LONDON: HSBC and Barclays on Monday reported a surge in bad debts to a combined $21 billion as recession took its toll on borrowers, but Britain’s two biggest banks offered encouragement they could be through the worst.

Both banks reported buoyant investment bank earnings as they took advantage of resurgent debt and foreign exchange trading, and defended bumper payments to top bankers as public anger simmers against the prospect of million-dollar payouts again.

Barclays and HSBC, who unlike many rivals avoided taking taxpayer rescue funds, said having top talent helped them grab market share from troubled rivals to drive their investment banking growth and underpin earnings.

By 1445 GMT HSBC’s shares were up 5.5 percent at 639 pence while Barclays was 8.2 percent higher at 327 pence. HSBC hit a seven-month high and Barclays shares hit their highest since October.

“(The results) were certainly better on average than people were expecting,” said David Bradbury, head of equities at Canada Life. “HSBC, which is normally very cautious, doesn’t seem as cautious as it normally does, which is a positive sign. “You can argue the worsening bad debts will be more of problem for HBOS/Lloyds, which is the obvious read-across.”

HSBC, Europe’s biggest bank, reported a pretax profit of $5 billion for the six months to the end of June, halving from $10.2 billion a year earlier, but just ahead of an average forecast of $4.9 billion from 11 analysts polled by Reuters. Barclays’ profit came in at 3 billion pounds ($5.02 billion), up 8 percent from a year ago, but below the average forecast of 3.5 billion pounds from seven analysts polled by Reuters.

HSBC unveiled a 39 percent jump in bad debts to $13.9 billion, while Barclays’ impairments soared 86 percent to 4.6 billion pounds.

Both banks remained cautious on economic prospects, but said there were glimmers of encouragement.

“It’s possible we may have passed, or are about to pass, the bottom of the cycle in the financial markets, but even then it’s dangerous to assume there will be no further pain,” HSBC Chief Executive Michael Geoghegan said at a press conference.

“In particular, unemployment trends and global trade flows give us cause for concern,” he said.