Europe's biggest bank, HSBC Holdings, said its profit in the first quarter beat a year ago as growth in Asia helped counter some $5 billion in hits from bad debts on U.S. home loans and asset writedowns.
HSBC said it was increasingly likely the United States economy will go into recession this year and a recovery in the U.S. housing market was unlikely until at least 2009, but its trading statement was more positive than those from many rivals battered by the credit crunch.
The bank said on Monday the bad-debt charge related to its U.S. consumer finance business was $3.2 billion for the first quarter and it wrote down almost as much for a deterioration in the value of risky assets in its investment bank.
HSBC, which does not report quarterly results, will release its half-year figures on August 4.
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Its latest U.S. home loan impairment charge was below many analyst forecasts and down from $4.6 billion in the previous quarter, but double the level of the first quarter of 2007 as Americans struggle to repay mortgages.
HSBC's London-listed shares were up 1.9 percent at 882 pence, valuing it at 106 billion pounds ($208 billion).
"Group profit up on Q1 2007 ... is a claim few banks in Europe will be able to make," said Alex Potter analyst at Collins Stewart.
Underlying revenue growth, the scale of writedowns on assets and profits at HSBC Finance were better than expected, he said.
US Problems Linger
HSBC, which has leapfrogged U.S. rivals to become the biggest bank outside China by market value as investors have been reassured by its solid balance sheet, said its capital ratios remained strong and in line with its end-2007 levels.
"That allows us to weather circumstances that might rock others and to invest in future growth," Chief Executive Michael Geoghegan told reporters on a conference call.
Geoghegan said he was satisfied with progress on running down a U.S. mortgage book and tackling bad debts, but said an improvement in the U.S. housing market will be "a 2009 event."
"We don't know whether that (Q1 bad debts) is a slowing because the economy is improving or whether it is a seasonal thing. I suspect it is more seasonal," he added, saying tax rebates and other issues could distort the situation this year.
He also warned inflationary pressures, particularly the impact of food and energy price rises, are building and could hurt consumers around the world.
Underlying group revenue growth in the first quarter was "comfortably ahead" of a year earlier, even after absorbing a $2.6 billion writedown in its global banking and markets (GBM) investment banking unit, HSBC said.
Analysts said it is on track to meet forecasts for revenue growth of at least 10 percent this year.
Income was up even after stripping out a $2.7 billion gain on the fair value of debt it carries on its own books.
It said most of this gain was reversed in April, however.
HSBC said it increased profits in all major countries in which it operates in Asia-Pacific, the Middle East and Latin America.
Hong Kong continued last year's strong performance, driven by growth in deposits and margins.
GBM's profits were ahead of the previous two quarters on the back of a strong emerging markets focus, it said, highlighting gains in foreign exchange and interest rate trading and payments and cash management.
Commercial banking and private banking enjoyed record quarters.
European business "performed well" and the UK retail arm increased profits as credit quality held stable, the bank said.
HSBC, which has operations in 83 countries, brushed off speculation it could face pressure to consider a break-up after U.S. giant Citigroup on Friday said it plans to sell $400 billion of assets.
Geoghegan said there was "no need to slim down."
"Our results last year and the trading statement today show that having diverse flows of business is the right way to run a bank. We feel comfortable and so do our regulators ... that this is the right way to run the business," he said.
HSBC shares are up 5 percent this year, compared with a 14 percent drop in the DJ European bank index.