31st Mar 2009 16:38
Customer groups and global businesses
|
|
Page
|
|
Summary
|
67
|
|
Personal Financial Services
|
68
|
|
Commercial Banking
|
72
|
|
Global Banking and Markets
|
75
|
|
Private Banking
|
79
|
|
Other
|
82
|
|
Analysis by customer group and global business
|
84
|
Summary
HSBC manages its business through two customer groups, Personal Financial Services and Commercial Banking, and two global businesses, Global Banking and Markets (previously Corporate, Investment Banking and Markets), and Private Banking. Personal Financial Services incorporates the Group's consumer finance businesses; the largest of these is HSBC Finance Corporation ('HSBC Finance').
All commentaries on the customer groups and global businesses are on an underlying basis unless stated otherwise.
Profit/(loss) before tax
|
2008 |
2007 |
2006 |
|||||||||
|
US$m |
% |
US$m |
% |
US$m |
% |
||||||
|
Personal Financial Services |
(10,974) |
(117.9) |
5,900 |
24.4 |
9,457 |
42.8 |
|||||
|
Commercial Banking |
7,194 |
77.3 |
7,145 |
29.5 |
5,997 |
27.2 |
|||||
|
Global Banking and Markets |
3,483 |
37.4 |
6,121 |
25.3 |
5,806 |
26.3 |
|||||
|
Private Banking |
1,447 |
15.6 |
1,511 |
6.2 |
1,214 |
5.5 |
|||||
|
Other13
|
8,157 |
87.6 |
3,535 |
14.6 |
(388) |
(1.8) |
|||||
|
9,307 |
100.0 |
24,212 |
100.0 |
22,086 |
100.0 |
||||||
Total assets15
|
At 31 December |
|||||||
|
2008 |
2007 |
||||||
|
US$m |
% |
US$m |
% |
||||
|
Personal Financial Services |
514,419 |
20.4 |
621,356 |
26.4 |
|||
|
Commercial Banking |
249,218 |
9.9 |
307,944 |
13.1 |
|||
|
Global Banking and Markets |
1,896,630 |
75.0 |
1,561,468 |
66.3 |
|||
|
Private Banking |
133,216 |
5.3 |
130,893 |
5.6 |
|||
|
Other |
135,001 |
5.3 |
155,685 |
6.6 |
|||
|
Intra-HSBC items |
(401,019) |
(15.9) |
(423,080) |
(18.0) |
|||
|
2,527,465 |
100.0 |
2,354,266 |
100.0 |
||||
For footnotes, see page 145.
Basis of preparation
The results are presented in accordance with the accounting policies used in the preparation of HSBC's consolidated financial statements. HSBC's operations are closely integrated and, accordingly, the presentation of customer group data includes internal allocations of certain items of income and expense. These allocations include the costs of certain support services and Group Management Office ('GMO') functions, to the extent that these can be meaningfully attributed to operational business lines. While such allocations have been made on a systematic and consistent basis, they necessarily involve a degree of subjectivity.
Where relevant, income and expense amounts presented include the results of inter-segment funding as well as inter-company and inter-business line transactions. All such transactions are undertaken on arm's length terms.
Personal Financial Services
|
Profit/(loss) before tax |
|||||
|
2008 |
2007 |
2006 |
|||
|
US$m |
US$m |
US$m |
|||
|
Net interest income |
29,419 |
29,069 |
26,076 |
||
|
Net fee income |
10,107 |
11,742 |
8,762 |
||
|
Trading income excluding net interest income |
175 |
38 |
391 |
||
|
Net interest income on trading activities |
79 |
140 |
220 |
||
|
Net trading income16 |
254 |
178 |
611 |
||
|
Net income/(expense) from financial instruments designated at fair value |
(2,912) |
1,333 |
739 |
||
|
Gains less losses from financial investments |
663 |
351 |
78 |
||
|
Dividend income |
90 |
55 |
31 |
||
|
Net earned insurance premiums |
10,083 |
8,271 |
5,130 |
||
|
Other operating income |
259 |
387 |
782 |
||
|
Total operating income |
47,963 |
51,386 |
42,209 |
||
|
Net insurance claims17 |
(6,474) |
(8,147) |
(4,365) |
||
|
Net operating income5 |
41,489 |
43,239 |
37,844 |
||
|
Loan impairment charges and other credit risk provisions |
(21,220) |
(16,172) |
(9,949) |
||
|
Net operating income |
20,269 |
27,067 |
27,895 |
||
|
Operating expenses (excluding goodwill impairment) |
(21,140) |
(21,757) |
(18,818) |
||
|
Goodwill impairment |
(10,564) |
- |
- |
||
|
Operating profit/(loss) |
(11,435) |
5,310 |
9,077 |
||
|
Share of profit in associates and joint ventures |
461 |
590 |
380 |
||
|
Profit/(loss) before tax |
(10,974) |
5,900 |
9,457 |
||
|
By geographical region |
|||||
|
Europe |
1,658 |
1,581 |
1,909 |
||
|
Hong Kong |
3,428 |
4,212 |
2,880 |
||
|
Rest of Asia-Pacific |
500 |
760 |
477 |
||
|
North America |
(17,228) |
(1,546) |
3,391 |
||
|
Latin America |
668 |
893 |
800 |
||
|
(10,974) |
5,900 |
9,457 |
|||
|
% |
% |
% |
|||
|
Share of HSBC's profit before tax |
(117.9) |
24.4 |
42.8 |
||
|
Cost efficiency ratio |
76.4 |
50.3 |
49.7 |
||
|
Balance sheet data15 |
|||||
|
US$m |
US$m |
US$m |
|||
|
Loans and advances to customers (net) |
401,402 |
464,726 |
448,545 |
||
|
Total assets |
514,419 |
621,356 |
602,342 |
||
|
Customer accounts |
440,338 |
450,071 |
388,468 |
||
|
For footnotes, see page 143. |
|||||
Strategic direction
HSBC's strategy for Personal Financial Services is to use its global reach and local knowledge to grow profitably in selected markets. The strategy focuses on growth in:
markets where HSBC already has scale, such as Hong Kong and the UK; and
markets where HSBC can build or acquire scale, particularly in Asia-Pacific, Latin America, Turkey and the Middle East.
Within these markets, there are two key target segments:
customers who value seamless international banking and wealth management; and
customers who are confident about using direct channels (internet, ATM, telephone, mobile) to access financial services.
Financial performance in 2008
The reported loss before tax of US$11.0 billion compared with a profit of US$5.9 billion in 2007, driven substantially by higher loan impairment charges and a goodwill impairment charge of US$10.6 billion which wrote down in full the goodwill relating to the North American Personal Financial Services business. Excluding the loss before tax incurred in this business, pre-tax profits fell by 17 per cent on an underlying basis, with an increase in loan impairments and lower fee income more than offsetting an increase in revenue from deposit growth and higher gains on the sale of MasterCard and Visa shares.
Net fee income fell by 13 per cent. This was driven by weak market sentiment, which resulted in lower fees from retail securities and investments, particularly in Hong Kong, and changes in fee billing practices in the credit card business to improve the customer proposition in North America.
A net expense of US$2.9 billion was recorded on financial instruments designated at fair value, compared with income of US$1.3 billion in 2007. This was largely due to the fall in value of assets held to meet liabilities under insurance and investment contracts driven by poor equity market performances, predominantly affecting operations in Hong Kong, the UK and France. For assets held to meet liabilities under unit-linked and, to a certain extent, participating insurance contracts, the movement from income to expense was offset by a corresponding reduction in policyholder liabilities where investment losses can be passed to policyholders.
Loan impairment charges rose by 32 per cent, primarily due to further deterioration in credit quality in the North American Personal Financial Services business. Delinquency rates increased across all portfolios in HSBC Finance, particularly consumer lending, and in the real estate secured portfolios in HSBC USA, following the sustained downturn in the housing market and the onset of economic recession.
A rise in loan impairments in Mexico, Turkey and India was attributable to higher delinquencies following growth of the credit card and personal loan portfolios. Actions taken to curtail asset growth in these markets focused on tightening lending criteria and deploying advanced credit analytics.
