Pigs Fly, Paris Hilton Takes the Veil, and HSBC CEO Calls for Higher Rates and More Regulation

HSBC CEO calls for higher rates to fight inflation
27 May, 2008, 1714 hrs IST,
REUTERS

HONG KONG: The chief executive of Europe's biggest lender on Tuesday called on central bankers to raise interest rates in order to combat inflation, and said more regulation may be needed in the wake of the credit crunch.

Michael Geoghegan, group chief executive at London-based HSBC Holdings, also said he expects it will take three years for the bank to turn around its HSBC Finance unit in the United States.

The consumer finance business, previously called Household International, was one of the earliest casualties of the subprime mortgage meltdown in the United States.

Geoghegan said central banks were not yet committed to taming inflation, and predicted U.S. interest rates would rise after the U.S. presidential election in November.

"Inflation is a long-term problem because there is no long-term will to solve it," Geoghegan said in a speech.

In a number of economies, central banks have either cut interest rates or kept them low to support growth at a time when lending between banks has stalled and housing markets around the world have plummeted.

However, energy and food prices have surged, feeding inflation and crimping consumer spending. For example, since a flood of homeowners defaulting on their mortgages snowballed into a credit crisis last summer, U.S. consumer inflation has risen from an annual rate of 2 percent to 3.9 percent in April.

Geoghegan also said the industry's investment banking model would need to be changed over time to avoid a repeat of the past year's credit crunch.

"I'm not a great fan of regulation ... but there will be a need to look at the model in that area," he said, adding that banks should focus on lending and investment advisers on advising clients, although he did not call for any specific measures.

"The investment banking model is flawed," Geoghegan said. "If banks aren't strong, they should be restructured or taken over," he added.

HSBC, which Geoghegan said has no plans for a share buyback, has managed to weather the credit crisis that erupted last summer better than many of its peers thanks to a significant presence in emerging markets in Asia and the Middle East.

In the first quarter of this year, the lender booked a bad debt charge related to its U.S. consumer finance business of $3.2 billion, less than the $4.6 billion in the previous quarter but double the level of the first quarter in 2007.

Geoghegan, speaking to reporters following an informal shareholders' meeting in Hong Kong, declined to project any further provision to cover subprime losses, but added that 80 percent of customers in the U.S. finance unit are still paying their mortgage bills. (Wow only a 20 percent default rate? That a glass half full description - Jesse)

Earlier this month, the bank said first quarter profit was higher than a year ago despite some $5 billion in write-downs and charges related to bad debts.

HSBC, whose shares were down 0.44 percent in London trade on Tuesday after closing 0.31 percent higher in Hong Kong, is due to report its first-half results on Aug 4.

Gold, Oil, and the US Dollar

The Efficiency of Self-Regulation

This is the type of self-regulation that 'free market' true believers like Alan Greenspan argue is the most efficient and effective.

Attorneys of the class action variety take note.

Holders of this CDO and others should hit the exits in a 'free market' response. Aren't 'free markets' wonderful (after the fact)? Perhaps we can declare Manhattan south of Houston Street a 'free market zone' and have 'free streets,' free of all police presence and response. Oh, going out to lunch? Have a good day.

BlackRock CDO Seeks to Drop Fitch Rating After Downgrade Threat
By Neil Unmack

May 27 (Bloomberg) -- BlackRock Financial Management Inc., part of the largest publicly traded U.S. fund company, plans to drop Fitch Ratings from one of its collateralized debt obligations after the firm threatened to cut the deal.

BlackRock's Omega Capital unit asked bondholders to agree to ask Fitch to withdraw its ratings on its Palladium CDO II sold by BNP Paribas SA, it said in a Regulatory News Service statement. The move would leave the CDO with one rating from Standard & Poor's.

New York-based Fitch last week said it may cut Palladium's ratings by as many as four levels after it changed the way it grades CDOs pooling company debt. Fitch's review could threaten downgrades on almost half of top-rated CDOs backed by derivatives. The firm is reassessing its ratings to reflect higher default risks.

CDOs group bonds, loans or credit-default swaps, channeling the income to investors in portions of varying risk and credit ratings.

To contact the reporter on this story: Neil Unmack in London nunmack@bloomberg.net

Last Updated: May 27, 2008 07:41 EDT

Memorial Day 2008 - Remember All Those Who Have Died in the Madness of Hatred and War

We come here to remember those who were killed, those who survived and those changed forever.
May all who leave here know the impact of violence.
May this memorial offer comfort, strength, peace, hope and serenity.
Oklahoma City National Memorial




Et lacrimatus est Iesus.

And Jesus wept.