HSBC Fin Corp&USA Inc 8K IFRS
HSBC Holdings PLC
13 November 2006
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT: NOVEMBER 13, 2006
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COMMISSION FILE NUMBER 1-8198
HSBC FINANCE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 86-1052062
(STATE OF INCORPORATION) (IRS EMPLOYER IDENTIFICATION NUMBER)
2700 SANDERS ROAD, PROSPECT HEIGHTS, 60070
ILLINOIS
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(847) 564-5000
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2. below):
( ) Written communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
( ) Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
( ) Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange
Act (17 CFR 240.14d-2(b))
( ) Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange
Act (17 CFR 240.13e-4(c))
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ITEM 7.01. REGULATION FD DISCLOSURE
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Financial supplement pertaining to the financial results of HSBC Finance
Corporation and HSBC USA Inc. for the three and nine months ended September 30,
2006. The information included in the financial supplement with respect to HSBC
Finance Corporation and HSBC USA Inc. on a combined basis is presented on an
International Financial Reporting Standards ("IFRSs") basis as applied by HSBC
Holdings plc. Additional detail regarding significant accounting policies is
available in the HSBC Holdings plc 2005 Annual Report. The information included
in the financial supplement with respect to HSBC Finance Corporation is
presented on a management basis and an IFRS management basis. As presented in
this Form 8-K, IFRS basis is a non-GAAP financial measure that represents U.S.
GAAP as adjusted in accordance with IFRSs. Management basis is a non-GAAP
financial measure derived from U.S. GAAP reported results that eliminates, among
other things, mortgage and private label receivable transfers to HSBC Bank USA,
N.A., an affiliate of HSBC Finance Corporation and related intercompany
activities and assumes that securitized receivables have not been sold and
remain on the balance sheet of HSBC Finance Corporation. IFRS management basis
is a non-GAAP financial measure that represents management basis as adjusted in
accordance with IFRSs.
This information shall not be deemed to be "filed" for the purposes of Section
18 of the Securities Exchange Act of 1934, as amended (the Exchange Act), or
otherwise incorporated by reference into any filing pursuant to the Securities
Act of 1933, as amended, or the Exchange Act except as otherwise expressly
stated in such a filing.
ITEM 9.01. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
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(a) Financial Statements of Businesses Acquired.
Not applicable.
(b) Pro Forma Financial Information.
Not applicable.
(c) Shell Company Transactions
Not applicable.
(d) Exhibits.
NO. EXHIBIT
--- ---------------------
99 Financial supplement.
SIGNATURE
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Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
HSBC FINANCE CORPORATION
(Registrant)
By: /s/ Patrick D. Schwartz
------------------------------------
Patrick D. Schwartz
Vice President and Deputy General
Counsel-Corporate
Dated: November 13, 2006
EXHIBIT 99
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HSBC FINANCE CORPORATION
AND
HSBC USA INC.
SUPPLEMENT TO THE FORMS 10-Q FOR THE
PERIOD ENDED SEPTEMBER 30, 2006
HSBC FOOTER
FORWARD LOOKING STATEMENTS
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This document, and subsequent discussion, contains certain forward-looking
information with respect to the financial condition, results of operations and
business of HSBC Holdings plc, HSBC Finance Corporation, HSBC USA Inc. and HSBC
North America Holdings Inc. This information represents expectations or beliefs
concerning future events and is subject to unknown risks and uncertainties. This
information speaks only as of the date on which it is provided. Additional
detailed information concerning important factors that could cause actual
results to differ materially is available in the HSBC Holdings plc 2005 Annual
Report for the year ended December 31, 2005, and the HSBC Finance Corporation
and HSBC USA Inc. Annual Reports on Forms 10-K for the year ended December 31,
2005 and Quarterly Reports on Forms 10-Q for the quarter ended March 31, 2006.
HSBC FOOTER
2
BASIS OF REPORTING(1)
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- INTERNATIONAL FINANCIAL REPORTING STANDARDS ("IFRSS") From January 1, 2005,
HSBC Holdings plc ("HSBC") has prepared its consolidated financial statements
in accordance with International Financial Reporting Standards as endorsed by
the European Union. IFRSs comprise accounting standards issued by the
International Accounting Standards Board and its predecessor body as well as
interpretations issued by the International Financial Reporting
Interpretations Committee and its predecessor body. Please see HSBC's 2005
Annual Report for more detail regarding significant accounting policies.
- HSBC FINANCE CORPORATION -- MANAGED BASIS (a non-GAAP financial measure)
assumes that securitized customer loans have not been sold and remain on the
balance sheet.
- HSBC FINANCE CORPORATION -- MANAGEMENT BASIS In addition to managed basis
reporting, operations are monitored and trends are evaluated on a management
basis (a non-GAAP financial measure). Management basis reporting, in addition
to the managed basis adjustments, assumes that the mortgages and private label
customer loans transferred to HSBC's U.S. banking subsidiary, HSBC Bank USA,
N.A. ("HSBC Bank USA"), have not been sold and remain on the balance sheet.
Additionally, operations are monitored and trends are evaluated on a
management basis because the customer loan sales to HSBC Bank USA were
conducted primarily to more appropriately fund prime customer loans within the
HSBC Group and such customer loans continue to be managed and serviced without
regard to ownership. Furthermore, operating results are reviewed and decisions
are made about allocating certain resources such as employees on a management
basis.
When reporting on a management basis, net interest income, fee income and loan
impairment charges are adjusted to include the activity associated with these
customer loans transferred to HSBC Bank USA. Gains on sales, loan premium
amortization and the related servicing fees are eliminated. Management
believes that management basis information enables readers, investors and
other interested parties to better understand the overall performance and
related trends of the consumer finance business.
- HSBC FINANCE CORPORATION -- IFRS MANAGEMENT BASIS (a non-GAAP financial
measure) represents management basis results adjusted in accordance with
IFRSs. In this document, the term "customer loans" is synonymous to
"receivables" in the U.S. GAAP financial statements.
- HSBC USA INC. -- IFRS represents U.S. GAAP results adjusted in accordance with
IFRSs.
----------
(1) Certain adjustments have been made to prior period amounts to conform to the
current period presentation
HSBC FOOTER
3
HSBC FINANCE CORPORATION AND HSBC USA INC.
PROFIT BEFORE TAX - IFRS (A NON-GAAP MEASURE)
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NINE MONTHS ENDED
SEPTEMBER 30,
--------------------
2006 2005
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(millions $)
Profit Before Tax:
HSBC Finance Corporation...................................... $3,220 $2,707
HSBC USA Inc. ................................................ 1,221 1,194
------ ------
Sub-total................................................... 4,441 3,901
Intercompany Eliminations(1)................................ 108 385
------ ------
Combined Profit Before Tax.................................... $4,549 $4,286
====== ======
THREE MONTHS ENDED
----------------------------------------
SEPTEMBER 30, JUNE 30, SEPTEMBER 30,
2006 2006 2005
----------------------------------------------------------------------------------------------
(millions $)
Profit Before Tax:
HSBC Finance Corporation............................ $631 $1,151 $ 603
HSBC USA Inc. ...................................... 342 463 385
---- ------ ------
Sub-total......................................... 973 1,614 988
Intercompany Eliminations(1)...................... (37) 49 120
---- ------ ------
Combined Profit Before Tax.......................... $936 $1,663 $1,108
==== ====== ======
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(1) Primarily relates to intercompany derivatives accounting and premium
amortization on the transfer of assets between HSBC Finance Corporation and
HSBC USA Inc.
HSBC FOOTER
4
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HSBC FINANCE CORPORATION
HSBC FOOTER
HSBC FINANCE CORPORATION - SEPTEMBER 30, 2006 HIGHLIGHTS
IFRS MANAGEMENT BASIS (A NON-GAAP MEASURE)
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- Third quarter's Profit Before Tax increased 6% over the year-ago period but
decreased 43% from prior quarter. Underlying Profit Before Tax (which excludes
derivative and fair value impacts and the adjustments for the calculation of
effective interest rate (EIR) on credit card balances with low introductory
rates) increased 21% year-over-year but declined 26% from the prior quarter.
- Year-to-date Profit Before Tax increased 19% from the same period in 2005.
Underlying Profit Before Tax was up 30%.
