UK: Hongkong and Shanghai fails to shake off the curse of Carrian.

UK: Hongkong and Shanghai fails to shake off the curse of Carrian. - It takes real bad luck to be part of a billion-dollar collapse twice in one decade, but this is the unique achievement of Sir Michael Sandberg, the former chairman of The Hongkong and S

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Last Updated: 31 Aug 2010

It takes real bad luck to be part of a billion-dollar collapse twice in one decade, but this is the unique achievement of Sir Michael Sandberg, the former chairman of The Hongkong and Shanghai Banking Corporation, which will soon be moving its headquarters from the Crown Colony to London.

In 1983 Wardley, the HK and S merchant banking arm, was the chief adviser to a local property group called Carrian. That year Carrian went bankrupt for $1 billion, following a raid by the Hong Kong Serious Crime Squad, though neither Wardley nor its parent has revealed its losses, if any, at the hands of the company.

More recently, in 1987, Sir Michael became a non-executive director of the Polly Peck group, now in administration with debts of over £1 billion. Like Carrian, Polly Peck was bounced into administration following a raid by the Serious Fraud Squad; and like Carrian's boss, George Tan, Asil Nadir currently faces grave charges.

The Hongkong and Shanghai has had more than its fair share of problems in recent years. With 1997 and the Chinese takeover looming, it has been looking to develop new business areas outside the colony. The proposed merger with Midland Bank seemed an ideal solution, giving the "Honkers" access to the Midland network. But the deal has been put on ice and is unlikely to be revived. Midland's woes are just too severe.

The Hongkong and Shanghai management has enough on its plate as it is. James Capel, its broking arm, recently reported a £30 million loss - and the bank itself reported a 35% fall in its profits for 1990, with its American and Australian subsidiaries being hammered by bad debts and recession. Wardley's results were even worse, showing a 38% drop.

The most serious problem occurred in the Marine Midland business, the New York banking arm of HK and S. A disastrous foray into commercial property hit Marine Midland hard. A £13.9 million profit in 1989 was turned into a £159 million loss in 1990. In Australia a similar story of recession and high interest rates resulted in a A$273 million loss.

But the ghost of Carrian continues to haunt Sir Michael in other ways. He was recently threatened with court orders to provide evidence at a possible criminal trial in Hong Kong. The threat came from Lorrain Osman, Britain's longest-serving remand prisoner and a vital player in the Carrian story - Osman's bank lost some $800 million as a result of the collapse.

Of late the Osman case has taken an extraordinary twist. The prosecutor has been jailed for eight years, the key witness has admitted to taking bribes and breaking his immunity, and the Malaysian Government has confessed to losing 65% of the evidence. More ominously, newspapers in Hong Kong and Kuala Lumpur have printed allegations that a Malaysian minister, linked to the original complaint against Osman, has himself been connected to an alleged $50 million bribe. The minister's name has also been cited in a prominent murder trial connected with the case.

In London Sir Michael has had his house fly-postered and the Hong Kong High Commission has received the same treatment. Indeed, one morning the unfortunate High Commissioner was greeted by an assault with rotten eggs as he arrived for work.

True, you have to break a few eggs to make an omelette, but descrambling the whites and wongs of this case could be tough.

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