HSBC Fin Corp Q1 2006 8K
HSBC Holdings PLC
15 May 2006
--------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM 8-K
PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT: MAY 12, 2006
---------------------
COMMISSION FILE NUMBER 1-8198
HSBC FINANCE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 86-1052062
(STATE OF INCORPORATION) (IRS EMPLOYER IDENTIFICATION NUMBER)
2700 SANDERS ROAD, PROSPECT HEIGHTS, ILLINOIS 60070
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(847) 564-5000
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2. below):
( ) Written communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
( ) Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
( ) Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange
Act (17 CFR 240.14d-2(b))
( ) Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange
Act (17 CFR 240.13e-4(c))
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ITEM 7.01. REGULATION FD DISCLOSURE
--------------------------------------------------------------------------------
Financial supplement pertaining to the financial results of HSBC Finance
Corporation and HSBC USA Inc. for the three months ended March 31, 2006. The
information included in the financial supplement with respect to HSBC Finance
Corporation and HSBC USA Inc. on a combined basis is presented on an
International Financial Reporting Standards ("IFRSs") basis as applied by HSBC
Holdings plc. Additional detail regarding significant accounting policies is
available in the HSBC Holdings plc 2005 Annual Report. The information included
in the financial supplement with respect to HSBC Finance Corporation is
presented on a management basis and an IFRS management basis. As presented in
this Form 8-K, IFRS basis is a non-GAAP financial measure that represents U.S.
GAAP as adjusted in accordance with IFRSs. Management basis is a non-GAAP
financial measure derived from U.S. GAAP reported results that eliminates, among
other things, mortgage and private label receivable transfers from HSBC Finance
Corporation to its affiliate, HSBC Bank USA, N.A., and related intercompany
activities and assumes that securitized receivables have not been sold and
remain on the HSBC Finance Corporation balance sheet. IFRS management basis is a
non-GAAP financial measure that represents management basis as adjusted in
accordance with IFRSs.
This information shall not be deemed to be "filed" for the purposes of Section
18 of the Securities Exchange Act of 1934, as amended (the Exchange Act), or
otherwise incorporated by reference into any filing pursuant to the Securities
Act of 1933, as amended, or the Exchange Act except as otherwise expressly
stated in such a filing.
ITEM 9.01. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
--------------------------------------------------------------------------------
(a) Financial statements of businesses acquired.
Not applicable.
(b) Pro forma financial information.
Not applicable.
(c) Exhibits.
NO. EXHIBIT
--- -------
99 Financial supplement.
SIGNATURE
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Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
HSBC FINANCE CORPORATION
(Registrant)
By: /s/ Patrick D. Schwartz
------------------------------------
Patrick D. Schwartz
Vice President-Deputy General
Counsel-Corporate
Dated: May 12, 2006
EXHIBIT 99
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HSBC FINANCE CORPORATION
AND
HSBC USA INC.
SUPPLEMENT TO THE FORMS 10-Q FOR THE
PERIOD ENDED MARCH 31, 2006
MAY, 2006
FORWARD LOOKING STATEMENTS
--------------------------------------------------------------------------------
This document, and subsequent discussion, contains certain forward-looking
information with respect to the financial condition, results of operations and
business of HSBC Holdings plc, HSBC Finance Corporation, HSBC USA Inc. and HSBC
North America Holdings Inc. This information represents expectations or beliefs
concerning future events and is subject to unknown risks and uncertainties. This
information speaks only as of the date on which it is provided. Additional
detailed information concerning important factors that could cause actual
results to differ materially is available in the HSBC Holdings plc 2005 Annual
Report, and the HSBC Finance Corporation and HSBC USA Inc. Annual Reports on
Forms 10-K for the year ended December 31, 2005 and Quarterly Reports on Forms
10-Q for the quarter ended March 31, 2006.
2
BASIS OF REPORTING
--------------------------------------------------------------------------------
- INTERNATIONAL FINANCIAL REPORTING STANDARDS ("IFRSS") From January 1, 2005,
HSBC Holdings plc ("HSBC") has prepared its consolidated financial statements
in accordance with International Financial Reporting Standards as endorsed by
the European Union. IFRSs comprise accounting standards issued by the
International Accounting Standards Board and its predecessor body as well as
interpretations issued by the International Financial Reporting
Interpretations Committee and its predecessor body. Please see HSBC's 2005
Annual Report for more detail regarding significant accounting policies.
- HSBC FINANCE CORPORATION -- MANAGED BASIS (a non-GAAP financial measure)
assumes that securitized customer loans have not been sold and remain on the
HSBC Finance Corporation balance sheet.
