HSBC 2006 Annual Report Download - page 8

HSBC HOLDINGS PLC
Report of the Directors: Business Review
Group Chairman’s statement
6
Group Chairman’s statement
It is a testament to HSBC’s strength and
diversity that we grew pre-tax profits in 2006 to
US$22 billion, despite a major setback in part
of our mortgage business in the United States.
For the third year running, return on average
shareholders equity exceeded 15 per cent, revenue
growth was in double digits and we maintained an
essentially flat cost-efficiency ratio. In 2006, pre-tax
profits from Asia, the Middle East, Latin America
and other emerging markets approached 50 per cent
of the Group’s total.
There were a number of outstanding
achievements, for example, exceeding US$1 billion
pre-tax profits for the first time in both Mexico and
the Middle East, and in each of our Private Banking
and Commercial Banking businesses in Asia outside
Hong Kong. We added around an extra US$1 billion
of pre-tax profits in Asia outside Hong Kong and
another US$1 billion in our Commercial Banking
businesses worldwide. In Hong Kong, net fee
income from personal customers grew over 30 per
cent to approach US$1 billion for the first time.
However, our pre-tax profits fell by
US$725 million in our personal businesses in the
United States. This was caused by one portfolio of
purchased sub-prime mortgages in our US Consumer
Finance subsidiary, Mortgage Services, which
evidenced much higher delinquency than had
been built into the pricing of these products. We are
restructuring this business to avoid any repetition of
the risk concentration that built up over the past two
years. As part of this exercise we have effected broad
changes in management and strengthened risk
controls and processes.
Despite the issues in our US mortgage business,
Group profit attributable to shareholders grew by
5 per cent to US$15,789 million. We met our
objective of funding organic expansion through
productivity improvements. To achieve this in a year
of continuing investment in developing our
distribution platforms and product capabilities is a
tribute to the focus which HSBC’s 312,000 staff
around the world have placed on serving our
customers.
Earnings continued to be well diversified both
geographically and by customer group. Regionally,
Asia, including Hong Kong, had record results as did
our newly designated Latin American Region, which
combines Mexico and Central America with our
South American businesses. Within our customer
groups, Commercial Banking again delivered a
record performance, as did Private Banking and
Corporate, Investment Banking and Markets, which
made strong progress in the areas in which we have
been investing in recent years. Personal Financial
Services profits declined as growth in Asia and Latin
America was masked by the problems in the US
Mortgage Services business.
The Board has declared a fourth interim
dividend of US$0.36 per share, taking the total
dividend in respect of 2006 to US$0.81 per share, an
increase of 11 per cent over the comparable payout
last year. In sterling terms, dividend growth is 5 per
cent. The fourth interim dividend is payable on
10 May 2007 to shareholders on the register on
23 March 2007 with a scrip dividend alternative
available for shareholders who prefer this option.
Global economic trends and their impact
on HSBC
Globalisation is determining how we think about
positioning HSBC to take advantage of the changing
pattern of economic flows. Historical patterns based
on national boundaries are becoming less relevant.
In aggregate, our operations within countries
designated as emerging markets grew by 19 per cent
in 2006, the third year running of high double-digit
growth. However, this understates the importance of
emerging markets to HSBC, as their influence is also
significant to the results of our operations in
developed economies. This reflects the growth in
export flows to meet the infrastructure development
needs of emerging markets and the reorganisation of
global supply chains to optimise international
resourcing. HSBC is strongly positioned to benefit
from these trends. HSBC seeks to differentiate itself
by taking developed market opportunities to
emerging market customers and bringing emerging
market products to developed investment markets.
For example: