HSBC 2009 Annual Report Download - page 79

77
Private Banking
Profit before tax
2009 2008 2007
US$m US$m US$m
Net interest income ........... 1,474 1,612 1,216
Net fee income .................. 1,236 1,476 1,615
Trading income excluding
net interest income ......... 322 408 525
Net interest income
on trading activities ........ 22 14 9
Net trading income42 ......... 344 422 534
Net expense from financial
instruments designated at
fair value ........................ – – (1)
Gains less losses from
financial investments ..... 5 64 119
Dividend income ............... 5 8 7
Other operating income .... 48 49 58
Total operating income .. 3,112 3,631 3,548
Net insurance claims43 ...... – – –
Net operating income16 ... 3,112 3,631 3,548
Loan impairment charges
and other credit risk
provisions ....................... (128) (68) (14)
Net operating income ..... 2,984 3,563 3,534
Employee expenses .......... (1,234) (1,367) (1,250)
Other operating expenses . (650) (749) (775)
Total operating expenses .. (1,884) (2,116) (2,025)
Operating profit .............. 1,100 1,447 1,509
Share of profit in associates
and joint ventures ........... 8 – 2
Profit before tax .............. 1,108 1,447 1,511
By geographical region
Europe ............................ 854 998 915
Hong Kong ..................... 197 237 305
Rest of Asia-Pacific27 ..... 90 109 89
Middle East27 ................. 6 4 3
North America ............... (50) 83 174
Latin America ................ 11 16 25
1,108 1,447 1,511
% % %
Share of HSBC’s profit
before tax ....................... 15.6 15.6 6.2
Cost efficiency ratio .......... 60.5 58.3 57.1
Balance sheet data41
US$m US$m US$m
Loans and advances to
customers (net) ............... 37,031 37,590 43,612
Total assets ........................ 116,148 133,216 130,893
Customer accounts ............ 106,533 116,683 106,197
For footnotes, see page 149.
Strategic direction
Private Banking strives to be the world’s leading
international private bank, recognised for excellent
client experience and global connections.
The strength of HSBC’s brand, capital position,
and extensive global network provides a foundation
from which Private Banking continues to attract and
retain clients. Product and service leadership in areas
such as credit, estate planning, hedge funds, and
investment advice helps Private Banking meet the
complex international financial needs of individuals
and families.
Through continuing investment in its people,
integrated IT solutions and emerging markets-
focused domestic operations, Private Banking is
well-positioned for sustainable long-term growth.
Financial performance in 2009
• Reported pre-tax profit was 23 per cent lower at
US$1.1 billion, a fall of 21 per cent on an
underlying basis, primarily from a decline in fee
income. This was due to a change in the risk
tolerance of private banking customers and
consequent reduction in client activity, lower
fiduciary fees and the effect of weak markets on
the value of funds under management. Strong
cost control including reduced performance-
related costs partially offset the lower revenues.
• Net interest income fell by 6 per cent as lower
interest rates in the major economies, combined
with aggressive competition for deposits from
weaker competitors, particularly in Europe and
North America, led to tighter spreads and a
decline in balances. Lending volumes declined
due to client deleveraging and a lower appetite
for credit, although this was partly mitigated by
re-pricing historically low margin business to
reflect the changed conditions. Favourable
interest rate and yield curve movements at the
beginning of 2009 generated higher treasury
income in Asia and Europe, benefiting net
interest income.
• Net fee income decreased by 14 per cent,
affected by the fall in the value of equity
markets in the second half of 2008 and the first
quarter of 2009. This resulted in a lower average
value of funds under management and the
redemption of investments, particularly hedge
funds, in early 2009. Commission income on
fiduciary deposits decreased as low interest rates
resulted in a decline in volumes, and annual
fund performance fees earned in January 2008
were not repeated in 2009.