Grupo Financiero HSBC: First

RNS Number : 9586Z

HSBC Holdings PLC

28 July 2008

 



28 July 2008

GRUPO FINANCIERO HSBC, S.A. DE C.V.

FIRST HALF 2008 FINANCIAL RESULTS - HIGHLIGHTS

• Net income for the first half of 2008 was MXN2,854 million, up 13.6 per cent compared with MXN2,512 million for the same period in 2007. 

• Total operating income (excluding loan impairment charges) for the first half of 2008 was MXN18,684 million, up MXN2,328 million or 14.2 per cent compared with MXN16,356 million for the same period in 2007*.

• Net operating income for the first half of 2008 was MXN1,435 million, down MXN810 million compared to the same period of 2007.

• Net loans and advances to customers were MXN183.8 billion at 30 June 2008, up MXN9.1 billion, or 5.2 per cent, compared with MXN174.7 billion recorded at 30 June 2007.

• Total customer demand and time deposits were MXN261.6 billion at 30 June 2008, up MXN30.2 billion or 13.0 per cent, compared with MXN231.4 billion at 30 June 2007.

• The cost efficiency ratio was 58.1 per cent in the first half of 2008, compared to 60.5 per cent for the same period of 2007*.

• Return on equity was 15.1 per cent in the first half of 2008, compared with 14.5 per cent for the same period in 2007.

HSBC Mexico S.A. (the bank) is Grupo Financiero HSBC, S.A. de C.V.'s (HSBC) primary subsidiary company and is subject to supervision by the Mexican Banking and Securities Commission. The bank is required to file periodic financial information on a quarterly basis (in this case for the quarter ended June 30 2008) and this information is publicly available. Given that this information is available in the public domain, Grupo Financiero HSBC, S.A. de C.V. has elected to file this release.

Results are prepared in accordance with Mexican GAAP (Generally Accepted Accounting Principles). With effect from January 1, 2008, in accordance with Financial Information Standard B-10, "Effects of Inflation", the effects of inflation in financial statements cannot be recognized. This is due to the change from an inflationary to a non-inflationary economic environment. The comparative figures of the financial statements of periods prior to 2008 are expressed in monetary units with purchasing power at December 31, 2007.

Grupo Financiero HSBC, S.A. de C.V. is a 99.99 per cent directly owned subsidiary of HSBC Holdings plc (HSBC Group).

* For comparative purposes, the monetary position result has been excluded from 2007 figures.

Grupo Financiero HSBC, S.A. de C.V.	Overview

Overview

The net income of Grupo Financiero HSBC, S.A. de C.V. was MXN2,854 million in the first half of 2008, up MXN342 million compared with the net income for the same period in 2007.

In an environment characterized by economic deceleration, inflationary pressures and greater market volatility, the bank's results reflect selective growth of assets and expense control, as well as a flexible pricing strategy for products. Credit quality, particularly of credit card and revolving credit portfolios, has deteriorated in the first half of 2008 and, consequently, income was affected by the significant increase in loan impairment charges. The performance of our subsidiaries, particularly HSBC Seguros, added to the results, with a contribution of 18.5 per cent of total net income.

Net interest income increased by MXN2,085 million in the six months to 30 June 2008 to MXN12,529 million, which represents growth of 20.0 per cent compared to the same period in 2007*. This increase was driven by growth in the consumer loan portfolio, particularly in credit cards and the commercial portfolio, which contributed MXN1,323 million and MXN633 million respectively.

Net fee income was MXN5,822 million in the first half of 2008, an increase of 13.9 per cent over the same period in 2007. Increased fee income from credit cards, trade services, membership programs, ATMs, payments and cash management, investment funds and card acquiring contributed significantly to the growth in the period.

Trading income was MXN333 million in the first half of 2008, MXN467 million or 58.4 per cent lower compared to the same period in 2007. The increase in longer-term interest rates observed in the last two months affected the mark to market of the bond positions, resulting in lower income.

