HSBC 2009 Annual Report Download - page 132

HSBC HOLDINGS PLC
Report of the Directors: Operating and Financial Review (continued)
Geographical regions >North America > 2008
130
activity was curtailed. Deposit insurance expenses
increased by US$143 million following a Federal
Deposit Insurance Corporation special assessment
in response to the bail out of a number of regional
banks.
2008 compared with 2007
Economic briefing
Economic conditions proved very difficult in the
US during 2008 as the economy entered a period
of recession. Overall GDP growth slowed to just
1.1 per cent for the year, down from 2 per cent in
2007. In common with many other economies, much
of this weakness was concentrated in the final
months of 2008 as fourth quarter GDP registered the
largest quarterly decline for 26 years. Economic
weakness proved broad-based across most areas
of the economy, with the notable exception of net
exports. Housing sales and residential construction
activity both declined from already depressed levels,
with house prices continuing to fall in most regions
and mortgage delinquencies continuing to rise.
Labour market conditions weakened throughout the
course of the year as the unemployment rate rose
from 4.9 per cent in January to a 15-year high of
7.2 per cent in December 2008. The annual CPI rate
reached a 17-year high of 5.6 per cent in July 2008
before moderating sharply to stand at just 0.1 per
cent by the year-end. A combination of falling asset
values and weak employment conditions undermined
consumer confidence and household spending
growth turned negative during the second half of
2008. The Standard & Poor’s S&P 500 stock market
index fell by 38 per cent during the year. Faced with
this deterioration in economic activity and financial
conditions, the Federal Reserve lowered short-term
interest rates by 425 basis points during the course of
2008, leaving the Funds’ target rate within a narrow
range of between zero and 25 basis points, while a
number of liquidity initiatives were also introduced.
Canadian GDP increased by 0.4 per cent during
the first eleven months of 2008 compared with the
equivalent period of 2007, with growth slowing
markedly during the second half of the year, due
predominantly to weaker external demand. Labour
market conditions deteriorated as the unemployment
rate rose from a historical low of 5.8 per cent in
January 2008 to finish the year at 6.6 per cent. After
rising to a level of 3.5 per cent in August 2008, the
headline rate of consumer price inflation slowed to
1.2 per cent by the year-end. The core rate of
inflation remained below 2.0 per cent throughout
the year. Responding to the deteriorating economic
outlook, the Bank of Canada cut its overnight
interest rate from 4.25 per cent at the end of 2007
to 1.5 per cent in December 2008.
Reconciliation of reported and underlying profit/(loss) before tax
2008 compared with 2007
North America
2007
as
reported
US$m
2007
adjustments
and dilution
gains10
US$m
Currency
translation11
US$m
2007
at 2008
exchange
rates17
US$m
2008
adjust-
ments10
US$m
Under-
lying
change
US$m
2008
as
reported
US$m
Re-
ported
change13
%
Under-
lying
change13
%
Net interest income .......... 14,847 1 7 14,855 – 363 15,218 2 2
Net fee income ................. 5,810 (105) 1 5,706 – (479) 5,227 (10) (8)
Changes in fair value14 .... 1,760 (1,760) – – 3,444 – 3,444 96
Other income/
(expense)15 ................... 366 (18) – 348 – (3,058) (2,710) (840) (879)
Net operating income16 .... 22,783 (1,882) 8 20,909 3,444 (3,174) 21,179 (7) (15)
Loan impairment charges
and other credit risk
provisions .................... (12,156) – 12 (12,144) – (4,651) (16,795) (38) (38)
Net operating income ...... 10,627 (1,882) 20 8,765 3,444 (7,825) 4,384 (59) (89)
Operating expenses
(excluding goodwill
impairment) ................. (10,556) 98 (6) (10,464) – 1,105 (9,359) 11 11
Goodwill impairment ....... – – – – – (10,564) (10,564)
Operating profit/(loss) ..... 71 (1,784) 14 (1,699) 3,444 (17,284) (15,539) (21,986) (1,017)
Income from associates ... 20 – – 20 – (9) 11 (45) (45)
Profit/(loss) before tax ..... 91 (1,784) 14 (1,679) 3,444 (17,293) (15,528) (17,164) (1,030)
For footnotes, see page 149.