HSBC Facing Potential £6.3 Billion Loss, Analyst Warns

Financial experts are raising alarms over potential losses for global bank HSBC, as it braces itself for a substantial hit amounting to more than £6.3 billion. Analysts warn that unsecured commercial property loans in China could cause a “financial contagion” with ripple effects in the UK economy.

According to Bob Lyddon, a UK-based tax consultant, HSBC could face significant losses due to its exposure to the Chinese commercial real estate sector. While HSBC had previously announced setting aside £910 million to cover expected loan losses, Lyddon believes the actual situation is far graver than reported. He cautioned that HSBC’s investment in its Chinese bank, Hang Seng, is overvalued by £3.3 billion.

Lyddon’s analysis revealed that 42% of HSBC’s commercial property loans in China are either sub-standard or credit-impaired, amounting to £4.6 billion out of £11 billion. The situation is even worse in Hong Kong, where 63% of the loans totalling £3.8 billion are at risk. Of this amount, £3 billion was not backed by real-estate security, raising concerns about the authenticity of the bank’s real-estate lending practices.

In light of these findings, Lyddon questioned the authenticity of HSBC’s real-estate lending practices and the oversight of financial regulators and auditors in scrutinising the bank’s operations. He emphasised the need for transparency and accountability in assessing the bank’s capitalisation and adherence to financial reporting standards.

Lyddon stressed that the magnitude of the potential losses could have a profound impact on HSBC’s equity and global lending operations. He estimated an approximate four percent decrease in HSBC’s equity, leading to the elimination of upwards of £120 billion in lending support. The implications extend beyond the bank’s Chinese operations, with potential repercussions for global loan portfolios, including those in the UK.

If the poor loan quality in Hong Kong is indicative of broader trends within the bank, the far-reaching impacts could necessitate further equity reserves and a substantial reduction in lending to UK consumers and businesses. In essence, the risk of financial contagion poses significant challenges for HSBC and the wider global economy.

In response to these concerns, Express.co.uk reached out to HSBC for comment, but no response was received at the time of publication. As the situation unfolds, industry experts are closely monitoring the developments and potential ramifications for HSBC and the global financial landscape.