Annual Report and Accounts -

RNS Number : 7199P

HSBC Holdings PLC

31 March 2009

 



    North America

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

	Personal     Financial     Services     US$m		Commercial     Banking     US$m		Global     Banking &     Markets     US$m		Private     Banking     US$m		Other     US$m		Total     US$m
2008
United States23	(17,364)		226		(2,899)		67		3,427		(16,543)
Canada	106		380		252		5		96		839
Bermuda	31		51		72		11		9		174
Other	(1)		1		-		-		2		2
	(17,228)		658		(2,575)		83		3,534		(15,528)
2007
United States	(1,824)		377		(1,243)		156		1,468		(1,066)
Canada	265		466		239		8		5		983
Bermuda	13		77		39		10		34		173
Other	-		-		-		-		1		1
	(1,546)		920		(965)		174		1,508		91
2006
United States	3,128		442		199		107		(264)		3,612
Canada	253		437		189		-		17		896
Bermuda	10		78		31		7		29		155
Other	-		-		4		-		1		5
	3,391		957		423		114		(217)		4,668

For footnote, see page 143.

Loans and advances to customers (net) by country

	At 31 December
	2008     US$m		2007     US$m		2006     US$m
United States	208,834		233,706		236,188
Canada	44,866		53,891		39,584
Bermuda	2,514		2,263		2,215
	256,214		289,860		277,987

Customer accounts by country

	At 31 December
	2008     US$m		2007     US$m		2006     US$m
United States	101,963		100,034		84,560
Canada	33,905		37,061		28,668
Bermuda	7,664		8,078		7,694
	143,532		145,173		120,922

2008 compared with 2007

Economic briefing

Economic conditions proved very difficult in the US during 2008 as the economy entered a period of recession. Overall GDP growth slowed to just 1.1 per cent for the year, down from 2 per cent in 2007. In common with many other economies, much of this weakness was concentrated in the final months of 2008 as fourth quarter GDP registered the largest quarterly decline for 26 years. Economic weakness proved broad-based across most areas of the economy, with the notable exception of net exports. Housing sales and residential construction activity both declined from already depressed levels, with house prices continuing to fall in most regions and mortgage delinquencies continuing to rise. Labour market conditions weakened throughout the course of the year as the unemployment rate rose from 4.9 per cent in January to a 15-year high of 7.2 per cent in December 2008. The annual rate of 

Profit/(loss) before tax

	2008		2007		2006
North America	US$m		US$m		US$m
Net interest income	15,218		14,847		14,268
Net fee income	5,227		5,810		4,766
Net trading income/(expense)	(3,135)		(542)		1,358
Changes in fair value of long-term debt issued and related derivatives	3,736		1,750		(63)
Net income from other financial instruments designated at fair value	1		-		-
Net income/(expense) from financial instruments designated at fair value	3,737		1,750		(63)
Gains less losses from financial investments	(120)		245		58
Dividend income	77		105		85
Net earned insurance premiums	390		449		492
Other operating income	23		360		922
Total operating income	21,417		23,024		21,886
Net insurance claims incurred and movement in liabilities  to policyholders	(238)		(241)		(259)
Net operating income before loan impairment charges and other  credit risk provisions	21,179		22,783		21,627
Loan impairment charges and other credit risk provisions	(16,795)		(12,156)		(6,796)
Net operating income	4,384		10,627		14,831
Operating expenses (excluding goodwill impairment)	(9,359)		(10,556)		(10,193)
Goodwill impairment	(10,564)		-		-
Operating profit/(loss)	(15,539)		71		4,638
Share of profit in associates and joint ventures	11		20		30
Profit/(loss) before tax	(15,528)		91		4,668
	%		%		%
Share of HSBC's profit before tax	(166.8)		0.4		21.1
Cost efficiency ratio	94.1		46.3		47.1
Year-end staff numbers (full-time equivalent)	44,725		52,722		55,642
Balance sheet data15
	At 31 December
	2008		2007		2006
	US$m		US$m		US$m
Loans and advances to customers (net)	256,214		289,860		277,987
Loans and advances to banks (net)	11,458		16,566		17,865
Trading assets, financial assets designated at fair value, and  financial investments20	119,634		133,998		145,700
Total assets	552,612		549,285		505,638
Deposits by banks	18,181		16,618		11,484
Customer accounts	143,532		145,173		120,922

For footnotes, see page 143.

All commentaries on North America are on an underlying basis unless stated otherwise.

consumer price inflation reached a 17-year high of 5.6 per cent in July 2008 before moderating sharply to stand at just 0.1 per cent by the year-end. A combination of falling asset values and weak employment conditions undermined consumer confidence and household spending growth turned negative during the second half of 2008. The Standard & Poor's S&P 500 stock market index fell by 38 per cent during the year. Faced with this deterioration in economic activity and financial conditions, the Federal Reserve lowered short-term interest rates by 425 basis points during the course of 2008, leaving the Funds' target rate within a narrow range of between zero and 25 basis points, while a number of liquidity initiatives were also introduced.

Canadian GDP increased by 0.4 per cent during the first eleven months of 2008 compared with the equivalent period of 2007, with growth slowing markedly during the second half of the year, due predominantly to weaker external demand. Labour market conditions deteriorated as the unemployment rate rose from a historical low of 5.8 per cent in January 2008 to finish the year at 6.6 per cent. After rising to a level of 3.5 per cent in August 2008, the headline rate of consumer price inflation slowed to 1.2 per cent by the year-end. The core rate of inflation remained below 2.0 per cent throughout the year. Responding to the deteriorating economic outlook, the Bank of Canada cut its overnight interest rate from 4.25 per cent at the end of 2007 to 1.5 per cent in December 2008.

Reconciliation of reported and underlying profit/(loss) before tax

	2008 compared with 2007
North America	2007     as     reported     US$m	2007     acquisitions,    disposals     & dilution      gains1     US$m			Currency     translation2     US$m		2007     at 2008    exchange     rates3     US$m	2008     acquisitions     and     disposals1     US$m			Under-    lying     change     US$m		2008     as     reported     US$m		Re-    ported    change    %		Under-    lying     change     %
Net interest income	14,847		1		7		14,855		-		363		15,218		2		2
Net fee income	5,810		(105)		1		5,706		-		(479)		5,227		(10)		(8)
Other income4	2,126		(18)		(1)		2,107		-		(1,373)		734		(65)		(65)
Net operating income5	22,783		(122)		7		22,668		-		(1,489)		21,179		(7)		(7)
Loan impairment charges and other credit risk provisions	(12,156)		-		12		(12,144)		-		(4,651)		(16,795)		(38)		(38)
Net operating income	10,627		(122)		19		10,524		-		(6,140)		4,384		(59)		(58)
Operating expenses (excluding goodwill impairment)	(10,556)		98		(6)		(10,464)		-		1,105		(9,359)		11		11
Goodwill impairment	-		-		-		-		-		(10,564)		(10,564)		n/a		n/a
Operating profit/(loss)	71		(24)		13		60		-		(15,599)		(15,539)		(21,986)		(25,998)
Income from associates	20		-		-		20		-		(9)		11		(45)		(45)
Profit/(loss) before tax	91		(24)		13		80		-		(15,608)		(15,528)		(17,164)		(19,510)

For footnotes, see page 143.

