FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Report of Foreign Private Issuer
Pursuant to Rule 13a - 16 or 15d - 16 of
the Securities Exchange Act of 1934
For the month of February, 2008
HSBC Holdings plc
42nd Floor, 8 Canada
Square, London E14 5HQ, England
(Indicate by check mark whether the registrant files or will file annual
reports under cover of Form 20-F or Form 40-F).
Form 20-F X Form 40-F ......
(Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of
1934).
Yes....... No X
(If "Yes" is marked, indicate below the file number assigned to the registrant
in connection with Rule 12g3-2(b): 82- ..............)
HSBC BANK CANADA
RESULTS^ FOR THE FOURTH QUARTER AND
YEAR ENDED 31 DECEMBER 2007
- HIGHLIGHTS
- Net income attributable to common shares was C$530 million for the year
ended 31 December 2007, an increase of 6.6 per cent over the year ended 31
December 2006.
- Net income attributable to common shares was C$111 million for the quarter
ended 31 December 2007, a decrease of 13.3 per cent compared to the same
period in 2006.
- Return on average common equity was 19.8 per cent for the year ended 31
December 2007 and 15.6 per cent for the quarter ended 31 December 2007
compared with 21.1 per cent and 20.6 per cent, respectively, for the same
periods in 2006.
- The cost efficiency ratio was 51.7 per cent for the year ended 31 December
2007 and 54.5 per cent for the quarter ended 31 December 2007 compared with
51.3 per cent and 51.4 per cent, respectively, for the same periods in
2006.
- Total assets were C$62.9 billion at 31 December 2007, an increase of C$6.1
billion, or 10.7 per cent, from C$56.8 billion at 31 December 2006.
- Total funds under management were C$26.2 billion at 31 December 2007, an
increase of C$2.9 billion, or 12.4 per cent, from C$23.3 billion at 31
December 2006.
^ Results are prepared in accordance with Canadian generally accepted
accounting principles.
Financial Commentary
Overview
HSBC Bank Canada ("the bank") recorded net income attributable to common shares
for the year ended 31 December 2007 of C$530 million compared with C$497 million
for 2006, an increase of C$33 million, or 6.6 per cent. Net income attributable
to common shares was C$111 million for the fourth quarter ended 31 December
2007, a decrease of C$17 million, or 13.3 per cent, from C$128 million for the
fourth quarter of 2006.
During the year, the bank took a charge in respect of its holdings of Canadian
non-bank sponsored Asset Backed Commercial Paper ("non-bank ABCP") of C$47
million (C$30 million net of related income taxes). In 2007 the bank also
recorded a gain of C$21 million after related income taxes on disposal of its
shares in the Montreal Stock Exchange.
Commenting on the results, Lindsay Gordon, President and Chief Executive
Officer, said: "The bank's underlying business remains strong and investments in
key businesses and markets are delivering growth in revenues. The liquidity
problems which emerged in the Canadian Asset Backed Commercial Paper market in
August posed a challenge to our industry and HSBC joined with other domestic and
international banks in engaging constructively to pursue an orderly market
solution to the situation. HSBC Bank Canada subsequently took some exposure onto
its own balance sheet and our charge represents impairments on such positions;
these positions include a very small element of exposure to the US sub-prime
mortgage market which is the bank's only exposure to that market.
"The outlook for 2008 is mixed. The Canadian economy remains resilient with
strong growth in Western Canada. Both personal and commercial segments of the
bank's business remain very competitive with ongoing pressure on margins,
particularly in the personal segment. The bank will stay focused on building its
business for sustained growth. We see opportunities for growth across all the
bank's key business lines, and we will re-engineer key processes to further
improve the quality and consistency of customer service to achieve this."
Net interest income
Net interest income was C$302 million for the quarter ended 31 December 2007
compared with C$291 million for the same quarter in 2006, an increase of C$11
million, or 3.8 per cent. The increase was partially driven by growth in assets
in all businesses with average interest-earning assets increasing by C$8.0
billion or 16.5 per cent compared with the same period in 2006. As a result of
widening credit spreads both in Canada and internationally that began in the
third quarter, the cost of funds, particularly wholesale deposits has increased
by almost 20 basis points. This resulted in a reduction in net interest margin
to 2.13 per cent for the quarter compared with 2.30 per cent for the same period
in 2006.
