Grupo Financiero HSBC 2011 Results

RNS Number : 3168Y

HSBC Holdings PLC

29 February 2012

 



29 February 2012

GRUPO FINANCIERO HSBC, S.A. DE C.V.

2011 FINANCIAL RESULTS - HIGHLIGHTS

·    Net income before taxes for the year ended 31 December 2011 was MXN3,214m, an increase of MXN856m or 36.3% compared with MXN2,358m for 2010. The 2011 results were affected by restructuring of our regional and country support functions. Excluding the effect of these charges, net income before taxes was MXN4,723m, up by MXN2,297m or 94.7% compared with 2010.

·    Net income for the year ended 31 December 2011 was MXN2,510m, an increase of MXN391m or 18.5% compared with MXN2,119m for 2010. Excluding the effect of the restructuring charges, net income was MXN3,566m, up MXN1,400m or 64.6% compared with 2010.

·    Total operating income, net of loan impairment charges, for the year ended 31 December 2011 was MXN28,813m, an increase of MXN3,361m or 13.2% compared with MXN25,452m for 2010.

·    Loan impairment charges for the year ended 31 December 2011 were MXN6,737m, a decrease of MXN2,547m or 27.4% compared with MXN9,284m for 2010.

·    Net loans and advances to customers were MXN176.7bn at 31 December 2011, an increase of MXN14.6bn or 9.0% compared with MXN162.1bn at 31 December 2010. Total impaired loans as a percentage of gross loans and advances improved to 2.7% compared with 3.1% at 31 December 2010. The coverage ratio (allowance for loan losses divided by impaired loans) was 214.5% compared with 174.0% at 31 December 2010.

·    At 31 December 2011, deposits were MXN297.4bn, an increase of MXN44.2bn or 17.5% compared with MXN253.2bn at 31 December 2010.

·    Return on equity was 5.2% for the year ended 31 December 2011 compared with 4.4% for 2010.

·    At 31 December 2011, the bank's capital adequacy ratio was 15.3% and the tier 1 capital ratio was 11.7% compared with 14.5% and 11.2% respectively at 31 December 2010.

·    From the first quarter of 2011, regulatory requirements issued by the Comisión Nacional Bancaria y de Valores (CNBV) require financial figures for both the insurance and bond companies, HSBC Seguros and Fianzas Mexico respectively, to be presented on a consolidated basis. As a result, 2010 annual results have been re-stated to be comparable with the same period of 2011.

·    The sale of HSBC Afore, S.A. de C.V. to Principal Financial Group, S.A. de C.V. was successfully completed in August 2011.

HSBC Mexico S.A. (the bank) is Grupo Financiero HSBC, S.A. de C.V.'s (Grupo Financiero HSBC) primary subsidiary company and is subject to supervision by the Mexican Banking and Securities Commission. The bank is required to file financial information on a quarterly basis (in this case for the quarter ended 31 December 2011) and this information is publicly available. Given that this information is available in the public domain, Grupo Financiero HSBC, S.A. de C.V. has elected to file this release.

Results are prepared in accordance with Mexican GAAP (Generally Accepted Accounting Principles).

Overview

Mexico's economy grew in 2011, although export growth moderated at the end of the year on the back of lower external demand. By contrast, domestic demand continued to strengthen, reflecting the greater availability of credit, growth in wages and a steady reduction in unemployment. The annual rate of CPI inflation rose at the end of 2011, to 3.8% due to a rebound in some agricultural prices and exchange rate depreciation. The Central Bank of Mexico maintained its policy rate at 4.5% throughout the year.

For the year ended 31 December 2011, Grupo Financiero HSBC's net income was MXN2,510m, an increase of MXN391m or 18.5% compared with 2010. Improved net income was mainly driven by higher trading income, increased other operating income and lower impairment charges, partially offset by lower net fee income and an increase in administrative expenses.  

Net interest income was MXN21,495m, a decrease of MXN9m compared with 2010. This reduction was mainly a consequence of higher funding costs and a contraction in interest rate spreads, which were offset by higher insurance earned premiums and increased loan portfolio balances.

