HSBC - falling apart?

[anonymous-user]

We moved to Barclays, who were fine (also moved to them personally at the same time).

We used to have a credit balance of between £300k and £800k for much of our time with HSBC, but didn't borrow money, so probably seen as worthless by them. We t/o about £3-4m a year and made a reasonable net margin.They gleefully told us once that we could borrow some if we wanted, but anything over £30k would need PGs. Haha, fk off!

Leaving HSBC was the best result.

[loafer123]

RonaldMcDonaldAteMyCat said:

Leaving HSBC was the best result.

Absolutely right. They are slowly killing their own bank from the inside.

[Kent Border Kenny]

NickCQ said:

I feel like I have asked this 100 times, but what do you think happens when you want to withdraw the £100 you borrowed?
Not many people borrow £100 from the bank just to leave it on deposit with that same bank.

I appreciate your tenacity in trying to help him, but it seems that he’s no idea of the different measures of money, so can’t ever understand.

Under his measure, if you and I both exchange an i.o.u. for £100 we’ve just increased the money supply by £200, which while a valid point of view doesn’t really mean anything.

[Kent Border Kenny]

LFB531 said:

Just heard that our 'Business Relationship Manager' at HSBC is being made redundant and isn't going to be replaced. He's looked after us for the last two years (although I've been a customer from the old Midland days) and will be genuinely sorry to see him go.

They did the same to me a couple of years back, and told me that the customer experience was being “upgraded” by moving me to a call centre.

I still have an actual, named person as my account manager at NatWest, and the team that deal with me at Coutts are at least as good as having one person look after me, so I just use those two now.

[Kent Border Kenny]

AJL308 said:

HSBC are bent...The money which was being paid into "our" account was apparently being transferred out and syphoned off elsewhere else in Europe.

So, yeah, HSBC = "dodgy as fk". Don't open an account with them.

In what way does this make HSBC bent? Are you implying that this is a deliberate loophole, set up by the bank to allow fraud, for which they are paid?

[ATM]

Kent Border Kenny said:

NickCQ said:

I feel like I have asked this 100 times, but what do you think happens when you want to withdraw the £100 you borrowed?
Not many people borrow £100 from the bank just to leave it on deposit with that same bank.

I appreciate your tenacity in trying to help him, but it seems that he’s no idea of the different measures of money, so can’t ever understand.

Under his measure, if you and I both exchange an i.o.u. for £100 we’ve just increased the money supply by £200, which while a valid point of view doesn’t really mean anything.

I'm still here BTW. And in my book an IOU from a bank is guaranteed. An IOU from a friend is not and in my small tiny brain the two are hardly comparable. Once I get my loan application approved by a commercial bank the new money is created and credited to my account. Then as long as I have less than - is it 25000 - in that bank / account then it is then under the bank guarantee scheme right. The questions here seem simple.

Is new money created when I get my loan?
Does the Bank of England website have this wrong or right?
Is a bank account balance or credit ( what you're now referring to as an IOU from a Bank ) as good as actual money in pound notes in my hand to me as an individual - taking into consideration it is guaranteed under the government banking guarantee scheme?

Why do I get the feeling that modern day bankers want to hide whats going on from the general public?

Why is it that most of the average people in this country do not know and are not willing to accept that banks can make up new money?

Why is it often quoted that banks make money by lending the money from savers to borrowers but miss out the bit about them making up new money while they're at it?

[Kent Border Kenny]

ATM said:

I'm still here BTW. And in my book an IOU from a bank is guaranteed. An IOU from a friend is not and in my small tiny brain the two are hardly comparable

Yes, I can see that you think this, but can’t even begin to understand why you think that the two situations are different. In what way is the amount from the bank “guaranteed”? If that were the case, why do I have to check that we have a credit line free before I execute a trade with Deutsche Bank?

Why do I insist that they place collateral with me, or that we operate via a central clearing house to stop me facing their credit directly?

As you presumably know, the answer is that of course the amount is not guaranteed. The bank is just another company, and they can and do go bust and default on their obligations?

That being the case, why the pretence that the amounts are “guaranteed”?

In fact, what does this term even mean? Guaranteed by what?

[67Dino]

The guarantee scheme is for £85k. If it’s invoked, it moves the liability from the (bust) Bank to the Financial Services Compensation Scheme. To my mind, no new money is created when this happens, it’s really just an insurance scheme funded by the Banks.

That said, ATM, I really welcome your interesting and challenging viewpoint. I may not agree, but you made me think, and I certainly share your view that people should be made to think about banking a bit more. For such an important sector (and especially in the UK) it really is very little understood.

