HSBC Holdings Plc, Europe's biggest bank by market value, said emerging-market lending lifted third- quarter profit, offsetting losses in U.S. mortgages that are spreading to credit-card and unsecured loans.
Shares of the London-based bank rose 3.7 percent after HSBC said in a trading statement that its securities unit has ``very little direct exposure to U.S. subprime mortgage-backed collateralized debt obligations.'' HSBC set aside $3.4 billion to cover U.S. defaults, $1.4 billion more than it forecast in July.
``Given that they have increased provisions by more than $1 billion, for them to say pretax profit in the third quarter is ahead is little short of amazing,'' said Alex Potter, a London- based analyst at Collins Stewart Plc who rates the shares ``buy.''
HSBC's consumer lending in the Middle East, Hong Kong and China are ``strongly ahead'' of last year, the bank said without providing specifics. That's helping Chairman Stephen Green counter a ``broader deterioration'' in U.S. housing and credit markets than he forecast four months ago. The bank said it will take a $55 million charge to close an additional 260 consumer finance branches in the U.S.
Let's look at the numbers here. According to the article, HSBC estimated their loan loss provision at $2 billion in July. Three months later, that increases by $1.4 billion -- that's a 70% increase in three months. Something really changed in three months regarding their estimates of the US market -- and none of the underlying reasons for that change are good. Either HSBC underestimated their loan loss in July (highly unlikely), or something fundamentally changed in the market over the last three months.
But right now it's time to bottom fish in the financial sector? Please.
