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Hsbc Faces £70Bn Capital Hole, Warn Hong Kong Analysts

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Telegraph 16/1/14

'HSBC could have overstated its assets by more than £50bn and ultimately need a capital injection of close to £70bn before the end of this decade, according to an incendiary report published by a Hong Kong-based research firm. Forensic Asia on Tuesday began its coverage of Britain’s largest banking group with a ‘sell’ recommendation, warning the lender had between $63.6bn (£38.7bn) and $92.3bn of “questionable assets” on its balance sheet, ranging from loan loss reserves and accrued interest to deferred tax assets, defined benefit pension schemes and opaque Level 3 assets.

The broker’s note is written by two of its senior analysts, Thomas Monaco and Andrew Haskins.

Mr Monaco is a former senior bank examiner at the Federal Reserve Bank of New York and previously worked as a fund manager at FrontPoint Partners, the hedge fund that spotted the US subprime bubble. As well as this, he has also spent a decade as a banks analyst at various leading investment banks.

Mr Haskins previously worked at HSBC for 15 years, mainly as a telecoms analyst, and also co-ran Japanese bank Mitsubishi UFJ’s Hong Kong-based research team.

In the report, the analysts apply what they describe as a “moderate stress test” to the balance sheets of HSBC’s major subsidiaries. From this analysis they conclude that even using a low-end estimate, the assets of the bank’s Hong Kong division, for instance, are overstated by about $15bn, while those of its UK subsidiary could be overvalued by $17bn.

Taking the analysis further, the report sets out the impact of incoming Basel III capital rules and says HSBC could be required at a minimum to raise close to $60bn in new capital by 2019 and potentially as much as $111bn.

“In our view, HSBC has not made the necessary adjustments, during the quantitative easing reprieve. Rather, it has allowed legacy problems to linger as new ones in emerging markets gather pace. The result has been extreme earnings overstatement, causing HSBC to become one of the largest practitioners of capital forebearance globally. This charade appears to be ending, given how few earnings levers remain besides selling off core elements of the franchise and the stringencies of Basel III compliance,” wrote Forensic Asia.

The broker adds: “While having stated capital ratios well above peer averages is all well and good, HSBC’s stated capital ratios would appear to be nothing more than a mirage if our analysis is correct.”

Even under current capital rules, Forensic Asia estimates that its valuations of HSBC’s group and subsidiary balance sheets suggests the bank has a current capital shortfall of $45.1bn.

The report adds the workings do not include probable litigation costs linked to various claims on the bank, which they see coming in at no less than $10bn.

HSBC, Britain’s biggest bank by market capitalisation and total assets, is also reckoned to be the UK’s best capitalised major lender, with a tier 1 ratio of 12.8pc, well above the minimum required by the Prudential Regulation Authority.

HSBC declined to comment.'

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Strange- given their contacts in the illegal narcotics business I would have thought HSBC would be ok- I guess money laundering is not as lucrative as I thought.

It's a worrying sign when even the criminals running the banks can't keep the illusion going much longer.

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Strange- given their contacts in the illegal narcotics business I would have thought HSBC would be ok- I guess money laundering is not as lucrative as I thought.

It's a worrying sign when even the criminals running the banks can't keep the illusion going much longer.

£70bn. Is that a lot? :lol:

I guess the banksters have had to cut back their coke consumption to maintain a front of respectability.

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This is rubbish. Depends how much money the central banks print.

Sigh. Save during house price super-bubble decade 1.0, the crunch, then 5 years of HPI reflation, qe, 0.5, suffering low interest on savings at HSBC, to be what... told again savers are idiots, only jumbo debtors matter and house price inflation "is the best".

Behold this grotty UK 1950s semi, unmodernised for years, that needs loads of modernising and quite a few repairs, valued at £400,000. Look in awe young people, now get on the ladder for a 1 bed flat with HTB at £130,000 stretching your income and hope for wage inflation. We have to save the victims who took out jumbo mortgages to pay and push up local housing values of semis to £400,000.

One way out of it might be writing new mortgages on all the housing stock owned outright and where owners are equity rich, at much lower prices, to younger people.

There are trillions of pounds of equity trapped in older peoples' homes, HSBC, and apart in a few instances like equity release, it's earning you nothing at all. Get mortgages on all those houses to young people, even if it requires smaller mortgages that you were writing at stupid peak prices.

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Time to get out of First Direct and take the £100?

Shame because First Direct are the best bank i've dealt with, but have always had that niggling worry that something bad would happen with HSBC

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The question is; Is it safe to keep money in HSBC/First Direct? I use FD but this makes me worried. Wonder if there will be a bank run when this news gets in to all the papers.

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There are trillions of pounds of equity trapped in older peoples' homes, HSBC, and apart in a few instances like equity release, it's earning you nothing at all.

It's low hanging fruit via reduced pension annuities, negative real interest rates on savings and rampant RPI (It's an index increasing much faster than it has for decades).

The optimum solution for bankers, is that the day after people pay off their 50 year mortgage, they immediately switch to equity release to start borrowing again. If they can starve older people of income then they have to borrow against the house until it's all gone. Then their children don't get any inheritance to pay off their debts and so have to work to pay their 50 year mortgage. Retirement is going to be so yesterday.

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There are trillions of pounds of equity trapped in older peoples' homes, HSBC, and apart in a few instances like equity release, it's earning you nothing at all. Get mortgages on all those houses to young people, even if it requires smaller mortgages that you were writing at stupid peak prices.

Not quite. It provides an imputed rent i.e. the owners are in receipt of the 'service' of renting their property to themselves.

Re HSBC - Shame they never relocated to HK as the keep threatening to do.

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Not quite. It provides an imputed rent i.e. the owners are in receipt of the 'service' of renting their property to themselves.

Re HSBC - Shame they never relocated to HK as the keep threatening to do.

The Chinese have enough turds of their own to bail out, the last thing they need is one of ours as well.

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Not quite. It provides an imputed rent i.e. the owners are in receipt of the 'service' of renting their property to themselves.

Re HSBC - Shame they never relocated to HK as the keep threatening to do.

Imputed rent. Is that to flatter GDP / wealth of the country.

Imputed rents aren't particularly of any real world concern to younger people, renting, looking at all the oldies living in their paid-off 4 bed family homes, bought cheap years ago, owned outright, now worth insane fortunes.

Lots of new borrowing, lots of new mortgages, at lower house prices, will have other rebounding gains for GDP / wealth creation. Instead of younger people forced to rent, facing massive high asking prices, offered schemes from Gov to meet such prices.. having less money left over to start businesses get involved in other wealth creating enterprise.

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In the past HSBC was like an oak tree that kept growing and gave amazing ROE, many people got rich holding HSBC from 70s to the early 2000s. Sadly these days are gone and it is now a dog, when they bought household international the second rate usa mortgage company in mid 2000s the game was up and when i lost all interest in them.

Edited by buyerbeware

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So will the Chinese govt bail out HSBC or will the UK taxpayer be expected to help bailout the bank?

The chinese government hate HSBC for their colonial past.

HSBC actually means Hong Kong Scottish Banking Company.

Edited by buyerbeware

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