HSBC Bank Canada third quarter 2007 results* - Highlights



    VANCOUVER, Oct. 29 /CNW/ -

    
    -   Net income attributable to common shares was C$145 million for the
        quarter ended 30 September 2007, an increase of 5.1 per cent over the
        quarter ended 30 September 2006.

    -   Net income attributable to common shares was C$419 million for the
        nine months ended 30 September 2007, an increase of 13.6 per cent
        over the same period in 2006.

    -   Return on average common equity was 21.3 per cent for both the
        quarter and nine months ended 30 September 2007 compared with
        23.0 per cent and 21.2 per cent, respectively, for the same periods
        in 2006.

    -   The cost efficiency ratio was 48.9 per cent and 50.8 per cent for the
        quarter and nine months ended 30 September 2007 compared with
        48.2 per cent and 51.3 per cent, respectively, for the same periods
        in 2006.

    -   Total assets were C$63.6 billion at 30 September 2007 compared with
        C$55.9 billion at 30 September 2006.

    -   Total funds under management were C$27.1 billion at 30 September 2007
        compared with C$22.4 billion at 30 September 2006.

    (*) 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$145 million for the quarter ended 30 September 2007, an increase of
C$7 million, or 5.1 per cent, from C$138 million for the third quarter of
2006. Net income attributable to common shares for the nine months ended
30 September 2007 was C$419 million compared with C$369 million for the same
period in 2006, an increase of C$50 million, or 13.6 per cent.
    Net income attributable to common shares in the nine months ended
30 September 2007 benefited from gains of C$21 million after related income
taxes, on the sale of the bank's shares in the Montreal Exchange. Excluding
these gains, net income attributable to common shares for the nine months
ended 30 September 2007 increased by 7.9 per cent from the same period last
year.
    Commenting on the results, Lindsay Gordon, President and Chief Executive
Officer, said: "HSBC Bank Canada recorded satisfactory results in the third
quarter with good growth in revenue and net income compared to previous
periods. The strong Canadian economy and strategic investments in key
businesses and markets drove growth. The recent volatility in international
credit and liquidity markets has provided evidence that we need to continue to
manage our businesses prudently.
    "For the remainder of 2007 and into 2008, we plan to continue our
existing strategy of enhancing sales through careful expansion in key target
markets and improving operational efficiencies while maintaining close control
over credit quality. We continue to work on global initiatives with the HSBC
Group and recently, along with 34 other countries and territories, we launched
HSBC Global Premier, a product that offers the world's mass affluent the most
comprehensive global banking and wealth management service in the market.
Global Premier leverages HSBC's presence in 83 markets to provide customers
with seamless international service."

    Net interest income

    Net interest income was C$319 million for the quarter ended 30 September
2007 compared with C$282 million for the same quarter in 2006, an increase of
C$37 million, or 13.1 per cent. The increase was driven by growth in assets in
all businesses. Average interest-earning assets were C$5.9 billion or 12.2 per
cent higher compared with the same period in 2006. The net interest margin
increased to 2.33 per cent for the quarter compared with 2.31 per cent for the
same period in 2006.
    Net interest income in the third quarter of 2007 was C$12 million higher
compared with the second quarter of 2007. An increase in the Canadian prime
rate during the quarter together with higher commercial loan volumes improved
net interest income. This was partly offset by higher interest rates on
deposits, as a result of the widening credit spreads recently experienced in
international credit and liquidity markets. The net interest margin was four
basis points higher than the previous quarter.
    On a year-to-date basis, net interest income was C$920 million compared
with C$824 million for the same period last year, an increase of C$96 million,
or 11.7 per cent. Year-to-date net interest income in 2007 benefited from
continued growth in assets across all businesses, partially offset by a
decrease in net interest margins to 2.30 per cent compared with 2.34 per cent
in 2006.

