HSBC Bank Canada - Results for the fourth quarter and year ended 31 December 2008* - Highlights



    VANCOUVER, Feb. 20 /CNW/ -

    
    -   Net income attributable to common shares was C$115 million for the
        quarter ended 31 December 2008, a decrease of 3.4 per cent compared
        to the same period in 2007(xx).

    -   Net income attributable to common shares was C$573 million for the
        year ended 31 December 2008, a decrease of 4.2 per cent compared with
        C$598 million for the year ended 31 December 2007(xx).

    -   Return on average common equity was 12.8 per cent for the quarter
        ended 31 December 2008 and 16.6 per cent for the year ended
        31 December 2008 compared with 14.6 per cent and 19.6 per cent,
        respectively, for the same periods in 2007(xx).

    -   The cost efficiency ratio was 49.3 per cent for the quarter ended 31
        December 2008 and 49.6 per cent for the year ended 31 December 2008
        compared with 54.1 per cent and 50.9 per cent, respectively, for the
        same periods in 2007(xx).

    -   Total assets were C$72.0 billion at 31 December 2008, an increase of
        C$3.9 billion, or 5.7 per cent, from C$68.1 billion at 31 December
        2007(xx).

    -   Total funds under management were C$21.3 billion at 31 December 2008,
        a decrease of C$4.9 billion, or 18.7 per cent, from C$26.2 billion at
        31 December 2007(xx).

    -   Tier 1 capital ratio of 10.1 per cent and a total capital ratio of
        12.5 per cent at 31 December 2008 compared to 8.8 per cent and
        11.3 per cent respectively at 31 December 2007(xxx).

    (*)   Results are prepared in accordance with Canadian generally
          accepted accounting principles.
    (xx)  Restated to reflect accounting for the acquisition of HSBC
          Financial Corporation Limited.
    (xxx) The capital ratios for the year ended 31 December 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.
    

    Effective 30 November 2008, the bank completed the acquisition of HSBC
Financial Corporation Limited ("HSBC Financial"). Results for 2008 and prior
years have been restated to combine the previously reported results of the
bank with those of HSBC Financial to reflect the continuity of interests
method of accounting. Information on the acquisition, including the impact on
previously reported financial results of the bank is included as Appendix I.
References in this news release to "banking operations" relate to those
excluding the "consumer finance" business of HSBC Financial.

    
    HSBC Bank Canada                                    Financial Commentary
    -------------------------------------------------------------------------
    

    Overview

    HSBC Bank Canada ("the bank") recorded net income attributable to common
shares of C$115 million for the fourth quarter ended 31 December 2008, a
decrease of C$4 million, or 3.4 per cent, from C$119 million on a restated
basis for the fourth quarter of 2007. Net income attributable to common shares
for the year ended 31 December 2008 was C$573 million, a decrease of $25
million or 4.2 per cent compared with C$598 million on a restated basis for
2007.
    Net income attributable to common shares for the year ended 31 December
2008 from banking operations was C$524 million, C$6 million or 1.1 per cent
worse than 2007 and from consumer finance was C$49 million, C$19 million or
27.9 per cent worse than 2007.
    The following individually significant items are relevant in an
assessment of underlying performance. During the fourth quarter of 2008, the
bank recorded an additional impairment charge in respect of its holdings of
Canadian non-bank sponsored Asset Backed Commercial Paper ("non-bank ABCP") of
C$39 million, net of related income taxes of C$19 million, compared to a
charge of C$27 million, net of related taxes of C$15 million for the fourth
quarter of 2007. For the year ended 31 December 2008, the charge amounted to
C$49 million, net of income taxes of C$24 million, compared to C$30 million
for 2007. In the third quarter of 2008, a loss of C$24 million, net of related
income taxes of C$12 million, was recorded arising from the sale of the
automobile loan portfolio, of which C$4 million related to the portion of the
portfolio previously held by HSBC Financial. In 2007 a gain of C$21 million
was recorded after related income taxes on disposal of shares in the Montreal
Stock Exchange.
    Commenting on the results, Lindsay Gordon, President and Chief Executive
Officer, said:
    "Following a year marked by extreme market volatility and recessionary
pressures, as well as a number of decisive actions we have taken to position
the bank for the future, the results for the year as a whole as well as the
fourth quarter showed resilience reflecting our prudent and diversified model
and our strong customer proposition. Our underlying banking franchise remains
strong and we continue to support our customers during these difficult
economic conditions.
    "We anticipate that 2009 will be a challenging year for both the Canadian
economy and the bank with pressures on financial margins combined with a
weakening credit quality environment quality. However with a strong capital
base, diversified income stream and strong liquidity we will continue to focus
on serving our customers and positioning the bank to benefit when economic
conditions improve".

