|
Page |
Summary .......................................................... |
66 |
Personal Financial Services .......................... |
67 |
Commercial Banking ....................................... |
70 |
Global Banking and Markets ........................ |
73 |
Private Banking ............................................... |
77 |
Other ................................................................. |
80 |
Analysis by customer group and global business ....................................................... |
82 |
Summary
HSBC's senior management reviews operating activity on a number of bases, including by geographical region and by customer group and global business. Although information is reviewed
on a number of bases, capital resources are allocated and performance is assessed primarily by geographical region, as presented on page 85.
In addition to utilising information by geographical region, management assesses performance through two customer groups, Personal Financial Services and Commercial Banking, and two global businesses, Global Banking and Markets and Private Banking. Personal Financial Services incorporates the Group's consumer finance businesses, the largest of which is HSBC Finance.
The commentaries below present customer groups and global businesses followed by geographical regions. Performance is discussed in this order because certain strategic themes, business initiatives and trends affect more than one geographical region. All commentaries are on an underlying basis (see page 21) unless stated otherwise.
|
2009 |
|
2008 |
|
2007 |
||||||
|
US$m |
|
% |
|
US$m |
|
% |
|
US$m |
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
Personal Financial Services ....................... |
(2,065) |
|
(29.2) |
|
(10,974) |
|
(117.9) |
|
5,900 |
|
24.4 |
Commercial Banking ................................ |
4,275 |
|
60.4 |
|
7,194 |
|
77.3 |
|
7,145 |
|
29.5 |
Global Banking and Markets ..................... |
10,481 |
|
148.1 |
|
3,483 |
|
37.4 |
|
6,121 |
|
25.3 |
Private Banking ........................................ |
1,108 |
|
15.6 |
|
1,447 |
|
15.6 |
|
1,511 |
|
6.2 |
Other40 ..................................................... |
(6,720) |
|
(94.9) |
|
8,157 |
|
87.6 |
|
3,535 |
|
14.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
7,079 |
|
100.0 |
|
9,307 |
|
100.0 |
|
24,212 |
|
100.0 |
|
At 31 December |
||||||
|
2009 |
|
2008 |
||||
|
US$m |
|
% |
|
US$m |
|
% |
|
|
|
|
|
|
|
|
Personal Financial Services ................................................................... |
554,074 |
|
23.4 |
|
527,901 |
|
20.9 |
Commercial Banking ............................................................................. |
251,143 |
|
10.6 |
|
249,218 |
|
9.9 |
Global Banking and Markets .................................................................. |
1,683,672 |
|
71.2 |
|
1,991,852 |
|
78.8 |
Private Banking .................................................................................... |
116,148 |
|
4.9 |
|
133,216 |
|
5.2 |
Other .................................................................................................... |
150,983 |
|
6.4 |
|
145,581 |
|
5.8 |
Intra-HSBC items .................................................................................. |
(391,568) |
|
(16.5) |
|
(520,303) |
|
(20.6) |
|
|
|
|
|
|
|
|
|
2,364,452 |
|
100.0 |
|
2,527,465 |
|
100.0 |
Basis of preparation
The results are presented in accordance with the accounting policies used in the preparation of HSBC's consolidated financial statements. HSBC's operations are closely integrated and, accordingly, the presentation of customer group data includes internal allocations of certain items of income and expense. These allocations include the costs of certain support services and Group Management Office ('GMO') functions, to the extent that these can be meaningfully attributed to operational business lines. While such allocations have been made on a systematic and consistent basis, they necessarily involve a degree of subjectivity.
Where relevant, income and expense amounts presented include the results of inter-segment funding as well as inter-company and inter-business line transactions. All such transactions are undertaken on arm's length terms.
Profit/(loss) before tax |
|||||
|
2009 |
|
2008 |
|
2007 |
|
US$m |
|
US$m |
|
US$m |
|
|
|
|
|
|
Net interest income ...... |
25,107 |
|
29,419 |
|
29,069 |
|
|
|
|
|
|
Net fee income ............. |
8,238 |
|
10,107 |
|
11,742 |
|
|
|
|
|
|
Trading income excluding net interest income .... |
637 |
|
175 |
|
38 |
Net interest income on trading activities ......... |
65 |
|
79 |
|
140 |
|
|
|
|
|
|
Net trading income42 ..... |
702 |
|
254 |
|
178 |
|
|
|
|
|
|
Net income/(expense) from financial instruments designated at fair value ................ |
2,339 |
|
(2,912) |
|
1,333 |
Gains less losses from financial investments . |
224 |
|
663 |
|
351 |
Dividend income ........... |
33 |
|
90 |
|
55 |
Net earned insurance premiums ................... |
9,534 |
|
10,083 |
|
8,271 |
Other operating income |
809 |
|
259 |
|
387 |
|
|
|
|
|
|
Total operating income ................................... |
46,986 |
|
47,963 |
|
51,386 |
|
|
|
|
|
|
Net insurance claims43 ... |
(11,571) |
|
(6,474) |
|
(8,147) |
|
|
|
|
|
|
Net operating income16 ................................... |
35,415 |
|
41,489 |
|
43,239 |
|
|
|
|
|
|
Loan impairment charges |
(19,902) |
|
(21,220) |
|
(16,172) |
|
|
|
|
|
|
Net operating income |
15,513 |
|
20,269 |
|
27,067 |
|
|
|
|
|
|
Employee expenses ....... |
(7,323) |
|
(9,243) |
|
(9,401) |
Goodwill impairment ..... |
- |
|
(10,564) |
|
- |
Other operating expenses ................................... |
(10,969) |
|
(11,897) |
|
(12,356) |
|
|
|
|
|
|
Total operating expenses ................................... |
(18,292) |
|
(31,704) |
|
(21,757) |
|
|
|
|
|
|
Operating profit/(loss) ................................... |
(2,779) |
|
(11,435) |
|
5,310 |
|
|
|
|
|
|
Share of profit in associates and joint ventures ..................... |
714 |
|
461 |
|
590 |
|
|
|
|
|
|
Profit/(loss) before tax ................................... |
(2,065) |
|
(10,974) |
|
5,900 |
|
|
|
|
|
|
By geographical region |
|
|
|
|
|
Europe ....................... |
312 |
|
1,658 |
|
1,581 |
Hong Kong ................. |
2,728 |
|
3,428 |
|
4,212 |
Rest of Asia-Pacific27 . |
463 |
|
211 |
|
515 |
Middle East27 .............. |
(126) |
|
289 |
|
245 |
North America ........... |
(5,226) |
|
(17,228) |
|
(1,546) |
Latin America ............ |
(216) |
|
668 |
|
893 |
|
|
|
|
|
|
|
(2,065) |
|
(10,974) |
|
5,900 |
|
|
|
|
|
|
|
% |
|
% |
|
% |
Share of HSBC's profit before tax ................... |
(29.2) |
|
(117.9) |
|
24.4 |
Cost efficiency ratio ..... |
51.7 |
|
76.4 |
|
50.3 |
|
|
|
|
|
|
Balance sheet data41 |
|
|
|
|
|
|
US$m |
|
US$m |
|
US$m |
Loans and advances to customers (net) .......... |
399,460 |
|
401,402 |
|
464,726 |
Total assets ................... |
554,074 |
|
527,901 |
|
636,185 |
Customer accounts ........ |
499,109 |
|
440,338 |
|
450,071 |
For footnotes, see page 149. |
|
|
|
|
Strategic direction
HSBC's strategy for Personal Financial Services is to use its global reach and scale to grow profitably in selected markets by providing relationship banking and wealth management services.
In markets where HSBC already has scale, such as Hong Kong and Mexico, or in emerging markets where scale can be built over time, HSBC provides services to all customer segments. In other markets, HSBC participates more selectively, targeting mass affluent customer segments which have strong international connectivity or where HSBC's global scale is crucial.
HSBC employs two globally consistent propositions, HSBC Premier ('Premier') and HSBC Advance ('Advance'), to serve customers who value international connectivity, who are confident using direct channels to access financial services and who are likely to require wealth management services.
HSBC's continued strategic focus on increasing penetration of wealth management services, through deepening customer relationships and offering innovative solutions, positions the Personal Financial Services business for growth as confidence and demand for equity market and insurance products improves.
Financial performance in 2009
· The reported loss before tax of US$2.1 billion compared with a loss before tax of US$11.0 billion in 2008. On an underlying basis and excluding the impairment charge of US$10.6 billion in 2008 to fully write off goodwill in respect of North America Personal Financial Services, the pre-tax loss grew by US$1.1 billion. This was driven by a decline in profits due to a significant fall in deposit spreads, reflecting the very low levels of major currency interest rates throughout 2009, and a rise in loan impairment charges outside North America as global economic conditions deteroriated. Within North America, loan impairment charges and operating expenses fell, reflecting the continuing run-off of the exit portfolios, some stabilisation in the credit environment and the closure of the US Consumer Lending branch network at the beginning of 2009.
· Net interest income decreased by 10 per cent. This was due to significant deposit spread compression experienced in the Group's major deposit-taking entities as a result of lower base rates and lower asset balances as customer loans in the US declined and consumer finance and unsecured lending activities in other countries were scaled back. These factors were partially mitigated by the benefit of lower funding costs on lending spreads and growth in average liability balances as customers responded to the strength of HSBC's brand following the market turmoil in 2008.
