Household HSBC Watch

WASHINGTON - HSBC Holdings PLC, the world’s third-largest bank, said yesterday it will be hurt by its exposure to controversial mortgages that helped spark the U.S. housing boom, but which are now coming up for renewal.

The London-based bank is expected to be the first in a long list of major residential mortgage lenders in the United States forced to take a hit from the increasing number of defaults by homeowners who cannot afford to pay sharply higher interest rates.

About US$2-trillion in the popular adjustable-rate mortgages (ARMs) used to finance the housing boom come due in the next two years. That represents about one-third of the US$6-trillion U.S. mortgage market.

Analysts said other lenders such as Citibank Corp. and Bank of America should soon be telling markets they are in the same boat as HSBC.

“We think the sky may be falling,” said Mark Fitzgibbon, director of research at New York investment firm Sandler O’Neill & Partners LP. “Credit quality has been deteriorating for two quarters and we think the pace of deterioration will accelerate this quarter.”