27th Feb 2008 15:00
HSBC Holdings PLC27 February 2008 GRUPO FINANCIERO HSBC, S.A. DE C.V. FOURTH QUARTER 2007 FINANCIAL RESULTS - HIGHLIGHTS • Net income up MXN46 million (approximately 1 per cent), to MXN5,615 million for the year ended 31 December 2007 (MXN5,569 million for the year ended 31 December 2006). For the quarter ended 31 December 2007, net income rose 45.2 per cent compared to the same period in 2006, reaching MXN1,687 million. • Total revenues (excluding monetary position and before loan impairment charges) up 17.5 per cent to MXN35,052 million for the year ended 31 December 2007 (MXN29,832 million for the year ended 31 December 2006). • Net loans and advances to customers up MXN28.7 billion, or 17.9 per cent, to MXN189.5 billion at 31 December 2007 (MXN160.8 billion at 31 December 2006). • Total customer deposits up MXN39.7 billion, or 17.8 per cent, to MXN262.7 billion at 31 December 2007 (MXN223.0 billion at 31 December 2006). • Cost efficiency ratio (excluding monetary position) improved to 58.7 per cent for the year ended 31 December 2007 (60.6 per cent for the year ended 31 December 2006). • Return on equity of 15.6 per cent for the year ended 31 December 2007 (18.6 per cent for the year ended 31 December 2006). HSBC Mexico S.A. (the bank) is Grupo Financiero HSBC, S.A. de C.V.'s (HSBC)primary subsidiary company, and is subject to supervision by the Mexican Bankingand Securities Commission. The bank is required to file periodic financialinformation on a quarterly basis (in this case for the quarter ended 31December2007) and this information is publicly available. Given that this information isavailable in the public domain, Grupo Financiero HSBC, S.A. de C.V. has electedto file this release. Results are prepared in accordance with Mexican GAAP (generally acceptedaccounting principles), with figures denominated in Mexican pesos (MXN).Comparative figures are presented on an actual basis, indexed to constant MXN asof 31 December 2007. On 8 August 2006, HSBC Panama was sold by Grupo Financiero HSBC, S.A. de C.V. toHSBC Asia Holdings BV. All comparative commentary within this report istherefore on a like-for-like basis excluding HSBC Panama, with the incomestatement as presented in Appendix A. The financial statements on pages 7-16include HSBC Panama up to the date of disposal. Grupo Financiero HSBC, S.A. de C.V. is a 99.99 per cent directly ownedsubsidiary of HSBC Holdings plc (HSBC Group). Commentary by Paul Thurston, CEO of Grupo Financiero HSBC: "Grupo Financiero HSBC ended 2007 strongly, with net income for the fourthquarter reaching a record high MXN1,687 million, up 45.2 per cent compared withthe same quarter of the prior year. Net income for the year ended 31 December2007 reached MXN5,615 million, up by MXN46 million compared with the prior year.Strong revenue growth of 17.5 per cent, to MXN35.1 billion, despite lowerearnings from trading and balance sheet management, enabled us to continue toinvest in building the consumer credit portfolio and to absorb the relatedhigher loan impairment charges. "In 2007, Grupo Financiero HSBC, continued to expand its business presenceacross the personal, commercial and corporate business segments in a highlycompetitive environment. Credit cards lending balances were up 85.1 per centyear on year to MXN27.3 billion. Personal and payroll loans rose by 60.1 percent to MXN8.2 billion and the commercial loan portfolio grew by 21.3 per centto MXN73.2 billion. Customer deposits increased by 17.8 per cent compared withthe same period of 2006. "The HSBC Premier service was re-launched globally during 2007, providingseamless cross-border banking for our customers in Mexico and around the world.In addition, 293,900 new Tu Cuenta packaged products were sold during the year.Increased cross-selling activities in the branch network resulted in higherpremium income for the insurance subsidiary further diversifying our sources ofincome. "In our commercial business, we launched electronic account opening facilitiesand a new international