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

HSBC Holdings Plc (HSBA), Europe’s biggest bank by assets, and Standard Chartered Plc (STAN) fell in Hong Kong trading after Moody’s Investors Service said the turmoil in Cyprus may have negative implications for European bank ratings.

HSBC declined 2.6 percent, the most in almost six weeks, at 1:44 p.m. in Hong Kong. Standard Chartered, Britain’s second- largest lender by market value, slid 1.5 percent. The MSCI Asia Pacific Financial Index (MXAP0FN) lost 2.1 percent, heading for the biggest drop since July, as JPMorgan Chase & Co. recommended betting against China’s biggest lenders.

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.

Bond Yields

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.

Moody’s said the support package for Cyprus reduces the immediate risk of a restructuring of its sovereign debt. European banks had $39 billion in claims in Cyprus as of Sept. 30, according to Bank for International Settlements data.

“While raising the risk of deposit flight out of peripheral banking systems, the agreement reflects euro area policymakers’ desire to avoid sovereign defaults in addition to Greece’s,” the ratings company wrote in its credit outlook.

China’s banks declined as JPMorgan downgraded the country’s stock market to underweight and recommended bearish derivatives tied to its four biggest banks. Industrial & Commercial Bank of China Ltd., the country’s biggest lender by market value, dropped 3.1 percent in Hong Kong trading. China Construction Bank Corp. (939), the third largest, fell 2.9 percent.

Rapid credit expansion, elevated property prices and a decline in potential growth have increased risks of a financial crisis in China, Nomura Holdings Inc. said in a March 15 report.

To contact the reporters on this story: Stephanie Tong in Hong Kong at stong17@bloomberg.net; Sanat Vallikappen in Singapore at vallikappen@bloomberg.net

To contact the editor responsible for this story: Chitra Somayaji at csomayaji@bloomberg.net

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