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, 2006
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 2005 RESULTS^ - HIGHLIGHTS
- Net income attributable to common shares was C$457 million for the year
ended 31 December 2005, an increase of 32.5 per cent over 2004.
- Net income attributable to common shares was C$132 million for the
quarter ended 31 December 2005, an increase of 53.5 per cent over the same
period in 2004.
- Return on average common equity was 21.3 per cent for the year ended 31
December 2005 and 23.8 per cent for the quarter ended 31 December 2005
compared with 18.3 per cent and 16.6 per cent, respectively, for the same
periods in 2004.
- The cost:income ratio improved to 52.2 per cent for the year ended 31
December 2005 and 50.0 per cent for the quarter ended 31 December 2005
compared with 56.0 per cent and 55.6 per cent, respectively, for the same
periods in 2004.
- Total assets were C$49.2 billion at 31 December 2005, an increase of
C$5.9 billion, or 13.6 per cent, from C$43.3 billion at 31 December 2004.
- Total funds under management were C$20.5 billion at 31 December 2005, an
increase of C$2.8 billion, or 15.8 per cent, from C$17.7 billion at 31
December 2004.
^ 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$457
million for the year ended 31 December 2005, an increase of C$112 million, or
32.5 per cent, from C$345 million for 2004. Net income attributable to common
shares for the quarter ended 31 December 2005 was C$132 million, an increase of
C$46 million, or 53.5 per cent, compared with C$86 million for the same period
in 2004.
Net income in the fourth quarter of 2005 benefited from a C$14 million reversal
from the general allowance for credit losses and a C$14 million adjustment to
other expenses, both before income taxes. Excluding these items and the related
income tax adjustments, net income attributable to common shares would have been
C$432 million for the year ended 31 December 2005, an increase of C$87 million,
or 25.2 per cent, over 2004. For the fourth quarter of 2005, net income
attributable to common shares would have been C$107 million, an increase of C$21
million, or 24.4 per cent, over the same period last year.
Commenting on the results, Lindsay Gordon, President and Chief Executive
Officer, said: "Results for the fourth quarter and for the year were good and
reflected the robust Canadian economy and the strength of our customers. Each of
our customer groups contributed to a strong increase in revenues. Net interest
income was higher from continued growth in our balance sheet. Non-interest
revenues were higher on increased investment administration fees, credit fees,
and foreign exchange revenue. Total non-interest expenses increased as our
business grew, however, the rate of expense increase was less than the revenue
growth, which resulted in a decrease in the non-interest expenses:total revenue
ratio. Lastly, the stable credit environment in Canada throughout much of 2005
meant lower provisions for credit losses and resulted in a reversal in the
fourth quarter from our general allowance for credit losses.
"Our focus for next year will be to continue to achieve strong growth in
revenues and control of our costs, while continuing to reinvest in our
businesses. We expect to fully leverage our marketing efforts to help generate
even more awareness of the HSBC brand within Canada to deliver sustainable
organic growth."
Net interest income
Net interest income for the year ended 31 December 2005 was C$1,010 million, an
increase of C$114 million, or 12.7 per cent, from C$896 million for 2004. For
the quarter ended 31 December 2005 net interest income was C$269 million, an
increase of C$40 million, or 17.5 per cent, from C$229 million for the same
quarter in 2004. Higher net interest income throughout 2005 has resulted from
continued growth in the balance sheet across all our customer groups, and the
impact of a full year from the acquisition of Intesa Bank Canada. Economic
growth in Canada continues to be strong and sentiment remains positive despite
the recent increases in interest rates in Canada during the fourth quarter of
2005. Average interest earning assets were C$42.6 billion for 2005 compared with
C$35.9 billion for 2004. For the fourth quarter of 2005, average interest
earning assets were C$45.2 billion compared with C$38.2 billion for the fourth
quarter of 2004.
The net interest margin, as a percentage of average interest earning assets, was
2.37 per cent for the year ended 31 December 2005 and 2.36 per cent for the
fourth quarter of 2005. For the same periods in 2004, the net interest margin
was 2.49 per cent and 2.38 per cent, respectively. Net interest margins have
been adversely impacted throughout 2005 by competitive pricing, which has been
compounded by increased balances in lower-spread products such as residential
mortgages. Net interest margins in our treasury and markets groups were
adversely impacted by a flatter yield curve throughout much of 2005.
