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The Latest HSBC Scandal: An $80 Billion Capitalization Shortfall

Tyler Durden's picture




 

Forensic Asia, a Hong-Kong-based reserch firm issued a "sell" recommendation on HSBC on the basis of "questionable assets" on its balance sheet. As The Telegraph reports the analysts involved actually worked at HSBC for 15 years and suggest the ginat bank could have overstated its assets by more than £50bn and ultimately need a capital injection of close to £70bn before the end of this decade. "HSBC has not made the necessary adjustments, during the quantitative easing reprieve...The result has been extreme earnings overstatement, causing HSBC to become one of the largest practitioners of capital forebearance globally... This charade appears to be ending."

 

Via The Telegraph,

...

 

Forensic Asia on Tuesday began its coverage of Britain’s largest banking group with a ‘sell’ recommendation, warning the lender had between $63.6bn (£38.7bn) and $92.3bn of “questionable assets” on its balance sheet, ranging from loan loss reserves and accrued interest to deferred tax assets, defined benefit pension schemes and opaque Level 3 assets.

 

The broker’s note is written by two of its senior analysts, Thomas Monaco (a former senior bank examiner at the Federal Reserve Bank of New York) and Andrew Haskins (previously worked at HSBC for 15 years).

 

...

 

In the report, the analysts apply what they describe as a “moderate stress test” to the balance sheets of HSBC’s major subsidiaries.

 

...

 

Taking the analysis further, the report sets out the impact of incoming Basel III capital rules and says HSBC could be required at a minimum to raise close to $60bn in new capital by 2019 and potentially as much as $111bn.

 

In our view, HSBC has not made the necessary adjustments, during the quantitative easing reprieve. Rather, it has allowed legacy problems to linger as new ones in emerging markets gather pace. The result has been extreme earnings overstatement, causing HSBC to become one of the largest practitioners of capital forebearance globally. This charade appears to be ending, given how few earnings levers remain besides selling off core elements of the franchise and the stringencies of Basel III compliance,” wrote Forensic Asia.

 

The broker adds: “While having stated capital ratios well above peer averages is all well and good, HSBC’s stated capital ratios would appear to be nothing more than a mirage if our analysis is correct.”

Interestingly, these findings do not include litigation costs which can only make matters worse. Of course, this kind of "mirage" is just as applicable to the entirely opaque Level 3 assets of all the majot TBTF US banks so one can only imagine just how large the capital shortfalls really are. But don;t worry - Cramer says NIM will be huge (but the banks themselves don't)...

 

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Thu, 01/16/2014 - 19:10 | 4339205 LawsofPhysics
LawsofPhysics's picture

...and there it is...

right back to 2008/2009.

the REPO market implodes in 3...2...1

how many fucking trillion dollars later and yet we have a liquidity problem?

It not liquidity stupid, it's the solvency

I love ZH...

Thu, 01/16/2014 - 19:11 | 4339217 trader1
trader1's picture

nothing that a little QE/bailout can't solve...

Thu, 01/16/2014 - 19:12 | 4339226 LawsofPhysics
LawsofPhysics's picture

Yes, yes, crush those paper promises bitchez...

really, kill all the fiat, it can't happen fast enough...

Thu, 01/16/2014 - 19:18 | 4339242 Clint Liquor
Clint Liquor's picture

No problem, HSBC is TBTF. With the FED already printing $75 Billion per month this is chump change.

Thu, 01/16/2014 - 19:56 | 4339382 outofideas
outofideas's picture

Seriously, what is $75bil between friends when their derivative exposure is in the trillions.

Thu, 01/16/2014 - 20:25 | 4339505 Bastiat
Bastiat's picture

How much leased gold does HSBC owe the US Treasury?  Another twist to TBTF.

Thu, 01/16/2014 - 19:19 | 4339247 kaiserhoff
kaiserhoff's picture

and all of you laughed and pointed at that poor ugly court jester of a man,

but Timmy knew how to keep those plates spinning.

TIMMMMMAAAAY!

Thu, 01/16/2014 - 19:20 | 4339248 Rainman
Rainman's picture

Captain, I believe I see the tip of a large iceberg.

