Annual Report and Accounts -

RNS Number : 7125P

HSBC Holdings PLC

31 March 2009

 



Customer groups and global businesses

	Page
Summary	67
Personal Financial Services	68
Commercial Banking	72
Global Banking and Markets	75
Private Banking	79
Other	82
Analysis by customer group and global business	84

Summary

HSBC manages its business through two customer groups, Personal Financial Services and Commercial Banking, and two global businesses, Global Banking and Markets (previously Corporate, Investment Banking and Markets), and Private Banking. Personal Financial Services incorporates the Group's consumer finance businesses; the largest of these is HSBC Finance Corporation ('HSBC Finance').

All commentaries on the customer groups and global businesses are on an underlying basis unless stated otherwise. 

Profit/(loss) before tax

	2008				2007				2006
	US$m		%		US$m		%		US$m		%
Personal Financial Services	(10,974)		(117.9)		5,900		24.4		9,457		42.8
Commercial Banking	7,194		77.3		7,145		29.5		5,997		27.2
Global Banking and Markets	3,483		37.4		6,121		25.3		5,806		26.3
Private Banking	1,447		15.6		1,511		6.2		1,214		5.5
Other13	8,157		87.6		3,535		14.6		(388)		(1.8)
	9,307		100.0		24,212		100.0		22,086		100.0

Total assets15

	At 31 December
	2008				2007
	US$m		%		US$m		%
Personal Financial Services	514,419		20.4		621,356		26.4
Commercial Banking	249,218		9.9		307,944		13.1
Global Banking and Markets	1,896,630		75.0		1,561,468		66.3
Private Banking	133,216		5.3		130,893		5.6
Other	135,001		5.3		155,685		6.6
Intra-HSBC items	(401,019)		(15.9)		(423,080)		(18.0)
	2,527,465		100.0		2,354,266		100.0

For footnotes, see page 145. 

Basis of preparation

The results are presented in accordance with the accounting policies used in the preparation of HSBC's consolidated financial statements. HSBC's operations are closely integrated and, accordingly, the presentation of customer group data includes internal allocations of certain items of income and expense. These allocations include the costs of certain support services and Group Management Office ('GMO') functions, to the extent that these can be meaningfully attributed to operational business lines. While such allocations have been made on a systematic and consistent basis, they necessarily involve a degree of subjectivity.

Where relevant, income and expense amounts presented include the results of inter-segment funding as well as inter-company and inter-business line transactions. All such transactions are undertaken on arm's length terms. 

Personal Financial Services 

Profit/(loss) before tax
	2008		2007		2006
	US$m		US$m		US$m
Net interest income	29,419		29,069		26,076
Net fee income	10,107		11,742		8,762
Trading income excluding net interest income	175		38		391
Net interest income on trading activities	79		140		220
Net trading income16	254		178		611
Net income/(expense) from financial instruments designated at fair value	(2,912)		1,333		739
Gains less losses from financial investments	663		351		78
Dividend income	90		55		31
Net earned insurance premiums	10,083		8,271		5,130
Other operating income	259		387		782
Total operating income	47,963		51,386		42,209
Net insurance claims17	(6,474)		(8,147)		(4,365)
Net operating income5	41,489		43,239		37,844
Loan impairment charges  and other credit risk provisions	(21,220)		(16,172)		(9,949)
Net operating income	20,269		27,067		27,895
Operating expenses (excluding goodwill impairment)	(21,140)		(21,757)		(18,818)
Goodwill impairment	(10,564)		-		-
Operating profit/(loss)	(11,435)		5,310		9,077
Share of profit in associates and joint ventures	461		590		380
Profit/(loss) before tax	(10,974)		5,900		9,457
By geographical region
Europe	1,658		1,581		1,909
Hong Kong	3,428		4,212		2,880
Rest of Asia-Pacific	500		760		477
North America	(17,228)		(1,546)		3,391
Latin America	668		893		800
	(10,974)		5,900		9,457
	%		%		%
Share of HSBC's profit before tax	(117.9)		24.4		42.8
Cost efficiency ratio	76.4		50.3		49.7
Balance sheet data15
	US$m		US$m		US$m
Loans and advances to customers (net)	401,402		464,726		448,545
Total assets	514,419		621,356		602,342
Customer accounts	440,338		450,071		388,468
For footnotes, see page 143.

Strategic direction

HSBC's strategy for Personal Financial Services is to use its global reach and local knowledge to grow profitably in selected markets. The strategy focuses on growth in: 

• markets where HSBC already has scale, such as Hong Kong and the UK; and

• markets where HSBC can build or acquire scale, particularly in Asia-Pacific, Latin America, Turkey and the Middle East.

Within these markets, there are two key target segments:

• customers who value seamless international banking and wealth management; and

• customers who are confident about using direct channels (internet, ATM, telephone, mobile) to access financial services.

Financial performance in 2008

• The reported loss before tax of US$11.0 billion compared with a profit of US$5.9 billion in 2007, driven substantially by higher loan impairment charges and a goodwill impairment charge of US$10.6 billion which wrote down in full the goodwill relating to the North American Personal Financial Services business. Excluding the loss before tax incurred in this business, pre-tax profits fell by 17 per cent on an underlying basis, with an increase in loan impairments and lower fee income more than offsetting an increase in revenue from deposit growth and higher gains on the sale of MasterCard and Visa shares.

• Net fee income fell by 13 per cent. This was driven by weak market sentiment, which resulted in lower fees from retail securities and investments, particularly in Hong Kong, and changes in fee billing practices in the credit card business to improve the customer proposition in North America. 

• A net expense of US$2.9 billion was recorded on financial instruments designated at fair value, compared with income of US$1.3 billion in 2007. This was largely due to the fall in value of assets held to meet liabilities under insurance and investment contracts driven by poor equity market performances, predominantly affecting operations in Hong Kong, the UK and France. For assets held to meet liabilities under unit-linked and, to a certain extent, participating insurance contracts, the movement from income to expense was offset by a corresponding reduction in policyholder liabilities where investment losses can be passed to policyholders.

• Loan impairment charges rose by 32 per cent, primarily due to further deterioration in credit quality in the North American Personal Financial Services business. Delinquency rates increased across all portfolios in HSBC Finance, particularly consumer lending, and in the real estate secured portfolios in HSBC USA, following the sustained downturn in the housing market and the onset of economic recession. 

  • A rise in loan impairments in Mexico, Turkey and India was attributable to higher delinquencies following growth of the credit card and personal loan portfolios. Actions taken to curtail asset growth in these markets focused on tightening lending criteria and deploying advanced credit analytics.

