LONDON, Nov. 14 — HSBC Holdings warned today that losses in the United States housing market were spreading to credit card and other consumer loans, forcing the bank to set aside $3.4 billion to cover bad loans, more than it had forecast about four months ago.
However, revenue growth at its consumer lending business in the Middle East, Hong Kong and China more than offset the losses at the American unit, resulting in an increase of third-quarter profit, the company said, without giving any figures.
HSBC said it set aside $1.4 billion more than anticipated earlier because of a “broader deterioration” in the United States housing market and will also take a $55 million charge to close 260 more consumer finance branches in the country.
“We are seeing a re-evaluation of asset classes in U.S. real estate and this is going to continue,” HSBC’s chief executive, Michael Geoghegan, said on a conference call with analysts. “We’re not through the credit crisis yet.”
Banks worldwide have written down more than $45 billion since troubles with mortgage loans to American borrowers with impaired credit started to spread to the global credit markets earlier this year. Citigroup and Morgan Stanley are among banks that had to increase provisions over the last months.
HSBC, which had started to close mortgage units and exchanged managers to limit the effects on its business, said it could take up to three years to resolve the bank’s issues related to the subprime crisis, especially as the difficulties are widening.
“Early stage delinquency rates in both cards and branch unsecured lending are also showing signs of deterioration,” HSBC said in a statement.
Ian Gordon, an analyst at Exane BNP Paribas in London, said the announcement is an “unwelcome confirmation of the spill-over into loans and cards.”
Knight Vinke Asset Management, a New York-based investment firm that earlier this year started a public campaign to change the bank’s strategy to improve the share price, said today that the additional provisions show “the risks associated with not focusing sufficiently on businesses where HSBC has a comparative advantage” and that the bank had become “too large and too complex to be controlled effectively.”
Yet, some investors applauded HSBC’s strong performance in emerging markets, which fueled expectations that the bank may be able to withstand further turmoil in the United States lending market. The bank’s shares rose 1.7 percent, to £8.57 in London midday trading after gaining as much as 5 percent earlier in the day.
Shares in UniCredit also rose today after Italy’s biggest bank said operating profit in the third quarter increased 1.1 percent to 2.41 billion euros, or $3.54 billion, from 2.38 billion euros a year earlier. Even though its investment banking unit was hurt by the fallout of the credit crisis, UniCredit profited from a gain in lending income, especially in eastern Europe, it said.
Other European banking shares also increased, including those of Barclays and Royal Bank of Scotland. Investors had dumped shares in the two British banks earlier this month following speculation about losses linked to the United States subprime mortgage market.
source: 14nov2007
Two U.S. divisions of British bank HSBC Holdings PLC showed significantly worse third-quarter results amid surging credit-loss provisions due to the subprime mortgage crisis.
The company also said it would close or consolidate up to 260 more consumer-lending branches by the end of the year. HSBC already was closing or consolidating 100 offices this year.
HSBC Finance Corp., the bank's U.S. consumer-finance business, will be left with about 1,000 branches under the Beneficial and HFC names. It expects to spend up to $55 million on the latest streamlining effort and will record a substantial portion of those costs in the fourth quarter.
In its third-quarter filing with the U.S. Securities and Exchange Commission, HSBC Finance reported a net loss of $1.1 billion, compared with net profit of $551 million a year earlier. The results included $3.2 billion in provisions for credit losses, versus $1.38 billion a year earlier, as well as a $519 million gain on debt and related derivatives.
HSBC Finance also took an $881 million charge to write off goodwill allocated to Decision One Mortgage, a subprime wholesale-lending unit that HSBC said in September it would close. Decision One was a big middleman in the subprime industry, originating loans through thousands of brokers, then selling those loans to firms that bundled and sold them as mortgage-backed securities. HSBC still originates loans through its branches. In total, HSBC Finance took $3.4 billion in loan-impairment charges.
Revenue fell 49% to $1.3 billion.
HSBC Finance's businesses include mortgages, auto loans and credit cards. The division is the outgrowth of HSBC's 2003 purchase of Household International Inc., a U.S. lender that specialized in subprime loans, or loans to people with spotty credit records. HSBC said that as of Sept. 30, 3.2% of mortgage balances at HSBC Finance were two or more payments overdue, versus 2.3% as of June 30.
HSBC USA Inc., HSBC's U.S. banking unit, posted a 91% decline in third-quarter net income on asset valuation adjustments and a decrease in value of derivative trading instruments used to hedge investments. The New York-based unit earned $21 million, down from $244 million a year earlier. Revenue declined 24% to $895 million.
HSBC USA set aside $402 million for credit losses in the quarter, up 94% from a year earlier, mostly because of higher average credit card balances and growing credit card delinquencies. Many financial-services firms have, in recent quarters, beefed up their reserves for loan losses in light of rising past-due loans to people with tarnished credit histories.
HSBC was one of the first to acknowledge subprime-related woes. Its problems stemmed from its decision to buy billions of dollars in subprime loans that were largely originated in 2005 and 2006. By late 2006, those loans were souring. In February, to cover the losses, HSBC said capital set aside to cover all bad debts would be 20%, or $1.76 billion, more than analysts had expected. In the wake of that, HSBC reorganized the leadership of HSBC Finance.
Last year, HSBC ranked first among U.S. subprime lenders in terms of loan volumes, according to trade publication Inside Mortgage Finance. HSBC said last week it stopped selling and trading mortgage-backed securities in the U.S., resulting in about 120 job cuts.
source: 14nov2007
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