Thu, 01/16/2014 - 19:22 | 4339258 chump666
chump666's picture

...and collateral problem.

Thu, 01/16/2014 - 19:25 | 4339263 LawsofPhysics
LawsofPhysics's picture

Yes, but if one has collateral, real collateral, one is solvent.

Thu, 01/16/2014 - 19:35 | 4339300 knukles
knukles's picture

LoP gets it.
Kudos.

And now try to tell the equity managers that every single last financial problem (hidden and once brought to light) manifests itself first in the short term markets, the Source of all Solvency Considerations and Liquidity.
But, oh, fucking no.
Nobody believes it but for a very few truly sharp people.

Correction:  Nobody Understands it, but for a few truly sharp people.

 

That's why the great (and yes, he was damned good, regardless of what you all dislike about his past employer) Paul McCulley sat upon the short term desk, and why his "big annual" speech was to the MoneyMarketeers in NYC, the short tern investor and funding folks.

It's not when ya run outa checks...
It's when ya run outa money...
Dumbfuck...

Thu, 01/16/2014 - 19:40 | 4339315 LawsofPhysics
LawsofPhysics's picture

allow me to ellaborate...

just one correction...

"It's when ya run outa energy...
Dumbfuck..."

It takes energy/work to produce things of real value...

Some might say producing something/anything of real value is tradition for successful families.

Thu, 01/16/2014 - 20:44 | 4339572 Buck Johnson
Buck Johnson's picture

Your dead on, dead on.  We have a SOLVENCY PROBLEM and it will be right back to 2008 and 2009 again and it will be worse.  Because they can't put out that much money again (both US and Britian).  We are done.

Thu, 01/16/2014 - 19:09 | 4339211 Yardfarmer
Yardfarmer's picture

oh oh! the news just gets better and better. 

Thu, 01/16/2014 - 19:10 | 4339216 LawsofPhysics
LawsofPhysics's picture

quick, send Hank "tanks in the streets" Paulson to U.K. stat...

Thu, 01/16/2014 - 19:37 | 4339306 knukles
knukles's picture

Oh!  Time to move Headquarters back to Hong Kong!

Thu, 01/16/2014 - 20:22 | 4339496 Scarlett
Scarlett's picture

China says no.

Thu, 01/16/2014 - 19:12 | 4339224 Possible Impact
Possible Impact's picture

Couldn't this have waited till Friday night?

It's traditional ya know...

 

 

Thu, 01/16/2014 - 19:14 | 4339232 LawsofPhysics
LawsofPhysics's picture

speaking of "tradition"...

Thu, 01/16/2014 - 19:12 | 4339225 Salah
Salah's picture

OH SHIT!   HSBC is an enormous bank....are we talking a "Credit-Anstalt Event" here?

Thu, 01/16/2014 - 19:50 | 4339231 Whoa Dammit
Whoa Dammit's picture

The only thing we have (left) to fraud is fraud itself.

Thu, 01/16/2014 - 19:16 | 4339237 0b1knob
0b1knob's picture

$80 billion?  Not even one month's QE.   Congress will just write them a blank check.   Just like they did before.

Bailouts for everyone!!!!!!!!!

Thu, 01/16/2014 - 19:29 | 4339283 LawsofPhysics
LawsofPhysics's picture

Actually we "tapered" remember?  It's now 75 billion per month. (hysterical laughter in the background)

Thu, 01/16/2014 - 19:16 | 4339239 ebworthen
ebworthen's picture

What?

All that drug money laundering went up their noses?

Thu, 01/16/2014 - 19:19 | 4339244 Cognitive Dissonance
Cognitive Dissonance's picture

"HSBC has not made the necessary adjustments, during the quantitative easing reprieve...The result has been extreme earnings overstatement, causing HSBC to become one of the largest practitioners of capital forebearance globally... This charade appears to be ending."

Just like the US Government's ability (specifically the national security commissioner) to allow US companies to fudge their books under national security laws, I suspect HSBC has had a similar get out of jail free card in their PONZI deck of cards.

Thu, 01/16/2014 - 19:42 | 4339319 knukles
knukles's picture

Not Only That...
Seems Most Folks are Forgetting in Just About Every Major Financial Reporting Law/Act/Bill Passed by Congress and Enacted into Law...

