HSBC 2007 Annual Report Download - page 118

HSBC HOLDINGS PLC
Report of the Directors: Business Review (continued)
Latin America > 2007 / 2006
116
Loan impairment charges rose by 4 per cent in
Brazil despite a substantial growth in assets. This
improved performance was mainly attributable to the
small business segment and resulted from changes to
credit initiation and collection strategies implemented
during the year. In Argentina, HSBC reported a net
release of loan impairment allowances following an
improvement in the country’s economic performance
during 2007 and increased collections of non-
performing loans.
In line with Group strategy to expand in fast
growing economies, operating expenses in the Latin
America region rose by 21 per cent to US$1.1 billion.
In Mexico, operating expenses increased by
22 per cent, largely driven by higher transaction
costs. Staff cost rises reflected an increase in
salary and performance awards in line with profit
generation. Growth in non-staff costs was attributable
to higher marketing expenditure and a rise in
transaction costs from increased business volumes.
In Brazil, operating expenses rose by 15 per cent
following implementation of a union agreement on
staff remuneration and one-off expenses incurred to
improve future operational efficiencies. Non-staff
costs, including transactional taxes, increased broadly
in line with business expansion and revenue growth.
In Argentina, costs rose by 53 per cent, again
mainly driven by the inclusion of four extra months
of Banca Nazionale costs. Excluding this, expenses
rose reflecting continued investment in support of
business growth and the general price increase
evident in the local market.
Global Banking and Markets in Latin America
reported a pre-tax profit of US$517 million, which
represented an increase of 1 per cent from 2006.
Robust growth in net interest income and fees was
partially offset by a decrease in trading income
and an increase in costs relating to regional business
expansion. Overall, this led to a deterioration in the
cost efficiency ratio to 48.9 per cent.
Total operating income increased by 13 per cent
to US$1.0 billion. This was chiefly driven by strong
revenue growth in Brazil, which more than offset
reduced trading income in Mexico, in comparison
with the latter’s strong performance in 2006.
Net interest income increased by 13 per cent,
driven by cross-referrals from Commercial Banking
and an increased volume of deposit balances in the
securities services business as the strong performance
of Brazilian equity markets attracted foreign buyers.
In Argentina, net interest income rose through an
additional contribution from Banca Nazionale and
higher spreads on customer loans.
Net fee income rose by 34 per cent to
US$250 million, driven by a strong performance in
Brazil. HSBC Global Asset Management revenues
increased as a result of strong returns from funds with
performance fees and the success of selling locally
manufactured products into Asian markets. Increased
IPO activity in Brazil boosted fees from financing
and capital markets, both from advisory services and
from underwriting new listings. Securities services
also performed well in the region as new business
volumes and strong local equity markets drove a
63 per cent increase in assets under custody.
Net income from trading activities decreased
by 14 per cent to US$182 million, driven by
performance in Mexico, where there were reduced
revenue opportunities in Credit and Rates due to the
relatively flat yield curve. This was partly offset by
income growth from foreign exchange trading, driven
by continuing market volatility.
Gains less losses from financial investments
increased by 10 per cent, driven by a gain of
US$46 million following a sale of shares held in
a credit bureau, a stock exchange and a derivatives
exchange in Brazil. These were partially offset by
a lower level of disposals in Mexico in 2007.
There were continued but lower impairment
releases, with a small number of significant releases
in Argentina relating to impairments that arose during
the 2001 debt crisis offsetting the non-recurrence of a
large release in 2006 in Mexico.
Operating expenses increased by 23 per cent to
US$481 million, and reflected HSBC’s investment in
increasing operational capabilities in Brazil, cost
growth in Argentina following the inclusion of Banca
Nazionale and continued investment in infrastructure
to support business growth. This caused the cost
efficiency ratio to deteriorate by 4.1 percentage
points.
Private Banking reported a pre-tax profit of
US$25 million, an increase of 47 per cent. The cost
efficiency ratio improved by one percentage point
to 64.8 per cent. The upward trend in cross-referrals
continued, particularly in Brazil, with inward
referrals contributing US$495 million to total
client assets.
Overall, revenues increased by 42 per cent to
US$71 million, driven by Mexico and Brazil. In
Mexico, balance sheet growth and brokerage fees
drove revenues up. Higher investment in funds and
cross-referrals in Brazil also contributed to the rise in
fee income.
Client assets grew by 62 per cent to
US$11.6 billion, of which US$1.8 billion represented