Review of business performance

HSBC's operations in North America reported a pre-tax loss of US$15.5 billion in 2008, compared with a pre-tax profit of US$91 million in 2007.  

Net interest income in North America increased by 2 per cent to US$15.2 billion, driven by Balance Sheet Management activities in Global Banking and Markets which more than offset the decline in Personal Financial Services as lending reduced.

The significant increase in net interest income in the Balance Sheet Management business resulted from correct positioning in anticipation of lower interest rates. Net interest income was also boosted by higher balances within certain loan portfolios in Global Banking and Markets.

Net interest income fell in Personal Financial Services as asset balances declined and deposit spreads narrowed. Deposit spread compression was driven by the competitive environment for retail deposits in which HSBC refrained from passing on the full effects of interest rate cuts to customers. Asset spreads widened, particularly in vehicle finance and credit cards and, to a lesser extent, the real estate secured portfolios as yields declined by less than funding costs in the lower interest rate environment, and the credit card portfolio benefited from APR floors. This was partly offset by a rise in non-performing loans, lower loan prepayments, increased volumes of loan modifications, and lower fees from reduced loan origination volumes. Funding costs declined as a result of lower base rates during the year.

Lending balances declined as the mortgage services portfolio continued to run-off, originations ceased during the year within the dealer and direct-to-consumer channels in vehicle finance, and tighter underwriting criteria in consumer lending constrained customer eligibility for finance. In addition, US$8.2 billion of mortgages were sold from the US real estate secured portfolios during the year. These factors were partly offset by a change in mix towards higher-yielding credit card loans and reduced levels of prepayments that resulted in loans remaining on the balance sheet longer. At the end of February 2009, HSBC authorised the discontinuation as soon as practicable of all new receivable originations of all products by the branch-based consumer lending business of HSBC Finance in North America (see page 70).

Net fee income declined by 8 per cent, driven by reductions in US credit card fees following changes in fee practices implemented since the fourth quarter of 2007 and lower cash advance and interchange fees as a result of reduced volumes. Partly offsetting the decline were increased income from enhancement services due to higher customer acceptance rates of Account Secure Plus and Identity Protection Plan, a rise in syndication, credit and service fees in Commercial Banking and increased fees from asset management. 

Trading losses were dominated by write-downs in Global Banking and Markets on legacy exposures as continuing turmoil in credit markets adversely affected valuations of credit and structured credit trading positions, monoline exposures and leveraged and acquisition finance loans. Continued deterioration in the fair value of the run-off portfolio of sub-prime residential mortgage loans held for sale also contributed to the loss. US$3.6 billion in leveraged loans, high yield notes and securities held for balance sheet management were reclassified in 2008 under revised IFRS rules from trading assets to loans and receivables and available for sale, preventing any further mark-to-market trading losses on these assets. If these reclassifications had not been made, the loss before tax would have been US$0.9 billion higher.

The losses on legacy assets were partly offset by strong performances in other trading areas as foreign exchange trading benefited from pronounced market volatility, Rates trading correctly anticipated central bank rate cuts and gains were generated on credit default swaps in Global Banking. Revenues from emerging markets trading and precious metals trading also rose as a result of ongoing market volatility and increased transaction volumes as prices of gold and platinum rose during 2008. Losses on non-qualifying hedge positions in interest rate swaps generated further trading losses. In 2007, the Decision One business, which was closed that year, recorded trading losses of US$263 million.

Net income from financial instruments designated at fair value rose by US$2.0 billion to US$3.7 billion, primarily on HSBC's fixed-rate long-term debt as credit spreads widened significantly in the second half of 2008 in the ongoing market turmoil. These gains, together with those booked in previous years, will fully reverse over the life of the debt. 

Gains less losses from financial investments declined, mainly due to losses on US government agency securities in 2008 and the non-recurrence of the sale of MasterCard shares, partly offset by gains from the Visa IPO in 2008.

Net earned insurance premiums decreased by 13 per cent to US$390 million, driven by lower credit related premiums in HSBC Finance due to declining loan volumes.

Other operating income declined due to losses on sale of the Canadian vehicle finance businesses and other loan portfolios in 2008, in addition to the non-recurrence of gains on disposal of fixed assets and a small portfolio of private equity investments in 2007.

Net insurance claims incurred and movement in liabilities to policyholders were broadly in line with 2007 at US$238 million.

Loan impairment charges and other credit risk provisions rose sharply, by 38 per cent to US$16.8 billion, reflecting substantially higher impairment charges in HSBC Finance across all portfolios and, in HSBC USA, the deterioration of credit quality in prime residential mortgages, second lien portfolios and private label cards. The main factors driving this deterioration were the continued weakening of the US economy, which led to rising levels of unemployment and personal bankruptcy filings: higher early-stage delinquency and increased roll rates in consumer lending: the ageing of portfolios: and further declines in house prices which increased loss severity and reduced customers' ability to refinance and access equity in their homes. Partly offsetting these factors was a reduction in overall lending as HSBC continued to actively reduce its balance sheet and lower its risk profile in the US.

In the Mortgage Services business, loan impairment charges rose by 14 per cent to US$3.5 billion as the 2005 and 2006 vintages continued to season and experience rising delinquency. Run-off of the portfolio slowed in light of continued house price depreciation which, along with the constrained credit environment, restricted refinancing options for personal customers. In consumer lending, loan impairment charges rose by 39 per cent to US$5.7 billion. In the second half of 2008, delinquency rates began to accelerate particularly in the first lien portfolios in the parts of the country most affected by house price depreciation and rising unemployment rates. In HSBC USA, loan impairment charges rose by 76 per cent to US$2.6 billion driven by credit quality deterioration across the Home Equity line of credit, Home Equity loan, prime first lien residential mortgage and private label card portfolios. 

Loan impairment charges in US card and retail services rose, driven by portfolio seasoning and rising unemployment, particularly in the second half of 2008, higher levels of personal bankruptcy filings and lower recovery rates. As with mortgages, this was most notable in parts of the country most affected by house price falls and unemployment. Vehicle finance loan impairment charges rose as delinquencies rose and lower prices resulted in lower recoveries when repossessed vehicles were sold at auction.

Loan impairment charges in Commercial Banking grew to US$449 million from a low base, primarily driven by higher impairment losses due to deterioration across the middle market, commercial real estate and corporate banking portfolios in the US and among firms in the manufacturing, export and commercial real estate sectors in Canada. Higher loan impairment charges and other credit risk provisions in Global Banking and Markets reflected weaker credit fundamentals in the US in 2008.

Operating expenses increased by 90 per cent, driven by US$10.6 billion of impairment charge recognised in respect of North America Personal Financial Services in 2008 to fully write off goodwill. Excluding the goodwill impairment charge, expenses were US$1.1 billion or 11 per cent lower. Staff costs declined, primarily in HSBC Finance, following decisions taken in 2007 to close the acquisition channels for new business in Mortgage Services and a number of consumer lending branches, and integrate the operations of the card businesses. HSBC USA made the decision to close its wholesale and third-party correspondent mortgage business in November 2008, while HSBC Finance took the decision to cease originations in the dealer and direct-to-consumer channels in the vehicle finance business in July 2008. Staff costs in Global Banking and Markets also fell as performance-related compensation and staff numbers both declined.

Other administrative costs decreased as origination activity declined, marketing costs in card and retail services reduced and branch costs in consumer lending fell as tightened underwriting criteria curtailed business and led to branch closures. This was partly offset by higher marketing and occupancy costs in the retail bank reflecting a continued expansion of the branch network, increased community investment activities and higher deposit insurance, collection, payments and cash management and asset management costs in support of business growth. 

2007 compared with 2006

Economic briefing

In the US, GDP growth in 2007 was 2.2 per cent, 0.7 percentage points less than that recorded in 2006 as the housing-led downturn gathered pace. Consumer spending in 2007 grew by 2.9 per cent, the weakest annual expansion since 2003. Housing activity continued to weaken in 2007, with residential investment falling by 17 per cent during the year. Both new and existing home sales also declined to new lows in 2007. The unemployment rate averaged 4.6 per cent in 2007, with the average in the second half of the year slightly higher at 4.8 per cent. The trade deficit narrowed in 2007 as export growth strengthened. Consumer price inflation averaged around 4 per cent in the final quarter of 2007. This was largely due to higher energy prices; excluding food and energy, consumer price inflation averaged 2.3 per cent in the fourth quarter. The Federal Reserve lowered short-term interest rates by 100 basis points in the second half of 2007, from 5.25 per cent to 4.25 per cent, as policymakers attempted to mitigate the worst effects of the sub-prime related credit squeeze upon economic activity. 10-year note yields reached a high of 5.3 per cent in June 2007, before falling to 4 per cent by the year-end. Declines in the final months of 2007 left the S&P 500 stock market index practically unchanged compared with the end of 2006.

Canadian GDP increased by 2.4 per cent during the first eleven months of 2007 compared with the equivalent period of 2006. Domestic demand remained strong despite tighter credit conditions in the latter part of the year, supported by the robust labour market. The unemployment rate averaged 6 per cent for the year, reaching a historical low of 5.8 per cent in October. After hitting a high of 2.5 per cent in April, core consumer price inflation slowed to 1.5 per cent by the end of 2007. The Canadian dollar appreciated during the year, particularly in the second half. In July, the Bank of Canada raised its overnight interest rate from 4.25 per cent to 4.5 per cent before reversing this move in the final weeks of 2007.

Review of business performance

HSBC's operations in North America experienced a significant fall in pre-tax profits of 98 per cent in 2007, on both reported and underlying bases. 

Reconciliation of reported and underlying profit before tax

	2007 compared with 2006
North America	2006     as     reported     US$m	2006     acquisitions     and     disposals1     US$m			Currency     translation2     US$m		2006     at 2007    exchange     rates6     US$m	2007     acquisitions,     disposals     & dilution     gains1     US$m			Under-    lying     change     US$m		2007     as     reported     US$m		Re-    ported    change    %		Under-    lying     change     %
Net interest income	14,268		-		65		14,333		-		514		14,847		4		4
Net fee income	4,766		-		26		4,792		-		1,018		5,810		22		21
Other income4	2,593		-		10		2,603		20		(497)		2,126		(18)		(19)
Net operating income5	21,627		-		101		21,728		20		1,035		22,783		5		5
Loan impairment charges and other credit risk provisions	(6,796)		-		(3)		(6,799)		-		(5,357)		(12,156)		(79)		(79)
Net operating income	14,831		-		98		14,929		20		(4,322)		10,627		(28)		(29)
Operating expenses	(10,193)		-		(47)		(10,240)		(26)		(290)		(10,556)		(4)		(3)
Operating profit	4,638		-		51		4,689		(6)		(4,612)		71		(98)		(98)
Income from associates	30		-		1		31		-		(11)		20		(33)		(35)
Profit before tax	4,668		-		52		4,720		(6)		(4,623)		91		(98)		(98)

For footnotes, see page 143.

The US economy began to slow in the fourth quarter of 2007 and, increasingly, evidence suggested that some parts of the country were already in recession. As the housing market slump affected the real economy, the deterioration in credit quality that began in the mortgage services business extended to include other consumer finance businesses in the US. In HSBC, this was reflected in a 79 per cent rise in loan impairment charges and a loss before tax of US$1.5 billion in Personal Financial Services. In response to this, management took actions to manage exposure and realign the business, including stopping new mortgage purchases in mortgage services, tightening underwriting criteria, restricting the product range in consumer lending, decreasing credit lines and reducing the volume of balance transfers in credit cards, and restructuring the consumer lending branch network by closing some 400 branches of HSBC Finance to reflect expected lower demand. A loss of US$965 million in Global Banking and Markets arose from credit-related and liquidity event write-downs as asset-backed securities markets became illiquid and credit spreads widened markedly.

Net interest income rose by 4 per cent, as higher revenues from payments and cash management, commercial lending and cards were offset by lower mortgage balances, spread compression and higher non-performing balances. 

Overall, average lending balances were 5 per cent higher, as growth in credit and private label cards and vehicle finance offset lower mortgage balances. The benefits of higher volumes were largely offset as asset spreads narrowed due to higher funding costs. Also, although deposit balances rose, spreads reduced as the product mix shifted to higher yielding products. Business expansion and higher customer volumes drove growth in loans and deposits in Commercial Banking. A 43 per cent increase in revenue from payments and cash management was due to higher customer balances.

Net fee income rose as a result of higher personal card balances attracting late and over-limit fees. Fees from card services also rose, due to enhancement services on cards such as debt protection and identity protection. The Intellicheck service, which allows customers to pay their credit card balances over the telephone for a fee, proved popular with customers. Payments and cash management fees also increased on higher volumes generated. In the fourth quarter of 2007, HSBC changed fee practices on credit cards to ensure they fully reflected HSBC's brand principles. This reduced income by US$55 million in 2007.

HSBC incurred a trading loss following write-downs in credit and structured derivatives, including US$282 million relating to monoline exposures, and in leveraged and acquisition finance, driven by deterioration in the credit market in the second half of the year. The write-downs were compounded by trading losses on purchased loans in the mortgage services' wholesale business, in response to which HSBC closed the Decision One business. By contrast, foreign exchange trading performance was strong, supported by activity generated by a weakening dollar and volatile markets. 

Net income from financial instruments designated at fair value rose to US$1.8 billion, driven by significant fair value movements on HSBC's own debt as a result of the widening of credit spreads and related derivatives in the second half of the year. 

Gains less losses from financial investments of US$245 million were primarily attributable to the sale of shares in MasterCard.

Net earned insurance premiums decreased by 9 per cent to US$449 million, as the decline in loan volumes led to a fall in credit insurance sales and HSBC stopped reinsuring credit insurance for other lenders.

Other operating income decreased significantly, as higher losses were recorded on foreclosed properties due to the combined effect of an increase in the stock of such properties and a reduction in their value due to falling prices. In addition, there were lower gains on the sale of investments, mainly due to a significant one-off gain in the latter part of 2006.

Net insurance claims incurred and movement in liabilities to policyholders decreased by 7 per cent to US$241 million, in line with the change in net earned insurance premiums.

Loan impairment charges posted a steep rise, increasing by 79 per cent to US$12.2 billion, reflecting substantially higher charges in the US consumer finance loan book, primarily in mortgage lending but also in the credit cards portfolio in the final part of the year. The main factor driving this deterioration was the effect of the weaker housing market on both economic activity and the ability of borrowers to extend or refinance debt. In addition, seasoning and mix change within the credit cards portfolio and increases in bankruptcy filings after the exceptionally low levels seen in 2006, following changes in legislation, added to loan impairment charges. 