- HSBC FINANCE CORPORATION -- MANAGEMENT BASIS In addition to managed basis
reporting, operations are monitored and trends are evaluated on a management
basis (a non-GAAP financial measure). Management basis reporting, in addition
to the managed basis adjustments, assumes that the Mortgages and Private Label
customer loans transferred from HSBC Finance Corporation to HSBC's U.S.
banking subsidiary, HSBC Bank USA, N.A. ("HSBC Bank USA"), have not been sold
and remain on the HSBC Finance Corporation balance sheet. Additionally,
operations are monitored and trends are evaluated on a management basis
because the customer loan sales to HSBC Bank USA were conducted primarily to
more appropriately fund prime customer loans within the HSBC Group and such
customer loans continue to be managed and serviced by us without regard to
ownership. Furthermore, operating results are reviewed and decisions are made
about allocating resources such as employees on a management basis.
When reporting on a management basis, net interest income, fee income and loan
impairment charges are adjusted to include the activity associated with these
customer loans transferred to HSBC Bank USA. Gains on sales, loan premium
amortization and the related servicing fees are eliminated. Management
believes that management basis information enables readers, investors and
other interested parties to better understand the overall performance and
related trends of our consumer finance business.
Certain adjustments have been made to prior period amounts to conform to the
current period presentation.
- HSBC FINANCE CORPORATION -- IFRS MANAGEMENT BASIS (a non-GAAP financial
measure) represents management basis results adjusted in accordance with
IFRSs. In this document, the term "customer loans" is synonymous to
"receivables" in our U.S. GAAP financial statements.
- HSBC USA INC. -- IFRS represents HSBC USA Inc. U.S. GAAP results adjusted in
accordance with IFRSs.
3
HSBC FINANCE CORPORATION AND HSBC USA INC.
PROFIT FOR THE PERIOD -- IFRS (A NON-GAAP MEASURE)
--------------------------------------------------------------------------------
THREE MONTHS ENDED
------------------------------------
MARCH 31, DECEMBER 31, MARCH 31,
2006 2005 2005
--------------------------------------------------------------------------------------------------
(MILLIONS $)
Profit for the Period (after-tax):
HSBC Finance Corporation.................................... $ 930 $ 766 $ 824
HSBC USA Inc................................................ 287 179 297
------ ------ ------
Sub-total................................................. 1,217 945 1,121
Intercompany Eliminations(1).............................. 68 110 107
------ ------ ------
Combined Profit for the Period.............................. $1,285 $1,055 $1,228
====== ====== ======
---------------
(1) Primarily relates to intercompany derivatives accounting and premium
amortization on the transfer of assets between HSBC Finance Corporation and
HSBC USA Inc.
4
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HSBC FINANCE CORPORATION
5
HSBC FINANCE CORPORATION - FIRST QUARTER 2006 HIGHLIGHTS
IFRS MANAGEMENT BASIS (A NON-GAAP MEASURE)
--------------------------------------------------------------------------------
- Strong quarter with good underlying business trends
- Solid results from all businesses
- Favorable credit performance related to lower bankruptcies, customer
loan growth and a continued strong U.S. economy
- Integration of Metris on schedule
- First quarter results include seasonal Taxpayer Financial Services
revenues
- Profit for the Period increased 12% year-over-year
- Profit Before Tax increased 13%. Excluding derivative and fair value
impacts, Profit Before Tax increased 49%.
- Net Interest Income increased 12% year-over-year due to strong customer loan
growth
- Average Customer Loans grew 18% year-over-year with solid organic
growth across all products
- Loan Impairment Charges decreased from both the prior quarter and prior year
first quarter
- Decreased bankruptcy filings following change in U.S. legislation in
October 2005, which accelerated Loan Impairment Charges in the fourth
quarter of 2005, a portion of which would have been experienced in 2006
- Reduction of estimated exposure associated with Hurricane Katrina in
the first quarter of 2006
- Lower Loan Impairment Charges due to growing mix of near-prime loans in
residential mortgage and motor vehicle finance
- Continued favorable U.S. consumer credit environment, although housing
market showing modest signs of slowing in some markets
6
HSBC FINANCE CORPORATION
IFRS MANAGEMENT BASIS (A NON-GAAP MEASURE)
--------------------------------------------------------------------------------
THREE MONTHS ENDED
------------------------------------
MARCH 31, DECEMBER 31, MARCH 31,
2006 2005 2005
--------------------------------------------------------------------------------------------------
(MILLIONS $)
Net Interest Income......................................... $2,873 $2,694 $2,558
Net Fee Income.............................................. 819 699 703
Trading Income(1)........................................... 66 65 208
Net Income/(Expense) from Financial Instruments Designated
at Fair Value(2).......................................... (5) 36 176
Other Operating Income...................................... 145 336 110
------ ------ ------
Total Operating Income.................................... 3,898 3,830 3,755
Loan Impairment Charges and Other Credit Risk Provisions.... 904 1,447 1,048
Operating Expenses.......................................... 1,436 1,400 1,333
------ ------ ------
Profit Before Tax......................................... 1,558 983 1,374
Tax Expense................................................. 546 164 472
------ ------ ------
Profit for the Period..................................... $1,012 $ 819 $ 902
====== ====== ======
Cost Efficiency Ratio....................................... 36.8% 36.6% 35.5%
Operating Expenses/Average Customer Loans................... 3.4% 3.5% 3.8%
---------------
(1) Includes ineffectiveness on qualifying hedges and mark-to-market on
non-qualifying hedges that are not managed in conjunction with the debt
securities in issue designated at fair value of $14, ($39) and $156 million
for the quarters ended March 31, 2006, December 31, 2005 and March 31, 2005,
respectively.
