US bad loans key to HSBC's recoup of looming H1 losses
Updated: 2009-08-01 08:10
(HK Edition)
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HONG KONG: HSBC Holdings Plc, Europe's biggest bank by market value, may report a second straight loss after setting aside $15.3 billion, mainly for consumer loans that soured in the US.
The first-half net loss probably will be $600 million, compared with earnings of $7.72 billion a year earlier, according to the median estimate of seven analysts surveyed by Bloomberg. London-based HSBC had a $2 billion loss in the second half of 2008 after bad-loan provisions increased 37 percent.
"The key thing is the US," said Leigh Goodwin, a London-based analyst at Fox-Pitt, Kelton Cochran Caronia Waller LLC, who has an "outperform" rating on HSBC. "We will be looking for any signs they have turned the corner."
HSBC has disclosed $53 billion of provisions in the past three years, much of which stems from the 2003 takeover of US finance company Household International Inc. HSBC decided in March to stop making consumer loans at the operation. Chief Executive Officer Michael Geoghegan said the same month that the bank's credit-card unit faces a "difficult" two years because of the sluggish economy.
HSBC is scheduled to report its latest results on August 3. The company increased capital in April with a $17.8 billion rights offer as bad debts in the US eroded reserves. The bank said in May it would take a pretax accounting charge of $4.7 billion for the rights offer because most of the shares were denominated in currencies other than US dollars.
North America will account for about 61 percent of the first-half provisions, compared with 67 percent during all of 2008, Paul Measday, a London-based analyst at JPMorgan Cazenove Ltd, wrote in a July 17 note to clients. Europe will represent about 19 percent, Asia 9.5 percent and Latin America 9.7 percent, he said.
About 77 percent of the funds set aside for defaults will be for consumer debt, which includes mortgages, auto finance loans, personal loans and credit cards, Measday said.
Loan-loss provisions may not peak at HSBC's US unit until 2010, Anil Agarwal, a Hong Kong-based analyst at Morgan Stanley, wrote in a July 17 research note.
Bloomberg News
(HK Edition 08/01/2009 page2)