  • Operating expenses were 48 per cent higher, largely due to the goodwill impairment charge. Excluding this, operational costs were slightly lower, driven by a 12 per cent reduction in North America following initiatives taken since 2007 to cease originations in mortgage services, limit new originations in consumer lending and reduce marketing spend in cards. This benefit was partially offset by investment in business expansion in mainland China and Japan and an increase in restructuring costs and union-agreed salaries in Latin America. 

• Profit before tax increased in Europe, with a solid performance in the UK partially offset by a fall in Turkey as an investment in 98 additional branches was made in order to attain nationwide coverage. Profits were lower in France. 

• In the Middle East, profit rose by 17 per cent on 2007, with strong growth in revenue from cards.

Business highlights in 2008

• • HSBC Premier ('Premier'), which offers mass affluent customers a seamless international banking and wealth management service, grew to 2.6 million customers in 2008. During the year, the service was extended to a further six countries, taking the total to 41. 472,000 net new customers joined Premier, of whom 80 per cent were new to the Group.

  • The strength of the HSBC brand helped attract an increase in customer accounts of US$50 billion, or 13 per cent, to US$440 billion, despite the low interest rate environment. In North America, net loans and advances to customers fell by 16 per cent as HSBC reduced its balance sheet and lowered its risk profile in the US. Excluding North America, lending increased by 10 per cent, demonstrating HSBC's commitment to supporting its core customer base. At 31 December 2008, the advances-to-deposits ratio was 91 per cent, compared with 106 per cent at the end of December 2007.

  • The HSBC Direct online savings offering in the US performed well in difficult market conditions. Average balances increased by US$2.0 billion to US$13.2 billion, reducing the overall funding costs of the US Personal Financial Services business.

  • In the UK, HSBC launched a RateMatcher mortgage promotion to attract quality customers facing an interest rate reset in the near term. HSBC attracted a strong flow of new business totalling US$9.9 billion during the campaign. In December 2008, HSBC announced that the bank will make available up to £15 billion of UK residential mortgages in 2009.

  • Consistent with HSBC's strategy to increase the sale of insurance products to existing customers, the major life businesses in Europe and Asia grew and underlying net premium income rose by 15 per cent. However, declining worldwide equity markets led to a reduction in insurance profits compared with 2007.

  • In the US, declining house prices, rising unemployment and increasing bankruptcies fuelled growing customer delinquencies. HSBC continued to take measures to help customers manage their mortgage repayments and avoid foreclosure. During 2008, HSBC Finance expanded its mortgage loan modification programme which included longer-term modifications. The loan obligations of over 92,000 customers with aggregate mortgages of US$13.5 billion were modified during 2008, helping to maximise cash flow for HSBC and preserve home ownership for customers. 

Subsequent developments

The branch-based US consumer lending business of HSBC Finance has historically focused on sub-prime customers who rely on drawing cash against the equity in their homes to help meet their cash needs. Unsecured consumer lines of credit have served as a means of generating new customer accounts, with the potential to subsequently provide the customer with a mortgage product, typically a secured debt consolidation loan. As a result, the bulk of the mortgage lending products sold in the US consumer lending branch network have been for refinancing and debt consolidation rather than for house purchase.

The unprecedented deterioration in the US housing market over the last two years, including declining property values and lower secondary market demand for sub-prime mortgages, has undermined the ability of many real estate loan customers to make payments or refinance their loans. In many cases, there is no equity in their homes or, if there is, few institutions are willing to finance its withdrawal. As a result, loan originations in this business have fallen dramatically for both HSBC Finance and the industry as a whole. Management believes it will take years before property values return to the levels seen prior to the decline and, as such, has concluded that recovery in the sub-prime mortgage lending business is uncertain and the industry is unlikely to stabilise for a number of years. Management also expects that changes in regulation and practice will make it problematic to plan and execute a sub-prime lending business strategy with a reasonable degree of confidence.

Given the above, in 2008 HSBC began to reposition its US consumer lending business to reduce risk by tightening lending criteria and expanding its lending to include government sponsored entity and conforming loan products. As part of this repositioning, HSBC intended to place greater emphasis on unsecured loan products while decreasing secured loan production. To date, the results of this repositioning effort have not met expectations, in part due to the continued deterioration in the economy, leading management to re-evaluate whether, given the Group's risk appetite, the initiative can produce the volume necessary to ensure that the consumer lending business will return to profitability in the foreseeable future.

t the end of February 2009, the Board of HSBC endorsed management's recommendation to discontinue as soon as practicable originations of all products by the branch-based US consumer lending business of HSBC Finance. At 31 December 2008 this business had outstanding balances of US$62 billion comprising US$46 billion in real estate secured and US$16 billion in unsecured loan balances. HSBC will continue to service and collect the existing loan portfolio as it runs off, and will continue the Group's efforts to help customers in need of loan modification and other account management programmes to maximise collection and preserve, as far as possible, home ownership. In the US, substantially all consumer lending branches branded HFC and Beneficial will cease taking loan applications and will be closed. HSBC Finance will also continue to run-off the loan portfolios of its mortgage services business and its vehicle finance business. HSBC will provide all necessary support to HSBC Finance to enable it to run off these businesses in a measured way and to meet all its commitments.

The operations of HSBC's other US Personal Financial Services businesses, including its card business, and the retail bank branch business of HSBC USA are unaffected by this decision. HSBC USA will continue to service its customers with real estate secured and unsecured products.

HSBC expects as a result of this decision affecting the US consumer lending business of HSBC Finance that total revenue will fall by approximately US$50 million in 2009 and operating expenses by approximately US$700 million on an annualised basis. Closure costs of up to US$195 million will be incurred, predominantly related to one-off termination and other employee benefit costs, a substantial portion of which will be recorded in the first half of 2009.

In addition, a non-cash charge of approximately US$70 million is expected to be incurred in relation to the impairment of fixed assets associated with the consumer lending branch network, also to be recognised in the first half of 2009.

Employees supporting originations operations will be evaluated for service elsewhere in HSBC's operations, but it is currently expected that approximately 6,100 employees will be displaced.

