HSBC Holdings Regulatory News (HSBA)

6 Mar 2006 11:00

HSBC Holdings PLC06 March 2006 -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------------- FORM 8-K PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DATE OF REPORT: MARCH 6, 2006 --------------------- COMMISSION FILE NUMBER 1-8198 HSBC FINANCE CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 86-1052062 (STATE OF INCORPORATION) (IRS EMPLOYER IDENTIFICATION NUMBER) 2700 SANDERS ROAD, PROSPECT HEIGHTS, ILLINOIS 60070 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) (847) 564-5000 REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE Check the appropriate box below if the Form 8-K filing is intended tosimultaneously satisfy the filing obligation of the registrant under any of thefollowing provisions (see General Instruction A.2. below): ( ) Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) ( ) Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) ( ) Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) ( ) Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) -------------------------------------------------------------------------------- ITEM 7.01. REGULATION FD DISCLOSURE-------------------------------------------------------------------------------- Financial supplement pertaining to the financial results of HSBC FinanceCorporation for the six and twelve months ended December 31, 2005. Theinformation included in the financial supplement is presented on a managementbasis and an International Financial Reporting Standards ("IFRS") managementbasis. Management basis is a non-GAAP financial measure that eliminates mortgageand private label receivable transfers to HSBC Bank USA, N.A., an affiliate ofHSBC Finance Corporation, and related intercompany activities and assumes thatsecuritized receivables have not been sold and remain on our balance sheet. IFRSmanagement basis is a non-GAAP financial measure that represents managementbasis as adjusted using IFRS. This information shall not be deemed to be "filed" for the purposes of Section18 of the Securities Exchange Act of 1934, as amended (the Exchange Act), orotherwise incorporated by reference into any filing pursuant to the SecuritiesAct of 1933, as amended, or the Exchange Act except as otherwise expresslystated in such a filing. ITEM 9.01. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS-------------------------------------------------------------------------------- (a) Financial statements of businesses acquired. Not applicable. (b) Pro forma financial information. Not applicable. (c) Exhibits. NO. EXHIBIT--- -------99.. Financial supplement. SIGNATURE-------------------------------------------------------------------------------- Pursuant to the requirement of the Securities Exchange Act of 1934, theregistrant has duly caused this report to be signed on its behalf by theundersigned hereunto duly authorized. HSBC FINANCE CORPORATION (Registrant) By: /s/ Patrick D. Schwartz ------------------------------------ Patrick D. Schwartz Vice President-Deputy General Counsel-Corporate Dated: March 6, 2006 EXHIBIT 99-------------------------------------------------------------------------------- HSBC FINANCE CORPORATION SUPPLEMENT TO THE FORM 10-K FOR THE PERIOD ENDED DECEMBER 31, 2005 MARCH, 2006 (HSBC FOOTER) FORWARD LOOKING STATEMENTS-------------------------------------------------------------------------------- This document, and subsequent discussion, contains certain forward-lookinginformation with respect to the financial condition, results of operations andbusiness of HSBC Holdings plc and HSBC Finance Corporation. This informationrepresents expectations or beliefs concerning future events and is subject tounknown risks and uncertainties. This information speaks only as of the date onwhich it is provided. Additional detailed information concerning importantfactors that could cause actual results to differ materially is available in theHSBC Holdings plc Annual Report and HSBC Finance Corporation Annual Report onForm 10-K for the year ended December 31, 2005. (HSBC FOOTER) 2 BASIS OF REPORTING-------------------------------------------------------------------------------- - INTERNATIONAL FINANCIAL REPORTING STANDARDS ("IFRSS") Prior to January 1, 2005, HSBC Holdings plc ("HSBC") reported results on a U.K. GAAP basis. The European Union has determined that all European listed companies are required to prepare their consolidated financial statements using IFRSs by 2005. As a result, HSBC began reporting its financial results under IFRSs rather than U.K. GAAP with its release of interim financial results for the six months ended June 30, 2005. - MANAGED BASIS (a non-GAAP financial measure) assumes that securitized customer loans have not been sold and remain