- Third quarter's Profit Before Tax reflects strong year-over-year profit growth
in our Retail Branch Channel(1) and Credit Card businesses. Growth was
primarily driven by:
- Higher yields due to repricing initiatives
- Higher fee income primarily from the Metris portfolio
- Metris portfolio, acquired in the fourth quarter 2005, performing
better than expected
- Lower loan impairment charges due to incremental charges recorded last
year for both Hurricane Katrina (Katrina) and changes in the U.S.
bankruptcy legislation
- Favorable Profit Before Tax was partially offset by higher operating expenses
to support receivable growth, lower other income including fair value impacts,
and higher loan impairment charges
- Net Interest Income increased 6% year-over-year but decreased 6% from the
prior quarter. Underlying Net Interest Income increased 6% year-over-year but
was broadly flat to the prior quarter.
- Net interest margin (NIM) compression is consistent with a generally
rising rate environment, the effects of which are partially offset by
increased yields resulting from a continuation of our repricing
efforts
- Average Customer Loans grew 17% year-over-year due to the Metris
acquisition as well as organic growth across all products. Annualized
average growth of 12% from the prior quarter was driven by growth in
our branch residential mortgages and our MasterCard/Visa(2) credit
card portfolios
- Our Correspondent/Wholesale Channel(3) portfolio loan growth was held
flat to prior quarter
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(1) Retail Branch Channel represents our U.S. branch based consumer lending
business which primarily offers secured and unsecured loan products, such as
first and second lien position residential mortgages and personal non-credit
cards
(2) MasterCard is a registered trademark of MasterCard International,
Incorporated and Visa is a registered trademark of VISA USA, Inc.
(3) Correspondent/Wholesale Channel represents our mortgage services business
which purchases first and second lien position residential mortgages from a
network of unaffiliated third party lenders (i.e. correspondents)
HSBC FOOTER
6
HSBC FINANCE CORPORATION - SEPTEMBER 30, 2006 HIGHLIGHTS - CONTINUED
IFRS MANAGEMENT BASIS (A NON-GAAP MEASURE)
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- Fee Income increased 21% over the year-ago period and 8% from prior quarter as
a result of higher volumes in our MasterCard/Visa portfolios which include
Metris
- In the third quarter, derivative and fair value income declined largely due to
the impact of tightened credit spreads on the application of the fair value
option to our own debt
- Loan Impairment Charges decreased 4% year-over-year but increased 16% from the
second quarter
- The year-ago quarter included charges for estimated incremental
exposure associated with both Katrina and changes in U.S. bankruptcy
legislation
- Our Correspondent/Wholesale Channel portfolio, as expected,
experienced higher delinquency and net charge-offs during the third
quarter 2006 in certain portions of the portfolio acquired in 2005 and
2006, particularly in the second lien and portions of the first lien
portfolios. As a result, this portfolio has experienced higher loss
estimates year-over-year although third quarter loan impairment
charges were flat to the prior quarter. Numerous mitigation efforts
are underway.
- In our other portfolios, third quarter 2006 experienced higher loan
impairment charges from the prior quarter due to seasoning of the
portfolio which experienced strong growth in 2005 as well as normal
seasonal impacts within certain portfolios
- Credit performance, as measured by 2+ delinquency and net charge-offs,
in most other portions of our domestic portfolio, including branch
residential mortgages, is consistent with 2005 levels
- We continue to monitor credit closely; we believe that the recent abnormally
favorable credit performance is returning to a more normalized level
- Operating Expenses increased 17% year-over-year and were in line with the
prior quarter
- Year-over-year higher expenses to support loan growth including the
acquisition of the Metris portfolio in the fourth quarter 2005
- Operating expenses as a percentage of average customer loans were flat
year-over-year but down against the prior quarter
- In October 2006, we entered into an agreement to sell our entire interest in
Kanbay International, Inc. to a third party. The transaction is expected to
close in the fourth quarter of 2006 and will result in a pre-tax gain on sale
of approximately $123 million.
HSBC FOOTER
7
HSBC FINANCE CORPORATION
IFRS MANAGEMENT BASIS (A NON-GAAP MEASURE)
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THREE MONTHS ENDED
----------------------------------------
SEPTEMBER 30, JUNE 30, SEPTEMBER 30,
2006 2006 2005
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(millions $)
Net Interest Income................................ $2,872 $3,051 $2,708
Net Fee Income..................................... 713 658 588
Trading Income/(Expense):
Loans Held for Resale............................ 95 157 40
Hedge Ineffectiveness and Mark-to-market on Non-
qualifying Hedges............................. (47) (20) (74)
------ ------ ------
Total Trading Income/(Expense)................ 48 137 (34)
Net (Expense)/Income from Financial Instruments
Designated at Fair Value(1)...................... (53) 33 67
Other Operating Income............................. 178 193 240
------ ------ ------
Total Operating Income........................ 3,758 4,072 3,569
Loan Impairment Charges and Other Credit Risk
Provisions....................................... 1,597 1,374 1,430
Loan Impairment (Releases)/Charges, Katrina
related.......................................... (33) (28) 205
Operating Expenses................................. 1,488 1,483 1,270
------ ------ ------
Profit Before Tax............................. 706 1,243 664
Tax Expense........................................ 264 467 235
------ ------ ------
Profit for the Period......................... $ 442 $ 776 $ 429
====== ====== ======
Adjustments, net of Tax Expense:
Effective Interest Rate impact..................... -- (91) --
Katrina impact..................................... (21) (18) 138
------ ------ ------
Adjusted Profit for the Period................... $ 421 $ 667 $ 567
====== ====== ======
Cost Efficiency Ratio.............................. 39.6% 36.4% 35.6%
Operating Expenses/Average Customer Loans.......... 3.4% 3.5% 3.4%
--------
(1) Includes gains and losses from changes in fair value of debt securities in
issue designated at fair value and gains and losses from changes in fair
value of derivatives that are managed in conjunction with them of $(56), $28
and $67 million for the three months ended September 30, 2006, June 30, 2006
and September 30, 2005, respectively. September 2006 and June 2006 also
include $3 and $5 million, respectively, of income from assets held to meet
liabilities under insurance contracts.
HSBC FOOTER
8
HSBC FINANCE CORPORATION
IFRS MANAGEMENT BASIS (A NON-GAAP MEASURE)
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NINE MONTHS ENDED
SEPTEMBER 30,
-----------------
2006 2005
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(millions $)
Net Interest Income........................................... $ 8,796 $ 7,995
Net Fee Income................................................ 2,147 1,751
Trading Income:
Loans Held for Resale....................................... 304 163
Hedge Ineffectiveness and Mark-to-market on Non-qualifying
Hedges................................................... (53) (21)
------- -------
Total Trading Income..................................... 251 142
Net (Expense)/Income from Financial Instruments Designated at
Fair Value(1)............................................... (25) 332
Other Operating Income........................................ 559 576
------- -------
Total Operating Income................................... 11,728 10,796
Loan Impairment Charges and Other Credit Risk Provisions...... 3,908 3,751
Loan Impairment (Releases)/Charges, Katrina related........... (94) 205
Operating Expenses............................................ 4,407 3,881
------- -------
Profit Before Tax........................................ 3,507 2,959
Tax Expense................................................... 1,277 998
------- -------
Profit for the Period.................................... $ 2,230 $ 1,961
======= =======
Adjustments, net of Tax Expense:
Effective Interest Rate impact................................ (91) --
Katrina impact................................................ (59) 138
------- -------
Adjusted Profit for the Period.............................. $ 2,080 $ 2,099
======= =======
Cost Efficiency Ratio......................................... 37.6% 36.0%
Operating Expenses/Average Customer Loans..................... 3.4% 3.6%
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(1) Includes gains and losses from changes in fair value of debt securities in
issue designated at fair value and gains and losses from changes in fair
value of derivatives that are managed in conjunction with them of $(33) and
$332 million for the nine months ended September 30, 2006, and September 30,
2005, respectively. September 2006 also includes $8 million of income from
assets held to meet liabilities under insurance contracts.
HSBC FOOTER
9
HSBC FINANCE CORPORATION
KEY RATIOS - MANAGEMENT BASIS (A NON-GAAP MEASURE)(1)
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GRAPH
- NIM declined from the prior year and the prior quarter
- Margin pressure continued due to higher cost of funds consistent with a
generally rising rate environment and a higher proportion of lower
yielding residential mortgage loans
- Yields increased due to repricing efforts and the Metris portfolio
- Risk Adjusted Revenue (RAR) down from the prior year and the prior quarter
- Lower NIM than the prior year coupled with 2005 gains from loan and
investment property sales were partially offset by lower net charge-
offs
- The decline in RAR compared to the prior quarter was due to lower NIM
and higher net charge-offs partially offset by increased fees
- Return on Managed Assets (ROMA) was improved from the prior year but down from
the prior quarter
- Compared to the prior year, expense growth was lower than receivable
growth. Improved efficiency and lower loan impairment charges were
partially offset by lower NIM.
