Using Veritas to Construct the "Per…

29-04-2017 Hits:84611 BoomBustBlog Reggie Middleton

Using Veritas to Construct the "Perfect" Digital Investment Portfolio" & How to Value "Hard to Value" tokens, Pt 1

The golden grail of investing is to find that investable asset that provides the greatest reward with the least risk. Alas, despite how commonsensical that precept seems to be, many...

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The Veritas 2017 Token Offering Summary …

15-04-2017 Hits:79082 BoomBustBlog Reggie Middleton

The Veritas 2017 Token Offering Summary Available For Download and Sharing

The Veritas Offering Summary is now available for download, which packs all the information about Veritas in a single page. A step by step guide to purchasing Veritas can be downloaded here.

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What Happens When the Fund Fee Fight Hit…

10-04-2017 Hits:78929 BoomBustBlog Reggie Middleton

What Happens When the Fund Fee Fight Hits the Blockchain

A hedge fund recently made news by securitizing its LP units as Ethereum-based tokens and selling them as tradeable (thereby liquid) assets. This brings technology to the VC industry that...

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Veritaseum: The ICO That's Ushering in t…

07-04-2017 Hits:83415 BoomBustBlog Reggie Middleton

Veritaseum: The ICO That's Ushering in the Era of P2P Capital Markets

Veritaseum is in the process of building peer-to-peer capital markets that enable financial and value market participants to deal directly with each other on a counterparty risk-free basis in lieu...

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This Is Ground Zero for the 2017 Veritas…

03-04-2017 Hits:79979 BoomBustBlog Reggie Middleton

This Is Ground Zero for the 2017 Veritas Offering. Are You Ready to Get Your Key to the P2P Capital Markets?

This is the link to the Veritas Crowdsale landing page. Here is where you will be able to buy the Veritas ICO when it is launched in mid-April. Below, please...

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What is the Value Proposition For Verita…

01-04-2017 Hits:82286 BoomBustBlog Reggie Middleton

What is the Value Proposition For Veritas, Veritaseum's Software Token?

 A YouTube commenter asked a very good question that we will like to take some time to answer. The question was, verbatim: I've watched your video and gone through the slides. The exchange...

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This Real Estate Bubble, Like Some Relat…

28-03-2017 Hits:53260 BoomBustBlog Reggie Middleton

This Real Estate Bubble, Like Some Relationships, Is Complicated...

CNBC reports US home prices rise 5.9 percent to 31-month high in January according to S&P CoreLogic Case-Shiller. This puts the 20 city index close to an all time high, including...

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Bloomberg Chimes In With My Warnings As …

28-03-2017 Hits:81292 BoomBustBlog Reggie Middleton

Bloomberg Chimes In With My Warnings As Landlords Offer First Time Ever Concessions to Retail Renters

Over the last quarter I've been warning about the significant weakness in retailers and the retail real estate that most occupy (links supplied below). Now, Bloomberg reports: Manhattan Landlords Are Offering...

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Our Apple Analysis This Week - This Comp…

27-03-2017 Hits:81293 BoomBustBlog Reggie Middleton

Our Apple Analysis This Week - This Company Is Not What Most Think It IS

We will releasing our Apple forensic analysis and valuation this week for subscribers (click here to subscribe - lowest tier is the same as a Netflix subscription). As can be...

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The Country's First Newly Elected Lame D…

27-03-2017 Hits:81102 BoomBustBlog Reggie Middleton

The Country's First Newly Elected Lame Duck President Will Cause Massive Reversal Of Speculative Gains

Note: Subscribers should reference  the paywall material here for stocks that should give a good risk/reward scenario for bearish trades. The Trump administration's legislative outlook is effectively a political desert, with...

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Sears Finally Throws In The Towel Exactl…

22-03-2017 Hits:86952 BoomBustBlog Reggie Middleton

Sears Finally Throws In The Towel Exactly When I Predicted "has ‘substantial doubt’ about its future"

My prediction of Sears collapsing once interest rates started ticking upwards was absolutely on point.

