HSBC 2012 Annual Report Download - page 115

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Overview Operating & Financial Review Corporate Governance Financial Statements Shareholder Information
We were awarded ‘First place in International Debt
Capital Markets’ by the Brazilian Financial and
Capital Markets Association and ‘Best Project
Finance House in Latin America’ from Euromoney.
We also maintained a strong presence in the foreign
exchange and derivatives markets.
Across the region, we continued to implement
measures to improve operational efficiency,
incurring US$167m of restructuring costs in 2012.
We achieved a 14% net reduction of almost 7,500
FTEs, including more than 4,000 employees
transferred with the disposals described earlier, and
approximately US$285m of additional sustainable
savings.
The following commentary is on a constant
currency basis.
Net interest income increased by 12% compared
with 2011, with growth across all global businesses.
In RBWM, net interest income rose due to
higher average lending volumes, mainly in personal
loans and credit cards in Argentina as a result
of successful marketing and sales campaigns. We
also benefited from a change in the composition
of the lending book in Brazil as we increased our
balances of higher yielding assets. Net interest
income from deposits also increased due to higher
balances in current accounts in Mexico and savings
accounts in Argentina supported by marketing
campaigns.
In CMB, higher net interest income reflected a
rise in average loans and advances to customers in
Brazil, driven by strong demand for trade-related
lending and our focus on corporate relationships and
sectors with potential for international expansion.
Net interest income also rose in Argentina, mainly in
Payments and Cash Management current accounts,
reflecting higher balances which were supported by
successful marketing campaigns, and wider spreads
driven by a rise in interest rates.
In GB&M, net interest income increased,
notably in Balance Sheet Management in Brazil, as
we benefited from the downward movements in
interest rates which lowered the cost of funding
assets in this portfolio.
Net fee income increased by 8% to US$1.7bn,
mainly due to higher Payments and Cash
Management revenues, which benefited from
mandates from new customers and repricing
initiatives in Argentina and Brazil. Fee income was
also higher as a result of the sale of the general
insurance business as fee expense associated with
this business was no longer incurred.
Net trading income of US$971m was 19% lower
than in 2011, primarily due to lower reverse repos
driven by positions in GB&M in Brazil that had
matured but had not been renewed, and lower
income related to government debt securities. This
was partly offset by gains in the Rates business as a
result of favourable rate movements.
Net income from financial instruments
designated at fair value increased by 39%, or
US$187m, mainly in Brazil, reflecting higher
investment gains arising from favourable equity and
debt market movements and growth in policyholder
assets from higher sales of unit-linked pension
products. To the extent that these investment gains
were attributed to policyholders there was a
corresponding increase in ‘Net insurance claims
incurred and movement in liabilities to
policyholders’.
Gains less losses from financial investments
of US$227m were 80% or US$100m higher than
in 2011, primarily in Brazil due to gains on sale of
shares in non-strategic investments and disposals of
government debt securities in GB&M in 2012, partly
offset by the non-recurrence of a gain in GB&M on
the sale of shares in a Mexican listed company in
2011.
Net earned insurance premiums increased by
5% to US$2.5bn, driven by increased sales in Brazil
of unit-linked pension products and term life
insurance products. Premiums also rose in Mexico,
mainly due to growth in sales of an endowment
product. In Argentina, premiums were lower,
following the sale of the general insurance business
in 2012.
Other operating income decreased by 8%
to US$253m, driven by a loss of US$62m on the
sale of our operations in Costa Rica, Honduras and
El Salvador, and a loss of US$96m recognised
following the reclassification of our non-strategic
businesses in Colombia, Peru, and Paraguay to held
for sale. In addition, in 2011, we reported a gain on
sale of the Mexican pension administration business,
HSBC Afore, of US$83m and a gain on the sale and
leaseback of branches of US$53m. These factors
were partly offset by the favourable effect of the
recognition of a PVIF asset in Brazil of US$119m
relating to unit-linked pensions, together with an
increase in the value of new term life business in
Brazil, as well as the gain on sale of the general
insurance business in Argentina of US$102m.
Net insurance claims incurred and movement in
liabilities to policyholders increased by 15%, driven
by higher net investment gains on the fair value of
the assets held to support policyholder contracts. In