HSBC’s exposure to defaulted commercial property loans in Hong Kong surged almost sixfold to more than $3bn in the first half of this year, underscoring the risks the UK bank faces from a slump in the Chinese territory’s real estate market.

The London-headquartered bank had $3.2bn in “credit impaired” commercial real estate loans to Hong Kong clients as of June 30, up from just $576mn six months earlier, according to its financial report for the first half of this year.

Hong Kong is HSBC’s largest market for commercial real estate lending, accounting for 45 per cent of its exposure, in comparison with 18 per cent for the UK.

The bank’s total global commercial real estate lending was $79bn as of June. The $3.2bn in credit impaired loans made up 9 per cent of HSBC’s total Hong Kong commercial real estate lending.

The leap in defaults is a sign of how the commercial property downturn in Hong Kong, a financial hub that has for years been one of the world’s most expensive real estate markets, has started to hit banks. Prime office rents have fallen more than 35 per cent since 2020, according to commercial property adviser Cushman & Wakefield.

While banks have been under pressure for several years over their exposure to mainland China’s property market, the focus is now shifting to Hong Kong, said David Wong, head of North Asia bank ratings at Fitch.

“We’re a lot more comfortable saying a line has been drawn under [banks’ exposure to] China commercial real estate, versus Hong Kong,” Wong said. “I don’t think we’ve seen the bottom yet.”

Under the bank’s definition, those borrowers have breached the terms of their loan. That can include missing payments but it can also include “non-financial” measures such as the loan-to-value ratio missing an agreed target figure.

Georges Elhedery, who became HSBC’s chief executive in September, said on a call with analysts in early August when he was chief financial officer that the loans were “all performing” even though “a large number” were classed as credit impaired.

However, the bank said “certain borrowers have sought payment deferrals to accommodate debt serviceability challenges” in its financial report for the first half of this year, published on July 31.

HSBC told the Financial Times this week that “a lot” of the borrowers are still paying interest. A spokesperson for the bank declined to provide figures on how many borrowers were paying interest or to offer more detail on Elhedery’s comment.

Standard Chartered, which as with HSBC has more exposure to commercial property lending in Hong Kong than any other region, reported a rise in the proportion of lower-rated borrowers in its most recent earnings, though it did not mark any of the loans as credit impaired.

The lender has cut its unsecured exposure to Hong Kong commercial real estate borrowers by 19 per cent since the end of 2022, it said in filings in July. Standard Chartered declined to comment.

Higher interest rates have put Hong Kong borrowers under pressure at a time when demand for office and retail space has fallen, with China’s economic slowdown and Beijing’s national security crackdown hitting international investor confidence. Tough zero-Covid measures also prompted an exodus of foreign workers during the pandemic.

The HSBC figures show that Hong Kong groups accounted for 45 per cent of the bank’s total credit-impaired commercial real estate lending as of June, up from 13 per cent six months earlier.

Elhedery said on the earnings call that the bank had taken a “probably prudent approach” in reclassifying the loans and was “comfortable and confident in the medium-to-long-term outlook” for Hong Kong’s commercial real estate sector, which would benefit from any rate cuts.

The bank said in its filing that its collateral coverage was strong and “broadly stable” even as valuations fell, and it was making “relatively low” provisions for credit losses on the loans because of high collateralisation.

“I think for those of us living in Hong Kong you can see vacancy rates are higher at this point,” said Ming Lau, the bank’s Asia chief financial officer, on the analyst call. But he said that the loans were structured so that the bank had recourse to “other assets and cash” of the borrowers.

Eleven of Hong Kong’s biggest property developers have written down the value of their investment property portfolios by about $23bn since 2020, according to data compiled by UBS for the Financial Times.

Mark Leung, a property analyst at UBS, said there could be more writedowns for Hong Kong’s developers in the near future. “For offices, rent probably will continue to come down due to the inflated supply issue, and vacancies could edge up,” he said. 

Many of the territory’s property companies are controlled by tycoons and their families. Sun Hung Kai Properties is controlled by the Kwok family, Henderson Land Development by the Lee family, CK Asset by the Li family and New World Development by the Cheng family.

Gary Ng, a senior economist at Natixis, said that while the developers are expected to remain under pressure, most retained “sound financial positions” and could tap “old money” held by the tycoons and their families.

On the road with Pearl Jam, lead singer Eddie Vedder’s dressing room contains all the comforts of home: a dartboard (“Gives me a little focus before we run out,” he said); a Chicago Bears football jersey (No. 34, Walter Payton); and a picture of the great Hawaiian surfer Duke Kahanamoku, which always travels with him.

Vedder, who loves to paddle out, likens songwriting to surfing: “You put these building blocks together, so you can kind of, let’s say shape the perfect wave, you know, that has a couple turns, and then a barrel, and then the lyrics come – the lyrics come from surfing that wave.”

Pearl Jam’s latest wave, “Dark Matter,” is the 12th studio album from a band that’s been playing together for nearly 35 years. Vedder said, “Pretty much everything I’ve ever written, it’s always started as a paper napkin. Now cloth napkins, ’cause we’re staying in better hotels!” he laughed.

