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HSBC writes off US$3.4b on mortgages in Q3

But it says those losses were more than offset by revenue growth in the group

(LONDON) HSBC Holdings is taking a US$3.4 billion charge against third-quarter profits because of accelerating losses in its HSBC Finance Corp mortgage business in the United States.

However, in a trading update the company said that those losses were ‘more than offset by revenue growth in the group’ as a whole and that third-quarter operating income was up compared with a year ago. ‘There is the probability of further deterioration if the current housing market distress continues and further impacts the broader economy,’ the company said.

HSBC, Europe’s biggest bank by market value, said pretax profit in the third quarter rose from a year ago. Shares of the London-based bank rose 3.6 per cent after it said pretax profit in the corporate, investment banking and markets unit in the quarter was ‘broadly in line’ with the year-earlier quarter.

‘Given that they have increased provisions by US$1 billion, for them to say pretax profit in the third quarter is ahead is little short of amazing,’ said Alex Potter, a London-based bank analyst at Collins Stewart. HSBC, helped by lending in Asia and Latin America, has held up better than most of Europe’s banks this year. Still, US bad loans have increased since HSBC first said almost a year ago that sub-prime loans would hurt revenue growth. The bank set aside US$10.6 billion for bad loans in 2006 and may need reserves of US$13.6 billion this year, Sanford C Bernstein & Co estimates.

HSBC shares rose 30.5 pence to 873 pence at 8.50am in London, valuing the company at 103 billion pounds (S$308 billion). They have fallen 6.2 per cent this year, outperforming the 15 per cent drop for the Bloomberg Europe Banks and Financial Services Index and the 19 per cent decline for the FTSE All-Share Bank Index.

The collapse of the sub-prime market in the US, where borrowers with impaired credit got mortgages before home foreclosures rose to a record, spread to global credit markets and triggered about US$45 billion in writedowns among the world’s largest banks. Citigroup, the biggest US bank by assets, said it may have to write down as much as US$11 billion of assets on top of US$6.5 billion of third-quarter credit- market losses.

HSBC chief executive officer Michael Geoghegan has said it may take two to three years to resolve HSBC’S sub-prime problems. The 142-year-old bank, which paid US$15.5 billion for Household International Inc in 2003 and became one of the largest US sub-prime lenders, has since ousted managers, closed mortgage units and stopped trading and selling mortgage-backed securities.

 

Source: AP (Business Times 15 Nov 07)

Bloomberg

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