Interim Report - 12 of 26

RNS Number : 1192M

HSBC Holdings PLC

12 August 2011

 



Latin America

Our operations in Latin America principally comprise HSBC Bank Brasil S.A.-Banco Múltiplo, HSBC México, S.A., HSBC Bank Argentina S.A. and HSBC Bank (Panama) S.A. In addition to banking services, we operate insurance businesses in Brazil, Mexico, Argentina, Panama and a range of smaller markets.
	Half-year to
	30 Jun		30 Jun		31 Dec
	2011		2010		2010
	US$m		US$m		US$m
Net interest income ......	3,517		3,119		3,192
Net fee income .............	902		855		894
Net trading income .......	589		353		380
Other income ................	675		388		550
Net operating income41 ...................................	5,683		4,715		5,016
Impairment charges42 ....	(820)		(820)		(724)
Net operating income	4,863		3,895		4,292
Total operating expenses ...................................	(3,712)		(3,013)		(3,381)
Operating profit ........	1,151		882		911
Income from associates43	-		1		1
Profit before tax .........	1,151		883		912
Cost efficiency ratio .....	65.3%		63.9%		67.4%
RoRWA44 .....................	2.2%		2.1%		2.0%
Period-end staff numbers	55,618		54,886		56,044
30% increase in profit before tax
13% increase in lending balances since the end of 2010
8% reduction in impairment charges on an underlying basis
For footnotes, see page 81. The commentary on Latin America is on an underlying basis unless stated otherwise.

Economic background

After a very strong 2010, Latin American growth slowed in the first half of 2011 due to a combination of weaker global demand and a downturn in domestic demand following a considerable tightening of monetary conditions in the period. Monetary policy rates rose by 2% in Chile, 1.5% in Brazil and Uruguay, and 1.25% in Colombia and Peru. In Brazil, the annual pace of GDP growth eased to 4.2% in the first quarter of 2011 from 7.5% in the comparable period in 2010.

The slowdown in activity, coupled with some easing in the rate of growth of food prices, helped to moderate inflation in the region, although it remained above the mid-point target of most countries that had adopted explicit inflation targets. Inflationary risks continued in Argentina, Brazil, Chile and Uruguay, where very high employment put upward pressure on wage growth.

Given its close ties to the US, Mexico suffered more immediately from the reduction in the growth of US demand. Some easing in global commodity prices and the strength of the Mexican peso helped restrain inflation and, accordingly, Banco de México left the monetary policy rate unchanged at 4.5% in the period.

Review of performance

Our operations in Latin America reported a profit before tax of US$1.2bn for the first half of 2011, representing an increase of 30% over the same period in 2010. On an underlying basis, pre-tax profits increased by 23% due to increased revenues in CMB and RBWM and lower loan impairment charges, partly offset by higher costs as a result of inflationary pressures, strategic business growth and restructuring costs.

Several strategic measures were implemented, focusing on organic growth and improving efficiency. We increased the number of relationship managers in Brazil, mainly in RBWM and CMB, to leverage on the strong economic environment and, in Mexico, to grow our CMB business. We consolidated the branch network in Mexico, reducing it by 66 during the first half of 2011, and restructured the regional and country support functions, thereby improving the efficiency of the business. To ensure the strategic alignment of our portfolios, we entered into a sale agreement for HSBC Afore (the Mexican pension business) which is expected to be completed in the second half of 2011. Also, in RBWM we continued to reposition our lending portfolio to higher quality customers, achieving a better risk-adjusted return.

Profit/(loss) before tax by country within customer groups and global businesses

	Retail     Banking and Wealth Management16          US$m		Commercial     Banking         US$m	Global     Banking             and     Markets16         US$m			Global       Private     Banking         US$m		Other         US$m		Total         US$m
Half-year to 30 June 2011
Argentina ................................................	49		46		67		-		(8)		154
Brazil .......................................................	136		294		250		7		(50)		637
Mexico ....................................................	169		103		171		2		(142)		303
Panama ...................................................	17		27		26		1		(2)		69
Other .......................................................	(35)		5		29		-		(11)		(12)
	336		475		543		10		(213)		1,151
Half-year to 30 June 2010
Argentina ................................................	39		41		53		-		-		133
Brazil .......................................................	60		160		227		2		29		478
Mexico ....................................................	95		(2)		112		1		18		224
Panama ...................................................	18		26		15		1		-		60
Other .......................................................	(44)		11		27		-		(6)		(12)
	168		236		434		4		41		883
Half-year to 31 December 2010
Argentina ................................................	50		49		52		-		-		151
Brazil .......................................................	91		222		203		4		35		555
Mexico ....................................................	79		26		98		3		(29)		177
Panama ...................................................	30		31		18		1		-		80
Other .......................................................	(56)		(10)		24		(2)		(7)		(51)
	194		318		395		6		(1)		912

For footnote, see page 81.

Net interest income increased by 5% compared with the first half of 2010, driven by higher lending balances in the stronger economic environment. Net interest income in CMB grew by 29%, supported by strong asset growth of 33% with moderate spread compression in the competitive environment. In RBWM, lending grew in personal loans, mortgages, overdrafts and cards in Brazil and, in Argentina, on strong consumer demand. In Mexico, net interest income in RBWM fell by 15% as we continued to shift our portfolio to lower risk, lower yielding assets. This fall was partly offset by strong balance growth in personal and payroll lending.