on our balance sheet. - MANAGEMENT BASIS In addition to managed basis reporting, we also monitor our operations and evaluate trends on a Management basis (a non-GAAP financial measure). Management basis reporting, in addition to the managed basis adjustments, assumes that the Mortgages and Private Label customer loans transferred to HSBC's U.S. banking subsidiary, HSBC Bank USA, N.A. ("HSBC Bank USA"), have not been sold and remain on the balance sheet. We also monitor our operations and evaluate trends on a management basis because the customer loan sales to HSBC Bank USA were conducted primarily to more appropriately fund prime customer loans within the HSBC Group and such customer loans continue to be managed and serviced by us without regard to ownership. Furthermore, we also review operating results and make decisions about allocating resources such as employees on a management basis. When reporting on a management basis, net interest income, fee income and loan impairment charges are adjusted to include the activity associated with these customer loans transferred to HSBC Bank USA. Gains on sales and the related servicing fees are eliminated. We believe that management basis information enables readers, investors and other interested parties to better understand the overall performance and related trends of our consumer finance business. Certain adjustments have been made to conform to the current period presentation. - IFRS MANAGEMENT BASIS (a non-GAAP financial measure) represents management basis plus IFRS adjustments. In this document, the term "customer loans" is synonymous to "receivables" in our U.S. GAAP financial statements. - INTERNATIONAL ACCOUNTING STANDARDS ("IAS") LITE MANAGEMENT BASIS excludes application of: IAS 32, "Financial Instruments: Disclosure and Presentation;" IAS 39, "Financial Instruments: Recognition and Measurement;" and IFRS 4, "Insurance Contracts." (HSBC FOOTER) 3 HSBC FINANCE CORPORATION - 2005 HIGHLIGHTSIFRS MANAGEMENT BASIS (A NON-GAAP MEASURE)-------------------------------------------------------------------------------- - Adjusted Profit up 13% on the second half of 2004 and 9% year-over-year - Customer loans grew 16% year-over-year, excluding Metris acquisition and UK loan sale - Major growth contributors were real estate secured, MasterCard/Visa,(1) and auto finance - Good organic growth - Completed Metris acquisition, adding $5.3 billion of customer loans, strengthening full spectrum lending capabilities - Strong expense management year-over-year - Expenses flat over 3 half years, December 2005, June 2005 and December 2004; average customer loans up 19% over the second half of 2004 and 9% over the first half of 2005 - Net interest margin compression consistent with current market environment - Higher funding costs more than offset re-pricing initiatives - Risk Adjusted Revenue ("RAR") was 6.1% at December 31, 2005 - Excluding estimates for bankruptcy legislation change and Hurricane Katrina ("Katrina") impacts, fourth quarter 2005 RAR was 6.5%, in line with third quarter 2005 and fourth quarter 2004 - Underlying credit results strong - Stronger analytics and improved collections complemented by favorable U.S. economy - Reflects growing mix of near-prime loans and shift to lower risk products and customers in real estate secured and auto finance - Impact of new U.S. bankruptcy legislation effective October 17, 2005 - Fourth quarter included an estimated $145 million of higher charge-offs, primarily in the MasterCard/Visa portfolio, substantially covered by existing allowances - $128 million of higher loan impairment charges in the fourth quarter to cover estimated secured and personal non-credit card charge-offs - Bankruptcy filings subsequent to legislation change have decreased dramatically - Some bankrupt charge-offs are an acceleration of charge-offs that would have otherwise occurred in future periods --------------- (1) MasterCard is a registered trademark of MasterCard International, Incorporated and Visa is a registered trademark of VISA USA, Inc. (HSBC FOOTER) 4 HSBC FINANCE CORPORATIONIFRS MANAGEMENT BASIS (A NON-GAAP MEASURE)-------------------------------------------------------------------------------- H2 05 H1 05 H2 04 IFRS IFRS(1) IAS LITE----------------------------------------------------------------------------------------- (MILLIONS $)Net Interest Income......................................... $5,650 $5,162 $5,613Other Operating Income...................................... 1,768 2,090 1,378 ------ ------ ------ Total Operating Income.................................... 7,418 7,252 6,991Loan Impairment Charges..................................... 2,880 2,321 2,847Loan Impairment Charges, Katrina related.................... 