HSBC Bank Canada second quarter 2008 results* - Highlights



    VANCOUVER, July 28 /CNW/ -

    
    -   Net income attributable to common shares was C$142 million for the
        quarter ended 30 June 2008, an increase of 5.2 per cent over the
        quarter ended 30 June 2007.

    -   Net income attributable to common shares was C$297 million for the
        half-year ended 30 June 2008, an increase of 8.4 per cent over the
        same period in 2007.

    -   Return on average common equity was 18.9 per cent for the quarter
        ended 30 June 2008 and 19.9 per cent for the half-year ended 30 June
        2008 compared with 20.7 per cent and 21.4 per cent respectively for
        the same periods in 2007.

    -   The cost efficiency ratio was 52.7 per cent for the quarter ended
        30 June 2008 and 50.7 per cent for the half-year ended 30 June 2008
        compared with 51.2 per cent and 51.7 per cent respectively for the
        same periods in 2007.

    -   Total assets were C$67.4 billion at 30 June 2008 compared with
        C$61.2 billion at 30 June 2007.

    -   Total funds under management were C$27.1 billion at 30 June 2008
        compared with C$25.8 billion at 30 June 2007.

    (*) Results are prepared in accordance with Canadian generally accepted
        accounting principles.


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

    Overview

    HSBC Bank Canada recorded net income attributable to common shares of
C$142 million for the quarter ended 30 June 2008, an increase of C$7 million,
or 5.2 per cent, from C$135 million for the second quarter of 2007. Net income
attributable to common shares for the first half of 2008 was C$297 million
compared with C$274 million for the same period in 2007, an increase of
C$23 million or 8.4 per cent.
    Commenting on the results, Lindsay Gordon, President and Chief Executive
Officer, said: "HSBC Bank Canada's results for the second quarter were in line
with expectations in a difficult environment for banks in Canada and
worldwide. Falling market interest rates adversely impacted our net interest
margin and although our ongoing credit position continues to be stable
overall, further increases in specific credit provisions also impacted
reported earnings.
    "However, our underlying business in Canada remains strong and being part
of the HSBC Group remains a significant advantage in times of uncertain market
conditions. We will continue to pursue our strategy of growing our business by
building on the international strengths of the HSBC Group with the aim of
providing our customers with the financial products and services most suitable
for their circumstances and we will strive to deliver a consistent level of
excellent customer service throughout HSBC in Canada."

    Net interest income

    Net interest income of C$296 million for the quarter ended 30 June 2008
was C$11 million lower than C$307 million recorded in the same quarter of
2007. Average interest earning assets for the quarter were C$58.5 billion,
7.7 per cent higher than the same period in 2007. However, continuing
competitive pressures and a challenging interest rate environment impacted the
net interest margin, which decreased to 2.03 per cent for the quarter ended 30
June 2008 from 2.29 per cent for the same period in 2007. Since November 2007,
a falling prime rate has resulted in reduced interest income on our floating
rate loans without a corresponding reduction in interest expense as deposits
re-priced less quickly. In addition, widening credit spreads experienced
across the banking industry adversely impacted the cost of wholesale deposits.
    Net interest income in the second quarter of 2008 was largely unchanged
compared with the first quarter of 2008. Although average interest earning
assets increased by C$0.8 billion compared to the first quarter of 2008, this
was offset by a decrease in net interest margin from 2.08 per cent to 2.03 per
cent.
    On a year-to-date basis, net interest income was C$594 million which
decreased marginally from C$601 million for the same period last year. Net
interest income in 2008 benefited from continued growth in assets across all
businesses, but a decrease in net interest margin to 2.06 per cent compared
with 2.29 per cent in 2007 has more than offset the increase.

