Hopes Dashed

26 May

And so may end 161 years of waterside Buffalo banking. It was apropos that HSBC’s much anticipated big announcement on the Webster block was a surprise reorganization, potential sell-off and withdrawal from Buffalo all together. Here in Buffalo our eventual, seemingly mandated, disappointment is only matched by our brief fiery optimism before the fall. Before we hoped for a mixed retail/business Canalside anchor, a new ten story building filling an empty parking lot. That dream has tumbled to a new reality of thousands of jobs in jeopardy. Sounds about right for Buffalo. The Chicago architect designing the HSBC Webster options can file their drawings next to Ciminelli’s waterfront hotel.

When considering HSBC’s realignment options, I think the stakes for Buffalo, and our overall powerlessness to affect the situation, have actually been under-reported and under-stated. Following a now familiar Buffalo path, Marine Midland Bank rose to prominence long enough to build an iconic albatross, and then sold out to oversees interests. Bethlehem Steel dwindled to ArcelorMittal too before finally expiring and leaving millions of square feet of rust on our waterfront. HSBC was Buffalo’s window to a global financial world. It helped make us an international city on the top playing field. HSBC’s acquisition of Marine Midland in some ways looked like a validation of our financial strength – we produced something desirable by a banking giant. Now, slow and steady for 20 years, even through the Great Recession, is not enough to be worth the bother. Detroit is still mentioned as an HSBC hub. Buffalo is labeled an “under-performer.”

Seven months ago, when considering HSBC’s potential move of back office operations to Chicago, I made the following prediction:

Buffalo is so far out of its league in this competition, it is merely the pawn in a larger game. . . When HSBC moves 4000 jobs to suburban Chicago, it will be a surprise ambush on the front page of the paper, with no foresight of the bomb possible. . . . All of the sound and fury of the Mayor and Common Council, Erie Canal Development and the Webster Block, may in the end signify nothing.

The bomb dropped, and it was unexpected. Mayor Brown drips goodwill about working well with HSBC. County Executive Collins is “on pins and needles.” Neither are Big Time enough for the HSBC leaders who will make this decision to even know their names. What will happen, will happen.

And what is that? HSBC is Buffalo biggest deposit holder, a relic of its Marine Midland history, with 71 local branches, and 184 throughout Upstate. The worst case scenario for Buffalo is that HSBC’s upstate holdings are liquefied piecemeal. First Niagara will fill in its footprint in several communities. Key Bank will do the same in a few targeted locales. M&T likely buys zero. Evans, Financial Institutions, and Warsaw each buy a couple. Local Albany and Syracuse banks pick up the rest. But in a shrinking community and a saturated banking market, 71 local branches become 40, and 184 upstate branches become 120. Of the 5000 local HSBC jobs, the 3200 in back-office operations largely disappear (First Niagara doesn’t need to hire many more to handle ten more sites), and the 1800 at local branches become 1000. Four thousand jobs lost.

If Buffalo is lucky, we get the New Haven deal. Seven months ago I also noted TD Bank as a possible snatcher of First Niagara, if John Koelmel didn’t get FNFG’s stock price up quick enough. Jon Epstein in the Buffalo News also lists TD Bank as a possible suitor, and we could do far worse. TD has offices along the East Coast and across Canada, but no footprint to connect the two. The Canadian dollar is strong, and Canadian companies are taking advantage of buying American assets. Buffalo is recruiting Canadian companies aggressively, and TD could find a worse place to put significant US back-office operations. It was only a couple weeks ago David Robinson was crowing HSBC wouldn’t move their jobs because our low labor costs are so favorable. If TD snatched up the upstate HSBC network, we could see the retention of most branch jobs, and perhaps half the back-office ones as well. TD becomes the largest bank in WNY, and First Niagara’s head is off the chopping block for at least one possible acquirer.

1600 jobs lost and a more stable First Niagara – that is Buffalo’s best day.

