EDITORIAL: Russia to HSBC — Drop Dead!

EDITORIAL

Russia to HSBC — Drop Dead!

The poster child we choose for our special issue on corruption this week is the Hong Kong and Shanghai Banking Corporation, better known to the world as HSBC — it bills itself as “the world’s local bank.”

But as of this month, it isn’t Russia’s bank any more.

In 2009 HSBC entered the Russian market to much fanfare and many promises of commitment and growth.  Just two years later, HSBC is extinct in Russia’s retail banking business.  It is the second foreign bank to exit the Russian market in the past three months, following giant Barclays out the revolving door.

The reason HSBC fled is simple:  Corruption that the highest levels of the Russian government, the same reason that not long ago IKEA threw up its hands.  Russia’s retail banking market is monopolized by the government of Russia through state-owned financial institutions like Sberbank, which control a shocking 60% of Russia’s retail market.

Sberbank is by far Russia’s largest lender, and Sberbank is the Kremlin.  How then Russia can be said to differ from the USSR is difficult to say.  The Kremlin is Russia’s dominant employer and its dominant banker.  It subsidizes and controls the cost of goods and dictates to business, as another editorial in today’s special issues shows, what prices they may charge and how they may sell their goods.

The Moscow Times quotes Timothy Stubbs, head of law firm Salans’ banking and finance practice:  “Doing business in Russia is immensely difficult.  HSBC may have underestimated the amount of energy that they had to put into growing operations.”

That’s the mother of all understatements.

Let’s be clear:  The Russian Kremlin dominates the country’s banking sector for one simple reason, so it can control the money, and keep a large part of it for itself.  As a member of so-called “president” Dima Medvedev’s own administration admits in today’s issue, the cost of this corruption is extreme. Russia does not rank in the top 150 countries on this planet for life expectancy because vital resources that should be spent on national health are instead diverted to line the pockets of corrupt government officials.

Foreign companies are unused to doing business in this matter, and that is why foreign investment in Russia is today half what is was four years ago, and falling.  Russia is a toxic nightmare for any honest Western firm, and most have the good sense to stay well away.

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2 responses to “EDITORIAL: Russia to HSBC — Drop Dead!

  1. This article is simplistic BS.

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