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 July, 2007
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
SECOND QUARTER 2007 RESULTS^ - HIGHLIGHTS
- Net income attributable to common shares was C$135 million for the
quarter ended 30 June 2007, an increase of 17.4 per cent over the quarter
ended 30 June 2006.
- Net income attributable to common shares was C$274 million for the
half-year ended 30 June 2007, an increase of 18.6 per cent over the same
period in 2006.
- Return on average common equity was 20.7 per cent for the quarter ended
30 June 2007 and 21.4 per cent for the half-year ended 30 June 2007 compared
with 19.9 per cent and 20.3 per cent respectively for the same periods in
2006.
- The cost efficiency ratio was 51.2 per cent for the quarter ended 30
June 2007 and 51.7 per cent for the half-year ended 30 June 2007 compared
with 52.6 per cent and 52.8 per cent respectively for the same periods in
2006.
- Total assets were C$61.2 billion at 30 June 2007 compared with C$53.1
billion at 30 June 2006.
- Total funds under management were C$25.8 billion at 30 June 2007
compared with C$21.7 billion at 30 June 2006.
^ 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$135
million for the quarter ended 30 June 2007, an increase of C$20 million, or 17.4
per cent, from C$115 million for the second quarter of 2006. Net income
attributable to common shares for the first half of 2007 was C$274 million
compared with C$231 million for the same period in 2006, an increase of C$43
million, or 18.6 per cent.
Net income attributable to common shares in the first and second quarters of
2007 benefited from gains of C$14 million and C$7 million respectively, after
related income taxes, on the sale of the bank's shares in the Montreal Exchange.
Excluding these gains, net income attributable to common shares for the second
quarter of 2007 increased by 11.3 per cent compared to the equivalent quarter in
2006 and net income attributable to common shares for the first half of 2007
increased by 9.5 per cent from the same period last year.
Commenting on the results, Lindsay Gordon, President and Chief Executive
Officer, said: "HSBC Bank Canada has achieved satisfactory results for the
quarter with good year-on-year revenue and net income growth. All of our
business lines reported growth in net income in the first half of 2007 compared
with the same period last year. Our Commercial Banking business continues to
achieve strong results spurred by robust asset growth arising from the
continuing strength of the Canadian economy, while maintaining a high level of
credit quality. Our Personal Financial Services business has been adversely
affected by slower residential mortgage growth and by competitive pressures on
interest margins. Our Corporate, Investment Banking and Markets business has
benefited from growth in fee income from a number of advisory and underwriting
mandates.
"Our focus for the remainder of 2007 will be on leveraging initiatives to
enhance sales and improve efficiencies in our operations, while continuing to
further develop our direct banking capabilities. The launch in 2006 of our
in-branch High Rate savings account was a success and we have followed this up
with the recent launch of our internet only Direct Savings account with an
introductory rate of 5.0 per cent. The Commercial Banking business will continue
to expand distribution and product offerings in the Payments and Cash Management
business, leveraging the capabilities of HSBC Group platforms, including systems
and software."
Net interest income
Net interest income was C$307 million for the quarter ended 30 June 2007
compared with C$276 million for the same quarter in 2006, an increase of C$31
million, or 11.2 per cent. The increase was driven by growth in assets in all
businesses. Average interest-earning assets were C$6.5 billion or 14.0 per cent
higher compared with the same period in 2006. Competitive pressures and a
challenging interest rate environment impacted the net interest margin which
decreased to 2.29 per cent for the quarter compared with 2.35 per cent for the
same period in 2006.
Net interest income in the second quarter of 2007 was C$13 million higher
compared with the first quarter of 2007, due partly to one extra day in the
quarter and to an annualised growth in interest-earning assets of 12.3 per cent.
The net interest margin, as a percentage of average interest-earning assets, was
the same as the previous quarter.
On a year-to-date basis, net interest income was C$601 million compared with
C$542 million for the same period last year, an increase of C$59 million, or
10.9 per cent. Year-to-date net interest income in 2007 benefited from continued
growth in assets across all businesses, partially offset by a decrease in net
interest margins to 2.29 per cent compared with 2.35 per cent in 2006.
