4th Aug 2008 16:51
Principal activities
HSBC is one of the largest banking and financial services organisations in the world, with a market capitalisation of US$185 billion at 30 June 2008.
Through its subsidiaries and associates, HSBC provides a comprehensive range of banking and related financial services. Headquartered in London, HSBC operates through long-established businesses and has an international network of some 11,000 properties in 85 countries and territories in five geographical regions: Europe; Hong Kong; Rest of Asia-Pacific, including the Middle East and Africa; North America; and Latin America. Within these regions, a comprehensive range of financial services is offered to personal, commercial, corporate, institutional, investment and private banking clients. Services are delivered primarily by domestic or regional banks, typically with large retail deposit bases, and by consumer finance operations.
Strategic direction
HSBC's strategic direction reflects its position as 'The world's local bank', combining the largest global developing markets banking business and a uniquely cosmopolitan customer base with an extensive international network and substantial financial strength.
The Group's strategy is aligned with key trends which are shaping the global economy. In particular, HSBC recognises that, over the long-term, developing markets are growing faster than the mature economies, world trade is expanding at a greater rate than GDP and life expectancy is lengthening virtually everywhere. Against this backdrop, HSBC's strategy is focused on delivering superior growth and earnings over time by building on the Group's heritage and skills. Its origins in trade in Asia have had a considerable influence over the development of the Group and, as a consequence, HSBC has an established and longstanding presence in many countries. The combination of local knowledge and international breadth is supported by a substantial financial capability founded on balance sheet strength, largely attributable to the scale of the Group's retail deposit bases.
HSBC is progressively reshaping its business by investing primarily in faster growing markets and, in the more developed markets, by focusing on businesses which have international connectivity. Central to these reshaping activities is a policy of maintaining HSBC's capital strength and strong liquidity position.
The Group has identified three main business models for its customer groups and global businesses that embody HSBC's areas of natural advantage:
businesses with international customers for whom developing markets connectivity is crucial - Global Banking and Markets, Private Banking, the large business segment of Commercial Banking and the mass affluent segment of Personal Financial Services;
businesses with local customers where efficiency can be enhanced through global scale - the small business segment of Commercial Banking and the mass market segment of Personal Financial Services; and
products where global scale is possible through building efficiency, expertise and brand - global product platforms such as cards and direct banking.
The means of executing the strategy, and further utilising the linkages within the Group, are clear:
Reconciliation of reported and underlying profit before tax
HSBC measures its performance internally on a likeߛforߛlike basis, eliminating the effects of Group currency translation gains and losses, acquisitions and disposals of subsidiaries and businesses and gains from the dilution of the Group's interests in associates, which distort the period-on-period comparison. HSBC refers to this as its underlying performance.
The tables below show the underlying performance of HSBC for the half-year to 30 June 2008 compared with the half-years to 30 June 2007 and 31 December 2007. Equivalent tables are provided for each of HSBC's customer groups and geographical segments in their respective sections below.
The main differences between HSBC's reported and underlying financial performance were:
Foreign currency translation differences were most significant in Europe due to the size of HSBC's operations in the UK. The Group's profit before tax for the first half of 2008 decreased by 28 per cent compared with the first half of 2007. The effect of the change in foreign currency translation rates accounted for an increase of 4 percentage points. The equivalents for the first half of 2008 compared with the second half of 2007 were increases of 2 per cent and 1 per cent, respectively.
There were a number of acquisitions and disposals that affected both comparisons. The most significant were the acquisitions of HSBC's partner's share in life insurer, Erisa S.A., and property and casualty insurer, Erisa I.A.R.D. (together now renamed 'HSBC Assurances') in France in March 2007, and the assets and liabilities of The Chinese Bank in Taiwan in March 2008; and the deemed disposals of the stakes in Ping An Insurance (Group) Company of China, Limited ('Ping An Insurance'), Bank of Communications Limited ('Bank of Communications') and Industrial Bank Co. Limited ('Industrial Bank'), as a consequence of their making share offerings on the domestic 'A' share market in mainland China in the first half of 2007.