In this period, particular emphasis has been placed on the expense control policy. Administrative expenses increased in the first half of 2008 by MXN960 million, compared to the same period in 2007, reflecting a combination of selective investment, with improvements in productivity and more efficient expense control. Part of the increase is attributable to higher promotion expenses for the Tu Cuenta packaged product, the on-going strengthening of the technological infrastructure and loan recovery service costs. Staff expenses rose in line with our business growth investment strategy. The cost efficiency ratio* improved by 2.4 percentage points to 58.1 per cent, with revenue growth of 14.2 per cent exceeding expense growth of 9.7 per cent.

Other income increased MXN1,296 million to MXN2,189 million in the first half of 2008. This growth is primarily due to extraordinary income of MXN1,045 million received during the first half of 2008 from the sale of VISA Inc. stock, as a result of the company's global Initial Public Offering ("IPO"), and MXN114 million following the sale of HSBC's shares in the Mexican Stock Exchange ("BMV") to the exchange prior to BMV's IPO.

Loan impairment charges increased by MXN2,463 million in the first half of 2008 compared with the same period in 2007. This increase is due to greater requirements for impairment charges as a result of portfolio growth and increased credit card reserves, in line with the expansion of the credit card portfolio, as well as higher delinquency in this portfolio and loans to individuals and small businesses. This increase in loan impairment charges is consistent with market trends and also reflects the cost of HSBC's strategy to grow organically in areas in which the bank had previously been under represented. HSBC's allowance for loan losses as a percentage of impaired loans was 124.2 per cent at 30 June 2008, compared to 146.2 per cent for the same period in 2007.

Regular reviews of the credit quality of new business are undertaken to ensure close control of customer acquisition channels, including external referring agencies. Adjustments have also been made to the credit underwriting models to improve the portfolio credit quality. At the same time, we continue to strengthen our collection capabilities. 

Loans to government entities have decreased by MXN6,791 million compared to the same period in 2007 as a result of several repayments made by government entities. 

The Bank's capital ratio at June 30 2008 was 13.5 per cent.

Business highlights

Personal Financial Services reported stable growth in consumer loans, mainly through leveraging its customer relationship management capabilities. In the first half of 2008, our credit card portfolio continued to increase as a result of the implementation of the bank's strategy to grow organically, delivering a rising market share, from 9.0 to 10.8 per cent compared to the same period last year1. Personal and payroll loans were other areas that contributed to the growth in the consumer portfolio, showing an increase of 20.5 per cent in the first half of 2008 compared to the same period in 2007.

Deposit growth has been strong during the first half of 2008, increasing 9.8 per cent compared to the same period in 2007. Time deposits increased 13.8 per cent compared to the same period in 2007, and comprise 53.5 per cent of total deposits. Net interest income related to deposits has increased 7.5 per cent compared to the same period in 2007.

Higher consumer loan volumes, particularly credit cards, also contributed to an increase in net interest income.

Commercial Banking in Mexico saw an increase in lending balances of 15.7 per cent compared to the first half of 2007, due mainly to strong growth in factoring businesses, trade services, real estate projects and the State and Municipal sectors. 

The favorable performance of the commercial portfolio is combined with greater growth in the deposit base, with an annual increase of 17.2 per cent compared with the same period in 2007.

Driven by the HSBC Group's broad geographic presence and enhanced product capabilities our trade services market share increased by 2.7 percentage points compared to the same period in 2007, to reach 17.7 per cent2. The strong performance of our factoring services business has been augmented by improving processes and products designed to meet our customers' needs, such as the Export Factoring product.

Global Banking and Markets is committed to carry on developing efficient financial solutions for Mexican clients by building on the Group's experienced global network. During the period, Global Banking and Markets launched Custodial Services, as part of the range of products offered to Mexican clients in order to increase its penetration in the corporate market in Mexico. 

Global Banking focused its activities in Debt Capital Markets and Project Finance deals with its Global Clients, achieving increases of 36.4 per cent and 294.7 per cent respectively, compared to the same period in 2007. The most significant deals during the first half of 2008 were related to debt capital markets, syndicated finance, trade services, loans, derivatives and foreign exchange transactions. As result of its increased penetration in the market, HSBC Mexico achieved second place in the June 2008 Debt Capital Markets League Tables.  

