HSBC Moves SIVs to Balance Sheet
Submitted by
CalculatedRisk on Mon, 11/26/2007 - 6:30am (32 comments)
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Ouch. That's going to leave a mark.
Moin,
here the quote of the day...
Bank of America Takes Lead in Backing `SuperSIV' Fund
Loomis Sayles & Co. declined to invest after receiving one of 16 invitations for a personal meeting last week with current Fed Chairman Ben Bernanke, said Daniel Fuss, who oversees $22 billion as chief investment officer at the Boston-based firm.
It's so nice to get a personal invitation to go to Washington and have a one-hour visit with Ben Bernanke,'' said Fuss, who decided participating wasn't worth the risk to his firm.Oh, boy, did I feel important for about 27 seconds, and then you smell a rat.''
BRAVO!
My version of the Headline
HSBC Blinks First, C, JPM and BAC Pee Collective Pants
OT for tanta-
Yikes. This makes Gretchen's missteps look rather tame.
ON NOV. 2, the Journal published a page-one article on Merrill Lynch & Co. that was based on incorrect information that the firm had engaged in off-balance-sheet deals with hedge funds in a possible bid to delay the recognition of losses connected to the firm's mortgage-securities exposure. In fact, Merrill proposed a deal with a hedge fund involving $1 billion in commercial paper issued by a Merrill-related entity containing mortgage securities. In exchange, the hedge fund would have had the right to sell the mortgage securities back to Merrill after one year for a guaranteed minimum return. However, Merrill didn't complete the deal after the firm's finance department determined it didn't meet proper accounting criteria. In addition, Merrill says it has accounted properly for all its transactions with hedge funds.
...[HSBC] insists earnings won't be materially impacted, because existing investors will continue to bear all economic risk from actual losses.
Can anyone explain this more thoroughly? They sell something [short-term bonds??, SIV tranches??] to raise money to buy longer-dated crap, like MBSs and CDOs. When they are brought to the balance sheet, shouldn't they now have liabilities to the [bond] buyers and the crap assets? How can this not affect their earnings? As the assets are decreasing in value, the liabilities aren't decreasing and should be offset by something (expenses-no?). How can they legally decrease the [bond]-buyers liability (SIV-bond payable)?
Debit expenses or losses from long-term investment or some other loss category, no? How can losses on those junk assets not affect them?
I don't have enough accounting to know how the hell they aren't responsible after bringing onto the mother's BS. Help, appreciated.
You have to give HSBC credit for making an attempt to properly deal with their SIV problem.
You have to give HSBC credit for making an attempt to properly deal with their SIV problem.
And, I think that it is clear that they see an opportunity to remain when other institutions start getting voted off the island.
I think the first to go BK will be the last to own up.
Ya it sounds like there was a [little] score to settle between HSBC and the superSIV crowd....
HSBC Blinks First, C, JPM and BAC Pee Collective Pants
You forgot the lede:
"My balance sheet is big enough to take it like a man," said an HSBC spokesperson who requested anonymity. "Pee is probably the only thing some of my competitors have in their pants."
Industry analysts were unavailable for comment at press time. "We'll call you back after we do some, um, checking," said one source on his way to the men's room."
Can anyone explain this?
Statement Regarding Change In Limits For SOMA Securities Lending Program
November 26, 2007
\t
NEW YORKEffective immediately, the Federal Reserve Bank of New Yorks Open Market Trading Desk is making the following temporary changes to the System Open Market Account's (SOMA) securities lending program:
Per dealer limit: Primary dealers will be limited to 25 percent of the amount available for borrowing with a maximum of $750 million per issue, versus the prior limit of 20 percent with a maximum of $500 million per issue.
Portfolio limit: The supply available for borrowing each day has been increased from 65 percent of an individual issue to 90 percent of an individual issue.
Securities available for lending: All securities with maturities of greater than six days will be available for borrowing versus the previous limit of securities maturing in greater than 13 days.
Contact:
Andrew Williams
(212) 720-6143
(646) 720-6143
andrew.williams@ny.frb.org
"You have to give HSBC credit for making an attempt to properly deal with their SIV problem."
WHAT??????
They also stated they see little material write down. If they were able to get a decent market price they wouldn't have to take them on their own balance sheet. The fact they had to take them on to their own balance sheet is proof positive there is no market price for them. .... ergo, they are facing huge write-downs when they mark to market...UNLESS they have no intention of marking to market. This is the only way they could not have any write downs. Screw accounting, screw proper financial disclosure since we don't like the consequential financial results.
Properly dealing with their SIV problems???? Gimme a break. Only if they properly and fully mark them to market, then you'd be correct in that assertion.
So HSBC keeps all the profits and none of the losses? What is the point of bringing them on-balance-sheet?
So HSBC decided to use 35B sitting in the corner, collecting dust to provide funding?
HSBC also dominates in China where Paulsen touts his connections.
Great to see this !
OT: 6,000 apply for 300 Wal-Mart jobs
But according to Bush admin the US economy is doing great !