(2) Includes gains and losses from changes in fair value of debt securities in
issue designated at fair value and gains and losses from changes in fair
value of derivatives that are managed in conjunction with them.
7
HSBC FINANCE CORPORATION
KEY RATIOS - MANAGEMENT BASIS (A NON-GAAP MEASURE)(1)
--------------------------------------------------------------------------------
- Net Interest Margin (NIM) down from the prior year first quarter and flat
sequentially
- Overall yield increased in the quarter due to repricing efforts which
were offset by a higher mix of residential mortgage customer loans and
higher cost of funds
- RAR improved from the prior quarter and prior year first quarter driven by
lower charge-offs
---------------
(1) Derived from U.S. GAAP reported results and adjusted to management basis as
further described on page 3.
(2) Excludes mark-to-market on derivatives which do not qualify as effective
hedges and ineffectiveness associated with qualifying hedges under SFAS No.
133.
8
HSBC FINANCE CORPORATION
CREDIT QUALITY - MANAGEMENT BASIS (A NON-GAAP MEASURE)(1)
--------------------------------------------------------------------------------
- The first quarter 2006 charge-off ratio decreased from fourth quarter 2005
primarily due to the fourth quarter spike in bankruptcy charge-offs in the
U.S. as a result of new bankruptcy legislation effective October 2005
- RAR improved from the prior quarter and prior year first quarter driven by
lower charge-offs
---------------
(1) Derived from U.S. GAAP reported results and adjusted to management basis as
further described on page 3.
(2) Excludes mark-to-market on derivatives which do not qualify as effective
hedges and ineffectiveness associated with qualifying hedges under SFAS No.
133.
9
HSBC FINANCE CORPORATION
IFRS MANAGEMENT BASIS (A NON-GAAP MEASURE)
--------------------------------------------------------------------------------
CUSTOMER LOANS
MARCH 06
INCREASE/(DECREASE)
-------------------
%
-------------------
MARCH 06 DEC 05 MARCH 05 DEC 05 MARCH 05
--------------------------------------------------------------------------------------------------
(MILLIONS $)
Branch Residential Mortgage................. $ 43,062 $ 41,341 $ 38,166 4% 13%
Correspondent Residential Mortgage.......... 49,330 44,297 35,094 11 41
-------- -------- -------- -- ---
Residential Mortgage...................... 92,392 85,638 73,260 8 26
MasterCard/Visa(1) Credit Cards............. 24,740 25,819 21,739 (4) 14
Private Label Cards......................... 18,402 19,656 18,019 (6) 2
Motor Vehicle Finance....................... 12,113 11,911 10,313 2 17
Other Unsecured Personal Lending............ 20,844 20,745 19,771 -- 5
Commercial and Other........................ 31 33 93 (6) (67)
-------- -------- -------- -- ---
Total Customer Loans...................... $168,522 $163,802 $143,195 3% 18%
======== ======== ======== == ===
---------------
(1) MasterCard is a registered trademark of MasterCard International,
Incorporated and Visa is a registered trademark of VISA USA, Inc.