- Compared to the prior quarter, lower NIM and higher loan impairment
charges were partially offset by higher fee income
--------
(1) Derived from U.S. GAAP reported results and adjusted to management basis as
further described on page 3
(2) Excludes mark-to-market on derivatives which do not qualify as effective
hedges and ineffectiveness associated with qualifying hedges under SFAS No.
133
HSBC FOOTER
10
HSBC FINANCE CORPORATION
CREDIT QUALITY - MANAGEMENT BASIS (A NON-GAAP MEASURE)(1)
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GRAPH
- RAR down from the prior year and the prior quarter
- Lower NIM than the prior year coupled with 2005 gains from loan and
investment property sales were partially offset by lower net charge-
offs
- The decline in RAR compared to the prior quarter was due to lower NIM
and higher net charge-offs partially offset by increased fees
- 2+ Delinquency up from the prior year and the prior quarter
- Compared to the prior year, the increase was due to deterioration in
the Correspondent/Wholesale Channel and the addition of the Metris
portfolio
- Compared to the prior quarter, the increase was largely due to the
Correspondent/Wholesale Channel, expected seasonality in the credit
card and motor vehicle finance portfolios as well as seasoning in the
unsecured personal lending portfolio
- Charge-off ratio decreased from the prior year but increased modestly from the
prior quarter
- Decrease from the prior year was largely due to lower personal
bankruptcy charge-offs and filings following the U.S. bankruptcy
legislation enacted in 2005. This was partially offset by higher net
charge-offs due to seasoning in the Correspondent/Wholesale Channel
portfolio which has seen significant growth in the period up to June
30, 2006 as well as higher losses in a portion of that business.
- Increase from the prior quarter was primarily from a seasonal increase
in the motor vehicle finance portfolio, expected seasoning of the
overall portfolio and higher net charge-offs in certain segments of the
Correspondent/Wholesale Channel portfolio
--------
(1) Derived from U.S. GAAP reported results and adjusted to management basis as
further described on page 3
(2) Excludes mark-to-market on derivatives which do not qualify as effective
hedges and ineffectiveness associated with qualifying hedges under SFAS No.
133
HSBC FOOTER
11
HSBC FINANCE CORPORATION
IFRS MANAGEMENT BASIS (A NON-GAAP MEASURE)
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CUSTOMER LOANS
SEP 06
INCREASE/(DECREASE)
-----------------------
-----------
%
-----------------------
-----------
SEP 06 JUNE 06 MAR 06 DEC 05 SEP 05 JUNE 06 MAR 06 DEC 05 SEP 05
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(millions $)
Branch Real Estate Secured.... $ 46,157 $ 44,430 $ 43,062 $ 41,341 $ 40,345 4% 7% 12% 14%
Correspondent Real Estate
Secured...... 51,543 51,446 49,330 44,297 41,239 0 4 16 25
-------- -------- -------- -------- -------- - - --
Real Estate Secured(1).........97,700 95,876 92,392 85,638 81,584 2 6 14 20
MasterCard/Visa Credit Cards.....26,318 25,676 24,740 25,819 22,605 3 6 2 16
Private Label Cards..............19,330 19,057 18,402 19,656 18,706 1 5 (2) 3
Motor Vehicle Finance............12,663 12,417 12,113 11,911 11,628 2 5 6 9
Unsecured Personal Lending and
Other... 21,487 21,313 20,875 20,778 20,302 1 3 3 6
-------- -------- -------- -------- -------- - - --
Total Customer Loans....... $177,498 $174,339 $168,522 $163,802 $154,825 2% 5% 8% 15%
======== ======== ======== ======== ======== = = == ==
--------
(1) Real Estate Secured includes residential first mortgages (first lien) and
second lien lending products
(HSBC FOOTER)
12
HSBC FINANCE CORPORATION
IFRS MANAGEMENT BASIS (A NON-GAAP MEASURE)
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CORRESPONDENT REAL ESTATE SECURED LOANS BY LIEN POSITION
SEP 06 JUNE 06 MAR 06 DEC 05 SEP 05
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(millions $)
Residential First Mortgages... $40,428 $40,125 $39,094 $36,276 $34,942
Second Lien................... 11,115 11,321 10,236 8,021 6,297
------- ------- ------- ------- -------
Total Loans by Lien
Position................. $51,543 $51,446 $49,330 $44,297 $41,239
SEP 06
INCREASE/(DECREASE)
----------------------------------------
%
----------------------------------------
JUNE 06 MAR 06 DEC 05 SEP 05
---------------------------------------------------------------------------
Residential First Mortgages... 1% 3% 11% 16%
Second Lien................... (2) 9 39 77
-- - -- --
Total Loans by Lien
Position................. 0% 4% 16% 25%
COMPOSITION OF CORRESPONDENT REAL ESTATE SECURED LOAN PORTFOLIO AT SEPTEMBER 30,
2006 BY PERIOD OF PURCHASE
Q3 06 H1 06 H2 05 H1 05 2004 AND PRIOR
TOTAL
------------------------------------------------------------------------------------------------------------------------
--
Residential First Mortgages........ 6% 17% 26% 13% 38% 100%
Second Lien........................ 4 32 39 14 11 100
- -- -- -- -- ---
Total Loans by Period of
Purchase...................... 6% 20% 29% 13% 32% 100%
(HSBC FOOTER)
13
HSBC FINANCE CORPORATION
SEPTEMBER 30, 2006 - BUSINESS UNIT HIGHLIGHTS
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RETAIL BRANCH CHANNEL CORRESPONDENT/
(HFC/BENEFICIAL) WHOLESALE CHANNEL
- Strong year-over-year profit growth - Profits down year-over-year reflecting
deterioration in certain portions of
- Continued good loan growth the portfolio
- Branch residential mortgage products - Continued deterioration in selected
up portions of the 2005 and 2006
14% year-over-year purchases, similar to industry
performance. Risk mitigation programs
Includes both near-prime and non- and efforts are underway including:
prime
segments - Enhanced segmentation
Strong originations driven by - Enhanced pricing models and repricing
increased initiatives
productivity
- Proactively working with customers
Lower liquidation regarding adjustable rate mortgage
(ARM) resets
- Unsecured products were up year-over-
year - Increased collection capacity
driven by successful direct mail
campaigns and - Tightening of credit criteria,
upsell efforts especially in second lien, low
documentation, lower debt service
- Cross sell volume continues to expand capacity and lower credit scoring
segments
- Motor vehicle finance loans and
credit card sales in branch offices - Portfolio up 25% year-over-year but
contributed to overall growth flat to prior
quarter
- Credit performance, as measured by 2+
delinquency and net charge-offs, is - Growth has slowed due to a strategic
consistent with 2005 levels decision to tighten underwriting
criteria and is also reflective of a
- In October 2006, acquired Solstice slowdown in market originations
Capital Group, a direct mortgage
lender, providing central channel with - As a result of these actions, second
additional origination capability lien and low documentation volumes
have been reduced significantly.
First lien loan purchases have also
been reduced significantly.
HSBC FOOTER
14
HSBC FINANCE CORPORATION
SEPTEMBER 30, 2006 - BUSINESS UNIT HIGHLIGHTS
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CREDIT CARD PRIVATE LABEL
- Strong year-over-year profit growth - Profits broadly flat year-over-year
with good because of
organic loan and operating income the start up costs of the co-brand
growth program
- Increased net interest margin year- - Launched two merchants (Best Buy and
over-year Saks Fifth Avenue) to the co-brand
through repricing initiatives and program with MasterCard/Visa in the
growing third quarter
non-prime book
- Improved net charge-offs year-over-
- Loan impairment charges are down year- year driven
over- by lower bankruptcy charge-offs and
year driven by lower bankruptcy filings
charge-offs and
filings - Changes in minimum monthly payment
guidelines have had an immaterial
- Metris integration substantially impact
complete and
performing better than expected
- Changes in minimum monthly payment
guidelines have resulted in lower
credit card fees primarily in the non-
prime portfolio
HSBC FOOTER
15
HSBC FINANCE CORPORATION
SEPTEMBER 30, 2006 - BUSINESS UNIT HIGHLIGHTS
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AUTO INTERNATIONAL
- Profits broadly flat year-over-year as CANADA
higher loan
volumes were offset by higher cost of - Solid year-over-year profit growth
funds
- Good loan growth and profitability in
- Good organic loan growth in our dealer a strong
network Canadian economy
and consumer direct channel
- Branch expansion, investment in
- Increased focus on strengthening external lead
relationships with active dealers campaigns and strong real estate
market contributed to growth in
- Focus on refinance volume through the unsecured and real estate
improved pricing and additional secured portfolios
operational capacity
- Growth initiatives in motor
- Active portfolio management is vehicle, credit
yielding higher cards and residential mortgages
fee income contributed
favorably to customer loan growth
- Continue to optimize collection
strategies to - Credit performance, as defined by 2+
improve cash collections delinquency and net charge-offs, is
stable
- Improved credit performance, as
measured by 2+ delinquency and net U.K.
charge-offs, year-over-year
- Profit growth hindered by the
continued
challenging credit and business
environment
- A focus on secured lending has
resulted in
ongoing higher levels of sales in the
branch
network in the third quarter
- Significant initiatives have been
enacted to
improve the cost basis including the
continued
centralization of operations and
collections
- In the third quarter, we agreed to
sell a portion
of our European Operations to an HSBC
affiliate
HSBC FOOTER
16
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HSBC USA INC.