Foreign exchange gains increased 14.6 per cent in the first six months to 30 June 2008 compared to same period of 2007, benefiting from the volatility experienced in the markets and the strong foreign exchange flows generated by the branch network. 

About HSBC

Grupo Financiero HSBC, S.A. de C.V. is Mexico's fourth largest banking and financial services institution with 1,332 branches, 5,875 ATMs, approximately 9.1 million customer accounts and more than 22,800 employees. For more information, consult our website at www.hsbc.com.mx.

Grupo Financiero HSBC, S.A. de C.V. is a 99.99 per cent directly owned subsidiary of HSBC Holdings plc. Headquartered in London, UK, the HSBC Group serves over 128 million customers worldwide through 10,000 properties in 83 countries and territories in Europe, the Asia-Pacific region, the Americas, the Middle East and Africa. With assets of US$2,354 billion at 31 December 2007, HSBC is one of the world's largest banking and financial services organisations. With listings on the London, Hong Kong, New York, Paris and Bermuda stock exchanges, shares in HSBC Holdings plc are held by about 200,000 shareholders in over 100 countries and territories. HSBC is marketed worldwide as 'the world's local bank''.

1 Source: HSBC analysis, based on Mexican Banks Association (ABM) figures as of May 2008 for the six largest banks.

2 Source: HSBC analysis, based on Mexican Banking and Securities Commission Statistical Bulletin, figures at March 2007.

For further information contact:

London
Richard Lindsay	Danielle Neben
Group Media Relations	Investor Relations
Telephone: [phone]	Telephone: [phone]
Mexico City
Roy Caple	Yordana Aparicio
Public Affairs	Investor Relations
Telephone: [phone]	Telephone: [phone]

Grupo Financiero HSBC, S.A. de C.V.	Consolidated Balance Sheet

Figures in MXN millions	GROUP				BANK
	30 June 2008		30 June 2007		30 June 2008		30 June 2007
Assets
Cash and deposits in banks	51,596		51,394		51,596		51,394
Investment in securities	82,415		63,264		81,730		62,158
Trading securities	50,311		29,745		50,209		28,639
Available-for-sale securities	28,080		29,388		27,497		29,388
Held to maturity securities	4,024		4,131		4,024		4,131
Securities and derivative operations	16,260		86		16,252		81
Repurchase agreements	42		86		34		81
Derivative transactions	16,218		-		16,218		-
Performing loans
Commercial loans	72,561		68,263		72,561		68,263
Loans to financial intermediaries	14,596		7,238		14,596		7,238
Consumer loans	47,872		43,403		47,872		43,403
Mortgage loans	19,490		20,249		19,490		20,249
Loans to government entities	31,428		38,219		31,428		38,219
Total performing loans	185,947		177,372		185,947		177,372
Impaired loans
Commercial loans	2,246		1,870		2,246		1,870
Consumer loans	5,432		2,583		5,432		2,583
Mortgage loans	1,370		1,357		1,370		1,357
Total impaired loans	9,048		5,810		9,048		5,810
Gross loans and advances to customers	194,995		183,182		194,995		183,182
Allowance for loan losses	(11,238	)	(8,492	)	(11,238	)	(8,492	)
Net loans and advances to customers	183,757		174,690		183,757		174,690
Other accounts receivable	30,421		25,755		30,313		25,604
Foreclosed assets	80		67		80		67
Property, furniture and equipment, net	6,419		6,209		6,407		6,196
Long-term investments in equity securities	3,263		3,168		121		148
Deferred taxes	1,805		202		1,810		155
Goodwill	2,749		2,749		-		-
Other assets, deferred charges and intangibles	2,087		1,001		2,057		967
Total assets	380,852		328,585		374,123		321,460

Grupo Financiero HSBC, S.A. de C.V.	Consolidated Balance Sheet
(continued)

