BLBG: HSBC Says 2009 Will Be ‘Tough’ as U.S. Bad Debts Rise (Update1)
May 11 (Bloomberg) -- HSBC Holdings Plc, Europe’s biggest bank, said 2009 will be a “tough” year as bad loans increase and the economy deteriorates.
Charges for impaired loans rose in all customer groups and regions during the first quarter, London-based HSBC said today in a statement, without providing figures. In the U.S., where HSBC reported complete first-quarter earnings, provisions rose to $3.95 billion from $3.19 billion a year earlier.
“The statement was pretty terrible; the U.S. was much worse than we expected,” said Simon Willis, an analyst at NCB Stockbrokers Ltd. in London who has a “sell” rating on the stock. “HSBC remains pretty cautious and said there is limited appetite for borrowing around the world.”
HSBC raised 12.5 billion pounds ($19 billion) in a rights offering last month to bolster capital and cover losses from bad loans in the U.S. The bank has set aside $57 billion to cover bad loans over the past three years, largely as the result of its $15.5 billion acquisition of Household International, now known as HSBC Finance Corp.
U.K. rivals Barclays Plc and government-controlled Lloyds Banking Group Plc and Royal Bank of Scotland Group Plc last week forecast rising bad loans as economic conditions worsen.
“2009 promises to be a tough year,” Chief Executive Officer Michael Geoghegan told journalists on a conference call. “We are in this recession. We have not come out of it yet.”
HSBC fell 9 pence, or 1.6 percent, to 568.5 pence as of 1:15 p.m. in London trading, more than double the rights offering price of 254 pence. The stock has declined 25 percent in the past 12 months, the second-best performance in the FTSE 350 Index after Standard Chartered Plc.
Asia Strongest
First-quarter pretax profit was “well ahead” of last year, lifted by fair-value gains on its own debt. HSBC posted a profit of $6.6 billion on its debt, compared with $2.5 billion a year ago, the bank said. About two-thirds of those gains reversed in April, Finance Director Douglas Flint told journalists.
Asia, which accounts for more than 25 percent of revenue, remained the bank’s strongest region, HSBC said in the statement.
“Impairments have climbed off a low base in Asia, but having said that they remain very low,” Geoghegan said today. “We have not seen the deterioration that we have seen in other markets.”
The funds raised in the rights offering may enable the bank to make acquisitions, Chairman Stephen Green has said. HSBC, which focuses on emerging markets, is among the bidders for Royal Bank of Scotland Plc’s assets in Asia, a person familiar with the talks said in March.
U.S. Regrets
In the U.S., HSBC’s pretax loss widened to $3.38 billion from $679 million a year earlier.
“HSBC is probably at the bottom of the cycle,” said Leigh Goodwin, an analyst at Fox-Pitt Kelton Ltd. in London who has an “outperform” rating on the stock. “HSBC has the least downside risk of all the major banks.”
In March, HSBC said it planned to close its consumer- lending units in the U.S. after losses on subprime loans cut profit. Green said the bank regretted buying Prospect Heights, Illinois-based Household Finance.
The bank may review its credit-card operation if the economy deteriorates, Geoghegan said last month.
“We have given it two years,” Geoghegan said today, referring to the U.S. credit cards unit. “We remain committed to it.”
To contact the reporter on this story: Jon Menon in London at jmenon1@bloomberg.net
