HSBC Faces Another Hit from US Mortgages

Europe's biggest bank HSBC is this week expected to unveil a further big hit from its exposure to the U.S. mortgage crisis.

AP HSBC is expected to report a larger hit from its exposure to the U.S. mortgage crisis

HSBC Finance, the unit formerly called Household, will unveil third-quarter results on Wednesday.

The Sunday Telegraph newspaper said HSBC will reveal a new $1 billion hit in the results. But the figure could be higher than that as losses from the run-off of the U.S. mortgage book
was about $2 billion in the second quarter and the market has deteriorated since then, analysts have said.

HSBC declined to comment on Sunday.

HSBC's group charge for bad debts was $6.35 billion in the first half of the year, up 63 per cent from $3.89 billion in the same period last year as it continued to suffer from past loans to the hard hit U.S. subprime mortgage sector.

The bank said at the time of the results at the end of July the jump in bad debts had been in line with its expectations and it was pleased with how it was dealing with its exposure to U.S. housing market problems, but the rest of the year would remain tough.

Earlier this year new leadership at HSBC Finance put together a team to examine and monitor credit risk and it stopped buying subprime loans originated by other lenders. It closed its U.S. subprime mortgage unit in September.

HSBC shares have fallen in recent weeks amid fears that banks face more hefty writedowns due to deepening credit market problems, but the shares have held up better than its major UK rivals Royal Bank of Scotland and Barclays.

There has been a sharp rise in the cost of credit default swaps (CDS), which are used as insurance on credit quality, for all three banks, showing the worry about write-offs.

Barclays CDSs have widened 31 basis points this month to 68 basis points while RBS is 20 bps wider at 61 bps and HSBC is 18 bps wider at 44 bps -- all considered major moves for financial
credits.