US Banking System Faces Imminent Collapse
The headline got your attention. Good. The US media has studiously ignored what the world’s financial press knows.
Get your financial house in order quickly, America. — HSBC warns of ‘tears’ if big deal goes wrong
The Financial Times
By Sundeep Tucker and Victor Mallet in Hong Kong and Peter Thal Larsen in London
Published: June 27 2007 20:45 | Last updated: June 27 2007 20:45
The glut of credit in global financial markets, combined with excessive leverage, could all “end in tears” when a big transaction finally goes wrong, Stephen Green, chairman of HSBC, warned on Wednesday.
In an interview with the Financial Times, Mr Green admitted that he was “worried by the degree of leverage in some big ticket transactions nowadays” and felt that “something is going to end in tears”.
His comments highlighted the widespread unease among banking executives after five years of benign credit conditions and the growing amounts of leverage in the financial system.
This has been particularly notable in the collapse of the subprime mortgage market in the US, which this year triggered HSBC’s first profit warning.
Mr Green said he was also concerned about the difficulty of bailing out institutions affected by a blow-up because risk was now so widely spread throughout the financial system.
He said: ‘When your risk has been parcelled up hundreds or thousands of times, it’s much more difficult to orchestrate a reconstruction of a difficult situation and, therefore, the write-off then risks being worse than it needs to be.’
Update – Monday, July 2, 2007