HSBC adds to banking sector woes with profits fall of 28%


HSBC, Britain’s largest bank, has reported a 28% decline in first-half pre-tax profits to £5.1 billion ($10.2 billion).

The news from HSBC follows that from other banks including Alliance & Leicester, who last week announced that half-year profits have nearly been wiped out after taking a £209 million hit on risky assets and higher funding costs.

In addition, other banks to reveal significant falls in profits include Lloyds TSB and HBOS, who have both been hit by rising levels of bad debt.

Barclays is due to announce results this week, with a 35% fall in profits expected, as well as Royal Bank of Scotland (RBS), who is expected to reveal the biggest loss in UK banking history after taking a hit of almost £6 billion as a result of the credit crisis.

Stephen Green, HSBC’s chairman, described current market conditions as their most challenging for several decades as the bank also announced £1.85 billion in write-downs.

HSBC has been one of the worst banks affected by the ongoing credit crunch. It has already announced write-downs of £7.5 billion as a result of its exposure to the US sub-prime market.

However, HSBC saw profits increase in Europe, Asia-Pacific and Latin America in the first half, but problems in the US weighed heavily on its balance sheet.

Its US personal financial services arm made a $2.2 billion (£1.1 billion) loss over the six-month period while US credit write-downs totalled $6.8 billion (£3.4 billion) in the first half, which is 85% more compared with a year ago.

The group is taking the necessary action in order to reduce its US losses by curtailing future loans for vehicle financing, trimming down its branch network and cutting other costs.

However, HSBC hasn’t had to call on its shareholders to shore up its balance sheet like other banks.

There is speculation that many top bank executives will see their bonuses cut by as much as 50% this year as a result of the credit crisis and the huge losses suffered due to bad investments.

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