Today is not a good day for HSBC, leaving the bank in a position it may have never anticpated. Layoffs continue at HFC and Beneficial Finance branches in the United States, Goldman Sachs said HSBC may be required to set aside another $12 billion for subprime bad debts, and HSBC kept two SIVs solvent with another $35 billion. Experts also say credit card defaults might be the next round of problems for HSBC. Other analysts say foreclosures in the U.K., known as repossessions, might mirror the problems experienced in the United States.
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The action reminds everyone of Bear Sterns. HSBC must inject $45 billion to keep two funds afloat. Structured investment vehicles, or SIVs, raise money in the short-term commercial paper market and use it to invest in longer-term assets, such as mortgages. Since HSBC is in such a bad position relative to subprime mortgages investors are demanding their money back. HSBC said that investors in Cullinan Finance Ltd and Asscher Finance Ltd — SIVs which are both managed by HSBC — would now be given the option to exchange their existing notes for paper issued by one or more new vehicles set up and funded by the bank’s own balance sheet.
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HSBC may have to set aside a further $12 billion for U.S. subprime bad debts as customer defaults spread, analysts at Goldman Sachs Group Inc. said.
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In a presentation to analysts by Stephen Green, Chairman of HSBC, for the first time Green admitted that Household had been an essentially disastrous acquisition, that not all other diversifications had been successful, and that total shareholder return had underperformed peers. Household International is now called HSBC Finance, and HSBC previously said it would keep the HFC and Beneficial Finance brands. Now HSBC is rethinking that logic. HSBC Finance also has credit card operations, and owned now-defunct Decision One Mortgage.
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HSBC aims to tackle its problems in the United States, where it has scaled back its business after having to write off billions of dollars of bad debts on U.S. loans in the last year. HSBC Chairman Stephen Green said there were no plans to withdraw, but the bank also wouldn’t make a major purchase there. Green described it as a “multi-year transition” to reshape the business.
He said: “For the sake of discussion let’s say it’s a five year timeframe, I’d like to say (then) we’ve got a U.S. business that is properly dovetailed with the rest of group strategy, which I don’t think we’ve ever properly had.”
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