Total assets of $2.5 trillion were spinning on an equity base $93.6bn, a spin ratio of 27. Risk weighted assets were up by 2% to $1.147 trillion representing a tier one capital ratio of 8.3%. The bank is to raise $17.7 billion of new capital to bolster the balance sheet and improve the capital ratios, improving the critical tier one ratio to almost 10%.
Loan impairment charges and other credit risk provision were £24.9 bn, including a $10.6 bn goodwill write down in Personal Financial Services, $7.7bn in loan impairment charges and $5.4 billion in trading write downs. HSBC outlined plans to close its network of US personal finance and mortgage businesses. The acquisition of "Household" the US lending business was a bad deal said the board.
Chairman Green succinctly explained the problems hitting the banking industry.
“The complexity and opacity of certain financial instruments reached a point where even senior and experienced bankers and professional investors had trouble understanding them.”
and :
“Many banks became overgeared and too dependent on wholesale funding which they assumed would never dry up. When the securitisation market began to collapse, banks found themselves with assets they could neither sell nor fund, forcing large losses on the asset side and a funding challenge on the liability side.”
HSBC was one of the first to experience the problems in the US sub prime market and began to unwind exposure significantly. The bank has the strongest balance sheet of the UK big four and in securing private equity funding will escape the clutches of the UK government. RBS is already majority held by government, Lloyds banking group heading that way and Barclays may have to return government later in the year once the Middle East poison pill is time lapsed.
HSBC offers strength, diversity and resilience from the world's local bank, with just a hint of undisguised pleasure at the problems besetting the local UK competition.
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