In Balance Sheet Management, results were affected by higher funding costs, in line with an increase in interest rates, and higher yielding deals maturing.

Fee income fell marginally compared with the first half of 2010. Higher card transaction volumes, current accounts and Payments and Cash Management revenues in Brazil were offset by a decline in the volumes of cards and fewer account services and automated teller machine ('ATM') transactions in Mexico, where increased regulatory charges to non-HSBC customers led to a change in customer behaviour.

Net trading income of US$589m was 56% higher than in the first half of 2010, primarily due to a rise in volumes, mainly in Brazil; the cost of internally funding these assets also increased, but this interest expense is reported under 'Net interest income'. Revenue in Brazil further benefited from a significant growth in sales of GB&M products across customer groups. In Mexico, revenue increased due to a limited number of large derivative transactions.

Net income on financial instruments designated at fair valueincreased by 70% due to growth of a unit-linked product in Brazil, where new money received was invested in assets designated at fair value, and an increase was registered in the value of policyholder assets supporting these contracts. An offsetting increase was recorded in 'Net insurance claims incurred and movement in liabilities to policyholders'.

Gains less losses from financial investments increased by US$17m, mainly due to a gain on the sale of shares in a Mexican listed company.

Other operating income increased by US$168m, primarily due to the gain on sale of buildings including the sale and leaseback of branches in Mexico.

Net earned insurance premiums increased by 24% to US$1.3bn, driven by increased sales in Brazil of both credit-related products and term life insurance, and higher contributions on a unit-linked product which reflected the improved economic environment and an increase in the sales force. Premiums also rose in Argentina, mainly from repricing initiatives in the motor insurance segment. This growth resulted in an increase in Net insurance claims and movement in liabilities to policyholders.

Loan impairment charges and other credit risk provisions declined by 8%, mainly in RBWM, where riskier portfolios of credit cards in Mexico were managed down and collections and underwriting processes were tightened. The decline in loan impairment charges also reflected an improvement in the economic environment. In CMB, loan impairment charges increased by 3%. This increase
occurred mainly in Brazil following a significant expansion in lending since the first half of 2010, and was partly offset by the non-recurrence of individual loan impairment charges booked in the first half of 2010 in the real estate portfolio in Mexico.

Operating expenses increased by 15%, in part due to restructuring costs of US$149m recognised in the first half of 2011 as we took measures to improve the efficiency of our processes in order to lower the future cost base of our operations. This included charges relating to certain regional projects, restructuring regional and country support functions and consolidating the branch network in Mexico. Costs also rose due to inflationary pressures, union-agreed wage increases in Brazil and Argentina, increased front office staffing levels in Brazil and Mexico to support strategic growth and volume-driven transactional taxes in Brazil and Argentina.

Profit/(loss) before tax and balance sheet data - Latin America

	Half-year to 30 June 2011
	Retail      Banking and Wealth Management          US$m		Commercial      Banking          US$m		Global      Banking              and      Markets          US$m		Global        Private      Banking          US$m		Other          US$m		Inter-     segment elimination52         US$m		Total          US$m
Profit/(loss) before tax
Net interest income/ (expense) ........ ........................	2,215		1,096		456		12		(1)		(261)		3,517
Net fee income ... ........................ ........................ ........................	492		292		98		19		1		-		902
Trading income excluding net interest income ........................	29		49		186		2		3		-		269
Net interest income on trading activities .........	1		-		58		-		-		261		320
Net trading income45 .........	30		49		244		2		3		261		589
Net income from financial instruments designated at fair value .....	181		55		-		-		-		-		236
Gains less losses from financial investments ....	-		-		73		-		-		-		73
Dividend income .	5		2		-		-		-		-		7
Net earned insurance premiums ........	961		289		18		-		-		-		1,268
Other operating income ............	118		40		24		1		127		(130)		180
Total operating income...........	4,002		1,823		913		34		130		(130)		6,772
Net insurance claims53 ...........	(821)		(258)		(10)		-		-		-		(1,089)
Net operating income41 ........	3,181		1,565		903		34		130		(130)		5,683
Loan impairment charges and other credit risk provisions	(633)		(180)		(7)		-		-		-		(820)
Net operating income ..........	2,548		1,385		896		34		130		(130)		4,863
Operating expenses .........	(2,212)		(910)		(353)		(24)		(343)		130		(3,712)
Operating profit/(loss) ...	336		475		543		10		(213)		-		1,151
Share of profit in associates and joint ventures ..	-		-		-		-		-		-		-
Profit/(loss) before tax ......	336		475		543		10		(213)		-		1,151
	%		%		%		%		%				%
Share of HSBC's profit before tax .......	2.9		4.1		4.7		0.1		(1.8)		-		10.0
Cost efficiency ratio ................	69.5		58.1		39.1		70.6		263.8		100		65.3
Balance sheet data39
	US$m		US$m		US$m		US$m		US$m				US$m
Loans and advances to customers (net) ........................	22,431		29,036		14,271		64		-				65,802
Total assets ........	40,866		41,136		78,131		1,564		2,926		(1,012)		163,611
Customer accounts ........................	32,619		27,251		29,402		6,837		-				96,109

