HSBC plagued by bad debt

Bad debt charges from the US housing market continued to plague HSBC (HSBA) in the third quarter, taking the amount lost in write-downs since the start of the credit crisis to around $23 billion. 

Europe's biggest bank by asset value revealed that its US business suffered a $700 million rise in loan impairment charges to $4.3 billion between July and September. In the second quarter, the group reported $3.6 billion worth of losses.

Its investment banking business saw a further $600 million disappear in credit crisis related losses. Write-downs would have been more than $1 billion higher but for an accounting change.

However, growth in its Asian businesses helped to cushion the worst of the damage caused by the "unprecedented turbulence" in the financial markets. In its latest trading update, the banking giant said that third quarter profits would be ahead of those from the same period last year, but that profits for the nine months since the start of the year would be down. 

Michael Geoghegan, group chief executive, said the banking industry was facing "extraordinary times" with worsening credit trends set to lead to more losses. Further borrower defaults are likely to hit its US business as the world's largest economy slides in recession with key Asian markets also set to slow.     

Analysts continued to view the banking giant as one of the best in its sector. Gary Hobbs of Fortis Private Banking says: "This is one of the best capitalised banks and one where we see a minor risk of a dividend cut (bear case is a third cut) offset by payment in dollars which would negate some of the pain for UK investors. With minimal UK mortgage exposure, but huge Hong Kong housing presence we believe HSBC is among the very best in the sector on a par with Lloyds." 

Alex Potter of Collins Stewart adds: "The news on impairments and Asian slowdown are already factored into our thinking on HSBC. Its capital strength, funding advantage and diversity means it remains our favoured bank in a weak sector."

Meanwhile Nationwide say its bad debt lifted to £74 million for the six months to September from £62 million for the same period the previous year as borrowers struggled to meet mortgage repayments in the face of the global economic crisis. It also had to write-off £3 million after Lehman Brothers went bankrupt and £34 million after Washington Mutual failed while its exposure to the Icelandic banks is expected to hit £19 million.

Half-year profits at the UK's largest building society fell 18% to £322 million with net mortgage lending standing at a third of the total from the same period last year. The group added that the housing market is likely to remain subdued in the immediate future with prices continuing on their downward slope in 2009 and 2010.