factoring service, helping to drive an increase of 16per cent in our base of commercial customers. This further increased our marketshare of international trade financing, and increased earnings from this customersegment. "Consistent with the HSBC Group's organic growth strategy, we continuedexpanding our business platform during the year, with 304 new ATMs and furtherinvestment in marketing and information technology. Costs increased as we workedto improve client service by streamlining processes, modernising branches andinvesting in the people who will lead our future growth. The 13.7 per centincrease in costs for the year ended 31 December 2007 was exceeded by revenuegrowth, enabling us to record a cost efficiency improvement. "Our aim is to become the leading financial services company in Mexico. Localtalent, product knowledge and expertise combined with our extensiveinternational network, the HSBC brand and the sharing of global best practices,represents a significant platform on which to continue building our business inMexico. "In the area of corporate responsibility, I am pleased to record that inFebruary 2007 HSBC Mexico was awarded, for the second consecutive year, the'Socially Responsible Company' certification by the Mexican Philanthropy Centre(CEMEFI) and Aliarse. In November 2007, HSBC was also awarded Latin America'sfirst-ever Leadership in Energy and Environmental Design (LEED) Gold certificatefor our headquarters building in Mexico, recognizing it as the mostenvironmentally friendly building of its type in Latin America." Overview For the year ended 31 December 2007, Grupo Financiero HSBC's net income ofMXN5,615 million was MXN46 million higher than the same period in 2006. Netincome of MXN1,687 in the fourth quarter of 2007 was the highest recorded for aquarterly period for Grupo Financiero HSBC, and was 45.2 per cent higher thanthe same period of the prior year. Net interest income (excluding monetary position) was up MXN4,406 million toMXN22,838 million for the year ended 31 December 2007, a 23.9 per cent increasecompared with the same period in 2006. The growth was driven by strongperformance in higher-yielding consumer lending as well as in the commercialproduct portfolio and in deposits, partially offset by lower balance sheetmanagement income. Income from fees and commissions was MXN10,999 million for the year ended 31December 2007, an increase of 18.6 per cent compared with the same period in2006. Increased income from credit cards, membership programmes, card acquiring,trusts, investment funds, trade services and ATM fees contributed to this strongperformance. Trading income of MXN1,215 million for the year ended 31 December 2007 was 42.9per cent lower than the same period of the previous year, due to the morefavourable market conditions that existed in 2006, coupled with a relativelyflat yield curve in 2007. Trading income during the fourth quarter of 2007continued to be driven by solid results in retail foreign exchange, offset byreduced revenue opportunities in derivatives and debt trading. Administrative expenses of MXN20,563 million for the year ended 31 December 2007were 13.7 per cent higher than in the same period in 2006. Personnel expensesrose in line with our strategy of investing in business growth. Other operatingexpenses increased largely from higher credit card servicing costs, IT platforminvestment and marketing costs principally associated with the HSBC Premierglobal relaunch and continued promotion of the highly successful Tu Cuentaproduct. The cost efficiency ratio (excluding monetary position) has shownconstant progress, improving 1.9 percentage points to 58.7 per cent with revenuegrowth exceeding expense growth. Loan impairment charges reached MXN9,486 million for the year ended 31 December2007, driven by higher impairment charges on credit cards as HSBC continued toinvest in growing its market presence, and also by higher delinquencies in self-employed and small business lending. The impairment charges are consistent