HSBC 2006 Annual Report Download - page 145

143
Year ended 31 December
2006
US$m
2005
US$m
2004
US$m
Share of profit in:
– associates .................................................................................................. 823 546 266
– joint ventures ............................................................................................ 23 98 2
Share of profit in associates and joint ventures ............................................... 846 644 268
1 In 2006, Mexico and Panama were reclassified from the North America segment to the Latin America segment. Comparative
information has been restated accordingly.
Year ended 31 December 2006 compared
with year ended 31 December 2005
Income from associates and joint ventures was
US$846 million, an increase of 31 per cent
compared with 2005, and 7 per cent on an
underlying basis.
The commentary that follows is on an
underlying basis.
Improved contributions from The Saudi British
Bank, Bank of Communications and Industrial Bank
were supplemented by a first full year contribution
from Ping An Insurance. These strategic investments
are of increasing significance to HSBC’s operations
in the Rest of Asia-Pacific region. The profits were
partly offset by a loss arising from an impairment
charge on a private equity investment of an associate
in Europe.
• In August 2005, HSBC made an additional
investment to increase its stake in Ping An
Insurance to 19.9 per cent. The associate
reported record results for 2006, with steady
growth in the core insurance business
complemented by strong investment
performance following buoyant stock markets.
During 2006, Ping An Insurance group’s
nationwide back-office operation in Shanghai
became fully functional and the centralisation of
the life insurance underwriting and claims
business was completed.
• HSBC’s share of income from Bank of
Communications rose by 44 per cent, driven by
wider spreads and an improved product mix,
with increased corporate and consumer lending.
Fee income also rose as significant progress was
made in expanding its investment banking
operations.
In 2006, effective risk management and cost
control drove operating efficiency with an
improvement in the cost efficiency ratio, despite
a period of business expansion.
• During the second half of 2006, HSBC and The
Saudi British Bank jointly established HSBC
Saudi Arabia Limited, the first full-service
independent investment bank in Saudi Arabia
licensed under the local new Capital Market
law. HSBC, through a wholly owned subsidiary,
holds 60 per cent of the equity in the new
company and The Saudi British Bank, in which
HSBC has a 40 per cent shareholding, holds the
remaining 40 per cent.
The share of profits from The Saudi British
Bank grew by 21 per cent reflecting a strong
performance in all core businesses.
Year ended 31 December 2005 compared
with year ended 31 December 2004
Income from associates and joint ventures grew
significantly to US$644 million. On an underlying
basis, an increase of 72 per cent was driven by
strong performance in The Saudi British Bank and
gains on the sale of HSBC’s indirect stake in MISR
International, an Egyptian Bank. These revenue
streams were complemented by increased
contributions from the bank’s strategic investments
in mainland China; Bank of Communications and
Industrial Bank, interests in which were acquired in
2004, and Ping An Insurance, which became an
associate in August 2005.
Bank of Communications is the fifth largest
bank in mainland China as measured by assets.
HSBC’s share of Bank of Communications’ profits
in 2005 was US$175 million, significantly higher
than those reported in 2004. This largely reflected
the first full year of profits in 2005, though Bank of
Communications recorded an overall increase on a
like-for-like basis, principally as a result of asset and
liability growth combined with moderate expansion
in operating expenses.
Ping An Insurance is one of mainland China’s
leading insurance groups focusing on providing life
and property and casualty insurance products. In
August 2005, HSBC increased its stake in Ping An
Insurance to 19.9 per cent, began to account for it as
an associate.
The Saudi British Bank is 40 per cent owned by
HSBC. HSBC’s share of its profits increased by
53 per cent to US$268 million in 2005, largely