Part one of three of my opinion of HSBC and the macro factors affecting it

HSBC Holdings, one of the largest global banks, has remained relatively unaffected by the ongoing credit turmoil and housing downturn in the US until now. The bank has outperformed its peers, most of whom have seen their market values decline in the year. Having said that, HSBC now has recorded significant write-downs and increases in provisions as its US operations are facing the heat of the global meltdown. With increasing turmoil in the US housing market and higher delinquencies across asset classes, the bank’s US operations are likely to witness higher losses in the coming quarters. We also believe that Asia and the emerging markets—primary growth drivers for HSBC in 2007—will likely record a slowdown in growth due to the rising number of macroeconomic issues. However, Hong Kong, the bank’s biggest market in Asia, is anticipated to remain healthy in the foreseeable future. In addition, the bank is well positioned to leverage its considerable presence in the Middle-East as the region’s economy continues to gain from rising oil prices. Nevertheless, the slowdown in the US economy and spiraling global inflation are likely to hurt economic growth in Asia and the Middle East. This factor could have a huge negative impact on the bank’s financial health in the near-to-medium term. Another cause for concern are the European markets, especially the UK, that are mirroring the recessionary trend seen in the US, where effects of the weakening housing market are likely to spill over into the personal loans business. Added to these issues, as mentioned in the earlier snapshot on HSBC, the bank’s stock price has declined by a mere 7.5% since the turmoil began in the middle of 2007, while its peers, such as Citigroup, JP Morgan Chase, Bank of America, and Barclays Plc, have lost on average 38% of their market values until now.

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written by jsquared, August 14, 2008

So, given that their current ADR share price is $80, you are estimating that they could lose half their value The question is when. Also, perhaps they are more insulated now due to their diversified currency exposure.

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written by Peter Yunis, August 14, 2008

I was just in Scotland and all I saw was for rent and for sale signs on buildings. The economy in Europe looked like a mess to me. That probably bodes poorly for these guys.

I do disagree with the increase in US interest rates, though it really bears little impact on the subject at hand. Inflation is not what it appears, we are having commodity price increases, which is very different than inflation. I see the next move as possibly another cut in '09, especially if Europe starts cutting like they need to. We might have inflation if the government decides to start printing money to cover the bank losses (FRE, FNM, BSC) which is a good possibility. Just have to keep our eyes open for it. Plus, inflation requires rising wages, which is absolutely not happening.

I had some puts in this dog that went out worthless a few months back. Since that time I have started purchasing longer horizon puts. These banks are doing so much manipulation that we just don't know when the final shoe will drop. Their purpose is to string it out as long as possible just so that they can survive.

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written by easy$, August 14, 2008

I agree with averagejoe , these lying cheating and stealing banks will do whatever they can to hide their garbage as long as possible and the double talkers and walkers the FED, SEC, FASB and Treasury are doing everything they can to help them

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written by shaun noll, August 15, 2008

this is an interesting note about global macro, today 08/15/2008 if you look at this link another day there will be something else on there but its an interesting read

http://www.morganstanley.com/views/gef/index.html

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