HSBC FinCorp Q405 IFRS 8K
HSBC Holdings PLC
06 March 2006
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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: MARCH 6, 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
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Financial supplement pertaining to the financial results of HSBC Finance
Corporation for the six and twelve months ended December 31, 2005. The
information included in the financial supplement is presented on a management
basis and an International Financial Reporting Standards ("IFRS") management
basis. Management basis is a non-GAAP financial measure that eliminates mortgage
and private label receivable transfers to HSBC Bank USA, N.A., an affiliate of
HSBC Finance Corporation, and related intercompany activities and assumes that
securitized receivables have not been sold and remain on our balance sheet. IFRS
management basis is a non-GAAP financial measure that represents management
basis as adjusted using IFRS.
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: March 6, 2006
EXHIBIT 99
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HSBC FINANCE CORPORATION
SUPPLEMENT TO THE FORM 10-K FOR THE
PERIOD ENDED DECEMBER 31, 2005
MARCH, 2006
(HSBC FOOTER)
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 and HSBC Finance Corporation. 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 Annual Report and HSBC Finance Corporation Annual Report on
Form 10-K for the year ended December 31, 2005.
(HSBC FOOTER)
2
BASIS OF REPORTING
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- INTERNATIONAL FINANCIAL REPORTING STANDARDS ("IFRSS") Prior to January 1,
2005, HSBC Holdings plc ("HSBC") reported results on a U.K. GAAP basis. The
European Union has determined that all European listed companies are required
to prepare their consolidated financial statements using IFRSs by 2005. As a
result, HSBC began reporting its financial results under IFRSs rather than
U.K. GAAP with its release of interim financial results for the six months
ended June 30, 2005.
- MANAGED BASIS (a non-GAAP financial measure) assumes that securitized customer
loans have not been sold and remain on our balance sheet.
- MANAGEMENT BASIS In addition to managed basis reporting, we also monitor our
operations and evaluate trends 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 to HSBC's U.S. banking subsidiary, HSBC Bank USA, N.A. ("HSBC Bank
USA"), have not been sold and remain on the balance sheet. We also monitor our
operations and evaluate trends 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, we
also review operating results and make decisions 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 and the related
servicing fees are eliminated. We believe 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 conform to the current period
presentation.
- IFRS MANAGEMENT BASIS (a non-GAAP financial measure) represents management
basis plus IFRS adjustments. In this document, the term "customer loans" is
synonymous to "receivables" in our U.S. GAAP financial statements.
- INTERNATIONAL ACCOUNTING STANDARDS ("IAS") LITE MANAGEMENT BASIS excludes
application of: IAS 32, "Financial Instruments: Disclosure and Presentation;"
IAS 39, "Financial Instruments: Recognition and Measurement;" and IFRS 4,
"Insurance Contracts."
(HSBC FOOTER)
3
HSBC FINANCE CORPORATION - 2005 HIGHLIGHTS
IFRS MANAGEMENT BASIS (A NON-GAAP MEASURE)
--------------------------------------------------------------------------------
- Adjusted Profit up 13% on the second half of 2004 and 9% year-over-year
- Customer loans grew 16% year-over-year, excluding Metris acquisition and UK
loan sale
- Major growth contributors were real estate secured, MasterCard/Visa,(1)
and auto finance
- Good organic growth
- Completed Metris acquisition, adding $5.3 billion of customer loans,
strengthening full spectrum lending capabilities
- Strong expense management year-over-year
- Expenses flat over 3 half years, December 2005, June 2005 and December
2004; average customer loans up 19% over the second half of 2004 and 9%
over the first half of 2005
- Net interest margin compression consistent with current market environment
- Higher funding costs more than offset re-pricing initiatives
- Risk Adjusted Revenue ("RAR") was 6.1% at December 31, 2005
- Excluding estimates for bankruptcy legislation change and Hurricane
Katrina ("Katrina") impacts, fourth quarter 2005 RAR was 6.5%, in line
with third quarter 2005 and fourth quarter 2004
- Underlying credit results strong
- Stronger analytics and improved collections complemented by favorable
U.S. economy
- Reflects growing mix of near-prime loans and shift to lower risk
products and customers in real estate secured and auto finance
- Impact of new U.S. bankruptcy legislation effective October 17, 2005
- Fourth quarter included an estimated $145 million of higher
charge-offs, primarily in the MasterCard/Visa portfolio, substantially
covered by existing allowances
- $128 million of higher loan impairment charges in the fourth quarter to
cover estimated secured and personal non-credit card charge-offs
- Bankruptcy filings subsequent to legislation change have decreased
dramatically
- Some bankrupt charge-offs are an acceleration of charge-offs that would
have otherwise occurred in future periods
---------------
(1) MasterCard is a registered trademark of MasterCard International,
Incorporated and Visa is a registered trademark of VISA USA, Inc.
