HSBC Revenue Gains Slow as U.S., U.K. Bad Loans Rise

Discussion in 'Trading' started by S2007S, Dec 5, 2006.

  1. S2007S


    whats this.......ohhh the banks are finally seeing the impact of the housing slowdown

    HSBC Revenue Gains Slow as U.S., U.K. Bad Loans Rise (Update9)

    By Ben Livesey and Jon Menon

    Dec. 5 (Bloomberg) -- HSBC Holdings Plc, the world's third- biggest bank by market value, said third-quarter revenue growth slowed as bad loans rose in the U.S. and the U.K.

    In the U.S., where the bank gets the biggest share of pretax profit, loan delinquencies and writedowns increased from the first part of the year due to more bankruptcies and a weaker housing market, London-based HSBC said in a statement today. Trading revenue in the investment bank also declined in the latest quarter.

    HSBC Chairman Stephen Green has pledged to increase earnings in Asia to counter sluggish growth in the U.S. and record household debit in U.K. HSBC still gets almost half of profit from the two countries. The company's shares have fallen 1.6 percent this year, making them Britain's worst-performing bank stock.

    ``There is little in the statement that will calm fears of a slowdown,'' said Colin Morton, who helps manage $1.8 billion, including HSBC stock, at Rensburg Sheppards Plc in Leeds, England. ``People were looking for signs of a stabilization in bad debts, and things seem to be worsening.''

    Shares of HSBC fell 1.9 percent to 919.5 pence at 1:15 p.m. in London. They are down 11 percent from a month ago, when the bank first disclosed rising bad debts in the U.S.

    Risks to Earnings

    The main risks for earnings are ``further weakness'' in U.S. housing, employment and consumption, the lender said today. A slowdown in mortgage lending will ``constrain revenue growth'' and raise delinquencies as a percentage of all loans, HSBC said.

    ``It's not a case of pulling in our horns, but we are being cautious on loans,'' said Chief Executive Officer Mike Geoghegan in a conference call with analysts today. ``We won't go out'' with unprofitable loans, he added.

    HSBC, which trails New York-based Citigroup Inc. and Charlotte, North Carolina-based Bank of America Corp. in market value, bought Household International Inc. for $15.5 billion in 2003. The purchase of the Prospect Heights, Illinois-based company, a lender to consumers with lower-than-average credit ratings, left HSBC more vulnerable in the event of a U.S. recession.

    The U.S. economy grew last quarter at the slowest pace this year, and Federal Reserve officials have said the housing slowdown may weigh on future growth by removing a source of consumer wealth. Interest-rate increases earlier this year will hurt borrowers with adjustable-rate mortgages, HSBC said today. North America accounts for a third of HSBC's profit and about two-thirds of bad loans.

    Worsening Situation

    HSBC miscalculated some borrowers' ability to repay mortgage loans in the U.S., Finance Director Douglas Flint said today in a conference call with analysts.

    ``The situation has worsened since we looked at the third- quarter numbers,'' when profit declined by $1 million to $673 million, Flint said. There was a ``weakening trend'' in the fourth quarter, he said. HSBC doesn't provide quarterly figures for the group and will report full-year earnings March 5.

    HSBC is also fighting record household debt and personal insolvencies in the U.K. Third-quarter loan-impairment charges in Britain rose from a year earlier, and rising personal insolvencies ``are unlikely to abate in the medium term,'' the bank said today.

    First-half profit at the British consumer unit fell 3.8 percent from a year earlier as bad loans jumped 36 percent, HSBC said in July.

    Third-quarter trading revenue fell at HSBC's securities unit due to ``seasonal'' lower demand and less opportunity to profit on market volatility, the bank said today. Pretax profit at the unit, run by Stuart Gulliver, fell in the third quarter from ``very strong'' levels of the year's first and second quarters. It was also down from the year-earlier third-quarter as revenue was flat and costs rose, Flint said.


    First half profit at the unit, helped by demand for derivative by hedge fund managers and rising stock markets, rose 37 percent to $3.1 billion, driving overall profit growth at HSBC for the period. The bank expects the unit to become more profitable following a peak in cost growth after the bank hired 1,400 people in 2005.

    The commercial-banking unit, which lends to companies, ``grew revenue ahead of cost growth.'' HSBC said. Asia, helped by ``strong trade flows,'' showed gains. So did the Middle East, driven by demand for project finance.

    The bank's profit growth also was buttressed by the wealth management unit, where pretax profit in the first nine months of the year surpassed the full-year level in 2005.

    HSBC's strongest opportunity is emerging markets, including Asia, Mexico, Brazil and Turkey, it said today. Third-quarter profit for consumer and commercial lending in these markets continued to rise in the third quarter, it said.

    ``There are some positive announcements around Asia and wealth-management deposits,'' said Guy de Blonay, a fund manager at New Star Asset Management Plc in London, which oversees about $37.1 billion. ``The concern is very much about the U.S. mortgage credit outlook.''

    HSBC forecasts China, India and smaller markets including Vietnam and Indonesia will account for an increasing share of profit as Asian incomes and demand for loans grow faster than in the West, Green said last month.

    To contact the reporter on this story: Ben Livesey in London
    Last Updated: December 5, 2006 09:45 EST