UK-based financial and banking company HSBC is converting more of its loans in Asia, Middle East and Africa into bonds and selling them to the US-based investors as it attempts to boost profits in its investment banking section.
With current regulations, banks will find it more expensive to maintain loans on their balance sheets, as they have to set aside huge amounts of capital to prepare for possible losses.
Europe’s largest bank can repackage its assets across the world and sell them in the US considering its global footprint, disclosed Thierry Roland, the company’s Head of Global Banking and Markets for the Americas. “Investors come to us to buy emerging market assets,” he further stated.
Traditionally, the company implemented an “originate and hold” strategy to its loans. It distributed 25% of loans by its global banking and markets division in 2013. However, data presented in June showed that the company released almost 50% of the loans in the year ended April 2015.
In 2003, HSBC acquired Household International, a lender catering to individuals with poor credit history, turning the banking and financing company into one of the largest subprime lenders during the housing market crisis. Since that time, the company has relieved itself of crisis-era loans estimating to $100 billion.
Roland said that their risk appetite for their operations in the US is “greater now”.