2008 Interim Report Section 4

RNS Number : 6159A

HSBC Holdings PLC

04 August 2008

 



Private Banking 

Profit before tax
	Half-year to
	30 June 2008		30 June 2007	31 December 2007
	US$m		US$m		US$m
Net interest income	783		567		649
Net fee income	814		811		804
Trading income excluding net interest income	211		255		270
Net interest income on trading activities	7		4		5
Net trading income7	218		259		275
Net income/(expense) from financial instruments designated at fair value	1		-		(1)
Gains less losses from financial investments	80		45		74
Dividend income	4		5		2
Other operating income	16		31		27
Total operating income	1,916		1,718		1,830
Net insurance claims8	-		-		-
Net operating income4	1,916		1,718		1,830
Loan impairment (charges)/recoveries and other credit risk provisions	4		(9)		(5)
Net operating income	1,920		1,709		1,825
Total operating expenses	(1,098)		(929)		(1,096)
Operating profit	822		780		729
Share of profit in associates and joint ventures	-		-		2
Profit before tax	822		780		731
By geographical region
Europe	579		493		422
Hong Kong	123		161		144
Rest of Asia-Pacific	54		56		36
North America	58		60		114
Latin America	8		10		15
Profit before tax	822		780		731
	%		%		%
Share of HSBC's profit before tax	8.0		5.5		7.3
Cost efficiency ratio	57.3		54.1		59.9
Balance sheet data6
	US$m		US$m		US$m
Loans and advances to customers (net)	45,895		37,863		43,612
Total assets	98,039		81,916		88,510
Customer accounts	109,776		91,228		106,197

For footnotes, see page 89.

Business highlights

• Pre-tax profits increased by 5 per cent or 4 per cent on an underlying basis to US$822 million, primarily due to strong performances in Switzerland and Monaco, offsetting lower revenues in Asia due to reduced client trading.

• Inward referrals from other customer groups in HSBC in the first half of 2008 resulted in US$3.4 billion of net new money, compared with US$2.0 billion in the first half of 2007. 

• Despite a decline in market values, client assets at US$421.3 billion remained well ahead of 30 June 2007 and unchanged from 31 December 2007, assisted by net new money of US$14.5 billion in the first half of 2008. This was achieved with an improvement in net interest income in an environment of competitors offering above-market deposit rates to attract and retain clients. Within client assets, funds and mandates generating annuity income rose by 4 per cent to US$70.3 billion.

Client Assets

	Half-year to
	30 June 2008		30 June 2007	31 December 2007
	US$bn		US$bn		US$bn
At beginning of period	421		333		370
Net new money	15		17		19
Value change	(20)		12		7
Exchange/other	5		8		25
At end of period	421		370		421

• Total client assets, a measure equivalent to many industry definitions of assets under management, which includes some non-financial assets held in client trusts, amounted to US$499.3 billion at 30 June 2008, an increase of US$5.2 billion on 31 December 2007, including US$18.6 billion of net new money.

• Private Banking clients continued to be attracted to alternative products, with total hedge funds under custody for clients growing to US$57.9 billion, and new product offerings in emerging markets. The HSBC New Frontiers Fund, which concentrates on the next generation emerging markets, and the HSBC Asia Private Equity fund, were notably successful in the first half of 2008.

• Offices in Guangzhou, Shanghai and Beijing were formally opened in early 2008 as part of the launch of Private Banking in mainland China.

Reconciliation of reported and underlying profit before tax

	Half-year to 30 June 2008 ('1H08') compared with half-year to 30 June 2007 ('1H07')
Private Banking	1H07 as reported US$m		Disposals and  dilution  gains1 US$m		Currency translation2 US$m		1H07 at 1H08exchangerates US$m		Acqui- sitions1 US$m		Under-lying change US$m		1H08 as reported US$m		Re-portedchange%		Under-lying change %
Net interest income	567		-		9		576		-		207		783		38		36
Net fee income	811		(52)		30		789		-		25		814		-		3
Other income3	340		-		5		345		-		(26)		319		(6)		(8)
Net operating income4	1,718		(52)		44		1,710		-		206		1,916		12		12
Loan impairment (charges)/recoveries and other credit risk provisions	(9)		-		-		(9)		-		13		4		144		144
Net operating income	1,709		(52)		44		1,701		-		219		1,920		12		13
Operating expenses	(929)		50		(33)		(912)		-		(186)		(1,098)		(18)		(20)
Operating profit	780		(2)		11		789		-		33		822		5		4
Income from associates	-		-		-		-		-		-		-		-		-
Profit before tax	780		(2)		11		789		-		33		822		5		4

