HSBC Holdings Plc, Europe's biggest bank, today reported a higher than expected third quarter profit, despite $4.3 billion loan write-offs in the United States, but a lower pre-tax profit for the nine-month period ended 30 September 2008 compared to the corresponding period in the previous year.

''The unprecedented turbulence seen in financial markets continues to present enormous challenges for the financial sector as a whole, as an increasing range of asset classes experience illiquidity and extreme price volatility,'' HSBC said in a release.

The underlying change in sentiment reflected growing concerns over the effect of recession in mature economies on the growth prospects in many emerging markets, it said.

HSBC was a major recipient of deposit inflows as participants in financial markets sought to reduce the risks associated with their investment portfolios and retail customers moved to larger and stronger institutions.

The bank said it was considering carefully how it deploys its balance sheet and capital strength and through focusing on ensuring that lending margins appropriately reflect increasing risk.

"Although we have not been immune from the effects of the severe de-leveraging of the financial system, we have been able to reinforce and grow some of our most important franchises as other banks have weakened, and this will make us stronger when market stability returns,'' the release added.

''The inflow of premier customers, private banking relationships, the expansion of services to leading corporates and institutions and the strengthening of commercial banking customer relationships will stand us in good stead for the future,'' group chairman Stephen Green said.

The bank said its private-banking arm continued to attract funds from wealthy clients, with net new money of $15.6 billion in the quarter and a record month in September. But much of the new money is being kept in cash or government bonds, limiting the bank's ability to profit from the inflows.

"Our relatively strong position has also allowed us to invest cautiously in line with our strategy, while managing our business and capital tightly in these times of extreme financial turbulence.

HSBC said its underlying pre-tax profit in Asia, Latin America and Europe for the nine months ended 30 September 2008 was ahead of the comparable period in 2007 and was strongly capital generative.

HSBC declared a third interim dividend for 2008 of $0.18 per ordinary share on 3 November. The dividend is payable in cash, with a scrip dividend alternative, on 14 January 2009 to shareholders on the register at the close of business on 21 November 2008.

HSBC and other banks have reclassified how some assets are accounted for under new rules. Without the reclassification HSBC said its third-quarter writedown would have been $835 million higher.

However, HSBC said its investment banking arm, Global Banking and Markets, was profitable in the third quarter. The bank has also been benefited  from a $2.4 billion gain on the sale of its French regional banking network and $3.4 billion from the changing market value of its own debt - an accounting effect that will fully reverse as the debt matures.

HSBC is expected to post a pretax profit of over $21 billion, the highest for any bank this year, according to analysts.