HSBC 2010 Annual Report Download - page 59

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Overview Operating & Financial Review Governance Financial Statements Shareholder Information
Profit/(loss) before tax by customer group and global business
2010
US$m
2009
US$m
2008
US$m
Personal Financial Services ........................................................................................ 2,918 2,728 3,428
Commercial Banking .................................................................................................. 1,352 956 1,315
Global Banking and Markets ...................................................................................... 1,430 1,507 1,436
Global Private Banking .............................................................................................. 227 197 237
Other ........................................................................................................................... (235) (359) (955)
5,692 5,029 5,461
Net interest income was broadly in line with 2009, as
strong loan growth was partly offset by lower
spreads resulting from competitive pressures and the
low interest rate environment. In Balance Sheet
Management, net interest income decreased as yield
curves flattened, higher yielding positions matured
and funds were reinvested at lower rates.
The recovery in trade volumes in 2010 and the
pursuit of CMB’s leading international bank for
business strategy resulted in significant growth in
commercial lending, notably in commercial, industrial
and trade related lending. To a lesser extent, growth
was also noted in commercial real estate, supported
by a buoyant property market. Average personal
lending balances also rose, driven by strong growth
in residential mortgage lending, where we continued
to lend conservatively with average loan-to-value
ratios of 55% on new mortgage drawdowns and
an estimated 38% on the overall portfolio.
Asset spreads narrowed as a result of
competitive pressures, particularly in trade-related
lending and HIBOR-linked residential mortgages.
The growth in customer numbers in the Premier
proposition in PFS and new-to-bank customers in
CMB resulted in increased customer deposits. The
benefit of the higher average deposit balances was
limited by narrower deposit spreads as interest rates
remained at historically low levels.
Net fee income increased by 11%, primarily due
to an increase in sales of investment products driven
by improved market sentiment and successful sales
campaigns, and growth in trade-related fees and
income from Payments and Cash Management
as volumes improved. Fees from funds under
management also grew as a result of higher net
inflows and improved fund performance, while
underwriting fees rose due to several significant
initial public offerings (‘IPO’s) and loan
syndications concluded in 2010.
Net trading income was 7% higher than in 2009.
Increased holdings of debt securities led to a rise in
net interest income from trading activities. Foreign
exchange revenues benefited from increased
turnover due to high levels of client demand. This
was partly offset by lower revenues from Credit
trading, following the strong results achieved in
2009 as credit spreads narrowed, and from Rates
trading as market volatility reduced in 2010.
Net income from financial instruments
designated at fair value was US$384m compared
with US$784m in 2009. The movement was
primarily due to lower revaluation gains in 2010 on
assets held to support linked insurance liabilities,
where the value of our liabilities to policyholders is
determined in line with the value of supporting
assets. To the extent that these lower investment
gains were attributed to policyholders, there was a
corresponding decrease in Net insurance claims
incurred and movement in liabilities to policyholders.
Net earned insurance premiums grew by 18% to
US$4.3bn as successful sales campaigns drove
strong growth, particularly in deferred annuity and
unit-linked products. A life insurance product
targeted at high net worth individuals also performed
well. Growth in the insurance business resulted in a
related increase in ‘Net insurance claims incurred
and movement in liabilities to policyholders’.
Other operating income increased by 21% to
US$1.5bn due to an increase in PVIF reflecting
higher life insurance sales, partly offset by the non-
recurrence of a gain on sale of a property in 2009.
Loan impairment charges and other credit
risk provisions decreased by 77% to US$114m,
reflecting the recovery in economic conditions. Lower
specific impairment charges in CMB and GB&M were
incurred as credit conditions improved and loan
impairment charges fell in PFS, mainly on unsecured
lending as unemployment and bankruptcy levels fell.
Operating expenses rose by 12% as the business
grew and the economy recovered. Staff costs grew
as we recruited in a competitive market and from
general wage increases, while bonuses rose in line
with the strong business performance. Marketing
costs rose notably in PFS due to the launch of
several large campaigns, including Advance and
credit cards promotions and rising transaction
volumes led to higher back office and support costs.