Operating expenses were 48 per cent higher, largely due to the goodwill impairment charge. Excluding this, operational costs were slightly lower, driven by a 12 per cent reduction in North America following initiatives taken since 2007 to cease originations in mortgage services, limit new originations in consumer lending and reduce marketing spend in cards. This benefit was partially offset by investment in business expansion in mainland China and Japan and an increase in restructuring costs and union-agreed salaries in Latin America.
Profit before tax increased in Europe, with a solid performance in the UK partially offset by a fall in Turkey as an investment in 98 additional branches was made in order to attain nationwide coverage. Profits were lower in France.
In the Middle East, profit rose by 17 per cent on 2007, with strong growth in revenue from cards.
Business highlights in 2008
HSBC Premier ('Premier'), which offers mass affluent customers a seamless international banking and wealth management service, grew to 2.6 million customers in 2008. During the year, the service was extended to a further six countries, taking the total to 41. 472,000 net new customers joined Premier, of whom 80 per cent were new to the Group.
The strength of the HSBC brand helped attract an increase in customer accounts of US$50 billion, or 13 per cent, to US$440 billion, despite the low interest rate environment. In North America, net loans and advances to customers fell by 16 per cent as HSBC reduced its balance sheet and lowered its risk profile in the US. Excluding North America, lending increased by 10 per cent, demonstrating HSBC's commitment to supporting its core customer base. At 31 December 2008, the advances-to-deposits ratio was 91 per cent, compared with 106 per cent at the end of December 2007.
The HSBC Direct online savings offering in the US performed well in difficult market conditions. Average balances increased by US$2.0 billion to US$13.2 billion, reducing the overall funding costs of the US Personal Financial Services business.
In the UK, HSBC launched a RateMatcher mortgage promotion to attract quality customers facing an interest rate reset in the near term. HSBC attracted a strong flow of new business totalling US$9.9 billion during the campaign. In December 2008, HSBC announced that the bank will make available up to £15 billion of UK residential mortgages in 2009.
Consistent with HSBC's strategy to increase the sale of insurance products to existing customers, the major life businesses in Europe and Asia grew and underlying net premium income rose by 15 per cent. However, declining worldwide equity markets led to a reduction in insurance profits compared with 2007.
In the US, declining house prices, rising unemployment and increasing bankruptcies fuelled growing customer delinquencies. HSBC continued to take measures to help customers manage their mortgage repayments and avoid foreclosure. During 2008, HSBC Finance expanded its mortgage loan modification programme which included longer-term modifications. The loan obligations of over 92,000 customers with aggregate mortgages of US$13.5 billion were modified during 2008, helping to maximise cash flow for HSBC and preserve home ownership for customers.
Subsequent developments
The branch-based US consumer lending business of HSBC Finance has historically focused on sub-prime customers who rely on drawing cash against the equity in their homes to help meet their cash needs. Unsecured consumer lines of credit have served as a means of generating new customer accounts, with the potential to subsequently provide the customer with a mortgage product, typically a secured debt consolidation loan. As a result, the bulk of the mortgage lending products sold in the US consumer lending branch network have been for refinancing and debt consolidation rather than for house purchase.
The unprecedented deterioration in the US housing market over the last two years, including declining property values and lower secondary market demand for sub-prime mortgages, has undermined the ability of many real estate loan customers to make payments or refinance their loans. In many cases, there is no equity in their homes or, if there is, few institutions are willing to finance its withdrawal. As a result, loan originations in this business have fallen dramatically for both HSBC Finance and the industry as a whole. Management believes it will take years before property values return to the levels seen prior to the decline and, as such, has concluded that recovery in the sub-prime mortgage lending business is uncertain and the industry is unlikely to stabilise for a number of years. Management also expects that changes in regulation and practice will make it problematic to plan and execute a sub-prime lending business strategy with a reasonable degree of confidence.
Given the above, in 2008 HSBC began to reposition its US consumer lending business to reduce risk by tightening lending criteria and expanding its lending to include government sponsored entity and conforming loan products. As part of this repositioning, HSBC intended to place greater emphasis on unsecured loan products while decreasing secured loan production. To date, the results of this repositioning effort have not met expectations, in part due to the continued deterioration in the economy, leading management to re-evaluate whether, given the Group's risk appetite, the initiative can produce the volume necessary to ensure that the consumer lending business will return to profitability in the foreseeable future.
t the end of February 2009, the Board of HSBC endorsed management's recommendation to discontinue as soon as practicable originations of all products by the branch-based US consumer lending business of HSBC Finance. At 31 December 2008 this business had outstanding balances of US$62 billion comprising US$46 billion in real estate secured and US$16 billion in unsecured loan balances. HSBC will continue to service and collect the existing loan portfolio as it runs off, and will continue the Group's efforts to help customers in need of loan modification and other account management programmes to maximise collection and preserve, as far as possible, home ownership. In the US, substantially all consumer lending branches branded HFC and Beneficial will cease taking loan applications and will be closed. HSBC Finance will also continue to run-off the loan portfolios of its mortgage services business and its vehicle finance business. HSBC will provide all necessary support to HSBC Finance to enable it to run off these businesses in a measured way and to meet all its commitments.
The operations of HSBC's other US Personal Financial Services businesses, including its card business, and the retail bank branch business of HSBC USA are unaffected by this decision. HSBC USA will continue to service its customers with real estate secured and unsecured products.
HSBC expects as a result of this decision affecting the US consumer lending business of HSBC Finance that total revenue will fall by approximately US$50 million in 2009 and operating expenses by approximately US$700 million on an annualised basis. Closure costs of up to US$195 million will be incurred, predominantly related to one-off termination and other employee benefit costs, a substantial portion of which will be recorded in the first half of 2009.
In addition, a non-cash charge of approximately US$70 million is expected to be incurred in relation to the impairment of fixed assets associated with the consumer lending branch network, also to be recognised in the first half of 2009.
Employees supporting originations operations will be evaluated for service elsewhere in HSBC's operations, but it is currently expected that approximately 6,100 employees will be displaced.
Reconciliation of reported and underlying profit/(loss) before tax
|
2008 compared with 2007 |
|||||||||||||||||
|
Personal Financial Services |
2007 as reported US$m |
2007 acquisitions, disposals & dilution gains1 US$m |
Currency translation2 US$m |
2007 at 2008 exchange rates3 US$m |
2008 acquisitions and disposals1 US$m |
Under- lying change US$m |
|
2008 as reported US$m |
Re- ported change % |
|
Under- lying change % |
||||||
|
Net interest income |
29,069 |
(224) |
(126) |
28,719 |
215 |
485 |
29,419 |
1 |
2 |
||||||||
|
Net fee income |
11,742 |
(21) |
(105) |
11,616 |
(9) |
(1,500) |
10,107 |
(14) |
(13) |
||||||||
|
Other income4 |
2,428 |
(91) |
(10) |
2,327 |
83 |
(447) |
1,963 |
(19) |
(19) |
||||||||
|
Net operating income5 |
43,239 |
(336) |
(241) |
42,662 |
289 |
(1,462) |
41,489 |
(4) |
(3) |
||||||||
|
Loan impairment charges and other credit risk provisions |
(16,172) |
4 |
75 |
(16,093) |
(3) |
(5,124) |
(21,220) |
(31) |
(32) |
||||||||
|
Net operating income |
27,067 |
(332) |
(166) |
26,569 |
286 |
(6,586) |
20,269 |
(25) |
(25) |
||||||||
|
Operating expenses (excluding goodwill impairment) |
(21,757) |
236 |
117 |
(21,404) |
(98) |
362 |
(21,140) |
3 |
2 |
||||||||
|
Goodwill impairment |
- |
- |
- |
- |
- |
(10,564) |
(10,564) |
n/a |
n/a |
||||||||
|
Operating profit/(loss) |
5,310 |
(96) |
(49) |
5,165 |
188 |
(16,788) |
(11,435) |
(315) |
(325) |
||||||||
|
Income from associates |
590 |
- |
52 |
642 |
- |
(181) |
461 |
(22) |
(28) |
||||||||
|
Profit/(loss) before tax |
5,900 |
(96) |
3 |
5,807 |
188 |
(16,969) |
(10,974) |
(286) |
(292) |
||||||||
|
2007 compared with 2006 |
|||||||||||||||||
|
Personal Financial Services |
2006 as reported US$m |
2006 acquisitions and disposals1 US$m |
Currency translation2 US$m |
2006 at 2007 exchange rates6 US$m |
2007 acquisitions, disposals & dilution gains1 US$m |
Under- lying change US$m |
|
2007 as reported US$m |
Re- ported change % |
|
Under- lying change % |
||||||
|
Net interest income |
26,076 |
(3) |
746 |
26,819 |
653 |
1,597 |
29,069 |
11 |
6 |
||||||||
|
Net fee income |
8,762 |
53 |
322 |
9,137 |
(77) |
2,682 |
11,742 |
34 |
30 |
||||||||
|
Other income4 |
3,006 |
(53) |
87 |
3,040 |
(38) |
(574) |
2,428 |
(19) |
(19) |
||||||||
|
Net operating income5 |
37,844 |
(3) |
1,155 |
38,996 |
538 |
3,705 |
43,239 |
14 |
10 |
||||||||
|
Loan impairment charges and other credit risk provisions |
(9,949) |
- |
(205) |
(10,154) |
(72) |
(5,946) |
(16,172) |
(63) |
(59) |
||||||||
|
Net operating income |
27,895 |
(3) |
950 |
28,842 |
466 |
(2,241) |
27,067 |
(3) |
(8) |
||||||||
|
Operating expenses |
(18,818) |
2 |
(753) |
(19,569) |
(285) |
(1,903) |
(21,757) |
(16) |
(10) |
||||||||
|
Operating profit |
9,077 |
(1) |
197 |
9,273 |
181 |
(4,144) |
5,310 |
(42) |
(45) |
||||||||
|
Income from associates |
380 |
- |
13 |
393 |
6 |
191 |
590 |
55 |
49 |
||||||||
|
Profit before tax |
9,457 |
(1) |
210 |
9,666 |
187 |
(3,953) |
5,900 |
(38) |
(41) |
||||||||
For footnotes, see page 143.