· Net fee income was 13 per cent lower, reflecting lower card fees from reduced volumes of new lending and changes in customer behaviour, particularly in North America. Weak equity market sentiment in the first half of 2009 further affected revenues from retail securities and investments, notably in Hong Kong, although relatively more buoyant markets led to some recovery in the second half of the year.
· A net gain of US$2.3 billion was recorded on financial instruments designated at fair value, compared with an expense of US$2.9 billion in 2008. This was largely due to an increase in the value of assets held to meet liabilities under insurance and investment contracts.
· Loan impairment charges fell by 3 per cent, with the significant decline in North America driven by the continuing reduction in balances and some stabilisation of loss experience in certain segments of the consumer finance portfolios. This was partly offset by credit deterioration elsewhere, primarily in the unsecured portfolios of various lending products in the Middle East, the UK and Brazil. The Group further strengthened collection systems and practices, reduced credit lines and tightened lending criteria in 2009.
· Costs declined by US$1.4 billion excluding the goodwill impairment charge in North America in 2008. This reduction resulted primarily from the decision to discontinue originations and close the branch network in the Consumer Lending business in the US, and from the exercise of tight control of discretionary expenditure in most regions, notably in Asia. Costs also benefited from a US$0.2 billion accounting gain on staff benefits in 2009 in the UK.
· Income from associates and joint ventures rose by 51 per cent, largely driven by the Group's share of profits from Ping An Insurance which increased in 2009 following the non-recurrence of an impairment on its investment in Fortis in 2008.
· Customer accounts increased by 7 per cent, largely on the back of strong deposit growth in Asia. Loans and advances to customers were 5 per cent lower as the US consumer finance portfolio continued to decline and, globally, customers reduced their use of credit. At 31 December 2009, the aggregate ratio of customer advances to deposits in Personal Financial Services was 80 per cent, compared with 91 per cent at the end of 2008.
Business highlights in 2009
· Premier, the Group's flagship global customer proposition, grew to 3.4 million customers in 2009, attracting 724,000 net new customers of which nearly 50 per cent were new to the Group. Premier was launched in Russia and Colombia during the year, extending the total number of markets where the service is offered to 43.
· Premier was expanded in 2009 with the launch of HSBC Amanah Premier, the world's first Islamic premium banking service, in six markets (UAE, Saudi Arabia, Malaysia, Indonesia, Qatar and Bahrain), offering customers a suite of shariah compliant products and Islamic wealth management services.
· A second globally consistent proposition, Advance, was developed in 2009 for launch in early 2010. Building on the success of Premier, Advance will target emerging mass affluent customers who are not yet Premier but have the potential to be so. Advance is currently available in seven markets, including Hong Kong and the UK, and will be offered in over 30 markets by the end of 2010.
· As part of its wealth management strategy, HSBC successfully launched the World Selection global investment offering in seven markets. This fund, which will be available in over 20 markets by the end of 2010, is designed to meet the different needs and risk appetites of HSBC customers by offering a range of globally diversified and multi-asset portfolios. The fund had assets of US$2.7 billion at the end of the year.
· HSBC's growth in personal lending in 2009 was largely in mortgage products in the UK and Hong Kong. In the UK, HSBC launched various marketing campaigns including a new Rate Matcher mortgage promotion. As a result of market share gains in 2009, the UK bank more than met its commitment to make £15 billion (US$24.7 billion) of new mortgage lending available to borrowers. In Hong Kong, HSBC maintained its market leading position with gross mortgage balance growth of 7 per cent during the year.
· As part of its strategy to deliver a globally consistent customer experience, Personal Financial Services commenced a global retail store update and refresh programme including the introduction of a set of minimum service standards across customer touch points. The standardised range of design principles helps address the diverse needs of customers and enables them to recognise and be confident in their dealings with HSBC wherever they are. The customer recommendation score for Personal Financial Services increased in 2009 (see page 20).
Reconciliation of reported and underlying profit/(loss) before tax
|
2009 compared with 2008 |
||||||||||||||||
Personal Financial Services |
2008 |
2008 and disposals10 US$m |
|
Currency translation11 US$m |
|
2008 at 2009 exchange rates12 US$m |
2009 and disposals10 US$m |
|
Under- lying change US$m |
|
2009 |
Re- ported change13 % |
Under- lying change13 % |
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income .. |
29,419 |
|
(36) |
|
(1,534) |
|
27,849 |
|
3 |
|
(2,745) |
|
25,107 |
|
(15) |
|
(10) |
Net fee income .. |
10,107 |
|
(32) |
|
(645) |
|
9,430 |
|
- |
|
(1,192) |
|
8,238 |
|
(18) |
|
(13) |
Other income15 .............. |
1,963 |
|
(121) |
|
(258) |
|
1,584 |
|
1 |
|
485 |
|
2,070 |
|
5 |
|
31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income16 .............. |
41,489 |
|
(189) |
|
(2,437) |
|
38,863 |
|
4 |
|
(3,452) |
|
35,415 |
|
(15) |
|
(9) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan impairment charges and other credit risk provisions ............ |
(21,220) |
|
3 |
|
595 |
|
(20,622) |
|
- |
|
720 |
|
(19,902) |
|
6 |
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income .............. |
20,269 |
|
(186) |
|
(1,842) |
|
18,241 |
|
4 |
|
(2,732) |
|
15,513 |
|
(23) |
|
(15) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses (excluding goodwill impairment) ......... |
(21,140) |
|
38 |
|
1,372 |
|
(19,730) |
|
(1) |
|
1,439 |
|
(18,292) |
|
13 |
|
7 |
Goodwill impairment .......... |
(10,564) |
|
- |
|
- |
|
(10,564) |
|
- |
|
10,564 |
|
- |
|
100 |
|
100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss ....... |
(11,435) |
|
(148) |
|
(470) |
|
(12,053) |
|
3 |
|
9,271 |
|
(2,779) |
|
76 |
|
77 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from associates .............. |
461 |
|
- |
|
13 |
|
474 |
|
- |
|
240 |
|
714 |
|
55 |
|
51 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before tax ........ |
(10,974) |
|
(148) |
|
(457) |
|
(11,579) |
|
3 |
|
9,511 |
|
(2,065) |
|
81 |
|
82 |
|
2008 compared with 2007 |
||||||||||||||||
Personal Financial Services |
2007 |
2007 disposals gains10 US$m |
|
Currency translation11 US$m |
|
2007 at 2008 exchange rates17 US$m |
2008 and disposals10 US$m |
|
Under- lying change US$m |
|
2008 |
Re- ported change13 % |
Under- lying change13 % |
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income ... |
29,069 |
|
(224) |
|
(126) |
|
28,719 |
|
215 |
|
485 |
|
29,419 |
|
1 |
|
2 |
Net fee income ... |
11,742 |
|
(21) |
|
(105) |
|
11,616 |
|
(9) |
|
(1,500) |
|
10,107 |
|
(14) |
|
(13) |
Other income15 |
2,428 |
|
(91) |
|
(10) |
|
2,327 |
|
83 |
|
(447) |
|
1,963 |
|
(19) |
|
(19) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income16 |
43,239 |
|
(336) |
|
(241) |
|
42,662 |
|
289 |
|
(1,462) |
|
41,489 |
|
(4) |
|
(3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan impairment charges and other credit risk provisions ............... |
(16,172) |
|
4 |
|
75 |
|
(16,093) |
|
(3) |
|
(5,124) |
|
(21,220) |
|
(31) |
|
(32) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income ... |
27,067 |
|
(332) |
|
(166) |
|
26,569 |
|
286 |
|
(6,586) |
|
20,269 |
|
(25) |
|
(25) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses (excluding goodwill impairment) ............ |
(21,757) |
|
236 |
|
117 |
|
(21,404) |
|
(98) |
|
362 |
|
(21,140) |
|
3 |
|
2 |
Goodwill impairment ............. |
- |
|
- |
|
- |
|
- |
|
- |
|
(10,564) |
|
(10,564) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit/(loss) ............ |
5,310 |
|
(96) |
|
(49) |
|
5,165 |
|
188 |
|
(16,788) |
|
(11,435) |
|
(315) |
|
(325) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from associates ............... |
590 |
|
- |
|
52 |
|
642 |
|
- |
|
(181) |
|
461 |
|
(22) |
|
(28) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit/(loss) before tax ............... |
5,900 |
|
(96) |
|
3 |
|
5,807 |
|
188 |
|
(16,969) |
|
(10,974) |
|
(286) |
|
(292) |
Profit before tax |
|||||
|
2009 |
|
2008 |
|
2007 |
|
US$m |
|
US$m |
|
US$m |
|
|
|
|
|
|
Net interest income ...... |
7,883 |
|
9,494 |
|
9,055 |
|
|
|
|
|
|
Net fee income ............. |
3,702 |
|
4,097 |
|
3,972 |
|
|
|
|
|
|
Trading income excluding net interest income .... |
332 |
|
369 |
|
265 |
Net interest income on trading activities ......... |
22 |
|
17 |
|
31 |
|
|
|
|
|
|
Net trading income42 ..... |
354 |
|
386 |
|
296 |
|
|
|
|
|
|
Net income/(expense) from financial instruments designated at fair value ................ |
100 |
|
(224) |
|
22 |
Gains less losses from financial investments . |
23 |
|
193 |
|
90 |
