Quite a bit of motion sickness in the world of FX on Thursday, with the sharp pullback in the dollar that followed Chair Yellen’s dropping of the Fed’s “patient” pledge on Wednesday now all but reversed…
Finance, particularly the fixed income variety, lends itself to maths which suggest neatness — messy human hopes and satisfactions captured in a price, shifting but true for any particular moment in time.
There tends to be a number in any financial calculation, however, where neatness is that of a carpet under which dust and junk has been swept. In corporate valuation models it might be the discount rate used to put imagined future cash in present day terms. For stock markets it is the equity risk premium, and for bonds it is something called the term premium.
We’ll lift the carpet below, but the reason for doing so is HSBC, which thinks there isn’t enough term premia in bond prices (they are too high and so must fall). Read more
The FCA is in danger of attracting regular readers to its Market Watch newsletter. Here’s an extract from Edition No. 46, about this momentary spike in the price of HSBC back in January…
HSBC’s interim report 2013:
- Pages: 295
- Words: loads
- Risk-weighted assets: $1,105bn Read more
A new word to you? Yes, well, we were searching for a suitable adjective to describe this:
20 June 2013
Tullett Prebon plc
Statement in relation to court proceedings
Early viewers of what promises to be a trashy little mini-series with a stale mix of guns, drugs, sun-soaked beaches and tax cops, were left with one stand-out question on Friday:
Does HSBC really have just 4,388 Brits holding offshore accounts on this Channel island? Read more
HSBC’s third quarter numbers are out. We got a relatively unexciting underlying profit figure of $5bn but a whack of extra provisions totalling $1.15bn, including $800m more to cover the bank’s money laundering troubles in the US on top of the $700m already put aside.
From HSBC (our emphasis): Read more
There’s basically nothing happening. Sure we’ve got plenty of rhetoric, a Swiss franc floor and QE — but FX volatility is touching recent lows:
This is just a lovely chart from the FX team at HSBC (click in to see — tis just too big for an excerpt to handle):
What it, and its fellow soon to be introduced below, do is call further into question the US dollar’s status as a haven currency; one which will benefit in periods of risk aversion. They do so by looking at the performance of G10 currencies against the S&P500. It’s a timely query considering the approaching fiscal cliff… and, well, lots of other stuff. Read more
Today carry’s hold on FX has waned as global rates gravitate towards zero, forcing the FX market to react instead to the far more ambiguous implication of QE. By contrast, other asset classes, notably equity markets, provide a cleaner mechanistic link between a given view and a price.
The conclusion is that even if we knew the outcome of future events with certainty, the FX market is not the best place to reflect those views. We have fallen to the bottom of the food chain. Read more
This is reassuring (or not – we can’t decide). The Global fixed income strategy team at HSBC *believe* they’ve come up with a non-consensus view on the effects of QEternity:
Our non-consensus view is that QE3 will drive US Treasury yields to new lows Read more
Of risk-on, risk-off.
It’s getting back to its all-time high according to HSBC’s quant team: Read more
… with their 2012 interims.
The TL;DR version goes like this: Read more
HSBC came in for a kicking in the Senate Subcommittee on Investigations into anti-money laundering and exposure of the US financial system to drug and terrorism financing.
Some of this is old news; as the FT notes, HSBC has not been formally accused of wrongdoing in connection with the most recent investigation, but it has twice been ordered by US regulators to take action on deficient anti-money laundering practices. However investigation by the US Department of Justice, the US Treasury and the Manhattan district attorney, is under way into many of the allegations raised in the Senate report, and some analysts expect fines of up to $1bn to result. Read more
Aka: an attempt to fill in the missing pieces of the underpants gnomes’ collateral swap, details of which were revealed last week.
First a reminder of how this will work, from Claire Jones over at Money Supply: Read more
“The other effect of the euro-area crisis has been to create a large black cloud of uncertainty hanging over not only the euro area but our economy too, and indeed the world economy as a whole.”
Here’s the speech. Read more
Two heat maps from HSBC. The first is a typical correlation matrix across a range of assets in the world before Lehman collapsed. The second is post-Lehman. Red indicates strong positive correlation and blue indicates strong negative correlation. Greens and yellows appear when correlations are close to zero. Click each map to enlarge.
So says HSBC’s Stephen King in the bank’s latest Emerging Markets Index quarterly. Click for the report:
Worried by the sudden rise in bond yields?
Fear not. On Friday, HSBC analysts provide us with a “what to do if bond yields rise” scenario map. Read more
HSBC pays top executives outside the UK almost twice as much as their British-based colleagues, contributing to a steep rise in costs in the bank’s annual results, the FT says. Underlying pre-tax profits fell six per cent, while total expenses rose 10 per cent. Hiring in key emerging markets has pushed wage costs up. Senior employees known as “code staff” received an average of $1.2m in salaries and bonuses in the UK last year, compared with $2.3m for similar level staff overseas. HSBC’s cost-efficiency ratio has risen to to 57.5% from 55.2%, the WSJ adds. However, pre-tax profit rose 31 per cent at the bank’s commercial lending unit as it stole market share from weakened European lenders.
