Nov. 10 (Bloomberg) -- HSBC Holdings Plc, Europe’s biggest bank, said third-quarter pretax profit rose as bad loans declined, while Barclays Plc posted a 54 percent drop in earnings.

HSBC’s pretax profit was “significantly higher” than a year ago, as provisions at its U.S. consumer finance division declined 43 percent to $2.17 billion, the London-based company said in a statement today. Barclays’ net income fell to 1.08 billion pounds ($1.8 billion) from 2.33 billion pounds as impairments climbed, the bank said in a separate statement.

HSBC said bad loans and costs declined following the restructuring of its U.S. unit, which contrasted with rising expenses at Barclays where another 750 people were hired at President Robert Diamond’s investment banking division. Barclays also said impairments rose 65 percent to 6.2 billion pounds for the nine months to Sept. 30.

“The expectations were that you might be able to upgrade Barclays with more blowout numbers, but they never came through,” said Jane Coffey, who helps oversee $51 billion at Royal London Asset Management, including stock in both banks. “HSBC seems to be working well at all levels.”

HSBC, which froze lending at its U.S. consumer finance unit in March following its 2003 acquisition of subprime lender Household International Inc., said provisions were the lowest since the first half of 2008. Barclays’ expenses rose 3 percent to 4.5 billion pounds, while HSBC said third-quarter costs declined an unspecified amount from a year ago.

Revenue Declined

HSBC rose 4 percent to 720 pence in London trading, bringing the gain for 2009 to 25 percent, while Barclays declined 5.1 percent to 325.35 pence. It has gained 112 percent this year.

Barclays has increased its dependency on investment banking, hiring more employees this year to expand its equities and advisory division in Europe and Asia after last year’s purchase of Lehman Brothers Holdings Inc.’s North American unit.

About a quarter of Barclays’ impairments in the first nine months were a result of foreign exchange movements, the company said. Provisions included retail and commercial lending, and mortgages in the U.S., the company said.

HSBC Finance Director Douglas Flint said its investment banking unit performed “not quite as strongly as in the first half of the year,” in a conference call with journalists. Barclays Capital’s revenue of 3.7 billion pounds declined from the second quarter, reflecting a “seasonal slowdown,” the bank said today. HBSC didn’t disclose net profit in today’s statement.

Seegers Departs

Barclays avoided a government bailout last year, instead receiving more than 5 billion pounds of capital from Middle Eastern investors. The bank’s retail and commercial banking head Frits Seegers stepped down last week after oversight of commercial lending was handed to Diamond.

The bank will pay a dividend of 1 penny a share for the second half of the year. October trading was “generally consistent with the overall trend for the first nine months of the year,” Barclays said. Investment banking and investment management pretax profit declined 38 percent to 1.97 billion pounds in the nine months to Sept. 30, the bank said.

Barclays will continue to seek retail acquisitions in Spain, Portugal and Italy, said Finance Director Chris Lucas in a conference call with journalists. Barclays has said it may be interested in 135 branches of Banca Monte dei Paschi di Siena SpA, the Italian bank seeking to sell the outlets to comply with an antitrust decision.

HSBC Finance sold its auto finance unit and $1 billion of loans to Banco Santander SA for $904 million in cash, HSBC said.

To contact the reporter on this story: Jon Menon in London at jmenon1@bloomberg.net

Last Updated: November 10, 2009 11:38 EST