Non-interest revenue
Non-interest revenue was C$570 million for the year ended 31 December 2005, an
increase of C$44 million, or 8.4 per cent, compared with C$526 million for 2004.
For the quarter ended 31 December 2005, non-interest revenue was C$141 million
compared with C$143 million in the fourth quarter of 2004.
Credit fees were higher in 2005 as a result of increased activity in commercial
and corporate lending, particularly in shorter-term facilities such as bankers'
acceptances, guarantees, and letters of credit. Capital market fees were lower
in the fourth quarter of 2005 compared with the same period in 2004, as
commissions from customers' retail trading were lower. Investment administration
fees were higher in 2005 due to an increase in funds under management. The
volatility of the Canadian dollar relative to the US dollar throughout 2005
helped increase revenues from foreign exchange activities compared with 2004.
Gains from investment securities in the fourth quarter of 2005 were lower
compared with the same quarter in 2004 as the previous year's quarter included a
gain realised from our investment in a private equity fund managed by our
merchant banking subsidiary. Other non-interest revenue was higher in 2005 due
to strong fee income from our Canadian Immigrant Investment Program ('CIIP').
Resolution of certain income tax issues
Prior to 1 July 2005, an HSBC Group company ('Group') provided an unlimited
guarantee of our customers' deposits. As consideration for provision of this
guarantee, Group charged us a fee for the guarantee based on the guaranteed
deposit amounts. For income tax purposes, we deducted this fee in determining
our taxable income. Following agreement with the Canada Deposit Insurance
Corporation, and reflecting our significant growth since we became part of the
HSBC Group, this guarantee was discontinued for customer deposits received after
30 June 2005.
In the fourth quarter of 2005, the Canadian Competent Authority of the Canada
Revenue Agency ('CRA') and the UK Competent Authority of the HM Revenue &
Customs in the UK agreed, in principle, to a Bilateral Advance Pricing Agreement
('BAPA'). The BAPA outlines the agreed upon rates to be used in determining the
amount we can deduct as an expense for the Group guarantee, and Group includes
as income, for income tax purposes for the years 2002 to 2007 inclusive. The
rates in the BAPA are lower than the rate we had been using to calculate the
guarantee fee expense.
In the fourth quarter of 2005, Group reimbursed us C$40 million relating to 2002
to 2004, representing the non-deductible amounts as determined in the BAPA. We
also recorded a C$4 million receivable for excess withholding tax paid to CRA
relating to this reimbursement. As this was a related party transaction, we
recorded an offsetting C$44 million increase in retained earnings, reflecting
the gross amount of the reimbursement.
Non-interest expenses
Non-interest expenses were C$824 million for the year ended 31 December 2005, an
increase of C$28 million, or 3.5 per cent, compared with C$796 million for 2004.
For the quarter ended 31 December 2005, non-interest expenses were C$205 million
compared with C$207 million in the fourth quarter of 2004.
Salaries and benefits expenses in 2005 were C$442 million compared with C$423
million in 2004. For the fourth quarter of 2005, salaries and benefits expenses
were C$111 million compared with C$107 million for the same period in 2004.
Salaries expenses were higher in 2005 due to a full year of costs from former
Intesa Bank Canada employees, and higher stock-based compensation, employee
termination and performance based incentive costs. These were partially offset
by lower defined benefit pension and other non-pension benefit costs. In the
fourth quarter of 2005, salaries and benefits expenses were higher compared to
the same period in 2004 due to higher salary costs on a larger employee base,
and higher stock-based compensation and employee termination costs. These were
partially offset by lower defined benefit pension and other non-pension benefit
costs.
Premises and equipment expenses in 2005 were C$107 million compared with C$101
million in 2004. For the fourth quarter of 2005, premises and equipment expenses
were C$27 million compared with C$22 million for the same period in 2004.
