The embattled UK banking sector is likely to be dealt another blow this week when HSBC reveals more writedowns from its American sub-prime business.
Shares in financial stocks plummeted last week with Barclays shedding around 11 per cent of its value amid frenzied rumours of an imminent £10bn writedown, strongly denied by the group. The other big loser was Royal Bank of Scotland, which lost 16 per cent of its worth in the past five days as fear of greater losses intensified.
Shares in HSBC, which have held up relatively well recently, dipped 60p last week in the general sell-off but are likely to fall further if sub-prime-related writedowns come in higher than expected. Derek Chambers, banking analyst at Standard & Poors Equity Research, said: "I think people are being rather too sanguine about HSBC. It really is difficult to see what the positives will be this week."
Mark Durling, analyst at stockbroker Brewin Dolphin, said: "People shouldn't get too spooked by the sub-prime numbers. Any increased provisions are likely to be offset by strong growth in other parts of the business, in particular, Latin America. We still think their growth targets are achievable."
HSBC's first-ever profits warning came in February this year when a $10.6bn (£5bn) hole in the company's US sub-prime business was revealed. It prompted the sackings of senior executives and the adoption of a new back-to-basics strategy focusing on Asian emerging markets.
At the company's July interims, chief executive Michael Geoghegan said that losses from the troubled low-quality mortgage arena had largely been stemmed. The firm slashed $8bn of its exposure to the sub-prime market, nevertheless, leaving a $41.4bn position on the books.
Alastair Ryan, analyst at UBS, last month slashed his profit before tax forecast for HSBC's US unit by $1.2bn, saying: "We do not expect the group to make any effort at providing reassurance as to the near-term outlook."
A precipitous writedown on Wednesday is likely to prompt further ire from the Monaco-based activist hedge fund Knight Vinke, which is campaigning for a radical shake-up of HSBC's corporate structure and strategy.Reuse content