HSBC Holdings Regulatory News (HSBA)

8 Feb 2007 07:00

HSBC Holdings PLC07 February 2007 HSBC TRADING UPDATE - US MORTGAGE SERVICES HSBC Holdings plc wishes to update the pre-close trading statement issued on5 December 2006 in respect of a single matter. That trading statement included comments on the challenges within the MortgageServices operations of HSBC Finance Corporation, in particular in relation tocertain loans acquired in 2005 and 2006. Given these challenges, the Group ChiefExecutive, Michael Geoghegan is continuing to directly coordinate the necessaryactions to manage the Group's response. The impact of slowing house price growth is being reflected in accelerateddelinquency trends across the US sub-prime mortgage market, particularly in themore recent loans, as the absence of equity appreciation is reducing refinancingoptions. Slower prepayment speeds are also highlighting the likely impact ondelinquency of higher contractual payment obligations as adjustable ratemortgages reset over the next few years from their original lower rates. We have reviewed critically the impact of these factors in determining theappropriate level of provisioning at 31 December 2006 against the MortgageServices loan book. We have taken account of the most recent trends indelinquency and loss severity and projected the probable effects of re-settinginterest rates on adjustable rate mortgages, in particular in respect of secondlien mortgages. It is clear that the level of loan impairment provisions to beaccounted for as at the end of 2006 in respect of Mortgage Services operationswill be higher than is reflected in current market estimates. We now expect that the impact of increased provisioning in this area will be themajor factor in bringing the aggregate of loan impairment charges and othercredit risk provisions to be reflected in the accounts of the Group for the yearended 31 December 2006 above consensus estimates^ by some 20 per cent. This issubject to final review and subject to external audit. Generally, apart from the Mortgage Services operations, the performance of theHSBC Group's businesses for 2006 was in line with our latest expectations. Further information will be provided in the Group's 2006 results announcementand the annual report and accounts, which are due to be released on 5 March2007. Footnote^ Consensus estimate based on the average for loan impairment charges and othercredit risk provisions of US$8.8 billion from the most recent reports of 11analysts. Note to editors:HSBC Holdings plcHSBC Holdings plc serves over 125 million customers worldwide through some 9,500offices in 81 countries and territories in Europe, the Asia-Pacific region, theAmericas, the Middle East and Africa. With assets of US$1,738 billion at 30 June2006, HSBC is one of the world's largest banking and financial servicesorganisations. This information is provided by RNS The company news service from the London Stock Exchange