HSBC North America sees favorable trends

Brendan McDonagh, Chief Executive Officer of HSBC North America Holdings Inc., speaks at the Reuters Global Finance Summit in New York November 17, 2009.

NEW YORK (Reuters) - HSBC North America Chief Executive Brendan McDonagh said on Tuesday that favorable business trends seen in the third quarter have continued in the fourth quarter, but warned that the recovery in consumer spending was at very early stages.

The unit, which has been the focus of HSBC's investors due to large credit losses in recent years, saw loan impairment allowances for its consumer finance business decline in the third quarter, representing the first quarterly fall since the start of 2006 and their lowest level for over a year.

Europe's biggest bank also reported its U.S. credit card division, the third largest issuer of MasterCard-branded credit cards, was profitable in the third quarter.

"We have seen favorable trends in the last six months that have allowed us to modestly drop our reserves. Those two quarters make a permanent trend? No, I wouldn't want to say that," McDonagh said at the Reuters Global Finance Summit in New York.

But he added: "The trends we have seen so far would appear to be continuing."

Still, McDonagh said the recovery in consumer spending was at "very early, early stages," and that the consumption funded by debt from housing was gone for years.

McDonagh said the catalyst for a stronger recovery in consumer spending would be a drop in unemployment, which could take place in the first half of 2010.

"You are starting to see the rate of increase in unemployment slow down, but I think that the psychological milestone will be when the rates actually drops," he said.

McDonagh also said the bank -- which currently has around 470 branches, most of them in the New York area -- planned to focus on cities with strong Asian and Hispanic communities, but ruled out competing with bigger national rivals such as JPMorgan Chase & Co (JPM.N) or Bank of America Corp (BAC.N).

McDonagh also said HSBC's credit card business in the United States was not for sale, months after the bank said it could consider disposing of the division if the problems in the business intensified.

"We have a profitable business, we are increasing the profitability of that business, and so we will just continue to run this for another couple of years and then will take a look at it," McDonagh said.

(Reporting by Juan Lagorio; Editing by Phil Berlowitz)