Annual Financial Report - 6 of 41

RNS Number : 8235D

HSBC Holdings PLC

30 March 2011

 



Customer groups and global businesses

	Page
Summary .......................................................	37
Products and services .....................................	38
Personal Financial Services ............................	40
Commercial Banking .....................................	42
Global Banking and Markets ..........................	44
Global Private Banking ..................................	46
Other ............................................................	47
Analysis by customer group and global business......................................................................	48

Basis of preparation

The results are presented in accordance with the accounting policies used in the preparation of HSBC's consolidated financial statements. Our operations are closely integrated and, accordingly, the presentation of customer group and global business data includes internal allocations of certain items of income and expense. These allocations include the costs of certain support services and 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.

Summary

HSBC's senior management reviews operating activity on a number of bases, including by geographical region and by customer group and global business. Capital resources are allocated and performance is assessed primarily by geographical region, as presented on page 50.

The commentaries below present customer groups and global businesses followed by geographical regions. Performance is discussed in this order because certain strategic themes, business initiatives and trends affect more than one geographical region. All commentaries are on an underlying basis (see page 14) unless stated otherwise. All references to HSBC Finance and HSBC Bank USA are also on a management basis as loans referred to HSBC Bank USA from HSBC Finance are managed by the latter and all costs and benefits accrue thereto.

Profit/(loss) before tax

	2010				2009				2008
	US$m		%		US$m		%		US$m		%
Personal Financial Services .............................	3,518		18.5		(2,065)		(29.2)		(10,974)		(117.9)
Commercial Banking .......................................	6,090		32.0		4,275		60.4		7,194		77.3
Global Banking and Markets ............................	9,536		50.1		10,481		148.1		3,483		37.4
Global Private Banking ...................................	1,054		5.5		1,108		15.6		1,447		15.6
Other44 ...........................................................	(1,161)		(6.1)		(6,720)		(94.9)		8,157		87.6
	19,037		100.0		7,079		100.0		9,307		100.0

Total assets⁴⁵

	At 31 December
	2010				2009
	US$m		%		US$m		%
Personal Financial Services .......................................................................	527,698		21.5		554,074		23.4
Commercial Banking ................................................................................	296,797		12.1		251,143		10.6
Global Banking and Markets .....................................................................	1,758,315		71.6		1,683,672		71.2
Global Private Banking .............................................................................	116,846		4.8		116,148		4.9
Other ........................................................................................................	161,458		6.6		150,983		6.4
Intra-HSBC items .....................................................................................	(406,425)		(16.6)		(391,568)		(16.5)
	2,454,689		100.0		2,364,452		100.0

For footnotes, see page 83.

Products and services

Personal Financial Services PFS offers its products and services to customers based on their individual needs. Premier and Advance services are targeted at mass affluent and emerging affluent customers who value international connectivity and benefit from our global reach and scale. For customers who have simpler everyday banking needs, we offer a full range of banking products and services reflecting local requirements. In addition, we are one of the largest card issuers in the world, offering HSBC branded cards, co-branded cards with selected partners and private label (store) cards. Typically, customer offerings include personal banking products (current and savings accounts, mortgages and personal loans, credit cards, debit cards and local and international payment services) and wealth management services (insurance and investment products and financial planning services).

·  HSBC Premier provides preferential banking services and global recognition to our high net worth customers and their immediate families with a dedicated relationship manager, specialist wealth advice and tailored solutions. Customers can access emergency travel assistance, priority telephone banking and an online 'global view' of their Premier accounts around the world with free money transfers between them. ·  HSBC Advance provides a range of preferential products and services customised to meet local needs. With a dedicated telephone service, access to wealth advice and online tools to support financial planning, it gives customers an online 'global view' of their Advance accounts with money transfers between them. ·  Wealth Solutions & Financial Planning: a financial planning process designed around individual customer needs to help our clients to protect, grow and manage their wealth through best-in-class investment and wealth insurance products manufactured by in-house partners (Global Asset Management, Global Markets and HSBC Insurance) and by selected third party providers. Customers can transact with the bank via a range of channels such as internet banking and self-service terminals in addition to traditional and automated branches and telephone service centres.