The real estate secured portfolios experienced continuing deterioration in credit quality as a lack of demand for securitised sub-prime mortgages and falls in house prices severely restricted refinancing options for many customers. Loan impairment charges rose by 41 per cent to US$3.1 billion and by 139 per cent to US$4.1 billion in the mortgage services business and consumer lending, respectively. Delinquency rates exceeded recent historical trends, particularly for those loans originated in 2005 and 2006. Performance was weakest in housing markets which had previously experienced the steepest home price appreciation, second lien products and stated income products. 

US card services experienced a rise in loan impairment charges from a combination of factors, primarily a growth in balances, higher losses in the final part of the year as the economy slowed, a rise in bankruptcy rates to levels approaching those seen historically, and a shift in portfolio mix towards non-prime loans. 

Loan impairment charges in Commercial Banking rose by 151 per cent to US$191 million, reflecting growth in the loan book, the increasing probability of default among commercial real estate loans in the US and a change in methodology for determining loan impairment allowances on a portfolio of revolving loans to small businesses. In addition, in Canada, loan impairment charges increased due to exposure to certain sectors affected by the strength of the Canadian dollar and an impairment charge for non-bank asset-backed commercial paper was also taken.

Operating expenses increased by 3 per cent, compared with growth in net operating income before loan impairment charges of 5 per cent. The retail bank branch network was extended both within and beyond the Group's traditional spheres of operation to support the expansion of the Personal Financial Services and Commercial Banking businesses in the US and Canada. Premises and equipment expenses rose as a consequence. The consumer finance business incurred restructuring charges from the discontinuation of the wholesale and correspondent channels in mortgage services and the closing of branch offices in consumer lending. There were corresponding benefits in origination costs. The Canadian consumer finance business was also restructured in a similar fashion to the US. The business incurred US$70 million of one-off costs arising from the indemnification agreement with Visa ahead of Visa's planned IPO. In the cards and consumer lending businesses, communication expenses increased due to higher mailing volumes on cards and consumer lending as credit collection policies were tightened. In the third quarter, however, expenditure on card marketing declined in line with a decision to slow lending growth.

Share of profit in associates and joint ventures declined to US$20 million.

Analysis by customer group and global business 

Profit/(loss) before tax 

	2008
North America	Personal     Financial     Services     US$m		Commercial     Banking     US$m		Global     Banking &     Markets     US$m		Private     Banking     US$m		Other     US$m		Inter-    segment     elimination21     US$m		Total     US$m
Net interest income	12,632		1,480		1,064		224		22		(204)		15,218
Net fee income/(expense)	3,896		391		818		181		(59)		-		5,227
Trading income/(expense) excluding net interest income	(250)		5		(3,516)		10		(128)		-		(3,879)
Net interest income/(expense)  on trading activities	66		-		584		-		(110)		204		744
Net trading income/(expense)16	(184)		5		(2,932)		10		(238)		204		(3,135)
Changes in fair value of long- term debt issued and related derivatives	-		-		-		-		3,736		-		3,736
Net income/(expense) from  other financial instruments designated at fair value	(2)		-		(1)		-		4		-		1
Net income/(expense) from financial instruments  designated at fair value	(2)		-		(1)		-		3,740		-		3,737
Gains less losses from financial investments	65		5		(209)		-		19		-		(120)
Dividend income	36		11		27		3		-		-		77
Net earned insurance premiums	390		-		-		-		-		-		390
Other operating income/ (expense)	(426)		140		240		20		1,419		(1,370)		23
Total operating income/(expense)	16,407		2,032		(993)		438		4,903		(1,370)		21,417
Net insurance claims17	(238)		-		-		-		-		-		(238)
Net operating income/ (expense)5	16,169		2,032		(993)		438		4,903		(1,370)		21,179
Loan impairment charges and other credit risk provisions	(16,132)		(449)		(198)		(16)		-		-		(16,795)
Net operating income/ (expense)	37		1,583		(1,191)		422		4,903		(1,370)		4,384
Operating expenses (excluding goodwill impairment)	(6,701)		(937)		(1,384)		(339)		(1,368)		1,370		(9,359)
Goodwill impairment	(10,564)		-		-		-		-		-		(10,564)
Operating profit/(loss)	(17,228)		646		(2,575)		83		3,535		-		(15,539)
Share of profit/(loss) in  associates and joint ventures	-		12		-		-		(1)		-		11
Profit/(loss) before tax	(17,228)		658		(2,575)		83		3,534		-		(15,528)
	%		%		%		%		%				%
Share of HSBC's profit  before tax	(185.1)		7.1		(27.7)		0.9		38.0				(166.8)
Cost efficiency ratio	106.8		46.1		(139.4)		77.4		27.9				94.1
Balance sheet data15
	US$m		US$m		US$m		US$m		US$m				US$m
Loans and advances to  customers (net)	179,663		35,725		35,583		5,243		-				256,214
Total assets	192,240		42,211		318,139		7,054		3,323		(10,355)		552,612
Customer accounts	65,830		39,105		23,844		14,657		96				143,532

For footnotes, see page 143.

	2007
North America	Personal     Financial     Services     US$m		Commercial     Banking     US$m		Global     Banking &     Markets     US$m		Private     Banking     US$m		Other     US$m		Inter-    segment     elimination21     US$m		Total     US$m
Net interest income/(expense)	13,175		1,558		378		273		(17)		(520)		14,847
Net fee income/(expense)	4,571		338		701		279		(79)		-		5,810
Trading income/(expense) excluding net interest income	(349)		(2)		(871)		11		(78)		-		(1,289)
Net interest income/(expense)  on trading activities	134		-		137		-		(44)		520		747
Net trading income/(expense)16	(215)		(2)		(734)		11		(122)		520		(542)
Changes in fair value of long- term debt issued and related derivatives	-		-		-		-		1,750		-		1,750
Net income/(expense) from  other financial instruments designated at fair value	-		-		11		-		(11)		-		-
Net income from financial instruments designated at  fair value	-		-		11		-		1,739		-		1,750
Gains less losses from financial investments	176		(1)		65		2		3		-		245
Dividend income	47		1		57		-		-		-		105
Net earned insurance premiums	449		-		-		-		-		-		449
Other operating income/ (expense)	(5)		88		167		34		1,480		(1,404)		360
Total operating income	18,198		1,982		645		599		3,004		(1,404)		23,024
Net insurance claims17	(241)		-		-		-		-		-		(241)
Net operating income5	17,957		1,982		645		599		3,004		(1,404)		22,783
Loan impairment charges and other credit risk provisions	(11,909)		(191)		(46)		(10)		-		-		(12,156)
Net operating income	6,048		1,791		599		589		3,004		(1,404)		10,627
Total operating expenses	(7,594)		(893)		(1,562)		(415)		(1,496)		1,404		(10,556)
Operating profit/(loss)	(1,546)		898		(963)		174		1,508		-		71
Share of profit/(loss) in  associates and joint ventures	-		22		(2)		-		-		-		20
Profit/(loss) before tax	(1,546)		920		(965)		174		1,508		-		91
	%		%		%		%		%				%
Share of HSBC's profit  before tax	(6.4)		3.8		(4.0)		0.7		6.3				0.4
Cost efficiency ratio	42.3		45.1		242.2		69.3		49.8				46.3
Balance sheet data15
	US$m		US$m		US$m		US$m		US$m				US$m
Loans and advances to  customers (net)	218,676		38,930		26,186		6,068		-				289,860
Total assets	237,475		46,247		252,804		20,073		1,095		(8,409)		549,285
Customer accounts	61,824		36,306		30,732		16,187		124				145,173

For footnotes, see page 143.

