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 May, 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
FIRST QUARTER 2008 RESULTS^ - HIGHLIGHTS
* Net income attributable to common shares was C$155 million for the
quarter ended 31 March 2008, an increase of 11.5 per cent over the same
period in 2007.
* Return on average common equity was 21.2 per cent for the quarter ended
31 March 2008 compared with 22.0 per cent for the same period in 2007.
* The cost efficiency ratio was 48.7 per cent for the quarter ended 31
March 2008 compared with 52.2 per cent for the same period in 2007.
* Total assets were C$66.5 billion at 31 March 2008 compared with C$60.9
billion at 31 March 2007.
* Total funds under management were C$26.3 billion at 31 March 2008
compared with C$25.1 billion at 31 March 2007.
^ Results are prepared in accordance with Canadian generally accepted
accounting principles.
Financial Commentary
Overview
HSBC Bank Canada recorded net income attributable to common shares of C$155
million for the quarter ended 31 March 2008, an increase of C$16 million, or
11.5 per cent, from C$139 million for the first quarter of 2007. Compared to the
fourth quarter of 2007, net income attributable to common shares was C$44
million, or 39.6 per cent, higher in the first quarter of 2008. Results for the
quarter ended 31 December 2007 were impacted by a charge of C$27 million, after
related income taxes, relating to the bank's holdings of Canadian non-bank
sponsored Asset Backed Commercial Paper ("non-bank ABCP"). Excluding this
charge, net income attributable to common shares in the quarter ended 31 March
2008 was 12.3 per cent higher than the fourth quarter of 2007.
Commenting on the results, Lindsay Gordon, President and Chief Executive
Officer, said: "HSBC Bank Canada has made a satisfactory start to 2008 in light
of a difficult market. Uncertain conditions continue to affect the banking
industry resulting in a reduction in interest margins, although trading revenues
have increased due to market volatility. Despite the economic uncertainty, our
customer franchise remains very strong and drives the majority of our revenue
streams. The impact of our brand building activities, including HSBC's recent
advertising campaign at Toronto's Pearson International Airport, together with
our customer focused service propositions, is demonstrated by the success of our
Direct Savings Account and the continued growth in the number of HSBC Premier
Customers.
For the remainder of 2008, we will focus on increasing our customer base by
continuing to enhance our HSBC Premier and HSBC Direct customer service
propositions while growing our commercial business in a focused manner
consistent with economic uncertainty."
Net interest income
Net interest income of C$298 million for the quarter ended 31 March 2008 was
little changed from C$294 million in the same quarter of 2007. Average interest
earning assets for the quarter were C$5.6 billion, or 10.7 per cent, higher than
the same period in 2007. However, continuing competitive pressures and a
challenging interest rate environment impacted the net interest margin, which
decreased to 2.08 per cent for the quarter ended 31 March 2008 from 2.29 per
cent for the same period in 2007. Reductions in the prime rate in November 2007
as well as January and March 2008 resulted in an immediate reduction in interest
income on our floating rate loans without a corresponding reduction in interest
expense as deposits re-priced less quickly. In addition, widening credit spreads
experienced across the banking industry adversely impacted the cost of wholesale
deposits.
Net interest income in the first quarter of 2008 was also largely unchanged
compared with the fourth quarter of 2007. Although average interest earning
assets increased by C$1.3 billion compared to the fourth quarter of 2007, this
was offset by a lower net interest margin.
Non-interest revenue
Non-interest revenue was C$219 million for the first quarter of 2008 compared
with C$185 million in the same quarter of 2007, an increase of C$34 million, or
18.4 per cent. Trading revenues increased C$37 million as a result of volatile
foreign exchange and credit markets experienced in the first quarter of 2008 and
benefited from a positive impact of C$19 million arising from changes in the
fair value of certain debt obligations. Securitization income was C$17 million
higher due to increased activity as well as higher gains on securitizations of
loans arising from a reduction in the cost of funds. Deposit and payment service
charges and credit fees were also higher due to continued business growth. These
increases were partially offset by a reduction in capital market fees of
C$10 million due to lower capital market activity in the first quarter of 2008.
In addition, gains on available for sale securities were C$17 million lower
than in the same period last year due to a gain recorded in the first quarter
of 2007 from the sale of part of the bank's shares in the Montreal Exchange and
gains on other securities were C$7 million lower due to a sale of investments
within Private Equity Funds in the first quarter of 2007.
