Britain's top two banks, HSBC and Barclays, signaled bad debts may be past their peak, with HSBC declaring on Tuesday the first drop in U.S. consumer finance impairments for three years.
Strong investment banking underpinned profits for both banks, although Barclays shares dipped on concern its investment bank will be unable to sustain its growth and is seeing costs rise.
Barclays Plc reported a third-quarter pretax profit of 1.56 billion pounds ($2.6 billion), down from 2.8 billion a year ago, largely due to losses on the value of its own debt and other one-off items. Excluding those, profit in the first nine months of the year more than doubled to 4.4 billion, the bank said.
HSBC Holdings Plc, Europe's biggest bank, said its underlying third quarter profits were significantly ahead of a year ago, though it gave no figures in its trading statement.
It was boosted by improvement at its troubled U.S. consumer finance business, which it is running down. Bad debts there dipped to about $3 billion, their first fall since the start of 2006 and their lowest level for over a year.
I believe the biggest jolt has now passed through the global economy, said HSBC Chief Executive Michael Geoghegan. The world will likely see a two-speed recovery and emerging markets currently offer the brightest prospects for growth.
Barclays said it expected impairments for the full year to be around the bottom end of the previously referenced 2009 consensus range of between 9 billion pounds and 9.6 billion.
Its impairment charges and other provisions were 1.4 billion pounds in the third quarter, down from 1.8 billion in the previous three months. Bad debts in the first nine months of the year hit 6.2 billion pounds, up from 3.8 billion a year ago, as a fragile UK economy and rising unemployment led to more borrowers defaulting on loans.
By 0940 GMT (4:40 a.m. EST) Barclays shares were down 2.3 percent at 335 pence, while HSBC added 3 percent to 713p, having risen to their highest in just over a year. The DJ Stoxx Europe bank index was up 0.5 percent.
Both HSBC and Barclays are emerging as relative winners from the crisis and have avoided taking any direct government cash, unlike rivals including Royal Bank of Scotland Group Plc and Lloyds Banking Group Plc.
The continuing specter of government interference looms over the likes of Lloyds and RBS, while Barclays and HSBC remain free of such shackles, said Richard hunter, head of UK equities at Hargreaves Lansdown Stockbrokers.
As retail profits continue to bear the scars of high bad debts, both banks have been underpinned by strong investment banking operations -- areas which have generated high but increasingly controversial bonus payments to top performers.
Both banks said they would not decide payouts until January. Barclays Finance Director Chris Lucas said the bank would adhere to guidelines agreed by world leaders in September.
Profits at Barclays Capital, the investment bank arm, reached 1.4 billion pounds in the nine months, or 2.7 billion excluding a charge on its own debt.
It is reaping the benefit from last year's purchase of the U.S. operations of bankrupt Lehman Brothers and the build-up of its equities and M&A advisory business in Europe and Asia.
HSBC, which decided three years ago not to take on Wall Street's big investment banks and shifted to an emerging markets-led, financing-focused strategy, said its investment bank revenue slowed from a buoyant first half but were still well ahead of the year-ago level.
Barclays and HSBC join a batch of rivals reporting strong third-quarter results as capital markets and trading activity have remained lively, including U.S. rivals Goldman Sachs and JPMorgan along with Europe's Credit Suisse and BNP Paribas.
(Editing by David Holmes)