10
HSBC FINANCE CORPORATION
FIRST QUARTER 2006 -- BUSINESS UNIT HIGHLIGHTS
--------------------------------------------------------------------------------
RETAIL BRANCH CHANNEL CORRESPONDENT/
(HFC/BENEFICIAL) WHOLESALE CHANNEL
- Continued good loan growth - Strong residential mortgage growth
- Residential mortgage products up - Portfolio up 11% over prior quarter and
4% over prior quarter and 41% year-over-year
13% year-over-year
- Improved returns on new production
( ) Includes both near-prime and
non-prime segments - Run-off slowed from prior quarter to prior
year first quarter levels
( ) Junior liens a good source of growth
- Monitoring credit quality closely given
- Cross sell volume continues to expand the housing market showing modest signs of
- Motor vehicle loans and credit card slowing
sales in branches contribute to overall
growth
- Credit quality remains stable although
housing market showing modest signs of
slowing
11
HSBC FINANCE CORPORATION
FIRST QUARTER 2006 -- BUSINESS UNIT HIGHLIGHTS
--------------------------------------------------------------------------------
CREDIT CARD
- Strong year-over-year profits, good organic loan and operating income growth
- Increased net interest margin year-over-year by growing non-prime book and
repricing efforts
- Strong growth in fee and other operating income from the prior year first
quarter due to growing portfolio and higher interchange fees
- Improved credit quality driven by lower bankruptcy charge-offs and filings
- Metris integration on schedule
- Estimates of the potential impact of the change in minimum payment guidelines
take into account a number of factors which are difficult to predict at this
time and are being closely monitored
PRIVATE LABEL
- Signed new merchant, Boscov's Department Stores, in April
- Expanded private label programs with two of our merchants through enhanced
underwriting, terms and customer service
- Risk adjusted revenue performing well compared to the prior quarter as
positive credit trends mitigated margin compression
- Estimates of the potential impact of the change in minimum payment guidelines
take into account a number of factors which are difficult to predict at this
time and are being closely monitored
12
HSBC FINANCE CORPORATION
FIRST QUARTER 2006 -- BUSINESS UNIT HIGHLIGHTS
--------------------------------------------------------------------------------
AUTO
- Good organic loan growth in dealer channel
- Customer loan mix shift toward near-prime producing lower charge-offs and
higher risk adjusted revenues
- Continue to refine collection strategies to improve cash collections
TAXPAYER FINANCIAL SERVICES
- Expanded relationships with existing partners
- Expanded product offerings to include prepaid debit cards
INTERNATIONAL
CANADA
- Good loan growth and profitability
- Branch expansion contributed to strong growth in unsecured and residential
mortgage products
- Growth initiatives in motor vehicle and credit card contributed favorably to
customer loan growth
- Credit quality stable
UK
- Focus remains on credit and loss mitigation in a continued challenging
environment
13
--------------------------------------------------------------------------------
HSBC USA INC.
14
HSBC USA INC. FIRST QUARTER - 2006 HIGHLIGHTS
IFRS - (A NON-GAAP MEASURE)
--------------------------------------------------------------------------------
- Solid quarter including continuing progress on strategic initiatives
- Domestic deposits grew 20% year-over-year and reflect impact of
nationwide Online Savings roll out and branch expansion
- Small business, middle market, and large corporate commercial loans
grew a combined 14% year-over-year
- Total Operating Income increased 8% from prior year first quarter and
was spread across all customer groups
- Profit for the Period down 3% from the prior year first quarter but up from
the prior quarter
- Quarterly results reflect a $40 million before tax charge from fair
value option accounting
- Net Interest Income (NII) was lower than the prior year first quarter largely
due to a flatter yield curve and the impact on balance sheet management income
in Corporate, Investment Banking and Markets (CIBM)
- Balance sheet management income was $105 million lower than prior year
first quarter but was offset by higher trading income which was $137
million above prior year first quarter, principally recorded in Global
Markets business
- Growing core customer deposit base in Personal Financial Services,
Commercial Banking and Private Banking contributed to overall NII
- Credit quality remains strong
- Loan impairment increases relate principally to commercial
releases/recoveries in the prior year first quarter
- Consumer Finance loan impairment charges increased on higher loan
volumes while bankruptcy filings decreased significantly
- Increased Operating Expenses reflect recent investment initiatives
- Expansion of retail distribution network including addition of branches
and the rollout of the Online Savings Account
- Build-out of CIBM business platform is largely complete; quarterly
comparisons reflect 2005 investments
15
HSBC USA INC.
IFRS - (A NON-GAAP MEASURE)
--------------------------------------------------------------------------------
THREE MONTHS ENDED
------------------------------------
MARCH 31, DECEMBER 31, MARCH 31,
2006 2005 2005
--------------------------------------------------------------------------------------------------
(MILLIONS $)
Net Interest Income......................................... $ 573 $ 638 $ 686
Net Fee Income.............................................. 230 218 123
Trading Income.............................................. 344 211 175
Net Income/(Expense) from Financial Instruments
Designated at Fair Value(1)............................... (40) 14 (8)
Other Operating Income...................................... 142 77 179
------ ------ ------
Total Operating Income.................................... 1,249 1,158 1,155
Loan Impairment Charges and Other Credit Risk Provisions.... 169 212 121
Operating Expenses.......................................... 664 602 578
------ ------ ------
Profit Before Tax......................................... 416 344 456
Tax Expense................................................. 129 165 159
------ ------ ------
Profit for the Period..................................... $ 287 $ 179 $ 297
====== ====== ======
Cost Efficiency Ratio....................................... 53.2% 52.0% 50.0%
---------------
(1) Includes gains and losses from changes in fair value of debt securities in
issue designated at fair value and gains and losses from changes in fair
value of derivatives that are managed in conjunction with them.
