HSBC said today it will take $3.2 billion in provisions for credit losses, and Bear Sterns announced a new $1.2 billion writedown. It is interesting to note that Bear Sterns said problems were related to subprime. HSBC said almost the same, but analysts noted that HSBC is shutting down some HFC and Beneficial Finance offices. HFC and Beneficial make unsecured loans and second mortgage loans.
Another area of CDO’s which concerns investors and credit card issuers such as HSBC is the default rate on credit cards. In an earlier article we gave an example of how to build $10 million in credit card receivables with nothing but high fees and late charges, where the resulting credit card product does not help the customer. If Providian’s history is correct, and there is nothing to suggest it is incorrect, customers will walk away from these credit card scams and resulting balances. Bonds and CDO’s will become as worthless as subprime paper.
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The Subprime Mortgage Crisis Before, During, and After
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