Credit deflation and the reflation cycle to come (part 2)

[Craig]

48 minutes ago, Boon said:

Gold seems to be taking a hammering today.

But the indices are doing well. 

Given the newsflow in America it makes no sense at all to me. US have banned Chinese passenger jets (and vice versa). It could get messy. Like everyone else they are dependent on cheap goods from there, can't wean yourself off them overnight. A trade war would be messy.

About fucking time. If they'd done that three months ago they might not be in the state they are now.

But that's for another thread.

[DurhamBorn]

Amazon is "worth $1.2 trillion,yet needs to borrow $10billion.

https://markets.businessinsider.com/news/stocks/amazon-raised-10-billion-through-record-low-borrowing-costs-2020-6-1029272938

The above is the real reason they are able to crush other smaller companies even though they probably cant make much of a profit in the retail business.

Likely they are looking to buy up other companies with this cash.Shareholders in the targets must not want Amazon stock in payment,wonder why?

[Loki]

@janch @JMD @Fully Detached

The mysterious Another's thoughts on silver

Quote

Silver will always be part of "gold money". But, is far too small a market for large, modern economies. Silver will do far better than any paper asset, only it will serve better as a "personal holding" than as a major money. If it is of your way to balance wealth, then silver will show value.

Metals have not shown their true worth for many years as the world has done very well. This is very good. But, all things do change! As it is our time and place to live this change, our thoughts must view the future as it must be. Who can know the minds of men and countries as paper burns?

Quote

Consider, can they all buy silver?

The most important thing to observe is that Mr. Buffett did NOT use any form of paper to represent his silver. No options on silver, no futures, no options on silver futures, no silver mining stocks, no leased silver deals from mining stocks and no MARGIN! Most of the large buyers of metals are buying the physical, outright. Mr. Buffett had Berkshire

Hathaway purchase silver as part of it's long term "economic investment outlook". Not to be confused with a leveraged, quick profits bet. Understand, that Berkshire plays within the "world paper economy parameters", they are not looking for a currency replacement. What is not seen, are the personal holdings of Mr. Buffett, Mr. Soros and countless other "world wealthy". In those accounts you will indeed find silver, but also, much more gold!

Note, that he was buying thru much of last year. So were a number of others. The one common thought from them all is that, "the real wealth will be held in PHYSICAL form"!

"you may also follow in the footsteps of giants"

 

[sancho panza]

Important thing to note with this section for newer readers (don't mean to insult anyone's intelligence) is that when a bank makes a loan to a consumer,the loan sits as an asset on the banks balance sheet. Which is where Fisher's paradox kicks in as loan defaults beget declining asset ratios. There is a good layman's explanation on Wiki.

Thus when the chart comes up weighing Market Cap versus Total assets,the latter contains mortgages/loans.

 

 

 

                                                                                                   Section 5  Capital Ratios and Leverage

Theoretical considerations

A bank’s capital strength is traditionally evaluated in terms of its capital ratio, the ratio of its capital to its assets, and by its leverage, which is inverse of the capital ratio i.e. the ratio of assets to capital.

We will work on the presumption that the numerator in the capital ratio, capital, should be measured as market cap, and that the denominator, assets, should be measured as total assets.

In defence of the use of market cap as a capital measure, we would point out that if you want to sell an asset, you have to sell at market value and the book value doesn’t matter; if you want to buy an asset, then you would be a fool to pay book value if market value were lower, and you would have to pay market value if market exceeds book. Similarly, if a bank wants to sell its shares, it gets the market value (or less, if it sells via a rights issue) and again the book value is irrelevant.      

We can also think of this market value vs book value issue in terms of loss absorbency. In general terms, we can think of loss absorbency as the ability of a bank to experience losses and still be able to function normally. For a bank, the losses would arise from a fall in asset values. Equity capital is loss absorbing because it is a liability whose value is determined by the level of asset value. By contrast, a bond or a bank deposit is not loss-absorbing because its contractual value, the amount owed, remains the same regardless of fluctuations in asset values. So the greater the bank’s equity, other things being equal, the greater its loss absorbency. The issue then is whether we should measure a bank’s loss absorbency in terms of its market cap or its book value share capital.

