Investors in Hong Kong's biggest lender, HSBC, will get a first glimpse today of how the terrorist attacks on the United States and that country's gathering economic decline might affect the group's full-year earnings. The listed parent of the Hongkong & Shanghai Banking Corp, HSBC Holdings, will open the books on the third-quarter performance of its US operations at 9am London time - an hour after trade closes on the Hong Kong market. The results are expected to capture an operating environment markedly different to that reflected in the first-half performance, which showed net income up 27 per cent to US$369 million, helped partly by lower provisioning charges. For last year, the North American operations of the group contributed US$993 million in pre-tax cash profit, just under 10 per cent of group profit by this measure and an increase of 12 per cent on the previous year. However, sharply declining credit quality in the US as the economic downturn gathers momentum is expected to see significantly higher bad-debt provisioning in the final half, analysts have warned, along with lower contributions from securities trading operations. Many analysts have accordingly downgraded forecast earnings for the group, with Indosuez WI Carr's Richard Duncan among the most bearish. Last month, Mr Duncan revised a forecast fall of 0.3 per cent in earnings per share (EPS) for this year to a 7.7 per cent fall; and a rise in EPS of 5.5 per cent for next year was revised to a 15 per cent fall. 'HSBC's job is to try to make loans in a world in which credit quality is deteriorating at an exceptionally rapid rate,' said Mr Duncan. Ratings' agency Standard & Poor's echoed these warnings in a report on default rates in the US, saying that loan defaults - which had already been climbing before the September 11 terrorist attacks - would 'now be very close to the 1991 all-time peak'. The US economy was clearly in recession and although this was expected to be relatively mild and may end early next year, noted S&P, there was a high risk of a longer and deeper downturn. S&P revised its forecast of default rates in the US banking system last month from 3.6 per cent to 3.8 per cent and said that in dollar terms this would amount to defaults on loans totalling about US$100 billion - more than double the US$42.3 billion in defaults recorded last year. HSBC shares ended up 25 cents yesterday at HK$89.50.