HSBC 2006 Annual Report Download - page 104

HSBC HOLDINGS PLC
Report of the Directors: Business Review (continued)
Latin America > 2005 / Profit/(loss) before tax
102
index) on holdings of government bonds. Continuing
economic growth and improved market confidence
stimulated demand for credit, resulting in a 67 per
cent growth in balances. Brazil reported a decrease in
balance sheet management and money market
revenues as a result of high short-term interest rates
and an inverted yield curve.
Net fee income rose by 12 per cent reflecting
higher fees in Global Transaction Banking. The
payments and cash management business generated
higher customer volumes following an extension of
the product range and reflected the benefit of
improved delivery and distribution channels in
Mexico.
Trading activities generated higher income as
foreign exchange and derivatives trading were
facilitated by the introduction of the Group’s standard
derivatives system in Mexico. Global Markets in
Brazil benefited from a wider product range and the
addition of new delivery capabilities. This investment
and the relatively buoyant local market resulted in
higher business volumes, particularly in foreign
exchange. In Argentina, Global Markets income rose
in line with increased trading activity in response to
the sovereign debt swap.
A US$11 million net release of loan impairment
charges compared favourably with a net charge in
2004. In Brazil, a recovery in the energy sector was
accompanied by the non-recurrence of allowances
raised against two specific corporate accounts in
2004.
Operating expenses of US$273 million were
17 per cent higher than in 2004. In Mexico,
operational costs rose in line with higher
transactional volumes, while an increase in staff costs
partly reflected recruitment to support expansion
initiatives. In Brazil, the benefit of a reduction in
profit share and bonus payments was partly offset by
higher centralised support function staff costs, driven
by pay rises agreed with local unions. In Argentina,
operating expenses were broadly in line with 2004.
Private Banking reported flat profits. Strong
growth in client assets, including US$2.4 billion of
net new money, was driven by growth in Mexico
following the launch of Private Banking there in
2004. In Brazil, the business was reorganised in
2005, with the transfer of smaller accounts to
Personal Financial Services following a
resegmentation of the customer base.
In Brazil, HSBC’s insurance business was
reclassified from Other to Personal Financial
Services in 2005. As a result, operating income
decreased by US$106 million and operating expenses
fell by US$90 million. In Argentina, the receipt of
compensation bonds and other items related to the
pesification in 2002 led to a US$17 million increase
in profit before tax.