HSBC 2003 Annual Report Download - page 40

HSBC HOLDINGS PLC
Financial Review (continued)
38
Losses in Argentina, which continue to arise from
judicial orders or ‘amparos’ , were mitigated in 2003
following the receipt of ‘compensation bonds’ in part
settlement of the original asymmetrical pesification.
Amparos allow certain depositors relief from the
mandatory pesification rules and recovery of their
historical US dollar deposits at current exchange
rates.
Amounts written off fixed asset investments of
US$106 million were lower than in 2002, which was
dominated by a US$143 million charge writing down
the carrying value of HSBC’s stake in a major
European life assurer.
The US$116 million share of operating losses in
joint ventures principally reflected a write-down of
HSBC’s share of goodwill attributed to a UK fund
management company acquired as part of the CCF
acquisition.
Gains on disposal of investments of
US$451 million were US$81 million lower than in
2002. Gains on sales of investment debt securities
were slightly lower than in the prior year. Gains in
2002 benefited from the sale of HSBC’s share of
Lixxbail to its joint venture partner and the sale of
HSBC’s 6.99 per cent share in Banco Santiago S.A.
Year ended 31 December 2002 compared with
year ended 31 December 2001
The translation of revenues and costs arising in 2002,
and consequently the results reported for the year,
were affected by the weaker US dollar against other
major currencies and significantly weaker South
American currencies against all currencies. Both are
important to an understanding of HSBC’ s
performance in 2002.
HSBC made a profit on ordinary activities
before tax of US$9,650 million in 2002, an increase
of US$1,650 million, or 21 per cent, compared with
2001. Profit before tax, excluding goodwill
amortisation, increased by US$1,706 million, or
19 per cent.
Net interest income of US$15,460 million in
2002 was US$735 million, or 5 per cent, higher than
in 2001. Net interest income in Europe and North
America was higher than in 2001 by US$1.1 billion,
of which US$0.2 billion arose from foreign exchange
translation and US$85 million was contributed by
HSBC Mexico. Underlying growth reflected higher
levels of average interest-earning assets and the
benefits from lower funding costs. Net interest
income in South America was US$0.4 billion lower
than in 2001 of which US$0.3 billion was due to
foreign exchange translation. Excluding this, the
underlying reduction reflected a lower level of local
debt securities in Brazil. In Argentina narrower
spreads and the costs associated with the funding of
the non-performing loan portfolio resulted in net
interest expense in 2002.
Other operating income of US$11,135 million
was in line with 2001 as growth in wealth
management income was offset by falls in fees and
commission income from securities market activities.
Dealing profits were also lower against a backdrop of
difficult trading conditions in the credit and equity
markets.
Operating expenses, excluding goodwill
amortisation, were US$349 million, or 2 per cent,
higher than 2001 reflecting the cost structures of new
acquisitions, investment in the expanding wealth
management business, and costs associated with the
enhancement of business processes. In constant
currency, operating expenses were 4 per cent higher.
HSBC’s cost:income ratio, excluding goodwill
amortisation, decreased to 56.2 per cent from
56.4 per cent in 2001.
The charge for bad and doubtful debts was
US$1,321 million in 2002, US$716 million lower
than in 2001. The main component of the charge,
which related to the personal sector, amounted to
US$857 million, a rise of US$113 million, largely as
a result of growth in lending and higher credit card
provisioning in Hong Kong. New corporate
provisions also increased in Europe but this was
more than offset in Asia as the economic conditions
in some Asian countries improved. The substantial
reduction in the total charge in 2002 reflected the
US$600 million general provision against Argentine
exposure charged in 2001.
Other charges of US$107 million in 2002 were
US$1,062 million, or 91 per cent, lower than in
2001. The 2001 charges included the loss of
US$520 million arising from the foreign currency
redenomination in Argentina and a charge of US$575
million in respect of the Princeton Note matter. The
2002 charge included US$68 million in losses in
Argentina arising from judicial orders or ‘amparos’
(allowing certain depositors relief from the
mandatory pesification rules and recovery of their
historic US dollar deposits at current exchange rates),