“Do not ignore this chart,” shouts Murray Gunn, Head of Divination and Rune Casting at HSBC, in his daily Short Cycle report. So here we are, pointedly not ignoring it.
HSBC is under investigation by a US Senate panel in a money-laundering inquiry, Reuters says, citing people familiar with the situation and a company securities filing. The inquiry being conducted by the Senate Permanent Subcommittee on Investigations could yield a report and congressional hearing later this spring, the sources said. The subcommittee has a history of conducting high-profile hearings that have proved embarrassing for the world’s biggest banks. The intensifying scrutiny of HSBC is the latest in a series of investigations by US officials into how global banks have processed — and in some cases, intentionally hidden — financial transactions on behalf of countries which allegedly support terrorism, corrupt foreign officials, drug gangs and criminals, which have resulted in more than $1.2bn in penalties being paid by US and European banks since 2008.
HSBC, Europe’s largest bank, is seeking buyers for its Japanese consumer banking unit four years after starting the business, says Bloomberg, citing three people familiar with the matter. HSBC may sell HSBC Premier, the division that targets wealthy individuals in Japan. It has started an auction for the business, and may shut it if offers aren’t attractive enough, two of the people said.HSBC is scaling back in parts of Asia, including Japan, South Korea and Thailand, as it cuts assets to reduce expenses and prepare for tighter capital rules. HSBC said on Tuesday that it agreed to sell operations in Costa Rica, El Salvador and Honduras to Colombia’s Banco Davivienda SA for $801m to focus on bigger markets in Latin America.
HSBC said on Wednesday it is pulling out of private banking in Japan, the latest in a series of moves by major banks to streamline operations as they try to cope with volatile markets, profit-hurting economic jitters and regulatory pressure to conserve capital, reports the WSJ. HSBC said in a statement it agreed to sell its Japanese private-banking business to Credit Suisse in line with a global business restructuring it announced earlier this year that will see it cut 30,000 jobs as it pares back small or inefficient operations.
Ah, the Stability and Growth Pact. You remember. Joining the SGP, members promised fiscal restraint, and in return were allowed to junk their soggy old currencies for a Deutschemark with a suntan. They all promised to keep the gap between revenue and spending to below 3 per cent of GDP, or if they weren’t quite there, they’d get there jolly soon, and never mind if they had to invent the numbers to do so.
So, your starter for 10: which country was the first to exceed the 3 per cent limit? No, not Greece, Italy, Spain, Portugal or Ireland, but Germany. Oddly, there were no calls for austerity measures in Berlin. A decade on, and the game’s up. Fiscal continence in the periphery is a distant dream, so to save the euro we’re promised the European Stability Mechanism and a new “fiscal compact”, which looks like the SGP, but without the growth or stability. Read more
HSBC has reminded investors that its legacy US mortgage business still has the power to disrupt its overall growth as the bank reported a $1bn quarter-on-quarter jump in loan impairments, largely of to a sudden increase in US home loan losses. Reporting a one-third fall in underlying profits for the third quarter, HSBC said it feared that some Americans were unilaterally deciding to take a mortgage payment “holiday” after judging that it would not lead to their home being repossessed. Iain Mackay, finance director, told the Financial Times the bank hoped to halve its $50bn US loan portfolio over the next five or six years, but admitted the long-term nature of the loans – and the lack of investor appetite to buy portfolios of distressed US mortgage debt – meant the issue would continue to be a potential problem for the bank for many years. Some bankers are worried that the September jump in impairments marks the start of another leg of the US mortgage crisis, though Mr Mackay said October had shown some signs of stabilisation.
Citigroup, JP Morgan Chase, BNP Paribas, Royal Bank of Scotland and HSBC could face the steepest capital surcharges of 2.5 percentage points, in provisional plans drawn up by global regulators, Bloomberg reported. The list has been fleshed out as part of G20 plans to force banks to boost their reserves above minimum levels previously agreed by international regulators in a bid to further reduce systemic risks. Bank of America, Barclays and Deutsche Bank might face surcharges of 2 percentage points, Bloomberg said, citing a confidential draft of the plan. A simplified version of the plan of global systemically important financial institutions, which did not include surcharge plans for individual banks, was published on Friday 4 after the conclusion of the G20 meeting by the Financial Stability Board, FT Alphaville reported.
Regulators should have powers to limit banks’ ability to pay bonuses and dividends if they run into severe financial difficulties, according to the chief executive of HSBC. The FT reports Stuart Gulliver told a panel of parliamentary members that it would be “absolutely reasonable” for the Bank of England’s new financial policy committee to control such payments in extreme circumstances, such as banks’ debt levels running too high or their capital and liquidity levels falling too low. Mr Gulliver was appearing in front of the committee that oversees the draft financial services bill alongside Bob Diamond, chief executive of Barclays, and Stephen Hester, head of Royal Bank of Scotland. Asked about the impact of the Vickers reforms on the banks, Mr Gulliver said plans to force lenders to hold more capital could trigger a net cost of up to $2.1bn (£1.3bn) a year for HSBC, which obtains most of its revenue overseas.
From stress test to recession.
Merrill Lynch has on Tuesday made some savage revisions to its forecasts for UK banks to reflect a more bearish economic outlook. Read more