Figures in MXN millions	GROUP				BANK
	30 June 2008		30 June 2007		30 June 2008		30 June 2007
Liabilities
Deposits	265,849		235,786		266,019		237,456
Demand deposits	127,004		128,483		127,174		130,152
Time deposits	134,591		102,925		134,591		102,925
Bonds	4,254		4,378		4,254		4,379
Bank deposits and other liabilities	9,529		10,114		9,529		10,114
On demand	1,031		464		1,031		464
Short-term	5,996		6,320		5,996		6,320
Long-term	2,502		3,330		2,502		3,330
Securities and derivative transactions	15,705		13,626		15,697		13,621
Repurchase agreements	53		57		45		52
Securities deliverable under loan     transactions	-		13,538		-		13,538
Derivative transactions	15,652		31		15,652		31
Other accounts payable	49,980		30,840		49,744		30,658
Income tax and employee profit    sharing payable	1,595		1,320		1,540		1,274
Sundry creditors and other accounts     payable	48,385		29,520		48,204		29,384
Subordinated debentures outstanding	2,201		2,279		2,201		2,279
Deferred credits	480		220		480		220
Total liabilities	343,744		292,865		343,670		294,348
Equity
Paid in capital	21,466		21,466		15,883		13,533
Capital stock	8,210		8,210		4,272		4,079
Additional paid in capital	13,256		13,256		11,611		9,454
Other reserves	15,638		14,233		14,568		13,559
Capital reserves	1,442		1,162		12,797		14,077
Retained earnings	11,679		18,827		-		-
Result from the Mark-to-Market of    available-for-sale securities	(201	)	-		(296	)	(88	)
Cumulative effect of restatement	-		(3,989	)	-		(3,593	)
Gains on non-monetary asset    valuation	-		(4,279	)	-		1,185
Adjustment in the employee pension	(136	)	-		(136	)	-
Net income	2,854		2,512		2,203		1,978
Minority interest in capital	4		21		2		20
Total equity	37,108		35,720		30,453		27,112
Total liabilities and equity	380,852		328,585		374,123		321,460

Grupo Financiero HSBC, S.A. de C.V.	Consolidated Balance Sheet
(continued)

Figures in MXN millions	GROUP
	30 June 2008		30 June 2007
Memorandum accounts
Transactions on behalf of third parties	58,094		101,007
Customer current accounts	11		(132	))
Customer bank	1		3
Settlement of customer securities and documents	10		(135	)
Customer securities	27,325		73,523
Customer securities in custody	27,316		73,517
Pledged customers securities and documents	9		6
Transactions on behalf of customers	2,593		2,400
Customer repurchase transactions	2,593		2,400
Other transactions on behalf of customers	28,165		25,216
Investment on behalf of customers, net	28,165		25,216
Other memorandum accounts	631,701		399,732
Investment of the SAR funds	-		3,645
Integrated loan portfolio	204,111		191,910
Other memorandum accounts	427,590		204,177
Transactions for the group's own accounts	1,809,234		1,459,479
Accounts for the group's own registry	1,809,245		1,459,450
Guarantees granted	34		49
Irrevocable lines of credit granted	9,081		8,679
Goods in trust or mandate	188,624		123,723
Goods in custody or under administration	305,140		57,030
Amounts committed in transactions with     Fobaproa	143		152
Amounts contracted in derivative operations	1,306,093		1,265,622
Securities in custody	-		4,062
Other contingent obligations	130		133
Repurchase/resale agreements
Securities receivable under repos	35,008		43,263
(less) Repurchase agreements	35,027		43,282
	(19)	)	(19)	)
Reverse repurchase agreements	12,595		7,498
(less) Securities deliverable under repos	12,587		7,450
	8		48

Grupo Financiero HSBC, S.A. de C.V.	Consolidated Balance Sheet
(continued)

Figures in MXN millions	BANK
	30 June 2008		30 June 2007
Memorandum accounts
Guarantees granted	34		49
Other contingent obligations	130		134
Irrevocable lines of credit granted	9,081		8,679
Goods in trust or mandate	188,624		123,723
Goods in custody or under administration	301,195		57,030
Third party investment banking operations, net	28,165		25,216
Amounts committed in transactions with Fobaproa	143		152
Amounts contracted in derivative operations	1,306,093		1,265,623
Investments of retirement savings system funds	-		3,645
Integrated loan portfolio	204,111		191,910
Other control accounts	427,589		190,636
	2,465,165		1,866,797
Securities receivable under repos	32,423		40,867
(less) Repurchase agreements	(32,434)	)	(40,882)	)
	(11)	)	(15)
Reverse repurchase agreements	10,002		5,098
(less) Securities deliverable under repos	(10,002)	)	(5,054)	)
	-		44
Securities deliverable under loan transactions	-		13,538
	-		13,538

