HSBC Holdings Regulatory News (HSBA)

27 Feb 2007 11:00

HSBC Holdings PLC27 February 2007 GRUPO FINANCIERO HSBC, S.A. DE C.V. FOURTH QUARTER 2006 FINANCIAL RESULTS - HIGHLIGHTS On 8 August 2006, HSBC Panama was sold by Grupo Financiero HSBC, S.A de C.V toHSBC Asia Holdings BV. All comparative commentary within this report istherefore on a like-for-like basis excluding HSBC Panama, as presented inAppendix A. The financial statements on pages 6-14 include HSBC Panama up untilthe date of disposal. • Net income up 8.4 per cent to MXN5,365 million for the year ended 31 December 2006 (MXN4,949 million for the year ended 31 December 2005). • Cost efficiency ratio (excluding monetary position) of 60.6 per cent for the year ended 31 December 2006 (65.1 per cent for the year ended 31 December 2005). • Return on equity of 18.6 per cent for the year ended 31 December 2006 (21.8 per cent for the year ended 31 December 2005). • Net loans and advances to customers up MXN28.1 billion, or 22.1 per cent, to MXN154.9 billion at 31 December 2006 (MXN126.8 billion at 31 December 2005). • Total assets up MXN22.6 billion, or 8.5 per cent, to MXN290.3 billion at 31 December 2006 (MXN267.6 billion at 31 December 2005). HSBC Mexico S.A. (the bank) is Grupo Financiero HSBC, S.A. de C.V.'s (the group)primary subsidiary, and is subject to supervision by the Mexican Banking andSecurities Commission. The bank is required to file periodic financialinformation on a quarterly basis (in this case for the quarter ended 31 December2006) and this information is publicly available. Given that this information isavailable in the public domain, Grupo Financiero HSBC, S.A. de C.V. has electedto file this release. Results are prepared in accordance with Mexican GAAP (generally acceptedaccounting principles), with figures denominated in Mexican pesos (MXN).Comparative figures are presented on an actual basis, indexed to constant MXN asat 31 December 2006. Grupo Financiero HSBC, S.A. de C.V. is a 99.99 per cent directly ownedsubsidiary of HSBC Holdings plc (HSBC). Comment by Sandy Flockhart, President and Group Managing Director of LatinAmerica and the Caribbean "Our investment for growth strategy in Mexico continues to deliver solidresults. For the year ended 31 December 2006, the group delivered robust growthin revenues. Net income was driven by a strong performance in the bank and inthe insurance subsidiaries, despite higher loan impairment charges in line withthe provisioning requirements under Mexican regulatory rules to coversignificant loan growth. Revenue grew across the personal, commercial andcorporate business segments even in a decreasing interest rate environment and ahighly competitive market. Our cost efficiency has shown continued improvementwith revenue growth of 17.0 per cent exceeding expense growth of 8.8 per cent inthe period ended 31 December 2006. This has been due to a more profitablebalance sheet composition, driven by growth of 42.2 per cent and 37.0 per centin consumer and commercial banking lending products respectively, compared to2005. Impaired loans grew 21.5 per cent versus the previous year, in line with21.8 per cent growth in gross loans and advances to customers for the sameperiod. As a result, the ratio of impaired loans to total loans remained at 2.7per cent as at 31 December 2006, the same percentage as the previous year. "In 2006 Grupo Financiero HSBC consolidated efforts to grow a strong platform inMexico. Our commitment to Mexico is reflected by our continued investment sincethe acquisition of Grupo Financiero Bital in November 2002. HSBC has investedover US$2.3 billion in Mexico since 2002. As part of HSBC Mexico's plans toincrease financial strength and to become the leading financial services companyin Mexico in the eyes of our customers, all profits earned since January 2003have been reinvested in the Mexican business, representing a total of MXN15,940million in accordance with Mexican GAAP. We have invested in enhancing ourinformation technology, improving staff training and broadening the humanresources base to some 23,700 employees. This represents over 8,000 new jobscreated since November 2002, and over 2,000 new jobs in 2006 alone. The trainingand career development of our employees, including offering overseas postings,has been integral to building local leadership talent and potential forcontinued growth in the future. "In April 2006, HSBC Mexico inaugurated its new headquarters, Torre HSBC, whichhas brought together staff across Mexico City into one