HSBC 2009 Annual Report Download - page 141

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Average customer deposit balances rose,
resulting from an increase in commercial and Global
Banking balances. In Mexico, Personal Financial
Services launched new deposit products to mitigate
the fall in deposits. Deposits Spreads narrowed due
to falling interest rates, also primarily in Mexico.
Interest income rose in Balance Sheet
Management, primarily in Brazil.
Net fee income declined by 8 per cent. Tighter
credit origination criteria resulted in lower credit
card fees in Mexico. Account service fees also fell,
primarily due to lower transaction volumes. Weak
equity market performance in Brazil led to lower
assets under management and related fee income.
This was partly offset by growth in restructuring fees
in Global Banking and Markets.
Below inflation increase in operating
expenses reflected significant cost control
measures in Latin America.
Net trading income rose by 42 per cent due to
a strong performance in Global Banking and
Markets, particularly in the first half of the year in
Brazil. This resulted from increased foreign
exchange and Rates trading income, which benefited
from early positioning against interest rate
movements in a volatile market.
Net income from financial instruments
designated at fair value rose by 36 per cent,
primarily from higher insurance-related assets. This
resulted from business growth and a recovery of the
Brazilian equity markets as well as an increase in the
fair value of fixed income securities held in support
of personal pension portfolios in the country. An
offsetting increase was recorded in net insurance
claims incurred and movement in liabilities to
policyholders.
Net earned insurance premiums rose by 24 per
cent, driven by higher sales of pension and life
assurance products. In addition, a number of
customers in Brazil switched their personal pension
annuities to HSBC. These gains were partially offset
by the impact of the 2008 nationalisation of the
pension system in Argentina on the annuities
business there.
Net insurance claims incurred and movement in
liabilities to policyholders rose, primarily as a result
of the fair value movement on financial instruments
referred to above and insurance business growth.
Other operating income fell by 29 per cent,
largely due to the non-recurrence of gains arising in
2008 on a refinement of the income recognition
methodology used in respect of long-term insurance
contracts in Brazil. In 2009, a one-off gain was
realised on the sale of the head office in Argentina.
Loan impairment charges and other credit
risk provisions rose by 15 per cent as economic
conditions deteriorated across the region. In the first
half of 2009, delinquencies rose as GDP fell and
unemployment increased. The situation was
exacerbated by the H1N1 virus in Mexico and the
related economic shutdown. With the introduction of
enhanced credit risk management techniques and
gradual economic recovery, loan impairment charges
in the second half of 2009 decreased by 11 per cent
compared with the second half of 2008 and by 27 per
cent on the first half of 2009.
In Personal Financial Services, the combination
of portfolio seasoning, which followed expansion in
market share in previous years, and increased
delinquencies in secured and unsecured personal
lending products such as personal loans and payroll
loans in Brazil and cards and mortgages in Mexico,
resulted in higher loan impairment charges, mainly
in the first half of 2009. Some payroll loan portfolios
were run down in Brazil, as were several consumer
finance and unsecured portfolios in Mexico. Loan
impairment charges in Personal Financial Services
fell by 8 per cent in the second half of the year
compared with the same period in 2008 and by
27 per cent compared with the first half of 2009.
Loan impairment charges rose in commercial
lending portfolios, primarily in Business Banking
and mid-market business segments in Brazil, as trade
levels fell as a consequence of the global economic
slowdown. This was partly offset by net releases in
loan impairment charges in Global Banking and
Markets when compared with a net charge in 2008.
Operating expenses increased slightly by 2 per
cent, well below the inflation rates of the main
economies in which HSBC operates, reflecting
significant cost control measures. The benefit from
the reduction in staff numbers, which began in 2008
and continued in 2009, was partially offset by
union-agreed pay rises. Savings in general and
administrative costs were offset by investment
expenditure on regional initiatives to centralise
certain back office processes, and the
implementation of One HSBC and Group systems
intended to drive future operational efficiencies.
Costs also increased in the form of higher litigation
expenses and transactional taxes, the latter partly
from the non-recurrence of a recovery of
transactional taxes in the insurance business in 2008.