HSBC Holdings' British subsidiary, Midland, said pretax profits fell by 1 per cent to GBP1.5 billion (about HK$18.85 billion) with charges for bad and doubtful debts up GBP72 million to GBP196 million due to lower recoveries from the sale of its Latin American debt portfolio. The bank said new specific provisions rose slightly to GBP335 million from GBP323 million and that releases and recoveries from previous debt provisions had decreased from GBP236 million to GBP160 million as a result of the shortfall in Latin American debt recoveries. Provisions had also risen by GBP60 million, specifically in the bank's principal British banking business in the second half of last year, as bad debts rose and the bank witnessed a lower rate of recoveries in the second half than in the first half of the year. The results could have been far worse had HSBC not reorganised some of its European assets. Although its principal commercial banking operating profit had grown 15.3 per cent to GBP1.15 billion, its international banking line witnessed a 35 per cent drop in operating profit to GBP150 million. An 84 per cent fall in profit at its developing countries debt management business significantly impacted Midland's international banking business, which on the debt management side had seen much higher recoveries in 1997 after the purchase of HSBC Bamerindus in Brazil. The bank's main securities dealing arm also saw a huge decline in operating profit after dealing income plummeted by GBP96 million to GBP112 million in the face of difficult trading conditions. Nevertheless, the group reported its net interest income had grown almost 6 per cent to GBP2.23 billion as it experienced overall growth in its current accounts and lending to individual and business customers. 'An increase in average interest-earning assets of GBP10 billion, reflecting continued growth in lending to personal and business customers in UK banking and increased holdings of debt securities, together with growth in current accounts and improved spreads on mortgages, contributed to higher net interest income,' Midland said. Other operating income rose 6 per cent to GBP1.8 billion as increased fee and commission earnings were generated from insurance, current accounts, mortgages, cards and lending to corporate customers. The bank said its wealth management activities, which include sales of investment, insurance and private banking products, had shown strong growth, with increased cross-sales and higher funds under management. Midland's leasing arm Forward Trust saw higher income as asset financing and factoring businesses grew and it benefited from the GBP1.2 billion acquisition of British rail leasing assets last year. However, operating expenses increased 5 per cent and staff costs jumped 2 per cent as pay awards grew. The bank said a sizeable marketing campaign which it is undergoing - including the replacement of Midland's traditional griffin symbol with the HSBC hexagon - contributed to a rise in administrative expenses.