HSBC Holdings PLC, Europe’s largest bank, said Wednesday that its U.S. based HSBC Finance unit swung to a third quarter loss of $1.1 billion, from net profit of $551 million a year ago.
HSBC Finance Corp. took a $3.4 billion impairment charge related to bad loans and also increased its credit-loss reserves to $3.4 billion from $2.6 billion during the quarter.
The bank took an $881 million charge to write off goodwill allocated to Decision One Mortgage, the wholesale mortgage lender it shut down in September.
Reserves against mortgages originated by HSBC Finance more than doubled between the second and third quarter, from $492 million to $1.01 billion.
Loss reserves in mortgage services, which handle mortgages written by other lenders, rose from $2.15 billion to $2.42 billion.
HSBC said it expects delinquencies and defaults on mortgages within HSBC Finance to continue to rise as U.S. home prices decline.
“If the housing market continues to weaken and if it has a broader impact on the underlying real economy then charges will stay elevated and could increase,” said HSBC Finance Director Douglas Flint.
HSBC said about $4.8 billion, or 5.5% of the mortgages it services or originated were two or more payments overdue at the end of the third quarter, compared with around $3.7 billion, or 4.3% reported on June 30.
The bank will also consolidate 260 consumer lending branches by the end of the year in a bid to reduce the size of its overall consumer lending business based on tighter lending conditions and current market demand
The move, which is in addition to the 100 branches it had previously said it would shut, will leave the bank with roughly 1,000 branches under the Beneficial and HFC names.
Standard & Poor’s lowered their outlook on HSBC Holdings’ double-A credit rating to “stable” from “positive” to reflect the lower quality of the unit’s lending portfolio.
Last year, HSBC ranked first among U.S. subprime lenders in terms of loan volume, according to publication Inside Mortgage Finance.
Shares of HSBC were up 87 cents, or 0.98%, to $89.65 in late trading on Wall Street on news that its global business was positive despite mortgage-related problems in the U.S.