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HSBC bank warned yesterday that US house prices would keep falling until next year and that the chances of the American economy going into recession had risen.
Britain's biggest bank made US$3.2 billion ($4.1 billion) of bad-debt provisions in the first three months of this year at its US consumer finance business. The figure was down from US$4.6 billion in the previous quarter, but HSBC said the reduction was at least partly due to seasonal factors such as tax refunds being used to repay debt rather than an underlying improvement.
Michael Geoghegan, HSBC's chief executive, said: "I don't see [US] real estate prices changing from where they are now until well into 2009 ... We don't think it is a spring 2008 event; we think it is a 2009 event." There was "an increased likelihood" of a US recession this year, the bank added.
Geoghegan warned that US housing delinquencies had moved from the sub-prime market, in which HSBC has been a big player, to near-prime and supposedly safe prime loans.
HSBC's comments on the US are keenly watched because it is the UK bank with the most direct exposure to the American consumer housing market and it was the first lender to warn of the meltdown in sub-prime loans.
Many senior bankers do not believe there will be an end to the financial crisis until US house prices stop falling.
Activist investor Knight Vinke has accused HSBC of underestimating potential losses compared with rivals. But Douglas Flint, HSBC's finance director, responded that the investor's comments were based on "misunderstanding or error".
"Customer loans are accounted for differently to trading assets. We would not be permitted by current rules to account for our loan book in the way Knight Vinke suggests we should."
HSBC said its first-quarter profit was higher than a year ago because growth in Asia and emerging markets had offset its woes in the US, where the bank has suffered from the ill-fated acquisition of Household, the sub-prime lender, in 2003. But Geoghegan said the threat of inflation and slowing export orders from the US meant that there would be some "contagion" for Asia from western markets.
Asked about the effect of falling house prices on the UK economy, Geoghegan said: "Are we concerned? Yes. Are we surprised? No."
He added that people would have to get used to owning a home to live in rather than treating it as an investment fund.
Geoghegan said that HSBC would wait to see the Government's proposals on taxing UK companies' overseas profits before deciding whether to join those threatening to move.
He said the bank reviewed its tax position every three years, but had always decided that the UK was the best place to be based.
- INDEPENDENT