	Half-year to 30 June 2008 ('1H08') compared with half-year to 31 December 2007 ('2H07')
Private Banking	2H07 as reported US$m		Disposals and  dilution  gains1 US$m		Currency translation2 US$m		2H07 at 1H08exchangerates US$m		Acqui- sitions1 US$m		Under-lying change US$m		1H08 as reported US$m		Re-portedchange%		Under-lying change %
Net interest income	649		-		2		651		-		132		783		21		20
Net fee income	804		(52)		18		770		-		44		814		1		6
Other income3	377		(18)		6		365		-		(46)		319		(15)		(13)
Net operating income4	1,830		(70)		26		1,786		-		130		1,916		5		7
Loan impairment (charges)/recoveries and other credit risk provisions	(5)		-		(1)		(6)		-		10		4		180		167
Net operating income	1,825		(70)		25		1,780		-		140		1,920		5		8
Operating expenses	(1,096)		48		(14)		(1,062)		-		(36)		(1,098)		-		(3)
Operating profit	729		(22)		11		718		-		104		822		13		14
Income from associates	2		-		(1)		1		-		(1)		-		(100)		(100)
Profit before tax	731		(22)		10		719		-		103		822		12		14

For footnotes, see page 89.

Other

Profit/(loss) before tax
	Half-year to
	30 June 2008		30 June 2007	31 December 2007
	US$m		US$m		US$m
Net interest expense	(375)		(291)		(251)
Net fee income/(expense)	32		(7)		(221)
Trading income/(expense) excluding net interest income	(271)		(74)		201
Net interest income/ (expense) on trading activities	(82)		25		(26)
Net trading income/ (expense)7	(353)		(49)		175
Net income from financial instruments designated at fair value	820		91		2,802
Gains less losses from financial investments	(283)		101		(18)
Gains arising from dilution of interests in associates	-		1,076		16
Dividend income	17		27		5
Net earned insurance premiums	(15)		(9)		(12)
Other operating income	1,943		1,667		1,856
Total operating income	1,786		2,606		4,352
Net insurance claims8	(1)		-		-
Net operating income4	1,785		2,606		4,352
Loan impairment charges and other credit risk provisions	-		(2)		(9)
Net operating income	1,785		2,604		4,343
Total operating expenses	(2,019)		(1,650)		(1,912)
Operating profit/(loss)	(234)		954		2,431
Share of profit in associates and joint ventures	45		116		34
Profit/(loss) before tax	(189)		1,070		2,465
By geographical region
Europe	144		43		1,013
Hong Kong	(725)		(186)		(189)
Rest of Asia-Pacific	102		1,242		101
North America	294		(26)		1,534
Latin America	(4)		(3)		6
Profit/(loss) before tax	(189)		1,070		2,465
	%		%		%
Share of HSBC's profit before tax	(1.8)		7.5		24.5
Cost efficiency ratio	113.1		63.3		43.9
Balance sheet data6
	US$m		US$m		US$m
Loans and advances to customers (net)	3,061		2,517		2,678
Total assets	49,700		45,044		40,150
Customer accounts	1,227		2,338		2,006

For footnotes, see page 89.

Notes

• The loss before tax recorded in Other, US$189 million, was US$1,259 million less 
  than the profit of US$1,070 million in the first half of 2007. For a description of the main items reported under 'Other', please see footnote 5 on page 89.

• Net income from financial instruments designated at fair value of US$820 million was recorded in the first half of 2008. This represented nearly a nine-fold increase on the first half of 2007 and arose principally from mark-to-market gains driven by wider credit spreads from fair valuing own debt issued 
  by HSBC Holdings and its European and 
  North American subsidiaries. These fair value gains will reverse through the income statement over the remaining life of the debt.

