HSBC has been tipped by analysts to report on Monday a 12.4 per cent profit increase for 2007 as a strong performance in Asia helped offset rising US bad debts and asset write-downs from the credit crunch.
The global banking giant is expected to post a 2007 pretax profit of $24.823 billion, up from $22.086 billion the year before, according to the average of six analyst forecasts compiled by Thomson Financial.
Investors are likely to focus on the group's US bad debts, which are expected to rise sharply on the back of higher defaults by sub-prime mortgage customers at US subsidiary HSBC Finance Corporation.
HSBC, Europe's largest bank, had said in December that HSBC Finance incurred a bad debt charge of $3.4 billion in the third quarter, up from about $2 billion in each of the preceding three-month periods.
Analysts at Credit Suisse believe the US business will report full-year bad debts of $10.8 billion, pushing the group impairment charge up by 52 per cent to $16.059 billion.
The market will also be looking to see whether HSBC reports any further write-downs of debt-related securities at its CIBM investment banking unit in the wake of the credit crunch.
In December, HSBC disclosed that write-downs over the first nine months of the year stood at $925 million.
Analysts also expect HSBC to confirm that it enjoyed strong growth in Asia during the final quarter of 2007, helped by rapid economic expansion and rising trade flows in the region.
Analysts at Keefe, Bruyette and Woods believe HSBC's Asian operations excluding Hong Kong are on track to report a 64 per cent jump in pretax profit for the year as a whole.
HSBC's subsidiary in Hong Kong, Hang Seng Bank, is expected to record on Monday a 32 per cent rise in net profit for the 2007, driven by strong loan growth and higher fee income, analysts said.
However, they said a weaker stock market and falling US interest rates could cap earnings this year.
Analysts polled by Thomson Financial estimated the lender will post on average a 2007 net profit of $2.04 billion.
The city's economy grew and the stock market rallied last year, fuelling lending activity and lifting income from fees on stock brokering and wealth management.
But the stock market rally has quickly lost steam from the start of the year and the deteriorating US economy is driving interest down, further making the business environment difficult for lenders like Hang Seng Bank.
"Given that the key source of positive surprises in 2007 should be market-related fee income, sustainability is open to question in 2008," said Kevin Chan, analyst with Nomura International. (AFP)
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