HSBC makes $6 billion from its own debt – sort of

May 11, 2009: In the U.S., the HSBC Finance exit portfolio was managed down to $96 billion from $100 billion. Loan impairment charges on the portfolio were $2.4 billion, a decline of $600 million from the final quarter of 2008. What does that mean?

HSBC said Monday that its first-quarter underlying pretax profit was well ahead of the equivalent period a year earlier, driven by $6.6 billion of gains on the fair value of its own issued debt. OK, but what does that really mean?

This doesn’t make sense, does it? Let’s try it again: “The global banking and markets division generated record results due to an improved market share and margins in a number of areas.”

Give up? What HSBC is saying is they made a $6 billion profit from their own debt.

The liability write-downs are just plain silly. It is like the sub prime person improving his net worth each month by writing down the mortgage (with the lender not knowing about it). If this were done by an individual on a financial statement it would be called “fraud”. When it is done by an institution it is called “regulatory accounting”.

Finance games. HSBC is allowed to say how much their loans are worth — and presumably –their loans are worth more and they made a profit.