HSBC 2005 Annual Report Download - page 72

HSBC HOLDINGS PLC
Financial Review (continued)
70
resources and improved services to facilitate
business expansion.
Private Banking contributed a pre-tax profit of
US$190 million, an increase of 45 per cent
compared with 2004. The benefits of strong growth
in client assets, and consequently higher brokerage
and trading income, were partly offset by the adverse
effect of a flattening yield curve on income from the
investment of surplus liquidity.
Net operating income was 29 per cent higher
than in 2004. A 25 per cent increase in fee income
reflected higher client assets, as well as the benefits
of a strategy to increase the level of higher fee
generating discretionary managed assets, which
increased by 50 per cent during the year. Trading
income increased by 39 per cent, boosted by higher
volumes which reflected growth in the customer
base, and a generally buoyant market. Revenue from
bond trading increased by 13 per cent, and from
foreign exchange and sales of structured products by
6 and 21 per cent respectively. Gains from financial
investments of US$16 million were mainly from the
sale of debt instruments.
Overall, client assets increased by 17 per cent to
US$47.3 billion. Net new money inflows of
US$5.8 billion were notably strong, with recruitment
of front office staff, the success of last year’s launch
of the ‘HSBC Private Bank’ brand, and cross-
referrals with the wider Group all contributing to the
growth. Marketing, successful product placement
and the enhancement of the related front office teams
also aided in the increase of discretionary managed
assets, with a near doubling of assets invested in the
Strategic Investment Solutions product.
Operating expenses increased by 14 per cent.
Costs from front office recruitment, and higher
expenditure on marketing in support of the growing
customer base, were partly offset by the non-
recurrence of rebranding costs in 2004.
In Other, gains on the sale of investments and
properties decreased by US$136 million in 2005,
following significant sales in 2004. These were
partly offset by increased gains on the revaluation of
properties of US$70 million. Net interest income
decreased as, from 1 January 2005 under IFRSs,
dividends paid on certain intra-group preference
shares were reclassified from non-equity minority
interests to net interest income; this was partly offset
by higher earnings on US dollar denominated assets
following interest rate rises in the US.