HSBC 2007 Annual Report Download - page 107

105
initiatives taken in early 2006. This investment in
extending the trading platform, notably in mortgage-
backed securities, structured derivatives, metals and
foreign exchange, produced record trading revenues.
Net fee income and trading income also grew,
reflecting the measures taken to strengthen HSBC’s
presence in the region.
In Global Banking, net interest income in
payments and cash management rose by 66 per cent,
largely due to an over 50 per cent growth in
balances.
Net fee income rose by 13 per cent to
US$656 million. Increases in fee income within the
newly expanded mortgage-backed securities and
equity underwriting businesses were driven by
higher volumes. The securities services business
benefited from a combination of new client volumes
and market-driven asset growth. However, income
from debt underwriting activity declined due to
fewer deals, particularly in the second half of the
year. In Global Banking, higher transaction volumes
in the recently enhanced payments and cash
management business, and an increase in customer
volumes driven by a wider product offering, led to
higher net fee income.
HSBC’s operation in Canada reported a 31 per
cent increase in fees, reflecting a growth in funds
under management within HSBC Global Asset
Management, coupled with higher fees from the
lending business and securities services.
Net trading income more than doubled to
US$818 million. In Global Markets, a wider product
offering and improved sales capabilities drove
significant gains across all major client-related
activities. Revenues were further boosted by the first
full year contribution from the mortgage-backed
securities trading business. Credit and Rates
benefited from tightening credit spreads and
increased customer flows. Structured derivatives
income more than doubled, reflecting successful
product launches as well as increased sales of
tailored solutions. Revenues in the foreign exchange
business remained robust against the backdrop of a
weakening US dollar.
In Canada, trading income more than doubled,
with higher gains from foreign exchange; a result of
increased volatility of the Canadian dollar against
the US dollar.
Gains from financial investments were
79 per cent lower as income from the disposal of
securities declined.
A 50 per cent increase in other income was
driven in part by higher revenues in HSBC’s
Sharia-compliant property fund business, which
were offset by higher related costs.
The overall credit environment remained stable,
although a small loan impairment charge of
US$3 million compared unfavourably to a net
release of US$64 million in 2005.
Operating expenses increased by 19 per cent to
US$1,641 million, mainly due to the first full year
effect of the business expansion which took place in
2005 and additional expenditure in early 2006. In
Global Markets, cost growth was primarily driven
by the mortgage-backed securities, structured
derivatives and equity businesses. Staff costs
increased by 11 per cent, reflecting the first full year
effect of people recruited in 2005, performance
incentives that rose in line with revenue and
selective hires in early 2006.
Operational expenses in the payments and cash
management and the securities services businesses
increased as business volumes grew and the related
support businesses were expanded.
HSBC’s share of profits from associates
declined significantly reflecting the non-recurrence
of distributions from a private equity associate.
Private Banking contributed a pre-tax profit
of US$114 million, an increase of 12 per cent
compared with 2005. HSBC’s onshore presence was
enhanced by the opening of offices in Chicago and
Greenwich, Connecticut. Revenue growth, driven
by significantly higher core fees and commissions
and improved trading results, was offset in part
by loan impairment charges of US$35 million,
US$29 million of which related to a single customer.
The cost efficiency ratio improved by 6.2 percentage
points to 70.4 per cent.
Net interest income increased by 15 per cent to
US$212 million. A deposit-raising campaign proved
successful at garnering funds, the total raised by the
year-end reaching US$2.5 billion. Overall, deposit
balances rose by 25 per cent and lending balances
increased by 14 per cent. Deposit spreads were
marginally lower than in 2005.
Net fee income grew strongly, increasing by
20 per cent to US$240 million. WTAS continued to
expand its client base – it rose by 31 per cent in 2006
– and reported significant revenue growth, benefiting
from restrictions placed on the major auditing firms
with regard to providing personal tax advice to
employees of audit clients. Higher funds under
management and an increase in referrals with other