HSBC 2006 Annual Report Download - page 22

HSBC HOLDINGS PLC
Report of the Directors: Business Review (continued)
Business highlights
20
Private Banking
Profit before tax
Year ended 31 December
2006 2005 2004
US$m US$m US$m
Net interest income ......... 1,011 848 718
Net fee income ................ 1,323 1,080 962
Net trading income1 ........ 364 317 257
Net income/(expense)
from financial
instruments designated
at fair value .................. 1 (1) –
Gains less losses from
financial investments ... 166 45 39
Dividend income ............. 5 9 5
Other operating income .. 61 68 24
Total operating income 2,931 2,366 2,005
Net insurance claims2 ..... – – –
Net operating income3... 2,931 2,366 2,005
Loan impairment
(charges)/recoveries
and other credit risk
provisions ..................... (33) 12 11
Net operating income .... 2,898 2,378 2,016
Total operating expenses (1,685) (1,466) (1,319)
Operating profit ............ 1,213 912 697
Share of profit in
associates and joint
ventures ........................ 1 – –
Profit before tax ............ 1,214 912 697
By geographical region
Europe ............................. 805 539 438
Hong Kong ...................... 201 190 131
Rest of Asia-Pacific ........ 80 78 60
North America4 ............... 114 104 68
Latin America4 ................ 14 1 –
Profit before tax .............. 1,214 912 697
% % %
Share of HSBC’s profit
before tax ..................... 5.5
4.4 3.7
Cost efficiency ratio ........ 57.5 62.0 65.8
US$m US$m US$m
Selected balance sheet
data5
Loans and advances to
customers (net) ............. 34,297 27,749 24,463
Total assets ...................... 73,026 59,827 56,751
Customer accounts .......... 80,303 67,205 57,780
For footnotes, see page 26.
Strategic direction
The strategy for Private Banking is to be one of the
world’s leading international private banks, by
providing excellent client service.
HSBC’s global network and brand provides a
base from which the private bank, working in
conjunction with HSBC’s other customer groups and
global businesses, serves the complex international
needs of its clients, utilising traditional and
innovative ways of managing and preserving the
wealth of high net worth individuals while
optimising returns.
The private bank’s strategy is to reinforce its
product capabilities in areas such as credit, hedge
funds, investment advice and estate planning. This
will be achieved by attracting, retaining and
motivating talented individuals, by surveying clients
and employees on a regular basis and by increasing
expenditure targeted on marketing and brand
awareness initiatives. Private Banking’s onshore
business will also be expanded.
Business highlights in 2006
• Pre-tax profits of US$1,214 million grew by
33 per cent on both reported and underlying
bases compared with 2005, supported by strong
growth in client assets and lending. Revenue
growth comfortably exceeded cost growth
leading to an improvement in the cost efficiency
ratio of 4.5 percentage points to 57.5 per cent.
Reported pre-tax profits have increased by
74 per cent since 2004.
• A significant gain of US$117 million arose from
the partial sale of an investment in the
Hermitage fund, a public equity fund dedicated
to investment in Russia.
• HSBC continued to expand its alternative
investment platform as client preferences
favoured such investments. Total client
investment in hedge funds reached
US$39 billion. Two funds managed by HSBC
Private Bank France received first and equal
second place in the L’Agefi awards
‘International Equity Category’.
• Client assets increased by 22 per cent to
US$333 billion, with net new money inflows of
US$34 billion in 2006. On an underlying basis,
growth was 17 per cent.