HSBC, the UK's largest bank, has said it has made a $17.2bn (£8.7bn) loss after the decline in the US housing market hit the value of its loans.
But its annual profits still rose 10% to $24.2bn (£12.2bn), up from $22.08bn the year before.
The write-down is the largest of the big-five UK banks because HSBC has large operations in the US.
The bank said the global financial system had come under "extraordinary strain" in 2007.
"The outlook for the rest of 2008 is uncertain," said HSBC chairman Stephen Green.
"Underlying profit growth is better than we were expecting"
"The economic slowdown and the credit outlook in the US may well get worse before they get better," he added.
Whilst the credit crisis, caused by problems in the US housing market, hit HSBC's US operations, the bank enjoyed strong growth in Asia, Middle-East and Latin America.
"For HSBC to achieve another new high in earnings despite these conditions... underscores the value of the strategic focus... to drive sustainable growth by concentrating on the fast growing markets of the world," Mr Green said.
UK BANKS' WRITE-DOWNS
HSBC said the banking group was fundamentally strong and it increased the dividend it pays to shareholders by 11% to 90 cents per share.
Its results were better than many in the City had predicted.
"HSBC is guiding us to underlying profit growth of 5% and that is better than we were expecting," analyst Leigh Goodwin at Fox-Pitt, Kelton told the BBC.
"There don't seem to be as many negatives in the US at this stage as we were expecting," he said.
US restructuring
HSBC has a branch network in the US, where business, it says, is "challenging". Profitability is declining because of the decline in the housing market and increasing unemployment.
The bank said it was actively trying to mitigate losses in the US, where defaults on mortgages and credit card payments are increasing.
It has restructured its US operation, closing about 400 branches, and has reduced the amount of credit it extends.
HSBC shares rose in early trading - one of the few companies to see its shares rise in a falling market. By 0945 GMT its shares were up 1p at 767p.
"HSBC has fared better than many of its competitors in shedding just 14% of its share price in the last year," said Richard Hunter from stockbrokers Hargreaves Lansdown.
"However, it continues to be held back by the spectre of potential further write-downs with, in particular, its exposure to the US market having unnerved many investors," he said.
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