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 October, 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
THIRD QUARTER 2006 RESULTS^ - HIGHLIGHTS
- Net income attributable to common shares was C$138 million for the
quarter ended 30 September 2006, an increase of 22.1 per cent over the
quarter ended 30 September 2005.
- Net income attributable to common shares was C$369 million for the nine
months ended 30 September 2006, an increase of 13.5 per cent over the same
period in 2005.
- Return on average common equity was 23.0 per cent and 21.2 per cent for
the quarter and nine months ended 30 September 2006 compared with 20.9 per
cent and 20.4 per cent, respectively, for the same periods in 2005.
- The cost efficiency ratio was 48.2 per cent and 51.3 per cent for the
quarter and nine months ended 30 September 2006 compared with 51.2 per cent
and 52.9 per cent, respectively, for the same periods in 2005.
- Total assets were C$55.9 billion at 30 September 2006 compared with
C$49.4 billion at 30 September 2005.
- Total funds under management were C$22.4 billion at 30 September 2006
compared with C$19.9 billion at 30 September 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$138
million for the quarter ended 30 September 2006, an increase of C$25 million, or
22.1 per cent, from C$113 million for the same period in 2005. This increase was
due to a broad-based growth in total revenue. In particular, a growth in loan
volumes drove net interest income and non-interest revenue upward, with the
latter also benefiting from higher securitisation and wealth management income.
Net income attributable to common shares for the nine months ended 30 September
2006 was C$369 million compared with C$325 million for the same period in 2005,
an increase of C$44 million, or 13.5 per cent.
Commenting on the results, Lindsay Gordon, President and Chief Executive
Officer, said: "Results for the third quarter were robust. Investments in areas
such as wealth management and payments and cash management have helped to grow
non-interest revenue on a year-on-year basis and throughout this year. The cost
efficiency ratio improved because we were able to make our business more
efficient without impacting our traditionally high customer service values.
"We are, therefore, well placed to continue growth through the remainder of 2006
and into next year. Our strategic focus remains on maintaining very high
standards of customer care while investing in expansion in carefully targeted
sectors.
"We will only be able to achieve our goals if we have the full support of our
staff. Our people make this business a success and I am immensely proud that
HSBC Bank Canada has been named one of 'The Financial Post's 10 Best Companies
to Work For' in Canada and one of MediaCorp's 'Canada's Top 100 Employers'. This
will solidify our standing as an employer of choice, which will help serve our
customers and grow our business into the future."
Net interest income
Net interest income for the third quarter of 2006 was C$282 million compared
with C$261 million for the same period in 2005, an increase of C$21 million, or
8.0 per cent. Growth in loans and deposits across our customer groups continues
to benefit net interest income. Average loans for the third quarter were C$34.1
billion compared with C$31.5 billion for the same period in 2005. Corporate and
commercial lending grew as Canadian customers continued to invest heavily in
developing their businesses. Consumer spending remained strong, driving personal
lending and residential mortgage borrowing continued to grow. Average deposits
in the third quarter were C$42.2 billion compared with C$38.6 billion for the
same period in 2005. Deposits grew in the third quarter due to the success of
new products, such as the High Rate Savings Account and enhanced services
created by the Payments and Cash Management business. We also experienced higher
trading activity in fixed income securities resulting in increased income from
that business in the third quarter.
While the prime lending rates in Canada and the US did not change in the third
quarter of 2006, competitive forces continued to put pressure on the net
interest margin, particularly in personal products such as residential mortgages
and deposits. The net interest margin, as a percentage of average interest
earning assets, was 2.31 per cent for the third quarter compared with 2.36 per
cent for the same period in 2005.
Net interest income in the third quarter was C$6 million higher compared with
the previous quarter, due to there being one extra day in the quarter as well as
growth in loans and deposits. Average loans for the third quarter were C$34.1
billion compared with C$33.3 billion in the previous quarter, while average
deposits grew from C$40.8 billion to C$42.2 billion through the quarter. The net
interest margin, as a percentage of average interest earning assets, was four
basis points lower compared with the previous quarter.