Commercial Banking
|
Profit before tax |
|||||
|
2008 |
2007 |
2006 |
|||
|
US$m |
US$m |
US$m |
|||
|
Net interest income |
9,494 |
9,055 |
7,514 |
||
|
Net fee income |
4,097 |
3,972 |
3,207 |
||
|
Trading income excluding net interest income |
369 |
265 |
204 |
||
|
Net interest income on trading activities |
17 |
31 |
20 |
||
|
Net trading income16 |
386 |
296 |
224 |
||
|
Net income/(expense) from financial instruments designated at fair value |
(224) |
22 |
(22) |
||
|
Gains less losses from financial investments |
193 |
90 |
44 |
||
|
Dividend income |
88 |
8 |
6 |
||
|
Net earned insurance premiums |
679 |
733 |
258 |
||
|
Other operating income |
939 |
165 |
250 |
||
|
Total operating income |
15,652 |
14,341 |
11,481 |
||
|
Net insurance claims17 |
(335) |
(391) |
(96) |
||
|
Net operating income5 |
15,317 |
13,950 |
11,385 |
||
|
Loan impairment charges and other credit risk provisions |
(2,173) |
(1,007) |
(697) |
||
|
Net operating income |
13,144 |
12,943 |
10,688 |
||
|
Total operating expenses |
(6,581) |
(6,252) |
(4,979) |
||
|
Operating profit |
6,563 |
6,691 |
5,709 |
||
|
Share of profit in associates and joint ventures |
631 |
454 |
288 |
||
|
Profit before tax |
7,194 |
7,145 |
5,997 |
||
|
By geographical region |
|||||
|
Europe |
2,722 |
2,516 |
2,234 |
||
|
Hong Kong |
1,315 |
1,619 |
1,321 |
||
|
Rest of Asia-Pacific |
1,793 |
1,350 |
1,034 |
||
|
North America |
658 |
920 |
957 |
||
|
Latin America |
706 |
740 |
451 |
||
|
7,194 |
7,145 |
5,997 |
|||
|
% |
% |
% |
|||
|
Share of HSBC's profit before tax |
77.3 |
29.5 |
27.2 |
||
|
Cost efficiency ratio |
43.0 |
44.8 |
43.7 |
||
|
Balance sheet data15 |
|||||
|
US$m |
US$m |
US$m |
|||
|
Loans and advances to customers (net) |
203,949 |
220,068 |
172,976 |
||
|
Total assets |
249,218 |
307,944 |
228,668 |
||
|
Customer accounts |
235,879 |
237,987 |
190,853 |
||
|
For footnotes, see page 143. |
|||||
Strategic direction
HSBC's Commercial Banking strategy is focused on two key initiatives:
to be the leading international business bank, using HSBC's extensive geographical network together with product expertise in payments, trade, receivables finance and foreign exchange to actively support customers trading and investing across borders; and
to be the best bank for small businesses in target markets, building global scale and creating efficiencies by sharing best practice, including customer experience and credit scoring, and selectively rolling out the direct banking model.
Financial performance in 2008
Reported pre-tax profit was broadly in line with 2007 at US$7.2 billion as revenue growth was offset by the rise in loan impairment charges and operating costs. Pre-tax profit growth was evident in emerging markets, with their contribution increasing to 56 per cent excluding a gain of US$425 million on the disposal of the UK merchant acquiring division, recorded in 'Other operating income'. Profit growth was most significant in Australia, India, mainland China, United Arab Emirates ('UAE'), Turkey, Brazil and Argentina.
HSBC remained committed to new lending, increasing lending balances by 10 per cent. Deposit growth of 15 per cent was driven by brand strength, particularly in the UK, the US and Hong Kong.
Balance sheet growth drove a 7 per cent rise in net interest income, notwithstanding the adverse affect of widespread reductions in interest rates on liability spreads. This was partly offset by higher lending spreads from improved pricing.
Net fee income rose by 8 per cent with income from trade services and foreign exchange growing particularly strongly.
Other income was boosted by a number of significant gains, notably from the sale of shares in MasterCard and Visa.
Loan impairment charges increased from US$1.0 billion in 2007 to US$2.2 billion, as the previously benign credit environment was replaced by economic slowdown in most countries. Loan impairment charges increased by 44 basis points to 1 per cent of average reported assets, with most of the increase coming in the second half of 2008.
The cost efficiency ratio improved to 44.2 per cent excluding the US$425 million gains noted above. Costs were tightly controlled in Europe and North America, but grew elsewhere as the Group continued to expand operations in emerging markets, particularly in Asia.
Customer numbers grew to 2.9 million, with continuing recruitment of new customers through existing operations and gains from the acquisition of the assets, liabilities and operations of The Chinese Bank in Taiwan, despite a reduction from the sale of the French regional banks.
Business highlights in 2008
Commercial Banking achieved key objectives toward its international business strategy in 2008 as the proportion of its total revenues derived from international customers and products increased.
Revenue from foreign exchange and trade and supply chain products grew strongly, with increases of 66 per cent and 27 per cent, respectively. This was driven by improved cross-selling of products, particularly in foreign exchange, as customers sought protection from volatile currency movements. A number of initiatives were launched to extend foreign exchange services, which included enhancing relationship management in the US and UAE, and introducing dedicated sales desks in India.
The volume of international trade finance increased significantly and revenue grew commensurately as HSBC benefited from higher commodity prices, the reintermediation of traditional trade instruments in respect of which the Group demonstrated continued capacity to lend, and improved pricing reflecting market trends. HSBC's growth outpaced market growth in a number of key countries, particularly in Asia and the Middle East.
Successful Global Links referrals nearly doubled to 5,600, with the aggregate transaction value exceeding US$11 billion, an increase of 96 per cent. The use of electronic account opening 'SmartForms' improved customer experience.
In support of its strategy to be the best bank for small businesses, HSBC focused on deposit gathering and transaction banking, and was particularly successful in attracting customer deposits.
With over US$100 billion in customer deposits, HSBC's small and micro segments are a significant source of funding for Commercial Banking, generating over twice as much in liabilities as loans and advances to customers. Customer numbers in the small and micro segments rose by 7 per cent to 2.6 million. In Taiwan, the acquisition of the assets, liabilities and operations of The Chinese Bank expanded the branch network to 33 and added over 15,000 small business customers.
Customer loyalty was evidenced by an increase in the use of internet banking, with the number of active users of Business Internet Banking growing by 16 per cent and the number of transactions by 18 per cent.