Consider two schools of thought. School M says that we should use market cap as our measure of capital. School B says to use book value. Now suppose that the market cap and book value capital are initially the same. Suppose too that the bank reports on an annual cycle and had only yesterday reported its book value. Tomorrow the share price falls. According to School M, the bank’s capital (=market cap, the product of the number of shares outstanding and the share price) then falls. School B however maintains that the bank’s capital (=book value capital, e.g., the book value of shareholder equity reported yesterday) stays the same, market cap irrelevant.

Now suppose that the share price keeps falling. By its logic, School B must continue to maintain that the bank’s capital remains constant, however low the share price goes, so market cap is still irrelevant.

After a few days equity market investors conclude that the bank will never pay them any further dividends, so the share price and market cap go to zero. School M says that the bank’s capital has gone to zero, bank irretrievably bust. School B maintains that the bank’s capital hasn’t changed because the book value hasn’t changed, so (presumably) the market cap is still irrelevant. School M maintains that the capital losses have already occurred, School B maintains that the losses to capital, if there are to be any, will occur or should be deemed to have occurred only when the next annual report comes out in fifty one weeks’ time.

Substitute a dead parrot for the bank and you have a situation reminiscent of a well-known comedy sketch.

To continue. Suppose you are still supporting School B by this point. You reread the last annual report that contains the capital number, book value, that you believe to be the appropriate one to use. You then discover that the bank was planning to move from a one year reporting cycle to a two year reporting cycle. OK, the example is getting a little silly, but logic being what it is, you must now believe that the capital losses that we think have already occurred will now occur or should be deemed to have occurred in almost two years’ time. OK, you say. But what if the new reporting cycle is five years instead of two, or ten years? Are you OK with those too? You can see where we are going here. Book value is irrelevant if it was last reported in 1926. School B does not end up in a happy place.

Still not convinced?

Then ask yourself, what is the bank’s loss absorbency at this point? School M gives a clear answer: zero. The shareholders who own the bank can’t absorb further losses because they have lost their entire investment (i.e., have nothing left to lose) and, because shareholders have limited liability, the bank’s creditors cannot sue them for any further losses that they (the creditors) might experience.

You disagree and continue to insist that loss absorbency is still book value. Then explain to us why purported loss absorbency numbers like book value capital are still the preferred numbers to use even though market conditions have changed drastically since those numbers were released, so those numbers are no longer remotely relevant to current market conditions. What useful information do you think those numbers are telling us? Perhaps they are telling us that the bank will come back from the dead.

There is also the issue of timeliness. Consider the following quote from Morris’ Goldstein’s book Banking’s Final Exam:           

             (a) Note that when former Federal Reserve Chairman Ben Bernanke testified to Congress in 2007 about the subprime crisis, he estimated that it would generate total losses in the neighborhood of $50 billion to $100 billion [over period of years] … (b) But … when Bernanke gave testimony in an AIG court case … he explained that, by September and October of 2008, 12 of 13 of the most important financial institutions in the United States were at risk of failure within a period of a week or two. The question for stress test architects and modelmakers is, How do you make your models generate a transition from (a) to (b) in the course of, say, a year or two? This is not a technical sideshow. In stress modeling, it is the main event.14 (Goldstein, 2017, p. 251)

Goldstein is referring to the lack of timeliness of the Fed’s stress tests, but the same point can be made about the lack of timeliness of book value capital numbers. When a crisis occurs, market prices fall so fast that book values become irrelevant.

For the avoidance of doubt, we are not saying that book value measures have no merit. We are saying that for reasons especially of (a) loss-absorbing capacity and (b) timeliness, market cap is generally to be preferred to any book value measure.