On a year-to-date basis, net interest income was C$824 million compared with
C$741 million for the same period last year, an increase of C$83 million, or
11.2 per cent. Year-to-date net interest income in 2006 benefited from continued
growth in assets and deposits. Average loans in the nine months to 30 September
2006 were C$33.2 billion compared with C$30.1 billion in the same period last
year, while average deposits were C$41.0 billion compared with C$36.8 billion in
the same period last year. The net interest margin, as a percentage of average
interest earning assets, was 2.34 per cent compared with 2.38 per cent for the
same period in 2005.
Non-interest revenue
Non-interest revenue for the third quarter of 2006 was C$160 million compared
with C$145 million in the same period of 2005, an increase of C$15 million, or
10.3 per cent. Securitisation income rose due to increased recurring income from
previous securitisations. Increased loan volumes and general customer activity
helped boost income from credit fees and deposits and payment service charges.
Other non-interest revenue was impacted by lower immigrant investor program
fees.
Non-interest revenue was C$7 million lower than in the previous quarter. This
fall was due to a C$10 million increase in the fair value of our investments in
private equity funds, recorded in the second quarter of 2006, which increased
investment securities gains.
On a year-to-date basis, non-interest revenue was C$483 million, C$54 million,
or 12.6 per cent higher compared with C$429 million for the same period last
year. Investment administration fees increased on continued growth in our wealth
management businesses and higher credit fees from increased customer activity.
Non-interest revenue also benefited from an increase in the fair value of our
private equity fund investments and higher securitisation income. These
increases were partially offset by lower immigrant investor program fees.
Non-interest expenses and operating efficiency
Non-interest expenses for the third quarter of 2006 were C$213 million compared
with C$208 million in the same quarter of 2005, an increase of C$5 million, or
2.4 per cent. The cost efficiency ratio benefited from balancing a continued
focus on operating efficiency with investment in our businesses and a
reallocation of resources to areas with identified growth potential. The cost
efficiency ratio in the third quarter was 48.2 per cent compared with 51.2 per
cent for the same period in 2005. Salaries and employee benefits expenses for
the nine months to 30 September 2006 were higher due primarily to expanding the
workforce to fulfil strategic growth initiatives. Other non-interest expenses
were slightly lower as increased investment in our business was offset by lower
fees paid on the guarantee of our customers' deposits. As a result of our
significant growth since we became part of the HSBC Group, the guarantee of
customer deposits
by HSBC Holdings plc, for deposits taken after 30 June 2005, was discontinued.
This growth has also contributed to several upgrades of our credit ratings as
highlighted in the commentary on page 6.
Non-interest expenses were C$20 million lower than the previous quarter due
primarily to lower salaries and benefits expenses. Pension benefit costs were
lower, and in the second quarter a charge of C$9 million was recognised arising
from the waiver of the total shareholder return-related performance condition in
respect of the 2003 awards under the HSBC Holdings Group Share Option Plan.
On a year-to-date basis, non-interest expenses were C$670 million compared with
C$619 million for the same period last year, an increase of C$51 million, or 8.2
per cent. The cost efficiency ratio was 51.3 per cent compared with 52.9 per
cent for the same period in 2005. Salaries and benefits expenses were higher due
to an increased employee base, increased variable compensation, higher stock
option expense, and increased pension costs. Other non-interest expenses were
higher as recurring operating expenses and an increase in spending on brand
awareness initiatives offset lower fees paid on the guarantee of our customers'
deposits.
Credit quality and provision for credit losses
Credit quality continued to be stable in the third quarter. The provision for
credit losses of C$5 million for this quarter was in line with the previous
quarter as well as the same period in 2005. On a year-to-date basis, the
provision for credit losses was C$17 million compared with C$21 million for the
same period last year. Defaults on consumer loans continue to be stable and
corporate default rates continue to be at historically low levels, in line with
the rest of the industry in Canada.
