HSBC Bank Canada third quarter 2008 results* - Highlights
VANCOUVER, Nov. 7 /CNW/ -
- Net income attributable to common shares was C$418 million for the
nine months ended 30 September 2008, broadly unchanged compared with
the same period in 2007.
- Net income attributable to common shares was C$121 million for the
quarter ended 30 September 2008, compared with C$145 million for the
quarter ended 30 September 2007.
- Return on average common equity was 18.4 per cent and 15.5 per cent
for the nine months and quarter ended 30 September 2008 respectively
compared with 21.3 per cent for both of the same periods in 2007.
- The cost efficiency ratio was 52.0 per cent and 54.9 per cent for the
nine months and quarter ended 30 September 2008 respectively compared
with 50.8 per cent and 48.9 per cent, respectively, for the same
periods in 2007.
- Total assets were C$66.9 billion at 30 September 2008 compared with
C$63.6 billion at 30 September 2007.
- Total funds under management were C$24.6 billion at 30 September 2008
compared with C$27.1 billion at 30 September 2007.
(*) Results are prepared in accordance with Canadian generally accepted
accounting principles.
HSBC Bank Canada Financial Commentary
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Overview
HSBC Bank Canada recorded net income attributable to common shares for
the nine months ended 30 September 2008 of C$418 million which was broadly
unchanged from the C$419 million reported in the same period in 2007. Net
income attributable to common shares for the quarter ended 30 September 2008
was C$121 million, a decrease of C$24 million, or 16.6 per cent, from
C$145 million for the third quarter of 2007.
Results for the quarter and for the nine months ended 30 September 2008
were impacted by a loss of C$20 million after related income taxes, arising
from the sale of the bank's C$1.5 billion automobile loan portfolio in July
2008. Net income attributable to common shares for the nine months ended
30 September 2007 were impacted by gains of C$21 million after related income
taxes, from the sale of the bank's shares in the Montreal Exchange. Excluding
these items, net income attributable to common shares for the nine months
ended 30 September 2008 increased by 10.1 per cent over the same period last
year and for the quarter, net income decreased by 2.8 per cent and 0.7 per
cent respectively compared to the third quarter of 2007 and the second quarter
of 2008.
Commenting on the results, Lindsay Gordon, President and Chief Executive
Officer of HSBC Bank Canada, said: "After taking into account the impact of
the sale of the bank's automobile loan portfolio, the results for the third
quarter showed considerable resilience despite the ongoing volatility in
international credit and liquidity markets.
"Our balance sheet is conservatively positioned, with strong capital
ratios including a Tier 1 ratio of 10.6 per cent. We plan to continue our
existing strategy of working with our customers to meet their personal and
business needs while maintaining close control over credit quality. Our credit
ratings are among the best of Canadian banks and we are part of the HSBC
Group, one of the world's largest and most strongly capitalized banks. Over
100 million customers worldwide entrust HSBC with US$1.2 trillion in
deposits."
Net interest income
Net interest income for the nine months ended 30 September 2008 was
C$900 million compared with C$920 million for the same period last year, a
decrease of C$20 million, or 2.2 per cent. Although average interest earning
assets increased to C$58.3 billion from C$53.4 billion, this was offset by a
decrease in net interest margin to 2.06 per cent compared with 2.30 per cent
in 2007. Reductions in the prime rate during 2008 resulted in reduced interest
income on our floating rate loans which was not offset by an equal reduction
in interest expense as our deposits repriced downwards less quickly. In
addition, wider credit spreads experienced across the banking industry
adversely impacted the cost of wholesale funding.
Net interest income for the quarter ended 30 September 2008 was
C$306 million compared with C$319 million for the same quarter in 2007, a
decrease of C$13 million, or 4.1 per cent. Average interest earning assets for
the quarter were C$58.7 billion, 8.1 per cent higher than the same period in
2007. However, this was offset by the effect of the challenging interest rate
environment that adversely impacted the net interest margin, decreasing it to
2.07 per cent for the quarter ended 30 September 2008 from 2.33 per cent for
the same period in 2007.
