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 May 2008
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 INTERIM MANAGEMENT STATEMENT
HSBC has made a strong start to the year despite the turbulence in global financial
markets. In the first quarter of 2008, HSBC's profit was ahead of the equivalent
period last year.
Group Chairman Stephen Green said "Our performance so far in 2008 demonstrates that
HSBC's business resilience in difficult financial markets, our global distribution
network, diversified earnings streams and strong capital position are allowing us
to support our customers in today's challenging market conditions. These factors
enable us to invest for growth, particularly in emerging markets, and focus on
long-term value creation for our shareholders."
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Q1 2008 profit ahead of Q1 2007.
-
Pre-tax profits up in all major emerging markets in Asia-Pacific, the
Middle East and
Latin America
.
-
European businesses performed well with the
UK
retail business increasing pre-tax profit.
-
US profit down as a result of higher consumer finance loan impairments and
additional write-downs in Global Banking and Markets.
-
Loan impairment charges in our US consumer finance business were in line
with expectations at US$3.2 billion; this compared with
US$1.6 billion recorded in Q1 2007 and US$4.6 billion in Q4 2007,
in part reflecting seasonal trends.
-
Resilient profitability in Global Banking and Markets.
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Good deposit growth in all our geographical regions.
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The Group's underlying revenue growth was comfortably ahead of Q1 2007 even
after absorbing US$2.6 billion of additional w
rite-downs in Global Banking and
Markets, and remained positive after also excluding
US$2.7 billion of fair value gains on our own debt. Underlying cost
growth over the same period was modest.
-
Strong capital ratios broadly in line with those at the end of 2007, on a
Basel II basis.
-
As part of our 2007 full year results announcement, we described a number
of the Group's key financial measures, and provided target ranges. HSBC's
first quarter results either achieved or exceeded them.
The following individually significant items should also be taken into account when
considering our performance in Q1 2008.
-
The significant widening in credit spreads which occurred during the first
quarter, particularly at the end of March, led to fair value gains of
US$2.7 billion on HSBC's own debt recorded at fair value. Most of this
reversed in April, as credit spreads on our own debt tightened. These gains
were not allocated to our customer groups; they are reported in the 'Other'
segment in our financial results.
-
When comparing Q1 2008 with the same period in 2007, it is important to
note the non-recurrence of the dilution gain of US$0.7 billion which
was recognised in Q1 2007 following Ping An Insurance's capital raising at
the time.
Michael Geoghegan, Group Chief Executive, said: "I am encouraged by the way we have
increased pre-tax profits in every one of the major countries in which we operate
in Asia-Pacific, the Middle East and
Latin America
.
"Also, our Global Banking and Markets business was more profitable than in the
preceding two quarters on the back of strong emerging markets performance, despite
the write-down of US$2.6 billion.
"Commercial Banking and Private Banking both had record quarters. Our consumer
finance business in the
US
remains challenging but we are vigorously managing our costs and our risks,
and working hard to help our customers.
"Our strategy is clear and we are executing it. Ours is a business with excellent
opportunities ahead."
The world's leading international emerging markets bank
The first quarter of 2008 continued a very good period for our emerging markets
businesses, demonstrating again the importance of our strategy of focusing on these
markets. We increased pre-tax profits in all major countries in which we operate in
Asia-Pacific, the Middle East and
Latin America
.
We made further investment in the quarter to enhance the competitive advantages of
our local businesses domestically and as part of our global distribution
network.
In
Hong Kong
, the strong performance was driven by growth in deposit balances and deposit
margins and expansion of our lending business in Commercial Banking. Revenues from
balance sheet management also continued to improve.
In mainland
China
, we opened seven new outlets in the first quarter, consolidating our position as
the largest international bank in the country. Our expanded presence helped to
drive growth in both deposits and lending. Income reported from our strategic
investments in Ping An Insurance, Bank of Communications and Industrial Bank
increased significantly.
In the
Middle East
, revenues were driven by HSBC's distinctive and broad geographical presence and a
buoyant regional economy. We increased profits across all of our customer groups
and global businesses.
In
India
, currency volatility and strong client flows helped drive higher foreign exchange
revenues in our Global Banking and Markets business, underpinning a significant
increase in pre-tax profits in the country.
In
Taiwan
, we successfully completed the acquisition of The Chinese Bank in March 2008. Our
network of branches increased from 8 to 45 as a result, and we now have a presence
in every major city.
Our businesses in
Latin America
performed well, driven by balance sheet growth in Commercial Banking, foreign
exchange trading
in Global Banking and Markets and strong life and pension revenues.
Our agreement with Lone Star to acquire 51.02 per cent of Korea Exchange Bank has
been extended while we seek to complete the regulatory approval process.
Progress in meeting business challenges in
North America
Our pre-tax profits in North America declined significantly against the same period
last year, adversely affected by higher loan impairment charges in the
US
consumer finance business and further write-downs in Global Banking and
Markets. These losses were partly offset by gains reported on HSBC's own debt held
at fair value.
Loan impairment charges in the
US
consumer finance business were US$3.2 billion, significantly higher than
the US$1.6 billion recorded in the first quarter of 2007 but notably less than the
US$4.6 billion recorded in the fourth quarter of 2007, in part reflecting seasonal
trends.
It seems likely that the deterioration in the
US
housing market will extend into 2009; it is also clear that
US
economic growth has slowed and there is an increased likelihood of a
recession this year. Against this economic backdrop, we continued to experience
higher delinquencies across our major lending portfolios, though these were broadly
in line with our expectations at the end of 2007.
