Økonomisk-administrativ tekst (engelsk)
Household chores
Is HSBC’s $17.7 billion rights issue a sign of weakness or of strength?
THERE are two radically different tales doing the rounds about HSBC, Europe’s biggest lender by market value. The first says that HSBC, deep down, is still an emerging-markets operation run by rugged types who disdain the sorcery of modern finance. Under the temporary grip of an evil spell in 2003 they bought Household, an American consumer-credit firm that then haemorrhaged losses. On March 2nd they snapped out of it. HSBC’s chairman acknowledged that it was “an acquisition we wish we had not undertaken”, wrote off its cost and promised to run down its book of dodgy loans. Having opened its heart, HSBC felt able to lower its dividend and raise its core tier-one capital ratio to 8.5%, above those of JPMorgan Chase (6.4%) and Santander (7.2%), two more of the Western world’s biggest banks also vying for the title of the safest one.
Against this there is a horror story. It says that HSBC’s definition of capital excludes mark-to-market losses on asset-backed securities (ABS). Furthermore, particularly demanding critics say that it also excludes mark-to-market losses on its loan book. Like almost all banks, HSBC carries these at book value and impairs as customers default.
Given the risk of litigation, the reputational hit and the fact that HSBC has itself loaned Household some $13.5 billion, its mark-to-market loss would have to get a lot worse before HSBC was prepared to let it default. And like many banks, HSBC argues that there is at least some chance mark-to-market losses overstate the ultimate impairments it will face.
Pleading that fair-value accounting is cruel is hardly unique, but what makes HSBC’s position more credible than most is that it has the capacity to wait and see. Its funding position is excellent with deposits exceeding loans, reducing its dependence on wholesale markets. And the core business continues to generate lots of pre-provision earnings.
Source: The Economist print edition, March 5th 2009
Lagt ut 26.05.2009
