HSBC 2010 Annual Report Download - page 53

51
Overview Operating & Financial Review Governance Financial Statements Shareholder Information
Europe
Our principal banking operations in Europe are
HSBC Bank plc in the UK, HSBC France, HSBC
Bank A.S. in Turkey, HSBC Bank Malta p.l.c.,
HSBC Private Bank (Suisse) S.A. and HSBC
Trinkaus & Burkhardt AG. Through these
operations we provide a wide range of banking,
treasury and financial services to personal,
commercial and corporate customers across
Europe.
2010 2009 2008
US$m US$m US$m
Net interest income ........... 11,250 12,268 9,696
Net fee income .................. 6,371 6,267 7,492
Net trading income ........... 2,863 5,459 5,357
Other income/(expense) .... 2,266 (450) 8,134
Net operating income46 ... 22,750 23,544 30,679
Impairment charges47 ........ (3,020) (5,568) (3,754)
Net operating income ..... 19,730 17,976 26,925
Total operating expenses .. (15,445) (13,988) (16,072)
Operating profit .............. 4,285 3,988 10,853
Income from associates48 .. 17 21 16
Profit before tax .............. 4,302 4,009 10,869
Cost efficiency ratio ......... 67.9% 59.4% 52.4%
Year-end staff numbers .... 75,698 76,703 82,093
Reduction in
underlying impairment charges47
45%
Total UK mortgage
market share
5.2%
2009: 4.8%
Strong trade
revenue growth
For footnotes, see page 83.
The commentary on Europe is on an underlying basis unless stated
otherwise.
Economic background
After falling by 4.9% in 2009, UK Gross Domestic
Product (‘GDP’) only partially recovered in 2010,
rising 1.4%. This revival in activity was not reflected
in a corresponding rise in employment, and the
unemployment rate remained at 7.9% in the three
months to November. Despite the general economic
weakness, the annual rate of Consumer Price Index
(‘CPI’) inflation rose during 2010, reaching 3.7% in
December, partly because of the rise in value added
tax to 17.5% in January, and increases in the price of
food and energy following rapid gains in global
commodity prices. Wage growth remained subdued,
however, with average earnings rising just 2.0% in
the year to December. The Bank of England chose to
maintain Bank Rate at 0.5% throughout 2010.
The eurozone economy also partially recovered
during the year, with GDP rising 1.7% in 2010
compared to 2009. The region benefited from
the pick-up in the world economy and some
improvement in domestic demand. Within the
region, Germany recorded the strongest growth rate
with its GDP rising 3.5% in the year as a whole. The
unemployment rate in the eurozone increased
slightly to 10.0% by the end of 2010. The large
increases in government debt that emerged in certain
parts of the region in recent years began to put
upward pressure on government bond yields during
2010, and some governments encountered funding
difficulties. In response, a temporary European
support fund, the €440bn European Financial
Stability Facility was created, and the EU set aside
€60bn in a package named the European Financial
Stabilisation Mechanism. Greece received a €110bn
aid package provided jointly by the International
Monetary Fund and eurozone governments. Ireland
also drew on international assistance in December.
The European Central Bank left its key interest rate
at 1.0% throughout the year.
Review of performance
Our European operations reported a pre-tax profit of
US$4.3bn, compared with US$4.0bn in 2009, an
increase of 7%. In 2010, this included adverse fair
value movements of US$198m due to the change in
credit spreads on the Group’s own debt held at fair
value, compared with adverse fair value movements
of US$2.8bn in 2009. In addition, we made gains of
US$107m on the disposal of the HSBC Insurance
Brokers business and US$255m on the sale of
Eversholt Rail Group. In 2009, we recorded a gain
on the sale of the residual stake in our UK card
merchant acquiring business. Excluding these items,
underlying pre-tax profits decreased by 35%,