Dividend income ........... |
8 |
|
88 |
|
8 |
Net earned insurance premiums ................... |
886 |
|
679 |
|
733 |
Other operating income |
739 |
|
939 |
|
165 |
|
|
|
|
|
|
Total operating income ................................... |
13,695 |
|
15,652 |
|
14,341 |
|
|
|
|
|
|
Net insurance claims43 ... |
(842) |
|
(335) |
|
(391) |
|
|
|
|
|
|
Net operating income16 ................................... |
12,853 |
|
15,317 |
|
13,950 |
|
|
|
|
|
|
Loan impairment charges |
(3,282) |
|
(2,173) |
|
(1,007) |
|
|
|
|
|
|
Net operating income |
9,571 |
|
13,144 |
|
12,943 |
|
|
|
|
|
|
Employee expenses ....... |
(2,606) |
|
(3,056) |
|
(3,094) |
Other operating expenses ................................... |
(3,357) |
|
(3,525) |
|
(3,158) |
|
|
|
|
|
|
Total operating expenses ................................... |
(5,963) |
|
(6,581) |
|
(6,252) |
|
|
|
|
|
|
Operating profit ........ |
3,608 |
|
6,563 |
|
6,691 |
|
|
|
|
|
|
Share of profit in associates and joint ventures ..................... |
667 |
|
631 |
|
454 |
|
|
|
|
|
|
Profit before tax ......... |
4,275 |
|
7,194 |
|
7,145 |
|
|
|
|
|
|
By geographical region |
|
|
|
|
|
Europe ....................... |
1,292 |
|
2,722 |
|
2,516 |
Hong Kong ................. |
956 |
|
1,315 |
|
1,619 |
Rest of Asia-Pacific27 . |
1,064 |
|
1,235 |
|
868 |
Middle East27 .............. |
21 |
|
558 |
|
482 |
North America ........... |
543 |
|
658 |
|
920 |
Latin America ............ |
399 |
|
706 |
|
740 |
|
|
|
|
|
|
|
4,275 |
|
7,194 |
|
7,145 |
|
|
|
|
|
|
|
% |
|
% |
|
% |
Share of HSBC's profit before tax ................... |
60.4 |
|
77.3 |
|
29.5 |
Cost efficiency ratio ..... |
46.4 |
|
43.0 |
|
44.8 |
|
|
|
|
|
|
Balance sheet data41 |
|
|
|
|
|
|
US$m |
|
US$m |
|
US$m |
Loans and advances to customers (net) .......... |
199,674 |
|
203,949 |
|
220,068 |
Total assets ................... |
251,143 |
|
249,218 |
|
307,944 |
Customer accounts ........ |
267,388 |
|
235,879 |
|
237,987 |
For footnotes, see page 149. |
|
|
|
|
Strategic direction
HSBC's Commercial Banking strategy is focused on two key initiatives:
- to be the leading international business bank, using HSBC's extensive geographical network together with product expertise in payments, trade, receivables finance and foreign exchange to actively support customers who are trading and investing across borders; and
- to be the best bank for small and medium-sized enterprises ('SME's) in target markets, building global scale and creating efficiencies by sharing systems and best practice, including customer experience, training and product offerings, and selectively rolling out the direct banking model.
Financial performance in 2009
· Commercial Banking remained profitable in all regions in 2009, although profit before tax of US$4.3 billion was 41 per cent lower than in 2008. The results included a US$280 million gain from the disposal of the remaining stake in HSBC's UK card merchant acquiring business, compared with a US$425 million gain in 2008 from the sale of the first tranche. On an underlying basis, pre-tax profit declined by 35 per cent, driven by the effects of lower interest rates on deposit margins and higher loan impairment charges resulting from deterioration in the global economy.
· Deposit balances increased by 7 per cent to US$267 billion, largely in Hong Kong and the UK, as HSBC's brand strength continued to attract new customers. Loans and advances were 9 per cent lower, largely as customer demand for new lending declined. This decline was partly offset by targeted growth in key markets such as mainland China. The relative movement in deposits and loans strengthened HSBC's liquidity position, with an aggregate customer advances to deposits ratio in Commercial Banking of 75 per cent compared with 86 per cent reported at 31 December 2008.
· Net interest income fell by 11 per cent despite higher deposit balances, driven by deposit spread compression and reduced lending balances. This was partly offset by wider spreads on lending due to improved pricing.
· Net fee income was broadly unchanged, as repricing initiatives drove higher fee income from credit facilities in North America which was offset by a reduction in fee income
following the part disposal of the card merchant acquiring business to a joint venture in 2008.
· Loan impairment charges and other credit risk provisions increased by 56 per cent to US$3.3 billion, representing less than 2 per cent of average reported assets. Loan impairment charges in 2009 remained at broadly the same rate as experienced in the second half of 2008, with the charge concentrated in manufacturing, general trading and real estate. The increase in loan impairment charges was mainly in the Middle East, the UK, Brazil, and India, partly offset by an improving credit environment in Hong Kong.
· Operating expenses remained broadly unchanged, including the benefit in the UK of an accounting gain on staff benefits; however, the cost efficiency ratio deteriorated slightly driven by the effect of deposit spread compression on revenues.
· Income from associates and joint ventures rose by 5 per cent.
Business highlights in 2009
HSBC's 'leading international business' strategy continued to deliver customer-led and product-driven growth across all segments.
· Product revenues from foreign exchange were unchanged at US$0.5 billion, and revenues from trade and supply chain also remained flat at US$1.4 billion despite the overall decline in global trade levels. While volumes of trade activity were depressed in line with world trade volumes, signs of recovery were apparent towards the end of the year.
· Foreign exchange services were enhanced with the launch of GetRate on Business Internet Banking in Malaysia, India and the UK.
· The number of cross-border intra-Group referrals increased by 48 per cent, notably in Asia which accounted for over half of all successful referrals. The aggregate transaction value of successful referrals was US$9.0 billion.
· HSBC further strengthened its international offerings for customers, with particular focus on business flows to and from mainland China. In conjunction with Bank of Communications, HSBC launched a renminbi trade settlement service in seven ASEAN countries and a same-day credit pledge service on outward remittances into mainland China from Hong Kong.
·
Services for mainland China companies looking to expand overseas were also a focus of attention, with innovative solutions including a video conference account opening service for SMEs. Investment flows into mainland China were targeted by increasing the number of foreign national relationship managers in HSBC's international business teams there.
HSBC's 'best bank for business' strategy also progressed strongly with its transaction banking and liabilities-led approach, particularly relevant in a period of low credit demand:
· Business banking customer numbers increased by 12 per cent to 3 million with over 61 per cent of new customers in emerging markets.
· Deposit balances in business banking were US$146 billion, providing a significant surplus of funds for deployment. Total revenue from Business Banking of US$5.8 billion, despite the effects of deposit spread compression, represented 45 per cent of total revenue, highlighting the importance of this segment to the Commercial Banking business.
· Customer loans and advances in business banking were US$53 billion, and HSBC continued to support businesses in the global downturn. The US$5 billion International SME Fund was launched in December 2008 in five key markets. The fund was fully allocated by the end of 2009 and 80 per cent of it was utilised.
· In 2009, the global roll-out of internationally consistent offerings continued. Business Direct, the direct channel proposition, was launched in a further three countries and is now live in ten, while the roll-out of a credit scoring platform and deployment of globally consistent training programmes illustrated HSBC's ability to leverage best practice and drive efficiencies across its worldwide network.
In the corporate segment (see page 145 for details), HSBC's ability to provide or arrange debt finance combined with its international reach for payments and trade activity across developed and emerging markets was evident in the number of new multi-country banking relationships won in 2009, despite the more cautious sentiment within the global economy.
· The number of customers using HSBCnet continued to grow strongly, and full regional connectivity was rolled out in Latin America. The receivables finance capability was extended to deliver supplier funding programmes for large buyers, and new pan-European deals were written.
· Total revenue in the corporate segment was US$6.3 billion. Deposits from corporate customers were US$121 billion, while loans and advances were US$147 billion. Signs of returning confidence in the second half of 2009 were accompanied by higher levels of new lending, particularly in Asia and other emerging markets.
Commercial Banking continued to seek opportunities to deliver intra-Group referrals:
· A new global referral programme between Commercial Banking and Personal Financial Services was launched, resulting in over 15,000 successful referrals to HSBC Premier.
· The number of referrals to Private Banking was 1,057, generating over US$2.5 billion in assets under management.
