|
Page |
Summary .......................................................... |
85 |
Europe .............................................................. |
87 |
Hong Kong ...................................................... |
98 |
Rest of Asia-Pacific ........................................ |
106 |
Middle East ..................................................... |
117 |
North America ................................................. |
125 |
Latin America .................................................. |
136 |
Additional information on results in 2009 may be found in the 'Financial Summary' on pages 23 to 60.
Summary
HSBC's principal banking operations in Europe are HSBC Bank plc ('HSBC Bank') in the UK, HSBC France, HSBC Bank A.S. in Turkey, HSBC Bank Malta p.l.c., HSBC Private Bank (Suisse) S.A. ('HSBC Private Bank (Suisse)') and HSBC Trinkaus & Burkhardt AG. Through these operations HSBC provides a wide range of banking, treasury and financial services to personal, commercial and corporate customers across Europe.
HSBC's principal banking subsidiaries in Hong Kong are The Hongkong and Shanghai Banking Corporation Limited ('The Hongkong and Shanghai Banking Corporation') and Hang Seng Bank Limited ('Hang Seng Bank'). The former is the largest bank incorporated in Hong Kong and is HSBC's flagship bank in the Asia-Pacific region. It is one of Hong Kong's three note-issuing banks, accounting for more than 67.2 per cent by value of banknotes in circulation in 2008.
HSBC offers personal, commercial, global banking and markets services in mainland China, mainly through its local subsidiary, HSBC Bank (China) Company Limited ('HSBC Bank China'). HSBC also participates indirectly in mainland China through its four associates, Bank of Communications (19.01 per cent owned), Ping An Insurance (16.78 per cent), Industrial Bank (12.78 per cent) and Yantai City Commercial Bank (20 per cent) and has a further interest of 8 per cent in Bank of Shanghai.
Outside Hong Kong and mainland China, HSBC conducts business in 20 countries in the Asia-Pacific region, primarily through branches and subsidiaries of The Hongkong and Shanghai Banking Corporation, with particularly strong coverage in Australia, India, Indonesia, Malaysia, South Korea, Singapore and Taiwan. HSBC's presence in Australia is led by HSBC Bank Australia Limited and in Malaysia by HSBC Bank Malaysia Berhad ('HSBC Bank Malaysia'), which has the largest foreign bank-owned branch network in the country.
In the Middle East, the network of branches of HSBC Bank Middle East Limited ('HSBC Bank Middle East'), together with HSBC's subsidiaries and associates, gives it the widest coverage in the region. HSBC's associate in Saudi Arabia, The Saudi British Bank (40 per cent owned), is the Kingdom's fifth largest bank by total assets.
HSBC's North American businesses are located in the US, Canada and Bermuda. Operations in the US are primarily conducted through HSBC Bank USA, N.A. ('HSBC Bank USA') which is concentrated in New York State, and HSBC Finance, a national consumer finance company based in the Chicago metropolitan area. HSBC Markets (USA) Inc. is the intermediate holding company of, inter alia, HSBC Securities (USA) Inc., a registered broker and dealer of securities and a registered futures commission merchant. HSBC Bank Canada and The Bank of Bermuda Limited ('Bank of Bermuda') operate in their respective countries.
HSBC's operations in Latin America principally comprise HSBC México, S.A. ('HSBC Mexico'), HSBC Bank Brasil S.A.-Banco Múltiplo ('HSBC Bank Brazil'), HSBC Bank Argentina S.A. ('HSBC Bank Argentina') and HSBC Bank (Panama) S.A. ('HSBC Bank Panama'), which owns subsidiaries in Costa Rica, Honduras, Colombia and El Salvador. HSBC is also represented by subsidiaries in Chile, the Bahamas, Peru, Paraguay and Uruguay. In addition to banking services, HSBC operates insurance businesses in Mexico, Argentina, Brazil, Panama, Honduras and El Salvador. In Brazil, HSBC offers consumer finance products through its subsidiary, Losango Promoções e Vendas Ltda.
In the analysis of profit by geographical regions that follows, operating income and operating expenses
include intra‑HSBC items of US$2,756 million (2008: US$2,492 million; 2007: US$1,985 million).
|
2009 |
|
2008 |
|
2007 |
||||||
|
US$m |
|
% |
|
US$m |
|
% |
|
US$m |
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
Europe .............................................. |
4,009 |
|
56.7 |
|
10,869 |
|
116.7 |
|
8,595 |
|
35.5 |
Hong Kong ........................................ |
5,029 |
|
71.0 |
|
5,461 |
|
58.7 |
|
7,339 |
|
30.3 |
Rest of Asia-Pacific27 ........................ |
4,200 |
|
59.3 |
|
4,722 |
|
50.7 |
|
4,702 |
|
19.4 |
Middle East27 ..................................... |
455 |
|
6.4 |
|
1,746 |
|
18.8 |
|
1,307 |
|
5.4 |
North America .................................. |
(7,738) |
|
(109.3) |
|
(15,528) |
|
(166.8) |
|
91 |
|
0.4 |
Latin America ................................... |
1,124 |
|
15.9 |
|
2,037 |
|
21.9 |
|
2,178 |
|
9.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
7,079 |
|
100.0 |
|
9,307 |
|
100.0 |
|
24,212 |
|
100.0 |
|
At 31 December |
||||||
|
2009 |
|
2008 |
||||
|
US$m |
|
% |
|
US$m |
|
% |
|
|
|
|
|
|
|
|
Europe ............................................................................................. |
1,268,600 |
|
53.7 |
|
1,392,049 |
|
55.1 |
Hong Kong ...................................................................................... |
399,243 |
|
16.9 |
|
414,484 |
|
16.4 |
Rest of Asia-Pacific27 ....................................................................... |
222,139 |
|
9.4 |
|
225,573 |
|
8.9 |
Middle East27 ................................................................................... |
48,107 |
|
2.0 |
|
50,952 |
|
2.0 |
North America ................................................................................. |
475,014 |
|
20.1 |
|
596,302 |
|
23.6 |
Latin America .................................................................................. |
115,967 |
|
4.9 |
|
102,946 |
|
4.1 |
Intra-HSBC items ............................................................................. |
(164,618) |
|
(7.0) |
|
(254,841) |
|
(10.1) |
|
|
|
|
|
|
|
|
|
2,364,452 |
|
100.0 |
|
2,527,465 |
|
100.0 |
For footnotes, see page 149.
|
Personal |
|
Commercial Banking US$m |
|
Global US$m |
|
Private |
|
Other |
|
Total |
2009 |
|
|
|
|
|
|
|
|
|
|
|
UK ............................................................ |
364 |
|
1,026 |
|
3,045 |
|
252 |
|
(2,561) |
|
2,126 |
France51 .. |
54 |
|
102 |
|
894 |
|
3 |
|
(429) |
|
624 |
Germany ................................................... |
- |
|
21 |
|
255 |
|
32 |
|
(18) |
|
290 |
Malta ........................................................ |
33 |
|
58 |
|
9 |
|
- |
|
- |
|
100 |
Switzerland ................................................ |
- |
|
- |
|
5 |
|
448 |
|
(3) |
|
450 |
Turkey ...................................................... |
43 |
|
97 |
|
119 |
|
2 |
|
- |
|
261 |
Other ........................................................ |
(182) |
|
(12) |
|
218 |
|
117 |
|
17 |
|
158 |
|
|
|
|
|
|
|
|
|
|
|
|
|
312 |
|
1,292 |
|
4,545 |
|
854 |
|
(2,994) |
|
4,009 |
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
UK ............................................................ |
1,546 |
|
2,361 |
|
(469) |
|
250 |
|
2,997 |
|
6,685 |
France51 |
139 |
|
176 |
|
273 |
|
10 |
|
2,242 |
|
2,840 |
Germany ................................................... |
- |
|
31 |
|
184 |
|
32 |
|
(22) |
|
225 |
Malta ........................................................ |
59 |
|
67 |
|
16 |
|
- |
|
- |
|
142 |
Switzerland ................................................ |
- |
|
- |
|
- |
|
553 |
|
- |
|
553 |
Turkey ...................................................... |
3 |
|
91 |
|
130 |
|
- |
|
- |
|
224 |
Other ........................................................ |
(89) |
|
(4) |
|
61 |
|
153 |
|
79 |
|
200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
1,658 |
|
2,722 |
|
195 |
|
998 |
|
5,296 |
|
10,869 |
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
UK ............................................................ |
1,221 |
|
2,064 |
|
1,214 |
|
317 |
|
976 |
|
5,792 |
France51 ..... |
173 |
|
192 |
|
692 |
|
25 |
|
(49) |
|
1,033 |
Germany ................................................... |
- |
|
36 |
|
195 |
|
45 |
|
19 |
|
295 |
Malta ........................................................ |
45 |
|
67 |
|
45 |
|
- |
|
- |
|
157 |
Switzerland ................................................ |
- |
|
- |
|
- |
|
475 |
|
- |
|
475 |
Turkey ...................................................... |
144 |
|
75 |
|
118 |
|
(1) |
|
- |
|
336 |
Other ........................................................ |
(2) |
|
82 |
|
263 |
|
54 |
|
110 |
|
507 |
|
|
|
|
|
|
|
|
|
|
|
|
|
1,581 |
|
2,516 |
|
2,527 |
|
915 |
|
1,056 |
|
8,595 |
Loans and advances to customers (net) by country
|
At 31 December |
||||
|
2009 |
|
2008 |
|
2007 |
|
|
|
|
|
|
UK ..................................................................................................... |
329,182 |
|
313,065 |
|
326,927 |
France51 |
71,567 |
|
70,896 |
|
81,473 |
Germany ............................................................................................ |
4,131 |
|
5,756 |
|
6,411 |
Malta ................................................................................................. |
4,649 |
|
4,343 |
|
4,157 |
Switzerland ......................................................................................... |
12,072 |
|
12,708 |
|
13,789 |
Turkey ............................................................................................... |
5,758 |
|
6,125 |
|
7,974 |
Other ................................................................................................. |
12,122 |
|
13,298 |
|
11,544 |
|
|
|
|
|
|
|
439,481 |
|
426,191 |
|
452,275 |
Customer accounts by country
|
At 31 December |
||||
|
2009 |
|
2008 |
|
2007 |
|
|
|
|
|
|
UK ..................................................................................................... |
349,162 |
|
351,253 |
|
367,363 |
France51 .... |
70,899 |
|
74,826 |
|
64,905 |
Germany ............................................................................................ |
8,134 |
|
11,611 |
|
10,282 |
Malta ................................................................................................. |
5,888 |
|
5,604 |
|
5,947 |
Switzerland ......................................................................................... |
45,148 |
|
44,643 |
|
41,015 |
Turkey ............................................................................................... |
5,830 |
|
5,845 |
|
6,473 |
Other ................................................................................................. |
9,958 |
|
8,694 |
|
8,969 |
|
|
|
|
|
|
|
495,019 |
|
502,476 |
|
504,954 |
For footnote, see page 149.
