Final Results - Part 3 of 6
HSBC Hldgs PLC
26 February 2001
HSBC Hldgs PLC
News Release 1 Part (3)of(6)
HSBC Holdings plc Financial Review
(continued)
Bad and doubtful debts
Year ended 31 Year ended 31
December December
Figures in US$m 2000 1999
By geographical segment:
% %
Europe 348 37.3 438 21.1
Hong Kong 248 26.6 585 28.2
Rest of Asia-Pacific
- normal 159 17.1 809 39.1
- release of special
general provision (174) (18.7) - -
North America 147 15.8 108 5.2
Latin America 204 21.9 133 6.4
Group total 932 100.0 2,073 100.0
By category: 2000 H2 H1 1999 H2 H1
Loans and advances
to customers
- specific charge:
new provisions 2,293 1,298 995 2,993 1,500 1,493
releases and
recoveries (1,083) (590) (493) (869) (480) (389)
1,210 708 502 2,124 1,020 1,104
- net general
(release):
special
provision
reflecting
Asian
risk raised
in 1997 (174) (58) (116) - - -
other (106) (90) (16) (47) (27) (20)
(280) (148) (132) (47) (27) (20)
Customer bad
and doubtful
debt charge 930 560 370 2,077 993 1,084
Loans and
advances
to banks
-net specific
charge/
(release) 2 4 (2) (4) (2) (2)
Total bad and
doubtful
debt
charge 932 564 368 2,073 991 1,082
New specific provisions against customer advances declined by
23.4 per cent compared with 1999. This reflected improved
economic conditions, lower interest rates in Asia and strong
liquidity in all major markets. There was continuing progress
in loan workouts to achieve releases and recoveries.
In the UK, underlying credit quality remained stable with the
lower net charge reflecting a higher level of recoveries and
no individually significant provisions in the year. The
charge for credit losses in France was minimal, consistent
with prior periods and reflective of the quality of CCF's
business.
Asset quality in Hong Kong reflected the improved economic
conditions, with increased provisions for residential
mortgage loans more than offset by lower provisions for other
personal lending and on corporate accounts. Delinquency rates
for residential mortgages remained low.
Non-performing customer advances decreased in the rest of
Asia-Pacific due to a combination of write-offs, credit
upgrades and recoveries. The net charge for bad and doubtful
debts for exposures to mainland China related companies was
only US$3 million compared with a charge in 1999 of US$306
million. There were net releases of provisions against
exposures to customers booked in Indonesia, Thailand and Singapore.
In Malaysia, the bad debt charge rose slightly in the second
half of the year due to lower recoveries caused by delays in
debt restructuring stemming from a weak stock market: against
1999 the provisions charge in Malaysia was lower by US$256
million.
In the second half of the year a further 20 per cent of the
special general provision of US$290 million raised in 1997 in
respect of Asia was released, following a 40 per cent release
in the first half. In view of the slowdown in the US economy
and its possible implications for the Asian economies as a
whole, the balance of the special general provision has been
transferred to augment the general bad debt provision.
In North America, although the overall quality of the
portfolio remains sound, non-performing loans rose slightly
due to some deterioration in the quality of leveraged
credits; these constitute a small portion of outstanding
advances.
In Latin America, non-performing loans rose due to weak
economic conditions in Argentina, the inclusion of new
business acquired in Panama and as a result of the expansion
of profitable consumer lending in Brazil.
At 31 December 2000, non-performing customer advances
improved to 3.5 per cent of gross customer advances (31
December 1999: 4.0 per cent).
Customer loans and advances and
provisions
At 31 December
Figures in US$m 2000 1999
Loans and advances to customers
(excluding CCF) 274,223 262,351
CCF 24,468 -
Loans and advances to customers (gross) 298,691 262,351
Residential mortgages 72,406 66,397
Hong Kong SAR Government Home
Ownership Scheme 7,353 6,565
Other personal 36,757 31,706
Total personal 116,516 104,668
Commercial, industrial and
international trade 71,317 60,843
Commercial real estate 28,111 24,823
Other property-related 13,015 10,412
Government 4,041 5,173
Other commercial^ 37,235 35,538
Total corporate and commercial 153,719 136,789
Non-bank financial institutions 21,502 17,125
Settlement accounts 6,954 3,769
Total financial 28,456 20,894
Non-performing loans^^ 10,372 10,525^^
Non-performing loans as a percentage of
gross loans and advances to
customers^^ 3.5% 4.0%
Specific provisions outstanding against
loans and advances 6,065 5,692
Specific provisions outstanding as a
percentage of non-performing loans^^ 58.5% 54.1%
Customer bad and doubtful debt charge
as a percentage of closing
gross loans and advances^^^ 0.31% 0.85%
^ Includes advances in respect of Agriculture, Transport,
Energy and Utilities.
