HSBC (HBC) And Barclays (BCS): The Bank Recovery Continues, For Now

By Douglas A. McIntyre Updated Apr 27, 11:20PM EDT · Published Aug 3, 6:08AM EDT

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bear HSBC (HBC) announced that its earnings fell 57% to $3.35 billion during the first half of the year. The largest bank in Europe was able to temper some of its deficit for bad loans by a strong showing in its investment bank. Loans to consumers and businesses fell apart at a frightening rate. The stock market was pleased that investment banking did well and pushed the HSBC stock up.

Barclays (BCS) also announced earnings, and they rose 10% from last year. The news from the firm was remarkably similar to the earnings release from HSBC. Investment banking saved the day.

Investment banking may have become the champion of earnings at large global financial firms but its ability to largely offset loans that are going sour is limited. Rising stocks and easier access to credit have made the corporate debt and equities markets active again. Once the stock market starts to peak, some of that business will slow.

Banks may be in for much worse credit write offs, at least according to a number of analysts that cover the industry. The concerns about commercial real estate loan defaults are rising. Many large building and shopping complexes were purchased in 2005, 2006, and early 2007 based on the assumption that a strong business and retail environment would support huge mortgages. That is turning out not to be the case.

Consumer credit is also deteriorating rapidly. Defaults on credit cards and car loans tend to track unemployment and joblessness is still rising fairly quickly in the US, UK, and EU. The employment market will probably not begin to right itself until the middle of 2010, and if businesses stay cautious it may be much later.

Bank earnings for the first half and second quarter have been better than some analysts expected. A lot of the numbers were based on one-time benefits which are not likely to be repeated, but the real enemy of future earnings is that loans made three and four years ago are becoming more and more shaky and even robust investment banking figures will provide earnings to offset the effects of that.

Douglas A. McIntyre

About the Author Douglas A. McIntyre →

Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.

McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.

His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.

A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.

TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.

McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.