HSBC 2002 Annual Report Download - page 78

HSBC HOLDINGS PLC
Financial Review (continued)
76
The increase in net interest income in HSBC Bank
USA’s domestic operations’ of US$269 million, or 15
per cent, was partly offset by a decline in HSBC
Markets USA. HSBC Bank USA’ s domestic
operations average interest-earning assets increased
by US$4.4 billion, of which US$2.6 billion reflected
strong growth in residential mortgages as home-
owners took the opportunity, as interest rates fell, to
re-mortgage at lower rates. Spreads on residential
mortgages however widened as the steeper yield
curve allowed the increase in average-interest
earning assets to be funded with low costing
customer deposits. In addition, spreads on treasury
investment operations widened due to higher levels
of available net free funds and the effects of the 11
interest rate cuts during the year. However, the net
interest income decline in HSBC Markets USA
reflected the impact of trading strategies during the
year where funding costs were incurred as part of
arbitrage operations. Net interest income was lower
by US$50 million while dealing profits rose by
US$86 million. Net interest income in Canada was
US$28 million, or 6 per cent, higher than in 2000
(10.6 per cent at constant exchange rates) and
reflected the effects of the combination of higher
levels of average interest-earning assets, primarily
residential mortgages, and a widening in interest
spread. Net interest income in Panama was US$29
million higher in 2001, following the acquisition of
Chase Manhattan’s branch network in Panama in the
second half of 2000.
Other operating income was US$157 million
higher than in 2000 with a solid increase in dealing
profits. Dealing profits at US$346 million were
US$117 million, or 51 per cent, higher than in 2000.
As noted above HSBC Markets USA reported a
US$86 million, or 92 per cent, increase in profits on
debt securities and US treasury activities over 2000.
In addition, HSBC Bank USA reported increased
profits on foreign exchange trading. The dealing
profits in HSBC’s Canadian operations were lower
than in 2000 as operations were scaled back in the
unsettled market conditions.
Fee income at US$913 million was US$51
million higher than in 2000. In the United States, the
harmonisation of product lines between HSBC and
the former Republic Bank of New York, the volume
of annuities sold (a product which is especially
attractive in a low rate environment) and other
wealth management initiatives all contributed to a
15.2 per cent increase in fee income. There was also
a 44 per cent increase in insurance revenue when
compared to 2000. Fee income in Canada, excluding
the contribution to 2000 of HSBC Invest Direct
(Canada) Inc (which was transferred to the Merrill
Lynch HSBC joint venture in the fourth quarter of
2000), was US$16 million lower than in 2000 as a 13
per cent increase in personal and commercial
services revenues only partly offset lower levels of
broking and capital market fees in weaker equity
stock markets.
As part of its strategy of providing customers
with multiple choices for product and service
delivery, HSBC Bank USA offered a comprehensive
Internet Banking service. At 31 December 2001,
more than 275,000 customers had registered for the
service, up from approximately 80,000 at year-end
2000. The HSBC Bank USA web site, us.hsbc.com,
where customers can apply for accounts, conduct
financial planning and link to online services,
received over 37,000 visits daily.
During 2001, HSBC’s second generation
strategic internet banking platform being developed
in the United States hsbc.com launched its first
business applications. The hsbc.com program has
been designed to maximise the ability to offer any or
all of our services to any or all of our customers.
hsbc.com provides a common presentation and
browser capability. By adopting this approach, we
enhance the choices our customers have in selecting
how they want to do business with us, while
reducing our cost of providing the services. All the
key systems, which provide our core services, are
planning on integrating with hsbc.com over the next
five years.
Operating expenses, excluding goodwill
amortisation, of US$2,540 million in 2001 were
US$144 million, or 6 per cent higher than for 2000.
Of this increase, US$164 million related to
development costs associated with hsbc.com.
Excluding these costs and adjusting for the transfer
of HSBC InvestDirect (Canada) Inc, underlying costs
were US$29 million, or 1 per cent, lower than in
2000. HSBC Markets USA’ s operating expenses
increased by US$58 million all of which related to
higher staff costs reflecting higher levels of