VANCOUVER, British Columbia (Reuters) - HSBC Bank Canada, a subsidiary of HSBC Holdings Plc (HSBA.L), took a C$47 million ($46.5 million) charge on its holdings of troubled asset-backed commercial paper, it said on Tuesday, which eroded its fourth-quarter earnings by 13 percent.
The charge represents a 15 percent writedown on the value of the investments held by the bank, a “best estimate at this time,” bank President and Chief Executive Lindsay Gordon said.
“It could be adjusted up or down depending on events,” Gordon said in an interview with Reuters, referring to the outcome of a restructuring of the seized-up market that is due to be completed by the end of March.
The bank, Canada’s seventh biggest, got caught up in a meltdown of the country’s nonbank asset-based commercial paper market last year. That C$35-billion corner of the money market froze up in August when investors bolted on fears the paper was invested in the troubled U.S. subprime mortgage market.
Investors in Canada’s non-bank ABCP have written down the value of their investments by between zero and 40 percent. The wide range reflects uncertainty about what the instruments are worth as trading has been halted during the current workout.
The Vancouver-based lender said it held C$280 million worth of nonbank ABCP, net of provisions and writedowns, at the end of 2007.
Gordon said the holdings include “a very small element of exposure” to the U.S. subprime market and that this is the bank’s only exposure to that market.
By comparison, the U.S. operations of HSBC Holdings, Europe’s largest bank, have been battered by their exposure to subprime investments, resulting in the cutting of 750 jobs there and the replacement of its North American CEO.
Earlier, Vancouver-headquartered HSBC Bank Canada said net income slid 13.3 percent to C$111 million in the three months ended December 31.
Although not listed, HSBC Bank Canada’s results, which are released a few days before Canada’s big banks start reporting, are interesting to analysts and bank investors as a barometer of what is to come.
The bank noted several developments in the quarter, which analysts expect will be reflected in results from the bigger lenders when they start reporting earnings on Thursday.
These include a drop in capital market fees because of slower new issue underwriting and less advisory work.
HSBC also reported a 41 percent rise in its provision for credit losses in the fourth quarter to C$24 million. Canada’s big banks are also likely to raise their loan-loss provisions after several years of unusually low levels of bad debts.
Gordon said the 2008 outlook for the bank is “mixed.”
“Both personal and commercial segments of the bank’s business remain very competitive with ongoing pressure on margins, particularly in the personal segment,” he said in a statement.
He added, however, that the Canadian economy remains “resilient with strong growth in Western Canada.”
Reporting by Nicole Mordant; Editing by Bernadette Baum