Bloomberg reports that shares in HSBC Holdings fell to a 20-month low in Hong Kong trading Tuesday, after Goldman came out and said that it expected the bank to have to take an additional $12bn in provisions for its US subprime mortgage and home equity loans. The Wall Street firm has downgraded its rating on HSBC to 'sell'.
And The Wall Street Journal reports that HSBC has now become the first bank to shut down and bail out two bank-sponsored structured investment vehicles (SIVs). HSBC will take the $45bn in mortgage-backed securities and other assets currently owned by Cullinan Finance Limited and Asscher Finance Limited onto its own balance sheet in order to avoid ditching any of these assets at fire sale prices.
Bloomberg quotes Sanford C. Bernstein & Co analyst Anthony Broadbent, who said that HSBC 'is using their balance sheet scale and strength (the firm has $2.15 trillion in assets) to reassure investors in these vehicles and create a long-term solution. It prevents the need for a fire sale of the assets'. Other banks involved with troubled SIVs may well have to take similar action.
Stuart Gulliver, the CEO of HSBC's corporate and investment banking unit, said that the bank's 'actions will set a benchmark and restore a degree of confidence to the SIV sector, while providing a specific solution to address the challenges faced by investors in Cullinan and Asscher'.