Canary In A Contained Coalmine? HSBC Crashes Most Since Crisis On 'Surprise' Revenue Plunge

Tyler Durden's picture

Just over 10 years ago, HSBC was the first canary in the world's financial crisis coalmine to signal trouble ahead. Today's 7% bloodbath in the banking behemoth is the biggest drop since the financial crisis after reporting fourth-quarter profit that missed estimates on a surprise drop in revenue, which it warned could fall again this year.

As we recently noted, 10 years ago this month, HSBC Holdings, the world's third-largest bank at the time (and one of the most aggressive players in the U.S. market for low-quality mortgages), sent a chill through the financial world with news that its bad-debt charges will be 20% higher than forecast... and became the first canary in the coalmine of what would become the worst financial crisis of a generation.

"This is a material negative surprise for HSBC," said John-Paul Crutchley, an analyst at Merrill Lynch.


Foreclosures jumped 35% in December versus a year earlier, according to recent data from RealtyTrac. For the fifth straight month, more than 100,000 properties entered foreclosure because the owner couldn't keep up with their loan payments, the firm noted.


For its part, HSBC said its overall charge will be about $10.56 billion, about 20% higher than the average analyst forecast of $8.8 billion.


In explaining the outcome, the bank said its own risk projections had failed to predict how many borrowers would fall behind on mortgages as interest rates climbed and saddled them with higher monthly payments.


HSBC's warning comes just weeks ahead of its planned report of annual results and follows a December trading update that was already bearish on U.S. mortgage debt.


The problem is with HSBC's portfolio of sub-prime mortgages, which it snapped up in 2005 and 2006, before the U.S. housing slowdown began to bite. Sub-prime loans are sold to home buyers who fail to meet the strictest lending standards.

And that set the ball rolling.

And now, HSBC';s stock is plunging most since the financial crisis after what Citigroup's Ronit Ghose called “Weak Revenues, Messy Quarter.” Ghose also noted “an unusually large amount of one-offs” in the period, including a multibillion-dollar writedown on the value of its scandal-hit European private bank.

HSBC reported a $3.4 billion pretax loss for the quarter that it blamed on slowing growth in its core markets of Hong Kong and the U.K., while its adjusted profit fell $1.2 billion short of analyst estimates. Chief Executive Officer Stuart Gulliver is battling to reverse five years of declining revenue as he pares back HSBC’s sprawling global footprint and reduces expenses. The bank increased its cost-cutting target by $1 billion to $6 billion of savings, while cautioning it faces more than $3 billion of revenue headwinds in 2017, including currency movements and record-low interest rates in the U.K. Executives also warned U.S. President Donald Trump’s protectionist stance and Brexit could damage their business.

The unadjusted loss was driven by $6.1 billion of “significant items” in the quarter, more than six times what Credit Suisse Group AG analysts had forecast. The items included a $2.4 billion writedown of the value of its European private bank and a $1.6 billion adjustment in the bank’s own credit spreads.

Of course, in a desperate bid to curry favor with shareholders and prove their confidence in the bank, the lender said it will buy back $1 billion of stock in the first half and signaled it may repurchase more later this year.

* * *

We are sure all the one write-offs are 'one-offs' and that this is "contained" - just like it was 10 years ago.

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NugginFuts's picture

But hey, let's bid the shit out of the market before opening..... can't let this bull run out of steam, can we?

FreeShitter's picture

CL is being ramped the fuck up....

weburke's picture

Ramp up the drug money laundering.

NugginFuts's picture

Probably just in time for a massively optimistic PMI to shoot us all to the moon. 

Can't wait to buy some dip.

mind reset's picture
mind reset (not verified) NugginFuts Feb 21, 2017 9:57 AM

I'm making over $7k a month working part time. I kept hearing other people tell me how much money they can make online so I decided to look into it. Well, it was all true and has totally changed my life. This is what I do...

Darktarra's picture

I'm sure its just a technical glitch! 

zagzigga's picture

Anyone have a theory for why this is happening besides the obvious reason? Fundamentals are very bad but technicals are not showing any signs of weakness whatsoever. How is this possible?

Paul Morphy's picture

HSBC, Credit Suisse and Deutsche Bank all reporting huges losses Q4 2016.



buzzsaw99's picture

In explaining the outcome, the bank said its own risk projections had failed to predict how many borrowers would fall behind on mortgages as interest rates climbed and saddled them with higher monthly payments...


clade7's picture

"Sub Prime Gloom" would be a good name for a would stand out at the Marina for sure!

Osmium's picture

Bailouts on the way?

orangegeek's picture

coke and meth dealers revenue must be in decline = HSBC revenue decline

A. Boaty's picture

Will the new in-Justice Department throw these bankster crooks in jail? Oh, I know. Give him time.

GraveDancer's picture

Economy has Diabetes.