Reconciliation of reported and underlying profit/(loss) before tax 

	2008 compared with 2007
Personal Financial Services	2007     as     reported     US$m	2007     acquisitions,    disposals     & dilution      gains1     US$m			Currency     translation2     US$m		2007     at 2008    exchange     rates3     US$m	2008     acquisitions     and     disposals1     US$m			Under-    lying     change     US$m		2008     as     reported     US$m		Re-    ported    change    %		Under-    lying     change     %
Net interest income	29,069		(224)		(126)		28,719		215		485		29,419		1		2
Net fee income	11,742		(21)		(105)		11,616		(9)		(1,500)		10,107		(14)		(13)
Other income4	2,428		(91)		(10)		2,327		83		(447)		1,963		(19)		(19)
Net operating income5	43,239		(336)		(241)		42,662		289		(1,462)		41,489		(4)		(3)
Loan impairment charges and other credit risk provisions	(16,172)		4		75		(16,093)		(3)		(5,124)		(21,220)		(31)		(32)
Net operating income	27,067		(332)		(166)		26,569		286		(6,586)		20,269		(25)		(25)
Operating expenses (excluding goodwill impairment)	(21,757)		236		117		(21,404)		(98)		362		(21,140)		3		2
Goodwill impairment	-		-		-		-		-		(10,564)		(10,564)		n/a		n/a
Operating profit/(loss)	5,310		(96)		(49)		5,165		188		(16,788)		(11,435)		(315)		(325)
Income from associates	590		-		52		642		-		(181)		461		(22)		(28)
Profit/(loss) before tax	5,900		(96)		3		5,807		188		(16,969)		(10,974)		(286)		(292)

	2007 compared with 2006
Personal Financial Services	2006     as     reported     US$m	2006     acquisitions     and     disposals1     US$m			Currency     translation2     US$m		2006     at 2007    exchange     rates6     US$m	2007     acquisitions,     disposals     & dilution     gains1     US$m			Under-    lying     change     US$m		2007     as     reported     US$m		Re-    ported    change    %		Under-    lying     change     %
Net interest income	26,076		(3)		746		26,819		653		1,597		29,069		11		6
Net fee income	8,762		53		322		9,137		(77)		2,682		11,742		34		30
Other income4	3,006		(53)		87		3,040		(38)		(574)		2,428		(19)		(19)
Net operating income5	37,844		(3)		1,155		38,996		538		3,705		43,239		14		10
Loan impairment charges  and other credit risk provisions	(9,949)		-		(205)		(10,154)		(72)		(5,946)		(16,172)		(63)		(59)
Net operating income	27,895		(3)		950		28,842		466		(2,241)		27,067		(3)		(8)
Operating expenses	(18,818)		2		(753)		(19,569)		(285)		(1,903)		(21,757)		(16)		(10)
Operating profit	9,077		(1)		197		9,273		181		(4,144)		5,310		(42)		(45)
Income from associates	380		-		13		393		6		191		590		55		49
Profit before tax	9,457		(1)		210		9,666		187		(3,953)		5,900		(38)		(41)

For footnotes, see page 143.

Commercial Banking

Profit before tax
	2008		2007		2006
	US$m		US$m		US$m
Net interest income	9,494		9,055		7,514
Net fee income	4,097		3,972		3,207
Trading income excluding net interest income	369		265		204
Net interest income on trading activities	17		31		20
Net trading income16	386		296		224
Net income/(expense) from financial instruments designated at fair value	(224)		22		(22)
Gains less losses from financial investments	193		90		44
Dividend income	88		8		6
Net earned insurance premiums	679		733		258
Other operating income	939		165		250
Total operating income	15,652		14,341		11,481
Net insurance claims17	(335)		(391)		(96)
Net operating income5	15,317		13,950		11,385
Loan impairment charges  and other credit risk provisions	(2,173)		(1,007)		(697)
Net operating income	13,144		12,943		10,688
Total operating expenses	(6,581)		(6,252)		(4,979)
Operating profit	6,563		6,691		5,709
Share of profit in associates and joint ventures	631		454		288
Profit before tax	7,194		7,145		5,997
By geographical region
Europe	2,722		2,516		2,234
Hong Kong	1,315		1,619		1,321
Rest of Asia-Pacific	1,793		1,350		1,034
North America	658		920		957
Latin America	706		740		451
	7,194		7,145		5,997
	%		%		%
Share of HSBC's profit before tax	77.3		29.5		27.2
Cost efficiency ratio	43.0		44.8		43.7
Balance sheet data15
	US$m		US$m		US$m
Loans and advances to customers (net)	203,949		220,068		172,976
Total assets	249,218		307,944		228,668
Customer accounts	235,879		237,987		190,853
For footnotes, see page 143.

Strategic direction

HSBC's Commercial Banking strategy is focused on two key initiatives:

• to be the leading international business bank, using HSBC's extensive geographical network together with product expertise in payments, trade, receivables finance and foreign exchange to actively support customers trading and investing across borders; and

• to be the best bank for small businesses in target markets, building global scale and creating efficiencies by sharing best practice, including customer experience and credit scoring, and selectively rolling out the direct banking model.

Financial performance in 2008

• • • • Reported pre-tax profit was broadly in line with 2007 at US$7.2 billion as revenue growth was offset by the rise in loan impairment charges and operating costs. Pre-tax profit growth was evident in emerging markets, with their contribution increasing to 56 per cent excluding a gain of US$425 million on the disposal of the UK merchant acquiring division, recorded in 'Other operating income'. Profit growth was most significant in Australia, India, mainland China, United Arab Emirates ('UAE'), Turkey, Brazil and Argentina.

      • HSBC remained committed to new lending, increasing lending balances by 10 per cent. Deposit growth of 15 per cent was driven by brand strength, particularly in the UK, the US and Hong Kong. 

      • Balance sheet growth drove a 7 per cent rise in net interest income, notwithstanding the adverse affect of widespread reductions in interest rates on liability spreads. This was partly offset by higher lending spreads from improved pricing. 

      • Net fee income rose by 8 per cent with income from trade services and foreign exchange growing particularly strongly.

      • Other income was boosted by a number of significant gains, notably from the sale of shares in MasterCard and Visa. 

      • Loan impairment charges increased from US$1.0 billion in 2007 to US$2.2 billion, as the previously benign credit environment was replaced by economic slowdown in most countries. Loan impairment charges increased by 44 basis points to 1 per cent of average reported assets, with most of the increase coming in the second half of 2008.

      • The cost efficiency ratio improved to 44.2 per cent excluding the US$425 million gains noted above. Costs were tightly controlled in Europe and North America, but grew elsewhere as the Group continued to expand operations in emerging markets, particularly in Asia.

      • Customer numbers grew to 2.9 million, with continuing recruitment of new customers through existing operations and gains from the acquisition of the assets, liabilities and operations of The Chinese Bank in Taiwan, despite a reduction from the sale of the French regional banks.

Business highlights in 2008

Commercial Banking achieved key objectives toward its international business strategy in 2008 as the proportion of its total revenues derived from international customers and products increased.

• • • • • Revenue from foreign exchange and trade and supply chain products grew strongly, with increases of 66 per cent and 27 per cent, respectively. This was driven by improved cross-selling of products, particularly in foreign exchange, as customers sought protection from volatile currency movements. A number of initiatives were launched to extend foreign exchange services, which included enhancing relationship management in the US and UAE, and introducing dedicated sales desks in India.