Non-interest revenue
Non-interest revenue was C$177 million for the second quarter of 2007 compared
with C$167 million in the same quarter of 2006, an increase of C$10 million, or
6.0 per cent. Deposit and payment service charges increased as a result of
increased customer activity, particularly in the Payments and Cash Management
business. Capital market fees were higher as a result of increased underwriting
and advisory mandates in the Global Investment Banking business. Investment
administration fees were higher as the bank's funds under management in the
wealth management business continued to record strong growth. Investment
securities gains decreased as gains on sales of the bank's remaining shares in
the Montreal Exchange during the quarter were lower than the C$10 million
increase in the fair value of the bank's investments in private equity funds
during the same period in 2006.
Non-interest revenue was C$8 million lower in the second quarter of 2007
compared with the previous quarter mainly due to a reduction in investment
securities gains on sale of shares in the Montreal Exchange and lower gains on
the bank's investments in the private equity funds. However, there was an
increase in deposit and payment service charges, and significant growth in
investment administration fees. Other income was also higher as activity in the
bank's investor immigration programme increased while capital market fees
decreased due to lower global investment banking revenues.
On a year-to-date basis, non-interest revenue was C$362 million, C$39 million,
or 12.1 per cent, higher compared with C$323 million for the same period last
year. This was mainly due to higher investment securities gains arising from the
sale of the bank's Montreal Exchange shares, which were partially offset by a
lower increase in fair value of the private equity funds than that recorded in
2006. Investment administration fees from higher funds under management, and
deposit and payment service charges were also higher than the same period in
2006. These were partially offset by lower trading income, which was negatively
affected by reductions in the fair values of derivatives related to balance
sheet hedging activities.
Non-interest expenses and operating efficiency
Non-interest expenses were C$248 million for the second quarter of 2007 compared
with C$233 million in the same quarter of 2006, an increase of C$15 million, or
6.4 per cent. Salaries and employee benefits expenses were higher in 2007 due to
an increase in variable compensation driven by higher revenues, and an increased
employee base from continued investments in the business. These increases
resulted from strategic growth initiatives in new branches in Alberta and the
Greater Toronto Area, increases in the Direct Bank, Private Banking and Wealth
Management as well as the Payments and Cash Management businesses. Pension plan
costs also increased. This was partially offset by a reduction in stock-based
compensation, as 2006 was impacted by a charge of C$9 million arising from the
waiver of certain conditions in respect of previous awards granted under the
HSBC Group's Share Option Plan. Other non-interest expenses were higher due to
increased premises and equipment expenses arising from new branches and their
related operating expenses as well as increases in investments in systems,
together with the impact of higher transaction costs arising from increased
customer activity. The cost efficiency ratio improved to 51.2 per cent compared
with 52.6 per cent for the same period in 2006.
Non-interest expenses for the second quarter of 2007 were little changed
compared with the first quarter of 2007.
On a year-to-date basis, non-interest expenses were C$498 million compared with
C$457 million for the same period last year, an increase of C$41 million, or 9.0
per cent. Salaries and benefits expenses were higher due to an increased
employee base, increased variable compensation, and increased pension costs.
Other non-interest expenses were higher due to continued investments in the
business, as well as higher costs arising from increased customer transactions.
The cost efficiency ratio improved to 51.7 per cent compared with 52.8 per cent
for the same period in 2006.
Credit quality and provision for credit losses
The provision for credit losses was C$12 million for the second quarter of 2007,
compared with C$6 million in the second quarter of 2006, and C$10 million for
the first quarter of 2007. Overall credit quality remains sound, reflecting
prudent lending standards and strong economic conditions in Canada. The
increased charges in 2007 compared to the same period last year is reflective of
an unusually low loan loss experience in 2006.
Gross impaired credit exposures were C$195 million, C$42 million higher compared
with C$153 million at 31 March 2007, and C$36 million higher compared with C$159
million at 30 June 2006. Total impaired exposures, net of specific allowances
for credit losses, were C$141 million at 30 June 2007 compared with C$95 million
at 31 March 2007 and C$109 million at 30 June 2006. Although total impaired
credit exposures at 30 June 2007 have increased compared to previous quarters,
the increase arises from a single commercial exposure.
