HSBC boosted by lower bad debts

Banking giant HSBC today said profits were “comfortably ahead” of last year in the first three months of 2010 amid lower toxic debt levels.

HSBC said credit quality improved “faster than we expected” in US consumer finance and across the group, pushing loan impairment charges to their lowest level in almost two years.

The lender said its US business achieved pre-tax profits for the first time since the financial crisis began in 2007 as bad debt charges dropped back.

HSBC did not give figures for the group on pre-tax profits, but said performance was better than in the first three months of 2009 and the previous three month period as the investment banking division also saw better performance.

The bank, which has relocated chief executive Michael Geoghegan to Hong Kong, hailed the strength of its Asian-facing business as it said economies in the region would drive the global recovery.

Demand for credit picked up in emerging markets, while appetite in developed nations remained subdued.

Mr Geoghegan said: “From my new base in Hong Kong, the shift from West to East is clearer than ever.

“In developed markets, the risks of double-dip recession and stagnation haven’t gone away.

“In contrast, recovery in emerging markets looks secure.”

It said the first quarter had “broadly matched our expectations” at the beginning of the year.

Shares in the bank leapt 5% at one point today, although they fell back amid the general market turmoil.

HSBC said the UK made “modest progress” in the first quarter, with retail revenues slightly higher than a year earlier.

The bank said credit quality in its growing mortgage book was supported by conservative loan-to-value ratios.

Impairments on UK bad debts were “significantly lower” than last year “in line with more stable economic conditions and continued low interest rates”.

Meanwhile, HSBC’s investment banking division, Global Banking and Markets, saw pre-tax profits rise above both the year earlier period and the previous quarter.

Keith Bowman, equity analyst at Hargreaves Lansdown Stockbrokers said: “With HSBC proving to be the ’canary in the mine’ regarding over-indebted US consumers, a move into profit for its US business marks a defining positive.

“As with RBS, economic recovery is lifting many previously underwater debt positions to something more sustainable, with the group’s exposure to more growth orientated emerging markets providing it with additional and ironically, more trusted growth.”