HSBC suffers $11bn impairment blow
Bad debt problems arising from loans to US borrowers with below-average credit scores force UK's largest bank into massive write-off
HSBC, Britain’s biggest
bank, is today expected to stun the stock market by warning that setbacks in the
US mortgage market has forced to it to write off up to $11bn (£5.7bn).
The scale of the write-off will put a dent in the bank’s announcement of
record profits in 2006. HSBC is exepcted to say that it has made pre-tax profits
of $22.5bn for 2006, a 6% increase in a year when the dollar has struggled
against the pound.
Despite the gains, however, chief executive Michael Geoghegan and chairman
Stephen Green will face criticism for HSBC’s relatively lethargic performance.
The bank’s profits has lagged behind its UK rivals –
Barclays
announced a 35% rise recently – because of serious problems at its US subsidiary
HSBC Finance Corporation.
The stateside business’s main problems have been caused by its purchase four
years ago of Household, a lender that specialises in loans to borrowers with
below-average credit scores. The US lending market has been plagued by bad debt
problems, with Household proving to be a major casualty.
Two senior US executives – Bobby Mehta, chief executive of HSBC Finance
Corporation, and Sandy Derickson, head of HSBC Bank USA – were forced to resign
from the division two weeks ago. Geoghegan has now appointed FD Douglas Flint,
to engineer a recovery in the US. The finance chief has already ordered sharp
cutbacks to lending.
Investors in the banking group are unhappy about its recent performance –
shares in HSBC actually fell in value last year by 0.2%, in a year when the
London stock market as a whole rose by an average of nearly 11%.
Further reading:
Flint takes £800k hit on HSBC shares