HSBC 2011 Annual Report Download - page 86

HSBC HOLDINGS PLC
Report of the Directors: Operating and Financial Review (continued)
Geographical regions > North America
84
first half of 2012. We also announced the sale of 195
non-strategic branches, principally in upstate New
York, to First Niagara Bank, N.A. We expect this
transaction to close in stages, commencing in
the second quarter of 2012. These transactions
remain subject to regulatory approval. In addition,
we announced the disposal of our Canadian
investment advisory business and sold our private
equity businesses in the US and Canada as well as
the cessation of life insurance manufacturing in the
US, with effect from January 2012.
The results of our Card and Retail Services
business can be seen on page 88. We expect the sale
of this business to have a significant impact on both
the revenue and profitability of our North America
operations going forward.
In 2011, we incurred charges of US$236m
(2010: US$13m) associated with restructuring
activities in North America which included the
impairment of software development costs. In
addition we reduced the size of many of our support
functions to correspond to the reduced scale of
our operations in the region. During 2011 we
achieved about US$240m of sustainable savings.
In RBWM, we remained focused on managing
down the residual balances in our run-off CML
portfolio. We also continued to direct efforts towards
the expansion of wealth management and Premier
propositions.
In our CMB and GB&M businesses, we
continued to proactively target companies that trade
and invest internationally. In 2011, we increased the
number of CMB relationship managers in areas with
strong international connectivity, including the US
West Coast, Texas, Florida and central Canada. We
grew revenue from the sale of GB&M products to
CMB customers and, in GB&M, we continued to
interconnect our operations across the Americas to
deliver more integrated solutions for our customers.
Net interest income declined by 8% to
US$11.5bn, primarily due to lower lending balances
in HSBC Finance resulting from the continued run-
off of the residual balances in the CML portfolio, as
well as the sale of our vehicle finance portfolio in
2010. In Card and Retail Services, lower net interest
income reflected a reduction in lending balances
despite higher customer spending, as our customers
continued to reduce outstanding credit card debt. It
was also affected by lower yields due to the effects
of the US Credit Card Accountability, Responsibility
and Disclosure Act (‘CARD Act’), which included
restrictions on the repricing of delinquent accounts.
These reductions were partly offset by a fall in our
cost of funds.
Net interest income from Balance Sheet
Management activities increased compared with
2010, largely driven by an increase in securities
holdings in the US investment portfolio, and
favourable positioning for interest rate movements
in Canada.
Net fee income fell by 10% to US$3.3bn
reflecting the closure of our Taxpayer Financial
Services business and the sale of our vehicle finance
loan portfolio and loan servicing platform in 2010.
In our Card and Retail Services business fee
income reduced, driven by lower late and overlimit
fees reflecting reduced delinquencies and fewer
accounts, as well as the effect of customers actively
seeking to reduce credit card debt and the CARD
Act. In addition, fee expense rose as revenue-share
payments to our credit card partners increased as
improved portfolio performance resulted in
increased cash flows. The decline in net fee income
was partly offset by a reduction in fees written off
reflecting lower fees billed to our customers and
improved credit quality.
Net trading expense of US$362m compared
with net trading income of US$319m in 2010,
primarily driven by an increase in adverse fair value
movements on non-qualifying hedges used to
economically hedge floating rate debt issued by
HSBC Finance. This was due to a decrease in long-
term US interest rates, reflecting heightened
concerns regarding the pace of US economic
recovery and the ongoing eurozone crisis. These
rates declined to a greater extent than in 2010,
resulting in adverse fair value movements of
US$1.1bn in 2011 compared with US$353m in
2010.
In GB&M, trading income declined by 29% as
revenue in the legacy credit portfolio was adversely
affected by the non-recurrence of price appreciation
on assets, as well as a 2010 gain from a legal
settlement of US$89m relating to certain loans
previously purchased for resale from a third party
which did not recur, and the exit from the Bank
Notes business in 2010. This decline was partly
offset by a rise in foreign exchange and metals
revenue, reflecting greater client activity and
increased price volatility resulting from global
economic uncertainty. Metals revenue also benefited
from a rally in precious metal prices. In addition,
growth in revenue from Rates was driven by an
increase in new deal activity. In RBWM, charges
for loan repurchase obligations relating to loans
previously sold fell from US$341m to US$92m.