Reconciliation of reported and underlying profit before tax
|
2009 compared with 2008 |
||||||||||||||||
Commercial Banking |
2008 |
2008 and disposals10 US$m |
|
Currency translation11 US$m |
|
2008 at 2009 exchange rates12 US$m |
2009 and disposals10 US$m |
|
Under- lying change US$m |
|
2009 |
Re- ported change13 % |
Under- lying change13 % |
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income .... |
9,494 |
|
(29) |
|
(697) |
|
8,768 |
|
45 |
|
(930) |
|
7,883 |
|
(17) |
|
(11) |
Net fee income .... |
4,097 |
|
(26) |
|
(367) |
|
3,704 |
|
5 |
|
(7) |
|
3,702 |
|
(10) |
|
- |
Other income15 .. |
1,726 |
|
(464) |
|
(213) |
|
1,049 |
|
295 |
|
(76) |
|
1,268 |
|
(27) |
|
(7) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income16 |
15,317 |
|
(519) |
|
(1,277) |
|
13,521 |
|
345 |
|
(1,013) |
|
12,853 |
|
(16) |
|
(7) |
Loan impairment charges and other credit risk provisions |
(2,173) |
|
3 |
|
68 |
|
(2,102) |
|
- |
|
(1,180) |
|
(3,282) |
|
(51) |
|
(56) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income ... |
13,144 |
|
(516) |
|
(1,209) |
|
11,419 |
|
345 |
|
(2,193) |
|
9,571 |
|
(27) |
|
(19) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses .. |
(6,581) |
|
30 |
|
537 |
|
(6,014) |
|
(27) |
|
78 |
|
(5,963) |
|
9 |
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit ...... |
6,563 |
|
(486) |
|
(672) |
|
5,405 |
|
318 |
|
(2,115) |
|
3,608 |
|
(45) |
|
(39) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from associates . |
631 |
|
- |
|
7 |
|
638 |
|
- |
|
29 |
|
667 |
|
6 |
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit before tax ................. |
7,194 |
|
(486) |
|
(665) |
|
6,043 |
|
318 |
|
(2,086) |
|
4,275 |
|
(41) |
|
(35) |
|
2008 compared with 2007 |
||||||||||||||||
Commercial Banking |
2007 |
2007 disposals gains10 US$m |
|
Currency translation11 US$m |
|
2007 at 2008 exchange rates17 US$m |
2008 and disposals10 US$m |
|
Under- lying change US$m |
|
2008 |
Re- ported change13 % |
Under- lying change13 % |
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income ... |
9,055 |
|
(166) |
|
(77) |
|
8,812 |
|
41 |
|
641 |
|
9,494 |
|
5 |
|
7 |
Net fee income ... |
3,972 |
|
(113) |
|
(76) |
|
3,783 |
|
27 |
|
287 |
|
4,097 |
|
3 |
|
8 |
Other income15 |
923 |
|
(7) |
|
(28) |
|
888 |
|
525 |
|
313 |
|
1,726 |
|
87 |
|
35 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income16 |
13,950 |
|
(286) |
|
(181) |
|
13,483 |
|
593 |
|
1,241 |
|
15,317 |
|
10 |
|
9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan impairment charges and other credit risk provisions ............... |
(1,007) |
|
3 |
|
36 |
|
(968) |
|
(3) |
|
(1,202) |
|
(2,173) |
|
(116) |
|
(124) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income ... |
12,943 |
|
(283) |
|
(145) |
|
12,515 |
|
590 |
|
39 |
|
13,144 |
|
2 |
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses . |
(6,252) |
|
180 |
|
47 |
|
(6,025) |
|
(106) |
|
(450) |
|
(6,581) |
|
(5) |
|
(7) |
Operating profit ..... |
6,691 |
|
(103) |
|
(98) |
|
6,490 |
|
484 |
|
(411) |
|
6,563 |
|
(2) |
|
(6) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from associates ............... |
454 |
|
- |
|
26 |
|
480 |
|
- |
|
151 |
|
631 |
|
39 |
|
31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit before tax ......... |
7,145 |
|
(103) |
|
(72) |
|
6,970 |
|
484 |
|
(260) |
|
7,194 |
|
1 |
|
(4) |
For footnotes, see page 149.
Profit before tax |
|
|||||
|
2009 |
|
2008 |
|
2007 |
|
|
US$m |
|
US$m |
|
US$m |
|
|
|
|
|
|
|
|
Net interest income ...... |
8,610 |
|
8,541 |
|
4,430 |
|
|
|
|
|
|
|
|
Net fee income ............. |
4,363 |
|
4,291 |
|
4,901 |
|
|
|
|
|
|
|
|
Trading income excluding net interest income .... |
4,701 |
|
157 |
|
3,503 |
|
Net interest income/ (expense) on trading activities .................... |
2,174 |
|
324 |
|
(236) |
|
|
|
|
|
|
|
|
Net trading income42 ..... |
6,875 |
|
481 |
|
3,267 |
|
|
|
|
|
|
|
|
Net income/(expense) |
473 |
|
(438) |
|
(164) |
|
Gains less losses from financial investments . |
265 |
|
(327) |
|
1,313 |
|
Dividend income ........... |
68 |
|
76 |
|
222 |
|
Net earned insurance premiums ................... |
54 |
|
105 |
|
93 |
|
Other operating income |
1,146 |
|
868 |
|
1,218 |
|
|
|
|
|
|
|
|
Total operating income ................................... |
21,854 |
|
13,597 |
|
15,280 |
|
|
|
|
|
|
|
|
Net insurance claims43 ... |
(34) |
|
(79) |
|
(70) |
|
|
|
|
|
|
|
|
Net operating income16 ................................... |
21,820 |
|
13,518 |
|
15,210 |
|
|
|
|
|
|
|
|
Loan impairment charges and other credit risk provisions ................. |
(3,168) |
|
(1,471) |
|
(38) |
|
|
|
|
|
|
|
|
Net operating income |
18,652 |
|
12,047 |
|
15,172 |
|
|
|
|
|
|
|
|
Employee expenses ....... |
(4,703) |
|
(4,928) |
|
(5,572) |
|
Other operating expenses ................................... |
(3,834) |
|
(4,164) |
|
(3,786) |
|
|
|
|
|
|
|
|
Total operating expenses ................................... |
(8,537) |
|
(9,092) |
|
(9,358) |
|
|
|
|
|
|
|
|
Operating profit ........ |
10,115 |
|
2,955 |
|
5,814 |
|
|
|
|
|
|
|
|
Share of profit in associates and joint ventures ..................... |
366 |
|
528 |
|
307 |
|
|
|
|
|
|
|
|
Profit before tax ......... |
10,481 |
|
3,483 |
|
6,121 |
|
|
|
|
|
|
|
|
By geographical region |
|
|
|
|
|
|
Europe ....................... |
4,545 |
|
195 |
|
2,527 |
|
Hong Kong ................. |
1,507 |
|
1,436 |
|
1,578 |
|
Rest of Asia-Pacific27 . |
2,319 |
|
2,970 |
|
1,969 |
|
Middle East27 .............. |
467 |
|
816 |
|
495 |
|
North America ........... |
712 |
|
(2,575) |
|
(965) |
|
Latin America ............ |
931 |
|
641 |
|
517 |
|
|
|
|
|
|
|
|
|
10,481 |
|
3,483 |
|
6,121 |
|
|
|
|
|
|
|
|
|
% |
|
% |
|
% |
|
Share of HSBC's profit before tax ................... |
148.1 |
|
37.4 |
|
25.3 |
|
Cost efficiency ratio ..... |
39.1 |
|
67.3 |
|
61.5 |
|
For footnotes, see page 149. |
|
|
|
|
|
Strategic direction
In 2009, Global Banking and Markets continued to pursue its now well-established 'emerging markets-led and financing-focused' strategy, encompassing HSBC's objective to be a leading wholesale bank by:
- utilising the Group's extensive distribution network;
- developing Global Banking and Markets' hub‑and-spoke business model; and
- continuing to build capabilities in major hubs to support the delivery of an advanced suite of services to corporate, institutional and government clients across the HSBC network.
Ensuring that this combination of product depth and distribution strength meets the needs of existing and new clients will allow Global Banking and Markets to achieve its strategic goals.
Financial performance in 2009
· Global Banking and Markets delivered a considerably improved performance with reported pre‑tax profits of US$10.5 billion, an increase of US$7.0 billion or 201 per cent compared with 2008. On an underlying basis, profit before tax increased by 249 per cent with strong performances in both developed and emerging markets. Robust revenues across core businesses were driven by higher margins and an increase in market share, with particularly strong performances in Rates and Balance Sheet Management. Revenues grew faster than operating expenses with continued emphasis on active cost management limiting the latter to a relatively modest rise. The cost efficiency ratio improved by 29.1 percentage points to 39.1 per cent.
· Write-downs on legacy positions in credit trading, leveraged and acquisition financing and monoline credit exposures, which totalled US$331 million, were significantly lower than those recorded in 2008, primarily driven by the stabilisation of asset prices. This was partly offset by a fair value loss of US$444 million resulting from tightening credit spreads on structured liabilities; a gain of US$529 million was reported in 2008.
· Loan impairment charges and other credit risk provisions increased by US$1.7 billion. Loan impairment charges were US$1.7 billion compared with US$0.8 billion in 2008, reflecting a deterioration in the credit position of
Management view of total operating income
|
2009 US$m |
|
2008 US$m |
|
2007 US$m |
|
|
|
|
|
|
Global Markets44 ........... |
10,364 |
|
2,676 |
|
5,720 |
Credit ........................ |
2,330 |
|
(5,502) |
|
(1,319) |
Rates ......................... |
2,648 |
|
2,033 |
|
1,291 |
Foreign exchange ...... |
2,979 |
|
3,842 |
|
2,178 |
Equities ..................... |
641 |
|
(64) |
|
1,177 |
Securities services45 ... |
1,420 |
|
2,116 |
|
1,926 |
Asset and structured finance ................... |
346 |
|
251 |
|
467 |
|
|
|
|
|
|
Global Banking .............. |
4,630 |
|
5,718 |
|
4,190 |
Financing and equity capital markets ....... |
3,070 |
|
3,572 |
|
2,186 |
Payments and cash management46 ........ |
1,053 |
|
1,665 |
|
1,632 |
Other transaction services47................. |
507 |
|
481 |
|
372 |
|
|
|
|
|
|
Balance Sheet |
5,390 |
|
3,618 |
|
1,226 |
Global Asset |
939 |
|
934 |
|
1,336 |
Principal Investments ... |
42 |
|
(415) |
|
1,253 |
Other48 .......................... |
489 |
|
1,066 |
|
1,555 |
|
|
|
|
|
|
Total operating income . |
21,854 |
|
13,597 |
|
15,280 |
Comparative information has been adjusted to reflect the current management view.
