Bank mulls disposal of US$49b portfolio after bad debt provision hurts earnings
HSBC Holdings, haunted by its poorly performing sub-prime mortgage business in the United States, said selling the mortgage portfolio was one option as the banking giant moved to resolve its problems in the country.
Michael Geoghegan, the bank's chief executive, said HSBC could sell the portfolio to other mortgage providers or to the group's investment bank, which would package it and pass it on to the market. The portfolio of the mortgage services business stands at US$49 billion.
The bank had to take other things into consideration, such as pricing, Mr Geoghegan said.
'We are in no hurry to sell anything as the market price at the current time doesn't reflect the underlying value of the asset,' he said.
HSBC, the world's fourth-largest bank by market value, on Monday posted a 4.7 per cent rise in net profit to US$15.79 billion for last year, as gains were held back by a surge of bad debt provision mainly related to the US mortgage business.
Mr Geoghegan said the bank had taken steps to curtail the problem, including repackaging assets for disposal, but 'the workout will probably take two to three years'.
CLSA said in a report that HSBC would slow its loan growth in the US, but it was likely that revenue might fall faster than costs this year and next year.
Mr Geoghegan said revenue from the sub-prime mortgage business would drop but he hoped the costs would also fall.
Louis Tse Ming-kwong, a director at VC Brokerage, said it could be hard for HSBC to sell the mortgage business now, but 'it all depends on pricing, such as how much discount they are willing to offer'.
'The impact to the group will be positive if they could sell the portfolio, but more important is their future business strategy,' Mr Tse said.
Mr Geoghegan reiterated the bank would continue its consumer finance business in the US, saying that apart from the sub-prime mortgage business, other businesses such as credit cards and personal loans were doing well.
He said the US economy was still in good shape and although property prices in some areas had fallen, they were rising in other areas such as New York.
Mr Geoghegan denied that the bank would stop making acquisitions in the US while developing in emerging markets.
He said the bank would continue its strategy of organic growth in Asian markets but would look at acquisitions if suitable opportunities arose.
Michael Smith, the chief executive for HSBC Asia-Pacific, said the price of some financial assets had come off in the past few months but whether there were good buys depended on the opportunity and who the seller was.
Meanwhile, after recent studies, Mr Geoghegan said the bank would put its London headquarters up for sale during the first half if the price was right.
Citigroup retained a hold recommendation on HSBC, saying the bank's performance should stabilise but risks remained.
'[The share price] is inexpensive in an Asia context and defensive, but we see catalysts for turnaround two to three quarters away,' Credit Suisse said in a report.
HSBC gained 2.63 per cent to HK$136.50 amid a rebound in regional markets.