withmarket trends, as well as, the strong organic growth strategy followed by theGroup. Additional loan impairment charges were also required in 2007, in accordancewith regulatory requirements for credit card lending to create an additionalreserve of MXN 400 million. Furthermore, in compliance with applicableregulations, in 2006 HSBC Mexico assigned MXN647 million of general reserves tospecific reserves, which reduced the overall loan impairment charge in thatyear. The year-on-year growth in loan impairment charges partially reflects thislower comparative base in 2006. Regular reviews are undertaken to improve the quality of new business, andensure close control of customer acquisition channels, based on underwritingexperience, and to improve collection strategies. HSBC's allowance for loanlosses as a percentage of impaired loans was 132.0 per cent at 31 December 2007. The bank's capital adequacy ratio for the period was 14.2 per cent, well aboveregulatory requirements. Business highlights Personal Financial Services (PFS) increased new-to-bank customers and leveragedits customer relationship management capabilities to drive strong consumer loangrowth. During the year, our credit card base grew to some 619,000 cards, andcard balances, an area in which HSBC has traditionally been underweight inMexico, increased by 85.1 per cent versus 2006. This drove market share upnearly 3.5 per cent versus the prior year^, reflecting HSBC's strategy to growthe portfolio organically also led to strong loan growth in Personal and payrollloans. Demand for mortgages remained strong and HSBC's speed of service and competitiverates, supported by marketing campaigns, fuelled growth. During the year, twomortgage portfolios totalling MXN5,901 million were securitised. As delinquency rates have increased in consumer lending, collections activitieshave been reinforced and loan underwriting criteria tightened. The HSBC Group's Premier service, which was relaunched in Mexico during theyear, performed well and increased cross-sales. Fee income registered asignificant increase primarily due to a rapidly growing credit card customerbase and the continued sales of our bundle packages (293,900 new Tu Cuentapackages were opened in 2007). Increased cross-selling activities in the branchnetwork resulted in higher income for the insurance company, which grew itsdirect premiums by 17 per cent during 2007. Commercial Banking (CMB) in Mexico continues to leverage its two-prongedstrategy to become the leading international business bank and the best bank forsmall businesses. Lending balances were 16.4 per cent higher than in 2006,primarily driven by commercial real estate and larger local and global CMBcustomers, complemented by strong volume growth in trade, factoring and deposits.Effective targetted marketing campaigns resulted in customer acquisition andincreased cross-sales to existing customers. Organic growth in the smallbusiness segment led to higher delinquency; however, products with high creditlosses have been restructured. Driven by the HSBC Group's geographical presence and enhanced productcapabilities, our trade services market share grew by 4.1 percentage pointsyear-on-year, to 15.7 per cent^^ and international factoring was successfullylaunched during the fourth quarter of 2007. HSBC's International Banking Centrein Mexico continues to drive referrals throughout the Latin America region andglobally, supporting Mexican businesses who are, or are seeking to, operateinternationally. We also launched an electronic account opening service forsmall businesses in 2007. Global Banking and Markets continues to join up its business across the LatinAmerican region, and create new links to other HSBC operations, by connectingand referring regional customers to other countries in the HSBC Group. Throughour global network, we are enabling major Mexican companies to access theinternational capital markets, as part of Global Banking & Market's emergingmarket-led, financing focused strategy. Increased income