HSBC Holdings PLC said Monday that its March purchase of Household International Inc. helped the London company's first-half profit rise 25%.
Net income rose to $4.11 billion, or 40 cents a share, on stronger profit from its consumer banking and corporate and investment banking divisions. Revenue climbed 41%, to $18.5 billion.
HSBC said the $15.5 billion purchase of Household, a Prospect Heights, Ill., company that makes loans to people with poor credit histories, helped raise pretax profit by $651 million. It also led to a tripling in provisions for risky loans, a concern at a time when unemployment remains near a nine-year high in the United States.
"Right now, it looks like they made a good decision" in buying Household, said Ludo Geris, who helps manage $74 billion, including shares of HSBC, at KBC Asset Management NV in Brussels. Completed March 28, it was HSBC's biggest purchase ever.
Profit before tax at HSBC's corporate, investment banking, and markets division rose 8.1%, to $2.24 billion, bolstered by its fixed-income business. Falling interest rates spurred mortgage refinancings in the United Kingdom and United States, lifting earnings at the consumer banking unit 19%, to $2.08 billion.
Chairman John Bond has had HSBC spend $45.7 billion on U.S. and European acquisitions in five years in a bid to make it the world's biggest bank by market value. Shares have gained 15% this year, but Citigroup Inc.'s market value is still 63% higher than HSBC's $136 billion.
Household has more than $100 billion in loans to 53 million customers. First-half provisions for bad and doubtful loans more than tripled, to $2.37 billion; Household "accounted for substantially all" the increase, HSBC said.
Bad debts at Household are "in line with our expectations," chief executive Stephen Green said on Monday, while earnings at the U.S. business "matched and exceeded our expectations at the time of the acquisition."
Now that it owns Household, HSBC generates almost a third of its earnings in the United States, while Asia's contribution has been cut to about a third. In Hong Kong the spread of Severe Acute Respiratory Syndrome sent jobless and bankruptcy rates to record levels.
The Household acquisition's long-term payoff may depend on the U.S. economy and the pace of consumer lending. U.S. tax cuts will probably improve growth in the second half and next year, Mr. Green said. But "there's certainly no scope for complacency or assuming boom times are just around the corner."
Lehman Brothers analysts said in June that their major concern about the purchase was sluggish U.S. employment growth, which they said could worsen Household's loan default rate.
