HSBC 2006 Annual Report Download - page 28

HSBC HOLDINGS PLC
Report of the Directors: Business Review (continued)
Geographical regions > Summary / Competitive environment
26
Basis of preparation
The results are presented in accordance with the accounting policies used in the preparation of HSBC’s consolidated
financial statements. HSBC’s operations are closely integrated and, accordingly, the presentation of customer group
data includes internal allocations of certain items of income and expense. These allocations include the costs of
certain support services and head office functions, to the extent that these can be meaningfully attributed to
operational business lines. While such allocations have been made on a systematic and consistent basis, they
necessarily involve a degree of subjectivity.
Where relevant, income and expense amounts presented include the results of inter-segment funding as well as
inter-company and inter-business line transactions. All such transactions are undertaken on arm’s length terms.
Footnotes to the analyses of customer groups and global businesses on pages 12 to 25.
1 In the analyses of customer groups and global businesses, net trading income comprises all gains and losses from changes in the fair
value of financial assets and financial liabilities classified as held for trading, together with related external and internal interest
income and interest expense, and dividends received; in the statutory presentation internal interest income and expense are eliminated.
2 Net insurance claims incurred and movement in policyholders’ liabilities.
3 Net operating income before loan impairment charges and other credit risk provisions.
4 In 2006, Mexico and Panama were reclassified from the North America segment to Latin America. Comparative information has been
restated accordingly.
5 Third party only.
6 The main items reported under ‘Other’ are the income and expenses of wholesale insurance operations, certain property activities,
unallocated investment activities including hsbc.com, centrally held investment companies, movements in the fair value of own debt
designated at fair value, and HSBC’s holding company and financing operations. The results include net interest earned on free capital
held centrally and operating costs incurred by the head office operations in providing stewardship and central management services
to HSBC. Net operating income of the Group’s wholesale insurance operations amounted to US$371 million in 2006 (2005:
US$460 million; 2004: US$511 million). ‘Other’ also includes the costs incurred by the Group Service Centres and Shared Service
Organisations and associated recoveries.
Geographical regions
Summary
In the analysis of profit by geographical regions that follows, operating income and operating expenses include
intra-HSBC items of US$1,494 million (2005: US$938 million; 2004: US$631 million).
Profit before tax
Year ended 31 December
2006 2005 2004
US$m % US$m % US$m %
Europe ...................................................... 6,974 31.5 6,356 30.3 5,756 30.4
Hong Kong .............................................. 5,182 23.5 4,517 21.5 4,830 25.5
Rest of Asia-Pacific ................................. 3,527 16.0 2,574 12.3 1,847 9.8
North America1 ........................................ 4,668 21.1 5,915 28.2 5,268 27.8
Latin America1 ......................................... 1,735 7.9 1,604 7.7 1,242 6.5
22,086 100.0 20,966 100.0 18,943 100.0
Total assets2
At 31 December
2006 2005
US$m % US$m %
Europe ........................................................................................................... 828,701 44.6 636,703 42.4
Hong Kong ................................................................................................... 272,428 14.6 235,376 15.7
Rest of Asia-Pacific ...................................................................................... 167,668 9.0 142,014 9.4
North America1 ............................................................................................. 511,190 27.5 432,490 28.8
Latin America1 .............................................................................................. 80,771 4.3 55,387 3.7
1,860,758 100.0 1,501,970 100.0
1 In 2006, Mexico and Panama were reclassified from the North America segment to the Latin America segment. Comparative
information has been restated accordingly.
2 Third party only.