HSBC Holdings, the world's fourth-largest lender by market value, set aside US$3.4 billion against impairment charges in the third quarter for its United States consumer finance division, US$1.4 billion more than the lender's own projection.
The British-based bank yesterday highlighted the probability of worse to come if housing market distress continued and further affected the broader economy. It said emerging-market lending and accounting gains lifted third-quarter profit, offsetting mortgage losses. The profit figures were not disclosed.
'Deterioration in the US housing market is affecting consumer finance credit quality more broadly than hitherto and loan impairment charges are expected to remain high in these conditions,' HSBC said.
However, the lender said revenue growth in the group as a whole more than offset higher provisions in the US, resulting in higher net operating income than a year earlier.
Market watchers had braced for the disclosure and credited the lender with taking swift action to tackle the credit crunch.
'The market has taken it quite favourably, as evident in the share price. The statement added clarity to the steps they have taken and gave reassurance to the market,' said Fox-Pitt, Kelton (Asia) analyst Warren Blight.
'The bank may be blown out of the water within the US context, but the problem itself is manageable within the group. It has done reasonably well to minimise the pain and address macro problems.'
HSBC's shares were up 2.67 per cent at 865 pence (HK$140.08) in London late afternoon trade after a high of 886 pence. The stock closed 1.24 per cent higher at HK$139 earlier in Hong Kong.
Knight Vinke Asset Management, the activist shareholder pushing for reform of HSBC's business strategy, yesterday released a statement criticising the further substantial provisions against losses. 'It underscores the risks associated with not focusing sufficiently on businesses where HSBC has a comparative advantage and of building a group that may have become too large and too complex to be controlled effectively.'
On September 21, HSBC announced the closure of its Decision One broker channel, which originated loans for onward sale. This contributed to a related and significant contraction of mortgage-backed trading operations in New York as part of a wider initiative to refocus on emerging markets.
The lender is also closing or integrating 100 branches within its consumer branch network across the US. It plans to close a further 260 branches, reducing the consumer finance network to 1,000 branches.
A restructuring charge of up to US$155 million arising from these planned closures was expected to be taken in the fourth quarter, HSBC said yesterday.
In contrast to the recent spate of lenders suffering from investments in subprime-related securities, HSBC said it had minimal exposure to US subprime collateralised debt obligations and hence had not suffered any significant write-downs since late in the third quarter.