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From ValueWalk:
According to a recent report from Forensic Asia, HSBC Holdings plc (ADR) (NYSE:HSBC) could need new capital between $58.3 billion and $110.6 billion to comply with the 2019 Basel III milestone.
Thomas J. Monaco and Andrew Haskins of Forensic Asia in their recent coverage assigned a Sell rating to HSBC.
Basel III milestone
According to the Forensic Asia analysts, the level of questionable assets on the HSBC Group’s balance sheet amounts to between $63.6 billion and $92.3 billion. They believe the HSBC Group is in even more of a quandary today as post-QE blues have added to HSBC’s legacy-problem assets. They believe the questionable balance sheet line items include loan loss reserves, accrued interest receivable, deferred tax assets, defined benefit pension plans, Level 3 assets and intangibles. The analysts point out that by applying moderate stress tests to the group’s major subsidiary balance sheets (90.4% of consolidated assets), the cumulative level of questionable assets ranges between $63.6 billion and $92.3 billion or even higher.
The following table highlights the impact on HSBC’s capital of asset overstatements:
Recently, the Basel committee required banks to hold capital equivalent to at least 3% of their assets, without taking into account the riskiness of their investments. Banks will also be required to disclose how well they meet the rule from 2015. The following table depicts HSBC’s capital increase timeline:...MORE
