HONG KONG: Aftershocks from the overseas loan crisis of 2008 have rocked another leading bank, as HSBC Holdings Plc, the largest lender in Europe, reports plummeting global profits and termination of most of its US and European retail operations. It saw its global pre-tax profits halved to $5 billion in the first half, on mounting impaired loans mainly in the US and Europe markets, which forced it to set aside $13.9 billion in loan provisions, nearly 40 percent more than the same period in 2008.

The London-based bank's revenue in its home market, Europe, sank 40 percent year-on-year, to $2.97 billion, but less than the hefty $3.7 billion US losses, of which $2.9 billion was lost in badly shaken wealth management business.

HSBC is in the process of closing most of its retail lending operations in the US, having taken big losses from unpaid mortgages. The bank decided in March to halt consumer lending of its US operation and may review the bank's credit-card unit if the US economy deteriorates further. In a counter-move, the bank raised $17.8 billion in an April rights offer to shore up capital.

"We expect a sharp improvement in (HSBC's) profitability in 2010 and 2011 as loan losses peak and underlying positive factors add to pre-provision profits," Deutsche Bank said in a report.

However, analysts at Morgan Stanley said loan-loss provisions may not peak for HSBC until 2010, even though the bank is arguably the only genuine global bank, which combined with a funding advantage, means that it is ideally placed to leverage a recovery whenever it happens.

One strategic decision contributing to its woes that HSBC regrets having made was, according to Stephen Green, chairman of the bank, the purchase of Household International, now called HSBC Finance. The bank's takeover of sub-prime lender Household International Inc in 2003 contributed to the $67 billion in provisions the bank has reported in the past three and a half years.

HSBC seems to have been especially hard hit by these problems, when compared with its Euro-turf rival Barclays, which has reported that first-half net income rose to 1.89 billion pounds from 1.72 billion pounds a year earlier.

Unlike other British banks, e.g., RBS and Lloyds Banking Group, HSBC had no bailout from the government during the financial crisis.

Venerable HSBC, whose origins date back to 1865, when it operated as the Hongkong and Shanghai Banking Corporation Ltd to finance trade in silk, tea and that earlier notorious and notably failed market, opium, is focusing on emerging markets as growth in Europe and the US falters. The bank last year gained 48 percent of its profit from Asia, 44 percent from Europe and 8 percent from Latin America.

(HK Edition 08/04/2009 page4)