HSBC 2012 Annual Report Download - page 108

HSBC HOLDINGS PLC
Report of the Directors: Operating and Financial Review (continued)
Geographical regions > North America
106
existing infrastructure. We also completed the sale of
the retail branches, principally in upstate New York,
recognising gains of US$586m in RBWM and
US$278m in CMB.
In Canada, we completed the sale of the full
service retail brokerage business. We also
announced the closure of our consumer finance
business, which had net customer loan balances
of US$1.5bn at 31 December 2012, and ceased the
origination of loans as this business did not fit with
our core strategy.
We continued to manage the run-off of lending
balances in our CML portfolio and, in the third
quarter of 2012, we reclassified non-real estate
personal loan balances of US$3.7bn, net of
impairment allowances, from our CML portfolio
to ‘Assets held for sale’ as we actively marketed the
portfolio. We also identified real estate secured loan
balances, with a carrying amount of US$3.8bn,
which, as part of our strategy, we have announced
we plan to actively market in multiple transactions
over the next two years. At 31 December 2012, the
carrying value of the non-real estate and the real
estate secured loans which we intend to sell was
approximately US$1bn greater than their estimated
fair value. We expect to recognise a loss on sale for
these loans over the next few years, the actual
amount of which will depend on market conditions
at the time of the sales. It is expected that reduction
in these loans in our CML portfolio will be capital
accretive and will reduce funding requirements,
accelerate the winding down of the portfolio and also
alleviate some of the operational burdens, given that
these loans are servicing intensive and subject to
foreclosure delays.
At 31 December 2012, lending balances
in CML, including loans held for sale, were
US$43bn, a decline of 14% from December 2011, of
which 8% was attributable to the balances written
off.
We incurred costs of US$221m in 2012 (2011:
US$235m) as a result of restructuring activities in
the region. These costs were mainly related to the
business disposals, the closure of our consumer
finance operations in Canada and the continuation of
our organisational effectiveness initiatives. We also
achieved approximately US$230m of additional
sustainable cost savings in 2012, primarily derived
from operational efficiencies.
Following the disposals noted above, we are
reshaping our US operations to focus on core
activities and are continuing to reposition our
businesses in both the US and Canada towards
international customers.
In RBWM, we continued to develop our
Wealth Management capabilities across the region,
targeting internationally connected customers in key
US and Canadian urban centres. Our relationship-
based model offers a suite of wealth services
incorporating HSBC and third-party products,
enabling our internationally-minded customers to
invest in global markets. In the US, we launched a
renminbi fixed income fund to provide investors
with the opportunity to access mainland China’s
bond market.
In CMB, we increased the number of
relationship managers and specialist sales staff in
2012 in areas with strong international connectivity,
notably the West Coast, South East and Midwest of
the US, leading to higher lending balances than in
2011. In Canada, we introduced the first renminbi
currency account. We also established dedicated
sales teams to enhance CMB’s collaboration with
GB&M. In addition, in CMB and GB&M, we
continued to target companies with international
banking requirements, leading to a rise in Global
Trade and Receivables Finance revenues in both the
US and Canada.
In GB&M, we continued to work on delivering
integrated solutions for our customers across the
region, increasing our lending to Latin American
corporates. In addition, we actively reduced our
legacy credit exposure in the US by exiting certain
positions. We will continue to reduce the size of this
portfolio as opportunities arise.
The following commentary is on a constant
currency basis.
Net interest income decreased by 29% to
US$8.1bn, due to the loss of income from the Card
and Retail Services business together with the
continued reduction of the CML portfolio in run-off.
Also contributing to the decrease was a change in
composition of our lending book towards higher
levels of lower yielding real estate loans.
Net fee income decreased by 24% to US$2.5bn,
primarily due to the sale of the Card and Retail
Services business, the retail branches and the full
service retail brokerage business in Canada. This
was partly offset by fees from the transition service
agreement with the purchaser of the Card and Retail
Services business and increased revenues from debt
capital markets origination activity due to the strong
debt issuance market.
Net trading income of US$507m was US$871m
higher than in 2011, primarily due to lower adverse
fair value movements on non-qualifying hedges in