Commercial Banking We segment our CMB business into Corporate, to serve both Corporate and Mid-Market companies with more sophisticated financial needs and Business Banking, to serve the small and medium-sized enterprises ('SME's) sector. This enables the development of tailored customer propositions while adopting a broader view of the entire commercial banking sector, from sole proprietors to large corporations. This allows us to provide continuous support to companies as they expand both domestically and internationally, and ensures a clear focus on the business banking segments, which are typically the key to innovation and growth in market economies. We place particular emphasis on international connectivity to meet our business customers' needs and aim to be recognised as the leading international bank in all our markets and the best bank for business in our largest markets.

·  Financing: we offer a broad range of financing, both domestic and cross-border, including overdrafts, receivables finance, term loans and syndicated, leveraged, acquisition and project finance. Asset finance is offered in selected sites, focused on leasing and instalment finance for vehicles, plant and equipment. ·  Payments and cash management: we are a leading provider of domestic and cross-border payments and collections, liquidity management and account services worldwide, delivered through our e-platform, HSBC net. ·  International trade: we provide various international trade products and services, to both buyers and suppliers such as export finance, guarantees, documentary collections and forfeiting to improve efficiency and help mitigate risk throughout the supply chain. ·  Treasury: CMB customers are volume users of our foreign exchange, derivatives and structured products. ·  Capital markets & advisory: capital raising on debt and equity markets and advisory services are available as required. ·  Commercial cards: card issuing helps customers enhance cash management, credit control and purchasing. Card acquiring services enable merchants to accept credit and debit card payments in person or remotely. ·  Insurance: CMB offers key person, employee benefits and a variety of commercial risk insurance such as property, cargo and trade credit. ·  Direct channels: these include online and direct banking offerings such as telephone banking, HSBCnet and Business Internet Banking.

Global Banking and Markets GB&M provides tailored financial solutions to major government, corporate and institutional clients and private investors worldwide. Managed as a global business, GB&M operates a long-term relationship management approach to build a full understanding of clients' financial requirements. Sector-focused client service teams comprising relationship managers and product specialists develop financial solutions to meet individual client needs. With dedicated offices in over 65 countries and access to HSBC's worldwide presence and capabilities, this business serves subsidiaries and offices of our clients on a global basis. GB&M is managed as four principal business lines: Global Markets, Global Banking, Global Asset Management and Principal Investments. This structure allows us to focus on relationships and sectors that best fit the Group's footprint and facilitate seamless delivery of our products and services to clients.

·  Global Markets operations consist of treasury and capital markets services. Products include foreign exchange; currency, interest rate, bond, credit, equity and other derivatives; government and non-government fixed income and money market instruments; precious metals and exchange-traded futures; equity services; distribution of capital markets instruments; and securities services, including custody and clearing services and funds administration to both domestic and cross-border investors. ·  Global Banking offers financing, advisory and transaction services. Products include: - capital raising, advisory services, bilateral and syndicated lending, leveraged and acquisition finance, structured and project finance, lease finance and non-retail deposit taking; - international, regional and domestic payments and cash management services; and trade services for large corporate clients. ·  Global Asset Management offers investment solutions to institutions, financial intermediaries and individual investors globally. ·  Principal Investments includes our strategic relationships with third-party private equity managers and other investments.

Global Private Banking HSBC Private Bank is the principal marketing name of our international private banking business, Global Private Banking ('GPB'). Utilising the most suitable products from the marketplace, GPB works with its clients to offer both traditional and innovative ways to manage and preserve wealth while optimising returns. GPB accesses expertise in six major advisory centres in Hong Kong, Singapore, Geneva, New York, Paris and London to identify opportunities which meet clients' needs and investment strategies.

·  Private Banking services comprise multi-currency deposit accounts and fiduciary deposits, credit and specialist lending, treasury trading services, cash management, securities custody and clearing. GPB works to ensure that its clients have full access to other products and services available in HSBC such as credit cards, internet banking, corporate banking and investment banking. ·  Private Wealth Management comprises both advisory and discretionary investment services. A wide range of investment vehicles is covered, including bonds, equities, derivatives, options, futures, structured products, mutual funds and alternatives (hedge funds, private equity and real estate). - Corporate Finance Solutions helps provide clients with cross border solutions for their companies, working in conjunction with GB&M. ·  Private Wealth Solutions comprise inheritance planning, trustee and other fiduciary services designed to protect wealth and preserve it for future generations through structures tailored to meet the individual needs of each family. Areas of expertise include trusts, foundation and company administration, charitable trusts and foundations, insurance, family office advisory and philanthropy.

