Analysts expect HSBC to report another $4 billion on bad US home loans. Edmond Tang

Europe's biggest lender HSBC said its third-quarter profits rose year-on-year on the back of asset sales and strong performance in Asia helped offset almost $5 billion in bad debts on US home loans and asset writedowns.

"Our US results are broadly in line with our expectations but current trends point to further deterioration in the near to medium term," said Michael Geoghegan, group chief executive, yesterday.

He added: "Recovery depends on the success of further economic stimulation which is likely to take some time to take effect, but we were early in positioning ourselves for this downturn."

HSBC's profits for the first nine months this year are lower than the same period in 2007, the bank said in a statement to Hong Kong stock exchange yesterday.

The capital ratio was 8.9 percent at the end of September, near the top of the bank's 7.5 percent to 9 percent targeted range as the lender took in more money in deposits than it lent to customers, enabling it to avoid the funding shortage that many banks around the globe are facing.

The lender's writedowns on asset-backed securities were $4.8 billion in the third-quarter. The bank also set aside $4.3 billion for loan defaults in the US.

Analysts had expected the bank, before yesterday's announcement, to report another $4 billion on bad US home loans as its mortgage book is run down and unsecured losses pick up as unemployment rises.

Asia remained a profitable region for the London-based lender. In Hong Kong, commercial banking revenues held up well in the third quarter but personal financial services income was constrained by the declining deposit margins as interest rates fell.

Equity market-related income in Hong Kong, including the insurance business, was weak, particularly compared with third quarter of 2007, which enjoyed exceptionally strong retail brokerage and wealth management income.

Bad debts also rose in its European retail business. "Loan impairment charges in third-quarter were higher than in the third-quarter 2007 but, for the nine months ended Sept 30, were lower than in the equivalent period in 2007," the bank said in the statement.

At a telephone conference yesterday, HSBC executives welcomed Hong Kong government's loan guarantee scheme designed to help the city's small- and medium-sized enterprises (SMEs).

Secretary for Commerce and Economic Development Rita Lau said the scheme will provide HK$10 billion in liquidity to the commercial lending market for SMEs.

HSBC's Hong Kong-traded shares rose slightly by 0.32 percent to end at HK$92.3 yesterday, compared with a 3.52 percent jump in the benchmark Hang Seng Index.

(HK Edition 11/11/2008 page2)