    Non-interest revenue

    Non-interest revenue was C$195 million for the second quarter of 2008
compared with C$177 million in the same quarter of 2007, an increase of
C$18 million, or 10.2 per cent. Securitization income was C$12 million higher
due to increased activity as well as increased income resulting from larger
spreads on loans securitized as a result of falling interest rates. Trading
revenues increased C$3 million compared to the same period last year primarily
due to volatile foreign exchange and credit markets experienced in the first
half of 2008. Deposit and payment service charges and credit fees were each
higher due to continued business growth. These increases were partially offset
by lower capital market fees in 2008 and a C$7 million reduction in gains on
available-for-sale securities due to a gain recorded in the same period last
year from the sale of part of the bank's shares in the Montreal Exchange.
    Non-interest revenue decreased from the first quarter of 2008 by
C$24 million, or 11.0 per cent. Trading income decreased by C$32 million from
the prior quarter of which C$24 million was related to gains on certain debt
obligations recorded at fair value as a result of widening credit spreads,
while in the current quarter a small loss was recorded as credit spreads
narrowed. In addition, trading revenues which had been very high in the first
quarter due to volatile market activity were C$6 million lower in the second
quarter. Securitization income also decreased by C$6 million compared to the
first quarter of 2008, mainly due to lower spreads on loans securitized. These
decreases were partially offset by a C$5 million increase in capital market
fees due to increased businesses activity experienced in the second quarter of
2008 and a C$2 million increase in investment administration fees as funds
under management grew. During the second quarter of 2008, C$2 million in gains
on disposals of certain available-for-sale securities was also recognized.
    On a year-to-date basis, non-interest revenue was C$414 million,
C$52 million, or 14.4 per cent, higher compared with C$362 million for the
same period last year. Trading revenues increased C$40 million as a result of
volatile foreign exchange and credit markets experienced in the first half of
2008. It included a positive impact of C$18 million arising from changes in
the amount of certain debt obligations recorded at fair value. Securitization
income was C$29 million higher due to increased activity as well as higher
gains on securitizations of loans arising from the effect of falling interest
rates. Deposit and payment service charges, credit fees and investment
administration fees were also higher due to continued business growth. These
increases were partially offset by a reduction in capital market fees of
C$12 million due to lower capital market activity in the first half of 2008
compared to the same period in 2007. In addition, gains on available-for-sale
securities were C$24 million lower than in the same period last year due to
gains recorded in the first half of 2007 from the sale of the bank's shares in
the Montreal Exchange. Gains on other securities were C$7 million lower due to
lower income from the bank's investment in private equity funds compared to
2007.

    Non-interest expenses

    Non-interest expenses were C$259 million for the second quarter of 2008
compared with C$248 million for the same quarter of 2007, an increase of
C$11 million, or 4.4 per cent. The cost efficiency ratio was 52.7 per cent for
the second quarter of 2008 compared to 51.2 per cent for the same period in
2007. Salary expenses grew reflecting increased staff levels as we expanded
the branch network, the direct bank and the payments and cash management
businesses. This was partially offset by lower variable compensation as a
result of reductions in capital market revenue and lower pension and post
retirement benefit costs. Premises and equipment expenses increased as a
result of additional investments in IT and higher occupancy costs.
    Non-interest expenses increased by C$7 million compared to the first
quarter of 2008. Salaries and benefits were marginally higher with increased
variable compensation arising from increased capital market fees which were
offset by lower pension and benefit expenses. Premises and equipment expenses
increased by C$3 million arising from increased IT costs and higher occupancy
expenses as the bank continued to open new branches.
    On a year-to-date basis, non-interest expenses were C$511 million
compared with C$498 million for the same period last year, an increase of
C$13 million, or 2.6 per cent. Salaries and benefits expenses were C$3 million
higher due to an increased employee base, and increased benefit costs as a
result of opening new branches. These were offset by lower variable
compensation arising from lower capital market fees and lower pension costs.
Premises costs increased by C$10 million due to increased costs from new
branches as well as increases in IT costs. Other non-interest expenses were
higher due to continued investments in the business, as well as higher
customer transaction costs. The cost efficiency ratio of 50.7 per cent
compared favourably with 51.7 per cent for the same period in 2007.

    Credit quality and provision for credit losses

    The provision for credit losses was C$25 million for the second quarter
of 2008, compared with C$12 million in the second quarter of 2007, and
C$25 million for the first quarter of 2008. On a year-to-date basis, the
provision for credit losses was C$50 million, compared with C$22 million for
the same period of 2007.
    The credit environment deteriorated somewhat in the latter part of 2007
and quarterly provisions for the first half of 2008 were at a similar level to
that experienced in the second half of 2007. An increase in retail provisions
primarily related to auto loans and a specific provision relating to the
commercial construction sector in the first half of 2008 resulted in an
increase of C$28 million compared with the same period in 2007.
    The same factors impacted movements in impaired credit exposures. Gross
impaired credit facilities were C$290 million, C$24 million lower compared
with 31 March 2008 and C$95 million higher compared with C$195 million at
30 June 2007. Total impaired credit facilities, net of specific allowances for
credit losses, were C$194 million at 30 June 2008 compared with C$188 million
at 31 December 2007 and C$141 million at 30 June 2007. Overall credit quality
remains sound, reflecting prudent lending standards.
    The general allowance for credit losses remained unchanged at
C$269 million compared with 31 December 2007 and at 30 June 2007. The total
allowance for credit losses, as a percentage of loans and acceptances
outstanding, was 0.78 per cent at 30 June 2008 compared with 0.79 per cent at
31 December 2007 and 0.74 per cent at 30 June 2007.