Personal Financial Services

PFS provides 92 million individual and self-employed customers with financial services in over 60 markets worldwide.
	2010		2009		2008
	US$m		US$m		US$m
Net interest income ......	24,161		25,107		29,419
Net fee income .............	7,336		8,238		10,107
Other income ................	1,079		2,070		1,963
Net operating income46 ...................................	32,576		35,415		41,489
Impairment charges47 ....	(11,259)		(19,902)		(21,220)
Net operating income	21,317		15,513		20,269
Total operating expenses ...................................	(18,805)		(18,292)		(31,704)
Operating profit/(loss) ...................................	2,512		(2,779)		(11,435)
Income from associates48 ...................................	1,006		714		461
Profit/(loss) before tax ...................................	3,518		(2,065)		(10,974)
Return to profitability in PFS as credit quality improved
HSBC Advance launched in 34 markets in its first year
Significant increase in mortgage lending in Hong Kong and the UK
Strategic direction Our strategy for PFS is to use our global reach and scale to grow profitably in selected markets by providing relationship banking and wealth management services. PFS employs two globally consistent propositions in Premier and Advance and focuses on deepening customer relationships and increasing the penetration of wealth management services. In markets where we already have scale or where scale can be built over time, we provide services to all customer segments. In other markets, we participate more selectively, targeting mass affluent customers which have strong international connectivity or where our global scale is crucial.
For footnotes, see page 83.

Review of performance

·     PFS reported a profit before tax of US$3.5bn compared with a reported and underlying loss of US$2.1bn in 2009. This was largely attributable to a decline in loan impairment charges in the US and the managed reduction of certain higher risk portfolios in Latin America, Asia and the Middle East. Performance improved in all regions as the credit quality of our lending portfolios generally rose and revenue grew in Asia and Europe, reflecting higher investment‑related income, increased insurance revenue in Hong Kong and mortgage lending growth combined with wider spreads in the UK. Income from associates, particularly Ping An Insurance, increased, driven by strong sales growth.

·     Revenue fell, largely in HSBC Finance, due to lower lending balances in both the run-off portfolio and in the Card and Retail Services business. Card fees also decreased in North America following the implementation of the CARD Act. Revenue was further affected by an adverse fair value movement related to the non-qualifying hedges recorded in HSBC Finance compared with a favourable movement in 2009, as long-term interest rates declined.

·     We continued to invest in our business by hiring new relationship managers, investing in systems and infrastructure and developing our product offerings. Operating expenses remained broadly unchanged as a rise in costs in Asia from increased headcount and higher marketing expenditure in support of business expansion was broadly offset by strict cost control across the Group and lower costs associated with the reduced scope of the business in the US.

·     Loan impairment charges and other credit risk provisions fell by 44% in the improved economic conditions, reflecting a decline in lending balances, enhanced collection processes and tighter lending criteria. The decline in lending was significant in the US as the run-off of the non-core portfolio continued and balances fell in the Card and Retail Services business, where there were fewer active accounts and customers reduced their credit card debt. In addition, certain higher risk portfolios in Latin America, Asia and the Middle East were managed down and repositioned to higher quality assets, resulting in an improvement in credit quality.

·     In the UK, we increased our market share of mortgage lending, while maintaining a conservative loan to value ratio on new business. We grew mortgage lending in Asia, significantly in Hong Kong, where the introduction of HIBOR-linked mortgages drove volume growth and enabled us to maintain our market leadership. In Australia, Singapore and Malaysia we were able to grow mortgage volumes through targeted marketing campaigns. Customer account balances also grew, largely on the back of increased customer numbers in Asia and the UK.

·     HSBC Premier, our flagship global customer proposition, was available in 47 markets and had grown to 4.4m customers at the end of 2010. We attracted over 980,000 net new customers in 2010, of whom over 50% were new to HSBC.