The increase in non-interest revenue from the fourth quarter of 2007 was C$57
million, or 35.2 per cent. Trading revenue was C$19 million higher as the
positive impact of changes in the value of certain debt obligations recorded at
fair value increased by C$13 million compared to the fourth quarter of 2007, due
to a further widening of credit spreads. The fourth quarter of 2007 included
charges for non-bank ABCP of C$8 million in trading and C$34 million write-down
recorded as a loss on available for sale securities. Securitization income
increased by C$14 million compared to the fourth quarter of 2007, mainly due to
increased activity as well as a reduction in the cost of funds. These increases
were partially offset by a C$5 million reduction in capital market fees.
Non-interest expenses
Non-interest expenses of C$252 million for the first quarter of 2008 were
largely unchanged compared to the same quarter of 2007. The cost efficiency
ratio of 48.7 per cent for the first quarter of 2008 improved from 52.2 per cent
for the same period in 2007, reflecting both strong control of expenses, which
were flat, together with increases in non-interest revenues. Salary expenses
grew reflecting increased staff following investments in expanding the branch
network, the direct bank and the payments and cash management businesses. This
was partially offset by lower variable compensation as a result of reductions in
capital market revenue.
Non-interest expenses were also largely unchanged compared to the fourth quarter
of 2007. Salaries and benefits were C$8 million higher primarily due to
increased benefit costs. Premises and equipment expenses increased by C$7
million arising from increased IT costs and higher occupancy expenses as the
bank continued to open new branches. These increases were offset by a reduction
in other expenses of C$16 million, mainly due to lower marketing expenses
impacted by the timing of certain marketing campaigns together with small
decreases in a number of other expense categories.
Credit quality and provision for credit losses
The provision for credit losses was C$25 million for the first quarter of 2008,
compared with C$10 million in the first quarter of 2007, and C$24 million for
the fourth quarter of 2007.
The previous benign credit environment combined with reversal of certain
provisions resulted in a very low level of provisions for the first quarter of
2007. However, in the second half of 2007, the credit environment deteriorated
and provisions for the first quarter of 2008 were at a similar level to that
experienced in the third and fourth quarters of 2007. An increase in retail
provisions and two specific manufacturing sector provisions in the first quarter
of 2008 resulted in an increase from the same quarter of 2007. Overall credit
quality remains strong, reflecting prudent lending standards.
The same factors impacted movements in impaired credit exposures. Gross impaired
credit facilities were C$314 million, $42 million higher than 31 December 2007,
and C$161 million, or 105 per cent, higher compared with C$153 million at 31
March 2007. Total impaired credit facilities, net of specific allowances for
credit losses, were C$213 million at 31 March 2008 compared with C$188 million
at 31 December 2007 and C$95 million at 31 March 2007. The general allowance for
credit losses remained unchanged at C$269 million compared with 31 December 2007
and at 31 March 2007. The total allowance for credit losses, as a percentage of
loans and acceptances outstanding, was 0.81 per cent at 31 March 2008 compared
with 0.79 per cent at 31 December 2007 and 0.77 per cent at 31 March 2007.
Income taxes
The effective tax rate in the first quarter of 2008 was 32.1 per cent compared
with 32.9 per cent in the first quarter of 2007 and 35.6 per cent in the fourth
quarter of 2007. The lower tax rate in the quarter ended 31 March 2008 compared
to the fourth quarter of 2007 was largely due to a write-down of future income
tax assets recorded in the fourth quarter of 2007 resulting from lower corporate
tax rates enacted by the Federal Government.
Balance sheet
Total assets at 31 March 2008 were C$66.5 billion, an increase of C$3.6 billion
from 31 December 2007, and C$5.6 billion from 31 March 2007. Commercial loans
and bankers' acceptances increased by C$1.2 billion since the end of 2007, as
commercial activity continued to be strong. Although residential mortgage
originations increased, this was offset by securitizations of C$0.9 billion
resulting in a net decrease of C$0.6 billion and consumer lending grew by C$0.5
billion. The securities portfolio and securities purchased under reverse
repurchase arrangements increased by C$1.7 billion in the quarter, improving the
bank's liquidity position.
Total deposits increased by C$1.1 billion to C$50.0 billion at 31 March 2008
from C$48.9 billion at 31 December 2007 and were C$4.0 billion higher compared
with C$46.0 billion at 31 March 2007. Personal deposits grew by C$1.2 billion
over 31 December 2007 driven by growth in High Rate and Direct Savings Accounts
while in the same period commercial deposits decreased marginally.