(HSBC FOOTER)
4
HSBC FINANCE CORPORATION
IFRS MANAGEMENT BASIS (A NON-GAAP MEASURE)
--------------------------------------------------------------------------------
H2 05 H1 05 H2 04
IFRS IFRS(1) IAS LITE
-----------------------------------------------------------------------------------------
(MILLIONS $)
Net Interest Income......................................... $5,650 $5,162 $5,613
Other Operating Income...................................... 1,768 2,090 1,378
------ ------ ------
Total Operating Income.................................... 7,418 7,252 6,991
Loan Impairment Charges..................................... 2,880 2,321 2,847
Loan Impairment Charges, Katrina related.................... 202 -- --
Operating Expenses.......................................... 2,698 2,627 2,659
------ ------ ------
Profit Before Tax......................................... 1,638 2,304 1,485
Tax Expense................................................. 393 770 515
------ ------ ------
Profit for the Period..................................... $1,245 $1,534 $ 970
Adjustments, net of Tax Expense:
Katrina impact.............................................. 139 -- --
Gain on sale of U.K. loans.................................. (176) -- --
FFIEC implementation charge................................. -- -- 98
------ ------ ------
Adjusted Profit for the Period............................ $1,208 $1,534 $1,068
====== ====== ======
Cost Efficiency Ratio....................................... 36.4% 36.2% 38.0%
Expenses/Average Customer Loans............................. 3.4% 3.7% 4.0%
---------------
(1) The first half of 2005 net interest income and other income related to the
adoption of IAS 39, fair value option, were adjusted to conform to the
current period presentation.
(HSBC FOOTER)
5
HSBC FINANCE CORPORATION
IFRS MANAGEMENT BASIS (A NON-GAAP MEASURE)
--------------------------------------------------------------------------------
TWELVE MONTHS ENDED
DECEMBER 31,
--------------------
2005 2004 IAS
IFRS LITE
----------------------------------------------------------------------------------
(MILLIONS $)
Net Interest Income......................................... $10,812 $11,256
Other Operating Income...................................... 3,858 2,787
------- -------
Total Operating Income.................................... 14,670 14,043
Loan Impairment Charges..................................... 5,201 5,345
Loan Impairment Charges, Katrina related.................... 202 --
Operating Expenses.......................................... 5,325 5,087
------- -------
Profit Before Tax......................................... 3,942 3,611
Tax Expense................................................. 1,163 1,204
------- -------
Profit for the Period..................................... 2,779 2,407
Adjustments, net of Tax Expense:
Katrina impact.............................................. 139 --
Gain on sale of U.K. loans.................................. (176) --
FFIEC implementation charge................................. -- 98
------- -------
Adjusted Profit for the Period............................ $ 2,742 $ 2,505
======= =======
Cost Efficiency Ratio....................................... 36.3% 36.2%
Expenses/Average Customer Loans............................. 3.5% 4.0%
(HSBC FOOTER)
6
HSBC FINANCE CORPORATION
KEY RATIOS - MANAGEMENT BASIS (A NON-GAAP MEASURE)(1)
--------------------------------------------------------------------------------
(GRAPH)
(1) Derived from U.S. GAAP reported results and adjusted to management basis as
further described on page 3.
(2) Excludes impact of initial FFIEC implementation.
(3) Excluding the estimated impacts of Katrina and bankruptcy legislation
change, fourth quarter 2005 RAR was 6.5% and ROMA was 1.3%.
