Interim Report - 12 of 28

RNS Number : 9006L

HSBC Holdings PLC

16 August 2013

 



Latin America

Our operations in Latin America principally comprise HSBC Bank Brasil S.A.-Banco Múltiplo, HSBC México, S.A., HSBC Bank Argentina S.A. and HSBC Bank (Panama) S.A. In addition to banking services, we operate insurance businesses in Brazil, Mexico, Argentina and Panama.
	Half-year to
	30 Jun		30 Jun		31 Dec
	2013		2012		2012
	US$m		US$m		US$m
Net interest income .....	3,274		3,542		3,442
Net fee income ............	896		843		892
Net trading income ......	397		597		374
Other income ..............	391		583		678
Net operating income22 ..................................	4,958		5,565		5,386
LICs55 ..........................	(1,423)		(1,136)		(1,001)
Net operating income	3,535		4,429		4,385
Total operating expenses ..................................	(3,069)		(3,285)		(3,145)
Operating profit .......	466		1,144		1,240
Income from associates56	−		1		(1)
Profit before tax .......	466		1,145		1,239
Cost efficiency ratio ....	61.9%		59.0%		58.4%
RoRWA49 ....................	1.0%		2.2%		2.5%
Period-end staff numbers	46,046		51,667		46,556
Further progress made in repositioning the Latin America businesses
Best Debt House in Latin America (Euromoney Awards for Excellence, 2013)
Launched a US$1bn fund for International Business Banking in Mexico
For footnotes, see page 100.

Economic background

Growth in Latin America slowed in the first half of 2013 as a result of two sets of factors: externally, the slowdown in mainland China and its negative impact on commodities; and domestically, country-specific weakness in domestic demand and rising political uncertainty.

Brazil's economic performance was below expectations in the period. In the first quarter of 2013, in particular, GDP was weighed down by weak consumption as Brazilian consumers appeared to be cutting back in response to inflation, high levels of indebtedness and weaker confidence.

In Mexico, growth remained weak during the first half of 2013, as a result of mild growth in the US and moderate government spending during the first months of the new administration. Core inflation remained under control and headline inflation began to converge towards the mid-point of the inflation target (3%) after a temporary rise related to agricultural and administered prices.

In Argentina, activity rebounded in the first half of 2013 due to a very good harvest and a buoyant car sector, partially due to stronger exports to Brazil. This is far from what could be considered a broad-based recovery, as most sectors show only a very modest rate of expansion. The inflation situation remains uncertain, while reserves have declined on the back of net external debt payments.

Review of performance

In Latin America, reported profit before tax of US$466m was US$679m lower than in the first half of 2012, and US$607m lower on a constant currency basis.

On an underlying basis, pre-tax profits decreased by US$487m, driven by a rise in both individually assessed and collective loan impairment charges, the latter relating in part to impairment model changes and assumption revisions for restructured loan portfolios in Brazil. In addition, revenue declined, notably in Brazil as GB&M benefited from a more favourable interest rate environment in the comparable period and lower spreads and average lending balances in Business Banking led to a decline in CMB. Revenue in RBWM and CMB was also adversely affected by a significant reduction in the PVIF asset.

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

	Retail      Banking and Wealth Management          US$m		Commercial     Banking         US$m	Global      Banking              and      Markets          US$m			Global       Private     Banking         US$m		Other         US$m		Total         US$m
Half-year to 30 June 2013
Argentina.................................................	44		69		67		−		−		180
Brazil .......................................................	(117)		(19)		290		4		(5)		153
Mexico ....................................................	85		(15)		55		1		(9)		117
Panama ...................................................	18		29		29		1		(24)		53
Other .......................................................	(27)		5		3		−		(18)		(37)
	3		69		444		6		(56)		466
Half-year to 30 June 2012
Argentina ................................................	156		100		98		−		(42)		312
Brazil .......................................................	(83)		200		413		10		(35)		505
Mexico ....................................................	179		77		111		−		(1)		366
Panama ...................................................	13		33		21		−		−		67
Other .......................................................	(51)		(29)		6		−		(31)		(105)
	214		381		649		10		(109)		1,145
Half-year to 31 December 2012
Argentina ................................................	53		69		76		-		(4)		194
Brazil .......................................................	177		159		283		7		(8)		618
Mexico ....................................................	159		99		90		2		(17)		333
Panama ...................................................	16		29		27		2		-		74
Other .......................................................	(11)		14		28		(1)		(10)		20
	394		370		504		10		(39)		1,239