·     We made further progress in standardising our various offerings across the Group for emerging mass affluent customers with the continued transition of eligible customers to HSBC Advance, our second globally consistent proposition. At 31 December 2010, Advance had a customer base of 4.6m and was available in 34 markets.

·    
During 2010, HSBC's Global View and Global Transfer online capabilities were extended to our Advance customer base. These services allow Premier and Advance customers to access and manage all their accounts through one single logon and transfer funds between their overseas accounts online. Both the volume and the value of transfers increased strongly during the year as our target customer base and general awareness of these services grew.

·     Our World Selection global investment offering continued to grow and is now available in 26 markets with total assets under management of US$7.2bn at 31 December 2010.

·     We further enhanced our services and made banking easier for our customers with initiatives such as increased Saturday branch opening in the UK, the launch of retail renminbi wealth management products, mobile banking and online real time bond trading in Hong Kong, and the upgrading of the US automatic teller machine ('ATM') network to accept deposits.

Commercial Banking

CMB offers a full range of commercial financial services and tailored propositions to 3.6m customers ranging from sole proprietors to publicly quoted companies in 65 countries.
	2010		2009		2008
	US$m		US$m		US$m
Net interest income ......	8,487		7,883		9,494
Net fee income .............	3,964		3,702		4,097
Other income ................	1,383		1,268		1,726
Net operating income46 ...................................	13,834		12,853		15,317
Impairment charges47 ....	(1,805)		(3,282)		(2,173)
Net operating income	12,029		9,571		13,144
Total operating expenses ...................................	(6,831)		(5,963)		(6,581)
Operating profit ........	5,198		3,608		6,563
Income from associates48 ...................................	892		667		631
Profit before tax .........	6,090		4,275		7,194
Strong balance sheet growth with 21% rise in lending to US$239bn
Significant pre-tax profit contribution from emerging markets at 67%
First international bank to complete renminbi trade settlements across six continents
Strategic direction CMB's core strategy is focused on two key initiatives: ·  to be the leading international business bank in all our markets, leveraging HSBC's extensive geographical network together with its product expertise in payments, trade, receivables finance and foreign exchange to actively support customers who are trading and investing internationally; and ·  to be the best bank for small- and medium-sized enterprises in our largest markets.
For footnotes, see page 83.

Review of performance

·     In 2010, CMB reported profit before tax of US$6.1bn, 42% higher than in 2009 with growth across all regions. Excluding the gains from the sales in 2010 of HSBC Insurance Brokers and our stake in the Wells Fargo HSBC Trade Bank, and similar non-recurring items in 2009, (see page 14), profit before tax increased by 48%. The rise in profit reflected an improvement in the credit environment and strong growth in world trade.

·     Revenue grew by 8% to US$13.7bn, mainly in Asia, where we expanded customer lending significantly and increased our fee income from remittances, trade and investments. Our insurance operations also performed strongly in Asia, with an increased uptake of our life insurance products in Hong Kong. In North America, repricing initiatives led to a notable increase in revenue.

·     Loan impairment charges and other credit risk provisions declined by 46% to US$1.8bn with favourable variances in all regions as the credit environment improved and our exposure to higher risk portfolios was managed down.

·     Excluding CMB's share of the non-recurring accounting gains related to the change in the UK pension scheme, (see page 26), operating expenses increased by 11% to US$6.8bn as we continued to invest for future revenue growth in those markets that we see as central to international connectivity. We hired more relationship managers in France, Brazil, Mexico and Hong Kong, and continued to invest in systems to improve our customer experience. As a result, our cost efficiency ratio rose to 49.8% in 2010.

·     CMB's share of income from associates grew by 33% to US$892m, notably in mainland China.

·     Customer lending balances rose by 21% to US$239bn, driven by increased demand in Asia as market sentiment improved, and growth in key developed markets such as France and the UK, where we actively supported corporates and SMEs in response to changes in the economy. Our corporate segment increased lending by 25% to US$183bn, notably in Hong Kong and mainland China.

·     CMB attracted over half a million new customers in 2010, taking the total to 3.6m, and we grew customer account balances by 8%, with significant growth in Asia where HSBC was ranked as the best cash management bank in 2010 by Euromoney.

