View from City Road: HSBC all set to shine

HSBC Holdings, the new parent of Midland Bank, is on track to put Barclays, NatWest and Lloyds in the shade by earning well over pounds 1bn before tax this year. Yesterday's interim results, which did not include Midland because the takeover went through in July, were better than expected. There had been some uncertainty, however, in the predictions: it was unclear whether the bank would take Olympia & York bad debts or the profit on the sale of shares in Cathay Pacific into the first half. In the event, trading profits were so good HSBC decided to take the bad news in the first half and keep the profit for the full year.

The main reason for the good performance was robust growth in South-east Asia and the withdrawal of hard-pressed Japanese banks from the Hong Kong loan market, which allowed margins to rise. In Hong Kong dollars, dollars 6bn of the dollars 7.7bn pretax profits came from the Asia-Pacific region. But a return to profit at Marine Midland in the US has been a powerful help in generating a 40 per cent pre-tax improvement on a year earlier, in Hong Kong dollars. The link to the US dollar has made the sterling performance less spectacular.

If the group had been merged with Midland Bank at the beginning of the year, it would have made pounds 575m before tax. The Cathay Pacific profit of pounds 215m and a further Midland recovery should ensure pounds 1.2bn or more pre-tax for the full year.

There are potential problems, such as a rising Hong Kong tax rate. Political risk remains in the background. But until there is any evidence of problems the mixture of recovery and Far East growth prospects remains appealing: hard to choose between HSBC and NatWest in the sector.