HSBC FOOTER
HSBC USA INC. - SEPTEMBER 30, 2006 HIGHLIGHTS
IFRS (A NON-GAAP MEASURE)
--------------------------------------------------------------------------------
- Third quarter's Profit Before Tax decreased 11% over the year-ago period and
decreased 26% from prior quarter. Underlying Profit Before Tax (which excludes
derivative and fair value impacts) decreased 1% and 3%, respectively.
- Year-to-date Profit Before Tax increased 2% from the same period in 2005.
Underlying Profit Before Tax was up 5%.
- Third quarter's Profit Before Tax reflects volatility within Corporate,
Investment Banking and Markets (CIBM) due to the challenging interest rate
environment affecting banks in general and weak U.S. Global Markets trading
volumes in the third quarter
- Balance sheet management income was lower due to a flat to inverted
yield curve that has persisted throughout 2006
- Year-to-date trading income increased 115% and reflects the build-out
of client facing Global Markets businesses
- Trading income decreased 17% from the prior quarter due to declines in
client activity in the U.S. Mortgage Backed Securities business and
reduced volatility in the Precious Metals business; however, year-to-
date contribution improved significantly in both businesses
- Global Transaction Banking operating income continued to improve
compared to both prior year-to-date and the prior quarter
- Good progress made on strategic initiatives within Personal Financial Services
and Commercial Banking
- Domestic deposits grew 15% year-over-year and reflect the successful
nationwide online savings product, branch expansion in new geographic
markets and refined marketing and customer analytics for affluent
customers
- Small Business and Middle Market lending activities contributed to 17%
year-over-year commercial loan growth
HSBC FOOTER
18
HSBC USA INC. - SEPTEMBER 30, 2006 HIGHLIGHTS (CONTINUED)
IFRS (A NON-GAAP MEASURE)
--------------------------------------------------------------------------------
- Year-to-date Total Operating Income increased 10% but third quarter decreased
7% from the prior quarter
- Benefited from the value of growing core customer deposit base and
loans in Personal Financial Services, Commercial Banking and Private
Banking customer segments
- Growth in private label receivable balances and lower portfolio
purchase premium amortizations contributed to good growth in income
compared to both prior year-to-date and prior quarter
- In the third quarter 2006, derivative income declined largely due to
the impact of tightened credit spreads on the application of the fair
value option to our own debt
- Overall credit performance generally sound but increases noted compared to a
very benign credit environment in 2005
- Adjusted for Katrina impact in third quarter 2005, Consumer Finance
loan impairment charges increased on higher loan volumes
- Year-to-date increases in loan impairment charges in Commercial
Banking reflects portfolio growth
- Negligible loan impairment charges in Corporate Banking compared to
higher than normal recoveries in 2005
- Increased Operating Expenses reflect continuing spend on investment
initiatives
- Expansion of retail distribution network including addition of
branches and national lending locations coupled with the online
savings product
- Advertising and brand building at NYC airports (JFK and LaGuardia)
- Build-out of CIBM client facing business platform is largely complete
but impacts year-to-date comparisons
HSBC FOOTER
19
HSBC USA INC.
IFRS (A NON-GAAP MEASURE)
--------------------------------------------------------------------------------
THREE MONTHS ENDED
----------------------------------------
SEPTEMBER 30, JUNE 30, SEPTEMBER 30,
2006 2006 2005
---------------------------------------------------------------------------------------------
(millions $)
Net Interest Income................................ $ 626 $ 617 $ 666
Net Fee Income..................................... 207 231 246
Trading Income(1).................................. 309 374 187
Net (Expense)/Income from Financial Instruments
Designated at Fair Value(2)...................... (55) 52 (17)
Other Operating Income............................. 155 63 97
------ ------ ------
Total Operating Income........................ 1,242 1,337 1,179
Loan Impairment Charges and Other Credit Risk
Provisions....................................... 216 205 186
Loan Impairment (Releases)/Charges, Katrina
related.......................................... (1) (2) 26
Operating Expenses................................. 685 671 582
------ ------ ------
Profit Before Tax............................. 342 463 385
Tax Expense........................................ 111 170 140
------ ------ ------
Profit for the Period......................... $ 231 $ 293 $ 245
====== ====== ======
Cost Efficiency Ratio.............................. 55.2% 50.2% 49.4%
--------
(1) Includes hedge ineffectiveness and mark-to-market on non-qualifying hedges
of $1, $(13) and $1 million for the three months ended September 30, 2006,
June 30, 2006 and September 30, 2005, respectively
(2) Includes gains and losses from changes in fair value of debt securities in
issue designated at fair value and gains and losses from changes in fair
value of derivatives that are managed in conjunction with them
HSBC FOOTER
20
HSBC USA INC.
IFRS (A NON-GAAP MEASURE)
--------------------------------------------------------------------------------
NINE MONTHS
ENDED SEPTEMBER
30,
---------------
2006 2005
---------------------------------------------------------------------------------
(millions $)
Net Interest Income............................................. $1,821 $2,107
Net Fee Income.................................................. 668 563
Trading Income(1)............................................... 1,041 485
Net Expense from Financial Instruments Designated at Fair
Value(2)...................................................... (43) (15)
Other Operating Income.......................................... 340 327
------ ------
Total Operating Income..................................... 3,827 3,467
Loan Impairment Charges and Other Credit Risk Provisions........ 590 497
Loan Impairment (Releases)/Charges, Katrina related............. (4) 26
Operating Expenses.............................................. 2,020 1,750
------ ------
Profit Before Tax.......................................... 1,221 1,194
Tax Expense..................................................... 410 441
------ ------
Profit for the Period...................................... $ 811 $ 753
====== ======
Cost Efficiency Ratio........................................... 52.8% 50.5%
--------
(1) Includes hedge ineffectiveness and mark-to-market on non-qualifying hedges
of $(6) and $3 million for the nine months ended September 30, 2006 and
September 30, 2005, respectively
(2) Includes gains and losses from changes in fair value of debt securities in
issue designated at fair value and gains and losses from changes in fair
value of derivatives that are managed in conjunction with them
HSBC FOOTER
21
HSBC USA INC.
SEPTEMBER 30, 2006 - BUSINESS UNIT HIGHLIGHTS
--------------------------------------------------------------------------------
PERSONAL FINANCIAL SERVICES (PFS) COMMERCIAL BANKING (CMB)
- Good progress on numerous initiatives - Solid year-over-year deposit and loan
to growth
broaden distribution channels contributed to a 14% net interest
income
- Online savings deposits totaled $6.3 year-to-date improvement
billion
at September 30, 2006 and generated - Expanded beyond geographic footprint
over with
250,000 new accounts increased national distribution in
Washington,
- Added 5 new branches during the Los Angeles, New Jersey and Chicago
quarter
and established a national charter - Increased syndication capabilities led
in to higher
Maryland to facilitate geographic fee income in Commercial Real Estate
expansion
- Credit performance remains stable and
- Continued solid growth in Premier we
relationships with over 100,000 continue to closely monitor credit
households environment
and $12 billion in deposits
- Higher Middle Market and Small
- "Different Points of View" global Business
branding impairment charges were
initiative expanded to include new consistent with
advertising campaign at JFK and year-over-year loan growth and
LaGuardia the
airports expected seasoning of the
portfolio
- Measurable improvement in customer
experience
and service differentiation as
measured both
externally and internally
HSBC FOOTER
22
HSBC USA INC.