Equipment expenses were higher in 2005 primarily from increased costs associated
with maintaining our computer infrastructure, as well as increased ATM costs
associated with our agreement with Bank of Montreal.
Other non-interest expenses in 2005 were C$275 million compared with C$272
million in 2004. For the fourth quarter of 2005, other non-interest expenses
were C$67 million compared with C$78 million for the same period in 2004. The
agreement with CRA referred to above resulted in a C$14 million year-to-date
reduction of the guarantee fee expense, which was recorded in the fourth quarter
of 2005. Before the reduction, the guarantee fee expense for 2005 was lower
compared with 2004 as a result of a decrease in deposits guaranteed due to the
discontinuation of Group's guarantee effective close of business on 30 June
2005. Marketing expenses were significantly higher in the fourth quarter of 2005
as a result of increased media spends to increase awareness of the HSBC brand in
Canada. Transaction costs in 2005 were higher as a result of increased volumes
in our brokerage operations and activity in our CIIP. These increases were
partially offset by a net credit on successful resolution of certain commodity
tax issues relating to prior years.
Provision for income taxes
The effective income tax rate for the fourth quarter of 2005 was 30.0 per cent
and for the year was 33.5 per cent compared with 36.7 per cent and 37.6 per
cent, respectively, for the same periods in 2004. The effective rate was lower
in 2005 primarily from the resolution of the deductibility of the guarantee fee
expense, as discussed above, which resulted in a net reduction of C$7 million in
income tax expense for the fourth quarter of 2005.
Credit quality and provision for credit losses
The provision for credit losses was C$27 million for the year ended 31 December
2005 compared with C$66 million for 2004. For the quarter ended 31 December 2005
the provision for credit losses was C$6 million compared with C$22 million for
the same period in 2004. The continued strong economic conditions in Canada
throughout 2005 resulted in favourable credit conditions leading to a lower
provision for credit losses. During the fourth quarter of 2005 we reversed C$14
million of our general allowance for credit losses, primarily reflecting the
consistently low loss experience in Western Canada over the past few years, and
the current strength of the economy.
Gross impaired loans decreased to C$130 million at 31 December 2005 compared
with C$182 million at 31 December 2004. Total impaired loans, net of specific
allowances for credit losses, were C$73 million at 31 December 2005 compared
with C$112 million at 31 December 2004. The general allowance for credit losses
was C$269 million at 31 December 2005 compared with C$279 million at 31 December
2004. The total allowance for credit losses, as a percentage of loans
outstanding was 1.01 per cent at 31 December 2005 compared with 1.22 per cent at
31 December 2004.
Balance sheet
Total assets at 31 December 2005 were C$49.2 billion, an increase of C$5.9
billion from C$43.3 billion at 31 December 2004. Stable interest rates
throughout 2005, strong economic conditions, and an active housing market in
Canada helped spur loan growth across all customer groups. Commercial loans and
bankers' acceptances increased C$2.4 billion in total to C$19.6 billion at 31
December 2005 compared with C$17.2 billion at the same time in 2004. Residential
mortgages and consumer loans increased C$1.4 billion to C$16.6 billion in total
at 31 December 2005 compared with C$15.2 billion at 31 December 2004. Cash
resources increased in 2005 by C$1.6 billion, primarily in deposits with other
banks. Securities and assets purchased under reverse repurchase agreements were
C$0.8 billion higher at 31 December 2005 compared with the same time in 2004,
primarily from increased trading activity.
Total deposits at 31 December 2005 were C$38.6 billion, an increase of C$4.8
billion from C$33.8 billion at 31 December 2004. Deposits from individuals
increased to C$15.3 billion at 31 December 2005 compared with C$14.8 billion at
the same time last year. Commercial deposits increased C$2.9 billion to C$21.3
billion at 31 December 2005 and deposits from other banks increased to C$2.0
billion at 31 December 2005 from C$0.6 billion at 31 December 2004 to fund the
strong asset growth experienced in 2005.
Total assets under administration
Funds under management were C$20.5 billion at 31 December 2005 compared with
C$17.7 billion at 31 December 2004. Including custody and administration
balances, total assets under administration were C$28.0 billion at 31 December
2005 compared with C$22.8 billion at 31 December 2004.
