Elephant, Camel And The Lions

Updated (partial) on May 7, 2010

HSBC's nickname, the “elephant” of the Hong Kong Hang Seng Index (HSI),  was as old as the index itself. It reflects not only the sheer size of the bank shares' capitalization and the daily trading volume, but also the steadiness of its price (no longer true after the eventful year of 2008) and its stability as a long-term investment. In the following we will look at some historic data concerning the HSBC's financial and other fun facts.

Index Weighting

HSBC is and has been a lead weight on Hang Seng Index since it was published on November 24, 1969. HSI is a capitalization-weighting index consists of the 45 constituent stocks, which represent about 67% of capitalization of the Hong Kong Stock Exchange. HSBC has always been ranked number one since the first day when HSI came into being. I know at one point HSBC carried the weight more than one third of HSI, but I am still locating that piece of data. Menawhile, the following shows a decline in HSBC's weight since the turn of the millennium.

Date	Weight
October 15, 1999	27.7%
May 18, 2001	26.19%
March 9, 2007	25%
March 31, 2008	15.95%
March 1, 2009	9.4%

Financial Highlights: Benchmarks and Interesting Events (not exhaustive)

1864 - HSBC was formed with a capital of HK$5 million in 20,000 shares of HK$250 each. In 1866, each share was split into two resulting in a total of 40,000 shares of HK$125 each.

1871 - On February 13, HSBC made the following announcement in the Hong Kong Daily Press:

Hongkong & Shanghai Banking Corporation: Eleventh report of the Court of Directors to the Ordinary Yearly General Meeting of Shareholders, ... The net profits for the period (half-year ending on December 31, 1870), including $99,398.33 brought forward from last account, ... amount to $465,968.82 of which, after taking out Rebate on Bills not yet due and Remuneration to Directors, there remains for appropriation $451,141.46. From this sum the Directors recommend the distribution of a Dividend of $5 per share.

1874 - No dividends were paid by the bank. I shall try and find out why, ...

1904 – The following financial highlights appeared in a HSBC advertisement posted in The Straits Times on January 7, 1904:

Paid-up Capital HK$10,000,000
Sterling Reserve HK$10,000,000
Silver Reserve HK$6,000,000
Reserve Liability of Proprietors HK$10,000,000.

1925 - HSBC shares fell from HK$1,290 on June 22 to HK$1,140 on October 19 in the same year (a decline of 11.5%) as a result of the outbreak of the 1925-26 Canton-Hong Kong Strike 省港大罷工, it went up to HK$1,760 towards the end of 1930 marking probably an all-time high. Since then, share price has been adjusted downwards in several occasions as results of share reorganizations.

2009 – On March 9 uncertainty over the rights' issue's implications for institutional investors caused volatility, HSBC shares fell to HK$33 (“low” HK$33, “close” HK$33, “adjusted close” HK$32.78, a drop by 24.14% from the day before) - the lowest since May 24, 1995. It was the biggest one-day drop since Black Monday in 1987. The trading volume was 121,911,100 shares. Almost one year later on March 2, 2010, the trading volume of HSBC shares hit record high where 137,341,000 shares changed hands. On March 1, the Bank announced its net earnings of 5.83 billion US dollars, lower than analysts' expectations of 6.4 billion US dollars. Share price dropped 6.35% following the announcement.

Deposits Received by HSBC during selected years from 1865 through 1930

Year	Deposit Amount in HK$
1865	3,385,000
1874	17,555,000
1885	65,610,000
1894	104,300,000
1913	298,190,000
1920	451,060,000
1930	925,330,000

The Birth of The Elephant

HSBC, formed as a joint stock company in 1864 under the Joint Stock Companies Act 1856 and known as the Hongkong and Shanghai Banking Company, Ltd., was, in many ways, very peculiar. First, let’s look at the people who were behind its establishment.

Thomas Sutherland

The founder - the person who conceived the forming of a local bank in Hong Kong and did actually press the notion ahead - was no banker or financier, but a shipping man, Thomas Sutherland. Sutherland, a Scot from Aberdeen who was, according to the wish of his family, to be trained as clergy but instead joined the famous ocean freight concern P&O SN Co. before finishing schooling at the Edinburgh University. In 1852 (Sutherland was 18), after completing a two-year training program in P&O’s London office, he was sent to Bombay and from there he went to Hong Kong where he landed the job of a junior assistance. Sutherland had to be a very industrious person for he rose to the top job as Superintendent of P&O’s Japan and China Agencies in just eight years after his arrival to Hong Kong. Sutherland was only 30 years old when he founded HSBC!

