Barclays, HSBC - Bad debts may have peaked

By Steve Slater and Clara Ferreira-Marques

LONDON (Reuters) - Britain's top two banks, HSBC and Barclays, signalled bad debts may be past their peak, with HSBC declaring on Tuesday the first improvement for three years in losses on U.S. consumer credit.

Strong investment banking underpinned profits for both banks, although Barclays shares dipped on concern its unit will be unable to sustain its growth and costs are rising.

Losses on bad debts have soared for banks around the world this year as unemployment rises and economies slow, replacing writedowns on toxic assets as the main worry, and few banks have yet voiced confidence they are through the worst.

HSBC Holdings Plc Chief Executive Michael Geoghegan said "the biggest jolt has now passed through the global economy" and predicted a two-speed recovery, driven by emerging markets.

"We're quietly confident but we have to be careful (about) where the world economy is going," he told reporters.

Barclays Plc reported a third-quarter pretax profit of 1.56 billion pounds, down from 2.8 billion a year ago, largely due to losses on the value of its own debt and other one-off items. Excluding those, profit in the first nine months of the year more than doubled to 4.4 billion.

HSBC, Europe's biggest bank, said underlying third-quarter profits were "significantly ahead" of a year ago, though it gave no figures in its trading statement.

It was boosted by an improvement at its troubled U.S. consumer finance business, which it is running down. Bad debts there dipped to about $3 billion (1.8 billion pounds) from $3.4 billion in the second quarter, their first fall since the start of 2006.

CHARGES FALL

Barclays said it expected impairments for the full year to be near 9 billion pounds, the bottom end of its previously indicated range. Its impairment charges and other provisions reached 1.4 billion pounds in the third quarter, down from 1.8 billion in the previous three months.

By 12 p.m. Barclays shares were down 3.8 percent at 330 pence, while HSBC shares added 4.4 percent to 722.5p, after hitting their highest in just over a year. The DJ Stoxx Europe bank index was up 0.4 percent.

"Barclays shares have done fantastically well in the last year, but there's nothing in these numbers to make you say 'this is going to push it on from here'," said Colin Morton at Rensberg Fund Management. He owns both HSBC and Barclays shares.

"For all banks the business environment is going to be much more difficult and returns are going to be scrutinised incredibly closely. Regulators and the government are going to be all over them," he said.

Both HSBC and Barclays are emerging as relative winners from the credit crisis and have avoided taking direct government cash, unlike rivals including Royal Bank of Scotland Group Plc and Lloyds Banking Group Plc.

As retail banking profits continue to bear the scars of high bad debts, both banks have been underpinned by strong investment banking operations -- areas which have generated high but increasingly controversial bonus payments to top performers.