HSBC Trinkaus Burkhardt AG 2009 Results

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15 April 2010

The following text is the English version of a news release issued in Germany by HSBC Trinkaus & Burkhardt, a 78.6 per cent indirectly owned subsidiary of HSBC Holdings plc.

• Operating profit of €196.4 million was 2.1 per cent lower (2008: €200.6 million)
• Net profit after tax for the year grew 21.9 per cent to €109.2 million (2008: €89.6 million)
• Net interest income grew 2.7 per cent to €143.3 million (2008: €139.5 million)
• Net trading income increased by 20.1 per cent to €117.9 million (2008: €98.2 million)
• Return on equity before tax grew to 17.1 per cent (2008: 15.2 per cent)

Overview
In a challenging year for both the economy and the financial sector HSBC Trinkaus reported satisfactory results for 2009. Operating profit of €196.4 million was broadly in line with the 2008 figure of €200.6 million, while net profit for the year grew by 21.9 per cent to €109.2 million, from €89.6 million in 2008. The return on equity before tax was 17.1 per cent, compared with 15.2 per cent in 2008.

This performance is based on the bank's business model which is characterised by building long-term relationships with our clients in clearly defined target groups. In its 225th year, the bank has demonstrated its business model is flexible enough to adapt to changing market conditions and be successful even in the most severe of crises.

At the end of 2009 the rating agency Fitch once again confirmed HSBC Trinkaus' AA rating, unchanged since December 2007, ensuring HSBC Trinkaus remained the highest rated private commercial bank in Germany. This is testimony to HSBC Trinkaus' professionalism, risk-aware strategy, earnings strength and full membership of the HSBC Group.

These strengths put HSBC Trinkaus in a good position to take advantage of market opportunities to generate growth and increase market share across all its operating divisions. In addition, the benefit of being part of the HSBC Group permits HSBC Trinkaus to pursue its strategy, being a leading bank of choice for the international business of corporate and institutional clients and a significant provider of services for wealthy private clients in Germany. HSBC Trinkaus will continue to expand its client base and product offerings and a higher number of employees will ensure that its clients' needs are properly served.

Financial Commentary
Net interest income was up 2.7 per cent to €143.3 million (2008: €139.5 million). Significantly improved margins in the credit business offset the decline in deposit margins. Interest income from financial assets benefited in particular from the bank's strong liquidity position.

Net fee income, at €346.2 million (2008: €347.6 million) remained robust and was the largest contributor to earnings. There was a strong performance from traditional banking business products such as credit business and payments. While the expansion of the bank's custodian business resulted in higher levels of fees earned by the securities business, the issuing and structuring business also reported growth as the bank was involved in a large number of bond syndicates, in part due to the HSBC Group's global placement power. The successful sale of a closed-end real estate fund also contributed to the increase in fees revenue. Partially offsetting this growth were lower levels of fees earned from asset management, derivatives and foreign exchange transactions.

There was strong performance from net trading income which was 20.1 per cent higher at €117.9 million (2008: €98.2 million). The focus remained on trading of equity-related products with the bank gaining market share in the retail market. Interest rate trading and Treasury activities delivered strong results. Bonds and interest rate derivatives trading stood at €46.2 million (2008: €2.4 million), foreign exchange contributed €7.8 million (2008: €8.8 million).

Net loan impairment and other credit risk provisions were significantly higher than in 2008. HSBC Trinkaus was not immune to the continued weakness in the economy and set aside €22.4 million (2008: €4.5 million) of net new provisions for loan impairment and other credit risks, with increases in both the individually assessed and collectively assessed portfolios. Nevertheless, the level of impairments remains low, relative to the bank's operating earnings' strength.

Administrative expenses of €400.8 million were 4.3 per cent higher than the €384.2 million reported in the previous year. The increase reflected a higher headcount, as the bank looked to take advantage of growth opportunities, and increased contributions to the Pension Security Association in the wake of the economic crisis. Management continued to focus on maintaining tight cost-control.

Income from financial assets continued to be impacted by negative market movements especially in the first quarter of 2009, however losses of €50.0 million in 2008 fell to a loss of €24.0 million in 2009 on the back of some recovery in market prices. This includes realised losses of €9.5 million and realised gains of €9.4 million; unrealised valuation losses were at €25.7 million and write-ups on bonds were €1.8 million.

HSBC Trinkaus will pay a dividend for 2009 of €2.50 per share, unchanged from that paid in 2008, representing a total dividend payout of €65.3 million (2008: €65.3 million), from profits generated during the year.

Total assets declined by €3.5 billion to €18.7 billion. Falls in trading assets of 19.8 per cent to €10.0 billion (2008: €12.5 billion), in loans and advances to customers of 34.2 per cent to €2.7 billion (2008: €4.1 billion) and in loans and advances to banks of 18.5 per cent to €2.4 billion (2008: €3.0 billion) were partially offset by growth in financial assets of 47.5 per cent to €3.1 billion (2008: €2.1 billion). These financial assets consist largely of highly liquid ECB eligible bonds or promissory note loans issued by German federal states. The bank's interest rate trading books include no positions arising from acquisition financing or other transactions, which remain difficult to price. The decline in loans and advances to customers is driven mainly by the lower borrowing requirements of HSBC Trinkaus' clients. When customer demand returns, the bank remains ready and able to make these facilities available to its customers where appropriate.

Customer accounts contracted 21.8 per cent to €9.1 billion (2008: €11.6 billion) and trading liabilities declined by 15.5 per cent to €5.2 billion (2008: €6.2 billion). HSBC Trinkaus' balance sheet is characterised by a high level of customer deposits compared with the level of customer loans. Customer deposits levels are more than three times those of customer loans and represent almost 50 per cent of total assets.

Following the payment of dividends HSBC Trinkaus' capital ratio stands at 14.8 per cent (2008: 13.4 per cent) and its tier 1 ratio at 10.4 per cent (2008: 8.8 per cent), well above the banking supervisory requirements. The bank is also well placed in respect of the current Basel proposals being discussed concerning the tightening of the capital requirements for loan security. The tier 1 capital comprises solely capital and reserves and contains no hybrid capital components.

The full text of the news release can be downloaded using the link on the right.