Case Study Of HSBC: Lending Decisions And Sub Prime Crisis

HSBC – Lending Decisions and Sub Prime Crisis

Problem:

Let us look what us subprime loan, subprime does not mean “lower than prime.”. Subprime lenders charge rates that are higher than prime, the rate offered by the bank to its most creditworthy customers — sometimes the subprime rates are much higher. Subprime borrowers are generally people with poor credit record who may have a recently defaulted.

The chief cause of the subprime mortgage crisis is the United States housing bubble burst after reaching its peak in the year 2006. The rate of defaults on adjustable-rate mortgages increased many fold leading to crises.

HSBC also invested heavily in the subprime loan and the Real estate prices did not rise, as was expected, and the adjustable-rate

The loan will be fitted for the borrower by using decision- making, risk management, and the business analytics tool HSBC implemented. This will make the borrowing such safer.

2. How might these changes affect the business?

As the effects of various changes implemented by the HSBC aftermath subprime crises will make taking the loan much harder which will affect the customer. Harder loan process might affect the financial of the customer who are in need of finances.

3. How might these changes affect the US economy?

As the loan process is made harder, this will also increase the interest rate of the bank , since it will be now harder to quality for the loan and will lower the housing market.

4. Points to ponder: If a similar situation happened in India today, how might it affect India's economy? (This is a very challenging question and requires a lot of very deep thought - take up the challenge)

I don't see this situation happening in India as the RBI keeps strict check on the market speculation and the rule for getting loan is very strict. Through check and verification is done in order to give loan. India is developing economy and the demand of houses is still high as compared to the supply. Even in the case if this happens in India RBI will able to Bail the came from its cash

HSBC made a decision to pursue subprime as a segment of its business. What sort of decision was this? Structured, unstructured, or semi-structured? Justify your view.

This was Semi-structured decision as not clear cut solution was there to predict the fall in housing price that led to the subprime crises.

2. Formulate and establish your opinion about where in the decision-making process HSBC went wrong. Build a strong case in support of your claim.

The Decision-making process did go wrong at the strategy planning of higher level management , the management failed to foresee the consequences of falling house price if the interest rate rises and the FICO score is not reliable even then HSBC went ahead to buy more mortgage from the market lured by the high interest rate.

3. Apply the decision quality concepts of accuracy and comprehensiveness that we've studied in the class to this case.

• Accuracy: Is the value added by the system processes that assure error-free transfer of data and information.

The integrated system that we have designed will be error and there will be no loss that of data, in case there is loss of data same will retransmitted again