Regarding the use of total assets as the denominator, we would point out that there are two alternative denominator measures, Risk Weighted Assets (RWA) and the Leverage Exposure (LE). These are both highly flawed however.15 The drawbacks of the former are explained in Appendix Five and the drawbacks of the latter are explained in Appendix Six.

Capital ratios and leverage for UK banks The next table shows the Big Five banks’ ratios of Market Cap (MC) to Total Assets (TA) and their corresponding leverage numbers (i.e., TA/MC):

These MC/TA capital ratios vary from 1.4% for Barclays to 3.2% for HSBC, with a weighted average of 2.3%. These are on the low side considering that many experts led by Anat Admati have been calling for minimum capital requirements of 15% or more. If we accept the Admati Capital Standard, and there are compelling reasons why we should accept it), 17 then UK banks’ capital is a small fraction of what it should be, to be considered capital adequate.

The average current MC/TA ratio of 2.3% can be interpreted as suggesting that a loss on total assets of under 2.3% would be enough to wipe out the banks’ entire capital, and that any higher loss would push the banks into technical insolvency.

The corresponding leverage (=TA/MC) numbers vary from 31.5 for HSBC to 72.3 for Barclays, with an average of 43.3. The dangers of high levels of leverage were vividly described by John Cassidy in the FT in 2010:

Leverage kills. In March 2008, Bear [Stearns] had tangible equity capital of about $11bn supporting total assets of $395bn – a leverage ratio of 36. For several years, this reckless financing enabled the company to achieve a profit margin of about a third and a return on equity of 20 per cent; when the market turned, it left Bear bereft of capital and willing creditors. During the ensuing months, the same story was to be played out at scores of other banks and non-banks.18

By the Admati Standard, the maximum leverage should be at most 1 divided by 15% or 6.7.

Alchemists of Loss19 quotes a traditional leverage rule of thumb used in the City:

“The maximum safe leverage is 10 to 1 for banks and 15 to 1 for brokers dealing in liquid instruments.” This Copybook Heading was widely ignored [in the run up to the GFC], most openly by investment bankers operating at leverage ratios of over 30 to 1 by the end of 2007, the sin made worse by banks hiding their risks by pushing assets off their balance sheets by use of “structured investment vehicles” funded by commercial paper that was apt to become illiquid when most needed. This god’s revenge is traditionally very painful and is proving so again.20

As of the end of 2006, the MC/TA ratios varied from 4.6% for LBG to 19% for RBS, and the weighted average was 11.2%.

The corresponding leverage varied from 5.3 to 21.5, and the average was 8.9. Thus, UK banks are considerably more leveraged now than they were going into the GFC, and yet reasonable people agree that excessive leverage then was a key factor aggravating the severity of the GFC. 21

The elephant in the room then trumpets: if the average leverage of 8.93 at end 2006 was too high, why is the current average leverage of 43.3 not way too high?

And what does the Bank of England’s spreadsheet tell us? It tells us that the average market-based capital/asset ratio (it actually uses the term ‘market-based leverage ratio’) falls from 8.31% at end 2006 to 5.28% by Nov 2015 (see cells C87 and C194), and the corresponding average leverage rises from 12 to almost 19. The BoE spreadsheet agrees with us that (market value) capital ratios were higher pre crisis than post, and market-value leverage, lower.

Therefore, the current weakness of the banks cannot be ascribed to the impact of COVID-19 or to the introduction of IFRS 9, because banks were in poor shape well before those came along.

 

[Loki]

Quote

"Also, you are looking for lower short-term interest rates, but skyrocketing long-term rates along with a higher US$"?

Yes, in an effort to maintain the dollar/oil bond. It is well to know that oil holds not long term US debt as backing for it's currency. In the end the CBs will let the long bond plunge in price. That is why most of the US debt is not "long", this change is for that time.

The date this was written - Saturday the 14th, 1998!