Net interest income in the fourth quarter of 2007 was C$17 million lower than
the third quarter of 2007. While customer loans continued to grow during the
quarter, increased interest income from this source was eroded by a reduction in
net interest margin, from 2.33 per cent in the third quarter to 2.13 per cent,
driven by the higher cost of wholesale deposits.
For the year ended 31 December 2007, net interest income was C$1,222 million
compared with C$1,115 million for 2006, an increase of C$107 million, or 9.6 per
cent. Again, for the year as a whole, the increases derived from the growth in
assets were partially offset by the decrease in net interest margin to 2.26 per
cent compared with 2.33 per cent in 2006.
Canadian non-bank sponsored Asset Backed Commercial Paper
As at 31 December 2007, the bank held C$230 million of non-bank ABCP, net of
provisions, in available for sale ("AFS") securities and C$50 million, net of
write-downs, in trading securities. During the year, the bank took a charge in
respect of its holdings of Canadian non-bank sponsored Asset Backed Commercial
Paper ("non-bank ABCP") of C$47 million.
Non-interest revenue
Non-interest revenue was C$162 million for the fourth quarter of 2007 compared
with C$168 million in the same quarter of 2006, a decrease of C$6 million, or
3.6 per cent. Excluding the impact of a C$42 million reduction relating to
non-bank ABCP, non-interest revenues were C$204 million, or 21.4 per cent higher
than the same period in 2006. Investment administration fees were higher as the
bank's funds under management in the wealth management business continued to
deliver good growth. Deposit and payment service charges and credit fees
increased as a result of increased customer activity. Capital markets fees were
lower due to curtailed activity resulting from market uncertainty, particularly
from new issue underwriting and advisory mandates. Trading income was higher due
to a C$11 million increase in foreign exchange trading arising from the
volatility of Canadian and United States currency movements in the fourth
quarter of 2007. There was also a positive impact of C$7 million arising from
changes in the carrying values of certain debt obligations recorded at fair
value, offset by a C$8 million mark-to-market adjustment on non-bank ABCP held
in the trading portfolio. The losses on AFS securities in 2007, compared to
realized investment gains in 2006, were due to the C$34 million write-down of
non-bank ABCP held in the AFS securities portfolio, together with a lower
increase in the fair value of investments in private equity funds in the fourth
quarter of 2007, compared to the fourth quarter of 2006.
In the fourth quarter of 2007, non-interest revenue was C$22 million lower
compared with the previous quarter, mainly as a result of the losses on non-bank
ABCP within AFS securities of C$34 million. Trading revenue in the quarter was
also lower due to the C$8 million mark-to-market adjustment on non-bank ABCP
held in the trading portfolio and a C$4 million lower positive effect from
changes in the fair value of certain debt obligations. However, these were
partially offset by increases in capital markets fees, deposit and payment
service charges and investment administration fees, as well as increased
revenues from foreign exchange. Foreign exchange trading revenues increased
considerably in the fourth quarter due to greater exchange rate volatility.
For the year ended 31 December 2007, non-interest revenue was C$708 million,
C$57 million, or 8.8 per cent, higher compared with C$651 million for 2006.
Excluding the impact of non-bank ABCP and gains on sale of Montreal Stock
Exchange shares, the year-on-year increase is 12.0 per cent. Trading income was
higher, arising from strong gains recorded from foreign exchange trading
together with a positive impact of C$23 million arising from changes in the fair
value of certain debt obligations. However, this was partially offset by the C$8
million mark-to-market adjustment of trading non-bank ABCP. Investment
administration fees were strongly ahead together with increases in deposit and
payment service charges and credit fees. Other income increased mainly due to
higher activity in the bank's investor immigration programme. Capital markets
fees were lower arising from lower activity as a result of uncertainties in the
markets. Losses on AFS securities in 2007 compared to gains on investment
securities recorded in 2006 resulted from the write-down in non-bank ABCP and
lower increases in the fair value of private equity funds, offset by the gains
on the sale of Montreal Stock Exchange shares in 2007.
