HSBC 2012 Annual Report Download - page 74

HSBC HOLDINGS PLC
Report of the Directors: Operating and Financial Review (continued)
Global businesses > GPB
72
Global Private Banking
GPB serves high net worth individuals
and families with complex and
international needs.
2012 2011 2010
US$m US$m US$m
Net interest income .......... 1,294 1,439 1,345
Net fee income ................. 1,232 1,382 1,299
Other income ................... 646 471 449
Net operating income21 .. 3,172 3,292 3,093
LIC (charges)/
recoveries76 ................... (27) (86) 12
Net operating income .... 3,145 3,206 3,105
Total operating expenses .. (2,143) (2,266) (2,035)
Operating profit ............. 1,002 940 1,070
Income/(expense) from
associates77 .................... 7 4 (16)
Profit before tax ............. 1,009 944 1,054
RoRWA66 ......................... 4.6% 3.9% 4.1%
Significant progress towards rationalising
and repositioning our business
Over US$70m
of sustainable cost savings
Outstanding Private Bank
in Asia-Pacific and in the Middle East
(Private Banker International Awards, 2012)
Strategic direction
GPB works with high net worth clients to manage and preserve
their wealth while connecting them to global opportunities. We
focus on three strategic imperatives:
• implementing a new operating model to manage the business
globally and better service client needs, with an enhanced
systems platform and adherence to the highest risk and
compliance standards in the industry;
• intensifying collaboration within the Group, particularly with
CMB, to access entrepreneur wealth creation; and
• capturing growth by focusing investment on the most attractive
developed and faster-growing wealth markets, where GPB can
access the Group’s client franchise and its strong local and
international product capabilities.
For footnotes, see page 120.
The commentary is on a constant currency basis unless stated
otherwise.
Review of performance
• Reported profit before tax of US$1.0bn was 7%
higher than in 2011 on a reported basis and 8%
higher on a constant currency basis.
• On an underlying basis, which excludes the gain
on the sale of our operations in Japan (US$67m)
and associated operating results, profit before
tax was broadly unchanged as lower operating
expenses and decreased loan impairment
charges and other credit risk provisions were
largely offset by reduced revenues.
• Revenue declined by 3%, primarily due to lower
fee income. Brokerage fees fell, reflecting a
reduction in client transaction volumes due, in
part, to lower volatility. Fees from assets under
management and account service fees also
declined as challenging market conditions in the
latter half of 2011 led to a fall in average client
assets in 2012, coupled with a reduction in client
numbers as we repositioned our target client
base. Net interest income was lower as higher
yielding positions matured, opportunities for
reinvestment were limited by lower prevailing
yields and we selectively managed our
exposures to eurozone sovereign debt. Narrower
liability spreads and lower deposit balances in
Switzerland and the sale of our operations in
Japan also contributed to the fall in net interest
income. These factors were partly offset by
gains on the sale of our operations in Japan and
our headquarters building in Switzerland of
US$67m and US$53m, respectively.
• Loan impairment charges and other credit risk
provisions reduced by 68% as a result of the
non-recurrence of charges relating to available-
for-sale Greek sovereign debt securities and
lower individually assessed and collective
impairments in the UK. These factors were
partly offset by lower recoveries in the US.
• Operating expenses decreased by 4%, primarily
due to a managed reduction in average staff
numbers and lower performance costs. The
decrease in staff costs was partly offset by
higher customer redress provisions, costs
relating to the merger of pension funds in
Switzerland, and increased restructuring and
other related costs.