Loan impairment charges were MXN6,737m, a decline of MXN2,547m or 27.4% compared with 2010. This reflects the strategic reduction of the higher risk sections of the credit card portfolio, as well as improvements to both the collection and credit quality of the portfolio following targeted sales campaigns and enhanced pre-screening of new customers.

Net fee income was MXN5,995m, a decrease of MXN476m or 7.4% compared with  2010. This reduction was mainly as a consequence of lower credit card portfolio volumes and decreased fee income from account services and ATMtransactions . Regulatory changes effective since the beginning of 2011 impacted fee income by limiting the fees that can be charged for ATM transactions and customer deposit services.

Trading income was MXN3,272m, an increase of MXN449m or 15.9% compared with the same period of 2010. Higher trading income was due to the completion of a small number of individually large derivative transactions with clients of Global Banking & Markets and the sale of an equity investment in the first quarter of 2011, partially offset by lower foreign exchange and debt trading results.

Other operating income was MXN4,788m, an increase of MXN850m or 21.6% compared with 2010. This increase is driven by recoveries of taxes paid in previous years, the gain on the sale and leaseback of certain branches in the network, the sale of HSBC Afore and lower operational losses recognised during the year.

Administrative and personnel expenses were MXN25,562m, an increase of MXN2,449m or 10.6% compared with 2010. This increase is mainly driven by the consolidation of our branch network and restructuring of our regional and country support functions. Excluding the effect of the restructuring charges, the increase in expenses would have been MXN1,008m or 4.4% compared with 2010.

The performance of all subsidiaries contributed positively to Grupo Financiero HSBC's results, particularly HSBC Seguros, which reported a net profit of MXN1,496m for the year ended 31 December 2011, up 21.4% compared with 2010. The higher results reported by HSBC Seguros were driven by increased product sales, mainly in life products, contributing to a 9.3% increase in total earned premiums, coupled with lower operating expenses. Additionally, the claims ratio decreased to 24.6% from 31.8% in 2010.

Net loans and advances to customers increased MXN14.6bn or 9.0% to MXN176.7bn at 31 December 2011 compared with 31 December 2010, mainly driven by growth in both the commercial and consumer portfolios. Commercial portfolio growth is mainly due to higher lending to corporate clients and MME's, while consumer portfolio growth was mainly driven by increased payroll and personal loans.

At 31 December 2011, total impaired loans decreased by 4.9% to MXN5.1bn compared with 31 December 2010, mainly as a result of a reduction in impaired consumer and mortgage loans, reflecting tightened underwriting standards, improved collection procedures and an overall improvement in the credit environment. This was partially offset by an increase in impaired commercial loans. Total impaired loans as a percentage of total loans and advances to customers improved to 2.7% compared with 3.1% reported at 31 December 2010.

Total loan loss allowances at 31 December 2011 were MXN10.9bn, an increase of MXN1.6m or 17.3% compared with 31 December 2010. The total coverage ratio (allowance for loan losses divided by impaired loans) was 214.5% at 31 December 2011 compared with 174.0% at 31 December 2010.

Total deposits were MXN297.4bn at 31 December 2011, an increase of MXN44.2bn or 17.5% compared with 31 December 2010. This is the result of increased sales efforts and targeted promotions particularly for 'Inversion diaria', 'Inversion Express' and 'Premier' deposit products, as well as increases in payroll and commercial deposits.

At 31 December 2011, the bank's capital adequacy ratio was 15.3% compared with 14.5% at 31 December 2010. The tier 1 capital ratio was 11.7% compared with 11.2% at 31 December 2010.

In December 2011, Grupo Financiero HSBC paid a dividend of MXN2,500m representing MXN0.97 per share. 

Business highlights

Retail Banking and Wealth Management (RBWM)

RBWM reported deposit and loan growth in 2011, and continues to benefit from a general improvement in credit quality of the portfolios. Customer lending increased driven mainly by payroll and personal loans, as a result of a strong emphasis placed on targeted sales. Deposits grew strongly in 2011 achieving double digit growth.

In our wealth management business, our Premier customer base has been reviewed and aligned with the HSBC Global Premier qualifying requirements, allowing our personal relationship managers to provide improved services.