202 -- --Operating Expenses.......................................... 2,698 2,627 2,659 ------ ------ ------ Profit Before Tax......................................... 1,638 2,304 1,485Tax Expense................................................. 393 770 515 ------ ------ ------ Profit for the Period..................................... $1,245 $1,534 $ 970Adjustments, net of Tax Expense:Katrina impact.............................................. 139 -- --Gain on sale of U.K. loans.................................. (176) -- --FFIEC implementation charge................................. -- -- 98 ------ ------ ------ Adjusted Profit for the Period............................ $1,208 $1,534 $1,068 ====== ====== ======Cost Efficiency Ratio....................................... 36.4% 36.2% 38.0%Expenses/Average Customer Loans............................. 3.4% 3.7% 4.0% --------------- (1) The first half of 2005 net interest income and other income related to the adoption of IAS 39, fair value option, were adjusted to conform to the current period presentation. (HSBC FOOTER) 5 HSBC FINANCE CORPORATIONIFRS MANAGEMENT BASIS (A NON-GAAP MEASURE)-------------------------------------------------------------------------------- TWELVE MONTHS ENDED DECEMBER 31, -------------------- 2005 2004 IAS IFRS LITE---------------------------------------------------------------------------------- (MILLIONS $)Net Interest Income......................................... $10,812 $11,256Other Operating Income...................................... 3,858 2,787 ------- ------- Total Operating Income.................................... 14,670 14,043Loan Impairment Charges..................................... 5,201 5,345Loan Impairment Charges, Katrina related.................... 202 --Operating Expenses.......................................... 5,325 5,087 ------- ------- Profit Before Tax......................................... 3,942 3,611Tax Expense................................................. 1,163 1,204 ------- ------- Profit for the Period..................................... 2,779 2,407Adjustments, net of Tax Expense:Katrina impact.............................................. 139 --Gain on sale of U.K. loans.................................. (176) --FFIEC implementation charge................................. -- 98 ------- ------- Adjusted Profit for the Period............................ $ 2,742 $ 2,505 ======= =======Cost Efficiency Ratio....................................... 36.3% 36.2%Expenses/Average Customer Loans............................. 3.5% 4.0% (HSBC FOOTER) 6 HSBC FINANCE CORPORATIONKEY RATIOS - MANAGEMENT BASIS (A NON-GAAP MEASURE)(1)-------------------------------------------------------------------------------- (GRAPH) (1) Derived from U.S. GAAP reported results and adjusted to management basis as further described on page 3. (2) Excludes impact of initial FFIEC implementation. (3) Excluding the estimated impacts of Katrina and bankruptcy legislation change, fourth quarter 2005 RAR was 6.5% and ROMA was 1.3%. (4) Excludes mark-to-market on derivatives which do not qualify as effective hedges and ineffectiveness associated with qualifying hedges under SFAS No. 133. Third and fourth quarter 2005 ROMA include the impacts of Katrina and bankruptcy legislation change. (HSBC FOOTER) 7 HSBC FINANCE CORPORATIONCREDIT QUALITY - MANAGEMENT BASIS (A NON-GAAP MEASURE)(1)-------------------------------------------------------------------------------- (GRAPH) (1) Derived from U.S. GAAP reported results and adjusted to management basis as further described on page 3. For further information, see Credit Quality discussion in HSBC Finance Corporation's 2005 Annual Report on Form 10-K. (2) Fourth quarter 2004 charge-offs and RAR exclude the impact of initial FFIEC implementation. (3) Excluding the estimated impacts of Katrina and bankruptcy legislation change, fourth quarter 2005 RAR was 6.5% and charge-offs were 2.9%. (4) Excludes mark-to-market on derivatives which do not qualify as effective hedges and ineffectiveness associated with qualifying hedges under SFAS No. 133. (HSBC FOOTER) 8 HSBC FINANCE CORPORATIONIFRS MANAGEMENT BASIS (A NON-GAAP MEASURE)-------------------------------------------------------------------------------- CUSTOMER LOANS DEC 05 INCREASE/(DECREASE) -------------------- % -------------------- DEC 05 JUNE 05 DEC 04 JUNE 05 DEC 04---------------------------------------------------------------------------------------------------- (MILLIONS $)Branch Real Estate........................... $ 41,341 $ 39,081 $ 36,211 6% 14%Correspondent Real Estate.................... 46,020 38,049 33,804 21 36 -------- -------- -------- --- --- Real Estate Secured........................ 