This is insane what's going on, mind blown right now, the rabbit hole goes deep and people will be in shock once they discover how bad the credit crisis will get... Quick thesis Start with HSBC, Page 4 earnings shows Global Banking losses QoQ and G Markets bleeding, on a clear down trend compared to other units of the bank, Page 15 shows a dilution gain ( huh ? ) of 827 Million ( it's a net loss ), other losses marked as a gain is in operating expenses Customer Redress Program of 554 Million and 237 Million for restructuring... 827 was marked as loss, 554 and 237 weren't. 383 Billion exposure in EU, 292 in UK ( RE price crash coming ). 474 Billion in Asia, 304 Billion in HK ( RE price crash coming ). Page 33 indicates 173 Billion lent in China, 38 % SOEs and 42 % Private owned... In 2018 around 90 percent of profits came from Asia, highly exposed to HK. If valuations on assets fall 10 % in China and HK, HSBC will have more liabilities then assets and will face insolvency. The juicy reason why they are gonna explode is they have been caught with their hand in the cookie jar... As everyone knows, PBOC is knee deep and the biggest client for US Swaps in the world, we can't know for sure the amount of exposure but I believe HSBC has been rolling the swaps for years and have accumulated serious credit risks, hence their CEO Flint firing. PBOC has been defending their currency intense since 2014 but since beginning 2016, their foreign reserves suddenly became extremely stable while their account surplus was trimming at a fast pace... How can they defend without burning reserves, as Snider points out in 2015 China had become Brazil https://www.alhambrapartners.com/2015/10/22/confirmation-china-as-brazil/ State-owned Chinese banks were borrowing “dollars” via increasingly expensive swaps with eurodollar banks and then selling them domestically in cash to dollar-starved local banks desperate for them (shorts and shortages). They did so because like in Brazil the central bank was subsidizing the swap via its own forwards, liquidity backstops, and I think even some term repos collateralized by those UST’s it holds. But where does the central bank end of these triparty transactions show up? Like any financial institution, the PBOC as Banco reports a line on its balance sheet for “miscellaneous” or “other” assets. It is the proverbial black box of sundry remainder items, one of which might be our extremely important eurodollar workaround
Jeffrey Snider : It’s not conclusive, of course, and could be related to a number of possibilities but this (above) seems pretty persuasive anyway. It isn’t a small number, either, an increase of RMB 587 billion, more than half a trillion, in the single month of December 2018. The added benefit for the PBOC is that as a positive asset value, whatever this is, it contributes the same for the liability or money side. As we’ve chronicled for a long time, eurodollar squeezes of this type (#4) constrict China’s domestic money supply in the manner Banco’s 2013 paper outlined. If you can use swaps/derivatives instead of reserves and at the same time boost money supply, pure magic – for a little while. In my view, I don’t see this as an ongoing effort. I think it was a one-time panic move (not unlike December 2012). How do we know? The PBOC announced not one but two RRR cuts in January, suggesting that these potential swaps (short subsidies) in “other assets” aren’t going to be around for much past this current month. This in addition to “record” liquidity injections everyone has been talking about the past week or so. Things were really bad in December and China’s monetary authorities needed a short-term answer, even if it was a bad one. They didn’t want to contribute to another CNY collapse (the economic fruits of which are just now being recorded) at the same time they had to try something. If officials could keep it hidden in the darkest parts of their books, so much the better. The big problem, which the Brazil case proves beyond any doubts reasonable or otherwise, is how this is just short-termism. The bigger the crisis the more you tend to focus on just getting through the day (or the month) at the expense of figuring out how to solve the actual big picture problem which takes time. You make some questionable moves to survive today, and tomorrow your task is that much harder.
HK banks may have been tasked with something especially balance sheet intensive. That would mean taking on securities that are specifically volatile, illiquid, and feature a whole lot more risk, such as FX $ swaps that are then forwarded to Chinese counterparties... It seems very likely that HK banks were tasked with getting US Dollars for China, how far deep is HSBC into this ? Which HK banks falls first, who knows but it's almost a guarantee they are way over their heads in derivatives... Quote : The more HK banks “have” (I make it sound compulsory because I don’t know that it’s not, with some kind of cajoling on the PBOC’s part; it may be completely voluntary in that these Hong Kong-based Bank B’s are being handsomely compensate for using up so much spare balance sheet capacity in the deals) to do in China’s ad hoc “dollar” bypass, the less capacity they will have for excess funds in HKD interbank. The lack of “excess” balance sheet capacity impedes all the transactions from that point forward, leaving Bank A unable to meet the demand from Bank C. HIBOR rates rise and volatility results in a place where volatility is, or used to be, quite rare for a reason. https://www.alhambrapartners.com/2018/02/16/a-rough-sketch-for-hong-kong-china-maybe-a-lot-more/
In addition to the analysis provided (which I am taking as written with no further due diligence), HSBC is one of only 3 banks responsible for note issuing in order to maintain the HKD/USD peg rate. The requirement for issuing notes is an equal value of USD must be on deposit with the HK monetary authority. The existing HK peg will eventually fail, guaranteed. Will RMB be deep enough as an alternative peg(which would eventually fail too) or does it (HKD) free-float? More important... is now, the current swoon, the correct timing? IMO, this is NOT it.
https://www.reuters.com/article/us-...f-wong-leaves-for-external-role-idUSKCN1UZ1KR They started to flee to sinking ship! HSBC Greater china unit is toast, tooo many swaps with PBOC for too many years, clock is ticking The HSBC spokeswoman said Wong’s resignation was submitted at the end of July and there was no connection between her decision and Flint’s departure. Flint’s ousting was announced on Monday in a move that the chairman of Europe’s biggest bank said was needed to speed progress in priority areas. “Our growth strategy in China is unchanged. HSBC has been steadfast in its commitment to China for over 150 years. We will continue to support China’s growth and economic prosperity going forward,” the HSBC spokeswoman said. Last month HSBC also announced the departure of the head of its U.S. business, Patrick Burke, after three decades with the bank. Burke will be replaced by Citigroup’s (C.N) Michael Roberts.
https://www.scmp.com/property/hong-...en-long-and-north-point-begin-sell-properties A 286 sq ft flat at the Victoria Harbour project is on the market for HK$10.8 million, little changed from its purchase price a year ago. At that price the owner be out of pocket by about HK$1.44 million after stamp duty and other expenses, agents said. Declining prices have also been reported outside the two battlefield districts. In Wan Chai, an 85 sq ft shop on Lockhart Road changed hands recently at HK$4 million, a loss of HK$5.1 million, or 56 per cent, in six years, agents said. In Tai Wai, a 958 sq ft flat at Festival City sold for HK$14.5 million, down 15 per cent from the HK$17 million market price in July. Meanwhile, Hong Kong’s commercial banks are holding their ground on mortgage rates, even as the protests have started taking a toll on some of the sectors, including hotels, retail and aviation. Hang Seng Bank has raised the mortgage rate for Hibor-linked loans and cut the cash rebates, following in the footsteps of HSBC, which has done so twice in the past two months.