Analysis by customer group and global business (continued)

Profit/(loss) before tax

	2006
North America	Personal     Financial     Services     US$m		Commercial     Banking     US$m		Global     Banking &     Markets     US$m		Private     Banking     US$m		Other     US$m		Inter-     segment     elimination21     US$m		Total     US$m
Net interest income/(expense)	12,964		1,362		266		212		(52)		(484)		14,268
Net fee income/(expense)	3,675		329		656		240		(134)		-		4,766
Trading income/(expense) excluding net interest income	66		13		746		12		(220)		-		617
Net interest income/(expense)  on trading activities	208		-		72		-		(23)		484		741
Net trading income/(expense)16	274		13		818		12		(243)		484		1,358
Changes in fair value of long- term debt issued and related derivatives	-		-		-		-		(63)		-		(63)
Net income/(expense) from  other financial instruments designated at fair value	-		-		(11)		-		11		-		-
Net expense from financial instruments designated at  fair value	-		-		(11)		-		(52)		-		(63)
Gains less losses from financial investments	14		19		12		9		4		-		58
Dividend income	23		1		61		-		-		-		85
Net earned insurance premiums	492		-		-		-		-		-		492
Other operating income	270		87		269		31		1,536		(1,271)		922
Total operating income	17,712		1,811		2,071		504		1,059		(1,271)		21,886
Net insurance claims17	(259)		-		-		-		-		-		(259)
Net operating income5	17,453		1,811		2,071		504		1,059		(1,271)		21,627
Loan impairment charges and other credit risk provisions	(6,683)		(74)		(3)		(35)		(1)		-		(6,796)
Net operating income	10,770		1,737		2,068		469		1,058		(1,271)		14,831
Total operating expenses	(7,379)		(814)		(1,641)		(355)		(1,275)		1,271		(10,193)
Operating profit/(loss)	3,391		923		427		114		(217)		-		4,638
Share of profit/(loss) in  associates and joint ventures	-		34		(4)		-		-		-		30
Profit/(loss) before tax	3,391		957		423		114		(217)		-		4,668
	%		%		%		%		%				%
Share of HSBC's profit  before tax	15.4		4.3		1.9		0.5		(1.0)				21.1
Cost efficiency ratio	42.3		44.9		79.2		70.4		120.4				47.1
Balance sheet data15
	US$m		US$m		US$m		US$m		US$m				US$m
Loans and advances to  customers (net)	220,517		34,651		17,215		5,604		-				277,987
Total assets	252,725		43,665		203,639		7,334		1,898		(3,623)		505,638
Customer accounts	54,099		31,066		23,711		11,938		108				120,922

For footnotes, see page 143.

Latin America

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

	Personal     Financial     Services     US$m		Commercial     Banking     US$m		Global     Banking &     Markets     US$m		Private     Banking     US$m		Other     US$m		Total     US$m
2008
Argentina	-		111		113		-		-		224
Brazil	250		348		298		8		6		910
Mexico	360		157		190		7		-		714
Panama	51		37		33		-		-		121
Other	7		53		7		1		-		68
	668		706		641		16		6		2,037
2007
Argentina	36		75		90		-		-		201
Brazil	293		286		297		9		(6)		879
Mexico	514		333		113		11		9		980
Panama	45		18		16		7		-		86
Other	5		28		1		(2)		-		32
	893		740		517		25		3		2,178
2006
Argentina	35		51		68		-		3		157
Brazil	121		185		218		6		(4)		526
Mexico	628		197		177		7		-		1,009
Panama	16		13		10		-		-		39
Other	-		5		2		1		(4)		4
	800		451		475		14		(5)		1,735

Loans and advances to customers (net) by country

	At 31 December
	2008     US$m		2007     US$m		2006     US$m
Argentina	2,356		2,485		1,912
Brazil	18,255		18,491		11,469
Mexico	12,211		18,059		14,294
Panama	4,538		4,158		4,178
Other	4,927		4,730		3,938
	42,287		47,923		35,791

Customer accounts by country

	At 31 December
	2008     US$m		2007     US$m		2006     US$m
Argentina	2,988		2,779		2,470
Brazil	27,857		26,231		19,946
Mexico	17,652		22,307		19,775
Panama	5,185		5,062		5,031
Other	5,761		4,913		3,639
	59,443		61,292		50,861

Profit before tax

	2008		2007		2006
Latin America	US$m		US$m		US$m
Net interest income	6,458		5,576		4,197
Net fee income	2,167		2,153		1,630
Net trading income	701		548		537
Changes in fair value of long-term debt issued and related derivatives	-		-		-
Net income from other financial instruments designated at fair value	364		320		237
Net income from financial instruments designated at fair value	364		320		237
Gains less losses from financial investments	176		253		84
Gains arising from dilution of interests in associates	-		11		-
Dividend income	20		9		6
Net earned insurance premiums	1,717		1,594		1,076
Other operating income	300		228		91
Total operating income	11,903		10,692		7,858
Net insurance claims incurred and movement in liabilities  to policyholders	(1,390)		(1,427)		(1,023)
Net operating income before loan impairment charges and other  credit risk provisions	10,513		9,265		6,835
Loan impairment charges and other credit risk provisions	(2,492)		(1,697)		(938)
Net operating income	8,021		7,568		5,897
Total operating expenses	(5,990)		(5,402)		(4,166)
Operating profit	2,031		2,166		1,731
Share of profit in associates and joint ventures	6		12		4
Profit before tax	2,037		2,178		1,735
	%		%		%
Share of HSBC's profit before tax	21.9		9.0		7.9
Cost efficiency ratio	57.0		58.3		61.0
Year-end staff numbers (full-time equivalent)	58,559		64,404		64,900
Balance sheet data15
	At 31 December
	2008		2007		2006
	US$m		US$m		US$m
Loans and advances to customers (net)	42,287		47,923		35,791
Loans and advances to banks (net)	14,572		12,675		12,634
Trading assets, financial assets designated at fair value, and  financial investments	18,753		24,715		20,497
Total assets	97,944		101,088		82,169
Deposits by banks	5,598		4,092		5,267
Customer accounts	59,443		61,292		50,861

For footnote, see page 143.

All commentaries on Latin America are on an underlying basis unless stated otherwise.

2008 compared with 2007

Economic briefing

Inflationary pressures developed in Mexico during the course of 2008, mostly due to rising commodity prices, as consumer price inflation accelerated from 3.7 per cent in January to 6.5 per cent by the year-end. In response, the Bank of Mexico raised its overnight interest rate by 75 basis points to 8.25 per cent by the end of the year, although a variety of economic indicators pointed to a sharp loss of momentum during the final quarter as global growth slowed.

