HSBC chief executive Michael Geoghegan says the British-based bank might see further losses stemming from the U.S. subprime mortgage debacle, and he suggested banks worldwide hike interest rates to combat inflation.
"We are seeing a slowing of provision requirements in the first quarter," said Geoghegan at shareholders meeting in Hong Kong, according to a report by Dow Jones Newswires. "But is this permanent? We do not know. We are not convinced yet that the worst is over."
Although Geoghegan expects losses tied to subprime mortgages to dwindle from quarter to quarter, he said further problems could still be lurking for banks.
While HSBC, Europe's largest bank, wrote down $4.6 billion in the fourth quarter of 2007, writedowns downs decreased to $3.2 billion in the first quarter of 2008.
But Geoghegan said subprime woes might be sustained by U.S. market volatility tied to the U.S. presidential election and inflation.
"I'm concerned that the economy in the U.S. may potentially slip into recession and then have a period of inflation," said Geoghegan, according to Dow Jones. "Both of those will not be good."
Central banks should hike interest rates to confront inflation, Geoghegan added during his stop in Hong Kong.
Soaring global commodity prices in recent months have spurred inflation. Rising food and oil prices have only added to the problem.
"Inflation is a long-term problem because there is no long-term will to solve it," said Geoghegan, according to MarketWatch.