Grupo Financiero HSBC, S.A. de C.V.	Consolidated Income Statement

Figures in MXN millions	GROUP					BANK
	30 June 2008		30 June 2007			30 June 2008		30 June 2007
Interest income	18,903		15,614			18,880		15,523
Interest expense	(6,374	)	(5,170	)		(6,375	)	(5,139	)
Monetary position (margin), net	-		(285	)		-		(261	)
Net interest income	12,529		10,159			12,505		10,123
Loan impairment charges	(6,392	)	(3,929	)		(6,392	)	(3,929	)
Risk-adjusted net interest income	6,137		6,230			6,113		6,194
Fees and commissions receivable	6,396		5,678			5,968		5,289
Fees payable	(574	)	(566	)		(557	)	(559	)
Trading income	333		800			328		796
Total operating income	12,292		12,142			11,852		11,720
Administrative and personnel   expenses	(10,857)		(9,897)			(10,457)		(9,615)
Net operating income	1,435		2,245			1,395		2,105
Other income	2,520		1,460			2,549		1,502
Other expenses	(331	)	(567	)		(478	)	(566	)
Net income before taxes	3,624		3,138			3,466		3,041
Income tax and employee profit   sharing tax	(2,336	)	(1,636	)		(2,285	)	(1,607	)
Deferred income tax	991		532			990		537
Net income before subsidiaries	2,279		2,034			2,171		1,971
Undistributed income from   subsidiaries	576		477			33		6
Income from ongoing operations	2,855		2,511			2,204		1,977
Minority interest	(1	)	1			(1	)	1
Net income	2,854		2,512			2,203		1,978

Grupo Financiero HSBC, S.A. de C.V.	Statement of Changes in Shareholders' Equity

GROUP

Figures in MXN millions	Capital contributed	Capital reserves	Retained  earnings	Result from valuation of available-for-sale securities	Deficit in restatement  of stock- holders'  equity	Adjustment in the employees pension	Net  income	Minority interest	Total  equity
Balances at 31 December 2007	21,466	1,162	18, 827	-	(8,544)	-	5,615	2	38,528
Movements inherent to the shareholders' decision
Capitalisation of      retained earnings	-	280	5,335	-	-	-	(5,615)	-	-
Cash dividend	-	-	(4,350)	-	-	-	-	-	(4,350)
Other movements	-	-	(8,228)	-	8,228	-	-	-	-
Total	-	280	(7,243)	-	8,228	-	(5,615)	-	(4,350)
Movements for the recognition of the comprehensive income
Net income	-	-	-	-	-	-	2,854	-	2,854
Other movements	-	-	95	(201)	316	(136)	-	-	74
Minority interest	-	-	-	-	-	-	-	2	2
Total	-	-	95	(201)	316	(136)	2,854	2	2,930
Balances at  30 June 2008	21,466	1,442	11,679	(201)	-	(136)	2,854	4	37,108

Grupo Financiero HSBC, S.A. de C.V.	Statement of Change in Shareholders' Equity
(continued)

Figures in MXN millions	Capital  contributed	Capital  reserves	Retained  earnings	Result from  valuation of  available-for-sale  securities	Deficit in  restatement  of stock-  holders'  equity	Adjustment in the employees pension	Net  income	Minority  interest	Total  equity
Balances at  31 December 2007	15,883	14,077	-	(217)	(2,421)	(136)	4,656	1	31,843
Movements inherent to   the shareholders'   decision
Constitution of reserves	-	4,656	(4,656)	-	-	-	-	-	-
Transfer of result of   prior years	-	-	4,656	-	-	-	(4,656)	-	-
Cash dividend	-	(3,500)	-	-	-	-	-	-	(3,500)
Total	-	1,156	-	-	-	-	(4,656)	-	(3,500)
Movements for the    recognition of the    comprehensive income
Net income	-	-	-	-	-	-	2,203	-	2,203
Result from  valuation of available-   for-sale securities	-	24	-	(117)	-	-	-	-	(93)
Cumulative effect of      restatement	-	(2,460)	-	38	2,421	-	-	-	(1)
Minority interest	-	-	-	-	-	-	-	1	1
Total	-	(2,436)	-	(79)	2,421	-	2,203	1	2,110
Balances at  30 June 2008	15,883	12,797	-	(296)	-	(136)	2,203	2	30,453