Net interest income for the third quarter of 2008 was C$10 million, or
3.4 per cent higher compared with the second quarter of 2008. Average interest
earning assets increased to C$58.7 billion from C$58.2 billion in the previous
quarter. The net interest margin of 2.07 per cent was four basis points higher
than the previous quarter. This was primarily as a result of reducing the
interest rate paid on deposits following reductions in the prime rate earlier
in the year.
Non-interest revenue
For the nine months ended 30 September 2008, non-interest revenue was
C$578 million, C$32 million, or 5.9 per cent, higher compared with
C$546 million for the same period last year.
During the quarter, we recorded, as a reduction of other income, a loss
of C$29 million on the disposal of a C$1.5 billion portfolio of automobile
loans. This was partially offset by significant increases in activity in the
bank's investor immigration programme as well as increases in insurance
commissions. Following release of the terms of the expected settlement of the
"Montreal Accord" and the impact of wider credit spreads on the value of the
bank's holdings of Canadian non-bank sponsored Asset Backed Commercial Paper
("non-bank ABCP"), during the third quarter we recorded a further provision of
C$15 million of which C$2 million was recorded as a reduction of trading
income, and C$13 million as a loss on available-for-sale securities. The
reduction of gains on available-for-sale securities compared to the prior year
is also impacted by a C$26 million gain that was recorded in 2007 on the sale
of the bank's shares in the Montreal Exchange.
Revenues from customer banking activities, including deposit and payment
service charges and credit fees, were higher due to increased customer
activity reflecting the underlying strength of the banking business. Foreign
exchange revenues were higher due to initiatives undertaken to improve
business with customers. Investment administration fees were higher as a
result of increased customer portfolios. Securitization income increased
significantly, partially due to increased activity as well as benefiting from
the effect of falling interest rates. Trading revenue was higher as widening
credit spreads had a considerable positive impact on the value of certain debt
obligations recorded at fair value. Further, trading volumes in fixed income
instruments increased with changing interest rates as well. Foreign exchange
trading revenue grew on increased customer activity and volatile foreign
exchange markets. Capital market fees were lower due to lower market activity
in 2008 compared to 2007 caused by market uncertainties, particularly new
issue and underwriting mandates.
Non-interest revenue was C$164 million for the third quarter of 2008
compared with C$184 million in the same quarter of 2007, a decrease of
C$20 million, or 10.9 per cent. Despite the uncertain markets, deposit and
payment service charges and credit fees increased. Securitization income was
higher mainly due to increased activity compared to the prior period in 2007.
Capital market fees were lower resulting from lower activity owing to
uncertainties in the markets. Trading revenue was lower, mainly due to lower
impacts of changes in the carrying values of certain debt obligations recorded
at fair value compared to the previous year. In addition, the third quarter
was impacted by the loss on disposal of the automobile loan portfolio and the
additional non-bank ABCP provision.
Non-interest revenue for the third quarter of 2008 was C$31 million lower
compared with C$195 million recorded in the previous quarter, mainly due to
the loss on disposal of the automobile loan portfolio and the additional
non-bank ABCP provision. In addition, capital market fees were lower arising
from uncertain markets and securitization income was reduced due to lower
activity than the previous quarter. This was partially offset by higher
trading revenue mostly arising from the impact of wider credit spreads on the
fair value of certain debt obligations.
Non-interest expenses
For the nine months ended 30 September 2008, non-interest expenses were
C$769 million compared with C$744 million for the same period last year, an
increase of C$25 million, or 3.4 per cent. Salaries and benefits grew,
reflecting increased staff levels as we expanded the branch network, the
direct bank and the payments and cash management businesses. These were offset
by lower variable compensation arising from lower capital market fees and
lower pension costs. Premises costs increased by C$12 million due to the new
branches as well as increases in information technology costs. Other
non-interest expenses were higher due to continued investments in the
business, as well as higher customer transaction and marketing costs.
