GG now spends rainy days trading equities and currencies. He likes to use a combination of technical analysis and news flow to make trading decisions.
HSBC and Alliance & Leicester
Another week, another round of banking updates!
Last week investors escaped relatively unscathed, but will they be so lucky again this week? Banking crisis-what crisis?
HSBC kick off the week with their ‘Interim Management Statement’ mid morning on Monday. HSBC is one of the banks with a big US presence, through its Household Finance consumer finance arm. Conditions are expected to have deteriorated quite markedly, with some analysts suggesting that Household will post a Q1 loss of over $1bn, having taken writedowns of over $3.3bn.
A couple of analysts have jumped the gun, downgrading their recommendations on the bank today (Friday) citing the potential for greater than expected losses in the US subsidiary.
However HSBC is well capitalised, has access to funding and also has the ‘emerging market growth story’ to fall back on. Competitor (and Asian/emerging market centric) Standard Chartered yesterday suggested that it had seen a ‘very good’ start to the year in its wholesale division, despite writing off another few million.
And if you thought it was safer back across the pond in the UK, think again!
Alliance & Leicester are due to issue a trading update at their AGM due to be held on Tuesday. A&L is perhaps one of the financially weaker UK banks, so investors are bracing themselves for a cut in the dividend (or the crafty trick of paying it out in shares instead!) or a rights issue to shore up the balance sheet. How about both?
As one of the banks with greatest exposure to the mortgage market A&L are especially vulnerable. Vulnerable to falling house prices and perhaps vulnerable to a bid, (perhaps from LloydsTSB) given that sadly, its chairman Sir Derek Higgs died suddenly recently. Its CEO is also only just back in post having recovered from illness.
A&L have annoyed many (including Gordon Brown & Alastair Darling), by upping their mortgage rates at a time when the Bank of England has been cutting base rates. Today’s latest offer from A&L saw it RAISE rates by 0.75% on a 2 year fixed rate deal for those with a 10% deposit, penalising all those who don’t have a tidy 25% of their house price stashed away to use as a deposit.
Whether it remains a standalone bank is a moot point-either way the trading update is unlikely to cheer investors.
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May 12th, 2008 at 11:02 am
HSBC racks up another $3.2bn in bad debt charges and some $2.6bn elsewhere in the investment baking arm, but these were not as bad as expected.
In common with Standard Chartered good growth in Asia Pacific, LatAm and the Middle East was seen, helping to offset the US results and a more cautious view on the UK.
Market liked the results, marking the stock up 2% or so.
May 12th, 2008 at 11:09 am
Morning GG. Is the investment baking arm where they cook the books?
May 12th, 2008 at 11:20 am
Thanks FT-was obviously thinking about Premier Foods & Hovis……(see TWL later!).
Mind you, HSBC a bit like King Alfred, obviously got distracted and got a right singeing in the US.
No firesale of assets though!
May 13th, 2008 at 10:13 am
A&L found another £192m (although you could view this as £391m if you are uncharitable and which accounting school you come from!) to writedown and with several brokers suggesting that the stock was overvalued, it has received a good kicking, off 12% as I type.
Core Tier 1 capital ratio of 6.4% isn’t terminal, but suggests that at some stage it probably needs a boost. Shareholders, take one pace forward- as the bank is funded to Q2 2009
One glimmer…arrears of 0.57% are well below industry average, though there is probably more to come, given its unsecured lending side showed a rise in the percentage of accounts 30 days overdue rose from 5.5% to 5.65%.
More pain in the medium term, but longer term I think this might end up as part of a larger entity.