HSBC Bank Canada - Third quarter 2009 results*
- Net income attributable to common shares was C$101 million for the
quarter ended 30 September 2009, a decrease of 15.8 per cent over the
same period in 2008(xx).
- Net income attributable to common shares was C$300 million for the
nine months ended 30 September 2009, a decrease of 34.5 per cent over
the same period in 2008(xx).
- Return on average common equity was 11.8 per cent for the quarter
ended 30 September 2009 and 11.7 per cent for the nine months ended
30 September 2009 compared with 13.6 per cent and 17.8 per cent
respectively for the same periods in 2008(xx).
- The cost efficiency ratio was broadly stable at 52.2 per cent for the
quarter ended 30 September 2009 and 50.0 per cent for the nine months
ended 30 September 2009 compared with 53.0 per cent and 49.7 per cent
respectively for the same periods in 2008(xx).
- Total assets were C$71.6 billion at 30 September 2009 compared with
C$71.5 billion at 30 September 2008(xx).
- Total funds under management increased to C$27.0 billion at 30
September 2009 compared with C$24.6 billion at 30 September 2008.
- Tier 1 capital ratio of 11.7 per cent and a total capital ratio of
14.4 per cent at 30 September 2009 compared to 10.6 per cent and
13.2 per cent respectively at 30 September 2008(xxx).
* Results are prepared in accordance with Canadian generally accepted
accounting principles.
(xx) Restated to reflect accounting for the acquisition of HSBC
Financial Corporation Limited ("HSBC Financial") on 30 November
2008. Results for the quarter and nine months ended 30 September
2008 have been restated to combine the previously reported results
of the bank with those of HSBC Financial to reflect the continuity
of interests method of accounting, as detailed in note 2 to the
consolidated financial statements in the 2008 Annual Report.
References in this news release to "banking operations" relate to
those excluding HSBC Financial and "Consumer Finance" refers to the
businesses of HSBC Financial.
(xxx) Calculated using guidelines issued by the Office of the
Superintendent of Financial Institutions in accordance with Basel
II capital adequacy framework. Tier 1 and total capital ratios at
30 September 2008 have not been restated to include HSBC Financial.
This news release is issued by
HSBC Bank Canada
HSBC Bank Canada Financial Commentary
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Overview
HSBC Bank
Commenting on the results,
"Thanks to higher revenues from core banking and capital market activities, continued tight cost control and a fall in quarterly credit losses, HSBC Bank
"Both HSBC Bank
Net interest income
Net interest income for the third quarter of 2009 was C$368 million, compared with C$421 million for the same quarter in 2008, a decrease of C$53 million, or 12.6 per cent. Average interest earning assets decreased 1.6 per cent from C$63.6 billion to C$62.6 billion. In addition, there was a decrease in net interest margin to 2.33 per cent in the quarter compared with 2.63 per cent in the same quarter of 2008.
Net interest income from banking operations, which consists of Personal Financial Services, Commercial Banking and Global Banking and Markets, decreased by C$24 million or 7.8 per cent. This was as a result of a decrease in net interest margin to 1.89 per cent in the third quarter from 2.07 per cent in the same period last year. While average interest earning assets increased marginally from C$58.7 billion to C$59.1 billion, there was a shift into more liquid assets with a lower yield. Multiple reductions in the prime rate during 2008 and 2009 resulted in reduced interest income on our floating rate loans, which was not offset by an equal reduction in interest expense as our deposits re-priced downwards more slowly. Also impacting net interest margin was the reduction in the value of interest free funds and low interest deposits in a falling interest rate environment as well as the lower rates earned on government and other securities, which represented a higher proportion of earning assets compared to previous periods while interest earning loans fell to C$36.3 billion from C$39.8 billion for the same period in the prior year. Wider credit spreads experienced across the banking industry also adversely impacted the relative cost of wholesale funding compared with the same period in the prior year.
Net interest income for the Consumer Finance business decreased by C$29 million or 25.2 per cent compared to the same quarter in 2008 mainly as a result of a reduction in average receivables by C$1.0 billion or 22.2 per cent, including consumer finance, automobile and other loans. In addition, the current period includes a provision relating to merchant discounts.