·     In line with our strategy to be the leading international business bank, we continued to pursue opportunities to expand our customer base of businesses that trade and invest internationally. In 2010, we opened CMB's first corporate branch in Switzerland to enable our Swiss-based customers to access our international banking services, particularly in faster growing markets. In the UK, we recruited 139 new International Commercial Managers to support the international expansion plans of UK businesses.

·     Our geographical presence across both developed and emerging markets allowed us to capitalise on the rising levels of international trade flows, notably in Asia and Europe, where we gained export market share in 2010. In the Middle East, we increased our lending to exporters in the region by 69%. In the United Arab Emirates ('UAE') specifically, our average lending to exporters more than doubled in 2010 to US$700m.

·     The number of successful cross-border referrals increased by 77% compared with 2009, with a total transaction value in 2010 of almost US$15bn. Significantly, successful intra-Asia referrals doubled from 2009, while referrals from mainland China more than doubled reflecting the increased appetite of Chinese business to explore international opportunities.

·     CMB continued to demonstrate connectivity with other customer groups within HSBC. Our partnership with GB&M allowed us to support our customers in accessing capital markets to help them grow and expand internationally. Successful referrals from CMB represented 51% of total net new money generated from internal referrals to GPB in 2010, while 5% of new Premier accounts were referred from CMB.

·     CMB has a diverse suite of products to support businesses that trade internationally. We are the second largest export factor globally and, in
2010, we launched our Receivables Finance proposition in Germany, Europe's largest economy, which has rapidly growing export ties with Asia. In the UK, we increased international trade finance by 13%. In addition, we successfully piloted the Supplier Invoice Finance Scheme, a reverse factoring product, in India, mainland China and Hong Kong.

·     We became the first international bank to provide renminbi-denominated trade settlements across six continents in 2010 and we are one of the largest international banks in Hong Kong to offer renminbi products, with total transactions exceeding US$6.7bn in 2010.

·     Our Business Banking propositions are focused on better serving SMEs, especially those that trade internationally. At the end of 2010, we had over 3.4m customers worldwide in the Business Banking segment, representing 55% of CMB's total deposit balances and providing an important source of funding for our Corporate segment.

·     We continue to recognise the importance of SMEs to sustained economic recovery and provided working capital finance for this sector throughout 2010. In Hong Kong, we maintained our active participation in the Government Special Loan Guarantee Scheme, through which we provided US$1.5bn in SME financing in 2010. In the UK, we increased new lending to SMEs by 19% in 2010, opened accounts for over 125,000 customers starting new businesses and added over 170 extra local business managers.

·     We continued to develop and improve our direct channels through enhanced telephone-based relationship management services in key markets, including the launch of smartphone services in Hong Kong. In the UK, we also launched straight-through foreign exchange services. Notably, we are now the leading direct bank in Europe with over one million SME business customers using our Business Internet Banking platform. 

Global Banking and Markets

GB&M is a global business which provides tailored financial solutions to major government, corporate and institutional clients worldwide.
	2010			2009		2008
	US$m			US$m		US$m
Net interest income ......	7,348			8,610		8,541
Net fee income .............	4,725			4,363		4,291
Net trading income49 .....	5,831			6,875		481
Other income ................	2,043			1,972		205
Net operating income46 ...................................	19,947			21,820		13,518
Impairment charges47 ....	(990)			(3,168)		(1,471)
Net operating income	18,957			18,652		12,047
Total operating expenses ...................................	(9,962)			(8,537)		(9,092)
Operating profit ........	8,995			10,115		2,955
Income from associates48 ...................................	541			366		528
Profit before tax .........	9,536			10,481		3,483
Employee expenses (including payroll and bonus taxes) in operating expenses US$4,737m (2009: US$4,335m: 2008: US$4,263m)
Strong contribution from emerging markets
Best Global Emerging Markets Bank Best Global Emerging Markets Debt House Best Debt House in Asia Euromoney Awards for Excellence 2010		Emerging Markets Bond House of the Year International Financing Review Awards 2010
Strategic direction In 2010, GB&M continued to pursue its now well-established 'emerging markets-led and financing-focused' strategy, encompassing HSBC's objective to be a leading wholesale bank by: ·  utilising the Group's extensive distribution network; ·  developing GB&M's hub‑and-spoke business model; and ·  continuing to build capabilities in major hubs to support the delivery of an advanced suite of services to major government, corporate and institutional clients across the HSBC network. This combination of product depth and distribution strength is fundamental to meeting the needs of existing and new clients and allowing GB&M to achieve its strategic goals.
For footnotes, see page 83.

