HSBC investor goes on warpath over US mortgage losses

HSBC has come under fresh attack from activist investor Knight Vinke over its senior executive share bonus scheme and hefty US sub-prime mortgage losses, it emerged today.

Knight Vinke published a letter to HSBC senior independent director Simon Robertson late yesterday slamming the controversial incentive scheme and calling for it to cast off its troubled US lending arm HFC.

The investment group, which has been putting repeated pressure on HSBC to overhaul its strategy, claims that HFC is unable to support $150bn (€94bn) of debt.

Knight Vinke partner and chief executive Eric Knight added that HFC must be jettisoned to prevent it from affecting HSBC’s “thriving” emerging markets business.

The group also published a confidential consultation document that HSBC is believed to have sent to top shareholders regarding its new share incentive plan.

Knight Vinke’s attack comes ahead of HSBC’s annual general meeting notice this week, which the investment firm believes will be accompanied by details of the new share plan.

The letter also follows the bank’s recent 2007 financial results, which revealed a $17.2bn (€10.8bn) hit from bad debt and loan provisions.

HSBC, which is the UK’s biggest banking group, still managed to post a 10% increase in pre-tax profits to $24.2bn (€15.3bn), but said write-downs relating to defaults last year soared by 63%.

Mr Knight said in the letter: “HSBC could have been spared the predicament in which it now finds itself had the board not brought these problems upon itself by approving the acquisition of Household International (now HSBC Finance, or HFC) in 2003.”

He added: “Given the huge sub-prime related losses incurred by HSBC in recent months and the even greater losses incurred by its shareholders as a result, we believe it to be entirely appropriate to be thinking constructively about improvements in strategy and governance at this time.”

HSBC was not immediately available for comment but has said that it will stand by its struggling US consumer business.