[Sasquatch]

4 hours ago, Popuplights said:

Still down 7 % overall. Most of that is from some RDSB I bought a long time ago at over 20.00

Mrs S up 8%. I'm down 10%. My SIPP up 10%. Therefore overall just about up. This is a combo of miners, telecoms, oil, energy, potash, chemicals (BASF doing very nicely), some uranium, tobacco, defence (Babcock and Qinetiq). I was tempted to do some day trading on stocks like easyjet, carnival but resisted in the end. Obviously major gains to be had but it requires immaculate timing - I neither have the skills or time for this.

The share that shall not be named looking rather sick (down 50%)

Best performer has been petropavlovsk. Up 150% on a £1,500 holding!

Went in too early with my HL isa on BT, C******a and Vodafone. Invested Mrs S in more or less same stocks but at a later date. Big reminder about timing!

PM's doing quite nicely despite today's falls.

[Harley]

3 hours ago, Boon said:

Gold seems to be taking a hammering today.

But the indices are doing well. 

The joys of a balanced portfolio!

Gold in GBP looks to have topped on the weekly chart and has entered the doldrums on the daily chart (7% off the last high) so a pullback is possible. Last major high was £1,250 to £1,280 on the various charts so hopefully strong support there or sooner.  Would be nice if we were back to the "wall of worry" it climbed post 2008 until 2011!

[Loki]

https://www.reuters.com/article/us-shell-australia-qclng/shell-weighs-sale-of-2-billion-plus-stake-in-queensland-lng-facilities-idUSKBN23A0T7

Quote

MELBOURNE/SYDNEY (Reuters) - Royal Dutch Shell (RDSa.L) is considering raising more than $2 billion from the sale of a stake in the common facilities at its Queensland Curtis LNG plant in Australia, according to a sale flyer reviewed by Reuters.

 

[Bobthebuilder]

I bought RDSB in March and had a bit left over in the SIPP, so bought some BAT. Its up about the same as RDSB just under 20%, happy days.

My other portfolio that was built before i discovered this thread is currently down 30%. Boy did i buy some shite.

[Harley]

59 minutes ago, Bobthebuilder said:

My other portfolio that was built before i discovered this thread is currently down 30%. Boy did i buy some shite.

Could be worse, you could have bought it after you discovered this thread.......just saying.......!

Thank heavens for PMs!

 

[Popuplights]

Great day today. Up almost a bag. Break even tomorrow maybe?

[jamtomorrow]

5 hours ago, Popuplights said:

Great day today. Up almost a bag. Break even tomorrow maybe?

If you hold assets in the US, worth remembering the US legal and political system is one of your counterparties. Smoke-signals from US top brass showing definite hints of yellow and orange ...

An awful lot of "unthinkables" have become "actuals" of late - stay alert folks!!

[Loki]

The ECB decision is today

The ECB announcement is set for 7:45 a.m. Eastern (which is 10:45 GMT)

https://www.marketwatch.com/story/stocks-in-europe-slip-ahead-of-ecb-decision-2020-06-04

 

https://www.bloomberg.com/news/articles/2020-06-03/ecb-told-to-be-bold-with-more-cash-for-recovery-decision-guide

Quote

The European Central Bank will decide on Thursday whether its already massive monetary stimulus needs to be boosted even more to help haul the region out of its deepest recession in living memory.

With President Christine Lagarde warning that the ECB’s worst-case predictions for the economy are likely to pan out, most economists expect policy makers to increase their 750 billion-euro ($842 billion) Pandemic Emergency Purchase Program and extend it beyond the end of this year.

“The ECB should opt for a bold and pre-emptive response,” said Katharina Utermoehl, senior economist at Allianz SE. “Even if it doesn’t end up having to use all the announced policy space, it’s better to create room for maneuver now to stave off market concerns.”

I'm going with boosted even more. 

[Loki]

I'm very tempted to sell my punts CWR (Up 25%) and AAU (Up 30%) and put it towards some physical gold. 

What do the big brains think? 

