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Does HSBC See Green Shoots?

Posted by Larry Doyle on May 12, 2009 11:41 AM |

Are those green shoots or dandelions or a mix of the two?

As the “lawn” comes in, we hope the roots grow deep and the grass is lush. That said, we can not blindly accept a prospective landscaper’s vision of what our yard may look like next quarter or later this year. I don’t subscribe to using products like Miracle-Gro.  Given that virtually every “gardener” is employed or connected to “Uncle Sam’s Lawn Patrol,” who else can give us a “lay of the land”?  Let’s talk to the gardeners at HSBC!

HSBC purchased Household Finance in 2003. I am sure they regret making that purchase. HSBC was trying to emulate the “originate to distribute” model which filled the coffers of so many other Wall Street banks. The fact is, though, HSBC was literally the last entrant to the “lawn” party and their experience has been nothing short of a whole lot of crabgrass. 

As the WSJ reports, HSBC Points To More Pain In U.S., we receive a diagnosis on the U.S. economy that is much less sanguine but, in my opinion, more realistic than Uncle Sam’s gardening crew.  The WSJ highlights the fact: 

HSBC, which was among the first banks to signal the subprime-mortgage troubles that set off the global financial crisis, said its U.S. consumer-finance operation had seen a slight slowdown in the deterioration of its mortgage and other secured loans in the first quarter compared with the fourth of quarter of 2008 — a shift executives attributed in part to U.S. tax refunds, higher savings rates and the bank’s efforts to help borrowers by changing the terms of their loans.

While those signs of a slowdown in loan deterioration may be viewed as a “green shoot,” HSBC is an honest “gardener” and allows that the positive trend may not continue.

North America Chief Executive Brendan McDonagh attributed the change to several factors, including a seasonal bounce, tax refunds, loan modifications and the bank’s previous efforts to pull back in mortgage lending. “We are slightly encouraged by it, but I am reluctant to draw too many conclusions,” Mr. McDonagh said.

HSBC Chief Executive Michael Geoghegan said loan-loss rates could increase again in the third or fourth quarters of the year. “We expected two difficult years in consumer finance over all,” he said. 

Given the fact that HSBC is not connected to Uncle Sam’s gardening, I appreciate the honest assessment and “more realistic” prognosis. Miracle Gro may sell well on late night TV, but I prefer a “gardener” who is straight and honest while informing me that it may be a few years before the lawn comes in.

Speaking of lawns and gardening, here’s a shout out to my good friends Rocky and his pop!!

LD






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