(4) Excludes mark-to-market on derivatives which do not qualify as effective
hedges and ineffectiveness associated with qualifying hedges under SFAS No.
133. Third and fourth quarter 2005 ROMA include the impacts of Katrina and
bankruptcy legislation change.
(HSBC FOOTER)
7
HSBC FINANCE CORPORATION
CREDIT QUALITY - MANAGEMENT BASIS (A NON-GAAP MEASURE)(1)
--------------------------------------------------------------------------------
(GRAPH)
(1) Derived from U.S. GAAP reported results and adjusted to management basis as
further described on page 3. For further information, see Credit Quality
discussion in HSBC Finance Corporation's 2005 Annual Report on Form 10-K.
(2) Fourth quarter 2004 charge-offs and RAR exclude the impact of initial FFIEC
implementation.
(3) Excluding the estimated impacts of Katrina and bankruptcy legislation
change, fourth quarter 2005 RAR was 6.5% and charge-offs were 2.9%.
(4) Excludes mark-to-market on derivatives which do not qualify as effective
hedges and ineffectiveness associated with qualifying hedges under SFAS No.
133.
(HSBC FOOTER)
8
HSBC FINANCE CORPORATION
IFRS MANAGEMENT BASIS (A NON-GAAP MEASURE)
--------------------------------------------------------------------------------
CUSTOMER LOANS
DEC 05
INCREASE/(DECREASE)
--------------------
%
--------------------
DEC 05 JUNE 05 DEC 04 JUNE 05 DEC 04
----------------------------------------------------------------------------------------------------
(MILLIONS $)
Branch Real Estate........................... $ 41,341 $ 39,081 $ 36,211 6% 14%
Correspondent Real Estate.................... 46,020 38,049 33,804 21 36
-------- -------- -------- --- ---
Real Estate Secured........................ 87,361 77,130 70,015 13 25
MasterCard/Visa.............................. 25,819 22,192 22,225 16 16
Private Label................................ 19,656 18,014 18,981 9 4
Auto Finance................................. 11,911 10,838 10,237 10 16
Personal Non-credit Card..................... 20,745 19,756 19,641 5 6
Commercial and Other......................... 33 72 127 (54) (74)
-------- -------- -------- --- ---
Total Customer Loans(1).................... $165,525 $148,002 $141,226 12% 17%
======== ======== ======== === ===
---------------
(1) Excluding the Metris acquisition of $5,326 million and the UK card sale of
$(3,142) million, total customer loan growth from June 2005 and December
2004 was 10% and 16%, respectively.
(HSBC FOOTER)
9
HSBC FINANCE CORPORATION
2005 BUSINESS UNIT HIGHLIGHTS
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RETAIL BRANCH CHANNEL CORRESPONDENT/
(HFC/ BENEFICIAL) WHOLESALE CHANNEL
- Continued strong loan growth - Continued strong real estate secured
volumes
- Real estate secured products up
14% year-over-year - Portfolio up 36% year-over-year
( ) Includes both near-prime and - Broadened distribution channels through
subprime segments diversifying flow originators
( ) Junior liens a good source of growth - Expanded junior lien production
- Unsecured loan growth driven by - Credit quality remains stable
successful direct mail campaigns
( ) Good success in selling real estate
secured loans to this growing base
of new customers
- Cross sell volume continues to expand
- Auto loans and credit card sales in
branches contribute to growth
- Credit quality remains stable
- Improving returns reflect pricing changes;
tailoring pricing to better align with
credit performance
(HSBC FOOTER)
10
HSBC FINANCE CORPORATION 2005 BUSINESS UNIT HIGHLIGHTS
--------------------------------------------------------------------------------
CREDIT CARD
- Strong profits, solid organic loan and good operating income growth
- Expanded net interest margin by growing non-prime book and repricing efforts
- Strong growth in fee and other operating income due to growing portfolio and
higher interchange fees
- Underlying credit quality strong, absent bankruptcy legislation impact
- Strong risk adjusted revenue contributed to higher ROMA
- Acquired Metris with $5.3 billion of customer loans
- Now ranked the fifth largest U.S. MasterCard/ Visa issuer (based on
receivables), according to The Nilson Report
- Impact of change in minimum payment guidelines being assessed
PRIVATE LABEL
- Growing commercial card capability including OfficeMax and Advanced Auto Parts
- Continued strong merchant renewals; nine new retail merchants signed including
The Neiman Marcus Group, Inc. and The Bon-Ton Stores, Inc.
