Europe's biggest bank HSBC reported a 28 percent fall in its first-half profit, in line with forecasts, as a $14 billion hit on bad debts on U.S. home loans and asset writedowns offset strong Asian growth.
HSBC said on Monday pretax profit in the six months to the end of June was $10.2 billion, down from $14.2 billion a year before.
The average forecast in a Reuters survey of seven analysts was $10.1 billion.
HSBC's London-listed shares were down 2.4 percent at 817 pence, paring earlier gains and underperforming a flat broad British share index.
Analysts said modest revenue growth and a cautious outlook knocked the shares, which have strongly outperformed rivals this year due to its strong balance sheet and Asian exposure.
"Whilst there were resilient performances in Asia in particular, even growth here is likely to lose a little momentum in the nearer term," said Richard Hunter, head of UK equities at stockbroker Hargreaves Lansdown, adding that the U.S. mortgage problem would be "an ongoing drag on profits."
HSBC said the economic outlook was "highly challenging" after deteriorating in the first half.
It predicted growth in emerging markets would hold up "reasonably well, albeit with less momentum than in the recent past."
"Ultimately the real economy will recover from this crisis, although it may get worse before it gets better," HSBC Chairman Stephen Green said in a statement.
The bank's impairment charge was $10.1 billion for the six months, up 58 percent from a year ago, mainly due to losses from its book of U.S. mortgages.
Its U.S. impairment charge was $6.8 billion, up 85 percent on the year but down from the previous six months and broadly in line with analysts forecasts.
US Home Loans Woes...Again
The charge dragged its North American business to a $2.9 billion loss in the first half, from a $2.4 billion profit.
Its North American bad debts have topped $18 billion in the last 18 months.
The problem stems from aggressive selling of U.S. subprime mortgages by HSBC Finance, formerly the Household business bought for $14.8 billion five years ago.
It is shrinking the mortgage book, no longer lends through intermediaries and has cut the branch network, and said it will take a first ever impairment charge on the goodwill of the Household purchase of $527 million.
Douglas Flint, finance director, said it was too soon to say U.S. home loan bad debts had peaked and previous guidance that it will take two to three years to work the problem remained accurate, with outside factors now the main influence.
"The bad stuff has been purged through the system ...we're essentially exposed now to the U.S. economy and it would be a brave person who sees an upturn in the U.S. economy in the second half of this year," he said on a conference call.
HSBC plans to run off its $13 billion U.S. vehicle finance portfolio over the next three years.
Flint said the bank would have considered selling the unit but there were few buyers for financial assets at present.
Activist hedge fund investor Knight Vinke repeated its call for HSBC to sell, spin off, restructure or "ring fence" the former Household business.
"There can be no prospect of a fundamental recovery in this business," it said.
HSBC's investment bank also wrote down $3.9 billion on its exposure to credit trading, monolines and leverage acquisition financing loans.
Profits in Global Banking and Markets fell 35 percent from a year before to $2.7 billion, despite GBM's profits in emerging markets rising 51 percent.
Underlying group income rose 3 percent in the first half, lagging underlying cost growth of 4 percent.
HSBC shares are down 2 percent this year but have easily outperformed a 31 percent drop by Europe's bank sector.
Its tier 1 equity ratio was 8.8 percent at the end of June, down from 9.3 percent at the start of the year.
Its capital and funding advantage over rivals could see it pick up bargain assets while rivals have less firepower, analysts said.
HSBC is ready to submit a new regulatory application on a planned purchase of a majority stake in Korea Exchange Bank, but Flint declined to comment on whether it is seeking to cut the $6.3 billion price previously agreed.