Grupo Financiero HSBC, S.A. de C.V.	Consolidated Statement of Changes in Financial Position

GROUP

Figures in MXN millions
	30 June 2008		30 June 2007
Operating activities:
Net income	2,854		2,512
Items included in operations not requiring (providing) funds:
Result from mark-to-market valuations	(365	)	(93	)
Allowances for loan losses	6,392		3,929
Depreciation and amortisation	532		526
Deferred taxes	(991	)	(532	)
Minority interest	1		(1	)
Undistributed income from subsidiaries, net	(576	)	(477	)
Others	7		17
Total operating items not requiring funds	7,854		5,881
Changes in items related to operations:
(Decrease) / increase in deposits	(1,108	)	8,408
Increase in loan portfolio	(667	)	(17,842	)
Increase / (decrease) in securities and derivative transactions, net	(769	)	7,224
Increase in financial instruments	(6,021	)	(3,903	)
Increase / (decrease) in bank deposits and other liabilities	1,921		(3,341	)
Funds provided by operating activities	1,210		(3,573	)
Financing activities:
Subordinated debentures outstanding	(7	)	(11	)
Cash dividend	(4,350	)	-
Increase in other payable accounts	23,663		13,386
Funds provided in financing activities	19,306		13,375
Investing activities:
Decrease / (increase) in property, furniture and equipment, net	579		(716	)
Decrease / (increase) in deferred charges or credits, net	186		(46	)
Increase in foreclosed assets	(5	)	(28	)
Increase in other receivable accounts	(18,545	)	(14,793	)
Funds used in investing activities	(17,785	)	(15,583	)
Increase / (decrease) in cash and equivalents	2,731		(5,781	)
Cash and equivalents at beginning of period	48,865		57,175
Cash and equivalents at end of period	51,596		51,394

Grupo Financiero HSBC, S.A. de C.V.	Consolidated Statement of Changes in Financial Position
(continued)

BANK

Figures in MXN millions	31 June 2008		30 June 2007
Operating activities:
Net income	2,203		1,978
Items included in operations not requiring (providing) funds:
Result from mark-to-market valuations	(365	)	(93	)
Allowances for loan losses	6,392		3,929
Depreciation and amortisation	530		524
Deferred taxes	(990	)	(537	)
Undistributed income from subsidiaries, net	(33	)	(6	)
Value loss estimation for foreclosed assets	7		17
Minority interest	1		(1	)
Total operating items not requiring funds	7,745		5,811
Changes in items related to operations:
(Decrease) / increase in deposits	(1,006	)	8,429
Increase in loan portfolio	(667	)	(17,842	)
(Increase) / decrease in securities and derivative transactions, net	(211	)	7,327
Increase in financial instruments	(6,380	)	(4,377	)
Increase / (decrease)  in bank deposits and other liabilities	1,921		(3,341	)
Funds provided by operating activities	1,402		(3,993	)
Financing activities:
Subordinated debentures outstanding	(7	)	(11	)
Cash Dividend	(3,476	)	-
Increase in other payable accounts	23,581		13,384
Contributions or reimbursements of capital contributed	-		-
Funds provided by financing activities	20,098		13,373
Investing activities:
Increase in property, furniture and equipment, net	(389	)	(335	)
Decrease / (increase) in deferred charges or credits, net	147		(47	)
Increase in foreclosed assets	(6	)	(29	)
Increase in other receivable accounts	(18,520	)	(14,749	)
Funds used in investing activities	(18,768	)	(15,160	)
Increase / (decrease) in cash and equivalents	2,732		(5,780	)
Cash and equivalents at beginning of period	48,864		57,174
Cash and equivalents at end of period	51,596		51,394