Growth in funds under management during 2005 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 substantially better in 2005 relative
to the US markets.
Capital ratios
The tier 1 capital ratio was 9.0 per cent and the total capital ratio was 11.2
per cent at 31 December 2005. This compares with 8.6 per cent and 11.0 per cent,
respectively, at 31 December 2004.
In the fourth quarter of 2005, we issued C$175 million in Class 1 Preferred
Shares Series D. Total capital issues in 2005 amounted to C$350 million in
preferred shares and C$200 million in asset trust securities. During 2005, C$125
million in previously issued preferred shares were redeemed.
Dividends
During the fourth quarter of 2005, we declared C$135 million in dividends on our
common shares of which C$60 million was payable at 31 December 2005. Dividends
declared on our common shares totalled C$330 million in 2005.
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 2006, for
shareholders of record on 15 March 2006. Dividends declared on our preferred
shares totalled C$13 million in 2005.
About HSBC Bank Canada
HSBC Bank Canada, a subsidiary of HSBC Holdings plc, has more than 170 offices.
With over 9,700 offices in 77 countries and territories and assets of US$1,467
billion at 30 June 2005, the HSBC Group is one of the world's largest banking
and financial services organisations. For more information about HSBC Bank
Canada and our products and services, visit our website at hsbc.ca.
Copies of our 2005 Annual Report will be sent to shareholders in March 2006.
This document may contain forward-looking statements, including statements
regarding the business and anticipated financial performance of HSBC Bank
Canada. These statements are subject to a number of risks and uncertainties that
may cause actual results to differ materially from those contemplated by the
forward-looking statements. Some of the factors that could cause such
differences include legislative or regulatory developments, competition,
technological change, global capital market activity, changes in government
monetary and economic policies, changes in prevailing interest rates, inflation
levels and general economic conditions in geographic areas where HSBC Bank
Canada operates.
Summary
Figures in C$ millions Quarter ended Year ended
(except per share amounts) 31DEC05 30SEP05 31DEC04 31DEC05 31DEC04
Earnings
Net income attributable to
common shares 132 113 86 457 345
Basic earnings per share ^ 0.27 0.23 0.18 0.94 0.72
Performance ratios (per
cent)
Return on average common
equity 23.8 20.9 16.6 21.3 18.3
Return on average assets 1.06 0.92 0.80 0.97 0.85
Net interest margin ^^ 2.36 2.36 2.38 2.37 2.49
Non-interest expenses:total
revenue ratio 50.0 51.2 55.6 52.2 56.0
Non-interest revenue:total
revenue ratio 34.4 35.7 38.4 36.1 37.0
Credit information
Impaired loans 130 132 182
Allowance for credit
losses
- Balance at end of period 326 337 349
- As a percentage of
impaired loans 251 255 192
- As a percentage of loans
outstanding 1.01 1.04 1.22
Average balances
Assets 49,605 48,754 43,008 47,282 40,421
Loans 32,387 31,535 28,235 30,678 26,922
Deposits 39,006 38,572 32,640 37,340 30,823
Common equity 2,204 2,157 2,070 2,150 1,886
Capital ratios (per cent)
Tier 1 9.0 8.7 8.6
Total capital 11.2 10.9 11.0
Total assets under administration
Funds under management 20,453 19,872 17,687
Custodial accounts 7,594 6,585 5,077
Total assets under
administration 28,047 26,457 22,764
^ Basic earnings per share are not materially different from basic earnings per
share from continuing operations.
^ ^ Net interest income as a percentage of average interest earning assets for
the period.