|
2009 |
|
2008 |
|
2007 |
Europe |
US$m |
|
US$m |
|
US$m |
|
|
|
|
|
|
Net interest income ............................................................................ |
12,268 |
|
9,696 |
|
7,746 |
|
|
|
|
|
|
Net fee income ................................................................................... |
6,267 |
|
7,492 |
|
8,431 |
|
|
|
|
|
|
Net trading income ............................................................................. |
5,459 |
|
5,357 |
|
6,943 |
|
|
|
|
|
|
Changes in fair value of long-term debt issued and related derivatives . |
(2,746) |
|
2,939 |
|
1,059 |
Net income/(expense) from other financial instruments designated |
1,321 |
|
(1,826) |
|
167 |
Net income/(expense) from financial instruments designated at fair value ....................................................................................................... |
(1,425) |
|
1,113 |
|
1,226 |
|
|
|
|
|
|
Gains less losses from financial investments ....................................... |
50 |
|
418 |
|
1,326 |
Dividend income ................................................................................ |
29 |
|
130 |
|
171 |
Net earned insurance premiums .......................................................... |
4,223 |
|
5,299 |
|
4,010 |
Gains on disposal of French regional banks ......................................... |
- |
|
2,445 |
|
- |
Other operating income ..................................................................... |
2,262 |
|
2,096 |
|
1,193 |
|
|
|
|
|
|
Total operating income .................................................................. |
29,133 |
|
34,046 |
|
31,046 |
|
|
|
|
|
|
Net insurance claims incurred and movement in liabilities |
(5,589) |
|
(3,367) |
|
(3,479) |
|
|
|
|
|
|
Net operating income before loan impairment charges and other |
23,544 |
|
30,679 |
|
27,567 |
|
|
|
|
|
|
Loan impairment charges and other credit risk provisions .................. |
(5,568) |
|
(3,754) |
|
(2,542) |
|
|
|
|
|
|
Net operating income ..................................................................... |
17,976 |
|
26,925 |
|
25,025 |
|
|
|
|
|
|
Total operating expenses ................................................................... |
(13,988) |
|
(16,072) |
|
(16,525) |
|
|
|
|
|
|
Operating profit .............................................................................. |
3,988 |
|
10,853 |
|
8,500 |
|
|
|
|
|
|
Share of profit in associates and joint ventures ................................... |
21 |
|
16 |
|
95 |
|
|
|
|
|
|
Profit before tax .............................................................................. |
4,009 |
|
10,869 |
|
8,595 |
|
|
|
|
|
|
|
% |
|
% |
|
% |
|
|
|
|
|
|
Share of HSBC's profit before tax ...................................................... |
56.7 |
|
116.7 |
|
35.5 |
Cost efficiency ratio ........................................................................... |
59.4 |
|
52.4 |
|
59.9 |
|
|
|
|
|
|
Year-end staff numbers (full-time equivalent) ..................................... |
76,703 |
|
82,093 |
|
82,166 |
|
|
|
|
|
|
Balance sheet data41 |
|
|
|
|
|
|
At 31 December |
||||
|
2009 |
|
2008 |
|
2007 |
|
US$m |
|
US$m |
|
US$m |
|
|
|
|
|
|
Loans and advances to customers (net) ............................................... |
439,481 |
|
426,191 |
|
452,275 |
Loans and advances to banks (net) ..................................................... |
65,521 |
|
61,949 |
|
104,527 |
Trading assets, financial assets designated at fair value and
|
450,727 |
|
433,885 |
|
445,258 |
Total assets ........................................................................................ |
1,268,600 |
|
1,392,049 |
|
1,256,220 |
Deposits by banks ............................................................................... |
89,893 |
|
80,847 |
|
87,491 |
Customer accounts ............................................................................. |
495,019 |
|
502,476 |
|
504,954 |
For footnotes, see page 149.
All commentaries on Europe are on an underlying basis unless stated otherwise.
2009 compared with 2008
Economic briefing
The UK economy suffered a sharp contraction during the course of 2009, although evidence from the final months of the year suggested that some growth had resumed. Gross Domestic Product ('GDP') fell by 5 per cent in 2009 - the sharpest contraction in over 60 years - after a 0.5 per cent increase in 2008. Weakness affected most sectors of the economy, and the unemployment rate hit a 13‑year high of 7.9 per cent in July 2009, although some stabilisation of labour market conditions was apparent towards the end of the year. Consumer Price Index ('CPI') inflation reached a five-year low of 1.1 per cent in September 2009 before moving towards the Bank of England's 2 per cent target by the end of the year. Nominal house prices appreciated modestly during the second half of 2009, although indicators of housing market activity remained at relatively weak levels. After reducing interest rates to just 0.5 per cent in March 2009, the Bank of England launched the Asset Purchase Facility in an attempt to improve the circulation of credit throughout the economy and support expectations of future economic activity.
The eurozone economy also performed poorly during 2009, with GDP falling by 4 per cent following a 0.5 per cent expansion in 2008. Much of this weakness was concentrated in the early months of 2009 and growth resumed in the third quarter, helped by a variety of fiscal stimulus programmes and a rebuilding of inventory levels. Consumer spending proved relatively resilient in early 2009, boosted by a number of purchase incentive schemes, and some weakness was observed as these programmes expired. Unemployment rose to an 11‑year high of 10 per cent in December 2009, while CPI temporarily turned negative during the third quarter of the year. The European Central Bank cut interest rates by 150 basis points to finish the year at 1 per cent.
Reconciliation of reported and underlying profit before tax
|
2009 compared with 2008 |
||||||||||||||||
Europe |
2008 |
2008 ments10 US$m |
|
Currency translation11 US$m |
|
2008 at 2009 exchange rates12 US$m |
2009 ments10 US$m |
|
Under- lying change US$m |
|
2009 |
Re- ported change13 % |
Under- lying change13 % |
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income ...... |
9,696 |
|
(65) |
|
(1,049) |
|
8,582 |
|
- |
|
3,686 |
|
12,268 |
|
27 |
|
43 |
Net fee income ...... |
7,492 |
|
(58) |
|
(917) |
|
6,517 |
|
- |
|
(250) |
|
6,267 |
|
(16) |
|
(4) |
Changes in fair value14 ...... |
3,118 |
|
(3,118) |
|
- |
|
- |
|
(2,841) |
|
- |
|
(2,841) |
|
(191) |
|
|
Gains on disposal of French regional banks ........ |
2,445 |
|
(2,445) |
|
- |
|
- |
|
- |
|
- |
|
- |
|
(100) |
|
|
Other income15 ... |
7,928 |
|
(609) |
|
(1,206) |
|
6,113 |
|
280 |
|
1,457 |
|
7,850 |
|
(1) |
|
24 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income16 .. |
30,679 |
|
(6,295) |
|
(3,172) |
|
21,212 |
|
(2,561) |
|
4,893 |
|
23,544 |
|
(23) |
|
23 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan impairment charges and other credit risk provisions . |
(3,754) |
|
6 |
|
395 |
|
(3,353) |
|
- |
|
(2,215) |
|
(5,568) |
|
(48) |
|
(66) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income .... |
26,925 |
|
(6,289) |
|
(2,777) |
|
17,859 |
|
(2,561) |
|
2,678 |
|
17,976 |
|
(33) |
|
15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses ... |
(16,072) |
|
68 |
|
1,723 |
|
(14,281) |
|
- |
|
293 |
|
(13,988) |
|
13 |
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit ....... |
10,853 |
|
(6,221) |
|
(1,054) |
|
3,578 |
|
(2,561) |
|
2,971 |
|
3,988 |
|
(63) |
|
83 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from associates |
16 |
|
- |
|
- |
|
16 |
|
- |
|
5 |
|
21 |
|
31 |
|
31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit before tax ............ |
10,869 |
|
(6,221) |
|
(1,054) |
|
3,594 |
|
(2,561) |
|
2,976 |
|
4,009 |
|
(63) |
|
83 |
For footnotes, see page 149.
Review of business performance
HSBC's European operations reported a pre-tax profit of US$4.0 billion, compared with US$10.9 billion in 2008. This decline was largely caused by movement in the fair value attributable to credit spread on the Group's own debt. A US$2.8 billion expense in 2009 following stabilisation in financial markets and a narrowing of credit spreads largely reversed the US$3.1 billion income recognised in 2008, giving a US$5.9 billion year on year movement. Also included within these results was a gain on the sale of the residual stake in the UK card merchant acquiring business to Global Payments Inc. of US$280 million in June 2009. This followed a US$425 million gain realised in 2008 on the sale of the first tranche. Excluding these gains on sale, the profit on disposal of the French regional banks in July 2008 and the reversal of movements in the fair value of own debt, underlying pre-tax profits grew by US$3.0 billion or 83 per cent. This was driven by robust performances in the European Global Banking and Markets businesses, in particular from the non-recurrence of significant credit-related write-downs taken in 2008 and outstanding results in Rates and Balance Sheet Management. Deterioration in the economic environment and higher unemployment levels led to a rise in loan impairment charges in the Personal Financial Services and Commercial Banking businesses. HSBC Bank continued to provide lending services to its customers while maintaining effective credit control and strengthening collection practices and systems.
Net interest income increased by 43 per cent, with Balance Sheet Management revenues in Global Banking and Markets rising robustly. This resulted from the early positioning of the balance sheet in anticipation of decisions by central banks to maintain a low base rate environment. Net interest income also benefited from a reduction in the cost of funding trading activities as interest rates fell. Conversely, the Personal Financial Services and Commercial Banking businesses and payments and cash management were adversely affected by continued margin compression following interest rate reductions in late 2008 and early 2009.
Excluding one-off gains and movements in fair value of own debt, underlying profit grew by US$3.0 billion or 83 per cent.
