This summary is based on the second quarter fiscal 2007 earnings call conducted by HSBC Holdings PLC (HBC) on July 30, 2007.
Group Chairman: S. K. Green
Group Finance Director: D. J. Flint
Group Chief Executive: M. F. Geoghegan
Chairman of Hong Kong and Shanghai Banking Corporation: Vincent Cheng Hoi Chuen
Chief Executive CIBM: Stuart Gulliver
ABN AMRO: Ian Smillie
CEO of Hongkong and Shanghai Banking Corporation: Sandy Flockhart
NCB: Simon Willis
CEO, HSBC Finance Corporation and COO, HSBC - North America: Brendan McDonagh
Key Investors Issues
- Operating income was up 23% to $42,092 million compared to $34,334 million in 2006.
- Group pre-tax profit was up 13% to $14,159 million compared to $12,517 million in 2006.
- Earnings per share were 95 cents compared to 78 cents in the first half of 2006.
Year-to-Date Financial Highlights
Profit before tax was $14.2 billion, up 13%, and earnings per share were 95 cents per share, up 22%.
The Directors have approved a second interim dividend of 17 cents per share, which will be payable on 4 October 2007 with a scrip alternative, in accordance with planned schedule of quarterly dividends.
The results were driven by excellent performances across Asia, and in Corporate, Investment Banking and Markets (‘CIBM’) and Commercial Banking, which offset the impact of higher consumer finance impairment charges in the US and a challenging environment for Personal Financial Services business in Europe.
Results benefited from two specific items. The company recognized a gain of $1 billion in attributable profit, as a result of the dilution of holdings in mainland China associates. Excluding this exceptional gain, profit before tax rose 5% and attributable profit by 13%. Effective tax rate was unusually low at 18.7% in this period. The following comments exclude the impact of the dilution gain.
Revenues grew by $5.2 billion, or 16%, against cost growth of $2.5 billion, or 15%, contributing to an improved cost-efficiency ratio of 49.7%.
Asia drove profit growth, with Hong Kong ahead by 25% and Rest of Asia-Pacific by 37%. Latin America and Europe delivered results ahead of the prior year period by 16% and 13%, respectively. As expected, North America was lower by 35% as a consequence of higher impairment reserves. Results for the first half of 2006 benefited from exceptionally low impairment charges in the US as a result of changes in US bankruptcy law.
At a customer group level, Commercial Banking delivered pre-tax profits 20% ahead of last year, and both CIBM and Private Banking were at least 30% ahead.
Personal Financial Services businesses in Asia delivered strong results, with pre-tax profits 38% ahead of the interim stage last year. However, pre-tax profits in Personal Financial Services as a whole declined by 20% overall compared with the first half of 2006, owing to challenging conditions in the UK and to the weaknesses in US correspondent mortgage business. The actions taken to restructure and manage down exposure in this business are progressing well. The charge for impairments was lower than in the second half of last year and was in line with expectations.
Within these results, the Group’s Insurance operations made a significant contribution and the company sees insurance as a growth opportunity for the future.
The strong growth achieved in operating revenues reflects focus on seeking out growth markets and has allowed continuing to invest in organic expansion while maintaining a strong capital position and growing dividends to shareholders.
Average invested capital rose by $17 billion as the company pursued expansion opportunities around the world.
Tier one capital ratio remained strong at 9.3%. The company sees this as a competitive advantage, particularly in the current economic environment, and in light of the opportunities it sees to deploy this capital within businesses.
The company will continue to invest in developing its brand and the experience it promises for the customers and communities it serves around the world. The company will also extend brand to new markets and new business streams.
The company is refocusing its business to make the most of the opportunities presented by three major trends that are reshaping the world economy.
First, emerging markets are growing faster than mature economies. Second, world trade is growing significantly faster than world GDP. Third, longevity is increasing around the world.
