HSBC 2007 Annual Report Download - page 120

HSBC HOLDINGS PLC
Report of the Directors: Business Review (continued)
Latin America > 2006
118
Reconciliation of reported and underlying profit before tax
Year ended 31 December 2006 compared with year ended 31 December 2005
Latin America
2005
as
reported
US$m
Currency
translation1
US$m
2005
at 2006
exchange
rates
US$m
Acqui-
sitions and
disposals2
US$m
Underlying
change
US$m
2006
as
reported
US$m
Reported
change
%
Underlying
change
%
Net interest income .......... 3,342 165 3,507 77 613 4,197 26 17
Net fee income ................. 1,191 53 1,244 38 348 1,630 37 28
Other income3 .................. 1,173 56 1,229 25 (246) 1,008 (14) (20)
Net operating income4 ..... 5,706 274 5,980 140 715 6,835 20 12
Loan impairment charges
and other credit risk
provisions .................... (676) (63) (739) (18) (181) (938) (39) (24)
Net operating income ...... 5,030 211 5,241 122 534 5,897 17 10
Operating expenses .......... (3,426) (196) (3,622) (92) (452) (4,166) (22) (12)
Operating profit ............... 1,604 15 1,619 30 82 1,731 8 5
Income from associates ... – – – 4 – 4 – –
Profit before tax ............... 1,604 15 1,619 34 82 1,735 8 5
For footnotes, see page 130.
The following commentary is on an underlying
basis.
Personal Financial Services reported a pre-tax
profit of US$800 million, a rise of 1 per cent over
2005, which had benefited from a US$89 million
gain on the sale of the Group’s property and casualty
insurance business in Brazil. Adjusting for this, pre-
tax profits grew by 16 per cent, driven by 12 per cent
growth in revenues and 10 per cent growth in costs.
The underlying improvement in revenues was led by
strong asset and deposit growth together with higher
fee income, offset in part by consequential expense
growth and a rise in impairment charges as the loan
book both grew and seasoned.
In Mexico, profit before tax rose by 10 per cent.
During 2006, 56,000 Personal Financial Services
customers were transferred to the Commercial
Banking customer group, where HSBC is better
placed to meet their banking requirements. Adjusting
for this, profits were 20 per cent higher, driven by
strong balance sheet growth and improved fee
income.
Adjusting for the gain in 2005 from the sale of
the property and casualty business, pre-tax profits
were 46 per cent higher in Brazil. The strong
domestic economy stimulated robust growth in
lending and a rise in the number of current account
holders. During the year, a new and innovative
internet banking service Meu HSBC (My HSBC) was
introduced to Personal Financial Services customers,
allowing them to conduct different types of
transactions online using the same password as
their ATM card.
In Argentina, profit before tax was marginally
higher, with strong balance sheet growth, higher fees
and improved revenues from the insurance business.
This was largely offset by increased loan impairment
charges and cost growth incurred in support of
business expansion as HSBC prepared for an
improving domestic economic environment.
Net interest income rose by 11 per cent to
US$3.1 billion, largely from balance sheet growth
partly offset by lower deposit spreads.
In Mexico, net interest income increased by
12 per cent to US$1.2 billion. Adjusting for the effect
of customer account transfers to Commercial
Banking, net interest income rose by 20 per cent,
driven by strong growth in credit card and mortgage
balances and increases in deposits which were
generated by the ongoing success of the Tu Cuenta
product. Overall, asset spreads improved as the
relative increase in higher margin card balances led to
a favourable change in the product mix. By contrast,
deposit spreads narrowed as interest rates declined.
Excluding customer account transfers, average
deposit balances in Mexico rose by 10 per cent.
HSBC continued to be one of the market leaders with
respect to balance growth, despite fierce competition
from other banks, improving its market share by
35 basis points. A strong increase in low-cost
deposits was reflective of the continuing success of
Tu Cuenta, the first integrated financial services
product of its kind offered locally, with nearly
400,000 new accounts opened in 2006. HSBC
Premier performed well as 84,000 new customers
were added during the year. Premier deposits