LONDON — HSBC Holdings PLC Monday said it plans to start "gently growing" its U.S. consumer finance business again, despite a quarter-on-quarter drop in profitability at the unit as the U.S. economy slowed.
Chief Finance Officer Douglas Flint said the bank won't restart unsecured lending or writing subprime mortgages and auto loans — areas that led to about $50 billion in bad loan charges in the past few years and whose existing loan books are now in run-off — but that the bank is starting to target new customers at its remaining credit-card division.
Bank executives have previously said the U.S. represents good opportunities for growth once the economy proves to be firmly on the mend.
"Our longer-term plans on the basis of what we have seen so far is that it's performing well and is very profitable, and we hope to maintain it and at some point hope to gently grow it again," Flint told a conference call.
His comments came after the unit, HSBC Finance, reported a deepening loss of $1.01 billion in the second quarter, from $472 million in the first quarter. Combined with a tepid performance from HSBC's other main U.S. operating arm, HSBC USA, the loss meant that North America was the only region where HSBC didn't turn an underlying profit in the first half of 2010.
Despite the poor figures, Robert Law, an analyst at Nomura, said the "risks in the balance sheet continued to improve" at HSBC Finance, albeit at a slower pace than in the first quarter. Impairment charges fell slightly in the period, to $2.2 billion at June 30 from $2.3 billion at March 31.
The loan book in run-off shrank to $68.8 billion at June 30, from $91.2 billion a year ago, and is set to get smaller yet after the bank Monday said it has agreed to sell a big chunk of its $4.3 billion auto loans portfolio to an unnamed buyer.
The credit-card book stands at $33.2 billion, down from $40.9 billion at the end of June 2009.
The bank said credit-card delinquencies have dropped steadily since the end of last year and loan yields have increased, though recently introduced U.S. legislation on credit cards has cut into some fee revenue.
Analysts said the U.S figures were disappointing, since HSBC in May had said the overall U.S. business had made its first quarterly profit in nearly three years and might be past the worst of its troubles. HSBC's U.S. business also includes a branch network, and encompasses some of its commercial lending, private banking and investment banking activities in the country.
For the half, HSBC posted a $74 million loss in the U.S., a fraction of last year's $3.92 billion loss in the same six months. It doesn't provide quarterly breakdowns for the whole U.S. business.
The bank in June named Niall Booker as chief executive officer of its North American unit, replacing Brendan McDonagh, who retired in July.