- Overall credit quality strong based on continued improvements in front-end
underwriting tools and collections management
- Impact of change in minimum payment guidelines being assessed
(HSBC FOOTER)
11
HSBC FINANCE CORPORATION 2005 BUSINESS UNIT HIGHLIGHTS
--------------------------------------------------------------------------------
AUTO
- Strong organic growth, primarily in the near-prime portfolio
- Receivable mix shift toward near-prime producing lower charge-offs and better
risk adjusted revenues
- Expanded distribution through direct to consumer, dealer and strategic
alliance channels
- Improved collections and active portfolio management
INTERNATIONAL
CANADA
- Strong loan growth and strong profitability
- Branch expansion contributed to strong growth in unsecured and real estate
secured products
- Growth initiatives in auto and credit card contributed favorably to results
- Acquired Invis, one of Canada's largest mortgage brokers
- Supplements growth of newly established centralized mortgage operation
- Credit quality stable
UK
- Credit card business sold to HSBC Bank plc as part of integration and
efficiency efforts
- Focus remains on credit and loss mitigation in a continued challenging
environment
(HSBC FOOTER)
12
--------------------------------------------------------------------------------
APPENDIX
(HSBC FOOTER)
RECONCILIATION TO GAAP FINANCIAL MEASURES
HSBC FINANCE CORPORATION INCOME STATEMENT
IFRS MANAGEMENT BASIS
SIX MONTHS ENDED 12/31/05 SIX MONTHS ENDED 6/30/05
--------------------------------- ---------------------------------
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................ $4,461 $1,189 $5,650 $3,923 $1,239 $5,162
Other operating income............. 2,245 (477) 1,768 2,586 (496) 2,090
------ ------ ------ ------ ------ ------
TOTAL OPERATING INCOME............. 6,706 712 7,418 6,509 743 7,252
------ ------ ------ ------ ------ ------
Loan impairment charges............ 2,491 389 2,880 1,872 449 2,321
Loan impairment charges, Katrina
related........................... 180 22 202 - - -
Operating expenses................. 3,025 (327) 2,698 2,984 (357) 2,627
------ ------ ------ ------ ------ ------
Profit before tax.................. 1,010 628 1,638 1,653 651 2,304
Tax expense........................ 336 57 393 555 215 770
------ ------ ------ ------ ------ ------
PROFIT FOR THE PERIOD.............. $ 674 $ 571 $1,245 $1,098 $ 436 $1,534
====== ====== ====== ====== ====== ======
Adjustments, net of tax expense:
Katrina impact..................... - 139 139 - - -
Gain on sale of private label
receivables....................... - - - - - -
Gain on sale of U.K. loans......... - (176) (176) - - -
FFIEC implementation charge........ - - - - - -
------ ------ ------ ------ ------ ------
ADJUSTED PROFIT FOR THE PERIOD..... $ 674 $ 534 $1,208 $1,098 $ 436 $1,534
====== ====== ====== ====== ====== ======
COST EFFICIENCY RATIO:
Total operating expenses........... $3,025 $ (327) $2,698 $2,984 $ (357) $2,627
Policyholders' benefits............ (218) 218 - (238) 238 -
------ ------ ------ ------ ------ ------
Total operating expenses, excluding
policyholders' benefits........... $2,807 $ (109) $2,698 $2,746 $ (119) $2,627
------ ------ ------ ------ ------ ------
Net interest income and other
operating income.................. $6,706 $ 712 $7,418 $6,509 $ 743 $7,252
Policyholders' benefits............ (218) 218 - (238) 238 -
------ ------ ------ ------ ------ ------
Net interest income and other
operating income, excluding
policyholders' benefits........... $6,488 $ 930 $7,418 $6,271 $ 981 $7,252
------ ------ ------ ------ ------ ------
COST EFFICIENCY RATIO.............. 43.3% 36.4% 43.8% 36.2%
====== ====== ====== ======
ADJUSTED PROFIT FOR THE PERIOD
GROWTH:
Profit for the period............. $ 674 $ 534 $1,208 $1,098 $ 436 $1,534
IFRS management basis profit for
the period growth:
12/31/05 compared to 12/31/04..... 13%
======
SIX MONTHS ENDED 12/31/04
---------------------------------
IAS LITE
MANAGEMENT IAS LITE
OWNED BASIS MANAGEMENT
BASIS ADJUSTMENTS BASIS
