HSBC 2006 Annual Report Download - page 425

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(c) Intangible assets
The following intangible assets were recognised under US GAAP:
2006 2005
US$m US$m
Balance brought forward at 1 January ........................................................................................ 4,702 4,608
Additions ..................................................................................................................................... 857 580
On acquisition of subsidiaries ..................................................................................................... 330 271
Amortisation charge .................................................................................................................... (840) (905)
Changes in fair value of mortgage servicing rights .................................................................... (44) –
Provision for impairment ............................................................................................................ (84) 34
Exchange differences and other movements .............................................................................. 364 114
Balance carried forward at 31 December ................................................................................... 5,285 4,702
Since 1 January 2004, the accounting treatment for intangible assets has generally been consistent between
IFRSs and US GAAP. The additional intangible assets recognised under US GAAP represent those acquired in
business combinations during the period between SFAS 141 ‘Business combinations’ becoming effective on
30 June 2001 and IFRSs being adopted on 1 January 2004. They primarily comprise credit card and other loan
relationships, merchant relationships and other intangibles assumed on the acquisition of HSBC Finance.
The provision for impairment in 2006 relates primarily to a write down of a merchant relationship. Provision for
impairment in 2005 relates to the release of a provision for the write-down of mortgage servicing rights, as
prepayment rates slowed. Changes in the value of mortgage servicing rights in 2006 follow the adoption of
SFAS 156 on 1 January 2006.
HSBC conducts an annual impairment test of intangible assets which are not subject to annual amortisation since
HSBC determines these assets have indefinite lives. As a result of this testing in 2006, no impairment charge was
recorded (2005: US$13 million was recorded relating to a trade name in the UK).
Weighted
average At 31 December 2006
amortisation Accumulated Carrying
period Cost Amortisation Value
Months US$m US$m US$m
Intangible assets subject to annual amortisation
Purchased credit card relationships and related
programmes ..................................................... 98 2,503 (636) 1,867
Retail services merchant relationship .................. 60 270 (203) 67
Other loan related relationships ........................... 109 333 (135) 198
Technology, customer lists and other contracts .. 61 3,162 (2,056) 1,106
Core deposit relationships .................................... 210 233 (144) 89
Other ..................................................................... 60 649 (80) 569
7,150 (3,254) 3,896
Intangible assets not subject to annual
amortisation
Trade name ........................................................... 928 (13) 915
8,078 (3,267)
Intangible assets measured at fair value
Mortgage servicing rights .................................... 474
5,285
The intangible asset amortisation expense under US GAAP for the next five years is estimated to be:
2007 2008 2009 2010 2011
US$m US$m US$m US$m US$m
Amortisation charge.......................... 765 662 548 515 411
(d) Derivatives and hedge accounting
Under IFRSs, all derivatives are recorded at fair value, consistent with US GAAP. Under IFRSs, HSBC has
elected either hedge accounting or fair value option for certain economic hedging relationships. With the