Mortgage balances increased as HSBC gained market share in the UK through the success of a new Rate Matcher mortgage promotion and other campaigns launched in line with its secured lending growth strategy. In 2009, the UK bank more than met its commitment to make £15 billion (US$24.7 billion) of new mortgage lending available to borrowers. In Commercial Banking, net lending fell compared with 2008 as a result of muted customer demand. Utilisation of committed overdraft facilities provided by HSBC in the UK to commercial customers was only 40 per cent at the end of 2009, illustrating the potential availability of credit when customer demand resumes. Across most businesses, asset balances declined reflecting reduced customer demand for credit, increased debt issuance as the bond markets reopened in 2009 and HSBC's diminished appetite for unsecured lending in Europe. Asset spreads widened, most notably in the UK and Turkey, as funding costs fell in the low interest rate environment and market pricing of corporate lending increased.
Throughout 2009, HSBC worked to retain and build on the personal and commercial banking deposit bases gained in the last quarter of 2008 in the face of fierce competition and the narrowing of spreads across the region following interest rate cuts.
Net fee income fell by 4 per cent. The overall reduction in fees was a consequence of the part-disposal of the UK card merchant acquiring business to a joint venture in 2008 and lower insurance income following the closure of the consumer finance branch network in the UK and reduced sales of discontinued products. In Private Banking, lower equity brokerage commissions and reduced performance and management fees reflected subdued investor sentiment for risk and structured products; this, together with stock market declines, reduced the average value of funds under management during the year.
HSBC generated higher underwriting fees than in 2008 from increased government and corporate debt issuances, and by taking market share in equity capital markets issues as corporates and financial institutions restructured their balance sheets by raising share capital. As part of its wealth management strategy, HSBC continued to grow the Premier customer base and successfully launched the World Selection fund in the UK which raised US$1.5 billion. In France, the Premier customer base grew by over 10 per cent as HSBC brand awareness increased.
Trading incomeincreased by 23 per cent to US$5.5 billion due to strong revenues across core businesses. Rates reported a significant increase in income driven by a growth in market share, higher client trading volumes and wider bid-offer spreads. Similarly, revenue in the Credit trading business also rose as credit prices improved and client activity increased with the return of liquidity to the market. Foreign exchange revenue fell, however, reflecting a combination of reduced customer volumes and relatively low market volatility when compared with the exceptional experience of 2008.
In 2009, the UK bank more than met its commitment to make £15 billion (US$24.7 billion) of new mortgage lending available to borrowers.
Trading income also benefited from significantly lower write-downs on legacy positions in Credit trading, leveraged and acquisition financing and monoline exposures, and from the non-recurrence of a reported US$854 million loss in 2008 following the fraud at Madoff Securities. These benefits were partly offset by losses on structured liabilities as credit spreads narrowed (compared with gains in 2008) and a reduction in net interest income on trading activities. This was due to the decline in interest rates, which also contributed to the reduction in the cost of funding trading activities as reported in 'Net interest income'. The tightening of credit spreads also led to a reduction in the carrying value of credit default swap transactions held as hedges in parts of the Global Banking portfolio. In 2008, gains were reported on these credit default swaps following widening credit spreads.
A net expense of US$1.4 billion was incurred on financial instruments designated at fair value, compared with income in 2008. Gains on the fair value of assets held to meet liabilities under insurance and investment contracts were recognised
as equity markets recovered from declines sustained in 2008. To the extent that these gains were attributed to policyholders holding either insurance contracts or investment contracts with DPF, there was a corresponding increase in net insurance claims incurred and movement in liabilities to policyholders.
Gains less losses from financial investments were US$192 million lower than in 2008 due to the non-recurrence of certain disposals in that year, including MasterCard shares, private equity investments and the remaining stake in the Hermitage Fund.
Net earned insurance premiums decreased by 12 per cent. In the UK demand for the insurance-linked Guaranteed Income Bond fell as HSBC offered more favourable rates on an alternative non‑insurance deposit product, giving rise to a US$1.1 billion decrease in insurance premium income, with a corresponding decrease in 'Net insurance claims incurred and movement in liabilities to policyholders'. Excluding the effect of a significant re-insurance transaction in 2008 which passed insurance premiums to a third-party reinsurer, net premiums in France increased despite a significant reduction in the distribution network following the disposal of the regional banks in July 2008.
Other operating income increased by 45 per cent, mainly due to a US$576 million gain on the sale and leaseback of 8 Canada Square in London which was effected through the disposal of HSBC's entire shareholding in the company which was the legal owner of the building and long leasehold interest in 8 Canada Square. In 2008, HSBC reported a gain of US$416 million representing the equity deposit on a previously negotiated sale of the building which ultimately did not complete. In addition, a change in mortality assumptions in France resulted in increased PVIF of long-term insurance business. The growth in revenue also reflected the non-recurrence of costs associated with the support of money market funds in the global asset management business in 2008. Offsetting this was the non-recurrence of a favourable embedded value adjustment following HSBC's introduction of enhanced benefits to existing pension products in the UK in 2008, and lower gains on the sale and leaseback of branches.
Net insurance claims incurred and movement in liabilities to policyholders increased by US$2.5 billion. The majority of the movement was due to the change in liabilities to policyholders reported above in 'Financial instruments designated at fair value', and the large one-off reinsurance transaction in France in 2008. In addition, an increase of US$310 million in claims reserving was required to reflect a higher incidence and severity of insurance claims in the UK motor underwriting business and a higher incidence of credit protection claims through the reinsurance business in Ireland. Risk mitigation measures implemented in 2009 included the decision to cease originations of UK motor insurance business. This was partly offset by the decrease in liabilities following reduced sales of the personal customer bond product offering noted above.
Utilisation of committed overdraft facilities to commercial customers in the UK only 40 per cent.
Loan impairment charges and other credit risk provisions rose by 66 per cent to US$5.6 billion as the impact of weaker economic conditions across the region fed through to higher delinquency and default. In Global Banking and Markets, loan impairment charges and credit risk provisions increased, with the charges concentrated among a small number of clients in the financial and property sectors. The emergence in the year of cash flow impairment on certain asset-backed debt securities held within the available-for-sale portfolios added US$1.1 billion to the charge. Impairment booked on these exposures reflects mark-to-market losses which HSBC judges to be significantly in excess of the likely ultimate cash losses.
In Commercial Banking, loan impairment charges rose by US$471 million, again reflecting the economic downturn. The commercial property portfolio in the UK declined during 2009, reflecting HSBC's efforts to reduce risk in this sector. In the personal sector, deterioration was most evident in the unsecured portfolios as unemployment rose. As a result of past management action, unsecured lending remained a small proportion of HSBC's personal lending portfolio, with the bulk of the portfolio secured in the form of residential mortgages. Despite some increase in losses in the residential sector, impairment charges as a percentage of total lending in this portfolio remained very low at 0.14 per cent.
Operating expenses were held broadly in line with 2008. Excluding an accounting gain of US$499 million following a change in the basis of delivering death-in-service, ill health and early retirement benefits for some UK employees, operating expenses increased slightly despite efficiency benefits as higher performance-related awards were made to reflect Global Banking and Markets' exceptional revenue and profit growth in selective businesses.
In Personal Financial Services and Commercial Banking businesses, operational cost savings reflected HSBC's leverage of its global technology platforms and processes to reduce costs and improve customer experience, complemented by tight control over discretionary expenditure and a reduction in staff numbers. Payroll savings and lower Financial Services Compensation Scheme costs were partly offset by an increase in rental costs following the sale and leaseback of properties and higher regular defined benefit pension charges. In Europe, full time equivalent staff numbers fell by some 6,000 during the year.
2008 compared with 2007
Economic briefing
In the UK, growth in GDP decelerated markedly in 2008 to 0.7 per cent from 3 per cent in 2007, with a technical recession of two successive quarterly contractions in GDP confirmed during the second half of the year. Weakness proved widespread across most of the economy, prompting a sharp deterioration in labour market conditions as unemployment hit a nine-year high of 6.1 per cent in November 2008. CPI inflation reached a decade-long high of 5.2 per cent in September 2008 before falling back to 3.1 per cent by the year-end, still some way above the Bank of England's 2 per cent target. House prices continued to fall throughout the year and housing activity decreased sharply. The Bank of England reduced interest rates by 350 basis points during 2008, to finish the year at 2 per cent, as policymakers sought to mitigate the worst effects of the economic slowdown.
The expansion of the eurozone economy slowed sharply in 2008, with GDP growth of 0.7 per cent following a 2.6 per cent expansion in 2007. As in the UK, conditions deteriorated markedly as the year progressed and three successive quarterly declines in GDP were recorded during 2008, confirming that the economy had entered a period of recession. Consumer spending growth proved subdued following the sharp rise in oil prices during the first of half of 2008 and a progressive increase in the unemployment rate towards the year-end. Inflation remained a concern for much of 2008, hitting a peak of 4 per cent in July before falling rapidly to 1.6 per cent in December. The European Central Bank, having initially raised interest rates by 25 basis points in July, cut them by 175 basis points to finish the year at 2.5 per cent.
Reconciliation of reported and underlying profit before tax
|
2008 compared with 2007 |
||||||||||||||||
Europe |
2007 |
2007 & dilution gains10 US$m |
|
Currency translation11 US$m |
|
2007 at 2008 exchange rates17 US$m |
2008 ments10 US$m |
|
Under- lying change US$m |
|
2008 |
Re- ported change13 % |
Under- lying change13 % |
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income .......... |
7,746 |
|
(390) |
|
(224) |
|
7,132 |
|
219 |
|
2,345 |
|
9,696 |
|
25 |
|
33 |
Net fee income . |
8,431 |
|
(134) |
|
(244) |
|
8,053 |
|
15 |
|
(576) |
|
7,492 |
|
(11) |
|
(7) |
Changes in fair value14 ........... |
1,294 |
|
(1,294) |
|
- |
|
- |
|
3,118 |
|
- |
|
3,118 |
|
141 |
|
|
Gains on disposal of French regional banks |
- |
|
- |
|
- |
|
- |
|
2,445 |
|
- |
|
2,445 |
|
|
|
|
Other income15 . |
10,096 |
|
(121) |
|
(321) |
|
9,654 |
|
562 |
|
(2,288) |
|
7,928 |
|
(21) |
|
(24) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income16 ....... |
27,567 |
|
(1,939) |
|
(789) |
|
24,839 |
|
6,359 |
|
(519) |
|
30,679 |
|
11 |
|
(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan impairment charges and other credit risk provisions ...................... |
(2,542) |
|
30 |
|
152 |
|
(2,360) |
|
(6) |
|
(1,388) |
|
(3,754) |
|
(48) |
|
(59) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income .......... |
25,025 |
|
(1,909) |
|
(637) |
|
22,479 |
|
6,353 |
|
(1,907) |
|
26,925 |
|
8 |
|
(8) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses ........ |
(16,525) |
|
416 |
|
531 |
|
(15,578) |
|
(88) |
|
(406) |
|
(16,072) |
|
3 |
|
(3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit |
8,500 |
|
(1,493) |
|
(106) |
|
6,901 |
|
6,265 |
|
(2,313) |
|
10,853 |
|
28 |
|
(34) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from associates |
95 |
|
(12) |
|
14 |
|
97 |
|
- |
|
(81) |
|
16 |
|
(83) |
|
(84) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit before tax ...................... |
8,595 |
|
(1,505) |
|
(92) |
|
6,998 |
|
6,265 |
|
(2,394) |
|
10,869 |
|
26 |
|
(34) |
For footnotes, see page 149.
