Nov. 27 (Bloomberg) --
HSBC Holdings Plc became the equivalent of a canary in a coal mine about nine months ago as the subprime-mortgage market began to collapse. History may be repeating itself.
HSBC, Europe's largest bank by market value, plans to bail out its two structured investment vehicles on its own. The London-based company said yesterday that it would take on $45 billion of assets from the SIVs and offer to swap
HSBC-backed debt for investors' holdings in them.
The timing of the announcement was less than ideal for Citigroup Inc., Bank of America Corp. and JPMorgan Chase & Co.,
HSBC's three biggest U.S. competitors. They are seeking to line up financial support from other banks for a so-called SuperSIV, a brainchild of U.S. Treasury Secretary Henry Paulson.
As proposed, the fund would provide SIVs -- set up to purchase bonds backed by subprime loans, along with other high- yielding debt securities -- with an alternative to dumping their holdings at fire-sale prices.
Citigroup, as the largest manager of the funds, stands to be the biggest beneficiary of the SuperSIV. The New York-based company provided $7.6 billion of financing to its SIVs earlier this month because they couldn't pay off maturing debt.
Many SIVs are in a pinch because they are unable to sell asset-backed commercial paper, a type of money-market security, to finance their holdings. The amount of paper outstanding has fallen for 15 straight weeks, reducing the total by 30 percent to $835.8 billion, according to U.S. Federal Reserve figures.
More Losses Foreseen
HSBC's rescue plan for its two funds, Asscher Finance Ltd. and Cullinan Finance Ltd., presumably lessens any incentive for the company to participate in the SuperSIV. It also raises the issue of whether other banks ought to follow its example by taking care of their own, rather than banding together.
If the institutions head that way, it wouldn't be the first time
HSBC set a precedent. On Feb. 7, the bank foreshadowed the subprime-loan debacle by announcing that loan-loss provisions for 2006 would be 20 percent higher than previously forecast.
HSBC is still paying a price for its lending to less- creditworthy home buyers. The company may have to set aside another $12 billion for bad loans, according to an estimate published by Goldman Sachs Group Inc. yesterday.
Fifty-six percent of the homes financed by the bank's Household International Inc. unit may be worth less than their loan balances as prices fall, analysts led by Roy Ramos in Hong Kong wrote in a report. The so-called negative equity presents ``an alarming scenario,'' the report said.
No `Material Impact'
The SIV bailout may be a different story.
HSBC said it doesn't expect the move to have any ``material impact'' on its profits or capital position. The funds' junior bondholders will bear most of the credit risk, the company said.
Even so, the bank's decision to support its SIVs without outside help will provide ammunition to critics who want U.S. banks to do the same. Assuming it hits the target,
HSBC will again be the canary.
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Citigroup's reversal of a recommendation to buy shares of U.S. homebuilders, made just eight weeks ago, demonstrates the pitfalls of building forecasts on past performance.
Analyst Stephen Kim wrote in an Oct. 1 report that the builders' track record for the past three decades showed they were due for a rebound after losing 40 percent since late June.
There hasn't been a recovery this time. A gauge of companies in Standard & Poor's U.S. benchmark indexes, including the S&P 500, has lost 23 percent since the report was published.
``The prognosis is grim'' for sustaining the historical pattern, Kim wrote in a follow-up yesterday. He also said the stocks dropped to the lowest prices relative to book value, or the value of assets minus liabilities, in at least 20 years.
Kim cut Centex Corp., D.R. Horton Inc., Lennar Corp., Pulte Homes Inc. and Ryland Group Inc. to ``hold'' from ``buy'' after doing the opposite on Oct. 1. The analyst also lowered KB Home to ``hold'' from ``buy'' and Meritage Homes Corp. to ``sell'' from ``hold'' yesterday.
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Sony Corp.'s gains yesterday after a Dubai investment fund disclosed the purchase of a ``substantial'' stake may be short- lived, if the state-run fund's other holdings are any guide.
Sony, the world's second-largest producer of consumer electronics, is among three stocks owned by Dubai International Capital LLC's Global Strategic Equities Fund.
HSBC and European Aeronautic, Defence & Space Co., whose Airbus SAS unit is the world's biggest maker of commercial planes, are the others.
HSBC has fallen 13 percent since May 1, when the $2 billion fund made an announcement similar to yesterday's. EADS, based in Paris and Munich, has dropped 11 percent since Global Strategic reported owning a 3.1 percent stake on July 5.
The losses for the Persian Gulf emirate don't stop there. Och-Ziff Capital Management Group LLC, which sold a 9.9 percent stake to Dubai International before going public two weeks ago, has declined 23 percent since its debut. Deutsche Bank AG has fallen 29 percent since the state-owned Dubai International Financial Centre disclosed a 2.2 percent holding on May 16.
(David Wilson is a Bloomberg News columnist. The opinions expressed are his own.)
To contact the writer of this column: David Wilson in New York at
dwilson@bloomberg.net 
