HSBC takes $4.4 billion in write-downs on weak US credit

HSBC has reported a total of $4.4 billion in write-downs on its US consumer lending, mortgage and investment banking businesses.

The bank reported $3.4 billion in loan impairments in its US consumer finance business, $1.4 billion higher than the trend in the first half of the year would have predicted. The increase came from the drop in US mortgage quality, and from rising delinquency in consumer loans and credit cards.

HSBC warned: "If US residential property values continue to fall, we would expect an increasing and persistent trend in overall real estate-secured delinquency and loan impairment charges."

The global investment banking arm reported $925 million in write-downs associated with credit trading and leveraged acquisition loans. $750 million came from the securities portfolio, including subprime residential mortgages and structured credit products, and $175 million represented write-downs on non-syndicated debts associated with leveraged acquisitions. $600 million of the $925 million total originated in the bank's New York office.

The investment banking arm still holds $2 billion in wholesale US subprime mortgages, but the bank has "very little direct exposure" to collateralised debt obligations based on subprime mortgages, it said.

However, the widening of credit spreads also brought benefits; fair value accounting of the group's own debt contributed $1.3 billion to profits, representing the benefit of having borrowed at lower spreads, the bank added.

As a result of the losses, HSBC is pulling back from the US consumer finance market, with 100 branches already closing and another 260 scheduled to follow, reducing the bank to 1,000 US branches. The bank will also cut fees and charges on its credit cards in order to reduce delinquencies, and is tightening up loan conditions; "when we see the economy strengthening, we will be able to resume growth," the bank wrote.

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