Total assets under administration
Funds under management were C$26.3 billion at 31 March 2008 compared with C$26.2
billion at 31 December 2007 and C$25.1 billion at 31 March 2007. Although funds
under management in the first quarter of 2008 benefited from good investment
sales, reductions in equity markets adversely impacted fund values. Including
custody and administration balances, total assets under administration were
C$37.3 billion compared with C$37.1 billion at 31 December 2007 and C$34.0
billion at 31 March 2007.
Capital management and regulatory capital ratios
On 1 January 2008 the bank adopted a revised Basel Capital Framework commonly
known as "Basel II" to comply with new regulations issued by the Office of the
Superintendent of Financial Institutions Canada. The bank's tier 1 and overall
capital ratios calculated in accordance with the new framework were 9.1 per cent
and 11.3 percent respectively.
Capital Adequacy ratios calculated in accordance with the previous "Basel I"
framework were 8.8 per cent for tier 1 and 11.3 per cent overall, at 31 December
2007 and 8.9 per cent and 11.0 per cent, respectively at 31 March 2007. Further
details of the bank's capital management process, including details of the
calculation of capital adequacy under the new "Basel II" framework will be
included in the bank's first quarter 2008 report to shareholders.
Dividends
During the first quarter of 2008, the bank declared and paid C$65 million in
dividends on HSBC Bank Canada 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 June
2008, for shareholders of record on 13 June 2008.
Accounting policies adopted in 2008
Effective 1 January 2008, the bank adopted new Canadian Institute of Chartered
Accountants (CICA) Handbook Standards requiring additional disclosures
particularly relating to the management of risk associated with Capital and
Financial Instruments. There was no impact on the results for the first quarter
of 2008 arising from the adoption of these new presentation and disclosure
standards, which will be reflected in HSBC Bank Canada's first quarter 2008
report to shareholders. Certain prior period amounts have been reclassified to
conform to the current year's presentation.
About HSBC Bank Canada
HSBC Bank Canada, a subsidiary of HSBC Holdings plc, has more than 180 offices.
With around 10,000 offices in 83 countries and territories and assets of
US$2,354 billion at 31 December 2007, the HSBC Group is one of the world's
largest banking and financial services organisations. Visit the bank's website
at hsbc.ca for more information about HSBC Bank Canada and its products and
services.
Copies of HSBC Bank Canada's first quarter 2008 report will be sent to
shareholders in May 2008.
Caution regarding forward-looking financial statements
This document may contain forward-looking statements, including statements
regarding the business and anticipated financial performance of HSBC Bank
Canada. These statements are subject to a number of risks and uncertainties
that may cause actual results to differ materially from those contemplated by
the forward-looking statements. Some of the factors that could cause such
differences include legislative or regulatory developments, technological
change, global capital market activity, changes in government monetary and
economic policies, changes in prevailing interest rates, inflation level and
general economic conditions in geographic areas where HSBC Bank Canada operates.
Canada is an extremely competitive banking environment and pressures on interest
rates and the bank's net interest margin may arise from actions taken by
individual banks acting alone. Varying economic conditions may also affect
equity and foreign exchange markets, which could also have an impact on the
bank's revenues. In addition, there may be a number of factors relating to the
valuation of non-bank ABCP. The factors disclosed above may not be complete and
there could be other uncertainties and potential risk factors not considered
here which may impact the bank's results and financial condition.
Summary
Quarter ended
Figures in C$ millions 31Mar08 31Dec07 31Mar07
(except per share amounts)
Earnings
Net income attributable to common shares 155 111 139
Basic earnings per share 0.31 0.22 0.28
Performance ratios (%)
Return on average common equity 21.2 15.6 22.0
Return on average assets 0.92 0.66 0.93
Net interest margin^ 2.08 2.13 2.29
Cost efficiency ratio^^ 48.7 54.5 52.2
Non-interest revenue:total revenue ratio 42.4 34.9 38.6
Credit information
Gross impaired credit exposures 314 272 153
Allowance for credit losses
- Balance at end of period 370 353 327
- As a percentage of gross impaired credit exposures 118% 130% 214%
- As a percentage of gross loans and acceptances 0.81% 0.79% 0.77%
Average balances
Assets 67,897 66,158 60,656
Loans 38,850 39,032 35,994
Deposits 50,972 49,755 45,855
Common equity 2,964 2,827 2,558
Capital ratios^^^ (%)
Tier 1 9.1 8.8 8.9
Total capital 11.3 11.3 11.0
Total assets under administration
Funds under management 26,283 26,213 25,083
Custodial accounts 11,006 10,914 8,868
Total assets under administration 37,289 37,127 33,951
^ 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.