^^ Net of suspended interest.
^^^ Figure for 1999 excludes RNYC and SRH.
Country risk and cross-border
exposure
Brazil Indonesia Malaysia South Thailand
Figures in US$bn Korea
At 31 December 2000
In-country local currency
obligations 8.4 0.3 6.5 1.7 0.7
In-country foreign currency
obligations 0.4 0.8 0.6 0.7 0.4
Net cross-border obligations 1.5 0.7 0.6 0.7 0.2
1.9 1.5 1.2 1.4 0.6
Claims under contracts in
financial derivatives 0.2 - - 0.1 0.1
Total exposure 10.5 1.8 7.7 3.2 1.4
Figures in US$m
Non-performing customer
loans^ 152 557 796 32 269
Specific provisions
outstanding 159 404 488 27 192
At 30 June 2000
Figures in US$bn
Total exposure 8.6 1.8 7.7 3.2 1.3
Figures in US$m
Non-performing customer
loans^ 106 595 932 289 299
Specific provisions
outstanding 96 427 582 233 188
At 31 December 1999
Figures in US$bn
Total exposure 7.8 1.8 7.4 3.2 1.3
Figures in US$m
Non-performing customer
loans^ 80 612 992 316 358
Specific provisions
outstanding 65 473 596 223 217
^ Net of suspended interest
The table provides in-country and cross-border outstandings
and claims under contracts in financial derivatives for
Indonesia, South Korea, Thailand, and Brazil, all of which
have negotiated arrangements with the International Monetary
Fund (IMF), as well as Malaysia, which implemented currency
control restrictions in 1998. The tables are prepared in
accordance with the Bank of England Country Exposure Report
(Form C1) guidelines. On this basis, the figures exclude
accrued interest and intra-Group exposures.
In-country obligations represent local offices' on-balance-
sheet exposures to and acceptances given under facilities
opened on behalf of local residents.
Net cross-border obligations represent non-local offices' on-
balance-sheet exposures to and acceptances given under
facilities opened on behalf of customers, based on the
country of residence of the borrower or guarantor of ultimate
risk, irrespective of whether such exposures are in local or
foreign currency.
Cross-border risk is controlled centrally through a well-
developed system of country limits, which are frequently
reviewed to avoid concentrations of transfer, economic or
political risks.
Given the improvement in the financial condition of all of
the countries outlined, and provided there is no marked
deterioration in the first half of 2001, we intend to
dispense with the country risk and cross-border table from
that date.
Asset disposition
Figures in US$m At 31 December 2000 At 31 December 1999
Total assets
% %
Europe 295,274 44.4 211,222 37.7
Hong Kong 176,545 26.5 165,420 29.6
Rest of Asia-Pacific 56,676 8.5 55,291 9.9
North America 118,053 17.7 110,120 19.7
Latin America 19,073 2.9 17,181 3.1
Group total 665,621 100.0 559,234 100.0
Other
Figures in US$m At 31Dec00 CCF movements At 31Dec99
Loans and advances to
customers 289,837 24,186 12,084 253,567
Loans and advances to
banks 126,032 16,632 9,323 100,077
Debt securities 132,818 14,243 8,507 110,068
Treasury bills and
other eligible
bills 23,131 1,823 (1,905) 23,213
Equity shares 8,104 3,221 405 4,478
Intangible fixed
assets 15,089 9,084 (536) 6,541
Other 70,610 11,500 (2,180) 61,290
665,621 80,689 25,698 559,234
HK SAR Government
certificates of
indebtedness 8,193 9,905
Total assets 673,814 569,139
Loans and advances to
customers include:
- reverse repos 12,158 8,411
- settlement accounts 6,954 3,769
Loans and advances to
banks include:
- reverse repos 12,341 10,172
- settlement accounts 6,745 1,579
At 31 December 2000, the Group's balance sheet was highly
liquid, reflecting strong deposit growth and muted credit
demand. Some 43.0 per cent of the balance sheet was deployed
in loans and advances to customers, 1.6 per cent lower than a
year before.
