"HSBC shocked investors on Wednesday night by warning that its US mortgage business would push group bad debt provisions for 2006 $1.75bn (£888m) higher than expected. . . .
"HSBC said in its statement that pressure on house prices had translated into worsening defaults as borrowers were less able to refinance loans. This is also likely to lead to defaults as borrowers on floating rate mortgages struggle with increased monthly repayments.
HSBC said: “It is clear that the level of loan impairment provisions to be accounted for as at the end of 2006 in respect of Mortgage Services operations will be higher than is reflected in current market estimates.”
If you are a Financial Times subscriber, you can find the story here http://www.ft.com/cms/s/38f208e6-b70b-11db-8bc2-0000779e2340.htmlI mentioned earlier, in relation to FED, that I didn't believe that we had fully seen the impact on loan loss provisions for more mainstream banks. One of the perplexions that I continually have with the market and investing is the notion that the market is so efficient and smart in its discounting of knowable things. It really isn't that smart, and one can merely look at the treasury markets last year and the perennial up/down reaction to homebuilders' news. It always gets smart, and gets smart fast, though once it catches on!
I have said in more than one venue that there could not possibly be a bottom in the homebuilder market until the builders started writing down asset classes--getting hit in the balance sheet where it really hurts. That only STARTED this quarter, and the management team at HOV expressed "surprise" at how far down the market has gone.
Calculated Risk http://calculatedrisk.blogspot.com/
(which I was just going to and see that they picked up the HSBC story from Reuters yesterday) has done a tremendous job covering this area.
2 comments:
HSBC bought Household. Household very recently had a huge settlement with the various State AG's offices.
Another recent example is CitiCorp. They had recent bad news out of Japan related to their consumer finance division there. The bad news is related to their purchase of the Associates a few years ago. They bought the Associates for their Japanese consumer finance division. The Japanese thought so highly of the Associates (now Citicorp) that they shut them down by disallowing their type of lending practices. And yes, just as they were being bought by CitiCorp, the Associates had a large settlement agreement with a variety of State AG's office.
The bad actors in the finance area, because there are so many of them, have to be pretty outrageous to get the attention of the various State AG's offices. States AGs get involved with financial institutions when customers complain. A financial institution that antagonizes enough of its customer base that they wind up in this situation is doing something seriously wrong. It may take a while, but it always seems to catch up with them.
Today I closed my FED position for a small loss, largely due to the fact that I think that they (along with every other mortgage lender) has more to go in loan loss reserves.
The CitiCorp Japan stuff was embarrassing to them. I'm aways amazed (okay, I'm showing some of my liberal stripes here) about people who believe that a free market cures all ills. While I think over-regulation is not the answer, I shudder to think what we would have without any regulation. Just look at the shenanigans we have WITH regulation.
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