HSBC to Standard Chartered Drop as Moody’s Warns on Cyprus Risk

By Stephanie Tong & Sanat Vallikappen 

HSBC Holdings Plc (HSBA), Europe’s largest bank by assets, led declines in Asian financial stocks after Moody’s Investors Service said the turmoil in Cyprus may have negative implications for bank ratings across Europe.

HSBC fell 2.4 percent, the most in five weeks, to HK$84.00 at 11:59 a.m. in Hong Kong. Standard Chartered Plc, Britain’s second-largest lender by market value, slipped 1.4 percent to HK$203.20. The MSCI Asia Pacific Financial Index (MXAP0FN) lost 1.8 percent, heading for the biggest drop since July.

European finance ministers reached an unprecedented agreement on March 16 forcing depositors in Cypriot banks to share in the cost of the latest euro-zone bailout. Moody’s said the decision is negative for depositors in Europe and marks a significant step toward limiting systemic support for bank creditors in the region.

“From the social planning point of view and the idea of keeping depositor confidence in general, this is a terrible precedent to set,” said Jim Antos, a Hong Kong-based analyst at Mizuho Securities Asia Ltd. “People in Europe are probably going to think hard about how much money they should put in a tin can and bury in the back yard.”

Cypriot President Nicos Anastasiades, who bowed to demands by euro-area finance ministers to raise 5.8 billion euros ($7.5 billion) by taking a piece of every bank account in Cyprus, appealed to the country’s lawmakers to ratify the levy today.

Deposit Volatility

“It is reasonable to expect that the deposit volatility in stressed sovereigns could rise,” Goldman Sachs Group Inc. analysts led by Jernej Omahen wrote in a note to investors. Still, any response from depositors in Italy, Ireland, Spain and Portugal will probably be limited as their “perception of banks has improved,” the analysts wrote.

Gareth Hewett, a Hong Kong-based spokesman for HSBC, declined to comment on its Cyprus operations. Standard Chartered has no presence in the country and no direct sovereign exposure to Greece, Ireland, Italy, Portugal and Spain, said Doris Fan, a Hong Kong-based spokeswoman for the London-based bank.

HSBC’s gross on-balance sheet exposure to Cyprus was $0.3 billion as of the end of 2012, consisting primarily of loans to other financial institutions and companies, the London-based lender said in its latest annual report.

The bank’s $2 billion of March 2022 securities offered a 132 basis-point spread, little changed from the previous trading day, Maxim Group LLC prices show. Standard Chartered’s $2 billion of 3.95 percent bonds due January 2023 yielded 202 basis points more than Treasuries as of 11:35 a.m. in Hong Kong, little changed from March 15, ING Groep NV prices show.

To contact the reporters on this story: Stephanie Tong in Hong Kong atstong17@bloomberg.net; Sanat Vallikappen in Singapore at vallikappen@bloomberg.net

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