Commercial Banking

During 2011, Commercial Banking achieved an increase in both customer deposits and loans compared with 2010.

During the year we recruited additional relationship managers to support business growth, particularly from the increasing number of businesses with international banking requirements as well as from business banking and mid market customers.

Aligned with our strategy to strengthen our international presence, we have reinforced our Trade and Supply Chain team through the creation of a dedicated Client Service team.

Global Banking and Markets

Total Global Markets revenues were particularly strong in trading. Balance sheet management continues to be the significant contributor.

In the Debt Capital Markets business, Grupo Financiero HSBC consolidated its position as a leading underwriter in Mexico, maintaining its second place in the local debt capital market league tables. During 2011, we placed and participated in significant bond issuances including United Mexican States (UMS), CEMEX, Ideal, Santander, INFONAVIT, Bancomext, Alsea, Gas Natural, Interacciones, Scotiabank, Cadena Mexicana de Exhibición, ICA, PEMEX, VolksWagen Bank, ARCA and Inbursa.

 
In 2011, we were granted with a license to operate and set-up an equity derivatives platform, supporting growth and development in Global Markets.

The Project and Export Finance Business reported strong performance, executing transactions worth MXN8,305m (approximately US$570m). Also during the year, two mergers and acquisitions deals were executed (Petrotemex and Arca-Contal).

Sale of HSBC Afore to Principal Financial Group

On 11 April 2011, Grupo Financiero HSBC signed an agreement to sell HSBC Afore, S.A. de C.V., its pension funds management business, to Principal Financial Group, S.A. de C.V. ('Principal') for a cash consideration of MXN2,360m (approximately US$198m). This sale transaction was successfully completed in August 2011.

Grupo Financiero HSBC 2011 financial results as reported to HSBC Holdings plc, our ultimate parent company, under International Financial Reporting Standards (IFRS)

For the year ended 31 December 2011, on an IFRS basis, Grupo Financiero HSBC reported pre-tax profits of MXN7,978m, an increase of MXN2,684m or 50.7% compared with MXN5,294m in 2010. The 2011 results were affected by restructuring of our regional and country support functions. Excluding the effect of these charges, net income before taxes would have been MXN9,487m, up by MXN4,125m or 76.9% compared with 2010.

The lower profit reported under Mexican GAAP is largely due to lower loan impairment charges under IFRS as result of the different provisioning methodologies and the amount recognised as profit on the sale of the pension funds management business (Afore). The goodwill allocated under IFRS on the disposal of Afore is based on the goodwill held in the Grupo Financiero HSBC legal entity, but allocated on the HSBC Group cash generating unit basis. A reconciliation and explanation between the Mexican GAAP and IFRS results is included with the financial statements of this document.

About HSBC

Grupo Financiero HSBC, is one of the leading financial groups in Mexico with 1,067 branches, 6,195 ATMs, approximately eight and a half million total customer accounts and approximately 19,000 employees. For more information, visit www.hsbc.com.mx.

Grupo Financiero HSBC is a 99.99% directly owned subsidiary of HSBC Latin America Holdings (UK) Limited, which is a wholly owned subsidiary of HSBC Holdings plc, and a member of the HSBC Group. With around 7,200 offices in over 80 countries and territories in Europe, the Asia-Pacific region, North and Latin America, the Middle East and Africa and with assets of US$2,556bn at 31 December 2011, HSBC is one of the world's largest banking and financial services organisations.

For further information contact:

London
Brendan McNamara	Alastair Brown
Group Media Relations	Investor Relations
Telephone: [phone]	Telephone: [phone]
Mexico City
Lyssette Bravo	Yordana Aparicio
Public Affairs	Investor Relations
Telephone: [phone]	Telephone: [phone]

