FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Report of Foreign Private Issuer
Pursuant to Rule 13a - 16 or 15d - 16 of
the Securities Exchange Act of 1934
For the month of February, 2007
HSBC Holdings plc
42nd Floor, 8 Canada
Square, London E14 5HQ, England
(Indicate by check mark whether the registrant files or will file annual
reports under cover of Form 20-F or Form 40-F).
Form 20-F X Form 40-F ......
(Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of
1934).
Yes....... No X
(If "Yes" is marked, indicate below the file number assigned to the registrant
in connection with Rule 12g3-2(b): 82- ..............)
HSBC BANK CANADA
FOURTH QUARTER 2006 RESULTS^ - HIGHLIGHTS
- Net income attributable to common shares was C$497 million for the year
ended 31 December 2006, an increase of 8.8 per cent over the year ended 31
December 2005.
- Net income attributable to common shares was C$128 million for the
quarter ended 31 December 2006, a decrease of 3 per cent over the same
period in 2005.
- Return on average common equity was 21.1 per cent for the year ended 31
December 2006 and 20.6 per cent for the quarter ended 31 December 2006
compared with 21.3 per cent and 23.8 per cent, respectively, for the same
periods in 2005.
- The cost efficiency ratio was 51.3 per cent for the year ended 31
December 2006 and 51.4 per cent for the quarter ended 31 December 2006
compared with 52.2 per cent and 50.0 per cent, respectively, for the same
periods in 2005.
- Total assets were C$56.8 billion at 31 December 2006, an increase of
C$7.6 billion, or 15.4 per cent, from C$49.2 billion at 31 December 2005.
- Total funds under management were C$31.9 billion at 31 December 2006, an
increase of C$3.9 billion, or 13.9 per cent, from C$28.0 billion at 31
December 2005.
^ Results are prepared in accordance with Canadian generally accepted accounting
principles.
Financial Commentary
Overview
HSBC Bank Canada recorded net income attributable to common shares of C$497
million for the year ended 31 December 2006, an increase of C$40 million, or 8.8
per cent, from C$457 million for 2005. Net income attributable to common shares
for the quarter ended 31 December 2006 was C$128 million, a decrease of C$4
million, or 3 per cent, compared with C$132 million for the same period in 2005.
The fourth quarter of 2005 included a recovery of C$14 million in our general
allowance for credit losses and a one time reduction of C$14 million in deposit
guarantee fees following a transfer pricing settlement with the Canada Revenue
Agency. Excluding the impact of these items and the related income tax effects,
net income attributable to common shares for the fourth quarter of 2006 was 19.6
per cent higher than the same quarter in 2005.
Commenting on the results, Lindsay Gordon, President and Chief Executive
Officer, said: "Results for the fourth quarter and for the year were good,
reflecting strong growth in our commercial banking business and good momentum in
our wealth management businesses. Net interest income was higher from strong
loan growth, despite a competitive pricing environment. Non-interest revenues
were higher on increased investment administration fees, higher credit fees and
higher investment gains. Total non-interest expenses for the year increased as
we continued to invest in our businesses, while our efficiency ratio also
improved.
"Our focus for 2007 will be to continue this momentum and build for sustained
growth by continuing to reinvest in key businesses and leveraging the Group's
global distribution network and systems platforms. Business transformation
initiatives will be undertaken to further improve efficiency, while continuing
to deliver excellent service to our customers. We will also continue our
marketing efforts to build on the significant progress made on the awareness of
the HSBC brand within Canada."
Net interest income
Net interest income for the fourth quarter of 2006 was C$291 million, an
increase of C$22 million, or 8.2 per cent, from the same quarter in 2005, driven
primarily by growth in the balance sheet across all our customers groups.
Average interest earning assets were C$50.1 billion, compared with C$45.2
billion for the fourth quarter of 2005. Net interest margin, as a percentage of
average interest earning assets decreased modestly to 2.30 per cent from 2.36
per cent.
Net interest income for the fourth quarter of 2006 was C$9 million higher than
the previous quarter, primarily due to growth in deposits and loans. Average
interest earning assets were C$1.7 billion higher than the previous quarter.
Average deposits were C$2.3 billion higher than the previous quarter and average
loans were C$0.8 billion higher.