Non-interest expenses were C$258 million for the third quarter of 2008
compared with C$246 million for the same quarter of 2007, an increase of
C$12 million, or 4.9 per cent. Salary expenses grew reflecting increased
numbers of staff. Premises and equipment and other expenses increased mainly
as a result of additional investments in information technology, and marketing
expenses together with increased operating losses.
Non-interest expenses for the third quarter were little changed compared
to C$259 million for the second quarter of 2008. Salaries and benefits were
lower as a result of lower variable compensation arising from lower capital
market fees and lower pension and benefit expenses. Premises and equipment
expenses decreased due to lower property costs in the third quarter offset by
higher marketing expenses and operating losses.
Credit quality and provision for credit losses
For the nine months ended 30 September 2008, the provision for credit
losses was C$72 million compared with C$43 million for the same period in
2007. An increase in retail provisions primarily related to automobile loans
and specific provisions relating to the commercial construction, manufacturing
and export sectors in 2008 resulted in an increase of C$29 million compared
with the same period in 2007.
The provision for credit losses was C$22 million for the third quarter of
2008, little changed from C$21 million recorded in the third quarter of 2007,
and C$25 million for the second quarter of 2008.
Gross impaired credit exposures were C$295 million compared with
C$290 million at 30 June 2008, and C$206 million at 30 September 2007. Total
impaired exposures, net of specific allowances for credit losses, were
C$193 million at 30 September 2008 compared with C$194 million at 30 June 2008
and C$139 million at 30 September 2007.
The general allowance for credit losses of C$259 million at 30 September
2008 is C$10 million lower than C$269 million at 30 June 2008 and 30 September
2007. This reduction occurred following the sale of the C$1.5 billion
automobile loan portfolio during the quarter. The total allowance for credit
losses, as a percentage of loans and acceptances outstanding, was 0.79 per
cent at 30 September 2008 compared with 0.78 per cent at 30 June 2008 and 0.75
per cent at 30 September 2007. Although the bank has experienced a small
increase in non-accrual loans, the overall credit quality of the portfolio
remains sound reflecting the bank's prudent lending standards. The bank
considers the total allowance for credit losses to be appropriate given the
credit quality of its portfolios and the current credit environment.
Income taxes
On a year-to-date basis in 2008, the effective tax rate was 30.3 per cent
compared with 34.6 per cent for the same period last year, primarily due to
lower statutory tax rates. The effective tax rate in the third quarter of 2008
was 32.1 per cent, which compared to 35.2 per cent in the same quarter of 2007
and 26.5 per cent in the second quarter of 2008, which benefited from the
resolution of certain tax deductions from prior years.
Balance sheet
Total assets at 30 September 2008 were C$66.9 billion, an increase of
C$4.0 billion from 31 December 2007, and C$3.3 billion from 30 September 2007.
Commercial loans and bankers' acceptances increased by C$1.1 billion from the
end of 2007, as commercial activity continued to grow. Although residential
mortgage originations increased, this was offset by C$2.7 billion in
securitizations in 2008 resulting in a net decrease of about C$440 million.
Consumer loans grew by about C$390 million. There was an increase of
C$900 million related to part of the industry restructuring of certain
non-bank ABCP conduits where the bank re-purchased personal loans that it had
previously securitized. During the third quarter, the bank also exercised an
option to purchase approximately C$160 million of loans previously
securitized. In addition, the bank's consumer loans and other personal lines
of credit increased by about C$830 million. These increases were partially
offset by the sale of a portfolio of C$1.5 billion of automobile loans. The
securities portfolio and securities purchased under reverse repurchase
arrangements increased by C$3.4 billion from 31 December 2007, improving the
bank's liquidity position.
Total deposits increased by C$2.3 billion to C$51.2 billion at
30 September 2008 from C$48.9 billion at 31 December 2007 and were
C$3.7 billion higher compared with C$47.5 billion at 30 September 2007.
Personal deposits grew by C$1.4 billion over 31 December 2007 mainly driven by
growth in the number of High Rate and Direct Savings accounts. In the same
period commercial deposits also increased reflecting strong growth among our
commercial clients, while wholesale deposits decreased marginally.