Consolidated Balance Sheet

		GROUP				BANK
Figures in MXN millions		31 Dec		31 Dec		31 Dec		31 Dec
		2011		2010		2011		2010
Assets
Cash and deposits in banks		51,224		48,804		51,224		48,801
Margin accounts		27		42		27		42
Investment in securities		177,700		155,257		161,747		139,540
Trading securities		51,089		44,160		43,313		36,548
Available-for-sale securities		111,164		95,683		111,164		95,315
Held to maturity securities		15,447		15,414		7,270		7,677
Repurchase agreements		5,749		1,856		5,749		1,856
Derivative transactions		42,906		28,205		42,906		28,205
Performing loans
Commercial loans		101,012		85,847		101,012		85,847
Loans to financial intermediaries		8,268		7,921		8,268		7,921
Consumer loans		29,302		26,665		29,302		26,665
Mortgage loans		18,058		17,557		18,058		17,557
Loans to government entities		25,916		28,087		25,916		28,087
Total performing loans		182,556		166,077		182,556		166,077
Impaired loans
Commercial loans		2,027		1,669		2,027		1,669
Consumer loans		1,234		1,574		1,234		1,574
Mortgage loans		1,821		2,101		1,821		2,101
Total impaired loans		5,082		5,344		5,082		5,344
Gross loans and advances to customers		187,638		171,421		187,638		171,421
Allowance for loan losses		(10,900)		(9,296)		(10,900)		(9,296)
Net loans and advances to customers		176,738		162,125		176,738		162,125
Premium receivables		267		270		-		-
Accounts receivables from reinsurers and rebonding companies		314		555		-		-
Other accounts receivable		29,287		25,232		29,335		25,393
Foreclosed assets		207		162		203		162
Property, furniture and equipment, net		8,080		9,073		8,080		9,069
Long-term investments in equity securities		221		203		138		123
Disposal groups held for sale		-		2,422		-		-
Deferred taxes		6,504		5,292		6,409		5,318
Goodwill		1,218		1,218		-		-
Other assets, deferred charges and intangibles		4,079		5,332		3,506		4,753
Total assets		504,521		446,048		486,062		425,387

		GROUP				BANK
Figures in MXN millions		31 Dec		31 Dec		31 Dec		31 Dec
		2011		2010		2011		2010
Liabilities
Deposits		297,428		253,247		298,119		253,613
Demand deposits		172,105		149,989		172,797		150,355
Time deposits		121,080		99,015		121,079		99,015
Money market instruments		4,243		4,243		4,243		4,243
Bank deposits and other liabilities		32,536		21,931		32,536		21,931
On demand		5,866		3,776		5,866		3,776
Short-term		24,923		16,630		24,923		16,630
Long-term		1,747		1,525		1,747		1,525
Repurchase agreements		9,327		29,911		15,373		34,868
Stock lending		4		-		4		-
Settlement accounts		-		2,359		-		2,359
Collateral sold		17,704		11,784		11,658		6,827
Derivative transactions		43,296		30,545		43,296		30,545
Technical reserves		11,083		10,553		-		-
Reinsurers		49		197		-		-
Other payable accounts		35,873		25,235		34,572		26,303
Income tax		1,780		1,229		795		654
Contributions for future capital increases		-		-		-		2,013
Sundry creditors and other accounts Payable		34,093		24,006		33,777		23,636
Subordinated debentures outstanding		10,488		10,007		10,488		10,007
Deferred taxes		554		766		520		730
Total liabilities		458,342		396,535		446,566		387,183
Equity
Paid in capital		32,673		32,673		27,618		25,605
Capital stock		5,111		5,111		5,261		5,087
Additional paid in capital		27,562		27,562		22,357		20,518
Other reserves		13,495		16,830		11,875		12,596
Capital reserves		1,832		1,726		11,057		12,437
Retained earnings		8,849		13,058		(202)		-
Result from the valuation of available-for-sale securities		547		140		547		(48)
Result from cash flow hedging transactions		(243)		(213)		(243)		(213)
Net income		2,510		2,119		716		420
Minority interest in capital		11		10		3		3
Total equity		46,179		49,513		39,496		38,204
Total liabilities and equity		504,521		446,048		486,062		425,387

