HSBC shares slide as Household profits in US fall by a third

HSBC shares posted their biggest fall in more than a year after the bank's key United States business reported a slide in third-quarter profit.

HSBC shares posted their biggest fall in more than a year after the bank's key United States business reported a slide in third-quarter profit.

Net income at Household, the British banking group's US consumer finance business, dropped one-third to $322m (£174m) in the three months to September from $472m in the same period last year, mainly due to higher loan provisions. Household, with more than 50 million customers, accounts for about one-third of HSBC's profits.

Analysts had hoped to upgrade their earnings forecasts for the group on the back of the Household figures but saw their hopes dented. Michael Lever, at Credit Suisse First Boston, said: "There may be some modest trimming of forecasts for this year and next if there is no compensation from the rest of the group." He said he was disappointed with Household's non-interest income and margins, which remain under pressure because of lower margins on mortgages and higher funding costs in the wake of rising interest rates. But he also noted that credit quality was strong.

Some analysts thought that the fall in HSBC's share price was an overreaction and reflected profit-taking after a period of strength.

Simon Maughan, at Dresdner Kleinwort Wasserstein, said that HSBC is doing the right thing by focusing on increasing lending volumes and improving credit quality in the US. He said: "Volume is key. HSBC is doing less trailer-trash lending and more prime lending to homeowners - that's a lower-margin business but also a lot lower risk."

The $14.8bn acquisition of Household in March last year was HSBC's biggest takeover and transformed the British bank. It aims to expand in US retail banking and plans to open more branches in New York City, as well as targeting Hispanic and Asian populations in Florida and California.

Martin Glynn, who heads HSBC's North American business, said: "We are aspiring to be one of the national financial institutions in the United States ... New York City is a battleground retail market that a lot of banks are targeting for expansion. We have an excellent market share and we want to make sure that is maximised."

Outside New York, Florida and California will be the focus for growth, he said.

HSBC is due to release a trading update for the second half on 10 December, and will publish annual earnings on 28 February. Its shares fell 27p to 926.5p yesterday.