|
Half-year to 30 June 2008 ('1H08') compared with half-year to 30 June 2007 ('1H07') |
|||||||||||||||||
|
HSBC |
1H07 as reported US$m |
Disposals and dilution gains1 US$m |
Currency translation2 US$m |
1H07 at 1H08 exchange rates US$m |
Acqui- sitions1 US$m |
Under- lying change US$m |
|
1H08 as reported US$m |
Re- ported change % |
|
Under- lying change % |
||||||
|
Net interest income |
18,230 |
(7) |
587 |
18,810 |
158 |
2,210 |
21,178 |
16 |
12 |
||||||||
|
Net fee income |
10,495 |
70 |
351 |
10,916 |
(45) |
120 |
10,991 |
5 |
1 |
||||||||
|
Other income3 |
9,768 |
(1,177) |
393 |
8,984 |
(45) |
(1,633) |
7,306 |
(25) |
(18) |
||||||||
|
Net operating income4 |
38,493 |
(1,114) |
1,331 |
38,710 |
68 |
697 |
39,475 |
3 |
2 |
||||||||
|
Loan impairment charges and other credit risk provisions |
(6,346) |
- |
(124) |
(6,470) |
- |
(3,588) |
(10,058) |
(58) |
(55) |
||||||||
|
Net operating income |
32,147 |
(1,114) |
1,207 |
32,240 |
68 |
(2,891) |
29,417 |
(8) |
(9) |
||||||||
|
Operating expenses |
(18,611) |
55 |
(738) |
(19,294) |
(28) |
(818) |
(20,140) |
(8) |
(4) |
||||||||
|
Operating profit |
13,536 |
(1,059) |
469 |
12,946 |
40 |
(3,709) |
9,277 |
(31) |
(29) |
||||||||
|
Income from associates |
623 |
- |
48 |
671 |
(12) |
311 |
970 |
56 |
46 |
||||||||
|
Profit before tax |
14,159 |
(1,059) |
517 |
13,617 |
28 |
(3,398) |
10,247 |
(28) |
(25) |
||||||||
|
Half-year to 30 June 2008 ('1H08') compared with half-year to 31 December 2007 ('2H07') |
|||||||||||||||||
|
HSBC |
2H07 as reported US$m |
Disposals and dilution gains1 US$m |
Currency translation2 US$m |
2H07 at 1H08 exchange rates US$m |
Acqui- sitions1 US$m |
Under- lying change US$m |
|
1H08 as reported US$m |
Re- ported change % |
|
Under- lying change % |
||||||
|
Net interest income |
19,565 |
(5) |
213 |
19,773 |
8 |
1,397 |
21,178 |
8 |
7 |
||||||||
|
Net fee income |
11,507 |
(52) |
98 |
11,553 |
1 |
(563) |
10,991 |
(4) |
(5) |
||||||||
|
Other income3 |
9,428 |
(15) |
16 |
9,429 |
4 |
(2,127) |
7,306 |
(23) |
(23) |
||||||||
|
Net operating income4 |
40,500 |
(72) |
327 |
40,755 |
13 |
(1,293) |
39,475 |
(3) |
(3) |
||||||||
|
Loan impairment charges and other credit risk provisions |
(10,896) |
- |
(22) |
(10,918) |
- |
860 |
(10,058) |
8 |
8 |
||||||||
|
Net operating income |
29,604 |
(72) |
305 |
29,837 |
13 |
(433) |
29,417 |
(1) |
(1) |
||||||||
|
Operating expenses |
(20,431) |
50 |
(227) |
(20,608) |
(11) |
479 |
(20,140) |
1 |
2 |
||||||||
|
Operating profit |
9,173 |
(22) |
78 |
9,229 |
2 |
46 |
9,277 |
1 |
- |
||||||||
|
Income from associates |
880 |
- |
37 |
917 |
- |
53 |
970 |
10 |
6 |
||||||||
|
Profit before tax |
10,053 |
(22) |
115 |
10,146 |
2 |
99 |
10,247 |
2 |
1 |
For footnotes, see page 89.
Customer groups and global businesses
Summary
HSBC manages its business through two customer groups, Personal Financial Services and Commercial Banking, and two global businesses, Global Banking and Markets, and Private Banking. Personal Financial Services incorporates the Group's consumer finance businesses.
Profit before tax
|
Half-year to |
|||||||||||
|
30 June 2008 |
30 June 2007 |
31 December 2007 |
|||||||||
|
US$m |
% |
US$m |
% |
US$m |
% |
||||||
|
Personal Financial Services |
2,313 |
22.6 |
4,729 |
33.4 |
1,171 |
11.7 |
|||||
|
Commercial Banking |
4,611 |
45.0 |
3,422 |
24.2 |
3,723 |
37.0 |
|||||
|
Global Banking and Markets |
2,690 |
26.2 |
4,158 |
29.4 |
1,963 |
19.5 |
|||||
|
Private Banking |
822 |
8.0 |
780 |
5.5 |
731 |
7.3 |
|||||
|
Other5 |
(189) |
(1.8) |
1,070 |
7.5 |
2,465 |
24.5 |
|||||
|
10,247 |
100.0 |
14,159 |
100.0 |
10,053 |
100.0 |
||||||
Total assets6
|
At 30 June 2008 |
At 30 June 2007 |
At 31 December 2007 |
|||||||||
|
US$m |
% |
US$m |
% |
US$m |
% |
||||||
|
Personal Financial Services |
603,016 |
23.7 |
577,402 |
26.9 |
588,473 |
25.0 |
|||||
|
Commercial Banking |
286,533 |
11.2 |
225,763 |
10.5 |
261,893 |
11.1 |
|||||
|
Global Banking and Markets |
1,509,390 |
59.3 |
1,220,316 |
56.7 |
1,375,240 |
58.4 |
|||||
|
Private Banking |
98,039 |
3.8 |
81,916 |
3.8 |
88,510 |
3.8 |
|||||
|
Other |
49,700 |
2.0 |
45,044 |
2.1 |
40,150 |
1.7 |
|||||
|
2,546,678 |
100.0 |
2,150,441 |
100.0 |
2,354,266 |
100.0 |
||||||
For footnotes, see page 89.
