HSBC Fin Corp&USA Inc 8K IFRS

HSBC Holdings PLC 13 November 2006 -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------ FORM 8-K PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DATE OF REPORT: NOVEMBER 13, 2006 ------------ 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)) -------------------------------------------------------------------------------- ITEM 7.01. REGULATION FD DISCLOSURE -------------------------------------------------------------------------------- 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 -------------------------------------------------------------------------------- (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 -------------------------------------------------------------------------------- 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 -------------------------------------------------------------------------------- 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 -------------------------------------------------------------------------------- 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) -------------------------------------------------------------------------------- - 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) -------------------------------------------------------------------------------- NINE MONTHS ENDED SEPTEMBER 30, -------------------- 2006 2005 ------------------------------------------------------------------------------------ (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 ==== ====== ====== -------- (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 -------------------------------------------------------------------------------- HSBC FINANCE CORPORATION HSBC FOOTER HSBC FINANCE CORPORATION - SEPTEMBER 30, 2006 HIGHLIGHTS IFRS MANAGEMENT BASIS (A NON-GAAP MEASURE) -------------------------------------------------------------------------------- - 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 ---------- (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) -------------------------------------------------------------------------------- - 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) -------------------------------------------------------------------------------- THREE MONTHS ENDED ---------------------------------------- SEPTEMBER 30, JUNE 30, SEPTEMBER 30, 2006 2006 2005 --------------------------------------------------------------------------------------------- (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) -------------------------------------------------------------------------------- NINE MONTHS ENDED SEPTEMBER 30, ----------------- 2006 2005 --------------------------------------------------------------------------------- (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% -------- (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) -------------------------------------------------------------------------------- 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) -------------------------------------------------------------------------------- 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) -------------------------------------------------------------------------------- CUSTOMER LOANS SEP 06 INCREASE/(DECREASE) ----------------------- ----------- % ----------------------- ----------- SEP 06 JUNE 06 MAR 06 DEC 05 SEP 05 JUNE 06 MAR 06 DEC 05 SEP 05 ------------------------------------------------------------------------------------------------------------------------ (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) -------------------------------------------------------------------------------- CORRESPONDENT REAL ESTATE SECURED LOANS BY LIEN POSITION SEP 06 JUNE 06 MAR 06 DEC 05 SEP 05 ------------------------------------------------------------------------------------------ (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 -------------------------------------------------------------------------------- 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 -------------------------------------------------------------------------------- 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 -------------------------------------------------------------------------------- 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 -------------------------------------------------------------------------------- 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 This information is provided by RNS The company news service from the London Stock Exchange

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HSBC Holdings (HSBA)

Thursday, 23rd May 2024

COMPANIES COVERED:

HL. QQ. AJB

Another day and another round of takeover talk with Hargreaves Lansdown being eyed by private equity suitors. AJ Bell also advances on upbeat earnings news whilst QinetiQ upgrades its profit guidance, too.

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