Review of business performance
HSBC's European operations reported a pre-tax profit of US$10.9 billion, compared with US$8.6 billion in 2007, an increase of 26 per cent.
These results included gains of US$2.4 billion on the disposal of seven regional banks in France in July 2008, and of US$425 million on the sale of the card acquiring business in the UK to a joint venture with Global Payments, Inc. in June 2008. Excluding these disposals and, in 2007, the acquisition of HSBC Assurances and the disposal of Hamilton Insurance Company Limited and Hamilton Life Assurance Company Limited and substantial fair value gains on own debt, underlying pre-tax profits fell by 34 per cent. This primarily reflected a sharp decline in Global Banking and Markets' revenues, which was mainly attributable to the deterioration in credit markets, the continuing illiquidity in asset-backed securities markets which led to further write‑downs, and a US$854 million charge within the equities business following the alleged fraud at Madoff Securities. Personal Financial Services and Private Banking delivered underlying growth.
Net interest income increased by 33 per cent. There was significant growth in Balance Sheet Management revenues, which reflected favourable interest rate risk positioning in expectation of interest rate cuts by central banks. Net interest income also benefited from necessarily selective incremental lending as credit availability generally contracted. In Global Banking, net interest income was boosted by improved spreads.
Falling confidence in the UK banking sector necessitated government intervention in a number of competitor banks. HSBC experienced a strong increase in customer numbers, with corresponding growth in liability balances as the market turmoil intensified. The volume benefit was partially offset by narrowing deposit spreads, as base rates were cut in the UK, and increased funding costs, principally for trading activities, in France. Higher net interest income from the expansion of credit card lending and commercial loan portfolio growth in the small and mid-market customer segments in Turkey was partially offset by narrower spreads following credit card interest rate cap reductions by the central bank.
Net fee income fell by 7 per cent, with lower fees from mergers and acquisitions and equity capital markets due to origination and execution difficulties, coupled with a rise in brokerage expenses in line with increased trading activity in France. Lower performance and management fees in the UK and France, as the value of funds under management reduced, reflected the decline in global equity markets. Increased customer acquisition partly offset this, with higher fees derived from growth in packaged accounts and transaction volumes in France and credit card fees in Turkey.
Trading income was 20 per cent lower than in 2007, falling significantly in Global Banking and Markets due to further write-downs on legacy exposures in credit, structured credit derivatives and leveraged and acquisition finance caused by the ongoing turmoil in the credit markets. In addition, a US$854 million charge was taken in equities in respect of the alleged fraud at Madoff Securities. US$11.4 billion and US$2.4 billion of held-for-trading financial assets were reclassified under revised IFRS rules as loans and receivables and available for sale, respectively, preventing any further mark-to-market trading losses on these assets. If these reclassifications had not been made, the profit before tax would have been US$2.6 billion lower.
Excluding the write-downs on legacy exposures and the charge relating to Madoff Securities, trading income grew by 11 per cent, driven by a significant increase in foreign exchange revenues against the backdrop of greater market volatility, and robust revenues in the Rates business, which was positioned to take advantage of falling interest rates. The widening of credit spreads, particularly in the second half of 2008, contributed to fair value gains on structured liabilities and on credit protection bought in the form of credit default swaps.
A rise in the Net expense from financial instruments designated at fair value was recorded as a result of a reduction in the value of assets held to meet liabilities under insurance and investment contracts. The reduction in fair value of assets held to meet liabilities under unit-linked insurance contracts is offset by a corresponding reduction in 'Net insurance claims and liabilities to policyholders'.
Gains less losses from financial investments of US$418 million were US$915 million lower than in 2007 as there were fewer disposal opportunities in 2008 and the significant realisations from equity investments in the UK and France in 2007 did not recur. Gains mainly reflected the sale of MasterCard shares in 2008.
Net earned insurance premiums increased by 22 per cent, largely due to growth in the Guaranteed Income Bond launched in June 2007 and the introduction of enhanced death benefits to certain pension products in the UK. In France, HSBC Assurances performed well in a declining market, as the launch of new guaranteed rate products contributed to 3 per cent growth in gross earned premiums. However, net earned insurance premiums fell following a significant reinsurance transaction undertaken in the first half of 2008.
Other operating income increased by 33 per cent. This was primarily due to recognition of the gain in respect of the purchase of the subsidiary of Metrovacesa which owned the property and long leasehold land comprising 8 Canada Square, London. See Note 23 on the Financial Statements for further details. The growth in revenue also reflected the non-recurrence of a decrease in the value of PVIF business in 2007 following regulatory changes to the rules governing the calculation of insurance liabilities. In addition, there was a favourable embedded value adjustment following HSBC's introduction of enhanced benefits to existing commercial pension products in the first half of 2008. These benefits were partially offset by costs associated with the support of money market funds in the global asset management business.
Net insurance claims incurred and movement in liabilities to policyholders decreased by 5 per cent as a reduction in insurance liabilities reflected the fall in value of market-linked funds. This was partially offset by an increase in liabilities following increased sales of the Guaranteed Income Bond and the implementation of FSA rule changes in 2007 which lowered the liability valuation on life policies.
Loan impairment charges and credit risk provisions rose by 59 per cent to US$3.8 billion; in the UK, primarily in Global Banking and Markets. The deteriorating credit environment resulted in a rise in loan impairment charges, largely reflecting an exposure to a single European property company, and additional credit risk provisions on debt securities held within the Group's available-for-sale portfolio, mainly in Solitaire Funding Limited ('Solitaire'), a special purpose entity managed by HSBC. A modest improvement in the UK personal finance sector reflected the non-recurrence of a change in the methodology in the consumer finance business which resulted in a higher charge in 2007. Excluding this factor, delinquency rates in cards were marginally higher and there was a rise in impairments in the consumer finance business driven by worsening economic conditions and credit quality
deterioration, partly offset by action taken to mitigate risk through the continued application of strict lending criteria and the sale of non-core credit card portfolios.
Credit conditions weakened in the commercial business and specific loan impairment charges increased in the UK and France due to the deteriorating credit environment in the second half of 2008. In Turkey, credit card and personal loan delinquency rates were significantly higher, resulting in the implementation of tighter underwriting criteria, reduced credit limits and revised account management policies throughout 2008.
Operating costs increased by 3 per cent to US$16.1 billion. Costs in the UK were in line with 2007, which included ex-gratia payments expensed in respect of overdraft fees applied in previous years and a provision for reimbursement of certain charges on historic will trusts and other related services. Excluding these items, costs rose as a result of an increase in the Financial Services Compensation Scheme levy, restructuring costs and increased rental charges following the sale and leaseback of branch properties, partially offset by lower performance-related pay and a reduction in defined benefit pension scheme costs due to a change in actuarial assumptions.
Operating costs in France decreased slightly with lower performance-related pay and a reduction in pension and retirement healthcare costs following the transfer of certain obligations to a third party offsetting the higher costs of a voluntary retirement programme.
There was investment in premises and new staff to support business expansion in Turkey, Russia and central and eastern Europe. In 2008, 112 new branches opened and staff numbers increased by 30 per cent in these markets.
Share of profit in associates and joint ventures declined by 84 per cent to US$16 million with 2007 benefiting from an adjustment to the embedded value of HSBC Assurances. The absence of this gain was partially offset by increased joint venture profits following the sale of the card acquiring business in the UK.
