HSBC reveals jump in profits
HSBC remained resilient in the face of rising bad debts with improved profits and record results in its global banking arm for the first quarter of 2009.
The banking giant reports its revenue grew in the first three months of the year, with profit “well ahead” of the same period last year.
Although HSBC declined to reveal its exact figures in its update to investors, it did confirm that its performance was boosted by its rights issue in April, which saw 97% of investors take up its offer of new shares.
Michael Geoghegan, group chief executive officer of HSBC, says the bank’s performance this year has been encouraging.
"The rights issue enhanced HSBC's signature financial strength and this, together with the start made to 2009, means we are well-positioned to ride out the economic uncertainty ahead, and to take advantage of opportunities to grow," Geoghegan adds.
HSBC says its personal finance arm remains “resilient” but that it is facing pressure from squeezed margins and an increase in the number of borrowers missing payments. However, Geoghegan says that demand for credit – from mortgages to credit cards – has been "subdued".
Heavy losses on sub-prime mortgages (for people with bad credit history) that have gone bad have also forced HSBC to shut down much of its US consumer lending business.
And Europe’s biggest bank added that loan impairment charges and credit risk provisions were higher than the same period the previous year but down from the last three months of 2008. The group wrote down a total of $24.9 billion in 2008.
However, debts in the US were "slightly lower than expected".
In contrast, its Asian operations proved went from strength to strength while its global banking and markets division saw record first quarter results amid strong trading in foreign exchange and interest rates.
All sub-prime financial products are aimed at borrowers with patchy credit histories and the term typically refers to mortgage candidates, though any form of credit offered to people who have had problems with debt repayment is classed as sub-prime. Depending on the lender’s own criteria, sub-prime can apply to borrowers who have missed a few credit card or loan repayments to people who have major debt problems and county court judgments (CCJ) against their name. To reflect the extra risk in lending to people who have struggled in the past, rates on sub-prime deals are typically higher than for “prime” borrowers.
A way a company can raise capital by creating new shares and invite existing shareholders in the company to buy these additional shares in proportion to their existing holding to avoid a dilution of value, which means keeping a proportionate ownership in the expanded company, so that (for example) a 10% stake before the rights issue remains a 10% stake after it. As an added incentive, the new shares are usually offered below the market price of the existing shares, which are normally a tradeable security (a type of short-dated warrant) and this allows shareholders who do not wish to purchase new shares to sell the rights to someone who does.