HSBC tops target with £4.2bn

INVESTORS brushed aside the revelation that loans at HSBC are turning sour at the rate of £8m a day and welcomed higher-than-expected first-half profits from Britain's biggest bank.

The charge for bad and doubtful debts ballooned from $715m (£444m) to $2.37bn in the first six months of the year as HSBC absorbed its huge US consumer loans acquisition, Household International.

But traders focused on the robust 26% rise in pre-tax profits to $6.88bn (£4.2bn) and a positive outlook statement from chairman Sir John Bond, who said prospects for the second half were 'reasonable'. The shares put on 26p at 790 1/2p.

Credit quality at Household, which was bought in March for £10bn, deteriorated because of the slow growth in the US economy. In the first three months under HSBC ownership, Household set aside $1.54bn to cover loans it reckons will not be repaid.

HSBC finance director Douglas Flint said Household was performing in line with expectations and would create synergies of $200m a year once fully integrated. He played down the worsening bad debts, saying the cost was more than offset by the higher interest rates charged to customers - typically lowincome or higher-risk borrowers who cannot raise conventional credit.

'Household makes us a different shape,' he said. 'But we've got a business with a huge margin to the cover the bad debts.' HSBC is doubling investment in compliance, monitoring and training to $150m at Household, which paid $484m last year to settle allegations that it charged unreasonably high rates of interest and used questionable sales tactics.

Almost four loans in 100 made by Household are non-performing, meaning that the borrower has either reneged or is behind on repayments. But the business still made a $649m contribution to group profits.

Earnings per share grew by 17%. HSBC, which is now paying dividends quarterly, announced two interim dividends, one of 24 cents payable on 7 October and one of 12 cents payable on 20 January.