We have made progress in reducing the fragmentation in our Latin American businesses through disposals in non-strategic markets. In February 2013, we announced the sale of our business in Panama, which is expected to be completed later this year. In addition, we completed the sale of a portfolio of our non-life insurance assets and liabilities in Mexico in April 2013. In line with the Group's strategy, we initiated a comprehensive programme to reposition our portfolios to manage the potential risk of financial crime in accordance with the Group's Global Standards. As a result, certain businesses and activities are being exited across the region.

In RBWM, we have grown revenue in our Premier and Advance segments by actively targeting mass affluent customers. In Mexico, we launched a residential mortgage offer which has been positively received by the market. Customer penetration of digital channels also increased, supported by the launch of enhanced digital banking technologies, such as a mobile banking solution in Mexico and an upgrade to the internet banking platform in Brazil. In Argentina, we retained our position as a market leader in mobile banking, as the number of customers using, and transactions through, this channel increased compared with the first half of 2012.

In CMB, as part of our strategy, we concentrated on capturing international trade flows between Latin America and the US and Asia. As part of this initiative, we launched an MXN13bn (US$1bn) fund for Business Banking in Mexico focused on import and export financing, and recently introduced trade financing in RMB across the region.

In GB&M, we extended dedicated investment banking coverage to priority large local corporate accounts. This strengthened coverage has already allowed us to win a number of advisory mandates in event-driven transactions. We also increased collaboration and connectivity through a US into Latin America business development initiative, which connects US-based RMs with Latin American multi-national teams and product partners. We won several awards in the Euromoney Awards for Excellence 2013 including 'Best Debt House', 'Best Project Finance House' and 'Best Risk Advisor' in Latin America.

The following commentary is on a constant currency basis.

Net interest income decreased by US$93m, driven by the effect of non-strategic business disposals. Excluding the disposals, net interest income increased marginally. This was due to the lower cost of funding assets held for trading in

Brazil, reflecting both a reduction in the trading book and a fall in average interest rates, partly offset by lower net interest income in CMB and in Balance Sheet Management in GB&M. The decrease in CMB was driven by Business Banking in Brazil, as a result of lower spreads, and a reduction in average lending balances. The latter was the result of more restrictive origination criteria which included reducing credit limits where appropriate. Net interest income in GB&M also fell as the proceeds from maturing investments were reinvested by Balance Sheet Management at lower prevailing rates.

Net fee incomeincreased by 10%, due in part to higher current account fees in Brazil. The sale of the non-life insurance business in Argentina also contributed to the rise, as sales commissions payable to third party distribution channels were no longer incurred.

Net trading income decreased by US$159m, primarily in Brazil due to a decline in net interest income on trading activities as average trading assets fell. In addition, the comparable period in 2012 benefited from higher Rates trading revenue as a result of downward yield curve movements.

Net income from financial instruments designated at fair value decreased by US$176m, notably in Brazil, mainly in the unit-linked pensions business as a result of significantly lower net investment income due to market movements. To the extent that this was attributed to policyholders there was a corresponding movement in Net insurance claims incurred and movement in liabilities to policyholders.

Gains less losses from financial investments fell by 42% due to lower gains on disposals of available-for-sale government debt securities in Balance Sheet Management.

Net earned insurance premiums decreased by 26%, driven by lower sales of unit-linked pension products in Brazil. Premiums also fell in Argentina as a consequence of the sale of the non-life insurance business in the first half of 2012. The reduction
of net earned insurance premiums resulted in a corresponding decrease of Net insurance claims incurred and movement in liabilities to policyholders.

Other operating income decreased by US$22m, driven by a significant reduction in the PVIF asset due to an increase in lapse rates and interest rates movements. This was partly offset by net gains in the current period and the non-recurrence of net losses in the first half of 2012 on the sale or reclassification to 'held for sale' of non-strategic businesses.