New small business offerings continued to be initiated. BusinessDirect was extended to seven countries and total customer numbers exceeded 180,000. BusinessVantage was launched in Indonesia while, in the US, the autumn marketing campaign led to over 9,000 new accounts. New business card products were rolled out in a further six countries.
The announcement of HSBC's US$5 billion International SME Fund in December under-scored the Group's commitment to lending to small and medium-sized enterprises, and led to significant interest from existing and prospective customers. Specific initiatives were launched in the UK, Hong Kong, France and Malta.
Commercial Banking increased its intra-Group referrals, in part by extending the Global Links platform to facilitate cross-customer group referrals.
In Hong Kong and India, an initiative to increase referrals across customer groups resulted in a two-fold rise in the number of Premier account referrals, and significant growth in referrals from Personal Financial Services to Commercial Banking. Similar programmes in the UK contributed to sales of Premier accounts and mortgage products, and plans are underway to extend these programmes to other regions in 2009.
Referrals to Private Banking grew by 30 per cent, and led to US$2.7 billion in new assets under management, while referrals from Private Banking led to a three-fold increase in new relationships.
Sales of Global Markets products were particularly strong in foreign exchange under Commercial Banking's strategy to be the leading bank for international business.
Reconciliation of reported and underlying profit before tax
|
2008 compared with 2007 |
|||||||||||||||||
|
Commercial Banking |
2007 as reported US$m |
2007 acquisitions, disposals & dilution gains1 US$m |
Currency translation2 US$m |
2007 at 2008 exchange rates3 US$m |
2008 acquisitions and disposals1 US$m |
Under- lying change US$m |
|
2008 as reported US$m |
Re- ported change % |
|
Under- lying change % |
||||||
|
Net interest income |
9,055 |
(166) |
(77) |
8,812 |
41 |
641 |
9,494 |
5 |
7 |
||||||||
|
Net fee income |
3,972 |
(113) |
(76) |
3,783 |
27 |
287 |
4,097 |
3 |
8 |
||||||||
|
Other income4 |
923 |
(7) |
(28) |
888 |
525 |
313 |
1,726 |
87 |
35 |
||||||||
|
Net operating income5 |
13,950 |
(286) |
(181) |
13,483 |
593 |
1,241 |
15,317 |
10 |
9 |
||||||||
|
Loan impairment charges and other credit risk provisions |
(1,007) |
3 |
36 |
(968) |
(3) |
(1,202) |
(2,173) |
(116) |
(124) |
||||||||
|
Net operating income |
12,943 |
(283) |
(145) |
12,515 |
590 |
39 |
13,144 |
2 |
- |
||||||||
|
Operating expenses |
(6,252) |
180 |
47 |
(6,025) |
(106) |
(450) |
(6,581) |
(5) |
(7) |
||||||||
|
Operating profit |
6,691 |
(103) |
(98) |
6,490 |
484 |
(411) |
6,563 |
(2) |
(6) |
||||||||
|
Income from associates |
454 |
- |
26 |
480 |
- |
151 |
631 |
39 |
31 |
||||||||
|
Profit before tax |
7,145 |
(103) |
(72) |
6,970 |
484 |
(260) |
7,194 |
1 |
(4) |
||||||||
|
2007 compared with 2006 |
|||||||||||||||||
|
Commercial Banking |
2006 as reported US$m |
2006 acquisitions and disposals1 US$m |
Currency translation2 US$m |
2006 at 2007 exchange rates6 US$m |
2007 acquisitions, disposals & dilution gains1 US$m |
Under- lying change US$m |
|
2007 as reported US$m |
Re- ported change % |
|
Under- lying change % |
||||||
|
Net interest income |
7,514 |
- |
382 |
7,896 |
114 |
1,045 |
9,055 |
21 |
13 |
||||||||
|
Net fee income |
3,207 |
- |
189 |
3,396 |
17 |
559 |
3,972 |
24 |
16 |
||||||||
|
Other income4 |
664 |
- |
27 |
691 |
48 |
184 |
923 |
39 |
27 |
||||||||
|
Net operating income5 |
11,385 |
- |
598 |
11,983 |
179 |
1,788 |
13,950 |
23 |
15 |
||||||||
|
Loan impairment charges and other credit risk provisions |
(697) |
- |
(47) |
(744) |
(61) |
(202) |
(1,007) |
(44) |
(27) |
||||||||
|
Net operating income |
10,688 |
- |
551 |
11,239 |
118 |
1,586 |
12,943 |
21 |
14 |
||||||||
|
Operating expenses |
(4,979) |
- |
(291) |
(5,270) |
(73) |
(909) |
(6,252) |
(26) |
(17) |
||||||||
|
Operating profit |
5,709 |
- |
260 |
5,969 |
45 |
677 |
6,691 |
17 |
11 |
||||||||
|
Income from associates |
288 |
- |
9 |
297 |
1 |
156 |
454 |
58 |
53 |
||||||||
|
Profit before tax |
5,997 |
- |
269 |
6,266 |
46 |
833 |
7,145 |
19 |
13 |
||||||||
For footnotes, see page 143.
Global Banking and Markets
|
Profit before tax |
|||||
|
2008 |
2007 |
2006 |
|||
|
US$m |
US$m |
US$m |
|||
|
Net interest income |
8,541 |
4,430 |
3,168 |
||
|
Net fee income |
4,291 |
4,901 |
3,718 |
||
|
Trading income excluding net interest income |
157 |
3,503 |
4,890 |
||
|
Net interest income/ (expense) on trading activities |
324 |
(236) |
(379) |
||
|
Net trading income16 |
481 |
3,267 |
4,511 |
||
|
Net income/(expense) from financial instruments designated at fair value |
(438) |
(164) |
20 |
||
|
Gains less losses from financial investments |
(327) |
1,313 |
534 |
||
|
Dividend income |
76 |
222 |
235 |
||
|
Net earned insurance premiums |
105 |
93 |
73 |
||
|
Other operating income |
868 |
1,218 |
1,378 |
||
|
Total operating income |
13,597 |
15,280 |
13,637 |
||
|
Net insurance claims17 |
(79) |
(70) |
(62) |
||
|
Net operating income5 |
13,518 |
15,210 |
13,575 |
||
|
Loan impairment (charges)/ recoveries and other credit risk provisions |
(1,471) |
(38) |
119 |
||
|
Net operating income |
12,047 |
15,172 |
13,694 |
||
|
Total operating expenses |
(9,092) |
(9,358) |
(7,991) |
||
|
Operating profit |
2,955 |
5,814 |
5,703 |
||
|
Share of profit in associates and joint ventures |
528 |
307 |
103 |
||
|
Profit before tax |
3,483 |
6,121 |
5,806 |
||
|
By geographical region |
|||||
|
Europe |
195 |
2,527 |
2,304 |
||
|
Hong Kong |
1,436 |
1,578 |
955 |
||
|
Rest of Asia-Pacific |
3,786 |
2,464 |
1,649 |
||
|
North America |
(2,575) |
(965) |
423 |
||
|
Latin America |
641 |
517 |
475 |
||
|
3,483 |
6,121 |
5,806 |
|||
|
% |
% |
% |
|||
|
Share of HSBC's profit before tax |
37.4 |
25.3 |
26.3 |
||
|
Cost efficiency ratio |
67.3 |
61.5 |
58.9 |
||
|
For footnotes, see page 143. |
|||||
In 2008, Global Banking and Markets continued to pursue its 'emerging markets-led and financing-focused' strategy, which was introduced in 2006 and fully implemented in 2007. HSBC's strategy is to be a leading wholesale bank by:
utilising HSBC's extensive distribution network;
developing Global Banking and Markets' hubߛandߛspoke business model; and
continuing to build capabilities in major hubs to support the delivery of an advanced suite of services to corporate, institutional and government clients across the HSBC network.
Ensuring that this combination of product depth and distribution strength meets the needs of existing and new clients will allow Global Banking and Markets to achieve its strategic goals.
Financial performance in 2008
Global Banking and Markets delivered a preߛtax profit of US$3.5 billion, a decline of US$2.6 billion or 43 per cent compared with 2007. Although credit trading was significantly impacted by the adverse market conditions, revenues in other core businesses grew strongly in both developed and emerging markets. At constant exchange rates, total operating expenses were slightly below 2007 with a progressive decline over the last four halfߛyears.
