HSBC – Canalside or Bust?

6 Aug

Last night, after several hours of shuttle diplomacy between the 2nd and 13th floors of City Hall, the Buffalo Common Council unanimously voted to sell the Webster Block to the Erie Canal Harbor Development Corporation.  The ECHDC will now  make the property available to HSBC Bank as it considers its options for a future home for their retail bank management operations.

The property was conditionally sold to the ECHDC for the sum of the appraised value, $3,320,000 with the proceeds of that sale to be equally distributed amongst the nine commercial districts and the Citywide Fund, pending the use of the property by HSBC for its professional/administrative and/or back office functions.  If HSBC does not acquire the property (with a site selection letter sent to the Mayor and Council) for its use by January 1, 2011, or a later date agreed upon by the Mayor and the Common Council, the agreement will be terminated and the property will revert back to the City.

Now that we’ve dispensed with the formalities of reporting, lets get into why this all went down in the first place.

It all began in 2002 when HSBC Holdings purchased Household Financial Corporation (Headquartered in Chicago, IL), a consumer lending company and one of the most profitable sub-prime lenders in the industry for $15.5BN.  Prior to that purchase, HSBC was a major global player in Corporate, Investment Banking and Markets (CIBM), wealth management and distributed, but limited retail banking operations.  Household made money hand over fist during the boom years as the lender of choice for consumer retailers and by giving high risk adjustable rate mortgages to poor people.  You might also recall Household being fined nearly $500MM for predatory business practices prior to their purchase by HSBC.

The Household purchase did not go so well for HSBC.  When the sub-prime bubble burst, HSBC was holding the bag on over $20BN in defaulted loans and wrote off over $51MM in loans every day in 2008.

HSBC has emerged from the crisis with a more robust balance sheet, but there is still tension in the ranks of HSBC management between former Household executives and HSBC executives who were on staff prior to the purchase.  The Household executives have gone about centralizing operations into their Chicago offices while HSBC executives have sought to centralize operations in NYC.

Caught in the middle are cities like Buffalo, where the bank has significant operations, but lacks the executive presence of NYC or Chicago as the headquarters of HSBC Bank USA, N.A. moved to NYC from Buffalo in 1999 after HSBC purchased Republic Bank.  This is a global corporation with several holdings, including Hang Seng Bank Limited, HSBC Finance Corporation, HSBC USA (HBUS), The Hongkong and Shanghai Banking Corporation Limited, HSBC Bank USA, N.A., and HSBC Holdings, plc (the mothership). What I’m getting at is that this isn’t simply an issue of a US bank dealing with the City of Buffalo. This is one of the world’s largest, most tentacled and complex organizations.

Essentially, without much local executive oversight, most if not all, of the operations managed from the Buffalo facility can be managed anywhere.  This makes the people and lines of business in Buffalo a chit to be fought over by divergent forces in the bank.  Over the course of the past several years, bank sources tell us that issues with asbestos, mold and the general age and condition of One HSBC Center have reinforced the desire of bank management to evaluate other options for their operations.  They currently lease over 75% of the available 1.2MM square feet within the building and have concerns with the long term viability of landlord Seneca One Realty and maintaining a presence in what they deem to be a sub-standard building.

The bank retained Jones Lang LaSalle to review its location options and issue the RFP for HSBC’s location selection when their lease at One HSBC Center expires in 2013.  Several local options emerged and slowly leaked out to the press over the past month.  Perhaps a waterfront location, perhaps the Webster Block, perhaps a new companion tower at One HSBC Center, perhaps Crosspoint in Amherst…all options were bandied about, but sources at the bank and with the city tell us that HSBC only had eyes for the Webster Block.

Sources within HSBC in Chicago tell us that they had been interested in the Webster Block option because the ECHDC could allocate the property for their use after the Canalside land transfer agreement was passed last week.  The bank would then not have to deal with a public process for their move, avoid any debate with the Common Council and receive a prime piece of property on which they could build a new facility next to their Atrium complex and build a parking garage.  When the Canalside land transfer agreement was derailed by Bass Pro pulling out of the project and the Common Council’s unwillingness to transfer the land to the ECHDC without a Community Benefits Agreement, it became an “emergency” to find another way to transfer the Webster Block for HSBC’s consideration.  The bank had previously set a deadline to make final site selection recommendations by Friday.