Total assets under administration
Although the bank benefited from good investment sales, recent declines
in equity markets had an adverse impact in funds under management which were
C$24.6 billion at 30 September 2008 compared with C$27.1 billion at 30 June
2008 and C$27.1 billion at 30 September 2007. Including custody and
administration balances, total assets under administration were C$33.3 billion
compared with C$37.8 billion at 30 June 2008 and C$36.4 billion at
30 September 2007.
Capital management
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 ("OSFI"). In
February 2008, OSFI provided the bank with conditional approval, subject to
certain conditions, to use the Advanced Internal Ratings Based approach for
calculating regulatory capital under the new Framework. In September 2008,
OSFI has advised the bank that it has satisfied the conditions that will allow
the bank to reduce the transitional floor for Regulatory Capital, as required
under OSFI's capital adequacy guidelines, from 100 per cent to 90 per cent,
commencing with the third quarter 2008 regulatory reporting period. The bank's
Tier 1 and overall capital ratios calculated in accordance with the new
framework were 10.6 per cent and 13.2 per cent respectively, compared with 9.3
per cent for Tier 1 and 11.5 per cent overall at 30 June 2008.
Capital adequacy ratios calculated in accordance with the previous "Basel
I" framework were 8.5 per cent for Tier 1 and 10.9 per cent overall at
30 September 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 third quarter 2008 report to
shareholders.
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 reported results in
2008 arising from the adoption of these new presentation and disclosure
standards, which will be reflected in HSBC Bank Canada's third quarter 2008
Report to Shareholders. Certain prior period amounts have been reclassified to
conform to the current year's presentation.
Dividends
During the third quarter of 2008, C$70 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
31 December 2008, to shareholders of record on 15 December 2008.
About HSBC Bank Canada
HSBC Bank Canada, a subsidiary of HSBC Holdings plc, has more than 180
offices. With around 9,500 offices in 85 countries and territories around the
world and assets of US$2,547 billion at 30 June 2008, the HSBC Group is one of
the world's largest banking and financial services organizations.
Copies of HSBC Bank Canada's third quarter 2008 report will be sent to
shareholders in November 2008.
Caution regarding forward-looking financial statements
This document may contain forward-looking statements, including
statements regarding the business and anticipated financial performance of
HSBC Bank Canada. These statements are subject to a number of risks and
uncertainties that may cause actual results to differ materially from those
contemplated by the forward-looking statements. Some of the factors that could
cause such differences include legislative or regulatory developments,
technological change, global capital market activity, changes in government
monetary and economic policies, changes in prevailing interest rates,
inflation level and general economic conditions in geographic areas where HSBC
Bank Canada operates. Canada is an extremely competitive banking environment
and pressures on interest rates and the bank's net interest margin may arise
from actions taken by individual banks acting alone. Varying economic
conditions may also affect equity and foreign exchange markets, which could
also have an impact on the bank's revenues. The factors disclosed above may
not be complete and there could be other uncertainties and potential risk
factors not considered here which may impact the bank's results and financial
condition.
HSBC Bank Canada Summary
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Quarter ended Nine months ended
Figures in -------------------------------- ---------------------
C$ millions 30 30 30 30 30
(except per September June September September September
share amounts) 2008 2008 2007 2008 2007
---------- ---------- ---------- ---------- ----------
Earnings
Net income
attributable to
common shares 121 142 145 418 419
Basic earnings
per share (C$) 0.24 0.28 0.30 0.84 0.86
Performance
ratios (%)(*)
Return on average
common equity 15.5 18.9 21.3 18.4 21.3
Return on average
assets 0.70 0.83 0.91 0.82 0.90
Net interest
margin(*) 2.07 2.03 2.33 2.06 2.30
Cost efficiency
ratio(*)(*) 54.9 52.7 48.9 52.0 50.8
Non-interest
revenue: total
revenue ratio 34.9 39.7 36.6 39.1 37.2
Credit information
Gross impaired
credit exposures 295 290 206
Allowance for
credit losses
- Balance at end
of period 361 365 336
- As a percentage
of gross impaired
credit exposures 122% 126% 163%
- As a percentage
of gross loans and
acceptances 0.79% 0.78% 0.75%
Average balances(*)
Assets 69,061 68,471 62,934 68,479 62,301
Loans 39,789 39,942 38,405 39,528 37,164
Deposits 52,095 51,830 47,588 51,634 46,717
Common equity 3,101 3,038 2,693 3,034 2,623
Capital
ratios (%)(*)(*)(*)
Tier 1 10.6 9.3 8.5
Total capital 13.2 11.5 10.9
Total assets under
administration
Funds under
management 24,629 27,118 27,129
Custody accounts 8,667 10,699 9,279
---------- ---------- ----------
Total assets under
administration 33,296 37,817 36,408
---------- ---------- ----------
(*) Net interest margin is net interest income divided by average
interest earning assets for the period.
