Company Involvement - HSBC Holdings Plc is directly involved in urging its Hong Kong subsidiary, Hang Seng Bank Ltd., to sell off portfolios of bad real estate debt, highlighting concerns over the struggling property sector in Hong Kong [1][4] - HSBC has directed its global chief corporate credit officer and the head of its special credit unit to ensure that Hang Seng initiates the sale process [2] Financial Impact - Hang Seng Bank is in the early stages of selling property-backed loan portfolios valued at over $3 billion, following an 85% year-on-year increase in impaired Hong Kong real estate loans [3][4] - As of June, Hang Seng had impaired loans to Hong Kong commercial real estate amounting to HK$25 billion ($3.2 billion) [4] Market Context - The Hong Kong banking sector is experiencing significant strain due to the worst real estate slump since the late 1990s Asian financial crisis, with discussions of creating a "bad bank" to manage approximately $25 billion in soured loans [4][6] - The China Real Estate Chamber of Commerce has proposed a HK$20 billion fund to invest in distressed properties to mitigate systemic financial risks [6] Strategic Approach - HSBC aims for a holistic approach to the disposal of bad debts, involving top bankers in London to expedite the process, rather than relying on piecemeal attempts [7] - Hang Seng is looking to offload two portfolios backed by real estate assets from Hong Kong developers and a third portfolio backed by real estate in mainland China [8] Historical Context - Following the crisis in the late 1990s, the Hong Kong Monetary Authority (HKMA) implemented directives to prevent non-performing loans (NPL) build-up, but these did not provide a clear strategy for managing bad debt [9] - There is a noted gap in institutional knowledge as senior bankers who previously managed clean-ups have left the industry [9] Implementation Challenges - There are uncertainties regarding the adherence to HSBC's directive, as Hang Seng and consulting firms have reached out to private credit firms without clear instructions on the next steps for loan acquisition [10]

Financial Performance - Collections showed strong growth, reaching $255.7 million, up 85% compared to Q2 2024[9] - Estimated Remaining Collections (ERC) reached a new record of $2.9 billion, a 31% increase compared to Q2 2024[9] - Revenue grew to $152.7 million, a 47% increase compared to Q2 2024[9] - The company declared a dividend of $0.24 per share, payable on September 4, 2025[9] Efficiency and Profitability - The Cash Efficiency Ratio was 75.9%[9], aided by the Conn's portfolio purchase, with the ratio being 71.8% excluding Conn's portfolio[27] - Adjusted Pre-Tax Return On Average Equity (ROAE) was 58.4%[28] - Adjusted Pre-Tax Income increased by 55% compared to Q2 2024[31] Deployments and ERC - Year-to-date deployments as of June 30, 2025, were $300.5 million, up 24% compared to the same period in 2024[17] - U.S Distressed ERC includes $226.5 million related to the Conn's portfolio purchase[22] - The company expects to collect $889.0 million of the June 30, 2025 ERC balance during the next 12 months[22] Leverage and Funding - The leverage ratio was 1.76x, calculated as Net Debt divided by Adjusted Cash EBITDA[9] - At June 30, 2025, $825 million RCF was undrawn with $51.7 million of unrestricted cash on the balance sheet[35]