Debts taint British banks

London: HSBC and Barclays on Monday reported a surge in bad debts to a combined $21 billion (Dh77 billion) as recession took its toll on borrowers, but Britain's two biggest banks offered encouragement they could be through the worst.

Both banks reported buoyant investment bank earnings as they took advantage of resurgent debt and foreign exchange trading, and grabbed market share from troubled rivals, while an improvement in capital strength was also positive, analysts said.

By 1225GMT HSBC's shares were up 5.7 per cent at 640 pence while Barclays was 6.6 per cent higher at 322.25 pence.

"[The results] were certainly better on average than people were expecting," said David Bradbury, head of equities at Canada Life.

"HSBC, which is normally very cautious, doesn't seem as cautious as it normally does, which is a positive sign. You can argue the worsening bad debts will be more of a problem for HBOS/Lloyds, which is the obvious read-across."

HSBC reported a pretax profit of $5 billion for the six months to the end of June, halving from $10.2 billion a year earlier, but just ahead of an average forecast of $4.9 billion from analysts polled by Reuters.

Barclays' profit came in at three billion pounds ($5.1 billion), up eight percent from a year ago, but below the average forecast of 3.5 billion pounds from seven analysts polled by Reuters.

HSBC unveiled a 39 percent jump in bad debts to $13.9 billion pounds, while Barclays' impairments soared 86 percent to 4.6 billion pounds.

"It may be that we have passed, or are about to pass, the bottom of the cycle in financial markets," said Stephen Green, HSBC chairman. At Barclays there have been signs of a slowdown in the rate of increase in impairments or even stabilisation, but bad debts are likely to top £9 billion (Dh54.9 billion) for the full year.