received from successful mandates in debt capital markets, andan increase in activity in payments and cash management and project financereflected HSBC's strategic investments in new transactional infrastructure andgrowth in its local and global distribution capabilities, as well as a growingpenetration in Mexico's corporate market. In Global Markets, trading results were driven by a strong performance in retailforeign exchange. However, these were offset by lower results in balance sheetmanagement and reduced revenue opportunities in the positioning of derivativesand debt trading, due to a relatively flat yield curve. About HSBC Grupo Financiero HSBC, S.A. de C.V. is Mexico's fourth largest banking andfinancial services institution with 1,360 branches, 5,741 ATMs, approximately8.6 million customers and more than 23,000 employees. For more information,consult our website at www.hsbc.com.mx. Grupo Financiero HSBC, S.A. de C.V. is a 99.99 per cent directly ownedsubsidiary of HSBC Holdings plc. Headquartered in London, UK, the HSBC Groupserves over 125 million customers worldwide through 10,000 offices in 83countries and territories in Europe, the Asia-Pacific region, the Americas, theMiddle East and Africa. With assets of US$2,150 billion at 30 June 2007, HSBC isone of the world's largest banking and financial services organisations. Withlistings on the London, Hong Kong, New York, Paris and Bermuda stock exchanges,shares in HSBC Holdings plc are held by nearly 200,000 shareholders in some 100countries and territories. HSBC is marketed worldwide as 'the world's localbank'. Footnote ^ Source: HSBC analysis, based on Mexican Banks Association (ABM) figures as of November 2007 for the six largest banks. ^^ Source: HSBC Analysis, based on Mexican Banking and Securities Commission Statistical Bulletin, figures as of September 2007. Consolidated Balance Sheet Figures in MXN millions GROUP BANK 31Dec07 31Dec06 31Dec07 31Dec06Assets Cash and deposits in banks 48,865 57,175 48,864 57,174 Investment in securities 76,029 59,267 75,660 58,192 Trading securities 42,318 13,106 42,235 12,032 Available-for-sale securities 29,687 42,010 29,401 42,009 Held to maturity securities 4,024 4,151 4,024 4,151 Securities and derivative operations 8,933 244 8,932 239 Repurchase agreements 40 71 39 66 Derivative transactions 8,893 173 8,893 173 Performing loans Commercial loans 73,188 60,321 73,188 60,321 Loans to financial intermediaries 15,048 6,200 15,048 6,200 Consumer loans 48,034 36,826 48,034 36,826 Mortgage loans 18,337 21,347 18,337 21,347 Loans to government entities 37,443 38,632 37,443 38,632 Loans to Fobaproa or IPAB - - - -Total performing loans 192,050 163,326 192,050 163,326Impaired loans Commercial loans 2,534 1,598 2,534 1,598 Consumer loans 4,028 1,730 4,028 1,730 Mortgage loans 1,463 1,145 1,463 1,145 Immediate collection, remittances and other - 11 - 11Total impaired loans 8,025 4,484 8,025 4,484Gross loans and advances to customers 200,075 167,810 200,075 167,810 Allowance for loan losses (10,593) (7,034) (10,593) (7,034)Net loans and advances to customers 189,482 160,776 189,482 160,776Other accounts receivable 12,093 11,339 12,005 11,213Foreclosed assets 82 56 82 56Property, furniture and equipment, net 6,511 6,326 6,498 6,311Long-term investments in equity securities 3,648 2,743 154 192Deferred taxes 916 - 883 -Goodwill 2,748 2,749 - -Other assets, deferred charges and intangibles 1,872 624 1,846 608 Total assets 351,179 301,299 344,406 294,761 Liabilities Deposits 266,958 227,378 267,025 229,027 Demand deposits 142,525 138,819 142,592 140,468 Time deposits 120,189 84,156 120,189 84,156 Bonds 4,244 4,403 4,244 4,403 Bank deposits and other liabilities 7,608 13,455 7,608 13,455 On demand - 104 - 104 Short-term 4,998 11,025 4,998 11,024 Long-term 2,610 2,326 2,610 2,327 Securities and derivative transactions 9,147 6,560 9,146 6,555 Repurchase agreements 73 56 72 51 Securities deliverable under loan transactions - 6,504 - 6,504 Derivative transactions 9,074 - 9,074 - Other accounts