Non-interest expenses and operating efficiency
Non-interest expenses were C$253 million for the fourth quarter of 2007 compared
with C$236 million in the same quarter of 2006, an increase of C$17 million, or
7.2 per cent. Salaries and employee benefits expenses were higher in the fourth
quarter of 2007 due to an increase in the employee base. This resulted from
growth in new branches in Alberta and the Greater Toronto Area, together with
investments in the Direct Bank, Private Banking and Wealth Management and the
Payments and Cash Management businesses. Pension plan and post-retirement costs
were also higher than in the comparative period, although this was partially
offset by a reduction in stock-based compensation. Premises and equipment
expenses were largely unchanged, although depreciation was lower compared to the
fourth quarter of 2006 which was impacted by a change in estimate of the useful
life of improvements to leasehold properties. Marketing expenses also increased
as the bank continued to build the HSBC brand in Canada. Operating losses were
higher compared to the fourth quarter of 2006, mainly due to increased debit
card fraud. Technology costs also increased as the bank invested further in new
systems to support strategic initiatives. Although the cost efficiency ratio for
the fourth quarter of 2007 increased to 54.5 per cent compared to 51.4 per cent
for 2006, excluding the impact of the write-down of non-bank ABCP, the ratio was
50.0 per cent.
Non-interest expenses for the fourth quarter of 2007 were slightly higher
compared with the third quarter of 2007. Salaries and benefits were affected by
increased variable compensation driven by higher capital markets revenues
compared to the prior quarter, although partially offset by lower stock-based
compensation. Other expenses increased due mainly to increased marketing
expenses.
For the year ended 31 December 2007, non-interest expenses were C$997 million
compared with C$906 million for 2006, an increase of C$91 million, or 10.0 per
cent. Salaries and benefits expenses were higher due to an increased employee
base, increased variable compensation, and higher pension and other
post-retirement benefits costs. Other expenses were higher due to continued
investment in the business, higher costs arising from increased customer
transactions, and increased marketing costs supporting the development of the
HSBC brand. The cost efficiency ratio was 51.7 per cent compared with 51.3 per
cent for 2006. Excluding the impact of non-bank ABCP and the sale of Montreal
Stock Exchange shares, the cost efficiency ratio for 2007 improved marginally to
51.1 per cent.
Credit quality and provision for credit losses
The provision for credit losses was C$24 million for the fourth quarter of 2007,
compared with C$17 million in the fourth quarter of 2006, and C$21 million for
the third quarter of 2007. The provision for the year ended 31 December 2007 was
C$67 million compared to C$34 million for 2006. Overall credit quality remains
sound, reflecting prudent lending standards and strong economic conditions in
Canada. The increased charge in the fourth quarter of 2007 and for the year
ended 31 December 2007 compared to the same periods in 2006 was due to increases
in provisions in certain resource sectors with weaker industry conditions given
the strength of the Canadian dollar. However, 2006 was an exceptionally benign
credit environment, resulting in a low level of provisions.
The same factors impacted movement in impaired credit exposures. Gross impaired
credit exposures were C$272 million, C$66 million higher compared with C$206
million at 30 September 2007, and C$95 million higher compared with C$177
million at 31 December 2006. Total impaired exposures, net of specific
allowances for credit losses, were C$188 million at 31 December 2007 compared
with C$139 million at 30 September 2007 and C$119 million at 31 December 2006.
The general allowance for credit losses of C$269 million remained unchanged from
30 September 2007 and 31 December 2006. The total allowance for credit losses,
as a percentage of loans and acceptances outstanding, was 0.79 per cent at 31
December 2007 compared with 0.75 per cent at 30 September 2007 and 0.80 per cent
at 31 December 2006. The bank considers the total allowance for credit losses to
be appropriate given the credit quality of its portfolios and the current credit
environment. The bank's loan portfolio has no exposure to the US sub-prime
market.
