HSBC 2012 Annual Report Download - page 83

81
Overview Operating & Financial Review Corporate 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) SA and HSBC
Trinkaus & Burkhardt AG. Through these
subsidiaries we provide a wide range of
banking, treasury and financial services to
personal, commercial and corporate customers
across Europe.
2012 2011 2010
US$m US$m US$m
Net interest income .......... 10,394 11,001 11,250
Net fee income ................. 6,169 6,236 6,371
Net trading income .......... 2,707 2,161 2,863
Other income/(expense) ... (1,662) 4,848 2,266
Net operating income21 .. 17,608 24,246 22,750
LICs76 ............................... (1,921) (2,512) (3,020)
Net operating income .... 15,687 21,734 19,730
Total operating expenses . (19,095) (17,069) (15,445)
Operating profit/(loss) ... (3,408) 4,665 4,285
Income/(expense) from
associates77 .................... (6) 6 17
Profit/(loss) before tax ... (3,414) 4,671 4,302
Cost efficiency ratio ........ 108.4% 70.4% 67.9%
RoRWA66 ......................... (1.0%) 1.5% 1.3%
Year-end staff numbers ... 70,061 74,892 75,698
Strong Rates and Credit performance
as investor sentiment improved
40%
reduction in RBWM
loan impairment charges
US$2.3bn
of customer redress
provisions in the UK
For footnotes, see page 120.
Economic background
The UK economy remained weak in 2012, with little
growth in underlying activity. Preliminary data
showed that the level of real Gross Domestic Product
(‘GDP’) contracted by 0.3% in the fourth quarter, as
economic activity fell back after a boost related to
the Olympic Games. Despite the lacklustre economy,
the labour market remained fairly resilient, with the
unemployment rate in the three months to December
down to 7.8% from 8.4% in the same period in 2011.
In response to the stagnating economy, the Bank of
England (‘BoE’) increased the size of its Asset
Purchase Facility to £375bn (US$606bn) and
launched a new scheme, Funding for Lending, aimed
at increasing the supply of credit. Consumer Prices
Index (‘CPI’) inflation fell during the first half of the
year but remained above the BoE’s 2% target. In the
fourth quarter, it rose back to 2.7%, partly due to
increases in tuition fees and energy prices.
The eurozone returned to recession in 2012 as
the initial resilience in France and Germany was
more than offset by deepening contractions in the
periphery, where domestic demand was dragged
down by austerity and private sector deleveraging.
Inflation slowed from 2.7% at the end of 2011 to
2.2% in 2012 and the European Central Bank
(‘ECB’) cut the refinance (‘refi’) rate by 0.25% to
0.75% in July. The sovereign crisis worsened again
in the first half of 2012 but early signs of a roadmap
for future integration of the economic and monetary
union, additional support for Greece and, most
importantly, the ECB’s commitment to supporting
the euro through its Outright Monetary Transactions
bond-buying programme succeeded in lowering
peripheral government bond spreads to their lowest
level since March 2012.
Review of performance
Our operations in Europe reported a pre-tax loss of
US$3.4bn, compared with a profit of US$4.7bn in
2011. On a constant currency basis, pre-tax profits
declined by US$8.0bn.
In 2012, there were adverse movements of
US$4.1bn on our own debt designated at fair value,
resulting from changes in credit spreads, compared
with favourable movements of US$2.9bn in 2011.
On an underlying basis, pre-tax profits decreased
by US$930m due to higher operating expenses
reflecting a US$1.4bn increase in the provision for
customer redress programmes in the UK, in
particular relating to the possible mis-selling of PPI
and interest rate protection products. This was partly
offset by higher GB&M revenues, notably in the
Rates and Credit businesses as spreads on eurozone