HSBC 2013 Annual Report Download - page 22

Other items of income Quarter ended
31 December
2013
$m
31 December
2012
$m
30 September
2013
$m
Net expense from financial instruments designated at fair value ........ (2) (3) –
Gains less losses from financial investments ....................................... 64 2
Other operating income/(expense) ....................................................... 19 (26) 7
Gain on the sale of the full service retail brokerage business ................ –4 –
Other items of income/(expense) ......................................................... 23 (21) 9
Net expense from financial instruments designated
at fair value for the fourth quarter of 2013 was a loss
of $2m, compared with a loss of $3m in the fourth
quarter of 2012 and nil in the third quarter of 2013. The
bank’s financial instruments designated at fair value are
fixed-rate long-term subordinated debt issued, the rate
profile of which has been changed to floating through
interest rate swaps as part of a documented interest
rate management strategy. The movement in fair value
of these long-term debt issues and the related hedges
includes the effect of our credit spread changes and any
ineffectiveness in the economic relationship between the
related swaps and own debt. As credit spreads widen
or narrow, accounting profits or losses, respectively,
are booked. We reported net expense from financial
instruments in the current quarter and the same quarter
last year primarily as a result of adverse fair value
movements driven by the tightening of credit spreads.
Gains less losses from financial investments for the
fourth quarter of 2013 were $6m, an increase of $2m
and $4m respectively, compared with the fourth quarter
of 2012 and the third quarter of 2013. Gains less losses
from financial investments increased as Balance Sheet
Management recognized higher gains on sales of available-
for-sale debt securities as a result of the continued
re-balancing of the portfolio for risk management purposes
based on the low interest rate environment.
Other operating income for the fourth quarter of
2013 was $19m, an increase of $45m compared with
the fourth quarter of 2012, and an increase of $12m
compared with the third quarter of 2013. The increase
is primarily due to a reduction in fair value of an
investment property in comparative periods.
Gain on the sale of the full service retail brokerage
business. In the fourth quarter of 2012, the bank satisfied
certain conditions relating to the sale which allowed a
further gain of $4m to be recognized. These gains were
not repeated in 2013.
Loan impairment charges and other credit risk provisions
Quarter ended
31 December
2013
$m
31 December
2012
$m
30 September
2013
$m
Individually assessed allowances/(allowance releases) ....................... 31 23 (3)
Collectively assessed allowances ........................................................... 16 6 14
Loan impairment charges ..................................................................... 47 29 11
Other credit risk provisions/(reversal of provisions) .............................. (8) 4 (2)
Loan impairment charges and other credit risk provisions .................. 39 33 9
Loan impairment charges and other credit risk
provisions for the fourth quarter of 2013 were $39m, an
increase of $6m and $30m respectively, compared with
the fourth quarter of 2012 and the third quarter of 2013.
The increase in loan impairment charges and other credit
risk provisions compared with both the same quarter
last year and the prior quarter is primarily due to higher
specific allowances for commercial customers.
HSBC BANK CANADA
Management’s Discussion and Analysis (continued)
20