Tags: hsbc | second | downturn

HSBC Chief: Second Downturn Coming Soon

Thursday, 08 Oct 2009 10:02 AM

By Ronald Kessler

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The CEO of one of the world’s leading banks, HSBC, Michael Geoghegan, reckons there will be a “second downturn in the coming months” and is now postponing plans to expand the already global superbank.

“Is this a V recovery or a W? (I think) it’s the latter. (If I’m right), we have to be very careful we don’t grow the balance sheet so far before the recovery has come only to write it back into the impairment line later on,” Geoghegan told The Financial Times.

“I’m cautious about growing too fast.”

The news comes just a week-and-a-half after HSBC announced a number of changes, including a proposed relocation of its corporate offices.

"I'm not as convinced we're through the worst as others are. The reality is that profits will be quite reduced,” said Geoghegan.

Geoghegan was also skeptical about the impact of new financial regulations, especially the “tier one ratio” that determines the grade of a bank’s capital as a percentage of risk-weighted assets, and the "core" tier one ratio that counts equity.

The CEO anticipates that the requirement for core tier one capital ratios will be "around the 10 percent mark,” which is higher than the 8 percent that banking regulators have been hinting at privately.

HSBC is among the world’s better capitalized banks, with a core tier one ratio of 8.8 per cent, according to the Financial Times.

Geoghegan’s views on a possible second downturn are not based on just a gut feeling.

A report on the Bloomberg wire indicates Europe’s economy shrank more than expected during the second quarter as consumer spending was much weaker than earlier reported.

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