Asia helps HSBC beat blow from subprime

The bank, headed by chairman Stephen Green with chief executive Mike Geoghegan, saw its pre-tax profits rise from $22.08 billion (£11.1billion) to $24.2 billion (£12.17 billion) in 2007.

That takes the total earned by the eight banks listed on the London stock market to more than £41 billion - an increase of more than £1 billion in spite of the scale of their losses on sub-prime related investments.

Green said: "The outlook for the rest of 2008 is uncertain. The economic slowdown and the credit outlook in the US may well get worse before they get better."

Shares rose 6½p to 772½p. The bank raised its total dividend by 11% to 90 cents a share.

HSBC is one of the most heavily invested banks in the US with its former HFC business now called HSBC Finance Corporation the first British business to warn about the subprime crisis well over a year ago.

Today saw the division's writedown of bad debts for the full year shoot up to $11.7 billion, $1 billion higher than expected. Total group writedowns were $17 billion.

The division has become the target of activist investor Knight Vinke, which despite holding a stake of less than 1% in the bank, has been harrying Green and Geoghegan over their management culture, pay and strategy for almost a year.

The American fund manager's latest onslaught lays out four alternative strategies for the US business ranging from putting it into receivership to a spin-off. Knight Vinke claims that if HSBC had not bought HFC for $15 billion five years ago its share price would be some £2 to £3 better than it is today.

All of the options, argued HSBC, would involve it in either further major write-downs or having to raise new capital from outside investors.

Analyst say that walking away from the business would not only damage HSBC's key capital ratios but could also leave its reputation in tatters.

At the moment HSBC enjoys some of the strongest capital ratios in the banking world and analysts say that, alongside Standard Chartered, it has the strongest growth prospects of all the British banks with its focus on the Far East and other major growing economies.

But it could face a blow to its expansion plans after reports today that its $6.3 billion takeover of Korea Exchange Bank may not be approved by South Korea's financial regulator in time for an April deadline. HSBC agreed to buy the 51% stake from US private equity group Lone Star last year to expand its presence in Asia's third largest banking market.

The two agreed a 30 April deadline for the deal to be completed. The regulator is reported to have said it is "looking at the application but we are not likely to make any decision by the deadline."