For footnotes, see page 149.
a small number of clients. This was in line with market trends of a rise in the number and severity of defaults on loans, despite a return of liquidity to the market. Impairment charges on the available-for-sale portfolio at US$1.4 billion were US$0.8 billion higher than in 2008; however, they remained within the range of the stress tests described on page 156 of the Annual Report and Accounts 2008.
· Within the Group's available-for-sale portfolio, the negative reserves in respect of asset-backed securities ('ABS's) reduced significantly from US$18.7 billion to US$12.2 billion, reflecting the impact of amortisation and recent increases in ABS prices. Impairment charges of US$1.4 billion were identified on ABSs with a nominal value of US$2.6 billion and were taken to the income statement in 2009. However, due to the underlying credit quality and seniority of the tranches held by HSBC, the expected cash flow impairment on these securities was a more modest US$378 million. A further US$666 million of impairments was absorbed by income noteholders who take the first loss on positions within the securities investment conduits ('SIC's) now consolidated in HSBC's accounts. Further details on the SICs are provided on page 182.
Business highlights in 2009
· HSBC was recognised for the continuing success of its 'emerging markets-led and financing-focused' strategy with numerous key industry awards, including Euromoney's Best Debt House in the following emerging market countries and regions: Mexico, Turkey, Asia, Latin America and the Middle East, along with 'Best Global Bank', and 'Best Global Debt House'. Other awards included 'European DCM House of the Year', 'European Corporate Bond House of the Year' and 'European Financial Institutions Bond House of the Year' in Financial News.
· Global Markets revenues grew significantly as volatile markets and increased customer activity gave impetus to client-facing businesses. Exceptional revenues in Rates and improved revenues in Credit were boosted by greater market share in both primary and secondary client business. Credit revenues were also assisted by a general tightening of credit spreads and an increase in asset prices following a return of liquidity in financial markets. Foreign exchange revenues normalised following unprecedented levels of market volatility in 2008, as the business established deeper institutional client relationships. Equities took advantage of a changed competitive landscape to capture a greater share of business in strategic markets from key institutional clients, particularly in Europe, the Middle East and Asia.
· Securities Services revenues declined as lower interest rates drove down overall margins, although this was partially offset by recent improvements in Asian equity markets which stimulated increases in volumes and assets under custody in the second half of 2009.
· In Global Banking, certain credit default swap transactions which hedge risk within the portfolio, recorded fair value losses of US$429 million as credit spreads tightened, compared with gains of US$912 million reported in 2008. Excluding this, higher spreads drove an increase in credit and lending revenues, reflecting the strength of HSBC's franchise and the quality of the client portfolio. Revenues in the equity capital markets business doubled following increased market share in key strategic regions. Payments and cash management activities continued to be adversely affected by the low interest rate environment, partly countered by an increase in liability balances.
· Balance Sheet Management continued to benefit from early positioning against the backdrop of a low interest rate environment although, as expected, revenues slowed in the second half of 2009 as certain higher yield positions matured.
· In Global Asset Management, positive fee income growth was recorded in each consecutive quarter, with an improving contribution from emerging markets. Funds under management at 31 December 2009 were US$423 billion, 14 per cent higher than at the start of the year, assisted by positive net inflows of US$11 billion and strengthening market performance. Fund launches during the year included 'HSBC World Selection' in conjunction with Personal Financial Services, which had assets of US$2.7 billion at year end. In August 2009, Global Asset Management entered the European Exchange Traded Funds ('ETF') market, working closely with Global Markets and HSBC Securities Services, and launched three ETF funds.
· In Principal Investments, opportunities for private equity realisations were limited and impairment charges were made against a small number of equity investments.
Reconciliation of reported and underlying profit before tax
|
2009 compared with 2008 |
||||||||||||||||
Global Banking and Markets |
2008 |
2008 and disposals10 US$m |
|
Currency translation11 US$m |
|
2008 at 2009 exchange rates12 US$m |
2009 and disposals10 US$m |
|
Under- lying change US$m |
|
2009 |
Re- ported change13 % |
Under- lying change13 % |
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income . |
8,541 |
|
- |
|
(451) |
|
8,090 |
|
5 |
|
515 |
|
8,610 |
|
1 |
|
6 |
Net fee income . |
4,291 |
|
- |
|
(267) |
|
4,024 |
|
1 |
|
338 |
|
4,363 |
|
2 |
|
8 |
Other income15 ............. |
686 |
|
- |
|
(555) |
|
131 |
|
2 |
|
8,714 |
|
8,847 |
|
1,190 |
|
6,652 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income16 ........... |
13,518 |
|
- |
|
(1,273) |
|
12,245 |
|
8 |
|
9,567 |
|
21,820 |
|
61 |
|
78 |
Loan impairment charges and other credit risk provisions ......... |
(1,471) |
|
- |
|
45 |
|
(1,426) |
|
- |
|
(1,742) |
|
(3,168) |
|
(115) |
|
(122) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income ............. |
12,047 |
|
- |
|
(1,228) |
|
10,819 |
|
8 |
|
7,825 |
|
18,652 |
|
55 |
|
72 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses ............. |
(9,092) |
|
- |
|
743 |
|
(8,349) |
|
(3) |
|
(185) |
|
(8,537) |
|
6 |
|
(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit .. |
2,955 |
|
- |
|
(485) |
|
2,470 |
|
5 |
|
7,640 |
|
10,115 |
|
242 |
|
309 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from associates ........... |
528 |
|
- |
|
6 |
|
534 |
|
- |
|
(168) |
|
366 |
|
(31) |
|
(31) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit before tax ....... |
3,483 |
|
- |
|
(479) |
|
3,004 |
|
5 |
|
7,472 |
|
10,481 |
|
201 |
|
249 |
|
2008 compared with 2007 |
||||||||||||||||
Global Banking and Markets |
2007 |
2007 disposals gains10 US$m |
|
Currency translation11 US$m |
|
2007 at 2008 exchange rates17 US$m |
2008 and disposals10 US$m |
|
Under- lying change US$m |
|
2008 |
Re- ported change13 % |
Under- lying change13 % |
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income ... |
4,430 |
|
- |
|
(32) |
|
4,398 |
|
- |
|
4,143 |
|
8,541 |
|
93 |
|
94 |
Net fee income ... |
4,901 |
|
- |
|
(46) |
|
4,855 |
|
- |
|
(564) |
|
4,291 |
|
(12) |
|
(12) |
Other income15 |
5,879 |
|
- |
|
(57) |
|
5,822 |
|
- |
|
(5,136) |
|
686 |
|
(88) |
|
(88) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income16 |
15,210 |
|
- |
|
(135) |
|
15,075 |
|
- |
|
(1,557) |
|
13,518 |
|
(11) |
|
(10) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan impairment charges and other credit risk provisions ............... |
(38) |
|
- |
|
1 |
|
(37) |
|
- |
|
(1,434) |
|
(1,471) |
|
(3,771) |
|
(3,876) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income ... |
15,172 |
|
- |
|
(134) |
|
15,038 |
|
- |
|
(2,991) |
|
12,047 |
|
(21) |
|
(20) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
(9,358) |
|
- |
|
175 |
|
(9,183) |
|
- |
|
91 |
|
(9,092) |
|
3 |
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit ..... |
5,814 |
|
- |
|
41 |
|
5,855 |
|
- |
|
(2,900) |
|
2,955 |
|
(49) |
|
(50) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from associates ............... |
307 |
|
- |
|
18 |
|
325 |
|
- |
|
203 |
|
528 |
|
72 |
|
62 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit before tax ......... |
6,121 |
|
- |
|
59 |
|
6,180 |
|
- |
|
(2,697) |
|
3,483 |
|
(43) |
|
(44) |
For footnotes, see page 149.