The general allowance for credit losses of C$269 million remained unchanged from
31 March 2007 and 30 June 2006. The total allowance for credit losses, as a
percentage of loans and acceptances outstanding, decreased to 0.74 per cent at
30 June 2007 compared with 0.77 per cent at 31 March 2007 and 0.84 per cent at
30 June 2006 as the bank's loan portfolios grew. 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
The effective tax rate in the second quarter of 2007 was 35.5 per cent compared
with 39.4 per cent in the same quarter of 2006 and 32.9 per cent in the first
quarter of 2007. On a year-to-date basis in 2007, the effective tax rate was
34.2 per cent compared with 37.3 per cent for the same period last year.
The higher effective income tax rate in the second quarter of 2007 compared to
the prior quarter was due to lower gains from the sale of the shares in the
Montreal Exchange, which are taxed at a lower rate. The second quarter of 2007
also included a C$2 million charge for the write-down of future income tax
assets resulting from the recent enactment of future federal corporate tax rate
reductions announced in the fall of 2006.
When compared to the second quarter of 2006, the effective income tax rate for
the second quarter of 2007 reflects lower tax rates applicable on sale of shares
in the Montreal Exchange and a charge of C$6 million in the second quarter of
2006 relating to the write-down of federal corporate future tax assets arising
from previously announced tax rate decreases. The effective tax rate in 2006 was
further impacted by the expense related to stock options, which was not
deductible for income tax purposes.
The year-to-date tax rate for the first half of 2007 was lower than the same
period in 2006 due to a higher level of gains subject to a lower tax rate and
higher non-deductible expenses in 2006.
Balance sheet
Total assets at 30 June 2007 were C$61.2 billion, an increase of C$4.4 billion
from 31 December 2006 and C$8.1 billion from 30 June 2006. The loan portfolio
continues to be a major driver of balance sheet growth. Commercial loans and
bankers' acceptances grew C$1.9 billion since 31 December 2006 on the continued
strong economy, primarily in Western Canada. Residential mortgages increased
C$0.4 billion, before securitisation during the period, although the rate of
increase has slowed. Balance sheet management activity in the Treasury and
Markets business has increased the securities portfolio by C$3.2 billion
although this was offset by decreases in balances under reverse repurchase
agreements of C$2.0 billion.
Total deposits increased C$2.0 billion to C$46.2 billion at 30 June 2007 from
C$44.2 billion at 31 December 2006 and C$41.0 billion at 30 June 2006. Growth in
deposits resulted from higher interest rates and other initiatives, which
highlighted term savings products as well as the recently launched High Rate and
Direct Savings accounts. Commercial deposits were higher due to growth in term
products, driven by improved product offerings in the Payments and Cash
Management business and growth in commercial banking relationships. Other
liabilities increased largely from an increase in short positions in securities
resulting from an increase in activities in the Treasury and Markets business.
Compared with the balance at 30 June 2006, total assets were C$8.1 billion
higher largely due to growth in loans and markets activities. Deposit growth
benefited from increased cash management balances from corporate customers as
well as personal deposit growth from the High Rate and Direct Savings accounts.
Total assets under administration
Funds under management were C$25.8 billion at 30 June 2007 compared with C$25.1
billion at 31 March 2007 and C$21.7 billion at 30 June 2006. Including custody
and administration balances, total assets under administration were C$34.8
billion compared with C$34.0 billion at 31 March 2007 and C$30.2 billion at 30
June 2006.
Growth in funds under management in 2007 benefited from strong acquisitions of
new clients, strong investment sales and the success of Private Client products.
Capital management
The tier 1 capital ratio was 8.8 per cent and the total capital ratio was 11.5
per cent at 30 June 2007. These compare with 8.9 per cent and 11.0 per cent,
respectively, at 31 March 2007 and 9.0 per cent and 11.2 per cent, respectively,
at 30 June 2006.
In addition to net income, regulatory capital increased from an issuance of
C$400 million in subordinated debentures in the second quarter of 2007. This was
partially offset by dividends declared on preferred and common shares and the
redemption of C$100 million in subordinated debentures in the second quarter of
2007.
Accounting policies adopted in 2007
Effective 1 January 2007, the bank adopted new Canadian Institute of Chartered
Accountants (CICA) Handbook Standards relating to the recognition, measurement
and disclosure of financial instruments including hedges and comprehensive
income. Although these standards were adopted prospectively without restatement
of prior year comparatives, the impact on initial adoption as well as the
effects of certain transitional adjustments have been recorded as adjustments to
opening retained earnings or opening accumulated other comprehensive income.