location, providing astronger organisational culture and a renewed working environment. In additionto our new corporate headquarters, we have continued to invest in and improveour infrastructure with 372 ATMs added in 2006, bringing the total number to5,437. "I am pleased to mention that, during 2006, Grupo Financiero HSBC receivedseveral awards not only for its managerial efforts, but also for its corporateand social responsibility. Expansion and Latin Finance magazines each named HSBCMexico as Bank of the Year in 2006. In May, for the second consecutive year, HSBC Mexico received the SME Award from the Mexican Ministry of Economy in recognition of its outstanding support to small and medium business customers. "In the area of social responsibility, the Mexican Philanthropy Centre (CEMEFI)recognised HSBC Mexico with the Socially Responsible Company 2006 certification.Likewise, HSBC ranked first among all Mexican banks and fourth in Latin Americain the Sustainable and Ethical Banks in Latin America ranking published by LatinFinance magazine. "In HSBC we continue to strive towards being the leading financial servicescompany in Mexico. The combination of our extensive international network, theHSBC brand and the sharing of global practices, along with local productknowledge and expertise has been a powerful impulse to deliver solid results inMexico." Overview For the year ended 31 December 2006, Grupo Financiero HSBC's net income ofMXN5,365 million was MXN416 million, or 8.4 per cent, higher than the sameperiod in 2005. These results were largely due to strong performances in thebank and insurance subsidiaries, although they were partly offset by higher loanimpairment charges in line with the provisioning requirements under Mexicanregulatory rules to cover the significant loan growth. Net interest income (excluding monetary position) was up by MXN2,235 million to MXN17,758 million for the year ended 31 December 2006, a 14.4 per cent increasecompared to the same period in 2005. This was despite a significant reduction in interest rates of 210 basis points negatively impacting spreads on HSBC Mexico's large base of low-cost customer deposits. The increase in net interestincome reflects a solid performance in loans, concentrated in higher-yielding credit card lending and small-and medium-sized business (SME) products, as well as robust growth in low-cost customer deposits. In particular, credit card balances more than doubled versus the previous year, leading to a 2.3 per cent increase in market share of balances outstanding to reach 7.2 per cent at December 2006. Net fees and commissions grew strongly, increasing by MXN1,310 million, or 17.2per cent, compared to the same period in 2005, reaching MXN8,933 million for theyear ended 31 December 2006. These positive results were mainly driven byincreased contributions from packaged products with a monthly membership fee (TuCuenta and Estimulo), credit card, mortgage, point of sale, mutual fund andtrade services fees. Trading income was up 43.9 per cent to MXN2,049 millionover the same period of the previous year, reflecting the bank's successfulstrategic positioning, increased volumes in the retail foreign exchange marketand the addition of new and more sophisticated products to better serve ourclients' needs. Administrative expenses grew 8.8 per cent compared to the same period in 2005,reaching MXN17,418 million for the year ended 31 December 2006. This increasereflects continued investment in the training and development of our employees,the introduction of a new dedicated mobile sales force and the continuedbuild-up of our ATM infrastructure. Loan impairment charges increased by MXN2,555 million, or 164.7 per cent,reaching MXN4,106 million for the year ended 31 December 2006. The increasereflects the growth of the portfolios in recent years and the higherprovisioning requirements under Mexican regulatory rules related to new consumerand commercial lending, particularly in credit cards and small and microbusiness loans. Credit card balances increased MXN7,390 million, or 108.4 percent, for the year ended 31 December 2006 versus the same period the previousyear, while small and micro business loan balances increased MXN2,494 million(83.4 per cent) and MXN3,272 million (385.4 per cent) respectively for the sameperiod. Impaired loans grew 21.5 per cent versus the previous year, in line with21.8 per cent growth in gross loans and advances to customers for the sameperiod. As a result, the ratio of impaired loans to total loans remained