HSBC 2008 Annual Report Download - page 34

HSBC HOLDINGS PLC
Report of the Directors: Operating and Financial Review (continued)
Financial summary > Group performance > Other operating income / Net insurance claims incurred
32
Other operating income
2008
US$m
2007
US$m
2006
US$m
Rent received ................................................................................................... 606 630 687
Gains/(losses) recognised on assets held for sale ............................................ (130) 5 28
Valuation gains/(losses) on investment properties .......................................... (92) 152 164
Gain on disposal of property, plant and equipment, intangible assets and
non-financial investments ........................................................................... 465 213 781
Change in present value of in-force long-term insurance business ................ 286 (145) 40
Gain on repurchase of 8 Canada Square ......................................................... 416 – –
Other ................................................................................................................ 257 584 846
Other operating income ................................................................................... 1,808 1,439 2,546
2008 compared with 2007
Reported other operating income of US$1.8 billion
was 26 per cent higher than in 2007. This included
gains of US$425 million on the sale of the card
merchant acquiring business in the UK and
US$71 million on the sale of HSBC’s entire stake in
Financiera Independencia, a Mexican consumer
lending company. On an underlying basis, other
operating income fell by 23 per cent.
The difficult property market conditions in the
UK led to a loss in value of a property fund, lower
income from the sale of property fund assets and a
reduction in Group real estate disposals in 2008.
Similarly, in Hong Kong revaluation gains on
investment properties did not recur.
Life assurance enhancements to pension
products resulted in increased present value of in-
force long-term insurance (‘PVIF’) business, which
also benefited from the non-recurrence of regulatory
changes in 2007 in the UK.
During 2008, HSBC recognised a gain of
US$416 million in respect of the purchase of the
subsidiary of Metrovacesa which owned the property
and long leasehold comprising 8 Canada Square,
London. See Note 23 on the Financial Statements.
Other operating income declined, driven by
losses on sale of the Canadian vehicle finance
business and other loan portfolios in 2008, in
addition to the non-recurrence of gains on disposal
of fixed assets and private equity investments in
2007.
2007 compared with 2006
Reported other operating income of US$1.4 billion
was 43 per cent lower than in 2006, 51 per cent
lower on an underlying basis.
Significant decreases in gain on disposal of
property and other income were driven by lower
proceeds from the sale of real estate in the declining
US property market. This was compounded by the
non-recurrence of income earned on asset disposals
in 2006, including the sale of the former head office
building of Hang Seng Bank in Hong Kong and
properties in Japan and India, and the transfer of the
credit card acquiring business into a joint venture
with Global Payments Inc. A gain on the sale and
leaseback of a London building in 2007 and the non-
recurrence of a loss on sale on asset disposals in
2006 partially offset these factors.
Although HSBC sold its Canary Wharf
headquarters building at 8 Canada Square in 2007,
the gain remained unrecognised as the Group
continued to provide bridge finance for the debt
portion of the transaction.
PVIF business declined, primarily due to a
change in the calculation methodology employed in
the UK as HSBC implemented regulatory changes to
the rules governing the calculation of insurance
liabilities. This had a marginally positive effect on
profit as there was a corresponding reduction in
policyholder liabilities. Income rose in Mexico due
to a refinement of the income recognition
methodology in respect of long-term insurance
contracts.