LONDON (Reuters) — HSBC Holdings, the parent company of the Bank of Bermuda, reported a 5 percent rise in 2006 pretax profit to a record $22.1 billion yesterday.But it suffered a $10.6 billion hit for bad debts after problems in its US mortgage lending.

HSBC, which has about 125 million customers world-wide, saw its profit rise from $21 billion in 2005 but the result was below an average forecast of $22.4 billion in a poll of analysts by Reuters Estimates.

The bank, which generates the bulk of its its revenues in Europe, North America and Hong Kong, said it had enjoyed strong growth in Asian business in 2006. Both its global private banking and investment banking operations showed strong growth.

In HSBC’s 34-page 2006 earnings report, there were no figures to show how the Bank of Bermuda had fared.

HSBC, with headquarters in London, said there had been no deterioration in its troubled US mortgage lending since it warned about the impact of the deepening problem a month ago, and said it was confident it would not spread to other areas.

Chief executive Michael Geoghegan attempted to fend off criticism that the bank had provided loans in the USto people who were not in a position to pay their debts.

“This is not trailer park lending,” Geoghegan said, adding that the typical HSBC Finance customer has average household income of $83,000, is 41 years old, has two children and a home worth $190,000. “This is Main Street America.”

The bank warned on February 7 that problems had deepened in its lending to lower quality US home borrowers, resulting in the steep jump in bad debts charge and prompting it to oust the head of its North America operations and restructure the business.

“It has not deteriorated (since then),” Douglas Flint, finance director, told reporters on a conference call.

He said the level of bad debts this year will be sensitive to economic conditions, the housing market, interest rates levels and the availability of financing options for sub-prime borrowers. Flint said he was confident the impairment problems would not spread wider. “There is no additional concern elsewhere in the world in relation to abnormal credit trends. The abnormal credit trends are all in the mortgage services business,” he said.

Mark Durling, banking analyst at Brewin Dolphin, said last month’s warning cushioned the impact and HSBC is seen as conservative in terms of impairments.

“There is some more (bad debt) pain to come, but not as bad as what the market has factored into the share price,” he said. North American bad debt soared to $6.8 billion in 2006 from $4.9 billion, representing 64 percent of the group’s total, even though the region only accounts for 21 percent of profits.

Bad debts in Europe, which are mostly in the UK, rose 12 percent on the year to $2.2 billion. Underlying bad debts in the UK were up 8 percent from 2005, in line with its lending growth, and bad debts in the UK retail bank were near flat on the year.

Flint said UK impairments from higher bankruptcies and individual voluntary arrangements were offset by its tighter lending on unsecured loans in the last two years. HSBC said its group impairment charge was up $2.8 billion, or 36 percent, from 2005, and the “major setback” had caused a $725 million drop in its US personal finance profits.

“We are restructuring this business to avoid any repetition of the risk concentration that built up over the past two years,” it said in a statement. This included changes in management and strengthened risk controls and processes.

The bank’s CIBM investment bank arm posted a 12 percent rise in profits to $5.8 billion, aided by buoyant capital markets, although the unit’s profit growth slowed from 37 percent in the first half.