HSBC posts higher Q3 profit - Update

(RTTNews) - Monday, HSBC Holdings Plc (HBC, HSBA.L), the parent company of the HSBC Group, reported that third-quarter profit was ahead of last year, reflecting a gain on the sale of the French regional banks, and improved performance from Asia and Europe. Meanwhile, the company's US operations were hurt by higher loan impairment charges and US$4.3 billion write-downs. In its interim management statement, HSBC said that the trends in credit delinquency point to the risk of higher loan impairment charges in the near and medium term.

HSBC's latest quarter results were benefited by a pre-tax gain of US$2.4 billion related to the sale of the French regional banks, which was completed in the third quarter.

The bank noted that the Asia remained at the heart of core operating profitability in the quarter, and retail businesses in Europe remained robust. The results also reflected the emerging markets businesses within Global Banking and Markets that continued to perform strongly.

HSBC's third-quarter loan impairment charges rose from the previous year, with over two-thirds of the additional loan impairment charges arose in Personal Financial Services, driven mainly by continuing weakness in the US housing market and rising unemployment and underemployment.

HSBC Finance Corp., in a filing with the US Securities Exchange Commission, or SEC, posted a net loss of $271 million for the third quarter, significantly narrower than last year's loss of $1.10 billion, primarily due to higher fair value option income on debt market valuation of $2.53 billion, partially offset by higher loan impairment charges $798 million, both on a pre-tax basis. Excluding the impact of items, the company reported a markedly higher net loss largely due to significantly higher provision for credit losses, the company said.

Meanwhile, HSBC USA Inc., in its SEC filing, reported that third-quarter net loss was $136 million, compared to a profit of $21 million in the prior-year period, as the business in the region declined sharply as a result of rising loan impairment charges in Personal Financial Services and from further write-downs within Global Banking and Markets.

In the quarter, loan impairments rose in the US as the economy weakened, but steady progress was made in reducing the Mortgage Services portfolio. Loan impairment charges in Personal Financial Services in the US rose by US$0.7 billion sequentially to US$4.3 billion.

Commenting on the results, Michael Geoghegan, Group Chief Executive, said, "Our US results in HSBC Finance were broadly in line with our expectations but current trends point to further deterioration in the near to medium term. Recovery depends on the success of further economic stimulation which is likely to take some time to take effect but we were early in positioning ourselves for this downturn."

HSBC said its third-quarter net interest income grew in line with the first half of the year. Meanwhile, net fee income was lower than last year's third quarter, and declined moderately from the first half of the year, mainly due to weaker equity market-related income in Personal Financial Services and lower fees on credit cards in the US due to changes in practice.

HSBC USA's third-quarter net interest income grew to $1.17 billion from $923 million in the previous year. Provision for credit losses increased to $658 million from prior year's $402 million. Total other revenues for the quarter fell to $275 million from $374 million in the previous year period.

HSBC, in its statement, noted that Asia, including the Middle East, remained strongly profitable in the quarter, but is showing signs of slowing. Global Banking and Markets performance in Asia delivered higher results. In Hong Kong, Commercial Banking revenues held up well, while Personal Financial Services revenues were affected by declining deposit margins as interest rates fell. In the Rest of Asia-Pacific, revenues in both Personal Financial Services and Commercial Banking continued to grow strongly; driven by the Middle East, mainland China and India.

European retail businesses in the quarter continued to perform strongly, despite higher loan impairment charges. Revenues from Personal Financial Services and Commercial Banking remained resilient, the company said.

In the quarter, HSBC's Global Banking and Markets was profitable, driven by strong emerging markets' performance, reflecting foreign exchange, rates and transaction banking. In the division, write-downs on credit trading positions amounted to US$0.6 billion, lower from the first two quarters of the year. Net operating income before loan impairment charges was well ahead of last year, while pre-tax profit was lower, largely due to higher loan and other impairment charges.

For the nine months ended September 30, HSBC's pre-tax profit, on a reported and an underlying basis, was lower than the prior year. Meanwhile, underlying pre-tax profit in Asia, Latin America and Europe for the nine-month period increased from the previous year, and was strongly capital generative.

HSBC Finance's nine-month pre-tax loss was $2.13 billion, compared to loss of $43 million a year ago. HSBC USA recorded net loss of $922 million for the period, compared to profit of $822 million a year ago.

Group Chairman Stephen Green said, "Although we have not been immune from the effects of the severe de-leveraging of the financial system, we have been able to reinforce and grow some of our most important franchises as other banks have weakened, and this will make us stronger when market stability returns. Our relatively strong position has also allowed us to invest cautiously in line with our strategy, while managing our business and capital tightly in these times of extreme financial turbulence. In the context of the external environment, performance has been satisfactory."

HSBC noted that its third interim dividend of US$0.18 per ordinary share, declared on November 3, will be paid on January 14, 2009, in cash, with a scrip dividend alternative, to shareholders on the Register at the close of business on November 21, 2008.

Regarding the future, the company noted that global economic growth will continue to slow during the next few quarters as recession takes hold in several mature economies. Reduced export demand and slowing direct foreign investment will impact emerging markets. The company anticipates Asian growth to remain relatively more resilient although it is not yet apparent to what extent governments will succeed in encouraging stronger domestic demand to counterbalance export weakness, the company said.

HSBC said the trends in credit delinquency point to the risk of higher loan impairment charges in the near and medium term. According to the company, higher loan impairment charges are expected, due to the weak credit trends in Commercial Banking and in the corporate portfolios within Global Banking and Markets.

Further, the US real estate secured portfolio continued to decline, while early stage delinquencies in credit cards and more recent real estate secured vintages imply that loan impairment charges will remain at an elevated level in the coming year. The company added that if unemployment and underemployment rise more steeply than expected, there can be further deterioration in the mature real estate secured portfolios.

In order to strengthen market stability, improve the strength of financial institutions and enhance market liquidity, the company said it has introduced a series of initiatives in the US, which can be broadly categorized as capital support initiatives and market support initiatives.

HBC closed Friday's regular trading session at $59.35, down $1.98, on a volume of 1.3 million shares.

HSBA.L is currently trading on the LSE at 742 pence, down 4.50 pence or 0.60%, on a volume of 10 million shares.

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