Consolidated Statement of Income (Unaudited)
Figures in C$ millions Quarter ended Year ended
(except per share amounts) 31DEC05 30SEP05 31DEC04 31DEC05 31DEC04
^ ^
Interest and dividend
income Loans 444 417 366 1,631 1,396
Securities 40 31 22 120 82
Deposits with
regulated financial
institutions 52 45 26 166 69
536 493 414 1,917 1,547
Interest expense
Deposits 261 226 177 882 617
Debentures 6 6 8 25 34
267 232 185 907 651
Net interest income 269 261 229 1,010 896
Non-interest revenue
Deposit and payment
service charges 22 20 20 84 81
Credit fees 26 23 21 95 81
Capital market fees 25 25 30 106 106
Investment
administration fees 22 24 17 80 65
Foreign exchange 21 19 18 76 68
Trade finance 6 7 6 27 28
Trading revenue 1 4 3 11 10
Investment securities
gains 2 3 11 16 17
Securitisation income 6 5 4 24 25
Other 10 15 13 51 45
141 145 143 570 526
Total revenue 410 406 372 1,580 1,422
Provision for credit
losses 6 7 22 27 66
Non-interest expenses
Salaries and employee
benefits 111 112 107 442 423
Premises and equipment 27 26 22 107 101
Other 67 70 78 275 272
205 208 207 824 796
Income before the
undernoted 199 191 143 729 560
Effect of accounting
change - - - - 14
Income before provision
and non-controlling
interest in
income of trust 199 191 143 729 574
Provision for income
taxes 58 67 51 237 210
Non-controlling
interest in
income of trust 6 7 4 22 16
Income from continuing
operations 135 117 88 470 348
Income from discontinued
operations - - - - 5
Net income 135 117 88 470 353
Preferred share
dividends 3 4 2 13 8
Net income attributable
to common shares 132 113 86 457 345
Average common shares
outstanding (000) 488,668 488,668 488,668 488,668 481,066
Basic earnings per
share (C$) 0.27 0.23 0.18 0.94 0.72
^ Certain prior period amounts have been reclassified to conform with the
current year presentation.
^ ^Reflects the sale of HSBC Canadian Direct Insurance Incorporated effective 30
April 2004.
Condensed Consolidated Balance Sheet (Unaudited)
Figures in C$ millions At 31DEC05 At 31DEC04
Assets
Cash and deposits with Bank of
Canada 409 328
Deposits with regulated 5,549 4,094
financial institutions 5,958 4,422
Investment securities 2,923 1,967
Trading securities 1,418 1,055
4,341 3,022
Assets purchased under
reverse repurchase agreements 1,752 2,264
Loans
- Businesses and government 15,571 13,450
- Residential mortgage 12,865 11,966
- Consumer 3,734 3,252
- Allowance for credit losses (326) (349)
31,844 28,319
Customers' liability under
acceptances 4,002 3,754
Land, buildings and equipment 103 101
Other assets 1,210 1,381
5,315 5,236
Total assets 49,210 43,263
Liabilities and shareholders'
equity
Deposits
- Regulated financial
institutions 1,975 635
- Individuals 15,300 14,818
- Businesses and governments 21,333 18,395
38,608 33,848
Acceptances 4,002 3,754
Assets sold under repurchase
agreements 302 23
Other liabilities 2,849 2,785
Non-controlling interest in 430 230
trust and subsidary 7,583 6,792
Subordinated debentures 423 426
Shareholders' equity
- Preferred shares 350 125
- Common shares 1,125 1,125
- Contributed surplus 187 177
- Retained earnings 934 770
2,596 2,197
Total liabilities and
shareholders' equity 49,210 43,263
Condensed Consolidated Statement of Cash Flows (Unaudited)
Quarter ended Year ended
Figures in C$ millions 31DEC05 30SEP05 31DEC04 31DEC05 31DEC04
Cash flows provided by/
(used in):
- Operating activities (100) 412 60 424 416
- Financing activities 141 1,174 669 5,131 3,492
- Investing activities 335 (1,483) (578) (4,362) (3,350)
Increase in cash and
cash equivalents 376 103 151 1,193 558
Cash and cash
equivalents,
beginning of period 4,824 4,721 3,856 4,007 3,449
Cash and cash
equivalents,
end of period 5,200 4,824 4,007 5,200 4,007
Represented by:
- Cash resources per
balance sheet 5,958 5,531 4,422
- less non-operating
deposits ^ (758) (707) (415)
- Cash and cash
equivalents,
end of period 5,200 4,824 4,007
^ 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: 14 February 2006