Although there was no material impact on the results for the second quarter
arising from the adoption of these new standards, more detailed information on
the impact of adopting these standards was included in HSBC Bank Canada's first
quarter 2007 report to shareholders.
Dividends
During the second quarter of 2007, C$65 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 30
September 2007, to shareholders of record on 14 September 2007.
About HSBC Bank Canada
HSBC Bank Canada, a subsidiary of HSBC Holdings plc, has more than 170 offices.
With around 10,000 offices in 82 countries and territories and assets of
US$1,861 billion at 31 December 2006, the HSBC Group is one of the world's
largest banking and financial services organisations. Visit the bank's website
at hsbc.ca for more information about HSBC Bank Canada and its products and
services.
Copies of HSBC Bank Canada's second quarter 2007 report will be sent to
shareholders in August 2007.
Caution regarding forward-looking financial statements
This document may contain forward-looking statements, including statements
regarding the business and anticipated financial performance of HSBC Bank
Canada. These statements are subject to a number of risks and uncertainties that
may cause actual results to differ materially from those contemplated by the
forward-looking statements. Some of the factors that could cause such
differences include legislative or regulatory developments, technological
change, global capital market activity, changes in government monetary and
economic policies, changes in prevailing interest rates, inflation level and
general economic conditions in geographic areas where HSBC Bank Canada operates.
Canada is an extremely competitive banking environment and pressures on interest
rates and the bank's net interest margin may arise from actions taken by
individual banks acting alone. Varying economic conditions may also affect
equity and foreign exchange markets, which could also have an impact on the
bank's revenues. The factors disclosed above may not be complete and there could
be other uncertainties and potential risk factors not considered here which may
impact the bank's results and financial condition.
Summary
Quarter ended Half-year ended
Figures in C$ millions 30Jun07 31Mar07 30Jun06 30Jun07 30Jun06
(except per share amounts)
Earnings
Net income attributable to
common shares 135 139 115 274 231
Basic earnings per share (C$) 0.28 0.28 0.24 0.56 0.47
Performance ratios (%)
Return on average common equity 20.7 22.0 19.9 21.4 20.3
Return on average assets 0.86 0.93 0.88 0.89 0.90
Net interest margin^ 2.29 2.29 2.35 2.29 2.35
Cost efficiency ratio^^ 51.2 52.2 52.6 51.7 52.8
Non-interest revenue:total
revenue ratio 36.6 38.6 37.7 37.6 37.3
Credit information
Gross impaired credit exposures 195 153 159
Allowance for credit losses 323 327 319
- As a percentage of gross
impaired credit exposures 166% 214% 201%
- As a percentage of gross loans
and acceptances 0.74% 0.77% 0.84%
Average balances
Assets 63,286 60,656 52,573 61,979 51,784
Loans 37,067 35,994 33,262 36,534 32,760
Deposits 46,691 45,855 40,847 46,275 40,437
Common equity 2,618 2,558 2,316 2,588 2,296
Capital ratios (%)
Tier 1 8.8 8.9 9.0
Total capital 11.5 11.0 11.2
Total assets under
administration
Funds under management 25,795 25,083 21,659
Custody accounts 9,012 8,868 8,494
Total assets under
administration 34,807 33,951 30,153
^ Net interest margin is net interest income divided by average interest-earning
assets for the period.
^^ The cost efficiency ratio is defined as non-interest expenses divided by
total revenue.
