HSBC Holdings Plc, Europe’s biggest bank, posted a 57 percent drop in first-half profit after setting aside US$13.9 billion to cover souring consumer loans.
Net income declined to US$3.35 billion from US$7.72 billion a year earlier, the London-based company said in a statement yesterday. That beat the US$600 million median loss estimated by seven analysts surveyed by Bloomberg.
HSBC’s takeover of subprime lender Household International Inc in 2003 contributed to the US$53 billion in provisions the bank has reported in the past three years. Hurt by soaring US bad debts, HSBC decided in March to halt consumer lending at the operation and may review the bank’s credit-card unit in the event that the US economy deteriorates. The bank also raised US$17.8 billion in an April rights offer to shore up capital.
“We expect 2009 to be the peak year of loan losses,” Michael Chang, a Hong Kong-based analyst at Deutsche Bank AG who has a “hold rating” on the stock, wrote in note to clients before the results were published. “The rate of improvement from here is naturally pivotal to near-term earnings valuations of the stock.”
HSBC rose 1.6 percent to 605.75 pence in London trading on July 31, valuing the bank at about £104.9 billion (US$176 billion). The stock has climbed 5 percent in London trading this year. In the same period, shares of London-based Barclays Plc doubled and the 63-member Bloomberg Europe 500 Banks Index advanced 32 percent.
“The timing, shape and scale of any recovery in the wider economy remains highly uncertain,” chairman Stephen Green said in the statement. “Our view continues to be cautious.”
Green said in March that HSBC regretted the decision to buy Household International, now called HSBC Finance.
“It’s an acquisition we wish we hadn’t done with the benefit of hindsight, and there are lessons to be learned,” Green told reporters during a March 2 conference call.
HSBC’s writedowns and credit-market losses are already more than twice those of Credit Suisse Group AG and Barclays Plc, according to data compiled by Bloomberg. HSBC’s US$42.2 billion since the third quarter of 2007 compares with US$20.1 billion at Barclays and US$18.9 billion for Credit Suisse.
Loan loss provisions may not peak for HSBC until next year, though the bank “is arguably the only genuine global bank, which, combined with a funding advantage, means that it is ideally placed to leverage a recovery whenever this happens,” Anil Agarwal, a Hong Kong-based analyst at Morgan Stanley, wrote in a July 17 note to investors.
Unlike RBS and Lloyds Banking Group, HSBC avoided turning to the government for a bailout during the credit crisis.
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