LONDON — HSBC Holdings PLC Friday said its U.S. business made a quarterly pretax profit for the first time in nearly three years because of lower loan impairment charges, marking a major step for the bank after losing tens of billions of dollars from subprime lending in its U.S. consumer finance division.
Reporting on its overall performance for the three months to March 31, HSBC said first-quarter underlying pretax profit rose across the group compared with last year, because of a good performance from its investment banking division and the lowest quarterly loan-impairment at the group for more than two years.
Underlying profit measures the bank's like-for-like business performance and excludes the effects of currency translation and fair value movements in its own debt.
The U.K. bank doesn't provide earnings figures for the first and third quarters.
"HSBC's first-quarter financial performance was very good," said Chief Executive Officer Michael Geoghegan, who recently moved to Hong Kong as the bank increasingly focuses on Asia.
"The shift from West to East is clearer than ever. In the West, the risk of a double-dip hasn't gone away and revenue growth will remain highly challenging. But in emerging markets, recovery looks secure," he added.
At 1213 GMT, HSBC shares were up 19 pence, or 3%, at 647 pence. The shares had already been up in early trading Friday, in contrast to declines in European bank stocks and broader stock indexes being driven by investors' intensifying worries about Greece's financial situation.
Geoghegan told reporters that the bank has a EUR1.5 billion exposure to Greek bonds.
He said HSBC is confident governments in Europe will work to contain any contagious effects of the Greek crisis, adding that its own exposure to countries such as Portugal and Spain is "small."
Meanwhile, the U.S. economy has been showing a good improvement, although it is too early to declare victory in the country, which has dragged on the bank's results, Geoghegan said.
"The improvement in the quarter is testament to the actions of our management team since we identified the problems in the U.S. consumer finance market," he added.
HSBC's U.S. consumer finance unit, HSBC Finance, is in the process of running down its books of mortgage and car loans after making massive losses from the subprime crisis. Credit cards are its only ongoing business. HSBC bought the unit in 2003, and first sounded the alarm about deterioration in subprime mortgages late in 2006. It also runs a U.S. bank network which is a separate business.
Geoghegan said the second quarter performance across HSBC has so far been "satisfactory."
Analysts said the results showed improvements at the bank and in the broader global economy, and beat their expectations for U.S. loan losses.
"With HSBC proving to be the 'canary in the mine' regarding over-indebted U.S. consumers, a move into profit for its U.S. business marks a defining positive," said Keith Bowman, equity analyst at Hargreaves Lansdown Stockbrokers.
HSBC also said its pretax profit at its global banking and markets business was higher in the first quarter compared with a year ago and the fourth quarter, as the trading business did well and provisions for bad loans and credit risk fell "significantly."
In Asia, which represents a big part of the bank's strategy to make most of its profits from emerging markets, total revenue was higher in the first quarter than in the first and last quarters of 2009, and the bank said personal and commercial lending increased in some markets. Bad loan charges were also lower in the region, notably in Hong Kong and in India.
In Latin America and the Middle East, two other areas important to HSBC's strategy, it said revenue was down in the quarter. Impairments in the Middle East were lower than in the fourth quarter but higher than in the year-ago period.
Geoghegan declined to say whether the charges peaked in the region, but said the bank is in a "stable" position there and it continues to believe in its long-term prospects.
HSBC Finance said it took a $2.3 billion loan impairment charge in the three months to March 31, down from $3.9 billion in the first quarter of 2009 and compared with a $3.2 billion charge in the fourth quarter of 2009.
The fall is in part because the loan book is smaller, at $73.3 billion, down from $78.9 billion at the end of 2009. HSBC said it also reflects a better economy and bigger-than-usual seasonal effects.
Across the group, the bank said its reported pretax profit for the group would be lower than last year's in the first quarter, because of a $400 million fair value loss on its debt.
In the first quarter of 2009, HSBC's profit figure was helped by a $6.2 billion gain from the lower value of its own debt. Banks can record gains if the value of their debt falls, since it becomes theoretically cheaper to repurchase it, and conversely book losses if the value of the debt rises.