HSBC, Citi: More balance sheet pain

Banks’ balance sheets are back in the spotlight. HSBC (HBC), the big British institution formerly known as Hongkong & Shanghai Bank, said Monday it will take $45 billion worth of troubled debt securities tied to structured investment vehicles onto its balance sheet, without hitting earnings or capital. The move “will set a benchmark and restore a degree of confidence to the SIV sector,” HSBC’s investment banking chief said (no doubt, with fingers crossed).

HSBC’s decision comes as Bank of America (BAC) is trying to bring other banks aboard an $80 billion SIV rescue fund alongside Citi (C) and JPMorgan Chase (JPM). So far that effort — which is intended to prevent the sponsoring banks from having to take these depreciating assets onto their balance sheets — has resulted in much talk but little action.

In a separate but related issue, The Wall Street Journal reports that Citi is resisting bringing $41 billion worth of another kind of troubled debt — collateralized debt obligations, or CDOs — onto its balance sheet. Some accounting experts believe Citi is obliged to do so. It seems clear the bank will continue to balk as long as it can, given that consolidating the CDOs would expose Citi to billions of dollars in additional losses. It’s a good guess that Citi shareholders feel they have had enough of those for now.