    Income taxes

    The effective tax rate in the second quarter of 2008 was 26.3 per cent
compared with 35.5 per cent in the second quarter of 2007 and 32.1 per cent in
the first quarter of 2008. The lower tax rate in the quarter ended 30 June
2008 compared to the first quarter of 2008 was largely due to resolution of
certain tax deductions from prior years.

    Balance sheet

    Total assets at 30 June 2008 were C$67.4 billion, an increase of
C$4.5 billion from 31 December 2007, and C$6.2 billion from 30 June 2007.
Commercial loans and bankers' acceptances increased by C$621 million from the
end of 2007, as commercial activity continued to grow. Although residential
mortgage originations increased, this was offset by C$1.9 billion in
securitizations in 2008 resulting in a net decrease of about C$470 million.
Consumer loans grew by C$1.6 billion, of which C$900 million related to part
of the industry restructuring of certain non-bank ABCP conduits where the bank
re-purchased personal loans previously securitized. The securities portfolio
and securities purchased under reverse repurchase arrangements increased by
C$2.2 billion from 31 December 2007, improving the bank's liquidity position.
    Total deposits increased by C$2.4 billion to C$51.3 billion at 30 June
2008 from C$48.9 billion at 31 December 2007 and were C$5.1 billion higher
compared with C$46.2 billion at 30 June 2007. Personal deposits grew by
C$1.2 billion over 31 December 2007 mainly driven by growth in High Rate and
Direct Savings Accounts. In the same period commercial deposits also increased
reflecting strong growth among our commercial clients, while wholesale
deposits were relatively unchanged.

    Total assets under administration

    Funds under management were C$27.1 billion at 30 June 2008 compared with
C$26.3 billion at 31 March 2008 and C$25.8 billion at 30 June 2007. Funds
under management in the second quarter of 2008 benefited from strong
investment sales, and increases in equity markets. Including custody and
administration balances, total assets under administration were C$37.8 billion
compared with C$37.3 billion at 31 March 2008 and C$34.8 billion at 30 June
2007.

    Capital management and regulatory capital ratios

    On 1 January 2008 the bank adopted a revised Basel Capital Framework
commonly known as "Basel II" to comply with new regulations issued by the
Office of the Superintendent of Financial Institutions Canada. The bank's
tier 1 and overall capital ratios calculated in accordance with the new
framework were 9.3 per cent and 11.5 per cent respectively, compared with
9.1 per cent for tier 1 and 11.3 per cent overall at 31 March 2008.
    Capital adequacy ratios calculated in accordance with the previous
"Basel I" framework were 8.8 per cent for tier 1 and 11.5 per cent overall at
30 June 2007. Further details of the bank's capital management process,
including details of the calculation of capital adequacy under the new
"Basel II" framework will be included in the bank's second quarter 2008 report
to shareholders.

    Dividends

    During the second quarter of 2008, the bank declared and paid
C$65 million in dividends on HSBC Bank Canada 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 2008, for shareholders of record on 15 September 2008.

    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 the results for the
first half of 2008 arising from the adoption of these new presentation and
disclosure standards, which will be reflected in HSBC Bank Canada's second
quarter 2008 report to shareholders. Certain prior period amounts have been
reclassified to conform to the current year's presentation.

    About HSBC Bank Canada

    HSBC Bank Canada, a subsidiary of HSBC Holdings plc, has more than
180 offices. With around 10,000 offices in 83 countries and territories and
assets of US$2,354 billion at 31 December 2007, 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 2008 report will be sent to
shareholders in August 2008.

    Caution regarding forward-looking financial statements

    This document may contain forward-looking statements, including
statements regarding the business and anticipated financial performance of
HSBC Bank Canada. These statements are subject to a number of risks and
uncertainties that may cause actual results to differ materially from those
contemplated by the forward-looking statements. Some of the factors that could
cause such differences include legislative or regulatory developments,
technological change, global capital market activity, changes in government
monetary and economic policies, changes in prevailing interest rates,
inflation level and general economic conditions in geographic areas where HSBC
Bank Canada operates. Canada has 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. In addition, there may be a number
of factors relating to the valuation of Canadian non-bank sponsored Asset
Backed Commercial Paper. 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           Half-year ended
    Figures in C$ millions  ----------------------------- -------------------
    (except per share        30 June  31 March   30 June   30 June   30 June
     amounts)                   2008      2008      2007      2008      2007
                            --------- --------- --------- --------- ---------
    Earnings
    Net income attributable
     to common shares            142       155       135       297       274
    Basic earnings per
     share (C$)                 0.28      0.31      0.28      0.59      0.56

