HSBC 2007 Annual Report Download - page 119

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net new money. The increase in net new money was
driven by the acquisition of new clients, particularly
in Brazil and Mexico, improved product offerings
and cross-referrals from other customer groups in
Brazil.
Operating expenses increased by 40 per cent to
US$46 million to support business expansion,
particularly in Brazil, and to create a platform for
future growth in the region.
Profit before tax of US$3 million was reported
within Other.
Year ended 31 December 2006 compared
with year ended 31 December 2005
Economic briefing
Mexico’s GDP growth improved significantly in
2006 to 4.8 per cent from 3.0 per cent in 2005, mostly
in response to increased external demand from the
US. Commercial bank credit continued to recover
strongly, with over 80 per cent growth in real
mortgage loans. By the end of 2006, headline
inflation had increased to 3.8 per cent from 3.0 per
cent earlier in the year, largely as a result of increases
in agricultural supply prices. Record oil revenues,
combined with high non-oil export growth and
increasing inward remittances from Mexicans
working outside the country produced an almost
balanced current account for the year. Significant
capital inflows, including an estimated US$18 billion
in foreign direct investment, enabled the Government
to reduce its external debt by more than
US$12 billion and the Bank of Mexico to increase
foreign exchange reserves.
In Brazil, GDP is expected to have grown by
2.6 per cent in 2006 compared with 2.3 per cent in
2005. Growth was driven by domestic demand, with
private consumption increasing by 3.8 per cent and
capital spending by 5.9 per cent. Net exports, by
contrast, fell by 18 per cent in the first three quarters
of the year compared with the same period in
2005, as the increase in domestic demand translated
into higher imports rather than an expansion of
output. The unemployment rate averaged 10.0 per
cent in 2006, slightly up from 9.8 per cent averaged
in 2005. Inflation continued to decline, to 3.1 per cent
in 2006, compared with 5.7 per cent in 2005 and, as a
result, the Central Bank continued to ease monetary
policy. Overnight rates fell to 13.25 per cent in
December 2006 from 17.25 per cent a year before.
The trade balance continued to be robust, with a
surplus of US$46.1 billion in 2006, just above the
amount achieved in 2005.
In Argentina, real GDP growth in 2006
exceeded 8.3 per cent and, after growing for four
consecutive years at an average rate of approximately
9 per cent, the country’s GDP was nearly 15 per cent
above 1998, when its recession began. The strong
growth was due to a competitive exchange rate, a
strong fiscal stance and a favourable business
environment, which HSBC expects to continue in
2007. The main potential constraint on growth
remains the risk of disruption in energy supply,
where there has been a lack of investment and limited
price adjustments for residential consumers since
2001/2. Inflation was approximately 10 per cent at
the end of 2006, having tripled in the past three years,
though it was below its peak of more than 12 per cent
in 2005. Interest rates rose steadily in 2006 and the
peso weakened slightly against the US dollar. Given
Argentina’s higher inflation rate, however, the
exchange rate appreciated in real terms.
Review of business performance
HSBC’s operations in Latin America reported a
pre-tax profit of US$1.7 billion compared
with US$1.6 billion in 2005, an increase of
8 per cent. On an underlying basis, pre-tax profits
rose by 5 per cent. Growth in profitability was
constrained by the non-recurrence of one-off
coverage bond receipts and other items related to the
2001 sovereign debt default and subsequent
pesification in Argentina, which added
US$122 million to 2005 profits. In addition, a gain
of US$89 million from the sale of the property and
casualty insurance business, HSBC Seguros de
Automoveis e Bens Limitada, to HDI Seguros S.A.,
was recorded in 2005. Excluding these prior year
profits, and on an underlying basis, profit before tax
increased by 21 per cent, with net operating income
increasing by 15 per cent and operating expenses by
12 per cent. Global Banking and Markets delivered a
strong performance, driven by growth in fee and
trading income, with notable success in bringing
Latin American borrowers to global capital markets.
Commercial Banking also grew well as domestic
economies expanded. During 2006, HSBC made two
significant acquisitions in the region. In May, HSBC
acquired the Argentine banking operations of Banca
Nazionale to build its distribution capabilities and, in
November, HSBC Bank Panama in Central America,
adding markets in five countries new to the Group.