LICs increased by US$365m, driven by higher collective provisions in RBWM and CMB and higher individually assessed provisions. This included charges mainly relating to impairment model changes and assumption revisions in Brazil for restructured loans in portfolios in RBWM and Business Banking in CMB (see page 114), although this was offset in part by an improvement in the quality of the portfolio following the modification of credit strategies in previous periods to mitigate rising delinquency rates. Collective impairments also rose in RBWM in Mexico, reflecting the non-recurrence of a provision release in the first half of 2012, higher lending balances and a revision to the assumptions used in our collective assessment models in the first half of 2013. In addition, individually assessed provisions increased, in particular on exposures to homebuilders in CMB due to a change in the public housing policy together with a specific exposure in GB&M, both in Mexico.

Operating expenses decreased by US$62m as a consequence of business disposals, coupled with continued efforts to exercise strict cost control and progress our organisational effectiveness programmes. This was partly offset by the effect of inflationary pressures, union-agreed salary increases in Brazil and Argentina, and higher compliance and risk costs from the implementation of Global Standards and portfolio repositioning, notably in Mexico.

Profit/(loss) before tax and balance sheet data - Latin America

	Half-year to 30 June 2013
	Retail      Banking and Wealth Management          US$m		Commercial      Banking          US$m		Global      Banking              and      Markets          US$m		Global        Private      Banking          US$m		Other          US$m		Inter-     segment elimination62         US$m		Total          US$m
Profit/(loss) before tax
Net interest income/ (expense) ......... .........................	1,952		957		436		12		(6)		(77)		3,274
Net fee income ....	500		288		90		18		−		−		896
Trading income/(expense) excluding net interest income	58		55		190		2		(3)		−		302
Net interest income on trading activities .........................	−		−		18		−		−		77		95
Net trading income/ (expense)57 ......	58		55		208		2		(3)		77		397
Net income from financial instruments designated at fair value ......	71		13		1		−		−		−		85
Gains less losses from financial investments .....	−		1		50		−		−		−		51
Dividend income ..	2		2		1		−		−		−		5
Net earned insurance premiums .........	681		179		3		−		−		−		863
Other operating income/ (expense) .........	6		(11)		5		−		84		(85)		(1)
Total operating income............	3,270		1,484		794		32		75		(85)		5,570
Net insurance claims63 ............	(505)		(106)		(1)		−		−		−		(612)
Net operating income22 .........	2,765		1,378		793		32		75		(85)		4,958
Loan impairment charges and other credit risk provisions .	(877)		(501)		(45)		−		−		−		(1,423)
Net operating income ...........	1,888		877		748		32		75		(85)		3,535
Operating expenses .........................	(1,885)		(808)		(304)		(26)		(131)		85		(3,069)
Operating profit/(loss) ....	3		69		444		6		(56)		−		466
Share of profit in associates and joint ventures ...	−		−		−		−		−		−		−
Profit/(loss) before tax .......	3		69		444		6		(56)		−		466
	%		%		%		%		%				%
Share of HSBC's profit before tax ........	−		0.5		3.2		−		(0.4)		−		3.3
Cost efficiency ratio .................	68.2		58.6		38.3		81.3		174.7		−		61.9
Balance sheet data53
	US$m		US$m		US$m		US$m		US$m				US$m
Loans and advances to customers (net)	13,996		20,689		9,822		53		−				44,560
Total assets .........	34,497		34,075		53,864		490		448		(342)		123,032
Customer accounts .........................	23,294		16,443		11,132		2,755		−				53,624

