HSBC 2002 Annual Report Download - page 58

HSBC HOLDINGS PLC
Financial Review (continued)
56
during the first half of 2003.
European operations contributed US$3,500
million to HSBC’s profits before tax in 2002 and
represented 36.3 per cent of pre-tax profits. On a
cash basis, Europe’s pre-tax profits were US$4,160
million, and represented 39.5 per cent of HSBC’s
profits on this basis. Operating performance was
strong with pre-provision profit rising 9 per cent to
US$4,737 million on a cash basis. In constant
currency terms, the growth was 6 per cent. This
growth was driven essentially by the core personal
and commercial banking businesses in the UK and
France and by Treasury and Capital Markets
performance. There was no material benefit in 2002
from disposal gains as after making provisions for
amounts to be written off fixed asset investments the
net gain was only US$21 million. The comparable
figure in 2001 was US$351 million, a result
dominated by the sale of the Group’ s stake in British
Interactive Broadcasting.
The impact of acquisitions on 2002 profit before
tax was modest at US$51 million. The acquisitions
of Demirbank in October 2001 and Benkar in
September 2002, however, represented a major
expansion of HSBC’s business in Turkey. These
businesses have been successfully integrated during
2002, and now over 500,000 customers in Turkey are
served through a combination of call centres, internet
banking and a network of 163 branches.
A number of other internal restructurings took
place to enhance operational efficiency. In June
2002, HSBC acquired Merrill Lynch’s 50 per cent
share of the Merrill Lynch HSBC joint venture. The
business was integrated into HSBC Bank in
December.
HSBC continued to restructure and strengthen
its private banking operations with the integration of
HSBC Guyerzeller and CCF’ s private banking
operations outside France with HSBC Republic
Holdings (Suisse). The comments below on HSBC
Republic (Suisse) assume that this structure was in
place during 2001.
The following commentary on the Europe
results is based on constant exchange rates.
Net interest income at US$6,343 million was
US$558 million, or 10 per cent, higher than in 2001,
principally attributable to growth in mortgage
lending in the UK and increased spreads as funding
costs reflected the low interest rate environment
across Europe.
In UK Banking, net interest income at US$3,469
million was US$312 million, or 10 per cent, higher
than in 2001, driven by strong growth in mortgages
and personal lending, and the benefits of lower cost
of funds. Mortgage balances increased by US$5.4
billion, or 24 per cent, and gross new lending by 57
per cent as HSBC Bank increased its market share
from 4 per cent to 6 per cent in a buoyant housing
market. Personal current account balances were up
11 per cent on 2001 as customers preferred to hold
cash in the uncertain investment climate. The launch
of a new Bonus Savings Account and improved
utilisation of customer relationship management
systems contributed to growth of 19 per cent in
personal savings balances and 16 per cent in personal
lending balances in 2002. Business current account
balances grew by 14 per cent, helped by HSBC
Bank’s increased profile in the market place and its
‘Start up Stars’ advertising campaign. The bank
increased its share of business start-ups and opened
more than 87,000 new business accounts in 2002.
Corporate current account balances improved by 9
per cent compared with 2001 although this was
partly offset by a narrowing of spreads on deposit
accounts.
In Treasury and Capital Markets net interest
income increased by US$141 million, or 32 per cent,
compared with 2001. The increase was primarily due
to earnings on money market business, which
benefited from reduced funding costs and the
deployment of surplus liquidity in higher yielding
investment grade corporate and institutional bonds.
In France, CCF’s net interest income of
US$1,022 million was US$95 million, or 10 per cent,
higher than for 2001. Net interest income in the
branch network grew strongly, driven by growth both
in personal lending and in sight deposits as
customers preferred liquidity and security in the face
of falling equity markets. CCF’s treasury operation
benefited from a lower cost of funds and spreads
widened offsetting a reduction in benefit from net
free funds.
HSBC Republic (Suisse)’s net interest income