Loans and advances to customers
Loans and advances to customers (excluding the finance sector
and settlement accounts) grew by 6.8 per cent, excluding CCF,
and at constant exchange rates. Within this growth, personal
banking grew by 9.3 per cent and loans and advances to the
commercial and corporate customer base grew by 4.8 per cent.
Personal lending constituted 39.0 per cent of lending at 31
December 2000.
Double digit mortgage growth was achieved in USA, Korea,
Taiwan, India and Malaysia; strong growth in other personal
lending was achieved in India. Despite muted loan demand in
Hong Kong, corporate loans and advances increased by 5.6 per
cent.
Telecoms industry exposure
The table below sets out the Group's exposure to the telecoms
industry in terms of outstanding advances. Telecoms industry
exposure is a designated special category of exposure and is
controlled under agreed caps. The exposure analysed below is
well spread across geographic markets reflecting the Group's
global footprint.
Telecoms exposures as a percentage of total loans and
advances was 2.2 per cent as at 31 December 2000. This
exposure had the following characteristics:
Percentage of telecoms
industry exposure
Investment grade under HSBC
gradings 95
Under one year remaining
maturity 73
Telecom operators 81
Telecom manufacturers 19
Non-performing accounts 1
of which provided 66
Debt securities and equities
Debt securities held in the accruals book showed an
unrecognised gain, net of off-balance-sheet hedges of US$711
million (December 1999: unrecognised losses US$110 million).
Equity shares included US$4,638 million (December 1999:
US$1,521 million) held on investment account, on which there
was an unrecognised gain of US$1,135 million (December 1999:
US$911 million).
Assets under administration and funds under management
At 31 December 2000, the amount of assets held by the Group
as custodian amounted to US$1,400 billion. Custody is the
safe-keeping and administration of securities and financial
instruments on behalf of others.
Funds under management of US$295 billion, were US$71 billion,
or 31.7 per cent, higher than at the end of 1999. The
development of the Group's wealth management capabilities has
continued in 2000, with the acquisition of CCF. The resulting
growth in funds under management has been underpinned by net
funds inflows in our existing businesses, in a challenging
environment of falling global equity markets and the impact
of the strengthening US dollar on our sterling and euro
denominated funds. At constant exchange rates, the Group's
funds under management increased by 36.7 per cent.
Capital resources
At 31Dec00 At 31Dec99
Capital ratios (%)
Total capital ratio 13.3 13.2
Tier 1 capital ratio 9.0 8.5
Composition of capital
Figures in US$m
Tier 1:
Shareholders' funds 45,570 33,408
Minority interests 4,419 4,228
Innovative tier 1 securities 3,512 -
Less: property revaluation reserves (2,611) (2,353)
: goodwill capitalised and
intangible assets (15,597) (6,750)
: own shares held^ (673) -
Total tier 1 capital 34,620 28,533
Tier 2:
Property revaluation reserves 2,611 2,353
General provisions 2,132 2,088
Perpetual subordinated debt 3,531 3,264
Term subordinated debt 10,224 10,151
Minority interests in tier 2 capital 697 577
Total qualifying tier 2 capital 19,195 18,433
Unconsolidated investments (1,463) (1,487)
Investments in other banks (1,241) (1,032)
Other deductions (147) (177)
Total capital 50,964 44,270
Total risk-weighted assets 383,687 336,126
The above figures were computed in accordance with the EU
Banking Consolidation Directive.
Tier 1 capital increased by US$6.1 billion. Of this, US$8.6
billion arose as a result of share capital issued and US$3.5
billion from innovative tier 1 capital issuance both to
finance the acquisition of CCF. Retained profits also
contributed US$2.6 billion to this increase. This was
partially offset by US$9.3 billion of goodwill arising on
acquisitions.