16
HSBC USA INC.
FIRST QUARTER 2006 -- BUSINESS UNIT HIGHLIGHTS
--------------------------------------------------------------------------------
PERSONAL FINANCIAL SERVICES (PFS) COMMERCIAL BANKING (CMB)
- Success in numerous initiatives to broaden - Good year-over-year deposit and loan
distribution channels growth
- Online Savings deposits totaled $3.8 - Expanded markets and distribution through
billion at March 31, 2006, up from $1.0 new lending office in Washington, DC and
billion at December 2005 Embassy Banking referral arrangement with
Wachovia
- Branch network expansion continued with 4
new locations added during the first - Increased syndication capabilities led to
quarter 2006 higher fee income in Commercial Real Estate
- Finalized an agreement to brand ATMs in - Good credit quality in Middle Market and
Walgreens stores in northern New Jersey Real Estate
- Americas Premier Center (APC) opened in
Miami showing strong early deposit
momentum
- "Different Points of View" global branding
initiative launched with new ad campaign
at JFK Airport
- Operating Expenses increased from prior
year first quarter, half of which reflects
initiatives to expand distribution
channels
17
HSBC USA INC.
FIRST QUARTER 2006 -- BUSINESS UNIT HIGHLIGHTS
--------------------------------------------------------------------------------
CORPORATE, INVESTMENT BANKING
PRIVATE BANKING (PB) AND MARKETS (CIBM)
- Strong operating income growth from the - Significantly higher trading revenues
prior year first quarter due in part to offset lower balance sheet management
higher performance fees on foreign revenues in net interest income
investments
- Growth in markets related revenues
- Good year-over-year deposit and loan recorded in derivatives, precious metals and
growth on marketing initiatives targeting mortgage backed securities
new and existing clients
- Transaction Banking revenues and deposits
- Expanded Wealth and Tax Advisory Services up over prior year
with new offices in Seattle, Chicago and
Palo Alto - Reflects HSBC's market leader position
in developing cross border payments and cash
management services
- Operating expenses increased from the
prior year first quarter, essentially flat
from prior quarter and reflects costs
associated with business expansion
initiatives
18
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APPENDIX
RECONCILIATIONS TO GAAP FINANCIAL MEASURES
HSBC FINANCE CORPORATION NET INCOME
IFRS BASIS
THREE MONTHS ENDED THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, 2006 DECEMBER 31, 2005 MARCH 31, 2005
--------------------------------------------------------------------------------------------------------------------
(DOLLARS ARE IN MILLIONS)
Net income -- U.S. GAAP Owned Basis................... $888 $393 $819
IFRS Adjustments, net of tax.......................... 42 373 5
---- ---- ----
NET INCOME -- IFRS.................................... $930 $766 $824
==== ==== ====
1
RECONCILIATIONS TO GAAP FINANCIAL MEASURES
HSBC FINANCE CORPORATION INCOME STATEMENT
IFRS MANAGEMENT BASIS
THREE MONTHS ENDED 03/31/06 THREE MONTHS ENDED 12/31/05
--------------------------------- ---------------------------------
IFRS IFRS
MANAGEMENT IFRS MANAGEMENT IFRS
OWNED BASIS MANAGEMENT OWNED BASIS MANAGEMENT
BASIS ADJUSTMENTS BASIS BASIS ADJUSTMENTS BASIS
----------------------------------------------------------------------------------------------------------
(DOLLARS ARE IN MILLIONS)
Net interest income................ $2,464 $ 409 $2,873 $2,298 $ 396 $2,694
Net fee income..................... 392 427 819 469 230 699
Trading income..................... - 66 66 - 65 65
Net income/(expense) from financial
instruments designated at fair
value............................. - (5) (5) - 36 36
Other operating income............. 1,015 (870) 145 674 (338) 336
------ ------- ------ ------ ----- ------
TOTAL OPERATING INCOME............. 3,871 27 3,898 3,441 389 3,830
------ ------- ------ ------ ----- ------
Loan impairment charges and other
credit risk provisions............ 866 38 904 1,310 137 1,447
Operating expenses................. 1,606 (170) 1,436 1,542 (142) 1,400
------ ------- ------ ------ ----- ------
Profit before tax.................. 1,399 159 1,558 589 394 983
Tax expense........................ 511 35 546 196 (32) 164
------ ------- ------ ------ ----- ------
PROFIT FOR THE PERIOD.............. $ 888 $ 124 $1,012 $ 393 $ 426 $ 819
====== ======= ====== ====== ===== ======
COST EFFICIENCY RATIO:
Total operating expenses........... $1,606 $ (170) $1,436 $1,542 $(142) $1,400