87,361 77,130 70,015 13 25MasterCard/Visa.............................. 25,819 22,192 22,225 16 16Private Label................................ 19,656 18,014 18,981 9 4Auto Finance................................. 11,911 10,838 10,237 10 16Personal Non-credit Card..................... 20,745 19,756 19,641 5 6Commercial and Other......................... 33 72 127 (54) (74) -------- -------- -------- --- --- Total Customer Loans(1).................... $165,525 $148,002 $141,226 12% 17% ======== ======== ======== === === --------------- (1) Excluding the Metris acquisition of $5,326 million and the UK card sale of $(3,142) million, total customer loan growth from June 2005 and December 2004 was 10% and 16%, respectively. (HSBC FOOTER) 9 HSBC FINANCE CORPORATION2005 BUSINESS UNIT HIGHLIGHTS-------------------------------------------------------------------------------- RETAIL BRANCH CHANNEL CORRESPONDENT/ (HFC/ BENEFICIAL) WHOLESALE CHANNEL - Continued strong loan growth - Continued strong real estate secured volumes - Real estate secured products up 14% year-over-year - Portfolio up 36% year-over-year ( ) Includes both near-prime and - Broadened distribution channels through subprime segments diversifying flow originators ( ) Junior liens a good source of growth - Expanded junior lien production - Unsecured loan growth driven by - Credit quality remains stable successful direct mail campaigns ( ) Good success in selling real estate secured loans to this growing base of new customers- Cross sell volume continues to expand - Auto loans and credit card sales in branches contribute to growth- Credit quality remains stable- Improving returns reflect pricing changes; tailoring pricing to better align with credit performance (HSBC FOOTER) 10 HSBC FINANCE CORPORATION 2005 BUSINESS UNIT HIGHLIGHTS-------------------------------------------------------------------------------- CREDIT CARD - Strong profits, solid organic loan and good operating income growth - Expanded net interest margin by growing non-prime book and repricing efforts - Strong growth in fee and other operating income due to growing portfolio and higher interchange fees - Underlying credit quality strong, absent bankruptcy legislation impact - Strong risk adjusted revenue contributed to higher ROMA - Acquired Metris with $5.3 billion of customer loans - Now ranked the fifth largest U.S. MasterCard/ Visa issuer (based on receivables), according to The Nilson Report - Impact of change in minimum payment guidelines being assessed PRIVATE LABEL- Growing commercial card capability including OfficeMax and Advanced Auto Parts - Continued strong merchant renewals; nine new retail merchants signed including The Neiman Marcus Group, Inc. and The Bon-Ton Stores, Inc. - Overall credit quality strong based on continued improvements in front-end underwriting tools and collections management - Impact of change in minimum payment guidelines being assessed (HSBC FOOTER) 11 HSBC FINANCE CORPORATION 2005 BUSINESS UNIT HIGHLIGHTS-------------------------------------------------------------------------------- AUTO - Strong organic growth, primarily in the near-prime portfolio - Receivable mix shift toward near-prime producing lower charge-offs and better risk adjusted revenues - Expanded distribution through direct to consumer, dealer and strategic alliance channels - Improved collections and active portfolio management INTERNATIONAL CANADA - Strong loan growth and strong profitability - Branch expansion contributed to strong growth in unsecured and real estate secured products - Growth initiatives in auto and credit card contributed favorably to results - Acquired Invis, one of Canada's largest mortgage brokers - Supplements growth of newly established centralized mortgage operation - Credit quality stable UK - Credit card business sold to HSBC Bank plc as part of integration and efficiency efforts - Focus remains on credit and loss mitigation in a continued challenging environment (HSBC FOOTER) 12 -------------------------------------------------------------------------------- APPENDIX (HSBC FOOTER) RECONCILIATION TO GAAP FINANCIAL MEASURESHSBC FINANCE CORPORATION INCOME STATEMENTIFRS MANAGEMENT BASIS SIX MONTHS ENDED 12/31/05 SIX MONTHS ENDED 6/30/05 --------------------------------- --------------------------------- IFRS IFRS MANAGEMENT IFRS MANAGEMENT IFRS OWNED BASIS MANAGEMENT OWNED BASIS MANAGEMENT BASIS ADJUSTMENTS BASIS BASIS ADJUSTMENTS BASIS---------------------------------------------------------------------------------------------------------- (DOLLARS ARE IN MILLIONS)Net interest income................ $4,461 $1,189 $5,650 $3,923 $1,239 $5,162Other operating income............. 2,245 (477) 1,768 2,586 (496) 2,090 ------ ------ ------ ------ ------ ------TOTAL OPERATING INCOME............. 