HSBC warns of lowered profit due to foreclosures

[c1ue]

A growing number of debt-ridden Americans defaulting on their mortgages have forced British banking giant HSBC Holdings to increase its provision for bad loans, a move that sent its shares down 2.5% or $2.34, to $89.88 Thursday in New York.

Chief Executive Michael Geoghegan said that the bank's own analysis had found a "higher severity" of foreclosures and indicated that reserves for bad loans would rise to about $10.6 billion, 20% higher than the $8.8 billion predicted by analysts for fiscal 2006.

Analysts at UBS predicted HSBC's (nyse: HBC - news - people ) net profit would probably drop 6%, to $15.9 billion, while earnings per share would fall to $1.37 from $1.46. The adjustment could also affect its 2007 forecasts for HSBC.

My guess is this is more to do with the loans from the Household International acquisition from 2003 rather than last year's loans, but a warning from Wells Fargo would be a clear indicator.

[jk]

Re: HSBC warns of lowered profit due to foreclosures

from the wsj

"Its systems for screening subprime borrowers and for assessing the default risk they posed were flawed. Many of those loans have soured, sometimes quickly. The percentage of HSBC mortgages more than 60 days past due is climbing. Fraud by borrowers has been higher than expected."

household certainly contributed, but other lenders have been saying that loan quality has been deteriorating markedly in the last 1-2 years. either way, hsbc is supposed to be a quality operation. so everyone's got to wonder what's going to turn up under the next rock.

[c1ue]

The plot thickens...

From Forbes.com
http://http://www.forbes.com/free_fo...0226/040a.html

FirstFed Financial
79% of loans in the first nine months of 2006 were so-called stated-income loans, in which the borrower's income does not get verified with W-2s, tax returns or pay stubs.
New Century Financial (nyse: NEW - news - people )
42% of loans in 2006 were either stated income or interest only, prompting the company to tighten underwriting standards.
Countrywide Financial (nyse: CFC - news - people )
42% of its mortgage portfolio consists of pay-option adjustable-rate mortgages, in which borrowers decide each month how much to repay and can face negative amortization of the loan.
Wells Fargo (nyse: WFC - news - people )
22% of its loan originations through September 2006 consist of nontraditional mortgage products.
Washington Mutual (nyse: WM - news - people )
33% of its loans through the third quarter of 2006 were pay-option or interest-only loans that tend to result in higher default and foreclosure rates.

Some background on possible ground-zero candidates should a (when a?) sub-prime implosion occurs.

Some quick research into Wells Fargo:
From Q1 earnings:
http://https://www.wellsfargo.com/pr...0417?year=2006
$51B in ARM loans since beginning of 2005
$311.1B in total loans
Chargeoffs in 2006Q1: $433M (0.56%) vs. 2005Q1 $171M (0.22%)

Other sources:
http://http://mortgagebankers.org/fi...onChannels.pdf
Total mortgage loans in 2005: $183.5B

Washington Mutual to come...