Policyholders' benefits............ (118) 118 - (109) 109 -
------ ------- ------ ------ ----- ------
Total operating expenses, excluding
policyholders' benefits........... $1,488 $ (52) $1,436 $1,433 $ (33) $1,400
------ ------- ------ ------ ----- ------
Net interest income and other
operating income.................. $3,871 $ 27 $3,898 $3,441 $ 389 $3,830
Policyholders' benefits............ (118) 118 - (109) 109 -
------ ------- ------ ------ ----- ------
Net interest income and other
operating income, excluding
policyholders' benefits........... $3,753 $ 145 $3,898 $3,332 $ 498 $3,830
------ ------- ------ ------ ----- ------
COST EFFICIENCY RATIO.............. 39.6% 36.8% 43.0% 36.6%
====== ====== ====== ======
PROFIT FOR THE PERIOD GROWTH:
Profit for the period............. $ 888 $ 124 $1,012 $ 393 $ 426 $ 819
IFRS management basis profit for
the period growth:
03/31/06 compared to 03/31/05..... 12%
======
THREE MONTHS ENDED 03/31/05
---------------------------------
IFRS
MANAGEMENT IFRS
OWNED BASIS MANAGEMENT
BASIS ADJUSTMENTS BASIS
----------------------------------- ---------------------------------
(DOLLARS ARE IN MILLIONS)
Net interest income................ $1,888 $ 670 $2,558
Net fee income..................... 306 397 703
Trading income..................... - 208 208
Net income/(expense) from financial
instruments designated at fair
value............................. - 176 176
Other operating income............. 1,156 (1,046) 110
------ ------- ------
TOTAL OPERATING INCOME............. 3,350 405 3,755
------ ------- ------
Loan impairment charges and other
credit risk provisions............ 841 207 1,048
Operating expenses................. 1,542 (209) 1,333
------ ------- ------
Profit before tax.................. 967 407 1,374
Tax expense........................ 341 131 472
------ ------- ------
PROFIT FOR THE PERIOD.............. $ 626 $ 276 $ 902
====== ======= ======
COST EFFICIENCY RATIO:
Total operating expenses........... $1,542 $ (209) $1,333
Policyholders' benefits............ (122) 122 -
------ ------- ------
Total operating expenses, excluding
policyholders' benefits........... $1,420 $ (87) $1,333
------ ------- ------
Net interest income and other
operating income.................. $3,350 $ 405 $3,755
Policyholders' benefits............ (122) 122 -
------ ------- ------
Net interest income and other
operating income, excluding
policyholders' benefits........... $3,228 $ 527 $3,755
------ ------- ------
COST EFFICIENCY RATIO.............. 44.0% 35.5%
====== ======
PROFIT FOR THE PERIOD GROWTH:
Profit for the period............. $ 626 $ 276 $ 902
IFRS management basis profit for
the period growth:
03/31/06 compared to 03/31/05.....
2
RECONCILIATIONS TO GAAP FINANCIAL MEASURES
HSBC FINANCE CORPORATION
MANAGEMENT BASIS
THREE MONTHS ENDED
-------------------------------
MARCH 31, 2006 MARCH 31, 2005
---------------------------------------------------------------------------------------------
(DOLLARS ARE IN MILLIONS)
NET INTEREST INCOME:
Net interest income:
Owned basis............................................... $ 2,464 $ 1,888
Management basis adjustments.............................. 435 711
-------- --------
Management basis.......................................... $ 2,899 $ 2,599
-------- --------
Average interest-earning assets:
Owned basis............................................... $147,266 $112,985
Managed basis adjustments................................. 3,505 12,884
Management basis adjustments.............................. 20,831 20,225
-------- --------
Management basis.......................................... $171,602 $146,094
-------- --------
Owned basis net interest margin............................. 6.7% 6.7%
Management basis net interest margin........................ 6.8 7.1
======== ========
RETURN ON AVERAGE ASSETS:
Profit for the period:
Owned basis............................................... $ 888 $ 626
Management basis adjustments.............................. 80 72
-------- --------
Management basis.......................................... $ 968 $ 698
-------- --------
Adjusted profit for the period:
Owned basis............................................... $ 888 $ 626
Management basis adjustments.............................. 80 72
Derivative adjustments.................................... (34) (157)
-------- --------
Management basis adjusted for derivatives................. $ 934 $ 541
-------- --------
Average assets:
Owned basis............................................... $162,688 $131,954
Management basis adjustments.............................. 24,225 33,117
