Stephen Green, the chairman of HSBC, conceded that mistakes had been made as the bank faced the fallout yesterday from the first profit warning in its 142-year history.

Mr Green, speaking to The Times, said that the American consumer finance business at the heart of HSBC’s current troubles had not been properly supervised and had sold the wrong products. “The truth is we didn’t get it all right, to put it mildly,” he said.

Douglas Flint, HSBC’s finance director, also admitted to shortcomings in the way the risk of borrower defaults was assessed. The analytics, he said, were “defective, with hindsight”.

Shares in Britain’s biggest bank slid by 14p to 917p as London traders reacted for the first time to the warning, which was rushed out shortly before midnight on Wednesday.

HSBC said that bad debt would be 20 per cent more than the $8.8 billion (£4.5 billion) pencilled in by analysts, almost entirely because of deterioration in the US business.

Its core sub-prime customers — people who have defaulted on debts in the past — were defaulting on secondary mortgages and the bank was also making an adjustment in expectation of a squeeze from rising interest rates on variable-rate mortgages. HSBC’s security on the mortgages is virtually worthless because it has only a second claim on the property and a fall in house prices of about 10 per cent has been enough to destroy that collateral.

HSBC has a portfolio with a face value of $11 billion of these so-called second-lien mortgages, which were sourced through third-party brokers. Although it normally caps each loan category to prevent excessive concentration of risk, no ceiling was placed on broker-sourced second-lien mortgages.

Analysts cut profit forecasts not only for 2006, but for 2007 and 2008, on disclosure of the extra $1.8 billion of sour loans.

Mr Green, who succeeded Sir John Bond as executive chairman in May, called an emergency board meeting on Wednesday as the size of the US losses became apparent.

HSBC Finance Corporation, the business at the centre of the difficulties, is the renamed Household, for which HSBC paid $14.5 billion in 2003.

Michael Geoghegan, HSBC’s chief executive, said that he would take responsibility for putting things right. “The buck stops at my door,” he said. Commentary, page 53

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