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Posted May 9 , 2013

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HSBC Bank Canada First Quarter 2013 Results

Profit for the quarter ended 31 March 2013 was C$189m, a decrease of 14% compared with the same period in 2012.

VANCOUVER - HSBC Bank Canada recorded profit of C$189m for the first quarter of 2013, a decrease of C$30m, or 14%, compared with the first quarter of 2012, and an increase of C$35m, or 23%, compared with the fourth quarter of 2012. Profit attributable to common shareholders was C$171m for the first quarter of 2013, a decrease of C$30m, or 15%, compared with the first quarter of 2012, and an increase of C$34m, or 25%, compared with the fourth quarter of 2012.

The first quarter of 2012 included a gain on the sale of the full service brokerage business of C$84m and a restructuring charge of C$36m mostly relating to the wind-down of the consumer finance business. Excluding the impact of these items and their effect on income tax expense, profit increased by C$17m, or 8%, compared with the same quarter last year. The increase is mainly due to reduced operating expenses from strict cost control and continued delivery of organizational cost effectiveness programmes, which resulted in sustainable cost savings. Additionally contributing to the increase were higher gains on the disposal of available-for-sale financial investments, and a growth in trading income as a result of a change in valuation estimation methodology on derivatives. The increase is partially offset by lower net interest income mainly due to lower average retail and consumer finance loan balances following the strategic refocus of these businesses and continued pressure on net interest spread in a prolonged low interest rate environment.

The fourth quarter of 2012 included a C$42m charge resulting from the write down in the value of investment property. Excluding the charge resulting from the write down, profit in the first quarter of 2013 increased by C$66m compared with the prior quarter mainly due to higher gains on the disposal of available-for-sale financial investments, partially offset by higher specific provisions for commercial exposures notably in the energy and real estate sectors.

Commenting on the results, Paulo Maia, President and Chief Executive Officer of HSBC Bank Canada, said:

"We've enjoyed a good start to 2013, as a result of our focus on building our core businesses, deepening client relationships, and continued improvements in the efficiency of our operations in Canada, consistent with HSBC's global strategy. Our success is driven by our ability to connect internationally-minded Canadian businesses and individuals to opportunities around the world."

Analysis of Consolidated Financial Results for the First Quarter of 2013

Net interest income for the first quarter of 2013 was C$336m, a decrease of C$62m, or 16%, compared with the first quarter of 2012, and a decrease of C$12m, or 3%, compared with the fourth quarter of 2012. The decreases are mainly due to lower average retail and consumer finance loan balances following the strategic refocus of these businesses and continued pressure on net interest spread in a prolonged low interest rate environment.

Net fee income for the first quarter of 2013 was C$146m, an increase of C$3m, or 2%, compared with the first quarter of 2012, and a decrease of C$8m, or 5%, compared with the fourth quarter of 2012. The increase compared with the same quarter last year was due to a growth in authorized commercial credit facilities and higher funds under management. The decrease compared with the prior quarter is mainly due to a reduction in fee income from credit cards associated with lower transaction volume and a decrease in corporate finance fees.

Net trading income for the first quarter of 2013 was C$57m, an increase of C$17m, or 43% compared with the first quarter of 2012, and an increase of C$12m, or 27%, compared with the fourth quarter of 2012. Net trading income increased compared to both the first and fourth quarters of 2012 as a result of a change in estimation methodology in respect of credit and debit valuation adjustments on derivative contracts to reflect evolving market practises. In addition higher global customer trading volumes in foreign exchange products and improved performance in rates and credit products contributed to the increase. Net trading income in the first quarter of 2012 included losses caused by the narrowing of credit spreads on the carrying value of our own debt instruments classified as trading.

Net expense from financial instruments designated at fair value for the first quarter of 2013 was C$3m, compared with a net expense of C$14m in the first quarter of 2012, and was unchanged compared with the fourth quarter of 2012. The bank designates certain subordinated debentures to be recorded at fair value. Income and expense are largely as a result of the widening or narrowing of credit spreads decreasing or increasing the fair value of these subordinated debentures, respectively.

Gains less losses from financial investments for the first quarter of 2013 were C$35m, an increase of C$18m and C$31m respectively compared with the first quarter of 2012 and fourth quarter of 2012. The increases in gains less losses from financial investments are due to higher gains on the disposal of available-for-sale financial investments driven by balance sheet management activities.

Other operating income/(expense) for the first quarter of 2013 was C$13m, unchanged compared with the first quarter of 2012, and an increase of C$39m compared with the fourth quarter of 2012. The fourth quarter of 2012 included a C$42m charge resulting from the write down in the value of investment property.

Gain on the sale of the full service retail brokerage business. The sale of the full service retail brokerage business closed on 1 January 2012 and resulted in a gain of C$84m, net of assets written off and directly related costs. In the fourth quarter of 2012, the bank satisfied certain conditions relating to the sale of the full service retail brokerage business for which we recognized an increase to the gain of C$4m.

Loan impairment charges and other credit risk provisions for the first quarter of 2013 were C$56m, an increase of C$8m, or 17%, compared with the first quarter of 2012, and an increase of C$23m, compared with the fourth quarter of 2012. The increases are primarily due to higher specific provisions for commercial exposures notably in the energy and real estate sectors, partially offset by a reduction in collective consumer finance provisions due to improved delinquency performance.

Total operating expenses (excluding restructuring charges) for the first quarter of 2013 were C$263m, a decrease of C$45m, or 15%, compared with the first quarter of 2012, and a decrease of C$15m, or 5%, compared with the fourth quarter of 2012. The decreases in total operating expenses compared with both quarters are mainly due to strict cost control and continued delivery of our organizational cost effectiveness programmes, which resulted in sustainable cost savings. Cost reductions relating to the wind-down of the bank's consumer finance business as well as reduced activities and expenses related to the delivery of technology services to HSBC Group companies also contributed to a further decrease in total operating expense compared with the same quarter last year.

Restructuring charges of C$36m were recognized in the first quarter of 2012 mainly relating to the wind-down of the bank's consumer finance business.

Income tax expense. The effective tax rate in the first quarter of 2013 was 30.0%, compared with 25.2% in the first quarter of 2012 and 29.9% in the fourth quarter of 2012. The lower effective tax rate in the first quarter of 2012 was largely due to a lower effective tax rate applied to the gain on the sale of the full service retail brokerage business.

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