Core businesses such as foreign exchange, Rates, Balance Sheet Management and financing and equity capital markets posted record revenues.
In 2008, some US$5.4 billion of write-downs were absorbed on legacy positions in credit trading, leveraged and acquisition financing and monoline credit exposures. This compared with US$2.1 billion of write-downs recorded in 2007. Results for 2008 included a US$529 million fair value gain on the widening of credit spreads on structured liabilities.
In addition, because of an alleged fraud, HSBC wrote off the value of units in funds which had invested with Madoff Securities, and took a charge against trading income of US$984 million in the equities business in December 2008. The units had been acquired in connection with various financing transactions entered into with institutional clients.
Management view of total operating income
|
2008 US$m |
2007 US$m |
2006 US$m |
|||
|
Global Markets18 |
2,676 |
5,720 |
6,059 |
||
|
Credit |
(5,502) |
(1,319) |
931 |
||
|
Rates |
2,033 |
1,291 |
1,207 |
||
|
Foreign exchange |
3,842 |
2,178 |
1,552 |
||
|
Equities |
(64) |
1,177 |
721 |
||
|
Securities services |
2,116 |
1,926 |
1,378 |
||
|
Asset and structured finance |
251 |
467 |
270 |
||
|
Global Banking |
5,718 |
4,190 |
3,388 |
||
|
Financing and equity capital markets |
3,572 |
2,186 |
1,730 |
||
|
Payments and cash management |
1,665 |
1,632 |
1,257 |
||
|
Other transaction services |
481 |
372 |
401 |
||
|
Balance Sheet Management |
3,618 |
1,226 |
713 |
||
|
Global Asset Management |
934 |
1,336 |
1,061 |
||
|
Principal Investments |
(415) |
1,253 |
686 |
||
|
Other19 |
1,066 |
1,555 |
1,730 |
||
|
Total operating income |
13,597 |
15,280 |
13,637 |
Comparative information has been adjusted to reflect the current management view.
For footnotes, see page 143.
Loan impairment charges and other credit risk provisions of US$1.5 billion were higher than in 2007, reflecting loan impairment charges resulting from the deteriorating credit environment, coupled with a relatively modest impairment charge within the available-for-sale portfolio, taken through the income statement and detailed below.
Within the Group's available-for-sale portfolio, continuing illiquidity in asset-backed securities markets led to further write-downs. However, due to the underlying credit quality and seniority of the tranches held by HSBC, only a relatively modest impairment charge of US$279 million was identified on securities with a nominal value of US$570 million and was taken to the income statement. The expected cash flow impairment on these securities was US$86 million. A further US$293 million impairment was absorbed by income note holders who take the first loss on positions within the securities investment conduits ('SIC's) now consolidated in HSBC's accounts. Further details on the SICs are provided on pages 174 to 179.
Business highlights in 2008
The success of Global Banking and Markets' two-year-old 'emerging markets-led and financing-focused' strategy was recognised by a number of key industry awards, including 'Sterling Bond House', 'Islamic Bond House', 'Middle East Loan House' and 'Latin America Bond House' in International Financing Review; 'Best Emerging Markets Bank', 'Best Investment Bank in the Middle East' and 'Best Debt House in Europe' in Euromoney; 'Best Bond House' in Asia in FinanceAsia, Asiamoney and The Asset; 'Bond House of the Year' in Latin Finance; and 'Emerging Markets Manager of the Year' in European Pensions.
In Global Markets, foreign exchange revenues rose by 76 per cent to a record US$3.8 billion due to increased market volatility and higher levels of customer activity. While foreign exchange revenues rose in all regions, performance was notably strong in Europe, where revenues rose by 75 per cent to US$1.4 billion, in the Rest of Asia-Pacific region, and in North America, where revenues more than doubled.
The Rates business also reported record revenues, reflecting increased customer activity against a backdrop of greater market volatility.
Securities services revenues grew despite the lower interest rate environment, benefiting from new customer flows and additional business from existing customers. Assets under custody decreased by 34 per cent to US$3.6 trillion, driven by the downturn in the equity markets and the net redemptions experienced across the industry in the final quarter.
Growth in Global Banking was driven by improved margins in the credit and lending business and substantial gains on credit default swap transactions in certain portfolios. Payments and cash management continued to deliver revenue growth, primarily due to strong growth in liability balances, although margins narrowed in the latter part of the year.
Balance Sheet Management income rose in Europe, Asia and North America, reflecting positioning ahead of rate reductions by a number of central banks.
In Principal Investments, markets remained closed for realisations and certain private equity holdings were marked down to reflect market conditions.
In Global Asset Management, although underlying management fees remained strong, overall revenues fell, primarily due to the costs associated with the provision of support to certain money market funds. A fall in performance fees reflected a 20 per cent decrease in funds under management following recent equity market declines. Nevertheless, HSBC remained one of the leading emerging markets asset managers.
Reconciliation of reported and underlying profit before tax
|
2008 compared with 2007 |
|||||||||||||||||
|
Global Banking and Markets |
2007 as reported US$m |
2007 acquisitions, disposals & dilution gains1 US$m |
Currency translation2 US$m |
2007 at 2008 exchange rates3 US$m |
2008 acquisitions and disposals1 US$m |
Under- lying change US$m |
|
2008 as reported US$m |
Re- ported change % |
|
Under- lying change % |
||||||
|
Net interest income |
4,430 |
- |
(32) |
4,398 |
- |
4,143 |
8,541 |
93 |
94 |
||||||||
|
Net fee income |
4,901 |
- |
(46) |
4,855 |
- |
(564) |
4,291 |
(12) |
(12) |
||||||||
|
Other income4 |
5,879 |
- |
(57) |
5,822 |
- |
(5,136) |
686 |
(88) |
(88) |
||||||||
|
Net operating income5 |
15,210 |
- |
(135) |
15,075 |
- |
(1,557) |
13,518 |
(11) |
(10) |
||||||||
|
Loan impairment charges and other credit risk provisions |
(38) |
- |
1 |
(37) |
- |
(1,434) |
(1,471) |
(3,771) |
(3,876) |
||||||||
|
Net operating income |
15,172 |
- |
(134) |
15,038 |
- |
(2,991) |
12,047 |
(21) |
(20) |
||||||||
|
Operating expenses |
(9,358) |
- |
175 |
(9,183) |
- |
91 |
(9,092) |
3 |
1 |
||||||||
|
Operating profit |
5,814 |
- |
41 |
5,855 |
- |
(2,900) |
2,955 |
(49) |
(50) |
||||||||
|
Income from associates |
307 |
- |
18 |
325 |
- |
203 |
528 |
72 |
62 |
||||||||
|
Profit before tax |
6,121 |
- |
59 |
6,180 |
- |
(2,697) |
3,483 |
(43) |
(44) |
||||||||
|
2007 compared with 2006 |
|||||||||||||||||
|
Global Banking and Markets |
2006 as reported US$m |
2006 acquisitions and disposals1 US$m |
Currency translation2 US$m |
2006 at 2007 exchange rates6 US$m |
2007 acquisitions, disposals & dilution gains1 US$m |
Under- lying change US$m |
|
2007 as reported US$m |
Re- ported change % |
|
Under- lying change % |
||||||
|
Net interest income |
3,168 |
- |
175 |
3,343 |
25 |
1,062 |
4,430 |
40 |
32 |
||||||||
|
Net fee income |
3,718 |
- |
182 |
3,900 |
9 |
992 |
4,901 |
32 |
25 |
||||||||
|
Other income4 |
6,689 |
- |
360 |
7,049 |
10 |
(1,180) |
5,879 |
(12) |
(17) |
||||||||
|
Net operating income5 |
13,575 |
- |
717 |
14,292 |
44 |
874 |
15,210 |
12 |
6 |
||||||||
|
Loan impairment chargesand other credit risk provisions |
119 |
- |
6 |
125 |
- |
(163) |
(38) |
(132) |
(130) |
||||||||
|
Net operating income |
13,694 |
- |
723 |
14,417 |
44 |
711 |
15,172 |
11 |
5 |
||||||||
|
Operating expenses |
(7,991) |
- |
(406) |
(8,397) |
(35) |
(926) |
(9,358) |
(17) |
(11) |
||||||||
|
Operating profit |
5,703 |
- |
317 |
6,020 |
9 |
(215) |
5,814 |
2 |
(4) |
||||||||
|
Income from associates |
103 |
- |
(4) |
99 |
2 |
206 |
307 |
198 |
208 |
||||||||
|
Profit before tax |
5,806 |
- |
313 |
6,119 |
11 |
(9) |
6,121 |
5 |
- |
||||||||
For footnotes, see page 143.