        • The volume of international trade finance increased significantly and revenue grew commensurately as HSBC benefited from higher commodity prices, the reintermediation of traditional trade instruments in respect of which the Group demonstrated continued capacity to lend, and improved pricing reflecting market trends. HSBC's growth outpaced market growth in a number of key countries, particularly in Asia and the Middle East.

        • Successful Global Links referrals nearly doubled to 5,600, with the aggregate transaction value exceeding US$11 billion, an increase of 96 per cent. The use of electronic account opening 'SmartForms' improved customer experience. 

In support of its strategy to be the best bank for small businesses, HSBC focused on deposit gathering and transaction banking, and was particularly successful in attracting customer deposits. 

• • • • • With over US$100 billion in customer deposits, HSBC's small and micro segments are a significant source of funding for Commercial Banking, generating over twice as much in liabilities as loans and advances to customers. Customer numbers in the small and micro segments rose by 7 per cent to 2.6 million. In Taiwan, the acquisition of the assets, liabilities and operations of The Chinese Bank expanded the branch network to 33 and added over 15,000 small business customers. 

        • Customer loyalty was evidenced by an increase in the use of internet banking, with the number of active users of Business Internet Banking growing by 16 per cent and the number of transactions by 18 per cent.

        • New small business offerings continued to be initiated. BusinessDirect was extended to seven countries and total customer numbers exceeded 180,000. BusinessVantage was launched in Indonesia while, in the US, the autumn marketing campaign led to over 9,000 new accounts. New business card products were rolled out in a further six countries. 

        • The announcement of HSBC's US$5 billion International SME Fund in December under-scored the Group's commitment to lending to small and medium-sized enterprises, and led to significant interest from existing and prospective customers. Specific initiatives were launched in the UK, Hong Kong, France and Malta.

Commercial Banking increased its intra-Group referrals, in part by extending the Global Links platform to facilitate cross-customer group referrals.

• • • • • • In Hong Kong and India, an initiative to increase referrals across customer groups resulted in a two-fold rise in the number of Premier account referrals, and significant growth in referrals from Personal Financial Services to Commercial Banking. Similar programmes in the UK contributed to sales of Premier accounts and mortgage products, and plans are underway to extend these programmes to other regions in 2009. 

          • Referrals to Private Banking grew by 30 per cent, and led to US$2.7 billion in new assets under management, while referrals from Private Banking led to a three-fold increase in new relationships. 

          • Sales of Global Markets products were particularly strong in foreign exchange under Commercial Banking's strategy to be the leading bank for international business. 

Reconciliation of reported and underlying profit before tax 

	2008 compared with 2007
Commercial Banking	2007     as     reported     US$m	2007     acquisitions,    disposals     & dilution      gains1     US$m			Currency     translation2     US$m		2007     at 2008    exchange     rates3     US$m	2008     acquisitions     and     disposals1     US$m			Under-    lying     change     US$m		2008     as     reported     US$m		Re-    ported    change    %		Under-    lying     change     %
Net interest income	9,055		(166)		(77)		8,812		41		641		9,494		5		7
Net fee income	3,972		(113)		(76)		3,783		27		287		4,097		3		8
Other income4	923		(7)		(28)		888		525		313		1,726		87		35
Net operating income5	13,950		(286)		(181)		13,483		593		1,241		15,317		10		9
Loan impairment charges and other credit risk provisions	(1,007)		3		36		(968)		(3)		(1,202)		(2,173)		(116)		(124)
Net operating income	12,943		(283)		(145)		12,515		590		39		13,144		2		-
Operating expenses	(6,252)		180		47		(6,025)		(106)		(450)		(6,581)		(5)		(7)
Operating profit	6,691		(103)		(98)		6,490		484		(411)		6,563		(2)		(6)
Income from associates	454		-		26		480		-		151		631		39		31
Profit before tax	7,145		(103)		(72)		6,970		484		(260)		7,194		1		(4)

	2007 compared with 2006
Commercial Banking	2006     as     reported     US$m	2006     acquisitions     and     disposals1     US$m			Currency     translation2     US$m		2006     at 2007    exchange     rates6     US$m	2007     acquisitions,     disposals     & dilution     gains1     US$m			Under-    lying     change     US$m		2007     as     reported     US$m		Re-    ported    change    %		Under-    lying     change     %
Net interest income	7,514		-		382		7,896		114		1,045		9,055		21		13
Net fee income	3,207		-		189		3,396		17		559		3,972		24		16
Other income4	664		-		27		691		48		184		923		39		27
Net operating income5	11,385		-		598		11,983		179		1,788		13,950		23		15
Loan impairment charges  and other credit risk provisions	(697)		-		(47)		(744)		(61)		(202)		(1,007)		(44)		(27)
Net operating income	10,688		-		551		11,239		118		1,586		12,943		21		14
Operating expenses	(4,979)		-		(291)		(5,270)		(73)		(909)		(6,252)		(26)		(17)
Operating profit	5,709		-		260		5,969		45		677		6,691		17		11
Income from associates	288		-		9		297		1		156		454		58		53
Profit before tax	5,997		-		269		6,266		46		833		7,145		19		13

For footnotes, see page 143.

Global Banking and Markets

Profit before tax
	2008		2007		2006
	US$m		US$m		US$m
Net interest income	8,541		4,430		3,168
Net fee income	4,291		4,901		3,718
Trading income excluding net interest income	157		3,503		4,890
Net interest income/ (expense) on trading activities	324		(236)		(379)
Net trading income16	481		3,267		4,511
Net income/(expense)  from financial instruments designated  at fair value	(438)		(164)		20
Gains less losses from financial investments	(327)		1,313		534
Dividend income	76		222		235
Net earned insurance premiums	105		93		73
Other operating income	868		1,218		1,378
Total operating income	13,597		15,280		13,637
Net insurance claims17	(79)		(70)		(62)
Net operating income5	13,518		15,210		13,575
Loan impairment (charges)/ recoveries and other credit risk provisions	(1,471)		(38)		119
Net operating income	12,047		15,172		13,694
Total operating expenses	(9,092)		(9,358)		(7,991)
Operating profit	2,955		5,814		5,703
Share of profit in associates and joint ventures	528		307		103
Profit before tax	3,483		6,121		5,806
By geographical region
Europe	195		2,527		2,304
Hong Kong	1,436		1,578		955
Rest of Asia-Pacific	3,786		2,464		1,649
North America	(2,575)		(965)		423
Latin America	641		517		475
	3,483		6,121		5,806
	%		%		%
Share of HSBC's profit before tax	37.4		25.3		26.3
Cost efficiency ratio	67.3		61.5		58.9
For footnotes, see page 143.