-------- --------
Management basis.......................................... $186,913 $165,071
-------- --------
Return on average owned assets.............................. 2.2% 1.9%
Return on average management assets......................... 2.1 1.7
Return on average management assets, adjusted for
derivatives............................................... 2.0 1.3
======== ========
3
RECONCILIATIONS TO GAAP FINANCIAL MEASURES
HSBC FINANCE CORPORATION
MANAGEMENT BASIS
THREE MONTHS ENDED
-------------------------------
MARCH 31, 2006 MARCH 31, 2005
---------------------------------------------------------------------------------------------
(DOLLARS ARE IN MILLIONS)
MANAGED BASIS RISK ADJUSTED REVENUE:
Net interest income......................................... $ 2,567 $ 2,220
Other operating income, excluding securitization revenue and
the mark-to-market on derivatives which do not qualify as
effective hedges and ineffectiveness associated with
qualifying hedges under SFAS No. 133...................... 1,313 1,223
Less: Net charge-offs....................................... (990) (1,118)
-------- --------
Risk adjusted revenue....................................... $ 2,890 $ 2,325
-------- --------
Management basis adjustments:
Net interest income......................................... $ 332 $ 379
Other operating income, excluding securitization revenue and
the mark-to-market on derivatives which do not qualify as
effective hedges and ineffectiveness associated with
qualifying hedges under SFAS No. 133...................... (64) (118)
Less: Net charge-offs....................................... (158) (154)
-------- --------
Risk adjusted revenue, management basis adjustments......... $ 110 $ 107
-------- --------
Management basis:
Net interest income......................................... $ 2,899 $ 2,599
Other operating income, excluding securitization revenue and
the mark-to-market on derivatives which do not qualify as
effective hedges and ineffectiveness associated with
qualifying hedges under SFAS No. 133...................... 1,249 1,105
Less: Net charge-offs....................................... (1,148) (1,272)
-------- --------
Risk adjusted revenue, management basis..................... $ 3,000 $ 2,432
-------- --------
Average interest-earning assets:
Managed basis............................................. $150,771 $125,869
Management basis adjustments.............................. 20,831 20,225
-------- --------
Management basis.......................................... $171,602 $146,094
-------- --------
Managed basis risk adjusted revenue......................... 7.7% 7.4%
Management basis risk adjusted revenue...................... 7.0 6.7
======== ========
4
RECONCILIATIONS TO GAAP FINANCIAL MEASURES
HSBC FINANCE CORPORATION
MANAGEMENT BASIS
THREE MONTHS ENDED
-------------------------------
MARCH 31, 2006 MARCH 31, 2005
---------------------------------------------------------------------------------------------
(DOLLARS ARE IN MILLIONS)
CONSUMER NET CHARGE-OFF RATIO:
Consumer net charge-offs:
Owned basis............................................... $ 928 $ 856
Management basis adjustments.............................. 220 410
-------- --------
Management basis.......................................... $ 1,148 $ 1,266
-------- --------
Average consumer receivables:
Owned basis............................................... $143,893 $108,928
Management basis adjustments.............................. 24,333 33,099
-------- --------
Management basis.......................................... $168,226 $142,027
-------- --------
Owned basis consumer net charge-off ratio................... 2.6% 3.1%
Management basis consumer net charge-off ratio.............. 2.7 3.6
======== ========
TWO-MONTHS-AND-OVER CONTRACTUAL DELINQUENCY RATIO:
Consumer 2+ delinquency:
Owned basis............................................... $ 5,312 $ 4,229
Management basis adjustments.............................. 619 1,044
-------- --------
Management basis.......................................... $ 5,931 $ 5,273
-------- --------
Consumer receivables:
Owned basis............................................... $146,580 $111,911
Management basis adjustments.............................. 23,241 31,480
-------- --------
Management basis.......................................... $169,821 $143,391
-------- --------
Owned basis consumer 2+ delinquency ratio................... 3.6% 3.8%
Management basis consumer 2+ delinquency ratio.............. 3.5 3.7