The increase in tier 2 capital reflects the proceeds of
capital issues, net of redemptions and regulatory
amortisation. The acquisition of CCF brought into the Group
US$0.5 billion of tier 2 capital.
^ This principally reflects shares held in trust to fulfil
the Group's obligations under employee share option
plans.
Risk-weighted assets by principal subsidiary
In order to give an indication as to how the Group's capital
is deployed, the table below analyses the disposition of risk-
weighted assets by principal subsidiary. The risk-weighted
assets are calculated using FSA rules and exclude intra-group
items.
Figures in US$m At 31Dec00 At 31 Dec99
Hang Seng Bank 31,775 27,438
HSBC Investment Bank Asia Holdings 2,238 2,409
The Hongkong and Shanghai Banking
Corporation Ltd and other
subsidiaries 74,869 71,473
The Hongkong and Shanghai Banking
Corporation Ltd and subsidiaries 108,882 101,320
HSBC Bank plc (excluding CCF and HSBC
Republic) 113,778 114,465
CCF 35,460 -
HSBC Republic 10,433 9,406
Total HSBC Bank plc 159,671 123,871
HSBC USA, Inc. 54,220 55,766
HSBC Bank Middle East 5,243 5,650
HSBC Bank Malaysia Berhad 4,041 3,939
HSBC Bank Canada 14,241 12,477
HSBC Latin American operations 9,470 7,009
HSBC Holdings sub-group 420 301
Other 27,499 25,793
Group risk-weighted assets 383,687 336,126
Total risk-weighted assets increased principally due to the
acquisition of CCF (US$35 billion). Elsewhere, the US$8
billion growth in the Hongkong and Shanghai Banking
Corporation Ltd was mainly due to additional holdings of debt
securities and increased customer lending driven by growth in
customer deposits. Customer lending growth also led to an
underlying increase of US$4 billion in HSBC Bank plc's risk-
weighted assets. In Latin America, risk-weighted assets grew
by US$2.5 billion, mainly from increased customer lending in
Brazil.
Financial Review by Geographical Segment
HSBC European Operations
Year ended 31 December
Figures in US$m 2000 % Group 1999 % Group
Cash basis profit before
tax^ 4,021 39.0 3,331 41.5
Profit before tax 3,658 37.3 3,322 41.6
Total assets 295,274 44.4 211,222 37.7
Year-end staff numbers
(FTE basis) 69,629 53,861
Cost:income ratio
(excluding goodwill
amortisation) 59.7% 59.4%
^ Adding back goodwill amortised.
HSBC's European operations are substantially held through HSBC
Bank plc and are dealt with below in the following sections:
Cash basis profit before tax
2000 1999
UK Banking 2,205 2,123
CCF 169 -
International Banking 426 401
Treasury and Capital Markets 305 265
HSBC Republic Suisse 290 -
HSBC Trinkaus & Burkhardt 184 212
Other* 442 330
4,021 3,331
* Other primarily relates to Investment Banking, dealt with
on page 63, and the Holding Company sub-group.
HSBC Bank plc's UK Banking operating profit increased from
US$2,184 million to US$2,275 million. At constant exchange rates,
the underlying increase in UK Banking's operating profit was 11.2
per cent. The following commentary on UK Banking's results is
based on the underlying currency performance.
UK Banking
HSBC Bank plc's strategy is to build long-term relationships
and retain and attract customers through value for money
products and a high quality service. The strategy is proving
successful, resulting in higher sales of wealth management
products. Product pricing was reduced, decreasing revenue by
over US$76 million. Annual fees on the bank's credit card and
gold Visa credit card were removed in 2000, benefiting 2.2
million customers in total by around US$15 million.
Repricing of the mortgage book reduced interest cost to
customers by US$15 million and removing loan to valuation
fees reduced revenue by over US$5 million. HSBC Bank plc has
no off-sale or superseded products paying lower rates of
interest than equivalent new ones. From 1 January 2001, HSBC
Bank plc has not charged its customers for withdrawing cash
on debit cards from any UK ATM machine within the LINK
network, nor are other banks' customers charged for using
HSBC machines.
HSBC Bank plc remains committed to community banking in the
UK through its 1,663 branches. Developments focus on
creating more time for branch staff to serve customers.
