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Spotlight HSBC: Exactly Where It Doesn’t Want To Be!

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    August 1, 2012

    British banking conglomerate HSBC in the news today… HSBC Profit Dips, Keeps $2 Billion for US, UK Problems


    Slide40HSBC set aside $2 billion to cover U.S. law enforcement and regulatory costs and to compensate British customers for mis-selling as it reported a 3 percent dip in underlying profit.

    A U.S. Senate report this month criticized HSBC for letting clients shift funds from dangerous and secretive countries, and HSBC said on Monday it was setting aside $700 million to cover “certain law enforcement and regulatory matters”.

    Analysts have said the issue could result in a fine of about $1 billion.

    The Senate report criticized a “pervasively polluted” culture at the bank and said, between 2007 and 2008, HSBC’s Mexican operations moved $7 billion into the bank’s U.S. operations.

    HSBC’s US and Asian operartions were clearly a problem for it back in 2008 as we clearly illustrated.

    Disclosure of HSBC’s structured credit exposure warrants caution

    HSBC provided disclosure on exposure toward problem asset classes in its 1H 08 results. The carrying value of exposure to ABS, trading loans held for securitization and leverage finance declined to US$117 billion on June 30, 2008, from US$135 billion on December 31, 2007. Approximately US$25 billion of the structured credit exposure is toward ALT-A/subprime assets, which account for 22% of the exposure. The bank’s Available for Sale (AFS) reserve on asset-backed securities increased to US$6.1 billion in 1H 08 from US$2.2 billion in 2H 07.

    HSBC has incurred impairment losses totaling US$55 million; this represents a meager 0.85% of total AFS reserve. We expect losses to rise significantly if market conditions and asset values deteriorate. We believe the bank will be required to make higher impairment charges related to AFS reserve on ABS in future.

    Will 2012-2013 see a repeat? Subscribers should be well versed in my opinion.

    file iconHSBC Haircuts, Derivative Risks and ValuationTooltip10/20/2011

    icon HSBC 170610 Professional & Institutional (554.65 kB 2010-07-07 06:23:52)

    Images: Flickr (licence/attribution)

    About The Author

    Reggie Middleton is an entrepreneurial investor who guides a small team of independent analysts to uncover truths, seldom if, ever published in the mainstream media or Wall Street analysts reports. Since the inception of his BoomBustBlog, he has established an outstanding track record