• Activities undertaken within the Group Service Centres ('GSCs') continued to grow in the first half of 2008. Employee numbers increased by 14 per cent, bringing the total number of people employed by GSCs to over 32,000. In North America, IT Service Centres reported a 3 per cent decrease in costs. Substantially all costs of both GSCs and IT Service Centres are recharged to HSBC's customer groups and global businesses with revenue reported under 'Other operating income'.

• 'Gains less losses from financial investments' included impairment charges of US$296 million recognised on non-trading equity positions classified as available for sale. These investments were made as part of the strategic positioning of HSBC's businesses in Asia, and the write-downs were required as a consequence of significant falls in equity market prices. In the opinion of HSBC management, these stakes continue to deliver the market access envisaged when they were acquired.

• Dilution gains of US$1.1 billion recorded in the first half of 2007 did not recur. These gains were recognised following share offerings made by HSBC's associates: Ping An Insurance, Bank of Communications and Industrial Bank. 

Reconciliation of reported and underlying profit before tax

	Half-year to 30 June 2008 ('1H08') compared with half-year to 30 June 2007 ('1H07')
Other	1H07 as reported US$m		Disposals and  dilution  gains1 US$m		Currency translation2 US$m		1H07 at 1H08exchangerates US$m		Acqui- sitions1 US$m		Under-lying change US$m		1H08 as reported US$m		Re-portedchange%		Under-lying change %
Net interest expense	(291)		-		(20)		(311)		(1)		(63)		(375)		(29)		(20)
Net fee income/(expense)	(7)		-		6		(1)		-		33		32		557		3,300
Other income3	2,904		(1,076)		104		1,932		-		196		2,128		(27)		10
Net operating income4	2,606		(1,076)		90		1,620		(1)		166		1,785		(32)		10
Loan impairment charges and other credit risk provisions	(2)		-		(1)		(3)		-		3		-		100		100
Net operating income	2,604		(1,076)		89		1,617		(1)		169		1,785		(31)		10
Operating expenses	(1,650)		-		(29)		(1,679)		(1)		(339)		(2,019)		(22)		(20)
Operating profit/(loss)	954		(1,076)		60		(62)		(2)		(170)		(234)		(125)		(274)
Income from associates	116		-		14		130		(12)		(73)		45		(61)		(56)
Profit/(loss) before tax	1,070		(1,076)		74		68		(14)		(243)		(189)		(118)		(357)

	Half-year to 30 June 2008 ('1H08') compared with half-year to 31 December 2007 ('2H07')
Other	2H07 as reported US$m		Disposals and  dilution  gains1 US$m		Currency translation2 US$m		2H07 at 1H08exchangerates US$m		Acqui- sitions1 US$m		Under-lying change US$m		1H08 as reported US$m		Re-portedchange%		Under-lying change %
Net interest expense	(251)		-		(14)		(265)		(1)		(109)		(375)		(49)		(41)
Net fee income/(expense)	(221)		-		10		(211)		-		243		32		114		115
Other income3	4,824		(16)		2		4,810		-		(2,682)		2,128		(56)		(56)
Net operating income4	4,352		(16)		(2)		4,334		(1)		(2,548)		1,785		(59)		(59)
Loan impairment charges and other credit risk provisions	(9)		-		-		(9)		-		9		-		100		100
Net operating income	4,343		(16)		(2)		4,325		(1)		(2,539)		1,785		(59)		(59)
Operating expenses	(1,912)		-		(11)		(1,923)		-		(96)		(2,019)		(6)		(5)
Operating profit/(loss)	2,431		(16)		(13)		2,402		(1)		(2,635)		(234)		(110)		(110)
Income from associates	34		-		2		36		-		9		45		32		25
Profit/(loss) before tax	2,465		(16)		(11)		2,438		(1)		(2,626)		(189)		(108)		(108)

For footnotes, see page 89.