payable 26,317 17,453 26,164 17,292 Income tax and employee profit sharing payable 1,800 1,092 1,741 1,061 Sundry creditors and other accounts payable 24,517 16,361 24,423 16,231 Subordinated debentures outstanding 2,207 2,290 2,207 2,290 Deferred taxes - 577 - 630 Deferred credits 396 20 396 20 Total liabilities 312,633 267,733 312,546 269,269 Equity Paid in capital 21,466 21,466 15,883 13,533 Capital stock 8,210 8,210 4,272 4,079 Additional paid in capital 13,256 13,256 11,611 9,454 Other reserves 17,060 12,097 15,959 11,958 Capital reserves 1,162 875 14,077 9,496 Retained earnings 18,827 13,377 - - Result from the mark-to-market of available-for-sale securities - - (217) 314 Result from translation of foreign operations - - - - Cumulative effect of restatement (3,989) (3,989) (3,602) (3,622) Gains on non-monetary asset valuation (4,555) (3,903) 1,181 1,189 Adjustment in the employee pension - - (136) - Net income 5,615 5,737 4,656 4,581Minority interest in capital 20 3 18 1Total equity 38,546 33,566 31,860 25,492Total liabilities and equity 351,179 301,299 344,406 294,761 Figures in MXN millions GROUP 31Dec07 31Dec06Memorandum accounts Transactions on behalf of third parties 94,672 112,965 Customer current accounts 8 27 Customer bank 1 - Settlement of customer securities and documents 7 27Customer securities 65,843 87,560 Customer securities in custody 65,834 87,554 Pledged customers securities and documents 9 6Transactions on behalf of customers 2,094 2,579 Customer repurchase transactions 2,094 2,579Other transactions on behalf of customers 26,727 22,799 Investment on behalf of customers, net 26,727 22,799Other memorandum accounts 590,074 357,296 Investment of the SAR funds 3,540 3,674 Integrated loan portfolio 210,912 174,437 Other memorandum accounts 375,622 179,185 Transactions for the group's own accounts 1,618,882 906,913 Accounts for the group's own registry 1,618,915 906,899 Guarantees granted 44 52 Irrevocable lines of credit granted 10,794 6,575 Goods in trust or mandate 142,794 96,668 Goods in custody or under administration 54,161 116,255 Amounts committed in transactions with Fobaproa 138 162 Amounts contracted in derivative operations 1,410,856 682,967 Securities in custody - 4,090 Other contingent obligations 128 129 Repurchase/resale agreements Securities receivable under repos 46,971 51,749 (less) Repurchase agreements 47,016 51,738 (45) 11 Reverse repurchase agreements 7,095 3,131 (less) Securities deliverable under repos 7,083 3,127 12 4 Figures in MXN millions BANK 31Dec07 31Dec06Memorandum accounts Guarantees granted 44 52Other contingent obligations 128 129Irrevocable lines of credit granted 10,793 6,575Goods in trust or mandate 142,794 96,668Goods in custody or under administration 50,216 116,255Third party investment banking operations, net 26,727 22,799Amounts committed in transactions with Fobaproa 138 162Amounts contracted in derivative operations 1,410,856 682,967Investments of retirement savings system funds 3,540 3,674Integrated loan portfolio 210,912 174,437Other control accounts 375,621 179,184 2,231,769 1,282,902 Securities receivable under repos 44,890 49,174(less) Repurchase agreements (44,922) (49,158) (32) 16 Reverse repurchase agreements 5,001 552(less) Securities deliverable under repos (5,002) (552) (1) - Securities deliverable under loan transactions - -(less) Goods deliverable in guarantee for loan transactions - - - - Consolidated Income Statement Figures in MXN millions GROUP BANK 31Dec07 31Dec06 31Dec07 31Dec06 Interest income 34,014 28,931 33,817 28,046Interest expense (11,176) (10,049) (11,110) (9,701)Monetary position (margin), net (1,181) (1,060) (1,063) (972)Net interest income 21,657 17,822 21,644 17,373 Loan impairment charges (9,486) (4,294) (9,486) (4,262)Risk-adjusted net interest income 12,171 13,528 12,158 13,111 Fees and commissions receivable 12,187 10,558 11,435 9,605 Fees payable (1,188) (1,133) (1,229) (1,106) Trading income 1,215 2,126 1,210 2,121 Total operating income 24,385 25,079 23,574 23,731 Administrative