It is widely agreed upon that businesses and consumers are de-leveraging, or lowering their debt load, in the aftermath of the Great Recession. That clearly has an affect on bank profits. But no one knows just how long the trend will last, and some people hope it will be over soon.
Those who are looking for the most up-to-date data point need look no further than HSBC Bank Canada's new round of quarterly earnings. Though HSBC reported a higher profit than the same period in 2010, its net interest income was down by 3.2 per cent -- the main measure for growth of its loan book. HSBC even went so far as to directly attribute this drop "to declines in commercial borrowings and consumer finance receivables as clients continue to de-leverage."
Moreover, the bank said that the drop was actually offset by higher interest rates this quarter than the same period in 2010. In other words, had interest rates been the same, the decrease caused by de-leveraging would have been even worse.
HSBC earnings also show that Canadian banks benefit from the same accounting gains that U.S. banks were raked over the coals for just a few weeks back. However, HSBC's gains weren't nearly as high, booking an increase of just $22-million after credit spreads widened. The U.S. banks posted accounting gains worth billions of dollars for the same thing.
Of all the business units, HSBC's trading unit posted big results, driven by foreign exchange. The bank noted that there were big flows in this market because of its current volatility.
Tim Kiladze