Balance sheet data significant to Global Banking and Markets15
|
Europe |
Hong Kong |
Rest of Asia- Pacific |
North America |
Latin America |
Total |
||||||
|
US$m |
US$m |
US$m |
US$m |
US$m |
US$m |
||||||
|
At 31 December 2008 |
|||||||||||
|
Trading assets20 |
281,089 |
45,398 |
19,606 |
74,498 |
5,004 |
425,595 |
|||||
|
Derivative assets |
303,265 |
26,989 |
26,506 |
125,848 |
5,145 |
487,753 |
|||||
|
Loans and advances to: |
|||||||||||
|
- customers (net) |
185,818 |
23,042 |
34,590 |
35,583 |
8,273 |
287,306 |
|||||
|
- banks (net) |
49,508 |
20,970 |
26,710 |
9,238 |
12,574 |
119,000 |
|||||
|
Financial investments20 |
105,546 |
46,964 |
37,346 |
39,841 |
8,179 |
237,876 |
|||||
|
Total assets |
1,131,721 |
225,853 |
172,049 |
318,139 |
48,868 |
1,896,630 |
|||||
|
Deposits by banks |
79,509 |
11,509 |
13,205 |
16,244 |
3,871 |
124,338 |
|||||
|
Customer accounts |
199,687 |
30,866 |
50,605 |
23,844 |
15,384 |
320,386 |
|||||
|
Trading liabilities |
144,759 |
13,056 |
3,687 |
72,325 |
2,546 |
236,373 |
|||||
|
Derivative liabilities |
300,200 |
28,536 |
26,481 |
122,699 |
4,615 |
482,531 |
|||||
|
At 31 December 2007 |
|||||||||||
|
Trading assets20 |
294,078 |
26,877 |
19,732 |
93,395 |
8,570 |
442,652 |
|||||
|
Derivative assets |
102,409 |
11,492 |
10,234 |
56,531 |
1,814 |
182,480 |
|||||
|
Loans and advances to: |
|||||||||||
|
- customers (net) |
163,066 |
19,171 |
32,106 |
26,186 |
9,935 |
250,464 |
|||||
|
- banks (net) |
89,651 |
53,725 |
30,853 |
14,938 |
10,339 |
199,506 |
|||||
|
Financial investments20 |
94,416 |
46,765 |
39,448 |
33,273 |
10,155 |
224,057 |
|||||
|
Total assets |
892,712 |
215,801 |
155,106 |
252,804 |
45,045 |
1,561,468 |
|||||
|
Deposits by banks |
85,315 |
6,251 |
17,174 |
14,825 |
2,830 |
126,395 |
|||||
|
Customer accounts |
163,713 |
37,364 |
54,120 |
30,732 |
13,950 |
299,879 |
|||||
|
Trading liabilities |
201,010 |
15,939 |
8,601 |
73,081 |
4,998 |
303,629 |
|||||
|
Derivative liabilities |
104,687 |
10,865 |
9,656 |
53,058 |
1,986 |
180,252 |
|||||
|
At 31 December 2006 |
|||||||||||
|
Trading assets20 |
165,116 |
30,895 |
14,726 |
105,645 |
7,575 |
323,957 |
|||||
|
Derivative assets |
53,223 |
6,259 |
6,575 |
32,357 |
1,230 |
99,644 |
|||||
|
Loans and advances to: |
|||||||||||
|
- customers (net) |
140,277 |
20,270 |
24,311 |
17,215 |
8,147 |
210,220 |
|||||
|
- banks (net) |
63,788 |
45,023 |
22,171 |
15,862 |
9,704 |
156,548 |
|||||
|
Financial investments20 |
54,009 |
48,407 |
20,890 |
30,496 |
8,169 |
161,971 |
|||||
|
Total assets |
526,468 |
182,540 |
109,535 |
203,639 |
37,564 |
1,059,746 |
|||||
|
Deposits by banks |
65,963 |
4,363 |
9,849 |
9,664 |
3,115 |
92,954 |
|||||
|
Customer accounts |
139,416 |
24,530 |
36,623 |
23,711 |
11,685 |
235,965 |
|||||
|
Trading liabilities |
97,015 |
17,292 |
6,243 |
88,275 |
4,898 |
213,723 |
|||||
|
Derivative liabilities |
55,581 |
6,376 |
6,149 |
32,148 |
1,266 |
101,520 |
For footnotes, see page 143.
Private Banking
|
Profit before tax |
||||||
|
2008 |
2007 |
2006 |
||||
|
US$m |
US$m |
US$m |
||||
|
Net interest income |
1,612 |
1,216 |
1,011 |
|||
|
Net fee income |
1,476 |
1,615 |
1,323 |
|||
|
Trading income excluding net interest income |
408 |
525 |
362 |
|||
|
Net interest income on trading activities |
14 |
9 |
2 |
|||
|
Net trading income16 |
422 |
534 |
364 |
|||
|
Net income/(expense) from financial instruments designated at fair value |
- |
(1) |
1 |
|||
|
Gains less losses from financial investments |
64 |
119 |
166 |
|||
|
Dividend income |
8 |
7 |
5 |
|||
|
Other operating income |
49 |
58 |
61 |
|||
|
Total operating income |
3,631 |
3,548 |
2,931 |
|||
|
Net insurance claims17 |
- |
- |
- |
|||
|
Net operating income5 |
3,631 |
3,548 |
2,931 |
|||
|
Loan impairment charges and other credit risk provisions |
(68) |
(14) |
(33) |
|||
|
Net operating income |
3,563 |
3,534 |
2,898 |
|||
|
Total operating expenses |
(2,116) |
(2,025) |
(1,685) |
|||
|
Operating profit |
1,447 |
1,509 |
1,213 |
|||
|
Share of profit in associates and joint ventures |
- |
2 |
1 |
|||
|
Profit before tax |
1,447 |
1,511 |
1,214 |
|||
|
By geographical region |
||||||
|
Europe |
998 |
915 |
805 |
|||
|
Hong Kong |
237 |
305 |
201 |
|||
|
Rest of Asia-Pacific |
113 |
92 |
80 |
|||
|
North America |
83 |
174 |
114 |
|||
|
Latin America |
16 |
25 |
14 |
|||
|
1,447 |
1,511 |
1,214 |
||||
|
% |
% |
% |
||||
|
Share of HSBC's profit before tax |
15.6 |
6.2 |
5.5 |
|||
|
Cost efficiency ratio |
58.3 |
57.1 |
57.5 |
|||
|
Balance sheet data15 |
||||||
|
US$m |
US$m |
US$m |
||||
|
Loans and advances to customers (net) |
37,590 |
43,612 |
34,297 |
|||
|
Total assets |
133,216 |
130,893 |
106,178 |
|||
|
Customer accounts |
116,683 |
106,197 |
80,303 |
|||
|
For footnotes, see page 143. |
||||||
Strategic direction
The strategy for Private Banking is to be the world's leading international private bank, known for excellent client experience and global connections.
HSBC's global network, strong capital position and recognised brand provide a base from which Private Banking attracts and retains clients and serves their complex international needs. It uses both traditional and innovative ways of managing and preserving the wealth of high net worth individuals while optimising returns.
Private Banking has built a network of domestic and international operations that provide diversified revenue streams, helped by product leadership in areas such as credit, hedge funds, emerging markets, investment advice and estate planning. This is achieved by attracting, retaining and motivating talented individuals, by providing close communication between clients and staff, and by making targeted investments in IT, marketing and branding initiatives.
Financial performance in 2008
Reported pre-tax profit fell by 4 per cent as clients moved progressively to a more conservative investment stance in the turbulent markets. This trend was reflected in reduced trading income in Asia, lower fee income in Europe and higher loan impairment charges and other credit risk provisions. By contrast, net interest income grew strongly in Europe. On an underlying basis, pre-tax profit decreased by 3 per cent.