(*)(*) The cost efficiency ratio is defined as non-interest expenses
divided by total revenue.
(*)(*)(*) The capital ratios for the quarters ended 30 September 2008 and
30 June 2008 have been calculated in accordance with
the new Basel II capital adequacy framework, while those for
the previous period were calculated in accordance with the
previous Basel I framework.
HSBC Bank Canada Consolidated Statements of Income (Unaudited)
-------------------------------------------------------------------------
Quarter ended Nine months ended
Figures in -------------------------------- ---------------------
C$ millions 30 30 30 30 30
(except per September June September September September
share amounts) 2008 2008 2007 2008 2007
---------- ---------- ---------- ---------- ----------
Interest and
dividend income
Loans 595 602 663 1,839 1,876
Securities 71 65 70 209 199
Deposits with
regulated
financial
institutions 16 21 61 73 182
---------- ---------- ---------- ---------- ----------
682 688 794 2,121 2,257
---------- ---------- ---------- ---------- ----------
Interest expense
Deposits 367 382 464 1,192 1,308
Debentures 9 10 11 29 29
---------- ---------- ---------- ---------- ----------
376 392 475 1,221 1,337
---------- ---------- ---------- ---------- ----------
Net interest income 306 296 319 900 920
---------- ---------- ---------- ---------- ----------
Non-interest
revenue
Deposit and payment
service charges 27 28 25 82 73
Credit fees 31 30 30 92 85
Capital market fees 17 27 21 66 82
Investment
administration
fees 34 35 33 102 96
Foreign exchange 11 11 10 32 28
Trade finance 6 6 6 17 18
Trading revenue 37 19 40 107 70
Gains on available-
for-sale securities (13) 2 (5) (11) 21
Gains on other
securities - 1 - 2 9
Securitization
income 15 21 10 63 29
Other (1) 15 14 26 35
---------- ---------- ---------- ---------- ----------
164 195 184 578 546
---------- ---------- ---------- ---------- ----------
Total revenue 470 491 503 1,478 1,466
---------- ---------- ---------- ---------- ----------
Non-interest
expenses
Salaries and
employee benefits 139 143 132 424 414
Premises and equipment 33 38 31 106 94
Other 86 78 83 239 236
---------- ---------- ---------- ---------- ----------
258 259 246 769 744
---------- ---------- ---------- ---------- ----------
Net operating
income before
provision for
credit losses 212 232 257 709 722
Provision for
credit losses 22 25 21 72 43
---------- ---------- ---------- ---------- ----------
Income before taxes
and non-
controlling
interest in
income of trust 190 207 236 637 679
Provision for
income taxes 59 53 81 187 228
Non-controlling
interest in income
of trust 6 7 6 19 19
---------- ---------- ---------- ---------- ----------
Net income 125 147 149 431 432
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Preferred share
dividends 4 5 4 13 13
---------- ---------- ---------- ---------- ----------
Net income
attributable
to common shares 121 142 145 418 419
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Average common
shares outstanding
(000) 498,668 498,668 488,668 498,668 488,668
Basic earnings
per share (C$) 0.24 0.28 0.30 0.84 0.86
HSBC Bank Canada Condensed Consolidated Balance Sheets (Unaudited)
-------------------------------------------------------------------------
Figures in C$ millions At 30 At 31 At 30
September December September
2008 2007 2007
---------- ---------- ----------
Assets
Cash and non-interest bearing
deposits with banks 518 510 384
Interest bearing deposits with regulated
financial institutions 1,748 3,063 4,066
