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Don’t Cry For Me Amer-I-ca…

March 3, 2008

And as for fortune, and as for fame
I never invited them in
Though it seems to the world they were all I desired
They are illusions
They’re not the solutions they promised to be
The answer was here all the time
I love you and hope you love me

Subprime lenders still posting massive profits in the middle of the death of the American Dream- this reporting from Bloomberg-

HSBC Second-Half Net Rises 17% as Asia Offsets U.S. (Update2)

By Jon Menon and Ben Livesey

More Photos/Details

March 3 (Bloomberg) — HSBC Holdings Plc, Europe’s biggest bank by market value, said second-half profit rose 17 percent as emerging-markets lending outweighed losses on U.S. subprime- mortgage related assets and consumer loans.

HSBC gained as much as 3.3 percent in London trading after saying net income increased to $8.24 billion, or 69 cents a share, beating analysts’ estimates. The London-based company wrote down $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 cents.

The last of Britain’s largest banks to post results boosted earnings in fast-growing markets including Hong Kong, China and India and reduced its dependence on the U.S. Chairman Stephen Green named Brendan McDonagh last month to head the U.S. after scaling back riskier loans and closing units to control bad debts, which jumped 63 percent to $10.9 billion in the half.

“There doesn’t seem to be too much for investors to be concerned about that they weren’t aware of already,” said Colin Morton, who helps manage 1.5 billion pounds, including HSBC stock at Rensburg Fund Management in Leeds, England. “Financially HSBC is very strong.”

HSBC rose 3.1 percent to 790 pence at 1:25 p.m. after exceeding the $7.88 billion median profit estimate of 13 analysts surveyed by Bloomberg. It earned $7.1 billion, or 62 cents a share, a year earlier. The bank is down 6.3 percent this year, valuing it at 93.6 billion pounds ($185 billion). The FTSE All-Share Bank Index has fallen 9.8 percent.

Asset Writedowns

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 5 percent to $10.1 billion. The company reported a $2.34 billion loss in North America, down from a profit of $927 million. Earnings from Hong Kong, the fastest- growing unit, rose 59 percent to $4 billion.

Profit before tax surged 43 percent to $2.67 billion for the rest of Asia Pacific, 35 percent to $4.5 billion in Europe, and 35 percent to $1.18 billion in Latin America. The earnings included one-time gains of $2.5 billion.

“The economic slowdown and the credit outlook in the U.S. may well get worse before they get better,” Green said in today’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.”

Subprime

Prospect Heights, Illinois-based Household International, which HSBC bought for $15.5 billion in 2003, lent directly to customers with subprime credit. Rising U.S. mortgage defaults sparked a six-month credit freeze that has forced the world’s biggest financial institutions to set aside more than $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 investor Knight Vinke Asset Management LLC has sought an independent review of HSBC’s strategy and said it should consider “radical alternatives” including spinning off its U.S. business. Green told reporters today the proposal is “unreasonable,” and said on a call with analysts that the U.S. credit-card business is “a key strategic part of the group.”

`Hard Times’

North American bad debts climbed 80 percent in the half to $8.34 billion, as consumer loans gone sour more than doubled to $4.1 billion. “A significant number of people are experiencing hard times,” Chief Executive Officer Michael Geoghegan said.

HSBC said it is aiming for an average return on equity, a measure of how well it reinvests earnings, 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 9 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. Last year it focused investment banking toward emerging markets, reducing the dependence on the U.S. and riskier assets.

RBS, Barclays

Royal Bank of Scotland Group Plc, Britain’s second-largest bank, wrote down about 2.5 billion pounds related to credit- market securities in 2007. RBS reported a 16 percent increase in second-half profit last week on gains at its domestic retail and corporate units and the sale of a stake in Southern Water Capital Ltd.

Barclays Plc said Feb. 19 that bad debts jumped 67 percent to 1.84 billion pounds and net writedowns were 1.6 billion pounds in 2007. Chief Executive Officer John Varley said the U.K. and U.S. economies are slowing. Second-half profit fell 21 percent to 1.78 billion pounds.

HSBC said last week it is in exclusive talks to sell its regional branches in France to Banque Federale des Banques Populaires, which has offered 2.1 billion euros ($3.2 billion).

It will consider selling parts of its operations “at the edges” in the U.S. and Europe, Finance Director Douglas Flint said on a call with journalists. It has cut 6,000 jobs in the U.S. and trimmed the number of branches there by 400 to about 1,000 over the past year.

Emerging Markets

“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 U.S. is worse than expected, and everywhere else is pretty much better than expected.”

The bank got 78 percent of earnings from emerging markets, up from 55 percent in the second half of 2006. It appointed its first Asian board director, Vincent Cheng, last month and plans to complete the $6.45 billion acquisition of Korea Exchange Bank from U.S. buyout firm Lone Star Funds in April.

Standard Chartered Plc, which gets 90 percent of its profit in emerging markets, posted a 23 percent rise in second-half profit to $1.44 billion, driven by revenue from Hong Kong and India.

To contact the reporter for this story: Jon Menon in London at jmenon1@bloomberg.net ; Ben Livesey in London blivesey@bloomberg.net

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