In 2008, Global Banking and Markets continued to pursue its 'emerging markets-led and financing-focused' strategy, which was introduced in 2006 and fully implemented in 2007. HSBC's strategy is to be a leading wholesale bank by: 

• utilising HSBC's extensive distribution network; 

• developing Global Banking and Markets' hubߛandߛspoke business model; and

• continuing to build capabilities in major hubs to support the delivery of an advanced suite of services to corporate, institutional and government clients across the HSBC network.

Ensuring that this combination of product depth and distribution strength meets the needs of existing and new clients will allow Global Banking and Markets to achieve its strategic goals.

Financial performance in 2008

• Global Banking and Markets delivered a preߛtax profit of US$3.5 billion, a decline of US$2.6 billion or 43 per cent compared with 2007. Although credit trading was significantly impacted by the adverse market conditions, revenues in other core businesses grew strongly in both developed and emerging markets. At constant exchange rates, total operating expenses were slightly below 2007 with a progressive decline over the last four halfߛyears.

• Core businesses such as foreign exchange, Rates, Balance Sheet Management and financing and equity capital markets posted record revenues.

• In 2008, some US$5.4 billion of write-downs were absorbed on legacy positions in credit trading, leveraged and acquisition financing and monoline credit exposures. This compared with US$2.1 billion of write-downs recorded in 2007. Results for 2008 included a US$529 million fair value gain on the widening of credit spreads on structured liabilities. 

• In addition, because of an alleged fraud, HSBC wrote off the value of units in funds which had invested with Madoff Securities, and took a charge against trading income of US$984 million in the equities business in December 2008. The units had been acquired in connection with various financing transactions entered into with institutional clients. 

Management view of total operating income

	2008 US$m		2007 US$m		2006 US$m
Global Markets18	2,676		5,720		6,059
Credit	(5,502)		(1,319)		931
Rates	2,033		1,291		1,207
Foreign exchange	3,842		2,178		1,552
Equities	(64)		1,177		721
Securities services	2,116		1,926		1,378
Asset and structured finance	251		467		270
Global Banking	5,718		4,190		3,388
Financing and equity capital markets	3,572		2,186		1,730
Payments and cash management	1,665		1,632		1,257
Other transaction services	481		372		401
Balance Sheet  Management	3,618		1,226		713
Global Asset  Management	934		1,336		1,061
Principal Investments	(415)		1,253		686
Other19	1,066		1,555		1,730
Total operating income	13,597		15,280		13,637

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

For footnotes, see page 143.

• Loan impairment charges and other credit risk provisions of US$1.5 billion were higher than in 2007, reflecting loan impairment charges resulting from the deteriorating credit environment, coupled with a relatively modest impairment charge within the available-for-sale portfolio, taken through the income statement and detailed below. 

• Within the Group's available-for-sale portfolio, continuing illiquidity in asset-backed securities markets led to further write-downs. However, due to the underlying credit quality and seniority of the tranches held by HSBC, only a relatively modest impairment charge of US$279 million was identified on securities with a nominal value of US$570 million and was taken to the income statement. The expected cash flow impairment on these securities was US$86 million. A further US$293 million impairment was absorbed by income note holders who take the first loss on positions within the securities investment conduits ('SIC's) now consolidated in HSBC's accounts. Further details on the SICs are provided on pages 174 to 179.

Business highlights in 2008

• The success of Global Banking and Markets' two-year-old 'emerging markets-led and financing-focused' strategy was recognised by a number of key industry awards, including 'Sterling Bond House', 'Islamic Bond House', 'Middle East Loan House' and 'Latin America Bond House' in International Financing Review; 'Best Emerging Markets Bank', 'Best Investment Bank in the Middle East' and 'Best Debt House in Europe' in Euromoney; 'Best Bond House' in Asia in FinanceAsia, Asiamoney and The Asset; 'Bond House of the Year' in Latin Finance; and 'Emerging Markets Manager of the Year' in European Pensions.

• In Global Markets, foreign exchange revenues rose by 76 per cent to a record US$3.8 billion due to increased market volatility and higher levels of customer activity. While foreign exchange revenues rose in all regions, performance was notably strong in Europe, where revenues rose by 75 per cent to US$1.4 billion, in the Rest of Asia-Pacific region, and in North America, where revenues more than doubled.

• The Rates business also reported record revenues, reflecting increased customer activity against a backdrop of greater market volatility. 

• Securities services revenues grew despite the lower interest rate environment, benefiting from new customer flows and additional business from existing customers. Assets under custody decreased by 34 per cent to US$3.6 trillion, driven by the downturn in the equity markets and the net redemptions experienced across the industry in the final quarter.

• Growth in Global Banking was driven by improved margins in the credit and lending business and substantial gains on credit default swap transactions in certain portfolios. Payments and cash management continued to deliver revenue growth, primarily due to strong growth in liability balances, although margins narrowed in the latter part of the year.  

• Balance Sheet Management income rose in Europe, Asia and North America, reflecting positioning ahead of rate reductions by a number of central banks.

• In Principal Investments, markets remained closed for realisations and certain private equity holdings were marked down to reflect market conditions.

• In Global Asset Management, although underlying management fees remained strong, overall revenues fell, primarily due to the costs associated with the provision of support to certain money market funds. A fall in performance fees reflected a 20 per cent decrease in funds under management following recent equity market declines. Nevertheless, HSBC remained one of the leading emerging markets asset managers.

Reconciliation of reported and underlying profit before tax 

	2008 compared with 2007
Global Banking and Markets	2007     as     reported     US$m	2007     acquisitions,    disposals     & dilution      gains1     US$m			Currency     translation2     US$m		2007     at 2008    exchange     rates3     US$m	2008     acquisitions     and     disposals1     US$m			Under-    lying     change     US$m		2008     as     reported     US$m		Re-    ported    change    %		Under-    lying     change     %
Net interest income	4,430		-		(32)		4,398		-		4,143		8,541		93		94
Net fee income	4,901		-		(46)		4,855		-		(564)		4,291		(12)		(12)
Other income4	5,879		-		(57)		5,822		-		(5,136)		686		(88)		(88)
Net operating income5	15,210		-		(135)		15,075		-		(1,557)		13,518		(11)		(10)
Loan impairment charges and other credit risk provisions	(38)		-		1		(37)		-		(1,434)		(1,471)		(3,771)		(3,876)
Net operating income	15,172		-		(134)		15,038		-		(2,991)		12,047		(21)		(20)
Operating expenses	(9,358)		-		175		(9,183)		-		91		(9,092)		3		1
Operating profit	5,814		-		41		5,855		-		(2,900)		2,955		(49)		(50)
Income from associates	307		-		18		325		-		203		528		72		62
Profit before tax	6,121		-		59		6,180		-		(2,697)		3,483		(43)		(44)

