HSBC Unit's Turnaround Efforts Start to Pay Off

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Byline: Jeff Horwitz

HSBC Holdings PLC's North American arm still isn't adding much to the company yet, but it has reduced its consumer finance losses to the point where it is no longer weighing down its parent.

On Monday HSBC reported a blowout first-half pretax profit of $11.1 billion, double its earnings a year earlier. Though the improvement of the company's U.S. business was among the highlights, the North American operation was the only geographic subsidiary to report a loss.

Because of more than half a billion dollars in first-half hedging losses and a sharp second-quarter jump in consumer finance writedowns, HSBC North America Holdings Inc. reported it had an $80 million loss through June, down from the $2.1 billion hit it took a year earlier. Credit provisioning in its personal financial services segment fell from $6.4 billion in the second half of last year to $4.6 billion through June 30.

But after stripping out the hedging writedowns and other one-time items, HSBC North America Chief Executive Niall Booker noted, the company produced an underlying $492 million pretax profit.

"We have a core business that makes money," said Booker, who took over after former CEO Brendan McDonagh left HSBC at the end of July, on the North American subsidiary's conference call with reporters and analysts. "We believe we have a unique capability in terms of joining up our corporate customers and our premier high-net-worth customers internationally."

On both HSBC North America's earnings call and that of its parent, executives stressed the difference in performance between the company's successful capital markets, card and commercial banking businesses and the terribly performing consumer finance business it largely acquired in a long-regretted 2002 acquisition of Household International. That business is now in runoff, dropping from $91 billion of assets a year earlier to $69 billion by midyear.

"We haven't seen much slowdown in the runoff yet, which is encouraging," Booker said. …