The Brazilian economy performed strongly during the first half of 2008, driven by domestic demand, with the annual rate of consumer price inflation rising from 4.6 per cent in January to 6.4 per cent in July, towards the upper limit of the central banks' tolerance range. Conditions within the labour market improved, with the rate of unemployment well below levels observed a year earlier. In line with many other economies within the region, however, conditions weakened markedly towards the end of 2008, with industrial production falling by close to 20 per cent during the fourth quarter.

In Argentina, economic activity held at a reasonably robust level for much of the year, although measures of industrial production growth slowed noticeably during the final months of 2008. Declines in commodity prices during the second half of 2008 and the reduced value of exports raised concerns over the level of capital outflow from the country, while domestic currency interest rates increased sharply. The official headline rate of consumer price inflation rose during the first half of 2008, reaching 9.3 per cent in June 2008 before slowing to 7.2 per cent in December, although methodological changes make comparisons over year difficult.

Reconciliation of reported and underlying profit before tax

	2008 compared with 2007
Latin America	2007     as     reported     US$m	2007     acquisitions,    disposals     & dilution      gains1     US$m			Currency     translation2     US$m		2007     at 2008    exchange     rates3     US$m	2008 acquisitions     and     disposals1     US$m			Under-    lying     change     US$m		2008     as     reported     US$m		Re-    ported    change    %		Under-    lying     change     %
Net interest income	5,576		-		155		5,731		-		727		6,458		16		13
Net fee income	2,153		-		58		2,211		-		(44)		2,167		1		(2)
Other income4	1,536		(11)		23		1,548		71		269		1,888		23		17
Net operating income5	9,265		(11)		236		9,490		71		952		10,513		13		10
Loan impairment charges and other credit risk provisions	(1,697)		-		(64)		(1,761)		-		(731)		(2,492)		(47)		(42)
Net operating income	7,568		(11)		172		7,729		71		221		8,021		6		3
Operating expenses	(5,402)		-		(190)		(5,592)		-		(398)		(5,990)		(11)		(7)
Operating profit	2,166		(11)		(18)		2,137		71		(177)		2,031		(6)		(8)
Income from associates	12		-		-		12		-		(6)		6		(50)		(50)
Profit before tax	2,178		(11)		(18)		2,149		71		(183)		2,037		(6)		(9)

For footnotes, see page 143.

Review of business performance

In Latin America, HSBC reported a pre-tax profit of US$2.0 billion compared with US$2.2 billion in 2007, a decrease of 6 per cent. On an underlying basis, pre-tax profits decreased by 9 per cent as increased revenues were offset by higher loan impairment charges, largely in Mexico and Brazil, and increased operating costs across the region.

Net interest income increased by 13 per cent. Growth in average personal lending volumes was mainly driven by vehicle finance and payroll loans in Brazil, and credit cards and personal loans in Mexico. Average credit card balances increased as a result of significant organic growth in 2007 which was not repeated in 2008. Commercial loan volume growth was driven by increased lending for working capital and trade finance loans in Brazil, and medium-sized businesses and the real estate sector in Mexico. Increased income on customer liabilities, which was driven by volume growth, particularly in time deposits, was largely offset by a contraction in deposit spreads, primarily on US dollar denominated accounts. Active repricing strategies were deployed to mitigate spread compression in the region and to better reflect the credit risk on the loan portfolio. Lower overall spreads on lending products were partly offset by increases in cards in the region, small business loans in Mexico and overdrafts in Brazil. In Argentina, spreads on most products widened. 

Net fee income decreased by 2 per cent following a ruling by the Brazilian Central Bank reducing or eliminating certain fees such as charges on early loan repayments and returned cheques. Lower transaction volumes in Personal Financial Services in Brazil also reduced fee income. These were partly offset by product repricing, the introduction of new fees and volume growth, particularly in cards, personal loans, packaged deposit products and payments and cash management.

Trading income rose by 22 per cent largely reflecting favourable positioning against foreign exchange movements and increased foreign exchange sales volumes. Trading losses were registered on certain transactions where an offsetting benefit is reported in net income from financial instruments designated at fair value. Losses from defaults on derivative contracts were registered, primarily in Mexico.

Gains less losses from financial investments declined by 24 per cent as gains on the redemption of VISA shares, following its global IPO, and the sale of shares in both Brazil and Mexico were lower than the gains achieved on the sale of shares in a number of companies in Brazil in 2007.

Net earned insurance premiums rose, driven by higher prices and increased sales in the general insurance business, primarily in Argentina. Sales of life assurance products remained strong.

Increased net insurance claims incurred and movements in liabilities to policyholders in Argentina were more than offset by a decrease in liabilities to policyholders in Brazil following a decline in the equity market where the investment losses were passed on to unit-linked policyholders. This was compensated for by a similar decrease in net income from financial instruments designated at fair value.

Other operating income was broadly in line with 2007. A refinement of the income recognition methodology used in respect of long-term insurance contracts in Brazil in 2008 was offset by a similar adjustment in Mexico in 2007. 

Loan impairment charges and other credit risk provisions rose by 42 per cent, mainly relating to credit cards, as organically grown portfolios in Mexico seasoned following market share growth and credit quality deteriorated in Mexico and Brazil. The personal unsecured, vehicle finance and small and medium-sized commercial loan portfolios in Brazil also experienced increased levels of loan impairment. Specific focus was placed on improving the quality of new business, based on underwriting experience and relationship management, and steps were taken to improve collection strategies. 

Operating expenses increased by 7 per cent. An increase in staff costs was primarily driven by higher salaries following union-agreed pay rises and redundancy payments following reductions in staff numbers, partly offset by cost savings from the reduced headcount. Administrative expenses rose following an increase in the use of a credit card cashback promotional facility in Mexico which was terminated at the end of 2008. Costs also grew in support of improved operational processes in the region. HSBC benefited in 2008 from the recognition of a tax credit following a court ruling in Brazil granting the right to recover excess taxes paid on insurance transactions and changes in transactional tax legislation. As economic conditions weakened towards the second half of 2008, strategic cost saving measures were implemented throughout the region.

2007 compared with 2006

Economic briefing

In response to fluctuations in export demand from the US, economic growth in Mexico moderated during the course of 2007, with GDP rising an estimated 3.1 per cent during the year, compared with 4.8 per cent in 2006. Inflationary pressures remained significant throughout 2007, with consumer price inflation averaging 4 per cent, driven by increases in international prices of commodities, which affected domestic food prices in the core index. As a result, the Bank of Mexico raised its overnight interest rate by a total of 50 basis points, and has maintained its restrictive monetary policy despite reductions in interest rates by the US Federal Reserve.

The Brazilian economy expanded strongly in 2007, with GDP expected to have grown by 5.4 per cent compared with 3.7 per cent in 2006. As in 2006, growth was driven by domestic demand, with private consumption rising considerably. As a consequence, the average unemployment rate fell to 9.3 per cent in 2007 from 10 per cent in 2006. After declining to 3.1 per cent at the end of 2006, the annual rate of consumer price inflation climbed to 4.5 per cent by December 2007, mainly from higher food prices. The cycle of monetary easing which began in the third quarter of 2005 paused in October 2007 with the overnight rate at 11.25 per cent, the lowest level in several decades. After nine years of steady expansion, the trade balance surplus fell slightly in 2007, and is expected to decrease further in 2008. Balance of payments fundamentals, however, remained robust and, as a result, the Brazilian economy seemed less vulnerable to external shocks than in previous years.