Review of performance

·     GB&M reported profit before tax of US$9.5bn, 9% lower than in 2009. On an underlying basis, which excludes the gains resulting from the sale of Eversholt Rail Group and HSBC Private Equity (Asia) Ltd in 2010, profit before tax declined by 14%, driven by lower income from Balance Sheet Management and Credit and Rates trading and higher operating costs. Profitability benefited from a significant reduction in loan impairment charges and other credit risk provisions. Operating results remained well diversified across our businesses with a strong contribution from emerging markets, where we continued to support existing and anticipated new business, including introducing a 'China desk' in the Middle East and a 'Latam desk' in Hong Kong.

·     Net operating income before loan impairment charges and other credit risk provisions decreased by 11%, mainly due to lower net interest income in Balance Sheet Management from the maturing of higher yielding positions, low interest rates and flattening yield curves. Lower trading income largely reflected uncertainty in the eurozone, particularly in the second half of 2010. This was offset in part by a net release of US$429m largely relating to legacy positions in Credit trading and monoline Credit exposures, compared with a reported write‑down of US$331m in 2009, following a general improvement in ABS prices. Trading income also benefited from a small favourable fair value movement on structured liabilities, compared with an adverse fair value movement in 2009, resulting in a reported favourable movement of US$466m.

·     Loan impairment charges and other credit risk provisions decreased by US$2.2bn. A US$1.2bn reduction in loan impairment charges to US$500m was driven by a general improvement in the credit environment and the non-recurrence of significant charges taken in relation to a small number of clients in 2009. Credit risk provisions on the available-for-sale portfolio decreased by US$981m to US$490m, of which US$444m related to ABSs, significantly lower than the US$1.5bn impairment reported in 2009, due to a slowing in the rate of anticipated losses in the underlying collateral pools.

·     Higher operating expenses in 2010 reflected the one-off payroll and bonus taxes in the UK and France on certain bonuses paid in respect of 2009 totalling US$309m, the non-recurrence of an accounting gain related to a change in the

Management view of total operating income

	2010 US$m		2009 US$m		2008 US$m
Global Markets50 ...........	9,173		10,364		2,676
Credit ........................	1,649		2,330		(5,502)
Rates .........................	2,052		2,648		2,033
Foreign Exchange ......	2,752		2,979		3,842
Equities .....................	755		641		(64)
Securities Services51 ...	1,511		1,420		2,116
Asset and Structured Finance ...................	454		346		251
Global Banking ..............	4,621		4,630		5,718
Financing and Equity Capital Markets ......	2,852		3,070		3,572
Payments and Cash Management52 ........	1,133		1,053		1,665
Other transaction services53 ................	636		507		481
Balance Sheet Management54 ...........	4,102		5,390		3,618
Global Asset Management .............	1,077		939		934
Principal Investments ...	319		42		(415)
Other55 ..........................	655		455		987
Total operating income .	19,947		21,820		13,518

Comparative information has been adjusted to reflect the current management view.

For footnotes, see page 83.

delivery of certain staff benefits in the main UK pension scheme in 2009, higher support costs and continued investment in strategic initiatives being undertaken to drive future revenue growth. These included the development of Prime Services and equity market capabilities and the expansion of the Rates and Foreign Exchange e‑commerce platforms. The percentage of total reported compensation pool allocated in respect of performance in 2010 to revenues net of loan impairment charges (excluding payroll taxes levied on 2009 bonuses) remained consistent with 2009 on a reported basis.