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The Transformation of Television in Amer…

21-03-2017 Hits:84970 BoomBustBlog Reggie Middleton

The Transformation of Television in America and Worldwide

TV has changed more in the past 10 years than it has since it's inception nearly 100 years ago This change is profound, and the primary benefactors look and act...

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I have started looking into HSBC. The bank has significant exposure to risky assets and incurred huge losses in the personal finances division in the US last year. Despite this, there has not been much of an impact on the bank's stock price. HSBC ADRs currently trade at about $85 in the NYSE and has lost a marginal 6.9% compared to huge losses for commercial and investment banks in the similar period (although they are taking a beating today as I post this and accumulate a position).

 In a recent development, Morgan Stanley cut HSBC's rating to "underweight'' from "equal weight'' and it expects further material reserve requirements and downgrades after declines in the US home prices during the first half of 2008. Bad debts at HSBC Finance Corp., the bank's U.S. consumer banking unit, may rise to $15 billion this year from $12.5 billion, Morgan Stanley said. Further, the deterioration may spread to the UK, implying that the growth in profits from the Asian region will not be sufficient to offset earnings declines in the US and U.K. In one of those rare occurrences, I concur with the Street's Riskiest Bank.

The current price for HSBC ADR is around $76 and the stock has not lost much value since the beginning of this crisis. We first took a look at it in May. Given that a good portion of their profits come from emerging markets such as China and India, it appears highly likely that there could be more downside left.

Financial Ratios

Financial investments (In US$ million)

2005

2006

2007

 

 US Treasury  

8,997

10,203

6,831

 

 US Government agencies  

4,173

5,968

5,732

 

 US Government sponsored entities  

15,889

13,799

14,533

 

 UK Government  

7,740

7,502

749

 

 Hong Kong Government  

4,408

1,080

3,942

 

 Other government  

34,853

38,198

60,320

 

 Asset-backed securities  

2,889

26,750

65,962

Growth in ABS outstrips that in any other form of investment

 Corporate debt and other securities  

96,055

93,311

112,723

 

 Equities  

7,519

8,297

12,594

 

Total

182,523

205,108

283,386

 
         
         

Asset backed securties as a % of financial investments

2%

13%

23%

 
         
         

Derivatives (In US$ million)

2005

2006

2007

 

Foreign exchange  

 

          33,047

        55,508

 

Interest rate  

 

          54,215

        85,741

 

Equitie  

 

          10,767

        20,230

 

Credit derivative  

 

          8,237

       25,268

CDS and counterparty risk!!!

Commodity and other  

 

           1,304

          1,107

 

 Gross total fair values  

 

        107,570

     187,854

 

 Netting  

 

          (3,868)

               -  

 

Total

 

      103,702

     187,854

 
         

Credit derivative as % of total derivatives

 

8%

13%

 
         
         

Trading assets  (in US$ million)

 

2006

2007

 

 

   

 

 

 Trading assets:  

 

 

 

 

 – not subject to repledge or resale by counterparties  

 

273,507

308,286

 

 – which may be repledged or resold by counterparties  

 

54,640

137,682

Potential counteryparty risk to be investigated (nearly tripled during trying times)

Total

 

328,147

445,968

 

 

   

 

 

 Treasury and other eligible bills 

 

21,759

16,439

 

 Debt securities 

 

155,447

178,834

 

 Equity securities 

 

27,149

51,476

 

subtotal

 

204,355

246,749

 

 Loans and advances to banks  

 

52,006

100,440

Counteryparty risk to be investigated (exposure has doubled during dire times)

 Loans and advances to customers  

 

71,786

98,779

Credit risk to be investigated

Total

 

328,147

445,968

 

 

Geographic Concentrations

Profit before tax  (In %)

 

 

 2005 

 2006 

2007

Europe

30.3%

31.6%

35.5%

Hong Kong

21.5%

23.5%

30.3%

Rest of Asia-Pacific

12.3%

16.0%

24.8%

North America

28.2%

21.1%

0.4%

Latin America

7.7%

7.9%

9.0%

 

We all know N. America will probably go negative this quarter, but Europe is in the crapper and contributed more than one third of the profits last year. Asia has contributed more than half of last year’s profits, and it doesn’t look good for Asia for 2008 – specifically China, India and Japan.

