If you thought the subprime market woes were completely over, you’ll probably want to think again — HSBC Holdings PLC, a UK-based bank that’s probably wishing right now it hadn’t waded into the US subprime market, said early today that its US unit earned $541 million, down significantly from $888 million in the year-ago period.

The decline was driven by a big increase in mortgage arrears as rising interest rates and weaker property prices piled pressure on HSBC Finance’s customers. The company, which specialises in lending to less creditworthy borrowers at higher than average interest rates, said total bad debt charges for the first three months rose to 1.7 bln usd from 866 mln usd a year earlier. … HSBC Finance said last night that while arrears at its Mortgage Services business continued to rise in the first quarter of 2007, the rate of increase ‘has slowed from prior quarters.’

Analysts largely seem to have interpreted the results as a sign the company was getting a better handle on market conditions, however, and as evidence that the subprime market may be starting to stabilize.

HSBC Finance’s results were as good as could have been expected, indicating that the major reorganisation of the sub-prime mortgage business has begun to have an effect,’ Panmure Gordon analyst Sandy Chen, who maintained his ‘hold’ stance on the stock, wrote in a note.

I’m reminded of an old saying: never judge someone by their words, but by their actions. Chen’s saying all the right things, yes, but hasn’t upgraded the stock yet.