Customers can choose to do their banking through branches,
the telephone, the internet, interactive TV, mobile phones
and ATMs. HSBC Bank plc aims to provide consistently high
service across all channels.
Telephone services were further enhanced and are becoming
increasingly popular, with a 23 per cent increase in calls to
49 million in 2000. Internet banking (www.hsbc.co.uk), which
was successfully launched in August, now has 340,000
registered customers.
The service allows customers to pay bills, make payments,
transfer money and view direct debits and standing orders; a
number of innovations are planned for the future. In 1999,
the bank launched the UK's first nationally available TV
banking service and over 126,000 customers had registered by
the end of 2000. HSBC Bank plc is currently piloting mobile
phone internet banking services and text messaging and plans
to launch these services in 2001.
In 2000, HSBC Bank plc made several significant enhancements
to its products for personal customers. In July HSBC Bank plc
took a major initiative in the mortgage market, introducing a
Charges Access Terms (CAT) standard variable rate mortgage
which guarantees a maximum rate of interest of 1 per cent
above base rate. HSBC Bank plc was the first mortgage lender
to transfer existing customers to a CAT standard product and
this has increased mortgage retention and sales volumes.
Almost 200,000 customers have benefited from lower rates of
interest. Market share of net new mortgage business
significantly increased from 2.1 per cent in the first half
to 4.3 per cent in the second half. A new Basic Bank Account
was launched, reflecting HSBC's commitment to make basic
banking facilities widely available.
HSBC Bank plc continued to grow its wealth management
business in 2000. Life, pensions and investments business
continued to grow and HSBC is now one of the leading
providers of term assurance, critical illness and income
protection policies. In October, HSBC Bank plc's range of
unit trusts was successfully converted to Open Ended
Investment Companies (OEICs). Pensions on stakeholder terms
were introduced for new customers and pensions for existing
customers have been re-priced to the same terms. HSBC
Premier, the HSBC Group's first global premium banking
service for personal customers, was launched in the UK in
March.
First Direct continued to grow in the year in an increasingly
competitive market and had only minimal numbers of account
losses to new entrants. First Direct has remained profitable,
generating a pre-tax profit of US$59 million compared with
US$76 million in 1999, following investment in the launch of
its internet banking service (www.firstdirect.com) which now
has 270,000 registered customers. First Direct recently
completed the launch of 'capital', offering telephone-based
independent financial advice service and on-line and
telephone access to investment and protection products. The
service also offers HSBC's CAT standard mortgage.
HSBC Bank plc's commercial banking operations extend across
the whole of the UK business market and offer a full range of
services including current accounts, deposits, lending,
invoice finance and leasing, trade services, equity finance,
cross-border payments and cash management. In 2000, several
improvements were made to products and services for
commercial customers. Over 67,000 customers use HSBC Bank
plc's business telephone banking service. An internet banking
service will be launched during 2001. HSBC Bank plc continues
to experience strong demand for Hexagon, its global
electronic banking service for business customers and now has
over 29,000 users, an increase of 29 per cent in the last 12
months.
HSBC Bank plc has a strong tradition as a trade services
bank, and handled over 30 per cent of the import documentary
credits opened in the UK during 2000. HSBC Bank plc has
raised its profile within the UK exporting community through
the sponsorship of the Government-backed 'Export Award for
Smaller Businesses'.
A service has been developed for business owners to manage
their finances both as individuals and as businesses, whilst
also focusing on the needs of their employees. HSBC Bank plc
has been helping small businesses meet new stakeholder
pension requirements. An internet-based proposition will be
introduced in April 2001.
The markets for the provision of banking services to small
and medium sized enterprises are currently being considered
by the Competition Commission, whose final report is due to
be presented to the Secretary of State for Trade and Industry
in June 2001.
HSBC Bank plc's largest corporate and institutional clients
are managed through specialist industry groups. Activities
are co-ordinated across the HSBC Group, using its
international network to win cross-border business. The
promotion of the HSBC brand, investment in European
infrastructure and the acquisitions of CCF and Republic have
opened new possibilities to supply core banking business,
private banking and wealth management services. Significant
progress was made during the year to align further corporate
and institutional banking with investment banking to provide
a full range of products and services to major clients. A
new product, On-Line Account Manager was launched in 2000,
providing market leading real-time internet reporting of
information to financial institutions and major corporate
clients. More new products and internet-based offerings are
being developed to enhance HSBC Bank plc's service to
customers. In 2001, a new service will be launched which
reduces the inter-bank settlement risk associated with
foreign exchange business.
