4th UPDATE: HSBC 1H08 Net Profit Down 29% On Impairments
Monday August 4th, 2008 / 11h49
(Adds analyst comment and detail.) By Vladimir Guevarra Of DOW JONES NEWSWIRES LONDON -(Dow Jones)- HSBC Holdings PLC (HSBA.LN), the U.K.'s largest bank by market capitalization, Monday posted a 29% decline in first-half net profit due to loan impairment charges, weak U.S. retail operations and write-downs on credit investments. The bank said that net profit for the six months ended June 30 was $7.72 billion, down from $10.9 billion in the same period a year ago, in line with analyst forecasts. HSBC wasn't immune to the global market turmoil and made $3.9 billion in write-downs, representing a 37% increase in write-downs from the second half of last year. Meanwhile, the troubled U.S. consumer finance business, HSBC Finance Corp., fell into a loss before tax of $1.56 billion from a profit of $1.11 billion a year earlier, although it was an improvement from the $7.71 billion loss made in the second half of 2007. House prices continued to decline and unemployment rates to rise, while gasoline and home energy costs increased, making it difficult for some borrowers to make payments on their loans. This resulted in loan impairment charges at HSBC Finance Corp. of $6.69 billion in the first six months, up from $3.73 billion a year earlier, but was also an improvement from $8 billion seen in the second half last year. HSBC joins other major U.K. banks like HBOS PLC (HBOS.LN) and Lloyds TSB Group PLC (LLOY.LN) in reporting weakened interim results amid the ongoing credit crunch and a weaker U.K. housing market. Alliance & Leicester PLC (AL.LN) even swung to a net loss. HSBC said pretax profit fell 28% to $10.25 billion but was higher than the $10.13 billion forecast by seven analysts. "The first half of 2008 saw the most difficult financial markets for several decades, marked by significant declines in profitability throughout much of our industry, with consequent recapitalization and restructuring. HSBC was not immune from the turmoil," Chairman Stephen Green said. "The outlook for the near term remains highly challenging with significant uncertainty. Globally, consumer confidence is declining and despite the short-term success of the recent fiscal stimulus, the U.S. economy continues to be weak, driven by continuing housing market difficulties," Green said. "The U.K. and other economies in Europe, which had enjoyed housing market booms, have also weakened...Ultimately, the real economy will recover from this crisis, although it may get worse before it gets better," he said. Green said the bank will "focus investment primarily on the faster growing markets and on servicing developed market customers with international connectivity." "Our capital and balance sheet strength, and a commitment to strict cost control, will continue to underpin our performance," he said. An analyst said the bank's earnings, which were slightly better than he had expected, were "tempered by the cautious outlook, particularly for growth in Asia." He said growing inflationary pressures in Asia are beginning to weigh on business. At 1025 GMT, HSBC shares were down 20 pence, or 2.3%, at 818 pence, underperforming the FTSE100 index which was up 0.07%. The bank's net interest income was at $21.18 billion, up from $18.23 billion a year earlier. But loan impairment charges grew to $10.01 billion, from $6.35 billion a year earlier. HSBC's operations in North America swung to a pretax net loss of $2.89 billion from a $2.43 billion profit a year earlier. As part of efforts to restructure the U.S. business, HSBC said it has decided to reduce the size of its auto finance business, letting about 80% of the loans portfolio be run off in the normal course of business in the next three years. Pretax profits from Europe rose to $5.18 billion from $4 billion. In Hong Kong, pretax profit fell to $3 billion from $3.33 billion. For the rest of Asia-Pacific, the figure rose to $3.62 billion from $3.34 billion. In Latin America, pretax profits rose to $1.27 billion from $1 billion previously. On Friday, HSBC shares fell 0.2% to 837 pence. Since the start of the year, the stock has fallen 1% compared with the 25% fall in the FTSE 350 Banks index. It has a market capitalization of around GBP101.7 billion, making it the U.K.'s biggest bank, ahead of Royal Bank of Scotland Group PLC (RBS.LN) with a market value of around GBP35.4 billion. Company Web site: www.hsbc.com (Ragnhild Kjetland contributed to this article.) -By Vladimir Guevarra, Dow Jones Newswires, Tel. +44 (0) 2078429486, vladimir.guevarra@dowjones.com Click here to go to Dow Jones NewsPlus, a web front page of today's most important business and market news, analysis and commentary: http://www.djnewsplus.com/al?rnd=gnR9y3EUeVwGMWuM34KHkA%3D%3D. You can use this link on the day this article is published and the following day.