Consolidated Statement of Income (Unaudited)
Quarter ended Half-year ended
Figures in C$ millions 30Jun07 31Mar07 30Jun06 30Jun07 30Jun06
(except per share amounts) ^ ^
Interest and dividend income
Loans 616 597 523 1,213 985
Securities 71 58 46 129 89
Deposits with regulated financial
institutions 62 59 55 121 113
749 714 624 1,463 1,187
Interest expense
Deposits 431 413 341 844 632
Debentures 11 7 7 18 13
442 420 348 862 645
Net interest income 307 294 276 601 542
Non-interest revenue
Deposit and payment service
charges 25 23 23 48 44
Credit fees 28 27 27 55 52
Capital market fees 29 32 26 61 58
Investment administration fees 33 30 25 63 49
Foreign exchange 9 9 8 18 15
Trade finance 6 6 6 12 12
Trading revenue 16 14 17 30 34
Investment securities gains 10 25 13 35 18
Securitisation income 9 10 11 19 19
Other 12 9 11 21 22
177 185 167 362 323
Total revenue 484 479 443 963 865
Non-interest expenses
Salaries and employee benefits 139 143 136 282 259
Premises and equipment 32 31 27 63 56
Other 77 76 70 153 142
248 250 233 498 457
Net operating income before
provision for credit losses 236 229 210 465 408
Provision for credit losses 12 10 6 22 12
Income before taxes and
non-controlling interest in
income of trust 224 219 204 443 396
Provision for income taxes 77 70 78 147 143
Non-controlling interest in
income of trust 7 6 6 13 13
Net income 140 143 120 283 240
Preferred share dividends 5 4 5 9 9
Net income attributable to
common shares 135 139 115 274 231
Average common shares
outstanding (000) 488,668 488,668 488,668 488,668 488,668
Basic earnings per share (C$) 0.28 0.28 0.24 0.56 0.47
^ Certain prior period amounts have been reclassified to conform with the
current period presentation.
Condensed Consolidated Balance Sheet (Unaudited)
Figures in C$ millions At 30Jun07 At 31Dec06 At 30Jun06
^ ^
Assets
Cash and deposits with Bank of Canada 448 368 378
Deposits with regulated financial
institutions 4,403 4,346 4,193
4,851 4,714 4,571
Available for sale securities 6,024 - -
Investment securities - 3,604 3,576
Trading securities 1,891 1,162 2,120
Other securities 53 - -
7,968 4,766 5,696
Assets purchased under reverse
repurchase agreements 2,794 4,760 3,473
Loans
- Businesses and government 19,197 17,819 16,979
- Residential mortgage 14,367 14,016 13,130
- Consumer 4,236 3,728 3,638
- Allowance for credit losses (323) (327) (319)
37,477 35,236 33,428
Customers' liability under acceptances 5,644 5,130 4,454
Derivatives 535 308 233
Land, buildings and equipment 130 121 99
Other assets 1,766 1,735 1,178
8,075 7,294 5,964
Total assets 61,165 56,770 53,132
Liabilities and shareholders' equity
Deposits
- Regulated financial institutions 2,087 1,469 1,709
- Individuals 17,010 17,039 16,108
- Businesses and governments 27,068 25,665 23,172
46,165 44,173 40,989
Acceptances 5,644 5,130 4,454
Assets sold under repurchase agreements 95 162 375
Derivatives 675 316 242
Securities sold short 1,506 715 1,256
Other liabilities 2,811 2,413 2,108
Non-controlling interest in trust and
subsidiary 430 430 430
11,161 9,166 8,865
Subordinated debentures 836 563 559
Shareholders' equity
- Preferred shares 350 350 350
- Common shares 1,125 1,125 1,125
- Contributed surplus 204 202 199
- Retained earnings 1,336 1,191 1,045
- Accumulated other comprehensive income (12) - -
3,003 2,868 2,719
Total liabilities and shareholders' equity 61,165 56,770 53,132
^ Certain prior period amounts have been reclassified to conform with the
current period presentation.
Condensed Consolidated Statement of Cash Flows (Unaudited)
Quarter ended Half-year ended
Figures in C$ millions 30Jun07 31Mar07 30Jun06 30Jun07 30Jun06
Cash flows provided by/
(used in):
- operating activities 389 466 (69) 855 184
- financing activities 62 2,024 706 2,086 2,405
- investing activities (771) (2,188) (1,128) (2,959) (3,631)
(Decrease) increase in cash
and cash equivalents (320) 302 (491) (18) (1,042)
Cash and cash equivalents,
beginning of period 4,340 4,038 4,649 4,038 5,200
Cash and cash equivalents,
end of period 4,020 4,340 4,158 4,020 4,158
Represented by:
- Cash resources per balance
sheet 4,851 4,837 4,571
- less non-operating deposits^ (831) (497) (413)
- Cash and cash equivalents,
end of period 4,020 4,340 4,158
^ Non-operating deposits are comprised primarily of cash which reprices after
90 days and cash restricted for recourse on securitisation 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: 30 July, 2007