and personnel expenses (20,563) (18,421) (19,944) (17,472) Net operating income 3,822 6,658 3,630 6,259 Other income 4,142 2,211 4,172 2,146Other expenses (1,395) (1,109) (1,322) (1,084)Net income before taxes 6,569 7,760 6,480 7,321 Income tax and employee profit sharing tax (2,730) (1,579) (2,676) (1,489)Deferred income tax 812 (1,282) 826 (1,249)Net income before subsidiaries 4,651 4,899 4,630 4,583 Undistributed income from subsidiaries 963 839 25 (2)Income from ongoing operations 5,614 5,738 4,655 4,581 Minority interest 1 (1) 1 - Net income 5,615 5,737 4,656 4,581 Statement of Changes in Shareholders' Equity GROUP Figures in MXN millions Deficit in restatement of stock- Capital Capital Retained holders' Net Minority Total contributed reserves earnings equity income interest equity Balances at 31Dec06 21,466 875 13,377 (7,892) 5,737 3 33,566 Movements inherent to the shareholders' decision Capitalisation of retained earnings - - 5,450 - (5,737) - (287) Constitution of reserves - 287 - - - - 287 Other movements - - - - - - -Total - 287 5,450 - (5,737) - - Movements for the recognition of the comprehensive income Net income - - - - 5,615 - 5,615 Gains on non-monetary asset valuation - - - (652) - - (652) Minority interest - - - - - 17 17 Total - - - (652) 5,615 17 4,980 Balances at 31Dec07 21,466 1,162 18,827 (8,544) 5,615 20 38,546 BANK Figures in MXN millions Results from valuation Deficit in of restatement Adjustment available of stock- in the Capital Capital Retained for-sale holders' employees Net Minority Total contributed reserves earnings securities equity pension income interest equity Balances at 31Dec06 13,533 9,496 - 314 (2,433) - 4,581 1 25,492 Movements inherent to the shareholders' decision Subscription shares 2,350 - - - - - - - 2,350 Constitution of reserves - 4,581 (4,581) - - - - - - Transfer of result of Prior years - - 4,581 - - - (4,581) - - Other movements - - - - - - - - -Total 2,350 4,581 - - - - (4,581) - 2,350 Movements for the recognition of the comprehensive income Net income - - - - - - 4,656 - 4,656 Result from valuation of available-for-sale securities - - - (531) - - - - (531) Cumulative effect of restatement - - - - 20 - - - 20 Adjustment in the employees pension - - - - - (136) - - (136) Others - - - - (8) - - 17 9 Total - - - (531) 12 (136) 4,656 17 4,018 Balances at 31Dec07 15,883 14,077 - (217) (2,421) (136) 4,656 18 31,860 Consolidated Statement of Changes in Financial Position GROUP Figures in MXN millions 31Dec07 31Dec06Operating activities:Net income 5,615 5,737Items included in operations not requiring (providing) funds:Result from mark-to-market valuations 7 (640)Allowances for loan losses 9,486 4,294Depreciation and amortisation 1,053 904Deferred taxes (812) 1,282Minority interest (1) -Undistributed income from subsidiaries, net (953) (839)Adjustment in post-retirement benefits (428) -Value loss estimation for foreclosed assets 21 251Total operating items not requiring funds 13,988 10,989 Changes in items related to operations:(Decrease) / Increase in deposits 39,579 (2,183)(Increase) / Decrease in loan portfolio (38,192) (20,941)(Increase) / Decrease in securities and derivative transactions, net (6,000) 2,699(Increase) / Decrease in financial instruments (16,871) 2,323(Decrease) / Increase in bank deposits and other liabilities (5,847) 5,926Funds provided by operating activities (13,343) (1,187) Financing activities:Subordinated debentures outstanding (83) (498)(Decrease) / Increase in other payable accounts 8,788 (7,371)Funds used or provided in financing activities 8,705 (7,869) Investing activities:(Increase) in property, furniture and equipment, net (1,825) (763)(Increase) / Decrease in deferred charges or credits, net (305) 100(Increase) / Decrease in foreclosed assets (48) 120(Increase) in other receivable accounts (1,494) 6,992Funds used in investing activities (3,672) 6,449(Decrease) in cash and equivalents (8,310) (2,607)Cash and equivalents at beginning of period 57,175 59,782Cash and equivalents at end