SEPTEMBER 30, 2006 - BUSINESS UNIT HIGHLIGHTS
--------------------------------------------------------------------------------
PRIVATE BANKING (PB) CORPORATE, INVESTMENT BANKING AND MARKETS
(CIBM)
- Significant operating income growth - Significantly higher year-to-date
from the Trading
prior quarter was due in part to the Income in all Global Markets
gain on sale businesses
of a foreign private equity offset lower balance sheet
investment management Net
Interest Income
- Continued solid year-over-year loan and
deposit - Trading Income declined from second
growth resulted in an 15% improvement Quarter
in net primarily in U.S. based Mortgage
interest income year-to-date Backed
Securities and Precious Metals
- Opened three Wealth and Tax Advisory businesses
offices
in 2006 to service high net worth - Strong year-to-date Operating Income
individuals and
which contributed to a 64% year-to- deposit balance growth in Global
date Transaction
increase in fee income Banking reflecting expanded product
offerings and successful growth in
new markets
- Reflects HSBC's market leader
position in
developing cross border payments
and
cash management services
- Banknotes experienced its most
profitable quarter of 2006 with
solid
performance across all regions
HSBC FOOTER
23
--------------------------------------------------------------------------------
APPENDIX
HSBC FOOTER
RECONCILIATIONS TO GAAP FINANCIAL MEASURES
HSBC FINANCE CORPORATION
IFRS
NINE MONTHS
THREE MONTHS ENDED ENDED
------------------------------------------------ -------------
SEPTEMBER 30, JUNE 30, SEPTEMBER 30, SEPTEMBER 30,
2006 2006 2005 2006
-------------------------------------------------------------------------------------------------------------------
(dollars are in millions)
PROFIT BEFORE TAX -- U.S. GAAP BASIS........ $ 878 $ 897 $ 421 $3,174
Adjustments, before tax:
Securitization............................ 3 21 209 57
Derivatives and hedge accounting
(including fair value adjustments)..... (234) (31) 60 (377)
Intangible assets......................... 40 40 73 138
Purchase accounting adjustments........... (39) 16 (137) 46
Loan origination.......................... (18) (2) (19) (51)
Loan impairment........................... 16 17 (11) 46
Loans held for resale..................... -- 28 -- 28
Interest recognition...................... (19) 160 -- 142
Other..................................... 4 5 7 17
----- ------ ----- ------
PROFIT BEFORE TAX -- IFRS BASIS............. $ 631 $1,151 $ 603 $3,220
===== ====== ===== ======
NINE MONTHS
ENDED
-------------
SEPTEMBER 30,
2005
------------------------------------------------------------
(dollars are
in millions)
PROFIT BEFORE TAX -- U.S. GAAP BASIS........ $2,074
Adjustments, before tax:
Securitization............................ 471
Derivatives and hedge accounting
(including fair value adjustments)..... 75
Intangible assets......................... 227
Purchase accounting adjustments........... (86)
Loan origination.......................... (71)
Loan impairment........................... --
Loans held for resale..................... --
Interest recognition...................... --
Other..................................... 17
------
PROFIT BEFORE TAX -- IFRS BASIS............. $2,707
======
(HSBC FOOTER)
1
RECONCILIATIONS TO GAAP FINANCIAL MEASURES
HSBC FINANCE CORPORATION INCOME STATEMENT
IFRS MANAGEMENT BASIS
THREE
MONTHS
THREE MONTHS ENDED 09/30/06 THREE MONTHS ENDED 06/30/06 ENDED
--------------------------------- ---------------------------------
09/30-
IFRS IFRS /05
MANAGEMENT IFRS MANAGEMENT IFRS ------
OWNED BASIS MANAGEMENT OWNED BASIS MANAGEMENT OWNED
BASIS ADJUSTMENTS BASIS BASIS ADJUSTMENTS BASIS BASIS
------------------------------------------------------------------------------------------------------------------------
(DOLLARS ARE IN MILLIONS)
Net interest income.................. $2,602 $ 270 $2,872 $2,549 $ 502 $3,051 $2,163
Net fee income....................... 559 154 713 442 216 658 439
Trading income/(expense):
Loans held for resale.............. -- 95 95 -- 157 157 --
Hedge ineffectiveness and mark-to-market
on
non-qualifying hedges................ -- (47) (47) -- (20) (20) --
------ ----- ------ ------ ----- ------ ------
Total trading income/(expense)........-- 48 48 -- 137 137 --
Net (expense)/income from financial instruments
designated at fair value.................-- (53) (53) -- 33 33 --
Other operating income.................. 806 (628) 178 757 (564) 193 708
------ ----- ------ ------ ----- ------ ------
TOTAL OPERATING INCOME..................3,967 (209) 3,758 3,748 324 4,072 3,310
------ ----- ------ ------ ----- ------ ------
Loan impairment charges and other credit
risk
provisions............................1,419 178 1,597 1,273 101 1,374 1,181
Loan impairment (releases)/charges, Katrina
related.................................(35) 2 (33) (25) (3) (28) 180
Operating expenses......................1,705 (217) 1,488 1,603 (120) 1,483 1,528
------ ----- ------ ------ ----- ------ ------
Profit before tax.........................878 (172) 706 897 346 1,243 421
Tax expense...............................327 (63) 264 329 138 467 140
------ ----- ------ ------ ----- ------ ------
PROFIT FOR THE PERIOD................ $ 551 $(109) $ 442 $ 568 $ 208 $ 776 $ 281
====== ===== ====== ====== ===== ====== ======
Adjustments, net of tax expense:
Effective interest rate impact............ -- -- -- -- (91) (91) --
Katrina impact............................ -- (21) (21) -- (18) (18) --
------ ----- ------ ------ ----- ------ ------
ADJUSTED PROFIT FOR THE PERIOD....... $ 551 $(130) $ 421 $ 568 $ 99 $ 667 $ 281
====== ===== ====== ====== ===== ====== ======
COST EFFICIENCY RATIO:
Total operating expenses............. $1,705 $(217) $1,488 $1,603 $(120) $1,483 $1,528
Policyholders' benefits.............. (123) 123 -- (107) 107 -- (109)
------ ----- ------ ------ ----- ------ ------
Total operating expenses, excluding
policyholders' benefits............ $1,582 $ (94) $1,488 $1,496 $ (13) $1,483 $1,419
------ ----- ------ ------ ----- ------ ------
Net interest income and other operating
income... $3,967 $(209) $3,758 $3,748 $ 324 $4,072 $3,310
Policyholders' benefits.............. (123) 123 -- (107) 107 -- (109)
------ ----- ------ ------ ----- ------ ------
Net interest income and other operating
income, excluding policyholders'
benefits.............. $3,844 $ (86) $3,758 $3,641 $ 431 $4,072 $3,201
------ ----- ------ ------ ----- ------ ------
COST EFFICIENCY RATIO.................. 41.2% 39.6% 41.1% 36.4% 44.3%
====== ====== ====== ====== ======
PROFIT BEFORE TAX GROWTH:
Profit before tax................. $ 878 $(172) $ 706 $ 897 $ 346 $1,243 $ 421
IFRS management basis profit before
tax growth:
09/30/06 compared to 09/30/05.. 6%
09/30/06 compared to 06/30/06............... (43)%
======
THREE MONTHS ENDED
09/30/05
------------------------
IFRS
MANAGEMENT IFRS
BASIS MANAGEMENT
ADJUSTMENTS BASIS
---------------------------------------------------------------------------
(DOLLARS ARE IN
MILLIONS)
Net interest income.............................. $ 545 $2,708
Net fee income................................... 149 588
Trading income/(expense):
Loans held for resale.......................... 40 40
Hedge ineffectiveness and mark-to-market on
non-qualifying hedges....................... (74) (74)
----- ------
Total trading income/(expense).............. (34) (34)
Net (expense)/income from financial instruments
designated at fair value....................... 67 67
Other operating income........................... (468) 240
----- ------
TOTAL OPERATING INCOME........................... 259 3,569
----- ------
Loan impairment charges and other credit risk
provisions..................................... 249 1,430
Loan impairment (releases)/charges, Katrina
related........................................ 25 205
Operating expenses............................... (258) 1,270
----- ------
Profit before tax................................ 243 664
Tax expense...................................... 95 235
----- ------
PROFIT FOR THE PERIOD............................ $ 148 $ 429
===== ======
Adjustments, net of tax expense:
Effective interest rate impact................... -- --
Katrina impact................................... 138 138
----- ------
ADJUSTED PROFIT FOR THE PERIOD................... $ 286 $ 567
===== ======
COST EFFICIENCY RATIO:
Total operating expenses......................... $(258) $1,270
Policyholders' benefits.......................... 109 --
----- ------
Total operating expenses, excluding
policyholders' benefits........................ $(149) $1,270
----- ------
Net interest income and other operating income... $ 259 $3,569
Policyholders' benefits.......................... 109 --
----- ------
Net interest income and other operating income,
excluding policyholders' benefits.............. $ 368 $3,569
----- ------
COST EFFICIENCY RATIO............................ 35.6%
======
PROFIT BEFORE TAX GROWTH:
Profit before tax.............................. $ 243 $ 664
IFRS management basis profit before tax growth:
09/30/06 compared to 09/30/05...............