Net interest income rose by 34 per cent to US$1.6 billion as a result of an increase in customer deposit balances in Switzerland, the UK and Hong Kong as customers reduced risk in response to market turbulence, choosing HSBC for its strength and switching from investment securities to cash deposits. Spreads improved as interest rates declined sharply.
Net fee income decreased by 4 per cent to US$1.5 billion, driven by a fall in funds under management in all regions as a result of equity market declines and clients switching from securities into cash deposits. Transaction volumes also fell, particularly in the fourth quarter.
Trading income fell by 21 per cent to US$422 million, driven by lower demand for structured products in Asia following the decline in the Hong Kong stock market which led to clients preferring more stable cash deposits. Partly offsetting this was an increase in foreign exchange trading revenue in the volatile currency markets.
Gains less losses from financial investments decreased by 47 per cent to US$64 million due to lower gains from the disposal of HSBC's residual holding in the Hermitage Fund in 2008, compared with 2007.
Loan impairment charges and other credit risk provisions increased by US$54 million to US$68 million, primarily due to a loss on a bond position in a failed US bank and higher provisions on real estate-related products.
Operating expenses grew by 9 per cent to US$2.1 billion, mainly due to the non-recurrence of a one-off pension-related credit recognised in 2007. Staff numbers increased in Asia and Europe in late 2007 and the first half of 2008, leading to higher costs, although these reduced in the second half of the year. As a result, the cost efficiency ratio worsened by 1.9 percentage points to 58.3 per cent.
|
Client assets |
|||
|
2008 |
2007 |
||
|
US$bn |
US$bn |
||
|
At 1 January |
421 |
333 |
|
|
Net new money |
24 |
36 |
|
|
Value change |
(71) |
19 |
|
|
Exchange and other |
(22) |
33 |
|
|
At 31 December |
352 |
421 |
|
|
Client assets by investment class |
|||
|
2008 |
2007 |
||
|
US$bn |
US$bn |
||
|
Equities |
53 |
81 |
|
|
Bonds |
57 |
64 |
|
|
Structured products |
7 |
12 |
|
|
Funds |
87 |
123 |
|
|
Cash, fiduciary deposits and other |
148 |
141 |
|
|
352 |
421 |
||
Reported client assets decreased by 16 per cent to US$352 billion in 2008, due to the decline in equity market values in all regions. Net new money flows continued to be strong, particularly in Europe, as clients were attracted by HSBC's strong capital base during the market turbulence. However, reduced leverage had a US$5.9 billion
effect on net new money flows compared with 2007 and some outflows of client deposits were experienced in the fourth quarter following the introduction of government guarantees to certain competitor banks.
Total client assets declined by 12 per cent on a reported basis to US$433 billion, with net new money of US$30 billion. 'Total client assets' is a measure equivalent to many industry definitions of assets under management which include some non-financial assets held in client trusts.
Business highlights in 2008
Inward referrals from other customer groups in HSBC resulted in US$6.8 billion of net new money compared with US$5.7 billion in 2007.
The proportion of trading volumes that were transacted with Global Banking and Markets increased as more systems and processes were connected.
Investments in emerging markets continued as Private Banking clients invested over US$1 billion in various HSBC Private Equity and fund offerings.
The Euromoney 2009 Private Banking Survey placed HSBC Private Bank second overall in the Global Private Bank category, up from third in 2008. HSBC Private Bank was also awarded 'Best Private Bank in Asia' and 'Best Private Bank in the Middle East'. At the International Wealth Management Summit, HSBC won 'Outstanding Global Private Banker' awarded to the Global CEO of HSBC Private Bank, and 'Outstanding Private Bank' in the Middle East.
In 2008, HSBC announced that it would merge its two Swiss private banks under the HSBC Private Bank brand. The merger is expected to result in future strategic and cost benefits.
Following a comprehensive review in 2008, HSBC Private Bank launched a fresh image campaign in 2009, including the aim to be 'The world's private bank' in alignment with the Group's recognised global brand strategy. The launch was combined with a targeted advertising and marketing campaign.
Offices in Guangzhou, Shanghai and Beijing were formally opened as part of the launch of Private Banking operations in mainland China. Preparations were also made for a launch of domestic operations in Russia in 2009.
Reconciliation of reported and underlying profit before tax
|
2008 compared with 2007 |
|||||||||||||||||
|
Private Banking |
2007 as reported US$m |
2007 acquisitions, disposals & dilution gains1 US$m |
Currency translation2 US$m |
2007 at 2008 exchange rates3 US$m |
2008 acquisitions and disposals1 US$m |
Under- lying change US$m |
|
2008 as reported US$m |
Re- ported change % |
|
Under- lying change % |
||||||
|
Net interest income |
1,216 |
1 |
(12) |
1,205 |
- |
407 |
1,612 |
33 |
34 |
||||||||
|
Net fee income |
1,615 |
(105) |
26 |
1,536 |
- |
(60) |
1,476 |
(9) |
(4) |
||||||||
|
Other income4 |
717 |
(18) |
5 |
704 |
- |
(161) |
543 |
(24) |
(23) |
||||||||
|
Net operating income5 |
3,548 |
(122) |
19 |
3,445 |
- |
186 |
3,631 |
2 |
5 |
||||||||
|
Loan impairment charges and other credit risk provisions |
(14) |
- |
- |
(14) |
- |
(54) |
(68) |
(386) |
(386) |
||||||||
|
Net operating income |
3,534 |
(122) |
19 |
3,431 |
- |
132 |
3,563 |
1 |
4 |
||||||||
|
Operating expenses |
(2,025) |
98 |
(17) |
(1,944) |
- |
(172) |
(2,116) |
(4) |
(9) |
||||||||
|
Operating profit |
1,509 |
(24) |
2 |
1,487 |
- |
(40) |
1,447 |
(4) |
(3) |
||||||||
|
Income from associates |
2 |
- |
- |
2 |
- |
(2) |
- |
(100) |
(100) |
||||||||
|
Profit before tax |
1,511 |
(24) |
2 |
1,489 |
- |
(42) |
1,447 |
(4) |
(3) |
||||||||
|
2007 compared with 2006 |
|||||||||||||||||
|
Private Banking |
2006 as reported US$m |
2006 acquisitions and disposals1 US$m |
Currency translation2 US$m |
2006 at 2007 exchange rates6 US$m |
2007 acquisitions, disposals & dilution gains1 US$m |
Under- lying change US$m |
|
2007 as reported US$m |
Re- ported change % |
|
Under- lying change % |
||||||
|
Net interest income |
1,011 |
- |
24 |
1,035 |
2 |
179 |
1,216 |
20 |
17 |
||||||||
|
Net fee income |
1,323 |
- |
32 |
1,355 |
4 |
256 |
1,615 |
22 |
19 |
||||||||
|
Other income4 |
597 |
- |
7 |
604 |
1 |
112 |
717 |
20 |
19 |
||||||||
|
Net operating income5 |
2,931 |
- |
63 |
2,994 |
7 |
547 |
3,548 |
21 |
18 |
||||||||
|
Loan impairment charges and other credit risk provisions |
(33) |
- |
- |
(33) |
- |
19 |
(14) |
58 |
58 |
||||||||
|
Net operating income |
2,898 |
- |
63 |
2,961 |
7 |
566 |
3,534 |
22 |
19 |
||||||||
|
Operating expenses |
(1,685) |
- |
(40) |
(1,725) |
(4) |
(296) |
(2,025) |
(20) |
(17) |
||||||||
|
Operating profit |
1,213 |
- |
23 |
1,236 |
3 |
270 |
1,509 |
24 |
22 |
||||||||
|
Income from associates |
1 |
- |
- |
1 |
- |
1 |
2 |
100 |
100 |
||||||||
|
Profit before tax |
1,214 |
- |
23 |
1,237 |
3 |
271 |
1,511 |
24 |
22 |
||||||||
For footnotes, see page 143.