	2007 compared with 2006
Global Banking and Markets	2006     as     reported     US$m	2006     acquisitions     and     disposals1     US$m			Currency     translation2     US$m		2006     at 2007    exchange     rates6     US$m	2007     acquisitions,     disposals     & dilution     gains1     US$m			Under-    lying     change     US$m		2007     as     reported     US$m		Re-    ported    change    %		Under-    lying     change     %
Net interest income	3,168		-		175		3,343		25		1,062		4,430		40		32
Net fee income	3,718		-		182		3,900		9		992		4,901		32		25
Other income4	6,689		-		360		7,049		10		(1,180)		5,879		(12)		(17)
Net operating income5	13,575		-		717		14,292		44		874		15,210		12		6
Loan impairment charges and other credit risk provisions	119		-		6		125		-		(163)		(38)		(132)		(130)
Net operating income	13,694		-		723		14,417		44		711		15,172		11		5
Operating expenses	(7,991)		-		(406)		(8,397)		(35)		(926)		(9,358)		(17)		(11)
Operating profit	5,703		-		317		6,020		9		(215)		5,814		2		(4)
Income from associates	103		-		(4)		99		2		206		307		198		208
Profit before tax	5,806		-		313		6,119		11		(9)		6,121		5		-

For footnotes, see page 143.

Balance sheet data significant to Global Banking and Markets15

	Europe		Hong     Kong		Rest of     Asia-     Pacific		North     America		Latin     America		Total
	US$m		US$m		US$m		US$m		US$m		US$m
At 31 December 2008
Trading assets20	281,089		45,398		19,606		74,498		5,004		425,595
Derivative assets	303,265		26,989		26,506		125,848		5,145		487,753
Loans and advances to:
- customers (net)	185,818		23,042		34,590		35,583		8,273		287,306
- banks (net)	49,508		20,970		26,710		9,238		12,574		119,000
Financial investments20	105,546		46,964		37,346		39,841		8,179		237,876
Total assets	1,131,721		225,853		172,049		318,139		48,868		1,896,630
Deposits by banks	79,509		11,509		13,205		16,244		3,871		124,338
Customer accounts	199,687		30,866		50,605		23,844		15,384		320,386
Trading liabilities	144,759		13,056		3,687		72,325		2,546		236,373
Derivative liabilities	300,200		28,536		26,481		122,699		4,615		482,531
At 31 December 2007
Trading assets20	294,078		26,877		19,732		93,395		8,570		442,652
Derivative assets	102,409		11,492		10,234		56,531		1,814		182,480
Loans and advances to:
- customers (net)	163,066		19,171		32,106		26,186		9,935		250,464
- banks (net)	89,651		53,725		30,853		14,938		10,339		199,506
Financial investments20	94,416		46,765		39,448		33,273		10,155		224,057
Total assets	892,712		215,801		155,106		252,804		45,045		1,561,468
Deposits by banks	85,315		6,251		17,174		14,825		2,830		126,395
Customer accounts	163,713		37,364		54,120		30,732		13,950		299,879
Trading liabilities	201,010		15,939		8,601		73,081		4,998		303,629
Derivative liabilities	104,687		10,865		9,656		53,058		1,986		180,252
At 31 December 2006
Trading assets20	165,116		30,895		14,726		105,645		7,575		323,957
Derivative assets	53,223		6,259		6,575		32,357		1,230		99,644
Loans and advances to:
- customers (net)	140,277		20,270		24,311		17,215		8,147		210,220
- banks (net)	63,788		45,023		22,171		15,862		9,704		156,548
Financial investments20	54,009		48,407		20,890		30,496		8,169		161,971
Total assets	526,468		182,540		109,535		203,639		37,564		1,059,746
Deposits by banks	65,963		4,363		9,849		9,664		3,115		92,954
Customer accounts	139,416		24,530		36,623		23,711		11,685		235,965
Trading liabilities	97,015		17,292		6,243		88,275		4,898		213,723
Derivative liabilities	55,581		6,376		6,149		32,148		1,266		101,520

For footnotes, see page 143.

Private Banking

Profit before tax
	2008		2007		2006
	US$m		US$m		US$m
Net interest income	1,612		1,216		1,011
Net fee income	1,476		1,615		1,323
Trading income excluding net interest income	408		525		362
Net interest income  on trading activities	14		9		2
Net trading income16	422		534		364
Net income/(expense) from financial instruments designated at fair value	-		(1)		1
Gains less losses from financial investments	64		119		166
Dividend income	8		7		5
Other operating income	49		58		61
Total operating income	3,631		3,548		2,931
Net insurance claims17	-		-		-
Net operating income5	3,631		3,548		2,931
Loan impairment charges  and other credit risk provisions	(68)		(14)		(33)
Net operating income	3,563		3,534		2,898
Total operating expenses	(2,116)		(2,025)		(1,685)
Operating profit	1,447		1,509		1,213
Share of profit in associates and joint ventures	-		2		1
Profit before tax	1,447		1,511		1,214
By geographical region
Europe	998		915		805
Hong Kong	237		305		201
Rest of Asia-Pacific	113		92		80
North America	83		174		114
Latin America	16		25		14
	1,447		1,511		1,214
	%		%		%
Share of HSBC's profit before tax	15.6		6.2		5.5
Cost efficiency ratio	58.3		57.1		57.5
Balance sheet data15
	US$m		US$m		US$m
Loans and advances to customers (net)	37,590		43,612		34,297
Total assets	133,216		130,893		106,178
Customer accounts	116,683		106,197		80,303
For footnotes, see page 143.

Strategic direction

The strategy for Private Banking is to be the world's leading international private bank, known for excellent client experience and global connections. 

• HSBC's global network, strong capital position and recognised brand provide a base from which Private Banking attracts and retains clients and serves their complex international needs. It uses both traditional and innovative ways of managing and preserving the wealth of high net worth individuals while optimising returns.

• Private Banking has built a network of domestic and international operations that provide diversified revenue streams, helped by product leadership in areas such as credit, hedge funds, emerging markets, investment advice and estate planning. This is achieved by attracting, retaining and motivating talented individuals, by providing close communication between clients and staff, and by making targeted investments in IT, marketing and branding initiatives.

