HSBC warns over rising bad debts in US

HSBC shares were under pressure today after the banking giant increased the amount of money set aside to cover US borrowers defaulting on their mortgages.

In a surprise announcement on Wednesday night, HSBC said group bad debt provisions for 2006 would be 20%, or 1.7 billion US dollars (£878m/€676m), higher than expected in the City.

The warning reflects the impact of a slowing housing market on the company’s sub-prime mortgages business in the United States.

Shares in HSBC opened 2% lower today following the update, which related to the Mortgage Services operation of HSBC Finance, the bank’s US subsidiary.

HSBC said: “It is clear that the level of loan impairment provisions to be accounted for as at the end of 2006 in respect of Mortgage Services operations will be higher than is reflected in current market estimates.”

It added that HSBC chief executive Michael Geoghegan would “directly co-ordinate” the group’s response.

Today’s announcement is likely to raise further questions about the bank’s decision to move into US consumer lending through the acquisition of Household in 2003.