Net interest income for the year ended 31 December 2006 was C$1,115 million, an
increase of C$105 million, or 10.4 per cent, from C$1,010 million for 2005
driven by growth in the balance sheet, partially offset by lower net interest
margins due to the competitive pricing environment. Average interest earning
assets were C$47.9 billion for 2006 compared with C$42.6 billion for
2005. Although prime rates increased during the year, net interest margins as a
percentage of average interest earning assets decreased from 2.37 per cent in
2005 to 2.33 per cent in 2006. This was primarily as a result of competitive
pricing, particularly in personal products such as residential mortgages and
deposits.
Non-interest revenue
Non-interest revenue for the fourth quarter of 2006 was C$168 million, C$27
million or 19.2 per cent higher, compared with the fourth quarter of 2005.
Growth in non-interest revenue benefited from higher investment administration
fees as a result of growth in our wealth management businesses as well as an
appreciation in equity markets. Higher securitization income, increases in the
value of our investments in private equity funds and higher capital markets fees
in our Global Investment Banking business also benefited non-interest revenue.
Non-interest revenue for the fourth quarter of 2006 was C$8 million higher than
the previous quarter due to higher capital markets fees and increases in the
value of our investments in private equity funds as well as higher
securitization income.
For the year ended 31 December 2006, non-interest revenue was C$651 million,
C$81 million or 14.2 per cent higher, compared with the same period in 2005.
Non-interest revenue in 2006 benefited from higher investment administration
fees, higher securitization income, higher credit fees as a result of higher
volumes in Acceptances, higher Global Investment Banking revenues and increases
in the value of our investments in private equity funds. These were partially
offset by lower immigrant investor program fees, which are dependant on the
number of approvals from government agencies.
Non-interest expenses and operating efficiency
Non-interest expenses for the fourth quarter of 2006 were C$236 million, an
increase of C$31 million or 15.1 per cent compared with the fourth quarter of
2005. Excluding the C$14 million reduction of deposit guarantee fees made in the
fourth quarter of 2005, non-interest expenses increased by 7.8 per cent in the
fourth quarter of 2006 compared with the fourth quarter of 2005. Salaries and
benefits in the fourth quarter of 2006 increased by C$13 million from the same
period in 2005 due to an expanding workforce to meet growth initiatives,
particularly in our wealth management businesses. Also, higher incentive
compensation reflected higher revenues.
Non-interest expenses in the fourth quarter of 2006 were C$23 million higher
than the previous quarter primarily due to higher premises costs, arising from
the change in estimate of the useful life of improvements made to leased
properties, and higher marketing expenditure on the HSBC brand.
For the year ended 31 December 2006, non-interest expenses were C$906 million,
an increase of C$82 million, or 10.0 per cent, compared with C$824 million for
2005. Salaries and benefits expenses were C$61 million higher due to a larger
work force and higher stock based compensation resulting from a C$9 million
charge in the second quarter 2006, arising from the waiver of the total
shareholders return-related performance condition in respect of the 2003 awards
under the HSBC Holdings Group Share Option Plan. Incentive compensation was also
higher due to higher revenues. Other expenses were C$12 million higher due to
increased marketing spend on further developing the HSBC brand and a higher
business tax expense due to a recovery in 2005 on the successful resolution of
certain commodity tax issues. These were partially offset by a lower deposit
guarantee fee expense due to the discontinuation of the HSBC Group's guarantee
on new deposits subsequent to June 2005.
Income taxes
The effective income tax rate for the fourth quarter of 2006 was 33.2 per cent,
compared with 30.0 per cent, for the fourth quarter in 2005. The tax rate in the
fourth quarter of 2005 was lower due to a year-to-date tax expense reduction
recorded on the resolution of the deductibility of the deposit guarantee fee
expense for the years 2002 to 2005.
The effective income tax rate for the fourth quarter of 2006 decreased by 1.7
per cent from the previous quarter due to a decrease in certain non-deductible
expenses.
The effective income tax rate for the year ended 31 December 2006 was 35.6 per
cent, compared with 33.5 percent in 2005. The effective rate was lower in 2005
due to benefits from changes in the net realizable value of certain future
income tax assets and the resolution of the amount of the deductibility of the
deposit guarantee fee expense for certain years. Also, lower corporate income
tax rates enacted by the federal government budget in 2006 resulted in a write
down of our future income tax asset and the expense related to the 2003 option
awards for stock based compensation recognized in 2006 is not deductible for
tax, thereby increasing the 2006 effective income tax rate.