[NickCQ]

ATM said:

Why is it often quoted that banks make money by lending the money from savers to borrowers but miss out the bit about them making up new money while they're at it?

Banks do not make money from money creation; their profit comes from lending and borrowing spread. Money creation increases leverage but it is not the same as having a printing press where you can create a dollar for ten cents.

Please go and have a look at the financial statements of a bank, for example p. 214 of Barclays' annual report (linked below).
You will see that they have two revenue items: net interest income and net fee income.

There is no revenue from money creation as this only happens on a gross not a net basis.

https://home.barclays/content/dam/home-barclays/do...

[NickCQ]

Kent Border Kenny said:

That being the case, why the pretence that the amounts are “guaranteed”?

In fact, what does this term even mean? Guaranteed by what?

Retail deposits are guaranteed by the government.
Lehman / Bear derivs exposures not so much!

[Kent Border Kenny]

NickCQ said:

Retail deposits are guaranteed by the government.
Lehman / Bear derivs exposures not so much!

Indeed, but ATM up there seems to think that an amount promised by a bank is in some way set in stone, as though guaranteed by the universe itself. He’s viewing banks as in a completely different category to other companies, but they really aren’t.

[NickCQ]

Kent Border Kenny said:

Indeed, but ATM up there seems to think that an amount promised by a bank is in some way set in stone, as though guaranteed by the universe itself. He’s viewing banks as in a completely different category to other companies, but they really aren’t.

Yes, but only bank deposits are part of the M4 definition of the money supply, so it has some logic in this context.

Edited by NickCQ on Monday 2nd November 12:47

[ATM]

NickCQ said:

ATM said:

Why is it often quoted that banks make money by lending the money from savers to borrowers but miss out the bit about them making up new money while they're at it?

Banks do not make money from money creation; their profit comes from lending and borrowing spread.

Right ok

If I rent out cars and I don't make them then I have to buy them or rent them from a supplier.

For this example let's say I rent them from a supplier and then rent them out.

I will only make a profit on the difference I receive from my customers over and above what I pay my suppliers.

But wait

What if I could rent the same car to several people by telling them they all they have use of the same car when in reality they can't or they don't or no one will ever figure it out.

This feels like a con.

But let's say it is allowed and its what goes on.

Now I dont get to drive these imaginary cars myself - because that makes no sense. I definitely get to make more profit though because I am renting out more cars than I have and charging everyone for the privilege.

So making up imaginary cars does make me more because I can rent out more and more cars than I actually have.

I do not make money from this money creation but I do make money by getting people to rent this imaginary made up money from me.

[NickCQ]

ATM said:

What if I could rent the same car to several people by telling them they all they have use of the same car when in reality they can't or they don't or no one will ever figure it out.

This is where I think you might be missing something.

Each pound on deposit with the bank is backed with an asset of one form of another. Going back to the Barclays example, look at the balance sheet on page 216 - they have total liabilities of £1.07 tn and assets of £1.14 tn. Technically the bank could sell all of its assets and pay off all the depositors with £65 bn left over (the total equity line)

Therefore, to take it back to your example, you are not lending the same car to multiple people.

[ATM]

NickCQ said:

ATM said:

What if I could rent the same car to several people by telling them they all they have use of the same car when in reality they can't or they don't or no one will ever figure it out.

This is where I think you might be missing something.

Each pound on deposit with the bank is backed with an asset of one form of another. Going back to the Barclays example, look at the balance sheet on page 216 - they have total liabilities of £1.07 tn and assets of £1.14 tn. Technically the bank could sell all of its assets and pay off all the depositors with £65 bn left over (the total equity line)

Therefore, to take it back to your example, you are not lending the same car to multiple people.

I dont pretend to know how their book keeping works but if I make up new money I can still enter onto my balance sheet or ledger or where ever else. Doesn't mean it wasn't made up. And when it is paid back I can then delete it from my balance sheet.

We know they make up new money. It says so on the Bank of England website.

Call it leverage or whatever else.

They are not paying for the use of this money. Like everyone in this country believes. They do not take the money from savers and loan it to borrowers.

They take the money from savers and multiply this n times to make up a lot more money and then loan this made up money to borrowers.

Let's say I pay a saver 1% on their 1000 deposit with my bank.

I multiply this 20 times - assuming 5% fractional reserve - to get 20000 that I can lend to borrowers.

I charge borrowers 4%.

Joe public thinks i make 3% - but thats just not so.

I receive 4% x 20 - is that 80%. And I pay the saver 1%. My profit feels like 79%. And that's annually. If I tweak the numbers then I can make the bank earn more than 100% annually easily enough.

They don't make money from this new money. Ok sure. But they get 100% or more annually for every £1 a saver deposits with them.

