Interim Report - 7 of 26

RNS Number : 0999M

HSBC Holdings PLC

12 August 2011

 



Geographical regions

Summary ...................................................................	41
Europe ......................................................................	42
Hong Kong ...............................................................	49
Rest of Asia-Pacific ..................................................	55
Middle East and North Africa ....................................	62
North America ..........................................................	68
Latin America ...........................................................	74

Summary

In the analysis of profit and loss by geographical region that follows, operating income and operating expenses include intra‑HSBC items of US$1,567m (first half of 2010: US$1,467m; second half of 2010: US$1,658m).

Profit/(loss) before tax

	Half-year to
	30 June 2011				30 June 2010				31 December 2010
	US$m		%		US$m		%		US$m		%
Europe ......................................................	2,147		18.7		3,521		31.7		781		9.8
Hong Kong ...............................................	3,081		26.9		2,877		25.9		2,815		35.5
Rest of Asia-Pacific ..................................	3,742		32.6		2,985		26.9		2,917		36.8
Middle East and North Africa ...................	747		6.5		346		3.1		546		6.9
North America .........................................	606		5.3		492		4.4		(38)		(0.5)
Latin America ...........................................	1,151		10.0		883		8.0		912		11.5
	11,474		100.0		11,104		100.0		7,933		100.0

Total assets³⁹

	At 30 June 2011				At 30 June 2010				At 31 December 2010
	US$m		%		US$m		%		US$m		%
Europe ......................................................	1,379,308		51.2		1,280,698		52.9		1,249,527		50.9
Hong Kong ...............................................	474,044		17.6		410,991		17.0		429,565		17.5
Rest of Asia-Pacific ..................................	298,590		11.1		244,624		10.1		278,062		11.3
Middle East and North Africa ...................	58,038		2.2		49,637		2.1		52,757		2.1
North America .........................................	529,386		19.7		495,408		20.5		492,487		20.1
Latin America ...........................................	163,611		6.1		121,885		5.0		139,938		5.7
Intra-HSBC items .....................................	(211,990)		(7.9)		(184,789)		(7.6)		(187,647)		(7.6)
	2,690,987		100.0		2,418,454		100.0		2,454,689		100.0

Risk-weighted assets⁵⁵

	At 30 June 2011				At 31 December 2010
	US$bn		%		US$bn		%
Total ....................................................................................................	1,168.5				1,103.1
Europe ..................................................................................................	315.7		26.9		301.6		27.2
Hong Kong ...........................................................................................	110.8		9.5		106.9		9.7
Rest of Asia-Pacific ..............................................................................	241.1		20.6		217.5		19.6
Middle East and North Africa ................................................................	58.1		5.0		54.1		4.9
North America ......................................................................................	335.8		28.6		330.7		29.9
Latin America .......................................................................................	110.5		9.4		95.9		8.7

For footnotes, see page 81.

Europe

Our principal banking operations in Europe are HSBC Bank plc in the UK, HSBC France, HSBC Bank A.S. in Turkey, HSBC Bank Malta p.l.c., HSBC Private Bank (Suisse) S.A. and HSBC Trinkaus & Burkhardt AG. Through these operations we provide a wide range of banking, treasury and financial services to personal, commercial and corporate customers across Europe.
	Half-year to
	30 Jun		30 Jun		31 Dec
	2011		2010		2010
	US$m		US$m		US$m
Net interest income ......	5,566		5,802		5,448
Net fee income .............	3,131		3,177		3,194
Net trading income .......	2,007		1,604		1,259
Other income/(expense)	636		2,138		128
Net operating income41 ...................................	11,340		12,721		10,029
Impairment charges42 ....	(1,173)		(1,501)		(1,519)
Net operating income	10,167		11,220		8,510
Total operating expenses ...................................	(8,014)		(7,704)		(7,741)
Operating profit ........	2,153		3,516		769
Income from associates43	(6)		5		12
Profit before tax .........	2,147		3,521		781
Cost efficiency ratio .....	70.7%		60.6%		77.2%
RoRWA44 .....................	1.4%		2.2%		0.5%
Period-end staff numbers	76,879		73,431		75,698
Reduction in reported loan impairment charges42 22%
Market share of new UK mortgage lending 11%
Strong trade revenue growth
For footnotes, see page 81. The commentary on Europe is on an underlying basis unless stated otherwise.

