HSBC profits fall 28% after it writes off £5.3 billion in bad investments

HSBC said it has seen a shocking 40 per cent jump in the size of loans which are larger than the value of the property.

In the UK, it had £460million of 'negative equity mortgages' in the six months to the end of June, compared to just £330million at the end of December.

Slump: HSBC pre-tax profits have fallen a massive 28 per cent

But there is also a further £5.2billion of loans where the loan-to-value is 90 per cent or more.

This means they are on the brink of negative equity, and will quickly fall into the trap if house prices keep on falling.

The figures, published yesterday, show the seriousness of the housing market meltdown on homeowners around the world.

In America, a staggering 46 per cent of all HSBC's loans are in negative equity, or close to it.

The situation is much worse in Britain than it is in the rest of the world - 12 per cent in the UK compared to just 1.5 per cent in the rest of Europe.

It comes as HSBC yesterday warned that it is facing 'the most difficult financial markets for several decades.'

In a further blow, the bank said the situation could get even worse in the coming months.

Stephen Green, HSBC's group chairman, said: 'Ultimately the real economy will recover from this crisis, although it may get worse before it gets better.

'Financial markets will not, and should not, return to the status quo ante.'

In the week of the first anniversary of the credit crunch, he said the outlook remains 'highly challenging with significant uncertainty'.

Yesterday it became the latest bank to reveal a sharp fall in profits before tax, down 28 per cent to £5.2billion in the first half of the year, compared to the same period in 2007.

Last week, both Lloyds TSB and HBOS, owner of Halifax, revealed 70 per cent plunges in profit and Alliance & Leicester's dropped 99 per cent.

Banking giant HSBC today warned financial markets were at their toughest 'for several decades' as it reported a 28 per cent fall in its half-year profits.

Britain's biggest bank was forced to write off more than £5.3billion in bad investments, dragging its profits down to £5.2billion (10.25billion dollars).

Its North American arm alone made a loss of £1.42billion (2.8bn dollars) and profits worldwide dropped by almost £2billion.

Chairman Stephen Green said the first half of 2008 saw 'the most difficult financial markets for several decades'.

He added: 'HSBC was not immune from the turmoil. Ultimately the real economy will recover from this crisis, although it may get worse before it gets better.'