HSBC’s subprime earnings may take a bigger hit than previously thought. While HSBC claims to have losses under control at HSBC Finance others are taking note. Their CFO, Simon Penny, is no longer on the job. It is HSBC USA, however, that finances and packages much of the debt from HSBC Finance Corporation. HSBC Finance, a holding company of HSBC, was formerly known as predatory lender Household International.
Planned sales of collateralized debt obligations backed mainly by subprime mortgages are drying up and may shut down amid concerns about the integrity of the market following the near collapse of hedge funds run by Bear Stearns Cos., JPMorgan Chase & Co. said.
The amount of U.S. high-grade, structured finance CDOs that are being offered to investors has plunged to $3 billion, from $20 billion a month ago, JPMorgan said in a report dated June 25th, 2007. CDOs are pools of asset-backed securities, bonds or corporate loans divided into securities with different credit ratings and maturities to cater to investors’ preferences.
Merrill Lynch last week seized and sold $800 million in securities from the Bear Stearns High-Grade Structured Credit Fund to cover loans outstanding. Bear Stearns eventually stepped in with at least $1.6 billion to bail out that fund.