Banks reporting of Silver and Gold Dealings Has Been Formally Exempted from Standards Applied to All Other Asset Classes...

Go Figure.

And Yes, it was Also Included in the Freedom Acts of the Last Several Years.

Huh...
So why would the buggers in congress exempt banks from reporting their P&L and Positions in Gold and Silver?

You tell me, folks.*
(Betcha most of you all forgot about all that stuff, no?)

 

*Rhetorical Question.  I Know How to Connect Dots, Thank You Very Much

Thu, 01/16/2014 - 19:56 | 4339370 kaiserhoff
kaiserhoff's picture

If they don't report it, those pesky accountants can't tally it up and tell you what isn't there.

Clever little Mofos, aren't they?  Must be a special place in Hades...

Thu, 01/16/2014 - 20:02 | 4339409 villainvomit
villainvomit's picture

Yep, PM's

Thu, 01/16/2014 - 19:19 | 4339246 logicalman
logicalman's picture

If banks Financial Statements were put in a library they'd ALL be filed under 'Fiction'

HSBC - born out of the opium trade.

A leopard doesn't change its spots.

Thu, 01/16/2014 - 19:26 | 4339265 logicalman
logicalman's picture

Can the earth avoid destruction????

ABSOLUTELY not.

I think the term 'Zero Hedge' might help.

Thu, 01/16/2014 - 19:27 | 4339272 LawsofPhysics
LawsofPhysics's picture

Consider an asteroid a blessing at this point.

Thu, 01/16/2014 - 22:16 | 4339808 Trucker Glock
Trucker Glock's picture

Does it say "To:  Krugman" on it?

Thu, 01/16/2014 - 19:22 | 4339256 walküre
walküre's picture

Asset shortfall and needs recapitalization by the end of the DECADE??

Why? Do they pour glue in front of their branches to prolonge the inevitable BANK RUN that will happen like TOMORROW?

Thu, 01/16/2014 - 19:24 | 4339259 logicalman
logicalman's picture

I hope you are right with your timing.

I'm sick of this shit.

Thu, 01/16/2014 - 19:27 | 4339274 walküre
walküre's picture

Douche Bank will go right down with that doomed banking ship

Thu, 01/16/2014 - 19:26 | 4339268 carbonmutant
carbonmutant's picture

I thought overstating your assets was SOP...

Thu, 01/16/2014 - 22:19 | 4339286 darteaus
darteaus's picture

I wonder what the odds of a full GLD warehouse are now, since these guys run the fund and 2nd parties hold the gold.

Thu, 01/16/2014 - 19:31 | 4339287 q99x2
q99x2's picture

FRAUD is the main export of the City of London so where's the story.

They'll buy their own stock or Yellen will. That's the real world. That's how things work. That old hocus pocus accounting stuff--voodoo--went out the window long ago.

Thu, 01/16/2014 - 20:03 | 4339421 dick cheneys ghost
dick cheneys ghost's picture

listen, if there was fraud in the 'City of London', Nigel Farage would have mentioned it last nite..........

Thu, 01/16/2014 - 19:32 | 4339293 tony wilson
tony wilson's picture

pennies what with the papal and house of windsor,the mi6 and the cia heroin and cocaine connections.

what with money laundering and the child sex slave trade,what with human organ murtder trade into infinty.

this is just another rothschild sell off and buy back cheap later scam.

Thu, 01/16/2014 - 19:39 | 4339313 Stuck on Zero
Stuck on Zero's picture

We need faster printers.

 

Thu, 01/16/2014 - 19:44 | 4339330 LawsofPhysics
LawsofPhysics's picture

Indeed, exponential equations are like that...

Thu, 01/16/2014 - 19:50 | 4339350 Lumberjack
Lumberjack's picture
HSBC predicts ‘new climate agenda’ in 2014

 

http://blueandgreentomorrow.com/2014/01/16/hsbc-predicts-new-climate-age...

 

High street bank HSBC has predicted that a combination of factors will lead to a “new climate agenda” in 2014, as its own research reveals sustainable investments outperformed last year.

