Extract - HSBC's first profit warning ushered in the crunch
Ian King
The Times
March 03, 2009

A STOCK Exchange announcement by HSBC on Wednesday, February 7, 2007 was the moment the credit crisis began.

2007 warning heralded credit crisis

Former HSBC chairman Sir John Bond. Picture: Bloomberg

It was only 351 words long but it was devastating.

The statement opened innocuously enough: "HSBC HOLDINGS PLC wishes to update the pre-close trading statement issued on 5 December 2006 in respect of a single matter." From there, though, the red ink started to flow. The statement went on to admit that slowing house prices had led to higher delinquency rates among American mortgage customers and that bad debts in the business would be 20 per cent worse than expected.

It was HSBC's first profits warning in its 142-year history and a profound shock to a proud organisation.

Mike Geoghegan, its chief executive, told the market that he was taking personal responsibility, announcing: "It's an embarrassment to me and I want it sorted out. I'm not happy that this has happened on my watch and know that I will be judged on how I deal with it."

Within days, shares of New Century Financial, Fremont General and NovaStar Financial, all specialist sub-prime lenders, went into freefall. As New Century said that it might not be able to stay in business, both Barclays and UBS admitted having exposure to it, while City analysts were starting to wonder about which banks had exposure to the sector through trading parcels of sub-prime mortgages that had been securitised.

By May that year, UBS had closed its hedge fund division because of sub-prime related losses. A month later Bear Stearns was engulfed in speculation it was struggling amid its exposure to mortgage-backed bonds.

By July 2007 Ben Bernanke, chairman of the US Federal Reserve, was telling Congress: "A lot of the sub-prime mortgage paper is not, you know, as good as was thought originally." A month later, the FTSE 100 had come rattling back under 6000 points and the European Central Bank and others were pumping liquidity into the money markets, which were showing signs of strain as banks - seeking to avoid the problems their US peers had with sub-prime - cut back on lending to each other. Then came September and Northern Rock.

Some of those crucial events that led to the actual GFC


About The Big Short, it was based on real life characters who made millions of dollars betting against the sub-prime market. Their characters are below, with some help from Wikipedia.

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