Net interest income for the three months ended
On a year-to-date basis, net interest income was C$1,086 million in 2009, compared with C$1,269 million in the same period last year, a decrease of C$183 million, or 14.4 per cent. This was a result of lower average interest earning assets of C$62.2 billion compared to C$63.4 billion, together with the impact of a reduction of net interest margin to 2.33 per cent from 2.67 per cent. The reduction in average interest earning assets reflected the sale of the automobile loan portfolio in
Non-interest revenue
Non-interest revenue was C$190 million in the third quarter of 2009, compared with C$171 million for the same quarter in 2008, an increase of C$19 million, or 11.1 per cent. Revenues from customer banking activities, including deposit and payment service charges, trade finance and credit fees, were C$13 million higher in total than for the same quarter in 2008 reflecting the underlying strength and robustness of our core banking business. Capital market fees were C$18 million higher due to increased underwriting activity in 2009 and an increase in equity and debt markets which resulted in higher commissions earned on client trading activities. Investment administration fees were C$4 million lower reflecting the lower market values of customer portfolios compared to the prior year.
Trading revenue was C$40 million lower in the third quarter of 2009, mainly due to a mark down of C$42 million on non-bank Asset Backed Commercial Paper ("ABCP") arising from a credit rating downgrade on certain of the Master Asset Vehicle ("MAV") notes. Losses on available-for-sale ("AFS") and other securities were unchanged from the same quarter in 2008, although an other- than-temporary impairment ("OTTI") of C$11 million was recorded on certain AFS mortgage backed securities, compared to an OTTI of C$13 million on non-bank ABCP designated as AFS in 2008. Securitization income was C$9 million higher due to a higher volume of transactions. Other income was C$23 million higher due to a loss recorded on the sale of the auto loan portfolio in 2008, offset by a reduction in Canadian Investor Immigrant Program ("Canadian IIP") fees in 2009. Other net mark-to-market accounting gains and losses include the impact of changes in interest and foreign exchange rates and credit spreads on the recorded amounts of our own debt obligations designated at fair value, US dollar funding of US dollar denominated AFS securities where the corresponding translation gains or losses are recorded in shareholders' equity through accumulated other comprehensive income and derivatives used for hedging purposes. In the current quarter, an accounting gain of C$12 million arose from the impact of the strength of the Canadian dollar during 2009 compared to the US dollar offset by tightening of credit spreads and slight increases in long-term interest rates. In total, other net mark-to-market accounting gains were unchanged from the same period in the prior year.
Non-interest revenue for the three months ended
On a year-to-date basis, non-interest revenue was C$684 million in 2009, compared with C$614 million in the same period last year, an increase of C$70 million, or 11.4 per cent. Deposit and payment service charges, credit fees and trade finance revenue increased in total by C$25 million and capital market fees increased by C$29 million. Investment administration fees were C$18 million lower due to lower market values of customer portfolios and foreign exchange revenues were C$5 million lower. Other income was C$9 million lower mainly as a result of a reduction in the number of closed "Canadian IIP" transactions. Trading revenue was C$7 million lower due to a C$23 million increase in the mark-to-market writedown of non-bank ABCP. Excluding this charge, core trading income was C$16 million higher. Gains on AFS and other securities were C$20 million higher due to realized gains on AFS securities recognized in the second quarter noted above. Other net mark-to-market accounting gains and losses were C$37 million higher on a year-to-date basis than the previous year, reflecting the considerable strength of the Canadian dollar compared to the US dollar and falling interest rates partially offset by the impact of tightening credit spreads on the fair value of our own debt.
Non-interest expenses
Non-interest expenses were C$291 million in the third quarter of 2009, compared with C$314 million for the same period in 2008, a decrease of C$23 million, or 7.3 per cent. Salaries and employee benefits were C$3 million lower, reflecting a lower number of staff, particularly in the Consumer Finance business as a result of reductions in its branch network. Premises and equipment costs increased by C$4 million, in part as a result of increased amortization costs arising from investments in new equipment and technology. Other non-interest expenses were C$24 million lower due to lower commodity tax provisions, transaction related costs and information technology expenses as well as the impact of cost control measures. The cost efficiency ratio for the third quarter of 2009 decreased to 52.2 per cent from 53.0 per cent in the same period in 2008.
