HSBC global profits growth undermined by US losses

On a conference call announcing HSBC's year-to-date financial results, group chief executive Michael Geoghegan reported that first-quarter profits for the global group were up on those seen in 2007, with income increasing across all major emerging markets across Asia and Latin America.

"The European business has performed well, with record profits for commercial and private banking. In the US, profit is down as a result of higher consumer finance loan impairments and the additional writedowns in [the] global banking and markets [business]," said Geoghegan.

The bank provided scant detail in its interim management report, and was not forthcoming with figures to corroborate its profit growth. HSBC does not release quarterly earnings figures for the group as a whole, but the bank confirmed that it had taken a $2.6 billion writedown in its global banking and markets arm.

Non-subprime credit trading assets took a $1.1 billion markdown, and subprime mortgage-related assets lost $500 million in value, while derivatives transactions with monoline insurance were written down by $700 million and $300 million was lost on leveraged loans.

HSBC's 8-K filing with the Securities and Exchange Commission, however, paints a grim picture of the health of the bank's US arm. Although net operating income before loan impairment charges edged up 19.7% to $5.1 billion in the year to March 31, over the same period in 2007, loan impairment and other charges came to $3.29 billion.

Operating expenses of $1.3 billion (down 13.7% on the first quarter of 2007) took a further bite out of the bottom line, lowering pre-tax profits to just $549 million, a 39% drop from the $900 million posted pre-tax in the first quarter of 2008.

Geoghegan insisted that the US results, specifically the sharp loan impairment losses, were "due in part to seasonal trends" and maintained that HSBC's capital ratios remain broadly in line with those announced at the end of 2007, "allowing us to weather circumstances that might rock others and invest in future growth," he said.

HSBC will release fully itemised financial results for the entire group in its 2008 interim report after the end of the second quarter.

See also: Bank writedowns - is the worst over?
HSBC plans $45 billion SIV restructuring
HSBC takes $4.4 billion in write-downs on weak US credit