[jamtomorrow]

13 minutes ago, Loki said:

I'm very tempted to sell my punts CWR (Up 25%) and AAU (Up 30%) and put it towards some physical gold. 

What do the big brains think? 

Small brain here is mulling over whether to repatriate some USD held in a US brokerage account. So my question for the big brains: are coups d'etat usually accompanied by capital controls?

[TheCountOfNowhere]

-0.94%

Time to sell out.

[Hardhat]

1 hour ago, Loki said:

I'm very tempted to sell my punts CWR (Up 25%) and AAU (Up 30%) and put it towards some physical gold. 

What do the big brains think? 

I'm holding CWR for now. I think the hydrogen sector is just getting started tbh and it might turn into a long term hold for me, although also started as a punt. I want to keep exposure to hydrogen fuel stocks.

However if it's made enough money for you at 25%, "No one ever goes bust taking a profit"

[Loki]

8 minutes ago, Hardhat said:

I'm holding CWR for now. I think the hydrogen sector is just getting started tbh and it might turn into a long term hold for me, although also started as a punt. I want to keep exposure to hydrogen fuel stocks.

However if it's made enough money for you at 25%, "No one ever goes bust taking a profit"

That's the thing, it's a tiny amount (£200 position) so it would have to multi multi bag to turn a real profit.  Which is why I wonder if in this case it's better to take a profit now, rather than buy into a rising market which never ever seems to work for me.  (As your final sentence is pure truth!)

[Loki]

Might be interesting for some.  Long term momentum perspective

 

[Majorpain]

1 hour ago, jamtomorrow said:

Small brain here is mulling over whether to repatriate some USD held in a US brokerage account. So my question for the big brains: are coups d'etat usually accompanied by capital controls?

Arguably the coup happened when Trump was elected, the screaming since then has been the elite being busy trying to take their power back.....

[Loki]

https://www.macrovoices.com/podcasts-collection/macrovoices-all-stars-podcasts/854-all-stars-107-jeff-snider

Ties in with the theme of this thread - under 30 mins long

Quote

 

• There isn't the slightest hint of inflation in any meaningful market after almost three months of so-called money printing. Nor in corporate boardrooms.
• The most optimistic case, the base comparison the Fed (and CBO) is using, is that this will all end up being worse than the 2008-09 Great "Recession." 
• Hopefully back to even by the end of next year isn't quite what people have in mind, and that's why this openly aggressive central bank response (lying).

 

 

[sancho panza]

     This section is of relevance to anyone thinking about possibly buying the dip on HSBC (decl no position)        

Investopedia Common Equity Tier One                                                                                                           

 

 

                                                                                                       Section 6. HSBC and Hong Kong

However, the UK’s strongest bank, HSBC, is not looking that strong itself, and has its own issues quite apart from being leveraged well over three times more than was the UK banking system going into the GFC.22 To quote an article by Patrick Jenkins in the FT on January 6th this year:

'In the third quarter of last year, the latest reported period, the Hong Kong and Shanghai Bank, true to its name, made about 80 per cent of its profits in Hong Kong and mainland China.

For much of the bank’s 155-year history, that often vibrant home market has been a strength, offering high profit margins and high growth. But, with the fate of Hong Kong as a semi-autonomous Chinese territory hanging in the balance, it is starting to look like a vulnerability. '

He then mentions three risks facing the bank.

'The first is a set of risks relates to sustainability of its business in the region. These include slowing Chinese growth, the impact of China-US trade tensions and slowing trade growth. He also mentions the “direct fallout for HSBC from the US-China stand-off as well: last summer the bank infuriated Chinese officials after it provided information that helped US prosecutors build a case against telecoms group Huawei, leading to the arrest of its finance director.”

