THERE was a sigh of relief from the City yesterday as HSBC, Britain's biggest bank, said profits in its first trading quarter of 2008 beat the performance of a year ago.
The shares rose 16p to 882p, a rise of almost 2 per cent, even though HSBC said it was increasingly likely the United States economy would go into recession this year and a recovery in the US housing market was unlikely until at least 2009.
Howev
er, Alex Potter, banking analyst at Collins Stewart, said: "Group profit was up on last year's first quarter, which is a claim few banks in Europe will be able to make, we believe.
"The outlook statement is very muted but this is hardly a surprise whereas the US performance was well above worst fears. HSBC remains a safe haven and core holding for us."
The bank said its bad-debt charge related to its US consumer finance business was $3.2 billion (£1.63bn) for the first quarter and it wrote down almost as much for a deterioration in the value of risky assets. HSBC will report interim results on 4 August.
Its latest US home-loan impairment charge was in line with expectations and down from $4.6bn in the previous quarter, but was double the level of Q1 2007 as problems in the subprime housing market work through its loan book.
HSBC said it was satisfied with the progress it was making in running down its US mortgage book and tackling bad debts.
But Michael Geoghegan, group chief executive, predicted an improvement in the US housing market would be "a 2009 event" rather than this year. Geoghegan said: "It is a slowing (in bad debts] rather than a stopping. We don't know whether that is a slowing because the economy is improving or whether it is a seasonal thing. I suspect it is more seasonal."
HSBC said its underlying revenue growth in the first quarter was "comfortably ahead" of a year earlier, even after absorbing a $2.6bn writedown in its global banking and markets investment banking unit.
The GBM division's profits were ahead of the previous two quarters on the back of a strong emerging markets focus, it said.
Group revenue growth remained positive after also excluding a $2.7bn gain on the fair value of debt it carries on its own books. It said most of this gain reversed in April, however.
Underlying cost growth during the quarter was modest, it said, and its capital ratios remained broadly in line with those at the end of 2007.
The company said that it had increased profits in all major countries in which it operates in Asia-Pacific, the Middle East and Latin America. One analyst commented: "Taken broadly, this could have been a lot worse than it is, and the market will have been relieved, and surprised on an advance in Q1 profitability."
The full article contains 491 words and appears in The Scotsman newspaper.
