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August 4, 2009

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HSBC's profit in H1 tumbles 57% due to rise in bad loans

HSBC Holdings Plc, the world's fifth-largest bank by assets, reported a 57 percent tumble in first-half profit as bad loans increased due to the global economic downturn.

The bank said first-half net profit was US$3.35 billion compared to US$7.7 billion in the first half of 2008.

Loan impairment charges and other credit risk provisions jumped 40 percent to US$13.9 billion in the first half.

Still, the results were better than expected. The company announced a dividend of 18 cents per share, down from 57 cents a year earlier.

"Profits have surpassed expectations, questions over the bank's financial strength have been laid to rest via a substantial fund raising, whilst management direction remains unimpeded by government intervention," said Keith Bowman, an analyst at Hargreaves Lansdown Stockbrokers.

HSBC was the second big United Kingdom bank to report earnings this week. Barclays Plc earlier announced a 10 percent increase in net profit to 1.89 billion pounds (US$3.18 billion) in the first half.

HSBC, like Barclays Plc, has not turned to the British government for a bailout. HSBC raised US$18 billion in a rights issue in March to bolster its balance sheet.

"By attracting core deposits, we have maintained a conservative advances-to-deposits ratio, which was 79.5 percent at the end of the period," said Chief Executive Michael Geoghegan.

"Although deposit spreads remained compressed in the challenging economic environment, HSBC is fully committed to its strong and distinctive liquidity position."

In the Personal Financial Services unit in the United States, where HSBC has shut down its Household International Inc consumer lending operation, it reported a pretax loss of US$2.9 billion compared to US$2.2 billion a year earlier.

In the second half of last year, HSBC reported a loss of US$15.2 billion for Household International including a US$10 billion goodwill impairment.

HSBC bought the Illinois-based Household International, which operated the Beneficial and Household Finance brands, in 2002, an acquisition which propelled HSBC into the biggest subprime mortgage lender in the US.

Bowman said the Household International debacle may be making HSBC overly cautious in contrast to Barclays, which is profiting from its acquisitions of Lehman Brothers' business in the US.

The bank said it is not yet able to estimate losses from lawsuits related to the collapse of Madoff Securities.


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