Margins are under pressure and how many billions of dollars HSBC Holdings will write down on its US subprime loan portfolio is anybody's guess, but the market is sure to move after the index heavyweight reports annual results on Monday.
Underlying earnings are expected to continue to build on the momentum established in the first nine months of last year, as HSBC probably benefited from the ongoing global economic recovery.
Analysts are expecting the bank to record US$7.71 billion in net profit, according to a Bloomberg survey. That would represent a 34.7 per cent increase from 2008's dismal figure of US$5.728 billion, which was a plunge of 70 per cent from the previous year.
But a number of swing factors will influence the bottom line. Key among these will be accounting measures such as changes in the fair value of HSBC's own debt, which the bank must carry at market value.
And a great deal of attention will be focused on the performance of the bank's US subprime lending unit, HSBC Finance Corp. HSBC last year decided to wind down its US portfolio by stopping all new household, car and personal lending, although it is keeping its credit-card business.
Contrary to what might be expected, core underlying profit and margins at HSBC Finance have risen in recent quarters. But at the bottom-line level, these profits have been more than offset by hefty provisions for bad or doubtful debts, and HSBC is expected to continue booking significant provisions on Monday to the tune of several billion US dollars.