Basis of preparation
Customer group results are presented in accordance with the accounting policies used in the preparation of HSBC's consolidated financial statements. HSBC's operations are closely integrated and, accordingly, the presentation of customer group data includes internal allocations of certain items of income and expense. These allocations include the costs of certain support services and head office functions, to the extent that these can be
meaningfully attributed to operational business lines. While such allocations have been made on a systematic and consistent basis, they necessarily involve a degree of subjectivity.
Where relevant, income and expense amounts presented include the results of inter-segment funding as well as inter-company and inter-business line transactions. All such transactions are undertaken on arm's length terms.
Personal Financial Services
|
Profit before tax |
|||||
|
Half-year to |
|||||
|
30 June 2008 |
30 June 2007 |
31 December 2007 |
|||
|
US$m |
US$m |
US$m |
|||
|
Net interest income |
15,217 |
13,998 |
15,071 |
||
|
Net fee income |
5,626 |
5,523 |
6,219 |
||
|
Trading income excluding net interest income |
142 |
1 |
37 |
||
|
Net interest income on trading activities |
42 |
92 |
48 |
||
|
Net trading income7 |
184 |
93 |
85 |
||
|
Net income/(expense) from financial instruments designated at fair value |
(1,135) |
796 |
537 |
||
|
Gains less losses from financial investments |
585 |
60 |
291 |
||
|
Dividend income |
15 |
41 |
14 |
||
|
Net earned insurance premiums |
4,746 |
3,735 |
4,536 |
||
|
Other operating income |
390 |
255 |
132 |
||
|
Total operating income |
25,628 |
24,501 |
26,885 |
||
|
Net insurance claims8 |
(3,206) |
(3,605) |
(4,542) |
||
|
Net operating income4 |
22,422 |
20,896 |
22,343 |
||
|
Loan impairment charges and other credit risk provisions |
(9,384) |
(5,928) |
(10,244) |
||
|
Net operating income |
13,038 |
14,968 |
12,099 |
||
|
Total operating expenses |
(11,099) |
(10,452) |
(11,305) |
||
|
Operating profit |
1,939 |
4,516 |
794 |
||
|
Share of profit in associates and joint ventures |
374 |
213 |
377 |
||
|
Profit before tax |
2,313 |
4,729 |
1,171 |
||
|
By geographical region |
|||||
|
Europe |
1,324 |
604 |
977 |
||
|
Hong Kong |
2,036 |
1,898 |
2,314 |
||
|
Rest of Asia-Pacific |
535 |
351 |
409 |
||
|
North America |
(2,050) |
1,488 |
(3,034) |
||
|
Latin America |
468 |
388 |
505 |
||
|
Profit before tax |
2,313 |
4,729 |
1,171 |
||
|
% |
% |
% |
|||
|
Share of HSBC's profit before tax |
22.6 |
33.4 |
11.7 |
||
|
Cost efficiency ratio |
49.5 |
50.0 |
50.6 |
||
|
Balance sheet data6 |
|||||
|
US$m |
US$m |
US$m |
|||
|
Loans and advances to customers (net) |
458,302 |
460,196 |
464,726 |
||
|
Total assets |
603,016 |
577,402 |
588,473 |
||
|
Customer accounts |
474,263 |
416,525 |
450,071 |
||
|
For footnotes, see page 89. |
|||||
Business highlights
Profit before tax in Personal Financial Services was US$2.4 billion lower than that reported in the first half of 2007 and was 53 per cent lower on an underlying basis, primarily because of higher loan impairment charges in the US consumer finance business. Excluding this business, pre-tax profits rose by 23 per cent, 18 per cent on an underlying basis. Compared with the second half of 2007, on an underlying basis, profit before tax in Personal Financial Services was 89 per cent higher as both loan impairment charges and operating expenses fell.
Market turmoil in the first half of 2008 led retail customers to move their assets from investment products into bank deposits and concentrate their savings in the largest and best regarded financial institutions. HSBC benefited from both these trends with customer accounts growing by US$24.2 billion or 5 per cent in the period.
HSBC Premier ('Premier'), the Group's global banking service which offers affluent customers a seamless international service, continued to build on the success of its relaunch in 2007. In the first half of 2008, the service was extended to a further 4 countries, with a fifth added in July, taking the total to forty. 208,000 net new customers joined Premier, of which more than 80 per cent were new to the Group and, at 30 June 2008, HSBC had 2.4 million Premier customers who, on average, each generated more than US$2,000 of annualised revenues.
HSBC Direct, the Group's online banking product suite, continued to expand in the four markets in which the product has been launched to date. In aggregate, HSBC Direct balances reached US$16.1 billion and customer numbers 1.2 million, increases of 19 per cent and 15 per cent, respectively, from 31 December 2007.
HSBC's focus on emerging markets was reflected in growth in cards in force of 5 per cent in these countries compared with 31 December 2007.
In the UK, HSBC successfully launched a RateMatcher promotion to attract higher quality customers facing an interest rate reset in the near term. In the three months of the offer, HSBC attracted a strong flow of new business, both for the RateMatcher product and other mortgages. Overall, HSBC attracted US$11 billion of balances during the campaign.
Notwithstanding weaker equity markets in Asia, HSBC's Personal Financial Services businesses in both Hong Kong and Rest of Asia-Pacific maintained revenue momentum, with notable success in deposit generation, particularly from Premier customers.
