Europe's biggest bank, HSBC Holdings , said its charge for bad debts would be more than $10.5 billion for 2006, some 20% above analysts' average forecasts, due to problems in its U.S. mortgage book.
HSBC said late Wednesday that slowing house price growth was being reflected in accelerated delinquency trends across the U.S. sub-prime mortgage market, particularly in more recent loans.
Analysts had expected HSBC's 2006 loan impairment charge to be $8.8 billion, according to the average of 11 analysts' forecasts, the bank said. That figure is now expected to be about $1.8 billion higher, or near $10.6 billion.
"It is clear that the level of loan impairment provisions to be accounted for as at the end of 2006 in respect of Mortgage Services operations will be higher than is reflected in current market estimates," HSBC said in a statement.
It said HSBC Chief Executive Michael Geoghegan will take direct action to manage the group's response to the U.S. mortgage problem. Apart from its U.S. mortgage services operations the performance of its businesses for 2006 was in line with expectations, it said.
HSBC said in its statement: "We have taken account of the most recent trends in delinquency and loss severity and projected the probable effects of resetting interest rates on adjustable rate mortgages, in particular in respect of second lien mortgages."
HSBC, the world's third largest bank by market value after Citigroup and Bank of America, was not alone with its U.S. housing problems. Earlier on Wednesday New Century Financial, the No. 2 U.S. subprime mortgage lender, warned of poorer results as home sales and prices
decline, and defaults increase.
The problems follow warnings from experts throughout last year that a slowing U.S. economy and rising borrowing costs would lead to an increase in bad loans by homeowners. HSBC already warned about problems in its U.S. mortgage business on Nov. 13 and said three weeks later that the housing market had deteriorated further.
The warning will increase criticism that HSBC's credit scoring system has been poor in the mortgage arm. It will also add to criticism of HSBC's purchase of Household International
for $14.8 billion in 2003. Even at the time of the deal there were complaints Household -- subsequently renamed HSBC Finance -- would expose the bank to too much sub-prime U.S. consumer lending.
The bank's North American operations, which include HSBC Finance, last year generated 31% of total profit, but 65% of bad loans. HSBC shares have fallen 8% since its Nov. 13 warning. They closed on Wednesday at 931 pence, valuing the bank at 108 billion pounds ($212.9 billion).
It has been the worst performing UK bank stock in the last three years.