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HSBC Says U.S. Unit Posts First Profit Since 2007

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May 7 (Bloomberg) -- HSBC Holdings Plc, Europe’s biggest bank, said first-quarter earnings beat the same period in 2009 as the U.S. unit posted its first profit in three years.

Underlying pretax profit will be “comfortably ahead” of the first quarter of 2009, London-based HSBC said today in a statement. Reported pretax profit will drop because of an exceptional movement on the fair value of the bank’s debt.

“Credit quality has improved faster than expected,” Bank of America Merrill Lynch analyst Michael Helsby wrote in a note today. “Given the current increased market uncertainty, we think this statement should go down well, re-asserting HSBC’s defensive characteristics,” said Helsby who has a “buy” rating on the stock.

HSBC set aside more than $58 billion for bad loans in North America following its $15.5 billion acquisition of U.S. subprime lender Household International in 2003. Chief Executive Officer Michael Geoghegan moved to Hong Kong from London in February as HSBC focuses on emerging markets and seeks to trade its shares in Shanghai this year.

“It is too soon to declare victory, but the improvement in the quarter is testament to the actions of our management team since we identified the problems in the U.S. consumer finance market,” Geoghegan said in the statement.

The bank closed the consumer-lending unit of the Household division, renamed HSBC Finance, in the second quarter last year with the loss of more than 6,000 jobs. At the same time it sought $17.8 billion from investors to bolster capital.

Provisions Decline

Bad-loan provisions at HSBC Finance declined to $2.3 billion from $3.9 billion, Finance Director Douglas Flint told reporters on a conference call. The division made a pretax loss of $472 million in the quarter, while the U.S. business overall including HSBC Securities Inc. made a profit, the bank said. The bank will “continue building” its credit-card operation in the U.S., Geoghegan said.

It is “difficult” to predict whether the U.S. will be profitable for the whole of 2010 as HSBC Finance shrinks, Flint said.

Bad-loan charges across the bank with the exception of the Middle East, fell to their lowest quarterly level for more than two years.

HSBC gained 1.2 pence, or 0.2 percent, to 629.6 pence in London, making it the best performer among Britain’s five largest banks today. The 52-member Bloomberg Europe Banks and Financial Services Index was down 3.6 percent.

Greek Risk

HSBC holds 1.5 billion euros ($2.2 billion) of “exposure” to Greek government bonds, and “there is nothing in the portfolio that particularly worries us,” Flint said.

Pretax profit at the Global Banking and Markets investment-banking unit was higher than the first quarter of last year and trading units “performed strongly,” the bank said. It “experienced slightly lower trading activity and was moderately affected by the markdown of trading positions in weaker sovereign exposures,” after the quarter, the company said.

HSBC in March posted a 1.7 percent rise in annual net income to $5.83 billion, missing analysts’ estimates as bad loans increased and profit fell in Europe, the Middle East, Asia and Latin America.

Standard Chartered Plc, which gets more than three-quarters of its profit in Asia, this week said it posted record revenue and profit in the first quarter on its consumer- and corporate-banking divisions. Barclays Plc last week said profit rose 29 percent to 1.07 billion pounds, lifted by investment-banking revenue and falling impairments.

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

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