09/30/06 compared to 06/30/06...............
(HSBC FOOTER)
2
RECONCILIATIONS TO GAAP FINANCIAL MEASURES
HSBC FINANCE CORPORATION INCOME STATEMENT
IFRS MANAGEMENT BASIS
NINE MONTHS ENDED
NINE MONTHS ENDED 09/30/06 09/30/05
-------------------------------------- ----------------------
IFRS IFRS
MANAGEMENT IFRS MANAGEMENT
OWNED BASIS MANAGEMENT OWNED BASIS
BASIS ADJUSTMENTS BASIS BASIS ADJUSTMENTS
-----------------------------------------------------------------------------------------------------------------------
(dollars are in millions)
Net interest income................................ $ 7,615 $ 1,181 $ 8,796 $6,086 $ 1,909
Net fee income..................................... 1,393 754 2,147 1,099 652
Trading income:
Loans held for resale............................ -- 304 304 -- 163
Hedge ineffectiveness and mark-to-market on non-
qualifying hedges............................. -- (53) (53) -- (21)
------- ------- ------- ------ -------
Total trading income.......................... -- 251 251 -- 142
Net (expense)/income from financial instruments
designated at fair value......................... -- (25) (25) -- 332
Other operating income............................. 2,622 (2,063) 559 2,719 (2,143)
------- ------- ------- ------ -------
TOTAL OPERATING INCOME............................. 11,630 98 11,728 9,904 892
------- ------- ------- ------ -------
Loan impairment charges and other credit risk
provisions....................................... 3,588 320 3,908 3,053 698
Loan impairment (releases)/charges, Katrina
related.......................................... (90) (4) (94) 180 25
Operating expenses................................. 4,958 (551) 4,407 4,597 (716)
------- ------- ------- ------ -------
Profit before tax.................................. 3,174 333 3,507 2,074 885
Tax expense........................................ 1,167 110 1,277 695 303
------- ------- ------- ------ -------
PROFIT FOR THE PERIOD.............................. $ 2,007 $ 223 $ 2,230 $1,379 $ 582
======= ======= ======= ====== =======
Adjustments, net of tax expense:
Effective interest rate impact..................... -- (91) (91) -- --
Katrina impact..................................... -- (59) (59) -- 138
------- ------- ------- ------ -------
ADJUSTED PROFIT FOR THE PERIOD..................... $ 2,007 $ 73 $ 2,080 $1,379 $ 720
======= ======= ======= ====== =======
COST EFFICIENCY RATIO:
Total operating expenses........................... $ 4,958 $ (551) $ 4,407 $4,597 $ (716)
Policyholders' benefits............................ (348) 348 -- (347) 347
------- ------- ------- ------ -------
Total operating expenses, excluding policyholders'
benefits......................................... $ 4,610 $ (203) $ 4,407 $4,250 $ (369)
------- ------- ------- ------ -------
Net interest income and other operating income..... $11,630 $ 98 $11,728 $9,904 $ 892
Policyholders' benefits............................ (348) 348 -- (347) 347
------- ------- ------- ------ -------
Net interest income and other operating income,
excluding policyholders' benefits................ $11,282 $ 446 $11,728 $9,557 $ 1,239
------- ------- ------- ------ -------
COST EFFICIENCY RATIO.............................. 40.9% 37.6% 44.5%
======= ======= ======
PROFIT BEFORE TAX GROWTH:
Profit before tax................................ $ 3,174 $ 333 $ 3,507 $2,074 $ 885
IFRS management basis profit before tax growth:
09/30/06 compared to 09/30/05................. 19%
=======
NINE
MONTHS
ENDED
09/30/05
----------
IFRS
MANAGEMENT
BASIS
----------------------------------------------------------------
(dollars
are in
millions)
Net interest income................................ $ 7,995
Net fee income..................................... 1,751
Trading income:
Loans held for resale............................ 163
Hedge ineffectiveness and mark-to-market on non-
qualifying hedges............................. (21)
-------
Total trading income.......................... 142
Net (expense)/income from financial instruments
designated at fair value......................... 332
Other operating income............................. 576
-------
TOTAL OPERATING INCOME............................. 10,796
-------
Loan impairment charges and other credit risk
provisions....................................... 3,751
Loan impairment (releases)/charges, Katrina
related.......................................... 205
Operating expenses................................. 3,881
-------
Profit before tax.................................. 2,959
Tax expense........................................ 998
-------
PROFIT FOR THE PERIOD.............................. $ 1,961
=======
Adjustments, net of tax expense:
Effective interest rate impact..................... --
Katrina impact..................................... 138
-------
ADJUSTED PROFIT FOR THE PERIOD..................... $ 2,099
=======
COST EFFICIENCY RATIO:
Total operating expenses........................... $ 3,881
Policyholders' benefits............................ --
-------
Total operating expenses, excluding policyholders'
benefits......................................... $ 3,881
-------
Net interest income and other operating income..... $10,796
Policyholders' benefits............................ --
-------
Net interest income and other operating income,
excluding policyholders' benefits................ $10,796
-------
COST EFFICIENCY RATIO.............................. 36.0%
=======
PROFIT BEFORE TAX GROWTH:
Profit before tax................................ $ 2,959
IFRS management basis profit before tax growth:
09/30/06 compared to 09/30/05.................
(HSBC FOOTER)
3
RECONCILIATIONS TO GAAP FINANCIAL MEASURES
HSBC FINANCE CORPORATION
MANAGEMENT BASIS
THREE MONTHS ENDED
--------------------------------------------------------------------------
SEPTEMBER 30, 2006 JUNE 30, 2006 MARCH 31, 2006 DECEMBER 31, 2005
----------------------------------------------------------------------------------------------------------------------
(dollars are in millions)
NET INTEREST INCOME:
Net interest income:
Owned basis............................. $ 2,602 $ 2,549 $ 2,464 $ 2,298
Management basis adjustments............ 342 381 435 475
-------- -------- -------- --------
Management basis........................ $ 2,944 $ 2,930 $ 2,899 $ 2,773
-------- -------- -------- --------
Average interest-earning assets:
Owned basis............................. $158,722 $153,021 $147,266 $138,788
Managed basis adjustments............... 1,493 2,620 3,505 5,757
Management basis adjustments............ 20,483 20,324 20,831 21,063
-------- -------- -------- --------
Management basis........................ $180,698 $175,965 $171,602 $165,608
-------- -------- -------- --------
Owned basis net interest margin........... 6.56% 6.66% 6.69% 6.62%
Management basis net interest margin...... 6.52% 6.66% 6.76% 6.70%
======== ======== ======== ========
RETURN ON AVERAGE ASSETS:
Profit for the period:
Owned basis............................. $ 551 $ 568 $ 888 $ 393
Management basis adjustments............ 44 57 80 50
-------- -------- -------- --------
Management basis........................ $ 595 $ 625 $ 968 $ 443
-------- -------- -------- --------
Adjusted profit for the period:
Owned basis............................. $ 551 $ 568 $ 888 $ 393
Management basis adjustments............ 44 57 80 50
Derivative adjustments.................. (46) 6 (34) 25
-------- -------- -------- --------
Management basis adjusted for
derivatives.......................... $ 549 $ 631 $ 934 $ 468
-------- -------- -------- --------
Average assets:
Owned basis............................. $172,746 $167,505 $162,688 $150,644
Management basis adjustments............ 21,869 22,881 24,225 26,741
-------- -------- -------- --------
Management basis........................ $194,615 $190,386 $186,913 $177,385
-------- -------- -------- --------
Return on average owned assets............ 1.28% 1.36% 2.18% 1.04%
Return on average management assets....... 1.22% 1.31% 2.07% 1.00%
Return on average management assets,
adjusted for derivatives................ 1.13% 1.33% 2.00% 1.06%
======== ======== ======== ========
THREE MONTHS ENDED
-----------------------------------
SEPTEMBER 30, 2005 JUNE 30, 2005
-------------------------------------------------------------------------------
(dollars are in millions)
NET INTEREST INCOME:
Net interest income:
Owned basis............................. $ 2,163 $ 2,035
Management basis adjustments............ 524 620
-------- --------
Management basis........................ $ 2,687 $ 2,655
-------- --------
Average interest-earning assets:
Owned basis............................. $127,038 $119,523
Managed basis adjustments............... 7,779 10,203