|
Europe |
|
Hong Kong |
|
Rest of Asia- Pacific27 |
|
Middle East27 |
|
North America |
|
Latin America |
|
Total |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
At 31 December 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading assets49 ...................... |
294,951 |
|
25,742 |
|
15,960 |
|
511 |
|
67,466 |
|
6,283 |
|
410,913 |
Derivative assets .................... |
190,900 |
|
16,937 |
|
15,660 |
|
668 |
|
61,192 |
|
2,820 |
|
288,177 |
Loans and advances to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
- customers (net) ............... |
176,123 |
|
21,991 |
|
23,989 |
|
6,554 |
|
18,654 |
|
9,645 |
|
256,956 |
- banks (net) ...................... |
59,171 |
|
27,789 |
|
29,388 |
|
6,385 |
|
14,403 |
|
16,638 |
|
153,774 |
Financial investments49 .......... |
83,715 |
|
92,181 |
|
36,355 |
|
9,688 |
|
49,386 |
|
14,659 |
|
285,984 |
Total assets41 ......................... |
981,831 |
|
217,146 |
|
138,884 |
|
28,189 |
|
260,131 |
|
57,491 |
|
1,683,672 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits by banks .................. |
88,043 |
|
5,824 |
|
7,874 |
|
1,357 |
|
13,229 |
|
3,948 |
|
120,275 |
Customer accounts ................. |
169,390 |
|
26,650 |
|
43,698 |
|
5,752 |
|
19,095 |
|
20,142 |
|
284,727 |
Trading liabilities ................... |
169,814 |
|
10,720 |
|
3,040 |
|
13 |
|
69,302 |
|
2,875 |
|
255,764 |
Derivative liabilities ............... |
191,480 |
|
16,619 |
|
15,500 |
|
651 |
|
60,178 |
|
3,270 |
|
287,698 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 31 December 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading assets49 ...................... |
281,089 |
|
45,398 |
|
19,192 |
|
414 |
|
74,498 |
|
5,004 |
|
425,595 |
Derivative assets .................... |
303,265 |
|
26,989 |
|
25,492 |
|
1,014 |
|
125,848 |
|
5,145 |
|
487,753 |
Loans and advances to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
- customers (net) ............... |
185,818 |
|
23,042 |
|
27,941 |
|
6,649 |
|
35,583 |
|
8,273 |
|
287,306 |
- banks (net) ...................... |
49,508 |
|
20,970 |
|
21,309 |
|
5,401 |
|
9,238 |
|
12,574 |
|
119,000 |
Financial investments49 .......... |
105,546 |
|
46,964 |
|
29,772 |
|
7,574 |
|
39,841 |
|
8,179 |
|
237,876 |
Total assets41 ......................... |
1,180,759 |
|
233,187 |
|
147,714 |
|
27,975 |
|
348,347 |
|
53,870 |
|
1,991,852 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits by banks .................. |
79,509 |
|
11,509 |
|
12,261 |
|
944 |
|
16,244 |
|
3,871 |
|
124,338 |
Customer accounts ................. |
199,687 |
|
30,866 |
|
42,977 |
|
7,628 |
|
23,844 |
|
15,384 |
|
320,386 |
Trading liabilities ................... |
144,759 |
|
13,056 |
|
3,633 |
|
54 |
|
72,325 |
|
2,546 |
|
236,373 |
Derivative liabilities ............... |
300,200 |
|
28,536 |
|
25,465 |
|
1,016 |
|
122,699 |
|
4,615 |
|
482,531 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 31 December 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading assets49 ...................... |
294,078 |
|
26,877 |
|
18,119 |
|
1,613 |
|
93,395 |
|
8,570 |
|
442,652 |
Derivative assets .................... |
102,409 |
|
11,492 |
|
9,795 |
|
439 |
|
56,531 |
|
1,814 |
|
182,480 |
Loans and advances to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
- customers (net) ............... |
163,066 |
|
19,171 |
|
26,476 |
|
5,630 |
|
26,186 |
|
9,935 |
|
250,464 |
- banks (net) ...................... |
89,651 |
|
53,725 |
|
24,733 |
|
6,120 |
|
14,938 |
|
10,339 |
|
199,506 |
Financial investments49 .......... |
94,416 |
|
46,765 |
|
31,301 |
|
8,147 |
|
33,273 |
|
10,155 |
|
224,057 |
Total assets41 ......................... |
912,299 |
|
218,293 |
|
130,096 |
|
26,548 |
|
263,008 |
|
46,606 |
|
1,596,850 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits by banks .................. |
85,315 |
|
6,251 |
|
14,737 |
|
2,437 |
|
14,825 |
|
2,830 |
|
126,395 |
Customer accounts ................. |
163,713 |
|
37,364 |
|
45,773 |
|
8,347 |
|
30,732 |
|
13,950 |
|
299,879 |
Trading liabilities ................... |
201,010 |
|
15,939 |
|
8,517 |
|
84 |
|
73,081 |
|
4,998 |
|
303,629 |
Derivative liabilities ............... |
104,687 |
|
10,865 |
|
9,204 |
|
452 |
|
53,058 |
|
1,986 |
|
180,252 |
For footnotes, see page 149.
Profit before tax |
|
|||||
|
2009 |
|
2008 |
|
2007 |
|
|
US$m |
|
US$m |
|
US$m |
|
|
|
|
|
|
|
|
Net interest income ...... |
1,474 |
|
1,612 |
|
1,216 |
|
|
|
|
|
|
|
|
Net fee income ............. |
1,236 |
|
1,476 |
|
1,615 |
|
|
|
|
|
|
|
|
Trading income excluding net interest income .... |
322 |
|
408 |
|
525 |
|
Net interest income |
22 |
|
14 |
|
9 |
|
|
|
|
|
|
|
|
Net trading income42 ..... |
344 |
|
422 |
|
534 |
|
|
|
|
|
|
|
|
Net expense from financial instruments designated at fair value ................................... |
- |
|
- |
|
(1) |
|
Gains less losses from financial investments . |
5 |
|
64 |
|
119 |
|
Dividend income ........... |
5 |
|
8 |
|
7 |
|
Other operating income |
48 |
|
49 |
|
58 |
|
|
|
|
|
|
|
|
Total operating income ................................... |
3,112 |
|
3,631 |
|
3,548 |
|
|
|
|
|
|
|
|
Net insurance claims43 ... |
- |
|
- |
|
- |
|
|
|
|
|
|
|
|
Net operating income16 ................................... |
3,112 |
|
3,631 |
|
3,548 |
|
|
|
|
|
|
|
|
Loan impairment charges |
(128) |
|
(68) |
|
(14) |
|
|
|
|
|
|
|
|
Net operating income |
2,984 |
|
3,563 |
|
3,534 |
|
|
|
|
|
|
|
|
Employee expenses ....... |
(1,234) |
|
(1,367) |
|
(1,250) |
|
Other operating expenses ................................... |
(650) |
|
(749) |
|
(775) |
|
|
|
|
|
|
|
|
Total operating expenses ................................... |
(1,884) |
|
(2,116) |
|
(2,025) |
|
|
|
|
|
|
|
|
Operating profit ........ |
1,100 |
|
1,447 |
|
1,509 |
|
|
|
|
|
|
|
|
Share of profit in associates and joint ventures ..................... |
8 |
|
- |
|
2 |
|
|
|
|
|
|
|
|
Profit before tax ......... |
1,108 |
|
1,447 |
|
1,511 |
|
|
|
|
|
|
|
|
By geographical region |
|
|
|
|
|
|
Europe ....................... |
854 |
|
998 |
|
915 |
|
Hong Kong ................. |
197 |
|
237 |
|
305 |
|
Rest of Asia-Pacific27 . |
90 |
|
109 |
|
89 |
|
Middle East27 .............. |
6 |
|
4 |
|
3 |
|
North America ........... |
(50) |
|
83 |
|
174 |
|
Latin America ............ |
11 |
|
16 |
|
25 |
|
|
|
|
|
|
|
|
|
1,108 |
|
1,447 |
|
1,511 |
|
|
|
|
|
|
|
|
|
% |
|
% |
|
% |
|
Share of HSBC's profit before tax ................... |
15.6 |
|
15.6 |
|
6.2 |
|
Cost efficiency ratio ..... |
60.5 |
|
58.3 |
|
57.1 |
|
|
|
|
|
|
|
|
Balance sheet data41 |
|
|
|
|
|
|
|
US$m |
|
US$m |
|
US$m |
|
Loans and advances to customers (net) .......... |
37,031 |
|
37,590 |
|
43,612 |
|
Total assets ................... |
116,148 |
|
133,216 |
|
130,893 |
|
Customer accounts ........ |
106,533 |
|
116,683 |
|
106,197 |
|
For footnotes, see page 149. |
|
|
|
|
||
Strategic direction
Private Banking strives to be the world's leading international private bank, recognised for excellent client experience and global connections.
The strength of HSBC's brand, capital position, and extensive global network provides a foundation from which Private Banking continues to attract and retain clients. Product and service leadership in areas such as credit, estate planning, hedge funds, and investment advice helps Private Banking meet the complex international financial needs of individuals and families.
Through continuing investment in its people, integrated IT solutions and emerging markets-focused domestic operations, Private Banking is well-positioned for sustainable long-term growth.
Financial performance in 2009
· Reported pre-tax profit was 23 per cent lower at US$1.1 billion, a fall of 21 per cent on an underlying basis, primarily from a decline in fee income. This was due to a change in the risk tolerance of private banking customers and consequent reduction in client activity, lower fiduciary fees and the effect of weak markets on the value of funds under management. Strong cost control including reduced performance-related costs partially offset the lower revenues.
· Net interest income fell by 6 per cent as lower interest rates in the major economies, combined with aggressive competition for deposits from weaker competitors, particularly in Europe and North America, led to tighter spreads and a decline in balances. Lending volumes declined due to client deleveraging and a lower appetite for credit, although this was partly mitigated by re-pricing historically low margin business to reflect the changed conditions. Favourable interest rate and yield curve movements at the beginning of 2009 generated higher treasury income in Asia and Europe, benefiting net interest income.