Income taxes
The effective tax rate in the fourth quarter of 2007 was 35.6 per cent, which
compares to 33.2 per cent in the same quarter of 2006 and 35.2 per cent in the
third quarter of 2007. The increase in tax rate in the fourth quarter of 2007
was primarily due to a write-down of future income tax assets of C$11 million
resulting from the lower corporate income tax rates enacted by the federal
government in the quarter.
The effective tax rate for the full year in 2007 was 34.8 per cent compared with
35.6 per cent in 2006 primarily due to a higher level of gains subject to a
lower tax rate in 2007 compared to the previous year.
Balance sheet
Total assets at 31 December 2007 were C$62.9 billion, an increase of C$6.1
billion from 31 December 2006. The loan portfolio continues to be a major driver
of balance sheet growth. Commercial loans and bankers' acceptances grew C$4.1
billion from 31 December 2006 on the continued strong economy, particularly in
Western Canada. Residential mortgages increased C$1.4 billion during 2007, but
as a result of securitisation, there was a net decrease of C$1.1 billion.
Balance sheet management activity in the Treasury and Markets business has
increased the securities portfolio by C$2.2 billion, and there were increases in
balances under reverse repurchase agreements of C$1.4 billion, as a result of
the tightening of liquidity in the markets.
Total deposits increased C$4.7 billion to C$48.9 billion at 31 December 2007
from C$44.2 billion at 31 December 2006. Growth in personal deposits resulted
largely from the new High Rate and Direct Savings accounts. Commercial deposits
were higher due to growth in term products, driven by improved product offerings
in the Payments and Cash Management business and growth in commercial banking
relationships.
Total assets under administration
Funds under management were C$26.2 billion at 31 December 2007 compared with
C$27.1 billion at 30 September 2007 and C$23.3 billion at 31 December 2006.
Including custody and administration balances, total assets under administration
were C$37.1 billion compared with C$36.4 billion at 30 September 2007 and C$31.9
billion at 31 December 2006.
Growth in funds under management in 2007 benefited from strong acquisitions of
new clients, strong investment sales and the success of Private Client products
assisted by growth in equity markets, although a slight reduction in those
markets was experienced in the final quarter of 2007.
Capital management
The tier 1 capital ratio was 8.8 per cent and the total capital ratio was 11.3
per cent at 31 December 2007. These compare with 8.5 per cent and 10.9 per cent,
respectively, at 30 September 2007 and 9.0 per cent and 11.1 per cent,
respectively, at 31 December 2006.
In addition to net income, regulatory capital increased from an issue of C$100
million of common shares during the fourth quarter of 2007 and an issue of C$400
million in subordinated debentures in the second quarter of 2007. These issues
were partially offset by dividends declared on preferred and common shares and
the redemption of C$100 million and C$25 million in subordinated debentures in
the second and third quarters of 2007 respectively.
Accounting policies adopted in 2007
Effective 1 January 2007, the bank adopted new Canadian Institute of Chartered
Accountants (CICA) Handbook Standards relating to the recognition, measurement
and disclosure of financial instruments including hedges and comprehensive
income. Although these standards were adopted prospectively, without restatement
of prior year comparatives, the impact on initial adoption as well as the
effects of certain transitional adjustments have been recorded as adjustments to
opening retained earnings and opening accumulated other comprehensive income.
Although there was no material impact on the results for the fourth quarter
arising from the adoption of these new standards, more detailed information on
the impact of adopting these standards was included in HSBC Bank Canada's first
quarter 2007 report to shareholders and will be included in the bank's annual
report and consolidated financial statements for 2007.
Dividends
During the fourth quarter of 2007, C$65 million in dividends were declared and
paid on the bank's common shares.
Regular quarterly dividends of 31.875 cents per share have been declared on HSBC
Bank Canada Class 1 Preferred Shares - Series C and 31.25 cents per share on
Class 1 Preferred Shares - Series D. The dividends will be payable on 30 March
2008, to shareholders of record on 14 March 2008.