Young and inexperience (at least in the banking field) seemed to be the hallmark of people Sutherland rallied to support his new bank endeavor. In addition to himself and his legal advisor, E.H. Pollard, there were thirteen other members in the Bank’s Provisional Committee – people I termed the “Sutherland 13”. Of the people whose year of birth I can pinned down, the youngest was Arthur Sassoon, he was 24. The oldest was Douglas Lapraik – 46; and in between them: Robert Brand 27, Woldemar Nissen 28, Albert Farley Heard 31, Henry Beverley Lemann 33, and Pollard, the lawyer, 40 (this is only my guesstimate, since he was admitted as a Solicitor in 1850). That will roughly put the average age of the members of the first HSBC Board at 33 (the mean average of the numbers presented here is 32.3). This mixed bag of Britons, an American, a German, a Norwegian, two Parsee Indians and a Baghdadi Indian Jew were by and large engaged in mercantile and/or ocean freight businesses, many of them, as in the case of Sutherland, only learned how to run a business after they arrived in Hong Kong (or in China, before they moved to the colony). All the more reason to praising the brilliancy, and guts, of these young men.

Another notable characteristic (hallmark) of the Committee was its members’ connections with the opium trade. Almost all the firms represented by members in the Committee were directly involved in opium, whether in trading or shipping. Pollard was the exception; also I have found no direct opium connection to Borneo Co., Ltd. (represented by William Adamson), John Burd and Co. (represented by George Johann Helland) and Siemssen and Co. (represented by Woldemar Nissen). Dent and Co., the third leading opium house in Hong Kong, after the Scottish firm Jardine, Matheson and Co. and the American firm Russell and Co., played a major role in the Committee. Its representative, Francis Chomley, chaired the first meeting of the Committee held on August 6, 1964. He continued to become the first chairman of the Bank's board of directors (only to step down in 1866 when Dent and Co. went bankrupt) while Sutherland, whose firm was actively engaged in the shipping of opium in Asia, humbled himself as the Bank's Deputy Chairman. Sutherland was the defacto acting Chairman of the Bank during Chomley’s absence from May to December 1865. More reading on the opium trade connection from the post Opium Hall of Fame.

All members of the Provisional Committee became directors of the Bank’s Board (or Court, as it was called at that time) on March 2, 1865, one day before the Bank opened for business. Some of the directors offered additional assistance to the Bank by offering their offices in local cities in China as the its representative office. They were: Borneo Co., Ltd. in Singapore, Gilman and Co. in Foochow (Fuzhou), D. Sassoon, Sons and Co. in Ningpo (Ningbo) and Augustine Head and Co. in Kiukiang (Jiujiang). Check out the post I Was An Elephant Handler for a list of the non-executive chairmen and chief executives of the bank.

The Scottish Banking Principles

Sutherland wanted the new bank to be established following the Scottish Banking Principles. The idea came about after his recent reading (in 1864) of a 20-years-old Blackwood’s Magazine on the advantages of Scottish banking. There are many descriptions of what those principles were, the following is what I feel the most understandable for a layman such as myself on banking systems. This was written by Peter N. Williams, Ph.D. for "Britannia's Guide to Scotland"

"From the 1740's right up to the 1850's Scottish banking was the envy of the world. A product of Scotland's Enlightenment in the middle 18th century, the banks of Scotland, and particularly of Edinburgh, led the world in so many areas. A short list of their accomplishments includes: banking on the limited liability principle, the early adoption of and generalizing of their note issues to the point at which gold and silver currency virtually disappeared from the country, the invention of the cash credit (later to become the overdraft), the elaboration of an agency or branch system, the development of the system of deposits attracted by the payment of interest, the stabilization of exchange and the Savings Bank movement."

Even after the 1850's when the rest of the banking world began to catch up, Scots remained in the forefront of developments in the industry. In 1875, they formed the first Institute of Bankers, training Scots for positions all over the world."

Chinese Capital?