    Non-interest revenue

    Non-interest revenue was C$184 million for the third quarter of 2007
compared with C$160 million in the same quarter of 2006, an increase of
C$24 million, or 15.0 per cent. Investment administration fees were higher as
the bank's funds under management in the wealth management business continued
to record strong growth. Deposit and payment service charges and credit fees
increased as a result of increased customer activity. Capital market fees were
lower arising from lower activity as a result of uncertainties in the markets,
particularly from new issue underwriting and advisory mandates. Trading income
was higher, mainly due to positive impacts of changes in the carrying values
of certain debt obligations recorded at fair value. Investment securities
gains were lower due to an increase in the fair value of the bank's
investments in private equity funds recorded in the third quarter of 2006, not
repeated in the third quarter of 2007.
    Non-interest revenue was C$7 million higher in the third quarter of 2007
compared with the previous quarter, mainly due to higher trading revenues as
noted above offset by a reduction in investment securities gains on sale of
shares in the Montreal Exchange included in the second quarter and a reduction
in capital market fees, particularly from lower market activity impacting
underwriting and advisory mandates.
    On a year-to-date basis, non-interest revenue was C$546 million,
C$63 million, or 13.0 per cent, higher compared with C$483 million for the
same period last year. Trading income was higher than the same period in 2006,
mainly due to positive impacts of changes in the carrying values of certain
debt obligations recorded at fair value. Investment administration fees
increased due to growth in funds under management, and deposit and payment
service charges were also higher. Investment securities gains were higher due
to the sale of the bank's Montreal Exchange shares, partially offset by a
lower increase in fair value of the private equity funds than that recorded in
2006.

    Non-interest expenses and operating efficiency

    Non-interest expenses were C$246 million for the third quarter of 2007
compared with C$213 million in the same quarter of 2006, an increase of
C$33 million, or 15.5 per cent. Salaries and employee benefits expenses were
higher in 2007 due to an increase in the employee base as a result of
strategic growth initiatives in new branches in Alberta and the Greater
Toronto Area. Investments were also made in the Direct Bank, Private Banking
and Wealth Management and the Payments and Cash Management businesses.
Stock-based compensation and pension plan costs were also higher than in the
comparative period. Premises and equipment expenses were higher due to the
opening of new branches, investments in systems and higher transaction costs
arising from increased customer activity. Marketing expenses also increased as
we continued to build the HSBC brand in Canada. The cost efficiency ratio of
48.9 per cent increased marginally compared with the same period in 2006.
    Non-interest expenses for the third quarter of 2007 were also little
changed compared with the second quarter of 2007. Salaries and benefits were
lower as a result of decreased variable compensation resulting from lower
capital market revenues and lower employee benefit costs seasonally
experienced in the third quarter. This was offset by higher other expenses due
to increases in corporate capital taxes, marketing and other infrastructure
expenses.
    On a year-to-date basis, non-interest expenses were C$744 million
compared with C$670 million for the same period last year, an increase of
C$74 million, or 11.0 per cent. Salaries and benefits expenses were higher due
to an increased employee base, increased variable compensation, and higher
pension costs. Other expenses were higher due to continued investment in the
business, as well as higher costs arising from increased customer
transactions. The cost efficiency ratio improved to 50.8 per cent compared
with 51.3 per cent for the same period in 2006.

    Credit quality and provision for credit losses

    The provision for credit losses was C$21 million for the third quarter of
2007, compared with C$5 million in the third quarter of 2006, and C$12 million
for the second quarter of 2007. Overall credit quality remains sound,
reflecting prudent lending standards and strong economic conditions in Canada.
The increased charge in the third quarter of 2007 compared to the same period
last year is due to additional provisions related to a single commercial
exposure compared to an unusually low loan loss experience in 2006 where
corporate default rates were at historically low levels.
    Gross impaired credit exposures were C$206 million, C$11 million higher
compared with C$195 million at 30 June 2007, and C$40 million higher compared
with C$166 million at 30 September 2006. Total impaired exposures, net of
specific allowances for credit losses, were C$139 million at 30 September 2007
compared with C$141 million at 30 June 2007 and C$117 million at 30 September
2006.
    The general allowance for credit losses of C$269 million remained
unchanged from 30 June 2007 and 30 September 2006. The total allowance for
credit losses, as a percentage of loans and acceptances outstanding, was
0.75 per cent at 30 September 2007 compared with 0.74 per cent at 30 June 2007
and 0.80 per cent at 30 September 2006. 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 third quarter of 2007 was 35.2 per cent,
which was comparable to 34.9 per cent in the same quarter of 2006 and 35.5 per
cent in the second quarter of 2007. On a year-to-date basis in 2007, the
effective tax rate was 34.5 per cent compared with 36.4 per cent for the same
period last year primarily due to a higher level of gains subject to a lower
tax rate and higher non-deductible expenses in 2006.

