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UK Debt Crisis Concerning Experts At HSBC

The UK’s largest bank, HSBC, believes there is no indication that the recent trend among UK consumers choosing bankruptcy over clearing their debts is abating.

The bank’s pre-close trading update said that the trend ‘seen since the second half of 2005 looks unlikely to abate in the medium term’, and remains the major factor in its bad debt write-offs.

Debt problemsIn the first half, bad loan impairment charges jumped 36%. However, in the first nine months of the year the number of people in default on loans in the UK jumped 65% to 77,000 according to the Insolvency Service.

2006 has seen record numbers of UK consumers either declaring themselves bankrupt or entering into individual voluntary arrangements with their creditors. This has led to the UK’s major lenders in the personal loan and credit card markets write of huge sums of bad debt.

The bank also revealed it had seen a slowdown in its investment banking business in the third quarter despite a strong first half.

HSBC recruited more than 1400 new staff to its securities business in the last year, but said third-quarter revenues had been down, partly due to seasonally lower volumes from institutional and corporate clients and less volatility in financial markets. However, its recent investment in people helped it improve its market share in most areas.

HSBC said: “ On a year-to-date basis, underlying revenue growth slowed, attributable largely to the aggregate of seasonal variations in fee income, a conscious decision to slow the rate of lending growth in more finely priced markets, fewer disposal gains and a weaker trading performance in CIBM in the third quarter.”

As far as its US business interests are concerned, the area most at risk is mortgages, which account for most of their US business. According to finance director, Douglas Flint, the US had witnessed its housing market weaken further

According to HSBC, “ Increases in short term interest rates will impact borrowers who have adjustable rate mortgages that are now resetting. In addition, further weakness in the housing market, lower consumption and lower employment also pose potential risk.”

Alisdair Milton
8th December 2006


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