Ask Lindsay Gordon about his company’s performance in a year that’s not been kind to many financial institutions, and he points to Western Canada’s economic strength. “How a bank performs is a function of the economy in which it operates and the customers that it has,” he says. “We’re very fortunate to have operated in a fairly strong economy and particularly in [Western Canada].” Revenues for HSBC Bank Canada (HSB.PR.C-T) totalled $1.9 billion in 2007 – a 9.3 per cent gain over 2006 and a credit to Western Canada’s economy, where 60 per cent of HSBC’s business is done.
While the crisis in Canada over asset-backed commercial paper (ABCP) and turmoil overflowing from the U.S.’s subprime mortgage woes roiled other banks, Gordon is quick to downplay the impact the crises had on HSBC. The bank bore a $47-million charge related to ABCP and was minimally exposed to the subprime debacle – both minor concerns for Gordon compared to the risk of the emerging economic slowdown that’s gaining momentum in various quarters. “Here in B.C., things have actually been very good. But I think in Eastern Canada, and even in B.C., there is going to be a slowdown,” he says. “We’re starting to see it in the housing markets.”
Since the well-being of banks is closely related to that of the general economy, Gordon expects HSBC’s robust growth in income (up 6.4 per cent from 2006) and assets (up 16.3 per cent) will lose pace. Key sectors that Gordon sees slowing are: tourism, which continues to suffer from a decline in U.S. visitors; real estate, where fewer projects will limit the bank’s lending business; and forestry, which faces ongoing pressure from exchange rates and poor prices. “I think we and all banks are going to see a slight increase, for example, in loan losses, probably slower volume growth and slower revenue growth,” he says. “I still think it will be decent, or reasonable, but a slowing economy will have an impact.”
Being responsive to the needs of customers will help limit the risks of slower growth, according to Gordon. He points to the forestry sector as a case in point, which will need supportive lenders in order to adapt to market conditions. “Our customers in that sector are obviously going through a very challenging period, and what we want to make sure we do is continue to support them,” he explains. It’s a lesson Gordon has learned through 20 years with the bank, during which time the financial sector has embraced significant shifts in technology and greater flows of capital globally. “If you don’t change and don’t recognize that the needs of the customer are changing,” he says, “you are going to die a slow death.”
One change that Gordon believes HSBC is able to capitalize on is the growing importance of China, India and Vietnam – booming countries that are playing a significant role in supporting the economies of Western Canada. “This is actually what’s driving a lot of the growth in British Columbia and Alberta, particularly as it relates to commodities, whether it’s energy, mining, et cetera,” Gordon says. “[Our] window on the Pacific and Asia is a significant benefit.”