Credit quality and provision for credit losses
The credit environment remained stable in the fourth quarter of 2006 with a low
level of corporate default rates. The provision for credit losses in the fourth
quarter of 2006 was C$17 million compared with C$6 million for the same period
in 2005, which benefited from a reversal of C$14 million of our general
allowance for credit losses due to favourable economic conditions.
The provision for credit losses for the fourth quarter of 2006 increased by C$12
million from the previous quarter, largely due to provisions in two specific
commercial exposures.
For the year ended 31 December 2006, the provision for credit losses was C$34
million, compared with C$27 million for 2005. Gross impaired loans increased to
C$164 million at 31 December 2006 compared with C$130 million at 31 December
2005. Total impaired loans, net of specific allowances for credit losses, were
C$106 million at 31 December 2006 compared with C$73 million at 31 December
2005. The total allowance for credit losses, as a percentage of
loans outstanding was 0.92 per cent at 31 December 2006 compared with 1.01 per
cent at 31 December 2005.
Balance sheet
Total assets at 31 December 2006 were C$56.8 billion, an increase of C$7.6
billion from C$49.2 billion at 31 December 2005. Strong economic conditions
helped drive growth in commercial loans and deposits. Commercial loans and
bankers' acceptances increased C$3.3 billion in total to C$22.9 billion at 31
December 2006 compared with C$19.6 billion at 31 December 2005.
Continued strength in the housing market across Canada and the strong economy
helped residential mortgages and consumer loans to increase C$1.1 billion to
C$17.7 billion in total at 31 December 2006 compared with C$16.6 billion at 31
December 2005. Increased trading and balance sheet management activity increased
assets purchased under reverse repurchase agreements by C$3.0 billion at
31 December 2006 compared with 31 December 2005 while cash resources decreased
by C$1.2 billion.
Total deposits at 31 December 2006 were C$44.2 billion, an increase of C$5.6
billion from C$38.6 billion at 31 December 2005. Launch of our High Rate Savings
Account and growth of our wealth management businesses helped increase deposits
from individuals to C$17.0 billion at 31 December 2006 from C$15.3 billion at
the same time last year. Investments in our payments and cash management
services contributed to a C$4.4 billion increase in commercial deposits to
C$25.7 billion at 31 December 2006. As a result of the growth in core customer
deposits, less reliance was placed on deposits from other banks, which decreased
to C$1.5 billion at 31 December 2006 from C$2.0 billion at 31 December 2005.
Total assets under administration
Funds under management were C$23.3 billion at 31 December 2006 compared with
C$20.5 billion at 31 December 2005. Including custody and administration
balances, total assets under administration were C$31.9 billion at 31 December
2006 compared with C$28.0 billion at 31 December 2005.
Growth in funds under management during 2006 resulted from continued investment
in our brokerage operations during the year and from success in our Private
Client products. Additionally, Canadian equity markets, which were aided by
higher natural resource prices, performed strongly in 2006.
Capital management and Dividends
The tier 1 capital ratio was 9.0 per cent and the total capital ratio was 11.1
per cent at 31 December 2006. This is little changed from 9.0 per cent and 11.2
per cent, respectively, at 31 December 2005.
In addition to net income, regulatory capital increased in 2006 as subordinated
debentures increased C$140 million as a redemption of a C$60 million issue was
offset by a new C$200 million issue.
During the fourth quarter of 2006, we declared and paid C$60 million in
dividends on our common shares. Dividends declared on our common shares totalled
C$240 million in 2006.
Regular dividends of 31.875 cents per share have been declared on our Class 1
Preferred Shares - Series C and 31.25 cents per share on our Class 1 Preferred
Shares - Series D. The dividends will be payable in cash on 31 March 2007, for
shareholders of record on 15 March 2007. Dividends declared on our preferred
shares totalled C$18 million in 2006.
Credit ratings
On 19 June 2006, Standard & Poor's Ratings Services ("S&P") raised our short and
long-term counterparty credit ratings concurrent with an upgrade of its ratings
of our parent, HSBC Holdings plc.
