HSBC may need $190 billion in loss-absorbing debt, Exane says
By Bloomberg
HSBC Holdings Plc may have to raise as much as $190 billion of capital to satisfy the demands regulators are making of the world’s biggest financial firms, according to Exane BNP Paribas.
HSBC, Europe’s biggest bank by market value, requires a further $21 billion of additional Tier 1 capital, $19 billion of Tier 2 securities and as much as $150 billion in other debt that can be converted to equity if a bank fails, Exane analysts led by Jonathan Pierce, who rate the bank underperform, said in a report Wednesday. The instruments are designed to absorb any losses banks make in a crisis to avoid public money being used to bail out collapsing firms.
“The dividend and earnings implications of this are stark,” Pierce said. “In their current form, we think the various regulatory proposals in train could reduce profits by $2 billion to $3 billion versus today.”
The Financial Stability Board, the regulator led by Bank of England Governor Mark Carney, wants global systemically important banks to be forced to hold subordinated debt and other loss-absorbing liabilities equivalent to as much as a fifth of their assets weighted for risk. The FSB proposal on total loss- absorbing capacity, or TLAC, would apply to the FSB’s list of 30 firms, with HSBC and JPMorgan Chase & Co. identified as the most significant.
HSBC Chairman Douglas Flint, who faces U.K. lawmakers today over a tax evasion scandal at the firm’s Swiss private bank, questioned last year whether investors will actually buy the trillions of dollars of securities banks would have to issue to comply with the proposal.