18 Responses to “Hopes Dashed”

  1. Greg May 25, 2011 at 9:46 am #

    I don’t understand why people aren’t talking more about this. Is the election distracting everyone? That seems like way to many jobs to lose all at once. It would be a crushing blow.

    under-reported and under-stated

    Understatement!

  2. jimd May 25, 2011 at 12:45 pm #

    If it weren’t for having to swallow the job losses, I’d say good riddance. It’s a shit bank anyway.

  3. Ex-HSBC employee May 25, 2011 at 2:23 pm #

    I know a source who says that HSBC will cut 10% of its staff in Buffalo and 20% in Chicago. The purchase of Household, the leader in subprime lending, has really hurt HSBC.

  4. Dan M. May 25, 2011 at 4:52 pm #

    I was laid off from HSBC mid-april, after 10 years. They laid off 487 people I was told. No one reported it.

  5. Bev May 25, 2011 at 5:23 pm #

    I don’t disagree that HSBC’s retail branches could be bought by a large bank like TD, Fifth Third, or Citizen’s bank. All three are looking to expand their presence in HSBC’s retail footprint. This would likely result in a net increase in jobs as TD and Fifth Third have full service retail, investment, and commercial banking operations just about everywhere they operate. HSBC has minimal staff at each branch, with investment and mortgage specialists rotating between branches throughout the week. The back office operations may not stay here, but the current rumor at HSBC is that the Chicago Headquarters is being sold and will be emptied when HSBC sells off the credit card businesses.

  6. Brian Castner May 25, 2011 at 7:32 pm #

    @ All – Citizens already has an infiltration in WNY in supermarkets, so I don’t see them buying the whole HSBC footprint (maybe an infil branch or 2). Fifth Third is an interesting option, though. Maybe my TD prediction is more wish than cool headed analysis, but its the kind of Canadian expansion Buffalo is selling. In any case, I know HSBC has been shedding jobs in its mortgage office in Depew (more fallout from its Household purchase), and I don’t see how that’s going to slow any time soon. Would Buffalo get better banking service from HSBC swapping out with a more full service minded firm? Maybe. But is that worth 3200 back off ice jobs? I say no, but its hardly our choice. If I were HSBC, a new building in booming Chicago looks more attractive to keep staff at than backwater Buffalo. We’ll see.

  7. Bev May 25, 2011 at 8:02 pm #

    Compare competencies and salaries between Buffalo and Chicago and it makes sense to keep a presence here. Comparable jobs in Chicago pay 11% – 15% more than they do in Buffalo, with Buffalo paying at approximately 90% of market midpoint and Chicago only paying 50%. Employees in Chicago often complain about salaries when compared to other companies, and it has resulted in much higher turnover in staff over the years. Buffalo has a much higher employee retention rate for a number of reasons, including cost of living and low competition.

    Of the 3200 back office jobs about 1800 are call center and operational processing jobs. The rest are management, information technology, change and project management, and data center positions. It is expensive to move the system owner of a mainframe from Buffalo to Chicago, and they won’t find someone who has the experience in that system in the Chicago area. So there is a good chance that at least some of the jobs will remain in Buffalo. Add to that the fact that HSBC recently relocated support for the Commercial Banking and Securities departments from New Jersey to Buffalo, creating about 250 new jobs. These will most likely stay even if retail banking closes.

    Chicago is booming in many ways but it is also suffering from major salary inflation that has resulted in job cuts at Allstate, Sears, Ameritech, Baxter, and others. These companies have relocated support staff positions to other cities in the US because they are cheaper and more stable. The same trend is evident in cities like Washington DC and Boston, MA. It doesn’t hit them nearly as hard as a “backwater” place like Buffalo though.

  8. mark May 25, 2011 at 8:36 pm #

    I read this when it came out in April and even though there was no mention of Buffalo, everything written about the North America holdings suggested to me that the Buffalo portion of HSBC was fucked.

    http://www.economist.com/node/18558236

  9. BuffaloFailing May 25, 2011 at 8:59 pm #

    Umm, I can almost guarantee all those back-office jobs are NOT going to Chicago or anywhere else in the United States. 