----------------------------------- ---------------------------------
(DOLLARS ARE IN MILLIONS)
Net interest income................ $4,052 $1,561 $5,613
Other operating income............. 2,798 (1,420) 1,378
------ ------ ------
TOTAL OPERATING INCOME............. 6,850 141 6,991
------ ------ ------
Loan impairment charges............ 2,409 438 2,847
Loan impairment charges, Katrina
related........................... - - -
Operating expenses................. 2,870 (211) 2,659
------ ------ ------
Profit before tax.................. 1,571 (86) 1,485
Tax expense........................ 534 (19) 515
------ ------ ------
PROFIT FOR THE PERIOD.............. $1,037 $ (67) $ 970
====== ====== ======
Adjustments, net of tax expense:
Katrina impact..................... - - -
Gain on sale of private label
receivables....................... (423) 423 -
Gain on sale of U.K. loans......... - - -
FFIEC implementation charge........ 121 (23) 98
------ ------ ------
ADJUSTED PROFIT FOR THE PERIOD..... $ 735 $ 333 $1,068
====== ====== ======
COST EFFICIENCY RATIO:
Total operating expenses........... $2,870 $ (211) $2,659
Policyholders' benefits............ (206) 206 -
------ ------ ------
Total operating expenses, excluding
policyholders' benefits........... $2,664 $ (5) $2,659
------ ------ ------
Net interest income and other
operating income.................. $6,850 $ 141 $6,991
Policyholders' benefits............ (206) 206 -
------ ------ ------
Net interest income and other
operating income, excluding
policyholders' benefits........... $6,644 $ 347 $6,991
------ ------ ------
COST EFFICIENCY RATIO.............. 40.1% 38.0%
====== ======
ADJUSTED PROFIT FOR THE PERIOD
GROWTH:
Profit for the period............. $ 735 $ 333 $1,068
IFRS management basis profit for
the period growth:
12/31/05 compared to 12/31/04.....
(HSBC FOOTER)
1
RECONCILIATION TO GAAP FINANCIAL MEASURES
HSBC FINANCE CORPORATION INCOME STATEMENT
IFRS MANAGEMENT BASIS
TWELVE MONTHS ENDED 12/31/05 Twelve Months Ended 12/31/04
---------------------------------- ----------------------------------
IFRS IAS Lite
MANAGEMENT IFRS MANAGEMENT IAS LITE
OWNED BASIS MANAGEMENT OWNED BASIS MANAGEMENT
BASIS ADJUSTMENTS BASIS BASIS ADJUSTMENTS BASIS
-----------------------------------------------------------------------------------------------------------------
(DOLLARS ARE IN MILLIONS)
Net interest income..................... $ 8,384 $2,428 $10,812 $ 7,802 $ 3,454 $11,256
Other operating income.................. 4,831 (973) 3,858 5,073 (2,286) 2,787
------- ------ ------- ------- ------- -------
TOTAL OPERATING INCOME.................. 13,215 1,455 14,670 12,875 1,168 14,043
------- ------ ------- ------- ------- -------
Loan impairment charges................. 4,363 838 5,201 4,334 1,011 5,345
Loan impairment charges, Katrina
related............................... 180 22 202 - - -
Operating expenses...................... 6,009 (684) 5,325 5,601 (514) 5,087
------- ------ ------- ------- ------- -------
Profit before tax....................... 2,663 1,279 3,942 2,940 671 3,611
Tax expense............................. 891 272 1,163 1,000 204 1,204
------- ------ ------- ------- ------- -------
PROFIT FOR THE PERIOD................... $ 1,772 $1,007 $ 2,779 $ 1,940 $ 467 $ 2,407
======= ====== ======= ======= ======= =======
Adjustments, net of tax expense:
Katrina impact.......................... - 139 139 - - -
Gain on sale of private label
receivables........................... - - - (423) 423 -
Gain on sale of U.K. loans.............. - (176) (176) - - -
FFIEC implementation charge............. - - - 121 (23) 98
------- ------ ------- ------- ------- -------
ADJUSTED PROFIT FOR THE PERIOD.......... $ 1,772 $ 970 $ 2,742 $ 1,638 $ 867 $ 2,505
======= ====== ======= ======= ======= =======
COST EFFICIENCY RATIO:
Total operating expenses................ $ 6,009 $ (684) $ 5,325 $ 5,601 $ (514) $ 5,087
Policyholders' benefits................. (456) 456 - (412) 412 -
------- ------ ------- ------- ------- -------
Total operating expenses, excluding
