THE US HOUSING market downturn could last for at least another year, HSBC predicted yesterday as it revealed it had set aside $5.8 billion (€3.74 billion) because of the credit turmoil in the first quarter.
The global bank, one of the first to suffer from the meltdown in the US subprime mortgage market, said any recovery in the US housing market was unlikely this year.
"We don't think this is a 2008 event, it's a 2009 event," said Michael Geoghegan, chief executive.
HSBC's position as a large lender to US customers with poor and patchy credit histories means its results are closely watched by other banks looking for any signs of an improvement in the markets. Many bankers believe securities backed by US mortgages will only stabilise once US house prices stop falling.
The bank said its US business had set aside $3.2 billion in bad debt provisions in the first quarter. This is double the amount it provided in the first three months of last year, but lower than the $4.6 billion set aside in the fourth quarter of 2007.
The turmoil in the capital markets in the first quarter also affected HSBC's investment banking division, which wrote off another $2.6 billion against the value of debt securities held on its balance sheet.
Nevertheless, first-quarter profits in the business were higher than they have been in the previous two quarters.
Despite the increased provisions, HSBC said total profits in the first quarter were higher than in the same period of 2007, helped by booming markets in Asia, the Middle East and Latin America.
HSBC is one of the main victims of the US subprime mortgage crisis, having written off more than $20 billion on bad mortgages and other loans to customers with poor and patchy credit histories since the beginning of 2006.
HSBC executives urged shareholders to be cautious about anticipating a turn in the cycle, arguing that US house prices were likely to continue to slide for another year.
Michael Geoghegan, HSBC's chief executive, stuck to his prediction that the problems in the US would take another year-and-a-half to fix. "It's a case of watching quarter by quarter, and we're not calling victory yet." .
Douglas Flint, finance director, also sounded a cautious note about the bank's exposure to mortgage-backed securities, which triggered a $2.6 billion loss in the first quarter. In spite of predictions from some observers - including the Bank of England - that the worst might be over in the financial markets, he said: "It would be a very brave person that predicted where we are going to be in subsequent quarters."
Profits in all the bank's significant emerging markets increased. Executives acknowledge that countries such as China will not be immune to a severe US recession. Many analysts argue investors will now start paying more attention to the value of HSBC's emerging markets business. "Unless there is a marked deterioration in delinquencies, we remain confident that US credit quality will become a less important part of the investment case, despite concern that the housing market downturn could extend into 2009," analysts at Citigroup wrote yesterday.
- (Financial Times service)
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