HSBC looks to global loan book to boost profits

Mon Dec 7, 2015 5:34pm EST
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By Carmel Crimmins and Dan Wilchins

NEW YORK (Reuters) - HSBC is looking to boost investment banking profits by packaging more of its loans into bonds and selling them to investors in the United States.

Post-crisis regulations have made it more expensive for banks to retain loans on their balance sheet so to reduce the amount of capital it has to set aside to cover potential losses, Europe's largest bank is looking to repackage loans sold in Asia, Africa and the Middle East as bonds.

"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," said Thierry Roland, HSBC's head of global banking and markets for the Americas.

"Investors come to us to buy emerging market assets."

HSBC has traditionally used an "originate and hold" approach to its loans. In 2013, the bank distributed only a quarter of loans made by its global banking and markets division but in the 12-month period up to April of this year, it had distributed nearly half of them, according to figures released during a presentation in June.

The "originate and distribute" model of securitized debt helped fuel the 2007-08 financial crisis because so many of the bonds were linked to mortgages given to risky U.S. borrowers. The riskiness of the products were not reflected in the ratings assigned to them.

HSBC was at the center of the crisis after a 2003 takeover of Household International, a lender to people with poor credit history, made it one of the biggest subprime lenders when the housing market crashed.

Since then, the bank has purged itself of around $100 billion of crisis-era loans.   Continued...

A traffic light shines red near the HSBC bank logo, pictured at the bank buidling in Paris, June 15, 2015. REUTERS/Christian Hartmann