HSBC First-Half Profit Falls 7% as Bad Loans Increase (Update3) By Sean Farrell
London, Aug. 5 (Bloomberg) -- HSBC Holdings Plc said first- half profit fell 7 percent after Europe's biggest bank by market value set aside more money for bad loans.
Net income declined to $3.28 billion, or 35 cents a share, from $3.54 billion, or 38 cents, in the year-earlier period. The earnings exceeded analysts' expectations.
HSBC, which does business in 79 countries, is relying on controlling costs and gaining customers in the U.K. and the U.S. to counter losses in Argentina, defaults by clients including WorldCom Inc., and falling earnings in Hong Kong and Europe. Chief Executive Officer Sir Keith Whitson said HSBC is ``very cautious'' about the outlook.
``There are lots of bullets flying around,'' Whitson said in an interview. ``There is probably more bad news than good news coming out at the moment.''
Shares of HSBC were down 0.3 percent at 10:45 a.m. local time, compared with the 2.4 percent slide of the Bloomberg Europe Banks and Financial Services Index.
HSBC allocated $715 million in the first half for potential loan defaults, up from $441 million in the year-earlier period. The company also had a $45 million loss from the decline in value of Argentina's currency. HSBC last year lost $1.12 billion because of Argentina's debt default and currency devaluation.
Argentina
``They have written off most of their involvement in Latin America,'' said Richard Peirson, who manages the $155 million Framlington Financial Fund and holds HSBC shares. ``It isn't so much of a concern as it is for the Spanish banks.''
Santander Central Hispano SA and Banco Bilbao Vizcaya Argentaria SA, Spain's biggest banks, last week scrapped 2002 profit growth forecasts because of plunging Latin American currencies.
Investors said they were surprised that HSBC didn't take more provisions for bad loans. Analysts had been estimating $917 million for potential defaults.
``Their bad debt is better than the market had anticipated,'' said Alan Perkins who helps manage 3.1 billion pounds ($4.85 billion) at Pavilion Asset Management, which holds HSBC shares.
In Hong Kong, where the bank was founded 137 years ago, first- half earnings at the Hang Seng Bank Ltd. unit fell 3 percent to $670 million. In 2001, HSBC got 44 percent of its profit before taxes from Hong Kong. That fell to 35 percent in the first half.
Europe to WorldCom
HSBC said first-half pretax earnings in Europe declined 8 percent, while the company reported that it gained depositors in Britain with savings balances rising 23 percent to $4.9 billion.
In North America, pretax profit increased 9 percent to $652 million. That accounted for 12 percent of HSBC's total of $5.46 billion. HSBC spent $9.85 billion in 1999 to purchase Republic New York Corp.
Chairman Sir John Bond said the company will continue to look for acquisitions. ``You should expect us to expand mainly in areas where we are already represented,'' he said at a press conference in Hong Kong. He declined to comment on whether the bank planned to buy Mexico's Grupo Financiero Bital SA or Ping An Insurance Co. of China.
London-based HSBC is owed ``small amounts'' by WorldCom, the largest U.S. company to file for bankruptcy protection, Whitson said. ``The fact that we've steered pretty clear of (WorldCom) is a plus,'' he said.
For all of HSBC, operating expenses declined 4 percent from the second half of 2001 to $7.15 billion. The cost-to-income ratio decreased to 54.5 percent from 55.8 percent.
``The bank's cost control is working,'' said Peter Chau, who helps oversee $1 billion at TAL CEF Global Asset Management Ltd.
HSBC's net interest income rose 6 percent in the first half to $7.59 billion from the year-earlier period, the company said.
Shares of HSBC fell 17 percent over the past 12 months. The stock of Citigroup Inc., which operates in about 100 nations, dropped 39 percent in that same period. Shares of Deutsche Bank, which operates in more than 60 countries, declined 26 percent.
