HSBC, the first British bank to blow the whistle on the US subprime mortgage crisis, wrote off another $2.6 billion (£1.3 billion) today as a result of the ongoing credit crunch. That is on top of $12.2 billion of writedowns last year.

But the bank said its profits for the first three months of this year were ahead of the same time last year.

Chief executive Michael Geoghegan warned: "It seems likely that the deterioration in the US housing market will extend into 2009. It is also clear that US economic growth has slowed and there is an increased likelihood of a recession this year."

He said that profits had increased in every emerging-market country in which HSBC operates, counterbalancing the writedowns in investment banking which were largely concentrated in the US and UK.

Geoghegan said: "Our results last year and the trading statement today show that the diverse flows of business is the right way to run a bank. We feel comfortable and so do our regulators that this is the right way to run the business."

But North American profits "declined significantly" largely because of toxicloan writedowns and a charge of $3.2 billion against consumers' bad loans. That was much higher than the $1.6 billion charge in the first quarter of 2007 but lower than the $4.6 billion in the final quarter of last year.

The scale of the problem remains enormous with one in 20 of HSBC's mortgages in the US now two months or more behind on payments. At the end of 2007, the so-called delinquency ratio was 4.8%. Credit-card bad debts are also on the rise in the States.

However, the level of bad debts in HSBC's personal finance business in the UK is actually down on a year ago. Pretax profits rose in Britain but much of this is because the bank, like its rivals, has stopped paying out to customers claiming unfair overdraft charges until the case between the banks and the Office of Fair Trading is finally resolved. Strong areas were savings and so called packaged accounts.

In investment banking, Geoghegan said pre-tax profits were down on a year ago but better than the third and final quarters of 2007. He added that there had been higher trading in the first quarter as institutions rebalanced their portfolios as a result of the credit crunch which, he added, could mean dealing volumes will be more subdued for the rest of the year.

The bank said it was still pursuing the purchase of Korea Exchange Bank, which has been held up by regulators. It expects to complete the sale of its French business in July, with a profit of $1.9 billion. The shares rose 161/2p to 8821/2p.

'STILL A SAFE HAVEN'
The City was impressed with HSBC's update. Alex Potter at broker Collins Stewart said the statement would not - as some people had forecast - lead to trimming of profit forecasts.

Collins Stewart has a price target of 999p for the shares, and Potter commented: "HSBC remains a safe haven and core holding."

At Keefe, Bruyette & Woods, James Hutson and Mark Phin saw the trading statement as "solid". With a price target of 1000p, their view of the bank's subprime losses is that the writedowns are "at the bottom end of our anticipated range".

They noted that HSBC's key capital ratios remain pretty much where they were at the year-end - well ahead of most of its British-based rivals.