HSBC 2011 Annual Report Download - page 53

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Overview Operating & Financial Review Corporate Governance Financial Statements Shareholder Information
Global Banking and Markets
GB&M is a global business which
provides tailored financial solutions
to major government, corporate and
institutional clients worldwide.
2011 2010 2009
US$m US$m US$m
Net interest income .......... 7,263 7,343 8,618
Net fee income ................. 3,227 3,664 3,463
Net trading income56 ........ 5,204 5,830 6,867
Other income .................... 1,363 2,075 1,990
Net operating income52 .. 17,057 18,912 20,938
Impairment charges53 ....... (984) (990) (3,168)
Net operating income .... 16,073 17,922 17,770
Total operating expenses .. (9,722) (9,228) (7,853)
Operating profit ............. 6,351 8,694 9,917
Income from associates54 ... 698 521 345
Profit before tax ............. 7,049 9,215 10,262
RoRWA55 ......................... 1.8% 2.5% 2.6%
Resilient financial performance
despite eurozone uncertainty
Strong growth in Latin America
and Rest of Asia-Pacific
Bookrunner in six of the 10
largest IPOs in Hong Kong in 2011
Strategic direction
GB&M continues to pursue its well established ‘emerging
markets-led and financing-focused’ strategy, with the objective of
being a leading global wholesale bank. This strategy has evolved
to include a greater emphasis on connectivity, leveraging the
Group’s extensive distribution network.
We focus on four strategic imperatives:
• reinforce client coverage and client-led solutions for major
government, corporate and institutional clients;
• continue to selectively invest in the business to support the
delivery of an integrated suite of products and services;
• enhance collaboration with other global businesses, particularly
CMB, to deliver incremental revenues; and
• focus on business re-engineering to optimise operational
efficiency and reduce costs.
For footnotes, see page 95.
Review of performance
• GB&M reported profit before tax of US$7.0bn,
24% lower than in 2010 as eurozone debt
concerns continued to dominate European
market sentiment. On an underlying basis, profit
before tax declined by 23% as a result of lower
revenues in Credit, Rates and Balance Sheet
Management. Notwithstanding the difficult
trading conditions, revenue grew strongly in
over half of our lines of business, including
Global Banking, Foreign Exchange and Equities,
and particularly in the faster-growing regions
of Rest of Asia-Pacific and Latin America.
• Overall, revenue fell by 10%. This was
primarily due to significantly lower trading
revenues in Credit and Rates, notably in Europe,
despite higher gains on structured liabilities
from widening credit spreads, as turmoil in
eurozone sovereign debt markets escalated,
particularly in the second half of 2011, resulting
in trading losses as increased risk aversion and
limited client activity led to a significant
widening of spreads on certain eurozone
sovereign and corporate bonds. Balance Sheet
Management reported lower revenues and
revenues from our legacy credit portfolio also
declined (see page 23).
• Loan impairment charges and other credit risk
provisions of US$984m in 2011 were broadly in
line with 2010. Loan impairment charges
declined by US$62m as specific impairments
taken in 2010 following the restructuring of
exposures of a small number of large clients in
the Middle East and North Africa did not recur.
Credit risk provisions on the available-for-sale
portfolio were slightly higher than in 2010. A
US$145m charge in respect of available-for-sale
Greek sovereign debt was offset in part by a
reduction in credit risk provisions on ABSs
within our legacy credit portfolio from
US$444m reported in 2010 to US$409m, as
losses arising in underlying collateral pools
generated lower impairment charges on ABSs.
• Operating expenses increased by 4%, reflecting
a rise in costs incurred in strengthening our
compliance resources, predominantly in the US;
targeted investment, including selective
recruitment of senior hires and development of
our trading and sales platforms; and
restructuring in the form of various
organisational efficiency initiatives. Performance-
related awards were substantially lower than in
2010, reflecting the decline in net