    Balance sheet

    Total assets at 30 September 2007 were C$63.6 billion, an increase of
C$6.8 billion from 31 December 2006 and C$7.7 billion from 30 September 2006.
The loan portfolio continues to be a major driver of balance sheet growth.
Commercial loans and bankers' acceptances grew C$3.3 billion since 31 December
2006 on the continued strong economy, particularly in Western Canada.
Residential mortgages increased C$0.9 billion, before securitisation during
the period. Balance sheet management activity in the Treasury and Markets
business has increased the securities portfolio by C$1.9 billion although this
was offset by slight decreases in balances under reverse repurchase
agreements.
    Total deposits increased C$3.3 billion to C$47.5 billion at 30 September
2007 from C$44.2 billion at 31 December 2006 and by C$4.7 billion from
C$42.8 billion at 30 September 2006. 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. Other liabilities increased largely from an
increase in short positions in securities resulting from an increase in
activities in the Treasury and Markets business.
    Compared with the balance at 30 September 2006, total assets were higher
largely due to growth in commercial loans and markets activities. Residential
mortgages were also higher. Deposit growth benefited from increased cash
management balances from corporate customers as well as personal deposit
growth from the High Rate and Direct Savings accounts.

    Total assets under administration

    Funds under management were C$27.1 billion at 30 September 2007 compared
with C$25.8 billion at 30 June 2007 and C$22.4 billion at 30 September 2006.
Including custody and administration balances, total assets under
administration were C$36.4 billion compared with C$34.8 billion at 30 June
2007 and C$31.3 billion at 30 September 2006.
    Growth in funds under management in 2007 benefited from strong
acquisitions of new clients, strong investment sales and the success of
Private Client products assisted by growth in equity markets.

    Capital management

    The tier 1 capital ratio was 8.5 per cent and the total capital ratio was
10.9 per cent at 30 September 2007. These compare with 8.8 per cent and
11.5 per cent, respectively, at 30 June 2007 and 8.9 per cent and 11.1 per
cent, respectively, at 30 September 2006.
    In addition to net income, regulatory capital increased from an issuance
of C$400 million in subordinated debentures in the second quarter of 2007.
This was partially offset by dividends declared on preferred and common shares
and the redemption of C$100 million and C$25 million in subordinated
debentures in the second and third quarters of 2007 respectively.

    Accounting policies adopted in 2007

    Effective 1 January 2007, the bank adopted new Canadian Institute of
Chartered Accountants (CICA) Handbook Standards relating to the recognition,
measurement and disclosure of financial instruments including hedges and
comprehensive income. Although these standards were adopted prospectively
without restatement of prior year comparatives, the impact on initial adoption
as well as the effects of certain transitional adjustments have been recorded
as adjustments to opening retained earnings or opening accumulated other
comprehensive income. Although there was no material impact on the results for
the third quarter arising from the adoption of these new standards, more
detailed information on the impact of adopting these standards was included in
HSBC Bank Canada's first quarter 2007 report to shareholders.

    Dividends

    During the third quarter of 2007, C$65 million in dividends were declared
and paid on the bank's common shares.
    Regular quarterly dividends of 31.875 cents per share have been declared
on HSBC Bank Canada Class 1 Preferred Shares - Series C and 31.25 cents per
share on Class 1 Preferred Shares - Series D. The dividends will be payable on
31 December 2007, to shareholders of record on 14 December 2007.

    About HSBC Bank Canada

    HSBC Bank Canada, a subsidiary of HSBC Holdings plc, has more than 170
offices. With around 10,000 offices in 83 countries and territories and assets
of US$2,150 billion at 30 June 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 third quarter 2007 report will be sent to
shareholders in November 2007.

    Caution regarding forward-looking financial statements

    This document may contain forward-looking statements, including
statements regarding the business and anticipated financial performance of
HSBC Bank Canada. These statements are subject to a number of risks and
uncertainties that may cause actual results to differ materially from those
contemplated by the forward-looking statements. Some of the factors that could
cause such differences include legislative or regulatory developments,
technological change, global capital market activity, changes in government
monetary and economic policies, changes in prevailing interest rates,
inflation level and general economic conditions in geographic areas where HSBC
Bank Canada operates. Canada is an extremely competitive banking environment
and pressures on interest rates and the bank's net interest margin may arise
from actions taken by individual banks acting alone. Varying economic
conditions may also affect equity and foreign exchange markets, which could
also have an impact on the bank's revenues. The factors disclosed above may
not be complete and there could be other uncertainties and potential risk
factors not considered here which may impact the bank's results and financial
condition.


