First Direct in good health as mortgage share increases

First Direct's chief financial officer Colin Storrar said the bank had produced "a robust performance" in difficult market conditions.

"Our lending book is good quality and our customer demographic is good quality. This has helped reduce our exposure to customer delinquency," he said referring to the bank's comparatively low levels of bad debts.

First Direct's mortgage book grew by 42 per cent in a flat market, helped by the increasing popularity of the group's offset mortgage.

This allows customers to offset their savings against their mortgage so someone with 100,000 mortgage and savings of 10,000 would only pay interest on a mortgage of 90,000.

The online and telephone bank has also seen 80 per cent growth in ISA balances.

Mr Storrar said First Direct had achieved a three-year high for customer satisfaction ratings with 95 per cent of customers questioned last October saying they were extremely or very satisfied with the service.

The group's workforce in Leeds has been reduced from 2,800 last year to 2,600 mostly through natural wastage. Mr Storrar said that less than 50 staff were given compulsory redundancy.

In total HSBC wrote 11 per cent of all new UK mortgages during the year, up from a market share of 6.7 per cent in 2008.

It advanced more than 1.5bn to first-time buyers borrowing between 75 per cent and 90 per cent of their home's value during the year.

Total mortgage advances to all UK borrowers exceeded 15bn in 2009, double the amount lent in 2007.

Net lending, which strips out redemptions and repayments, was 8.98bn, down from 10.1bn in 2008 which it described as an "exceptional year".

The group as a whole announced underlying pre-tax profits of 8.8bn in 2009, up 56 per cent on 2008.

On a reported basis, HSBC's results showed a 24 per cent slide in annual profits to 4.7bn after one-off factors and write-downs on the value of its assets.

Its investment banking business, HSBC Global Banking and Markets, saw a 148 per cent surge in profits thanks to the equities rebound and improved conditions.

The group reported another increase in borrower bad debts and impairments in 2009 – up nine per cent to 17.5bn.

But it said its badly hit US consumer finance business saw a 16 per cent fall in bad debts and predicted a further fall in 2010 as unemployment is expected to ease back. In the UK, underlying earnings fell 37 per cent to 6.6bn.

The group's shares fell 5.2 per cent to close the day down 37.6p at 682p.

The bank, which expects overall impairment charges to decline in 2010, said its performance in January was strong and ahead of its expectations.

In UK commercial banking the group lent 26bn to UK businesses. Over 125,000 new business accounts were opened during 2009 and the bank now has over one million UK business customers giving it a market share of around 17 per cent.

HSBC said it became the number one internet bank for small and medium-sized businesses and the leading direct bank for UK businesses.

The group added that as from April, all HSBC's telephone mortgage sales staff will be based in Leeds. This means that roles will move up from Southampton, although HSBC said it was too early to say how many jobs would be created.

Mixed reaction to HSBC's results

Analysts had mixed reactions to HSBC's results.

Richard Hunter, head of UK equities at Hargreaves Lansdown Stockbrokers, said there was "some mild disappointment with the numbers, which had been subject to high expectations".

"The overall level of impairments has risen, with the accompanying management outlook comments reflecting caution on the horizon," he added.

Andrew Lim, analyst at Matrix, said: "There are a number of negative issues which in aggregate will dampen enthusiasm for the stock." He cited large insurance claims, weakness in trading profits and high loan losses in the Middle East.

But Nic Clarke at Charles Stanley said: "If it is the case that the group's impairment charge has peaked in 2009 this will boost profits in 2010."