HSBC 2009 Annual Report Download - page 80

HSBC HOLDINGS PLC
Report of the Directors: Operating and Financial Review (continued)
Customer groups > Private Banking
78
• Trading income fell by 18 per cent, also
reflecting lower client trading activity, mainly in
foreign exchange and structured products.
• Gains less losses from financial investments
decreased by 90 per cent due to gains made on
the disposal of HSBC’s residual interest in the
Hermitage Fund in the first half of 2008 which
did not recur in 2009.
• Other operating income was in line with 2008,
and included gains on the sale of two office
buildings in Switzerland and Luxembourg.
• Loan impairment charges and other credit risk
provisions increased by US$62 million, largely
due to a single specific charge in the US in
2009.
• Operating expenses decreased by 9 per cent as
performance-related costs were cut, staff
numbers were reduced and discretionary costs
such as travel and marketing were tightly
managed. These steps were taken in response to
the lower revenues earned in the weaker
economic environment. Costs included
US$19 million of integration costs relating to
the merger of HSBC’s two Swiss private banks,
US$17 million of redundancy costs worldwide
and the up-front cost of establishing Private
Banking in new developing markets, including
investments in mainland China, India and
Russia.
• The cost efficiency ratio increased by
2.1 percentage points to 60.5 per cent.
Client assets
2009 2008
US$bn US$bn
At 1 January ....................................... 352 421
Net new money .................................. (7) 24
Value change ...................................... 27 (71)
Exchange and other ........................... (5) (22)
At 31 December ................................. 367 352
Client assets by investment class
2009 2008
US$bn US$bn
Equities .............................................. 73 53
Bonds ................................................. 69 57
Structured products ............................ 10 7
Funds .................................................. 82 87
Cash, fiduciary deposits and other .... 133 148
367 352
• Reported client assets increased by 4 per cent to
US$367 billion due to portfolio appreciation and
foreign exchange movements, partly offset by a
net outflow of funds due to hedge fund
redemptions, client deleveraging and the
decision not to match aggressive deposit prices
offered by weaker competitors, particularly in
Europe and North America. Private Banking
continued to experience net client inflows in
emerging markets, namely Asia, the Middle East
and Latin America, with net new money of
US$6.6 billion generated in these markets in the
year.
• Reported total client assets increased by 6 per
cent to US$460 billion, largely due to an
increase in the market value of assets. ‘Total
client assets’ is a measure equivalent to many
industry definitions of assets under management
which include some non-financial assets held in
client trusts.
Business highlights in 2009
• Intragroup referrals continued to result in good
inflows with US$5.8 billion raised during 2009.
• The legal merger of HSBC’s two Swiss private
banks was achieved as planned in April 2009
and technical integration was completed in early
January 2010. The combined bank is expected to
achieve significant operational and cost
efficiencies.
• HSBC Alternative Investments Limited
continued to achieve strong returns on hedge
fund products in the second half of 2009,
including its flagship fund of hedge funds, the
GH fund, which achieved a return of 12.3 per
cent during the year. A series of new products
were launched including one of the first UCITS
III hedge funds of hedge funds and as a result,
the business saw net inflows in the second half
of 2009.
• Major awards included ‘Outstanding Global
Private Bank’ by Private Banker International,
and ‘Best Global Private Bank’, ‘Best Private
Bank in Asia’ and ‘Best Private Bank in the
Middle East’ by The Banker and The Financial
Times. The Euromoney 2010 Private Banking
Survey placed HSBC second in the Global
Private Banking category for the second
consecutive year.
• Investment in emerging markets and domestic
businesses continued, including the launch of
Private Banking in Russia and further
investments in Private Banking operations in
Asia, Latin America and the Middle East.