HSBC Impairments Soar, 1H Net Profit Drops 57%

HSBC Holdings PLC (HBC) Monday said financial markets may have already troughed, as the U.K.-based bank reported a 57% drop in first-half net profits from souring consumer and company loans in the U.S. and elsewhere.

Net profit was $3.3 billion, down from $7.7 billion in the same 2008 period.

Chairman Stephen Green said that while the economic outlook remains highly uncertain, "it may be that we have passed, or are about to pass, the bottom of the cycle in financial markets."

The comments cheered investors, with shares in HSBC rising 38 pence, or 6.4%, to 644 pence at 0921 GMT.

Mike Trippitt, an analyst at Oriel Securities, said the headline results look good, with record profits in HSBC's investment banking business.

First-half pretax profit in the business, called Global Banking and Markets, jumped to $6.3 billion - more than double the amount in the same 2008 period - as it made money from bond sales and increased client activity in foreign exchange and interest rates.

But the good news was countered by continuing losses on loans the bank makes to companies and consumers.

HSBC set aside $13.93 billion to cover loan impairments in the six months, up 38% from $10.1 billion in the first half of 2008. HSBC's U.S. consumer finance unit continued to be its biggest headache, with loan impairments hitting $7.3 billion, compared to $6.69 billion in the 2008 period but lower than $8.8 billion in the second half of 2008.

Pretax profit was $5.02 billion, compared with $10.25 billion in the first half of 2008, though the number bumps up to $7.5 billion if an adjustment for the fair value of HSBC's own debt is excluded. link.....