Monday May 12, 01:13 PM
HSBC profits rise despite $3.2 bln subprime hit
By Roland Jackson
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LONDON (AFP) - Global bank HSBC said Monday that first-quarter profits climbed, despite taking a 3.2-billion-dollar (2.07-billion-euro) hit from its exposure to the US subprime housing market slump.
In total, HSBC wrote off 5.8 billion dollars in the three months to March as a result of losses linked both directly and indirectly to the subprime crisis which it said would very likely push the US economy into recession.
The group's share price rallied 1.85 percent to 882 pence in early afternoon London deals as investors welcomed news that HSBC's credit-crunch losses were less than expected in the first three months of 2008.
"HSBC has made a strong start to the year despite the turbulence in global financial markets," the Britain-headquartered bank said in a trading update.
"In the first quarter of 2008, HSBC's profit was ahead of the equivalent period last year," it said, without given specific figures.
Europe's biggest bank said pre-tax profits advanced in all major emerging markets in Asia-Pacific (002790.KS - news) , the Middle East and Latin America but it gave a downbeat outlook for 2008.
HSBC said its US consumer lending operation had incurred bad debt charges of 3.2 billion dollars in the first quarter. That was in line with the group's forecasts and was lower than the 4.6 billion dollars that was written off in the fourth quarter of 2007.
In addition, the group said it would write off 2.6 billion dollars of assets owing to strains from the global credit squeeze which erupted on world financial markets last year in the wake of the subprime crisis.
HSBC's investment banking unit wrote off the amount to reflect a fall in the value of debt-backed securities. The figure was below analyst forecasts of up to 5.0 billion dollars.
The collapse of the US high-risk home loan market last year has seen many major commercial banks tighten their lending criteria after suffering heavier losses in complex subprime investments.
HSBC said profits at its US division sank in the first quarter "as a result of higher consumer finance loan impairments and additional write-downs."
Many global banks have suffered heavy losses due to their larger exposure to securities that were effectively bets -- now failed -- on high-risk US homebuyers repaying their mortgages.
"The outlook for the rest of the year remains unusually difficult to foresee in the current environment," HSBC chairman Stephen Green said in the update.
"It seems increasingly likely that the US will enter a recession in 2008, the length and depth of which is uncertain
"The timing of any recovery in the US housing market, which is likely to be the primary stimulus in restoring confidence to the US economy, is also unclear."
Last month, Britain's biggest mortgage lender HBOS (LSE: HBOS.L - news) said it would ask shareholders for 7.9 billion dollars (5.0 billion euros) to strengthen its balance sheet after suffering more heavy credit-crunch writedowns.
Royal Bank of Scotland (LSE: 91ID.L - news) was also seeking to raise fresh funds of 24 billion dollars to shore up its finances in Britain's biggest-ever rights share issue, following subprime-related writedowns and its part in the takeover of ABN Amro (Amsterdam: ABAGB.AS - news) .
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