(Bloomberg) ? HSBC Holdings Plc, Europe's biggest bank by market value and owner of the Bank of Bermuda, had a 25 percent increase in second-half profit, buoyed by lending to consumers and companies.

Net income in the final six months of 2005 rose to $7.49 billion from $5.98 billion a year earlier, the London-based bank said yesterday. That beat the $6.92 billion median estimate of 11 analysts surveyed by Bloomberg. Full-year profit rose 17 percent to $15.08 billion, a record for a UK bank.

Chairman John Bond, who's retiring in May, spent more than $20 billion in the past three years to expand in the US, Brazil and China, where growth is outpacing Europe. Profit from Asia, excluding Hong Kong, jumped 47 percent in the second half, while earnings at the investment bank rebounded after declining in the first six months of last year on higher costs.

"We are definitely in a sweet spot for lending," said Guy de Blonay, who helps oversee $500 million at New Star Asset Management Ltd. in London, including shares of HSBC.

The corporate and investment bank also turned in a "strong performance," he said.

HSBC shares rose 14.5 pence, or 1.5 percent, to 989.5 pence on the London Stock Exchange, valuing the lender at ?112.4 billion ($197 billion). The bank's market capitalisation is the third largest in the world among financial companies after New York-based Citigroup Inc. and Bank of America Corp., based in Charlotte, North Carolina.

The 140-year-old bank announced in August that Bond, 64, will retire after 45 years at the lender and be replaced by chief executive officer Stephen Green, 57. Michael Geoghegan, 52, who helped establish HSBC in Brazil, will replace Green as CEO. HSBC's 17 percent profit growth for 2005 compares with a 44 percent jump in net income at Citigroup, which booked gains on the sale of life insurance and asset management units, and a 19 percent increase at Bank of America. HSBC's return on equity, a measure of profitability, was 16.8 percent, below Citigroup's 22.3 percent and Bank of America's 17 percent.

Profit before tax in the Asia-Pacific region, including India, China, Japan and Taiwan, jumped 47 percent to $1.29 billion in the second half, the company reported. Earnings in Europe rose 25 percent to $3.47 billion.

Profit in North America gained 19 percent to $3.16 billion, while earnings in Hong Kong declined 5.5 percent to $2.1 billion, the figures showed.

"Strong growth especially in emerging markets has supported group profits," said Sandy Chen, a banking analyst at Collins Stewart in London who rates the bank's shares a "buy".

By division, the biggest gain was in commercial banking, where earnings jumped 38 percent to $2.59 billion in the second half.

Pretax profit at the consumer banking division rose 12 percent to $4.43 billion, while earnings at the corporate and investment bank climbed 15 percent to $2.87 billion.

Second-half revenue gained 11 percent to $31.85 billion, while expenses rose 7.9 percent to $15.02 billion. The revenue and division figures were calculated by Bloomberg by subtracting first-half results from full-year earnings published yesterday.

"Worldwide, we grew our commercial banking business strongly on the back of recent investment," Bond said.

"Corporate credit performance was strong."

Edinburgh-based Royal Bank of Scotland Group Plc, Britain's No. 2 bank, last week posted a 22 percent increase in second-half profit, also helped by corporate lending.

"In the UK we are seeing good mortgage growth volumes," said de Blonay. "There's also good performance coming from Turkey and a strong performance in investment banking."

Bond expanded in the US with the $15.5 billion purchase in 2003 of Household International Inc., a lender to people denied credit by other banks.

HSBC bought US credit-card issuer Metris Cos. in August and an additional 9.9 percent stake of Ping An Insurance (Group) Co., China's second-largest insurance company, in May. In October 2003, the bank bought Brazilian consumer finance units from Lloyds TSB Group. Bond said that while the bank is seeking to grow internally it would remain on the lookout for further acquisitions, especially in eastern Europe and Russia.

"We have the financial strength to take advantage of any opportunities that come our way," Bond said at a press conference in London.

Globally, charges for bad loans and other provisions rose 26 percent to $7.8 billion last year, fuelled by changes in US bankruptcy laws, defaults related to Hurricane Katrina and record personal insolvencies in the UK.

The outlook for loan losses "was encouraging," said Michael Helsby, an analyst at Fox-Pitt, Kelton Ltd. who rates the bank "outperform." "A lot of people were worrying about the US bad debt, thinking it would blow up because of the bankruptcy law and Katrina, but the company said delinquencies were lower going into 2006 than last year."

The investment bank, run by John Studzinski, 49, and Stuart Gulliver, 46, added a net 1,400 people in 2005 as part of an expansion drive, helping to push up expenses at the division by 18 percent from the previous year, according to the bank's annual report, released yesterday. HSBC also invested in technology to compete with rivals such as Citigroup and Merrill Lynch & Co. "We are progressing well and gaining momentum" at the securities unit, Bond said in the statement. "Cost growth peaked during the year and there is clear evidence of positive client response to our expanded product capabilities."

The investment bank won roles on two of the biggest takeovers of 2006, advising German utility E.ON AG on its 29.1 billion-euro ($35 billion) offer for Spain's Endesa SA and working with Mittal Steel Co., the world's largest steelmaker, on its $22.5 billion bid for Arcelor SA. "It's a turning point in our business," Studzinski said in a telephone interview on February 21.

For the full year, earnings before tax at the investment bank declined 2.4 percent, following an 8 percent slump in the first six months. The unit spent 59.7 cents of each dollar in revenue last year, up from 55.3 cents the previous year, company figures show. Bond's total compensation last year rose 23 percent to ?4.48 million, including ?1.29 million in salary and bonuses of ?3.19 million. Green's pay rose 44 percent to ?2.53 million.

The company said its total dividend for 2005 gained 11 percent to 73 cents a share.