HSBC 2003 Annual Report Download - page 353

351
Provision for impairment relates to the write-down of mortgage servicing rights, as a low interest rate
environment has encouraged consumers to refinance mortgages at a faster rate than initially expected.
Weighted
average At 31 December 2003
amortisation Accumulated Carrying
period Cost amortisation value
Months US$m US$m US$m
Intangible assets subject to amortisation
Purchased credit card relationships and related
programmes ............................................................. 80 1,516 (145) 1,371
Retail Services merchant relationship .......................... 60 277 (42) 235
Other loan related relationships .................................... 115 326 (34) 292
Mortgage servicing rights ............................................. 60 684 (185) 499
Technology, customer lists and other contracts ............ 71 289 (30) 259
Core deposit relationships ............................................ 240 207 (52) 155
Other ............................................................................ 60 22 – 22
87 3,321 (488) 2,833
Intangible assets not subject to amortisation
Trade name ................................................................... 870 – 870
4,191 (488) 3,703
The intangible asset amortisation expense for the next five years is estimated to be:
2004 2005 2006 2007 2008
US$m US$m US$m US$m US$m
Amortisation charge...... 491 445 414 382 274
Mortgage servicing rights are included in the UK GAAP balance sheet as ‘Other assets’ and related amortisation
and provisions for impairment are included as a reduction of other operating income. The remaining intangibles
not recognised under UK GAAP were acquired as part of business combinations and the US GAAP amortisation
charge is included in ‘Purchase accounting adjustments’ (see (h) below).
(g) Internal software costs
Under UK GAAP, costs of software developed for internal use are generally expensed as they are incurred.
Under US GAAP, costs incurred in the application development stage of internal software must be capitalised as
part of intangible assets and amortised over their estimated useful life. HSBC recognises an adjustment in
calculating its US GAAP net income, reflecting the impact of current year software development costs
capitalised under US GAAP, offset by the US GAAP amortisation of these and previous years’ costs and by any
provisions for impairment of these capitalised costs.
hsbc.com, Inc., has been engaged in development activities to provide a global website and web hosting services
to HSBC companies. A provision of US$43 million was made in 2003 (2002: US$35 million; 2001: US$50
million) for impairment against the US GAAP capitalised amount of development costs. At 31 December 2003,
capitalised amounts in respect of hsbc.com, Inc., totalled US$150 million (2002: US$144 million; 2001: nil).
(h) Purchase accounting adjustments
The reconciling ‘Purchase accounting adjustments’ predominantly reflect:
• the measurement of equity consideration at the date the terms of acquisition are agreed and announced
under US GAAP; under UK GAAP equity consideration is measured at the date of acquisition;
• the recognition of a greater number of intangibles under US GAAP on acquisitions, and, consequently,
higher amortisation charge;
• recognition of deferred tax on all fair value adjustment under US GAAP, and corresponding amortisation
post-acquisition;