HSBC's record write-off to ruin results

HSBC, Britain's biggest bank, is today expected to stun the stock market by warning that misadventures in the US mortgage market have forced to it to write off up to $11bn (£5.7bn).

The scale of the write-off is likely to overshadow HSBC's announcement of record profits in 2006.

Analysts expect the bank to say it made pre-tax profits of just over £11.5bn last year. The figure is misleading in that while it represents a small decrease on 2005's headline figure of £12bn, the bank reports its annual results in dollar terms. The dollar has fallen sharply against sterling over the past 12 months, so HSBC's expected pre-tax profits of $22.5bn for 2006, a 6 per cent increase on the previous year, are more impressive than the sterling figure suggests.

Despite the gains, however, chief executive Michael Geoghegan and chairman Stephen Green will face criticism for HSBC's relative performance. The bank's profits have been sluggish compared to UK rivals - Barclays announced a 35 per cent rise two weeks ago - because of a disastrous performance from its US subsidiary HSBC Finance Corporation.

The US business's main problems have been caused by its purchase four years of Household, a lender that specialised in loans to borrowers with below-average credit scores. The US sub-prime lending market has been hit hard by bad debt problems, with Household one of the biggest losers.

While HSBC has already warned investors to expect bad news, today's announcement of an $11bn impairment charge to cover the US problems will exceed the most pessimistic of forecasts. The figure represents half the total pre-tax profits earned last year by the bank around its entire global operation, and is higher than the total profits earned by several of its leading UK rivals.

Mr Geoghegan and Mr Green will tell shareholders that they have taken steps to deal with the US difficulties. Two senior US executives - Bobby Mehta, chief executive of HSBC Finance Corporation, and Sandy Derickson, head of HSBC Bank USA - were forced to resign two weeks ago. In their place, Mr Geoghegan has appointed Doug Flint, the bank's group finance director, to oversee a recovery in the US. Mr Flint has ordered sharp restrictions of sub-prime lending by US subsidiaries.

HSBC's management will also point out today that the bank's US difficulties have not prevented it raising its dividend - analysts forecast the pay-out will rise by around 10 per cent on last year. The bank's shares are already among the most generous yielders in the FTSE 100.

Nevertheless, investors in the banking group are furious about its recent performance - shares in HSBC actually fell in value last year, by 0.2 per cent, in a year when the London stock market as a whole rose by an average of close to 11 per cent.

Richard Peirson, a fund manager at Framlington, said that while Mr Geoghegan and Mr Green had previously had little involvement with the bank's operations, they could not escape responsibility. "You have to blame the management for buying a low-grade business," he said. "To have been so far adrift from bad-debt provisions, you have to question your financial controls."