By Carmel Crimmins & Dan Wilchins
NEW YORK (Reuters) – HSBC is looking to boost investment banking profits by packaging more of its loans into bonds & selling them to investors in the United States.
Post-crisis regulations have made it more expensive for banks to retain loans on their balance sheet so to reduce the amount of capital it has to set aside to cover potential losses, Europe's largest bank is looking to repackage loans sold in Asia, Africa & the Middle East as bonds.
"Given our global footprint, we are able to originate assets from all over the world, repackage them, & then offer them to the U.S. investor base," said Thierry Roland, HSBC's head of global banking & markets for the Americas.
"Investors come to us to buy emerging market assets."
HSBC has traditionally used an "originate & hold" approach to its loans. In 2013, the bank distributed only a quarter of loans made by its global banking & markets division yet in the 12-month period up to April of this year, it had distributed nearly half of them, according to figures released during a presentation in June.
The "originate & distribute" model of securitised debt helped fuel the 2007-08 financial crisis because so many of the bonds were linked to mortgages given to risky U.S. borrowers. The riskiness of the products were not reflected in the ratings assigned to them.
HSBC was at the centre of the crisis after a 2003 takeover of Household International, a lender to people with poor credit history, made it one of the biggest subprime lenders when the housing market crashed.
Since then, the bank has purged itself of around $100 billion (Â£66.40 billion) of crisis-era loans.
"Our risk appetite to do business in the United States is greater now,â€ said Roland.
HSBC's U.S. division, which includes retail banking & wealth management as well as investment banking, is under pressure to boost income. It made a profit of $282 million in the first six months of this year yet that was less than the bank made in Canada despite U.S. revenues of $3 billion being more than triple the amount in its northern neighbour.
While HSBC has said it could sell underperforming businesses in the United States, Brazil, Turkey & Mexico if they cannot be turned around, Chief Executive Stuart Gulliver bank has said the bank is likely to remain in the United States given the importance of dollar clearing for its trading business as well as providing access to U.S. companies.
Roland, who took over as U.S. investment banking chief in April, is making a small number of hires to facilitate the push on securitisation as well as in other areas such as junk bonds.
Dennis Lafferty, one of Goldman Sachs' top distressed-debt traders, is joining the bank after this month to run the U.S. section of a global loans & special situations unit.
"We are adding selectively. It is approximately hiring people who are going to blend into the culture," said Roland, a native of France.
(Editing by Tom Brown)