Reasons to be cheerful

After three years of unrelenting gloom it is not surprising that market operators and corporate financiers are trying to talk things up. Every piece of "good news" is applauded as a sign things are finally, albeit slowly, showing signs of improvement.

Yesterday it was the dividend increase from HSBC, coming during a half-yearly reporting season that has so far proved rather better than income-hungry investors could have hoped. Meanwhile, early last week, as the FTSE 100 pushed through 4,150, all the talk was about how this crucial British index has supposedly stormed 26% higher from its March low.

Is the chatter delusional? Certainly not, in the case of dividends from the biggest companies. But the reporting season still has some way to go.

As for the strength of the stock market, the true picture is rather less exciting. Comparing levels on the Footsie with the market squall of March, where technical factors caused forced selling of equities by insurance companies, is misleading. The reality is that top shares have barely advanced since the new year, while the Footsie now stands at almost the same level as a year ago. And on a longer view, we are still trading at levels previously seen in the spring of 1997. It would be nice to shake it off but for now at least, uncertainty continues to rule.

Household debt

The cost of buying Household International keeps going up for HSBC. After shelling out an astonishing $37m (£22.5m) to hire William Aldinger III, the chief executive of the US consumer finance arm, HSBC admitted yesterday it had picked up a provision of some $1.5bn for bad debts at the new division. But it is clearly a price the risk-averse high street bank is prepared to pay: this transaction seems to be transforming the overall HSBC business.

Without Household, and the acquisition of Bital in Mexico, HSBC's rosy 21% increase in profits during the first half of the year would have been a rather more modest 4%. North America is now contributing a quarter of group profits, up from a mere 11% last year.

This means HSBC is less reliant on Hong Kong - once its core market - and now ready to target a new type of consumer, courtesy of the Household model, which chases lower income customers. Immigrant families in the US are now on its target list, as are other new arrivals in European countries.

Yet for new chief executive Stephen Green, Household looks like remaining a high-maintenance asset. There are lingering suspicions about its business model, particularly its reputation as "predatory lender".

Under its previous management, HSBC had a big name for avoiding shocks. Let's hope it stays that way.

Teutonic inefficiency

There seems to be something quite masochistic about WestLB, the provincial German bank best known here for the antics of its American deal-maker Robin Saunders.

The weekend saw further disclosures on the amount the bank will have to provide against BoxClever, the TV rentals business which Ms Saunders helped buy from Granada and Nomura, and which promptly blew up after WestLB refinanced the business.

After the £340m charge taken for 2002 - inflating the bank's year-end losses to £1.2bn and sparking the resignation of its chief executive following a regulatory inquiry - it seems an extra £140m provision is now in order, on the instructions of the German financial watchdog, BaFin.

Oh, and according to reports, this week's first-half figures from WestLB will also include a hefty and so far unspecified charge to cover previously unidentified risks at its American aircraft leasing operation, Boullioun.

Then last week we had news that Kyndal - the Whyte & Mackay whisky maker which Ms Saunders helped fund - is going through a wholesale restructuring. That will involve a third of the workforce losing their jobs as chairman Vivian Imerman tries to revitalise his slowly deteriorating business.

But will WestLB have to take a charge here, given that plans to refinance the £180m it lent to Kyndal with a bond issue have now been shelved? Well, we may not know for some time, because WestLB is a bank that likes to dribble its bad news out a little at a time - just to make sure, perhaps, that nobody gets the misguided impression that management at WestLB are tackling their problems, putting the cavalier actions of the recent past behind them.

Financiers who know the German banking scene well sometimes ask why the British media concentrate so exclusively on the problems at WestLB. They say the lax and confused attitude to financial risk and a tendency to throw more money at bad companies rather than facing up to the inevitable losses, is common enough across German banks of all shapes and sizes.

On WestLB the answer, of course, is the high-profile nature of Ms Saunders' principal finance operation in London, and also the fact that WestLB is supposed to be funding the rebuilding of Wembley stadium over here. As a bank, WestLB appears to be imploding in slow motion. As for the rest of the German financial sector, perhaps it is time we took a closer look.