Other
|
Profit/(loss) before tax |
|||||
|
2008 |
2007 |
2006 |
|||
|
US$m |
US$m |
US$m |
|||
|
Net interest expense |
(956) |
(542) |
(625) |
||
|
Net fee income/(expense) |
53 |
(228) |
172 |
||
|
Trading income/(expense) excluding net interest income |
(262) |
127 |
(228) |
||
|
Net interest income/ (expense) on trading activities |
(268) |
(1) |
82 |
||
|
Net trading income/ (expense)16 |
(530) |
126 |
(146) |
||
|
Changes in fair value of long-term debt issued and related derivatives |
6,679 |
2,812 |
(35) |
||
|
Net income/(expense) from other financial instruments designated at fair value |
747 |
81 |
(46) |
||
|
Net income/(expense) from financial instruments designated at fair value |
7,426 |
2,893 |
(81) |
||
|
Gains less losses from financial investments |
(396) |
83 |
147 |
||
|
Gains arising from dilution of interests in associates |
- |
1,092 |
- |
||
|
Dividend income |
10 |
32 |
63 |
||
|
Net earned insurance premiums |
(17) |
(21) |
207 |
||
|
Gains on disposal of French regional banks |
2,445 |
- |
- |
||
|
Other operating income |
4,261 |
3,523 |
3,254 |
||
|
Total operating income |
12,296 |
6,958 |
2,991 |
||
|
Net insurance claims17 |
(1) |
- |
(181) |
||
|
Net operating income5 |
12,295 |
6,958 |
2,810 |
||
|
Loan impairment charges and other credit risk provisions |
(5) |
(11) |
(13) |
||
|
Net operating income |
12,290 |
6,947 |
2,797 |
||
|
Total operating expenses |
(4,174) |
(3,562) |
(3,259) |
||
|
Operating profit/(loss) |
8,116 |
3,385 |
(462) |
||
|
Share of profit in joint ventures and associates |
41 |
150 |
74 |
||
|
Profit/(loss) before tax |
8,157 |
3,535 |
(388) |
||
|
By geographical region |
|||||
|
Europe |
5,296 |
1,056 |
(278) |
||
|
Hong Kong |
(955) |
(375) |
(175) |
||
|
Rest of Asia-Pacific |
276 |
1,343 |
287 |
||
|
North America |
3,534 |
1,508 |
(217) |
||
|
Latin America |
6 |
3 |
(5) |
||
|
8,157 |
3,535 |
(388) |
|||
|
% |
% |
% |
|||
|
Share of HSBC's profit before tax |
87.6 |
14.6 |
(1.8) |
||
|
Cost efficiency ratio |
33.9 |
51.2 |
116.0 |
||
For footnotes, see page 143.
Notes
Reported profit before tax in Other was US$8.2 billion, compared with US$3.5 billion in 2007. For a description of the main items reported under 'Other', see footnote 14 on page 143.
Net income from financial instruments designated at fair value amounted to US$7.4 billion in 2008, compared with US$2.9 billion in 2007. This largely related to fair value gains on own debt issued by HSBC Holdings and its North American and European subsidiaries and resulted primarily from the widening of credit spreads. These gains will reverse over the life of the debt.
A loss of US$396 million reported in 'Gains less losses from financial investments' included impairments related to non-trading strategic equity investments, classified as available for sale, following significant declines in equity market prices. These investments were primarily in Asian financial services companies which are held for the long term.
In 2007, the results included dilution gains of US$1.1 billion following share offerings made by HSBC's associates, Ping An Insurance, Bank of Communications and Industrial Bank in mainland China, Financiera Independencia in Mexico and Techcombank in Vietnam.
Other gains included a US$2.4 billion pre-tax profit from the sale of seven regional banks in France.
HSBC recognised a gain of US$416 million in respect of the purchase of the subsidiary of Metrovacesa which owned the property and long leasehold land comprising 8 Canada Square, London. See Note 23 on the Financial Statements for further details.
HSBC continued to increase the scope of activities undertaken at its Group Service Centres ('GSCs') which are accounted for within Other. Employee numbers increased accordingly and an additional GSC was opened which, together, contributed to a rise in operating expenses. In North America, costs at the IT Service Centres declined in line with reduced operations in the region. Substantially all service centre costs are recharged to HSBC's customer groups and reported under 'Other operating income'.
|
Balance sheet data15 |
|||||
|
2008 |
2007 |
2006 |
|||
|
US$m |
US$m |
US$m |
|||
|
Loans and advances to customers (net) |
2,621 |
2,678 |
2,095 |
||
|
Total assets |
135,001 |
155,685 |
137,291 |
||
|
Customer accounts |
2,041 |
2,006 |
1,245 |
Reconciliation of reported and underlying profit/(loss) before tax
|
2008 compared with 2007 |
|||||||||||||||||
|
Other |
2007 as reported US$m |
2007 acquisitions, disposals & dilution gains1 US$m |
Currency translation2 US$m |
2007 at 2008 exchange rates3 US$m |
2008 acquisitions and disposals1 US$m |
Under- lying change US$m |
|
2008 as reported US$m |
Re- ported change % |
|
Under- lying change % |
||||||
|
Net interest expense |
(542) |
- |
(38) |
(580) |
(6) |
(370) |
(956) |
(76) |
(64) |
||||||||
|
Net fee income/ (expense) |
(228) |
- |
49 |
(179) |
- |
232 |
53 |
123 |
130 |
||||||||
|
Other income4 |
7,728 |
(1,116) |
36 |
6,648 |
2,540 |
4,010 |
13,198 |
71 |
60 |
||||||||
|
Net operating income5 |
6,958 |
(1,116) |
47 |
5,889 |
2,534 |
3,872 |
12,295 |
77 |
66 |
||||||||
|
Loan impairment charges and other credit risk provisions |
(11) |
24 |
1 |
14 |
- |
(19) |
(5) |
55 |
(136) |
||||||||
|
Net operating income |
6,947 |
(1,092) |
48 |
5,903 |
2,534 |
3,853 |
12,290 |
77 |
65 |
||||||||
|
Operating expenses |
(3,562) |
- |
(15) |
(3,577) |
6 |
(603) |
(4,174) |
(17) |
(17) |
||||||||
|
Operating profit |
3,385 |
(1,092) |
33 |
2,326 |
2,540 |
3,250 |
8,116 |
140 |
140 |
||||||||
|
Income from associates |
150 |
(12) |
11 |
149 |
- |
(108) |
41 |
(73) |
(72) |
||||||||
|
Profit before tax |
3,535 |
(1,104) |
44 |
2,475 |
2,540 |
3,142 |
8,157 |
131 |
127 |
||||||||
|
2007 compared with 2006 |
|||||||||||||||||
|
Other |
2006 as reported US$m |
2006 acquisitions and disposals1 US$m |
Currency translation2 US$m |
2006 at 2007 exchange rates6 US$m |
2007 acquisitions, disposals & dilution gains1 US$m |
Under- lying change US$m |
|
2007 as reported US$m |
Re- ported change % |
|
Under- lying change % |
||||||
|
Net interest income |
(625) |
- |
(22) |
(647) |
- |
105 |
(542) |
13 |
16 |
||||||||
|
Net fee income |
172 |
- |
25 |
197 |
- |
(425) |
(228) |
(233) |
(216) |
||||||||
|
Other income4 |
3,263 |
- |
77 |
3,340 |
1,092 |
3,296 |
7,728 |
137 |
99 |
||||||||
|
Net operating income5 |
2,810 |
- |
80 |
2,890 |
1,092 |
2,976 |
6,958 |
148 |
103 |
||||||||
|
Loan impairment charges and other credit risk provisions |
(13) |
- |
3 |
(10) |
- |
(1) |
(11) |
15 |
(10) |
||||||||
|
Net operating income |
2,797 |
- |
83 |
2,880 |
1,092 |
2,975 |
6,947 |
148 |
103 |
||||||||
|
Operating expenses |
(3,259) |
- |
(90) |
(3,349) |
- |
(213) |
(3,562) |
(9) |
(6) |
||||||||
|
Operating profit/(loss) |
(462) |
- |
(7) |
(469) |
1,092 |
2,762 |
3,385 |
833 |
589 |
||||||||
|
Income from associates |
74 |
- |
2 |
76 |
(50) |
124 |
150 |
103 |
163 |
||||||||
|
Profit/(loss) before tax |
(388) |
- |
(5) |
(393) |
1,042 |
2,886 |
3,535 |
1,011 |
734 |
||||||||
For footnotes, see page 143.
Related Shares:
HSBC Holdings