HSBC 2012 Annual Report Download - page 98

HSBC HOLDINGS PLC
Report of the Directors: Operating and Financial Review (continued)
Geographical regions > Rest of Asia-Pacific
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participation in more debt capital markets
transactions across the region as we continued to
strengthen our capabilities in this area, and lower
regulatory fee expenses on Foreign Exchange and
Rates transactions in mainland China as volumes
reduced. RBWM reported higher income from cards
in Australia from increased spending and card
issuance and Wealth Management fees in mainland
China. The increase from cards was more than offset
by the discontinuation of our Premier business in
Japan, the sale of our RBWM business in Thailand,
and a fall in fund management fees as we saw a
move into lower yielding products reflecting
investor’s lower risk appetite.
Net trading income decreased by 34% compared
with 2011, mainly from adverse fair value
movements on the contingent forward sale contract
of US$553m relating to Ping An (see Note 26 on
the Financial Statements). Trading income was also
lower, primarily in mainland China due to lower
GB&M revenues in Foreign Exchange reflecting
reduced volatility. These were partly offset by a
net favourable movement as a result of a change in
estimation methodology in respect of the valuation
adjustments on derivatives.
Net income from financial instruments designated
at fair value was US$110m in 2012 compared with a
net expense of US$19m in 2011. This was driven by
net investment gains on assets held by the Insurance
business, primarily in Singapore, due to positive
equity market movements. To the extent that these
investment gains were attributed to policyholders of
unit-linked insurance policies and insurance contracts
with DPF, there was a corresponding increase in ‘Net
insurance claims incurred and movement in liabilities
to policyholders’.
Gains less losses from financial investments
were US$16m compared with net losses of US$23m
in 2011, due to a disposal gain on investments
managed by a private equity fund and a gain on the
sale of government debt securities in India.
Net earned insurance premiums rose by 7%
to US$812m as a result of increased renewals and
new business volumes in mainland China, Singapore
and Taiwan. The growth in premiums resulted in a
corresponding increase in ‘Net insurance claims
incurred and movement in liabilities to
policyholders’.
We reported a Gain on disposal of Ping An, an
associate of Mainland China, of US$3.0bn. Our
remaining shareholding has been classified as a
financial investment.
Other operating income increased by US$201m
due to gains on the sale of our RBWM business in
Thailand of US$108m, our GPB business in Japan of
US$67m and our interest in a property company in
the Philippines of US$130m. These were partly
offset by the non-recurrence of an accounting gain
of US$181m arising from the dilution of our
shareholding in Ping An in 2011.
Net insurance claims incurred and movement in
liabilities to policyholders increased by 22%, driven
by net investment gains on the fair value of the
assets held to support the policyholder contracts
compared with net losses in 2011. In addition,
policyholder liabilities were established for new
business, reflecting the rise in premiums across
mainland China, Singapore and Taiwan.
Loan impairment charges and other credit risk
provisions increased by US$170m as a result of
individually assessed impairments on a single
corporate exposure in Australia and a small number
of corporate exposures in other countries in the
region as well as a credit risk provision on an
available-for-sale debt security in GB&M. These
were partly offset by an impairment release in
Singapore compared with a charge in 2011.
Operating expenses increased by 3%, due to
restructuring and other related costs of US$131m
(2011: US$45m) incurred across several countries
as part of the ongoing strategic review of our
businesses and support functions in the region.
This resulted in a net reduction of approximately
6,000 FTE staff numbers and generated sustainable
annual savings of approximately US$200m, which
were more than offset by inflationary pressures and
investment for business growth, including branch
expansion in mainland China. Costs also increased
from a litigation provision of US$98m made in
respect of a long-standing court case and the write
down by US$51m of our interest in a joint venture.
Share of profit from associates and joint ventures
increased by US$212m, driven by higher profits from
BoCom and Industrial Bank which reflected loan
growth and higher fee income, partly offset by
increased operating expenses and loan impairment
charges. The contribution from Ping An reduced due
to market valuation losses on equity securities held
by their insurance business, which reflected volatile
domestic equity markets, partly offset by increased
income from the banking business, Ping An Bank.
The disposal of Ping An and the dilution of our
holding in Industrial Bank, following its issue of
additional share capital to third parties on 7 January
2013, are expected to have a significant impact on
future profits in the region.