Consistent with HSBC's strategy to increase the sale of insurance products to existing customers, underlying net premium income and insurance fee income grew by 7 per cent and 18 per cent, respectively.
In the US, declining house prices, together with a continuing reduction in the availability of mortgage
finance, fuelled growing customer delinquencies as house price depreciation became more pronounced and the economy weakened. HSBC continued to take measures to help customers manage their mortgage repayments and avoid foreclosure. In the first half of 2008, HSBC Finance extended its mortgage loan modification programme, with longer term modifications. Some 90 per cent of US mortgage customers remained current, or only one payment overdue, across the consumer lending business. Normal repayments and continued write-offs lowered the mortgage services portfolio by US$4.8 billion to US$31.4 billion at 30 June 2008.
Reconciliation of reported and underlying profit before tax
|
Half-year to 30 June 2008 ('1H08') compared with half-year to 30 June 2007 ('1H07') |
|||||||||||||||||
|
Personal Financial Services |
1H07 as reported US$m |
Disposals and dilution gains1 US$m |
Currency translation2 US$m |
1H07 at 1H08 exchange rates US$m |
Acqui- sitions1 US$m |
Under- lying change US$m |
|
1H08 as reported US$m |
Re- ported change % |
|
Under- lying change % |
||||||
|
Net interest income |
13,998 |
(7) |
397 |
14,388 |
156 |
673 |
15,217 |
9 |
5 |
||||||||
|
Net fee income |
5,523 |
122 |
136 |
5,781 |
(45) |
(110) |
5,626 |
2 |
(2) |
||||||||
|
Other income3 |
1,375 |
(101) |
48 |
1,322 |
(47) |
304 |
1,579 |
15 |
23 |
||||||||
|
Net operating income4 |
20,896 |
14 |
581 |
21,491 |
64 |
867 |
22,422 |
7 |
4 |
||||||||
|
Loan impairment charges and other credit risk provisions |
(5,928) |
- |
(104) |
(6,032) |
- |
(3,352) |
(9,384) |
(58) |
(56) |
||||||||
|
Net operating income |
14,968 |
14 |
477 |
15,459 |
64 |
(2,485) |
13,038 |
(13) |
(16) |
||||||||
|
Operating expenses |
(10,452) |
5 |
(395) |
(10,842) |
(25) |
(232) |
(11,099) |
(6) |
(2) |
||||||||
|
Operating profit |
4,516 |
19 |
82 |
4,617 |
39 |
(2,717) |
1,939 |
(57) |
(59) |
||||||||
|
Income from associates |
213 |
- |
18 |
231 |
- |
143 |
374 |
76 |
62 |
||||||||
|
Profit before tax |
4,729 |
19 |
100 |
4,848 |
39 |
(2,574) |
2,313 |
(51) |
(53) |
||||||||
|
Half-year to 30 June 2008 ('1H08') compared with half-year to 31 December 2007 ('2H07') |
|||||||||||||||||
|
Personal Financial Services |
2H07 as reported US$m |
Disposals and dilution gains1 US$m |
Currency translation2 US$m |
2H07 at 1H08 exchange rates US$m |
Acqui- sitions1 US$m |
Under- lying change US$m |
|
1H08 as reported US$m |
Re- ported change % |
|
Under- lying change % |
||||||
|
Net interest income |
15,071 |
(5) |
133 |
15,199 |
6 |
12 |
15,217 |
1 |
- |
||||||||
|
Net fee income |
6,219 |
- |
25 |
6,244 |
1 |
(619) |
5,626 |
(10) |
(10) |
||||||||
|
Other income3 |
1,053 |
19 |
16 |
1,088 |
2 |
489 |
1,579 |
50 |
45 |
||||||||
|
Net operating income4 |
22,343 |
14 |
174 |
22,531 |
9 |
(118) |
22,422 |
- |
(1) |
||||||||
|
Loan impairment charges and other credit risk provisions |
(10,244) |
- |
(25) |
(10,269) |
- |
885 |
(9,384) |
8 |
9 |
||||||||
|
Net operating income |
12,099 |
14 |
149 |
12,262 |
9 |
767 |
13,038 |
8 |
6 |
||||||||
|
Operating expenses |
(11,305) |
2 |
(131) |
(11,434) |
(9) |
344 |
(11,099) |
2 |
3 |
||||||||
|
Operating profit |
794 |
16 |
18 |
828 |
- |
1,111 |
1,939 |
144 |
134 |
||||||||
|
Income from associates |
377 |
- |
19 |
396 |
- |
(22) |
374 |
(1) |
(6) |
||||||||
|
Profit before tax |
1,171 |
16 |
37 |
1,224 |
- |
1,089 |
2,313 |
98 |
89 |
||||||||
For footnotes, see page 89.
