HSBC attacks insolvency law as bad debt levels continue to rise

HSBC attacks insolvency law as bad debt levels continue to rise

HSBC called for changes to laws that make it easier for Britons to protect themselves from their creditors as it released a downbeat trading statement yesterday, warning that the British and US economies were at their peak.

Shares in HSBC, Britain's biggest bank with operations in 81 countries, were one of the biggest fallers in the FTSE 100 index, losing 14p to close at 923p after the management indicated that bad debts had continued to rise in the UK and in its US mortgage business.

In the UK, the bank said it was too early to say whether the number of people filing for protection from creditors through individual voluntary arrangements (IVAs) had peaked. Michael Geoghegan, chief executive, said: "There are people out there encouraging people to file for bankruptcy ... it's something the industry and the government need to look at. Is this the right type of law for what it set out to achieve?"

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IVAs have become more common since the Enterprise Act in 2002. This is causing headaches for banks, which are unsure about how to deal with them or create credit scores for customers. Barclaycard, the credit card arm of Barclays, has also felt the impact of the rise in IVAs.

In the US, HSBC admitted that bad debts in its mortgage division were worse than it had told investors only three weeks ago. The stockbrokers Evolution Securities suggested that to "some extent the group lost the plot in US mortgage lending in 2005 [and the first half of] 2006".

Overall, HSBC said revenue growth was slowing and had been held back by factors such as cutting back on lending in certain markets and a slip in the performance of its investment in the third quarter in the year. Even with a third-quarter drop in activity in the investment bank - largely a capital markets operation - it is thought to be ahead of last year. Keefe, Bruyette & Woods noted the more positive tone on "Asia, wealth management and deposits".

Guardian Unlimited © Guardian News and Media Limited 2006