HSBC 2001 Annual Report Download - page 73

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background in 2000, coupled with the focus on
delivering HSBC’s Global Strategic goals in Brazil,
resulted in a strong performance in 2000. Brazilian
operations (excluding Banco CCF Brasil S.A.)
contributed US$206 million to pre-tax profits in
2000. Second half pre-tax profits of US$84 million
were US$38 million lower than the first half
reflecting higher credit costs and restructuring
charges of US$17 million incurred to achieve further
operational efficiencies and to integrate Banco CCF
Brazil.
The economic environment in the second half of
2000 was characterised by concerns over the
Argentinian economy and a greater perceived
likelihood of a sharp US slowdown. Despite
volatility in the Brazilian foreign exchange and
interest rate markets, Brazil’s economic
fundamentals remained steady with GDP growth of 4
per cent and inflation at 5.97 per cent, in line with
the Government's target for 2000, and an
improvement on 8.64 per cent inflation in 1999. The
improved economic environment allowed interest
rates to fall by nearly 300 basis points from
December 1999.
HSBC’s strategy of embracing internet
technology in the delivery of its services has
developed rapidly in Brazil. HSBC Brasil has offered
internet banking since 1998 to its personal and small
business customers and has 200,000 registered users.
As of November 2000, internet based services were
extended to include WAP access through Brazil’ s
cellular phone network.
In Argentina, a negative economic environment,
exacerbated by higher oil prices and US economic
uncertainty, produced an increase in the Argentine
risk premium of up to 10 per cent. Since the end of
the year, the spread on Argentinian government paper
has fallen by 90 basis points.
Although GDP growth for the year ended 31
December 2000 improved markedly over 1999, when
it fell by 4 per cent, it was still negative and thus
adversely impeded opportunities for growth.
Nevertheless, the bank in Argentina continued to
follow its strategy of creating an integrated financial
services group and, despite the economic recession,
HSBC’s Argentinian operations achieved pre-tax
profits of US$107 million compared to US$67
million in 1999.
Net interest income in Latin America at
US$1,219 million in 2000 was US$122 million
higher than in 1999 with the largest increases in
Brazil and Argentina, together with smaller increases
due to the Panama acquisition and the former RNYC
operations in Mexico and Uruguay. In Brazil, net
interest income was US$886 million, 5 per cent
higher than in 1999. This reflected a 20 per cent
increase in average interest-earning assets with
robust growth achieved in interest-earning
commercial and retail assets, particularly in the areas
of consumer credit and corporate working capital
loans. There was a decline in the net interest margin
of 168 basis points principally due to lower interest
rates. In Argentina, net interest income was US$262
million, US$16 million higher than 1999, principally
as a result of higher volumes of investment securities
than in 1999. The economic uncertainty had an
impact on both the volume of the lending portfolio
and overall rates. The funding base continued to
grow, but this growth was largely deployed in liquid
assets causing spreads to drop from 5.54 per cent to
4.95 per cent because of a more liquid asset mix and
increased borrowing rates.
Other operating income was US$163 million
higher than 1999 with Argentina contributing US$77
million and Brazil US$53 million to the increase. In
Argentina, initiatives taken to improve both the
volume and quality of the earnings stream included
cross selling marketing campaigns, the launch of an
incentives and rewards programme and a drive to
improve service quality, in particular for
bancassurance and HSBC Premier clients. Actions
taken in prior years to curtail unprofitable motor
portfolios and increase the use of scoring in sales of
new products helped La Buenos Aires, the general
insurance business, to achieve an improved
underwriting profit of US$2.4 million despite weak
market conditions. An improved result was also
reported in the life assurance and annuity business.
Total funds under management grew by some 39 per
cent from 1999 to 2000, from US$3.1 billion to
US$4.3 billion, principally within the pension plan
administrator, Maxima. Mutual funds also grew and,
despite the economic recession, market share
improved from 5.9 per cent to 6.1 per cent reaching
fifth position in the rankings.
Brazilian operations continued to develop their
wealth management business, in the form of
insurance and asset management products, and
growing commercial and retail business. Asset
Management operations in Brazil also continued to
expand as a result of organic growth and the addition