of period 48,865 57,175 BANK Figures in MXN millions 31Dec07 31Dec06Operating activities:Net income 4,656 4,581Items included in operations not requiring (providing) funds:Result from mark-to-market valuations 7 (650)Allowances for loan losses 9,486 4,262Depreciation and amortisation 1,050 880Deferred taxes (827) 1,249Undistributed income from subsidiaries, net (14) 2Value loss estimation for foreclosed assets 21 251Minority interest (1) (1)Adjustment in post-retirement benefits (428) -Total operating items not requiring funds 13,950 10,574 Changes in operating accounts:Increase in deposits 37,997 16,495(Increase) in loan portfolio (38,192) (33,404)(Increase) / Decrease in securities and derivative transactions, net (6,000) 2,699(Increase) / Decrease in financial instruments(18,108) 1,878(Decrease) / Increase in bank deposits and other liabilities (5,847) 5,999Funds provided by operations (16,200) 4,241 Financing activities:Subordinated debentures outstanding (83) (96)(Decrease) / Increase in other payable accounts 8,795 (6,395)Contributions or reimbursements of capital contributed 2,350 -Funds used or provided by financing activities 11,062 (6,491) Investing activities:(Increase) in property, furniture and equipment, net (1,155) (1,514)(Increase) / Decrease in deferred charges or credits, net (310) 52(Increase) / Decrease in foreclosed assets (48) 77(Increase) / Decrease in other receivable accounts (1,659) 5,631Funds used in investing activities (3,172) 4,246(Decrease) / Increase in cash and equivalents (8,310) 1,996Cash and equivalents at beginning of period 57,174 55,178Cash and equivalents at end of period 48,864 57,174 Differences between Mexican GAAP and International Financial Reporting Standards(IFRS) HSBC Holdings plc, the parent of Grupo Financiero HSBC S.A. de C.V. reports itsresults under International Financial Reporting Standards (IFRS). There followsa reconciliation of the results of Grupo Financiero HSBC S.A. de C.V. fromMexican GAAP to IFRS for the year ended 31 December 2007 and an explanation ofthe key reconciling items. Figures in MXN millions 31Dec07 Grupo Financiero HSBC - Net Income Under Mexican GAAP 5,615 Inflation 988Differences arising on the valuation of pensions and post retirement healthcare benefits^ 118 Differences arising on acquisition costs relating to long-term investment contracts^ (30)Differences arising from the deferral of fees received and paid on the origination of loans 276 Differences arising from the recognition and provisioning for loan impairments^ 656 Differences arising from purchase accounting adjustments^ (28)Differences arising from the recognition of the present value in-force of long-term insurance contracts^ 722Other differences in accounting principles^ 347HSBC Mexico net income under IFRS 8,664US dollar equivalent (millions) 793Add back tax expense 1,866HSBC Mexico profit before tax under IFRS 10,530US dollar equivalent (millions) 963Exchange rate used for conversion 10.93 ^ Net of tax at 28 per cent. Summary of key differences between Grupo Financiero's results as reported underMexican GAAP and IFRS Inflation Mexican GAAPMexican GAAP Bulletin - 10 requires recognition of inflation on financialstatements to reflect the current purchasing power of the currency in which suchfinancial information is stated. IFRSIAS 29 'Financial Reporting in Hyperinflationary Economies' requires recognitionof inflation on financial statements only if the entity's functional currency isthe currency of a hyperinflationary economy. As Mexico's economy does not meetthe characteristics established in this standard to be considered ashyperinflationary, no inflationary effects are included for IFRS reporting. Retirement benefits Mexican GAAPPost-retirement benefit liabilities are not recognised on the balance sheet. Theincome statement charge is based on contributions made to the schemes. IFRSObligations for defined benefit pension and post-retirement healthcare benefitsare recorded on the balance sheet and the income statement based on