policyholders' benefits............... $ 5,553 $ (228) $ 5,325 $ 5,189 $ (102) $ 5,087
------- ------ ------- ------- ------- -------
Net interest income and other operating
income................................ $13,215 $1,455 $14,670 $12,875 $ 1,168 $14,043
Policyholders' benefits................. (456) 456 - (412) 412 -
------- ------ ------- ------- ------- -------
Net interest income and other operating
income, excluding policyholders'
benefits.............................. $12,759 $1,911 $14,670 $12,463 $ 1,580 $14,043
------- ------ ------- ------- ------- -------
COST EFFICIENCY RATIO................... 43.5% 36.3% 41.6% 36.2%
======= ======= ======= =======
ADJUSTED PROFIT FOR THE PERIOD GROWTH:
Profit for the period................. $ 1,772 $ 970 $ 2,742 $ 1,638 $ 867 $ 2,505
IFRS management basis profit for the
period growth:...................... 9%
=======
(HSBC FOOTER)
2
RECONCILIATION TO GAAP FINANCIAL MEASURES
HSBC FINANCE CORPORATION
MANAGEMENT BASIS
THREE MONTHS ENDED
-------------------------------------
DECEMBER 31, 2005 DECEMBER 31, 2004
---------------------------------------------------------------------------------------------------
(DOLLARS ARE IN MILLIONS)
NET INTEREST INCOME:
Net interest income:
Owned basis............................................... $ 2,298 $ 2,083
Management basis adjustments.............................. 473 524
-------- --------
Management basis.......................................... $ 2,771 $ 2,607
-------- --------
Adoption of FFIEC charge-off policies for domestic private
label and MasterCard and Visa portfolios.................. - 57
-------- --------
Management basis net interest income adjusted for FFIEC..... $ 2,771 $ 2,664
-------- --------
Average interest-earning assets:
Owned basis............................................... $138,788 $116,778
Managed basis adjustments................................. 5,757 18,602
Management basis adjustments.............................. 21,063 5,386
-------- --------
Management basis.......................................... $165,608 $140,766
-------- --------
Owned basis net interest margin............................. 6.6% 7.1%
Management basis net interest margin........................ 6.7 7.4
Management basis net interest margin adjusted for FFIEC..... 6.7 7.6
======== ========
RETURN ON AVERAGE ASSETS:
Profit for the period:
Owned basis............................................... $ 393 $ 712
Management basis adjustments.............................. 53 (394)
-------- --------
Management basis.......................................... $ 446 $ 318
-------- --------
Adjusted profit for the period:
Owned basis............................................... $ 393 $ 712
Management basis adjustments.............................. 53 (394)
Derivative adjustments.................................... 25 (148)
FFIEC implementation charge............................... - 121
-------- --------
Management basis adjusted for derivatives and FFIEC....... $ 471 $ 291
-------- --------
Katrina and bankruptcy legislation change................. 87 -
-------- --------
Management basis adjusted for derivatives, FFIEC, Katrina
and bankruptcy legislation change....................... $ 558 $ 291
-------- --------
Average assets:
Owned basis............................................... $150,644 $134,316
Management basis adjustments.............................. 26,741 23,896
-------- --------
Management basis.......................................... $177,385 $158,212
-------- --------
Return on average owned assets.............................. 1.0% 2.1%
Return on average management assets......................... 1.0 .8
Return on average management assets, adjusted for
derivatives and FFIEC..................................... 1.1 .7
Return on average management assets, adjusted for
derivatives, FFIEC, Katrina and bankruptcy legislation
change.................................................... 1.3 .7
======== ========
(HSBC FOOTER)
3
RECONCILIATION TO GAAP FINANCIAL MEASURES
