HSBC delivers warning as bad debt provisions soar to $4bn

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HSBC unveiled record profits before tax of $12.5bn (£6.7bn) for the first six months of the year, despite a surge in bad debts among Britons.

Steeper mortgage payments and energy bills have left more borrowers unable to meet repayments on credit cards and other unsecured personal loans.

HSBC, which controls about 10 per cent of that market, tightened its lending criteria towards the end of last year and made fewer loans but was still forced to write-off £361m over the six months to the end of June, against £265m this time last year.

The bank - the world's third biggest behind Citigroup and Bank of America - attributed the increase to an upsurge in bankruptcies and individual voluntary arrangements (IVAs), which it suggested was being encouraged by companies that specialise in making these arrangements for those struggling to pay off large debts.

Michael Geoghegan, who took over as the chief executive in March, said: "We are concerned that independent advisers, who are not regulated, are telling kids to just not bother paying their debts. They are saying, 'Give us a couple of grand and we'll make it go away'."

HSBC said that while the latest UK default figures represented a sharp increase on the first half of 2005, they were steady against those in the second half of last year.

Across the entire group, whose operations straddle 77 countries, bad debts were 19 per cent higher at $3.9bn. However, they were down 14 per cent on the last six months of 2005.

Stephen Green, the bank's chairman, gave an optimistic appraisal of the global economy and his bank's prospects, characterising the global operating environment as "broadly favourable".

Overall, HSBC's interim profits before tax were 18 per cent higher this year than last, driven by a marked improvement at its corporate and investment banking business (CIBM) and booming emerging markets.

HSBC ushered in a banking season that is widely expected to see Britain's biggest banks - Royal Bank of Scotland, HBOS, Barclays and Lloyds TSB - yet again deliver record profits that are sure to cheer investors and anger consumer groups in equal measure.

Vincent Cable, the Liberal Democrat's Treasury spokesman, said: "With soaring profits seemingly unrelated to the standard of customer service, whether it be overdraft charges or cheque clearing times, there will be increasing pressure for a windfall tax on banks."

HSBC's profits in China, Brazil and India were all up by a fifth or more, while muscular global equity markets bolstered its investment bank. At $3.1bn, profits at CIBM were the highest since it began to recruit aggressively three years ago. They were 37 per cent higher than for the same period last year.

Revenues from structured derivatives products jumped 85 per cent, while HSBC also landed high-profile advisory mandates on four of the five biggest deals in Europe during this time.

The self-styled "world's local bank" advised Mittal Steel on its bid for French rival Arcelor and is the sole adviser to E.ON, the German utility giant, on its move for Spain's Endessa.

But more cautious industry observers said HSBC's investment bank would need to deliver a strong performance amid more challenging conditions before the City finally gave it the benefit of the doubt.

Others suggested that Stuart Gulliver, the sole head of the division since John Studzinski announced his departure earlier this year, signalled a change in emphasis yesterday.

HSBC shares edged 3p lower to 971p, valuing the bank at £111.5bn. At 15 cents, the interim dividend was 7 per cent better.