Total assets, by geography ( in US$ million)

2006

2007

 

Europe

 

828,701

1,184,315

Hong Kong

 

272,428

332,691

Rest of Asia-Pacific

 

167,668

228,112

North America

 

511,190

510,092

Latin America

 

80,771

99,056

Total

 

1,860,758

2,354,266

             

 

HSBC’s largest asset concentrations are located in areas where assets are being devalued the most.

Profit before tax - from Personal financial service

 

 

By geographical region  (in US$ million)

2005

2006

2007

Europe

1,932

1,909

1,581

Hong Kong

2,628

2,880

4,212

Rest of Asia-Pacific

377

477

760

North America

4,181

3,391

(1,546)

Latin America

786

800

893

Total

9,904

9,457

5,900

The US was the most profitable personal finance center, now they have to rely on areas that are heading into a hard landing.

The same goes for commercial, private and global banking.

Profit before tax - from Commercial Banking

 

 

 

 By geographical region  (in US$ million)

2005

2006

2007

Europe

1,939

2,234

2,516

Hong Kong

955

1,321

1,619

Rest of Asia-Pacific

818

1,034

1,350

North America

892

957

920

Latin America

357

451

740

Total

4,961

5,997

7,145

       

Profit before tax - from Global banking & markets

 

 

By geographical region  (in US$ million)

2005

2006

2007

Europe

2,114

2,304

2,527

Hong Kong

922

955

1,578

Rest of Asia-Pacific

1,207

1,649

2,464

North America

573

423

(965)

Latin America

347

475

517

Total

5,163

5,806

6,121

       

Profit before tax - from Private Banking

 

 

 

By geographical region   (in US$ million)

2005

2006

2007

Europe

539

805

915

Hong Kong

190

201

305

Rest of Asia-Pacific

78

80

92

North America

104

114

174

Latin America

1

14

25

Total

912

1,214

1,511

 

If you follow my blog, you know that I believe the UK will probably fall harder than the US. Look at the following chart. France is already dragging heavily, with Trichet not helping things there any.

Profit/(loss) before tax - Europe

Personal Financial Services

Commercial Banking 

Global Banking & Markets

Private Banking 

Other 

   Total

 Year ended 31 December 2007  (US$ million)

 

 

 

 

 

 

 United Kingdom

1,221

2,064

1,214

317

976

5,792

 France

173

192

692

25

(49)

1,033

 Germany

 

36

195

45

19

295

 Malta

45

67

45

   

157

 Switzerland

     

475

 

475

 Turkey

144

75

118

(1)

 

336

 Other

(2)

82

263

54

110

507

Total

1,581

2,516

2,527

915

1,056

8,595

 

Drill down a little more and it looks worse…

Loans and advances to customers net by country - EUROPE

2005

2006

2007

 United Kingdom

245,004

305,758

326,927

 France

43,772

55,491

81,473

 Germany

3,349

4,439

6,411

 Malta

2,794

3,456

4,157

 Switzerland

7,312

9,151

13,789

 Turkey

3,787

5,233

7,974

 Other

6,519

8,971

11,544

Total

312,537

392,499

452,275

 

Profit/(loss) before tax - North America

Personal Financial Services

Commercial Banking 

Global Banking & Markets

Private Banking 

Other 

   Total

Year ended 31 December 2007  

 

 

 

 

 

 

United States

(1,824)

377

(1,243)

156

1,468

(1,066)

Canada

265

466

239

8

5

983

Bermuda

13

77

39

10

34

173

Other

       

1

1

Total

(1,546)

920

(965)

174

1,508

91

 

Loan impairment charges and other credit risk provisions

2005

2006

 2007 

 By geographical region  

   

 

 Europe

1,929

2,155

2,542

 Hong Kong

146

172

231

 Rest of Asia-Pacific

134

512

616

 North America

4,916

6,796

12,156

 Latin America

676

938

1,697

 Total loan impairment charges and other   credit risk provisions

7,801

10,573

17,242

Europe is going to rip this bank for 2008.