However, the underlying battle is not where in Buffalo HSBC will put their employees, but if they will stay here at all.

There is significant pressure inside the bank to relocate the Buffalo operations to HSBC facilities in the Chicago region, including offices in Chicago’s Financial Loop, Mettawa, and Vernon Hills.  HSBC has made no guarantees that they will choose to stay in Buffalo, they have simply added the land on the Webster block to their palette of options.

Over the next six months, every politician in New York will make a visit to the management office of HSBC in New York City and Chicago to offer them the moon in exchange for staying in Buffalo.  The loss of 6,000 jobs in Buffalo would be a near extinction level event for this region.  In an election year, everyone will want to share in the glory of saving those jobs and holding one of the shiny gold shovels at the groundbreaking ceremony.

If we get that shiny new building in Canalside for HSBC, what of the tallest structure in Buffalo?  I guess progress can now measured in empty buildings and the avoidance of job losses.

Shit, it’s been a rough week, hasn’t it?

29 Responses to “HSBC – Canalside or Bust?”

  1. dvdfstr August 6, 2010 at 7:31 am #

    You will never live it down, unless you whip it.

  2. Eric Saldanha August 6, 2010 at 7:34 am #

    We’re through being cool

  3. Jesse August 6, 2010 at 7:48 am #

    Your comments about not having to deal with a public process made me wonder: if HSBC does build on the Webster block, that means that they (via the ECHDC) are not bound by any city zoning codes or design standards. Does it also mean they will be bound by the Canal Side architectural standards (urban, “historic”-style design, retail on ground floor, etc.)? Or does this mean they can build whatever the heck they want in Canal Side (essentially removing a big chunk of Canal Side as far as it being a coherent district from the public perspective)? Someone I’m guessing it will turn out to be the latter…

    • JSmith August 6, 2010 at 7:50 am #

      I’m going to change my name here from Jesse to JSmith since there’s another Jesse posting here whom I don’t want to be confused with.

      • Jesse August 6, 2010 at 8:23 am #

        I appreciate that, but am I such a bad guy? 🙂

    • Jesse August 6, 2010 at 8:25 am #

      Well, HSBC did build a gold LEED building out by Chicago, or so Chris’ post says.

      If they stay in Buffalo they’ll get whatever they want. They’re worth more to this region than the Bills or Sabres, that’s for sure.

    • Brian Castner August 6, 2010 at 1:08 pm #

      Stand by for a 30 story Erie Canal era warehouse, with a brick facade and sheet metal roof.

    • Chris Smith August 6, 2010 at 4:45 pm #

      The deal negotiated last night does not include any language regarding design guidelines. When I called the Common Council, ECHDC and HSBC about it today…the consensus was that they would cross that bridge when they get to it. Tentatively, they would be bound by the design guidelines for the rest of the district. Based on the square footage HSBC has discussed, we’re looking at an 8-10 story building. I would suspect it’ll look a lot like their North American HQ building in Mettawa, IL with some subtle urban tweaks.

  4. Mike in WNY August 6, 2010 at 8:31 am #

    The fact that HSBC appears to have enough power to find a way to bypass troublesome government meddling in the private sector highlights the destructive nature of our government functions to the nth degree.

  5. wcp August 6, 2010 at 9:37 am #

    Great summary. It’ll be an interesting month as the bank has the region’s crotch in its grasp.

    • JSmith August 6, 2010 at 10:09 am #

      Kind of reminds me of the “too big to let fail” idea during the federal bailouts. I took it as a good lesson as to why a region should not put all its eggs in one basket. The region should do whatever it can to make sure that it can survive the loss of any particular entity, and make sure it does not become dependent on one to the point where that entity is the one calling the shots.

      • lefty August 6, 2010 at 10:55 am #

        @JSmith

        The lesson should have been learned about 30 years ago, when industry left. If they missed that class, they should have realized the danger when the executives left Buffalo for NYC.

        There comes a point were you simply can not pull a passing grade out of a hat to a class you have done nothing in all year. I am pretty confident that Buffalo is past that point.