Financial performance in 2008

• Reported pre-tax profit fell by 4 per cent as clients moved progressively to a more conservative investment stance in the turbulent markets. This trend was reflected in reduced trading income in Asia, lower fee income in Europe and higher loan impairment charges and other credit risk provisions. By contrast, net interest income grew strongly in Europe. On an underlying basis, pre-tax profit decreased by 3 per cent. 

• Net interest income rose by 34 per cent to US$1.6 billion as a result of an increase in customer deposit balances in Switzerland, the UK and Hong Kong as customers reduced risk in response to market turbulence, choosing HSBC for its strength and switching from investment securities to cash deposits. Spreads improved as interest rates declined sharply.

• Net fee income decreased by 4 per cent to US$1.5 billion, driven by a fall in funds under management in all regions as a result of equity market declines and clients switching from securities into cash deposits. Transaction volumes also fell, particularly in the fourth quarter.

• Trading income fell by 21 per cent to US$422 million, driven by lower demand for structured products in Asia following the decline in the Hong Kong stock market which led to clients preferring more stable cash deposits. Partly offsetting this was an increase in foreign exchange trading revenue in the volatile currency markets.

• Gains less losses from financial investments decreased by 47 per cent to US$64 million due to lower gains from the disposal of HSBC's residual holding in the Hermitage Fund in 2008, compared with 2007. 

• Loan impairment charges and other credit risk provisions increased by US$54 million to US$68 million, primarily due to a loss on a bond position in a failed US bank and higher provisions on real estate-related products.

• Operating expenses grew by 9 per cent to US$2.1 billion, mainly due to the non-recurrence of a one-off pension-related credit recognised in 2007. Staff numbers increased in Asia and Europe in late 2007 and the first half of 2008, leading to higher costs, although these reduced in the second half of the year. As a result, the cost efficiency ratio worsened by 1.9 percentage points to 58.3 per cent.

  Client assets
  	2008		2007
  	US$bn		US$bn
  At 1 January	421		333
  Net new money	24		36
  Value change	(71)		19
  Exchange and other	(22)		33
  At 31 December	352		421

Client assets by investment class
	2008		2007
	US$bn		US$bn
Equities	53		81
Bonds	57		64
Structured products	7		12
Funds	87		123
Cash, fiduciary deposits and other	148		141
	352		421

• Reported client assets decreased by 16 per cent to US$352 billion in 2008, due to the decline in equity market values in all regions. Net new money flows continued to be strong, particularly in Europe, as clients were attracted by HSBC's strong capital base during the market turbulence. However, reduced leverage had a US$5.9 billion 

effect on net new money flows compared with 2007 and some outflows of client deposits were experienced in the fourth quarter following the introduction of government guarantees to certain competitor banks. 

• Total client assets declined by 12 per cent on a reported basis to US$433 billion, with net new money of US$30 billion. 'Total client assets' is a measure equivalent to many industry definitions of assets under management which include some non-financial assets held in client trusts.

Business highlights in 2008

• Inward referrals from other customer groups in HSBC resulted in US$6.8 billion of net new money compared with US$5.7 billion in 2007.

• The proportion of trading volumes that were transacted with Global Banking and Markets increased as more systems and processes were connected.

• Investments in emerging markets continued as Private Banking clients invested over US$1 billion in various HSBC Private Equity and fund offerings.

• The Euromoney 2009 Private Banking Survey placed HSBC Private Bank second overall in the Global Private Bank category, up from third in 2008. HSBC Private Bank was also awarded 'Best Private Bank in Asia' and 'Best Private Bank in the Middle East'. At the International Wealth Management Summit, HSBC won 'Outstanding Global Private Banker' awarded to the Global CEO of HSBC Private Bank, and 'Outstanding Private Bank' in the Middle East.

• In 2008, HSBC announced that it would merge its two Swiss private banks under the HSBC Private Bank brand. The merger is expected to result in future strategic and cost benefits.

• Following a comprehensive review in 2008, HSBC Private Bank launched a fresh image campaign in 2009, including the aim to be 'The world's private bank' in alignment with the Group's recognised global brand strategy. The launch was combined with a targeted advertising and marketing campaign.

• Offices in Guangzhou, Shanghai and Beijing were formally opened as part of the launch of Private Banking operations in mainland China. Preparations were also made for a launch of domestic operations in Russia in 2009.

Reconciliation of reported and underlying profit before tax 

	2008 compared with 2007
Private Banking	2007     as     reported     US$m	2007     acquisitions,    disposals     & dilution      gains1     US$m			Currency     translation2     US$m		2007     at 2008    exchange     rates3     US$m	2008     acquisitions     and     disposals1     US$m			Under-    lying     change     US$m		2008     as     reported     US$m		Re-    ported    change    %		Under-    lying     change     %
Net interest income	1,216		1		(12)		1,205		-		407		1,612		33		34
Net fee income	1,615		(105)		26		1,536		-		(60)		1,476		(9)		(4)
Other income4	717		(18)		5		704		-		(161)		543		(24)		(23)
Net operating income5	3,548		(122)		19		3,445		-		186		3,631		2		5
Loan impairment charges and other credit risk provisions	(14)		-		-		(14)		-		(54)		(68)		(386)		(386)
Net operating income	3,534		(122)		19		3,431		-		132		3,563		1		4
Operating expenses	(2,025)		98		(17)		(1,944)		-		(172)		(2,116)		(4)		(9)
Operating profit	1,509		(24)		2		1,487		-		(40)		1,447		(4)		(3)
Income from associates	2		-		-		2		-		(2)		-		(100)		(100)
Profit before tax	1,511		(24)		2		1,489		-		(42)		1,447		(4)		(3)

	2007 compared with 2006
Private Banking	2006     as     reported     US$m	2006     acquisitions     and     disposals1     US$m			Currency     translation2     US$m		2006     at 2007    exchange     rates6     US$m	2007     acquisitions,     disposals     & dilution     gains1     US$m			Under-    lying     change     US$m		2007     as     reported     US$m		Re-    ported    change    %		Under-    lying     change     %
Net interest income	1,011		-		24		1,035		2		179		1,216		20		17
Net fee income	1,323		-		32		1,355		4		256		1,615		22		19
Other income4	597		-		7		604		1		112		717		20		19
Net operating income5	2,931		-		63		2,994		7		547		3,548		21		18
Loan impairment charges and other credit risk provisions	(33)		-		-		(33)		-		19		(14)		58		58
Net operating income	2,898		-		63		2,961		7		566		3,534		22		19
Operating expenses	(1,685)		-		(40)		(1,725)		(4)		(296)		(2,025)		(20)		(17)
Operating profit	1,213		-		23		1,236		3		270		1,509		24		22
Income from associates	1		-		-		1		-		1		2		100		100
Profit before tax	1,214		-		23		1,237		3		271		1,511		24		22

For footnotes, see page 143.