The Argentine economy also performed strongly in 2007, with GDP expected to have risen by 8.7 per cent. This strength was a consequence of several factors such as a competitive exchange rate, spare capacity in the economy and a generally favourable external environment, which helped Argentina extend its fiscal and external surpluses into a fourth successive year. Less encouraging was the fact that inflation accelerated to about 13 per cent, up from 10 per cent in 2006. Although food inflation was part of the explanation, rapid demand growth was also a factor. 2007 was an election year, and as a result the rate of growth of fiscal spending doubled to 45 per cent on an annual basis. As a consequence, the primary surplus fell by around 1.2 per cent of GDP. 

Throughout the region as a whole, GDP growth roughly matched that of 2006. The slowdown in Mexico provided a contrast to better performances elsewhere in Central and Southern America. Central America grew by an estimated 6.3 per cent, up from 5.9 per cent in 2006 while, in South America, growth was an estimated 5.8 per cent, up from 5.3 per cent in 2006. The most dynamic economies in Central America were Panama (10.0 per cent growth in GDP) and the Dominican Republic (8.0 per cent), followed by Costa Rica (6.2 per cent) and Honduras (6.2 per cent). In South America, the fastest growing countries after Argentina were Peru (7.2 per cent growth in GDP), Venezuela (7.0 per cent) and Colombia (6.5 per cent). In general, inflation appears to be under control in Latin America, averaging around 5 per cent over the past three years. Only Venezuela and Argentina have experienced double-digit inflation, while the US dollar-based economies of Panama, Ecuador and El Salvador have better inflationary records.  

Reconciliation of reported and underlying profit before tax

	2007 compared with 2006
Latin America	2006     as     reported     US$m	2006     acquisitions     and      disposals1     US$m			Currency     translation2     US$m		2006     at 2007    exchange     rates6     US$m	2007     acquisitions,     disposals     & dilution     gains1     US$m			Under-    lying     change     US$m		2007     as     reported     US$m		Re-    ported    change    %		Under-    lying     change     %
Net interest income	4,197		-		261		4,458		375		743		5,576		33		17
Net fee income	1,630		-		86		1,716		86		351		2,153		32		20
Other income4	1,008		-		60		1,068		102		366		1,536		52		34
Net operating income5	6,835		-		407		7,242		563		1,460		9,265		36		20
Loan impairment charges  and other credit risk provisions	(938)		-		(81)		(1,019)		(133)		(545)		(1,697)		(81)		(53)
Net operating income	5,897		-		326		6,223		430		915		7,568		28		15
Operating expenses	(4,166)		-		(258)		(4,424)		(320)		(658)		(5,402)		(30)		(15)
Operating profit	1,731		-		68		1,799		110		257		2,166		25		14
Income from associates	4		-		-		4		9		(1)		12		200		(25)
Profit before tax	1,735		-		68		1,803		119		256		2,178		26		14

For footnotes, see page 143.

Review of business performance

HSBC's operations in Latin America reported a preߛtax profit of US$2.2 billion compared with US$1.7 billion in 2006, representing an increase of 26 per cent. The Group's acquisitions of HSBC Bank Panama and Banca Nazionale in 2006 strengthened the existing business platform and geographical representation. On an underlying basis, pre-tax profits rose by 14 per cent as increased revenues were partly offset by higher loan impairment charges, largely from Mexico, and a rise in operating costs. 

Notable contributions to Commercial Banking's pre-tax profits, which were 64 per cent higher than in 2006, arose in Brazil from small and mid-market enterprises and in Mexico from larger corporates. In Personal Financial Services, profit before tax increased by 12 per cent as strong growth in revenues was partly offset by increased loan impairment charges in Mexico. Profit before tax in Global Banking and Markets increased as strong growth in net fee and net interest income was partly offset by a decrease in trading income and higher costs related to business expansion. 

Notwithstanding continuing investment and integration costs throughout the region, the cost efficiency ratio improved by 2.7 percentage points to 58.3 per cent.

Net interest income increased by 17 per cent. Growth was strong across the region, with net interest income rising by 22 per cent and 11 per cent in Mexico and Brazil, respectively. 

In Mexico, net interest income rose despite a fall in balance sheet management revenues due to growth in both assets and liabilities. In particular, credit card balances increased, driven by marketing and portfolio management initiatives designed to improve customer retention and card usage. Volume growth was achieved in mortgages, commercial real estate lending, trade and factoring. Customer relationship management campaigns resulted in new customer acquisitions and increased cross-selling. Net interest income in Brazil increased as the sound economic outlook and falling interest rates resulted in strong demand for credit. 

Fee income rose by 20 per cent, primarily driven by robust business growth across the region. In Mexico, the use of debit and credit cards grew, in part because of the growing ATM network and the number of cards in force, which drove commissions from ATM cash withdrawals and point of sale billing. Stricter guidelines on the imposition of late payment fees also led to higher income. 

A strategy to migrate more transactions to internet-based services resulted in higher payment and cash management transactions as the number of active customers rose. 

Current account income increased as a result of a re-pricing exercise and a rise in volumes. Fees from loans and funds under management also grew on higher volumes. Strong growth in customer accounts delivered higher transactional fees and the continuing success of the Tu Cuenta product in Mexico led to increased take-up with higher product fees charged to customers. 

Net income from trading activities decreased by 4 per cent, mainly due to reduced trading opportunities in Credit and Rates. This was partly offset by income growth from foreign exchange trading, driven by continuing market volatility.

Net gains from financial investments rose significantly following a gain on sale of shares held in a credit bureau, a stock exchange and a derivatives exchange in Brazil.

The continued growth of insurance operations in the region, achieved by increasing HSBC's product offerings and expanding its distribution channels, along with targeted sales initiatives, led to higher net insurance claims incurred and movements in liabilities to policyholders.

A 97 per cent increase in other operating income reflected the recognition of the embedded value calculation on the PVIF life assurance business in Mexico. The improvement on 2006 was also aided by the non-recurrence of a loss on sale of a portfolio of assets during that year and sundry gains on foreclosed assets in 2007. 

Loan impairment charges rose sharply, by 53 per cent to US$1.7 billion, mainly driven by portfolio growth, normal seasoning and higher delinquency rates on credit cards in Mexico, following a targeted expansion in market share. Loan impairment charges for small and medium-sized businesses lending and delinquencies on loans to the self-employed also increased in Mexico. Partly offsetting these developments was an improvement in personal and commercial delinquency rates in Brazil. 

Continuing investment and business expansion resulted in an increase in operating expenses of 15 per cent. This compared favourably with growth in net operating income before loan impairment charges of 20 per cent. Staff costs rose, primarily on higher salaries and bonuses in the region, driven by the need to support business growth, union-agreed pay rises and one-off costs incurred in Brazil to improve operational efficiencies. These were partially offset by a curtailment and settlement gain in Mexico from staff transferring from the Group's defined benefit healthcare scheme to a new defined contribution scheme. 

Increases in non-staff costs included higher marketing expenditure in support of growth in credit card operations, continued investment in infrastructure to support business growth and a rise in telecommunication costs and transactional taxes. Four additional months of Banca Nazionale expenses also increased costs.

