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Monday, 11 May 2009

Holy Shit Batman Corporation

So there I was listening to the HSBC results webcast of their interim results to find out what was going to find out how much their profits really were. The interim results contained no figure and throughout the call the directors would only say that underlying profitability covered the dividend.


“Our Global Banking and Markets business delivered record quarterly results with very
strong performances in foreign exchange and interest rate trading.”

Wahey, more trading profits which is the cause of all the bullishness! Surprising at these times no? But wait we have seen this before:

“Credit spreads widened significantly in Q1 2009, contributing to gains on HSBC’s own debt recorded at fair value of US$6.6 billion compared with US$2.5 billion in Q1 2008.”

So $6.6 billion of their bullish profits come from their own credit deterioration. And it gets worse

“In April 2009, credit spreads narrowed, leading to a significant proportion of these gains reversing.”

So expect the Q2 results to reserve much of this $6.6 billion gain.

“ These gains are reflected in the ‘Other’ segment, are not allocated to customer groups and are not included in regulatory capital calculations. They will fully reverse over the life of the debt and do not form part of managed performance.”

Listening to the webcast, the HSBC directors describe this as a one-time industry wide “benefit” that will disappear. So one might ask why this is included in the Q1 P&L?

More interestingly on the webcast we hear the FD of HSBC say that it is impossible to comment on profitability of any particular business line because so much of the funding comes from the wholesale markets through trading (i.e. accounting for all these own debt revaluations masks the true level of profitability).

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