Analysis by customer group and global business
Profit/(loss) before tax
|
2009 |
||||||||||||
Europe |
Personal |
|
Commercial Banking |
|
Global |
|
Private |
|
Other US$m |
|
Inter- elimination 50 US$m |
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income/(expense) |
5,413 |
|
2,739 |
|
4,367 |
|
949 |
|
(525) |
|
(675) |
|
12,268 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net fee income ...................... |
1,949 |
|
1,679 |
|
1,670 |
|
883 |
|
86 |
|
- |
|
6,267 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading income excluding net interest income .................. |
34 |
|
3 |
|
2,267 |
|
175 |
|
382 |
|
- |
|
2,861 |
Net interest income/(expense) |
(1) |
|
17 |
|
1,869 |
|
23 |
|
15 |
|
675 |
|
2,598 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net trading income42 .............. |
33 |
|
20 |
|
4,136 |
|
198 |
|
397 |
|
675 |
|
5,459 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in fair value of long- |
- |
|
- |
|
- |
|
- |
|
(2,746) |
|
- |
|
(2,746) |
Net income/(expense) from |
1,012 |
|
133 |
|
375 |
|
- |
|
(199) |
|
- |
|
1,321 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income/(expense) from financial instruments |
1,012 |
|
133 |
|
375 |
|
- |
|
(2,945) |
|
- |
|
(1,425) |
Gains less losses from financial investments ........................ |
20 |
|
2 |
|
25 |
|
5 |
|
(2) |
|
- |
|
50 |
Dividend income .................... |
2 |
|
1 |
|
26 |
|
3 |
|
(3) |
|
- |
|
29 |
Net earned insurance premiums |
3,975 |
|
253 |
|
(2) |
|
- |
|
(3) |
|
- |
|
4,223 |
Other operating income ......... |
182 |
|
373 |
|
670 |
|
28 |
|
914 |
|
95 |
|
2,262 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income/ |
12,586 |
|
5,200 |
|
11,267 |
|
2,066 |
|
(2,081) |
|
95 |
|
29,133 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net insurance claims43 ............ |
(5,221) |
|
(365) |
|
- |
|
- |
|
(3) |
|
- |
|
(5,589) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income/ |
7,365 |
|
4,835 |
|
11,267 |
|
2,066 |
|
(2,084) |
|
95 |
|
23,544 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan impairment charges and other credit risk provisions . |
(1,992) |
|
(1,267) |
|
(2,277) |
|
(29) |
|
(3) |
|
- |
|
(5,568) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income/ (expense) ......................... |
5,373 |
|
3,568 |
|
8,990 |
|
2,037 |
|
(2,087) |
|
95 |
|
17,976 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses ....... |
(5,062) |
|
(2,294) |
|
(4,447) |
|
(1,183) |
|
(907) |
|
(95) |
|
(13,988) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit/(loss) ....... |
311 |
|
1,274 |
|
4,543 |
|
854 |
|
(2,994) |
|
- |
|
3,988 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share of profit in associates |
1 |
|
18 |
|
2 |
|
- |
|
- |
|
- |
|
21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit/(loss) before tax ........ |
312 |
|
1,292 |
|
4,545 |
|
854 |
|
(2,994) |
|
- |
|
4,009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% |
|
% |
|
% |
|
% |
|
% |
|
|
|
% |
Share of HSBC's profit |
4.4 |
|
18.3 |
|
64.2 |
|
12.1 |
|
(42.3) |
|
|
|
56.7 |
Cost efficiency ratio............... |
68.7 |
|
47.4 |
|
39.5 |
|
57.3 |
|
(43.5) |
|
|
|
59.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance sheet data41 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
|
|
US$m |
Loans and advances to |
147,760 |
|
89,084 |
|
176,123 |
|
25,541 |
|
973 |
|
|
|
439,481 |
Total assets ............................ |
208,669 |
|
111,874 |
|
981,831 |
|
76,871 |
|
84,010 |
|
(194,655) |
|
1,268,600 |
Customer accounts ................. |
165,161 |
|
102,249 |
|
169,390 |
|
58,213 |
|
6 |
|
|
|
495,019 |
Profit/(loss) before tax (continued)
|
2008 |
||||||||||||
Europe |
Personal |
|
Commercial Banking |
|
Global |
|
Private |
|
Other US$m |
|
Inter- elimination 50 US$m |
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income/(expense) |
6,464 |
|
3,435 |
|
3,488 |
|
1,046 |
|
(459) |
|
(4,278) |
|
9,696 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net fee income ...................... |
2,612 |
|
2,025 |
|
1,763 |
|
1,020 |
|
72 |
|
- |
|
7,492 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading income/(expense) excluding net interest income ........................................... |
47 |
|
71 |
|
1,513 |
|
198 |
|
(138) |
|
- |
|
1,691 |
Net interest income/(expense) |
- |
|
12 |
|
(655) |
|
14 |
|
17 |
|
4,278 |
|
3,666 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net trading income/(expense)42 |
47 |
|
83 |
|
858 |
|
212 |
|
(121) |
|
4,278 |
|
5,357 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in fair value of long- |
- |
|
- |
|
- |
|
- |
|
2,939 |
|
- |
|
2,939 |
Net income/(expense) from |
(1,634) |
|
(214) |
|
(611) |
|
- |
|
633 |
|
- |
|
(1,826) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income/(expense) from financial instruments |
(1,634) |
|
(214) |
|
(611) |
|
- |
|
3,572 |
|
- |
|
1,113 |
Gains less losses from financial investments ........................ |
281 |
|
132 |
|
(30) |
|
62 |
|
(27) |
|
- |
|
418 |
Dividend income .................... |
35 |
|
74 |
|
25 |
|
5 |
|
(9) |
|
- |
|
130 |
Net earned insurance premiums |
4,927 |
|
391 |
|
- |
|
- |
|
(19) |
|
- |
|
5,299 |
Gains on disposal of French regional banks .................... |
- |
|
- |
|
- |
|
- |
|
2,445 |
|
- |
|
2,445 |
Other operating income ......... |
230 |
|
620 |
|
398 |
|
16 |
|
832 |
|
- |
|
2,096 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income ......... |
12,962 |
|
6,546 |
|
5,891 |
|
2,361 |
|
6,286 |
|
- |
|
34,046 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net insurance claims43 ............ |
(3,224) |
|
(143) |
|
- |
|
- |
|
- |
|
- |
|
(3,367) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income16 .......... |
9,738 |
|
6,403 |
|
5,891 |
|
2,361 |
|
6,286 |
|
- |
|
30,679 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan impairment charges and other credit risk provisions . |
(1,971) |
|
(867) |
|
(875) |
|
(38) |
|
(3) |
|
- |
|
(3,754) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income ............ |
7,767 |
|
5,536 |
|
5,016 |
|
2,323 |
|
6,283 |
|
- |
|
26,925 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses ....... |
(6,107) |
|
(2,830) |
|
(4,823) |
|
(1,325) |
|
(987) |
|
- |
|
(16,072) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit ..................... |
1,660 |
|
2,706 |
|
193 |
|
998 |
|
5,296 |
|
- |
|
10,853 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share of profit/(loss) in |
(2) |
|
16 |
|
2 |
|
- |
|
- |
|
- |
|
16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit before tax .................... |
1,658 |
|
2,722 |
|
195 |
|
998 |
|
5,296 |
|
- |
|
10,869 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% |
|
% |
|
% |
|
% |
|
% |
|
|
|
% |
Share of HSBC's profit |
17.8 |
|
29.2 |
|
2.1 |
|
10.7 |
|
56.9 |
|
|
|
116.7 |
Cost efficiency ratio............... |
62.7 |
|
44.2 |
|
81.9 |
|
56.1 |
|
15.7 |
|
|
|
52.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance sheet data41 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
|
|
US$m |
Loans and advances to |
126,909 |
|
87,245 |
|
185,818 |
|
25,722 |
|
497 |
|
|
|
426,191 |
Total assets ............................ |
171,962 |
|
107,495 |
|
1,180,759 |
|
84,485 |
|
64,423 |
|
(217,075) |
|
1,392,049 |
Customer accounts ................. |
145,411 |
|
91,188 |
|
199,687 |
|
66,007 |
|
183 |
|
|
|
502,476 |
|
2007 |
||||||||||||
Europe |
Personal |
|
Commercial Banking |
|
Global |
|
Private |
|
Other US$m |
|
Inter- elimination 50 US$m |
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income ............... |
6,604 |
|
3,419 |
|
1,361 |
|
793 |
|
86 |
|
(4,517) |
|
7,746 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net fee income/(expense) ...... |
3,060 |
|
2,194 |
|
2,316 |
|
1,032 |
|
(171) |
|
- |
|
8,431 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading income excluding net interest income .................. |
60 |
|
36 |
|
2,657 |
|
161 |
|
89 |
|
- |
|
3,003 |
Net interest income/(expense) |
(7) |
|
30 |
|
(610) |
|
9 |
|
1 |
|
4,517 |
|
3,940 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net trading income42 .............. |
53 |
|
66 |
|
2,047 |
|
170 |
|
90 |
|
4,517 |
|
6,943 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in fair value of long- |
- |
|
- |
|
- |
|
- |
|
1,059 |
|
- |
|
1,059 |
Net income/(expense) from |
126 |
|
31 |
|
(185) |
|
- |
|
195 |
|
- |
|
167 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income/(expense) from financial instruments |
126 |
|
31 |
|
(185) |
|
- |
|
1,254 |
|
- |
|
1,226 |
Gains less losses from financial investments ........................ |
50 |
|
36 |
|
1,100 |
|
115 |
|
25 |
|
- |
|
1,326 |
Dividend income .................... |
1 |
|
4 |
|
155 |
|
7 |
|
4 |
|
- |
|
171 |
Net earned insurance premiums |
3,511 |
|
521 |
|
- |
|
- |
|
(22) |
|
- |
|
4,010 |
Other operating income/ |
54 |
|
(35) |
|
853 |
|
8 |
|
301 |
|
12 |
|
1,193 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income ......... |
13,459 |
|
6,236 |
|
7,647 |
|
2,125 |
|
1,567 |
|
12 |
|
31,046 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net insurance claims43 ............ |
(3,214) |
|
(265) |
|
- |
|
- |
|
- |
|
- |
|
(3,479) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income16 .......... |
10,245 |
|
5,971 |
|
7,647 |
|
2,125 |
|
1,567 |
|
12 |
|
27,567 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan impairment (charges)/ |
(2,044) |
|
(515) |
|
26 |
|
(4) |
|
(5) |
|
- |
|
(2,542) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income ............ |
8,201 |
|
5,456 |
|
7,673 |
|
2,121 |
|
1,562 |
|
12 |
|
25,025 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses ....... |
(6,635) |
|
(2,941) |
|
(5,150) |
|
(1,208) |
|
(579) |
|
(12) |
|
(16,525) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit ..................... |
1,566 |
|
2,515 |
|
2,523 |
|
913 |
|
983 |
|
- |
|
8,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share of profit in associates |
15 |
|
1 |
|
4 |
|
2 |
|
73 |
|
- |
|
95 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit before tax .................... |
1,581 |
|
2,516 |
|
2,527 |
|
915 |
|
1,056 |
|
- |
|
8,595 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% |
|
% |
|
% |
|
% |
|
% |
|
|
|
% |
Share of HSBC's profit |
6.5 |
|
10.4 |
|
10.4 |
|
3.8 |
|
4.4 |
|
|
|
35.5 |
Cost efficiency ratio............... |
64.8 |
|
49.3 |
|
67.3 |
|
56.8 |
|
36.9 |
|
|
|
59.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance sheet data41 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
|
|
US$m |
Loans and advances to |
151,687 |
|
106,846 |
|
163,066 |
|
30,195 |
|
481 |
|
|
|
452,275 |
Total assets ............................ |
240,361 |
|
168,846 |
|
912,299 |
|
83,740 |
|
96,346 |
|
(245,372) |
|
1,256,220 |
Customer accounts ................. |
178,757 |
|
99,704 |
|
163,713 |
|
62,055 |
|
725 |
|
|
|
504,954 |
For footnotes, see page 149.