Off balance sheet and structured investment vehicles (SIVs)

HSBC sponsored the establishment of two SIVs - Cullinan and Asscher

 

Max size of SIV US$ bn

HSBC committed liquidity facility US$ bn

Cullinan

42.2

0.5

Asscher

8.7

0.25

 

50.9

0.75

According to the latest research from Credit Suisse, HSBC has ended up with US$95 bn of assets which is being carried as Held-To-Maturity, hence no mark-to-market loss unless there is permanent impairment.

Cullinan - Total assets by balance sheet

2007

 Derivative assets

0.2

 Loans and advances to banks

2.4

 Financial investments

30.5

 Other assets  

0.2

 

33.3

   

Total Structured Finance Assets in 2007 (in $ billion) Including Cullinan, Ascher and Solitaire

                     53.10

 

Cullinan - composition of asset portfolio (US$ bn)

 2006 

 2007 

 

Asset class  

 

 

 

Structured finance  

 

 

 

Residential mortgage-backed  securities

       11.9

            9.9

You know this story

Commercial mortgage-backed  securities

        3.9

            3.7

..and this one too

Collateralised debt obligations

        3.0

            3.8

Increase in CDOs

Student loan securities

        2.3

            2.2

Yech!!! Market is frozen!

Home equity lines of credit  securities

        2.0

            1.3

You know this story, too.

Vehicle finance loans securities

        0.4

            0.3

Think GM and Ford!

Credit loan securities

        0.2

            0.1

Yech!!

Other asset-backed securities

        0.8

            4.5

 

Total structured finance assets

      24.5

         25.8

 

 

 

 

 

Finance  

  

  

 

Commercial bank debt securities and deposits

        5.1

            6.3

???

Investment bank debt securities

        0.6

            0.7

???

Finance company debt securities

        0.3

            0.5

???

 

 

  

 

Total bank and finance company 

        6.0

           7.5

 

Total assets

      30.5

         33.3

 

 

Ascher - composition of asset portfolio (US$ bn)

2007

 Asset class  

 

 Structured finance  

 

 Residential mortgage-backed securities

       3.0

 Commercial mortgage-backed securities

       1.3

 Collateralised debt obligations

       1.1

 Student loan securities

       0.4

 Home equity lines of credit securities

       0.3

 Credit loan securities

       0.1

 Other asset-backed securities

       0.1

 Total structured finance assets

      6.3

 Finance  

  

 Commercial bank debt securities and deposits ....

       1.0

 Investment bank debt securities

       0.1

Total bank and finance company 

      1.1

Total

      7.4

Securities investment conduits purchase (allegedly) highly rated asset-backed securities and facilitate tailored investment opportunities for HSBC’s investment clients. HSBC’s securities investment conduit is Solitaire Funding Limited (‘Solitaire’).

Solitaire - composition of asset portfolio

 2006 

 2007 

 

 

 

 

 

 Asset class  

 

 

 

 Structured finance  

 

 

 

 Residential mortgage-backed securities

       9.4

            8.7

 

 Commercial mortgage-backed securities

       3.1

            3.7

Increase here is very bad!

 Collateralised debt obligations

       2.5

            3.1

Increase here is very bad, too!

 Student loan securities

       3.0

            3.5

Increase here is very bad as well!

 Home equity lines of credit securities

       0.8

            0.6

 

 Vehicle finance loans securities 

       0.2

            0.1

 

 Credit loan securities

       0.3

            0.3

 

 Other asset-backed securities

       0.9

            1.0

 

 Total structured finance assets 

    20.2

         21.0

 

 Finance  

  

  

 

 Commercial bank debt securities and deposits 

       0.2

            0.6

 

Total assets

    20.4

         21.6

 

All of HSBCs SIVs have been stuffed with even more hard to move or value (read as trash) asset over the last fiscal year, as the market for these assets has collapsed.

Share Price Movement

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