'Banks can never return to their old ways' warns HSBC chief Green

BRITAIN'S banks were given a stark warning yesterday that they must never go back to the era of failed risk management and sales of complex high-leveraged products that precipitated the global financial crisis.

The warning from HSBC chairman Sir Stephen Green came as he unveiled that interim pre-tax profits at the UK's largest bank had dived 28 per cent to $10.2 billion (£5.2bn) as a result of the credit crunch turmoil.

Green, chairman of the British Bankers' Association, used HSBC's half-year results announcement to reinforce his message to the whole of the financial services sector and its regulators.

In a statement to accompany the results publication, he said: "It is clear that growth models in our industry based on high and increasing leverage will no longer be sustainable.

"It is also clear that complexity in financial services and the recent consequences of failed risk management need to be addressed."

Green, one of the most respected figures in the industry, added: "Along with its supervisors, our industry – including lenders, underwriters and investors – needs to reflect on the lessons for risk management, capital adequacy and funding.

"Ultimately, the real economy will recover from this crisis, although it may get worse before it gets better. Financial markets will not, and should not, return to the status quo ante."

He added that the crisis brought about by the selling of complex products and failures in risk assessment had led to "the most difficult market in the working careers of perhaps all of us".

Green's comments came as HSBC's $10.2bn figure was being contrasted in the City with the corresponding statutory profit last year of $14.2bn.

Specifically addressing HSBC's performance, Green said

that "real uncertainties and difficulties" remained in the near term. But he said opportunities for organic and acquisitive growth by a well-capitalised bank such as HSBC might be thrown up by the "stressed environment".

The US remained the black spot for HSBC, with rising bad debt charges transforming that business's performance from a $2.4bn profit last time to a $2.9bn loss this time.

HSBC's group impairment charge jumped 58 per cent to $10.1bn for the six months, mainly on losses from its book of US mortgages.



HSBC's investment bank also wrote down $3.9bn on its exposure to credit trading, monolines and leverage acquisition financing loans. Profits in Global Banking and Markets fell 35 per cent to $2.7bn.

Profits at the retail banking arm fell 51 per cent but those at commercial banking rose 35 per cent to $4.6bn.