Commercial Banking
|
Profit before tax |
||||||
|
Half-year to |
||||||
|
30 June 2008 |
30 June 2007 |
31 December 2007 |
||||
|
US$m |
US$m |
US$m |
||||
|
Net interest income |
4,747 |
4,286 |
4,769 |
|||
|
Net fee income |
2,165 |
1,904 |
2,068 |
|||
|
Trading income excluding net interest income |
197 |
121 |
144 |
|||
|
Net interest income on trading activities |
24 |
13 |
18 |
|||
|
Net trading income7 |
221 |
134 |
162 |
|||
|
Net income/(expense) from financial instruments designated at fair value |
(59) |
(24) |
46 |
|||
|
Gains less losses from financial investments |
191 |
25 |
65 |
|||
|
Dividend income |
3 |
4 |
4 |
|||
|
Net earned insurance premiums |
360 |
205 |
528 |
|||
|
Other operating income |
718 |
2 |
163 |
|||
|
Total operating income |
8,346 |
6,536 |
7,805 |
|||
|
Net insurance claims8 |
(190) |
44 |
(435) |
|||
|
Net operating income4 |
8,156 |
6,580 |
7,370 |
|||
|
Loan impairment charges and other credit risk provisions |
(563) |
(431) |
(576) |
|||
|
Net operating income |
7,593 |
6,149 |
6,794 |
|||
|
Total operating expenses |
(3,280) |
(2,907) |
(3,345) |
|||
|
Operating profit |
4,313 |
3,242 |
3,449 |
|||
|
Share of profit in associates and joint ventures |
298 |
180 |
274 |
|||
|
Profit before tax |
4,611 |
3,422 |
3,723 |
|||
|
By geographical region |
||||||
|
Europe |
1,940 |
1,236 |
1,280 |
|||
|
Hong Kong |
869 |
760 |
859 |
|||
|
Rest of Asia-Pacific |
961 |
597 |
753 |
|||
|
North America |
430 |
477 |
443 |
|||
|
Latin America |
411 |
352 |
388 |
|||
|
Profit before tax |
4,611 |
3,422 |
3,723 |
|||
|
% |
% |
% |
||||
|
Share of HSBC's profit before tax |
45.0 |
24.2 |
37.0 |
|||
|
Cost efficiency ratio |
40.2 |
44.2 |
45.4 |
|||
|
Balance sheet data6 |
||||||
|
US$m |
US$m |
US$m |
||||
|
Loans and advances to customers (net) |
238,116 |
185,923 |
220,068 |
|||
|
Total assets |
286,533 |
225,763 |
261,893 |
|||
|
Customer accounts |
247,705 |
205,002 |
237,987 |
|||
|
For footnotes, see page 89. |
||||||
Business highlights
Pre-tax profits increased by 35 per cent to US$4.6 billion. This included a gain of US$425 million from selling the Group's merchant acquiring business in the UK to a new card processing joint venture with Global Payments Inc. Operating performance was driven by robust growth in economic activity in developing markets, where much of the Group's incremental credit appetite was directed. This led to strong revenue generation with costs rising at approximately half the rate of income as productivity improved. Loan impairment charges rose as economic conditions weakened during the first half of 2008.
Pre-tax profits in Europe, including the gain from the new card processing joint venture, were 57 per cent higher. Growth in profit was strongest in the Middle East and Asia-Pacific, reflecting the Group's established position in these fast-growing economies. Growth was also strong in Brazil. Underlying income and profit fell in North America, largely as a result of increased loan impairment charges.
Excluding the gain on the sale of the merchant acquiring business, the share of Commercial Banking's profit from developing markets rose from 52 per cent in 2007 to 54 per cent in the first half of 2008.
Strong revenue growth of 29 per cent from trade and supply chain and 44 per cent from foreign exchange reflected Commercial Banking's 'leading international business' strategy. HSBC has benefited from growth in intra-regional trade flows and from facilitating investment flows from developed to developing economies, in part utilising its network of International Business Centres. Cross-border referrals through the Global Links system in the first half of 2008 rose by over 126 per cent in number and by over 83 per cent in aggregate transaction value compared with the first half of 2007.
The 'best bank for small business' strategy also contributed strongly to income growth, with an increase in deposits gathered from small business customers. Total customer numbers grew by 8 per cent to 2.9 million, largely among small and micro-business customers. Dedicated small-business centres in Turkey and the success of BusinessDirect in the UK contributed to this growth.
Both physical and online distribution capabilities were expanded. In Turkey, the number of Small Business Centres was increased to over 100 and in the UK local business managers were redeployed to key branches. In Taiwan, the acquisition of the assets, liabilities and operations of The Chinese Bank extended HSBC's reach, the additional branches bringing the total number to 44. At 8,300, the total number of relationship managers was 20 per cent higher than at 30 June 2007, with particularly strong growth in India following implementation of a new small business strategy.
The number of small and micro business customers using business internet banking increased by 22 per cent to nearly 900,000; the number of mid-market and corporate customers rose by 28 per cent to over 35,000.
Referrals to other customer groups and global businesses increased, specifically mortgages and Premier referrals to Personal Financial Services, debt and advisory services, to Global Banking and Markets, and ongoing referrals to Private Banking.