at 2.7per cent as at 31 December 2006, the same percentage as the previous year.Impairment allowances as a percentage of impaired loans was 156.9 per cent,compared to previous year's 167.9 per cent. The bank's capital adequacy ratioremains solid at 13.8 per cent, well above National Banking and SecuritiesCommission (CNBV) requirements. Results by customer segment During the fourth quarter of 2006, the bank's Personal Financial Services (PFS)business saw continued income growth due to higher balances in low-costdeposits, credit cards, mortgages, personal and payroll loans. At the end ofDecember 2006, PFS total customer loans increased 39.7 per cent versus theprevious year. In addition, there was higher fee and commission income from credit cards, theTu Cuenta packaged product with a monthly membership fee and ATMs. Strongperformance continues to be driven by the integrated financial services product,Tu Cuenta, which has reached one million accounts sold as of 31 December 2006.This product which has driven growth in low-cost deposits, features a 5 per centcredit card cash-back promotion and integrates financial services for a fixedmonthly fee. These services include credit and debit cards, checking account,access to investment funds, time and demand deposits and internet banking. Inaddition to the contribution of Tu Cuenta income, an increase in the number ofATMs, a larger customer base and important efforts made during the last year torelocate machines to more convenient areas have boosted the number oftransactions. The bank's Commercial Banking (CMB) customer loans were 34.6 per cent higherthan in 2005, primarily driven by strong demand in the rapidly growing realestate and residential construction sectors and continued growth in the smalland micro business sector. Full year 2006 fee income rose by 27 per cent largelyresulting from increased cross sales activity with card acquiring, ATMs,internet banking and payments and cash management (PCM) services. Growth incustomer numbers led to higher transactional volumes and this, combined with anexpanded and improved product offering, increased marketing activity andre-pricing initiatives, led to a 41 per cent rise in income from payments andcash management services. The Estimulo product offering, comprising of a packaged suite of seven differentproducts including a loan facility, continued to perform well with fee incomemore than tripling versus the previous year. During the third quarter, a similarproduct, Estimulo Empresarial, was launched, targeting upper end SME customers.This product encompasses a suite of 11 different services and since itsintroduction more than 165 new clients have been acquired, generating MXN543million in new loans. HSBC's share of the trade services market continued togrow as enhanced systems, new products and improvements made to existing ones,led to higher levels of cross-selling activity among the various trade servicesproducts. During the year, the international factoring and domestic invoicingpayment services were successfully piloted and marketed to existing clients. In Corporate, Investment Banking and Markets (CIBM), the Corporate bankcontinued to increase profitability while strengthening its market position. InGlobal Markets, profits were below 2005 levels as balance sheet managementrevenues were constrained by a flattening of the interest rate curve andrelatively stable market conditions. However, the Global Markets businessincreased its participation in the derivatives market as it has incorporated newand more sophisticated product offerings. This, combined with solid clientrelationships and HSBC's global reach, helped Global Markets increase itspresence in the money and capital markets. Higher payments and cash managementfees were driven by a wider product offering, particularly through e-channels,intensive marketing campaigns and the leveraging of established credit-relatedproducts and services. Trading had a strong year with an increase of 43.9 percent versus previous year, largely due to successful positioning, larger retailforeign exchange volumes, the addition of new products (currency swaps andinterest rate options) and the resulting increased focus on the derivativesmarket. About HSBC Grupo Financiero HSBC, S.A. de C.V. is Mexico's fourth largest banking andfinancial services institution with 1,348 branches, 5,437 ATMs, 6.5 millioncustomers and more than 23,000 employees. For more information, consult ourwebsite at www.hsbc.com.mx. Grupo Financiero HSBC, S.A. de C.V. is a 