HSBC says profits up 13pc, but bad debts jump
London, July 30, 2007
HSBC Holdings, Europe's biggest bank, posted higher first-half profit and struck an upbeat tone on the global economy on Monday, despite a big rise in bad debts linked to its problems in the US housing market.
HSBC, which blamed bad US mortgage loans for its first ever profit warning earlier this year, said pretax profit rose 13 percent to $14.16 billion in the six months to June 30, boosted by strong growth in Hong Kong, the Asia-Pacific and its investment banking arm.
That was ahead of an average forecast of $13.27 billion from a Reuters Estimates poll of nine analysts.
But the bank said it benefited from a gain of $1 billion from the dilution of a holding in its mainland China associates and that pretax profit was up 5 percent excluding that gain.
It also said its charge for bad debts was $6.35 billion in the first half of the year, up 63 percent from $3.89 billion in the same period last year.
"We think that the true underlying growth may be some way short of the headline growth," said NCB analyst Simon Willis, keeping a "reduce" rating on HSBC shares. He added the bad debt charge was about $1 billion higher than he had expected.
HSBC sounded upbeat about the global economy, however.
"The world economy remains remarkably buoyant. There is growing evidence of economic decoupling, with US weakness not constraining economic activity elsewhere," it said in its results statement.
At 0915 GMT, shares in the London-based bank were up 2.5 percent at 902.5 pence, outperforming a flat performance from the UK's benchmark FTSE-100 index and valuing the business at about 106 billion pounds ($216 billion).
"With the shadow of credit concerns casting itself heavily over both global markets and HSBC itself in recent days, the stock appears to be enjoying something of a relief rally -- relief that bad debts were not even worse," said Keith Bowman, Equity Analyst at Hargreaves Lansdown Stockbrokers.
"That said, investors should not sigh too deeply, profits from the group's 'Personal Financial Services' division were down a considerable 20 percent and worries over credit conditions are unlikely to recede just yet."
HSBC said there were risks to the world economic outlook, and that it remained cautious in its risk appetite.
"Excess liquidity in global financial markets could lead to further asset price dislocation," it said.
Underlying revenues rose 16 percent in the first half, just outpacing cost growth of 15 percent.
The bank said growth was driven by an "excellent performance" in Asia -- where profits in Hong Kong rose by a quarter and in the rest of Asia-Pacific by 37 percent -- and in its CIBM investment bank arm, where profits rose 29 percent to $4.2 billion.
HSBC proposed a second interim dividend of 17 U.S. cents a share, which together with the first interim dividend of 17 cents represents a 13 percent increase over the combined payments in the same period last year. - Reuters