· Net fee income decreased by 14 per cent, affected by the fall in the value of equity markets in the second half of 2008 and the first quarter of 2009. This resulted in a lower average value of funds under management and the redemption of investments, particularly hedge funds, in early 2009. Commission income on fiduciary deposits decreased as low interest rates resulted in a decline in volumes, and annual fund performance fees earned in January 2008 were not repeated in 2009.
· Trading income fell by 18 per cent, also reflecting lower client trading activity, mainly in foreign exchange and structured products.
· Gains less losses from financial investments decreased by 90 per cent due to gains made on the disposal of HSBC's residual interest in the Hermitage Fund in the first half of 2008 which did not recur in 2009.
· Other operating income was in line with 2008, and included gains on the sale of two office buildings in Switzerland and Luxembourg.
· Loan impairment charges and other credit risk provisions increased by US$62 million, largely due to a single specific charge in the US in 2009.
· Operating expenses decreased by 9 per cent as performance-related costs were cut, staff numbers were reduced and discretionary costs such as travel and marketing were tightly managed. These steps were taken in response to the lower revenues earned in the weaker economic environment. Costs included US$19 million of integration costs relating to the merger of HSBC's two Swiss private banks, US$17 million of redundancy costs worldwide and the up-front cost of establishing Private Banking in new developing markets, including investments in mainland China, India and Russia.
· The cost efficiency ratio increased by 2.1 percentage points to 60.5 per cent.
Client assets |
|||
|
2009 |
|
2008 |
|
US$bn |
|
US$bn |
|
|
|
|
At 1 January ................................. |
352 |
|
421 |
Net new money ............................ |
(7) |
|
24 |
Value change ................................. |
27 |
|
(71) |
Exchange and other ...................... |
(5) |
|
(22) |
|
|
|
|
At 31 December ........................... |
367 |
|
352 |
Client assets by investment class |
|||
|
2009 |
|
2008 |
|
US$bn |
|
US$bn |
|
|
|
|
Equities ........................................ |
73 |
|
53 |
Bonds ........................................... |
69 |
|
57 |
Structured products ....................... |
10 |
|
7 |
Funds ............................................ |
82 |
|
87 |
Cash, fiduciary deposits and other . |
133 |
|
148 |
|
|
|
|
|
367 |
|
352 |
·
Reported client assets increased by 4 per cent to US$367 billion due to portfolio appreciation and foreign exchange movements, partly offset by a net outflow of funds due to hedge fund redemptions, client deleveraging and the decision not to match aggressive deposit prices offered by weaker competitors, particularly in Europe and North America. Private Banking continued to experience net client inflows in emerging markets, namely Asia, the Middle East and Latin America, with net new money of US$6.6 billion generated in these markets in the year.
· Reported total client assets increased by 6 per cent to US$460 billion, largely due to an increase in the market value of assets. 'Total client assets' is a measure equivalent to many industry definitions of assets under management which include some non-financial assets held in client trusts.
Business highlights in 2009
· Intragroup referrals continued to result in good inflows with US$5.8 billion raised during 2009.
· The legal merger of HSBC's two Swiss private banks was achieved as planned in April 2009 and technical integration was completed in early January 2010. The combined bank is expected to achieve significant operational and cost efficiencies.
· HSBC Alternative Investments Limited continued to achieve strong returns on hedge fund products in the second half of 2009, including its flagship fund of hedge funds, the GH fund, which achieved a return of 12.3 per cent during the year. A series of new products were launched including one of the first UCITS III hedge funds of hedge funds and as a result, the business saw net inflows in the second half of 2009.
· Major awards included 'Outstanding Global Private Bank' by Private Banker International, and 'Best Global Private Bank', 'Best Private Bank in Asia' and 'Best Private Bank in the Middle East' by The Banker and The Financial Times. The Euromoney 2010 Private Banking Survey placed HSBC second in the Global Private Banking category for the second consecutive year.
· Investment in emerging markets and domestic businesses continued, including the launch of Private Banking in Russia and further investments in Private Banking operations in Asia, Latin America and the Middle East.
Reconciliation of reported and underlying profit before tax
|
2009 compared with 2008 |
||||||||||||||||
Private Banking |
2008 |
2008 and disposals10 US$m |
|
Currency translation11 US$m |
|
2008 at 2009 exchange rates12 US$m |
2009 and disposals10 US$m |
|
Under- lying change US$m |
|
2009 |
Re- ported change13 % |
Under- lying change13 % |
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income . |
1,612 |
|
- |
|
(52) |
|
1,560 |
|
- |
|
(86) |
|
1,474 |
|
(9) |
|
(6) |
Net fee income . |
1,476 |
|
- |
|
(33) |
|
1,443 |
|
- |
|
(207) |
|
1,236 |
|
(16) |
|
(14) |
Other income15 ............. |
543 |
|
- |
|
(19) |
|
524 |
|
- |
|
(122) |
|
402 |
|
(26) |
|
(23) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income16 ........... |
3,631 |
|
- |
|
(104) |
|
3,527 |
|
- |
|
(415) |
|
3,112 |
|
(14) |
|
(12) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan impairment charges and other credit risk provisions ......... |
(68) |
|
- |
|
2 |
|
(66) |
|
- |
|
(62) |
|
(128) |
|
(88) |
|
(94) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income ............. |
3,563 |
|
- |
|
(102) |
|
3,461 |
|
- |
|
(477) |
|
2,984 |
|
(16) |
|
(14) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses ............. |
(2,116) |
|
- |
|
54 |
|
(2,062) |
|
- |
|
178 |
|
(1,884) |
|
11 |
|
9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit .. |
1,447 |
|
- |
|
(48) |
|
1,399 |
|
- |
|
(299) |
|
1,100 |
|
(24) |
|
(21) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from associates ........... |
- |
|
- |
|
- |
|
- |
|
- |
|
8 |
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit before tax ....... |
1,447 |
|
- |
|
(48) |
|
1,399 |
|
- |
|
(291) |
|
1,108 |
|
(23) |
|
(21) |
|
2008 compared with 2007 |
||||||||||||||||
Private Banking |
2007 |
2007 disposals gains10 US$m |
|
Currency translation11 US$m |
|
2007 at 2008 exchange rates17 US$m |
2008 and disposals10 US$m |
|
Under- lying change US$m |
|
2008 |
Re- ported change13 % |
Under- lying change13 % |
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income ... |
1,216 |
|
1 |
|
(12) |
|
1,205 |
|
- |
|
407 |
|
1,612 |
|
33 |
|
34 |
Net fee income ... |
1,615 |
|
(105) |
|
26 |
|
1,536 |
|
- |
|
(60) |
|
1,476 |
|
(9) |
|
(4) |
Other income15 |
717 |
|
(18) |
|
5 |
|
704 |
|
- |
|
(161) |
|
543 |
|
(24) |
|
(23) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income16 |
3,548 |
|
(122) |
|
19 |
|
3,445 |
|
- |
|
186 |
|
3,631 |
|
2 |
|
5 |
Loan impairment charges and other credit risk provisions ............... |
(14) |
|
- |
|
- |
|
(14) |
|
- |
|
(54) |
|
(68) |
|
(386) |
|
(386) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income ... |
3,534 |
|
(122) |
|
19 |
|
3,431 |
|
- |
|
132 |
|
3,563 |
|
1 |
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
(2,025) |
|
98 |
|
(17) |
|
(1,944) |
|
- |
|
(172) |
|
(2,116) |
|
(4) |
|
(9) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit ..... |
1,509 |
|
(24) |
|
2 |
|
1,487 |
|
- |
|
(40) |
|
1,447 |
|
(4) |
|
(3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from associates ............... |
2 |
|
- |
|
- |
|
2 |
|
- |
|
(2) |
|
- |
|
(100) |
|
(100) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit before tax ......... |
1,511 |
|
(24) |
|
2 |
|
1,489 |
|
- |
|
(42) |
|
1,447 |
|
(4) |
|
(3) |
For footnotes, see page 149.
