Investors yesterday brushed aside a sharply lower net profit reported by London-listed HSBC Holdings - down 18 per cent to US$5.41 billion - to drive the global banking group's share price higher. Helping buoy market sentiment was a modest recovery flagged by the group in the second half of this year in its major markets of Hong Kong and Europe. 'If this is as bad as it gets, an excellent result,' said HSBC Securities analyst Anna Borzi in a note to clients. UBS Warburg noted: 'At first glance, there is relief that these [results] are not a disaster.' In early trading in London, HSBC shares rose as much as 5.1 per cent. Before bad-debt charges, the No 3 banking group in the world by net assets and parent of Hong Kong's biggest lenders - HSBC Corp and Hang Seng Bank - reported a 3 per cent rise in operating profit to US$11.28 billion. Revenue growth of US$1.3 billion comfortably outstripped cost growth of US$1 billion. HSBC group chief executive Keith Whitson told a news conference, which began after the Hong Kong stock exchange closed yesterday, that the performance was 'commendable, given the state of a number of economies in which the group operates'. But the Argentine debt crisis and rising personal loan defaults in Hong Kong - where the group earned 44 per cent of its pre-tax cash profit last year - ate into core operating profit. At a group level, bad-debt charges soared from US$1.1 billion previously to US$2.03 billion, driven higher by a US$600 million general provision against the bank's Argentine loan book and a dramatic rise in provisions for personal lending in Hong Kong. New specific provisions against personal lending in the books of HSBC Corp were up from HK$2 billion to HK$3.1 billion, mainly as a result of the impact of rising unemployment and bankruptcies in Hong Kong. Most the increase in provisioning was against credit-card lending in Hong Kong, which HSBC and Hang Seng had promoted aggressively during the year. HSBC Corp chairman David Eldon said average credit-card advances were up 25 per cent and the combined card portfolio was up from 4.22 million to 5.11 million. The charge-off rate on the card portfolio ended the year at an annualised 7.9 per cent for HSBC Corp, below the industry average. 'Clearly, we are concerned about the level of bankruptcies now happening in the marketplace,' Mr Eldon said. 'I think the suggestion there should be a sharing of positive credit information - and let me categorically state we are in favour of this - should assist us in being able to identify situations where people are perhaps less of a credit risk than they themselves might want to believe.' He said the experience would not stop HSBC from growing its card portfolio. 'We will continue to be as prudent as we have been in our credit assessments. So basically, it is no change.' The impact of the Argentine debt crisis was to drag the Latin American operations of the group into a US$977 million loss from a pre-tax profit on a cash basis (before goodwill amortisation) of US$324 million previously. Hong Kong's contribution was US$3.88 billion, or 44.1 per cent - from US$3.69 billion or 35.9 per cent previously - delivered via a net profit of HK$26.24 billion reported by wholly owned subsidiary HSBC Corp (1 per cent up on the previous year) and a similar increase in profit from 62 per cent owned Hang Seng Bank, which reported a profit of HK$10.11 billion. The group's combined European operation contributed US$4.18 billion, or 47.5 per cent, up from US$4.02 billion, or 39 per cent. By line of business, lower profit earned from commercial lending (US$2.39 billion from US$2.78 billion previously), was offset by a big increase in earnings from personal financial services (up from US$3.04 billion previously to US$3.5 billion). Before the results announcement, HSBC shares closed up 2.92 per cent at HK$88 in Hong Kong, with 1.14 per cent of the gains coming in the last 20 minutes before the close. The stock continued to charge higher at the opening of the London market, trading up 5.01 per cent at 817.40 pence at 1140 GMT (7.40 pm HK time) and outpacing a gain of just over 1 per cent by the benchmark FTSE 100. By 1615 GMT, it had given up some of those gains but was still 4.21 per cent ahead.
