HSBC plans "busy" 3 years of bond sales as TLAC looms

By Steve Slater

LONDON, May 3 (IFR) - HSBC said it expects to be "pretty busy" every quarter for the next three years as it faces having to issue up to US$70bn of debt to meet new capital adequacy regulations.

HSBC sold US$10.5bn-equivalent of senior bonds in late-February and through March, and said more big deals are inevitable.

It (Other OTC: ITGL - news) has to replace US$51bn of debt that is due to mature by the end of 2018, and needs to issue more debt to meet new global total loss-absorbing capacity rules, or TLAC. The aim of the rules is to make bondholders suffer losses before taxpayers if a bank hits trouble, to address the problem of banks being 'too big to fail'.

"On top of that (maturing debt) we have somewhere in the range of US$10 billion to US$30 billion to do to meet the overall TLAC requirement as we presently understand it and in conversation with our regulators," said Iain Mackay, HSBC finance director.

"We'll be pretty busy every quarter from now through to the end of 2018 in terms of making sure we make that regulatory requirement from a TLAC perspective," he told reporters on Tuesday.

Mackay said HSBC's issuance will certainly include senior securities, and possibly Tier 2 bonds or Additional Tier 1 hybrid bonds, and would be spread through the period.

"We're going to go fairly even. When conditions are conducive, where the spreads are nice and tight, we'll probably do more provided the market has appetite for it," he said. He noted other big international banks also had a lot of refinancing to do before TLAC rules come in.

HSBC has traditionally not been a massive issuer of debt because it gets ample funding from Asian retail depositors. That underpins its credit ratings, and its bumper issuance in February and March was three times oversubscribed by investors.

All the debt was issued through its group holding company. The bank will distribute the funding to its various subsidiaries in forms compliant with local regulations.

Mackay was speaking after the bank reported a 14% drop in first-quarter pre-tax profits from a year ago. Its core capital position at 11.9% was unchanged from the end of 2015 but that fell short of analysts' forecast for a small rise and called into question whether the bank can sustain its progressive dividend policy.

CEO Stuart Gulliver said the capital ratio will get a 60bp boost when the sale of its Brazilian business concludes shortly and the capital position was strong, even while paying a dividend.

HSBC's global banking and markets business reported a pre-tax profit of US$2.12bn, down 30% from a year ago.

GBM's revenues fell 12% to US$4.32bn, which analysts said represented a more resilient performance than most major US and European investment banks.

Its markets revenues fell 19% from a year ago, including a 37% drop in credit (to US$159m); a 34% fall in equities (US$303m); and 15% fall in foreign exchange (US$757m). Rates revenues rose 21% to US$546m.

Its capital financing revenues were flat from a year ago at US$875m.

Gulliver said markets income was hurt by extreme volatility in January and February, which was made worse by a reduction in market liquidity as banks have reacted to tougher global capital requirements. Conditions had improved in March and April, the bank said.

HSBC's group profits of US$6.11bn were down from US$7.06bn a year ago but above analysts' forecasts, thanks to decent cost control. Its shares dipped 1.6% in morning trading, outperforming a 3% fall across the European banking index. (Reporting by Steve Slater)