HSBC reported its earnings for 2006 this morning and it’s all everyone can do not to go into anaphylactic shock over the fact that the cost to cover debts primarily associated with subprime loans climbed 36%. HSBC, naturally, wants you to know that there’s nothing to "worry your pretty little heads over," and that maybe you should all just take a Valium and chill for the day. Chief Exec Michael Geoghegan said in a conference call that “This is not trailer park lending…this is main street America, [where customers typically own homes worth $190,000]," adding that he needs at least two to three years to fix HSBC’s U.S. loan problems. As she's wont to do, Michelle Leder at footnoted.org may already have uncovered one of the bank's central problems in this mess.
Buried in something that I like to call “Enron Beelzebub” typeface [of HSBC USA’s10-K] were some interesting disclosures on housing perks for top executives. For example, Martin Glynn, the former CEO of HSBC USA (he stepped down at the end of December) received a $177,600 rent allowance and another $150K to cover the tax gross-up on the rent. Brendan McDonough, who was recently promoted to oversee the problems at HSBC Finance received a $75K rent allowance and a $62K gross-up as well as another $122K for “housing and furniture allowance”, which appears to be in addition to the rent and the gross-up. Unrelated to the housing, but still interesting, was something called “additional cash compensation” for Glynn of $7.2 million, which was primarily due to $6.6 million in “general employment benefits.”
Now, when you’re making $700K a year in base salary (not including other goodies) and still need help paying for a place to live, is it really any wonder that HSBC seems to have missed some of the signals that they were over-exposed in the subprime housing market whether or not the loans were made to “trailer park” people?
(Also-- we realize when you've lost "a few bill. or so," the only thing you're going to say is "Everyone relax, this is so not a big deal," but is anyone else with us in thinking that if HSBC were like, "Listen, we're going to shoot you straight-- we fucked up big time," they could salvage at least a tiny bit of self-respect? Anyone? Okay.)
Part of the problem? [footnoted .org]
HSBC 2nd-Half Net Falls Less Than Analysts Estimated [Bloomberg]