Household HSBC Watch

More U.S. banks may fail after the collapse of mortgage lender IndyMac Bancorp Inc, straining a financial system seeking stability after years of lending excesses. More than 300 banks could fail in the next three years, said RBC Capital Markets analyst Gerard Cassidy, who had in February estimated no more than 150. Face the facts as HSBC makes a decision about their business model in the United States. HSBC bought a predatory lender–Household International– and subsequently saw huge losses. HSBC never got a foothold in America, except for a few states. HSBC tarnished their own image. No, we have no idea about which banks will fail in the next three years, but we will not miss some of them.

“You have to look at companies with the greatest exposure to the highest-risk assets, which include construction loans and exotic mortgages,” Cassidy said. “The final nail in the coffin for any depository institution would be a funding crisis where it is unable to gather deposits at reasonable cost, or wholesale funding markets are cut off.” This includes HSBC North America, which is financing HSBC Finance. The cost of doing business with the present HSBC model could be too great. While one of the largest banks in the world probably would not experience a funding crisis, one must ask how much HSBC plc is willing to pump into a failed operation.

The Federal Deposit Insurance Corp (FDIC) seized IndyMac on Friday after a bank run in which panicked customers withdrew more than $1.3 billion of deposits in 11 business days. Could or would HSBC be interested in buying other banks at a very low cost? Does HSBC want to buy their way into the United States? I doubt there would be regulatory approval unless something is done about HSBC Finance. Obviously HSBC and HSBC Finance is not a CitiGroup/CitiFinancial operation. There are similarities but HSBC is more cunning and quick to hide holding companies within holding companies, thus frustrating the SEC, investors, state regulators and others. Perhaps it is time for the feds to say “Come clean or get out.”