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March 10, 2008

HSBC investor calls for action on US mortgage business

by Gill Montia

Story link: HSBC investor calls for action on US mortgage business

HSBC has been criticised by the California State Teachers’ Retirement System (Calstrs) for its losses in respect of HFC, its US mortgage business.

Calstrs, which is one of the world’s largest pension funds and a major HSBC investor, has described HFC as “a skin-hole for money”.

The bank has already injected $1.6 billion of additional capital into the business and could be required by the US Securities and Exchange Commission to provide additional capital of up to $3.6 billion, in the months ahead.

Janice Hester-Amey, head of corporate governance at Calstrs says: “It looks to us as though this is an acquisition that has gone wrong in every way. They paid $14 billion for it and it now looks like they are going to have to put another $12 billion into it to keep it going. It’s hard to see how it will ever get healthy in view of everything that’s happened in the sector that they were after – sub-prime.”

HSBC’s activist shareholder, Knight Vinke, has also been urging the bank’s chairman, Stephen Green, to dispose of HFC but should it be sold, it would need to be recapitalised.

The cost to the group has raised the possibility that HSBC could simply walk away from HFC, despite the fact that this would deeply damage the bank’s reputation in the US and would leave bondholders with $150 billion of debt.

 

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