Gross impaired credit exposures were C$166 million, C$34 million, or 25.8 per
cent, higher compared with C$132 million at the same time last year, and were
higher than the balance at the previous quarter end of C$159 million. Total
impaired credit exposures, net of specific allowances for credit losses, were
C$117 million compared with C$105 million at the same time last year and C$78
million at the previous quarter end. The general allowance for credit losses
remained at C$269 million compared with the previous quarter and was lower than
the C$283 million at the same time last year, due to a C$14 million reversal in
the fourth quarter of 2005 to reflect the consistently low loss experience in
Western Canada over the past few years, and the strength of the economy. The
total allowance for credit losses, as a percentage of loans and acceptances
outstanding, was 0.80 per cent compared with 0.84 per cent at the previous
quarter end and 0.93 per cent at the same time last year.
Income taxes
The effective tax rate in the third quarter of 2006 was 34.9 per cent compared
with 36.4 per cent in the same quarter of 2005 and 39.4 per cent in the previous
quarter. The lower tax rate in third quarter of 2006 reflects increased income
that is subject to a lower rate of tax. The income tax provision in the second
quarter of 2006 included a C$6 million charge to reflect the write-down of
future income tax assets resulting from tax rate decreases announced in the
federal budget. In addition, the expense related to stock options is not
deductible for income tax purposes and, therefore, increased the effective tax
rate in the second quarter.
On a year-to-date basis in 2006, the effective tax rate was 36.4 per cent
compared with 34.8 per cent for the same period last year. The effective tax
rate in 2005 benefited from a reduction in tax expense resulting from
adjustments to the net realizable values of certain future income tax assets.
Excluding these impacts, the effective tax rate in 2006 was in line with the
same period last year.
Balance sheet
Total assets at 30 September 2006 were C$55.9 billion, an increase of C$6.5
billion over the same time last year. The strong economy in Canada encouraged
continued business investment by customers and consumer spending which was the
key driver of balance sheet growth. Commercial loans and bankers' acceptances
grew C$3.4 billion, primarily in western Canada. Residential mortgages increased
C$2.7 billion, before securitisation of C$2.5 billion in the period, on
continued strong activity in the residential housing markets across Canada.
Consumer loans increased C$0.8 billion, which was before securitisation of C$0.9
billion of personal lines of credit and consumer term loans in the period.
Increased trading and balance sheet management activity increased the securities
portfolio by C$0.7 billion and balances under reverse repurchase agreements by
C$2.0 billion. Other assets were C$0.8 billion higher due mainly to larger
settlement balances resulting from increased trading activity in our capital
markets businesses.
Total deposits grew C$4.2 billion to C$42.8 billion at 30 September 2006 from
C$38.6 billion at the same time last year. Deposits from individuals benefited
from success of our new High Rate Savings Account and initiatives such as our
25th Anniversary Sale campaign. Commercial deposits were higher due to growth in
term products, driven by higher interest rates, and increased payments and cash
management balances. Other liabilities increased C$0.7 billion largely from an
increase in activities in our capital markets business.
Compared with 31 December 2005, total assets were C$6.7 billion higher largely
from growth in loans and capital markets activities. Deposit growth benefited
from increased cash management balances from corporate customers as well as
higher personal balances.
Total assets under administration
Funds under management were C$22.4 billion at 30 September 2006 compared with
C$19.9 billion at the same time last year. Including custody and administration
balances, total assets under administration were C$31.3 billion compared with
C$26.5 billion at 30 September 2005.
Funds under management benefited from increased acquisition of mandates in
managing institutional clients as well as the success of our Private Client
products. Despite the volatile equity markets in Canada and the US during 2006,
we grew our retail investor base in our full service brokerage as well as in our
on-line division. Custodial balances grew C$2.4 billion due to growth in the
corporate custody business and increased securitised assets under management.
Compared with the previous quarter, funds under management were higher by C$0.7
billion, with growth in personal wealth management balances as well as
institutional funds. Custodial balances increased C$0.5 billion due to growth in
the corporate custody business.
Capital management
The tier 1 capital ratio was 8.9 per cent and the total capital ratio was 11.1
per cent at 30 September 2006. These compare with 9.0 per cent and 11.2 per
cent, respectively, at 30 June 2006 and 8.7 per cent and 10.9 per cent,
respectively, at 30 September 2005.