Economic background 

The UK's economic recovery remained disappointingly lacklustre in the first half of 2011. In the first quarter, the level of real Gross Domestic Product ('GDP') rose by 0.5%, having fallen by 0.5% in the previous quarter. The unemployment rate edged down to 7.7% in the three months to April as modest job shedding in the public sector, in reaction to ongoing fiscal austerity, was offset by job gains in the private sector. The level of turnover in the housing market remained subdued. The Bank of England left interest rates unchanged at 0.5% and the Asset Purchase Facility remained steady at £200bn. CPI inflation was well above the Bank of England's 2% target throughout the period, reaching 4.5% in May, partly from the rise in VAT at the start of the year, and increases in commodity prices.

The eurozone recovery continued to be uneven, with countries in the north of the region demonstrating strong growth while economies in the south, particularly those focused on fiscal consolidation, saw more modest levels of activity. In part because of rising commodity prices, eurozone inflation rose above the European Central Bank's ('ECB's) target, reaching 2.7% in June, and the ECB began to tighten monetary policy, raising the refi rate in April and July, taking it to 1.5%. For certain countries, particularly Greece, concerns in sovereign bond markets intensified. As it became clear that Greece would be unable to return to the private capital markets in the first half of 2012, the eurozone heads of state arranged in July 2011 for further medium-term financial assistance to be provided to the country.

Review of performance

Our European operations reported a pre-tax profit of US$2.1bn, compared with US$3.5bn in the first half of 2010, a decrease of 39%. Included within these results were adverse fair value movements of US$71m in the first half of 2011 due to the change in credit spreads on the Group's own debt held at fair value, compared with favourable fair value movements of US$574m in the first half of 2010. The first half of 2010 included a gain of US$107m on the disposal of the HSBC Insurance Brokers business along with the operating results of Eversholt Rail Group which was sold in December 2010. Excluding these items, underlying pre-tax profits decreased by 28%, mainly due to lower revenues in GB&M.

In GB&M, we are investing in the business by expanding our capabilities across the region and further enhancing our product offering in areas such as Payments and Cash Management, Securities

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

	Retail     Banking and Wealth Management16          US$m		Commercial     Banking         US$m	Global    Banking             and    Markets16         US$m			Global       Private     Banking         US$m		Other         US$m		Total         US$m
Half-year to 30 June 2011
UK .............................................................	634		761		483		108		(862)		1,124
France56 .....................................................	139		111		274		10		(89)		445
Germany ....................................................	23		38		121		21		6		209
Malta .........................................................	31		34		6		-		-		71
Switzerland .................................................	-		(5)		-		122		-		117
Turkey .......................................................	11		42		31		-		-		84
Other .........................................................	(69)		63		87		54		(38)		97
	769		1,044		1,002		315		(983)		2,147
Half-year to 30 June 2010
UK .............................................................	483		500		1,356		116		(366)		2,089
France56 .....................................................	87		83		401		6		157		734
Germany ....................................................	19		17		127		18		(4)		177
Malta .........................................................	21		28		7		-		-		56
Switzerland .................................................	-		-		-		161		-		161
Turkey .......................................................	35		47		58		-		-		140
Other .........................................................	(46)		34		99		58		19		164
	599		709		2,048		359		(194)		3,521
Half-year to 31 December 2010
UK .............................................................	698		327		416		107		(1,239)		309
France56 .....................................................	51		52		(25)		12		(131)		(41)
Germany ....................................................	17		15		104		12		8		156
Malta .........................................................	16		28		10		-		-		54
Switzerland .................................................	-		(5)		-		104		-		99
Turkey .......................................................	29		33		47		1		-		110
Other .........................................................	(98)		46		103		45		(2)		94
	713		496		655		281		(1,364)		781

For footnotes, see page 81.

Services, Prime Services and Equities. Lower revenues compared with the first half of 2010 were driven by reductions in Balance Sheet Management and legacy Credit.

In the UK CMB business, income from UK based customers using products to support international activity grew by 16% compared with the first half of 2010. We remain on track to achieve our lending goals under the Merlin Agreement with the UK government, having made available total new facilities of £22.7bn (US$36.3bn) in the first half of 2011, compared with a full year target of £38.8bn (US$62.1bn), with capacity to increase this to £44.1bn (US$70.6bn) if there is sufficient demand on commercial terms. For UK SMEs, we have provided gross new facilities of £5.6bn (US$9.0bn), compared with a goal of £11.7bn (US$18.7bn) for the full year, with committed capacity for additional facilities of at least £1.2bn (US$1.9bn) if required.

