HSBC Holdings Plc, Europe's biggest bank by market value, set aside a smaller-than-estimated $3.2 billion for bad loans in the U.S. and said first-quarter profit was higher than a year earlier.
"The outlook for the rest of the year remains unusually difficult to foresee in the current environment," Chairman Stephen Green said today in a statement.
London-based HSBC expects the U.S. economy to slip into a recession as deterioration in the housing market extends into 2009. While first-quarter earnings declined in the U.S., where the bank lost 1.1 billion in 2007, HSBC reported higher pretax profit from the Asia-Pacific region, the Middle East and Latin America. HSBC rose 2.1 percent in London trading.
``The U.S. provisions are less than some of the more aggressive forecasts,'' said Simon Maughan, a London-based analyst at MF Global Securities Ltd. ``People need remember how strong Asia can be,'' said Maughan, who rates the stock ``buy.''
HSBC gained 18.5 pence to 884.5 pence at 10 a.m. in London, valuing the bank at almost 115 billion pounds ($224 billion). The stock has gained 3.9 percent this year, the best-performance in the eight-member FTSE 350 Banks Index, which declined 8.7 percent.
Financial companies worldwide have posted losses of $323 billion related to the collapse of the U.S. subprime mortgage market.
RBS Writedowns
Royal Bank of Scotland Group Plc, the U.K.'s second-biggest bank, wrote down 5.9 billion pounds of credit-related assets this year, including collateralized debt obligations tied to the U.S. subprime housing market and leveraged buyout loans. It is raising 12 billion pounds in a rights offer and selling about 4 billion pounds of assets to shore up capital eroded by credit writedowns and the acquisition of ABN Amro Holding NV assets.
HSBC Chief Executive Officer Michael Geoghegan replaced American managers, closed mortgage units and stopped trading and selling mortgage-backed securities in the U.S. in response to the subprime problem. The 142-year-old bank paid $15.5 billion for Household International Inc. in 2003, becoming one of the largest U.S. subprime lenders.
HSBC said first-quarter profit in the U.S. fell on bad loans and writedowns of $2.6 billion, offset by accounting gains. U.S. loan defaults in the first quarter were double the year-earlier period and less than the fourth quarter of 2007. Bad debts at its U.S. former Household unit may rise to about $15 billion this year, analysts at UBS AG said this month.
Mortgage Push
The bank set aside about $12 billion for U.S. loan losses last year and an additional $5.2 billion for the rest of the world. Net income rose 21 percent in 2007 to $19.1 billion, helped by loan growth in Asia and Latin America.
HSBC, which gets less than 30 percent of its funding from wholesale markets, has said it will increase mortgage lending this year as banks including Edinburgh-based HBOS Plc trim lending amid the shortage of funds.
The bank, which took $10.6 billion in loan losses worldwide in 2006, is under pressure from investor Knight Vinke Asset Management LLC to have an independent review of its strategy and spin off its U.S. operation. The New York-based company has also criticized the bank's plans for a management-incentive program.
Source:http://www.bloomberg.com/apps/news?pid=20601087&sid=ailoYuzr_61w&refer=home