	Half-year to 30 June 2012
	Retail        Banking   and Wealth Management           US$m		Commercial        Banking           US$m		Global        Banking               and        Markets           US$m		Global         Private        Banking           US$m		Other           US$m		Inter-       segment elimination62           US$m		Total           US$m
Profit/(loss) before tax
Net interest income/ (expense) ........... ...........................	2,148		1,123		520		16		(15)		(250)		3,542
Net fee income ...... ...........................	423		303		102		15		-		-		843
Trading income excluding net interest income ..	36		52		252		1		3		-		344
Net interest income on trading activities .	-		-		3		-		-		250		253
Net trading income57 ...........................	36		52		255		1		3		250		597
Net income from financial instruments designated at fair value ........	223		53		-		-		12		-		288
Gains less losses from financial investments ........	4		2		83		-		-		-		89
Dividend income ....	4		4		1		-		-		-		9
Net earned insurance premiums ...........	1,008		235		13		-		-		-		1,256
Other operating income ...............	72		2		(7)		2		73		(95)		47
Total operating income................	3,918		1,774		967		34		73		(95)		6,671
Net insurance claims63 ..............	(889)		(209)		(8)		-		-		-		(1,106)
Net operating income22 ............	3,029		1,565		959		34		73		(95)		5,565
Loan impairment charges and other credit risk provisions ....	(819)		(316)		-		(1)		-		-		(1,136)
Net operating income ...............	2,210		1,249		959		33		73		(95)		4,429
Operating expenses	(1,996)		(869)		(310)		(23)		(182)		95		(3,285)
Operating profit/(loss) ........	214		380		649		10		(109)		-		1,144
Share of profit in associates and joint ventures .....	-		1		-		-		-		-		1
Profit/(loss) before tax .....................	214		381		649		10		(109)		-		1,145
	%		%		%		%		%				%
Share of HSBC's profit before tax ...........	1.7		3.0		5.1		0.1		(0.9)				9.0
Cost efficiency ratio ...........................	65.9		55.5		32.3		67.6		249.3				59.0
Balance sheet data53
	US$m		US$m		US$m		US$m		US$m				US$m
Loans and advances to customers (net) ..	17,491		24,865		10,521		83		−				52,960
Total assets ............	38,296		37,387		62,624		819		365		(523)		138,968
Customer accounts .	27,918		21,477		15,104		5,095		−				69,594

Profit/(loss) before tax and balance sheet data - Latin America (continued)

	Half-year to 31 December 2012
	Retail        Banking   and Wealth Management            US$m		Commercial        Banking           US$m		Global        Banking               and                          Markets           US$m		Global Private        Banking           US$m		Other           US$m		Inter-      segment elimination62         US$m		Total           US$m
Profit/(loss) before tax
Net interest income ........	1,997		1,050		473		14		13		(105)		3,442
Net fee income ...............	450		319		105		18		-		-		892
Trading income/(expense) excluding net interest income .......................	49		47		146		2		(2)		-		242
Net interest income on trading activities .........	-		-		26		-		1		105		132
Net trading income/ (expense)57 .................	49		47		172		2		(1)		105		374
Net income from financial instruments designated at fair value ................	280		110		1		-		(12)		-		379
Gains less losses from financial investments ..	71		19		48		-		-		-		138
Dividend income ............	5		1		-		-		-		-		6
Net earned insurance premiums ....................	977		215		4		-		-		-		1,196
Other operating income .	237		(11)		13		1		61		(95)		206
Total operating income ..	4,066		1,750		816		35		61		(95)		6,633
Net insurance claims63 ....	(986)		(260)		(1)		-		-		-		(1,247)
Net operating income22 ..	3,080		1,490		815		35		61		(95)		5,386
Loan impairment charges and other credit risk provisions ...................	(722)		(265)		(13)		(1)		-		-		(1,001)
Net operating income......	2,358		1,225		802		34		61		(95)		4,385
Operating expenses ........	(1,964)		(854)		(298)		(24)		(100)		95		(3,145)
Operating profit/(loss) ....	394		371		504		10		(39)		-		1,240
Share of loss in associates and joint ventures .......	-		(1)		-		-		-		-		(1)
Profit/(loss) before tax ...	394		370		504		10		(39)		-		1,239
	%		%		%		%		%				%
Share of HSBC's profit before tax ...................	5.0		4.7		6.3		0.1		(0.5)				15.6
Cost efficiency ratio .......	63.8		57.3		36.6		68.6		163.9				58.4
Balance sheet data53
	US$m		US$m		US$m		US$m		US$m				US$m
Loans and advances to customers (net) ...........	17,236		25,379		10,903		91		-				53,609
Total assets ....................	36,141		35,507		58,272		570		1,110		(323)		131,277
Customer accounts .........	28,688		20,834		12,604		4,430		-				66,556

For footnotes, see page 100.

 

END

 

 

IR NKADKDBKDPFD