HSBC May Say Profit Rose on Fewer U.S. Impairments, China

HSBC Holdings Plc (HSBA), Europe’s largest bank, may say first-quarter pretax profit rose 5.5 percent as the lender incurred fewer impairment charges on its U.S. business and grew in emerging markets.

The London-based lender may report profit before tax, excluding revaluation of its own debt, rose to $5.8 billion from $5.5 billion a year earlier, according to the median estimate of 10 analysts surveyed by Bloomberg.

The lender, which operates in about 85 countries, has set aside more than $65 billion for souring loans in North America following its 2003 purchase of Household International Inc., which lent directly to U.S. customers with subprime credit. Among HSBC’s emerging-market investments, a bank it partly owns in China posted profit that beat analysts’ estimates last week.

“They will benefit from a lower impairment charge, reflecting lower incremental impairments in the U.S. runoff book,” said Ian Gordon, an analyst at Investec Securities in London. While U.S. home prices are still declining, HSBC has taken enough impairments to reduce new charges in the most recent quarter, he said.

Pretax profit may be $3.6 billion after accounting for revaluation of HSBC’s own debt, Gordon said.

HSBC’s shares have gained 10.7 percent in the year to date, more than the 9.7 percent gain in the FTSE 350 Banks Index. (F3BANK)

HSBC may not be through incurring costs related to the U.S. subprime crisis. Some U.S. states have introduced moratoriums on foreclosures, which added to third-quarter provisions, HSBC said in November. The S&P/Case-Shiller index of property values fell 3.5 percent from a year earlier, the smallest 12-month drop since February 2011, data released on April 24 showed.

Household Purchase

HSBC acquired Household for $15.5 billion and gained almost 50 million U.S. clients. It stopped taking new business in 2009 and had about 8.8 million active customer accounts at the end of 2011, according to a company filing. HSBC North America returned to profit in 2010 after three years of losses, asset sales and more than 6,000 job cuts.

“We’ve had an improvement in the U.S., which should reduce loan-loss provisions,” said Neil Smith, an analyst at WestLB AG in Dusseldorf, Germany.

Besides lower bad debt in the U.S., growth in emerging markets will help earnings, while the performance of HSBC’s investment bank will be “flattish,” said Gary Greenwood, an analyst at Shore Capital in London. He rates HSBC shares hold.

Chinese Bank

China’s Bank of Communications Co., which is 19 percent owned by HSBC and known as BoCom, said on April 27 that first- quarter net income rose 20 percent to 15.9 billion yuan ($2.5 billion) from 13.3 billion yuan, beating analysts’ estimates.

BoCom will still likely contribute only an “incremental boost” to profit, said Investec’s Gordon. Other investments in mainland China for HSBC, which was founded in Hong Kong, include a stake in Ping An Insurance Group.

Standard Chartered Plc (STAN), a U.K.-based competitor to HSBC in emerging markets, reported two days ago that it had “high single-digit” first-quarter revenue growth, driven by consumer and wholesale-banking operations, while operating profit expanded by a “low double-digit” rate from a year earlier.

The following is a table of estimates for HSBC in millions of dollars. *T

Q1 Estimate 2011 Actual No of analysts

Pretax Profit 5,798 5,495 10

To contact the reporter on this story: Howard Mustoe in London at hmustoe@bloomberg.net.

To contact the editor responsible for this story: Edward Evans at eevans3@bloomberg.net

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