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31 Oct 2011

Grupo Financiero HSBC, third quarter 2011 financial results

  • Net income before taxes for the nine months to 30 September 2011 was MXN3,776m, an increase of MXN1,457m or 62.8% compared with MXN2,319m for the same period of 2010. The 2011 results were affected by restructuring charges, the majority of which related to a reorganisation of the bank's regional services. Excluding the effect of these charges, net income before taxes would have been MXN4,866m, up by MXN2,547m or 109.8% compared to the same period of 2010.
  • Net income for the nine months to 30 September 2011 was MXN2,720m, an increase of MXN833m or 44.1% compared to the same period of 2010. Excluding the effect of the restructuring charges, net income would have been MXN3,483m, up MXN1,596m or 84.6% compared with the nine months to September 2010.
  • Total operating income, net of loan impairment charges, for the nine months to 30 September 2011 was MXN22,566m, an increase of MXN3,835m or 20.5% compared with MXN18,732m for the same period of 2010.
  • Loan impairment charges for the nine months to 30 September 2011 were MXN4,750m, a decrease of MXN2,758m or 36.7% compared with MXN7,508m for the same period of 2010.
  • Net loans and advances to customers were MXN177.1bn at 30 September 2011, an increase of MXN24.2bn or 15.8% compared with MXN152.9bn at 30 September 2010. Total impaired loans as a percentage of gross loans and advances to customers remained at 3.6%, as reported at 30 September 2010. The coverage ratio (allowance for loan losses divided by impaired loans) was 158.4% compared with 175.2% at 30 September 2010.
  • At 30 September 2011, deposits were MXN280.7bn, an increase of MXN35.0bn or 14.2% compared with MXN245.8bn at 30 September 2010.
  • Return on equity was 7.4% for the nine months to 30 September 2011 compared with 5.2% for the same period in 2010.
  • At 30 September 2011, the bank's capital adequacy ratio was 15.2% and the tier 1 capital ratio was 11.6% compared with 15.9% and 12.3% respectively at 30 September 2010.
  • From the first quarter of 2011, regulatory requirements issued by the Comisión Nacional Bancaria y de Valores (CNBV) require financial figures for both the insurance and bond companies, HSBC Seguros and Fianzas Mexico respectively, to be presented on a consolidated basis. As a result, the nine months to 30 September 2010 financial results have been re-stated to be comparable with the same period of 2011.
  • The sale of HSBC Afore, S.A. de C.V. to Principal Financial Group, S.A. de C.V. was successfully completed in August 2011.

 

HSBC Mexico S.A. (the bank) is Grupo Financiero HSBC, S.A. de C.V.'s (Grupo Financiero HSBC) primary subsidiary company and is subject to supervision by the Mexican Banking and Securities Commission. The bank is required to file financial information on a quarterly basis (in this case for the nine months to 30 September 2011) and this information is publicly available. Given that this information is available in the public domain, Grupo Financiero HSBC, S.A. de C.V. has elected to file this release.

Results are prepared in accordance with Mexican GAAP (Generally Accepted Accounting Principles).

Overview

Despite the current global economic uncertainties, the Mexican economy is expected to be able to withstand any potential economic slow-down, especially in the US. This is based on Mexico's sound macroeconomic position, a competitive and diversified exports base and a stronger domestic market.

Inflation is expected to be 3.5% for 2011 and no change is expected to monetary policy interest rates until the fourth quarter of 2012.

For the nine months to 30 September 2011, Grupo Financiero HSBC's net income was MXN2,720m, an increase of MXN833m or 44.1% compared with the same period of 2010. Higher trading income and lower impairment charges were partially offset by lower net interest income, net fee income and increased administrative expenses, the latter largely impacted by the restructuring charges incurred during the first half of 2011.

Net interest income was MXN16,129m, a decrease of MXN187m or 1.1% compared with the same period of 2010. This decline was mainly driven by higher funding costs and a contraction in spreads coupled with lower balances in the credit card portfolio, which were partially offset by higher spreads on available-for-sale securities.

Loan impairment charges were MXN4,750m, a decline of MXN2,758m or 36.7% compared with the same period of 2010. This decrease is due to a general improvement in credit quality across our portfolios and lower credit card volumes. In addition, a new credit provisioning methodology for States & Municipalities was approved by the CNBV and applied in September 2011. This resulted in a net release of MXN108.7m. The new methodology is based on an expected loss approach.

