When HSBC warned of rising losses on US mortgages in March 2007, few realised that it had “in effect provided an early warning of the credit crisis”, said Peter Thal Larson in the FT. This week, the bank, whose pre-tax profits fell by 62% to $9.3bn last year, admitted that it had made a mistake buying an American subprime lender a few years ago, and will now wind the business down. It also plans to raise $17.7bn in Britain’s biggest-ever rights issue in an attempt to re-establish its position as one of the world’s best-capitalised banks now that rivals have been topped up by governments. The dividend, after 15 years of double-digit growth, has been slashed.
So has HSBC done enough to ride out the storm? A key point is that HSBC values the US sub-prime loans still on its books at $34bn more than the market currently does. With the American housing and labour market slumping there could be substantial losses ahead, and as Nils Pratley said in The Guardian, “investors will be suspicious until HSBC can support its confidence with hard facts”.
Asia’s downturn deepens
Meanwhile, HSBC’s Asian growth engine – the region accounts for 60% of pre-tax profits – “is starting to creak”, said John Foley on Breakingviews. Loan impairment rates in Hong Kong rose more than tenfold year on year, for instance. Standard Chartered, a conservative operator that eschewed exotic debt and stayed focused on emerging markets, is also “heavily geared to the sharply slowing Asian economy”, said Morgan Stanley. Indonesian exports, for example, plummeted by an annual 22% in January. Standard Chartered has stood out from the crowd by hiking its dividend and announcing record annual profits for 2008. But, said Foley, shareholders should now prepare “to be buffeted by more eastern headwinds”.