A year of consolidations ahead: HSBC
Updated: 2008-01-31 07:19
By Karen Cho(HK Edition)
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2008 will be a year of consolidations in the global banking industry, according to Margaret Leung, HSBC global co-head of commercial banking, as she expects a spate of mergers to sweep across the financial sector after the implosion of the US subprime crisis.
"Many big institutions with sound fundamentals will be in need of new capital (after the subprime crisis)," Leung told China Daily yesterday.
She said the global financial landscape has changed significantly over the past 5 years, with alternative investors like sovereign funds becoming increasingly prominent players.
"Citigroup and Merrill Lynch having foreign investors was unthinkable just five years ago," Leung said. "Now there is a very real possibility that these firms will look towards accepting capital injections from these players."
Devastated by the subprime crisis, both Citigroup and Merrill Lynch have accepted massive bailouts by Middle East and Asian State-owned funds to shore up their gashed balance sheets, as they rushed to raise capital.
The HSBC commercial banking global co-head said as the extent of the subprime crisis becomes clearer, similar consolidations are bound to sprout throughout the financial sector.
"We can expect to see a lot of changes this year," Leung said.
Swiss bank UBS AG was the latest victim in the US secondary home loan turmoil, as it posted another $4 billion of steep losses to subprime, sending the bank deeper into the financial red. So far, UBS has already written off $18.4 billion in subprime losses.
The lesson learned, according to Leung, is that banks will now become increasingly cautious towards structured products.
"Subprime mortgage in itself is not a big problem. The crux of the whole crisis lies in the fact that these bad mortgages are bundled up and sold worldwide without institutions really knowing what they have bought into," Leung said.
SG takeover?
Since the rogue trading scandal erupted, rumors had been floating around that France's second largest bank Societe Generale might be up for a takeover bid. Citigroup in a research note named HSBC as a potential bidder for the troubled French bank.
The banking giant already has a foot in the French market after it acquired the Credit Commercial de France - a local retail commercial bank in 2000.
However, Leung declined to verify whether HSBC has any intentions to buy Societe Generale. Other than HSBC, SocGen's rival BNP Paribas was also among the banks tipped as a potential takeover candidate.
The troubled French bank is now reeling from one of the biggest fraud scandals in banking history in which a junior trader has lost 4.9 billion euros in rogue trading.
(HK Edition 01/31/2008 page2)