HSBC powered by drop in bad debt charges

A fall in bad debt provisions helps HSBC more than double half-year profits to £7 billion, says chief executive Michael Geoghegan.

HSBC shares jumped 5% higher after the banking giant revealed pre-tax profits more than doubled in the first six months of the year.

Shares in the bank rose 32p, or 4.95%, to 678p after HSBC said its pre-tax profit for the first half of the year climbed 121% to $11.1 billion from £5 billion in the same period last year.

Analysts said this was far better than the $9.1 billion they had expected, although it was largely the result of lower charges bad debts rather than an improvement in underlying performance by HSBC.

Robert Law of Nomura said: 'Overall HSBC results showed a beat at the pre-tax level, driven by lower impairments. However, there were continued relatively weak pre-impairment trends at the group level, with revenue similar to our estimates, but costs higher.'

HSBC reported a significant drop in impairment charges and other credit risk provisions in the first six months of the year to $7.523 billion in the first half of 2010, $6.408 billion lower than the first half of 2009.

In the UK, HSBC said charges were 28% lower in its retail business and 32% lower in its commercial banking business as low interest rates helped to keep repayments manageable.

The bank said revenues were boosted by growth in its UK mortgage business, where the group said it won 8% of new mortgage lending in the first half of the year even with its cautious approach to borrowers.

HSBC said its average loan to value ratio in the period was 53%.

There was some good news for shareholders as HSBC said it would pay a second interim dividend for 2010 of 8 cents per share, bringing the total for the first six months to 16 cents per share for 2010, the same as for the first half of 2009. Michael Geoghegan, chief executive at HSBC, hoped dividend payments would begin to edge higher as business improved.

UK banks have faced criticism from the government about their apparent reluctance to lend to business. HSBC said there were signs that business customers were increasingly willing to borrow.

'We grew loans and advances to customers in all regions and by four per cent overall,'  said Geoghegan although he said the strongest growth was in Asia, where lending climbed 15%.