Sunday 15 September 2019

HSBC warns that US house prices will continue to tumble until 2009

Sean Farrell

Europe's biggest bank HSBC warned yesterday that US house prices would keep falling until next year and that the chances of the American economy going into recession had increased.

The bank made $3.2bn (€2.05bn) of bad-debt provisions in the first three months of this year at its US consumer finance business. The figure was down from $4.6bn in the last quarter of 2007 but HSBC said the reduction was at least partly due to seasonal factors such as tax refunds being used to repay debt rather than an underlying improvement.

Michael Geoghegan, HSBC's chief executive, said: "I don't see US real-estate prices changing from where they are now until well into 2009 . . . we don't think it is a spring 2008 event, we think it is a 2009 event." There is "an increased likelihood" of a US recession this year, the bank added.

Mr Geoghegan warned that US housing delinquencies had moved from the subprime market, in which HSBC has been a big player, to near prime and supposedly safe prime loans.

HSBC's comments on the US are keenly watched because of its direct exposure to the American housing market.

In late 2006, HSBC, which employs 550 people in Ireland, was the first bank to warn of the meltdown in the US housing market that spread to shatter confidence in credit markets. Many senior bankers do not believe there will be an end to the financial crisis until US house prices stop falling.

Asked about what effect the falling house prices would have on this side of the Atlantic, Mr Geoghegan said: "Are we concerned? Yes. Are we surprised? No."

HSBC said its first-quarter profit was higher than a year ago because growth in Asia and emerging markets had offset its woes in the US, where the bank has suffered from the ill-fated acquisition of Household, the subprime lender, in 2003.

But Mr Geoghegan said the threat of inflation and slowing export orders from the US meant that there would be some "contagion" for Asia from western markets.

The bank faced a renewed assault from Knight Vinke, the activist investor that has called for Household, now know as HFC, to be sold or split off.

Knight Vinke accused HSBC of severely underestimating HFC's potential losses compared with write-downs by other banks. HSBC responded that the provisions, which are for direct loans rather than falling values of securities, reflected the fact that 95pc of consumer-finance customers were repaying.

Speaking on the effect of the falling house prices on the UK market, Mr Geoghegan said HSBC would wait to see the British government's proposals on taxing UK companies' overseas profits before deciding whether to join those threatening to move their headquarters.

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