The HSBC Global Climate Change benchmark, which tracks the performance of sustainable companies, delivered 19.8% in 2013, outperforming the global equities market for the first time. This suggests investment in the sector is continuing to grow.

In a statement, the bank said, “We believe 2014 will mark the beginning of a new climate agenda. The traditional narrative was that climate risks are in the future, that carbon has to be priced to be cut, and that low-carbon alternatives are high risk and speculative. 

“We see three issues that give new impetus to the climate economy in the year; impacts, carbon risk and green bonds.”


Thu, 01/16/2014 - 20:16 | 4339452 Lumberjack
Lumberjack's picture

I hope that George Washington's Blog has taken note of my last comments to his article regarding Mexico/drugs and the US/UK involvement. I submitted info (comments) regarding Morrocco/Africa and the 'renewables" firm with a heavy footprint, there, UPC, and HSBC seems to the one of the banks involved. Mark my words,  this is huge.

 

http://www.forbes.com/sites/timworstall/2013/08/08/hsbcs-1-9-billion-mon...

Thu, 01/16/2014 - 20:27 | 4339517 Seasmoke
Seasmoke's picture

Well this means that all TBTF banks must get 80 Billion , as we can't know which bank is insolvent 

 

/sarc (I think?)

Thu, 01/16/2014 - 21:08 | 4339641 ghostzapper
ghostzapper's picture

Sell blood, sperm, your children, and max every credit card to go all hands on deck long on margin XLF and just nurse that bitch for ten years and you will be all set. These financials are the titans of our economy and setting the example for sound business practices and legitimate growth in return on invested capital. Nothing will go wrong.

Signed,

Dick bove

Thu, 01/16/2014 - 23:44 | 4340007 Gromit
Gromit's picture

Silly, reckless story.

Fri, 01/17/2014 - 04:03 | 4340230 Rising Sun
Rising Sun's picture

for the slap happy feel good everything is fine content, you can go to cnbc.com or huffingtonpost.com

 

you'll find lots of your kind there sweeping things under the rug that doesn't follow the "endless growth" meme

Thu, 01/16/2014 - 23:48 | 4340014 YHC-FTSE
YHC-FTSE's picture

They will:

A) Be bailed out

B) Get more depositors for haircuts - look out for their ad campaign. 

C) Both

I vote c. Probability of HSBC declaring volutary liquidation like any other failed business: zero.

Fri, 01/17/2014 - 02:06 | 4340180 Jonny poor boy
Jonny poor boy's picture

I have been in thebelly of the HSBC beast in Hong Kong(2009) and was struck by 2 things firstly how antiquated the whole place felt I thought i was going to be shown "ledgers" at one point and secondly the approach in HK was not to add more software to streamline processes it was to just add more staff and so the staff had the air of civil servants. So when I read the article above I think it made sense but not because they tried to inflate assets but because they just wouldn't have clue about what they really had and what its worth.

 

Fri, 01/24/2014 - 23:05 | 4365449 Non Passaran
Non Passaran's picture

I get your point but at the same time I prefer to have these bureaucratic, boring than the "creative" types take care of my money.

No matter what happens with see guys only those with over 100K in the bank would feel the impact.

Fri, 01/17/2014 - 05:59 | 4340280 smacker
smacker's picture

Depending on how this HSBC revelation pans out, HSBC could easily become the 2nd UK bank - Co-op was first - required to go thru the "Bank Resolution Mechanism". Bank Resolution replaces the earlier 'taxpayer bailouts' policy.

Recall that Bank Resolution was the new policy introduced by the UK Chancellor, UK Regulators, Bank of England and the banks in a flurry of secrecy early 2013 to deal with the Co-Op's GBP 1.5 billion black hole. MSM gave it a very wide berth. It has never been publicly explained, presumably out of fear of starting a bank run.

Although ordinary customer accounts at the Co-Op were not skimmed this was probably because two of the UK's major political parties bank with them (Labour Party & Lib Dem Party). In the case of HSBC, things are different, so if Bank Resolution comes to them, customers should be aware.

Fri, 01/17/2014 - 06:14 | 4340282 theprofromdover
theprofromdover's picture

Great questions of our time:

No. 17 What is the point of an auditor? (see also rating agencies)

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