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HSBC profit rises as U.S. loan losses deteriorate
Bank reclassifies $13 billion of assets, gains $2.4 billion on French asset sale
By Simon Kennedy, MarketWatch
Last Update: 4:46 AM ET Nov 10, 2008
LONDON (MarketWatch) -- HSBC Holdings said Monday that its third-quarter pretax profit rose from a year earlier after it reclassified $13 billion of assets and generated gains from the changing value of its own debt.
The bank added, however, that its U.S. operations had "declined markedly," due to rising loan impairment charges and further write-downs in its global banking and markets division.
Like several European rivals, HSBC HBC said it had reclassified some trading assets as loans, meaning it didn't have to revalue the assets at market-price, which avoided an $835 million hit to pretax profit in the quarter.
It also benefited from a $2.4 billion gain on the sale of its French regional banking network and $3.4 billion from the changing market value of its own debt -- an accounting effect that will fully reverse as the debt matures.
The bank doesn't reveal profit figures on a quarterly basis, but it said its Asian operations "remained at the heart of core operating profitability."
Shares in the group slipped 0.9% shortly after the announcement, underperforming compared to a 3% rise in the FTSE 100 index. The bank has been one of the most resilient in the credit crisis, with its shares declining 12% since the start of the year.
Loan impairments in U.S. personal financial services -- the worst-hit part of the business -- were $4.3 billion in the quarter, up around $700 million from the second quarter of the year due to higher provisions in both real estate and credit card portfolios.
The bank took a write-down of $600 million on its credit trading position in the quarter.
It also wrote down $4.8 billion on asset-backed securities as the forced sale of assets by other firms pushed market prices down. But this write-down will hit reserves, rather than the bottom line.
The bank said its private banking arm continued to attract funds from wealthy clients, with net new money of $15.6 billion in the quarter and a record month in September. But much of the new money is being kept in cash or government bonds, limiting the bank's ability to profit from the inflows.
The bank's Tier 1 capital ratio stood at 8.9% at the end of the quarter. Several U.K. banks have had to tap the British government for capital in recent weeks. But, like emerging markets-focused rival Standard Chartered , HSBC been able to maintain its capital strength through its strength in Asia.
"Without doubt, global economic growth will continue to slow during the next few quarters as recession takes hold in several mature economies," the bank said in its outlook.
"We expect Asian growth to remain relatively more resilient although it is not yet apparent to what extent governments will succeed in encouraging stronger domestic demand to counterbalance export weakness," it added.
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