HSBC slides amid US woes

Not even its emerging markets strength could prevent HSBC's profits plunging nearly 30% in the first half...

Last Updated: 31 Aug 2010

HSBC said this morning that the first six months of 2008 had seen ‘the most difficult financial markets for several decades’, as it revealed that group profits slid 28% to $10.2bn. Reporting its interim first half-results, Britain’s biggest bank admitted that more sub-prime write-downs and the continuing woes of its North American operation had wiped almost $4bn off last year’s total. And it warned that there may be worse to come, with even its high-performing emerging markets business likely to feel the squeeze. Not exactly a cheery start to the week…

In total, HSBC was forced to write off about $10bn in dodgy loan charges during the period, up 58% on last year. And much of the pain has come from its struggling North American arm, which ended the period an eye-watering $2.9bn in the red. CEO Michael Geoghegan said HSBC was now doing its best to salvage the situation, slashing costs by 12%, chopping down its mortgage portfolio and winding down its vehicle finance business (to concentrate on cards and consumer loans).

On the plus side, at least they can’t blame us: the UK was actually one of the highlights for HSBC, as profits rose 23% thanks to a strong showing from its Commercial Banking division. In fact, every other division apart from the US finished the half-year in the black, with the emerging markets division again the star of the show as profits rose 51% (all this new money also means a lot more prospective clients for HSBC’s private banking division: over half of its roster now comes from emerging markets). And its attempts to buy a majority stake in Korea Exchange Bank are still rumbling on; there’s no sign of a thumbs-up from the Korean authorities yet, but reports today suggest HSBC is trying to negotiate the price down.

Chairman Stephen Green was pretty cautious about the outlook for the next six months, which he says ‘remains highly challenging with significant uncertainty’ as confidence continues to decline in western markets. And although he thinks emerging markets growth ‘will hold up reasonably well’, he also suggested that inflationary pressures and slowing corporate activity could take a bite out of revenues there too. Either way, he reckons there’s no going back to the way things used to be. ‘Growth models based on high and increasing leverage will no longer be sustainable’, he said today, in what could be interpreted as a thinly-veiled swipe at some of its bullish rivals.

HSBC still looks better-positioned than most to weather the current storm: it’s got more cash in the bank than many of its rivals, and emerging markets will probably be a safer bet than developed ones in the coming months. But losses like these don’t bode well for all the other banks reporting results this week...

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