		GROUP				BANK
Figures in MXN millions		31 Dec		31 Dec		31 Dec		31 Dec
		2011		2010		2011		2010
Memorandum Accounts		2,783,257		2,586,456		2,671,966		2,470,038
Third party accounts		95,944		80,097		47,018		43,351
Clients current accounts		13		(2)		-		-
Custody operations		35,328		25,396		-		-
Transactions on behalf of clients		13,585		11,352		-		-
Third party investment banking operations, net		47,018		43,351		47,018		43,351
Proprietary position		2,687,313		2,506,359		2,624,948		2,426,687
Guarantees granted		14		21		14		21
Contingent assets and liabilities		-		116		-		116
Irrevocable lines of credit granted		22,425		16,201		22,425		16,201
Goods in trust or mandate		328,375		293,814		328,375		293,814
Goods in custody or under administration		256,883		251,394		251,772		246,284
Collateral received by the institution		54,796		13,370		54,796		13,370
Collateral received and sold or delivered as guarantee		53,869		15,143		47,829		10,182
Values in deposit		53		53		-		-
Suspended interest on impaired loans		236		254		236		254
Recovery guarantees for issued bonds		35,383		48,011		-		-
Paid claims		61		13		-		-
Cancelled claims		24		17		-		-
Claims recoveries		1		-		-		-
Responsibilities from bonds in force		3,552		3,591		-		-
Other control accounts		1,931,641		1,864,361		1,919,501		1,846,445

Consolidated Income Statement

		GROUP				BANK
Figures in MXN millions		31 Dec		31 Dec		31 Dec		31 Dec
		2011		2010		2011		2010
Interest income		30,535		28,663		29,741		28,018
Interest expense		(10,172)		(8,096)		(10,190)		(8,092)
Earned premiums		2,990		2,740		-		-
Increase in technical reserves		(507)		(380)		-		-
Claims		(1,351)		(1,423)		-		-
Net interest income		21,495		21,504		19,551		19,926
Loan impairment charges		(6,737)		(9,284)		(6,737)		(9,284)
Risk-adjusted net interest income		14,758		12,220		12,814		10,642
Fees and commissions receivable		8,040		8,727		7,650		8,360
Fees payable		(2,045)		(2,256)		(1,449)		(1,429)
Trading income		3,272		2,823		2,620		2,220
Other operating income		4,788		3,938		5,115		4,405
Total operating income		28,813		25,452		26,750		24,198
Administrative and personnel expenses		(25,562)		(23,113)		(25,892)		(23,685)
Net operating income		3,251		2,339		858		513
Undistributed income from subsidiaries		(37)		19		(41)		13
Net income before taxes		3,214		2,358		817		526
Income tax		(2,390)		(1,661)		(1,413)		(1,092)
Deferred income tax		1,326		996		1,311		981
Net income before discontinued operations		2,150		1,693		715		415
Discontinued operations		359		420		-		-
Minority interest		1		6		1		5
Net income		2,510		2,119		716		420

Consolidated Statement of Changes in Shareholders' Equity

GROUP

	Capital  contributed	Capital  reserves	Retained  earnings	Result from valuation of available-for-sale securities	Result from cash flow hedging transactions	Net  income	Minority interest	Total  equity
Figures in MXN millions
Balances at 1 January 2011	32,673	1,726	13,058	140	(213)	2,119	10	49,513
Movements inherent to      the shareholders' decision
Transfer of result of      prior years	-	106	2,013	-	-	(2,119)	-	-
Cash dividends	-	-	(6,020)	-	-	-	-	(6,020)
Other	-	-	(202)	-	-	-	-	(202)
Total	-	106	(4,209)	-	-	(2,119)	-	(6,222)
Movements for the recognition of the comprehensive income
Net income	-	-	-	-	-	2,510	-	2,510
Result from      valuation of       available-for-      sale securities	-	-	-	407	-	-	-	407
Result from cash flow hedging transactions	-	-	-	-	(30)	-	-	(30)
Others	-	-	-	-	-	-	1	1
Total	-	-	-	407	(30)	2,510	1	2,888
Balances at 31 December 2011	32,673	1,832	8,849	547	(243)	2,510	11	46,179