6,706 712 7,418 6,509 743 7,252 ------ ------ ------ ------ ------ ------Loan impairment charges............ 2,491 389 2,880 1,872 449 2,321Loan impairment charges, Katrina related........................... 180 22 202 - - -Operating expenses................. 3,025 (327) 2,698 2,984 (357) 2,627 ------ ------ ------ ------ ------ ------Profit before tax.................. 1,010 628 1,638 1,653 651 2,304Tax expense........................ 336 57 393 555 215 770 ------ ------ ------ ------ ------ ------PROFIT FOR THE PERIOD.............. $ 674 $ 571 $1,245 $1,098 $ 436 $1,534 ====== ====== ====== ====== ====== ======Adjustments, net of tax expense:Katrina impact..................... - 139 139 - - -Gain on sale of private label receivables....................... - - - - - -Gain on sale of U.K. loans......... - (176) (176) - - -FFIEC implementation charge........ - - - - - - ------ ------ ------ ------ ------ ------ADJUSTED PROFIT FOR THE PERIOD..... $ 674 $ 534 $1,208 $1,098 $ 436 $1,534 ====== ====== ====== ====== ====== ======COST EFFICIENCY RATIO:Total operating expenses........... $3,025 $ (327) $2,698 $2,984 $ (357) $2,627Policyholders' benefits............ (218) 218 - (238) 238 - ------ ------ ------ ------ ------ ------Total operating expenses, excluding policyholders' benefits........... $2,807 $ (109) $2,698 $2,746 $ (119) $2,627 ------ ------ ------ ------ ------ ------Net interest income and other operating income.................. $6,706 $ 712 $7,418 $6,509 $ 743 $7,252Policyholders' benefits............ (218) 218 - (238) 238 - ------ ------ ------ ------ ------ ------Net interest income and other operating income, excluding policyholders' benefits........... $6,488 $ 930 $7,418 $6,271 $ 981 $7,252 ------ ------ ------ ------ ------ ------COST EFFICIENCY RATIO.............. 43.3% 36.4% 43.8% 36.2% ====== ====== ====== ======ADJUSTED PROFIT FOR THE PERIOD GROWTH: Profit for the period............. $ 674 $ 534 $1,208 $1,098 $ 436 $1,534 IFRS management basis profit for the period growth: 12/31/05 compared to 12/31/04..... 13% ====== SIX MONTHS ENDED 12/31/04 --------------------------------- IAS LITE MANAGEMENT IAS LITE OWNED BASIS MANAGEMENT BASIS ADJUSTMENTS BASIS----------------------------------- --------------------------------- (DOLLARS ARE IN MILLIONS)Net interest income................ $4,052 $1,561 $5,613Other operating income............. 2,798 (1,420) 1,378 ------ ------ ------TOTAL OPERATING INCOME............. 6,850 141 6,991 ------ ------ ------Loan impairment charges............ 2,409 438 2,847Loan impairment charges, Katrina related........................... - - -Operating expenses................. 2,870 (211) 2,659 ------ ------ ------Profit before tax.................. 1,571 (86) 1,485Tax expense........................ 534 (19) 515 ------ ------ ------PROFIT FOR THE PERIOD.............. $1,037 $ (67) $ 970 ====== ====== ======Adjustments, net of tax expense:Katrina impact..................... - - -Gain on sale of private label receivables....................... (423) 423 -Gain on sale of U.K. loans......... - - -FFIEC implementation charge........ 121 (23) 98 ------ ------ ------ADJUSTED PROFIT FOR THE PERIOD..... $ 735 $ 333 $1,068 ====== ====== ======COST EFFICIENCY RATIO:Total operating expenses........... $2,870 $ (211) $2,659Policyholders' benefits............ (206) 206 - ------ ------ ------Total operating expenses, excluding policyholders' benefits........... $2,664 $ (5) $2,659 ------ ------ ------Net interest income and other operating income.................. $6,850 $ 141 $6,991Policyholders' benefits............ (206) 206 - ------ ------ ------Net interest income and other operating income, excluding policyholders' benefits........... $6,644 $ 347 $6,991 ------ ------ ------COST EFFICIENCY RATIO.............. 40.1% 38.0% ====== ======ADJUSTED PROFIT FOR THE PERIOD GROWTH: Profit for the period............. $ 735 $ 333 $1,068 IFRS management basis profit for the period growth: 12/31/05 compared to 12/31/04..... (HSBC FOOTER) 1 RECONCILIATION TO GAAP FINANCIAL MEASURESHSBC FINANCE CORPORATION INCOME STATEMENTIFRS MANAGEMENT BASIS TWELVE MONTHS ENDED 12/31/05 Twelve Months Ended 12/31/04 ---------------------------------- ---------------------------------- IFRS IAS Lite MANAGEMENT IFRS MANAGEMENT IAS LITE OWNED BASIS MANAGEMENT OWNED BASIS MANAGEMENT BASIS ADJUSTMENTS BASIS BASIS ADJUSTMENTS BASIS----------------------------------------------------------------------------------------------------------------- (DOLLARS ARE IN MILLIONS)Net interest income..................... $ 8,384 $2,428 $10,812 $ 7,802 $ 3,454 $11,256Other operating income.................. 4,831 (973) 3,858 5,073 (2,286) 2,787 ------- ------ ------- ------- ------- -------TOTAL OPERATING INCOME.................. 