    Net interest income

    As a result of the wider interest margin earned in the consumer finance
business, net interest margins have increased compared to those previously
reported.
    Total net interest income was C$375 million for the quarter ended 31
December 2008 compared with C$429 million for the same quarter in 2007, a
decrease of C$54 million, or 12.6 per cent. Average interest earning assets
decreased to C$61.1 billion from C$61.6 billion, which was further affected by
the challenging interest rate environment that adversely impacted the net
interest margin, which decreased to 2.44 per cent in the fourth quarter
compared with 2.76 per cent in the same period in 2007.
    Net interest income from banking operations for the quarter ended 31
December 2008 decreased by C$35 million compared to the same quarter in 2007,
and the net interest margin decreased to 1.87 per cent from 2.13 per cent.
Ongoing reductions in prime rates 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. As a
result of the sale of the automobile loan portfolio, net interest income
decreased by C$11 million, which also had an adverse impact on net interest
margin. Also impacting net interest margin was the reduction in the value of
interest free funds and low interest deposits in a falling interest rate
environment as well as the lower rate earned on government and other high
quality securities, which have increased following a planned increase in
liquidity. In addition, wider credit spreads experienced across the banking
industry also adversely impacted the cost of wholesale funding.
    Net interest income for the consumer finance business decreased by C$19
million compared to the same quarter in 2007. Net interest margin increased
slightly, from 9.70 per cent in 2007 to 9.82 per cent in 2008, but the impact
was offset by lower average receivable and investment balances including the
impact of a C$7 million decrease in net interest income following the sale of
the auto finance portfolio.
    Total net interest income in the fourth quarter of 2008 was C$46 million
lower than the third quarter of 2008. While customer loans continued to grow
during the quarter, this was partially offset by a decrease in interest income
arising from a reduction in net interest margin, from 2.63 per cent in the
third quarter of 2008 to 2.44 per cent in the fourth quarter 2008, driven by
the factors referred to above.
    Net interest income for banking operations decreased by C$39 million and
net interest margin decreased from 2.07 per cent in the third quarter of 2008
to 1.87 per cent in the fourth quarter of 2008 largely due to reductions in
prime lending rates. Net interest income for consumer finance decreased by C$7
million in the fourth quarter of 2008 due to lower average receivable and
investment balances.
    For the year ended 31 December 2008, total net interest income was
C$1,644 million compared with C$1,718 million for 2007, a decrease of C$74
million, or 4.3 per cent. For the year as a whole, the increases derived from
the growth in assets were more than offset by the decrease in net interest
margin to 2.59 per cent compared with 2.91 per cent in 2007. Net interest
income from banking operations decreased by C$55 million in 2008 compared to
the prior year of which C$15 million was related to the sale of the automobile
loan portfolio, and the interest rate margin decreased from 2.26 per cent in
2007 to 1.99 per cent, resulting from impacts on margins noted above.
    Net interest income for the consumer finance business decreased by C$19
million including a C$10 million impact from the sale of the auto finance
portfolio and lower other average receivable balances.