Management basis adjustments............ 20,806 20,163
-------- --------
Management basis........................ $155,623 $149,889
-------- --------
Owned basis net interest margin........... 6.81% 6.81%
Management basis net interest margin...... 6.91% 7.09%
======== ========
RETURN ON AVERAGE ASSETS:
Profit for the period:
Owned basis............................. $ 281 $ 472
Management basis adjustments............ 34 36
-------- --------
Management basis........................ $ 315 $ 508
-------- --------
Adjusted profit for the period:
Owned basis............................. $ 281 $ 472
Management basis adjustments............ 34 36
Derivative adjustments.................. 43 (37)
-------- --------
Management basis adjusted for
derivatives.......................... $ 358 $ 471
-------- --------
Average assets:
Owned basis............................. $141,765 $134,834
Management basis adjustments............ 28,414 30,341
-------- --------
Management basis........................ $170,179 $165,175
-------- --------
Return on average owned assets............ .79% 1.40%
Return on average management assets....... .74% 1.23%
Return on average management assets,
adjusted for derivatives................ .84% 1.14%
======== ========
(HSBC FOOTER)
4
RECONCILIATIONS TO GAAP FINANCIAL MEASURES
HSBC FINANCE CORPORATION
MANAGEMENT BASIS
THREE MONTHS ENDED
-------------------------------------------------------------------
SEPTEMBER 30, 2006 JUNE 30, 2006 MARCH 31, 2006 DECEMBER 31, 2005
------------------------------------------------------------------------------------------------------------------------
----
(dollars are in millions)
MANAGED BASIS RISK ADJUSTED REVENUE:
Net interest income.............................. $ 2,639 $ 2,616 $ 2,567 $ 2,432
Other operating income, excluding securitization
revenue and the mark-to-market on derivatives
which do not qualify as effective hedges and
ineffectiveness associated with qualifying hedges
under SFAS No. 133............................... 1,285 1,183 1,357 1,236
Less: Net charge-offs.............................. (1,168) (1,121) (990) (1,163)
-------- -------- -------- --------
Risk adjusted revenue.............................. $ 2,756 $ 2,678 $ 2,934 $ 2,505
-------- -------- -------- --------
Management basis adjustments:
Net interest income................................ $ 305 $ 314 $ 332 $ 341
Other operating income, excluding securitization
revenue and the mark-to-market on derivatives
which do not qualify as effective hedges and
ineffectiveness associated with qualifying hedges
under SFAS No. 133............................... (64) (60) (65) (86)
Less: Net charge-offs.............................. (163) (149) (158) (179)
-------- -------- -------- --------
Risk adjusted revenue, management basis
adjustments...................................... $ 78 $ 105 $ 109 $ 76
-------- -------- -------- --------
Management basis:
Net interest income................................ $ 2,944 $ 2,930 $ 2,899 $ 2,773
Other operating income, excluding securitization
revenue and the mark-to-market on derivatives
which do not qualify as effective hedges and
ineffectiveness associated with qualifying hedges
under SFAS No. 133............................... 1,221 1,123 1,292 1,150
Less: Net charge-offs.............................. (1,331) (1,270) (1,148) (1,342)
-------- -------- -------- --------
Risk adjusted revenue, management basis............ $ 2,834 $ 2,783 $ 3,043 $ 2,581
-------- -------- -------- --------
Average interest-earning assets:
Managed basis.................................... $160,215 $155,641 $150,771 $144,545
Management basis adjustments..................... 20,483 20,324 20,831 21,063
-------- -------- -------- --------
Management basis................................. $180,698 $175,965 $171,602 $165,608
-------- -------- -------- --------
Managed basis risk adjusted revenue................ 6.88% 6.88% 7.78% 6.93%
Management basis risk adjusted revenue............. 6.27% 6.33% 7.09% 6.23%
======== ======== ======== ========
THREE MONTHS ENDED
----------------------------------
SEPTEMBER 30, 2005 JUNE 30, 2005
---------------------------------------------------------------------------------------
(dollars are in millions)
MANAGED BASIS RISK ADJUSTED REVENUE:
Net interest income................................ $ 2,340 $ 2,284
Other operating income, excluding securitization
revenue and the mark-to-market on derivatives
which do not qualify as effective hedges and
ineffectiveness associated with qualifying hedges
under SFAS No. 133............................... 1,230 1,135
Less: Net charge-offs.............................. (1,052) (1,028)
-------- --------
Risk adjusted revenue.............................. $ 2,518 $ 2,391
-------- --------
Management basis adjustments:
Net interest income................................ $ 347 $ 371
Other operating income, excluding securitization
revenue and the mark-to-market on derivatives
which do not qualify as effective hedges and
ineffectiveness associated with qualifying hedges
under SFAS No. 133............................... (88) (124)
Less: Net charge-offs.............................. (158) (156)
-------- --------
Risk adjusted revenue, management basis
adjustments...................................... $ 101 $ 91
-------- --------
Management basis:
Net interest income................................ $ 2,687 $ 2,655
Other operating income, excluding securitization
revenue and the mark-to-market on derivatives
which do not qualify as effective hedges and
ineffectiveness associated with qualifying hedges
under SFAS No. 133............................... 1,142 1,011
Less: Net charge-offs.............................. (1,210) (1,184)
-------- --------
Risk adjusted revenue, management basis............ $ 2,619 $ 2,482
-------- --------
Average interest-earning assets:
Managed basis.................................... $134,817 $129,726
Management basis adjustments..................... 20,806 20,163
-------- --------
Management basis................................. $155,623 $149,889
-------- --------
Managed basis risk adjusted revenue................ 7.47% 7.37%
Management basis risk adjusted revenue............. 6.73% 6.62%
======== ========
(HSBC FOOTER)
5
RECONCILIATIONS TO GAAP FINANCIAL MEASURES
HSBC FINANCE CORPORATION
MANAGEMENT BASIS
THREE MONTHS ENDED
-----------------------------------------------------------------------
SEPTEMBER 30, 2006 JUNE 30, 2006 MARCH 31, 2006 DECEMBER 31, 2005
------------------------------------------------------------------------------------------------------------------------
(dollars are in millions)
TWO-MONTHS-AND-OVER CONTRACTUAL DELINQUENCY RATIO:
Consumer 2+ delinquency:
Owned basis..................................... $ 6,495 $ 5,652 $ 5,312 $ 5,366
Management basis adjustments.................... 624 624 619 725
-------- -------- -------- --------
Management basis................................ $ 7,119 $ 6,276 $ 5,931 $ 6,091
-------- -------- -------- --------
Consumer receivables:
Owned basis..................................... $156,760 $153,779 $146,580 $139,726
Management basis adjustments.................... 21,665 22,236 23,241 25,722
-------- -------- -------- --------
Management basis................................ $178,425 $176,015 $169,821 $165,448
-------- -------- -------- --------
Owned basis consumer 2+ delinquency ratio......... 4.14% 3.68% 3.62% 3.84%
Management basis consumer 2+ delinquency ratio.... 3.99% 3.57% 3.49% 3.68%
======== ======== ======== ========
CONSUMER NET CHARGE-OFF RATIO:
Consumer net charge-offs:
Owned basis..................................... $ 1,138 $ 1,079 $ 928 $ 1,044
Management basis adjustments.................... 193 191 220 298
-------- -------- -------- --------
Management basis................................ $ 1,331 $ 1,270 $ 1,148 $ 1,342
-------- -------- -------- --------
Average consumer receivables:
Owned basis..................................... $155,913 $149,933 $143,893 $134,647
Management basis adjustments.................... 21,756 22,942 24,333 26,817
-------- -------- -------- --------
Management basis................................ $177,669 $172,875 $168,226 $161,464
-------- -------- -------- --------
Owned basis consumer net charge-off ratio......... 2.92% 2.88% 2.58% 3.10%
Management basis consumer net charge-off ratio.... 3.00% 2.94% 2.73% 3.32%
======== ======== ======== ========
THREE MONTHS ENDED
----------------------------------
SEPTEMBER 30, 2005 JUNE 30, 2005
---------------------------------------------------------------------------------------
(dollars are in millions)
TWO-MONTHS-AND-OVER CONTRACTUAL DELINQUENCY RATIO:
Consumer 2+ delinquency:
