HSBC books fresh $5bn loss on US home loans

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The Independent Online

HSBC is unlikely to step in at short notice to buy distressed UK rivals as it considers such deals are too rushed. The bank expressed uncertainty about the global economic outlook yesterday as it took another $5bn (£3.2bn) hit over its exposure to US housing.

When asked about the scope for opportunistic acquisitions in the UK and Europe as rivals' prices are battered by the credit crunch, its chief executive, Michael Geoghegan, said that deals such as the government-brokered acquisition of HBOS by rival Lloyds TSB tended to be forced together too fast.

"I don't think much due diligence has been done on many of those [deals]," said Mr Geoghegan. "We stood back because you need to know what you are buying; we will look [at such opportunities] but timing is everything."

The statement came as the bank, in an update on trading conditions, said that strength in emerging markets helped to offset the effect of the US slowdown, while predicting worsening economic conditions and a rise in bad loans.

Europe's biggest bank said that its profit in the third quarter was running ahead of the corresponding period last year, but added that it expects global economic growth to slow during the next few quarters as recession takes hold in several countries.

Economists have recently shifted their focus to emerging markets – a key driver of HSBC's growth – as areas set to slow down, as the credit crunch continues to take hold across the world.

The announcement came as China announced a $586bn stimulus plan to boost domestic demand and Japanese manufacturers reported their biggest quarterly slump in machinery orders in a decade. The US also pledged more support for the struggling insurer AIG as world governments remained focused on the global financial crisis.

But HSBC remained adamant that its presence in economies in Asia will still help soften its landing compared with UK-centred rivals. "We're confident that Asia may well slow but it won't be impacted as much as other economies around the world," said Mr Geoghegan.

HSBC's tier 1 capital ratio was 8.9 per cent at the end of September, near the top of its 7.5-9 per cent target range, and the bank said it was "a major recipient" of deposit inflows during the current financial market turmoil.

And despite the gloomy statements on the global economic outlook, analysts agreed that HSBC's global profile gave it an advantage over rivals. Its shares fell less than 1.5 per cent on a bad day for banking shares. "The news on impairments and Asian slowdown are already factored into our thinking on HSBC," said Collins Stewart analyst Alex Potter. "Its capital strength, funding advantage and diversity means it remains our favoured bank in a weak sector."

Douglas Flint, HSBC's finance director, said he was comfortable with the capital position.

A recovery in the US arm remains unlikely until 2010, Mr Geoghegan said.

HSBC followed other banks in reclassifying how some assets are accounted for. Without the reclassification HSBC's third-quarter writedown would have been $835m higher.