    Non-interest revenue

    Non-interest revenue was C$223 million for the fourth quarter of 2008
compared with C$198 million in the same quarter of 2007, an increase of C$25
million, or 12.6 per cent. Trading revenue was C$63 million higher in the
fourth quarter, primarily due to a C$73 million positive impact of widening
credit spreads on the value of certain debt obligations recorded at fair
value, a C$54 million increase in foreign exchange trading revenue arising
from increased customer activity and volatile foreign exchange markets as well
as the favourable impact of foreign currency funding in a lower interest rate
environment. These increases were partially offset by C$69 million of
mark-to-market losses relating to the effect of falling interest rates on
interest rate derivatives used for economic hedging and balance sheet
management activities. Securitization income was C$9 million higher as a
result of increased transaction volumes as well as the beneficial impact of
falling interest rates. Deposit and payment service charges were C$3 million
higher due to increased customer banking activities.
    The fourth quarter, following revisions to the terms of the Montreal
Accord, as well as further deteriorations in market conditions, saw a further
impairment write-down of C$58 million on non-bank ABCP of which C$9 million
was recorded as a reduction of trading revenues and C$49 million recorded as a
loss on available-for-sale ("AFS") securities. The increased write-down of
non-bank ABCP and an other than temporary impairment of C$8 million recorded
on holdings of preferred shares and other securities contributed to a C$21
million increase in losses on AFS securities compared to the fourth quarter of
2007. Other non-interest revenue decreased by C$18 million, primarily due to a
reduction of mortgage brokerage fees as a result of the disposal of HSBC
Financial's mortgage brokerage businesses, and a decrease in credit insurance
income. Capital market and investment administration fees were down by C$12
million, as a result of lower trading volumes arising from decreased market
trading and underwriting activity and decreases in the value of investments
under management caused by lower equity markets.
    In the fourth quarter of 2008, non-interest revenue was C$52 million
higher compared with the third quarter. Trading revenue increased by C$67
million, primarily due to a C$60 million increase in foreign exchange trading
revenue, and a C$61 million favourable change in the carrying value of certain
debt obligations recorded at fair value and favourable impacts on foreign
currency funding noted above. These increases were partially offset by C$61
million of mark-to-market losses on interest rate derivatives noted above.
Securitization income was C$7 million higher as a result of increased
transaction volumes. Other non-interest revenue was C$18 million higher as a
result of a C$36 million loss before taxes recorded in the third quarter
related to the sale of the automobile loan portfolio, of which C$7 million
related to the portion of the portfolio previously held by HSBC Financial.
This was partially offset by a C$4 million reduction in fees from the Canadian
Immigrant Investor Program ("Canadian IIP"). Capital markets fees were C$5
million higher due to increased capital market activity in the fourth quarter.
Losses on AFS securities were C$42 million higher than in the prior quarter,
primarily due to the impairment of non-bank ABCP and other AFS securities.
Investment administration fees were C$6 million lower due to a reduction in
managed assets caused by lower equity markets.
    For the year ended 31 December 2008, non-interest revenue was C$837
million, C$56 million, or 7.2 per cent, higher compared with C$781 million for
2007. Trading revenue increased by C$97 million, primarily due to an C$86
million increase in the fair value of certain debt obligations recorded at
fair value due to widening credit spreads, a C$62 million increase in foreign
exchange revenue resulting from initiatives undertaken to improve business
with customers and from the volatility in foreign exchange markets, the
benefit of lower foreign currency funding in lower interest rate environments,
and a C$14 million increase in trading gains on fixed income securities. These
increases were partially offset by C$61 million of mark-to-market losses on
interest rate derivatives used in balance sheet management activities.
Securitization income increased by C$45 million as a result of increased
activity and from the beneficial impact of falling interest rates. Revenues
from customer banking activities, including deposit and payment service
charges and credit fees, were C$20 million higher due to increased customer
activity, reflecting the underlying strength of the banking business. Losses
on AFS securities increased by C$55 million, primarily due to increased
write-downs of non-bank ABCP and an impairment recorded on AFS securities and
2007 included a gain of C$25 million on the sale of Montreal Stock Exchange
Shares. Other non-interest revenue decreased in 2008 by C$26 million, mainly
as a result of a C$36 million loss on disposal of the automobile loan
portfolio, partially offset by a $10 million increase in fees from Canadian
IIP. Capital market fees decreased by C$21 million due to lower market
activity in 2008, particularly new issue and underwriting mandates, resulting
from market uncertainties. Gains on other securities decreased by C$9 million
due to a lower contribution from private equity fund investments compared with
the prior year.

    Non-interest expenses and operating efficiency

    Non-interest expenses were C$295 million for the fourth quarter of 2008
compared with C$339 million in the same quarter of 2007, a decrease of C$44
million, or 13.0 per cent. Salaries and employee benefit expenses were C$31
million lower in the fourth quarter of 2008 as a result of lower variable
compensation as well as a reduction in pension and benefit expense resulting
from the release of a valuation allowance previously applicable to pension
plan assets. Other expenses were C$15 million lower, due to a restructuring
charge recorded by HSBC Financial following a reduction of their branch
network in 2007. The cost efficiency ratio for the fourth quarter of 2008
decreased to 49.3 per cent compared to 54.1 per cent for 2007.
    Non-interest expenses of C$295 million for the fourth quarter of 2008
were C$19 million, or 6.1 per cent lower, compared with the third quarter of
2008. Salaries and employee benefits were C$30 million lower due to reductions
in variable compensation and pension and benefit expenses and lower staff
levels in the consumer finance segment. This decrease was partially offset by
slight increases in expenses related to premises and equipment and other
costs.
    For the year ended 31 December 2008, non-interest expenses were C$1,230
million compared with C$1,271 million for 2007, a decrease of C$41 million, or
3.2 per cent. Salaries and employee benefits were C$43 million lower primarily
due to lower staff costs in consumer finance operations, lower variable
compensation and a lower charge for pension and benefits. Expenses related to
premises and equipment increased by C$12 million due to new banking branches
and higher information technology costs, but were largely offset by decreases
in other expenses including the impact of a restructuring charge recorded by
HSBC Financial in 2007. The cost efficiency ratio was 49.6 per cent compared
with 50.9 per cent for 2007.