Owned basis...................................... $ 4,861 $ 4,419
Management basis adjustments..................... 830 887
-------- --------
Management basis................................. $ 5,691 $ 5,306
-------- --------
Consumer receivables:
Owned basis...................................... $128,524 $118,532
Management basis adjustments..................... 27,631 29,187
-------- --------
Management basis................................. $156,155 $147,719
-------- --------
Owned basis consumer 2+ delinquency ratio.......... 3.78% 3.73%
Management basis consumer 2+ delinquency ratio..... 3.64% 3.59%
======== ========
CONSUMER NET CHARGE-OFF RATIO:
Consumer net charge-offs:
Owned basis...................................... $ 902 $ 844
Management basis adjustments..................... 308 340
-------- --------
Management basis................................. $ 1,210 $ 1,184
-------- --------
Average consumer receivables:
Owned basis...................................... $123,163 $115,354
Management basis adjustments..................... 28,579 30,359
-------- --------
Management basis................................. $151,742 $145,713
-------- --------
Owned basis consumer net charge-off ratio.......... 2.93% 2.93%
Management basis consumer net charge-off ratio..... 3.19% 3.25%
======== ========
(HSBC FOOTER)
6
RECONCILIATIONS TO GAAP FINANCIAL MEASURES
HSBC USA INC. INCOME STATEMENT
IFRS
THREE
MONTHS
ENDED
09/30-
THREE MONTHS ENDED 09/30/06 THREE MONTHS ENDED 06/30/06 /05
----------------------------- ----------------------------- ------
OWNED IFRS IFRS OWNED IFRS IFRS OWNED
BASIS ADJUSTMENTS BASIS BASIS ADJUSTMENTS BASIS BASIS
------------------------------------------------------------------------------------------------------------------------
(dollars are in millions)
Net interest income....................... $ 777 $(151) $ 626 $ 775 $(158) $ 617 $ 761
Net fee income............................ 348 (141) 207 316 (85) 231 265
Trading income............................ 52 257 309 269 105 374 137
Net income from financial instruments
designated at
fair value.................................. -- (55) (55) -- 52 52 --
Other operating income........................ 214 (59) 155 88 (25) 63 103
------ ----- ------ ------ ----- ------ ------
TOTAL OPERATING INCOME.......................1,391 (149) 1,242 1,448 (111) 1,337 1,266
------ ----- ------ ------ ----- ------ ------
Loan impairment charges and other credit risk
provisions................................. 208 8 216 224 (19) 205 173
Loan impairment (releases)/charges, Katrina
related... (1) -- (1) (2) -- (2) 26
Operating expenses.......................... 819 (134) 685 775 (104) 671 673
------ ----- ------ ------ ----- ------ ------
Profit before tax........................... 365 (23) 342 451 12 463 394
Tax expense................................. 121 (10) 111 165 5 170 142
------ ----- ------ ------ ----- ------ ------
PROFIT FOR THE PERIOD...................... $ 244 $ (13) $ 231 $ 286 $ 7 $ 293 $ 252
====== ===== ====== ====== ===== ====== ======
COST EFFICIENCY RATIO:
Total operating expenses................... $ 819 $(134) $ 685 $ 775 $(104) $ 671 $ 673
Net interest income and other operating
income........ 1,391 (149) 1,242 1,448 (111) 1,337 1,266
------ ----- ------ ------ ----- ------ ------
COST EFFICIENCY RATIO........................ 58.9% 55.2% 53.5% 50.2% 53.2%
====== ====== ====== ====== ======
PROFIT BEFORE TAX GROWTH:
Profit before tax...................... $ 365 $ (23) $ 342 $ 451 $ 12 $ 463 $ 394
IFRS profit before tax growth:
09/30/06 compared to 09/30/05........ (11)%
09/30/06 compared to 06/30/06......... (26)%
======
THREE MONTHS ENDED
09/30/05
--------------------
IFRS IFRS
ADJUSTMENTS BASIS
----------------------------------------------------------------------------
(dollars are in
millions)
Net interest income................................... $(95) $ 666
Net fee income........................................ (19) 246
Trading income........................................ 50 187
Net income from financial instruments designated at
fair value.......................................... (17) (17)
Other operating income................................ (6) 97
---- ------
TOTAL OPERATING INCOME................................ (87) 1,179
---- ------
Loan impairment charges and other credit risk
provisions.......................................... 13 186
Loan impairment (releases)/charges, Katrina related... -- 26
Operating expenses.................................... (91) 582
---- ------
Profit before tax..................................... (9) 385
Tax expense........................................... (2) 140
---- ------
PROFIT FOR THE PERIOD................................. $ (7) $ 245
==== ======
COST EFFICIENCY RATIO:
Total operating expenses.............................. $(91) $ 582
Net interest income and other operating income........ (87) 1,179
---- ------
COST EFFICIENCY RATIO................................. 49.4%
======
PROFIT BEFORE TAX GROWTH:
Profit before tax................................... $ (9) $ 385
IFRS profit before tax growth:
09/30/06 compared to 09/30/05....................
09/30/06 compared to 06/30/06....................
(HSBC FOOTER)
7
RECONCILIATIONS TO GAAP FINANCIAL MEASURES
HSBC USA INC. INCOME STATEMENT
IFRS
NINE MONTHS ENDED
NINE MONTHS ENDED 09/30/06 09/30/05
------------------------------------- -----------------------
-
OWNED IFRS IFRS OWNED IFRS
BASIS ADJUSTMENTS BASIS BASIS ADJUSTMENTS
------------------------------------------------------------------------------------------------------------------------
-
(DOLLARS ARE IN MILLIONS)
Net interest income.............................. $2,287 $(466) $1,821 $2,321 $(214)
Net fee income................................... 973 (305) 668 704 (141)
Trading income................................... 600 441 1,041 268 217
Net income from financial instruments designated
at fair value.................................. -- (43) (43) -- (15)
Other operating income........................... 373 (33) 340 425 (98)
------ ----- ------ ------ -----
TOTAL OPERATING INCOME........................... 4,233 (406) 3,827 3,718 (251)
------ ----- ------ ------ -----
Loan impairment charges and other credit risk
provisions..................................... 590 -- 590 450 47
Loan impairment (releases)/charges, Katrina
related........................................ (4) -- (4) 26 --
Operating expenses............................... 2,380 (360) 2,020 2,012 (262)
------ ----- ------ ------ -----
Profit before tax................................ 1,267 (46) 1,221 1,230 (36)
Tax expense...................................... 429 (19) 410 450 (9)
------ ----- ------ ------ -----
PROFIT FOR THE PERIOD............................ $ 838 $ (27) $ 811 $ 780 $ (27)
====== ===== ====== ====== =====
COST EFFICIENCY RATIO:
Total operating expenses......................... $2,380 $(360) $2,020 $2,012 $(262)
Net interest income and other operating income... 4,233 (406) 3,827 3,718 (251)
------ ----- ------ ------ -----
COST EFFICIENCY RATIO............................ 56.2% 52.8% 54.1%
====== ====== ======
PROFIT BEFORE TAX GROWTH:
Profit before tax.............................. $1,267 $ (46) $1,221 $1,230 $ (36)
IFRS profit before tax growth:
09/30/06 compared to 09/30/05............... 2%
======
NINE
MONTHS
ENDED
09/30-/05
------
IFRS
BASIS
-----------------------------------------------------------
(DOLLARS
ARE IN
MILLIONS)
Net interest income.............................. $2,107
Net fee income................................... 563
Trading income................................... 485
Net income from financial instruments designated
at fair value.................................. (15)
Other operating income........................... 327
------
TOTAL OPERATING INCOME........................... 3,467
------
Loan impairment charges and other credit risk
provisions..................................... 497
Loan impairment (releases)/charges, Katrina
related........................................ 26
Operating expenses............................... 1,750
------
Profit before tax................................ 1,194
Tax expense...................................... 441
------
PROFIT FOR THE PERIOD............................ $ 753
======
COST EFFICIENCY RATIO:
Total operating expenses......................... $1,750
Net interest income and other operating income... 3,467
------
COST EFFICIENCY RATIO............................ 50.5%
======
PROFIT BEFORE TAX GROWTH:
Profit before tax.............................. $1,194
IFRS profit before tax growth:
09/30/06 compared to 09/30/05...............
(HSBC FOOTER)
8
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