In addition to net income of C$382 million year-to-date, capital increased from
an issuance of C$200 million in subordinated debentures in the first quarter of
2006. This was partially offset by C$193 million in dividends declared on our
preferred shares and common shares, and the redemption of C$60 million in
subordinated debentures in the first quarter of 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 core to 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.
These ratings reflect the quality and success of our business in Canada and of
HSBC globally, as well as a strengthening of the financial services industry in
general in Canada. 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)
Dividends
During the third quarter of 2006, we declared and paid C$60 million in dividends
on our common shares.
Regular quarterly 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 on 31 December 2006,
for shareholders of record on 15 December 2006.
About HSBC Bank Canada
HSBC Bank Canada, a subsidiary of HSBC Holdings plc, has more than 170 offices.
With around 9,500 offices in 76 countries and territories and assets of US$1,738
billion at 30 June 2006, the HSBC Group is one of the world's largest banking
and financial services organisations. Visit our website at hsbc.ca for more
information about HSBC Bank Canada and our products and services.
Copies of HSBC Bank Canada's third quarter 2006 report will be sent to
shareholders in November 2006.
Caution regarding forward-looking financial statements
This document may contain forward-looking statements, including statements
regarding the business and anticipated financial performance of HSBC Bank
Canada. These statements are subject to a number of risks and uncertainties that
may cause actual results to differ materially from those contemplated by the
forward-looking statements. Some of the factors that could cause such
differences include legislative or regulatory developments, technological
change, global capital market activity, changes in government monetary and
economic policies, changes in prevailing interest rates, inflation level and
general economic conditions in geographic areas where HSBC Bank Canada operates.
Canada is an extremely competitive banking environment and pressures on interest
rates and our net interest margin may arise from actions taken by individual
banks acting alone. Varying economic conditions may also affect equity and
foreign exchange markets, which could also have an impact on our revenues. The
factors disclosed above may not be complete and there could be other
uncertainties and potential risk factors not considered here which may impact
our results and financial condition.
Summary
Quarter ended Nine months ended
Figures in C$ millions
(except per share amounts) 30Sept06 30Jun06 30Sept05 30Sept06 30Sept05
Earnings
Net income attributable to
common shares 138 115 113 369 325
Basic earnings per share 0.28 0.24 0.23 0.76 0.67
Performance ratios (%)
Return on average common
equity 23.0 19.9 20.9 21.2 20.4
Return on average assets 1.01 0.88 0.92 0.94 0.93
Net interest margin^ 2.31 2.35 2.36 2.34 2.38
Cost efficiency ratio^^ 48.2 52.6 51.2 51.3 52.9
Non-interest revenue:total
revenue ratio 36.2 37.7 35.7 37.0 36.7
Credit information
Gross impaired credit
exposures 166 159 132
Allowance for credit losses 318 319 337
- As a percentage of gross
impaired credit exposures 192% 201% 255%
- As a percentage of gross
loans and acceptances 0.80% 0.84% 0.93%
Average balances
Assets 53,945 52,573 48,754 52,512 46,502
Loans 34,144 33,262 31,535 33,226 30,102
Deposits 42,206 40,847 38,572 41,033 36,779
Common equity 2,387 2,316 2,157 2,326 2,132
Capital ratios (%)
Tier 1 8.9 9.0 8.7
Total capital 11.1 11.2 10.9
Total assets under
administration
Funds under management 22,372 21,659 19,872
Custody accounts 8,973 8,494 6,585
Total assets under
administration 31,345 30,153 26,457
^ 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)