13,215 1,455 14,670 12,875 1,168 14,043 ------- ------ ------- ------- ------- -------Loan impairment charges................. 4,363 838 5,201 4,334 1,011 5,345Loan impairment charges, Katrina related............................... 180 22 202 - - -Operating expenses...................... 6,009 (684) 5,325 5,601 (514) 5,087 ------- ------ ------- ------- ------- -------Profit before tax....................... 2,663 1,279 3,942 2,940 671 3,611Tax expense............................. 891 272 1,163 1,000 204 1,204 ------- ------ ------- ------- ------- -------PROFIT FOR THE PERIOD................... $ 1,772 $1,007 $ 2,779 $ 1,940 $ 467 $ 2,407 ======= ====== ======= ======= ======= =======Adjustments, net of tax expense:Katrina impact.......................... - 139 139 - - -Gain on sale of private label receivables........................... - - - (423) 423 -Gain on sale of U.K. loans.............. - (176) (176) - - -FFIEC implementation charge............. - - - 121 (23) 98 ------- ------ ------- ------- ------- -------ADJUSTED PROFIT FOR THE PERIOD.......... $ 1,772 $ 970 $ 2,742 $ 1,638 $ 867 $ 2,505 ======= ====== ======= ======= ======= =======COST EFFICIENCY RATIO:Total operating expenses................ $ 6,009 $ (684) $ 5,325 $ 5,601 $ (514) $ 5,087Policyholders' benefits................. (456) 456 - (412) 412 - ------- ------ ------- ------- ------- -------Total operating expenses, excluding policyholders' benefits............... $ 5,553 $ (228) $ 5,325 $ 5,189 $ (102) $ 5,087 ------- ------ ------- ------- ------- -------Net interest income and other operating income................................ $13,215 $1,455 $14,670 $12,875 $ 1,168 $14,043Policyholders' benefits................. (456) 456 - (412) 412 - ------- ------ ------- ------- ------- -------Net interest income and other operating income, excluding policyholders' benefits.............................. $12,759 $1,911 $14,670 $12,463 $ 1,580 $14,043 ------- ------ ------- ------- ------- -------COST EFFICIENCY RATIO................... 43.5% 36.3% 41.6% 36.2% ======= ======= ======= =======ADJUSTED PROFIT FOR THE PERIOD GROWTH: Profit for the period................. $ 1,772 $ 970 $ 2,742 $ 1,638 $ 867 $ 2,505 IFRS management basis profit for the period growth:...................... 9% ======= (HSBC FOOTER) 2 RECONCILIATION TO GAAP FINANCIAL MEASURESHSBC FINANCE CORPORATIONMANAGEMENT BASIS THREE MONTHS ENDED ------------------------------------- DECEMBER 31, 2005 DECEMBER 31, 2004--------------------------------------------------------------------------------------------------- (DOLLARS ARE IN MILLIONS)NET INTEREST INCOME:Net interest income: Owned basis............................................... $ 2,298 $ 2,083 Management basis adjustments.............................. 473 524 -------- -------- Management basis.......................................... $ 2,771 $ 2,607 -------- --------Adoption of FFIEC charge-off policies for domestic private label and MasterCard and Visa portfolios.................. - 57 -------- --------Management basis net interest income adjusted for FFIEC..... $ 2,771 $ 2,664 -------- --------Average interest-earning assets: Owned basis............................................... $138,788 $116,778 Managed basis adjustments................................. 5,757 18,602 Management basis adjustments.............................. 21,063 5,386 -------- -------- Management basis.......................................... $165,608 $140,766 -------- --------Owned basis net interest margin............................. 6.6% 7.1%Management basis net interest margin........................ 6.7 7.4Management basis net interest margin adjusted for FFIEC..... 6.7 7.6 ======== ========RETURN ON AVERAGE ASSETS:Profit for the period: Owned basis............................................... $ 393 $ 712 Management basis adjustments.............................. 53 (394) -------- -------- Management basis.......................................... $ 446 $ 318 -------- --------Adjusted profit for the period: Owned basis............................................... $ 393 $ 712 Management basis adjustments.............................. 53 (394) Derivative adjustments.................................... 25 (148) FFIEC implementation charge............................... - 121 -------- -------- Management basis adjusted for derivatives and FFIEC....... $ 471 $ 291 -------- -------- Katrina and bankruptcy legislation change................. 87 - -------- -------- Management basis adjusted for derivatives, FFIEC, Katrina and bankruptcy legislation change....................... $ 558 $ 291 -------- --------Average assets: Owned basis............................................... $150,644 $134,316 Management basis adjustments.............................. 