Other
Profit/(loss) before tax |
|||||
|
2009 |
|
2008 |
|
2007 |
|
US$m |
|
US$m |
|
US$m |
|
|
|
|
|
|
Net interest expense ..... |
(1,035) |
|
(956) |
|
(542) |
|
|
|
|
|
|
Net fee income/(expense)................................... |
125 |
|
53 |
|
(228) |
|
|
|
|
|
|
Trading income/(expense) excluding net interest income ....................... |
244 |
|
(262) |
|
127 |
Net interest income/ (expense) on trading activities .................... |
35 |
|
(268) |
|
(1) |
Net trading income/ (expense)42 ................ |
279 |
|
(530) |
|
126 |
|
|
|
|
|
|
Changes in fair value of long-term debt issued and related derivatives .................................. |
(6,247) |
|
6,679 |
|
2,812 |
Net income/(expense) from other financial instruments designated at fair value ............... |
(196) |
|
747 |
|
81 |
Net income/(expense) from financial instruments designated at fair value ................ |
(6,443) |
|
7,426 |
|
2,893 |
Gains less losses from financial investments . |
3 |
|
(396) |
|
83 |
Gains arising from dilution of interests in associates ................... |
- |
|
- |
|
1,092 |
Dividend income ........... |
12 |
|
10 |
|
32 |
Net earned insurance premiums ................... |
(3) |
|
(17) |
|
(21) |
Gains on disposal of |
- |
|
2,445 |
|
- |
Other operating income |
5,042 |
|
4,261 |
|
3,523 |
|
|
|
|
|
|
Total operating income/ (expense) ... |
(2,020) |
|
12,296 |
|
6,958 |
|
|
|
|
|
|
Net insurance claims43 ... |
(3) |
|
(1) |
|
- |
|
|
|
|
|
|
Net operating income/ (expense)16 ............... |
(2,023) |
|
12,295 |
|
6,958 |
|
|
|
|
|
|
Loan impairment charges and other credit risk provisions .................. |
(8) |
|
(5) |
|
(11) |
|
|
|
|
|
|
Net operating income/ (expense) ................. |
(2,031) |
|
12,290 |
|
6,947 |
|
|
|
|
|
|
Employee expenses ....... |
(2,602) |
|
(2,198) |
|
(2,017) |
Other operating expenses ................................... |
(2,113) |
|
(1,976) |
|
(1,545) |
|
|
|
|
|
|
Total operating expenses ................................... |
(4,715) |
|
(4,174) |
|
(3,562) |
|
|
|
|
|
|
Operating profit/(loss) ................................... |
(6,746) |
|
8,116 |
|
3,385 |
|
|
|
|
|
|
Share of profit in joint ventures and associates ................................... |
26 |
|
41 |
|
150 |
|
|
|
|
|
|
Profit/(loss) before tax ................................... |
(6,720) |
|
8,157 |
|
3,535 |
|
|
|
|
|
|
By geographical region |
|
|
|
|
|
Europe ....................... |
(2,994) |
|
5,296 |
|
1,056 |
Hong Kong ................. |
(359) |
|
(955) |
|
(375) |
Rest of Asia-Pacific27 . |
264 |
|
197 |
|
1,261 |
Middle East27 .............. |
87 |
|
79 |
|
82 |
North America ........... |
(3,717) |
|
3,534 |
|
1,508 |
Latin America ............ |
(1) |
|
6 |
|
3 |
|
|
|
|
|
|
|
(6,720) |
|
8,157 |
|
3,535 |
|
|
|
|
|
|
|
% |
|
% |
|
% |
Share of HSBC's profit before tax ................... |
(94.9) |
|
87.6 |
|
14.6 |
Cost efficiency ratio ..... |
(233.1) |
|
33.9 |
|
51.2 |
Balance sheet data41 |
|
|
|
|
|
|
2009 |
|
2008 |
|
2007 |
|
US$m |
|
US$m |
|
US$m |
Loans and advances to customers (net) .... |
3,110 |
|
2,621 |
|
2,678 |
Total assets ............. |
150,983 |
|
145,581 |
|
164,806 |
Customer accounts .. |
1,277 |
|
2,041 |
|
2,006 |
For footnotes, see page 149.
Notes
· Reported loss before tax in Other was US$6.7 billion, compared with a profit of US$8.2 billion in 2008. For a description of the main items reported under 'Other', see footnote 40 on page 150.
· Net interest expense substantially comprises the interest paid on third-party debt issues at the holding company level.
· Net trading income was US$279 million, compared with a net trading expense in 2008; this reflected fair value gains on certain non‑qualifying hedges, compared with fair value losses in 2008. This caption also included a one‑off hedging loss of US$344 million relating to forward foreign exchange contracts entered into to hedge the proceeds of the Group's rights issue, and a US$121 million loss arising from the mark-to-market of the implied contingent forward contract entered into with the underwriters of the Group's rights issue. Both of these items were part of the net proceeds of the rights issue but for technical accounting reasons were reflected through the income statement.
· Net expense from financial instruments designated at fair value declined by 90 per cent to US$90 million due to reduced income from non-qualifying interest and exchange rate hedges related to long-term debt issued by HSBC Holdings and its North American and European subsidiaries.
· HSBC recognised a gain of US$576 million in respect of the sale and leaseback of 8 Canada Square, its global headquarters in London, which was effected through the disposal of its entire shareholding in PMII. In 2008, a gain of US$416 million was reported in respect of the purchase of PMII from Metrovacesa. See Note 23 on the Financial Statements.
· Operating expenses increased by 15 per cent to US$4.7 billion, mainly due to further centralisation of certain operational functions in the US to HSBC Technology Services USA
resulting in cost savings across the other customer groups in North America. These expenses were previously incurred directly by customer groups, and are now substantially recovered from them through a recharge mechanism with the revenue reported in other operating income. Costs at HSBC's Group Service Centres rose by 10 per cent as the number of migrated activities increased in line with the Group's Global Resourcing model.
·
Reconciliation of reported and underlying profit/(loss) before tax
|
2009 compared with 2008 |
||||||||||||||||
Other |
2008 |
2008 adjust- ments10 US$m |
|
Currency translation11 US$m |
|
2008 at 2009 exchange rates12 US$m |
2009 adjust- ments10 US$m |
|
Under- lying change US$m |
|
2009 |
Re- ported change13 % |
Under- lying change13 % |
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest expense .. |
(956) |
|
- |
|
12 |
|
(944) |
|
- |
|
(91) |
|
(1,035) |
|
(8) |
|
(10) |
Net fee income ... |
53 |
|
- |
|
(3) |
|
50 |
|
- |
|
75 |
|
125 |
|
136 |
|
150 |
Changes in fair value |
6,570 |
|
(6,570) |
|
- |
|
- |
|
(6,533) |
|
- |
|
(6,533) |
|
(199) |
|
|
Gains on disposal of |
2,445 |
|
(2,445) |
|
- |
|
- |
|
- |
|
- |
|
- |
|
(100) |
|
|
Other income15 |
4,183 |
|
(95) |
|
(13) |
|
4,075 |
|
- |
|
1,345 |
|
5,420 |
|
30 |
|
33 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income/ (expense)16 ............ |
12,295 |
|
(9,110) |
|
(4) |
|
3,181 |
|
(6,533) |
|
1,329 |
|
(2,023) |
|
(116) |
|
42 |
Loan impairment charges and other credit risk provisions ............... |
(5) |
|
- |
|
(1) |
|
(6) |
|
- |
|
(2) |
|
(8) |
|
(60) |
|
(33) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income/ (expense) ............... |
12,290 |
|
(9,110) |
|
(5) |
|
3,175 |
|
(6,533) |
|
1,327 |
|
(2,031) |
|
(117) |
|
42 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses . |
(4,174) |
|
- |
|
70 |
|
(4,104) |
|
- |
|
(611) |
|
(4,715) |
|
(13) |
|
(15) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit/(loss)........... |
8,116 |
|
(9,110) |
|
65 |
|
(929) |
|
(6,533) |
|
716 |
|
(6,746) |
|
(183) |
|
77 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from associates ............... |
41 |
|
- |
|
(1) |
|
40 |
|
- |
|
(14) |
|
26 |
|
(37) |
|
(35) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit/(loss) before tax.......... |
8,157 |
|
(9,110) |
|
64 |
|
(889) |
|
(6,533) |
|
702 |
|
(6,720) |
|
(182) |
|
79 |
|
2008 compared with 2007 |
||||||||||||||||
Other |
2007 |
2007 gains10 US$m |
|
Currency translation11 US$m |
|
2007 at 2008 exchange rates17 US$m |
2008 adjustments10 US$m |
|
Under- lying change US$m |
|
2008 |
Re- ported change13 % |
Under- lying change13 % |
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest expense ... |
(542) |
|
- |
|
(38) |
|
(580) |
|
(6) |
|
(370) |
|
(956) |
|
(76) |
|
(64) |
Net fee income/ |
(228) |
|
- |
|
49 |
|
(179) |
|
- |
|
232 |
|
53 |
|
123 |
|
130 |
Changes in fair value . |
3,055 |
|
(3,055) |
|
- |
|
- |
|
6,570 |
|
- |
|
6,570 |
|
115 |
|
|
Gains on disposal of |
- |
|
- |
|
- |
|
- |
|
2,445 |
|
- |
|
2,445 |
|
|
|
|
Other income15 .. |
4,673 |
|
(1,116) |
|
36 |
|
3,593 |
|
95 |
|
495 |
|
4,183 |
|
(10) |
|
14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income16 .. |
6,958 |
|
(4,171) |
|
47 |
|
2,834 |
|
9,104 |
|
357 |
|
12,295 |
|
77 |
|
13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan impairment charges and other credit risk provisions |
(11) |
|
24 |
|
1 |
|
14 |
|
- |
|
(19) |
|
(5) |
|
55 |
|
(136) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income .... |
6,947 |
|
(4,147) |
|
48 |
|
2,848 |
|
9,104 |
|
338 |
|
12,290 |
|
77 |
|
12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses .. |
(3,562) |
|
- |
|
(15) |
|
(3,577) |
|
6 |
|
(603) |
|
(4,174) |
|
(17) |
|
(17) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit ....... |
3,385 |
|
(4,147) |
|
33 |
|
(729) |
|
9,110 |
|
(265) |
|
8,116 |
|
140 |
|
(36) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from associates . |
150 |
|
(12) |
|
11 |
|
149 |
|
- |
|
(108) |
|
41 |
|
(73) |
|
(72) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit before tax ........... |
3,535 |
|
(4,159) |
|
44 |
|
(580) |
|
9,110 |
|
(373) |
|
8,157 |
|
131 |
|
(64) |
For footnotes, see page 149.