Q&A: HSBC’s FD on the company’s sub-prime turmoil

You say there are difficulties in the US. What can you tell us about
the impairment charges?

The thing that’s emerged in the third quarter is that the housing market
deterioration is beginning to have a broader impact.

What that’s meant is that for the first half of the year we were seeing the
provisioning requirements in the business $200m (£96.6m) to $300m ahead of the
charge-offs, so the position was deteriorating but relatively moderately.

In the third quarter, we added provisions about $1.5bn ahead of what we
charged off, which reflects the illiquidity that’s being seen within the
marketplace, and a slightly broader housing market impact than we’ve seen

Where are you with SIV and conduit exposures?

Okay, I think we need to take them into two pieces. On our conduits, these
are 100% liquidity supported by HSBC. They are a combination of multi-seller
conduits where we work with our clients.

And then there is one that is an arbitrage conduit for our own purposes.
These have always been on our balance sheet. These are funding in the commercial
paper markets perfectly normally at the moment, and we don’t see any particular
strain. The assets within the conduits are all performing well, they are all

It’s a similar story with the SIVs. There’s slightly more difficulty in terms
of investor appetite for structured paper at the moment, and they don’t benefit
from 100% liquidity support from HSBC.

But we’re working with the income note-holders, ie. those that are providing
essentially the capital to the vehicles and to the other note-holders to
determine what the best way of dealing with everybody’s best interests is in
what is a distressed time in the marketplace.

At the half-year, the view in the market was that you retained too
much capital, and pressure was exerted to consider returning some to
shareholders. I guess you feel slightly vindicated by that.

I think we’ve always been very consistent in our view as to what the benefits
of having a strong capital base were.

And events over the last several months have shown how things can happen that
are unexpected, and why having a strong capital position is a strength for a
financial institution.

We’ve been consistent in what we’ve said for a very long time and we’ll
continue to be consistent.

Your strategy has been under question. Does this trading statement
help or hinder your case?

It’s a great paradox. You’ve got a US economy that’s still growing, it’s
adding jobs. And yet it has a housing market that is very, very weak indeed. The
focus over the near term is going to be very much on asset prices. And it’s
difficult to see that in the US the housing market hasn’t got another 12 or 18
months to run, at least, with falling or levelling off prices.

Your performance in emerging markets has underpinned the growth but
what’s driven that?

I think a number of factors. Trade within and between emerging markets has
been very strong. Trade with the developed world has also been very strong.
That’s driven local economies. As economies have expanded, that’s led to credit
appetite as people have had more disposable income.

For the full interview and more FD, CFO and CEO online programming go to

Related reading