Billions of dollars have been wiped from the value of America’s biggest sub-prime lenders as the fallout from a profits warning by HSBC, the banking group, spread fears that the sector could be swamped with delinquent loans and mortgage defaults.

Shares in New Century Financial, the biggest lender to the sub-prime category in the US, fell more than 35 per cent this week as the company said it will make a loss in the fourth quarter and restate its profits for the whole of last year.

The company clawed back a few cents to stand at $19.73 (£10.11) per share at midday on Wall Street yesterday, but was still a far cry from the $30-plus level where it started the week.

Fremont General, a regional bank that also has large exposure to sub-prime lenders, lost 10 per cent of its value on Thursday. It fell a further 1 per cent to $12.28 by midday yesterday and looked set to close the week 15 per cent lower than Monday’s opening.

NovaStar Financial plunged 10 per cent on Wednesday and continued to fall yesterday. By midday the stock, which started the week at more than $20, was worth just $17.86 and falling.

On Wednesday night HSBC issued the first profits warning in its 142-year history as the bank admitted the value of bad debts on its books would be 20 per cent higher than the $8.8 billion expected by analysts. The bank’s US sub-prime arm, which lends money and grants mortgages to customers who have previously defaulted on loans, was to blame for the increase in bad debts.

HSBC bought into the lower end of the sub-prime business in the US with the $14 billion acquisition of Household International in 2003. The bank claimed that Household brokers had been selling the wrong products, leaving HSBC with $11 billion of exposure to worthless property.

The fallout from the HSBC warning was widening last night, with US economists sure that the worst was yet to come for the US sub-prime lenders.

David Wyss, chief economist with Standard & Poor’s said the plunging US housing market was to blame for the rise in default and delinquency rates, which he expected to increase for a year or more. “In the past people who default on their mortgages could at least sell up and pay off their debt. With the way the market is today, it is hard to sell.”

Inner City press, a housing and banking advocacy group based in New York that campaigned against HSBC’s acquisition of Household in 2002, said that HSBC and other operators in the sub-prime category only had themselves to blame.

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