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TOPIC: HBC has tremendous credit derivative exposure - started by perpetualbull

Msg # 26

Posted 8/11/2008 1:49:17 PM by perpetualbull

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HBC has tremendous credit derivative exposure

The OCC quarterly derivative publication is always fun reading (first quarter)

Here I will summarize one stat I never published on here before, which is total credit derivative exposure and most importantly I believe, ratio of credit derivatives to total assets

Because most of the credit derivatives are level III assets, difficult or impossible to price, and many of them are crashing in value, looking at the credit derivative exposure gives you a good idea of a bank's derivative risks.

Bank	Assets ($B)	Credit derivs	Ratio to assets	Notes
HSBC USA	188	1341	7.1	Very active in CDS
JP Morgan	1408	8121	5.8	Very active in CDS
Citigroup	1293	3351	2.6	Very active in CDS
Bank of America	1355	3099	2.3	Very active in CDS
Wachovia	666	454	0.7
Merrill Lynch Bank	63	9.2	0.1
Bank of New York	128	2	0.0
U.S. Bank	237	1.7	0.0	Owned by BRK
Wells Fargo	487	2	0.0	Owned by BRK
RBS Citizens	131	0.3	0.0

Couple observations:

HSBC is "going for broke", they have $1.3 trillion of credit derivatives and $188 billion of assets.
All the giant banks are playing games with credit default swaps of huge notional amounts
Look at the banks that Buffett owns ... no credit derivative exposure
Citizens Bank (RBS) which I just discovered also seems very conservative

Replies to this message	Recs	Date Posted
# 27 by Irish	2	8/14/2008 12:23:12 AM
# 34 by perpetualbull	1	3/10/2009 2:57:17 AM

Msg # 27

Posted 8/14/2008 12:23:12 AM by Irish

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Re: HBC has tremendous credit derivative exposure

I've added to my hbc puts this week at various strikes and months again this week. I keep digging on these guys, and I'm more convinced than ever.

Here's a couple of tidbits...

Note that of the top five credit contract holders in the world, only BAC and HBC increased, and for BAC, this was a result of them taking a lot of Countrywide's paper. Three decreased, but, HBC not only increased their exposure YOY, but, did so by about 50%.

Total Credit Exposure to Risk Based Capital (%)

` 07Q4 08Q1

JPMORGAN CHASE 418.7 411.6

BANK OF AMERICA 115.2 215.4

CITIBANK 223.0 279.1

WACHOVIA 81.4 77.6

HSBC 483.3 721.3

CREDIT EQUIVALENT EXPOSURES

TOP 5 COMMERCIAL BANKS AND TRUST COMPANIES IN DERIVATIVES

MARCH 31, 2008, $ MILLIONS

Now, look at their assets to total exposure. Note the top four now have nearly 4:1 Assets to Below Investment Grade Exposure.

HBC, though, is not even close to having a 2:1 ratio. I've deleted some columns to make this post fit the IV text area, but, the next column shows their total Credit Exposure Ratio. They all appear to be in deep doo-doo, but, look at HBC with a ration of 721.

IMO, it's just a matter of time until this is a $20 stock like all the rest. I have no idea what is holding it up right now. This happened to me with a number of sub-prime lenders and ABK and a couple of builders last year when I started shorting them, where, they illogically stayed at higher levels and I at times was upside down on them. Ultimately, though I made a shit load. I've been hanging out waiting on some of the international banks to start to catch up, and I think it's about time. I may be a bit early on HBC, but, I'm going to keep rolling over the short position until I get it right.

TOTAL TOTAL BIV CREDIT EXPOSURE
RANK BANK NAME STATE ASSETS EXPOSURE TO CAPITAL RATIO

1 JPMORGAN CHASE BANK NA OH $1,407,568 $480,502 411.6

2 BANK OF AMERICA NA NC $1,355,154 $222,341 215.4

3 CITIBANK NATIONAL ASSN NV $1,292,503 $338,318 279.1

4 WACHOVIA BANK NATIONAL ASSN NC $666,241 $48,790 77.6

5 HSBC BANK USA NATIONAL ASSN DE $188,463 $116,556 721.3

Replies to this message	Recs	Date Posted
# 28 by perpetualbull	1	8/14/2008 5:45:41 PM

Msg # 28

Posted 8/14/2008 5:45:41 PM by perpetualbull

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Re: HBC has tremendous credit derivative exposure

That's incredible, thanks. I am shocked by the steep increase in that figure.

Also, unrelated but still something I just calculated, here is some insight into HSBC customer loan quality. This is impaired loans as a % of total loans.

June 2007:   1.54%
Dec 2007:   1.83%
June 2008:   1.78%

No sharp increase yet in 2008, but given the trend it's coming. Over 2% we get into some real danger territory. Some of the US banks are maintaining figures under 1%

Msg # 34

Posted 3/10/2009 2:57:17 AM by perpetualbull

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Re: HBC has tremendous credit derivative exposure

From my August 11 post:
"HSBC is "going for broke", they have $1.3 trillion of credit derivatives and $188 billion of assets."

See what I mean now? Mr. Market has figured it out too.

Take the off balance sheet derivative stuff seriously. It is possibly the greatest systemic fraud in financial markets in the modern generation.

HSBC played the game too, and lost.

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