British banks are underestimating losses

As the epicenter of the credit crisis has clearly moved to Europe, British Banks are at the center of new developments. However, doubts still exist about how they are valuing their assets and accounting for loan losses. Yester day the Times of London reported that activist investor Knight Vinke is publicly questioning HSBC’s writedowns due to losses from Household International’s loans.

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 As the epicenter of the credit crisis has clearly moved to Europe, British Banks are at the center of new developments. However, doubts still exist about how they are valuing their assets and accounting for loan losses. Yester day the Times of London reported that activist investor Knight Vinke is publicly questioning HSBC’s writedowns due to losses from Household International’s loans.

Knight Vinke, the activist investor, launched a fresh attack on HSBC yesterday, accusing Europe’s biggest bank of flattering its U.S. sub-prime losses by failing to write down $30 billion (£15 billion) worth of mortgage assets.

The broadside came as HSBC revealed a $3.2 billion first-quarter writedown on loans by its U.S. business to poor Americans.

HSBC’s investment bank also took a $2.6 billion writedown on credit investments for the first three months, pushing the group’s total losses on sub-prime to $25 billion.

The bank was bearish on the outlook for the United States, predicting a recession as increasing numbers of Americans defaulted on home and personal loans in the first quarter. HSBC, a big lender in America through HSBC Finance Corporation (HFC), said that U.S. house prices would continue to fall into 2009.

Times of London

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Yet, HSBC and the other major British banks and building societies are also starting to see deteriorating credit conditions in the UK as well. The banks will have to start addressing these problems in earnest in late 2008 and into 2009. All of the economic figures: inflation, housing and retail sales point to a weak UK economy. For the UK its a race to the bottom with Spain. Let’s hope the banking industry there is prepared.

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See: other related entries under the label ‘UK’ at the bottom of this post.
Also see the Credit Crisis Timeline for a full list of writedowns by institution and a timeline of the credit crunch.

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