Part of the problem?

images-1.jpegEarlier today, HSBC Holdings (HBC) reported its earnings for 2006 and said the cost to cover bad debts, primarily due to subprime loans made in the U.S., climbed 36%. The WSJ reported that Chief Executive Michael Geoghegan sought to reassure investors by saying “this is not trailer park lending. This is mainstreet America.”

But it was something in the 10-K that subsidiary HSBC USA filed that caught my attention. Buried in something that I like to call “Enron Beelzebub” typeface were some interesting disclosures on housing perks for top executives. For example, Martin Glynn, the former CEO of HSBC USA (he stepped down at the end of December) received a $177,600 rent allowance and another $150K to cover the tax gross-up on the rent. Brendan McDonough, who was recently promoted to oversee the problems at HSBC Finance received a $75K rent allowance and a $62K gross-up as well as another $122K for “housing and furniture allowance”, which appears to be in addition to the rent and the gross-up. Unrelated to the housing, but still interesting, was something called “additional cash compensation” for Glynn of $7.2 million, which was primarily due to $6.6 million in “general employment benefits.”

Now, when you’re making $700K a year in base salary (not including other goodies) and still need help paying for a place to live, is it really any wonder that HSBC seems to have missed some of the signals that they were over-exposed in the subprime housing market whether or not the loans were made to “trailer park” people?