In the UK personal sector, we delivered further growth in mortgage balances and increased our market share of new lending to 11% while maintaining a conservative new lending loan-to-value ratio of 53%. The investment business continued to grow and we increased our assets under management of HSBC World Selection by 20% to US$3.9bn in the first half of the year.

Within Continental Europe, there was a continued focus on selected markets where we have scale and opportunities for growth, particularly in wealth management, CMB and GB&M.

In GPB, the focus remained on enhancing client experience through the delivery of bespoke services and global connections. Client assets increased due to net new money inflows, together with favourable market and foreign exchange movements.

Across the region there was a drive to improve efficiency and rationalise the portfolio and, to that end, we announced the closure of our retail businesses in Russia and Poland, as well as initiatives to improve operational efficiency in France and the UK. We continued to monitor our portfolio against strict targets, and keep our cost base under review.

Net interest income decreased by 9% as Balance Sheet Management revenues reduced. This was due to higher-yielding positions maturing and opportunities for reinvestment at similar yields being limited by the prevailing low interest rate environment and flatter yield curves. It was partly offset by growth in mortgage and commercial lending balances and wider lending spreads. We continued to build on our strong deposit base in the UK despite fierce competition for customer deposits.

Net fee income decreased by 4%. The increases in GPB from growth in assets under management and higher levels of client activity, along with an increase in domestic and international payments in the UK, did not offset lower fee income in GB&M for management services as the comparable period in 2010 benefited from higher fees generated from the securities investment conduits.

Net trading income increased by 7%. There were lower adverse fair value movements on non-qualifying hedges used to economically hedge fixed-rate long-term debt issued by HSBC Holdings. These were driven by a less pronounced decrease in long-term US interest rates relative to sterling and euro interest rates than those experienced in the first half of 2010. In addition, there were favourable foreign exchange movements on trading assets held as economic hedges of foreign currency debt designated at fair value. These offset adverse foreign exchange movements on the foreign currency debt which is reported in 'Net expense from financial instruments designated at fair value'.

Excluding the above items, net trading income decreased. This reflected lower favourable fair value movements on structured liabilities, mainly in Rates. Credit trading revenues were affected by the re-emergence of eurozone sovereign debt concerns in the second quarter of 2011 which resulted in a reduction in client activity and a general widening of credit spreads. In addition, foreign exchange revenues were constrained by continued spread compression due to increased competition. Benefiting from recent investment spending, higher revenues in Equities reflected an improved competitive positioning which helped capture increasing client flows, particularly during the rally in global equity markets in the first quarter of 2011.

Net expense from financial instruments designated at fair valueincreased by US$143m. There were adverse foreign exchange movements on foreign currency debt designated at fair value, issued as part of our overall funding strategy, with an offset reported in 'Net trading income'. These adverse movements were partly mitigated by gains on the fair value of assets held to meet liabilities under insurance and investment contracts that were recognised as equity markets rose, compared with losses experienced in the first half of 2010. To the extent that these gains accrued to policyholders holding unit-linked insurance policies and insurance or investment contracts with DPF, there was a corresponding increase in 'Net insurance claims incurred and movement in liabilities to policyholders'.

Gains less losses from financial investments increased by US$62m, driven by gains on certain securitised debt portfolios.

Net earned insurance premiums increased by 6% reflecting successful targeted sales campaigns in RBWM, notably for investment contracts with DPF in France, and higher sales of unit-linked products in the UK. This was partly offset by a reduction in premiums resulting from the non-renewal and transfer to third parties of certain contracts in our Irish business, and the run-off of the legacy motor book in the UK.

Other operating income decreased by 23%, largely reflecting the non-recurrence of a gain on the sale and leaseback of our Paris headquarters in the first half of 2010, partly offset by the benefit from a refinement of the calculation of the PVIF asset during the period (see footnote 27 on page 81).

Net insurance claims incurred and movement in liabilities to policyholders increased by 23%. Investment gains, which contrasted with investment losses in the first half of 2010, led to an increase in the movement in liabilities to policyholders. Additional reserves were also established for new business written, consistent with the increase in net earned insurance premiums. The non-renewal and transfer to third parties of certain contracts in the Irish business and the run-off of the legacy motor book in the UK resulted in a decrease in net insurance claims incurred and movement in liabilities to policyholders, partly offsetting the above.