99.99 per cent directly ownedsubsidiary of HSBC Holdings plc. Headquartered in London, UK, the HSBC Groupserves over 125 million customers worldwide through 9,500 offices in 81countries and territories in Europe, the Asia-Pacific region, the Americas, theMiddle East and Africa. With assets of US$1,738 billion at 30 June 2006, HSBC isone of the world's largest banking and financial services organisations. Withlistings on the London, Hong Kong, New York, Paris and Bermuda stock exchanges,shares in HSBC Holdings plc are held by nearly 200,000 shareholders in some 100countries and territories. HSBC is marketed worldwide as 'the world's localbank'. Consolidated Balance Sheet GROUP BANKFigures in MXN millions 31 Dec 31 Dec 31 Dec 31 Dec 2006 2005 2006 2005Assets Cash and deposits in banks 55,081 57,593 55,080 53,157 Investment in securities 57,097 59,330 56,061 57,834 Trading securities 12,627 7,234 11,591 6,863 Available for sale securities 40,471 47,937 40,471 46,812 Held to maturity securities 3,999 4,159 3,999 4,159 Securities and derivative operations 235 592 230 596 Repurchase agreements 69 194 64 198 Derivative transactions 166 398 166 398 Performing loans Commercial loans 58,112 47,655 58,112 42,429 Loans to financial intermediaries 5,973 7,183 5,973 7,080 Consumer loans 35,477 26,729 35,477 24,952 Mortgage loans 20,565 20,936 20,565 15,956 Loans to government entities 37,217 37,668 37,217 37,668 Loans to Fobaproa or IPAB - 1,142 - 1,142Total performing loans 157,344 141,313 157,344 129,227Impaired loans Commercial loans 1,540 1,737 1,540 1,691 Consumer loans 1,667 851 1,667 840 Mortgage loans 1,103 1,064 1,103 994 Immediate collection, remittances and other 10 29 10 29Total impaired loans 4,320 3,681 4,320 3,554Gross loans and advances to customers 161,664 144,994 161,664 132,781 Allowance for loan losses (6,776) (6,143) (6,776) (5,968)Net loans and advances to customers 154,888 138,851 154,888 126,813Other accounts receivable 10,924 15,852 10,803 15,290Foreclosed assets 53 410 53 369Property, furniture and equipment, net 6,094 5,703 6,080 5,458Long-term investments in equity securities 2,642 2,338 185 204Deferred taxes - 778 - 644Goodwill 2,648 3,374 - -Other assets, deferred charges and intangibles 603 1,753 587 1,525Total assets 290,265 286,574 283,967 261,890 GROUP BANKFigures in MXN millions 31 Dec 31 Dec 31 Dec 31 DecLiabilities 2006 2005 2006 2005 Deposits 219,051 221,154 220,640 204,749 Demand deposits 133,735 130,738 135,324 123,757 Time deposits 81,074 90,416 81,074 80,992 Bonds 4,242 - 4,242 - Bank deposits and other liabilities 12,962 7,253 12,962 7,183 On demand 100 - 100 - Short-term 10,621 5,038 10,621 4,934 Long-term 2,241 2,215 2,241 2,249 Securities and derivative transactions 6,320 4,689 6,315 4,694 Repurchase agreements 54 118 49 123 Loans with collateral 6,266 4,571 6,266 4,571 Other accounts payable 16,815 23,914 16,660 22,819 Income tax and employee profit sharing payable 1,052 1,352 1,022 1,250 Sundry creditors and others accounts payable 15,763 22,562 15,638 21,569 Subordinated debentures outstanding 2,206 2,686 2,206 2,299 Deferred taxes 556 - 607 - Deferred credits 19 21 19 16 Total liabilities 257,929 259,717 259,409 241,760 Equity Paid in capital 20,680 20,680 13,038 13,038 Capital stock 7,909 7,909 3,930 3,930 Additional paid in capital 12,771 12,771 9,108 9,108 Other reserves 11,654 6,175 11,519 7,091 Capital reserves 843 661 9,148 4,774 Retained earnings 12,886 7,957 - - Result from the mark-to-market of available-for-sale securities - - 303 280Result from translation of foreign operations - (7) - 12Cumulative effect of restatement (3,843) (3,843) (3,490) (3,502)Gains on non-monetary asset valuation Valuation of fixed assets - - 1,297 1,297 Valuation of permanent investments (3,759) (3,781) (152) (144) Net income 5,527 5,188 4,413 4,374Minority interest in capital 2 2 1 1Total equity 32,336 26,857 24,558 20,130Total liabilities and equity 290,265 286,574 283,967 261,890 GROUPFigures in MXN millions 31 Dec 31 Dec 2006 2005 Memorandum Accounts Transactions on behalf of third parties 108,828 89,595 Customer current accounts 26 1 Settlement of customer securities and documents 26 1Customer securities 84,353 69,515 Customer securities in custody 84,347 68,322 Pledged customers securities and documents 6 1,193Transactions on behalf of customers 2,485 2,511 Customer repurchase transactions 2,485 2,511Other transactions on behalf of customers 21,964 17,568 Investment on behalf of customers, net 21,964 17,568Other memorandums accounts 344,211 