    Performance ratios (%)(*)
    Return on average
     common equity              18.9      21.2      20.7      19.9      21.4
    Return on average assets    0.83      0.92      0.86      0.88      0.89
    Net interest margin(*)      2.03      2.08      2.29      2.06      2.29
    Cost efficiency ratio(xx)   52.7      48.7      51.2      50.7      51.7
    Non-interest revenue:
     total revenue ratio        39.7      42.4      36.6      41.1      37.6

    Credit information
    Gross impaired credit
     exposures                   290       314       195
    Allowance for credit
     losses
    - Balance at end of
       period                    365       370       323
    - As a percentage of
       gross impaired credit
       exposures                 126%      118%      166%
    - As a percentage of
       gross loans and
       acceptances              0.78%     0.81%     0.74%

    Average balances(*)
    Assets                    68,471    67,897    63,286    68,184    61,979
    Loans                     39,942    38,850    37,067    39,396    36,534
    Deposits                  51,830    50,972    46,691    51,401    46,275
    Common equity              3,038     2,964     2,618     3,001     2,588

    Capital ratios (%)(xxx)
    Tier 1                       9.3       9.1       8.8
    Total capital               11.5      11.3      11.5

    Total assets under
     administration
    Funds under management    27,118    26,283    25,795
    Custody accounts          10,699    11,006     9,012
                            --------- --------- ---------
    Total assets under
     administration           37,817    37,289    34,807
                            --------- --------- ---------

    (*)   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 30 June 2008 and 31 March
          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           Half-year ended
    Figures in C$ millions  ----------------------------- -------------------
    (except per share        30 June  31 March   30 June   30 June   30 June
     amounts)                   2008      2008      2007      2008      2007
                            --------- --------- --------- --------- ---------

    Interest and dividend
     income
    Loans                        602       642       616     1,244     1,213
    Securities                    65        73        71       138       129
    Deposits with regulated
     financial institutions       21        36        62        57       121
                            --------- --------- --------- --------- ---------
                                 688       751       749     1,439     1,463
                            --------- --------- --------- --------- ---------

    Interest expense
    Deposits                     382       443       431       825       844
    Debentures                    10        10        11        20        18
                            --------- --------- --------- --------- ---------
                                 392       453       442       845       862
                            --------- --------- --------- --------- ---------

    Net interest income          296       298       307       594       601
                            --------- --------- --------- --------- ---------

    Non-interest revenue
    Deposit and payment
     service charges              28        27        25        55        48
    Credit fees                   30        31        28        61        55
    Capital market fees           27        22        29        49        61
    Investment administration
     fees                         35        33        33        68        63
    Foreign exchange              11        10         9        21        18
    Trade finance                  6         5         6        11        12
    Trading revenue               19        51        16        70        30
    Gains on available-for-sale
     securities                    2         -         9         2        26
    Gains on other securities      1         1         1         2         9
    Securitization income         21        27         9        48        19
    Other                         15        12        12        27        21
                            --------- --------- --------- --------- ---------
                                 195       219       177       414       362
                            --------- --------- --------- --------- ---------

    Total revenue                491       517       484     1,008       963
                            --------- --------- --------- --------- ---------

    Non-interest expenses
    Salaries and employee
     benefits                    143       142       139       285       282
    Premises and equipment        38        35        32        73        63
    Other                         78        75        77       153       153
                            --------- --------- --------- --------- ---------
                                 259       252       248       511       498
                            --------- --------- --------- --------- ---------

    Net operating income
     before provision for
     credit losses               232       265       236       497       465

    Provision for credit losses   25        25        12        50        22
                            --------- --------- --------- --------- ---------

    Income before taxes and
     non-controlling interest
     in income of trust          207       240       224       447       443
    Provision for income taxes    53        75        77       128       147
    Non-controlling interest
     in income of trust            7         6         7        13        13
                            --------- --------- --------- --------- ---------
    Net income                   147       159       140       306       283
                            --------- --------- --------- --------- ---------
                            --------- --------- --------- --------- ---------
    Preferred share dividends      5         4         5         9         9
                            --------- --------- --------- --------- ---------
    Net income attributable
     to common shares            142       155       135       297       274
                            --------- --------- --------- --------- ---------
                            --------- --------- --------- --------- ---------