        There is NOTHING that is done in Buffalo today that could not be done in the Chicago or NYC metro regions. Add to the fact that the economy is in the crapper…you are going to have representation from both Chicago and Downstate bringing an offer to HSBC to bring 4000 jobs to their region.

        In NYS, we know the local delegation has zero power. What makes anyone think that they can deliver a better offer than NYC? In Chicago, it is all hands on deck. You have zero concern for New York, let alone Buffalo. The jobs that a HSBC move would bring is pretty much a golden ticket for reelection.

  6. Mark August 6, 2010 at 9:48 am #

    thank you for informing us about the chicago angle of the company-its something that never got nearly enough coverage in buffalo.

    also thank you for alerting us about the existence of dragons by the 190-equally important info.

  7. STEEL August 6, 2010 at 10:01 am #

    I wish I was cool enough to make snarky comments about taco trucks and carriage rides – Hell I am not even cool enough to use the work snark.

    • Christopher Smith August 6, 2010 at 2:14 pm #

      Perhaps you should not be cool enough to comment here.

      • STEEL August 6, 2010 at 3:18 pm #

        OK

  8. JSmith August 6, 2010 at 10:13 am #

    It seems very odd to me that Benderson would be building HSBC a new local headquarters. Do they have any experience at anything other than strip malls?

  9. William August 6, 2010 at 12:32 pm #

    Benderson has a great deal of relevant experience with business developments with low occupancy rates and high turnover- perfect for a waterfront controlled by the Erie Canal Harbor Development Corporation.

  10. Peter A Reese August 6, 2010 at 6:23 pm #

    Let’s see now, Hong Kong and Shanghai Bank came here when they were afraid their assets would be seized by the Commies when the Queen’s lease ran out on Hong Kong. Now that the Chinese Commies have shown they are bigger dollar whores than American capitalists, might HSBC not think about going back across the pond with their exciting back office banking operations?

    Lesson here? HSBC will leave town whenever they feel like it, even if we give them the entire Lake Erie and Ontario shoreline. BTW, will this be a new destination bank, which attracts five million tourists per year who watch in awe while the bank ants process transactions? How unique! We would be the only city with a bank building downtown. Who wouldn’t want to visit?

    God we are a bunch of morons.

  11. Chris Smith August 6, 2010 at 8:36 pm #

    Peter, do you or do you not believe it’s in the best interest of the city to have 6,000 people being paid middle class or above wages in the urban core?

    • Peter A Reese August 8, 2010 at 7:43 am #

      Yes I do, but giving HSBC a historic location for a building site isn’t going to have any significant effect on whether they stay or go. Maybe it is in the City’s best interest to keep them where they are. How much will it cost them to move? Probably millions. Why not focus efforts on that activity, rather than giving away more waterfront to the bozos at the ECHDC?

    • Warren August 8, 2010 at 9:36 am #

      Chris: you delivered a line that will be used to thwart any reasoned discussion or objection to any move made by Brown & Company, the ECHDC, et al:

      “do you or do you not believe it’s in the best interest of the city to have 6,000 people being paid middle class or above wages in the urban core?”

      It’s the same tactic as “If we don’t do __________, the terrorists win!”

  12. Eisenbart August 6, 2010 at 9:39 pm #

    American cities cannibalizing other American cities for jobs. Interesting. Also very saddening.

  13. RaChaCha August 7, 2010 at 6:15 pm #

    Thanks for the great article and information!

  14. Leo Bronstein August 9, 2010 at 7:26 pm #

    “American cities cannibalizing other American cities for jobs. Interesting. Also very saddening.”

    Yep, that’s what happens when the pursuit of private profit comes before every single other concern in terms of running a civilization.

Trackbacks/Pingbacks

  1. Friday YouTube Nugget | WNYmedia.net - August 6, 2010

    […] tumultuous week the City has endured, with the withdrawal of Bass Pro from the Canalside plans and the quasi-extortion following shortly after from HSBC Bank. Not to mention the shooting war that has erupted at WNYMedia.net (can’t we all just get […]

  2. Dinosaurs From Another Age | WNYmedia.net - August 7, 2010

    […] normally). I recommend you engage in this pleasure while you still can – the Bills are soon headed the way of HSBC. And I don’t mean a new stadium on the […]

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