·      Global Markets' revenues were second only to the results recorded in 2009, demonstrating the continuing strength of our client-facing businesses. Trading income declined, driven by increased competition and reduced margins across core products. Credit and Rates were adversely affected by less favourable market conditions as European sovereign debt concerns resulted in increased economic uncertainty in the eurozone. Foreign Exchange revenues were lower, reflecting spread compression in the more competitive trading environment and a decline in market volatility. Investment in the Equities business, particularly the enhancement of the sales and trading platforms, led to increased market share in our target markets despite lower market volumes and increased competition. Securities Services income grew by 4%, with particularly strong performances in Asia driven by increasing market values and Latin America due to higher interest income. Asset and Structured Finance reported higher revenues from increased deal activity during the year.

·      Global Banking produced a robust performance as it continued the strategy of focusing on key client relationships to drive market share growth in event-driven and other ancillary businesses. A decrease in revenues from Financing and Equity Capital Markets was due to the adverse effect of continued spread compression. Higher project and export finance revenues were driven by increased deal volumes, while growth in revenue and market share was achieved in the advisory business. Equity Capital Markets revenues fell as total deal values declined due to a reduction in client activity. Despite the adverse effect of the continued low interest rate environment, Payments and Cash Management delivered a 6% increase in revenue driven by strong growth in transaction-driven fee income and customer account balances in Asia.

·      Revenues in Balance Sheet Management remained high by historical standards but, as expected, declined in 2010 as higher-yielding positions matured and the opportunity for reinvestment was limited by the prevailing low interest rate environment and flatter yield curves.

·      Robust revenue growth was reported in Global Asset Management. Higher management fee income was recorded across all regions, most notably in our emerging markets businesses. Funds under management ('FuM') reached a year-end high of US$439bn at 31 December 2010 of which emerging markets FuM, in countries outside North America, Western Europe, Japan and Australia, were US$145bn. Total FuM grew by 4% compared with 2009, benefiting from positive net inflows of US$16bn and strengthening market performance. New funds launched in the year included the Global High Income Fund and the MultiAlpha Global High Yield Bond Fund.

·     Principal Investments reported an increase in revenues as improved market conditions resulted in higher gains on sale and a reduction in impairments.

·    

Global Private Banking

GPB works with our high net worth clients to offer both traditional and innovative ways to manage and preserve wealth while optimising returns.
	2010			2009		2008
	US$m			US$m		US$m
Net interest income ......	1,345			1,474		1,612
Net fee income .............	1,299			1,236		1,476
Other income ................	449			402		543
Net operating income46 ...................................	3,093			3,112		3,631
Impairment (charges)/ recoveries47 ................	12			(128)		(68)
Net operating income	3,105			2,984		3,563
Total operating expenses ...................................	(2,035)			(1,884)		(2,116)
Operating profit ........	1,070			1,100		1,447
Income from associates48 ...................................	(16)			8		-
Profit before tax .........	1,054			1,108		1,447
Client assets over 6% up at US$390bn 2009: US$367bn; 2008: US$352bn
Higher investment in GPB operations in Asia, Latin America and the Middle East
Best Global Wealth Manager Euromoney Awards for Excellence 2010
Best Private Bank in Asia Euromoney 2011 Private Banking Survey		Outstanding Private Bank - Middle East Private Banker International Awards 2010
Strategic direction GPB strives to be the world's leading international private bank, recognised for excellent client experience and global connections. Our brand, capital strength, extensive global network and positioning provide a strong foundation from which GPB continues to attract and retain clients. Product and service leadership in areas such as alternative investments, foreign exchange, estate planning, credit and investment advice helps us meet the complex international financial needs of individuals and families. We are well-positioned for sustainable long-term growth through continuing investment in our people, integrated IT solutions and emerging markets-focused domestic operations, along with ensuring our cross-border business meets high standards in the evolving regulatory environment.
For footnotes, see page 83.

Review of performance

·     Reported profit before tax was US$1.1bn, 5% below 2009 on a reported and an underlying basis, driven by lower net interest income as the persistent low interest rate environment continued to affect deposit spreads and higher operating expenses. Loan impairment charges fell following the non-recurrence of a single specific impairment charge in North America in 2009 and the release of several charges made in previous years as markets recovered.

·     Net fee income and trading income rose, notably in Asia, as improved client risk appetite led to higher levels of activity, an increase in transaction volumes and positive net inflows of client assets.

·     Operating expenses increased, reflecting the hiring of front-line staff to cover emerging markets as part of a long-term strategy to further strengthen our international network to better serve clients, along with investment in systems and higher compliance costs resulting from the evolving regulatory environment.