BANK

Figures in MXN millions	Capital  contributed	Capital  reserves	Retained  earnings	Result from valuation of available-for-sale securities	Result from cash flow hedging transactions	Net  income	Minority interest	Total  equity
Balances at 1 January 2011	25,605	12,437	-	(48)	(213)	420	3	38,204
Movements inherent to    the shareholders'    decision
Shares issue	2,013	-	-	-	-	-	-	2,013
Transfer of result of prior years	-	-	420	-	-	(420)	-	-
Constitution of reserves	-	420	(420)	-	-	-	-	-
Cash dividends	-	(1,800)	-	-	-	-	-	(1,800)
Other	-	-	-	-	-	-	-	-
Total	2,013	(1,380)	-	-	-	(420)	-	213
Movements for the    recognition of the    comprehensive income
Net income	-	-	-	-	-	716	-	716
Result from     valuation of      available-     for-sale securities	-	-	-	595	-	-	-	595
Result from cash flow    hedging transactions	-	-	-	-	(30)	-	-	(30)
Others	-	-	(202)	-	-	-	-	(202)
Total	-	-	(202)	595	(30)	716	-	1,079
Balances at 31 December 2011	27,618	11,057	(202)	547	(243)	716	3	39,496

Consolidated Statement of Cash Flows

GROUP

Figures in MXN millions	31 Dec 2011
Net income	2,510
Adjustments for items not involving cash flow:	6,621
Amortisations intangible assets	1,760
Depreciation and amortisation	1,411
Provisions	2,201
Income tax and deferred taxes	1,064
Technical reserves	507
Discontinued operations	(359)
Undistributed income from subsidiaries	37
Changes in items related to operating activities:
Margin accounts	15
Investment securities	(24,180)
Repurchase agreements	(3,893)
Stock borrowing	4
Derivative (assets)	(14,744)
Loan portfolio	(14,903)
Foreclosed assets	(44)
Operating assets	(2,344)
Deposits	44,182
Bank deposits and other liabilities	10,606
Settlement accounts	-
Creditors repo transactions	(20,585)
Collateral sold or delivered as guarantee	5,920
Derivative (liabilities)	12,751
Subordinated debentures outstanding	480
Accounts receivables from reinsurers and coinsurers	241
Accounts receivables from premiums	2
Reinsurers and bonding	(148)
Other operating liabilities	7,953
Income tax paid	(2,096)
Funds provided by operating activities	(783)
Investing activities:
Acquisition of property, furniture and equipment	(417)
Intangible asset acquisitions	563
Others	(54)
Funds used in investing activities	92
Financing activities:
Cash dividends	(6,020)
Funds used in financing activities	(6,020)
Financing activities:
Increase / Decrease in cash and equivalents	2,420
Cash and equivalents at beginning of period	48,804
Cash and equivalents at end of period	51,224

BANK

Figures in MXN millions	31 Dec 2011
Net income	716
Adjustments for items not involving cash flow:	5,342
Depreciation and amortisation	1,407
Amortisations intangible assets	1,760
Provisions	2,032
Income tax and deferred taxes	103
Undistributed income from subsidiaries	40
Changes in items related to operating activities:
Margin accounts	15
Investment securities	(23,651)
Repurchase agreements	(3,893)
Derivative (assets)	(14,744)
Loan portfolio	(14,903)
Foreclosed assets	(41)
Operating assets	(2,500)
Deposits	44,508
Bank deposits and other liabilities	10,606
Creditors repo transactions	(19,496)
Stock borrowing	4
Collateral sold or delivered as guarantee	4,830
Derivative (liabilities)	12,751
Subordinated debentures outstanding	480
Other operating liabilities	8,058
Income tax paid	(1,433)
Funds provided by operating activities	591
Investing activities:
Acquisition of property, furniture and equipment	(417)
Intangible asset acquisitions	(1,954)
Others	(55)
Funds used in investing activities	(2,426)
Financing activities:
Cash dividends	(1,800)
Contributions for future capital increases	-
Funds used in financing activities	(1,800)
Financing activities:
Increase / Decrease in cash and equivalents	2,423
Cash and equivalents at beginning of period	48,801
Cash and equivalents at end of period	51,224

Differences between Mexican GAAP and International Financial Reporting Standards (IFRS)

Grupo Financiero HSBC

HSBC Holdings plc, the ultimate parent of Grupo Financiero HSBC, reports its results under International Financial Reporting Standards (IFRS). Set out below is a reconciliation of the results of Grupo Financiero HSBC from Mexican GAAP to IFRS for the year ended 31 December 2011 and an explanation of the key reconciling items.