Doesn't sound like a bad business now does it.

[NickCQ]

ATM said:

Let's say I pay a saver 1% on their 1000 deposit with my bank.
I multiply this 20 times - assuming 5% fractional reserve - to get 20000 that I can lend to borrowers.
I charge borrowers 4%.

Joe public thinks i make 3% - but thats just not so.

I receive 4% x 20 - is that 80%. And I pay the saver 1%. My profit feels like 79%. And that's annually. If I tweak the numbers then I can make the bank earn more than 100% annually easily enough.

They don't make money from this new money. Ok sure. But they get 100% or more annually for every £1 a saver deposits with them.

Doesn't sound like a bad business now does it.

In your construct the 19,000 that you have created will show up as deposits in the accounts of borrowers and you have to pay interest on it at 1%.
3% gross spread on 20,000 before credit losses, distribution costs and operating expense
Typical cost-income ratio might be 40%, so costs are 1.2% and then credit losses might be 0.5-1%
Therefore the net spread is about 1% on 20,000 before tax, let's say 160 of net income after tax (0.8% RoA)

In addition to reserves (i.e. surplus liquidity) you have to have capital, let's say you put in 1,000 of your own funds (5% leverage ratio).
You can see that your profit is 160 on 1,000 of capital, or a 16% return on equity.

Very few large banks make a 16% return as usually spreads are lower and operating costs are higher.

[ATM]

NickCQ said:

ATM said:

Let's say I pay a saver 1% on their 1000 deposit with my bank.
I multiply this 20 times - assuming 5% fractional reserve - to get 20000 that I can lend to borrowers.
I charge borrowers 4%.

Joe public thinks i make 3% - but thats just not so.

I receive 4% x 20 - is that 80%. And I pay the saver 1%. My profit feels like 79%. And that's annually. If I tweak the numbers then I can make the bank earn more than 100% annually easily enough.

They don't make money from this new money. Ok sure. But they get 100% or more annually for every £1 a saver deposits with them.

Doesn't sound like a bad business now does it.

In your construct the 19,000 that you have created will show up as deposits in the accounts of borrowers and you have to pay interest on it at 1%.
3% gross spread on 20,000 before credit losses, distribution costs and operating expense
Typical cost-income ratio might be 40%, so costs are 1.2% and then credit losses might be 0.5-1%
Therefore the net spread is about 1% on 20,000 before tax, let's say 160 of net income after tax (0.8% RoA)

In addition to reserves (i.e. surplus liquidity) you have to have capital, let's say you put in 1,000 of your own funds (5% leverage ratio).
You can see that your profit is 160 on 1,000 of capital, or a 16% return on equity.

Very few large banks make a 16% return as usually spreads are lower and operating costs are higher.

The point i was making is banks do make money from money creation. They would have a hard time making money without it if they are only just managing to do so with made up money. You could probably argue they only make money from money creation.

[NickCQ]

ATM said:

The point i was making is banks do make money from money creation. They would have a hard time making money without it if they are only just managing to do so with made up money. You could probably argue they only make money from money creation.

Fair enough, I think we are probably talking past each other with the use of the term 'making money'.

You could run a bank without fractional reserves and only lend out your own funds (capital). However, you would not need to offer savings or current accounts and would need to charge significantly more on loans to make the same return.

The leverage from fractional reserves / money creation amplifies profitability in good times but also amplifies losses in bad times.

[NickCQ]

ATM said:

They are not paying for the use of this money. Like everyone in this country believes

This statement is incorrect. The money created is credited to the accounts of borrowers and the bank owes interest on it.

[Mr Whippy]

I went into a HSBC today to pay a cheque in.

Trying to get me to fill in the slip and use computer thing. Didn't know my account number (it's a saving account I rarely use, they have it on their system, cheque with lots of 0s on it, want to get it right).
Got to cashier. Yay a real face to face human. Cheque all done, stamped. Know the numbers are all correct.

Now can I open a joint saving account. I have a joint current account. Nope, online only.

OK well I tried that but "computer said no"

Tried again. Computer says no.

Then talk online. Robot confused. Real person, helpful, need to apply online but 'new full account', can't just open a savings to go alongside the current.

Can't use the current person to do it. Can't phone up. Can't do it in branch.


FFS... so much faffing.

So I'm just not going to use HSBC for those funds once cleared. They can go into NS&I.


HSBC put up soooo many barriers to using them.

It feels like they're purposely ruining their business.


Are any of the main street banks any good? Barclays were the last to go in my small town, so maybe that's a positive sign they're not big tts. Also they had the biggest queue in my local market town earlier today, so a sign they have more customers than the others?