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. Last Updated: 07/27/2016

HSBC Earnings Drop Less Than Estimated

LONDON -- HSBC Holdings, Europe's biggest bank by market value, said second-half profit fell less than analysts estimated after gains in emerging markets made up for an increase in U.S. consumer-loan defaults.

Net income dropped 5.7 percent to $7.06 billion, or 62 cents per share, from $7.49 billion, or 67 cents, one year earlier, the London-based lender said Monday. That beat the $6.95 billion median estimate of nine analysts surveyed by Bloomberg.

Chairman Stephen Green has fired U.S. managers, tightened loan requirements and made purchases in faster-growing economies in Latin America. U.S. defaults accounted for 64 percent of the company's total of $10.6 billion, HSBC said Monday. Depending on the housing market and availability of credit, the bank may need two or three years to stem loan losses.

"Without the U.S., these would have been very good results,'' said Ed Collins, a London-based fund manager for New Star Asset Management Group, which oversees about $34 billion, including HSBC shares. "The Asia businesses are very high quality,'' he said.

Shares of HSBC rose 0.3 percent in London on Monday morning, valuing the bank at ?103 billion ($200 billion). The gain compared with declines for banks including Royal Bank of Scotland Group and Barclays. HSBC stock rose less than 1 percent in 2006, the least among large British banks.

Second-half pretax profit at HSBC's consumer-banking unit fell 24 percent to $3.55 billion, and investment banking earnings before tax fell 7 percent to $4.6 billion. Corporate-banking profit rose 21 percent to $3.14 billion.

Private-banking earnings rose 33 percent to $614 million.

Second-half pretax profit in North America slumped 87 percent to $396 million, the bank said. HSBC bought Household International in 2003 for $15.5 billion to expand in the United States, now called HSBC Finance, which lends to people denied credit by other banks.

The bank last month said Bobby Mehta, who ran North American operations, was leaving. The unit no longer offers its "most damaging products,'' finance director Douglas Flint said Monday in a conference call with journalists.

"This is not trailer park lending,'' said CEO Michael Geoghegan, referring to U.S. lending in a conference call with analysts. "This is main street America,'' where customers typically own homes worth $190,000.''

"The level of future impairment allowances will be sensitive to economic conditions and, in particular, to the state of the housing market, the level of interest rates and the availability of financing options for sub-prime borrowers,'' Green said.

Some analysts were encouraged that HSBC did not raise its forecast for loans default from last month's estimate of $10.6 billion.

"We interpret this as an indication from management that further major increases in impairment charges from U.S. sub-prime mortgage lending are not likely," said Sandy Chen, a London-based analyst at Panmure Gordon & Co. He rates the stock "hold.''