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HSBC Finance boosts 2006 loan loss provisions by 20%

Changes in top management follow unexpected announcement

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Subprime mortgage lender HSBC Finance Corp. is revising its loan loss provisions for 2006 by 20 percent to $10.6 billion as second-lien loans go bad at a faster rate than anticipated, the company said. "We have taken account of the most recent trends in delinquency and loss severity and projected the probable effects of re-setting interest rates on adjustable-rate mortgages, in particular in respect of second-lien mortgages," parent company HSBC Holdings said in a Securities and Exchange Commission filing. "It is clear that the level of loan impairment provisions to be accounted for as at the end of 2006 in respect of mortgage services operations will be higher than is reflected in current market estimates." The higher delinquencies reflect the impact of slowing home-price appreciation, particularly in more recent loans, the company said, and slower prepayment speeds are evidence that the trend will continue as adjustable-rate mortgages reset over the next few years. In the wake o...