Another week, another series of sub-prime write-downs. This morning Alliance & Leicester (the UK bank that’s been dogged by rumours about the holes in its balance sheet for months) said that it’s been forced to write off another £192m on its dodgy US investments – although it insisted that its funding position was ‘strong’ and that it wouldn’t need to tap shareholders for extra cash (like RBS and HBOS are doing). Still, it’s not good news for customers; A&L plans to go on an efficiency drive, which will include ramping up new mortgage rates.
Then again, there’s always someone worse off. Take HSBC – although the global giant actually reported an increase in profits for last quarter yesterday, thanks to the sterling performance of its Asian business, it’s clearly still feeling the sub-prime pain. It was forced to write off almost $6bn the first three months of 2008, taking its total losses to an eye-watering $15bn.
The worst culprit was US subsidiary HFC, the consumer finance business HSBC bought in 2003, which is turning into an unmitigated disaster. Losses in the first quarter totalled $3.2bn, but with HSBC predicting more gloom in the US housing market, worse may be to come. One in five of its mortgages are already in arrears (the comparable figure for Northern Rock is less than one in 20), and investor Knight Vinke reckons the bank may end up writing off a further $30bn. Ouch. No wonder the activist fund manager is desperately trying to persuade HSBC to dump HFC as rapidly as possible (or at least appoint a third party to advise them on their options).
As all these bad debts mount, it’s easy to sympathise with the Liberal Democrats’ view that the banks just aren’t capable of managing themselves. In ‘A New Deal for the City’, its latest proposals to regulate the industry, the UK’s third-biggest political party argues that the banking sector ‘presents itself as fiercely competitive and entrepreneurial but then runs to the government to be bailed out in time of difficulty’. And given that more than £50bn of taxpayers’ money is currently propping up the system while some bankers continue to pocket huge bonuses, it’s a bit hard to disagree.
Full marks to the Lib Dems – and particularly to its admirable Treasury spokesman Vince Cable, whose handiwork is clearly evident – for trying to offer some genuine solutions to the problems in the banking sector, rather than just grandstanding that Something Must Be Done (like most politicians). However, the fact remains that Vince has about as much chance of implementing these reforms as HSBC has of rescuing its US sub-prime business...