HSBC Bank plc's global custody division continues to grow
strongly. As the leading UK custodian, it benefited from
significant growth in the markets for fixed income and equity
investments. Assets under custody grew by 12.4 per cent to
US$1,150 billion.
Net interest income was US$3,222 million, 5.7 per cent higher
than 1999, generated by balance growth in personal and
commercial current accounts, personal savings and personal
and commercial lending. HSBC Bank plc's repricing of
variable rate mortgages contributed to mortgage growth of
US$1.7 billion, with a decline in mortgage spread. Spread
was also reduced on savings products, reflecting competitive
pricing. The effect on margin of the reduction in spread was
partly mitigated by greater benefit from free funds.
Other operating income was US$3,001 million, 7.5 per cent
higher than 1999, primarily reflecting growth in wealth
management income and higher fee income from cards, corporate
banking and global safe custody fees.
Wealth management income showed a significant increase on
1999, up 13.5 per cent, from US$673 million to US$764
million. Within this, general insurance income increased by
6.7 per cent and private client income by 17.7 per cent.
Life, pension and investment income increased by US$56
million or 16.2 per cent, of which US$15 million was the
benefit of a reduction in the discount rate, used to
calculate the net present value of future earnings inherent
in policies in force, from 12.5 per cent to 11.5 per cent.
Global safe custody fees income increased by 36.2 per cent
compared with 1999, benefiting from high transaction volumes
in 2000, the acquisition of new customers and growth in
assets under custody.
Higher fee and other income was also generated by growth in
personal current account and overdraft fees, increased card
income and higher corporate banking fee income, mainly due to
HSBC Bank plc's involvement in a buoyant mergers and
acquisitions market.
Operating expenses increased by US$258 million or 7.9 per
cent to US$3,510 million; the cost:income ratio remained at
56.4 per cent. Staff costs increased by US$127 million or
7.0 per cent to US$1,935 million, reflecting growth in staff
numbers to support growth in the wealth management business
and increased business volumes, in addition to the effect of
annual pay increases and incentive costs. Additional IT
staff have supported development projects integral to the
continued improvement in customer service, particularly in
relation to new delivery channels. As a result of business
growth, HSBC Bank plc employed 3.2 per cent more staff on
average during 2000. Non-staff costs increased by US$130
million or 9.0 per cent. They were incurred primarily to
support business development, including internet banking
initiatives and continued branch services improvement.
Increased business volumes also contributed to higher
expenditure, including IT processing capacity. Increased
marketing costs included higher card loyalty scheme costs.
The charge for bad and doubtful debts was US$397 million,
US$73 million or 15.5 per cent lower than in 1999. There was
a reduction of US$129 million in new provisions, with lower
provisioning against corporate lending, mainly due to a small
number of large provisions in 1999. Provisions were also
lower against card balances and in First Direct. General
provisions increased by US$42 million, reflecting balance sheet
growth. The credit environment remains satisfactory, but a
small number of business and personal customers continue to
face difficulties from market pressures and unforeseen
changes in financial circumstances.
Provisions for contingent liabilities were US$27 million
lower than 1999, mainly due to a lower charge for the amount
of redress potentially payable to customers who may have been
disadvantaged when transferring from, or opting out of,
occupational pension schemes.
HSBC Bank plc's share of the results of associated
undertakings was a loss of US$76 million compared with a loss
of US$67 million in 1999. The losses reflect HSBC Bank plc's
20 per cent shareholding in British Interactive Broadcasting
('BiB') and the associated investment in building its digital
interactive television services, Open... In July, HSBC Bank
plc agreed to sell its investment in BiB to BSkyB, subject to
regulatory approval from the Office of Fair Trading, which is
under review currently.
France
The integration of CCF has proceeded smoothly since its
acquisition in July 2000. Benefits have already been realised
in terms of increased revenues and favourable customer
reaction and we are confident of achieving the EUR150 million
(US$139 million) of synergy benefits after tax in 2001.