26,741 23,896 -------- -------- Management basis.......................................... $177,385 $158,212 -------- --------Return on average owned assets.............................. 1.0% 2.1%Return on average management assets......................... 1.0 .8Return on average management assets, adjusted for derivatives and FFIEC..................................... 1.1 .7Return on average management assets, adjusted for derivatives, FFIEC, Katrina and bankruptcy legislation change.................................................... 1.3 .7 ======== ======== (HSBC FOOTER) 3RECONCILIATION TO GAAP FINANCIAL MEASURESHSBC FINANCE CORPORATIONMANAGEMENT BASIS THREE MONTHS ENDED ------------------------------------- DECEMBER 31, 2005 DECEMBER 31, 2004--------------------------------------------------------------------------------------------------- (DOLLARS ARE IN MILLIONS)MANAGED BASIS RISK ADJUSTED REVENUE:Net interest income......................................... $ 2,431 $ 2,551Other operating income, excluding securitization revenue and the mark-to-market on derivatives which do not qualify as effective hedges and ineffectiveness associated with qualifying hedges under SFAS No. 133...................... 1,193 1,786Less: Net charge-offs....................................... (1,163) (1,502) -------- --------Risk adjusted revenue....................................... $ 2,461 $ 2,835 -------- --------Gain on bulk sale of private label receivables.............. - (663)Adoption of FFIEC charge-off policies for domestic private label and MasterCard and Visa portfolios.................. - 309 -------- --------Managed basis risk adjusted revenue - adjusted for non-recurring items....................................... $ 2,461 $ 2,481 -------- --------Management basis adjustments:Net interest income......................................... $ 340 $ 56Other operating income, excluding securitization revenue and the mark-to-market on derivatives which do not qualify as effective hedges and ineffectiveness associated with qualifying hedges under SFAS No. 133...................... (86) (899)Less: Net charge-offs....................................... (179) (5) -------- --------Risk adjusted revenue, management basis adjustments......... $ 75 $ (848) -------- --------Gain on bulk sale of private label receivables.............. - 663Katrina and bankruptcy legislation change................... 165 - -------- --------Risk adjusted revenue, management basis adjustments - adjusted for non-recurring items, Katrina and bankruptcy legislation change......................... $ 240 $ (185) -------- --------Management basis:Net interest income......................................... $ 2,771 $ 2,607Other operating income, excluding securitization revenue and the mark-to-market on derivatives which do not qualify as effective hedges and ineffectiveness associated with qualifying hedges under SFAS No. 133...................... 1,107 887Less: Net charge-offs....................................... (1,342) (1,507) -------- --------Risk adjusted revenue, management basis..................... $ 2,536 $ 1,987 -------- --------Adoption of FFIEC charge-off policies for domestic private label and MasterCard and Visa portfolios.................. - 309Katrina and bankruptcy legislation change................... 165 - -------- --------Management basis risk adjusted revenue - adjusted for non-recurring items, Katrina and bankruptcy legislation change.................................................... $ 2,701 $ 2,296 -------- --------Average interest-earning assets: Managed basis............................................. $144,545 $135,380 Management basis adjustments.............................. 21,063 5,386 -------- -------- Management basis.......................................... $165,608 $140,766 -------- --------Managed basis risk adjusted revenue......................... 6.8% 8.4%Management basis risk adjusted revenue...................... 6.1 5.6Managed basis risk adjusted revenue - adjusted for non-recurring items....................................... 6.8 7.3Management basis risk adjusted revenue - adjusted for non-recurring items, Katrina and bankruptcy legislation change.................................................... 6.5 6.5 ======== ======== (HSBC FOOTER) 4RECONCILIATION TO GAAP FINANCIAL MEASURESHSBC FINANCE CORPORATIONMANAGEMENT BASIS THREE MONTHS ENDED ------------------------------------- DECEMBER 31, 2005 DECEMBER 31, 2004--------------------------------------------------------------------------------------------------- (DOLLARS ARE IN MILLIONS)CONSUMER NET CHARGE-OFF RATIO:Consumer net charge-offs: Owned basis............................................... $ 1,044 $ 1,127 Management basis adjustments.............................. 