HSBC plagued by bad debts

HSBC, which now has almost 100 million banking customers around the world, has been forced to set aside more than $2.3bn (£1.4bn) to cover bad debts, the bank revealed yesterday.

The provision against potential bad debtors in the first half of the year was largely caused by its acquisition of US consumer finance group Household International. HSBC ran into controversy over a £22m pay packet awarded to Household's chief executive William Aldinger. The figure is more than double the provision of $715m this time last year.

The bank also reported a 21% rise in first half profits to £6.1bn, but most of the increase came from acquisitions.

The rise was just 4% if the $14bn purchase of Household as well as the takeover of Bital of Mexico were stripped out.

Even so HSBC's shares hit 12-month highs before ending 13p higher at 777.5p after it painted a cautiously upbeat picture for the rest of the year.

HSBC was also congratulated by the City for increasing its dividend by 17% to 24 cents.

The group intends to move to quarterly rather than half-yearly payouts to shareholders.

Stephen Green, presenting his first set of results as chief executive, said the bank was positioned for a "modest and uneven economic recovery".

The bank expects more growth in the emerging economies of Asia, the Middle East and Mexico than it does from the developed economies of Europe and the US.

Mr Green said HSBC intended to expand Household, which provides loans to low-income families and owns the HFC operation in Britain.

He indicated that Household would target the "immigrant population" in the US, and perhaps in Europe. In the US, he singled out the Hispanic population in particular as an attractive market, particularly in the light of the bank's recent acquisition of Bital in Mexico where many migrants to the US send money.

The acquisition of Household, which has recently settled allegations of predatory lending with US regulators, meant that HSBC derived more than 25% of its profits from the US in the first half - up from 11% a year ago.

HSBC is now generating as much profit from north America, where it also owns Republic bank, as it does from its traditional market in Hong Kong.

Profits from Europe - which includes the former Midland bank and First Direct telephone bank - make up 34% of profits at $2.3bn.

In the the UK, HSBC's mortgage business rose 28%, largely a result of re-mortgaging, which helped to offset a fall in sales of investment products and a rise in costs caused by higher national insurance and the move to the new Canary Wharf head office building.

HSBC's executives said they were not concerned by the sharp rise in consumer debt in Britain, provided unemployment did not rise substantially.

Mr Green said digesting the Household acquisition was likely to divert HSBC from any major acquisitions in the coming months.

Household contributed $650m to profit after a charge of $1.5bn for potential bad debts, while a rise in foreign exchange and dealing profits also added to the rise in overall profits.