Quarter ended Nine months ended
Figures in C$ millions
(except per share amounts) 30Sept06 30Jun06 30Sept05 30Sept06 30Sept05
Interest and dividend income
Loans 566 523 417 1,551 1,187
Securities 47 46 31 136 80
Deposits with regulated
financial institutions 59 55 45 172 114
672 624 493 1,859 1,381
Interest expense
Deposits 383 341 226 1,015 621
Debentures 7 7 6 20 19
390 348 232 1,035 640
Net interest income 282 276 261 824 741
Non-interest revenue
Deposit and payment
service charges 23 23 20 67 62
Credit fees 28 27 23 80 69
Capital market fees 27 26 25 85 81
Investment administration fees 26 25 24 75 58
Foreign exchange 8 8 7 23 20
Trade finance 6 6 7 18 21
Trading revenue 18 17 17 52 47
Investment securities gains 5 13 3 23 14
Securitisation income 10 11 5 29 18
Other 9 11 14 31 39
160 167 145 483 429
Total revenue 442 443 406 1,307 1,170
Non-interest expenses
Salaries and employee benefits 120 136 112 379 331
Premises and equipment 26 27 26 82 80
Other 67 70 70 209 208
213 233 208 670 619
Net operating income
before provision for
credit losses 229 210 198 637 551
Provision for credit losses 5 6 7 17 21
Income before provision
and non-controlling interest
in income of trust 224 204 191 620 530
Provision for income taxes 76 78 67 219 179
Non-controlling interest
in income of trust 6 6 7 19 16
Net income 142 120 117 382 335
Preferred share dividends 4 5 4 13 10
Net income attributable to
common shares 138 115 113 369 325
Average common shares
outstanding (000) 488,668 488,668 488,668 488,668 488,668
Basic earnings per share (C$) 0.28 0.24 0.23 0.76 0.67
^ Certain prior period amounts have been reclassified to conform with the
current period presentation.
Condensed Consolidated Balance Sheet (Unaudited)
Figures in C$ millions At30Sept06 At31Dec05 At30Sept05
Assets
Cash and deposits with Bank of Canada 386 409 340
Deposits with regulated financial
institutions 4,753 5,549 5,191
5,139 5,958 5,531
Investment securities 3,225 2,923 2,912
Trading securities 1,821 1,418 1,459
5,046 4,341 4,371
Assets purchased under reverse
repurchase agreements 3,843 1,752 1,821
Loans
- Businesses and government 17,500 15,571 15,122
- Residential mortgage 13,597 12,865 13,407
- Consumer 3,855 3,734 3,999
- Allowance for credit losses (318) (326) (337)
34,634 31,844 32,191
Customers' liability under acceptances 4,880 4,002 3,903
Land, buildings and equipment 100 103 95
Other assets 2,252 1,210 1,490
7,232 5,315 5,488
Total assets 55,894 49,210 49,402
Liabilities and shareholders' equity
Deposits
- Regulated financial institutions 1,889 1,975 1,960
- Individuals 16,648 15,300 15,267
- Businesses and governments 24,278 21,333 21,353
42,815 38,608 38,580
Acceptances 4,880 4,002 3,903
Assets sold under repurchase
agreements 290 302 286
Other liabilities 4,123 2,849 3,400
Non-controlling interest in trust
and subsidiary 430 430 430
9,723 7,583 8,019
Subordinated debentures 559 423 423
Shareholders' equity
- Preferred shares 350 350 175
- Common shares 1,125 1,125 1,125
- Contributed surplus 199 187 184
- Retained earnings 1,123 934 896
2,797 2,596 2,380
Total liabilities and shareholders'
equity 55,894 49,210 49,402
Condensed Consolidated Statement of Cash Flows (Unaudited)
Quarter ended Nine months ended
Figures in C$ millions 30Sept06 30Jun06 30Sept05 30Sept06 30Sept05
Cash flows provided by/
(used in):
- operating activities 128 (69) 412 312 524
- financing activities 1,677 706 1,174 4,082 4,990
- investing activities (1,021) (1,128) (1,483) (4,652) (4,697)
Increase (decrease) in
cash and cash equivalents 784 (491) 103 (258) 817
Cash and cash equivalents,
beginning of period 4,158 4,649 4,721 5,200 4,007
Cash and cash equivalents,
end of period 4,942 4,158 4,824 4,942 4,824
Represented by:
- Cash resources per
balance sheet 5,139 4,571 5,531
- less non-operating
deposits^ (197) (413) (707)
- Cash and cash
equivalents,
end of period 4,942 4,158 4,824
^ 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: 31 October 2006