The bottom is not in. There will be continuing write-offs as the US falls more deeply into a recession and consumers, without savings and deeply in debt, continue to default on their obligations.
The unwinding is likely to continue into 2009 and will be dealt with by a new presidential Administration and Congress. A further devaluation of the dollar is highly probable despite the 'jawboning' coming out of the G7.
HSBC to reveal $5bn of fresh write-offs
Heather Connon
The Observer,
Sunday May 11 2008
HSBC is expected to announce tomorrow that it is writing off a further $4.6bn (£2.3bn) against mortgages, credit cards and other loans to stricken US consumers, bringing the total over the last 15 months to almost $17bn.
Analysts believe there could be more write-offs to come: James Hutson at Keefe Bruyette & Woods is predicting it will have to write off more than $15bn over the year as the US housing market and economy continue to decline.
That would bring the bank's write-offs over two years to more than $27bn - only marginally less than the $32bn charges taken by US investment bank Merrill Lynch,although most of those related to the complex financial instruments used to parcel up mortgage debts and other loans, which have plunged in value.
Despite the huge write-offs, HSBC's profits are again expected to be ahead of last time, reflecting a strong performance in its Asian business - which accounts for half the group's profits - and some market share gains in the UK.
The bank is also facing criticism over amendments to its directors' pay arrangements from HSBC shareholder Knight Vinke. The amendments were made in response to criticisms of the existing plan made by the activist investment house, but Glen Suarez, Knight Vinke's chief investment officer, said the changes did not address the issues they raised.
He is concerned that HSBC will still rank itself mainly against large Western banks rather than those in emerging markets and that it has reduced the importance of growth in earnings per share as a determinant of executive pay.
Barclays is expected to warn of further write-offs when it issues its trading update next week, although these are thought to be less than a third of the £9bn write-offs made by RBS.