Grupo Financiero HSBC, S.A. de C.V.	Differences between Mexican GAAP and International Financial Reporting Standards (IFRS)

Grupo Financiero HSBC

HSBC Holdings plc, the parent of Grupo Financiero HSBC S.A. de C.V. reports its results under International Financial Reporting Standards (IFRS). There follows a reconciliation of the results of Grupo Financiero HSBC S.A. de C.V. from Mexican GAAP to IFRS for the first half ended 30 June 2008 and an explanation of the key reconciling items.

		30 June
	Figures in MXN millions	2008
	Grupo Financiero HSBC - Net Income Under Mexican GAAP	2,854
	Differences arising on the valuation of pensions and post retirement healthcare benefits	42
	Differences arising on acquisition costs relating to long-term investment contracts	(20	)
	Differences arising from the deferral of fees received and paid on the origination of loans	60
	Differences arising from the recognition and provisioning for loan impairments	161
	Differences arising from purchase accounting adjustments*	(12	)
	Differences arising from the recognition of the present value in-force of long-term    insurance contracts	19
	Other differences in accounting principles	12
	HSBC México net income under IFRS	3,116
	US dollar equivalent (millions)	293
	Add back tax expense	949
	HSBC México profit before tax under IFRS	4,065
	US dollar equivalent (millions)	383
	Exchange rate used for conversion	10.6

*  Net of tax at 28 per cent.

Summary of key differences between Grupo Financiero's results as reported under Mexican GAAP and IFRS

Retirement benefits

Mexican GAAP

Obligations are recognised in the Income Statement of each year based on actuarial computations of the present value of those obligations using the projected unit credit method and real interest rates.

Unrecognised past service costs are amortised on an estimated service life of the employees.

IFRS

Obligations are recognised in the Income Statement of each year based on actuarial computations of the present value of those obligations using the projected unit credit method.

Actuarial gains and losses are recognised in stockholders equity as they arise.

Unrecognised past service cost are recognised in the Income Statement as they arise.

Acquisition costs of long-term investment contracts

Mexican GAAP

All costs related to the acquisition of long-term investment contracts are expensed as they are incurred.

IFRS

Incremental costs relating to the acquisition of long-term investment contracts are deferred and amortised over the expected life of the contract.

Fees paid and received on origination of loans

Mexican GAAP

All fees received on loan origination are deferred and amortised over the life of the loan. However, this policy was introduced 1 January 2007, all fees having previously been recognised up front.

IFRS

Fees and expenses received or paid on origination of a loan that are directly attributable to the origination of that loan are accounted for under the effective interest rate method over the expected life of the loan. This policy has been in effect since 1 January 2005.

Loan impairment charges

Mexican GAAP

Loan impairment charges are calculated following the rules issued by the Mexican Ministry of Finance and the National Banking and Securities Commission. Such rules establish authorised methodologies for determining the amount of provision for each type of loan.

IFRS

Loan loss provisions for collectively assessed loans are determined based on a roll-rate methodology reflecting history of losses for each category of loan, past due payments and collateral values. For individually assessed loans, loan loss provisions are calculated based on the discounted cash flow value of the collateral.

Purchase accounting adjustments

These arise from valuations made by HSBC on acquiring Grupo Financiero Bital in November 2002 on various assets and liabilities that differed from the valuation in the local Mexican GAAP books.

Recognition of present value of in-force long-term life insurance contracts

Mexican GAAP

The present value of future earnings is not recognised. Premiums are accounted for on a received basis and reserves are calculated in accordance with guidance as set out by the Insurance Regulator (Comisión Nacional de Seguros y Fianzas).

IFRS

A value is placed on insurance contracts that are classified as long-term insurance business and are in-force at the balance sheet date. The present value of in-force long-term insurance business is determined by discounting future earnings expected to emerge from business currently in force using appropriate assumptions in assessing factors such as recent experience and general economic conditions.

 

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