HSBC Suffers Subprime Blues; Portugal Telecom Seeing Double; China Architectural Revenue Jumps 90%; McCormick Buys Spice Maker; South Africa Braces for Another Rate Cut
HSBC Holdings PLC (HBC) yesterday (Wednesday) announced a third quarter loss of $1.1 billion, due in part to a $3.4 billion loan-impairment charge in its U.S. consumer finance business. In 2006, the company posted a third-quarter profit of $551 million. HSBC said it expected losses to continue at its U.S. subsidiary as long as the U.S. housing slump continued and housing prices continued to fall. HSBC Finance Director Douglas J. Flint said that "if the housing market continues to weaken and if it has a broader impact on the underlying real economy then charges will stay elevated and could increase." Reserves against bad debt in the consumer lending division of HSBC Finance more than doubled between the end of June and Sept. 30, rising from $492 million to $1.01 billion. Loss reserves in mortgage services, which handles mortgages written by other lenders, rose to $2.42 billion from $2.15 billion. HSBC executives said the company experienced strong growth in operating profits, and said the results of the corporate, investment banking, and markets unit was roughly in line with those of the second quarter. Like many other financial institutions, the company said it took a $925 million write-down on trading losses and syndicated loans it was unable to sell since the credit market collapse in August. In response to the worsening real estate markets in the United States, HSBC Finance will be closing 260 additional branches.
Portugal Telecom SGPS SA (PT), Portugal's largest telecommunications company, announced yesterday (Wednesday) that profits had almost doubled from the third quarter of 2006. Portugal Telecom announced that profits rose 92.2% to $170 million (EUR241 million), compared to profits of $88.9 million (EUR125.4 million) a year ago. Revenue grew 6.5% in the quarter, reaching $1.14 billion (EUR1.57 billion) this year from $1.04 billion (EUR1.48 billion) last year. The best-performing division was Vivo Participacoes S.A. (VIV), the Brazilian cell phone company that Portugal Telecom co-owns with Spain's Telefonica SA (TEF). Revenue for Vivo rose 16.3 % in the quarter. Portugal Telecom's bottom line was also bolstered by the sale of 22% of its African holding company, Africatel, worth $57 million (EUR80.2 million).
China Architectural Engineering Inc. (RCH) reported yesterday (Wednesday) that third-quarter revenue rose 90% (reaching $27.1 million), while net income climbed 50% (reaching $3.1 million). The company designs, engineers and fabricates wall systems, and also reported that gross margins rose 24% this year from 22% last year. Cash and equivalents rose, as well, reaching $4.1 million, an increase of 92% from the $2.1 million it had on the balance sheet on Dec. 31, 2006. "These outstanding results for the third quarter and first nine months of 2007 clearly indicate that CAE is solidifying its position in the construction industry," said Ken Yi Luo, chairman and CEO, who also added that the company is poised to grow internationally. For the fourth quarter, the company is projecting profits in a range of $3 million and $5 million on revenue of $28 million to $35 million.
Global spice giant McCormick and Company, Inc. (MKC) announced yesterday (Wednesday) that it was buying the assets of Lawry's for $605 million in cash from Unilever PLC (UL), as part of its long-term plan to grow revenue from 4% to 6% annually. Lawry's sells a full line of seasoning-blend products under the "Lawry's" and "Adolph's" brand names to grocery stores and other consumer-oriented retail outlets. Additionally, 23% of sales are from Lawry's line of wet marinades. The sale includes the rights to the brands owned by Lawry's, related inventory and dedicated production lines. It does not include any manufacturing facilities or employees. Unilever had announced early in the year that it intended to sell several divisions and reduce its employee count in order to become more competitive in its major markets. Lawry's annual sales are around $150 million, and the acquisition is expected to be accretive right away.
South African central bank governor Tito Mboweni told Johannesburg lawmakers that he'd like to see an interest-rate increase in December. The central bank has already boosted rates three times in 2007 in an attempt to slow inflation that has been outside the Monetary Policy Committees target range since April. The inflation rate in South Africa reached 6.7% in September, fueled by rising food and oil prices. Crude oil prices have risen 48% so far this year, and food prices are up 12%. "If food and energy costs are excluded, inflation is moderating but still above the inflation target. The pressures are the outside of food and energy." Mboweni said. "The central bank can't be seen to be twiddling its thumbs."