    Credit quality and provision for credit losses

    The provision for credit losses was C$136 million for the fourth quarter
of 2008, compared with C$72 million in the fourth quarter of 2007, and C$86
million for the third quarter of 2008. The provision for the year ended 31
December 2008 was C$379 million compared to C$239 million for 2007. The
increased charge in the fourth quarter of 2008 and for the year ended 31
December 2008 compared to the same periods in 2007 was due to an increase in
credit losses arising from the deteriorating credit environment. The provision
for credit losses from banking operations arose entirely in the commercial
banking segment with an increase of C$84 million arising from exposures across
all business sectors compared to previous periods which reflected a benign
credit environment with historically low losses. Credit loss provisions for
consumer finance operations for 2008 increased by C$56 million to C$228
million compared with C$172 million in 2007.
    Gross impaired credit exposures were C$932 million, C$512 million higher
compared with C$420 million at 31 December 2007. Total impaired exposures, net
of specific allowances for credit losses, were C$770 million at 31 December
2008 and C$336 million at 31 December 2007. However, the total of impaired
exposures includes C$207 million (2007 - C$172 million) of consumer finance
and other consumer loans, for which impairment is assessed collectively and no
specific impairment is recorded. The increase in impaired credit exposures was
driven by the deterioration of economic conditions across all business
sectors.
    The general allowance for credit losses of C$259 million applicable to
the banking portfolio remained unchanged from 30 September 2008 and a
reduction of $10 million compared to $269 million at 31 December 2007 as a
result of the sale of the automobile loan portfolio. During the fourth quarter
provision methodologies were amended for retail and commercial portfolios to
reflect increased granularity and risk sensitivity. The general allowance
applicable to consumer finance loans was C$194 million compared to C$161
million at 31 December 2007. The total allowance for credit losses, as a
percentage of loans and acceptances outstanding, was 1.24 per cent at 31
December 2008 compared with 1.09 per cent at 30 September 2008 and 1.03 per
cent at 31 December 2007. 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 fourth quarter of 2008 was 23.8 per cent,
which compares to 40.7 per cent in the same quarter of 2007 and 33.3 per cent
in the third quarter of 2008. The reduction in tax rate in the fourth quarter
of 2008 was primarily due to lower statutory tax rates, the release of a
pension plan allowance which is not taxable as well as the impact of lower tax
on future income, while the tax rate in the fourth quarter of 2007 included
the impact of a write-down of future taxes due to a change in tax rates.
    The effective tax rate for the full year in 2008 was 29.9 per cent
compared with 36.0 per cent in 2007. The lower tax rate in 2008 arises from a
reduction in statutory tax rates, together with the impact of the release of a
pension plan allowance which is not taxable as well as the impact of lower tax
rates on future income.

    Balance sheet

    Total assets at 31 December 2008 were C$72.0 billion, an increase of
C$3.9 billion from 31 December 2007 restated to reflect the acquisition of
HSBC Financial. Although there has been a slowdown in business activity,
commercial loans grew by C$1.8 billion, partially offset by a reduction in
acceptances of C$0.5 billion. Residential mortgages increased by C$0.9 billion
during 2008 but, as a result of securitisation, there was a net decrease of
C$1.0 billion. We further strengthened our liquidity with increased holdings
of Treasury bills and other government guaranteed securities. The securities
portfolio increased by C$3.8 billion, and there were increases in balances
under reverse repurchase agreements of C$0.6 billion. The mark-to-market
amount of derivatives, principally interest rate swaps and forward foreign
exchange contracts, increased considerably as a result of significant changes
in the underlying interest and foreign exchange rates on which derivative
valuations are based.
    Total deposits increased C$3.1 billion to C$52.0 billion at 31 December
2008 from C$48.9 billion at 31 December 2007. Growth in personal deposits
resulted largely from the new 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 as we targeted an increase in our
portfolio of core customer deposits. These increases were partially offset by
a reduction in wholesale deposits of C$1.8 billion.

    Total assets under administration

    Declines in equity markets, particularly over the last few months of 2008
had an adverse impact on funds under management which declined to C$21.3
billion at 31 December 2008 compared with C$24.6 billion at 30 September 2008
and C$26.2 billion at 31 December 2007. Including custody and administration
balances, total assets under administration were C$30.5 billion compared with
C$33.3 billion at 30 September 2008 and C$37.1 billion at 31 December 2007.

