HSBC 2006 Annual Report Download - page 46

HSBC HOLDINGS PLC
Report of the Directors: Business Review (continued)
Europe > 2005 / Profit/(loss) before tax
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with the wider Group contributed to nearly one
quarter of the US$1.6 billion of new money.
A US$20 million lower performance fee from a
public equity fund dedicated to Russia was more
than offset by increased core fees and commissions
in line with growth in client assets, and transactional
income as new clients invested. Higher fee income
also reflected growth in discretionary and advisory
managed assets, and volume growth, which was
boosted by the success of new products launched in
2005, notably in alternative investments. Gains from
financial investments in both 2004 and 2005 were
mainly on the sale of debt instruments. The overall
gain in 2005 of US$27 million was 17 per cent lower
than in the previous year.
The net release of loan impairment charges in
2005 related largely to specific clients; improved
credit quality overall also led to a release of
collective impairment provisions.
Operating expenses rose by 11 per cent, of
which front office recruitment and increased
performance-related remuneration comprised 4 and
5 percentage points respectively. Investment costs,
largely in IT and marketing, and supporting business
growth contributed further to the increase. These
were in part offset by back office efficiency savings
and lower restructuring costs following 2004’s
merger of HSBC’s four French private banks.
Within Other, net operating income benefited
from the change to the presentation of inter-company
preference share dividends received from
Hong Kong under IFRSs from 1 January 2005.
Head office operating expenses increased, reflecting
higher brand advertising and marketing costs,
increased professional fees incurred to comply with
additional regulatory requirements including
Sarbanes-Oxley and Basel II, and restructuring costs.
In 2004, operating expenses benefited from the
release of litigation provisions.