HSBC Sees US Mortgage Losses Beat Back By Gains in China

HSBC Holdings PLC, Europe’s largest bank, said today that first-half profit rose 25 percent, driven largely by investment gains in China. The gains there were enough to offset continued weakeness in the company’s US-based mortgage lending operation, HSBC Finance, according to the company’s earnings statement. From Bloomberg:

HSBC, which has offices in 82 countries, reported higher pretax earnings in Europe, Latin America and Asia, including $1 billion of gains from China. At the same time, provisions for bad loans, mostly to U.S. borrowers with patchy credit histories, climbed 63 percent to almost $6.4 billion. Chief Executive Officer Michael Geoghegan said the company is “working through the challenges of subprime lending” … “Over the next 12 months we will have greater clarity” on defaults as “the bulk” of HSBC’s subprime two-year fixed rate home loans in the U.S. reset, Finance Director Douglas Flint said on a conference call with reporters … In the second half about $5 billion of the company’s adjustable-rate mortgages will reset with higher interest rates, Flint said. “The signal seems to be that things are okay in the U.S.,” said Mamoun Tazi, a London-based analyst at Man Securities.

Mamoun Tazi, by the way, is apparently shorthand for “completely clueless analyst.” Of course, that could just be my opinion. The company’s total North American profits were down by 35 percent, dropping to $2.44 billion; consumer-banking profit in the States alone dropped more than 50 percent, falling to $1.34 billion as bad debts rose 76 percent to $3.82 billion — does that like “things are OK” to you? National Mortgage News reported more information on the company’s HSBC Finance arm:

… its U.S. mortgage business suffered writedowns of $760 million in the first half. But the bank — which earlier this year exited the subprime correspondent market — said the $760 million in mortgage-related writedowns is not significant because it had already booked reserves of $715 million. “As a result, our impairment allowances remained largely unchanged at $2.1 billion,” it said.

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