SUBPRIME D-DAY:
NEW: Subprime problems!! Under reserved!
yahoo.reuters.com
By Jonathan Stempel
NEW YORK, Feb 7 (Reuters) - Two of the biggest lenders to Americans with poor credit histories said on Wednesday rising subprime mortgage defaults will weigh unexpectedly on results.
HSBC Holdings Plc (HSBA.L: Quote, Profile , Research)(HBC.N: Quote, Profile , Research)(0005.HK: Quote, Profile , Research), Europe's biggest bank, said it plans to set aside $10.6 billion companywide for bad debts, 20 percent more than the $8.8 billion it said analysts expected on average, because of struggles in its HSBC Finance Corp. lending business.
Chief Executive Michael Geoghegan is directly involved in trying to fix the problems, it said.
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Meanwhile, New Century Financial Corp. (NEW.N: Quote, Profile , Research) projected a fourth-quarter loss, and said it expects to restate each of the previous three quarters' earnings lower because it did not set aside enough money to buy back subprime loans that went bad. Analysts polled by Reuters Estimates had on average forecast a fourth-quarter profit of $1.06 per share.
Both companies announced their forecasts after U.S. markets closed. New Century shares fell almost 16 percent in after-hours electronic trading, while HSBC's shares fell 1.9 percent in early trading in Hong Kong on Thursday morning.
The lenders are the latest in the subprime sector to warn of poorer results as home prices rise more slowly or decline. This makes it tougher for many borrowers to refinance adjustable-rate loans as rates reset higher, resulting in an increase in defaults.
New Century and HSBC Finance are respectively the second- and third-largest subprime mortgage lenders in the United States. Irvine, California-based New Century made $13.8 billion of subprime loans from July to September, while Prospect Heights, Illinois-based HSBC Finance made $11.7 billion, according to National Mortgage News |