Non-interest expenses for the three months ended
On a year-to-date basis, non-interest expenses were C$885 million in 2009, compared with C$935 million in the same period last year, a decrease of C$50 million, or 5.3 per cent. Salaries and employee benefits were C$18 million lower, reflecting a lower number of staff, particularly in the Consumer Finance business as a result of reductions in its branch network and lower incentive compensation offset by higher costs incurred to reduce staffing levels. Premises and equipment costs increased by C$11 million, in part as a result of increased amortization costs as well as increased investments in new premises in key target markets. Other non-interest expenses were C$43 million lower due to reductions in information technology expenses, lower commodity tax provisions, certain transaction-related costs and the impact of cost control initiatives. Despite the lower cost base, as a result of the reduction in net interest income, the cost efficiency ratio for the first nine months of 2009 increased marginally to 50.0 per cent from 49.7 per cent in the same period in 2008.
Credit quality and provision for credit losses
The provision for credit losses was C$97 million for the third quarter of 2009, compared with C$86 million in the third quarter of 2008 and C$126 million in the second quarter of 2009. On a year-to-date basis, the provision for credit losses was C$384 million, compared with C$243 million for the same period in 2008. Provisions included C$50 million for the quarter and C$193 million year-to-date for banking operations, compared with C$22 million and C$72 million for the respective periods in 2008. Provisions for the Consumer Finance business included C$47 million for the quarter and C$191 million year- to-date, compared with C$64 million and C$171 million for the respective periods in 2008. Increases have mainly been driven by weak economic conditions impacting business loans and higher unemployment impacting the credit quality of our retail business, in particular the Consumer Finance business.
Gross impaired credit exposures were C$1,139 million at
The general allowance for credit losses was C$468 million at
Income taxes
The effective tax rate in the third quarter of 2009 was 29.3 per cent, compared to 33.3 per cent in the same quarter of 2008 and 29.5 per cent in the second quarter of 2009. The effective tax rate for the year-to-date in 2009 was 29.2 per cent, compared with 31.3 per cent for the same period in 2008. The reduction in tax rates was due to a lower statutory tax rate, together with the impact of certain eligible tax credits claimed in respect of previous years.
Balance sheet
Total assets at
Total deposits decreased by C$2.5 billion to C$49.5 billion at
Total assets under administration
An increase in equity markets as well as new product sales during the third quarter resulted in an increase in funds under management to C$27.0 billion at
Capital management and regulatory capital ratios
The tier 1 and total capital adequacy ratios calculated in accordance with the
Dividends
During the third quarter of 2009, the bank declared and paid C$70 million in dividends on HSBC Bank
Regular quarterly dividends of 31.875 cents per share have been declared on HSBC Bank
Accounting policies adopted in 2009
Certain new accounting standards have become effective for 2009. This has resulted in a reclassification for the current and previous periods of the net carrying value of certain computer software costs from computer equipment included in land, buildings and equipment to intangible assets included in other assets although this has not resulted in any changes to the bank's total assets. In addition, corresponding amortization has been reclassified for the current and previous periods from premises and equipment expenses to other non-interest expense although there is no change in reported net income. Reference should be made to note 2 to the consolidated financial statements included in the third quarter 2009 report to shareholders.
Certain prior period amounts have been reclassified to conform to the current year's presentation. In addition, comparatives for the quarter and nine months ended
About HSBC Bank
HSBC Bank
Copies of HSBC Bank Canada's third quarter 2009 report will be sent to shareholders in
Caution regarding forward-looking financial statements
This document may contain forward-looking statements, including statements regarding the business and anticipated financial performance of HSBC Bank
HSBC Bank Canada Summary
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Quarter ended Nine months ended
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Figures in (1) (1)
C$ millions 30 30 30 30 30
(except per September June September September September
share amounts) 2009 2009 2008 2009 2008
--------- --------- --------- --------- ---------
Earnings
Net income attributable
to common shares $ 101 $ 114 $ 120 $ 300 $ 458
Basic earnings per
share (C$) 0.20 0.23 0.23 0.60 0.87
Performance ratios (%)
Return on average
common equity 11.8 13.3 13.6 11.7 17.8
Return on average assets 0.55 0.64 0.65 0.56 0.83
Net interest margin* 2.33 2.40 2.63 2.33 2.67
Cost efficiency ratio(xx) 52.2 48.9 53.0 50.0 49.7
Non-interest revenue:
total revenue ratio 34.1 40.5 28.9 38.6 32.6
Credit information
Gross impaired credit
exposures $ 1,139 $ 1,088 $ 467
Allowance for credit
losses
- Balance at end of
period 709 718 549
- As a percentage of
gross impaired
credit exposures 62% 66% 118%
- As a percentage of
gross loans and
acceptances 1.58% 1.54% 1.10%
Average balances
Assets $ 72,924 $ 71,273 $ 73,930 $ 72,187 $ 73,545
Loans 39,743 41,032 44,178 41,180 44,224
Deposits 52,103 50,182 52,096 51,123 51,635
Common equity 3,366 3,441 3,512 3,417 3,428
Capital ratios (%)(xxx)
Tier 1 11.7 11.2 10.6
Total capital 14.4 13.8 13.2
Total assets under
administration
Funds under management $ 27,035 $ 24,469 $ 24,629
Custody accounts 10,336 9,451 8,667
--------- --------- ---------
Total assets under
administration $ 37,371 $ 33,920 $ 33,296
--------- --------- ---------
* Net interest margin is net interest income divided by average
interest earning assets for the period.