A second risk for HSBC is Hong Kong-specific and pending. The hit to travel and tourism as a result of the protests will soon feed through to the banking system — a prospect foreshadowed when HSBC more than doubled its estimated credit losses from the territory in the third quarter. …

The third headache is far more fundamental. The conflict between Hong Kong and Beijing could not clash more awkwardly with HSBC’s core business model. Hong Kong is by far its biggest market. But good relations with Beijing have been crucial as it has expanded across the Pearl River Delta and beyond. If tensions escalate further, HSBC is bound to upset one or other camp — with four-fifths of profits hailing from greater China, the downside risk is substantial. …'

[Viewed from the broader historical perspective] Hong Kong and greater China are coming once again to dominate the bank’s revenues and profits just as the fragility of the region is more evident than ever.

The BoE also flagged up UK banks exposures to Hong Kong in its December 2019 Financial Stability Report (p. 27):

UK banks have significant exposure to Hong Kong, representing around 160% of their common equity Tier 1 (CET1) capital. The recent political protests in Hong Kong have been accompanied by a sharp slowdown in growth and falling asset prices. GDP growth contracted by 3.2% in Q3 — the weakest quarterly growth rate since the peak of the financial crisis in 2009 (Chart C.2).

Chart C.2 Hong Kong is now in recession Hong Kong real GDP

 

Sources: Eikon from Refinitiv and Bank calculations.

The major Hong Kong equity index is 12% lower than its level seen in April when protests began. Transactions in the commercial real estate (CRE) market since April contracted by 31% when compared to the same period last year …

There have also been significant portfolio capital outflows from investment funds in Hong Kong. The total cumulative outflows since April were around US$5 billion, accounting for around 11⁄4% of Hong Kong GDP (Chart C.3).

The protests, and their impact on the real economy, highlight political risk as a key vulnerability in Hong Kong. And these political tensions pose risks, given Hong Kong’s position as a major financial centre.

The latest figures just out show that Q1 [20]20 GDP declined Year-on-Year by 8.9%, the biggest fall on record, bigger than the previous largest fall of 8.3% in 3Q 98.23

There is also the question of HSBC’s exposure to the HK and to a lesser extent Chinese property markets. To give a sense of this exposure, consider the HK residential price indices in Figure Two:

We see an initial rapid rise, then a dip of nearly 70%, followed by a rise to current value of nearly 500 to almost 650, depending on the index.

As an aside, this chart would provide the basis for a good stress test. A ‘prudent’ (in the PRA sense) stress test would be to assume only a 70% fall in HK prices, then see how that hits the HSBC loan to value. One does not have to do the actual analysis to see that the results would not be pretty.

We give a more detailed analysis of HSBC’s Hong Kong exposure in Appendix Nine.

And so we have the unprecedented situation that the financial condition of the UK banking system depends on one bank which is itself not only highly leveraged but also has enormous exposures to one of the most volatile regions in the world.

The UK banking system is now dependent on one humongous bet that the (presumably overvalued?) Hong Kong property market won’t go into a meltdown – and that nothing much else will go wrong in the region either.

We have here a most remarkable failure of prudential regulation.

[Don Coglione]

2 minutes ago, sancho panza said:

     This section is of relevance to anyone thinking about possibly buying the dip on HSBC (decl no position)        

Investopedia Common Equity Tier One                                                                                                           

 

 

                                                                                                       Section 6. HSBC and Hong Kong

However, the UK’s strongest bank, HSBC, is not looking that strong itself, and has its own issues quite apart from being leveraged well over three times more than was the UK banking system going into the GFC.22 To quote an article by Patrick Jenkins in the FT on January 6th this year:

'In the third quarter of last year, the latest reported period, the Hong Kong and Shanghai Bank, true to its name, made about 80 per cent of its profits in Hong Kong and mainland China.

For much of the bank’s 155-year history, that often vibrant home market has been a strength, offering high profit margins and high growth. But, with the fate of Hong Kong as a semi-autonomous Chinese territory hanging in the balance, it is starting to look like a vulnerability. '

He then mentions three risks facing the bank.