Other

Profit/(loss) before tax
	2008		2007		2006
	US$m		US$m		US$m
Net interest expense	(956)		(542)		(625)
Net fee income/(expense)	53		(228)		172
Trading income/(expense) excluding net interest income	(262)		127		(228)
Net interest income/ (expense) on trading activities	(268)		(1)		82
Net trading income/ (expense)16	(530)		126		(146)
Changes in fair value of long-term debt issued and related derivatives	6,679		2,812		(35)
Net income/(expense)  from other financial instruments designated  at fair value	747		81		(46)
Net income/(expense) from financial instruments designated at fair value	7,426		2,893		(81)
Gains less losses from financial investments	(396)		83		147
Gains arising from  dilution of interests in associates	-		1,092		-
Dividend income	10		32		63
Net earned insurance premiums	(17)		(21)		207
Gains on disposal of  French regional banks	2,445		-		-
Other operating income	4,261		3,523		3,254
Total operating income	12,296		6,958		2,991
Net insurance claims17	(1)		-		(181)
Net operating income5	12,295		6,958		2,810
Loan impairment charges  and other credit risk provisions	(5)		(11)		(13)
Net operating income	12,290		6,947		2,797
Total operating expenses	(4,174)		(3,562)		(3,259)
Operating profit/(loss)	8,116		3,385		(462)
Share of profit in joint ventures and associates	41		150		74
Profit/(loss) before tax	8,157		3,535		(388)
By geographical region
Europe	5,296		1,056		(278)
Hong Kong	(955)		(375)		(175)
Rest of Asia-Pacific	276		1,343		287
North America	3,534		1,508		(217)
Latin America	6		3		(5)
	8,157		3,535		(388)
	%		%		%
Share of HSBC's profit before tax	87.6		14.6		(1.8)
Cost efficiency ratio	33.9		51.2		116.0

For footnotes, see page 143.

Notes

• Reported profit before tax in Other was US$8.2 billion, compared with US$3.5 billion in 2007. For a description of the main items reported under 'Other', see footnote 14 on page 143.

• Net income from financial instruments designated at fair value amounted to US$7.4 billion in 2008, compared with US$2.9 billion in 2007. This largely related to fair value gains on own debt issued by HSBC Holdings and its North American and European subsidiaries and resulted primarily from the widening of credit spreads. These gains will reverse over the life of the debt. 

• A loss of US$396 million reported in 'Gains less losses from financial investments' included impairments related to non-trading strategic equity investments, classified as available for sale, following significant declines in equity market prices. These investments were primarily in Asian financial services companies which are held for the long term.

• In 2007, the results included dilution gains of US$1.1 billion following share offerings made by HSBC's associates, Ping An Insurance, Bank of Communications and Industrial Bank in mainland China, Financiera Independencia in Mexico and Techcombank in Vietnam.

• Other gains included a US$2.4 billion pre-tax profit from the sale of seven regional banks in France.

• HSBC recognised a gain of US$416 million in respect of the purchase of the subsidiary of Metrovacesa which owned the property and long leasehold land comprising 8 Canada Square, London. See Note 23 on the Financial Statements for further details. 

• HSBC continued to increase the scope of activities undertaken at its Group Service Centres ('GSCs') which are accounted for within Other. Employee numbers increased accordingly and an additional GSC was opened which, together, contributed to a rise in operating expenses. In North America, costs at the IT Service Centres declined in line with reduced operations in the region. Substantially all service centre costs are recharged to HSBC's customer groups and reported under 'Other operating income'.  

  • Balance sheet data15
    	2008		2007		2006
    	US$m		US$m		US$m
    Loans and advances to customers (net)	2,621		2,678		2,095
    Total assets	135,001		155,685		137,291
    Customer accounts	2,041		2,006		1,245

Reconciliation of reported and underlying profit/(loss) before tax 

	2008 compared with 2007
Other	2007     as     reported     US$m	2007     acquisitions,    disposals     & dilution      gains1     US$m			Currency     translation2     US$m		2007     at 2008    exchange     rates3     US$m	2008     acquisitions     and     disposals1     US$m			Under-    lying     change     US$m		2008     as     reported     US$m		Re-    ported    change    %		Under-    lying     change     %
Net interest expense	(542)		-		(38)		(580)		(6)		(370)		(956)		(76)		(64)
Net fee income/ (expense)	(228)		-		49		(179)		-		232		53		123		130
Other income4	7,728		(1,116)		36		6,648		2,540		4,010		13,198		71		60
Net operating income5	6,958		(1,116)		47		5,889		2,534		3,872		12,295		77		66
Loan impairment charges and other credit risk provisions	(11)		24		1		14		-		(19)		(5)		55		(136)
Net operating income	6,947		(1,092)		48		5,903		2,534		3,853		12,290		77		65
Operating expenses	(3,562)		-		(15)		(3,577)		6		(603)		(4,174)		(17)		(17)
Operating profit	3,385		(1,092)		33		2,326		2,540		3,250		8,116		140		140
Income from associates	150		(12)		11		149		-		(108)		41		(73)		(72)
Profit before tax	3,535		(1,104)		44		2,475		2,540		3,142		8,157		131		127

	2007 compared with 2006
Other	2006     as     reported     US$m	2006     acquisitions     and     disposals1     US$m			Currency     translation2     US$m		2006     at 2007    exchange     rates6     US$m	2007     acquisitions,     disposals     & dilution     gains1     US$m			Under-    lying     change     US$m		2007     as     reported     US$m		Re-    ported    change    %		Under-    lying     change     %
Net interest income	(625)		-		(22)		(647)		-		105		(542)		13		16
Net fee income	172		-		25		197		-		(425)		(228)		(233)		(216)
Other income4	3,263		-		77		3,340		1,092		3,296		7,728		137		99
Net operating income5	2,810		-		80		2,890		1,092		2,976		6,958		148		103
Loan impairment charges  and other credit risk provisions	(13)		-		3		(10)		-		(1)		(11)		15		(10)
Net operating income	2,797		-		83		2,880		1,092		2,975		6,947		148		103
Operating expenses	(3,259)		-		(90)		(3,349)		-		(213)		(3,562)		(9)		(6)
Operating profit/(loss)	(462)		-		(7)		(469)		1,092		2,762		3,385		833		589
Income from associates	74		-		2		76		(50)		124		150		103		163
Profit/(loss) before tax	(388)		-		(5)		(393)		1,042		2,886		3,535		1,011		734

For footnotes, see page 143. 

 

END

 

 

ACSSDEFESSUSEFD