Was Chinese capital involved in the establishment of HSBC? None of the English language material I have read (on the internet) suggests that, but a good number of the Chinese language material point to three persons: an unnamed member of the Qing Imperial Court, a high profile banker Hu Xueyan 胡雪嚴, and his sidekick Gu Yingchun 古應春 [1], and said that they had subscribed to the original shares of HSBC (directly, in the form of preferred shares, or possibly through a nominee such as David McLean (b.1833-d.1908), the first manager of HSBC Shanghai who had been in Shanghai since 1858 as the manager of the Oriental Banking Corporation). Did HSBC established with Chinese investment? Not sure, but it would certainly be a good marriage of convenience. Sutherland needed to raise all the capital in a matter of days – funding from a leading Chinese banker and his associates were as good as drug money he was getting from his mercantile friends, I presume. For the Chinese, the opportunity that was presented was one not to be missed – putting their hands in a foreign bank, although representation on either the Provisional Committee or the Board of Directors was unthinkable.

[1] Gu, who was said to be a professional comprador based in Shanghai (no idea to which company), gave HSBC its formal Chinese name of Weifung 滙豐 in 1881, in full 香港上海滙豐銀行. It was previously known as 香港上海滙理銀行, literally translated.

The First Year

I was able to find the contents of the first Annual Report of HSBC for the year 1865.

Hongkong and Shanghai Banking Company, Limited
Report of the Court of Directors
General Meeting of Shareholders,
To be held at the Banking House of the Company, Wardley House, Hong Kong,
On Monday, the 12th of February, 1866.

To the Participator of the Hongkong & Shanghai Banking Co., Limited.

Gentlemen – In accordance with the terms of the Deed of Settlement the Directors have now to submit to you their First annual Report on the Positions of the Company’s affairs. The first call of $25 per Share was made on the first of January 1865, and the Second call of $100 was due on the 31st of March; three payments were made with great promptness.

The Company’s Offices at Hongkong & Shanghai were opened for the transaction of business in the month of April last, but were not in fair working order until the middle of May. The operations of the Bank to the 31st December have therefore extended over a period of less than eight months.

The following is the statement of accounts, which have been duly audited by the Honourable W.H. Rennie and Caleb T. Smith, Esq.

Abstract Statement of Liabilities and Assets of the Hongkong and Shanghai Banking Company Limited, on the 31st December, 1865

Liabilities
Paid up Capital (3125 on 20,000 shares) $2,500,000.00
Deposits and Notes in circulations 3,384,876.62
Exchange acceptances, &c 5,731,434.62
Branches and Agencies 1,548,219.18
Profit and Loss Account 225,055.93
Sundries 7,069.07
Total $13,396,655.42

Assets
Cash Balances on hand and at Bankers $1,250,388.78
Discounts, Loans, credits, &c., 3,144,446.75
Exchange Remittances, &c., 5,554,279.13
Branches and Agencies, 3,393,430.75
Preliminary Expenses, 32,827.62
Sundries 21,322.39
Total $13,396,655.42

Profit and Loss Account
To Dividend at the rate of 8 per cent per annum, or $6.66 per share $133,200.00
Amount carried to Reserve Fund 33,300.00
Amount written off Preliminary Expenses, Bonus to constituents and Depositors, &c. 14,577.97
Rebate on Bills not due 31,696.66
Balance being undivided profits carried forward to next half year 12,261.00
Total 225,055.93

By amount of Profit for the Eight months ended 31st December 1865, after deducting all expense and interest paid and due $225,055.93

We have examined and audited the above accounts and find them correct.
(signed) W.H. Rennie [1], C.T. Smith, Auditors

[1] William Hepburn Rennie (b.1829 Glasgow, Scotland – d.1874 St. Vincent), Auditor General of Hong Kong (1858-1870), was Acting Colonial Secretary of Falkland Islands (1856–1857) and became Lieutenant-Governor of St. Vincent (at present a Commonwealth nation known as Saint Vincent and the Grenadines) (1871-1874 died in office).

