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HSBC is hit by downturn in US sub-prime

The crisis-hit US sub-prime market has plunged to new lows after HSBC revealed that huge losses from US homeloans have pushed up its bad debt provisions by almost £900m.

In an unprecedented profits warning last week, the banking giant revealed it had been hit by the cooling US sub-prime market, with a rising number of borrowers in arrears.

HSBC bought its US sub-prime lending arm Household International in 2003 and last week admitted that its mortgage book had not been supervised as closely as it should have been.

The news has again prompted speculation about whether the UK adverse market could suffer a similar downturn.

Halifax said last week there are signs that the UK housing market is slowing after a fall in the number of mortgage approvals from 129,000 in November to 113,000 in December. New buyer enquiries also fell in December for the first time since May 2005.

With rising arrears and repossessions in the UK, as revealed by the Council of Mortgage Lenders two weeks ago, questions are being asked about whether current conditions could combine to pile more agony on the UK sub-prime market which suffered from losses in 2006.

Four US mortgage lenders have been forced cease lending since the start of December due to huge losses from arrears.

HSBC says its bad debt provisions from the US crisis are likely to increase by 20 per cent or roughly £888m. A statement says: “The level of loan impairment provisions to be accounted for will be higher than is reflected in current estimates by some 20 per cent.”

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