Profit/(loss) before tax and balance sheet data - Latin America (continued)

	Half-year to 30 June 2010
	Retail       Banking and Wealth Management16          US$m		Commercial        Banking           US$m		Global      Banking              and      Markets16          US$m		Global Private        Banking           US$m		Other           US$m		Inter-       segment elimination52          US$m		Total           US$m
Profit/(loss) before tax
Net interest income .......... ......................	1,978		793		389		10		53		(104)		3,119
Net fee income . ...................... ...................... ......................	492		244		99		14		6		-		855
Trading income/(expense) excluding net interest income ..........	21		38		181		1		(4)		-		237
Net interest income on trading activities .......	-		-		11		-		1		104		116
Net trading income/ (expense)45 ....	21		38		192		1		(3)		104		353
Net income from financial instruments designated at fair value .......	102		28		-		-		-		-		130
Gains less losses from financial investments ...	1		-		52		-		-		-		53
Dividend income ......................	3		1		1		-		-		-		5
Net earned insurance premiums ......	770		171		16		-		-		-		957
Other operating income ..........	17		10		2		1		81		(101)		10
Total operating income...........	3,384		1,285		751		26		137		(101)		5,482
Net insurance claims53 .........	(628)		(129)		(10)		-		-		-		(767)
Net operating income41 .......	2,756		1,156		741		26		137		(101)		4,715
Loan impairment (charges)/ recoveries and other credit risk provisions ......................	(661)		(160)		3		-		(2)		-		(820)
Net operating income ..........	2,095		996		744		26		135		(101)		3,895
Operating expenses ........	(1,928)		(760)		(310)		(22)		(94)		101		(3,013)
Operating profit	167		236		434		4		41		-		882
Share of profit in associates and joint ventures	1		-		-		-		-		-		1
Profit before tax ......................	168		236		434		4		41		-		883
	%		%		%		%		%				%
Share of HSBC's profit before tax ......	1.5		2.2		3.9		-		0.4		-		8.0
Cost efficiency ratio ..............	70.0		65.7		41.8		84.6		68.6		100		63.9
Balance sheet data39
	US$m		US$m		US$m		US$m		US$m				US$m
Loans and advances to customers (net) ..............	19,350		19,434		10,006		39		-				48,829
Total assets .......	34,645		27,307		59,302		1,110		314		(793)		121,885
Customer accounts ........	26,618		20,115		23,158		5,326		-				75,217

	Half-year to 31 December 2010
	Retail       Banking and Wealth Management16          US$m		Commercial        Banking           US$m		Global      Banking              and      Markets16          US$m		Global Private        Banking           US$m		Other           US$m		Inter-       segment elimination52          US$m		Total           US$m
Profit/(loss) before tax
Net interest income .......... ......................	2,001		878		383		10		68		(148)		3,192
Net fee income/(expense) ................. ...................... ...................... ......................	514		282		92		18		(12)		-		894
Trading income/(expense) excluding net interest income ..........	14		34		189		2		(23)		-		216
Net interest income/(expense) on trading activities .......	-		-		17		-		(1)		148		164
Net trading income/ (expense)45 ....	14		34		206		2		(24)		148		380
Net income from financial instruments designated at fair value ...	237		57		1		-		-		-		295
Gains less losses from financial investments ...	5		2		41		-		(3)		-		45
Dividend income ......................	4		1		2		-		-		-		7
Net earned insurance premiums ......	881		203		13		-		-		-		1,097
Other operating income ..........	81		24		13		1		140		(128)		131
Total operating income ..........	3,737		1,481		751		31		169		(128)		6,041
Net insurance claims53 .........	(851)		(168)		(6)		-		-		-		(1,025)
Net operating income41 .......	2,886		1,313		745		31		169		(128)		5,016
Loan impairment (charges)/ recoveries and other credit risk provisions .....	(586)		(133)		(7)		-		2		-		(724)
Net operating income...........	2,300		1,180		738		31		171		(128)		4,292
Operating expenses ........	(2,106)		(863)		(343)		(25)		(172)		128		(3,381)
Operating profit/(loss) ...	194		317		395		6		(1)		-		911
Share of profit in associates and joint ventures	-		1		-		-		-		-		1
Profit/(loss) before tax ......	194		318		395		6		(1)		-		912
	%		%		%		%		%				%
Share of HSBC's profit before tax ......	2.5		4.0		5.0		-		-				11.5
Cost efficiency ratio ..............	73.0		65.7		46.0		80.6		101.8				67.4
Balance sheet data39
	US$m		US$m		US$m		US$m		US$m				US$m
Loans and advances to customers (net) ..............	20,823		24,879		12,242		43		-				57,987
Total assets .......	38,819		35,619		64,635		1,608		196		(939)		139,938
Customer accounts ........	30,149		24,514		27,810		6,053		-				88,526

For footnotes, see page 81.

 

END

 

 

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