Last week’s announcement from HSBC covered 32 pages – positively skinny when set against August’s half time report. That ran to 293 pages, but then the latest one was merely an interim management statement, a snapshot of trading in the arid wastes between actual trading statements.

So how’s it going for Britain’s biggest bank? Not that well, judged by the headline pre-tax profit of $4.6bn, which was an eighth below outside estimates. Rather swimmingly, judging by adjusted pre-tax profit of $6.6bn, which was roughly the same distance ahead.

Which is the “underlying” profit figure, and which merely lying? Who knows? Disclosure on this scale, even the 32-page mini, effectively robs the numbers of their meaning. More compensation here, a new threat of fines there, a writeback of some provisions, and the numbers can be tortured to confess to almost anything.

The professionals struggle to see what’s really going on, while the rest of us have no hope. We were grateful for Terry Smith’s simplified Lloyds Banking balance sheet in the FT last Saturday, just three lines to demonstrate how high-risk these businesses really are. Thirty years ago as a bank analyst, he could deconstruct their balance sheets with confidence, something he says is not possible today.

The top executives pretend they understand, but they don’t. These institutions are simply too big and complex for the human brain to grasp, as CEO Stuart Gulliver effectively admitted as he abandoned his cost efficiency target. At HSBC’s British rival, Standard Chartered, Peter Sands has found that even after seven years as CEO, he couldn’t see what was coming in the eighth.

The regulators are doing their best, with the ECB’s stress tests and the Bank of England’s leverage ratio designed to force better behaviour than in the past. Alas, it’s like training tigers to be vegetarian. Whatever the CEO tells them, bankers will find ways to game the system at the expense of customers and shareholders, and complexity is their camouflage stripes.

The solution is the same as it’s been since the start of the crisis: break the banks into businesses simple enough for managements to understand, and small enough to fail without bringing the house down. Until then, expect many more 293-page statements, and no three-line balance sheets.

Clip that hedge

Why do airlines hedge their fuel costs? Almost all of them do it, and last week Ryanair, the smartest of the lot, announced that it had bought 90 per cent of its expected needs until 2016 at an equivalent $93 a barrel.

This may look quite clever if the crude price dances away next year, but so far it’s merely locked in a 10 per cent loss on the cost of the company’s most important raw material. The pat answer is that hedging reduces uncertainty, allowing better forecasting, although Ryanair issued its third  reverse profit warning of 2014 after the business had a better summer than it had expected.

Hedging costs money, since there’s never a perfect match between forward contracts and actual fuel use, and those poor market traders have to make a living. It’s hard to disagree with the conclusion of a study eight years ago by Peter Morrell at Cranfield University: “Hedging may be a zero-cost signal to investors that management is technically alert. Perhaps this is the most compelling argument for airline hedging. However, it lies more in the realm of the psychology of markets than the mathematics.”

If it costs nothing…

There’s no such thing as free banking, and no such thing as a free email account, but if you’re not paying, it feels that way. Provide you keep your current account in credit, there is little incentive to switch.

This hidden subsidy has driven sneaky behaviour by the banks, but the idea that without it they will behave better is as laughful as the Competition and Markets Authority forcing consumers to pay for something which currently costs nothing.

Without such a diktat, the first bank to scrap free-in-credit current accounts would see a stampede for the exit by their core customers. Alex Chisholm, the CMA’s boss, grumbles that too few people change their bank account, but recent changes make that pretty simple. He should be careful what he wishes for.


This is my FT column from Saturday