Reconciliation of reported and underlying profit before tax
|
Half-year to 30 June 2008 ('1H08') compared with half-year to 30 June 2007 ('1H07') |
|||||||||||||||||
|
Commercial Banking |
1H07 as reported US$m |
Disposals and dilution gains1 US$m |
Currency translation2 US$m |
1H07 at 1H08 exchange rates US$m |
Acqui- sitions1 US$m |
Under- lying change US$m |
|
1H08 as reported US$m |
Re- ported change % |
|
Under- lying change % |
||||||
|
Net interest income |
4,286 |
- |
195 |
4,481 |
3 |
263 |
4,747 |
11 |
6 |
||||||||
|
Net fee income |
1,904 |
- |
75 |
1,979 |
- |
186 |
2,165 |
14 |
9 |
||||||||
|
Other income3 |
390 |
- |
14 |
404 |
2 |
838 |
1,244 |
219 |
207 |
||||||||
|
Net operating income4 |
6,580 |
- |
284 |
6,864 |
5 |
1,287 |
8,156 |
24 |
19 |
||||||||
|
Loan impairment charges and other credit risk provisions |
(431) |
- |
(17) |
(448) |
- |
(115) |
(563) |
(31) |
(26) |
||||||||
|
Net operating income |
6,149 |
- |
267 |
6,416 |
5 |
1,172 |
7,593 |
23 |
18 |
||||||||
|
Operating expenses |
(2,907) |
- |
(157) |
(3,064) |
(2) |
(214) |
(3,280) |
(13) |
(7) |
||||||||
|
Operating profit |
3,242 |
- |
110 |
3,352 |
3 |
958 |
4,313 |
33 |
29 |
||||||||
|
Income from associates |
180 |
- |
11 |
191 |
- |
107 |
298 |
66 |
56 |
||||||||
|
Profit before tax |
3,422 |
- |
121 |
3,543 |
3 |
1,065 |
4,611 |
35 |
30 |
||||||||
|
Half-year to 30 June 2008 ('1H08') compared with half-year to 31 December 2007 ('2H07') |
|||||||||||||||||
|
Commercial Banking |
2H07 as reported US$m |
Disposals and dilution gains1 US$m |
Currency translation2 US$m |
2H07 at 1H08 exchange rates US$m |
Acqui- sitions1 US$m |
Under- lying change US$m |
|
1H08 as reported US$m |
Re- ported change % |
|
Under- lying change % |
||||||
|
Net interest income |
4,769 |
- |
50 |
4,819 |
3 |
(75) |
4,747 |
(0) |
(2) |
||||||||
|
Net fee income |
2,068 |
- |
13 |
2,081 |
- |
84 |
2,165 |
5 |
4 |
||||||||
|
Other income3 |
533 |
- |
(4) |
529 |
2 |
713 |
1,244 |
133 |
135 |
||||||||
|
Net operating income4 |
7,370 |
- |
59 |
7,429 |
5 |
722 |
8,156 |
11 |
10 |
||||||||
|
Loan impairment charges and other credit risk provisions |
(576) |
- |
2 |
(574) |
- |
11 |
(563) |
2 |
2 |
||||||||
|
Net operating income |
6,794 |
- |
61 |
6,855 |
5 |
733 |
7,593 |
12 |
11 |
||||||||
|
Operating expenses |
(3,345) |
- |
(50) |
(3,395) |
(2) |
117 |
(3,280) |
2 |
3 |
||||||||
|
Operating profit |
3,449 |
- |
11 |
3,460 |
3 |
850 |
4,313 |
25 |
25 |
||||||||
|
Income from associates |
274 |
- |
9 |
283 |
- |
15 |
298 |
9 |
5 |
||||||||
|
Profit before tax |
3,723 |
- |
20 |
3,743 |
3 |
865 |
4,611 |
24 |
23 |
||||||||
For footnotes, see page 89.
Global Banking and Markets
|
Profit before tax |
|||||
|
Half-year to |
|||||
|
30 June 2008 |
30 June 2007 |
31 December 2007 |
|||
|
US$m |
US$m |
US$m |
|||
|
Net interest income |
3,737 |
1,847 |
2,583 |
||
|
Net fee income |
2,354 |
2,264 |
2,637 |
||
|
Trading income excluding net interest income |
360 |
3,048 |
455 |
||
|
Net interest income/ (expense) on trading activities |
273 |
(151) |
(85) |
||
|
Net trading income7 |
633 |
2,897 |
370 |
||
|
Net income/(expense) from financial instruments designated at fair value |
(211) |
11 |
(175) |
||
|
Gains less losses from financial investments |
244 |
768 |
545 |
||
|
Dividend income |
49 |
175 |
47 |
||
|
Net earned insurance premiums |
62 |
46 |
47 |
||
|
Other operating income |
551 |
529 |
689 |
||
|
Total operating income |
7,419 |
8,537 |
6,743 |
||
|
Net insurance claims8 |
(40) |
(38) |
(32) |
||
|
Net operating income4 |
7,379 |
8,499 |
6,711 |
||
|
Net loan impairment (charges)/recoveries and other credit risk provisions |
(115) |
24 |
(62) |
||
|
Net operating income |
7,264 |
8,523 |
6,649 |
||
|
Total operating expenses |
(4,827) |
(4,479) |
(4,879) |
||
|
Operating profit |
2,437 |
4,044 |
1,770 |
||
|
Share of profit in associates and joint ventures |
253 |
114 |
193 |
||
|
Profit before tax |
2,690 |
4,158 |
1,963 |
||
|
By geographical region |
|||||
|
Europe |
1,190 |
1,674 |
853 |
||
|
Hong Kong |
770 |
697 |
881 |
||
|
Rest of Asia-Pacific |
1,972 |
1,098 |
1,366 |
||
|
North America |
(1,625) |
436 |
(1,401) |
||
|
Latin America |
383 |
253 |
264 |
||
|
Profit before tax |
2,690 |
4,158 |
1,963 |
||
|
% |
% |
% |
|||
|
Share of HSBC's profit before tax |
26.2 |
29.4 |
19.5 |
||
|
Cost efficiency ratio |
65.4 |
52.7 |
72.7 |
||
For footnotes, see page 89.
