HSBC 2001 Annual Report Download - page 69

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The Canadian economy remained strong in 2000
as GDP increased 5.0 per cent in real terms. The
unemployment rate was 6.8 per cent (nearly a 25
year low) and inflation rose slightly to 2.7 per cent.
The Canadian dollar was slightly higher relative to
the US dollar at year-end 2000.
HSBC’s operations in North America
contributed US$850 million, or 9 per cent, to
HSBC's profit before tax compared with US$959
million in 1999. The decrease is mainly due to the
funding cost of debt injected into the United States as
part of the financing of the RNYC acquisition and
the related goodwill amortisation charge. In addition,
US$271 million profits of RNYC are reported in
other geographical segments. Cash earnings were
US$993 million in 2000 compared with US$962
million in 1999.
In the United States, following the acquisition of
RNYC on 31 December 1999, the year 2000 was
largely one of efficiently integrating RNYC within
HSBC’s existing operations. During 2000, HSBC
Bank USA emphasised customer retention and the
growth of its wealth management business. Customer
deposits in HSBC Bank USA were up 5 per cent
compared with 31 December 1999 and funds under
management were up US$3.6 billion, or 14 per cent,
to US$30.3 billion at 31 December 2000. Total
customer holdings, both on and off balance sheet, for
International Private Banking increased by more than
18 per cent compared with 31 December 1999.
Canadian operations reported cash basis pre-tax
profits 43 per cent higher in 2000 than in 1999.
Net interest income increased by US$465
million, or 28 per cent, compared with 1999. In the
United States, interest-earning assets more than
doubled following the RNYC acquisition. The
benefit of this increase was partly offset by a reduced
margin due to the dilutive impact of RNYC’s lower
margin but high quality balance sheet and the
funding costs of the acquisition. In Canada, net
interest income was US$85 million, or 23 per cent,
higher compared with 1999. This was achieved
through continued loan growth, especially in
commercial advances, and an improved net interest
margin together with the benefit of the acquisition of
the former RNYC operations in Canada. The
improvement in net interest margin in Canada
resulted from the continued focus on loan pricing,
asset repricing ahead of deposits as prime base rates
increased in the first half, and the benefit of lower
funding costs as less reliance was placed on
wholesale deposits.
Other operating income at US$1,317 million in
2000 was US$368 million, or 39 per cent, higher
than 1999. In the United States, revenues from
domestic wealth management exceeded US$200
million during 2000, up 18 per cent compared with
the combined results of the two organisations in
1999. Life insurance revenues in 2000 more than
doubled compared with 1999. Aside from wealth
management, other fees and commissions were
stable. In Canada, other operating income increased
by US$37 million, or 15 per cent, compared with
1999. This increase was mainly driven by higher
securities commissions generated by retail client
transactions, particularly in the strong equity markets
in the first half of the year. Mutual fund fee income
also increased due to higher net sales volumes and
increases in market values. Corporate finance fees
also benefited from the favourable market conditions
in 2000. A lower contribution from structured equity
transactions led to lower dealing profits in Canada
compared with 1999.
Operating expenses increased by US$921
million in 2000 compared with 1999. In the United
States, operating costs were US$871 million higher
than in 1999 principally due to the acquisition of
RNYC. Acquisition related cost savings were
realised in most support and administrative areas and
to a lesser extent in certain front line businesses.
Approximately 75 per cent of the targeted domestic
savings as a result of the merger were realised and
another 15 per cent identified. In conjunction with
the rationalisation efforts of both front and back
office operations, investments were made in
employee compensation and benefit programmes and
in operations and technology. Year-end 2000 results
included US$74 million of restructuring costs.
Consolidation of most premises and a majority of
systems took place throughout 2000, but it is
anticipated that some further restructuring costs will
be incurred in 2001 and additional related cost
savings will be realised. Operating expenses in
Canada were US$55 million, or 12 per cent, higher
in 2000 compared with 1999. The increase was
primarily attributable to RNYC operations and
performance-related compensation and volume
driven expenses reflecting the increased securities
commission income. The cost:income ratio,
excluding amortisation of goodwill and intangible
assets, fell to 65.6 per cent, an improvement of 4.4