Profits increase across all HSBC divisions

HSBC, Europe's biggest bank, went some way to soothing fears over bad debts among Britons yesterday.

Tighter lending criteria slowed the rise in defaults at its British consumer lending business, but HSBC is unsure whether bad debt has peaked. Rising interest and fatter utility bills have left more Britons unable to service debts.

Douglas Flint, the finance director of HSBC, said: "The UK is probably the market which is the least predictable. We would not extrapolate too confidently on the basis of a few months of data but it looks and feels a bit better."

Pre-tax profits across all divisions were up between July and September compared with last year, the bank said in its quarterly update. Arrears steadied at Household International, the US consumer lending business it swallowed for $15.5bn (£9bn) in 2002. Concerns over bad debt there dominated before yesterday's update. City experts were also relieved to hear HSBC's heavy spending on its investment banking business is drawing to a close.

The London-based bank, the world's third-biggest, continued to expand in the Far East. High oil prices boosted profits in the Middle East. It is looking elsewhere to offset declining earnings in Europe and Hong Kong, which account for half of group profits.

Investors applauded the update despite a warning that trading activity is set to dwindle in the last three months of this year.

The shares advanced 10.5p to 936.5p. Ian Gordon, at Dresdner Kleinwort Wasserstein, told clients to buy them to £10.50. He said: "The message HSBC seems to be giving is that there has been strong performance in the corporate bank, with some payback on their heavy investment." He expects HSBC to deliver pre-tax profits of $20.7bn this year, against $18.9bn in 2004.

The bank distanced itself from reports it is among those in talks to buy Bankgesellschaft Berlin for€2bn (£1.4bn).