Loan impairment charges and other credit risk provisionsdecreased by 26% to US$1.2bn, reflecting an improved credit environment in the region and successful risk mitigation by management in RBWM. The decline in loan impairment charges was also attributable to lower delinquency rates across both the secured and unsecured lending portfolios in the UK as a result of better collections capability and enhanced credit risk management practices. In CMB, loan impairment charges fell in the UK across a range of industry sectors. In GB&M, loan impairment charges and other credit risk provisions declined despite recording a charge of US$65m to write down to market value available-for-sale Greek sovereign debt now judged to be impaired. In addition, impairments of US$40m were included in our GPB and insurance businesses in relation to Greek available-for-sale debt securities.

Operating expenses in the first half of 2011 included US$611m of provisions relating to UK customer redress programmes, including a provision in respect of the adverse judgement in the Judicial Review relating to sales of PPI in the UK. This was offset by a credit of US$587m resulting from a change in the inflation measure used to calculate the defined benefit obligation in the UK for deferred
pensions. The first half of 2010 included one-off payroll and bonus taxes of US$398m (US$367m as reported) in the UK and France. Excluding these items, operating expenses increased by 6%. This included an acceleration in the expense recognition of deferred bonus awards. We also continued to invest in strategic initiatives in GB&M, including the development of Prime Services and equity market capabilities and the expansion of the Rates and Foreign Exchange e‑commerce platforms.

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

	Half-year to 30 June 2011
	Retail      Banking and Wealth Management          US$m		Commercial      Banking          US$m		Global Banking and      Markets          US$m		Global Private     Banking          US$m		Other          US$m		Inter-     segment elimination52          US$m		Total          US$m
Profit/(loss) before tax
Net interest income/ (expense) ............ ............................	2,861		1,522		1,107		476		(271)		(129)		5,566
Net fee income/ (expense) ............ ............................	1,323		813		516		496		(17)		-		3,131
Trading income/(expense) excluding net interest income ...	36		6		1,268		84		(196)		-		1,198
Net interest income on trading activities .............	6		8		636		9		21		129		809
Net trading income/ (expense)45 .........	42		14		1,904		93		(175)		129		2,007
Net income/(expense) from financial instruments designated at fair value ...................	105		25		(211)		-		(159)		-		(240)
Gains less losses from financial investments ........	56		1		254		(4)		5		-		312
Dividend income .....	1		1		19		3		1		-		25
Net earned insurance premiums ............	2,201		191		-		-		(6)		-		2,386
Other operating income ................	142		40		96		8		264		102		652
Total operating income/(expense) ..........................	6,731		2,607		3,685		1,072		(358)		102		13,839
Net insurance claims53 ...............	(2,316)		(180)		-		-		(3)		-		(2,499)
Net operating income/(expense)41 .......................	4,415		2,427		3,685		1,072		(361)		102		11,340
Loan impairment (charges)/ recoveries and other credit risk provisions ...........	(394)		(369)		(382)		(34)		6		-		(1,173)
Net operating income/(expense) ..........................	4,021		2,058		3,303		1,038		(355)		102		10,167
Operating expenses .	(3,249)		(1,013)		(2,299)		(723)		(628)		(102)		(8,014)
Operating profit/(loss) .......	772		1,045		1,004		315		(983)		-		2,153
Share of profit/(loss) in associates and joint ventures ......	(3)		(1)		(2)		-		-		-		(6)
Profit/(loss) before tax ......................	769		1,044		1,002		315		(983)		-		2,147
	%		%		%		%		%				%
Share of HSBC's profit before tax .	6.7		9.1		8.7		2.8		(8.6)				18.7
Cost efficiency ratio ............................	73.6		41.7		62.4		67.4		(173.5)				70.7
Balance sheet data39
	US$m		US$m		US$m		US$m		US$m				US$m
Loans and advances to customers (net) ...	154,055		100,140		200,498		30,354		1,284				486,331
Total assets .............	221,095		123,446		1,075,148		80,073		72,488		(192,942)		1,379,308
Customer accounts ..	178,819		101,195		207,891		60,906		-				548,811

