HSBC And The US Sub-Prime Sector Fall Out
While the ongoing fallout from the sub-prime finance sector in the US continues to have a stranglehold on stock markets around the world, we have seen the first sign that the cycle may be turning. Half year results announced today from UK banking giant HSBC show a sharp rise in bad debt provision, and a less than expected rise in overall profitability.
While the group announced half year profits of $14.1 billion (an increase of 13% over the same period last year), there was a rise in bad debt provisions (i.e. money put aside to cover possible bad debts) from $2.4 billion to $6.3 billion. As often happens in the banking sector, many observers are expecting the other major banks to follow suit, effectively bring down the curtain on a remarkable run for both the US and UK economies.
There is no doubt that the sharp rise in bad debt provisions is a result of the groups US operations, it seems only a matter of time before we see increased provisions with regards to the non-US businesses of the group. Surprisingly, HSBC also announced that they had repaid $236 million in UK bank charge repayments, with the possibility of more to follow depending on the ongoing OFT court case.
Historically, the finance sector is always the first to feel the winds of change in the economy, and it seems that a storm may be brewing. Quite what other action the authorities in the US and UK can take remains to be seen, but higher interest rates are finally beginning to bite!
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