501,525 Investment of the SAR funds 3,540 3,429 Integrated loan portfolio 168,049 136,759 Other memorandum accounts 172,622 361,337 Transactions for the Group's own accounts 873,702 353,735 Accounts for the Group's own registry 873,687 353,658 Guarantees granted 50 59 Irrevocable lines of credit granted 6,334 3,918 Goods in trust or mandate 93,128 70,590 Goods in custody or under administration 111,997 59,307 Amounts committed in transactions with Fobaproa 156 128 Amounts contracted in derivative operations 657,957 214,487 Securities in custody 3,941 4,152 Other contingent obligations 124 1,017 Repurchase/resale agreements Securities receivable under repos 49,854 46,284 (less) Repurchase agreements (49,843) (46,300) 11 (16) Reverse repurchase agreements 3,016 16,607 (less) Securities deliverable under repos (3,012) (16,515) 4 92 BANKFigures in MXN millions 31 Dec 31 Dec 2006 2005 Memorandum Accounts Guarantees granted 50 59Other contingent obligations 124 1,017Irrevocable lines of credit granted 6,334 3,918Goods in trust or mandate 93,128 70,590Goods in custody or under administration 111,997 59,307Third party investment banking operations, net 21,964 17,568Amounts committed in transactions with Fobaproa 156 128Amounts contracted in derivative operations 657,957 214,487Investments of retirement savings system funds 3,540 3,429Integrated loan portfolio 168,049 136,759Other control accounts 172,622 361,336 1,235,921 868,598 Securities receivable under repos 47,373 43,753(less) Repurchase agreements (47,358) (43,767) 15 (14) Reverse repurchase agreements 532 14,074(less) Securities deliverable under repos (532) (13,985) - 89 Consolidated Income Statement Figures in MXN millions GROUP BANK 31 Dec 31 Dec 31 Dec 31 Dec 2006 2005 2006 2005 Interest income 27,872 27,447 27,019 26,381Interest expense (9,681) (11,287) (9,346) (10,902)Monetary position (margin), net (1,022) (334) (937) (251)Net interest income 17,169 15,826 16,736 15,228 Loan impairment charges (4,137) (1,562) (4,106) (1,551)Risk adjusted net interest income 13,032 14,264 12,630 13,677 Fees and commissions receivable 10,171 8,786 9,253 7,879 Fees payable (1,092) (955) (1,065) (915) Trading income 2,049 1,420 2,043 1,412 Total operating income 24,160 23,515 22,861 22,053 Administrative and personnel expenses (17,746) (16,489) (16,832) (15,310) Net operating income 6,414 7,026 6,029 6,743 Other income 2,129 1,557 2,067 1,567Other expenses (1,068) (1,063) (1,044) (1,035)Net income before taxes 7,475 7,520 7,052 7,275 Income tax and employee profit sharing tax (1,521) (1,553) (1,434) (1,441) Deferred income tax (1,235) (1,403) (1,203) (1,397)Net income before subsidiaries 4,719 4,564 4,415 4,437 Undistributed income from subsidiaries 808 704 (2) 17Income from ongoing operations 5,527 5,268 4,413 4,454 Discontinued and extraordinary operations, and changes in accounting policies, net - (80) - (80) Net income 5,527 5,188 4,413 4,374 Statement of Changes in Shareholder's Equity GROUP Figures in MXN millions Deficit in Result from restatement foreign of stock Capital Capital Retained currency holders' Net Minority Total contributed reserves earnings transactions equity income interest equity Balances at 31 Dec 05 20,680 661 7,957 (7) (7,624) 5,188 2 26,857 Movements inherent to the shareholder's decision Capitalisation of retained earnings - - 5,188 - - (5,188) - - Other movements - 182 (259) - - - - (77)Total - 182 4,929 - - (5,188) - (77) Movements for the recognition of the comprehensive income Net income - - - - - 5,527 - 5,527 Result from foreign currency transactions - - - 7 - - - 7Gains on non-monetary asset valuation - - - - 22 - - 22Total - - - 7 22 5,527 - 5,556 Balances at 31 Dec 06 20,680 843 12,886 - (7,602) 5,527 2 32,336 BANK Figures in MXN millions Result from Result Deficit in valuation of from restatement available-for foreign of stock Capital Capital Retained sale currency holders' Net Minority Total contributed reserves earnings securities transactions equity income interest equity Balances at 31 Dec 05 13,038 4,774 - 280 12 (2,349) 4,374 1 20,130 Movements inherent to the shareholder's decision Transfer of result of prior years - - 4,374 - - - (4,374) - - Other movements - 4,374 (4,374) - - - - - -Total - 4,374 - - - - (4,374) - - Movements for the recognition of the comprehensive income Net income - - - - - - 4,413 - 4,413Result from valuation of available for sale securities - - - 23 - - - - 23 Cumulative effect of restatement - - - - - 12 - - 12Others - - - - (12) (8) - - (20)Total - - - 23 (12) 5 4,413 - 4,428 Balances at 31 Dec 06 13,038 9,148 - 303 - (2,345) 4,413 1 24,558 Consolidated Statement of Changes in Financial Position GROUP Figures in MXN millions 31 Dec 31 Dec 2006 2005Operating activities:Net income 5,527 5,188Items included in operations not requiring(providing) funds:Result from mark-to-market valuations (617) (285)Allowances for loan losses 4,137 1,562Depreciation and amortisation 870 885Deferred taxes 1,235 1,402Undistributed income from subsidiaries, net (808) (704)Value loss estimation for foreclosed assets 242 55Total operating items not requiring funds 10,586 8,103 Changes in items related to operations:Increase / (decrease) in retail deposit and money desk (2,103) 28,264(Increase) in loan portfolio (20,174) (20,664)Decrease in securities and derivative transactions, net 2,600 4,171Decrease / (increase) in financial instruments 2,238 (9,521)(Decrease) / (increase) in other receivable and payable accounts, net (296) 1,651Funds provided by operating activities (7,149) 12,004 Financing activities:Increase / (decrease) in bank deposits and other liabilities 5,709 (2,376)Subordinated debentures outstanding (480) (100)Funds used or provided in financing activities 5,229 (2,476) Investing activities:Decrease/(increase) in property, furniture and equipment, net (804) (1,224)Decrease/(increase) in deferred charges or credits, net 97 120Decrease in foreclosed assets 115 120Funds used in investing activities (592) (984)(Decrease)/increase in cash and equivalents (2,512) 8,544Cash and equivalents at beginning of period 57,593 49,049Cash and equivalents at end of period 55,081 57,593 BANK Figures in MXN millions 31 Dec 31 Dec 2006 2005Operating activities:Net income 4,413 4,374Items included in operations not requiring (providing) funds:Result from mark to market valuations (627) (281)Allowance for loan losses 4,106 1,551Depreciation and amortisation 848 855Deferred taxes 1,203 1,397Undistributed income from subsidiaries, net 2 (17)Value loss estimation for foreclosed assets 242 55Total operating items not requiring funds 10,187 7,934 Changes in operating accounts:Increase in retail deposit and money desk 15,891 23,096 (Increase) in loan portfolio (32,180) (17,870)Decrease in securities and derivative transactions, net 2,600 4,453Decrease/(increase) in financial instruments 1,810 (10,147)(Increase)/decrease in other receivable and payable accounts, net (737) 1,562Funds provided by operations (2,429) 9,028 Financing activities:Increase/(decrease) in bank deposits and other liabilities 5,779 (2,446)Subordinated debentures outstanding (92) (67)Capital - 1,707Funds used or provided by financing activities 5,687 (806) Investing activities:Decrease/(increase) in property, furniture and equipment, net (1,459) (1,910)Decrease/(increase) in deferred charges or credits, net 50 251Decrease in foreclosed assets 74 108Funds used in investing activities (1,335) (1,551)Increase in cash and equivalents 1,923 6,671Cash and equivalents at beginning of period 53,157 46,486Cash and equivalents at end of period 55,080 53,157 Differences between Mexican GAAP and International Financial Reporting Standards(IFRS) HSBC Holdings plc, the parent of Grupo Financiero HSBC S.A de C.V reports itsresults under International Financial Reporting Standards (IFRS). There followsa reconciliation of the results of Grupo Financiero HSBC S.A. de C.V fromMexican GAAP to IFRS for the years ended 31 December 2005 and 2006 and anexplanation of the key reconciling items. YTD YTD Figures in MXN millions 2006 2005 Grupo Financiero HSBC - Net Income Under Mexican GAAP 5,527 5,188 Inflation 838 287 Differences arising on the classification and valuation of hedging derivatives ^ - 72 Differences arising on the valuation of pensions and post retirement healthcare benefits ^ 190 82 Differences arising on acquisition costs relating to long-term investment contracts ^ (48) 121 Differences arising from the deferral of fees received and paid on the origination of loans (39) (65) Differences arising from the recognition and provisioning for loan impairments ^ 1,148 709 Differences arising from purchase accounting adjustments ^ 484 611 Exclusion of results from HSBC Panama ^ ^ (162) (236) Other differences in accounting principles ^ (238) 402 HSBC Mexico net income under IFRS 7,700 7,171US dollar equivalent (millions) 706 659Add back tax expense 3,266 2,880 HSBC Mexico profit before tax under IFRS 10,966 10,051US dollar equivalent (millions) 1,006 923 Exchange rate used for conversion 10.90 10.89 ^Impact shown net of taxes at 29 per cent and 30 per cent for 2006 and 2005respectively. ^ ^ Refers to 12 months of Panama for 2005 and 7 months for 2006, removed inorder to arrive at IFRS results for Mexico only. Summary of key differences between Grupo Financiero's results as reported underMexican GAAP and IFRS Inflation Mexican GAAPMexican GAAP Bulletin - 10 requires recognition of inflation on financialstatements to reflect the current purchasing power of the currency in which suchfinancial information is stated. IFRSIAS 29 'Financial Reporting in Hyperinflationary Economies' requires recognitionof inflation on financial statements only if the entity's functional currency isthe currency of a hyperinflationary economy. As Mexico's economy does not meetthe characteristics established in this standard to be considered ashyperinflationary, no inflationary effects are included for IFRS reporting. Hedge AccountingDifference on valuation arose on transition to IFRS due to financial instrumentsthat are designated as hedging instruments under Mexican GAAP that did notqualify under IFRS. This difference was taken to the income statement ontermination of the hedges in 2005. No further differences exist. Summary of key differences between Grupo Financiero's results as reported underMexican GAAP and IFRS (continued) Retirement benefits Mexican GAAPPost-retirement benefit liabilities are not recognized on the balance sheet. Theincome statement charge is based on contributions made to the schemes. IFRSObligations for defined benefit pension and post-retirement healthcare benefitsare recorded on the balance sheet and the income statement based on actuarialcalculations. Acquisition costs of long term investment contracts Mexican GAAPAll costs related to the acquisition of long-term investment contracts areexpensed as they are incurred. IFRSIncremental costs relating to the acquisition of long-term investment contractsare deferred and amortised over the expected life of the contract. However, adecrease in the expected life of a portfolio of contracts has led to acceleratedamortization in 2006. Fees paid and received on origination of loans Mexican GAAPAll fees and expenses received or paid on loan origination are recognized asthey are incurred. IFRSFees and expenses received or paid on origination of a loan that are directlyattributable to the origination of that loan are accounted for under theeffective interest rate method over the expected life of the loan. Loan impairment charges Mexican GAAPLoan impairment charges are calculated following the rules issued by the MexicanMinistry of Finance and the National Banking and Securities Commission. Suchrules establish authorized methodologies for determining the amount of provisionfor each type of loan. IFRSLoan loss provisions for collectively assessed loans are determined based on aroll-rate methodology reflecting history of losses for each category of loan,past due payments and collateral values. For individually assessed loans, loanloss provisions are calculated based on the discounted cash flow value of thecollateral. Purchase accounting adjustmentsThese arise from valuations made by HSBC on acquiring Grupo Financiero Bital inNovember 2002 on various assets and liabilities that differed from the valuationin the local Mexican GAAP books. Appendix A: Grupo Financiero HSBC, S.A. de C.V. (HBMX)Consolidated balance sheet on a like-for-like basis Figures in MXN millions Total Mexico Total Group ^ Panama Group 2006 2005 2005 2005Assets Cash and deposits in banks 55,081 53,160 4,433 57,593 Investments in securities 57,097 58,205 1,125 59,330 Trading securities 12,627 7,234 - 7,234 Available-for-sale-securities 40,471 46,812 1,125 47,937 Held to maturity securities 3,999 4,159 - 4,159 Securities and derivative operations 235 592 - 592 Repurchase agreements 69 194 - 194 Derivative transactions 166 398 - 398 Performing loans Commercial loans 58,112 42,429 5,226 47,655 Loans to financial intermediaries 5,973 7,080 103 7,183 Consumer loans 35,477 24,952 1,777 26,729 Mortgage loans 20,565 15,956 4,980 20,936 Loans to government entities 37,217 37,668 - 37,668 Loans to Fobaproa or IPAB - 1,142 - 1,142Total performing loans 157,344 129,227 12,086 141,313Impaired loans Commercial loans 1,540 1,691 46 1,737 Consumer loans 1,667 840 11 851 Mortgages loans 1,103 995 69 1,064 Immediate collection, remittances and other 10 29 - 29Total impaired loans 4,320 3,555 126 3,681Gross loans and advances to customers 161,664 132,782 12,212 144,994 Allowance for