actuarialcalculations. Acquisition costs of long-term investment contracts Mexican GAAPAll costs related to the acquisition of long-term investment contracts areexpensed as they are incurred. IFRSIncremental costs relating to the acquisition of long-term investment contractsare deferred and amortised over the expected life of the contract. Fees paid and received on origination of loans Mexican GAAPAll fees received on loan origination are deferred and amortised over the lifeof the loan. However, this policy was introduced 1 January 2007, all fees havingpreviously been recognised up front. IFRSFees and expenses received or paid on origination of a loan that are directlyattributable to the origination of that loan are accounted for under theeffective interest rate method over the expected life of the loan. This policyhas been in effect since 1 January 2005. Loan impairment charges Mexican GAAPLoan impairment charges are calculated following the rules issued by the MexicanMinistry of Finance and the National Banking and Securities Commission. Suchrules establish authorised methodologies for determining the amount of provisionfor each type of loan. IFRSLoan loss provisions for collectively assessed loans are determined based on aroll-rate methodology reflecting history of losses for each category of loan,past due payments and collateral values. For individually assessed loans, loanloss provisions are calculated based on the discounted cash flow value of thecollateral. Purchase accounting adjustmentsThese arise from valuations made by HSBC on acquiring Grupo Financiero Bital inNovember 2002 on various assets and liabilities that differed from the valuationin the local Mexican GAAP books. Recognition of present value of in-force long-term life insurance contracts Mexican GAAPThe present value of future earnings is not recognised. Premiums are accountedfor on a received basis and reserves are calculated in accordance with guidanceas set out by the Insurance Regulator (Comision Nacional de Seguros y Fianzas). IFRSA value is placed on insurance contracts that are classified as long-terminsurance business and are in-force at the balance sheet date. The present valueof in-force long-term insurance business is determined by discounting futureearnings expected to emerge from business currently in force using appropriateassumptions in assessing factors such as recent experience and general economicconditions. Appendix A:Grupo Financiero HSBC, S.A. de C.V. (HBMX)Consolidated income statement on a like-for-like basis Figures in MXN millions Total Total Group Mexico^ Panama Group 31Dec07 31Dec06 31Dec06 31Dec06 Interest income 34,014 28,178 753 28,931Interest expense (11,176) (9,746) (303) (10,049)Monetary position (margin), net (1,181) (1,055) (5) (1,060)Net interest income 21,657 17,377 445 17,822 Loan impairment charges (9,486) (4,262) (32) (4,294)Risk adjusted net interest income 12,171 13,115 413 13,528 Fees and commissions receivable 12,187 10,374 184 10,558 Fees payable (1,188) (1,100) (33) (1,133) Trading income 1,215 2,126 - 2,126 Total operating income 24,385 24,515 564 25,079 Administrative and personnel expenses (20,563) (18,081) (340) (18,421) Net operating income 3,822 6,434 224 6,658 Other income 4,142 2,211 - 2,211Other expenses (1,395) (1,109) - (1,109)Net income before taxes 6,569 7,536 224 7,760 Income tax and employee profit sharing (2,730) (1,514) (65) (1,579)Deferred taxes 812 (1,291) 9 (1,282) Net income before subsidiaries 4,651 4,731 168 4,899 Undistributed income from subsidiaries 963 839 - 839Income from ongoing operations 5,614 5,570 168 5,738 Minority interest 1 (1) - (1)Net income 5,615 5,569 168 5,737 ^ On 8 August 2006, HSBC Panama was sold by Grupo Financiero HSBC, S.A. de C.V. to HSBC Asia Holdings BV. Therefore, results for the twelve months ended 31 December 2006 have been restated to exclude results for HSBC Panama up until the date of disposal in order to compare on a like-for-like basis. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
HSBC Holdings