HSBC FINANCE CORPORATION
MANAGEMENT BASIS
THREE MONTHS ENDED
-------------------------------------
DECEMBER 31, 2005 DECEMBER 31, 2004
---------------------------------------------------------------------------------------------------
(DOLLARS ARE IN MILLIONS)
MANAGED BASIS RISK ADJUSTED REVENUE:
Net interest income......................................... $ 2,431 $ 2,551
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...................... 1,193 1,786
Less: Net charge-offs....................................... (1,163) (1,502)
-------- --------
Risk adjusted revenue....................................... $ 2,461 $ 2,835
-------- --------
Gain on bulk sale of private label receivables.............. - (663)
Adoption of FFIEC charge-off policies for domestic private
label and MasterCard and Visa portfolios.................. - 309
-------- --------
Managed basis risk adjusted revenue - adjusted for
non-recurring items....................................... $ 2,461 $ 2,481
-------- --------
Management basis adjustments:
Net interest income......................................... $ 340 $ 56
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...................... (86) (899)
Less: Net charge-offs....................................... (179) (5)
-------- --------
Risk adjusted revenue, management basis adjustments......... $ 75 $ (848)
-------- --------
Gain on bulk sale of private label receivables.............. - 663
Katrina and bankruptcy legislation change................... 165 -
-------- --------
Risk adjusted revenue, management basis
adjustments - adjusted for non-recurring items, Katrina
and bankruptcy legislation change......................... $ 240 $ (185)
-------- --------
Management basis:
Net interest income......................................... $ 2,771 $ 2,607
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...................... 1,107 887
Less: Net charge-offs....................................... (1,342) (1,507)
-------- --------
Risk adjusted revenue, management basis..................... $ 2,536 $ 1,987
-------- --------
Adoption of FFIEC charge-off policies for domestic private
label and MasterCard and Visa portfolios.................. - 309
Katrina and bankruptcy legislation change................... 165 -
-------- --------
Management basis risk adjusted revenue - adjusted for
non-recurring items, Katrina and bankruptcy legislation
change.................................................... $ 2,701 $ 2,296
-------- --------
Average interest-earning assets:
Managed basis............................................. $144,545 $135,380
Management basis adjustments.............................. 21,063 5,386
-------- --------
Management basis.......................................... $165,608 $140,766
-------- --------
Managed basis risk adjusted revenue......................... 6.8% 8.4%
Management basis risk adjusted revenue...................... 6.1 5.6
Managed basis risk adjusted revenue - adjusted for
non-recurring items....................................... 6.8 7.3
Management basis risk adjusted revenue - adjusted for
non-recurring items, Katrina and bankruptcy legislation
change.................................................... 6.5 6.5
======== ========
(HSBC FOOTER)
4
RECONCILIATION TO GAAP FINANCIAL MEASURES
HSBC FINANCE CORPORATION
MANAGEMENT BASIS
THREE MONTHS ENDED
-------------------------------------
DECEMBER 31, 2005 DECEMBER 31, 2004
---------------------------------------------------------------------------------------------------
(DOLLARS ARE IN MILLIONS)
CONSUMER NET CHARGE-OFF RATIO:
Consumer net charge-offs:
Owned basis............................................... $ 1,044 $ 1,127
Management basis adjustments.............................. 298 380
-------- --------
Management basis.......................................... $ 1,342 $ 1,507
-------- --------
Adoption of FFIEC charge-off policies for domestic private
label and MasterCard and Visa portfolios.................. - (202)
-------- --------
Management basis consumer net charge-offs - adjusted for