CCF's business and corporate objectives are closely aligned
to those of HSBC. It has 682 branches and provides personal
banking services to over one million predominantly mass-
affluent customers. During 2000, a further 21 branches were
opened and the acquisition of Banque Pelletier was completed.
In addition to this strong focus on personal banking, CCF
also provides value-added services to large corporates and
has a well-regarded wealth management capability. The
following commentary on underlying 2000 performance is based
on CCF's French GAAP results adjusted to be on a comparable
basis to the 1999 results. On a UK GAAP basis, CCF's cash
basis pre-tax profits in Europe were US$169 million for the
period owned within the Group.
CCF's operating income increased 10.2 per cent and its pre-
tax profit rose by 20.0 per cent compared with 1999. All
major business lines contributed to this performance.
In retail and commercial banking, operating income grew by
9.6 per cent and operating profit by 28.9 per cent reflecting
higher volumes in the domestic network. This was primarily
driven by 12.7 per cent growth in average retail banking
sight balances and 16.1 per cent growth in average retail
banking customer loans. Wealth management income also grew
strongly. Fee and commission income grew by 14.6 per cent
which represented 44 per cent of operating income.
Operating income in corporate and investment banking grew by
13.7 per cent reflecting both strong demand for financing
from large corporates and improved margins. The integration
with HSBC has already had a favourable impact in the
development of activities with major corporates with a
significant rise in the number of euro-denominated bond
issues managed.
Asset management and private banking operating income
increased by 25.6 per cent. Growth was particularly robust in
asset management where operating income was 35.6 per cent
higher. Funds under management by CCF grew by 7.5 per cent to
US$78 billion despite the negative impact of market trends
towards the end of the year.
International Banking
Operating profit before amortisation of goodwill was US$392
million, an increase of US$27 million or 7.5 per cent
compared with 1999.
International Banking carries out a varied range of financial
services principally across Europe. The expansion of wealth
management was the key business initiative in 2000.
HSBC Bank International Limited, based in the Channel Islands
is the group's specialist provider of offshore financial
services, which produced an operating profit of US$130
million. It broadened its distribution channels through the
launch of an internet banking service (www.offshore.hsbc.com)
providing multi-currency banking and investment services. The
service now has online customers in over 150 countries.
In Greece, in support of the wealth management initiative,
nine personal financial centres were opened. A multichannel
direct broking service comprising internet, interactive voice
response and personal service was also launched, and an
innovative mortgage product and debit cards were introduced.
In January 2001, the bank announced the acquisition of the
branch-based operations of Barclays Bank.
New investment funds were launched in Greece, Spain and
Turkey, with Turkey strengthening its distribution by opening
five personal financial centres. In Spain, funds under
management grew by 29.0 per cent and a pension fund service
was established.
Turkey produced an operating profit of US$80 million, in
spite of major volatility in the local markets.
HSBC Bank Malta reported an operating profit of US$35 million
before amortisation of goodwill. During 2000, Malta focused
on becoming more customer driven and this involved the
provision of commercial business centres, the introduction of
a range of new products and services including personal loans
by telephone, an equity-linked capital guaranteed product,
new mortgage products and the refurbishment of the branch
network.
Net interest income was US$400 million, 22.2 per cent higher
than 1999 including a full year of income from Malta and
increases from the Offshore businesses in the Channel Islands
and the Isle of Man, reflecting increased deposits and from
Turkey, due to increased money market activity.
Other operating income was US$255 million, 15.1 per cent
higher than 1999. This includes gains due to the successful
launches of funds products globally from Offshore and a full
year of income from Malta.
Operating expenses before amortisation of goodwill were
US$282 million, 31.9 per cent higher than 1999, including a
full year of Malta expenses and higher staff costs in
Offshore, reflecting growth of staff numbers in support of
business expansion.
Treasury and Capital Markets
Operating profit was US$285 million, US$61 million or 27.0
per cent higher than 1999. In 2000 there was good all round
performance from foreign exchange, money market and fixed
income activities, primarily customer-driven business through
the HSBC Group's corporate client relationships.
The Treasury and Capital Markets business serves the
requirements of a diverse client base including corporations,
institutional investors, private investors and central banks.