    Capital management

    During the fourth quarter, the bank issued preferred shares with a fair
value of C$346 million as consideration for the acquisition of HSBC Financial.
For further information refer to Appendix I.
    On 1 January 2008, the bank adopted the 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 requirements under the new Framework. In
September 2008, OSFI advised the bank that it had satisfied the conditions
that allowed 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.
However in accordance with OSFI requirements for new subsidiaries, the bank
used the standardized approach for calculating regulatory capital requirements
applicable to consumer finance assets. The bank's Tier 1 and overall capital
ratios calculated in accordance with the new framework were 10.1 per cent and
12.5 per cent respectively, compared with 10.6 per cent for Tier 1 and 13.2
per cent overall at 30 September 2008, which was not restated to reflect the
acquisition of HSBC Financial.
    Capital adequacy ratios calculated in accordance with the previous "Basel
I" framework were 8.8 per cent for Tier 1 and 11.3 per cent overall at 31
December 2007, which were not restated to reflect the acquisition of HSBC
Financial. 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 annual 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 Annual Report to
Shareholders. Certain prior period amounts have been reclassified to conform
to the current year's presentation.

    Dividends

    During the fourth quarter of 2008, C$65 million in dividends were
declared and paid on the bank's common shares and dividends of C$2.2 million
were declared on Class 2 Preferred Shares - Series B, which were paid on 15
January 2009. In addition, C$50 million in dividends were declared and paid on
Common Shares of HSBC Financial.
    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 March
2009, to shareholders of record on 13 March 2009.

    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 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 organisations.

    Copies of HSBC Bank Canada's Annual Report for 2008 will be sent to
shareholders in March 2009.

    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
    -------------------------------------------------------------------------

                                 Quarter ended                Year ended
    Figures in         -------------------------------- ---------------------
     C$ millions              31         30         31         31         31
    (except per         December  September   December   December   December
     share amounts)         2008       2008       2007       2008       2007
                       ---------- ---------- ---------- ---------- ----------
    Earnings
    Net income
     attributable to
     common shares           115        120        119        573        598
    Basic earnings per
     share (C$)             0.22       0.23       0.23       1.09       1.16

    Performance
     ratios (%)(*)
    Return on average
     common equity          12.8       13.6       14.6       16.6       19.6
    Return on average
     assets                 0.61       0.65       0.66       0.77       0.88
    Net interest
     margin(*)              2.44       2.63       2.76       2.59       2.91
    Cost efficiency
     ratio(xx)              49.3       53.0       54.1       49.6       50.9
    Non-interest
     revenue:total
     revenue ratio          37.3       28.9       31.6       33.7       31.3

    Credit information
    Gross impaired
     credit exposures        932        467        420
    Allowance for
     credit losses           615        549        514
      - As a percentage
       of gross impaired
       credit exposures       66%       118%       122%
      - As a percentage
       of gross loans
       and acceptances      1.24%      1.09%      1.03%

    Average balances(*)
    Assets                75,161     73,930     71,730     73,952     68,194
    Loans                 44,643     44,178     44,035     44,331     42,351
    Deposits              53,522     52,096     49,756     52,109     47,484
    Common equity          3,565      3,512      3,228      3,462      3,051

    Capital ratios
     (%)(xxx)
    Tier 1                  10.1       10.6        8.8
    Total capital           12.5       13.2       11.3

    Total assets under
     administration
    Funds under
     management           21,287     24,629     26,213
    Custodial accounts     9,221      8,667     10,914
                       ---------- ---------- ----------
    Total assets under
     administration       30,508     33,296     37,127
                       ---------- ---------- ----------
                       ---------- ---------- ----------

    (*)   Net interest margin is net interest income divided by average
          interest earning assets for the period.
    (xx)  The cost efficiency ratio is defined as non-interest expenses
          divided by total revenue.
    (xxx) The capital ratios for the quarters ended 31 December 2008 and
          30 September 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 Statement of Income (Unaudited)
    -------------------------------------------------------------------------

                                 Quarter ended                Year ended
    Figures in         -------------------------------- ---------------------
     C$ millions              31         30         31         31         31
    (except per         December  September   December   December   December
     share amounts)         2008       2008       2007       2008       2007
                       ---------- ---------- ---------- ---------- ----------
    Interest and
     dividend income
    Loans                    670        751        854      3,016      3,234
    Securities                68         75         73        288        285
    Deposits with
     regulated
     financial
     institutions             21         16         60         94        242
                       ---------- ---------- ---------- ---------- ----------
                             759        842        987      3,398      3,761
                       ---------- ---------- ---------- ---------- ----------