Client assets
	2010		2009
	US$bn		US$bn
At 1 January .................................	367		352
Net new money ............................	13		(7)
Value change .................................	13		27
Exchange and other ......................	(3)		(5)
At 31 December ...........................	390		367

·      Reported client assets, which include funds under management and cash deposits, increased by US$23bn due to net new money inflows compared with outflows in 2009, and favourable market movements. Net inflows benefited from our strength in emerging markets, newly recruited key relationship managers, and cross-business referrals which generated US$8bn in 2010. This also resulted in an increase in 'total client assets', the equivalent to many industry definitions of assets under management which includes some non-financial assets held in client trusts, from US$460bn to US$499bn. Investor demand for alternatives, including real estate investments, also attracted strong inflows into HSBC Alternative Investments Limited.

·      The Family Office Partnership had a number of successes in its first full year, producing a complete range of corporate and personal solutions for top tier clients and strengthening its links with GB&M.

·    

Other

'Other' contains the results of certain property transactions, unallocated investment activities, centrally held investment companies, movements in fair value of own debt, HSBC's holding company and financing operations.
	2010		2009		2008
	US$m		US$m		US$m
Net interest expense .....	(998)		(1,035)		(956)
Net trading income/ (expense) ...................	(311)		279		(530)
Net income/(expense) from financial instruments designated at fair value ................	(216)		(6,443)		7,426
Other income ................	6,185		5,176		6,355
Net operating income/ (expense)46 ...............	4,660		(2,023)		12,295
Impairment (charges)/ recoveries47 ................	3		(8)		(5)
Net operating income/ (expense) ..................	4,663		(2,031)		12,290
Total operating expenses ...................................	(5,918)		(4,715)		(4,174)
Operating profit/(loss) ...................................	(1,255)		(6,746)		8,116
Income from associates48 ...................................	94		26		41
Profit/(loss) before tax ...................................	(1,161)		(6,720)		8,157
US$250m gain on sale and leaseback of Paris and New York headquarters buildings
US$6.5bn reduction in adverse fair value movements on own debt
Investment in  Group Service Centres as migrated activities increase
For footnotes, see page 83.

Notes

·     Reported loss before tax of US$1.2bn compared with a loss before tax of US$6.7bn in 2009. This included adverse movements of US$63m on the fair value of our own debt attributable to movements in credit spreads in 2010, compared with adverse movements of US$6.5bn in 2009. In addition, 2010 included gains of US$188m following the dilution of our holding in Ping An Insurance and US$62m on the reclassification of Bao Viet to an associate following the purchase of an additional 8% stake. On an underlying basis, the loss before tax increased by US$1.2bn to US$1.3bn. The main items reported under 'Other', are described in footnote 44 on page 85.

·     Net trading expense of US$311m compared with income of US$276m in 2009. This change was largely attributable to fair value movements on cross-currency swaps used to economically hedge fixed rate long-term debt issued by HSBC Holdings. The adverse fair value movements of US$304m, which were driven by a decline in long-term US interest rates relative to sterling and euro rates, compared with favourable fair value movements of US$748m on these instruments in 2009. This was partly offset by the non-recurrence of fair value losses arising from the implied contingent forward contract entered into with the underwriters of our rights issue in 2009 and forward foreign exchange contracts associated with the rights issue, which were accounted as derivatives with fair value taken to profit or loss in 2009.

·     We recognised gains of US$194m and US$56m, respectively, from the sale and leaseback of our headquarters buildings in Paris and New York. These compared with more substantial underlying gains totalling US$667m (US$686m as reported) on the sale and leaseback of 8 Canada Square, London and the sale of a property in Hong Kong in 2009.

·     Operating expenses rose by 24% to US$5.9bn as an increasing number of operational activities were centralised, notably in the US. These costs were previously incurred directly by customer groups, but are now recorded in 'Other' and charged to customer groups through a recharge mechanism with income reported as 'Other operating income'. In addition, costs at our Group Service Centres rose by 6% as the number of migrated activities increased in line with our Global Resourcing model.

 

END

 

 

ACSJLMMTMBATBRB