I liked what Richard Bove said in regards to the Superfund, "The job of the Treasury isn't to go out and defraud investors."
i think it is a decent thing to take it back to balance sheet as hsbc said shareholders eventually have to take the loss.
now we will see if wall street has any decency left to do the same.
btw, is our secretary of treasury available for comments?
The aim of bringing it onto the balance sheet is to avoid selling it at "firesale prices" this means that they must intend to cease to mark it to market, for if it WAS marked to market it wouldn't matter if it were sold or kept.
I can see that if they believe market prices are under the assets true value they'd want to take a long term bet that it will appreciate again, but I don't understand how they avoid taking a big hit at least currently.
Not understanding the transaction.
But whose balance sheet will be the ex-poste receiver of the timely generosity of the Atlanta Home Loan bank?
Where Countrywide Chief Is Finding a Life Preserver
or: Tan Man Scams Uncle Sam.
Where Countrywide Chief Is Finding a Life Preserver - WSJ.com
Citi analyst Stephen Kim, a permabull on housing, turns more bearish.
Expired
Gee, Stephen, thanks for the stock tips. Any justice would have him be one of the 45,000 at Citi that get chopped.
HSBC was one of the first to declare losses in subprime, and consequently was one of the first to get out. That they're the first to move the SIVs onto the balance sheet is consistent with a relatively proactive approach toward dealing with their exposure.
HSBC's biggest problem (that I can see) is its exposure to China, but then again, they've been in China for years, so they may not have as many bad debts there as some of the state-run banks do. Still, I think overall they stand a good chance of outperforming the rest of the financial sector.
Contrast their behavior with Goldman, who has spent the last six months acting like none of this affects them in the slightest--or on the contrary, that they're profiting from the rest of the market's troubles! We'll see how long that lasts.
The bill for dinner is about to come, and the big guys, who orderd lobster are trying to use MLEC to "just split the check evenly." HSBC says, "well I didn't have as many drinks as you guys, why don't I just cover MY share."
Hawk,
Financial institutions sell far more futures on Treasury debt than there is in outstanding Treasury debt. Those futures positions are often terminated without delivery of the associated (underlying) Treasury security. However, some futures contracts do end up leading to delivery of the underlying security. When that happens, the financial institution has to purchase the underlying security in order to make delivery. Sometimes, there aren't enough Treasury securities available to make good on delivery commitments. The Treasury security cannot be delivered, and the futures transaction "fails". There were $5 bln in fails last week. Demand for Treasuries is extraordinarily high, so there is not enough of the stuff around to allow institutions to find what they need in the market.
That's where the Fed comes in. The Fed has a securities lending facility which holds most maturies of Treasury security. Financial institutions can borrow securities from the securities lending facility. The tightness of the Treasury repo market (spreads are wide) and the number of fails that have resulted have convinced the Fed to be somewhat more generous in lending securities. The Fed is trying to maintain orderly operation of the Treasury market.
the resurrection of CRUNCH is widely reported outside the USA but not even a f***king whimper in our "free" media.
i nominate reporters to the list of people who should be hunted down and strung up (metaphorically of course).
OT - Tanta et al,
Any idea why a note that was called non-performing/defaulted in, say, June 2004 would be added into a REMIC in April 2005, a good 10 months after it was called non-performing? Any solid reasoning for this?
You can thank 'Pravda on the Potomac' for this.
Stuart, I don't agree with you.
The books of HSBC are visible, those of its SIVs are not. So when HSBC takes the SIVs' assets and liabilities onto their own balance sheet then the world can start to assess them, and when market prices are set, even HSBC will have to mark them to market.
HSBC should be commended for taking this first step, and others should be encouraged to do the same.
My guess is the HSBC Siv's have junior and senior notes which absorb most or all of the losses. This move worsen's HSBC's balance sheet and increases capital requirements for HSBC. The plus for HSBC is the orderly unwind of the SIV will probably minimize losses and is better for HSBC's reputation and the financial system.
Does HSBC gain a real advantage by "panicking" first, or does the gain accrue entirely to their reputation.
There are a couple of items that should be thought about. In th Bloomberg article this morning, it stated that the HSBC conduit was near the 70% NAV. For some SIVs and Conduits a 70% NAV is the last trigger point that upon reaching they will have to pay everyone back, ie a manditory disbursement. Not all agreements have this language about NAV but use other ratios.
The reason they were off balance sheet in the first place is that these would violate the bank's reserve requirements if they were banks or the SEC margin requirements if they were investment houses.
Now needing $ 45 Billion for a reserve requirement if you have a 2% margin requirement it seems would support 2.25 Trillion of additional debt. I think my math is right but I normally don't work with that many zeros. What was not said in the article was; would this cover the underlying mortgages and the 14 times leverage on top of that, or just the mortgages?
I agree with an earlier poster, Jack, that it is time to bring these back on the balance sheet and face the music.
OT: 6,000 apply for 300 Wal-Mart jobs
But according to Bush admin the US economy is doing great
20 applicants per job? I've seen that before, and anything wal-mart is high profile which draws more. So I wonder what the point of that was (other than to promote an agenda using anything within your reach).
Getting a job at Walmart is about as competitive as getting into Harvard!