HSBC Holdings plc’s latest loss confession demonstrates the benefits of its diversified business, both by geography and customer type, says Fitch Ratings.

Today’s trading update reported that impairment charges in US consumer finance grew sharply to US$3.4 billion. Fitch says that this update confirmed the trend of weakening earnings that caused it to revise its outlook from positive to stable in October. It also highlighted a knock-on weakening in the unit’s branch-based credit card and unsecured loan portfolios, Fitch said.

“Demonstrating its commitment to the creditors of HSBC Finance, HSBC has injected US$750 million of new equity into HSBC Finance to maintain its capitalisation at targeted levels,” it says. Fitch expects a prolonged period of stress due to the reduced availability of consumer credit and current economic conditions well into late 2008.

Despite this, HSBC’s third quarter and year-to-date profits were ahead of comparable periods in 2006. Most other regions (for example, Asia, Middle East and Europe) are performing very well, it said. While noting the air of uncertainty in HSBC’s outlook statement, 2007 operating profits should still exceed those of 2006, the rating agency said, adding that HSBC is less active in areas of those structured credit markets that have given rise to substantial write-downs by various banks in recent weeks and months.

“Given its exposure to the troubled U.S. sub-prime market via HSBC Finance, positive momentum for HSBC’s ratings is unlikely in the near-to-medium-term,” Fitch said. “Negative rating actions could arise if deterioration in HSBC Finance’s earnings and asset quality begins to overwhelm the positive trends in HSBC’s other businesses, particularly if it adversely affects the group’s strong capital and/or liquidity position. However, this is not something Fitch presently expects.”

HSBC has traditionally been a deposit-focused group, and funding and liquidity are major strengths of the group and its major banking subsidiaries, it noted. HSBC is also well capitalised and is less aggressive in its capital management than many other large banking groups.