The banking sector in the UK has become a two-tier market, with a huge expanse of clear blue water between the successful on the one hand, and the government owned, just-saved-from-death banks on the other. They are divided not only by their ownership, but increasingly, by their performance - Lloyds and RBS continue to struggle, while Barclays and HSBC seem to have come through the worst of the crunch and are beginning to climb out the other side.

HSBC's cash call in March this year wasn't universally popular; the shares fell nearly 20% when it was announced. The need to source fresh finance wasn't, as in most of the UK banks, driven by improvident lending in the UK - it was the result of HSBC's involvement in the US personal finance and mortgage market through Household, a business the bank had bought for £6bn back in 2002. Through this unit, HSBC was involved in sub-prime lending in the US - the first area of the market to crash, well before the UK started to show the same symptoms.

HSBC is now closing the business down - but retains a run-off portfolio which is still costing money. Chairman Stephen Green called Household “an acquisition we wish we had not undertaken” [1] The frustrating thing is that without this handicap, HSBC would be doing very well indeed.

In fact, the group's fundamentals look strong. It has a good quality deposits base, and its capital ratios are higher than Standard Chartered or Barclays can show; its tier one capital ratio rose to 10.1% in June 2009, up from 8.3% at December 2008, though this is of course mainly due to the fund raising earlier this year [2] .

The recent Q3 management statement - it's not a full results statement, as the group doesn't have to report quarterly for the US market - gave rise to some excitement in the market as it appears to show not just the beginning of the end of HSBC's sub-prime woe, but also the beginnings of an upturn in the global economy.  The underlying profit for 9 months was higher than the bank's expectations at the start of the year, and loan impairment charges for the quarter fell to the lowest levels for a year [3]

In fact if there is an inflection point, it…

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