Vedder was 12 when his mother gave him his first guitar. “My birthday is December 23,” he said. “So, I begged to have the two gifts put together to afford something as extravagant as an electric guitar, which I think was $115.

“I walked in Christmas morning. And I could see the silhouette of it. [!!!]  And then the lights came on and it was a vacuum!  And then everybody finished opening their presents. [I’m getting a little chills!]  And they said, ‘Oh, one more…’ And they pulled out a guitar case. So, that was nice!” Vedder laughed.

That sounds kind of cruel! “Well, I don’t think they meant to,” said Vedder. “How ’bout my mom getting lucky and getting a vacuum for Christmas?”

Vedder’s record collection included The Jackson 5, James Brown, and The Who. “We had a babysitter bring over ‘Who’s Next,’ and left it there. I didn’t see the sun for about two weeks!” he laughed.

He called The Who’s music a lifeline: “Records like ‘Quadrophenia’ gave me the knowledge and hope and antidote to despair, knowing that somebody else was going through what I was going through.”

Vedder was living in San Diego in 1990, when he heard a group of Seattle musicians was looking for a singer. They sent a cassette of instrumental songs. He wrote lyrics to them, while surfing: “I was doing those midnight shifts security. So, when I went for a surf in the morning, I remember it being super foggy and one of those days where you think, ‘Maybe I won’t go out.’ But I had the music in my head, the instrumental, and just kind of wrote it. And then, I was still wet when I hit ‘record.’”

Bassist Jeff Ament listened to Vedder’s tape, went out for coffee, then returned to listen to it again. “And then, I remember calling Stone and I said, ‘You need to come over here right now,’” he said. 

Ament, and guitarists Stone Gossard and Mike McCready, flew Vedder up to Seattle to audition.

“You felt it,” Vedder said. “You were like, ‘Oh, this is what it is. This is heaven.’”

Pearl Jam’s debut album, “Ten,” would be one of the biggest-selling rock records ever, staying on the Billboard charts for nearly five years.

The sudden success was overwhelming: “It was an avalanche that hit us at the front end of all of that,” Ament said. “So, we were just digging out, trying to survive, and you sort of regain control, sort of feel like we were in control of our destiny.”

They fought with their label, refused to make videos, and sued Ticketmaster. Ament said, “I remember those tickets came out, and the tickets would say, $28 Pearl Jam. But then we’d be like, ‘Wait a minute, we’re charging $16.’”

“You just felt this corporate, you know, fingerprints on you,” Vedder said. “And you wanted to break free, and rebel, and claim your music for yourself and your crowd.”

Pearl Jam and its “crowd” have long been deeply loyal to each other.

In Missoula, Montana, where Ament has lived since he went to the University of Montana, he hosts a fan fair with local non-profits before the gig: “You just want to help people, you just want to do more for the community.” He thinks of this tour stop as a hometown show. “Yeah. It’s like a lot of history, family, and old, old friends,” he said.

On tour, Vedder labors over every set list, selecting from a voluminous list, which also contains “a lot of covers, things we played once.”

How long does that process take? “Sometimes a ridiculously long amount of time!” he laughed.

He writes up his set lists in calligraphy, which he learned to pass the time on the road. “It keeps me focused and entertained,” he said.

Does he still enjoy being on the road? “Wrong question!” Vedder laughed.

When several band members got seriously ill this summer, Pearl Jam had to cancel three dates. “This was like a Euro bronchial with pneumonia on top of it,” Vedder said. He described it on stage as almost like a near-death experience. “A near-awful-death experience. I don’t necessarily mind dying!” he laughed.

WEB EXTRA VIDEO: Pearl Jam performs “Even Flow”: 

Vedder turns 60 this December. Ament is 61. Mason asked, “You obviously must have a lot of trust that if you all get together, something’s gonna happen?”

“Well, it does,” Vedder replied.

Asked why they think the band is still working after all this time, Ament replied, “It’s miraculous in some ways that we made it through. And then also it’s just a testament to our friendship.”

“I was gonna say, good, clean living!” Vedder laughed.

You can stream Pearl Jam’s latest album, “Dark Matter,” by clicking on the embed below (Free Spotify registration required to hear the tracks in full):

      
For more info:

     
Story produced by Jon Carras. Editor: Mike Levine. 

Anthony Mason

Anthony Mason is a senior culture and senior national correspondent for CBS News. He has been a frequent contributor to “CBS Sunday Morning.”

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“Didier was the initial one – Chelsea is like one big family and we just sat and ate in the canteen with the players and so we started a conversation organically while eating,” says Menon.

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Menon’s sessions involved meditation, sharpening players’ mental approach and dispelling the negative thoughts that can come with top-flight pressure and scrutiny.

“I was a person without a title, teaching the players self-care and how to balance, spiritually, emotionally, and ultimately impact them physically,” says Menon.

“They are human beings and need a friend to giggle with, babble to and then they will open up.

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Menon was a constant presence in the Chelsea backroom staff for 13 years, working under managers such as Carlo Ancelotti, Rafael Benitez, Jose Mourinho, Antonio Conte and, finally, Thomas Tuchel.

“I got the chance to be part of all the trophies Chelsea won from 2010,” he says.

“What an experience, it was an unbelievable space, I miss it a lot, frankly.”