HSBC 2005 Annual Report Download - page 88

HSBC HOLDINGS PLC
Financial Review (continued)
86
reduction in yields in an increasingly competitive
market. Funding costs rose, due to higher average
interest rates.
HSBC in Mexico continued to lead the market
in customer deposit growth, with a 1.5 per cent
increase in market share to 15.9 per cent, despite a
highly competitive market place. This was largely
due to the success of the ‘Tu Cuenta’ product, the
only integrated financial services product of its kind
offered locally. Since its launch in February 2005,
over 600,000 accounts have been opened, averaging
some 2,300 new customers per day.
The continued success of HSBC’s competitive
fixed rate mortgage product in Mexico, helped by
strong demand from first time buyers, led to average
mortgage balances increasing by 93 per cent to
US$522 million, and market share reached 10.7 per
cent. In Mexico, HSBC continued to be the leader in
vehicle finance with a market share of 26.5 per cent.
A unique new internet based product ‘Venta Directa’
was launched during the year, enabling the direct
sales of used cars between customers using HSBC’s
financing and website as the intermediary. The
targeting of new customer segments and more
competitive pricing drove average vehicle finance
loans higher by US$228 million to US$796 million,
a 40 per cent increase over 2004. Average payroll
loan balances more than doubled to US$253 million,
reflecting HSBC’s unique position in the market
granting pre-approved personal loans through its
ATM network. Average credit card balances were
55 per cent higher, with cards in circulation
increasing by 80 per cent to over 1.1 million cards.
This was largely driven by cross-selling to the
existing customer base using CRM and the
successful launch of the ‘Tarjeta inmediata’ or
Instant credit card, which generated 109,000 new
cards.
In Canada, net interest income grew by 21 per
cent, due to growth in average loan and deposit
balances, augmented by widening deposit spreads.
Branch expansion in the consumer finance business
generated higher average loan balances in real estate
secured and unsecured lending. Credit card balances
also grew, following the successful launch of a
MasterCard programme.
Net fee income grew by 20 per cent to
US$3,511 million, driven by strong performances in
the US and Mexico. In the US, the 23 per cent
increase was mainly from retail and credit card
services, the mortgage banking business and the
taxpayer financial services business. Fee income
within the consumer finance credit cards business
increased by 19 per cent, or US$300 million, largely
because of increased transaction volumes, loan
balance growth and improved interchange rates.
Greater use of the ‘intellicheck’ product, which
enables customers to pay their credit card balances
over the telephone, contributed an additional
US$33m of revenues. Revenues from ancillary
services rose US$77 million, reflecting higher sales
volumes, new product launches and expansion into
new customer segments.
Within the US retail services business, fee
income rose, mainly from lower merchant
partnership payments due to changes in contractual
obligations with certain clients. In part, this reflected
lower loan spreads associated with lower merchant
payments.
Fee income from the US mortgage-banking
business increased. As interest rates gradually rose,
refinancing prepayments of mortgages declined, with
levels of loan refinancing activity falling from 50 per
cent of total loans originated in 2004 to 44 per cent
in 2005. This led to lower amortisation charges and
the subsequent release of temporary impairment
provisions on mortgage servicing rights.
Furthermore, the value of servicing rights was better
protected by an improved economic hedging
programme using a combination of derivative
financial instruments and investment securities. A
revised fee structure, introduced in the second half of
2004, produced a 6 per cent increase in fee income
from deposit-related services in the US Bank.
Within the US taxpayer financial services
business, fee income grew by 12 per cent, driven by
higher average loan balances and the sale of
previously written-off loan balances. HSBC is the
sole provider of bank products to H&R Block, the
largest retail tax preparation firm in the US, and in
September 2005 extended this arrangement by
signing a new five-year contract. Since June 2004,
HSBC has retained in-house the clearing business
for refund anticipation payments, previously carried
out by a third party. This generated additional
revenues of US$19 million for HSBC in the US.
HSBC in Mexico reported strong growth in fee
income, driven by higher revenues from credit cards,
remittances, mortgages and ATM transactions. The
increase in the number of credit cards in circulation
contributed to the 85 per cent increase in credit card
fee income. Fees from the ‘Afore’ pension funds
business continued to perform strongly, with 50 per
cent growth and 394,000 new customers. Fee income
from international remittances rose by 55 per cent,
partly led by the continued success of ‘La Efectiva’,
HSBC’s electronic remittance card. Monthly
transactions exceeded one million, representing a