August 5, 2008 | posted by Michael Baxter in Banking |

As you know HSBC, revealed its latest results – as was told here yesterday. Profits were down, at $10.2bn hardly disastrous. The total amount set aside to cover bad debt was increased by another $10.1bn; that’s a lot of money, but HSBC can afford it. There is no talk of a rights issue, instead the bank upped dividends.

The real significance of the HSBC results comes in other guises.

For one thing, don’t forget HSBC was the first bank to warn of subprime dangers. Maybe then HSBC can give us a hint as to what will happen next.

And that brings us to the really interesting information to emerge from HSBC yesterday. The musings of its chairman.

Stephen Green, the big boss at the bank says a US recession is still a “real risk.” He added: “… the length and depth of that is uncertain. I think if a recession occurred it could be shallow … but any meaningful recovery in the housing market is unlikely before next year. Employment is fragile. These are difficult conditions and they will remain difficult into next year too.”

As for Asia – and remember HSBC knows more about Asia than just about every other European or American bank – he said: “I don’t think emerging markets have completely decoupled from Europe, North America or Japan. There has been an element of decoupling. There is an increasing amount of exports to other destinations.” So what will the effect be of a US recession then? “There will be an impact,” he said, “there is no question.”

We are a tad cynical about this decoupling idea. The US is a massively important customer for China. It is also an important customer for China’s customers. If the US hits recession, China will feel it hard.

One other piece of interesting information from HSBC: The bank said there was an average 5 per cent drop in current account bank balances among UK customers during the latest period.

So, HSBC’s customers have had less money to spend. Well, we all knew that was true – but it’s nice to get conformation. But here is where we really are cynical. How can inflation take hold, in the longer-term, if the amount of money in the system is falling?