"HSBC doesn't like losing money, it prides itself on its credit quality. It has been let down in one subsidiary. We are focusing on it and we're going to get it right," Michael Geoghegan, HSBC chief executive, told analysts on a conference call.
Reuters includes the bear point of view:
"The disturbing fact is that it's recent loans, it's not something that's gone wobbly over time. It's stuff that they've acquired that has gone spectacularly wrong in a short space of time," said Mike Trippitt, analyst at Oriel Securities in London.
He said the key issue was whether all the bad news was now out or if the delinquencies could spread.
But what the article omits is the reaction from the established brokerage community. Early article contained some extremely negative commentary from the major players on Wall Street. I read these earlier this week, but these comments aren't mentioned in the recent Reuters articles. I was able to hunt them down with Google. Also from Reuters is this more urgent warning. Compare it to the quote above. It appears to have been edited to make it more placid in tone:
"The disturbing fact is that it's recent loans, it's not something that's gone wobbly over time, it's stuff that they've acquired that have gone spectacularly wrong in a short space of time," said Mike Trippitt, analyst at Oriel Securities in London.
He said the key issue was whether all the bad news was now out or if the delinquencies could spread.
HSBC's announcement triggered a ratings downgrade by JPMorgan, while Merrill Lynch dropped its earnings forecast ahead of the global bank's expected March 5 results.
JPMorgan cut its rating to "underweight" from "neutral" and advised investors to sell the stock short, as it had further room to drop, and said the higher bad debt charge would cut its pre-tax earnings estimate by 8 percent.
Merrill called HSBC's announcement surprising, as it was the first time in memory that the bank had released material information ahead of its results release.
"We would have to increase our 2006 provision forecast by 24 percent to match the bank's new guidance," Merrill said in a research note. "This would result in a cut of nearly 10 percent to our 2006 net profit forecast of US$16.6 billion for HSBC."
Merrill reiterated its "sell" rating.
"We downgraded HSBC to a sell in early January 2007, highlighting the vulnerability of the bank's share price to negative news flow on the U.S. consumer finance market and consequent earnings downgrades," Merrill said.
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