HSBC says it has $1 billion exposure to Madoff
Exposure to ailing fund group along with rising loan defaults likely to spur $14 billion in fund raising, broker says
By MarketWatch
Last update: 4:22 a.m. EST Dec. 16, 2008
HONG KONG (MarketWatch) -- Hong Kong-listed shares of HSBC Holdings traded modestly lower Tuesday after it emerged the bank ranks as one of the biggest victims of the funds fiasco linked to Bernard Madoff, the fund manager charged with securities fraud last week.
HSBC, Europe's largest bank and headquartered in London, said it has combined exposure of about $1 billion, having provided financing to a small number of institutional clients who invested in the collapsed funds group.
HSBC said some of its custody clients have invested with Madoff, but doubts these investments will become a source of exposure for the bank.
HSBC's (HK:5: news, chart, profile) (HBC) Hong Kong-listed shares closed 0.5% lower at HK
$83.80. The bank's London shares ended 1.2% lower on Monday, after the bank confirmed its exposure to Madoff.
Madoff, a former chairman of the Nasdaq Stock Market, was arrested and charged with securities fraud last Thursday in what Federal prosecutors described as a ponzi scheme that could involve losses of more than $50 billion. Such schemes involve a fraud where the early investors are paid back not through investment gains, but through the cash received from subsequent investors.
Separately, brokerage CLSA Asia Pacific Markets said HSBC may seek to raise $14 billion through a share placement or rights offering to offset losses from rising loan defaults in the U.S. and U.K.
CLSA analysts, led by Bangkok-based analyst Daniel Tabbush, cut the share price target on HSBC's Hong Kong shares by about 30% to HK$64, noting earnings are likely to decline next year as the global slowdown snowballs into rising layoffs.
"If companies operating within economies are only now laying people off, the demand implications for buying products and services is going to be much worse in 2009 than it was in 2008," Tabbush said. "Most of the 2008 impairment charges for banks were not even related to traditional loans."
HSBC has about 75% of its loan book in the U.S. and the U.K., where consumers are over leveraged compared to counterparts in Asia, Tabbush said.
He said HSBC's inability to realize a $2 billion capital gain on its London headquarters, and Monday's announcement of $1 billion exposure to Madoff, as additional reasons to sell the shares.
He added the $14 billion figure was calculated after research showed Asian banks had raised funds equivalent to about 11% of their pre-existing shareholder equity since the crisis began.
"It probably should be worse because of its loan concentration," Tabbush said, referring to HSBC's likely cash-raising needs.
In a separate announcement Tuesday HSBC said it will cut about 10% of its Taiwan staff by the end of this year to cope with the slowdown and integrate operations with a recently-bought bank. The program will affect about 300 to 400 of the bank's 3,000 employees there
Exposure to ailing fund group along with rising loan defaults likely to spur $14 billion in fund raising, broker says
By MarketWatch
Last update: 4:22 a.m. EST Dec. 16, 2008
HONG KONG (MarketWatch) -- Hong Kong-listed shares of HSBC Holdings traded modestly lower Tuesday after it emerged the bank ranks as one of the biggest victims of the funds fiasco linked to Bernard Madoff, the fund manager charged with securities fraud last week.
HSBC, Europe's largest bank and headquartered in London, said it has combined exposure of about $1 billion, having provided financing to a small number of institutional clients who invested in the collapsed funds group.
HSBC said some of its custody clients have invested with Madoff, but doubts these investments will become a source of exposure for the bank.
HSBC's (HK:5: news, chart, profile) (HBC) Hong Kong-listed shares closed 0.5% lower at HK
$83.80. The bank's London shares ended 1.2% lower on Monday, after the bank confirmed its exposure to Madoff.
Madoff, a former chairman of the Nasdaq Stock Market, was arrested and charged with securities fraud last Thursday in what Federal prosecutors described as a ponzi scheme that could involve losses of more than $50 billion. Such schemes involve a fraud where the early investors are paid back not through investment gains, but through the cash received from subsequent investors.
Separately, brokerage CLSA Asia Pacific Markets said HSBC may seek to raise $14 billion through a share placement or rights offering to offset losses from rising loan defaults in the U.S. and U.K.
CLSA analysts, led by Bangkok-based analyst Daniel Tabbush, cut the share price target on HSBC's Hong Kong shares by about 30% to HK$64, noting earnings are likely to decline next year as the global slowdown snowballs into rising layoffs.
"If companies operating within economies are only now laying people off, the demand implications for buying products and services is going to be much worse in 2009 than it was in 2008," Tabbush said. "Most of the 2008 impairment charges for banks were not even related to traditional loans."
HSBC has about 75% of its loan book in the U.S. and the U.K., where consumers are over leveraged compared to counterparts in Asia, Tabbush said.
He said HSBC's inability to realize a $2 billion capital gain on its London headquarters, and Monday's announcement of $1 billion exposure to Madoff, as additional reasons to sell the shares.
He added the $14 billion figure was calculated after research showed Asian banks had raised funds equivalent to about 11% of their pre-existing shareholder equity since the crisis began.
"It probably should be worse because of its loan concentration," Tabbush said, referring to HSBC's likely cash-raising needs.
In a separate announcement Tuesday HSBC said it will cut about 10% of its Taiwan staff by the end of this year to cope with the slowdown and integrate operations with a recently-bought bank. The program will affect about 300 to 400 of the bank's 3,000 employees there
