HSBC Holdings Regulatory News (HSBA)

31 Jul 2006 09:15

HSBC Holdings PLC31 July 2006 Real momentum in Corporate, Investment Banking and Markets In the first half of 2006 we moved from the build phase in this business intofull execution mode. Our overall investment spend was considerably lower and,most encouragingly, cost growth was largely in performance-related expenses asrevenue growth accelerated. The results are clear. Pre-tax profit rose 37 per cent, compared to the firsthalf of 2005. In the first half of 2005 net operating income was broadlyunchanged on the first half of 2004 while costs rose by some US$650 million. Inthe first half of 2006 net operating revenues grew by US$1,368 million, whilecost growth, largely in performance-related pay and the volume-driven businessesin Global Transaction Banking, was US$429 million. This translated into apositive gap between revenue growth and cost growth of 12 per cent. Under the leadership of Stuart Gulliver, we restructured the business into fourprincipal product lines: Global Markets, Global Banking, Group InvestmentBusinesses and Global Transaction Banking. Whilst financial performance remains somewhat constrained, due to the continuingimpact on balance sheet management revenues of the flat interest rate yieldcurves in major currencies, this is more than offset by strong growth in salesand trading revenues and in transactional banking revenues. All elements of the Global Markets business developed strongly in 2006 and pastinvestment in structured derivatives, asset-backed securities, equity and equityderivative products and fixed income capabilities paid off. Our share ofinternational bond issuance rose, placing HSBC fourth in global market share. We captured a growing number of headline investment banking deal positions,including four of the five largest deals announced during the period in Europe,where our ability to offer a combination of financing, structuring, hedging andadvice gave a strong competitive edge. Group Investment Businesses also delivered a record result across its broadrange of activities, boosted by exceptional performance fees in emerging marketfunds and higher assets under management in emerging markets. Global Transaction Banking had another record period, primarily driven by stronggrowth in emerging markets, and the beneficial effect of the higher interestrate environment on larger balances. Building one of the world's leading Private Banks The transformation of our Private Banking business has been one of the greatsuccesses in HSBC. In just a few years, the private banking arms of the variousGroup entities have been knitted together into one global proposition for ourhigh net worth customers. We rebranded as HSBC Private Bank in 2004 and a measure of our success is thatpre-tax profits of US$600 million in the first half of 2006 have more thandoubled over the past three years. We have succeeded by extending the product range available to customers, inparticular in the area of alternative investments, and by adding capabilitiesrelevant to our wealthiest customers in the areas of residential propertyadvice, trust and tax advice. Client assets increased by 22 per cent to US$305 billion, benefiting from netnew money of US$18.6 billion in the first half of 2006. Again we are managingthe business in a more joined-up way, with increasing cross-referrals from thewider Group contributing some US$2.9 billion of net new money. Regionalexpansion within the UK and France, as well as a good start from the recentlylaunched onshore operations in Dubai and India, have established a solidfoundation for further growth. The credit environment The generally benign credit environment has been driven by continuing strongglobal growth, stable employment patterns in major economies, modestinflationary pressures and good liquidity, which have kept asset prices - mostimportantly residential real estate values - high. There is now evidence of slowing residential housing markets, particularly inthe US. The consequent effect on future price appreciation, together with theimpact of higher interest rates on adjustable rate mortgages that reach resetdates, will put pressure on some borrowers. Although overall retail creditexperience in the US has been favourable in the first half of 2006, we began tosee some deterioration in certain segments amongst recent mortgage originations.We are taking action to mitigate the potential effects. In the UK, the unsecured personal sector again contributed the major portion ofthe impairment charge in the period, largely as a result of rising bankruptcyfilings and individual voluntary arrangements. Although the charge wasconsiderably higher than the first half of 2005, it was in line with thatincurred in the second half of last year. We are seeing an improvement in thecredit quality of more recent originations. Excessive consumer indebtedness is increasingly an issue in the public domain.Banks have an obligation here. We were the first major UK bank to share positivecredit information, and we have deliberately reduced our market share ofunsecured lending in the UK. In the first half of 2006, we have seen public policy interventions in a numberof countries, both emerging and developed. It is clearly in everyone's interestto ensure regulation targets