Hong Kong
Profit/(loss) before tax by customer group and global business
|
2009 US$m |
|
2008 US$m |
|
2007 |
|
|
|
|
|
|
Personal Financial Services ................................................................. |
2,728 |
|
3,428 |
|
4,212 |
Commercial Banking .......................................................................... |
956 |
|
1,315 |
|
1,619 |
Global Banking and Markets ............................................................... |
1,507 |
|
1,436 |
|
1,578 |
Private Banking ................................................................................. |
197 |
|
237 |
|
305 |
Other ................................................................................................. |
(359) |
|
(955) |
|
(375) |
|
|
|
|
|
|
|
5,029 |
|
5,461 |
|
7,339 |
Profit before tax
|
2009 |
|
2008 |
|
2007 |
|
|
|
|
|
|
Net interest income ............................................................................ |
4,195 |
|
5,698 |
|
5,483 |
|
|
|
|
|
|
Net fee income ................................................................................... |
2,669 |
|
2,580 |
|
3,362 |
|
|
|
|
|
|
Net trading income ............................................................................. |
1,225 |
|
1,193 |
|
1,242 |
|
|
|
|
|
|
Changes in fair value of long-term debt issued and related derivatives . |
(3) |
|
3 |
|
2 |
Net income/(expense) from other financial instruments designated at fair |
788 |
|
(1,194) |
|
674 |
|
|
|
|
|
|
Net income/(expense) from financial instruments designated at fair value ........................................................................................................ |
785 |
|
(1,191) |
|
676 |
Gains less losses from financial investments ....................................... |
9 |
|
(309) |
|
94 |
Dividend income ................................................................................ |
28 |
|
41 |
|
31 |
Net earned insurance premiums .......................................................... |
3,674 |
|
3,247 |
|
2,797 |
Other operating income ..................................................................... |
1,274 |
|
817 |
|
845 |
|
|
|
|
|
|
Total operating income .................................................................. |
13,859 |
|
12,076 |
|
14,530 |
|
|
|
|
|
|
Net insurance claims incurred and movement in liabilities |
(4,392) |
|
(1,922) |
|
(3,208) |
|
|
|
|
|
|
Net operating income before loan impairment charges and other |
9,467 |
|
10,154 |
|
11,322 |
|
|
|
|
|
|
Loan impairment charges and other credit risk provisions .................. |
(500) |
|
(765) |
|
(231) |
|
|
|
|
|
|
Net operating income ..................................................................... |
8,967 |
|
9,389 |
|
11,091 |
|
|
|
|
|
|
Total operating expenses ................................................................... |
(3,946) |
|
(3,943) |
|
(3,780) |
|
|
|
|
|
|
Operating profit .............................................................................. |
5,021 |
|
5,446 |
|
7,311 |
|
|
|
|
|
|
Share of profit in associates and joint ventures ................................... |
8 |
|
15 |
|
28 |
|
|
|
|
|
|
Profit before tax .............................................................................. |
5,029 |
|
5,461 |
|
7,339 |
|
|
|
|
|
|
|
% |
|
% |
|
% |
|
|
|
|
|
|
Share of HSBC's profit before tax ...................................................... |
71.0 |
|
58.7 |
|
30.3 |
Cost efficiency ratio ........................................................................... |
41.7 |
|
38.8 |
|
33.4 |
|
|
|
|
|
|
Year-end staff numbers (full-time equivalent) ..................................... |
27,614 |
|
29,330 |
|
27,655 |
|
|
|
|
|
|
Balance sheet data41
|
|
|
|
|
|
|
At 31 December |
||||
|
2009 |
|
2008 |
|
2007 |
|
US$m |
|
US$m |
|
US$m |
|
|
|
|
|
|
Loans and advances to customers (net) ............................................... |
99,381 |
|
100,220 |
|
89,638 |
Loans and advances to banks (net) ..................................................... |
36,197 |
|
29,646 |
|
63,737 |
Trading assets, financial assets designated at fair value, and
|
154,418 |
|
122,602 |
|
102,180 |
Total assets ........................................................................................ |
399,243 |
|
414,484 |
|
359,386 |
Deposits by banks ............................................................................... |
6,023 |
|
11,769 |
|
6,420 |
Customer accounts ............................................................................. |
275,441 |
|
250,517 |
|
234,488 |
For footnote, see page 149.
All commentaries on Hong Kong are on an underlying basis unless stated otherwise.
2009 compared with 2008
Economic briefing
The performance of the Hong Kong economy proved variable during the course of 2009, with a robust recovery developing after a sharp contraction was recorded during the first quarter of the year. GDP in 2009 fell by 2.7 per cent after growth of 2.1 per cent in 2008. Unemployment rose during the first half of 2009, before falling slightly to end the year at 4.9 per cent, a figure still well below the average of the past 10 years. The CPI profile proved volatile during the course of the year, turning negative between June and August before rising to 1.3 per cent by December 2009, although these movements largely reflected the trends of food and energy prices. The Hong Kong Monetary Authority held the base rates steady at 0.5 per cent throughout the course of the year. Asset price performance proved unusually volatile as the Hang Seng Index recovered strongly from a weak start to 2009 to record a 52 per cent increase during the year.
Reconciliation of reported and underlying profit before tax
|
2009 compared with 2008 |
||||||||||||||||
Hong Kong |
2008 |
2008 ments10 US$m |
|
Currency translation11 US$m |
|
2008 at 2009 exchange rates12 US$m |
2009 ments10 US$m |
|
Under- lying change US$m |
|
2009 |
Re- ported change13 % |
Under- lying change13 % |
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income ...... |
5,698 |
|
- |
|
21 |
|
5,719 |
|
- |
|
(1,524) |
|
4,195 |
|
(26) |
|
(27) |
Net fee income ...... |
2,580 |
|
- |
|
10 |
|
2,590 |
|
- |
|
79 |
|
2,669 |
|
3 |
|
3 |
Changes in fair value14 ...... |
5 |
|
(5) |
|
- |
|
- |
|
(1) |
|
- |
|
(1) |
|
(120) |
|
|
Other income15 ... |
1,871 |
|
- |
|
7 |
|
1,878 |
|
- |
|
726 |
|
2,604 |
|
39 |
|
39 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income16 .. |
10,154 |
|
(5) |
|
38 |
|
10,187 |
|
(1) |
|
(719) |
|
9,467 |
|
(7) |
|
(7) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan impairment charges and other credit risk provisions . |
(765) |
|
- |
|
(2) |
|
(767) |
|
- |
|
267 |
|
(500) |
|
35 |
|
35 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income .... |
9,389 |
|
(5) |
|
36 |
|
9,420 |
|
(1) |
|
(452) |
|
8,967 |
|
(4) |
|
(5) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses ... |
(3,943) |
|
- |
|
(16) |
|
(3,959) |
|
- |
|
13 |
|
(3,946) |
|
- |
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit ....... |
5,446 |
|
(5) |
|
20 |
|
5,461 |
|
(1) |
|
(439) |
|
5,021 |
|
(8) |
|
(8) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from associates |
15 |
|
- |
|
- |
|
15 |
|
- |
|
(7) |
|
8 |
|
(47) |
|
(47) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit before tax ............ |
5,461 |
|
(5) |
|
20 |
|
5,476 |
|
(1) |
|
(446) |
|
5,029 |
|
(8) |
|
(8) |
For footnotes, see page 149.
Review of business performance
HSBC's operations in Hong Kong reported pre‑tax profits of US$5.0 billion compared with US$5.5 billion in 2008, an 8 per cent decline on both a reported and an underlying basis.
The decrease in profits came from lower revenue, which resulted from compressed deposit spreads in a near-zero interest rate environment. This loss of revenue was partly offset by significantly lower loan impairment charges and other credit risk provisions during 2009, and a recovery in trade activity triggered by an improvement in regional economic conditions in the second half of the year.
Despite continuing economic challenges, performance remained robust, and was underpinned by HSBC's market-leading share in deposits, residential mortgages, cards and insurance. In particular, HSBC consolidated its position as Hong Kong's leading bancassurer, growing the value of new life insurance business by 38 per cent. In residential mortgages, business growth was combined with conservative loan-to-value ratios on new business.
Net interest income declined by 27 per cent to US$4.2 billion, driven by significant deposit spread compression as HIBOR and LIBOR remained low throughout 2009. Selective repricing of customer loans helped to mitigate the impact of lower rates on lending spreads and the continued increase in customer account balances has positioned HSBC to benefit from economic recovery and a resulting widening of deposit spreads.
Average customer lending balances remained broadly in line with 2008, as lower Commercial Banking balances, which reflected the reduction in exports in the first half of 2009, were broadly offset by higher lending in Personal Financial Services and Global Banking and Markets. As the regional economy rebounded, trade volumes and Commercial Banking lending activity increased in the second half of the year. Throughout this challenging period for trade, HSBC continued to support local business through its HK$20 billion (US$2.6 billion) global loan fund for smaller businesses. These facilities were fully utilised by over 8,600 companies at 31 December 2009.
As residential property prices increased, personal lending volumes rose, and HSBC consolidated its mortgage market share by originating significant volumes of new mortgages. HSBC led this market with a 38 per cent share of new loan drawdowns with an average loan-to-value ratio of 58 per cent on new business. Asset spreads improved as a result of selective risk-based repricing, notably in cards, while funding costs fell in the low interest rate environment.
Pre-tax profit declined by 8 per cent to US$5.0 billion as deposit spreads compressed in the near-zero interest rate environment.
HSBC continued to increase market share in savings and deposit accounts, and balances grew following a series of deposit acquisition campaigns. In Personal Financial Services, customer account balances rose by 15 per cent and Premier customer numbers grew to over 380,000. Strong growth in Commercial Banking was driven by a rise in customer numbers, also supported by a series of deposit acquisition campaigns and increased liquidity in the region.
Overall, deposit balances grew by 10 per cent. Liability spreads remained under severe pressure throughout 2009, however.
Net fee incomeincreased by 3 per cent with an increase in IPO underwriting fees in the second half of the year, triggered by improved investor sentiment and a recovery in equity markets. Personal Financial Services customers' preference for deposit products rather than equity-linked products in the first half of the year reversed as equity markets recovered in the second half of 2009, resulting in a recovery in revenue generated from unit trusts, wealth management, custody and other investment products. Similarly, the increase in trade flows in the second half of 2009 affected trade-related fee income in Commercial Banking.
Trading incomeincreased by 2 per cent, primarily due to increased volumes of bond trading and wider margins on market making activities. The non-recurrence of US$0.2 billion of write-downs on a legacy monoline exposure also contributed to the rise. Foreign exchange trading revenue decreased from the exceptional results reported in 2008, reflecting the lower market volatility and a decline in customer volumes. Interest on trading assets declined due to a reduced holding of trading debt securities.
Income of US$0.8 billion was generated from financial instruments designated at fair value, compared with an expense of US$1.2 billion in 2008. The positive movement in fair value was primarily driven by equity market-related gains in unit-linked insurance products. To the extent that these gains were attributed to policyholders, there was a corresponding increase in net insurance claims incurred and movement in liabilities to policyholders.
