HSBC 2008 Annual Report Download - page 39

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fees, (ii) the provision for reimbursement of certain
charges on historic will trusts and other related
services in the UK, (iii) the indemnification
agreement with Visa ahead of Visa’s IPO, and
(iv) restructuring charges in the US consumer
finance business incurred in 2007. These were partly
offset by an increase in the Financial Services
compensation scheme levy in the UK and an
increase in a litigation provision in Asia.
Goodwill impairment amounting to
US$10.6 billion was booked following the continued
deterioration in economic and credit conditions in
North America. For further information see Note 22
on the Financial Statements.
2007 compared with 2006
Reported operating expenses increased by
US$5.5 billion to US$39.0 billion. On an underlying
basis, cost growth was 10 per cent.
Employee compensation and benefits rose due to
increased headcount employed to support business
expansion in Rest of Asia-Pacific and Europe and
higher salaries and bonuses. Salary increases
reflected inflationary pressures and performance as
bonuses rose in response to revenue growth. A
change in actuarial assumptions regarding the staff
defined benefit pension scheme in the UK led to
increased costs. Staff numbers in North America fell
as the consumer finance business was restructured,
resulting in the discontinuation of certain business
channels in mortgage services and the closing of
branch offices in consumer lending.
Premises and equipment costs increased on
investments in technology, straight-through
processing and extending and improving the branch
and ATM networks. In particular, there was
investment in the distribution platform in Latin
America, Middle East, India and mainland China.
The retail bank branch network in North America
was extended both within and beyond the Group’s
traditional spheres of operation to support the
expansion of retail and Commercial Banking
businesses, increasing premises and equipment costs
as a consequence. Commercial property rental costs
rose in Hong Kong’s dynamic economy, the effect
magnified by a sale and leaseback agreement on a
headquarters building in 2006. In France, the IT
systems inherited with the acquisition of HSBC
France were replaced with HSBC’s universal
banking platform.
General and administrative expenses rose in
support of the business expansion and a number of
one-off costs. Higher transaction volumes drove
processing costs and transactional taxes while
business expansion was supported by marketing
expenditure. In the UK, ex-gratia payments of
US$227 million were expensed in respect of
overdraft fees applied in previous years and a
provision of US$169 million was raised for
reimbursement of certain charges on historic will
trusts and other related services. In the US, the
business incurred US$70 million of one-off costs
arising from the indemnification agreement with
Visa ahead of its planned IPO. The US consumer
finance business incurred restructuring charges of
US$103 million resulting from the discontinuation
of the wholesale and correspondent channels in
mortgage services and the closing of branch offices
in consumer lending.
Cost efficiency ratios
2008
%
2007
%
2006
%
HSBC .............................................................................................................. 60.1 49.4 51.3
Personal Financial Services .......................................................................... 76.4 50.3 49.7
Europe ............................................................................................................. 62.7 64.8 59.2
Hong Kong ...................................................................................................... 32.2 27.2 32.2
Rest of Asia-Pacific ......................................................................................... 73.5 73.9 71.1
North America ................................................................................................. 106.8 42.3 42.3
Latin America .................................................................................................. 59.7 61.3 65.6
Commercial Banking .................................................................................... 43.0 44.8 43.7
Europe ............................................................................................................. 44.2 49.3 46.7
Hong Kong ...................................................................................................... 26.2 24.9 26.1
Rest of Asia-Pacific ......................................................................................... 41.0 42.9 42.5
North America ................................................................................................. 46.1 45.1 44.9
Latin America .................................................................................................. 55.0 54.3 55.9