HSBC fights off pay backlash, says U.S. arm funding OK

By Steve Slater and Clara Ferreira-Marques

LONDON (Reuters) - Europe's biggest bank HSBC <HSBA.L> fought off an investor backlash over a multi-million pound executive pay plan on Friday and dismissed claims its troubled U.S. unit cannot finance itself and should be sold.

Several shareholders at the bank's annual general meeting criticized a new pay plan put forward by HSBC, but the plan was comfortably approved.

One investor, applauded by others, said the board should follow the example of British Airways <BAY.L> Chief Executive Willie Walsh and give up their bonuses, but the bank said it was merely moving into line with pay levels at rivals.

Over 88 percent of investors approved the pay plan, but including abstentions the approval rate was just under 82 percent, well below traditionally overwhelming AGM votes.

The bank said a maximum payout of more than 120 million pounds ($236 million) for top executives over three years was based on hitting stretching targets, and pay for an average performance would be close to the average of its peer group.

Shareholder Brian Dodds said the plan would reward "moderate performance exceptionally well" and slammed the targets being used as "more and more divorced from the share price."

HSBC faced more intense criticism from many of the near-500 attendees about its losses and strategy on U.S. subprime mortgage lending. It was one of the first banks to flag problems in the market late in 2006 and since then has lost more than $10 billion from bad loans and almost $5 billion from writedowns.

Investment firm Knight Vinke renewed its fierce criticism of HSBC's U.S. involvement, saying the bank should either sell or ring-fence HSBC Finance (HFC) as it is spending billions of dollars financing the business.

Chairman Stephen Green said the board had considered its U.S. options and unanimously opted to work through the problem.

"There's simply no reason to believe this doesn't have any future value," Green said. "The right thing is to work our way through the challenges and not to run away from them."

Green also dismissed Knight Vinke accusations that the bank had poured more than $62 billion into HFC and said the business was "funding itself perfectly satisfactorily."

Knight Vinke CEO Eric Knight told reporters after the meeting: "The situation with HFC is getting worse by the day. We are concerned that if the problem of HFC isn't dealt with it will get a lot worse before it gets better."

The investor wants HSBC to appoint an independent adviser to assess its U.S. options.

BARGAIN DEALS?

Earlier this month, HSBC said the bad debt charge related to its U.S. consumer finance unit was $3.2 billion for the first quarter -- down from the previous quarter but double the level of the first quarter 2007.

Chief Executive Michael Geoghegan told reporters after the meeting the positive trend was continuing, but warned the first half "always looks better" than the second half of the year.

HSBC has said a U.S. housing market recovery is unlikely before 2009, but said on Friday its key Asian markets were likely to continue to show reasonable growth.

Geoghegan, who said the past year had been the hardest in his 35 years in the industry, said the turmoil could throw up bargain acquisition opportunities, but prices had held up well in emerging markets, where HSBC is targeting investment.

"Looking at developing markets things aren't cheap enough there yet," he said.

HSBC is attempting to buy a majority stake in Korea Exchange Bank for $6.3 billion and Geoghegan said he was hopeful that regulators will approve that deal before an end-July deadline.

HSBC posted the highest profits of any bank last year -- $24 billion despite $17 billion lost on bad loans. Its shares have fallen less than most rivals, leaving it easily the biggest bank outside China, with a market value of $200 billion.

(Editing by Quentin Bryar)