	Half-year to 30 June 2010
	Retail       Banking and Wealth Management16          US$m		Commercial        Banking           US$m		Global      Banking              and      Markets16          US$m		Global Private        Banking           US$m		Other           US$m		Inter-       segment elimination52           US$m		Total           US$m
Profit/(loss) before tax
Net interest income/ (expense) ...... ......................	2,706		1,324		1,648		424		(292)		(8)		5,802
Net fee income/ (expense) ...... ......................	1,221		796		719		444		(3)		-		3,177
Trading income/(expense) excluding net interest income ..........	(19)		14		1,342		105		(570)		-		872
Net interest income on trading activities .......	-		7		700		10		7		8		732
Net trading income/ (expense)45 ....	(19)		21		2,042		115		(563)		8		1,604
Net income/(expense) from financial instruments designated at fair value .......	(121)		(26)		(31)		-		751		-		573
Gains less losses from financial investments ...	(1)		-		241		1		(4)		-		237
Dividend income ......................	-		-		12		2		-		-		14
Net earned insurance premiums ......	2,012		130		-		-		(5)		-		2,137
Other operating income...........	104		125		303		4		479		126		1,141
Total operating income...........	5,902		2,370		4,934		990		363		126		14,685
Net insurance claims53 .........	(1,882)		(81)		-		-		(1)		-		(1,964)
Net operating income41 .......	4,020		2,289		4,934		990		362		126		12,721
Loan impairment charges and other credit risk provisions .....	(686)		(410)		(394)		(11)		-		-		(1,501)
Net operating income ..........	3,334		1,879		4,540		979		362		126		11,220
Operating expenses ........	(2,738)		(1,171)		(2,493)		(620)		(556)		(126)		(7,704)
Operating profit/(loss) ...	596		708		2,047		359		(194)		-		3,516
Share of profit in associates and joint ventures	3		1		1		-		-		-		5
Profit/(loss) before tax ......	599		709		2,048		359		(194)		-		3,521
	%		%		%		%		%				%
Share of HSBC's profit before tax ................	5.4		6.3		18.5		3.2		(1.7)				31.7
Cost efficiency ratio ..............	68.1		51.2		50.5		62.6		153.6				60.6
Balance sheet data39
	US$m		US$m		US$m		US$m		US$m				US$m
Loans and advances to customers (net) ..............	135,746		82,822		163,020		24,717		921				407,226
Total assets .......	193,060		105,134		1,019,364		70,116		74,744		(181,720)		1,280,698
Customer accounts ........	156,581		95,558		170,695		54,423		1				477,258

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

	Half-year to 31 December 2010
	Retail       Banking and Wealth Management16          US$m		Commercial        Banking           US$m		Global      Banking              and      Markets16          US$m		Global Private        Banking           US$m		Other           US$m		Inter-       segment elimination52           US$m		Total           US$m
Profit/(loss) before tax
Net interest income/ (expense) ...... ......................	2,831		1,450		1,287		447		(362)		(205)		5,448
Net fee income . ......................	1,338		774		601		439		42		-		3,194
Trading income/(expense) excluding net interest income ..........	13		(11)		199		80		308		-		589
Net interest income on trading activities .......	(1)		12		427		11		16		205		670
Net trading income45 .......	12		1		626		91		324		205		1,259
Net income/(expense) from financial instruments designated at fair value........	617		139		8		-		(1,055)		-		(291)
Gains less losses from financial investments ...	(35)		-		284		(8)		8		-		249
Dividend income ......................	-		1		4		-		1		-		6
Net earned insurance premiums ......	1,788		148		-		-		(6)		-		1,930
Other operating income ..........	83		38		514		3		275		63		976
Total operating income/ (expense) ......	6,634		2,551		3,324		972		(773)		63		12,771
Net insurance claims53 .........	(2,482)		(261)		-		-		1		-		(2,742)
Net operating income/ (expense)41 ....	4,152		2,290		3,324		972		(772)		63		10,029
Loan impairment (charges)/ recoveries and other credit risk provisions ......................	(531)		(587)		(389)		(15)		3		-		(1,519)
Net operating income/ (expense) ......	3,621		1,703		2,935		957		(769)		63		8,510
Operating expenses ........	(2,909)		(1,207)		(2,291)		(676)		(595)		(63)		(7,741)
Operating profit/(loss) ...	712		496		644		281		(1,364)		-		769
Share of profit in associates and joint ventures	1		-		11		-		-		-		12
Profit/(loss) before tax ......	713		496		655		281		(1,364)		-		781
	%		%		%		%		%				%
Share of HSBC's profit before tax ......	9.0		6.3		8.3		3.5		(17.3)				9.8
Cost efficiency ratio ..............	70.1		52.7		68.9		69.5		(77.1)				77.2
Balance sheet data39
	US$m		US$m		US$m		US$m		US$m				US$m
Loans and advances to customers (net) ..............	145,069		91,744		170,369		27,629		988				435,799
Total assets .......	205,032		111,356		962,861		76,631		65,824		(172,177)		1,249,527
Customer accounts ........	169,016		96,597		169,836		56,114		-				491,563

For footnotes, see page 81.

 

END

 

 

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