    
    HSBC Bank Canada                                                 Summary
    -------------------------------------------------------------------------

                                   Quarter ended          Nine months ended
    Figures in         -------------------------------- ---------------------
     C$ millions              30         30         30         30         30
    (except per        September       June  September  September  September
     share amounts)         2007       2007       2006       2007       2006
                       ---------- ---------- ---------- ---------- ----------
    Earnings
    Net income
     attributable to
     common shares           145        135        138        419        369
     Basic earnings
      per share             0.30       0.28       0.28       0.86       0.76

    Performance ratios (%)
    Return on average
     common equity          21.3       20.7       23.0       21.3       21.2
    Return on
     average assets         0.91       0.86       1.01       0.90       0.94
    Net interest margin(*)  2.33       2.29       2.31       2.30       2.34
    Cost efficiency
     ratio(xx)              48.9       51.2       48.2       50.8       51.3
    Non-interest
     revenue: total
     revenue ratio          36.6       36.6       36.2       37.2       37.0

    Credit information
    Gross impaired
     credit exposures        206        195        166

    Allowance for
     credit losses           336        323        318
      - As a percentage
        of gross impaired
        credit exposures     163 %      166 %      192 %
      - As a percentage
        of gross loans
        and acceptances     0.75 %     0.74 %     0.80 %

    Average balances
    Assets                62,934     63,286     53,945     62,301     52,512
    Loans                 38,405     37,067     34,144     37,164     33,226
    Deposits              47,588     46,691     42,206     46,717     41,033
    Common equity          2,693      2,618      2,387      2,623      2,326

    Capital ratios (%)
    Tier 1                   8.5        8.8        8.9
    Total capital           10.9       11.5       11.1

    Total assets under
     administration
    Funds under
     management           27,129     25,795     22,372
    Custody accounts       9,279      9,012      8,973
                       ---------- ---------- ----------
    Total assets under
     administration       36,408     34,807     31,345
                       ---------- ---------- ----------

    (*)  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.



    HSBC Bank Canada            Consolidated Statement of Income (Unaudited)
    -------------------------------------------------------------------------

                                   Quarter ended          Nine months ended
    Figures in         -------------------------------- ---------------------
     C$ millions              30         30         30         30         30
    (except per        September       June  September  September  September
     share amounts)         2007       2007       2006       2007       2006
                       ---------- ---------- ---------- ---------- ----------

    Interest and
     dividend income
    Loans                    663        616        566      1,876      1,551
    Securities                70         71         47        199        136
    Deposits with
     regulated
     financial
     institutions             61         62         59        182        172
                       ---------- ---------- ---------- ---------- ----------
                             794        749        672      2,257      1,859
                       ---------- ---------- ---------- ---------- ----------

    Interest expense
    Deposits                 464        431        383      1,308      1,015
    Debentures                11         11          7         29         20
                       ---------- ---------- ---------- ---------- ----------
                             475        442        390      1,337      1,035
                       ---------- ---------- ---------- ---------- ----------

    Net interest income      319        307        282        920        824
                       ---------- ---------- ---------- ---------- ----------

    Non-interest
     revenue
    Deposit and payment
     service charges          25         25         23         73         67
    Credit fees               30         28         28         85         80
    Capital market fees       21         29         27         82         85
    Investment
     administration
     fees                     33         33         26         96         75
    Foreign exchange          10          9          8         28         23
    Trade finance              6          6          6         18         18
    Trading revenue           40         16         18         70         52
    Investment
     securities gains          -         10          5         35         23
    Securitisation
     income                   10          9         10         29         29
    Other                      9         12          9         30         31
                       ---------- ---------- ---------- ---------- ----------
                             184        177        160        546        483
                       ---------- ---------- ---------- ---------- ----------

    Total revenue            503        484        442      1,466      1,307
                       ---------- ---------- ---------- ---------- ----------

    Non-interest
     expenses
    Salaries and
     employee benefits       132        139        120        414        379
    Premises and
     equipment                31         32         26         94         82
    Other                     83         77         67        236        209
                       ---------- ---------- ---------- ---------- ----------
                             246        248        213        744        670
                       ---------- ---------- ---------- ---------- ----------

    Net operating
     income before
     provision for
     credit losses           257        236        229        722        637
    Provision for
     credit losses            21         12          5         43         17
                       ---------- ---------- ---------- ---------- ----------
    Income before taxes
     and non-
     controlling
     interest
     in income of trust      236        224        224        679        620
    Provision for
     income taxes             81         77         76        228        219
    Non-controlling
     interest in income
     of trust                  6          7          6         19         19
                       ---------- ---------- ---------- ---------- ----------
    Net income               149        140        142        432        382
                       ---------- ---------- ---------- ---------- ----------
    Preferred share
     dividends                 4          5          4         13         13
                       ---------- ---------- ---------- ---------- ----------
    Net income
     attributable
     to common shares        145        135        138        419        369
                       ---------- ---------- ---------- ---------- ----------

    Average common
     shares outstanding
     (000)               488,668    488,668    488,668    488,668    488,668
    Basic earnings
     per share (C$)         0.30       0.28       0.28       0.86       0.76