FFIEC..................................................... $ 1,342 $ 1,305
-------- --------
Katrina and bankruptcy legislation change................... (155) -
-------- --------
Management basis consumer net charge-offs - adjusted for
FFIEC, Katrina and bankruptcy legislation change.......... $ 1,187 $ 1,305
-------- --------
Average consumer receivables:
Owned basis............................................... $134,647 $111,691
Management basis adjustments.............................. 26,817 23,993
-------- --------
Management basis.......................................... $161,464 $135,684
-------- --------
Adoption of FFIEC charge-off policies for domestic private
label and MasterCard and Visa portfolios.................. - 53
-------- --------
Management basis average consumer receivables - adjusted for
FFIEC..................................................... $161,464 $135,737
-------- --------
Owned basis consumer net charge-off ratio................... 3.1% 4.0%
Management basis consumer net charge-off ratio.............. 3.3 4.4
Management basis consumer net charge-off ratio - adjusted
for FFIEC................................................. 3.3 3.8
Management basis consumer net charge-off ratio - adjusted
for FFIEC, Katrina and bankruptcy legislation change...... 2.9 3.8
======== ========
TWO-MONTHS-AND-OVER CONTRACTUAL DELINQUENCY RATIO:
Consumer 2+ delinquency:
Owned basis............................................... $ 5,366 $ 4,333
Management basis adjustments.............................. 725 1,246
-------- --------
Management basis.......................................... $ 6,091 $ 5,579
-------- --------
Consumer receivables:
Owned basis............................................... $139,726 $106,564
Management basis adjustments.............................. 25,722 34,777
-------- --------
Management basis.......................................... $165,448 $141,341
-------- --------
Owned basis consumer 2+ delinquency ratio................... 3.8% 4.1%
Management basis consumer 2+ delinquency ratio.............. 3.7 4.0
======== ========
(HSBC FOOTER)
5
RECONCILIATION TO GAAP FINANCIAL MEASURES
HSBC FINANCE CORPORATION
IFRS MANAGEMENT BASIS
AS AT DECEMBER 31, 2005 AS AT JUNE 30, 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 real estate..... $ 41,270 $ 71 $ 41,341 $ 39,091 $ (10) $ 39,081
Correspondent real
estate............... 41,556 4,464 46,020 32,839 5,210 38,049
-------- ------- -------- -------- ------- --------
Real estate
secured............ 82,826 4,535 87,361 71,930 5,200 77,130
MasterCard/Visa(1)..... 24,110 1,709 25,819 17,421 4,771 22,192
Private label.......... 2,520 17,136 19,656 2,905 15,109 18,014
Auto finance........... 10,704 1,207 11,911 8,997 1,841 10,838
Personal non-credit
card................. 19,545 1,200 20,745 17,255 2,501 19,756
Commercial and other... 208 (175) 33 253 (181) 72
-------- ------- -------- -------- ------- --------
TOTAL CUSTOMER LOANS... $139,913 $25,612 $165,525 $118,761 $29,241 $148,002
======== ======= ======== ======== ======= ========
AS AT DECEMBER 31, 2004
-----------------------------------
IAS LITE
MANAGEMENT IAS LITE
OWNED BASIS MANAGEMENT
BASIS ADJUSTMENTS BASIS
----------------------- -----------------------------------
(DOLLARS ARE IN MILLIONS)
CUSTOMER LOANS
Branch real estate..... $ 36,117 $ 94 $ 36,211
Correspondent real
estate............... 28,703 5,101 33,804
-------- ------- --------
Real estate
secured............ 64,820 5,195 70,015
MasterCard/Visa(1)..... 14,635 7,590 22,225
Private label.......... 3,411 15,570 18,981
Auto finance........... 7,544 2,693 10,237
Personal non-credit
card................. 16,128 3,513 19,641
Commercial and other... 317 (190) 127
-------- ------- --------
TOTAL CUSTOMER LOANS... $106,855 $34,371 $141,226
======== ======= ========
---------------
(1) MasterCard is a registered trademark of MasterCard International,
Incorporated and Visa is a registered trademark of VISA USA, Inc.
(HSBC FOOTER)
6
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