Business highlights
In the most difficult financial market conditions seen for many decades, Global Banking and Markets delivered pre-tax profits of US$2.7 billion, an improvement of US$727 million or 37 per cent on the six months ended 31 December 2007 but some US$1.5 billion lower than in the first half of 2007.
The result reflected a total of US$3.9 billion of write-downs on credit trading, leveraged and acquisition financing positions and monoline credit exposures resulting from the continued deterioration in the credit markets. This compared with US$2.1 billion for the second half of 2007 and nil for the first half of 2007. Partly offsetting this was a US$262 million fair value gain on the widening of credit spreads on structured liabilities.
Notwithstanding the challenging market conditions in credit trading and Principal Investments, where the opportunities to realise assets diminished in 2008, other businesses performed very well. The 'emerging markets-led and financing-focused' strategy continued to ensure that HSBC was well positioned to support clients as they undertook cross-border transactions into and out of emerging markets.
In Global Markets, the foreign exchange business reported record revenues. This reflected greater market volatility and higher customer volumes.
Strong results were seen in Rates, where increased customer activity and growth in deal volumes resulted in income rising by 120 per cent. In equities, excluding the effect of the gain on sale of HSBC's investment in Euronext N.V and the Montreal Exchange in 2007, revenues rose by 37 per cent.
The securities services business continued to grow despite the backdrop of lower interest rates and lower equity markets, as stronger transaction volumes and new mandates resulted in higher revenues. This was particularly evident in Asia, as clients continued to rebalance their investment portfolios.
Management view of total operating income
|
Half-year to |
|||||
|
30 June 2008 |
30 June 2007 |
31 December 2007 |
|||
|
US$m |
US$m |
US$m |
|||
|
Global Markets |
1,688 |
3,825 |
1,895 |
||
|
Credit |
(3,124) |
658 |
(1,977) |
||
|
Rates |
1,303 |
592 |
699 |
||
|
Foreign exchange |
1,546 |
909 |
1,269 |
||
|
Equities10 |
746 |
652 |
525 |
||
|
Securities services |
1,112 |
855 |
1,071 |
||
|
Asset and structured finance |
105 |
159 |
308 |
||
|
Global Banking |
2,432 |
1,974 |
2,216 |
||
|
Financing and equity capital markets |
1,371 |
1,042 |
1,144 |
||
|
Payments and cash management |
839 |
751 |
881 |
||
|
Other transactionservices |
222 |
181 |
191 |
||
|
Balance Sheet Management |
1,630 |
521 |
705 |
||
|
Global Asset Management |
669 |
636 |
700 |
||
|
Principal Investments |
167 |
755 |
498 |
||
|
Other11 |
833 |
826 |
729 |
||
|
Total operating income |
7,419 |
8,537 |
6,743 |
||
|
Balance sheet data6 |
|||||
|
Trading assets (including derivatives) |
721,366 |
567,340 |
625,132 |
||
|
Trading liabilities (including derivatives) |
577,048 |
443,634 |
483,881 |
||
|
Financial investments |
211,486 |
174,095 |
224,057 |
||
|
Financial assets designated at fair value |
7,469 |
5,269 |
7,936 |
||
|
Loans and advances to: |
|||||
|
- customers (net) |
303,826 |
241,602 |
250,464 |
||
|
- banks (net) |
214,693 |
183,708 |
199,506 |
||
|
Total assets |
1,509,390 |
1,220,316 |
1,375,240 |
||
|
Customer accounts |
328,952 |
265,739 |
299,879 |
||
|
Deposits by banks |
144,043 |
121,744 |
126,395 |
||
Comparative information has been restated to reflect the current management view.
In the first half of 2008, Global Markets included a US$262 million fair value gain on the widening of credit spreads on structured liabilities.
For footnotes, see page 89.
Balance Sheet Management recorded significantly higher income from positions taken in expectation of interest rate reductions by a number of central banks. As a result of these positions there was an associated increase in the total value at risk.
In Global Banking, the write-downs on leveraged and acquisition finance positions were more than
transaction volumes drove robust growth in fees, particularly in emerging markets. Total operating income in payments and cash management was 12 per cent higher, led by a strong rise in deposit balances.
HSBC's extensive distribution network enabled the delivery of products to emerging markets as recognised by a number of industry awards including 'Best Investment Bank' and 'Best at Risk Management' in the Middle East, and 'Best Debt House' in Asia and in Western Europe by Euromoney.
