HSBC'S rebel shareholder Knight Vinke has renewed calls for the banking giant to sell its US consumer finance business, which specialises in sub-prime lending, after it incurred another $3.2bn (£1.7bn) of bad debts in the first three months of the year.
Although the additional charge takes its total provision for US sub-prime loans to $15.4bn since the beginning of 2007, HSBC shares climbed 16 to 882p as surging growth in its emerging market operations more than offset the American trouble;
Knight Vinke claimed HSBC will have to take a further $30bn of impairments on its US loans to get them back to "fair value" and argued the bank will have to write off $10bn of goodwill associated with the $14bn 2003 acquisition, which would lead "US regulators [to] require a substantial capital injection".HSBC declined to respond to Knight Vinke's demand that "independent financial advisers be appointed to consider the options for [the US business] HSBC Finance Corporation". However, chief executive Michael Geoghegan had earlier recommitted the bank to the business, saying: "Consumer finance remains a major part of the US economy and we'll be part of that."Chairman Stephen Green said it was "increasingly likely that the US will enter a recession in 2008, the length and depth of which is uncertain", and that it comes as "the major economic risks facing the global economy now include inflation, particularly from rises in food and energy prices".
Mr Geoghegan added: "It's 2009 that we're looking at as when the US housing market bottoms out." In the UK specifically, he cautioned: "Inflation will have a big impact. There is a limit to the amount of rate cuts the Bank of England can make."
HSBC's bleak outlook came despite declaring in a trading update that group profits in the first three months of the year beat those in 2007 - driven by growth in Asia, the Middle East and Latin America.
HSBC views a recovery in US house prices as central to restoring confidence globally. Bankers believe demand will only recover once US house prices stop falling.
HSBC even tempered the success of its lower-than-expected US bad debt charge, which compared with a $4.6bn charge the previous quarter, by warning that impairment levels could pick up again. Brendan McDonagh, head of HSBC North America, said: "Given the risk of recession, it's too early to say whether the rest of the year will see a gradual reduction."
Mr Geoghegan stressed he is grappling with the US, having reduced the problematic mortgage servicing portfolio from $49bn to $32bn in the past year. A further 2,000 jobs have been axed, largely in the US, on top of the 6,000 last year.
HSBC's investment banking arm took a separate $2.6bn writedown due to the credit market turmoil, but still saw profits beat both the third and fourth quarters of 2007 "on the back of strong emerging markets performance". But it warned "volumes will be lower in subsequent quarters" after a one-off surge in activity "designed to reduce institutions' risk positions".
HSBC's UK retail arm, which has started growing its share of the mortgage market after pulling back 18 months ago, saw profits rise. On Britain's economic outlook, Mr Geoghegan said: "We're not seeing a deterioration in credit quality but I suspect there will be later on as growth slows. We're being cautious."