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

    Figures in C$ millions                       At 30      At 31      At 30
                                             September   December  September
                                                  2007       2006       2006
                                             ---------- ---------- ----------
                                                                (*)       (*)

    Assets
    Cash and deposits with Bank of Canada          384        368        386
    Deposits with regulated financial
     institutions                                4,066      4,346      4,753
                                             ---------- ---------- ----------
                                                 4,450      4,714      5,139
                                             ---------- ---------- ----------

    Available for sale securities                4,675          -          -
    Investment securities                            -      3,604      3,225
    Trading securities                           1,920      1,162      1,821
    Other securities                                59          -          -
                                             ---------- ---------- ----------
                                                 6,654      4,766      5,046
                                             ---------- ---------- ----------

    Assets purchased under reverse
     repurchase agreements                       4,552      4,760      3,843
                                             ---------- ---------- ----------

    Loans
    - Businesses and government                 20,995     17,819     17,500
    - Residential mortgage                      14,220     14,016     13,597
    - Consumer                                   4,612      3,728      3,855
    - Allowance for credit losses                 (336)      (327)      (318)
                                             ---------- ---------- ----------
                                                39,491     35,236     34,634
                                             ---------- ---------- ----------

    Customers' liability under acceptances       5,237      5,130      4,880
    Derivatives                                    737        308        215
    Land, buildings and equipment                  136        121        100
    Other assets                                 2,301      1,735      2,037
                                             ---------- ---------- ----------
                                                 8,411      7,294      7,232
                                             ---------- ---------- ----------
    Total assets                                63,558     56,770     55,894
                                             ---------- ---------- ----------
                                             ---------- ---------- ----------
    Liabilities and shareholders' equity
    Deposits
    - Regulated financial institutions           2,608      1,469      1,889
    - Individuals                               18,244     17,039     16,648
    - Businesses and governments                26,683     25,665     24,278
                                             ---------- ---------- ----------
                                                47,535     44,173     42,815
                                             ---------- ---------- ----------

    Acceptances                                  5,237      5,130      4,880
    Assets sold under repurchase agreements        686        162        290
    Derivatives                                    941        316        208
    Securities sold short                        1,461        715      1,215
    Other liabilities                            3,372      2,413      2,700
    Non-controlling interest in trust
     and subsidiary                                430        430        430
                                             ---------- ---------- ----------
                                                12,127      9,166      9,723
                                             ---------- ---------- ----------

    Subordinated debentures                        799        563        559
                                             ---------- ---------- ----------
    Shareholders' equity
    - Preferred shares                             350        350        350
    - Common shares                              1,125      1,125      1,125
    - Contributed surplus                          205        202        199
    - Retained earnings                          1,416      1,191      1,123
    - Accumulated other comprehensive income         1          -          -
                                             ---------- ---------- ----------
                                                 3,097      2,868      2,797
                                             ---------- ---------- ----------
    Total liabilities and shareholders'
     equity                                     63,558     56,770     55,894
                                             ---------- ---------- ----------
                                             ---------- ---------- ----------

    (*)  Certain prior period amounts have been reclassified to conform with
         the current period presentation.



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

                                   Quarter ended          Nine months ended
                       -------------------------------- ---------------------
                              30         30         30         30         30
    Figures in         September       June  September  September  September
     C$ millions            2007       2007       2006       2007       2006
                       ---------- ---------- ---------- ---------- ----------

    Cash flows provided
     by/(used in):
    - operating
       activities            205        389        128      1,060        312
    - financing
       activities          1,867         62      1,677      3,953      4,082
    - investing
       activities         (1,721)      (771)    (1,021)    (4,680)    (4,652)
                       ---------- ---------- ---------- ---------- ----------

    (Decrease) increase
     in cash and
     cash equivalents        351       (320)       784        333       (258)
    Cash and cash
     equivalents,
     beginning of
     period                4,020      4,340      4,158      4,038      5,200
                       ---------- ---------- ---------- ---------- ----------
    Cash and cash
     equivalents,
     end of period         4,371      4,020      4,942      4,371      4,942
                       ---------- ---------- ---------- ---------- ----------

    Represented by:
    Cash resources per
     balance sheet         4,450      4,851      5,139
    - less non-
       operating
       deposits (*)          (79)      (831)      (197)
                       ---------- ---------- ----------
    Cash and cash
     equivalents,
     end of period         4,371      4,020      4,942
                       ---------- ---------- ----------

    (*)  Non-operating deposits are comprised primarily of cash which
         reprices after 90 days and cash restricted for recourse on
         securitisation transactions.
    





For further information:

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


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