HSBC 2009 Annual Report Download - page 76

HSBC HOLDINGS PLC
Report of the Directors: Operating and Financial Review (continued)
Customer groups > Global Banking and Markets
74
Management view of total operating income
2009
US$m
2008
US$m
2007
US$m
Global Markets44 ............... 10,364 2,676 5,720
Credit ............................ 2,330 (5,502) (1,319)
Rates ............................. 2,648 2,033 1,291
Foreign exchange ......... 2,979 3,842 2,178
Equities ......................... 641 (64) 1,177
Securities services45 ...... 1,420 2,116 1,926
Asset and structured
finance ....................... 346 251 467
Global Banking ................. 4,630 5,718 4,190
Financing and equity
capital markets ........... 3,070 3,572 2,186
Payments and cash
management46 ............ 1,053 1,665 1,632
Other transaction
services47..................... 507 481 372
Balance Sheet
Management ................. 5,390 3,618 1,226
Global Asset
Management ................. 939 934 1,336
Principal Investments ....... 42 (415) 1,253
Other48 ............................... 489 1,066 1,555
Total operating income ..... 21,854 13,597 15,280
Comparative information has been adjusted to reflect the
current management view.
For footnotes, see page 149.
a small number of clients. This was in line with
market trends of a rise in the number and
severity of defaults on loans, despite a return of
liquidity to the market. Impairment charges on
the available-for-sale portfolio at US$1.4 billion
were US$0.8 billion higher than in 2008;
however, they remained within the range of the
stress tests described on page 156 of the Annual
Report and Accounts 2008.
• Within the Group’s available-for-sale portfolio,
the negative reserves in respect of asset-backed
securities (‘ABS’s) reduced significantly from
US$18.7 billion to US$12.2 billion, reflecting
the impact of amortisation and recent increases
in ABS prices. Impairment charges of
US$1.4 billion were identified on ABSs with a
nominal value of US$2.6 billion and were taken
to the income statement in 2009. However, due
to the underlying credit quality and seniority of
the tranches held by HSBC, the expected cash
flow impairment on these securities was a more
modest US$378 million. A further
US$666 million of impairments was absorbed
by income noteholders who take the first loss on
positions within the securities investment
conduits (‘SIC’s) now consolidated in HSBC’s
accounts. Further details on the SICs are
provided on page 182.
Business highlights in 2009
• HSBC was recognised for the continuing
success of its ‘emerging markets-led and
financing-focused’ strategy with numerous key
industry awards, including Euromoney’s Best
Debt House in the following emerging market
countries and regions: Mexico, Turkey, Asia,
Latin America and the Middle East, along with
‘Best Global Bank’, and ‘Best Global Debt
House’. Other awards included ‘European DCM
House of the Year’, ‘European Corporate Bond
House of the Year’ and ‘European Financial
Institutions Bond House of the Year’ in
Financial News.
• Global Markets revenues grew significantly as
volatile markets and increased customer activity
gave impetus to client-facing businesses.
Exceptional revenues in Rates and improved
revenues in Credit were boosted by greater
market share in both primary and secondary
client business. Credit revenues were also
assisted by a general tightening of credit spreads
and an increase in asset prices following a return
of liquidity in financial markets. Foreign
exchange revenues normalised following
unprecedented levels of market volatility in
2008, as the business established deeper
institutional client relationships. Equities took
advantage of a changed competitive landscape
to capture a greater share of business in strategic
markets from key institutional clients,
particularly in Europe, the Middle East and
Asia.
• Securities Services revenues declined as lower
interest rates drove down overall margins,
although this was partially offset by recent
improvements in Asian equity markets which
stimulated increases in volumes and assets
under custody in the second half of 2009.
• In Global Banking, certain credit default swap
transactions which hedge risk within the
portfolio, recorded fair value losses of
US$429 million as credit spreads tightened,
compared with gains of US$912 million reported
in 2008. Excluding this, higher spreads drove
an increase in credit and lending revenues,
reflecting the strength of HSBC’s franchise and
the quality of the client portfolio. Revenues in
the equity capital markets business doubled
following increased market share in key strategic
regions. Payments and cash management
activities continued to be adversely affected by
the low interest rate environment, partly
countered by an increase in liability balances.