individuals who need support and does so withoutcausing unintended consequences, as we have seen in several countries. Outlook The world economy remains fundamentally strong. China continues to grow at anintense pace, attracting huge investment flows and providing a massiveopportunity for the world's exporters. During the first half of 2006, the Federal Reserve in the US continued toincrease interest rates and was followed by many other central banks. Consumersare experiencing significantly higher energy prices. Concerns about inflationpersist although there is little evidence of any significant pick-up in eitherwages or inflationary expectations. We remain alert, however, to the possibilitythat these factors, together with slowing housing markets, may constraineconomic growth. The apparent collapse of the Doha round of the WTO is disappointing. Overall, webelieve that trade liberalisation is a force for good in terms of economicdevelopment, which is intimately related to people's wellbeing. We are concernedby signs that the world is heading towards a more protectionist trading system,when in fact we should be moving in the other direction. In any event, we will continue to position HSBC to take best advantage of thechanging nature of the world's economy. We have a unique set of franchisesaround the world: well over 100 million customers in more than 200 countries andoperations in 76 economies. Our diversification combined with our strong capitalposition is a crucial strength. We believe that we are well positioned to take advantage of opportunities asthey arise. Indeed, earlier this month we announced an agreement to acquireGrupo Banistmo, the leading banking group in Central America. This will improveour franchise in Panama and extend it to Costa Rica, Honduras, Colombia,Nicaragua and El Salvador. We aspire to be the number one brand in financial services. Customer experiencewill remain a key driver of our success in achieving this, so we will focusrelentlessly on improving the quality of that experience. Technology will playan increasingly important role in this. However, at its heart, banking is a people business, and our people will be atthe forefront of our success. Engaging our 280,000 colleagues is critical to thedelivery of our strategy, and with well over 100,000 participants, we believethat HSBC has one of the largest employee bases in the world with an interest intheir company's shares. It is the talent and dedication of the HSBC team aroundthe world that will secure success for our people, our customers and ourshareholders. Financial Overview 30Jun05 31Dec05 Half-year to 30Jun06 US$m US$m US$m £m HK$m For the half-year 10,640 10,326 Profit before tax 12,517 6,997 97,107 Profit attributable to shareholders of the parent 7,596 7,485 company 8,729 4,880 67,720 4,575 3,175 Dividends 5,263 2,942 40,830 At period-end 86,713 92,432 Total shareholders' equity 101,381 54,949 787,426 101,722 105,449 Capital resources 116,636 63,217 905,912 Customer accounts and 812,211 809,146 deposits by banks 916,881 496,949 7,121,4151,466,810 1,501,970 Total assets 1,738,138 942,071 13,500,118 794,834 827,164 Risk-weighted assets 872,893 473,108 6,779,760 US$ US$ Per ordinary share US$ £ HK$ 0.69 0.67 Basic earnings 0.78 0.44 6.05 0.68 0.67 Diluted earnings 0.77 0.43 5.97 0.41 0.28 Dividends^ 0.46 0.26 3.57 Net asset value at the 7.73 8.03 period-end 8.71 4.72 67.65 Share information US$0.50 ordinary shares in 11,222m 11,334m issue 11,481m US$179bn US$182bn Market capitalisation US$202bn Closing market price per £8.90 £9.33 ordinary share £9.52 Over 1 Over 3 Over 5 year years years Total shareholder return to 30Jun06^^ 112.2 154.7 145.0 Benchmarks: FTSE 100 118.0 160.3 122.0 MSCI World 117.5 161.9 135.2 ^ The second interim dividend for 2006 of US$0.15 per share is translated at theclosing rate on 30 June 2006 (see Note 7 on page 20). Where required, thisdividend will be converted into sterling or Hong Kong dollars at the exchangerates on 25 September 2006 (see Note 7 on page 20). ^^ Total shareholder return ('TSR') is as defined in the Annual Report andAccounts 2005 on page 220. 30Jun05 31Dec05 Half-year to 30Jun06 Performance ratios (%) 16.5 15.3 Return on average invested capital^ 17.2 17.6 16.1 Return on average total shareholders' equity 18.1 1.18 0.95 Post-tax return on average total assets 1.12 2.09 1.93 Post-tax return on average risk-weighted assets 2.21 Efficiency and revenue mix ratios (%) 51.4 51.0 Cost efficiency ratio 50.1 As a percentage of total operating income: 51.4 50.2 - Net interest income 48.7 23.6 23.2 - Net fee income 24.4 9.7 9.3 - Net trading income 12.4 Capital ratios (%) 8.7 9.0 - Tier 1 capital 9.4 12.8 12.8 - Total capital 13.4 ^ Return on invested capital is based on the profit attributable to ordinaryshareholders. Average invested capital is measured as average totalshareholders' equity after adding back goodwill previously written-off directlyto reserves, deducting average equity preference shares issued by HSBC Holdingsand deducting/(adding) average reserves for unrealised gains/(losses) oneffective cash flow hedges and available-for-sale securities. This measurereflects capital initially invested and subsequent profit. This information is provided by RNS The company news service from the London Stock Exchange