HSBC thought they had $6.6 billion in gains, but lost part of that by April 2009. They will lose it all.
HSBC reported little detail in its interim management statement, but said pre-tax profits between January and March were “well ahead” of the corresponding period in 2008. This was driven by fair value gains of $6.6bn (£4.4bn) on its debt. Credit spreads widened significantly in the first quarter, which contributed to gains on the debt. However Douglas Flint, the finance director, said that two-thirds of those gains had been lost in April, and will “fully reverse over the life of the debt”.
Analysts criticised the bank for its lack of detail, but one cannot blame HSBC for a lack of detail on this shakey matter. On second thought, yes we can.
This is a white elephant. IT appears as though HSBC refinanced their debt. Stripping out the gains on the debt, HSBC’s profits in the first quarter were lower than the previous year, but “significantly higher” than the last three months of 2008.
When HSBC cannot refinance any more, the bank still must feed the elephant. “Significantly higher” means HSBC wrote down loans that did not need to be written down. How that effected investors and stockholders remains to be seen.
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