Net earned premiums increased by 13 per cent to US$3.7 billion due to strong sales of both existing and new products, including a life insurance product designed for high net worth individuals, all of which contributed to a rise in market share. The proportion of regular premium policies grew and sales of investment-linked insurance products began to improve in the second half of the year. HSBC retained its market leadership position in the regular-premium individual-life new business. The growth in insurance business also resulted in higher net insurance claims incurred and movement in liabilities to policyholders.
Gains less losses from financial investments moved from a loss of US$310 million to a net gain of US$9 million, mainly due to the non-recurrence of impairments against available-for-sale equity investments following declines in market valuations in 2008. The loss recognised in 2008 on the equity investments concerned was partially recovered in 2009 but this gain was reflected in reserves rather than reversing through the income statement.
Other operating income of US$1.3 billion was 55 per cent higher than in 2008, reflecting a positive movement in PVIF driven largely by an increase in insurance sales to new customers. A gain of US$110 million was recognised in respect of the disposal of a property in Hong Kong.
Loan impairment charges and other credit risk provisions fell by 35 per cent to US$0.5 billion, as the credit environment was more stable in 2009 following deterioration in the second half of 2008. The high level of credit risk provisions and loan impairment charges taken in 2008 against financial institutions and export-led customers moderated in 2009 as credit conditions recovered and international trade volumes improved.
A rise in unemployment and in bankruptcy petitions led to increased impairment charges against unsecured lending in Personal Financial Services, though bankruptcy levels improved in the second half of the year. Property prices increased during 2009 and mortgage lending remained well secured with conservative loan-to-value ratios and origination subject to tight internal and regulatory guidelines.
Operating expenditure was held in line with 2008 as higher staff costs were offset by lower general and administrative costs. The increase in staff costs, driven by higher performance-related pay, was partly offset by reduced staff numbers. Non-staff costs fell as marketing expenditure was reduced and operational efficiencies improved as a result of the increased use of direct channels.
2008 compared with 2007
Economic briefing
Hong Kong's GDP growth slowed to 2.5 per cent in 2008 from 6.4 per cent in 2007. After performing strongly during the early months of the year, the economy slowed sharply and a technical recession was confirmed with the release of the third quarter GDP statistics. External demand proved especially weak during the second half of 2008 and the growth in private consumption also slowed sharply. The unemployment rate rose from a ten-year low of 3.2 per cent in August 2008 to 4.1 per cent by the year-end. Consumer price inflation proved volatile during the year, rising to a ten-year high of 6.3 per cent in July before slowing to 2.1 per cent by December 2008, although this movement largely reflected the trends in food and energy prices. In response to interest rate cuts in the US, Hong Kong cut its base interest rate on seven occasions during 2008, finishing the year at 0.5 per cent compared with 5.75 per cent at the end of 2007. The Hang Seng Index fell by 48 per cent during 2008.
Review of business performance
Hong Kong reported pre-tax profits of US$5.5 billion, a 26 per cent decline compared with record profits of US$7.3 billion in 2007. Lower revenues largely reflected a decline in wealth management and insurance income as economic conditions deteriorated. Revenue decline was compounded by impairment charges recognised on certain investments, which arose as a consequence of significant falls in equity market prices. Offsetting this, in part, was considerably stronger Balance Sheet Management income from treasury positions which correctly anticipated the decline in interest rates.
Net interest income rose by 4 per cent, driven by the strong Balance Sheet Management performance in Global Banking and Markets mainly driven by liquidity generated by retail banking in the environment of falling short-term interest rates.
Savings and deposit balances grew strongly, particularly in Personal Financial Services, as customers revealed a preference for security and liquidity following declines in equity markets. Deposit growth was augmented by the launch of campaigns offering both preferential time deposit rates and an enhanced HSBC online platform. The significant decline in interest rates during 2008 led to a narrowing of deposit spreads.
Customer lending volumes were 11 per cent higher, due in part to an 11 per cent rise in mortgage balances. Lending margins narrowed, however, due to interest rate cuts, particularly affecting mortgage lending and other loans linked to HIBOR. Balances outstanding on credit cards rose, driven by increased cardholder spending, and spreads on this business increased due to lower funding costs. Nearly one million new cards were issued in the year, bringing the total cards in circulation to 5.3 million. Volumes of trade finance grew strongly, driven by demand from corporates with international trade requirements, and commercial lending balances rose, particularly during the first half of the year.
Fee income declined by 23 per cent, driven by lower equity market-related revenues. Weak market sentiment led to lower volumes of retail brokerage and a decrease in income from wealth management activity. This was partly offset by a rise in fees from cards following increases in both cards in circulation and cardholder spending. Fees from account services rose due to greater customer activity and there were higher fees generated from bundled products.
Trading income was 4 per cent lower, driven by further write-downs of US$0.2 billion in Global Banking and Markets on a legacy monoline exposure. Excluding these write-downs, trading income grew due to a rise in foreign exchange and rates income as continuing market volatility generated increased trading opportunities and demand for active hedging products.
The net loss of US$1.2 billion on financial instruments designated at fair value compared with income of US$676 million in 2007. The loss reflected a decline in the value of assets linked to the insurance business. To a large extent, these losses are attributable to policyholders, with an equivalent reduction in net insurance claims and movement in liabilities to policyholders. While the decline in the value of assets which relate to unit-linked products is allocated to policyholders in full, the portion of decline in the value passed on to clients who have products with discretionary participation features and guarantees may be restricted.
Losses from financial investments of US$309 million reflected impairments required on investments which have experienced significant falls in equity market prices. These equity investments are classified as available for sale, are not held for trading, and remain part of the strategic positioning of HSBC's businesses in Asia. These losses were partly offset by an aggregate gain of US$203 million from the redemption of shares in the Visa initial public offering ('IPO') and the disposal of MasterCard shares.
Reconciliation of reported and underlying profit before tax
|
2008 compared with 2007 |
||||||||||||||||
Hong Kong |
2007 |
2007 and dilution gains10 US$m |
|
Currency translation11 US$m |
|
2007 at 2008 exchange rates17 US$m |
2008 ments10 US$m |
|
Under- lying change US$m |
|
2008 |
Re- ported change13 % |
Under- lying change13 % |
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income .......... |
5,483 |
|
- |
|
15 |
|
5,498 |
|
- |
|
200 |
|
5,698 |
|
4 |
|
4 |
Net fee income . |
3,362 |
|
- |
|
9 |
|
3,371 |
|
- |
|
(791) |
|
2,580 |
|
(23) |
|
(23) |
Changes in fair value14 ........... |
1 |
|
(1) |
|
- |
|
- |
|
5 |
|
- |
|
5 |
|
400 |
|
|
Other income15 . |
2,476 |
|
(1) |
|
3 |
|
2,478 |
|
- |
|
(607) |
|
1,871 |
|
(24) |
|
(24) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income16 ....... |
11,322 |
|
(2) |
|
27 |
|
11,347 |
|
5 |
|
(1,198) |
|
10,154 |
|
(10) |
|
(11) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan impairment charges and other credit risk provisions ...................... |
(231) |
|
1 |
|
(1) |
|
(231) |
|
- |
|
(534) |
|
(765) |
|
(231) |
|
(231) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income .......... |
11,091 |
|
(1) |
|
26 |
|
11,116 |
|
5 |
|
(1,732) |
|
9,389 |
|
(15) |
|
(16) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses ........ |
(3,780) |
|
- |
|
(9) |
|
(3,789) |
|
- |
|
(154) |
|
(3,943) |
|
(4) |
|
(4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit |
7,311 |
|
(1) |
|
17 |
|
7,327 |
|
5 |
|
(1,886) |
|
5,446 |
|
(26) |
|
(26) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from associates |
28 |
|
- |
|
- |
|
28 |
|
- |
|
(13) |
|
15 |
|
(46) |
|
(46) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit before tax ...................... |
7,339 |
|
(1) |
|
17 |
|
7,355 |
|
5 |
|
(1,899) |
|
5,461 |
|
(26) |
|
(26) |
For footnotes, see page 149.
Net earned insurance premiums increased by 16 per cent to US$3.2 billion, largely due to growth in the life insurance business, in particular for policies with discretionary participation features.
Net insurance claims and movement in liabilities to policyholders fell by 40 per cent, reflecting the decline in asset values noted above partly offset by increases due to growth in premiums.
Loan impairment charges and other credit risk provisions rose markedly from the previously low level to US$765 million as economic conditions deteriorated. Within these charges were exposures to financial institutions held within Global Banking and Markets, which resulted in other credit risk provisions. In Commercial Banking, the combination of an absence of significant recoveries recorded in 2007 and weakness among certain exporters in Hong Kong, who were affected by reduced demand from the US and other developed countries, raised loan impairment charges. As local businesses responded to the economic environment, unemployment rose in the second half of 2008. Credit policies were consequently adjusted across certain products as delinquency and bankruptcy increased in Hong Kong. Although property market declines reduced equity levels for residential mortgage customers, the impact on loan impairment charges was limited as this lending was well-secured and regulatory restrictions constrained origination loan‑to-value ratios to below 70 per cent.
Operating expenses rose by 4 per cent. Staff costs declined by 3 per cent despite wage increases and a rise in the number of customer-facing staff, largely due to lower performance-related costs in Global Banking and Markets. Staff numbers were higher than in 2007 notwithstanding reductions within the branch network for lower business volumes in the latter part of 2008. IT costs rose as investment in systems continued. Marketing costs were lower following active management of costs while property rental costs increased due to higher market rental rates. Overall, cost growth was curtailed in response to the more difficult economic climate.
