HSBC's pretax profit rose 10 percent last year, driven by buoyant growth in Asia which helped Europe's biggest bank absorb $17.2 billion in bad debts as the US housing crisis deepened.
Profit in Hong Kong rose 42 percent and earnings jumped 70 percent in the rest of Asia, but the bank's North American arm barely scraped a profit as past risky loans to US homeowners now in trouble hit it hard.
The London-headquartered bank, Europe's biggest by market value, reported record pretax profit of $24.2 billion for 2007, up from $22.1 billion in 2006 but below an average forecast of $24.7 billion from a Reuters Estimates poll of analysts - but results were distorted by one-off items and did not include a $1.3 billion property gain expected by many.
Underlying profit growth was 5 percent for the year, which analysts said was in line with forecasts. The bank's impairment charge jumped $6.7 billion from 2006, or 63 percent. Bad debts had been expected to come in at $15.8 billion, based on the average of forecasts from eight analysts.
HSBC said the outlook for 2008 was uncertain and that the US economic slowdown and credit outlook "may well get worse". In Britain, it said the impact of a court case into charges applied to current accounts could be $600 million. That was a "best estimate" and would be on top of 115 million pounds paid to customers last year, before the refund process was suspended across the industry pending the court decision. HSBC North America made a 2007 profit of just $91 million and the bank admitted to an "exceptionally weak" performance in the United States. The problems stem from aggressive selling of subprime mortgages by its US arm HSBC Finance, formerly the Household business bought for $14.8 billion five years ago. North America bad debts were $12.2 billion, up 79 percent from 2006.
In mainland China, the bank made a profit of more than $1 billion for the first time. Hong Kong profit topped $7 billion and in Europe it rose 23 percent to $8.6 billion. Earnings at HSBC's investment banking arm, which has been renamed global banking and markets (GBM), rose 5 percent to $6.1 billion. Its writedown on the value of complex financial assets that have been tarnished by the US subprime crisis was higher than expected at $2.1 billion, up from $925 million previously.
The writedown was less than the multi-billion dollar hits taken by many other banks, however. The bank also made a $2.9 billion fair value gain on the value of debt it is carrying. HSBC also raised its full-year dividend by 11 percent and set new performance targets, including a return on equity of 15 to 19 percent over an investment cycle and a tier 1 capital ratio of between 7.5 and 9 percent.