HSBC's Strong Asian Performance Cushions Bad Debt Blow

by Mary Swire, for LawAndTax-News.com, Hong Kong

04 March 2008

Despite being forced to write off billions of dollars in bad debts as a result of the US credit crunch, global banking giant HSBC on Monday announced profits before tax of USD24,212mn, an increase of USD2,126mn, or 10%, over 2006.

The impact of the blow to HSBC's US-facing business was reportedly cushioned by strong growth in its Asian and Latin American operations.

HSBC Group Chairman, Stephen Green observed of the annual results that:

"2007 was a year when large parts of the international financial system came under extraordinary strain. For HSBC to achieve another new high in earnings, despite these conditions and the exceptionally weak performance of our US business, underscores the value of the strategic focus we announced early last year to drive sustainable growth by concentrating on the faster growing markets of the world."

He went on to state that:

"We produced exceptionally strong results in Asia-Pacific, Latin America and the Middle East while facing considerable business challenges in North America. In our customer groups, we also achieved record results in Commercial Banking and Private Banking, and a strong performance in Global Banking and Markets, despite write-downs arising from market turbulence in the second half of the year."

Mr Green acknowledged, however, that:

"Our North American results continue to be adversely affected by high loan impairment charges as we respond to the impact on our portfolio of credit deterioration arising largely from housing market weakness in the US. The management team has taken vigorous action to address and mitigate the problem."

"In Europe, excluding the positive effect of movements in the fair value of HSBC's own debt, performance was broadly in line with 2006. In the UK, Commercial Banking generated pre-tax profits of over USD2bn for the first time and, in Turkey, further expansion of the branch network helped drive strong organic growth in numbers of personal and business customers."

Examining the situation in Asia in more detail, the HSBC Chairman revealed that:

"As we explained in March 2007, our conclusion was that the Group should place renewed emphasis on investing in fast moving emerging markets in Asia-Pacific, the Middle East and Latin America. We believe we can grow strongly and sustainably. We achieved our position as the number one international bank in Asia-Pacific and the Middle East over many years; by contrast, we have built one of Latin America's largest financial services businesses in little more than a decade."

He went on to state:

"As the leading international bank in the country of our birth, China, we were delighted to be among the first to incorporate locally in the mainland. We have built the largest branch network of any international bank and we have significant and profitable strategic investments in our Chinese associates."

"In mainland China, through our own businesses and in conjunction with our associates, we achieved for the first time in our history a profit before tax of over USD1bn, in addition to over USD7bn generated in Hong Kong."

"As China continues to reshape itself as a 21st century powerhouse, HSBC seeks to play a constructive role in its continued progressive economic and social development. We were the first international bank to establish and open a rural bank. Hang Seng Bank has agreed to acquire 20% of Yantai City Commercial Bank in the fast growing Bohai region of China."

And continued:

"Elsewhere in Asia-Pacific, we have sought to further strengthen our position through a series of investments in faster-growing economies. In South Korea, we have agreed to acquire 51% of Korea Exchange Bank for USD6.5bn, subject to regulatory approvals. In Taiwan, we acquired Chailease Credit Services, a factoring company serving commercial customers, and agreed to acquire the assets, liabilities and operations of The Chinese Bank, which will extend our network by 39 branches and bring us many new customers."

"As foreign investment rules are eased, we have made significant investments to expand our business in Vietnam with the acquisition of a further 5% interest in Techcombank, bringing our stake to 15%, and the purchase for some USD255mn of a 10% interest in Bao Viet, the leading insurance company in the country."

"The latter investment reflects our determination to increase the contribution of insurance to Group earnings. We also entered into agreements to invest in a 26% interest in a new life insurance joint venture in India, in partnership with two of the larger state-owned banks, and to acquire just under 50% of Hana Life Insurance Company in South Korea. We have entered a number of strategic alliances to ensure that we have the best products for our customers and the support to grow our activities."

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