(xx) The cost efficiency ratio is defined as non-interest expenses
divided by total revenue.
(xxx) Calculated using guidelines issued by the Office of the
Superintendent of Financial Institution Canada in accordance with
Basel II capital adequacy framework. 30 September 2008 ratios have
not been restated to include HSBC Financial Corporation Limited.
(1) Restated to reflect the acquisition of HSBC Financial Corporation
Limited.
HSBC Bank Canada Consolidated Statements of Income (Unaudited)
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Quarter ended Nine months ended
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Figures in (1) (1)
C$ millions 30 30 30 30 30
(except per September June September September September
share amounts) 2009 2009 2008 2009 2008
--------- --------- --------- --------- ---------
Interest income:
Loans $ 471 $ 496 $ 751 $ 1,518 $ 2,346
Securities 68 68 73 204 213
Deposits with regulated
financial institutions 3 3 18 10 80
--------- --------- --------- --------- ---------
542 567 842 1,732 2,639
--------- --------- --------- --------- ---------
Interest expense:
Deposits 138 159 366 522 1,188
Interest bearing
liabilities of
subsidiaries, other
than deposits 26 31 46 95 153
Debentures 10 9 9 29 29
--------- --------- --------- --------- ---------
174 199 421 646 1,370
--------- --------- --------- --------- ---------
Net interest income 368 368 421 1,086 1,269
--------- --------- --------- --------- ---------
Non-interest revenue:
Deposit and payment
service charges 29 27 27 83 82
Credit fees 43 39 32 116 94
Capital market fees 35 34 17 95 66
Investment
administration fees 30 28 34 84 102
Foreign exchange 12 9 12 31 36
Trade finance 6 6 6 19 17
Trading revenue (15) 48 25 74 81
Gains (losses) on
available-for-sale
and other securities (13) 22 (13) 9 (11)
Securitization income 24 4 15 63 65
Other 27 20 4 49 58
Other mark-to-market
accounting gains
(losses), net 12 14 12 61 24
--------- --------- --------- --------- ---------
190 251 171 684 614
--------- --------- --------- --------- ---------
Total revenue 558 619 592 1,770 1,883
--------- --------- --------- --------- ---------
Non-interest expenses:
Salaries and employee
benefits 164 165 167 489 507
Premises and equipment 40 43 36 124 113
Other 87 95 111 272 315
--------- --------- --------- --------- ---------
291 303 314 885 935
--------- --------- --------- --------- ---------
Net operating income
before provision for
credit losses 267 316 278 885 948
Provision for credit
losses 97 126 86 384 243
--------- --------- --------- --------- ---------
Income before taxes and
non-controlling interest
in income of trust 170 190 192 501 705
Provision for income taxes 48 54 62 141 215
Non-controlling interest
in income of trust 6 7 6 19 19
--------- --------- --------- --------- ---------
Net income $ 116 $ 129 $ 124 $ 341 $ 471
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Preferred share dividends 15 15 4 41 13
--------- --------- --------- --------- ---------
Net income attributable
to common shares $ 101 $ 114 $ 120 $ 300 $ 458
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Average common shares
outstanding (000) 498,668 498,668 526,349 498,668 526,349
Basic earnings per
share (C$) 0.20 0.23 0.23 0.60 0.87
(1) Restated to reflect the acquisition of HSBC Financial Corporation
Limited.
