HSBC is one of the few major financial institutions still standing tall amid the current financial crisis. The Jakarta Post's Riyadi Suparno and Ida Indawati Khouw spoke to visiting Group CEO HSBC Holding Plc, Michael Geoghegan about issues surrounding HSBC, its recent acquisition of Bank Ekonomi and finance in Indonesia. The following is an excerpt.

Could you share with us how you see HSBC emerging from the current financial crisis?

The crisis isn't over yet so I can't tell how we will come out of it. But HSBC will emerge stronger because we are well capitalized; we have a large deposit base. We are a very transparent group so HSBC can be understood very easily. We didn't get into the very complex products *which have brought other major banks down*. We take our deposits first, then we lend.

And when we get it wrong we tell you *investors*. In 2006 we were wrong on subprime lending in the United States, we fixed it and the market recognized that we told you first. We are very upfront in telling you what problems we have before telling anybody else.

It has been reported that HSBC may have to raise between US$20 and $30 billion to plug a capital shortfall as earnings have deteriorated by more than anticipated. This news has dragged down HSBC's share price in the past two days. What's your response to this news?

I think what you are talking about is an investment report by Morgan Stanley that has a large number of inaccuracies in it. You should listen to what UBS has just come out with, which basically says, "We don't want to criticize what other analysts have reported, but we have to criticize this one because it is not accurate." I will repeat to you, it's not accurate. There are a lot of fundamental errors in the analysis.

So, you don't need that much?

We have a capital adequacy ratio of 8.9 percent. We are very strong; we told them off less than 90 days ago. We have one of the strongest capital ratios in the world.

But you are right; it has created some concerns in Hong Kong and in America. Having said that, our share prices have fallen less than world share prices.

Now let's turn to Indonesia. How do you see the prospects of Indonesia amid the crisis?

The region will come out very well out of the so-called crisis. It's the developed world's crisis. I think Indonesia will come out particularly strong. You have a new president who has done a good job; domestic consumption in Indonesia is increasing; you've got a strong banking system. There's no reason, even if the world economy slows down, that Indonesia cannot continue to grow.

You agreed to acquire Bank Ekonomi for over $600 million. What's your response to the proposal?

We have been waiting for it for a long time

$600 million is not a small sum.

It's not cheap. Good things aren't cheap. I think it's a good price. I think it is the right approach. We believe in working with the two teams and bringing them together, I will bring them together slowly, over a period of time.

With investors, including those in Indonesia, being burned after buying investment products sold by banks through private banking services, such as those associated with Lehman Brothers, how will you approach such products in the future?

You have two models: you sell products you have manufactured your self, or you distribute other people's. In private banking, most customers want to have choices. Our job is to recommend what we think is the best product to put forward. If we don't produce the products, competitors offer them, because people in private banking are skeptical if they just see one group of products. They ask how they can get the best.

So, you are still selling such products?

I'm selling the product. Clearly we have the responsibility to sell, sell it correctly, and explain what's right and what's wrong with it, but it is you in the end that will ultimately make the decision. But you may base your decision on the bank, just like many other people did with Lehman Brothers.

The problem with many investors in Indonesia is that they would trust their bank and buy any product they recommend.

I think, frankly, it would be much better for us just to manufacture and sell our own brands. But then, I have you come and say to me, "you don't give me choices; you don't give me opportunities".

How will this financial crisis change the way banks do things?

I think there is going to be more regulation of the market. I think there will be much more interaction between regulators around the world. That is already starting, and I think there will be more interaction.

I think there will be a discipline that you will have to have liquidity. HSBC, for example, has always had more deposits and loans.

What's your strategy in Indonesia?

We are the world's largest international bank and I would say the only true international bank.

With our advantages we can understand Indonesia today and can offer our Indonesian customers everything from premier products, international business and joint finance to cash mangement and securities management. All these things, that go across borders, that's natural to HSBC.

When it comes to domestic business, we haven't been that big. The bank economy is going to give us much better opportunities with small businesses. Small businesses, I suspect, over time, will become international businesses, because they will see the capability of the products of HSBC.

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