Trouble on the cards

14 November 2007 By Mike Verdin

The global bank has raised its provisions for the US consumer slowdown. This time unsecured loans as well as subprime mortgages are to blame. That may not be just bad news for HSBC. Given that it has been a leading indicator of financial damage, it looks an issue for peers too.

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HSBC, the global bank, announced $3.4bn in third quarter provisions at its US Consumer Finance business, $1.4bn more than first half trends had suggested the hit would be.

Half of the increase reflected a worsening in US mortgages. The proportion of mortgages one or more payments in arrears at the end of September was: 3.2% at its branch based business, compared with 2.3% at the end of June; and 8.2% at its Mortgage Services unit, compared with 6.2% three months before.

The other half reflected potential losses on credit cards and unsecured loans. HSBC said that, as it expected "prolonged weakness in the US housing market", it was cutting about one quarter of the Consumer Finance division's 1,360 branches.

Despite the consumer provisions, and a $925m writedown at its investment bank, the group said that group pretax profits for the third quarter rose, year on year, helped by a $1.3bn increase in the carrying value of a portion of HSBC debt.

The group added that it was particularly difficult to assess the outlook for the rest of the year.

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