Although many claim HSBC already knows what their quarterly results might be, publishing the information is another story. The Securities and Exchange Commission is also looking at subprime mortgages. The worry at HSBC is HSBC Finance, formerly Household International, and HSBC USA.
Rising interest rates, combined with falling home prices, have caused many subprime borrowers to default. More than 30 subprime lenders have declared bankruptcy or put themselves up for sale. Red flags about the subprime-mortgage market started to wave back in early February, when Europe’s biggest bank, HSBC, told analysts that its charge for bad loans would be more than $10.5 billion for 2006 — 20% more than analysts had expected.
The Securities and Exchange Commission said yesterday that it has opened a number of investigations into possible securities fraud involving collateralized debt obligations that included subprime mortgages. CDOs, as they are called, are a type of asset-backed security or structured-finance product. The SEC can also look at HSBC contracts with credit card merchants, as ongoing compensation comes under scrutiny. Many customers say they are charged late fees for payments that were not late.
HSBC said they are investing heavily in emerging markets. When subprime markets emerged in the United States the picture looked rosy, home prices were increasing, and Household International’s profits often came on the backs of families that discovered they were victims of predatory lending. HSBC says their “Household Model” will be profitable in emerging nations, but economists warn of downturns abroad similar to what we see in the United States today.
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