Net fee income was MXN4,448m, a decrease of MXN439m or 9.0% compared with the same period of 2010. This reduction was mainly a result of lower credit card volumes as well as reduced account services and ATM fees. Regulatory restrictions applied since the beginning of the current year affected fee income by limiting the fees that can be charged for ATM and customer deposit services.

Trading income was MXN2,502m, an increase of MXN141m or 6.0% compared with the same period of 2010. The improvement in trading income is mainly the result of a strong performance in derivatives and the sale of one of our equity investments, partially offset by lower foreign exchange and debt trading results.

Other operating income was MXN4,237m, an increase of MXN1,562m or 58.4% compared to the same period of 2010. This increase is driven by the gain on the sale and leaseback of certain branches in the network, the sale of HSBC Afore, tax recoveries from previous years and lower operational losses recognised during the year.

Administrative and personnel expenses were MXN18,825m, an increase of MXN2,410m or 14.7% compared with the same period of 2010. This increase is mainly driven by IT-related costs, higher personnel expenses and restructuring charges. Excluding the effect of the restructuring charges, the increase in expenses would have been MXN1,320m or 8.0% compared with the same period of 2010.

The performance of non-banking subsidiaries contributed positively to Grupo Financiero HSBC's results, particularly HSBC Seguros, which reported a net profit of MXN1,094m for the nine months to 30 September 2011, a 14.4% increase when compared with the same period of 2010. The higher results reported by HSBC Seguros were driven by increased product sales, mainly life products, reflecting a 7.3% increase in earned premiums, in addition to flat operating expenses. The claims ratio decreased by 4.9% when compared to the same period of 2010, mainly due to (T-5) individual life products.

Net loans and advances to customers increased MXN24.2bn or 15.8% to MXN177.1bn at 30 September 2011 compared to 30 September 2010. This increase is mainly driven by growth in the commercial portfolio. The consumer portfolio also increased, driven by higher personal and payroll loans, which more than offset a decrease in credit cards.

At 30 September 2011, total impaired loans increased by 11.2% to MXN6.5 bn compared with 30 September 2010, mainly as a result of recent restructures, partially offset by a reduction in impaired consumer loans, as collections and underwriting processes were tightened. Total impaired loans as a percentage of gross loans and advances to customers remained at 3.6% as reported at 30 September 2010.

Total loan loss allowances at 30 September 2011 were MXN10.2bn, an increase of MXN52m or 0.5% compared to 30 September 2010. The total coverage ratio (allowance for loan losses divided by impaired loans) was 158.4% at 30 September 2011 compared with 175.2% at 30 September 2010. This reduction in the coverage ratio is mainly the result of increased impaired loans.

Total deposits were MXN280.7bn at 30 September 2011, an increase of MXN35.0bn or 14.2% compared with 30 September 2010. This is the result of increased sales efforts and targeted promotions particularly for 'Advance', 'Inversion diaria', 'Inversion Express' and 'Premier' deposit products.

At 30 September 2011, the bank's capital adequacy ratio was 15.2% compared with 15.9% at 30 September 2010. The tier 1 capital ratio was 11.6% compared with 12.3% at 30 September 2010.

In March 2011, the bank paid a dividend of MXN1,800m representing MXN1.095 per share to Grupo Financiero HSBC and Grupo Financiero HSBC paid a dividend of MXN3,520m representing MXN1.377 per share.

Business highlights

Retail Banking and Wealth Management (RBWM)

RBWM achieved strong sales in its consumer portfolio and continued repositioning the wealth management business from a product-focused approach to a relationship approach.

Our sales focus was targeted through campaigns aimed at providing solutions to customers' needs based on business intelligence; understanding our customers through their spending and saving patterns and proposing solutions using customer relationship management capabilities, and cross-selling to our existing customer base and expanding our payroll base.

Special focus continues to be placed on leveraging our global banking and commercial banking relationships to cross-sell our payroll service capabilities. As a result, personal and payroll loans sales reported a 63% year-on-year growth while balances increased 85% year-on-year.

Credit card balances across the industry remained flat. However, we have increased credit card sales by 4% compared to the last quarter. Average credit card balances decreased 5.7%, from MXN16,405m to MXN15,478m. During the period, several strategies were launched aimed at reducing the credit card seasonal balance decrease with campaigns such as purchases on instalments, balance transfers, credit limit increases and extended preferential rates

During the third quarter of the year, customer deposits, both time and demand, increased MXN12.5bn compared to 30 September 2010.

