3rd UPDATE: HSBC 1H Net Doubles To $6.76B On Lower Charges

2nd Aug 2010 11:15

(Adds detail.) By Patricia Kowsmann and Margot Patrick Of DOW JONES NEWSWIRES LONDON (Dow Jones)--HSBC Holdings PLC (HBC), Europe's largest bank by market capitalization, said Monday that its net profit for the first half of the year doubled, as it sharply reduced impairment charges and booked a gain on the value its own debt. The U.K.-based but Asia-focused bank, however, posted a fall in investment banking profit, as market conditions deteriorated in the second quarter. Chief Financial Officer Douglas Flint told a conference call that the outlook for the second half is good, including in investment banking, but that the half is typically slower because the summer months and winter holidays mean lower volumes. HSBC reported a $6.76 billion net profit for the first half of the year, up from $3.35 billion a year earlier. Pretax profit came in at $11.1 billion, up from $5.02 billion, beating analysts' expectations of $9.3 billion. Results included a $1.13 billion gain for the fair value of the bank's own debt, compared with a $2.3 billion charge a year earlier. Banks can record gains if the value of their debt falls, since it becomes theoretically cheaper to repurchase it, and conversely book losses if the value of the debt rises. The debt gain also helped its North American operations post a pretax profit for the six months. Impairment charges fell to $7.52 billion from $13.93 billion, the bank said, helped by improved conditions in the U.S., where HSBC bought a subprime business in 2003. Provisions in Hong Kong were also down, as bankruptcies continued to decline. "As we focus on building a high-quality asset base for the future, it is encouraging that loan impairment charges now stand at their lowest levels since the start of the financial crisis," the bank said. Despite the heavy loan losses from the U.S., HSBC fared better than its U.K.-focused peers during the financial crisis, thanks to its exposure to emerging markets in Asia and Latin America. In the first half, it generated more than half of its pretax profit in Asia Pacific, including Hong Kong, followed by Europe, with 32% of its profit. Although the bank was profitable in all customer groups, its investment banking business posted a 13% fall in pretax profit for the period to $5.63 billion. Net trading income fell sharply to $3.55 billion from $6.26 billion, while net fee income rose slightly to $8.52 billion from $8.43 billion. Profit from its private banking division also fell to $556 million from $632 million. Analysts, however, said HSBC's investment banking operations fared better than peers in the U.S. and Europe, mainly because of its high exposure to Asia. "Overall results were quite positive, with a good fall in impairment charges and sustained investment banking profit," said Execution Noble analyst Joseph Dickerson. He said, however, that a 8.7% rise in operating expenses to $18.11 billion--including $9.81 billion from employee compensation and benefits--was higher than expected. At 1007 GMT, HSBC shares were up 37 pence, or 5.7%, to 673 pence. They had been up about 2.7% shortly before the earnings were announced at 0815 GMT. HSBC declared a second interim dividend of 8 U.S. cents a share, bringing it to 16 cents a share total for the first half. In North America, which includes HSBC's consumer finance that is mainly in run-off, the group posted a $80 million underlying pretax loss, excluding currency effects and gains on the fair value of its own debt. If those factors are included, the region made a $492 million pretax profit. CFO Flint said HSBC has begun "to gently market again in credit cards," the remaining consumer finance business, and that it hopes to grow the business again in the longer term. HSBC said its Core Tier 1 ratio stood at 9.9% at June 30, up from 9.4% at Dec. 31. The bank, along with other U.K. banks, recently passed the stress test designed by the European Union, including under a scenario with a big shock from sovereign debt exposure. -By Patricia Kowsmann and Margot Patrick, Dow Jones Newswires. Tel +44(0)207-842-9295, [email protected] Order free Annual Report for HSBC Holdings plc Visit http://djnweurope.ar.wilink.com/?ticker=GB0005405286 or call +44 (0)208 391 6028 (END) Dow Jones Newswires August 02, 2010 06:15 ET (10:15 GMT)