A worsening outlook for the US housing market led HSBC to warn that impairment charges against its mortgage and other consumer finance loans could rise further, after announcing a higher level of charges in the third quarter reports the Financial Times.
It recorded a $3.4bn charge for the three months to end of September against its US consumer finance business, $1.4bn more than would have been expected if first half trends had continued. Of that $1.4bn, half related to non-mortgage loans.
Stephen Green, chairman, said that problems with bad debts were spreading from the mortgage business to other loans, such as credit cards and for car purchases, as consumers found it harder to get credit and delinquency rose. He said that while delinquency rates were up, they were still lower than the level seen in previous downturns.
At the end of the third quarter, $1.6bn or 3.2 per cent of the bank’s US branch based mortgage book were two or more payments in arrears, up from $1.1bn at the end of June. Worse, $3.2bn or 8.2 per cent, of its Mortgage Services portfolio were that far in arrears, up from $2.6bn at the end of the second quarter.
Mr. Green said, “I don’t think anybody knows” when the market would begin to recover, but the group now expected “more prolonged weakness” which would last at least through 2008 and probably into 2009.
In a third quarter trading update, the bank said, “there is a probability of further deterioration if the current housing market distress continues and further impacts the broader economy.”
However, a strong performance from the rest of the bank’s activities, especially in the Asia-Pacific and Middle East regions, had more than offset the US consumer finance problems, and third quarter profits were ahead of the same period last year, building on an improvement in first half profits.
Read it here: HSBC warns Loan Problems are Spreading