HSBC Takes Bonds Global To Increase Profits

Banking behemoth HSBC wants to boost its bottom line by packaging loans into bonds and bringing them to market in the United States, Reuters reported Tuesday (Dec. 8).

The newswire said that keeping loans on the books in this post-crisis age, due in part to a tougher regulatory environment that requires greater capital cushions, has proven expensive. The loans themselves originate from Africa, Asia and the Middle East.

“Given our global footprint, we are able to originate assets from all over the world, repackage them and then offer them to the U.S. investor base,” Thierry Roland, HSBC head of global banking and markets for the Americas, told Reuters.

The packaging would represent a departure from the “originate and hold” approach that has been the hallmark of HSBC loans. Only about 25 percent of loans were packaged in this manner in 2013, and most recently, this year, that tally has been about half.

[bctt tweet=”HSBC’s loan packaging would represent a departure from the “originate and hold” approach.”]

Originating and distributing loans via securitized debt was a major mover of the 2007–2008 financial crisis. Those bonds, as has been widely reported, had been part of the mortgage risk pool that later bedeviled many banks. The ratings assigned by major ratings agencies did little to warn investors of just what they were buying.

HSBC itself had been one of the biggest lenders to risky real estate borrowers in the wake of its 2003 takeover of Household International. As Reuters noted, the bank has gotten out of roughly $100 billion of crisis-era loans.

HSBC’s U.S. operations have lately been struggling to make a profit, despite healthy revenues of around $3 billion in the past year, with operating profits from the unit coming in at $282 million, below that of other units around the globe, Reuters said.