London — HSBC and Standard Chartered Bank face profits and balance sheet spillover from the debt crisis surrounding the China Evergrande Group, despite both banks saying they are limiting direct exposure Analysts warn that it could.
Other banks and insurance companies can also be indirectly affected, such as loss of fees and devaluation of investments.
HSBC and Stan Chart are the foreign banks that make up the majority of profits in China and Hong Kong, where they are most involved in underwriting syndicated loans for developers. This means that they are likely to face the most direct secondary consequences, as JP Morgan analysts said in their research report.
Both HSBC and Standard Chartered Bank declined to comment on the report.
Evergrande has shaken China’s real estate sector and economy by forcing global investors to speculate on whether to pay major interest, raising concerns about causing significant losses to bondholders.
Hong Kong and mainland China will account for about 84% of HSBC’s profits in 2020, while China, Hong Kong, Taiwan and North Asia will account for 81% of last year’s Stanchart profits, according to a Reuters analysis of the documents submitted by both companies. rice field. Their importance to the overall business.
According to JP Morgan, the two have the highest direct lending exposure to China’s real estate sector among foreign banks, with HSBC’s $ 17 billion in group assets, or 1.5% of group assets and Stanchart’s group loans. That’s $ 1.3 billion, or 0.5%.
According to JP Morgan, the real estate sector accounts for 14% of China’s GDP, 25% including indirect contributions, and real estate loans are worth about 6.6% of the total loan, so the impact on the sector is economic. Can have a significant impact on your property.
Both HSBC and Standard Chartered Bank have stated that they have no direct exposure to Evergrande and have recently taken steps to carefully manage their exposure to any one sector.
According to bank sources, HSBC has already sold all positions in its Chinese bond or Asian credit portfolio with exposure to Evergrande.
Citing Data from Dealogic, JPMorgan said HSBC was involved in underwriting 39 unpaid syndicated loans for Chinese developers and StanChart undertook 18 such transactions. This can be under pressure if the real estate sector defaults grow.
With syndicated loans, banks typically undertake transactions and then sell their debt to other investors, but they may leave some of their exposure on their books.
“There is a risk that this is not a peculiar event, but an industry-wide problem that can cause serious spillover damage,” said JP Morgan.
US banks estimate that an additional 11 defaults could be worth about $ 30 billion this year across China’s high-yielding real estate sector, which corresponds to a default rate of 23%.
Market chill
Other European financial companies are also negatively impacting business lines such as capital markets, wealth management and private banking, said Diak Brandenburg, head of rating agency-scoped financial institutions.
“These will affect the income statements of Europe’s globally active banks in the coming quarters, as well as subsequent regulatory crackdowns by Chinese authorities,” he said.
Scope analysts quoted bond radar data, stating that Chinese real estate companies have used the $ 274 billion public US dollar bond market over the past five years, and if such transactions decline, foreign banks will Suggested that you could lose your fees.
Volker Kudszus, EMEA Insurance Sector Leader at S & P Global Ratings, said it could also impact insurers’ investment portfolios.
“There is no concern that European insurers will be exposed directly to Evergrande, but there may be some volatility in indirect exposures, such as by investing in the Chinese stock and real estate markets.” Kudszus said.
Morningstar analysts said this week that insurers Prudential, Asias and Swiss Re are most likely exposed to real estate in China.
Ageas said the Chinese joint venture did not have direct exposure to Evergrande, but about 2% of its corporate bond portfolio was invested in high-rated Chinese real estate debt.
“Only more spillover effects on the general stock market will affect our results,” a spokeswoman for Ageas said.
Prudential CEO Mike Wells told CNBC this week that insurers’ exposure to Evergrande was “minimal” and less than 5% of insurers’ bond holdings were real estate in China. rice field.
Prudential also has a joint venture in China.
Swiss Re did not invest directly in Chinese real estate in its real estate portfolio, a spokesman said.
Lawrence White and Carolyn Corn
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