HSBC underlying profits up sharply, U.S. bad debts dip

By Steve Slater and Clara Ferreira-Marques

LONDON (Reuters) - Europe's biggest bank HSBC Holdings Plc said its underlying third-quarter profits were significantly ahead of a year ago and losses on U.S. consumer loans had shown their first fall in three years.

The news sent HSBC stock up over 4 percent to their highest in just over a year. At 0910 GMT (4:10 a.m. EST), the shares were up 3.4 percent at 715.7p.

In a trading statement on Tuesday which lacked detailed figures on its quarterly results, HSBC said its investment banking arm had maintained its record performance in the quarter, following bumper performances by rivals including Britain's Barclays.

It said margins for the Global Banking and Markets arm were not as good in the quarter as they were in the exceptional first half, which benefitted from pent-up demand after the crisis hit at the end of 2008, but said margins were very good compared with previous years, including 2006 and 2007.

In the United States, which has been the focus of market concern, HSBC said loan impairment allowances for its consumer finance business declined, representing the first quarterly fall since the start of 2006 and their lowest level for over a year.

But the bank cautioned it was still too soon to call a turn in U.S. consumer impairments, which hit around $3 billion in the third quarter, though there were positive signs.

"Consensus forecasts (for unemployment, house prices) are moving down from some of the more pessimistic figures ... if these things all play out, those would be reflective of turning points. But I don't think anyone is confident to call those yet," Finance Director Douglas Flint told reporters.

Overall loan impairment charges and other credit risk provisions declined in the quarter and were at their lowest quarterly level since the second quarter of 2008.

"I believe the biggest jolt has now passed through the global economy," said HSBC Chief Executive Michael Geoghegan. "The world will likely see a two-speed recovery," he said, adding that emerging markets are likely to drive the recovery.

The bank said on a reported basis, including losses on the fair value of its own debt, third-quarter profits were lower than a year ago. The bank said it had seen a further tightening of credit spreads in October, resulting in an additional reduction in the gain from fair-value movements in its own debt.

HSBC also said its U.S. business would announce the sale of its U.S. vehicle loan servicing operations and $1 billion in vehicle loans to Santander's U.S. operations.

(Editing by David Holmes)