HSBC 2006 Annual Report Download - page 95

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8 per cent. On an underlying basis, pre-tax profits
rose by 5 per cent. Growth in profitability was
constrained by the non-recurrence of one-off
coverage bond receipts and other items related to the
2001 sovereign debt default and subsequent
pesification in Argentina, which added
US$122 million to 2005 profits. In addition, a gain
of US$89 million from the sale of the property and
casualty insurance business, HSBC Seguros de
Automoveis e Bens Limitada, to HDI Seguros S.A.,
was recorded in 2005. Excluding these prior year
profits, and on an underlying basis, profit before tax
increased by 21 per cent, with net operating income
increasing by 15 per cent and operating expenses by
12 per cent. Corporate, Investment Banking and
Markets delivered a strong performance, driven by
growth in fee and trading income, with notable
success in bringing Latin American borrowers to
global capital markets. Commercial Banking also
grew well as domestic economies expanded. During
2006, HSBC made two significant acquisitions in the
region. In May, HSBC acquired the Argentine
banking operations of Banca Nazionale del Lavoro
SpA (‘Banca Nazionale’) to build its distribution
capabilities and, in November, Grupo Banistmo in
Central America, adding markets in five countries
new to the Group.
The following commentary is on an underlying
basis.
Personal Financial Services reported a pre-tax
profit of US$800 million, a rise of 1 per cent over
2005, which had benefited from a US$89 million
gain on the sale of the Group’s property and casualty
insurance business in Brazil. Adjusting for this, pre-
tax profits grew by 16 per cent, driven by 12 per cent
growth in revenues and 10 per cent growth in costs.
The underlying improvement in revenues was led by
strong asset and deposit growth together with higher
fee income, offset in part by consequential expense
growth and a rise in impairment charges as the loan
book both grew and seasoned.
In Mexico, profit before tax rose by 10 per cent.
During 2006, 56,000 Personal Financial Services
customers were transferred to the Commercial
Banking customer group, where HSBC is better
placed to meet their banking requirements. Adjusting
for this, profits were 20 per cent higher, driven by
strong balance sheet growth and improved fee
income.
Adjusting for the gain in 2005 from the sale of
the property and casualty business, pre-tax profits
were 46 per cent higher in Brazil. The strong
domestic economy stimulated robust growth in
lending and a rise in the number of current account
holders. During the year, a new and innovative
internet banking service ‘Meu HSBC’ was introduced
to Personal Financial Services customers, allowing
them to conduct different types of transactions
online using the same password as their ATM card.
In Argentina, profit before tax was marginally
higher, with strong balance sheet growth, higher fees
and improved revenues from the insurance business.
This was largely offset by increased loan impairment
charges and cost growth incurred in support of
business expansion as HSBC prepared for an
improving domestic economic environment.
Net interest income rose by 11 per cent to
US$3,057 million, largely from balance sheet growth
partly offset by lower deposit spreads.
In Mexico, net interest income increased by
12 per cent to US$1,218 million. Adjusting for the
effect of customer account transfers to Commercial
Banking, net interest income rose by 20 per cent,
driven by strong growth in credit card and mortgage
balances and increases in deposits which were
generated by the ongoing success of the ‘Tu Cuenta’
product. Overall, asset spreads improved as the
relative increase in higher margin card balances led to
a favourable change in the product mix. By contrast,
deposit spreads narrowed as interest rates declined.
Excluding customer account transfers, average
deposit balances in Mexico rose by 10 per cent.
HSBC continued to be one of the market leaders with
respect to balance growth, despite fierce competition
from other banks, improving its market share by
35 basis points. A strong increase in low-cost
deposits was reflective of the continuing success of
‘Tu Cuenta’, the first integrated financial services
product of its kind offered locally, with nearly
400,000 new accounts opened in 2006. HSBC
Premier performed well as 84,000 new customers
were added during the year. Premier deposits
represented over one third of the total personal
deposit base at 31 December 2006. The income
benefit from higher deposit balances was partly
mitigated by reduced spreads in the falling interest
rate environment, notwithstanding the positive shift
in mix from growth in non-interest bearing deposit
balances.
The credit card market in Mexico was buoyant in
2006 and HSBC’s business performed very
successfully with average balances doubling to
US$886 million. Various initiatives were
implemented to develop the business, most notably
cross-sales to ‘Tu Cuenta’ customers, targeted
customer relationship campaigns to existing clients,
successful portfolio management strategies and
promotions, development of new sales channels and