The Early, Sometimes Wild, Years

The Bank Auditors

In the early years, HSBC had two co-auditors: namely, Linstead and Davis, and Gibb, Livingston and Co. T.G. Linstead and Henry W. Davis, of Linstead and Davis, were mainly property agents, but they also sold bicycles, and, up to 1926, they had an agency for Manila cigars. The firm was listed in 1901 edition of the Hong Kong Directory as merchant, and in 1910 as real estate agent. Linstead worked for watch-repair shop owner, Douglas Lapraik, who sat on the bank's Board of Directors, in the late 1850s (capacity unknown), while Davis might have worked for Lane Crawford, which was a ship chandlery at that time. Gibb, Livingston was a mercantile and ocean freight concern involved in opium trade; and the audit was said to be performed by the senior partner of the firm. Linstead and Davis continued to audit for HSBC until shortly before the fall of Hong Kong during WWII. At that time, the sole surviving partner (I don’t know who it was, Linstead or Davis) joined Lowe, Bingham & Matthews (LBM) London and the audit transferred with him. Gibb, Livingston lost the HSBC account to LBM much earlier, probably in around 1902 when Arthur Rylands Lowe established himself as Hong Kong’s first full-time professional accountant.

HSBC's first annual accounts were audited, however, by two individuals: Caleb Smith and William Hepburn Rennie. Rennie was, at that time, Auditor General of the Hong Kong Government. The reason why the books of a company in the private sector was audited by a senior civil servant is so far unknown to me. With regards to C.T. Smith, no information on him except that he was listed in the 1859 Hong Kong Directory as a merchant who resided in Carlton Terrace, Hong Kong Island. Most likely a long shot, the name Caleb T. Smith appeared in the October 19, 1884 New York Times that described him as a tea inspector from New York who have had experience working in the same profession in China. Were these two the same man? I do not know.

Belilios, the Camel Man (not Marlboro Man)

Undated photo of the original Stephen guarding the HSBC Shanghai
branch. Stephen is now part of the exhibits of the Shanghai
Municipal History Museum situated inside the Oriental Pearl
Broadcasting TV Tower in Shanghai.

The Lions

The first pair of Bronze Lion Statue of HSBC was made after the model made by Henry Poole ARA in England and was cast by J W Singer & Sons, in Frome, Somerset, and began guarding the gate of the Shanghai branch office since 1923. The lion with his mouth open is "Stephen", named after the Chief Manager in Hong Kong A.G. Stephen; the other lion is "Stitt", named after Manager Shanghai Gordon Holmes Stitt [1].

Since the opening in 1865, the four main office buildings are all located at One Queen's Road. The third main office building was completed in 1935. The second pair of HSBC bronze lion was situated at the Des Voeux Road entrance of the building. They were made by Shanghai-based sculptor W. W. Wagstaff who worked with "Shanghai Arts and Crafts" foreman Chou Yin Hsiang [2], cloning the ones in Shanghai. Since then, Stephen and Stitt left their posts only twice. The first time was in 1942 during WWII when the Japanese Army took the lions to Japan for military material - fortunately, they weren't transformed into cannon shell cartridges. After Japan surrendered, the lions were founded and returned through the Allied Army in Japan. The second time was in the 1980s when the current main office building was being constructed. The lions were temporarily moved to the neighboring Statue Square.

Stephen (2nd generation, stations in Hong Kong), having the left
side of his face covered by a plaster mold, is being cloned for
the next generation that will be based in Shanghai.

The third pair of Stephen and Stitt was cloned in 2001. Cast by the Bronze Age Sculpture Casting Foundry in Limehouse. they are now guarding the main office of the HSBC Group at Canary Wharf, London. Works for cloning and casting the fourth pair began in October 2009. Their new home will be the new HSBC Shanghai building.

The Bogus Pair - Stephen and Stitt were victims of the counterfeit rampaged China. The pair now guarding the Pudong Development Bank Building on the Bund in Shanghai (former HSBC Shanghai Office) was unauthorized clones of the original Stephen and Stitt, which were locked up separately in museums.

[1] Gordon Holmes Stitt (b.1866 - d.1949), joined HSBC in Hong Kong in 1889, and was assigned, after having spent three years here, to multiple locations throghout Asia including Hiogo, Penang, Singapore, Yokohama and Kobe. In 1920, he was appointed Acting Manager in Shanghai during the leave of the current Manager – A.G. Stephen. When Stephen became Chief Manager and moved to Hong Kong, Stitt was appointed Manager Shanghai until his resignation in 1926. Stitt was connected to Thomas Jackson through links of family.

[2] Chou Yin Hsiang moved to Hong Kong in 1935, and by 1977 was the proprietor of Jeh Hsing Metal Works, which is still operating in Wong Chuk Hang.

- TO BE COMPLETED -