About HSBC Bank Canada
HSBC Bank Canada, a subsidiary of HSBC Holdings plc, has more than 170 offices.
With around 10,000 offices in 83 countries and territories and assets of
US$2,150 billion at 30 June 2007, the HSBC Group is one of the world's largest
banking and financial services organisations. Visit the bank's website at
hsbc.ca for more information about HSBC Bank Canada and its products and
services.
Copies of HSBC Bank Canada's Annual Report for 2007 will be sent to shareholders
in March 2008.
Caution regarding forward-looking financial statements
This document may contain forward-looking statements, including statements
regarding the business and anticipated financial performance of HSBC Bank
Canada. These statements are subject to a number of risks and uncertainties that
may cause actual results to differ materially from those contemplated by the
forward-looking statements. Some of the factors that could cause such
differences include legislative or regulatory developments, technological
change, global capital market activity, changes in government monetary and
economic policies, changes in prevailing interest rates, inflation level and
general economic conditions in geographic areas where HSBC Bank Canada operates.
Canada is an extremely competitive banking environment and pressures on interest
rates and the bank's net interest margin may arise from actions taken by
individual banks acting alone. Varying economic conditions may also affect
equity and foreign exchange markets, which could also have an impact on the
bank's revenues. In addition, there may be a number of factors relating to the
valuation of non-bank ABCP. The factors disclosed above may not be complete and
there could be other uncertainties and potential risk factors not considered
here which may impact the bank's results and financial condition.
Summary
Quarter ended Year ended
Figures in C$ millions
(except per share amounts) 31Dec07 30Sep07 31Dec06 31Dec07 31Dec06
Earnings
Net income attributable
to common shares 111 145 128 530 497
Basic earnings per share 0.22 0.30 0.26 1.08 1.02
Performance ratios (%)
Return on average common
equity 15.6 21.3 20.6 19.8 21.1
Return on average assets 0.66 0.91 0.87 0.84 0.91
Net interest margin^ 2.13 2.33 2.30 2.26 2.33
Cost efficiency ratio^^ 54.5 48.9 51.4 51.7 51.3
Non-interest revenue:total
revenue ratio 34.9 36.6 36.6 36.7 36.9
Credit information
Gross impaired credit
exposures 272 206 177
Allowance for credit losses 353 336 327
- As a percentage of gross
impaired credit exposures 130% 163% 185%
- As a percentage of gross
loans and acceptances 0.79% 0.75% 0.80%
Average balances
Assets 66,158 62,934 58,883 63,273 54,118
Loans 39,032 38,405 34,943 37,635 33,659
Deposits 49,755 47,588 44,491 47,483 41,904
Common equity 2,827 2,693 2,464 2,674 2,360
Capital ratios (per cent)
Tier 1 8.8 8.5 9.0
Total capital 11.3 10.9 11.1
Total assets under
administration
Funds under management 26,213 27,129 23,340
Custodial accounts 10,914 9,279 8,574
Total assets under
administration 37,127 36,408 31,914
^ Net interest margin is net interest income divided by average interest earning assets for the period.
^^ The cost efficiency ratio is defined as non-interest expenses divided by total revenue.