Analysis by customer group and global business
Profit/(loss) before tax
|
2009 |
||||||||||||
Hong Kong |
Personal |
|
Commercial Banking US$m |
|
Global |
|
|
|
Other |
|
Inter- elimination50 US$m |
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income/(expense) |
2,577 |
|
938 |
|
1,150 |
|
212 |
|
(558) |
|
(124) |
|
4,195 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net fee income ...................... |
1,410 |
|
530 |
|
563 |
|
125 |
|
41 |
|
- |
|
2,669 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading income/(expense) excluding net interest income ........................................... |
186 |
|
92 |
|
792 |
|
91 |
|
(93) |
|
- |
|
1,068 |
Net interest income on trading activities ............................ |
3 |
|
- |
|
16 |
|
- |
|
14 |
|
124 |
|
157 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net trading income/(expense)42 |
189 |
|
92 |
|
808 |
|
91 |
|
(79) |
|
124 |
|
1,225 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in fair value of long- |
- |
|
- |
|
- |
|
- |
|
(3) |
|
- |
|
(3) |
Net income/(expense) from |
707 |
|
(46) |
|
138 |
|
- |
|
(11) |
|
- |
|
788 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income/(expense) from financial instruments |
707 |
|
(46) |
|
138 |
|
- |
|
(14) |
|
- |
|
785 |
Gains less losses from |
80 |
|
18 |
|
(108) |
|
- |
|
19 |
|
- |
|
9 |
Dividend income .................... |
1 |
|
1 |
|
10 |
|
- |
|
16 |
|
- |
|
28 |
Net earned insurance |
3,161 |
|
500 |
|
13 |
|
- |
|
- |
|
- |
|
3,674 |
Other operating income ......... |
346 |
|
64 |
|
59 |
|
10 |
|
1,062 |
|
(267) |
|
1,274 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income ...... |
8,471 |
|
2,097 |
|
2,633 |
|
438 |
|
487 |
|
(267) |
|
13,859 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net insurance claims43 ............ |
(3,979) |
|
(404) |
|
(9) |
|
- |
|
- |
|
- |
|
(4,392) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income16 ...... |
4,492 |
|
1,693 |
|
2,624 |
|
438 |
|
487 |
|
(267) |
|
9,467 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan impairment (charges)/ |
(203) |
|
(168) |
|
(131) |
|
1 |
|
1 |
|
- |
|
(500) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income ......... |
4,289 |
|
1,525 |
|
2,493 |
|
439 |
|
488 |
|
(267) |
|
8,967 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses ....... |
(1,566) |
|
(570) |
|
(987) |
|
(242) |
|
(848) |
|
267 |
|
(3,946) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit/(loss) ....... |
2,723 |
|
955 |
|
1,506 |
|
197 |
|
(360) |
|
- |
|
5,021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share of profit in associates |
5 |
|
1 |
|
1 |
|
- |
|
1 |
|
- |
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit/(loss) before tax ....... |
2,728 |
|
956 |
|
1,507 |
|
197 |
|
(359) |
|
- |
|
5,029 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% |
|
% |
|
% |
|
% |
|
% |
|
|
|
% |
Share of HSBC's profit |
38.5 |
|
13.5 |
|
21.3 |
|
2.8 |
|
(5.1) |
|
|
|
71.0 |
Cost efficiency ratio .............. |
34.9 |
|
33.7 |
|
37.6 |
|
55.3 |
|
174.1 |
|
|
|
41.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance sheet data41 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
|
|
US$m |
Loans and advances to |
43,869 |
|
28,217 |
|
21,991 |
|
3,361 |
|
1,943 |
|
|
|
99,381 |
Total assets ............................ |
83,497 |
|
34,743 |
|
217,146 |
|
20,353 |
|
52,508 |
|
(9,004) |
|
399,243 |
Customer accounts ................. |
166,445 |
|
62,146 |
|
26,650 |
|
19,474 |
|
726 |
|
|
|
275,441 |
Profit/(loss) before tax (continued)
|
2008 |
||||||||||||
Hong Kong |
Personal |
|
Commercial Banking US$m |
|
Global |
|
|
|
Other |
|
Inter- elimination50 US$m |
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income/(expense) |
3,381 |
|
1,498 |
|
1,524 |
|
214 |
|
(669) |
|
(250) |
|
5,698 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net fee income ...................... |
1,441 |
|
548 |
|
414 |
|
163 |
|
14 |
|
- |
|
2,580 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading income excluding net interest income .................. |
143 |
|
79 |
|
483 |
|
120 |
|
30 |
|
- |
|
855 |
Net interest income/(expense) |
11 |
|
1 |
|
244 |
|
- |
|
(168) |
|
250 |
|
338 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net trading income/(expense)42 |
154 |
|
80 |
|
727 |
|
120 |
|
(138) |
|
250 |
|
1,193 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in fair value of long- |
- |
|
- |
|
- |
|
- |
|
3 |
|
- |
|
3 |
Net income/(expense) from |
(1,291) |
|
(10) |
|
39 |
|
- |
|
68 |
|
- |
|
(1,194) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income/(expense) from financial instruments |
(1,291) |
|
(10) |
|
39 |
|
- |
|
71 |
|
- |
|
(1,191) |
Gains less losses from |
156 |
|
32 |
|
(109) |
|
- |
|
(388) |
|
- |
|
(309) |
Dividend income .................... |
3 |
|
2 |
|
17 |
|
- |
|
19 |
|
- |
|
41 |
Net earned insurance |
3,047 |
|
181 |
|
17 |
|
- |
|
2 |
|
- |
|
3,247 |
Other operating income ......... |
132 |
|
38 |
|
101 |
|
8 |
|
906 |
|
(368) |
|
817 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income ......... |
7,023 |
|
2,369 |
|
2,730 |
|
505 |
|
(183) |
|
(368) |
|
12,076 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net insurance claims43 ............ |
(1,773) |
|
(136) |
|
(11) |
|
- |
|
(2) |
|
- |
|
(1,922) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income16 .......... |
5,250 |
|
2,233 |
|
2,719 |
|
505 |
|
(185) |
|
(368) |
|
10,154 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan impairment (charges)/ |
(134) |
|
(335) |
|
(284) |
|
(13) |
|
1 |
|
- |
|
(765) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income/(expense) ........................................... |
5,116 |
|
1,898 |
|
2,435 |
|
492 |
|
(184) |
|
(368) |
|
9,389 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses ....... |
(1,691) |
|
(584) |
|
(1,000) |
|
(255) |
|
(781) |
|
368 |
|
(3,943) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit/(loss) ........... |
3,425 |
|
1,314 |
|
1,435 |
|
237 |
|
(965) |
|
- |
|
5,446 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share of profit in associates |
3 |
|
1 |
|
1 |
|
- |
|
10 |
|
- |
|
15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit/(loss) before tax ........... |
3,428 |
|
1,315 |
|
1,436 |
|
237 |
|
(955) |
|
- |
|
5,461 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% |
|
% |
|
% |
|
% |
|
% |
|
|
|
% |
Share of HSBC's profit |
36.9 |
|
14.1 |
|
15.4 |
|
2.6 |
|
(10.3) |
|
|
|
58.7 |
Cost efficiency ratio .............. |
32.2 |
|
26.2 |
|
36.8 |
|
50.5 |
|
(422.2) |
|
|
|
38.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance sheet data41 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
|
|
US$m |
Loans and advances to |
41,447 |
|
30,331 |
|
23,042 |
|
3,605 |
|
1,795 |
|
|
|
100,220 |
Total assets ............................ |
75,419 |
|
36,428 |
|
233,187 |
|
28,800 |
|
66,192 |
|
(25,542) |
|
414,484 |
Customer accounts ................. |
145,002 |
|
54,869 |
|
30,866 |
|
19,416 |
|
364 |
|
|
|
250,517 |
|
2007 |
||||||||||||
Hong Kong |
Personal |
|
Commercial Banking US$m |
|
Global |
|
|
|
Other |
|
Inter- elimination50 US$m |
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income/(expense) |
3,342 |
|
1,540 |
|
986 |
|
70 |
|
(767) |
|
312 |
|
5,483 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net fee income ...................... |
1,973 |
|
526 |
|
682 |
|
179 |
|
2 |
|
- |
|
3,362 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading income excluding net interest income .................. |
188 |
|
63 |
|
553 |
|
280 |
|
186 |
|
- |
|
1,270 |
Net interest income on trading activities ............................ |
5 |
|
- |
|
241 |
|
- |
|
38 |
|
(312) |
|
(28) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net trading income42 .............. |
193 |
|
63 |
|
794 |
|
280 |
|
224 |
|
(312) |
|
1,242 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in fair value of long- |
- |
|
- |
|
- |
|
- |
|
2 |
|
- |
|
2 |
Net income/(expense) from |
820 |
|
(13) |
|
7 |
|
- |
|
(140) |
|
- |
|
674 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income/(expense) from financial instruments |
820 |
|
(13) |
|
7 |
|
- |
|
(138) |
|
- |
|
676 |
Gains less losses from |
- |
|
- |
|
38 |
|
1 |
|
55 |
|
- |
|
94 |
Dividend income .................... |
2 |
|
1 |
|
6 |
|
- |
|
22 |
|
- |
|
31 |
Net earned insurance |
2,654 |
|
130 |
|
13 |
|
- |
|
- |
|
- |
|
2,797 |
Other operating income ......... |
153 |
|
28 |
|
114 |
|
6 |
|
881 |
|
(337) |
|
845 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income ......... |
9,137 |
|
2,275 |
|
2,640 |
|
536 |
|
279 |
|
(337) |
|
14,530 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net insurance claims43 ............ |
(3,116) |
|
(82) |
|
(10) |
|
- |
|
- |
|
- |
|
(3,208) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income16 .......... |
6,021 |
|
2,193 |
|
2,630 |
|
536 |
|
279 |
|
(337) |
|
11,322 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan impairment charges and other credit risk provisions . |
(175) |
|
(28) |
|
(28) |
|
- |
|
- |
|
- |
|
(231) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income ............ |
5,846 |
|
2,165 |
|
2,602 |
|
536 |
|
279 |
|
(337) |
|
11,091 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses ....... |
(1,639) |
|
(547) |
|
(1,025) |
|
(231) |
|
(675) |
|
337 |
|
(3,780) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit/(loss) ........... |
4,207 |
|
1,618 |
|
1,577 |
|
305 |
|
(396) |
|
- |
|
7,311 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share of profit in associates |
5 |
|
1 |
|
1 |
|
- |
|
21 |
|
- |
|
28 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit/(loss) before tax ........... |
4,212 |
|
1,619 |
|
1,578 |
|
305 |
|
(375) |
|
- |
|
7,339 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% |
|
% |
|
% |
|
% |
|
% |
|
|
|
% |
Share of HSBC's profit |
17.4 |
|
6.7 |
|
6.5 |
|
1.3 |
|
(1.6) |
|
|
|
30.3 |
Cost efficiency ratio .............. |
27.2 |
|
24.9 |
|
39.0 |
|
43.1 |
|
241.9 |
|
|
|
33.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance sheet data41 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
|
|
US$m |
Loans and advances to |
38,197 |
|
25,890 |
|
19,171 |
|
4,329 |
|
2,051 |
|
|
|
89,638 |
Total assets ............................ |
66,002 |
|
32,059 |
|
218,293 |
|
17,484 |
|
53,227 |
|
(27,679) |
|
359,386 |
Customer accounts ................. |
129,159 |
|
51,562 |
|
37,364 |
|
15,649 |
|
754 |
|
|
|
234,488 |
For footnotes, see page 149.