^^^ The capital ratios for the quarter ended 31 March 2008 have been calculated
in accordance with the new Basel II capital adequacy framework, while those
for previous periods were calculated in accordance with the previous Basel
I framework.
Consolidated Statement of Income (Unaudited)
Quarter ended
Figures in C$ millions 31Mar08 31Dec07 31Mar07
(except per share amounts)
Interest and dividend income
Loans 642 678 597
Securities 73 74 58
Deposits with regulated financial institutions 36 55 59
751 807 714
Interest expense
Deposits 443 495 413
Debentures 10 10 7
453 505 420
Net interest income 298 302 294
Non-interest revenue
Deposit and payment service charges 27 27 23
Credit fees 31 29 27
Capital market fees 22 27 32
Investment administration fees 33 35 30
Foreign exchange 10 12 9
Trade finance 5 5 6
Trading revenue 51 32 14
(Losses) gains on available for sale securities - (34) 17
Gains on other securities 1 2 8
Securitization income 27 13 10
Other 12 14 9
219 162 185
Total revenue 517 464 479
Non-interest expenses
Salaries and employee benefits 142 134 143
Premises and equipment 35 28 31
Other 75 91 76
252 253 250
Net operating income before provision for
credit losses 265 211 229
Provision for credit losses 25 24 10
Income before taxes and non-controlling
interest in income of trust 240 187 219
Provision for income taxes 75 64 70
Non-controlling interest in income of trust 6 7 6
Net income 159 116 143
Preferred share dividends 4 5 4
Net income attributable to common shares 155 111 139
Average common shares outstanding (000) 498,668 493,668 488,668
Basic earnings per share (C$) 0.31 0.22 0.28
Condensed Consolidated Balance Sheet (Unaudited)
Figures in C$ millions At 31Mar08 At 31Dec07 At 31Mar07
Assets
Cash and deposits with Bank of Canada 520 510 457
Deposits with regulated financial institutions 2,944 3,063 4,380
3,464 3,573 4,837
Available for sale securities 6,349 5,639 5,572
Trading securities 1,630 1,227 2,211
Other securities 42 60 25
8,021 6,926 7,808
Securities purchased under reverse
repurchase agreements 6,700 6,122 3,592
Loans
- Businesses and government 21,940 21,322 19,059
- Residential mortgage 12,292 12,920 14,170
- Consumer 5,361 4,826 3,870
- Allowance for credit losses (370) (353) (327)
39,223 38,715 36,772
Customers' liability under acceptances 6,265 5,727 5,314
Derivatives 905 623 313
Land, buildings and equipment 149 149 122
Other assets 1,784 1,096 2,153
9,103 7,595 7,902
Total assets 66,511 62,931 60,911
Liabilities and shareholders' equity
Deposits
- Regulated financial institutions 1,646 1,535 2,162
- Individuals 19,454 18,291 17,248
- Businesses and governments 28,891 29,051 26,551
49,991 48,877 45,961
Acceptances 6,265 5,727 5,314
Securities sold under repurchase agreements 712 320 467
Derivatives 692 649 290
Securities sold short 906 623 1,919
Other liabilities 3,342 2,256 3,011
Non-controlling interest in trust and subsidiary 430 430 430
12,347 10,005 11,431
Subordinated debentures 805 801 560
Shareholders' equity
- Preferred shares 350 350 350
- Common shares 1,225 1,225 1,125
- Contributed surplus 207 206 203
- Retained earnings 1,552 1,462 1,266
- Accumulated other comprehensive income 34 5 15
3,368 3,248 2,959
Total liabilities and shareholders' equity 66,511 62,931 60,911
Condensed Consolidated Statement of Cash Flows (Unaudited)
Quarter ended
Figures in C$ millions 31Mar08 31Dec07 31Mar07
Cash flows provided by/(used in):
- operating activities 264 (30) 466
- financing activities 1,437 1,006 2,024
- investing activities (1,691) (847) (2,407)
Increase in cash and cash equivalents 10 129 83
Cash and cash equivalents, beginning of period 484 355 347
Cash and cash equivalents, end of period 494 484 430
Represented by:
- Cash resources per balance sheet 520 510 457
- less non-operating deposits^ (26) (26) (27)
- Cash and cash equivalents, end of period 494 484 430
^ Non-operating deposits are comprised primarily of cash restricted for recourse on
securitization 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: 06 May 2008