HSBC shares in London tumbled by 17 per cent in the past month on fears that its emerging markets businesses – which had been shrugging off the global financial downturn – will start to slow, and suffer rising bad debts. Even Bahrain announced losses from subprime, while previous reports said Arab countries were untouched by the crisis. Of course some GCC states are more aggressive than others are. HSBC is still paying a dividend, but it is no Standard Chartered. Standard Chartered has been delivering nice dividend growth in recent years of 11 per cent. Then again, Standard Chartered did not buy Household International, or they could be enjoying the losses instead of HSBC.
HSBC Plc also knows that any dividend cut will cause investors to take note. One must wonder how long U.S. restructuring will go on, and at what point HSBC will try to sell HSBC Finance, HSBC Consumer Credit, or whatever they choose to call it these days.
Are rumors true? Is HSBC positioning the unit for a sale to Wells Fargo? HSBC can sell anything at a loss, but the market is not right for HSBC to sell the finance unit today. We suspect HSBC will let the books clear, while assets remain. After all, homes are still there even if they are in foreclosure, stripped of plumbing and wiring, and lived in by vagrants and druggies. Maybe Wells Fargo can have a big open house across the country, selling homes at bargain prices.
Value remains in mortgage servicing, credit card processing and commercial finance. Real estate has value except where HSBC Finance offices are in shopping malls. Wells Fargo already has offices around the country. Do they want the real estate?
Wells Fargo also has a merchant credit card system. So does HSBC, and HSBC credit card terminals are in many retail stores around the country. Perhaps that is what Well Fargo wants as well. Actually, nobody knows what Wells Fargo wants, if anything. One fact remains perfectly clear. If Wells, or any other company for that matter, ever buys HSBC Finance all leadership must go. Everyone at the top is so used to losing money that they are a liability. Everyone at the top is so used to a parent company bailing them out that they must be removed.
Wells Fargo always said they priced based on risk. The subprime disaster didn’t hurt Wells Fargo very much. That cannot be said for HSBC.
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Published 10 November 2008: Wells Fargo Bank, N.A. is the only bank in the U.S., and one of only two banks worldwide, to have the highest possible credit rating from both Moody’s Investors Service, “Aaa,” and Standard & Poor’s Ratings Services, “AAA.”