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HSBC 'CAN WEATHER THE US CREDIT STORM'

NO WORRIES: Geohegan brushed off talk of breaking up HSBC

Tuesday May 13,2008

By Andrew Johnson, Associate City Editor

HSBC warned it was “increasingly likely” the US would go into recession this year as it unveiled a further $5.8billion (£3billion) in credit-crunch related losses.

But the bank’s strength in emerging markets such as Asia and Latin America, allied to a robust balance sheet, meant profits for the first quarter to March were up on last year, despite a US fall.

Chief executive Mike Geoghegan said there was no need to raise further capital — unlike rivals — unless it was needed to finance an acquisition. The shares rose 16p to 882p.

HSBC lost $3.2billion in its US consumer finance division, HSBC Finance, and a further $2.6billion in investment banking writedowns.

The bank came under immediate fire from activist investor Knight Vinke which accused HSBC of accounting improperly for bad debts in the US finance arm. It said total writedowns since 2006 should be $50billion, not the $25billion declared.

But HSBC insisted it was right and had not changed the way it accounted for the loans since its last annual report, which received a clean bill of health from auditors.

Geoghegan warned there was unlikely to be any recovery until next year in the US housing market, which sparked the credit crisis.

He added problems were spreading to new areas as the economy slowed.

Bad debts had lessened but it was too soon to say if the crisis had peaked. “I would say we are in a lull,” said Geoghegan. “I can’t say if it will go up or go down.”

HSBC had increased its exposure to potential US bad debts by paying £9billion for Household Financial in 2003.

The bank said it was “satisfied” with the progress being made to tackle issues in the US but had no plans to sell the division or its UK arm.

HSBC’s strong cash reserves had allowed it to weather the storms and add mortgage market share in the UK. “We are able to lend when others cannot,” said Geoghegan, adding there were no significant increases in arrears.

But he warned house prices were slowing, which HSBC had foreseen in 2006. “Concerns, yes,” he said. “Are we surprised? No.”

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