HSBC 2002 Annual Report Download - page 77

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The charge for bad and doubtful debts of US$300
million was the same as for 2001. HSBC Bank
USA’s charge for bad and doubtful debts fell by
US$68 million, or 30 per cent, to US$160 million.
New specific provisions fell by US$38 million, as
credit quality improved in 2002 and the non-
recurrence of a specific provision against exposure to
a corporate customer in the energy sector that arose
in 2001. Releases and recoveries were US$26
million higher than in 2001, as restructuring and debt
reduction programs enabled a number of provisions
raised in previous years against corporate customers
to be released or recovered. The charge for bad and
doubtful debts in Canada of US$81 million was
US$22 million, or 37 per cent, higher than in 2001,
mainly reflecting a provision for an exposure in the
telecommunications sector.
Provisions for contingent liabilities and
commitments were US$585 million lower than in
2001, due to the non-recurrence of the Princeton
Note settlement in 2001.
Gains on the disposal of fixed assets of US$125
million were in line with 2001, and reflected gains
on the disposal of mortgage-backed and South
American securities.
Year ended 31 December 2001 compared with
year ended 31 December 2000
The United States economy continued to deteriorate
in 2001 with investment spending significantly
down, particularly in the technology sectors. Despite
rising unemployment, consumer spending remained
resilient, boosted by lower interest rates as the
Federal Reserve Bank cut short-term interest rates 11
times during the year. Although these sharply lower
interest rates led to rising consumer debt, demand for
corporate loans continued to weaken. For 2001 as a
whole, GDP growth slowed to 1.1 per cent compared
to growth of 4.1 per cent in 2000. Weaker growth
and lower oil prices resulted in a sustained decline in
inflation to just 1.5 per cent by the end of 2001. In
New York State, unemployment has risen from a
cyclical low of 4 per cent early in 2001 to 6 per cent
by the end of 2001.
The year was marked by the tragic events on 11
September. In New York City, HSBC responded
immediately to the tragedy with a number of
donations and programs to assist with the rebuilding
of the community. Although HSBC Bank USA’ s
branch at Five World Trade Center was destroyed we
were fortunate that none of our employees was killed
or injured. As contingency plans were activated,
communications and business activities were
resumed and the resilience of New York as a city and
its inhabitants was awe inspiring to observe.
Although the direct impact on HSBC’s profitability
was small the effect of 11 September will remain
with our staff and the Group owes a large debt of
gratitude for the exemplary way they have continued
to deal with our customers and the broader
community in New York.
Unsurprisingly, given Canada’s extremely high
dependence on the US economy for trade and
investment flows, Canada also registered weaker
activity in 2001. Aggressive interest rate cuts limited
the extent of the downturn but rising unemployment
fed through into weaker consumer spending and poor
corporate profits which kept investment spending
weak. The Canadian dollar was slightly weaker
relative to the US dollar at the end 2001.
HSBC’s operations in North America
contributed US$1,535 million to cash basis profit
before tax; US$377 million, or 33 per cent, higher
than in 2000. Non trading items most notably the
cost of the Princeton Note settlement and
development costs of US$164 million incurred on
HSBC’s ‘e’ commerce platform hsbc.com in its
development centre in New York caused reported
profit before tax to fall by US$357 million, or 42 per
cent, to US$503 million.
HSBC Bank USA’ s operations in the United
States reported an increase of US$402 million, or 46
per cent, in cash basis profit before tax (excluding
the provision for Princeton Note settlement) in 2001,
due largely to increased levels of net interest income
and gains on disposal of securities, principally
mortgage backed. HSBC’s Canadian operations cash
basis pre-tax profit of US$230 million in 2001 was
US$6 million lower compared with 2000. At
constant exchange rates, HSBC’s Canadian
operations cash basis pre-tax profits were US$3
million higher than in 2000 as increased levels of net
interest income offset higher charges for bad and
doubtful debts and the losses incurred by the
Canadian operations of the Merrill Lynch HSBC
joint venture.
Net interest income increased by US$265
million, or 12 per cent to US$2,450 million when
compared to 2000. In the United States net interest
income was US$222 million higher than in 2000.