HSBC Brings It Home

If you've haven't heard already:

HSBC Holdings on Monday said it would move two of its structured investment vehicles onto its balance sheet and provide up to $35 billion in funding, saying it doesn't expect a near-term resolution of the funding problems faced by the vehicles that it and other banks operate.(MarketWatch).

According to Fitch, as of July 31, 2007, HSBC's SIV's were worth almost $42.69 Billion. Is there any equity left?

July 31, 2007 (numbers in Billions):

Cullinan Finance Ltd. $ 35.254Senior Notes $ 2.47B Equity
Asscher Finance Ltd. $ 7.436 Senior Notes $ .52B Equity

Total: $ 42.690 Senior Notes $ 2.95 Equity

(This structure is levered almost 14.471 times).

HSBC brought the SIVs to their balance sheet, effectively guaranteeing the paper, to avoid a liquidity event. Let's assume that the liquidity event would occur when the NAV of the SIV was at 50%. That would be when the equity is worth $1.475 billion, and therefore the value of the underlying assets fell by 3.4%. This is a big drop for AAA assets and if the value drops a cumulative 6.9%, then HSBC will have to take some losses.

However, HSBC implies that all is good-

The banking giant insists earnings won't be materially impacted, because existing investors will continue to bear all economic risk from actual losses. It added that the move won't impact capital requirements much, either.

Remember, 3.4% loss in these assets was a 6-sigma event. Who knows whether a 6.9% drop is plausible.?....

Also- Don't forget the $32 Billion that HSBC sponsors in ABCP Conduits.

Also- Don't forget that Citigroup sponsors $87 Billion in SIVs and $90 more in ABCP Conduits.