		31 Dec
	Figures in MXN millions	2011
	Grupo Financiero HSBC - Net Income Under Mexican GAAP	2,510
	Differences arising from:
	Valuation of defined benefit pensions and post retirement healthcare benefitsW	333
	Deferral of fees received and paid on the origination of loans	40
	Loan impairment chargesW	1,053
	Purchase accounting adjustmentsW	(149)
	Recognition of the present value in-force of long-term insurance contractsW	130
	Sale of 100% of the outstanding shares of a Social Security Company (Afore)	976
	OtherW	1,064
	Net income under IFRS	5,957
	US dollar equivalent (millions)	486
	Add back tax expense	2,021
	Profit before tax under IFRS	7,978
	US dollar equivalent (millions)	652
	Exchange rate used for conversion	12.24

^W Net of tax at 30%.

Summary of key differences between Grupo Financiero HSBC's results as reported under Mexican GAAP and IFRS

Valuation of defined benefit pensions and post retirement healthcare benefits

Mexican GAAP

Defined benefit pension costs and the present value of defined benefit obligations are calculated at the reporting date by the schemes' actuaries using the Projected Unit Credit Method and real interest rates.

IFRS

Defined benefit pension costs and the present value of defined benefit obligations are calculated at the reporting date by the schemes' actuaries using the Projected Unit Credit Method. The net charge to the income statement mainly comprises the current service cost, plus the unwinding of the discount rate on plan liabilities, less the expected return on plan assets, and is presented in operating expenses. Past service costs are charged immediately to the income statement to the extent that the benefits have vested, and are otherwise recognised on a straight-line basis over the average period until the benefits vest. Actuarial gains and losses comprise experience adjustments (the effects of differences between the previous actuarial assumptions and what has actually occurred), as well as the effects of changes in actuarial assumptions. Actuarial gains and losses are recognised in other comprehensive income in the period in which they arise.

Fees paid and received on the origination of loans

Mexican GAAP

From 1 January 2007, loan origination fees are required to be deferred and amortised over the life of the loan on a straight line basis. Prior to 2007, loan origination fees were recognised up-front.

IFRS

Fees and expenses received or paid on origination of a loan that are directly attributable to the origination of that loan are accounted for using the effective interest rate method over the expected life of the loan. This policy has been in effect since 1 January 2005.

Loan impairment charges

Mexican GAAP

Loan impairment charges are calculated following the rules issued by the Mexican Ministry of Finance and the National Banking and Securities Commission. Such rules establish methodologies for determining the amount of provision for each type of loan.

IFRS

Impairment losses on collectively assessed loans are calculated as follows:

·      When appropriate empirical information is available, the Bank utilises roll rate methodology. This methodology employs statistical analysis of historical data and experience of delinquency and default to estimate the amount of loans that will eventually be written off as a result of events occurring before the balance sheet date which the Bank is not able to identify on an individual loan basis, and that can be reliably estimated.

·      In other cases, loans are grouped together according to their credit risk characteristics for the purpose of calculating an estimated collective loss.

Impairment losses on individually assessed loans are calculated by discounting the expected future cash flows of a loan at its original effective interest rate, and comparing the resultant present value with the loans current carrying value.

Purchase accounting adjustments

Purchase accounting adjustments arose from the valuation of assets and liabilities on acquiring Grupo Financiero Bital in November 2002 under IFRS. Under Mexican GAAP, a different valuation methodology is applied.

Recognition of present value of in-force long-term life insurance contracts

Mexican GAAP

The present value of future earnings is not recognised. Premiums are accounted for on a received basis and reserves are calculated in accordance with guidance as set out by the Insurance Regulator (Comisión Nacional de Seguros y Fianzas).

IFRS

A value is placed on insurance contracts that are classified as long-term insurance business and are in-force at the balance sheet date. The present value of in-force long-term insurance business is determined by discounting future earnings expected to emerge from business currently in force using appropriate assumptions in assessing factors such as recent experience and general economic conditions.

 

END

 

 

FR UWABRURAUUAR