---------- ---------- ----------
2,266 3,573 4,450
---------- ---------- ----------
Available-for-sale securities 7,958 5,639 4,675
Trading securities 1,377 1,227 1,920
Other securities 54 60 59
---------- ---------- ----------
9,389 6,926 6,654
---------- ---------- ----------
Securities purchased under
reverse repurchase agreements 7,048 6,122 4,552
---------- ---------- ----------
Loans
- Businesses and government 22,644 21,322 20,995
- Residential mortgage 12,482 12,920 14,220
- Consumer 5,217 4,826 4,612
- Allowance for credit losses (361) (353) (336)
---------- ---------- ----------
39,982 38,715 39,491
---------- ---------- ----------
Customers' liability under acceptances 5,461 5,727 5,237
Derivatives 999 623 737
Land, buildings and equipment 157 149 136
Other assets 1,617 1,096 2,301
---------- ---------- ----------
8,234 7,595 8,411
---------- ---------- ----------
Total assets 66,919 62,931 63,558
---------- ---------- ----------
---------- ---------- ----------
Liabilities and shareholders' equity
Deposits
- Regulated financial institutions 1,486 1,535 2,608
- Individuals 19,720 18,291 18,244
- Businesses and governments 29,982 29,051 26,683
---------- ---------- ----------
51,188 48,877 47,535
---------- ---------- ----------
Acceptances 5,461 5,727 5,237
Assets sold under repurchase
agreements 353 320 686
Derivatives 917 649 941
Securities sold short 856 623 1,461
Other liabilities 3,433 2,256 3,372
Non-controlling interest in
trust and subsidiary 430 430 430
---------- ---------- ----------
11,450 10,005 12,127
---------- ---------- ----------
Subordinated debentures 796 801 799
---------- ---------- ----------
Shareholders' equity
- Preferred shares 350 350 350
- Common shares 1,225 1,225 1,125
- Contributed surplus 209 206 205
- Retained earnings 1,680 1,462 1,416
- Accumulated other comprehensive income 21 5 1
---------- ---------- ----------
3,485 3,248 3,097
---------- ---------- ----------
Total liabilities and
shareholders' equity 66,919 62,931 63,558
---------- ---------- ----------
---------- ---------- ----------
HSBC Bank Canada Condensed Consolidated Statements of Cash Flows
(Unaudited)
-------------------------------------------------------------------------
Quarter ended Nine months ended
-------------------------------- ---------------------
30 30 30 30 30
Figures in September June September September September
C$ millions 2008 2008 2007 2008 2007
---------- ---------- ---------- ---------- ----------
Cash flows provided
by/(used in):
- operating
activities 366 563 205 1,192 1,060
- financing
activities (155) 849 1,867 2,132 3,953
- investing
activities (209) (1,406) (2,136) (3,306) (5,005)
---------- ---------- ---------- ---------- ----------
(Decrease) increase
in cash and
cash equivalents 2 6 (64) 18 8
Cash and cash
equivalents,
beginning
of period 500 494 419 484 347
---------- ---------- ---------- ---------- ----------
Cash and cash
equivalents,
end of period 502 500 355 502 355
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Represented by:
Cash resources per
balance sheet 518 527 384
- less non-
operating
deposits(*) (16) (27) (29)
---------- ---------- ----------
Cash and cash
equivalents,
end of period 502 500 355
---------- ---------- ----------
---------- ---------- ----------
(*) Non-operating deposits are comprised primarily of cash restricted on
securitization transactions.
For further information: Media enquiries to: Ernest Yee, (604) 641-2973;
Sharon Wilks, (416) 868-3878
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