British banks are underestimating losses

 As the epicenter of the credit crisis has clearly moved to Europe, British Banks are at the center of new developments. However, doubts still exist about how they are valuing their assets and accounting for loan losses. Yester day the Times of London reported that activist investor Knight Vinke is publicly questioning HSBC’s writedowns due to losses from Household International’s loans.

Knight Vinke, the activist investor, launched a fresh attack on HSBC yesterday, accusing Europe’s biggest bank of flattering its U.S. sub-prime losses by failing to write down $30 billion (£15 billion) worth of mortgage assets.

The broadside came as HSBC revealed a $3.2 billion first-quarter writedown on loans by its U.S. business to poor Americans.

HSBC’s investment bank also took a $2.6 billion writedown on credit investments for the first three months, pushing the group’s total losses on sub-prime to $25 billion.

The bank was bearish on the outlook for the United States, predicting a recession as increasing numbers of Americans defaulted on home and personal loans in the first quarter. HSBC, a big lender in America through HSBC Finance Corporation (HFC), said that U.S. house prices would continue to fall into 2009.

Times of London


Yet, HSBC and the other major British banks and building societies are also starting to see deteriorating credit conditions in the UK as well. The banks will have to start addressing these problems in earnest in late 2008 and into 2009. All of the economic figures: inflation, housing and retail sales point to a weak UK economy. For the UK its a race to the bottom with Spain. Let’s hope the banking industry there is prepared.

See: other related entries under the label ‘UK’ at the bottom of this post.
Also see the Credit Crisis Timeline for a full list of writedowns by institution and a timeline of the credit crunch.

  1. Swedish Lex says

    I am taking the liberty of re-posting this as it fits:

    “Swedish Lex said,
    February 26th, 2009 @4:26 am

    I have not read the details about RBS’ loss, but I suspect that it is the result of new management and owner (UK taxpayer) making their own assessment of the extent of the rot. If this indeed is the case, it only again proves that the managment of zombie banks has to be ejected as they otherwise will cover their behinds for as long as they can and new people, reporting to the taxpayer, be put in place instead.”

    Are you sure that you posted this on 14 May?

  2. Edward Harrison says

    Swedish Lex,

    I agree that existing management should always fall on their swords. At a minimum, the government should insist they resign in exchange for funds. The U.K. has been better here than the U.S.

    When a manager screws up, their future actions are often just a way to cover up past mistakes, exacerbating the problem. In my view, it would mean that management would not be inclined to take actions merely to support previous missteps.

    And it is unreal that I did write this 10 months ago. The fact that we are dealing with the same problem 10 months later is clear evidence that we have not been aggressive enough in getting the rot out of the system.

Comments are closed.

This website uses cookies to improve your experience. We'll assume you're ok with this, but you can opt-out if you wish. Accept Read More