======== ========
5
RECONCILIATION TO GAAP FINANCIAL MEASURES
HSBC FINANCE CORPORATION
IFRS MANAGEMENT BASIS
AS AT MARCH 31, 2006 AS AT DECEMBER 31, 2005
----------------------------------- -----------------------------------
IFRS IFRS
MANAGEMENT IFRS MANAGEMENT IFRS
OWNED BASIS MANAGEMENT OWNED BASIS MANAGEMENT
BASIS ADJUSTMENTS BASIS BASIS ADJUSTMENTS BASIS
--------------------------------------------------------------------------------------------------
(DOLLARS ARE IN MILLIONS)
CUSTOMER LOANS
Branch residential
mortgage............. $ 43,034 $ 28 $ 43,062 $ 41,270 $ 71 $ 41,341
Correspondent
residential
mortgage............. 46,458 2,872 49,330 41,556 2,741 44,297
-------- ------- -------- -------- ------- --------
Residential
mortgage........... 89,492 2,900 92,392 82,826 2,812 85,638
MasterCard/Visa(1)
credit cards......... 23,449 1,291 24,740 24,110 1,709 25,819
Private label cards.... 2,428 15,974 18,402 2,520 17,136 19,656
Motor vehicle
finance.............. 11,186 927 12,113 10,704 1,207 11,911
Other unsecured
personal lending..... 20,006 838 20,844 19,545 1,200 20,745
Commercial and other... 206 (175) 31 208 (175) 33
-------- ------- -------- -------- ------- --------
TOTAL CUSTOMER LOANS... $146,767 $21,755 $168,522 $139,913 $23,889 $163,802
======== ======= ======== ======== ======= ========
AS AT MARCH 31, 2005
-----------------------------------
IFRS
MANAGEMENT IFRS
OWNED BASIS MANAGEMENT
BASIS ADJUSTMENTS BASIS
----------------------- -----------------------------------
(DOLLARS ARE IN MILLIONS)
CUSTOMER LOANS
Branch residential
mortgage............. $ 37,862 $ 304 $ 38,166
Correspondent
residential
mortgage............. 30,624 4,470 35,094
-------- ------- --------
Residential
mortgage........... 68,486 4,774 73,260
MasterCard/Visa(1)
credit cards......... 15,554 6,185 21,739
Private label cards.... 3,130 14,889 18,019
Motor vehicle
finance.............. 8,107 2,206 10,313
Other unsecured
personal lending..... 16,608 3,163 19,771
Commercial and other... 276 (183) 93
-------- ------- --------
TOTAL CUSTOMER LOANS... $112,161 $31,034 $143,195
======== ======= ========
---------------
(1) MasterCard is a registered trademark of MasterCard International,
Incorporated and Visa is a registered trademark of VISA USA, Inc.
6
RECONCILIATIONS TO GAAP FINANCIAL MEASURES
HSBC USA INC. INCOME STATEMENT
IFRS
THREE MONTHS ENDED THREE MONTHS ENDED THREE MONTHS ENDED
3/31/06 12/31/05 3/31/05
------------------------- ------------------------- --------------------------
OWNED IFRS OWNED IFRS OWNED IFRS
BASIS ADJUSTMENTS IFRS BASIS ADJUSTMENTS IFRS BASIS ADJUSTMENTS IFRS
------------------------------------------------------------------------------------------------------------------------
(DOLLARS ARE IN MILLIONS)
Net interest income............... $ 562 $ 11 $ 573 $ 631 $ 7 $ 638 $ 665 $ 21 $ 686
Net fee income.................... 228 2 230 201 17 218 123 - 123
Trading income.................... 344 - 344 214 (3) 211 178 (3) 175
Net income/(expense) from
financial instruments designated
at fair value.................... - (40) (40) - 14 14 - (8) (8)
Other operating income............ 138 4 142 94 (17) 77 188 (9) 179
------ ---- ------ ------ ---- ------ ------ ---- ------
TOTAL OPERATING INCOME............ 1,272 (23) 1,249 1,140 18 1,158 1,154 1 1,155
------ ---- ------ ------ ---- ------ ------ ---- ------
Loan impairment charges and other
credit risk provisions........... 158 11 169 196 16 212 95 26 121
Operating expenses................ 663 1 664 632 (30) 602 567 11 578
------ ---- ------ ------ ---- ------ ------ ---- ------
Profit before tax................ 451 (35) 416 312 32 344 492 (36) 456
Tax expense....................... 143 (14) 129 116 49 165 176 (17) 159
------ ---- ------ ------ ---- ------ ------ ---- ------
PROFIT FOR THE PERIOD............. $ 308 $(21) $ 287 $ 196 $(17) $ 179 $ 316 $(19) $ 297
====== ==== ====== ====== ==== ====== ====== ==== ======
COST EFFICIENCY RATIO:
Total operating expenses......... $ 663 $ 1 $ 664 $ 632 $(30) $ 602 $ 567 $ 11 $ 578
Net interest income and other
operating income............... 1,272 (23) 1,249 1,140 18 1,158 1,154 1 1,155
------ ---- ------ ------ ---- ------ ------ ---- ------
COST EFFICIENCY RATIO............. 52.1% 53.2% 55.4% 52.0% 49.1% 50.0%
====== ====== ====== ====== ====== ======
PROFIT FOR THE PERIOD GROWTH:
Profit for the period............ $ 308 $(21) $ 287 $ 196 $(17) $ 179 $ 316 $(19) $ 297
IFRS profit for the period
growth:
3/31/06 compared to 3/31/05...... (3)%
======
7
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