HSBC bad debts hit 8.7 billion pounds

By Steve Slater and Clara Ferreira-Marques

LONDON (Reuters) - HSBC's pretax profit rose 10 percent last year, driven by buoyant growth in Asia which helped Europe's biggest bank absorb $17.2 billion (8.7 billion pounds) in bad debts as the U.S. housing crisis deepened.

Profit in Hong Kong rose 42 percent and earnings jumped 70 percent in the rest of Asia, but the bank's U.S. arm made a loss as past risky loans to homeowners now in trouble hit it hard.

The London-headquartered bank, Europe's biggest by market value, reported record pretax profit of $24.2 billion for 2007, up from $22.1 billion in 2006. Profits were below an average forecast of $24.7 billion from a Reuters Estimates poll of analysts -- but were distorted by one-off items and did not include a $1.3 billion property gain expected by many.

Underlying profit growth was 5 percent for the year, which analysts said was in line with forecasts.

The bank's impairment charge jumped $6.7 billion from 2006, or 63 percent. Bad debts had been expected to come in at $15.8 billion, based on the average of forecasts from eight analysts.

HSBC shares closed up 3.1 percent at 790 pence, the top performing stock in a weak UK market and lifting its value to over 93 billion pounds.

"If ever proof were needed about the benefits of diversification, these numbers from HSBC fall squarely into that category," said Richard Hunter, head of UK equities at brokerage Hargreaves Lansdown.

"Its performance in the ever-strengthening markets of China, India and Hong Kong proved a more-than-ample buffer against its U.S. subprime woes."