HSBC second-half profit up 18pc

HSBC Holdings, Europe's biggest bank by market value, had an 18 per cent increase in second-half profit, helped by rising earnings from consumer lending.

Net income rose to US$5.49 billion ($7.55 billion), from US$4.67 billion a year earlier, according to figures compiled by Bloomberg.

HSBC's profit last year rose to US$11.84 billion, or US$1.07 a share, from US$8.77 billion, or 83c, in 2003, the bank said.

Second-half figures were calculated by subtracting first-half earnings from full-year results.

Chairman John Bond, 63, is expanding the bank in countries such as China and India to counter falling lending margins and higher loan-loss provisions at the bank's Household International United States business.

London-based HSBC bought Household, a lender to consumers who cannot obtain credit from other banks, for US$15 billion in 2003.

"There are ongoing concerns on Household," said Michael Gifford, of F&C Asset Management in London.

Shares of HSBC fell 13p, or 1.5 per cent, to 880p in London, giving the bank a market value of about 98 billion ($259 billion).

The stock gained 0.1 per cent last year, the second-worst performer on the 10-member FTSE 350 Banks index, which rose 6.8 per cent.

Buying Household, which produces about a fifth of the bank's total profit, gave HSBC more than 50 million customers in the United States and pushed up provisions for doubtful loans by US$264 million last year to US$6.36 billion.

William Aldinger, former chief executive of Household and head of HSBC's US business, will retire a year earlier than planned after Household's integration proceeded "faster than expected", HSBC said.

Finance director Douglas Flint said in November that interest margins at Household were narrowing as the bank cut the amount of the most risky, high-interest paying loans it made.

Morgan Stanley analyst Peter Toeman said in January that rising US interest rates would make HSBC "susceptible to continued margin compression in an environment of US rate tightening".

The US central bank's policy-making arm, the Federal Open Market Committee, has boosted its benchmark overnight bank rate, now at 2.5 per cent, six times since June.

Bond is trying to counter the slowdown at Household by lifting profits in Britain. HSBC bought Marks & Spencer's retail banking unit for 762 million in November to become Britain's No 2 credit-card issuer after Barclays.

HSBC's British bank accounts for 33 per cent of expenses and 25 per cent of earnings.

Barclays, the country's third-largest bank, said pretax profit from its consumer bank declined 1 per cent last year. Royal Bank of Scotland, Britain's second-largest bank by assets, said its consumer bank increased profit 3 per cent.

Founded in Hong Kong and Shanghai in 1865, HSBC has spent US$51.8 billion on acquisitions in the past five years.

In August, HSBC paid US$1.75 billion for a fifth of Bank of Communications, China's No 5 lender, adding to stakes it has in Bank of Shanghai and Ping An Insurance.

It is also looking for acquisitions in Japan and Korea.

In Hong Kong, where HSBC makes about a quarter of its profit, banks are setting aside smaller provisions against loan defaults after the economy snapped 68 months of deflation in July, pushing the jobless rate to a three-year low.

Hong Kong's Government estimates the economy expanded 7.5 per cent last year, the fastest pace in four years.

HSBC is also trying to bolster its securities unit, which makes about a quarter of its pretax profit.

HSBC ranked 15th last year among global merger advisers, up from 17th in 2003.

- BLOOMBERG