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What Does the Latest HSBC News Mean for Me?

Europe’s largest bank, The Hong Kong and Shanghai Banking Corporation (HSBC), announced that it will scale back its US lending as a result of failed sub prime mortgage investments.  Coming off of their worst quarter ever, HSBC will be eliminating 6,100 jobs nationwide by closing all 800 of its Household Finance & Beneficial Offices here in the US.

So what happened to HSBC’s profits?  In 2007, HSBC reported profits of $19.1 billion.  Their 2008 profits came in at a much less $5.7 billion.  Unable to predict the deterioration of the US economy, HSBC purchased Household International six years ago for $14 billion.  This purchase made HSBC the largest subprime mortgage lender in the US.  Forming the Household Finance & Beneficial offices, this unit began lending money to borrowers that did not have strong credit history.  What was predicted to be a successful and profitable acquisition turned ugly in 2008, when consumer loans considered 60 or more days delinquent rose dramatically from 7.7% to 12.5%.

Stephen Green, group chairman for HSBC, stated that “In light of this, we have taken the difficult decision that, with the exception of credit cards, we will write no further consumer finance business through the Household Finance and Beneficial brands in the U.S., and will close the majority of the network.”

In official statements, HSBC has promised that despite the halt on its consumer lending practices, it will continue to help its current customers pay off their loans, helping them avoid foreclosure.

What does this mean for me?  Green also vowed that HSBC is “not turning our backs on the US“, as they will continue to issue and promote credit cards.  Simply stated, this is good for consumers!  The credit card HSBC is bringing back, Orchard Bank card, is their subprime card for bad credit borrowers.  Originally pulled from the web on December 1st of 2008, it is available again for consumers.  With the lowest rate among subprime cards, HSBC’s Orchard Bank Card does not have outrageous upfront fees to pay. This card is designed for people who are looking to rebuild their credit.

To sum it up: HSBC’s decision to discontinue its consumer lending business actually benefits the millions of consumers who are looking to re-establish a strong credit history.  It is important to remember that you have many options when choosing a credit card company, as companies like HSBC promote specific credit cards to help people with poor credit.  Check out sites like to learn more about the various credit card options you have as a consumer.

Where did the Banks Spend the Bailout Money?

Obama and Geithner are now cracking down on the banks.  They are saying that in order for banks to receive more money from the bailout funds, they will have to cap their pay.  They will also be held accountable for where the money is being spent and used.

Okay, let’s back track.  What happened to the first round of funds that was distributed while the old administration was running the show?  Well, no one really knows.  As a result of the government not holding banks accountable, the funds ran out.  The public learned of these banks’ continued spending, along with the $18 billion in bonuses that these bank executives earned.

When consumers apply for a loan or a mortgage, their financial past is put under a microscope during the underwriting process.  Banks need to know details about the potential borrower’s income, any outstanding debt and financial track records.  If this is standard procedure, why aren’t banks subjected to these checks when they ask to borrow money from us??  Why can banks borrow money from public funds and not have to show where it is being used or spent?

Thankfully it looks like Obama and Geithner will not allow this lack of accountability to continue with the second round of funding.  With the first round of funding distributed,  I have not seen any evidence of credit markets opening back up.  So where exactly did the money go?  We may never know where the first round of funds were spent.  Moving forward, hopefully the public will see evidence of more transparency when it comes to detailing how the rest of the funds are being used.

Timothy Geithner’s Important Role

Upon hearing that Barack Obama named Timothy Geithner as the new Secretary of Treasury, the American markets got excited! Then I started to hear and read about this tax issue of $34,000. After all, our President had just named the man that could potentially fix the ever worsening financial crisis we currently face. Timothy Geithner is only 47 and was going to get us out of the deepest recession we have seen in generations.

Timothy Geithner’s management style and economic approach differs strongly from the former Secretary of Treasury, Henry Paulson, who is also the former CEO of Goldman Sachs. Geithner held office in the Treasury Department before working in the New York Fed in 2008. Based upon his background, I think he will have a much better understanding of the bailout and the overall process we must go through to execute the solution successfully. Paulson failed to impress me with his brief attempt to bail out some while letting others fall. He was able to rescue Bear Sterns and AIG, but letting Lehman Brothers fail? Geithner comes into office looking like the steady hand that can handle the crisis and understand our goals on a larger level.

So Long to Declare a Recession

Why did it take so long to declare that America is in a recession?  If a recession is defined as two consecutive quarters of negative growth, then why did the government finally declare that we have been in a recession for 12 months?  I mean come on—did they think the public was that stupid?  You and  I knew it.  We knew it every time we went out to eat, every time we filled up our gas tank, every time we looked at out bank statements, and every time we heard about another close friend getting laid off.  Why did it take  the National Bureau of Economic Research so long to “officially” confirm it? My guess is they didn’t see it when more and more mortgages were going into default.  I guess they didn’t see if after more and more homes were going into foreclosure.  Did they see it   when the government set up $700 billion to bail out the banks?  Well actually we did hear about the recession in early December, so maybe the bailout triggered in the light bulb?