HSBC Hammered

The gloom continued for Europe’s biggest bank by market value, HSBC, as the bank’s second quarter earnings were crushed by the collapsing subprime mortgage market. Earnings experienced the steepest decline since 2001 as mortgage defaults rang up like lights on a pinball machine. Revenue in the first half dropped to $7.7B, down $3.6B. Write-downs and other distress were up. Witness:

HSBC wrote down $3.9 billion in credit assets against first- half earnings. The writedowns included buyout loans, asset-backed securities and bond insurance. That compares with writedowns of $2.1 billion in the second half of last year.

HSBC’s frolic through the subprime forest was facilitated by it’s Wachovi-esque purchase of Prospect Heights. They acquired this precious gem for $15.5B during the housing swell in 2003. In the shock wave of the bubble, the bank has been forced to close branches, fire managers and cease lending. Check it out:

The pretax loss in North America was $2.9 billion, compared with a profit of $2.4 billion in the year-ago first half. U.S. consumer bad loan charges and other provisions rose 85 percent to $6.8 billion as the bank reduced its number of branches by 10 percent to 900 and said it would “run off” its $13 billion vehicle-finance operation.

Writedowns and credit-related losses in North America exceed $32 billion since the start of 2006, “

It wasn’t an impossible thing to foresee, and indeed many did. Booking profits from charging over-heated fees to radioactive borrowers couldn’t go on forever. Funny how nobody complains when the money’s cheap, the earnings are high and the times are good.

HSBC got hammered by its own version of Golden West, but now the party is over and the earnings are falling like a ton of bricks.

HSBC put $10.1 billion this year into loan-loss reserves, adding to charges of $17.2 billion in 2007 and $10.6 billion in 2006 for bad loans. While the London-based bank’s profit rose in Europe, Latin America and most of Asia, Chairman Stephen Green said emerging markets will grow “with less momentum” than before.

The Level 3 tide is holding steady, $7.1 B according to the second quarter 2008 10-Q, page 26 you will find $7.074 M as of June 30, 2008 compared to $7,081 M of Mickey Mouse assets at the end of Q1.

That would porbably be a big goose egg in the mark to market value world, where there is no one wants them, but the FAS 159 universe lets them cook it up as assets. If a market for them were coming around the bend anytime soon they wouldn’t be called Level 3, would they?