These integrated activities utilise the balance sheet
strength of the bank to provide a high quality, tailored
service in foreign exchange, fixed income, money markets,
exchange-traded futures and options. During the course of
the year, the bank has successfully integrated the London
Treasury and Capital Markets activities of CCF and HSBC
Republic.
Net interest income was US$147 million, 40.1 per cent lower
than 1999. There was a decrease in spread mainly due to a
reduction in earnings on money market business caused by a
flattening of the yield curve and higher costs of short-term
funding, together with the maturity of high yielding assets.
Other operating income was US$386 million, 61.4 per cent
higher than 1999. Foreign exchange income increased by 44.6
per cent reflecting higher volumes, particularly in respect
of customer activities. Much of this was realised from an
increase in business in the regional treasury centres, where
income increased by 39.8 per cent.
Fixed income results also improved notably in gilts and
derivatives activity, linking with an increase in debt
origination. The currency options business also expanded
during 2000 with an increased presence in the euro zone
following the absorption of former Republic Bank of New York
trading activities.
Operating expenses were US$255 million, 4.5 per cent lower
than 1999 due to improved operating efficiencies in the front
and the back offices.
HSBC Republic Suisse
HSBC Private Banking Holdings (Suisse) SA was formed in
December 2000 as part of the global restructuring of the
Group's international private banking division, HSBC
Republic.
HSBC Republic provides private banking and trustee services
for high net worth individuals and their families through 31
locations in the Americas, Asia, Europe and the Middle East.
HSBC Republic Suisse's subsidiary banks are located in
Switzerland, Monaco, Luxembourg and Guernsey and together
represent some 50 per cent of the global private banking
business.
The creation of HSBC Republic to bring together the former
Safra Republic Holdings businesses and HSBC's existing
international private banking operations, was a principal
focus of activity during 2000. The integration proceeded
successfully without disturbance, or loss of clients, assets
or personnel in the face of intense market competition for
both clients and employees.
As the business integration came to a natural close towards
the end of 2000, HSBC Republic instituted a global strategy
with strategic imperatives closely echoing the Group's client-
focused approach. HSBC Republic's client base requires a
highly differentiated service, provided through a combination
of geographical support and specialised bankers with
expertise in areas such as sports and the media, diamonds and
jewellery, technology and entrepreneurial activity. In
support of front line private bankers substantial investment
is being made in the development of a global investment
advisory capability, benefiting from the recognised product
development expertise available within the Group. Finally,
HSBC Republic's investment in IT infrastructure, begun in the
second half and planned to continue throughout the next
period, will end with the worldwide roll out of an enhanced
private banking system, supported from a global data centre
located in Geneva.
Net interest income was US$279 million. Customer deposits
remained stable throughout the year, while challenging market
conditions saw a slight fall in demand for leveraged
investment facilities. Less interest rate risk was taken
during 2000 and there was some reduction in margins, mainly
due to a change in funding policies but also in response to
aggressive competitor strategies.
Other operating income was US$231 million. Significantly
higher volumes of client securities transactions early in the
year contributed to commissions growth of US$24 million.
Foreign exchange trading was also strong. Other operating
income included a one-off gain on the purchase and early
cancellation of a subordinated debt issue.
Operating expenses before the amortisation of goodwill were
US$240 million. Cost savings were made on the consolidation
of operations in Switzerland, higher expenses were incurred
in relation to accruals for potential performance related
payments, the cost of stock awards and the initial investment
in the HSBC Republic IT infrastructure.
In Germany, HSBC Trinkaus & Burkhardt KGaA reported an
underlying increase of 32.5 per cent in profit before tax.
The improvement resulted from higher equity commissions
resulting from increased market volumes in the first half of
the year, and the successful development of the Corporate
Finance business. Losses in respect of the internet broker,
Pulsiv, were in line with expectations. In US dollar terms,
profit before tax was 12.7 per cent lower due to the non-
recurrence of one-off gains made in 1999 and the weakening of
the euro against the dollar.
In Switzerland, HSBC Guyerzeller reported a 24.0 per cent
decrease in profit before tax compared to 1999, primarily due
to lower trading income in a volatile and falling market.
However, the underlying business remains strong with income
generated by core business activities stable despite intense
competition in the private banking market. Careful
expenditure control has resulted in lower operating expenses
than in 1999.
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