loan losses (6,776) (5,968) (175) (6,143)Net loans and advances to customers 154,888 126,814 12,037 138,851Other accounts receivable 10,924 15,739 113 15,852Foreclosed assets 53 369 41 410Property, furniture and equipment, net 6,094 5,467 236 5,703Long term investments in equity securities 2,642 2,338 - 2,338Deferred taxes - 738 40 778Goodwill 2,648 2,649 725 3,374Other assets, deferred charges and intangibles 603 1,546 207 1,753 Total assets 290,265 267,617 18,957 286,574 On 8 August 2006, HSBC Panama was sold by Grupo Financiero HSBC, S.A de C.V toHSBC Asia Holdings BV. Therefore, the balance sheet as at 31 December 2005 hasbeen restated to exclude HSBC Panama to compare on a like-for-like basis. Grupo Financiero HSBC, S.A. de C.V. (HBMX) Figures in MXN millions Total Total Group Mexico^ Panama Group 2006 2005 2005 2005Liabilities Deposits 219,051 204,747 16,407 221,154 Demand deposits 133,735 123,756 6,982 130,738 Time deposits 81,074 80,991 9,425 90,416 Bonds 4,242 - - - Bank deposits and other liabilities 12,962 7,183 70 7,253 On demand 100 - - - Short-term 10,621 4,968 70 5,038 Long-term 2,241 2,215 - 2,215 Securities and derivative transactions 6,320 4,689 - 4,689 Repurchase agreements 54 118 - 118 Loans with collateral 6,266 4,571 - 4,571 Other accounts payable 16,815 23,404 510 23,914 Income tax and employee profit sharing payable 1,052 1,266 86 1,352 Sundry creditors and others accounts payable 15,763 22,138 424 22,562 Subordinated debentures outstanding 2,206 2,299 387 2,686 Deferred tax 556 - - - Deferred credits 19 17 4 21 Total liabilities 257,929 242,339 17,378 259,717 Equity Paid in capital 20,680 19,400 1,280 20,680 Capital stock 7,909 6,629 1,280 7,909 Additional paid in capital 12,771 12,771 - 12,771 Other reserves 11,654 5,876 299 6,175 Capital reserves 843 661 - 661 Retained earnings 12,886 7,891 66 7,957 Result from translation of foreign operations - - (7) (7) Cumulative effect of restatement (3,843) (3,843) - (3,843) Gains on non monetary asset valuation Valuation of permanent investments (3,759) (3,781) - (3,781)Net income 5,527 4,948 240 5,188Minority interest in capital 2 2 - 2Total equity 32,336 25,278 1,579 26,857Total liabilities and equity 290,265 267,617 18,957 286,574 ^ On 8 August 2006, HSBC Panama was sold by Grupo Financiero HSBC, S.A de C.V toHSBC Asia Holdings BV. Therefore, the balance sheet as at 31 December 2005 hasbeen restated to exclude HSBC Panama to compare on a like for like basis. Grupo Financiero HSBC, S.A. de C.V. (HBMX)Consolidated income statement on a like-for-like basis Figures in MXN millions For the year ended 31 December Total Total Mexico^ Panama Group Mexico^ Panama Group 2006 2006 2006 2005 2005 2005 Interest income 27,147 725 27,872 26,505 942 27,447Interest expense (-) (9,389) (292) (9,681) (10,982) (305) (11,287)Monetary position (margin), net (1,017) (5) (1,022) (325) (9) (334) Net interest income 16,741 428 17,169 15,198 628 15,826 Loan impairment charges (-) (4,106) (31) (4,137) (1,551) (11) (1,562) Risk adjusted net interest income 12,635 397 13,032 13,647 617 14,264 Fees and commissions receivable 9,994 177 10,171 8,530 256 8,786 Fees payable (1,061) (31) (1,092) (907) (48) (955) Trading income 2,049 - 2,049 1,424 (4) 1,420 Total operating income 23,617 543 24,160 22,694 821 23,515 Administrative and personnel expenses (-) (17,418) (328) (17,746) (16,002) (487) (16,489) Net operating income 6,199 215 6,414 6,692 334 7,026 Other income 2,129 - 2,129 1,557 - 1,557Other expenses (-) (1,068) - (1,068) (1,058) (5) (1,063)Net income before taxes 7,260 215 7,475 7,191 329 7,520 Income tax and employee profit sharing (1,459) (62) (1,521) (1,463) (90) (1,553) Deferred income tax (1,244) 9 (1,235) (1,403) - (1,403)Net income before subsidiaries 4,557 162 4,719 4,325 239 4,564 Undistributed income from subsidiaries 808 - 808 704 - 704Income from ongoing operations 5,365 162 5,527 5,029 239 5,268Discontinued and extraordinary operations and changes in accounting policies, net - - - (80) - (80) Net income 5,365 162 5,527 4,949 239 5,188 ^ On 8 August 2006, HSBC Panama was sold by Grupo Financiero HSBC, S.A de C.V toHSBC Asia Holdings BV. Therefore, results for the year ended 31 December 2005have been restated to exclude 12 months results for HSBC Panama. Results for theyear ended 31 December 2006 have been restated to exclude results for HSBCPanama up until the date of disposal in order to compare on a like-for-likebasis. This information is provided by RNS The company news service from the London Stock Exchange