HSBC sings the Latin blues

HSBC is suffering the Latin American blues. Its half-year profits, down 7% to £3.37bn, were, like its peers, hit by ballooning bad debt write-offs. Provisions for dodgy lending rose more than 62% to £476m compared with a year ago.

The bank, led by Sir Keith Whitson, whose abrasive manner has not been mellowed by his recent knighthood, has the biggest exposure to Latin America of UK lenders. Argentina, where HSBC is in for more than £1bn, is already mired in crisis. The contagion has spread to Uruguay, where the banks were last week forced to close their doors. The US has promised a £1bn emergency loan until the International Monetary Fund rides to the rescue.

Concerns are mounting over Brazil, the biggest part of HSBC's Latin American empire. Its banking exposure is around £3.8bn, plus £400m through insurance subsidiaries.

Whitson claims that the Brazilian economy, the tenth largest in the world, is well managed. Other commentators reckon it is on the point of imploding.

The Brazilian currency has halved in value since January and growth is at a standstill. Political uncertainty is rising ahead of the presidential elections in October, with fears over possible defaults on public debt. The IMF's current aid programme is due to run out in December.

HSBC has other troubles. It has been expanding rapidly in the gloom-laden US, and its investment banking arm has suffered a slew of defections by staff upset at receiving zero bonuses.

Whitson and his chairman Sir John Bond have plenty of experience of weathering tough times. The results they turned in were actually better than the market expected, and the shares dropped just 2p to 702p. Dividends rose from 12.6p a share to 13p.

The pair are also being squeezed on their home turf, however. Complying with Government regulations is costing £80m a year, and the bosses are desperate to claw it back.

One way is by setting up new call centres and data processing operations outside the UK. These are now being established in cheap labour locations such as India and China. The staff there, it appears, are highly educated, smartly dressed, and could put some bank executives to shame with their unfailing courtesy.

Nonetheless, the morality of moving jobs that could have been created in Britain to developing nations is questionable. The bank is cashing in shamelessly on the fact that labour in these countries is cheap, many families are poor, and even university graduates are prepared to don the HSBC headsets. And while shareholders may be ecstatic, customers will be wondering how the bank can guarantee - the security of their account details while beaming them halfway across the world.

What customers want is more personal service, not more call centres - whether they are in Hyderabad or Hull.

Pensions pain

THE stock market has not yet fully understood the magnitude of the pensions crisis. Several big name companies employing hundreds of thousands of people, including British Airways, Corus, Rolls-Royce and ICI, have total pension liabilities massively in excess of their market value.

In simple terms, these pension funds are like the circus act where a large elephant balances on top of a tiny ball - and it seems inevitable that some will fall off.

Many finance directors have blamed new accounting rules, compelling them to declare the full extent of any surplus or deficit in their annual accounts, rather than spreading it out over time. This is disingenuous. The new rules do not alter the underlying condition of the funds - they just make it clearer. What we can now see is the effect of ill-judged pension holidays taken in the 1990s when executives seemed to believe the bull market would last forever.

Companies will not be made to plug these holes in their schemes instantly. However, in many cases they will need to increase contributions, a drain on cashflow at a time when many are already overstretched.

The deficits being run by company retirement schemes have grown to gargantuan proportions of the firms' market value. The situation will get worse if the stock market remains low. Even if it bounces, firms cannot complacently rely on this alone to bail them out. Pension funds' obligations to their members are rising at a typical rate of 6% a year, meaning they have to make that much just to stand still. After suffering their third year of falling share prices, the funds have a great deal of running to make up.