  10. Brian May 26, 2011 at 5:40 am #

    They screw us; we bail ’em; they screw us again.

    I’ll bet a thousand banking executives dripping from gibbets across the U.S. would lead to “financial reform,” but, as Senator Dick Durbin said, “The banks own this place.”

  11. Brian Castner May 26, 2011 at 6:29 am #

    @ Bev – Buffalo’s advantages that you cite certainly lure new companies (geico), but isn’t the size of hsbc’s current operation here more a holdover from marine midlAnd than anything? Will they be enough to justify keeping the work here if their branch network leaves and they have examine everything from scratch? And even if they continue to process canceled checks here with cheaper labor, if will be for a smaller US operation overall.

  12. bev May 26, 2011 at 7:34 am #

    @Brian – HSBC did not accept any TARP bailout, just saying.

  13. bev May 26, 2011 at 7:45 am #

    @Brian C – In the HSBC strategy session, Stuart Gulliver and Douglas Flint stated that they are focusing their efforts on Commercial Banking, Global Banking and Markets, Securities investments, and Premiere customers. The legacy Marine Midland staff support these operations, in addition to the majority of government agency reporting. Many of these jobs have moved from NYC and New Jersey to Buffalo due to the lower cost for support. HSBC’s office in Jersey City is nearly vacant as a result of consolidation to Buffalo. The visible footprint of HSBC is the corner banks, but they represent a minority of what HSBC does in Buffalo. Commercial banking was a core function of Marine Midland and it was the key reason that HSBC bought MM in the first place. It was never about the branch network, this is one reason that growth of retail banking and expansion of the branch network has been anemic to say the least. It has never fit in with the growth of HSBC, but again the retail banking operations represents only a fraction of what is done in Buffalo. The reduction of the Cards and Retail businesses will result in smaller US operations, yes that is true but it is not the end of the world for Buffalo as you make it seem in your article. It may benefit you to speak with someone knowledgeable about HSBC operations before publishing assumptions and uninformed speculation about the future of the company.

  14. Brian Castner May 26, 2011 at 8:25 am #

    @Bev – I do have contacts with current and past hsbc employees and contractors. But thank you for the additional info and insights you added to the conversation. I would humbly add that neither of us know what will happen, unless you have some control to go along with your insights we don’t know about. My predictions are only that – we’ll see what happens.

  15. Buck Turgidson May 26, 2011 at 9:04 am #

    Brian C: I get the feeling that they want to get out from under Chicago. They’ve moved just about all the high level positions out of there and back to NYC. I know that management based here that used to fly to Chicago for meetings now fly to NYC. I also feel that if their mortgage department survives their own strategic review, that they would stay local. The jobs there require a little more skill than “processing cancelled checks”
    Other Brian: I see you quoted Dick Durbin, who once compared the US military at Gitmo to Nazi, Soviet, and Pol Pot torturers. Somehow I think you’d probably agree with him there, too.

  16. HSBC IT Guy May 26, 2011 at 9:41 am #

    Bev writes: “Compare competencies and salaries between Buffalo and Chicago and it makes sense to keep a presence here”

    I remember when we had those internal discussions about where IT infrastructure would be located. After all, we had just built and expanded a beautiful new datacenter on Park Club Lane in Amherst. Cost of physical plant datacenter operations in Buffalo were 50% lower than they were in Chicago. Personnel costs were 35% lower and uptime for servers in WNY was 99.991% as opposed to 97.599% in Chicago. It was a no-brainer to keep datacenter ops here…right? Well, they’re all in Vernon Hills, IL now being managed by former Household Financial IT management.

    The Amherst datacenter is empty, the Buffalo datacenter is almost empty, IT positions were slashed and new people hired in Chicago.

    The writing is on the wall, if you still have a job in Buffalo at HSBC in IT, Wealth Management, Retail Banking Management, or Mortgage…you might be offered relocation by the bank when your job is moved. Otherwise, hope that there is other work in Buffalo when your job is eliminated.

  17. Leo Wilson May 26, 2011 at 11:56 am #

    Damn, time to switch banks at last.

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