The strength of the Group's corporate and institutional franchise was again illustrated by the number and variety of transactions in which Global Banking acted on behalf of clients. In the first half of 2008, HSBC acted for over 700 clients in 29 sectors and some 60 countries. The total notional transaction value was more than US$1,000 billion.
Global Asset Management benefited from a significant increase in liquidity fund inflows with total funds under management growing to US$389 billion, as clients sought certainty in a volatile market. The Group maintained its position as one of the leading emerging markets asset managers, with assets increasing to US$86 billion, a rise of 18 per cent on the first half of 2007. The business continued to leverage the Group's distribution capabilities with new funds including HSBC's New Frontiers Fund, launched in February for the Group's Private Banking clients, which raised US$300 million in the three months following its launch.
Within the Group's available-for-sale portfolio, continuing illiquidity in asset-backed securities markets led to further write-downs of securities. However, as a consequence of the underlying credit quality and seniority of the tranches held by HSBC, the first half of 2008 included a relatively modest impairment charge through the income statement of US$55 million; a further US$134 million was absorbed by income note holders who take the first loss on positions within the securities investment conduits ('SICs') now consolidated in HSBC's accounts. Further details on these SICs are provided on pages 137 to 141.
Reconciliation of reported and underlying profit before tax
|
Half-year to 30 June 2008 ('1H08') compared with half-year to 30 June 2007 ('1H07') |
|||||||||||||||||
|
Global Banking and Markets |
1H07 as reported US$m |
Disposals and dilution gains1 US$m |
Currency translation2 US$m |
1H07 at 1H08 exchange rates US$m |
Acqui- sitions1 US$m |
Under- lying change US$m |
|
1H08 as reported US$m |
Re- ported change % |
|
Under- lying change % |
||||||
|
Net interest income |
1,847 |
- |
72 |
1,919 |
- |
1,818 |
3,737 |
102 |
95 |
||||||||
|
Net fee income |
2,264 |
- |
104 |
2,368 |
- |
(14) |
2,354 |
4 |
(1) |
||||||||
|
Other income3 |
4,388 |
- |
183 |
4,571 |
- |
(3,283) |
1,288 |
(71) |
(72) |
||||||||
|
Net operating income4 |
8,499 |
- |
359 |
8,858 |
- |
(1,479) |
7,379 |
(13) |
(17) |
||||||||
|
Loan impairment (charges)/recoveries and other credit risk provisions |
24 |
- |
(2) |
22 |
- |
(137) |
(115) |
(579) |
(623) |
||||||||
|
Net operating income |
8,523 |
- |
357 |
8,880 |
- |
(1,616) |
7,264 |
(15) |
(18) |
||||||||
|
Operating expenses |
(4,479) |
- |
(151) |
(4,630) |
- |
(197) |
(4,827) |
(8) |
(4) |
||||||||
|
Operating profit |
4,044 |
- |
206 |
4,250 |
- |
(1,813) |
2,437 |
(40) |
(43) |
||||||||
|
Income from associates |
114 |
- |
5 |
119 |
- |
134 |
253 |
122 |
113 |
||||||||
|
Profit before tax |
4,158 |
- |
211 |
4,369 |
- |
(1,679) |
2,690 |
(35) |
(38) |
||||||||
|
Half-year to 30 June 2008 ('1H08') compared with half-year to 31 December 2007 ('2H07') |
|||||||||||||||||
|
Global Banking and Markets |
2H07 as reported US$m |
Disposals and dilution gains1 US$m |
Currency translation2 US$m |
2H07 at 1H08 exchange rates US$m |
Acqui- sitions1 US$m |
Under- lying change US$m |
|
1H08 as reported US$m |
Re- ported change % |
|
Under- lying change % |
||||||
|
Net interest income |
2,583 |
- |
37 |
2,620 |
- |
1,117 |
3,737 |
45 |
43 |
||||||||
|
Net fee income |
2,637 |
- |
32 |
2,669 |
- |
(315) |
2,354 |
(11) |
(12) |
||||||||
|
Other income3 |
1,491 |
- |
12 |
1,503 |
- |
(215) |
1,288 |
(14) |
(14) |
||||||||
|
Net operating income4 |
6,711 |
- |
81 |
6,792 |
- |
587 |
7,379 |
10 |
9 |
||||||||
|
Loan impairment charges and other credit risk provisions |
(62) |
- |
2 |
(60) |
- |
(55) |
(115) |
(85) |
(92) |
||||||||
|
Net operating income |
6,649 |
- |
83 |
6,732 |
- |
532 |
7,264 |
9 |
8 |
||||||||
|
Operating expenses |
(4,879) |
- |
(32) |
(4,911) |
- |
84 |
(4,827) |
1 |
2 |
||||||||
|
Operating profit |
1,770 |
- |
51 |
1,821 |
- |
616 |
2,437 |
38 |
34 |
||||||||
|
Income from associates |
193 |
- |
8 |
201 |
- |
52 |
253 |
31 |
26 |
||||||||
|
Profit before tax |
1,963 |
- |
59 |
2,022 |
- |
668 |
2,690 |
37 |
33 |
||||||||
For footnotes, see page 89.
Related Shares:
HSBC Holdings