    Interest expense
    Deposits                 332        366        492      1,520      1,791
    Interest bearing
     liabilities of
     subsidiaries             42         46         56        195        213
    Debentures                10          9         10         39         39
                       ---------- ---------- ---------- ---------- ----------
                             384        421        558      1,754      2,043
                       ---------- ---------- ---------- ---------- ----------

    Net interest income      375        421        429      1,644      1,718
                       ---------- ---------- ---------- ---------- ----------

    Non-interest revenue
    Deposit and payment
     service charges          30         27         27        112        100
    Credit fees               30         32         29        124        116
    Capital market fees       22         17         27         88        109
    Investment
     administration fees      28         34         35        130        131
    Foreign exchange          13         12         13         49         44
    Trade finance              7          6          5         24         23
    Trading revenue          104         37         41        209        112
    Losses on
     available-for-sale
     securities              (55)       (13)       (34)       (68)       (13)
    Gains on other
     securities                -          -          2          2         11
    Securitization
     income                   22         15         13         87         42
    Other                     22          4         40         80        106
                       ---------- ---------- ---------- ---------- ----------
                             223        171        198        837        781
                       ---------- ---------- ---------- ---------- ----------

    Total revenue            598        592        627      2,481      2,499
                       ---------- ---------- ---------- ---------- ----------

    Non-interest
     expenses
    Salaries and
     employee benefits       137        167        168        644        687
    Premises and
     equipment                44         39         42        165        153
    Other                    114        108        129        421        431
                       ---------- ---------- ---------- ---------- ----------
                             295        314        339      1,230      1,271
                       ---------- ---------- ---------- ---------- ----------

    Net operating
     income before
     provision for
     credit losses           303        278        288      1,251      1,228
    Provision for
     credit losses           136         86         72        379        239
                       ---------- ---------- ---------- ---------- ----------

    Income before taxes
     and non-controlling
     interest in income
     of trust                167        192        216        872        989
    Provision for
     income taxes             38         62         85        253        347
    Non-controlling
     interest in income
     of trust                  7          6          7         26         26
                       ---------- ---------- ---------- ---------- ----------
    Net income               122        124        124        593        616
                       ---------- ---------- ---------- ---------- ----------
                       ---------- ---------- ---------- ---------- ----------
    Preferred share
     dividends                 7          4          5         20         18
                       ---------- ---------- ---------- ---------- ----------
    Net income
     attributable to
     common shares           115        120        119        573        598
                       ---------- ---------- ---------- ---------- ----------
                       ---------- ---------- ---------- ---------- ----------

    Average common
     shares outstanding
     (000)               517,122    526,349    521,349    524,042    517,599
    Basic earnings
     per share (C$)         0.22       0.23       0.23       1.09       1.16



    HSBC Bank Canada         Condensed Consolidated Balance Sheet (Unaudited)
    -------------------------------------------------------------------------

                                              At 31 December  At 31 December
    Figures in C$ millions                              2008            2007
                                              --------------- ---------------
    Assets
    Cash and non-interest bearing deposits
     with banks                                          434             554
    Interest bearing deposits with regulated
     financial institutions                            1,421           3,120
                                              --------------- ---------------
                                                       1,855           3,674
                                              --------------- ---------------

    Available-for-sale securities                      9,683           5,704
    Trading securities                                 1,079           1,227
    Other securities                                      56              60
                                              --------------- ---------------
                                                      10,818           6,991
                                              --------------- ---------------

    Securities purchased under reverse
     repurchase agreements                             6,682           6,122
                                              --------------- ---------------

    Loans
    - Businesses and government                       23,067          21,322
    - Residential mortgage                            11,869          12,920
    - Consumer finance loans                           4,029           5,041
    - Other consumer loans                             5,296           4,826
    - Allowance for credit losses                       (615)           (514)
                                              --------------- ---------------
                                                      43,646          43,595
                                              --------------- ---------------

    Customers' liability under acceptances             5,209           5,727
    Derivatives                                        2,448             623
    Land, buildings and equipment                        180             172
    Other assets                                       1,211           1,226
                                              --------------- ---------------
                                                       9,048           7,748
                                              --------------- ---------------
    Total assets                                      72,049          68,130
                                              --------------- ---------------
                                              --------------- ---------------

    Liabilities and shareholders' equity
    Deposits
    - Regulated financial institutions                 1,264           1,535
    - Individuals                                     21,064          18,292
    - Businesses and governments                      29,634          29,051
                                              --------------- ---------------
                                                      51,962          48,878
                                              --------------- ---------------