Analysis by customer group and global business

Profit/(loss) before tax

	Half-year to 30 June 2008
Total	Personal Financial Services US$m		Commercial Banking US$m		Global Banking and Markets US$m		Private Banking US$m		Other5 US$m		Inter- segment elimination9 US$m		Total US$m
Net interest income/ (expense)	15,217		4,747		3,737		783		(375)		(2,931)		21,178
Net fee income	5,626		2,165		2,354		814		32		-		10,991
Trading income/(expense) excluding net interest income	142		197		360		211		(271)		-		639
Net interest income/ (expense) on trading activities	42		24		273		7		(82)		2,931		3,195
Net trading income/ (expense)7	184		221		633		218		(353)		2,931		3,834
Net income/(expense) from financial instruments designated at fair value	(1,135)		(59)		(211)		1		820		-		(584)
Gains less losses from financial investments	585		191		244		80		(283)		-		817
Dividend income	15		3		49		4		17		-		88
Net earned insurance premiums	4,746		360		62		-		(15)		-		5,153
Other operating income	390		718		551		16		1,943		(2,183)		1,435
Total operating income	25,628		8,346		7,419		1,916		1,786		(2,183)		42,912
Net insurance claims8	(3,206)		(190)		(40)		-		(1)		-		(3,437)
Net operating income4	22,422		8,156		7,379		1,916		1,785		(2,183)		39,475
Loan impairment (charges)/ recoveries and other credit risk provisions	(9,384)		(563)		(115)		4		-		-		(10,058)
Net operating income	13,038		7,593		7,264		1,920		1,785		(2,183)		29,417
Total operating expenses	(11,099)		(3,280)		(4,827)		(1,098)		(2,019)		2,183		(20,140)
Operating profit/(loss)	1,939		4,313		2,437		822		(234)		-		9,277
Share of profit in associates and joint ventures	374		298		253		-		45		-		970
Profit/(loss) before tax	2,313		4,611		2,690		822		(189)		-		10,247
	%		%		%		%		%				%
Share of HSBC's profit before tax	22.6		45.0		26.2		8.0		(1.8)				100.0
Cost efficiency ratio	49.5		40.2		65.4		57.3		113.1				51.0
Balance sheet data6
	U$Sm		US$m		US$m		US$m		US$m				US$m
Loans and advances to  customers (net)	458,302		238,116		303,826		45,895		3,061				1,049,200
Total assets	603,016		286,533		1,509,390		98,039		49,700				2,546,678
Customer accounts	474,263		247,705		328,952		109,776		1,227				1,161,923
Loans and advances to banks (net)12					214,693
Trading assets12,13					721,366
Financial assets designated  at fair value12					7,469
Financial investments12					211,486
Deposits by banks12					144,043
Trading liabilities12,13					577,048

For footnotes, see page 89.

Analysis by customer group and global business (continued)

Profit before tax

	Half-year to 30 June 2007
Total	Personal Financial Services US$m		Commercial Banking US$m		Global Banking and Markets US$m		Private Banking US$m		Other5 US$m		Inter- segment elimination9 US$m		Total US$m
Net interest income/ (expense)	13,998		4,286		1,847		567		(291)		(2,177)		18,230
Net fee income/(expense)	5,523		1,904		2,264		811		(7)		-		10,495
Trading income/(expense) excluding net interest income	1		121		3,048		255		(74)		-		3,351
Net interest income/ (expense) on trading activities	92		13		(151)		4		25		2,177		2,160
Net trading income/ (expense)7	93		134		2,897		259		(49)		2,177		5,511
Net income/(expense) from financial instruments designated at fair value	796		(24)		11		-		91		-		874
Gains less losses from financial investments	60		25		768		45		101		-		999
Gains arising from dilution of interests in associates	-		-		-		-		1,076		-		1,076
Dividend income	41		4		175		5		27		-		252
Net earned insurance premiums	3,735		205		46		-		(9)		-		3,977
Other operating income	255		2		529		31		1,667		(1,806)		678
Total operating income	24,501		6,536		8,537		1,718		2,606		(1,806)		42,092
Net insurance claims8	(3,605)		44		(38)		-		-		-		(3,599)
Net operating income4	20,896		6,580		8,499		1,718		2,606		(1,806)		38,493
Loan impairment (charges)/ recoveries and other credit risk provisions	(5,928)		(431)		24		(9)		(2)		-		(6,346)
Net operating income	14,968		6,149		8,523		1,709		2,604		(1,806)		32,147
Total operating expenses	(10,452)		(2,907)		(4,479)		(929)		(1,650)		1,806		(18,611)
Operating profit	4,516		3,242		4,044		780		954		-		13,536
Share of profit in associates and joint ventures	213		180		114		-		116		-		623
Profit before tax	4,729		3,422		4,158		780		1,070		-		14,159
	%		%		%		%		%				%
Share of HSBC's profit before tax	33.4		24.2		29.4		5.5		7.5				100.0
Cost efficiency ratio	50.0		44.2		52.7		54.1		63.3				48.3
Balance sheet data6
	U$Sm		US$m		US$m		US$m		US$m				US$m
Loans and advances to  customers (net)	460,196		185,923		241,602		37,863		2,517				928,101
Total assets	577,402		225,763		1,220,316		81,916		45,044				2,150,441
Customer accounts	416,525		205,002		265,739		91,228		2,338				980,832
Loans and advances to banks (net)12					183,708
Trading assets12,13					567,340
Financial assets designated  at fair value12					5,269
Financial investments12					174,095
Deposits by banks12					121,744
Trading liabilities12,13					443,634