Analysis by customer group and global business 

Profit/(loss) before tax 

	2008
Latin America	Personal     Financial     Services     US$m		Commercial     Banking     US$m		Global     Banking &     Markets     US$m		Private     Banking     US$m		Other     US$m		Inter-     segment     elimination21     US$m		Total     US$m
Net interest income	4,582		1,637		579		22		(35)		(327)		6,458
Net fee income	1,339		536		248		35		9		-		2,167
Trading income excluding net interest income	123		27		200		3		4		-		356
Net interest income/(expense)  on trading activities	7		4		8		-		(2)		327		345
Net trading income16	130		31		208		3		2		327		701
Changes in fair value of long- term debt issued and  related derivatives	-		-		-		-		-		-		-
Net income from other financial instruments designated at fair value	187		-		139		-		38		-		364
Net income from financial instruments designated at  fair value	187		-		139		-		38		-		364
Gains less losses from financial investments	132		21		21		2		-		-		176
Dividend income	16		1		3		-		-		-		20
Net earned insurance premiums	1,547		82		88		-		-		-		1,717
Other operating income	244		57		39		3		8		(51)		300
Total operating income	8,177		2,365		1,325		65		22		(51)		11,903
Net insurance claims17	(1,281)		(42)		(68)		-		1		-		(1,390)
Net operating income5	6,896		2,323		1,257		65		23		(51)		10,513
Loan impairment charges and other credit risk provisions	(2,120)		(340)		(29)		-		(3)		-		(2,492)
Net operating income	4,776		1,983		1,228		65		20		(51)		8,021
Total operating expenses	(4,114)		(1,277)		(587)		(49)		(14)		51		(5,990)
Operating profit	662		706		641		16		6		-		2,031
Share of profit in associates  and joint ventures	6		-		-		-		-		-		6
Profit before tax	668		706		641		16		6		-		2,037
	%		%		%		%		%				%
Share of HSBC's profit  before tax	7.2		7.6		6.9		0.2		-				21.9
Cost efficiency ratio	59.7		55.0		46.7		75.4		60.9				57.0
Balance sheet data15
	US$m		US$m		US$m		US$m		US$m				US$m
Loans and advances to  customers (net)	18,523		15,460		8,273		31		-				42,287
Total assets	30,320		19,382		48,868		391		361		(1,378)		97,944
Customer accounts	27,564		14,367		15,384		2,128		-				59,443

For footnotes, see page 143.

Analysis by customer group and global business (continued)

Profit/(loss) before tax 

	2007
Latin America	Personal     Financial     Services     US$m		Commercial     Banking     US$m		Global     Banking &     Markets     US$m		Private     Banking     US$m		Other     US$m		Inter-     segment     elimination21     US$m		Total     US$m
Net interest income	3,983		1,407		410		20		3		(247)		5,576
Net fee income	1,372		485		250		40		6		-		2,153
Trading income excluding net interest income	67		39		164		2		-		-		272
Net interest income on trading activities	10		1		18		-		-		247		276
Net trading income16	77		40		182		2		-		247		548
Changes in fair value of long- term debt issued and  related derivatives	-		-		-		-		-		-		-
Net income from other financial instruments designated at fair value	314		-		6		-		-		-		320
Net income from financial instruments designated at  fair value	314		-		6		-		-		-		320
Gains less losses from financial investments	120		51		82		1		(1)		-		253
Gains arising from dilution of interests in associates	-		-		-		-		11		-		11
Dividend income	5		2		2		-		-		-		9
Net earned insurance premiums	1,448		66		80		-		-		-		1,594
Other operating income	145		69		31		8		12		(37)		228
Total operating income	7,464		2,120		1,043		71		31		(37)		10,692
Net insurance claims17	(1,330)		(37)		(60)		-		-		-		(1,427)
Net operating income5	6,134		2,083		983		71		31		(37)		9,265
Loan impairment (charges)/ recoveries and other credit  risk provisions	(1,492)		(212)		13		-		(6)		-		(1,697)
Net operating income	4,642		1,871		996		71		25		(37)		7,568
Total operating expenses	(3,758)		(1,132)		(481)		(46)		(22)		37		(5,402)
Operating profit	884		739		515		25		3		-		2,166
Share of profit in associates  and joint ventures	9		1		2		-		-		-		12
Profit before tax	893		740		517		25		3		-		2,178
	%		%		%		%		%				%
Share of HSBC's profit  before tax	3.7		3.1		2.1		0.1		-				9.0
Cost efficiency ratio	61.3		54.3		48.9		64.8		71.0				58.3
Balance sheet data15
	US$m		US$m		US$m		US$m		US$m				US$m
Loans and advances to  customers (net)	21,680		16,243		9,935		65		-				47,923
Total assets	35,181		21,049		45,045		302		261		(750)		101,088
Customer accounts	30,628		15,524		13,950		1,190		-				61,292

For footnotes, see page 143.

	2006
Latin America	Personal     Financial     Services     US$m		Commercial     Banking     US$m		Global     Banking &     Markets     US$m		Private     Banking     US$m		Other     US$m		Inter-     segment     elimination21     US$m		Total     US$m
Net interest income/(expense)	3,057		1,037		325		13		(2)		(233)		4,197
Net fee income	1,053		387		167		23		-		-		1,630
Trading income excluding net interest income	61		21		218		1		-		-		301
Net interest income/(expense)  on trading activities	14		5		(16)		-		-		233		236
Net trading income16	75		26		202		1		-		233		537
Changes in fair value of long-term debt issued and related derivatives	-		-		-		-		-		-		-
Net income from other financial instruments designated at fair value	227		-		11		-		(1)		-		237
Net income/(expense) from financial instruments  designated at fair value	227		-		11		-		(1)		-		237
Gains less losses from financial investments	11		1		72		-		-		-		84
Dividend income	5		1		-		-		-		-		6
Net earned insurance premiums	992		27		59		-		(2)		-		1,076
Other operating income	74		7		10		4		14		(18)		91
Total operating income	5,494		1,486		846		41		9		(18)		7,858
Net insurance claims17	(957)		(16)		(51)		-		1		-		(1,023)
Net operating income5	4,537		1,470		795		41		10		(18)		6,835
Loan impairment (charges)/ recoveries and other credit  risk provisions	(764)		(197)		26		-		(3)		-		(938)
Net operating income	3,773		1,273		821		41		7		(18)		5,897
Total operating expenses	(2,977)		(822)		(346)		(27)		(12)		18		(4,166)
Operating profit/(loss)	796		451		475		14		(5)		-		1,731
Share of profit in associates  and joint ventures	4		-		-		-		-		-		4
Profit/(loss) before tax	800		451		475		14		(5)		-		1,735
	%		%		%		%		%				%
Share of HSBC's profit  before tax	3.6		2.0		2.2		0.1		-				7.9
Cost efficiency ratio	65.6		55.9		43.5		65.9		120.0				61.0
Balance sheet data15
	US$m		US$m		US$m		US$m		US$m				US$m
Loans and advances to  customers (net)	16,165		11,463		8,147		16		-				35,791
Total assets	28,237		16,599		37,564		90		344		(665)		82,169
Customer accounts	25,200		13,754		11,685		222		-				50,861

For footnotes, see page 143.

 

END

 

 

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