    Acceptances                                        5,209           5,727
    Interest bearing liabilities of
     subsidiaries, other than deposits                 4,164           5,182
    Derivatives                                        2,023             660
    Securities sold under repurchase agreements          715             320
    Securities sold short                                631             623
    Other liabilities                                  1,974           1,897
    Non-controlling interest in trust
     and subsidiary                                      430             430
                                              --------------- ---------------
                                                      15,146          14,839
                                              --------------- ---------------

    Subordinated debentures                              788             801
                                              --------------- ---------------

    Shareholders' equity
    - Preferred shares                                   696             350
    - Common shares                                    1,225           1,293
    - Contributed surplus                                  -             232
    - Retained earnings                                1,950           1,736
    - Accumulated other comprehensive income             282               1
                                              --------------- ---------------
                                                       4,153           3,612
                                              --------------- ---------------
    Total liabilities and shareholders' equity        72,049          68,130
                                              --------------- ---------------
                                              --------------- ---------------



    HSBC Bank Canada          Condensed Consolidated Statement of Cash Flows
                                                                  (Unaudited)
    -------------------------------------------------------------------------

                                 Quarter ended                Year ended
                       -------------------------------- ---------------------
                              31         30         31         31         31
    Figures in          December  September   December   December   December
     C$ millions            2008       2008       2007       2008       2007
                       ---------- ---------- ---------- ---------- ----------
    Cash flows provided
     by (used in):
    - operating
     activities               62        417         14      1,212      1,259
    - financing
     activities              342       (718)     1,001      2,073      5,440
    - investing
     activities             (503)       298       (844)    (3,393)    (6,553)
                       ---------- ---------- ---------- ---------- ----------

    (Decrease)
     increase in cash
     and cash
     equivalents             (99)        (3)       171       (108)       146
    Cash and cash
     equivalents,
     beginning of
     period                  519        522        357        528        382
                       ---------- ---------- ---------- ---------- ----------
    Cash and cash
     equivalents, end
     of period               420        519        528        420        528
                       ---------- ---------- ---------- ---------- ----------
                       ---------- ---------- ---------- ---------- ----------


    Represented by:
    - Cash and
     non-interest
     bearing deposits
     with the Bank of
     Canada and other
     banks                   434        535        554
    - less non-operating
     deposits with
     regulated financial
     institutions(*)         (14)       (16)       (26)
                       ---------- ---------- ----------
    - Cash and cash
     equivalents, end
     of period               420        519        528
                       ---------- ---------- ----------
                       ---------- ---------- ----------

    (*) Non-operating deposits comprise cash restricted for recourse on
        securitization transactions.



                                                                  Appendix I
    

    Acquisition of HSBC Financial Corporation Limited

    Effective November 30, 2008, the Bank acquired HSBC Financial, the
consideration for which was an issue to another HSBC Group company of
86,450,000 Class 2, Series B Preferred Shares, with a fair value of C$346
million, which approximated the net book value of HSBC Financial at November
30, 2008. The transaction has been accounted for as a transfer of a business
under common control using the continuity of interests method and results and
financial position for current and prior periods have been restated to include
the income, assets, liabilities and shareholders' equity of HSBC Financial at
their recorded net book values. As no new equity was contributed, the issue of
Class 2 preferred shares was recorded as a recapitalization of shareholders'
equity as follows:

    
    Figures in C$ millions
    Cancellation of common shares of HSBC Financial Corporation           68
    Charge to contributed surplus                                        239
    Charge to retained earnings                                           39
                                                                        -----
    Total                                                                346
                                                                        -----
                                                                        -----

    The impact of this restatement on net income for 2008 and 2007 including
earnings previously reported in 2008 was as follows:

                                 Quarter ended                Year ended
                       -------------------------------- ---------------------
                              31         30         31         31         31
    Figures in          December  September   December   December   December
     C$ millions            2008       2008       2007       2008       2007
                       ---------- ---------- ---------- ---------- ----------
    HSBC Bank Canada         107        121        111        524        530
    HSBC Financial
     Corporation               8         (1)         8         49         68
                       ---------- ---------- ---------- ---------- ----------
    Total                    115        120        119        573        598
                       ---------- ---------- ---------- ---------- ----------
                       ---------- ---------- ---------- ---------- ----------

    The effects of the acquisition on the consolidated income statements and
consolidated balance sheets of the bank as at or for the years ended 31
December 2008 and 2007 are as follows:

    Consolidated Income Statement

                                                       2008
                                    -----------------------------------------
                                       Pro-forma     Impact of
                                  excluding HSBC          HSBC
    Figures in C$ millions           Financial(1)    Financial         Total
                                    ------------- ------------- -------------
    Net interest income                    1,168   $       476         1,644
    Non-interest revenue                     778            59           837
                                    ------------- ------------- -------------
    Total revenue                          1,946           535         2,481
    Non-interest expense                   1,008           222         1,230
                                    ------------- ------------- -------------
    Net operating income before
     provision for credit losses             938           313         1,251
    Provision for credit losses              151           228           379
                                    ------------- ------------- -------------
    Income before provision for
     income taxes and
     non-controlling interest in
     income of trust                         787            85           872
    Provision for income taxes               219            34           253
    Non-controlling interest in
     income of trust                          26             -            26
                                    ------------- ------------- -------------
    Net income                               542            51           593
                                    ------------- ------------- -------------
                                    ------------- ------------- -------------
    Preferred shares                          18             2            20
                                    ------------- ------------- -------------
    Net income attributable to
     common shares                           524            49           573
                                    ------------- ------------- -------------
                                    ------------- ------------- -------------



    Consolidated Balance Sheet

                                                       2008
                                    -----------------------------------------
                                       Pro-forma     Impact of
                                  excluding HSBC          HSBC
    Figures in C$ millions           Financial(1)    Financial         Total
                                    ------------- ------------- -------------
    Assets
    Cash resources                         1,815            40         1,855
    Securities                            10,772            46        10,818
    Securities purchased under
     reverse repurchase agreements         6,682             -         6,682
    Loans                                 39,812         3,834        43,646
    Other assets                           8,909           139         9,048
                                    ------------- ------------- -------------
                                          67,990         4,059        72,049
                                    ------------- ------------- -------------
                                    ------------- ------------- -------------

    Liabilities and
     Shareholders' Equity
    Deposits                              51,961             1        51,962
    Other liabilities                     11,435         3,711        15,146
    Subordinated debt                        788             -           788
    Shareholders' equity                   3,806           347         4,153
                                    ------------- ------------- -------------
                                          67,990         4,059        72,049
                                    ------------- ------------- -------------
                                    ------------- ------------- -------------

    (1) Represents the following customer groups: Personal Financial
        Services, Commercial Banking, and Global Banking and Markets;
        excluding Consumer Finance.



    Consolidated Income Statement

                                                       2007
                                    -----------------------------------------

                                       HSBC Bank
                                       Canada as     Impact of
                                      previously          HSBC
    Figures in C$ millions              reported     Financial   As restated
                                    ------------- ------------- -------------
    Net interest income                    1,222           496         1,718
    Non-interest revenue                     708            73           781
                                    ------------- ------------- -------------
    Total revenue                          1,930           569         2,499
    Non-interest expense                     997           274         1,271
                                    ------------- ------------- -------------
    Net operating income before
     provision for credit losses             933           295         1,228
    Provision for credit losses               67           172           239
                                    ------------- ------------- -------------
    Income before provision for
     income taxes and
     non-controlling interest in
     income of trust                         866           123           989
    Provision for income taxes               292            55           347
    Non-controlling interest in
     income of trust                          26             -            26
                                    ------------- ------------- -------------
    Net income                               548            68           616
                                    ------------- ------------- -------------
                                    ------------- ------------- -------------
    Preferred shares                          18             -            18
                                    ------------- ------------- -------------
    Net income attributable to
     common shares                           530            68           598
                                    ------------- ------------- -------------
                                    ------------- ------------- -------------



    Consolidated Balance Sheet

                                                       2007
                                    -----------------------------------------

                                       HSBC Bank
                                       Canada as     Impact of
                                      previously          HSBC
    Figures in C$ millions              reported     Financial   As restated
                                    ------------- ------------- -------------
    Assets
    Cash resources                         3,573           101         3,674
    Securities                             6,926            65         6,991
    Securities purchased under
     reverse repurchase agreements         6,122             -         6,122
    Loans                                 38,715         4,880        43,595
    Other assets                           7,595           153         7,748
                                    ------------- ------------- -------------
                                          62,931         5,199        68,130
                                    ------------- ------------- -------------
                                    ------------- ------------- -------------

    Liabilities and
     Shareholders' Equity
    Deposits                              48,877             1        48,878
    Other liabilities                     10,005         4,834        14,839
    Subordinated debt                        801             -           801
    Shareholders' equity                   3,248           364         3,612
                                    ------------- ------------- -------------
                                          62,931         5,199        68,130
                                    ------------- ------------- -------------
                                    ------------- ------------- -------------
    





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