'The first is a set of risks relates to sustainability of its business in the region. These include slowing Chinese growth, the impact of China-US trade tensions and slowing trade growth. He also mentions the “direct fallout for HSBC from the US-China stand-off as well: last summer the bank infuriated Chinese officials after it provided information that helped US prosecutors build a case against telecoms group Huawei, leading to the arrest of its finance director.”

A second risk for HSBC is Hong Kong-specific and pending. The hit to travel and tourism as a result of the protests will soon feed through to the banking system — a prospect foreshadowed when HSBC more than doubled its estimated credit losses from the territory in the third quarter. …

The third headache is far more fundamental. The conflict between Hong Kong and Beijing could not clash more awkwardly with HSBC’s core business model. Hong Kong is by far its biggest market. But good relations with Beijing have been crucial as it has expanded across the Pearl River Delta and beyond. If tensions escalate further, HSBC is bound to upset one or other camp — with four-fifths of profits hailing from greater China, the downside risk is substantial. …'

[Viewed from the broader historical perspective] Hong Kong and greater China are coming once again to dominate the bank’s revenues and profits just as the fragility of the region is more evident than ever.

The BoE also flagged up UK banks exposures to Hong Kong in its December 2019 Financial Stability Report (p. 27):

UK banks have significant exposure to Hong Kong, representing around 160% of their common equity Tier 1 (CET1) capital. The recent political protests in Hong Kong have been accompanied by a sharp slowdown in growth and falling asset prices. GDP growth contracted by 3.2% in Q3 — the weakest quarterly growth rate since the peak of the financial crisis in 2009 (Chart C.2).

Chart C.2 Hong Kong is now in recession Hong Kong real GDP

 

Sources: Eikon from Refinitiv and Bank calculations.

The major Hong Kong equity index is 12% lower than its level seen in April when protests began. Transactions in the commercial real estate (CRE) market since April contracted by 31% when compared to the same period last year …

There have also been significant portfolio capital outflows from investment funds in Hong Kong. The total cumulative outflows since April were around US$5 billion, accounting for around 11⁄4% of Hong Kong GDP (Chart C.3).

The protests, and their impact on the real economy, highlight political risk as a key vulnerability in Hong Kong. And these political tensions pose risks, given Hong Kong’s position as a major financial centre.

The latest figures just out show that Q1 [20]20 GDP declined Year-on-Year by 8.9%, the biggest fall on record, bigger than the previous largest fall of 8.3% in 3Q 98.23

There is also the question of HSBC’s exposure to the HK and to a lesser extent Chinese property markets. To give a sense of this exposure, consider the HK residential price indices in Figure Two:

We see an initial rapid rise, then a dip of nearly 70%, followed by a rise to current value of nearly 500 to almost 650, depending on the index.

As an aside, this chart would provide the basis for a good stress test. A ‘prudent’ (in the PRA sense) stress test would be to assume only a 70% fall in HK prices, then see how that hits the HSBC loan to value. One does not have to do the actual analysis to see that the results would not be pretty.

We give a more detailed analysis of HSBC’s Hong Kong exposure in Appendix Nine.

And so we have the unprecedented situation that the financial condition of the UK banking system depends on one bank which is itself not only highly leveraged but also has enormous exposures to one of the most volatile regions in the world.

The UK banking system is now dependent on one humongous bet that the (presumably overvalued?) Hong Kong property market won’t go into a meltdown – and that nothing much else will go wrong in the region either.

We have here a most remarkable failure of prudential regulation.

Sancho,

Hence this somewhat ballsy (though understandable, given the above) call:

https://www.bbc.co.uk/news/business-52916119

[The Idiocrat]

11 minutes ago, Knickerless Turgid said:

Sancho,

Hence this somewhat ballsy (though understandable, given the above) call:

https://www.bbc.co.uk/news/business-52916119

Fucking hell. Need to move my business accounts from those cunts.

[geordie_lurch]

5 minutes ago, The Idiocrat said:

Fucking hell. Need to move my business accounts from those cunts.

https://www.triodos.co.uk are meant to be one the most ethical banks around but not used them for business accounts