    Average common shares
     outstanding (000)       498,668   498,668   488,668   498,668   488,668
    Basic earnings per
     share (C$)                 0.28      0.31      0.28      0.59      0.56



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

                                                At           At           At
                                           30 June  31 December      30 June
    Figures in C$ millions                    2008         2007         2007
                                       ------------ ------------ ------------

    Assets
    Cash and non-interest bearing
     deposits with banks                       527          510          448
    Interest bearing deposits with
     regulated financial institutions        2,296        3,063        4,403
                                       ------------ ------------ ------------
                                             2,823        3,573        4,851
                                       ------------ ------------ ------------

    Available-for-sale securities            6,817        5,639        6,024
    Trading securities                       1,408        1,227        1,891
    Other securities                            48           60           53
                                       ------------ ------------ ------------
                                             8,273        6,926        7,968
                                       ------------ ------------ ------------

    Securities purchased under
     reverse repurchase agreements           6,970        6,122        2,794
                                       ------------ ------------ ------------

    Loans
    - Businesses and government             21,930       21,322       19,197
    - Residential mortgage                  12,454       12,920       14,367
    - Consumer                               6,470        4,826        4,236
    - Allowance for credit losses             (365)        (353)        (323)
                                       ------------ ------------ ------------
                                            40,489       38,715       37,477
                                       ------------ ------------ ------------

    Customers' liability under
     acceptances                             5,740        5,727        5,644
    Derivatives                                579          623          535
    Land, buildings and equipment              155          149          130
    Other assets                             2,357        1,096        1,766
                                       ------------ ------------ ------------
                                             8,831        7,595        8,075
                                       ------------ ------------ ------------
    Total assets                            67,386       62,931       61,165
                                       ------------ ------------ ------------
                                       ------------ ------------ ------------

    Liabilities and shareholders' equity
    Deposits
    - Regulated financial institutions       1,439        1,535        2,087
    - Individuals                           19,464       18,291       17,010
    - Businesses and governments            30,347       29,051       27,068
                                       ------------ ------------ ------------
                                            51,250       48,877       46,165
                                       ------------ ------------ ------------

    Acceptances                              5,740        5,727        5,644
    Assets sold under repurchase
     agreements                                372          320           95
    Derivatives                                591          649          675
    Securities sold short                      818          623        1,506
    Other liabilities                        3,967        2,256        2,811
    Non-controlling interest in trust
     and subsidiary                            430          430          430
                                       ------------ ------------ ------------
                                            11,918       10,005       11,161
                                       ------------ ------------ ------------

    Subordinated debentures                    802          801          836
                                       ------------ ------------ ------------

    Shareholders' equity
    - Preferred shares                         350          350          350
    - Common shares                          1,225        1,225        1,125
    - Contributed surplus                      208          206          204
    - Retained earnings                      1,629        1,462        1,336
    - Accumulated other comprehensive
       income                                    4            5          (12)
                                       ------------ ------------ ------------
                                             3,416        3,248        3,003
                                       ------------ ------------ ------------
    Total liabilities and shareholders'
     equity                                 67,386       62,931       61,165
                                       ------------ ------------ ------------
                                       ------------ ------------ ------------


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

                                    Quarter ended           Half-year ended
                            ----------------------------- -------------------
    Figures in C$ millions   30 June  31 March   30 June   30 June   30 June
                                2008      2008      2007      2008      2007
                            --------- --------- --------- --------- ---------

    Cash flows provided
     by/(used in):
    - operating activities       562       264       389       826       855
    - financing activities       850     1,437        62     2,287     2,086
    - investing activities    (1,406)   (1,691)     (462)   (3,097)   (2,869)
                            --------- --------- --------- --------- ---------

    Increase (decrease) in
     cash and cash
     equivalents                   6        10       (11)       16       (72)
    Cash and cash
     equivalents, beginning
     of period                   494       484       430       484       347
                            --------- --------- --------- --------- ---------
    Cash and cash equivalents,
     end of period               500       494       419       500       419
                            --------- --------- --------- --------- ---------
                            --------- --------- --------- --------- ---------

    Represented by:
    - Cash resources per
       balance sheet             527       520       448
    - less non-operating
       deposits(*)               (27)      (26)      (29)
                            --------- --------- ---------
    - Cash and cash
       equivalents, end of
       period                    500       494       419
                            --------- --------- ---------
                            --------- --------- ---------

    (*) Non-operating deposits are comprised primarily of cash restricted for
        recourse on securitization transactions.
    





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For further information: Media enquiries to: Ernest Yee, (604) 641-2973;
Sharon Wilks, (416) 868-3878


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