298 380 -------- -------- Management basis.......................................... $ 1,342 $ 1,507 -------- --------Adoption of FFIEC charge-off policies for domestic private label and MasterCard and Visa portfolios.................. - (202) -------- --------Management basis consumer net charge-offs - adjusted for FFIEC..................................................... $ 1,342 $ 1,305 -------- --------Katrina and bankruptcy legislation change................... (155) - -------- --------Management basis consumer net charge-offs - adjusted for FFIEC, Katrina and bankruptcy legislation change.......... $ 1,187 $ 1,305 -------- --------Average consumer receivables: Owned basis............................................... $134,647 $111,691 Management basis adjustments.............................. 26,817 23,993 -------- -------- Management basis.......................................... $161,464 $135,684 -------- --------Adoption of FFIEC charge-off policies for domestic private label and MasterCard and Visa portfolios.................. - 53 -------- --------Management basis average consumer receivables - adjusted for FFIEC..................................................... $161,464 $135,737 -------- --------Owned basis consumer net charge-off ratio................... 3.1% 4.0%Management basis consumer net charge-off ratio.............. 3.3 4.4Management basis consumer net charge-off ratio - adjusted for FFIEC................................................. 3.3 3.8Management basis consumer net charge-off ratio - adjusted for FFIEC, Katrina and bankruptcy legislation change...... 2.9 3.8 ======== ========TWO-MONTHS-AND-OVER CONTRACTUAL DELINQUENCY RATIO:Consumer 2+ delinquency: Owned basis............................................... $ 5,366 $ 4,333 Management basis adjustments.............................. 725 1,246 -------- -------- Management basis.......................................... $ 6,091 $ 5,579 -------- --------Consumer receivables: Owned basis............................................... $139,726 $106,564 Management basis adjustments.............................. 25,722 34,777 -------- -------- Management basis.......................................... $165,448 $141,341 -------- --------Owned basis consumer 2+ delinquency ratio................... 3.8% 4.1%Management basis consumer 2+ delinquency ratio.............. 3.7 4.0 ======== ======== (HSBC FOOTER) 5 RECONCILIATION TO GAAP FINANCIAL MEASURESHSBC FINANCE CORPORATIONIFRS MANAGEMENT BASIS AS AT DECEMBER 31, 2005 AS AT JUNE 30, 2005 ----------------------------------- ----------------------------------- IFRS IFRS MANAGEMENT IFRS MANAGEMENT IFRS OWNED BASIS MANAGEMENT OWNED BASIS MANAGEMENT BASIS ADJUSTMENTS BASIS BASIS ADJUSTMENTS BASIS-------------------------------------------------------------------------------------------------- (DOLLARS ARE IN MILLIONS)CUSTOMER LOANSBranch real estate..... $ 41,270 $ 71 $ 41,341 $ 39,091 $ (10) $ 39,081Correspondent real estate............... 41,556 4,464 46,020 32,839 5,210 38,049 -------- ------- -------- -------- ------- -------- Real estate secured............ 82,826 4,535 87,361 71,930 5,200 77,130MasterCard/Visa(1)..... 24,110 1,709 25,819 17,421 4,771 22,192Private label.......... 2,520 17,136 19,656 2,905 15,109 18,014Auto finance........... 10,704 1,207 11,911 8,997 1,841 10,838Personal non-credit card................. 19,545 1,200 20,745 17,255 2,501 19,756Commercial and other... 208 (175) 33 253 (181) 72 -------- ------- -------- -------- ------- --------TOTAL CUSTOMER LOANS... $139,913 $25,612 $165,525 $118,761 $29,241 $148,002 ======== ======= ======== ======== ======= ======== AS AT DECEMBER 31, 2004 ----------------------------------- IAS LITE MANAGEMENT IAS LITE OWNED BASIS MANAGEMENT BASIS ADJUSTMENTS BASIS----------------------- ----------------------------------- (DOLLARS ARE IN MILLIONS)CUSTOMER LOANSBranch real estate..... $ 36,117 $ 94 $ 36,211Correspondent real estate............... 28,703 5,101 33,804 -------- ------- -------- Real estate secured............ 64,820 5,195 70,015MasterCard/Visa(1)..... 14,635 7,590 22,225Private label.......... 3,411 15,570 18,981Auto finance........... 7,544 2,693 10,237Personal non-credit card................. 16,128 3,513 19,641Commercial and other... 317 (190) 127 -------- ------- --------TOTAL CUSTOMER LOANS... $106,855 $34,371 $141,226 ======== ======= ======== --------------- (1) MasterCard is a registered trademark of MasterCard International, Incorporated and Visa is a registered trademark of VISA USA, Inc. (HSBC FOOTER) 6 This information is provided by RNS The company news service from the London Stock Exchange