Commercial Banking

During the third quarter of 2011, Commercial Banking continued to report growth in deposits, up by 25%, while loans have increased 12%, both compared to 30 September 2010.

Our business proposition for Corporate & Structured Banking was established in three of the country's main cities (Mexico City, Guadalajara and Monterrey), which should enable us to provide specialised services to our corporate customers such as international trade, treasury and investment banking.

Several initiatives have been implemented aimed to support the underwriting of business banking credit facilities, such as preferential interest rates on first draw-downs and benefits to current customers.

We have continued to manage our State and Municipalities portfolio actively through continuous contact and advice to this segment's customers.

Global Banking and Markets

As of 30 September 2011, Global Markets continued to report good revenues in balance sheet management and trading.

In the Debt Capital Markets business, Grupo Financiero HSBC continued to consolidate its position as a leading underwriter in Mexico, maintaining its second place in the local debt capital market league tables. As of September 2011, we have placed and participated in bond issuances for a total transaction amount of MXN112.1bn, including United Mexican States (UMS), CEMEX, Inbursa, Santander, INFONAVIT, Bancomext, Alsea, Gas Natural, Interacciones, Scotiabank, Cadena Mexicana de Exhibición and ICA.

For the nine months to 30 September 2011, Global Banking's credit and lending business originated new lending to corporate clients in excess of MXN17.7bn, compared to MXN7.6bn for the same period of 2010.

The Project and Export Finance business also reported a strong performance, executing transactions worth US$570m.

We continued focussing on customer onboarding processes, developing incremental Global Market product business and executing transactions for Global Banking clients.

Global Banking continued to grow average balances, particularly in Client Bank Deposits which have reported a 61% increase in average balances compared to 30 September 2010.

Sale of HSBC Afore to Principal Financial Group

On 11 April 2011, Grupo Financiero HSBC signed an agreement to sell HSBC Afore, S.A. de C.V., its pension funds management business, to Principal Financial Group, S.A. de C.V. ('Principal') for a cash consideration of MXN2,360m (approximately US$198m). This sale transaction was successfully completed in August 2011.

Grupo Financiero HSBC 2011 financial results as reported to HSBC Holdings plc, our ultimate parent company, under International Financial Reporting Standards (IFRS)

For the nine months to 30 September 2011, on an IFRS basis, Grupo Financiero HSBC reported pre-tax profits of MXN7,231m, an increase of MXN2,899m or 66.9% compared with MXN4,332m in the first nine months of 2010. The 2011 results were affected by restructuring charges, the majority of which related to a reorganisation of the bank's regional services. Excluding the effect of these charges, net income before taxes would have been MXN8,321m, up by MXN3,989m or 92.1% compared to the same period of 2010.

The lower profit reported under Mexican GAAP is largely due to lower loan impairment charges as result of the different provisioning methodologies and the amount recognised as profit on the sale of the pension funds management business (Afore). The goodwill allocated under IFRS on the disposal of Afore is based on the goodwill held in the Grupo Financiero HSBC legal entity, but allocated on the HSBC Group cash generating unit basis. A reconciliation and explanation between the Mexican GAAP and IFRS results is included with the financial statements of this document.

About HSBC

Grupo Financiero HSBC, is one of the leading financial groups in Mexico with 1,078 branches, 6,062 ATMs, approximately eight and a half million total customer accounts and more than 19,000 employees. For more information, visit www.hsbc.com.mx.

Grupo Financiero HSBC is a 99.99% directly owned subsidiary of HSBC Latin America Holdings (UK) Limited, which is a wholly owned subsidiary of HSBC Holdings plc, and a member of the HSBC Group. With around 7,500 offices in over 80 countries and territories in Europe, the Asia-Pacific region, North and Latin America, the Middle East and Africa and with assets of US$2,691bn at 30 June 2011, HSBC is one of the world's largest banking and financial services organisations.

For further information contact:

London 
Brendan McNamara 
Group Media Relations  
Telephone: +44 (0)20 7991 0655  

Alastair Brown
Investor Relations
Telephone: +44 (0)20 7992 1938

Mexico City 
Lyssette Bravo 
Public Affairs  
Telephone: +52 (55) 5721 2888  

Yordana Aparicio
Investor Relations
Telephone: +52 (55) 5721 5192

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