Tuesday, 9 June 2015

Gulliver to relocate to Lilliput?

A major company which employs 48,000 people in the UK is planning to cut 8,000 of those jobs. Which is horrible news for the 8,000 people whose lives are about to be turned upside down. Job insecurity is no joke, especially a culture where you're one pay slip away from the moral stigma of being re-classified as an aspirationally-deficient specimen of undeserving poverty (serves you right for making the lifestyle choice to become the involuntary recipient of a P45).

In this case, there's something of a silver lining for the rest of us - the company in question is that chronically scandal-ridden, Too-Big-To-Fail behemoth, HSBC. Chief executive Stuart Gulliver may still be keeping us guessing when it comes to HSBC's threat to relocate its corporate HQ to Hong Kong, but size-wise, the organisation's direction of travel seems to have changed from a Brobdingnagian heading to a diversion some way down the road to Lilliput.

Since 2008, it's been easy to slip into despair and imagine that the TBTF banks had got away scot-free and would just carry on metastasising away, threatening the lives of their their host economies. But it does look, at first sight, as if the treatment may be shrinking the tumours:
Global regulators have issued dozens of rules aimed at making the biggest banks safer. That’s leading to another result some wanted: making them shrink.

HSBC Holdings Plc, Europe’s biggest bank by market value, said this week it’s considering “extreme solutions” for some of its units. Royal Bank of Scotland Group Plc is reducing its U.S. trading staff and getting out of two-thirds of the countries where it operates. JPMorgan Chase & Co. is closing branches, raising fees on some institutional deposits and looking for ways to shrink its trading businesses.
From a Bloomberg Business article titled Biggest Global Banks Shrink Under Pressure From Regulators* (or: How I Learned to Stop Worrying and Loook at The Graph).

Even if there is a good news element to this story, though, it's a qualified one.

The TBFT banks may have started shrinking in absolute terms, but what matters is their size relative to the rest of the economy and we shouldn't need reminding just how much that shrank after the bankers' crisis:
In other words, the banks have plenty of room to shrink, but still outweigh the rest of the economy, so maybe Mark Carney's nightmarish vision of of UK bank assets amounting to more than nine times GDP hasn't yet gone away. As Ann Pettifor wrote a couple of years ago, when it looked as if business for the banks was 'better-than -usual':
By contrast, business is better-than-usual for bankers. Not only are they too-big-to-fail, and too-big-to-jail, but the British government now actively subsidises their lending on existing housing – and in the process inflates house prices. The Chancellor is the banker’s strongest ally in Brussels where attempts are made by the EU to limit bonuses and tighten regulation. And now the governor of the Bank of England is cheering on the possibility “of UK banks’ assets exceeding nine times GDP and that is to say nothing of the potentially rapid growth of foreign banking and shadow banking” which he believes can be “a global good and a national asset”.

You're still gonna need a bigger rope

*Assuming that it really is the regulatory medicine that's shrinking the banks, rather the aftershock from the crisis/low productivity/secular stagnation/anything else that might lead to fewer investment opportunities.