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HSBC's profit down 7 percent as its bad loans begin to rise

A man walks past a bronze Lion guarding in front of the HSBC headquarter in Hong Kong, yesterday. HSBC Holdings Plc, which is based in London but controls the Hong Kong and Shanghai banking Corp, said its second-half earnings declined. PHOTO: AP

HSBC Holdings Plc said first-half profit fell 7 percent after Europe's biggest bank by market value allocated more money for bad loans.

Net income declined to US$3.28 billion, or US$0.35 a share, from US$3.54 billion, or US$0.38, in the year-earlier period, the company said in a statement. Chief Executive Officer Sir Keith Whitson said HSBC is "very cautious" about the outlook.

"There are lots of bullets flying around," Whitson said in an interview. "There is probably more bad news than good news coming out at the moment. The world is a very dangerous place and we need to be very cautious."

HSBC set aside US$715 million in the first half for potential loan defaults, including Argentina, up from US$441 million in the same year-earlier period. Spain's biggest banks, Santander Central Hispano SA and Banco Bilbao Vizcaya Argentaria SA, last week scrapped 2002 profit growth forecasts because of plunging Latin American currencies.

Analysts were estimating HSBC would need $917 million for potential loan defaults.

"Our performance in the first half showed once again the resilience of HSBC in difficult market conditions," Chairman John Bond said in a statement. The company's shares were up 0.7 percent at 9:20am local time.

In Hong Kong, where the bank was founded 137 years ago, first-half earnings at the Hongkong & Shanghai Banking Corp unit fell 10 percent to US$1.6 billion. In 2001, HSBC got 44 percent of its pretax profit from Hong Kong. That fell to 35 percent in the first half.

In North America, pretax profit increased 9 percent to US$652 million, accounting for 12 percent of HSBC's total of US$5.46 billion.

Operating expenses declined 4 percent from the second half of 2001 to US$7.15 billion. The cost-to-income ratio decreased to 54.5 percent from 55.8 percent.

HSBC's net interest income rose 6 percent in the first half to US$7.59 billion from the year-earlier period, the company said.
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