After writing down just $2.1 billion to asset-backed securities, monoline credit exposures, credit trading positions, and leveraged loan financing positions, for all of 2007, HSBC reported a $3.2 billion write-down on subprime mortgage assets in the United States. And while the bank and the financial media are trumpeting that the first-quarter profit was better than in the same period a year ago,
Underlying revenue was “comfortably ahead” of a year ago after a $2.7 billion gain due to the changing value of the group’s own debt. That gain largely reversed out in April, but even without it, revenue growth remained positive in the first quarter, HSBC said.
Three cheers for phantom earnings smoothing!
We keep our eye on the fact that the fiscal first quarter write-down doubled the same period of 2007. The trend is certainly not yet improving. In addition,
The group also said Monday that its global banking and markets arm took a write-down of $2.6 billion, including $500 million on subprime assets, $1.1 billion of non-subprime credit trading assets and $700 million on its exposure to bond insurers.
Significantly, growth came from the banks exposure to emerging markets, where growth continues to be unaffected by conditions in the U.S. i.e. recession or not. So, despite the top line improvement
…it’s worth noting the lender itself was more cautious. “The outlook for the rest of the year remains unusually difficult to foresee in the current environment,” the bank said.
HSBC is clearly a bank relying on top-line growth from emerging markets to off set the write-downs incurred by damaged US subprime mortgages. It is not so much the bank’s practices as its fortunate (and historical, we might add) exposure to superior markets which is responsible for the revenue growth.
This raises an unsettling point. As the credit crunch and inflation spread globally, the growth and profits may shrink locally in the same emerging markets the bank depends on to drive that top line number. We won’t lose sight of this fact … or the fact that HSBC’s write-down total just climbed by $3.2 billion, from $2.1 billion to $5.3 billion.
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