Household HSBC Watch

In the US Banker section of American Banker, we spotted an interesting line: “The concern was, ‘How much subprime do you do? What is your risk of having what Household (International) had?’” It was a question asked of Richard Davis, CEO of U.S. Bancorp, in February 2007. HSBC bought Household in 2003, but the predatory lender is still so famous and synonymous with high rate high risk loans that the name will never go away. It is a quick and easy way to delineate. Ask about HSBC, and people may ask “which part?” Or ask about HSBC Finance and people may ask “What is that?” But mention Household International and most people know exactly what you are talking about.

Delineate: to describe, portray, or set forth with accuracy or in detail. Like there were only two large corporations charged with predatory lending — Household International and Ameriquest. Relative to subprime, the first widely acknowledged sign of trouble occured on February 7, 2007, when New Century Financial, an Irvine, CA subprime lender that has symbolized the giddiness of the housing boom, reports a big fourth-quarter loss and says it must restate earnings for the previous three quarters because of inadequate reserves. Earlier that day HSBC Holdings, which in 2003 acquired consumer finance powerhouse Household International, announced that it expects to set aside $10.6 billion in additional reserves to address a souring subprime portfolio. (see original document)

I strongly suspect that HSBC funded loans from many of the companies and mortgage brokers that went bankrupt. When HSBC cut off funding it was a signal that could not be avoided. HSBC had no choice toher than to get out in front of the issues, thus HSBC was one of the first to announce the problem to the world, and risk being associated with it. It does not come as a shock, nor is it surprising when U.S. Bancorp is asked “What is your risk of having what Household (International) had?”

What Household had — a question posed like it is a disease or terminal cancer. In reality that is exactly what Household had. But remember, HSBC owned Household for 4 years when the question was asked. If Household were a stand-alone company, and had not been purchased by HSBC, it would have been killed on the first day of the subprime crisis.

The real question is “When will HSBC get rid of the disease and be cured?”