HSBC Holdings PLC's troubled U.S. consumer lending division continued to drag down Europe's largest banking company in the first quarter, though charges for soured loans were lower than expected.

HSBC Finance Corp. booked a $3.9 billion impairment charge on bad loans in the quarter, down from a $4.6 billion impairment charge in the fourth quarter and much less than the $5 billion charge some analysts were expecting.

HSBC's chief executive, Michael Geoghegan, told analysts in a conference call on Monday that the lower-than-expected chargeoff does not necessarily signal that his company's U.S. arm has turned a corner; first-quarter results tend to be better than those at yearend, he said.

"Clearly, what we are seeing is people are paying back their debt in the first quarter," Geoghegan said, adding that some borrowers paid bills out of their tax rebates. "It's too early to tell where the U.S. economy is going," he said.

HSBC Finance, which the company bought in 2003, is the more troubled half of HSBC's U.S. operations, though its retail bank, HSBC USA Inc., lost money, too.

HSBC's profit fell 70% last year after a $10.6 billion goodwill writedown associated with HSBC Finance, which sells credit cards, auto loans, mortgages and other consumer finance products. In March HSBC said it would unwind HSBC Finance's 800-branch sub-prime consumer finance division but retain the credit card business. The company's runoff portfolio of consumer loans shrank 4% in the quarter, to $95.9 billion.

The finance arm charged off $2.52 billion in the quarter, down from $2.55 billion a year earlier. Loss provisions, meanwhile, rose 4% from a year earlier, to $2.95 billion.

HSBC Finance's net income actually rose 266% from a year earlier, though HSBC attributed the increase to a $2.4 billion gain on debt marked at fair value. HSBC Finance reported a net loss from continuing operations of $801 million in the quarter, up from the $585 million loss a year earlier; it attributed the increase to deteriorating credit quality and lower net interest income, among other factors.

HSBC said it is unlikely that the division will turn a profit any time soon.

"Should economic conditions continue to deteriorate in line with our current forecasts, we would expect to continue to generate losses over the next two years and likely longer," the company said in its quarterly report.

Results were also poor in the retail bank.

HSBC Bank's net loss narrowed to $89 million in the first quarter from $278 million a year earlier.

The provision for credit losses at the bank rose 136% from a year earlier, to $1.17 billion. HSBC attributed the rise to a higher level of receivables in its credit card portfolio from a large purchase, and to more delinquencies in its private-label cards business.

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