HSBC Bank Canada Condensed Consolidated Balance Sheets (Unaudited)
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(1)
At 30 At 31 At 30
September December September
Figures in C$ millions 2009 2008 2008
--------- --------- ---------
Assets
Cash resources:
Cash and non-interest bearing
deposits with the Bank of Canada and
other banks $ 1,190 $ 434 $ 535
Deposits with regulated financial
institutions 1,278 1,421 2,110
--------- --------- ---------
2,468 1,855 2,645
--------- --------- ---------
Securities:
Available-for-sale 11,835 9,683 7,994
Held-for-trading 2,085 1,079 1,377
Other 41 56 54
--------- --------- ---------
13,961 10,818 9,425
--------- --------- ---------
Securities purchased under reverse
repurchase agreements 7,743 6,682 7,048
--------- --------- ---------
Loans:
Business and government 19,000 23,067 22,644
Residential mortgages 11,353 11,869 12,482
Consumer finance loans 3,334 4,029 4,205
Other consumer loans 5,698 5,296 5,217
Allowance for credit losses (709) (615) (549)
--------- --------- ---------
38,676 43,646 43,999
--------- --------- ---------
Other:
Customers' liability under acceptances 5,507 5,209 5,461
Derivatives 1,230 2,448 999
Land, buildings and equipment 127 126 135
Other assets 1,907 1,265 1,791
--------- --------- ---------
8,771 9,048 8,386
--------- --------- ---------
$ 71,619 $ 72,049 $ 71,503
--------- --------- ---------
--------- --------- ---------
Liabilities and shareholders' equity
Deposits:
Regulated financial institutions $ 1,017 $ 1,264 $ 1,486
Individuals 21,862 21,064 19,721
Businesses and governments 26,589 29,634 29,982
--------- --------- ---------
49,468 51,962 51,189
--------- --------- ---------
Other:
Acceptances 5,507 5,209 5,461
Interest bearing liabilities of
subsidiaries, other than deposits 3,363 4,164 4,776
Derivatives 1,091 2,023 917
Securities sold under repurchase agreements 2,894 715 353
Securities sold short 1,046 631 856
Other liabilities 2,657 1,974 2,852
Non-controlling interest in trust and
subsidiary 430 430 430
--------- --------- ---------
16,988 15,146 15,645
--------- --------- ---------
Subordinated debentures 834 788 796
--------- --------- ---------
Shareholders' equity:
Capital stock
Preferred shares 946 696 350
Common shares 1,225 1,225 1,293
Contributed surplus 5 - 238
Retained earnings 2,035 1,950 1,994
Accumulated other comprehensive income 118 282 (2)
--------- --------- ---------
4,329 4,153 3,873
--------- --------- ---------
Total liabilities and shareholders' equity $ 71,619 $ 72,049 $ 71,503
--------- --------- ---------
--------- --------- ---------
(1) Restated to reflect the acquisition of HSBC Financial Corporation
Limited.
HSBC Bank Canada Consolidated Statements of Cash Flows
(Unaudited)
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Quarter ended Nine months ended
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(1) (1)
30 30 30 30 30
Figures in September June September September September
C$ millions 2009 2009 2008 2009 2008
--------- --------- --------- --------- ---------
Cash flows provided by
(used in):
- operating activities $ 493 $ (95) $ 417 $ 531 $ 1,150
- financing activities 899 324 (718) (1,117) 1,731
- investing activities (890) 13 298 1,343 (2,890)
--------- --------- --------- --------- ---------
Increase (decrease) in
cash and cash
equivalents 502 242 (3) 757 (9)
Cash and cash equivalents,
beginning of period 675 433 522 420 528
--------- --------- --------- --------- ---------
Cash and cash equivalents,
end of period $ 1,177 $ 675 $ 519 $ 1,177 $ 519
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Represented by:
- Cash resources per
balance sheet $ 1,190 $ 688 $ 535
- less non-operating
deposits* (13) (13) (16)
--------- --------- ---------
- Cash and cash
equivalents, end
of period $ 1,177 $ 675 $ 519
--------- --------- ---------
--------- --------- ---------
* Non-operating deposits are comprised primarily of cash restricted for
recourse on securitization transactions.
(1) Restated to reflect the acquisition of HSBC Financial Corporation
Limited.
For further information: Media enquiries to: Ernest Yee, (604) 641-2973; Sharon Wilks, (416) 868-3878
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