HSBC Announces Fresh Mortgage Write Downs But Remains Strong
13 May 2008 / by Rachael Stiles
HSBC has revealed another £1.6billion of write-downs as a result of the US sub prime mortgage crash, on top of the £6.2billion it lost last year, but has reported higher growth than last year.
As house prices continue to slide and more repossessions are announced, it is impossible to determine where the write-downs will end, but HSBC has “made a strong start to the year despite the turbulence in global financial markets”, announcing higher profits in the first quarter of 2008 compared to last year.
The bank had set aside more than £3billion for first quarter losses from the US mortgage market, but needed little more than half of it.
By spanning the global financial system, HSBC has made enough profit in other sectors – namely in Asia and the Middle East –not only to offset losses from the housing market but to exceed its performance from last year.
“Our performance so far in 2008 demonstrates that HSBC’s business resilience in difficult financial markets, our global distribution network, diversified earnings streams and strong capital position are allowing us to support our customers in today’s challenging market conditions.” said group chairman Stephen Green.
“These factors enable us to invest for growth, particularly in emerging markets, and focus on long-term value creation for our shareholders.”
While US profits were down as a result of consumer loan and mortgage write-downs, HSBC’s first quarter results either achieved or exceeded targets. It reported good deposit growth in all its geographical regions, a positive performance in its European businesses, and pretax profits that were improved by the UK retail business.
Mr Geoghegan continued: “I am encouraged by the way we have increased pre-tax profits in every one of the major countries in which we operate in Asia-Pacific, the Middle East and Latin America. Also, our Global Banking and Markets business was more profitable than in the preceding two quarters on the back of strong emerging markets performance, despite the write-down of US$2.6 billion.”
“Commercial Banking and Private Banking both had record quarters. Our consumer finance business in the US remains challenging but we are vigorously managing our costs and our risks, and working hard to help our customers. Our strategy is clear and we are executing it. Ours is a business with excellent opportunities ahead.”
HSBC’s resilience could account for it being among the five other ‘Big 5’ UK banks which Fool.co.uk has found to be the most trusted by their customers not to be fragile to the effects of the credit crisis.
David Kuo, head of personal finance at Fool.co.uk, reminded banks that “They need to bear in mind that their solvency depends on their perceived solvency. In other words, any bank can encounter problems if enough customers believe it may be in trouble, as seen with Northern Rock. It isn’t what people say that’s damaging, but what they whisper.”
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