The Terminator Bank – A Tale of Modern Finance

A couple of generations ago, banks were a necessity of life. Neither good nor bad. Just there. Today I know few people who regard them as anything other than a necessary evil.

This little tale might go some way towards explaining why.

Four years ago, I opened a corporate bank account for the newly established company I co-own in Bahrain. Being British, I looked no further than good old HSBC. You know HSBC – the World’s Local Bank. The one that didn’t need a bail-out in 2008. Nice and safe.

They’re also the one that had to pay a $1.2 billion fine to the US banking regulator for doing business with money launderers in South America. Oh yes, and one of several banks that are currently under investigation in the UK for possible involvement in the LIBOR fixing scandal.

Of course neither of those little peccadilloes – proven or not – were apparent when I signed up with them in Bahrain. I’d done business with them before both personally and at a corporate level, and they were OK. But that was in the UK.

The Bahrain experience was a completely different story. For the first year, things went OK-ish. Customer service was not great, but I quickly discovered that it was no better or worse than that provided by any other bank on the island. In the Middle East, you don’t get stressed about poor customer service unless you want to end up on Prozac in short order. You expect the worst, but are prepared to be pleasantly surprised. I have learned over many years to greet each cock-up with a resigned shrug, followed by a few choice curses out of earshot. Fortunately I had a relationship manager who put things back on track whenever the service went awry, which it frequently did.

About 18 months ago, things started going seriously downhill. I discovered by accident that I no longer had a relationship manager. Then I got a letter telling me that my monthly charges had risen by 150%, and that I would no longer be issued with a company cheque book. After two or three attempts to find out why I was being asked to pay far more for a drastically reduced service, I discovered that the bank had cut back on services for corporate customers with annual turnovers of less than $30 million. No apologies, no explanation. Just the kind of impersonal, stonewall attitude that any self-respecting bureaucrat would be proud of.

So why did they do that?

This is just speculation, but my best guess is that the bank’s senior suits sat down for a nice lunch – or series of lunches – and applied the Pareto Principle to their business. They determined that 80% of their profit came from 20% of their customers. Perhaps their algorithm was a bit more sophisticated than Pareto – after all they are masters of the universe – but the effect would be broadly the same.

So what could they do about it? Get rid of the unprofitable customers! A good idea, and while they were about it, scale down operations in their most unprofitable territories and shed 30,000 jobs in the process.

But how to get rid of the customers? Well how about making our service so stripped down that we force them to look elsewhere? And if they don’t get the hint, we’ll double or treble the cost of doing businesses with us.

The attrition continued when last year they switched off their much-vaunted regional internet banking service – apparently because they had experienced “many problems” with it. Not half as many as I had. Payments failing without any notification or explanation, mainly. So I had to sign up for their global platform, for more money of course. By now I was paying up to $2500 per annum for running a checking account with no cheque book!

At this point you might ask why I didn’t switch banks. Good question. At the time I took the view that none of the other banks were likely to be any better. And since for my company, being a subsidiary of a US company I co-own, changing banks would involve sending someone from North Carolina to Washington DC to get various documents certified by Hillary Clinton, a local notary and God knows who else, and finally stamped by the Bahrain Embassy, I decided to opt for a quiet life and stump up the outrageous charges until I had the time and energy to make the change.

Last month HSBC took the decision out of my hands. I received a letter, with the scrawl of an unnamed signatory and the name of the country misspelled, telling me that the bank was planning to close the account within 60 days.

The letter opened with this wonderful passage:

“We write to advise you of some important changes to HSBC Business Banking services that will directly affect you.

“HSBC Business Banking has been focused on helping SMEs grow and trade internationally for almost 150 years globally and for over 68 years in the Kingdom of Bahrain. As such, international business remains a key competitive strength that lies at the heart of our strategy, and we now aim to devote more resources to those customers we are best placed to help.

Following a strategic review of our business customers, we will now be providing a relationship manager in all cases but subject to qualifying criteria. This is partly so that we are able to provide expertise and support in line with our key strengths as a leading international trade and business bank, but also due to HSBC’s stringent regulatory obligations as a global banking provider.

Based on the above, we are sorry to advise that you will no longer qualify for business banking services from HSBC, and we will need to close your account with us.“

So what the bank is saying is: “the good news is that we are planning to improve their service to corporate customers. The bad news is that your company doesn’t qualify, and you’re fired!”

A few days later I took the letter to the bank and spoke to a person at the front desk. Since they don’t have name tags, I will call her Mrs X.

“I got the letter”, I said. “Ah, the letter”, she said. “Yes, lots of people have received this letter.”

I will not put Mrs X’s job in jeopardy by quoting her further, except to say that I got the clear impression that she was not much more impressed by her employer’s actions than I was. Or perhaps this was her way of showing empathy. During the conversation, she confirmed that the criterion for having the privilege of continuing to pay exorbitant fees to the bank was a having turnover of $30 million or more.

Rather short-sighted, I would have thought. How were they to know that we would not hit that number in 2013? And what about all the owners of fast-growing Bahraini companies they are “encouraging” to go elsewhere? Unless they are making exceptions to their cut-off criterion, HSBC’s door is no longer open to budding entrepreneurs.

Certainly they would have had no way of knowing about the state of my business, since over years I have been banking with them, I have not had a single conversation with any officer of the bank about what my company does, how it’s getting on, what the prospects are – all the kind of information that you would expect a bank to want to know. So much for the “stringent regulatory obligations”.

I did once have a meeting with the CEO in which I shared my thoughts about their customer service. But of course my comments were as water off a very sleek and pinstriped duck’s back. Not the slightest interest shown in my business.

I have no problem with the concept of culling customers that don’t fit the business plan. But to do so in such a graceless and cack-handed way shows a company long on vision but disastrously short on implementation. A phone call or a meeting to explain their policy change would have made all the difference. But they couldn’t be bothered.

I am not one to wax nostalgic for the good old days when well-meaning and avuncular managers offered you unsolicited advice about how to run your life or business, and ignored the occasional financial slip-up committed by their impoverished customers. But the approach did work for the bank I signed up with as a student, and with which I still do personal business 45 years later. But these days it’s quite shocking how cynical and impersonal banking has become for all but the wealthy.

HSBC delivered their cuddly message shortly before I left the country for an extended break in the UK.  This gave me no time to make alternative arrangements, so our business will shortly become bankless in Bahrain. Not a problem, since we have other accounts. But it’s a sour ending to a relationship that has caused me more grief than any other over the past four years. So as far as I am concerned, it’s good riddance to bad rubbish, since I can say without reservation that HSBC in Bahrain are the worst bank with which I have had the misfortune to deal over a forty-year business career.

And that’s the end of the story. The tale of a bank that has earned the undying enmity of at least one customer, and I suspect many others who, like my company, were first welcomed with open arms and subsequently dumped like a half-eaten takeaway.

The reputation of Britain’s clearing banks – once the jewel in the City of London’s crown – is currently at an all-time low. The World’s Local Bank is doing an excellent job in dragging it down further by its activities in at least one of its foreign subsidiaries.

If Sir Thomas Sutherland – the entrepreneur who founded HSBC in Hong Kong and Shanghai nearly 150 years ago on the back of the opium trade – could see what a lily-livered, risk-averse entity his creation has become – I suspect he might turn in his grave.