For footnotes, see page 89.

Profit before tax

	Half-year to 31 December 2007
	Personal FinancialServices		Commercial Banking		Global Banking and Markets		Private Banking		Other5		Inter- segment elimination9		Total
Total	US$m		US$m		US$m		US$m		US$m		US$m		US$m
Net interest income/ (expense)	15,071		4,769		2,583		649		(251)		(3,256)		19,565
Net fee income/(expense)	6,219		2,068		2,637		804		(221)		-		11,507
Trading income excluding net interest income	37		144		455		270		201		-		1,107
Net interest income/ (expense) on trading activities	48		18		(85)		5		(26)		3,256		3,216
Net trading income7	85		162		370		275		175		3,256		4,323
Net income/(expense) from financial instruments designated at fair value	537		46		(175)		(1)		2,802		-		3,209
Gains less losses from financial investments	291		65		545		74		(18)		-		957
Gains arising from dilution of interests in associates	-		-		-		-		16		-		16
Dividend income	14		4		47		2		5		-		72
Net earned insurance premiums	4,536		528		47		-		(12)		-		5,099
Other operating income	132		163		689		27		1,856		(2,106)		761
Total operating income	26,885		7,805		6,743		1,830		4,352		(2,106)		45,509
Net insurance claims8	(4,542)		(435)		(32)		-		-		-		(5,009)
Net operating income4	22,343		7,370		6,711		1,830		4,352		(2,106)		40,500
Loan impairment charges and other credit risk provisions	(10,244)		(576)		(62)		(5)		(9)		-		(10,896)
Net operating income	12,099		6,794		6,649		1,825		4,343		(2,106)		29,604
Total operating expenses	(11,305)		(3,345)		(4,879)		(1,096)		(1,912)		2,106		(20,431)
Operating profit	794		3,449		1,770		729		2,431		-		9,173
Share of profit in associates and joint ventures	377		274		193		2		34		-		880
Profit before tax	1,171		3,723		1,963		731		2,465		-		10,053
	%		%		%		%		%				%
Share of HSBC's profit before tax	11.7		37.0		19.5		7.3		24.5				100.0
Cost efficiency ratio	50.6		45.3		72.7		59.9		43.9				50.4
Balance sheet data6
	U$Sm		US$m		US$m		US$m		US$m				US$m
Loans and advances to  customers (net)	464,726		220,068		250,464		43,612		2,678				981,548
Total assets	588,473		261,893		1,375,240		88,510		40,150				2,354,266
Customer accounts	450,071		237,987		299,879		106,197		2,006				1,096,140
Loans and advances to banks (net)12					199,506
Trading assets12,13					625,132
Financial assets designated  at fair value12					7,936
Financial investments12					224,057
Deposits by banks12					126,395
Trading liabilities12,13					483,881

For footnotes, see page 89. 

 

END

 

 

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