Bad debts halve profits at HSBC

Author: By Russell Lynch, Press Association

The 51 per cent drop in pre-tax profits to 5 billion US dollars (£2.98
billion) came after its bad debt charges soared 39 per cent to 13.9 billion
US dollars (£8.3 billion).

The figures came on the same day rival Barclays pushed up profits 8 per cent
to £2.98 billion for the same period.

Despite the fall in profits, HSBC said results were better than it expected at
the start of the year in an “unprecedented” economic climate.

Chairman Stephen Green said it was likely that “we have passed, or are about
to pass” the bottom of the cycle in financial markets, but he also warned:
“The timing, shape and scale of any recovery in the wider economy remains
highly uncertain.”

HSBC’s US consumer lending business in the US – which has been devastated by
the credit crunch and is being wound down by the bank – posted a 2.9 billion
US dollar pre-tax (£1.7 billion) loss for the period.

But it added that bad debts were rising at a slower rate than expected after
efforts in previous years to cut down on higher risk loans.

HSBC spent 15 billion dollars (£8.9 billion) on the Household business in the
US back in 2003 – but the operation slumped to a 15.2 billion dollar loss
(£9 billion) in the second half of 2008 as the group wrote down the value of
the operation.

But the company also benefited from record investment banking profits of 6.3
billion US dollars (£3.75 billion) during the first half of the year – more
than double the level of 2008.

HSBC has also made a push into the UK mortgage market to grab market share as
rivals tighten up lending or withdraw altogether.

The bank committed £15 billion for new mortgage lending in the UK, of which
£6.7 billion was lent during the first half of the year.

HSBC was one of the first major players to come back into the market to
support first-time buyers and its estimated share of new lending has more
than doubled to 9.7 per cent.

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