HSBC 2003 Annual Report Download - page 75

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Life protection sales grew by 42 per cent on the back
of strong mortgage growth and there was a 26 per
cent rise in sales of creditor protection insurance,
driven by the growth in personal lending. The bank
continued to deepen customer relationships through a
broader range of products with particular focus on
wealth management. The bank’s combined market
share for its principal investment products, Open
Ended Investment Companies and ISAs, was
maintained at over 5 per cent during the year despite
the difficult investment market conditions. However,
overall wealth management income fell, principally
as a result of the fall in the investment markets and
adjustments to the value of long-term assurance
business. In France, a similar pattern was seen. Good
growth was achieved in fee income on credit
facilities, cards and from sales of investment
protection products. This was partly offset by lower
stockbroking fees.
Operating expenses, excluding goodwill
amortisation, increased by 8 per cent, and included a
full year’s costs for Demirbank, the acquisition of
Benkar and the integration of Merrill Lynch HSBC.
Excluding these, costs rose by 3 per cent, due in part
to one-off property and vacant space costs relating to
the relocation of the bank’s headquarters to Canary
Wharf in the second half of 2002, and increased
marketing and IT costs, as further investment was
made in both front office and customer contact
systems. Non-staff costs increased, reflecting the cost
of outsourcing HSBC Bank’s cash and cheque
processing services and the impact of offshore
processing. Utilisation of HSBC’s service centres in
China and India increased with some 700 staff
positions and 20 new processes transferred to India
during the year. In France, CCF’s staff costs were
broadly unchanged on 2001, despite the full year
impact of Banque Hervet, and was achieved in part
through a small reduction in headcount.
The charge for bad and doubtful debts at
US$215 million was 3 per cent higher than in 2001.
Increased provisions in CCF were partly offset by a
lower charge in the UK where credit quality
remained stable and improved debt counselling
services proved effective.
Losses from joint ventures fell significantly,
reflecting the full consolidation of Merrill Lynch
HSBC from the second half of 2002.
Commercial Banking reported pre-tax profit,
before goodwill amortisation, of US$1,344 million,
an increase of 32 per cent compared with 2001. The
increase reflected higher net interest income and fee
income together with lower provisions for bad and
doubtful debts.
Net interest income rose by 11 per cent. Term
lending balances grew by 9 per cent, with a
corresponding increase in income of 10 per cent, as a
result of customer segmentation and the introduction
of tiered pricing in the UK. A general move away
from equity investments towards deposits helped
increase balances by 9 per cent. The customer base
rose by 7 per cent, on the back of an increased share
of the business start-up market and relatively low
attrition levels. During 2002, over 87,000 business
start-up accounts were opened, an increase on last
year of some 26,000 accounts or 42 per cent. This
was attributed to effective marketing, particularly the
‘Start-Up Stars’ campaign.
CCF’s net interest income also grew with the
rise in customer stocks, leading to an increase in
sight deposits of 8 per cent and growth in the loan
book of 4 per cent, combined with an improvement
in spreads.
Other operating income increased by 11 per
cent. UK overdraft fees rose by 28 per cent,
reflecting improved account management. Fee
income from UK invoice financing activities grew by
7 per cent, with an increase of 13 per cent in the
number of clients opting for credit protection. This
reflected greater economic uncertainty, particularly
in the manufacturing sector. Along with other
specialisms, such as vehicle and equipment finance,
the invoice finance salesforce was integrated into the
network, improving the level of cross sale
introductions and contributing to a 10 per cent
increase in its client base. Sales of business
protection products such as key man insurance and
partnership protection grew by 11 per cent in the UK.
These were sold along with pension and investment
products aimed at assisting businesses in managing
wealth and offering protection.
Underlying operating expenses rose by 5 per
cent in 2002. The UK experienced increased
premises costs with the opening of the new
headquarters at Canary Wharf in the latter half of
2002 and the rationalisation of the property portfolio,
resulting in one-off property and vacant space costs.
IT costs increased Europe-wide from the systems
modifications necessitated by the introduction of
the Euro.