Consolidated Statement of Income (Unaudited)
Quarter ended Year ended
Figures in C$ millions
(except per share amounts) 31Dec07 30Sep07 31Dec06 31Dec07 31Dec06
Interest and dividend income
Loans 678 663 593 2,554 2,144
Securities 74 70 49 273 186
Deposits with regulated
financial institutions 55 61 62 237 234
807 794 704 3,064 2,564
Interest expense
Deposits 495 464 406 1,803 1,422
Debentures 10 11 7 39 27
505 475 413 1,842 1,449
Net interest income 302 319 291 1,222 1,115
Non-interest revenue
Deposit and payment service
charges 27 25 23 100 90
Credit fees 29 30 26 114 106
Capital market fees 27 21 30 109 115
Investment administration fees 35 33 28 131 103
Foreign exchange 12 10 9 40 32
Trade finance 5 6 6 23 24
Trading revenue 32 40 17 102 69
(Losses) gains on available for
sale (2006 - investment)
securities (34) (5) 2 (13) 3
Gains on other securities 2 - 5 11 27
Securitisation income 13 10 13 42 42
Other 14 14 9 49 40
162 184 168 708 651
Total revenue 464 503 459 1,930 1,766
Non-interest expenses
Salaries and employee benefits 134 132 124 548 503
Premises and equipment 28 31 34 122 116
Other 91 83 78 327 287
253 246 236 997 906
Net operating income before
provision for credit losses 211 257 223 933 860
Provision for credit losses 24 21 17 67 34
Income before taxes and non-
controlling interest in
income of trust 187 236 206 866 826
Provision for income taxes 64 81 66 292 285
Non-controlling interest in
income of trust 7 6 7 26 26
Net income 116 149 133 548 515
Preferred share dividends 5 4 5 18 18
Net income attributable to
common shares 111 145 128 530 497
Average common shares
outstanding (000) 493,668 488,668 488,668 489,918 488,668
Basic earnings per
share (C$) 0.22 0.30 0.26 1.08 1.02
Condensed Consolidated Balance Sheet (Unaudited)
Figures in C$ millions At 31Dec07 At 31Dec06
Assets
Cash and non-interest bearing deposits with the
Bank of Canada and other banks 510 368
Deposits with regulated financial institutions 3,063 4,346
3,573 4,714
Available for sale securities 5,639 -
Investment securities - 3,554
Trading securities 1,227 1,162
Other securities 60 50
6,926 4,766
Securities purchased under reverse repurchase
agreements 6,122 4,760
Loans
- Businesses and government 21,322 17,819
- Residential mortgage 12,920 14,016
- Consumer 4,826 3,728
- Allowance for credit losses (353) (327)
38,715 35,236
Customers' liability under acceptances 5,727 5,130
Derivatives 623 308
Land, buildings and equipment 149 121
Other assets 1,096 1,735
7,595 7,294
Total assets 62,931 56,770
Liabilities and shareholders' equity
Deposits
- Regulated financial institutions 1,535 1,469
- Individuals 18,291 17,039
- Businesses and governments 29,051 25,665
48,877 44,173
Acceptances 5,727 5,130
Securities sold under repurchase agreements 320 162
Derivatives 649 316
Securities sold short 623 715
Other liabilities 2,256 2,413
Non-controlling interest in trust and subsidiary 430 430
10,005 9,166
Subordinated debentures 801 563
Shareholders' equity
- Preferred shares 350 350
- Common shares 1,225 1,125
- Contributed surplus 206 202
- Retained earnings 1,462 1,191
- Accumulated other comprehensive income 5 -
3,248 2,868
Total liabilities and shareholders' equity 62,931 56,770
Condensed Consolidated Statement of Cash Flows (Unaudited)
Quarter ended Year ended
Figures in C$ millions 31Dec07 30Sep07 31Dec06 31Dec07 31Dec06
Cash flows provided by (used in):
- operating activities (30) 205 361 1,013 673
- financing activities 1,006 1,867 1,165 4,959 5,247
- investing activities (847) (2,136) (1,541) (5,835) (5,964)
(Decrease) increase in cash and
cash equivalents 129 (64) (15) 137 (44)
Cash and cash equivalents,
beginning of period 355 419 362 347 391
Cash and cash equivalents,
end of period 484 355 347 484 347
Represented by:
- Cash and non-interest bearing
deposits with the Bank of
Canada and other banks 510 384 368
- less non-operating deposits
with regulated financial
institutions^ (26) (29) (21)
- Cash and cash equivalents,
end of period 484 355 347
^ Non-operating deposits comprise cash restricted for recourse on securitisation transactions.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
HSBC Holdings plc
By:
Name: P A Stafford
Title: Assistant Group Secretary
Date: 26 February 2008