British banking group HSBC today revealed an extra $1.4bn ($954m) hit in its American mortgage business as it continues to suffer from the country's sub-prime lending crisis.
The charge follows last year's $10.6bn (€7.2bn) bad debt exposure, which led to the first profits warnings in HSBC's history.
HSBC warned today that America's sub-prime mortgage default crisis - involving borrowers with a bad credit history - could deepen and said further volatility as a result of the credit crunch was "more than a remote possibility".
The group said it is shutting another 260 branches in its embattled US consumer finance division as it seeks to offset the losses.
It has already closed and merged 100 branches in the operation and has axed 750 jobs in its US mortgage business.
The group took a total third quarter impairment charge of $3.4bn (€2.3bn) in the US consumer finance business. It said this was $1.4bn (€954m) higher than would have been implied by extrapolating first-half trends.
It said some $700m (€477m) of the extra charge related to mortgage business, with the remainder due to unsecured loans and credit card defaults.
HSBC shares rose 4% today as it offered some comfort to worried shareholders by revealing group-wide pre-tax profits in the third quarter were ahead of the same period last year.
Revenues were up on the first half-year and were helping combat the bad debt losses, according to the group.
HSBC added that its exposure to the sub-prime mortgage-backed financial instruments that have led to significant losses in other banks - so-called collateralised debt obligations (CDOs) - was minimal.
The group also gave an upbeat view on trading in the UK, which it said was driving a strong performance in its European arm.
UK lending was seeing signs of improvement in the third quarter, it added.
HSBC stressed it was "particularly difficult to assess the outlook for the rest of the year and into 2008", however.
High-risk US borrowers have been struggling to meet loan repayments over the past year as interest rates have increased, leading to record default rates and repossessions.
HSBC was the first bank to flag up the problem, revealing the $10.6bn (€7.2bn) provision in March.
The crisis has since escalated as it emerged that global banks had been packaging up the sub-prime debt and selling it on, which has led to many holding debt they are unable to offload.
A number of financial groups have been impacted by exposure to sub-prime bad debts and the subsequent tightening in credit markets seen as banks have become increasingly reluctant to lend to each other.
Only yesterday fellow US group Bank of America announced it would have to write-off $3bn (€2bn).
Citigroup has already said it has exposure to $11bn (€7.5bn) and Morgan Stanley expects to write off $6m (€4.1bn) by the end of the year.
UK bank Barclays has also been the centre of recent rumours that it is nursing a $10bn (€6.8bn) black hole, but has repeatedly denied any major impact on profits.
But US group Goldman Sachs helped ease fears yesterday after saying it did not expect to take a significant charge from the US sub-prime turmoil.
Banks analyst Alex Potter of Collins Stewart said today's announcement from HSBC of a further $1.4bn (€953.8m) charge, some of which was down to credit card default, suggested there may be further trouble to come with borrowers failing to pay back money owed on plastic.
He added it was likely bad debts would cause "more pain in the pipeline" for banks on both sides of the Atlantic.