.
He said that the banking community had always acknowledged that. Other reasons made the bank’s departure from Micronesia regrettable he said.
“The other detriment is that it takes out a prospective lender from the market. When you were a large borrower and you had the choice of First Hawaiian Bank of Hawaii and Bank of Guam — now you are down to three. Their single-borrower limit is larger than say BankPacific and Citizens Security Bank. It also gives the local banks more problems as there is more concentration of risk.”
Banks in Guam have in fact assumed a number of HSBC’s portfolios the majority of which were commercial loans. “They got some very good borrowers ” Underwood said.
HSBC continued to service its remaining clients he said. “We continue to give them as much assistance as we can but we are not doing any transactional business. Sadly although you might be a client of ours if you want a remittance I’m not doing that any more.”
The bank has been left with clients that other banks are unwilling to assume he said “for size reasons. There are half a dozen like that — close to the single borrower limit of other banks or the appetite for that type of risk might be full. They might not be writing any hotel risk for instance — or car traders — they don’t want to add more to their portfolio.”
Ronald H. Leach executive vice president of Bank of Hawaii said “We have a $25 million limit to a single exposure.” Leach said Guam banks such as Bank of Hawaii First Hawaiian and Bank of Guam had a couple of ways to satisfy borrowers looking for a larger loan than each of the banks’ single lending limit. The banks could syndicate on-island — although this had certain sensitivities as they were in competition. Alternatively or in combination he said “The local institutions would go forward and find an off-island participant to buy a portion of the loan. We buy and sell loans with a group of institutions in the mainland all the time. We have loans in Guam that are participated outside of our institution. The key is to look for the banks that have the capacity to do what you want them to do.”
Leach said both on- and off-island financial institutions had reviewed the HSBC portfolios.
“It’s not the size of the credit that dictates whether the bank would take on the risk it’s the quality. In this instance it’s not a matter of size it’s an issue of quality that is keeping those loans on HSBC’s books.”
The largest loan the bank carries is in the hotel industry. Underwood would not be more specific than to say the loan was “more than $50 million and under $100 million.”
The bank announced its closure in May 2002 and the Saipan office closed in October 2000. The bank had just under 100 employees in Guam and Saipan when the closure was announced. HSBC relocated in April 2003 to the East West Business Center with 17 employees and now has seven staff including Underwood.
He said the bank’s decision to close had not been taken lightly and the bank had not closed because of the adverse economic conditions in Guam at the time. “The return on capital is one of the considerations when a decision to stay or leave is made but I am not expecting to lose money this year — our branch in Saipan was profitable from Day 1.” He said the majority of the residential portfolio had been sold numberwise to one bank. “The portfolio we have left in Saipan is managed here from Guam.” Underwood said less than 12 clients remained in Saipan.
Employees were given severance packages and retraining assistance.
Underwood said “When the closure was first announced we gave them what I would term very attractive packages. There was a phased departure until the end of 2002 and a second phased departure in 2003.” Staff had degree courses paid for by HSBC. A core group the bank wanted to retain. “They don’t know what day we are going to close down. We didn’t want them to get up and go so we gave them an increased salary quarterly bonuses and a notice period geared to their favor [three months notice from the employee; six months notice from the bank].” Staff that found a job well within that six-month period Underwood said still received the six-month payment nor had staff been held to a three-month notice period.
The case against HSBC by Sandhwani’s Inc. is due to be heard in January 2005.
HSBC has achieved record profits in the first half of 2004 Underwood said. MBJ