On 25 October 2006, S&P raised its ratings of our long-term counterparty credit,
preferred shares, senior debt and subordinated debt. These ratings upgrades
followed S&P's revision of our group status to a 'core" holding within the HSBC
Group based on our growing integration with and increasing contribution to the
HSBC Group.
On 6 October 2006, Dominion Bond Rating Service ("DBRS") upgraded its ratings of
our deposits, debt instruments and preferred shares, as a result of
implementation of a new support assessment methodology for banks.
Our current ratings are as follows:
S&P DBRS
Short-term instruments A-1+ R-1 (high)
Deposits and senior debt AA AA
Subordinated debt AA- AA (low)
Preferred shares P-1 Pfd-1
HSBC Canada Asset Trust Securities P-1 A (high)
About HSBC Bank Canada
HSBC Bank Canada, a subsidiary of HSBC Holdings plc, has more than 170 offices.
With over 9,500 offices in 76 countries and territories and assets of US$1,738
billion at 30 June 2006, the HSBC Group is one of the world's largest banking
and financial services organisations. For more information about HSBC Bank
Canada and our products and services, visit our website at hsbc.ca.
Copies of our 2006 Annual Report will be sent to shareholders in March 2007.
Caution regarding forward-looking financial statements
This document may contain forward-looking statements, including statements
regarding the business and anticipated financial performance of HSBC Bank
Canada. These statements are subject to a number of risks and uncertainties that
may cause actual results to differ materially from those contemplated by the
forward-looking statements. Some of the factors that could cause such
differences include legislative or regulatory developments, technological
change, global capital market activity, changes in government monetary and
economic policies, changes in prevailing interest rates, inflation level and
general economic conditions in geographic areas where HSBC Bank Canada operates.
Canada is an extremely competitive banking environment and pressures on interest
rates and our net interest margin may arise from actions taken by individual
banks acting alone. Varying economic conditions may also affect equity and
foreign exchange markets, which could also have an impact on our revenues. The
factors disclosed above may not be complete and there could be other
uncertainties and potential risk factors not considered here which may impact
our results and financial condition.
Summary
Figures in C$
millions
(except per share Quarter ended Year ended
amounts) 31Dec06 30Sep06 31Dec05 31Dec06 31Dec05
Earnings
Net income
attributable to
common shares 128 138 132 497 457
Basic earnings per
share 0.26 0.28 0.27 1.02 0.94
Performance ratios
(per cent)
Return on average
common equity 20.6 23.0 23.8 21.1 21.3
Return on average
assets 0.87 1.01 1.06 0.91 0.97
Net interest margin ^ 2.30 2.31 2.36 2.33 2.37
Cost efficiency ratio ^^ 51.4 48.2 50.0 51.3 52.2
Non-interest revenue:
total revenue ratio 36.6 36.2 34.4 36.9 36.1
Credit information
Impaired loans 164 166 130
Allowance for credit
losses
- Balance at end of
period 327 318 326
- As a percentage of
impaired loans 199% 192% 251%
- As a percentage of
loans outstanding 0.92% 0.80% 1.01%
Average balances
Assets 58,883 53,945 49,605 54,118 47,282
Loans 34,943 34,144 32,387 33,659 30,678
Deposits 44,491 42,206 39,006 41,904 37,340
Common equity 2,464 2,387 2,204 2,360 2,150
Capital ratios (per cent)
Tier 1 9.0 8.9 9.0
Total capital 11.1 11.1 11.2
Total assets under administration
Funds under
management 23,340 22,372 20,453
Custodial accounts 8,574 8,973 7,594
Total assets under
administration 31,914 31,345 28,047
^ Net interest margin is net interest income divided by average interest earning
assets for the period.
^ ^ The cost efficiency ratio is defined as non-interest expenses divided by
total revenue.
