HSBC has gotten a little aggro lately – an analyst dispute widely reported in the FT and other places. By the standards of the story I am about to tell you the behaviour is quite genteel.
I know relatively little about HSBC. I thought they paid an absurd amount for a Taiwanese bank I understood really well. I later met the guy who was responsible for the purchase and decided that I knew far more about the target than him. Fortunately I was not short the target.
I never much liked Household (indeed I lost money betting that HSBC might come to its senses and not consummate the Household deal.)
I also had a fairly aggressive argument once with a colleague who wanted to buy HSBC. But realistically I only knew about a few cockroaches and I wasn’t sure whether the place was infested.
This post is about a really nasty cockroach. I will leave determination as to whether this is an infestation up to my readers.
The Bally Total Fitness scam
Bally Total Fitness was a favourite of shortsellers. I sold it short myself and made good coin. It was a simple scam.
The company ran gyms which had seemingly attractively priced memberships. Running fitness centres is a notoriously tough business. Anyway these seemed to work – at least in an accounting sense.
In fact the company scammed the customer. Customers thought they were signing a month-to-month gym membership – but – and I am not joking here – they were signing a loan document – and there were huge penalties for not paying. The documents were often non-cancellable. The customers were misled.
There was a website called ballysucks.com (now defunct) which told the story. They were sued by Bally and lost. The story can still be found here and here amongst dozens of consumer rip-off reports on the web.
Bally managed to report not only overdue fees (for which the customer had falsely been induced to agree) as receivables – but they included penalties as per credit cards.
Obviously collection was a problem. Bally filed bankruptcy.
So what has this got to do with HSBC?
Well the Bally scam required a collection process. It required thugs to go chase the delinquent “loans”.
HSBC provided the thugs – and surprisingly – given the thuggish nature of the activity they have never been pulled apart in the financial press for it. They didn’t doing it using the glamorous HSBC name. No it was Orchard Bank. They used to ring up the customers and say they were a partner of Bally. Sometimes HSBC purchased this debt (according to Bally at par) which suggests that their due-diligence was lacking.
They were the debt collectors for Bally’s fraudulently obtained loans. Standover men if you will.
But I will use the word of the HSBC/Orchard debt collectors. They were “partners”. Indeed the partnership extended more widely and there were over 100 thousand credit cards issued by Orchard to Bally customers.
Do you judge someone by their partner? In this case it was Bally’s customers who were "consummated" in the relationship.