Company Of The Week

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The Independent Online
HSBC HOLDINGS, Britain's largest bank, set the tone for one of the FT-SE 100's worst weeks this year when it announced on Monday that first-half profit fell a higher-than-expected 16 per cent. It quadrupled provisions against potential losses on loans in Asia.

HSBC, parent of Hongkong and Shanghai Banking, Hong Kong's largest bank, said first-half profit fell to $2.40bn (pounds 1.46bn). Plunging currencies and weakened financial systems in several Asian economies have pushed them into recession. That's made it harder for companies to pay their debts, forcing many into bankruptcy and prompting HSBC and other banks to set aside funds for possible defaulted loans.

"They're so large in Asia that they can't avoid what's going on out there," said Mark Thomas, an analyst with Credit Lyonnais Securities.

HSBC said it took a charge against earnings for bad and doubtful debts of $1.146bn, more than four times the $257m charge in the first half of 1997.

Chief executive Keith Whitson said the higher provisions were mainly because of declining credit quality in Thailand and Indonesia, which accounted for 58 per cent of the bank's bad and doubtful loans. He said the bank is now provisioned for 90 per cent of its non-performing loans in all markets. HSBC shares fell nearly 10 per cent to 1,379p.

The loan provisions overshadowed positive results in most areas. Non- interest income, for example, rose 5.8 per cent to $4.3bn and the cost- to-income ratio fell 0.2 percentage point to 52.4 per cent. "Their management team is excellent and they're outperforming other Asian banks," said Mr Thomas.

Analysts were surprised at the size of the overall provision for Asian loans. "It's a much greater provision for bad debt," said James Dewhurst, an equities salesman at Charterhouse Tilney. "We were expecting something like $350m."