Consolidated Statement of Income (Unaudited)
Figures in C$ millions Quarter ended Year ended
(except per share amounts) 31Dec06 30Sep06 31Dec05 31Dec06 31Dec05
^ ^
Interest and dividend
income
Loans 593 566 444 2,144 1,631
Securities 49 47 40 186 120
Deposits with regulated
financial institutions 62 59 52 234 166
704 672 536 2,564 1,917
Interest expense
Deposits 406 383 261 1,422 882
Debentures 7 7 6 27 25
413 390 267 1,449 907
Net interest income 291 282 269 1,115 1,010
Non-interest revenue
Deposit and payment
service charges 23 23 22 90 84
Credit fees 26 28 26 106 95
Capital market fees 30 27 25 115 106
Investment administration
fees 28 26 22 103 80
Foreign exchange 9 8 8 32 27
Trade finance 6 6 6 24 27
Trading revenue 17 18 14 69 60
Investment securities
gains 7 5 2 30 16
Securitisation income 13 10 6 42 24
Other 9 9 10 40 51
168 160 141 651 570
Total revenue 459 442 410 1,766 1,580
Non-interest expenses
Salaries and employee
benefits 124 120 111 503 442
Premises and equipment 34 26 27 116 107
Other 78 67 67 287 275
236 213 205 906 824
Net operating income
before provision
for credit losses 223 229 205 860 756
Provision for credit
losses 17 5 6 34 27
Income before taxes and
non-controlling interest
in income of trust 206 224 199 826 729
Provision for income taxes 66 76 58 285 237
Non-controlling interest
in income of trust 7 6 6 26 22
Net income 133 142 135 515 470
Preferred share dividends 5 4 3 18 13
Net income attributable to
common shares 128 138 132 497 457
Average common shares
outstanding (000) 488,668 488,668 488,668 488,668 488,668
Basic earnings per
share (C$) 0.26 0.28 0.27 1.02 0.94
^ Certain prior period amounts have been reclassified to conform with the
current year presentation.
Condensed Consolidated Balance Sheet (Unaudited)
Figures in C$ millions At 31Dec06 At 31Dec05
Assets
Cash and deposits with Bank of Canada 368 409
Deposits with regulated financial institutions 4,346 5,549
4,714 5,958
Investment securities 3,604 2,923
Trading securities 1,162 1,418
4,766 4,341
Assets purchased under
reverse repurchase agreements 4,760 1,752
Loans
- Businesses and government 17,819 15,571
- Residential mortgage 14,016 12,865
- Consumer 3,728 3,734
- Allowance for credit losses (327) (326)
35,236 31,844
Customers' liability under acceptances 5,130 4,002
Land, buildings and equipment 121 103
Other assets 2,043 1,210
7,294 5,315
Total assets 56,770 49,210
Liabilities and shareholders' equity
Deposits
- Regulated financial institutions 1,469 1,975
- Individuals 17,039 15,300
- Businesses and governments 25,665 21,333
44,173 38,608
Acceptances 5,130 4,002
Assets sold under repurchase agreements 162 302
Other liabilities 3,444 2,849
Non-controlling interest in trust
and subsidiary 430 430
9,166 7,583
Subordinated debentures 563 423
Shareholders' equity
- Preferred shares 350 350
- Common shares 1,125 1,125
- Contributed surplus 202 187
- Retained earnings 1,191 934
2,868 2,596
Total liabilities and shareholders' equity 56,770 49,210
Condensed Consolidated Statement of Cash Flows (Unaudited)
Quarter ended Year ended
Figures in C$ millions 31Dec06 30Sep06 31Dec05 31Dec06 31Dec05
Cash flows provided by
(used in):
- operating activities 361 128 (100) 673 384
- financing activities 1,165 1,677 141 5,247 5,171
- investing activities (2,430) (1,021) 335 (7,082) (4,362)
(Decrease) increase in
cash and cash
equivalents (904) 784 376 (1,162) 1,193
Cash and cash equivalents,
beginning of period 4,942 4,158 4,824 5,200 4,007
Cash and cash equivalents,
end of period 4,038 4,942 5,200 4,038 5,200
Represented by:
- Cash resources per
balance sheet 4,714 5,139 5,958
- less non-operating
deposits ^ (676) (197) (758)
- Cash and cash
equivalents,
end of period 4,038 4,942 5,200
^ Non-operating deposits are comprised primarily of cash which reprices after 90
days and cash restricted for recourse on securitisation transactions.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
HSBC Holdings plc
By:
Name: P A Stafford
Title: Assistant Group Secretary
Date: 19 February 2007