HSBC Holdings Plc, Europe's biggest bank by market value, said yesterday second-half profit rose 17 percent.
The result came as lending to emerging markets overcame subprime losses on customers in the United States, Bloomberg News reported.
Net income increased to US$8.24 billion, or 69 US cents a share, from US$7.1 billion, or 62 US cents, a year earlier, beating analysts' estimates, the London-based company said in a statement.
HSBC wrote down US$2.1 billion of asset-backed securities, leveraged loans and holdings guaranteed by bond insurers in 2007 and raised its dividend by 11 percent to 90 US cents.
HSBC boosted earnings in fast-growing markets including Hong Kong, China's mainland and India and reduced its dependence on the US.
On the China mainland, HSBC made profit of more than US$1 billion for the first time, through its own business and in conjunction with associates. Hong Kong profits topped US$7 billion.
Chairman Stephen Green named Brendan McDonagh last month to head the US unit after scaling back riskier loans and closing units to control bad debts, which spread to credit cards and unsecured loans.
'Good numbers'
Bad loans rose to US$17.2 billion in 2007, more than the US$10.6 billion in 2006, the company said.
"They look to be a good set of numbers," said Simon Maughan, a London-based analyst at MF Global Securities Ltd with a "buy" rating on the stock. "The US is worse than expected, and everywhere else is pretty much better than expected."
HSBC shares rose 1.4 percent to 776.5 pence in London trading at 8:35am after exceeding the US$7.88 billion median profit estimate of 13 analysts surveyed by Bloomberg News. The bank is down 7.9 percent this year, valuing it at 92 billion pounds (US$182 billion). The FTSE All-Share Bank Index has fallen 9.8 percent.
The bank added Asia head Sandy Flockhart and investment banking chief Stuart Gulliver as executive directors on its board from May 1, according to a separate statement.
Pretax profit rose five percent to US$10.1 billion. The firm reported a US$2.34 billion loss in North America, down from a profit of US$927 million. Earnings from Hong Kong, the fastest-growing unit, rose 59 percent to US$4 billion.
Better position
Profit before tax surged 43 percent to US$2.67 billion for the rest of Asia Pacific, 35 percent to US$4.5 billion in Europe, and from 35 percent to US$1.18 billion in Latin America. The earnings included one-time gains of US$2.5 billion.
"The economic slowdown and the credit outlook in the US may well get worse before they get better," Green said in yesterday's statement. "With significant parts of the international financial system in developed markets still in difficulties, HSBC's emphasis on faster-growing emerging markets means that we are better positioned than many of our competitors."
Illinois-based Household International, which HSBC bought for US$15.5 billion in 2003, lent directly to customers with subprime credit. Rising US subprime mortgage defaults sparked a six-month credit freeze that has forced the world's biggest financial institutions to set aside more than US$180 billion in asset writedowns and bad loans.
"They need to run down their subprime business in a methodical way and manage the impairment charge," said James Hutson, an analyst at Keefe, Bruyette & Woods Ltd in London who has a "market perform" rating on the stock. "But it's a harder market to sell your assets."
HSBC said it is aiming for an average return on equity of between 15 percent and 19 percent. Return on equity was 15.9 percent in 2007.
It is also targeting a cost-efficiency ratio of 48 percent to 52 percent, in line with 49.4 percent for 2007; a Tier 1 capital strength ratio of 7.5 percent to nine percent; and total shareholder return in the top half of its peers.
The company generates about 30 percent of pretax profit from commercial banking, a quarter each from personal financial services and markets, and most of the rest from private banking.
Royal Bank of Scotland Group Plc wrote down about 2.5 billion pounds related to credit-market securities in 2007.