The US housing market downturn could last for at least another year, HSBC predicted on Monday as it revealed it had set aside $5.8bn (£3bn) because of the credit turmoil in the first quarter.

UK Daily View: HSBC seen as bellwether

Peter Thal Larsen analyses the bank’s writedowns and its outlook for US housing

The bank, one of the first to suffer from the meltdown in the US subprime mortgage market, said any recovery in the US housing market was unlikely this year. “We don’t think this is a 2008 event, it’s a 2009 event,” said Michael Geoghegan, chief executive.

HSBC’s position as a large lender to US customers with poor and patchy credit histories means its results are closely watched by other banks looking for any signs of an improvement in the markets. Many bankers believe securities backed by US mortgages will only stabilise once US house prices stop falling.

The bank said its US business had set aside $3.2bn in bad debt provisions in the first quarter. This is double the amount it provided in the first three months of last year, but lower than the $4.6bn set aside in the fourth quarter of 2007.

The turmoil in the capital markets in the first quarter also affected HSBC’s investment banking division, which wrote off another $2.6bn against the value of debt securities held on its balance sheet. Nevertheless, first-quarter profits in the business were higher than they have been in the previous two quarters.

Despite the increased provisions, HSBC said total profits in the first quarter were higher than in the same period of 2007, helped by booming markets in Asia, the Middle East and Latin America. Mr Geoghegan said the bank’s strong balance sheet had allowed it to win business from weaker rivals.

In afternoon trading in London, HSBC shares were up 17p at 883p.

Aside from the writedowns, HSBC’s investment banking arm reported strong growth in foreign exchange, interest rate trading and cash management as rivals reduced their risks and shifted business to stronger counterparties. However, it warned that this performance would not be sustained if the market turmoil continued.

HSBC also said it had benefited from a $2.7bn one-off gain in the quarter, reflecting the reduced value of the bank’s own debt, although much of this gain had been reversed as markets recovered in April.

Nevertheless, Douglas Flint, finance director, said the recent revival in the markets had not extended to more complex mortgage-backed securities.

“Though there was a contraction in credit spreads in the corporate and financial institutions space, there was not the same recovery in relation to asset-backed securities where there continues to be significant illiquidity,” he said.