HSBC 2001 Annual Report Download - page 79

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equipment lending. Canada also experienced
increased loan losses, particularly to one name in the
telecommunications sector. Latin American loan
losses rose by US$68 million, including US$58
million in Argentina, with increased losses in Brazil.
Corporate, Investment Banking and Markets
Corporate, Investment Banking and Markets
contributed US$4,030 million of pre-tax profits in
2001 representing 45.8 per cent of such profits.
Compared with 2000, pre-tax profits were US$467
million higher, an increase of 13 per cent, driven by
lower bad debt charges and a substantial increase in
net interest income in the markets business in the
falling interest rate environment.
Net interest income increased by US$569
million or 20 per cent. The increase reflected a
number of factors; money market income was strong,
as treasury was positioned to take advantage of
falling rates, treasury also improved its yield by
shifting part of its holding of liquid assets from
government bonds to high quality corporate bonds.
Increased equity swap activity generated additional
cash deposits and in a number of emerging markets,
notably Turkey, treasury operations benefited from
high interest rates and volatile market conditions in
2001.
Net fees and commissions declined by US$170
million or 7 per cent on the year. A year of severely
adverse conditions in global new equity issues and
financial advisory markets and lower turnover on the
world’ s stock exchanges significantly reduced
revenues in these areas. However, in debt capital
markets progress in the continuing alignment of
client service teams, and from the combination of
strengths of CCF with HSBC in euro and sterling
markets, generated stronger revenues from a much
improved market position.
Dealing profits rose by US$41 million with
foreign exchange and interest rate products
compensating for lower revenues in equities and
equity derivatives trading.
Dealing profits in North America were
particularly strong, up by US$172 million, reflecting
investment to strengthen the Group’ s capabilities in a
number of areas, including foreign exchange, interest
rate derivatives and structured products. Latin
America’s dealing profits were down by US$54
million, mainly reflecting lower profits in Argentina
and the impact of foreign currency translation
movements on the profits reported by Brazil.
In regional markets outside the major centres,
India, Turkey, Japan, Thailand and the Philippines all
produced strong results.
Operating expenses increased by US$85 million
or 2 per cent, essentially reflecting the inclusion of a
full year’ s results for CCF offset by currency
translation impacts.
Provisions for bad and doubtful debts fell by
US$112 million to US$34 million. Higher provisions
in the United States were offset by lower
requirements in Hong Kong, together with a large
write-back of provisions held against the historical
Olympia and York exposure as the security held
against this investment was sold.
Amounts written off fixed asset investments
amounted to US$72 million, reflecting write-downs
of private equity and other investments.
The significant increase in profits on disposal of
investments from US$243 million to US$354 million
reflected a number of disposals in Europe including
Quilter by CCF and Pulsiv and ERGO by HSBC
Trinkaus.
In Hong Kong, disposal profits in 2001 included
the Group’s investment in Hong Kong Central
Registration and certain investment securities.
In North America, the business sought to reduce
its exposure to future interest rate movements by
realising mortgage-backed and other investment debt
securities which resulted in a large increase in
disposal profit, from US$33 million in 2000 to
US$133 million in 2001.
Private Banking
Private Banking contributed US$412 million to pre-
tax profits in 2001 which represented 4.7 per cent of
such profits. These profits were US$135 million or
25 per cent lower than in 2000, reflecting a decline in
customer activity, lower disposal gains and costs
associated with restructuring the business.
Net interest income declined by US$17 million
or 3 per cent. Offsetting the effect of a full year’ s
income from CCF entities, the underlying change
mainly reflects a switch to lower yielding assets and
a lower benefit from free capital as interest rates fell
and a more conservative risk profile was taken.
Net fees and commissions rose by US$55