The vast majority of our mortgage customers continue to meet their commitments. At
31 March 2008, 5.0 per cent of mortgages in our
US
branch-based
consumer lending business were two
months or more overdue, compared with 4.2 per cent at 31 December 2007. The
equivalent figures for our mortgage services business were 12.5 per cent and 11.2
per cent, respectively. This trend of rising delinquency ratios will continue as
balances continue to be run off.
Reported delinquency percentages in our credit and private label card products were
also affected by the weakening
US
economy, as well as by a shift in product mix, portfolio seasoning and lower
origination balances. The latter was the result of action taken to curtail lending
growth. At the en
d of the quarter, the two
months or more delinquency rate for credit cards was 5.9 per cent and 3.6 per
cent for private label cards, compared with 5.8 per cent and 3.4 per cent,
respectively, at the end of 2007.
We have continued to take positive action to mitigate, where appropriate, the
effects of the housing market decline on our customers. In the first quarter of
2008, we modified about 1,500 loans with an aggregate balance of approximately
US$270 million ahead of their adjustable-rate mortgage ('ARM') resets; this
brings the total number of loans modified to around 11,900 and the aggregate
balance to some US$1.9 billion. As market conditions pointed to an extended
housing market decline, we began to offer, selectively, some longer term
modifications, generally providing assistance for either two or five years.
The strategic actions taken in 2007 to cease acquiring mortgages from correspondent
brokers and banks, close our Decision One business, align the size of the branch
network with our revised credit appetite, and reduce marketing expenditure to slow
portfolio growth resulted in a fall in the US consumer finance business' operating
expenses compared with the equivalent quarter in 2007.
In the
US
consumer finance business, the focus continues to be on risk management. We
are progressively refining our strategies and product offerings to protect and
enhance the underlying value of this business for our shareholders by dealing
responsively and responsibly with our customers. Beyond the mortgages and credit
cards actions discussed above, we reduced the size of the vehicle finance business,
continued to tighten underwriting criteria, discontinued certain taxpayer financial
services products and increased our efforts around cost containment.
Encouraging performance in our European businesses
Our European businesses performed well in the first quarter, with the
UK
retail business increasing pre-tax profit. This was the result of lower costs
which were partly due to the non-recurrence of ex-gratia payments dispensed in
respect of overdraft charges applied in previous years. In April, a High Court
judgment concluded that HSBC's current charges were not capable of being penalty
charges and that HSBC's relevant terms and conditions were in plain and
intelligible language. However, the fairness of the charges remains to be assessed
under relevant regulations and there are many other elements of the case, including
any appeals there may be, which have yet to be heard.
We continue to progress towards completion of the sale of our regional subsidiaries
in
France
to Banque Fédérale des Banques Populaires. This transaction,
which will give rise to a gain on sale of approximately US$1.9 billion, is expected
to be completed in July 2008.
In the
UK
, growth in retail banking continued to be driven by savings and packaged accounts.
HSBC's risk appetite for credit remained focused on the commercial customer base
and, more recently, mortgages, where our successful mortgage 'rate-matcher'
campaign attracted new higher-value personal customers. Expressed as a percentage
of lending, our credit experience in Personal Financial Services improved on the
first quarter of last year.
Delivering strong results in Commercial Banking
The Group's Commercial Banking business continued to grow strongly
in line with recent trends, reporting record profits in the first quarter. Income
increased significantly, particularly in emerging markets, despite a reduction in
earnings from deposit products as a consequence of lower interest rates in
the
US
.
Overall, asset quality remained sound. During the period, we continued to restrict
our commercial real estate exposure, particularly in North America and, latterly,
in the
UK
in response to market conditions.
We also maintained our focus on generating cross-border referrals via HSBC's global
links system. Referrals are significantly ahead of the first quarter in 2007 in
both volume and value of successfully completed deals.
Private Banking is attracting new business
We continued to see strong inflows of new client funds, which were greater than in
the equivalent quarter in 2007, as HSBC benefited from its differentiated capital
strength in the current environment. As a consequence, higher deposits and
investment performance fees helped to drive a record quarterly profit.
A challenging environment for Global Banking and Markets
Pre-tax profit in Global Banking and Markets was lower than in the equivalent
quarter in 2007 but higher than in the third and fourth quarters of 2007. This was
despite write-downs of US$2.6 billion relating to the continued credit market
disruption which were off-set by strong performances in a number of other
businesses.
Strong revenue growth was reported in foreign exchange and interest rate trading,
securities services and payments and cash management as we successfully traded the
market and our relative capital strength helped attract new business. Higher
volumes arose in the quarter as institutions repositioned for the changing market
conditions. Much of this activity appeared to be designed to reduce the
institutions' risk positions and the risks perceived to exist from their exposure
to counterparty balance sheets. As a consequence, it is possible that dealing
volumes will be lower in subsequent quarters in 2008 and will remain so until risk
appetite recovers in the future. Balance sheet management revenues were also ahead
of the first quarter of 2007 as the business had positioned itself for falling US
interest rates.
The adverse effect of the credit market upheaval was concentrated in the
US
and the
UK
. In addition to the write-downs noted above, turbulence in the market also
affected the value of our available-for-sale securities portfolios (although no
permanent impairments were required). HSBC's emerging markets-led and
financing-focused strategy delivered excellent results in Asia-Pacific, the Middle
East and
Latin America
.
A summary of the US$2.6 billion of write-downs is set out below:
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Net
exposure at
31 March
2008
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Net
exposure at 31 December
2007
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Sub-prime mortgage-related assets
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Non-sub-prime credit trading assets
1
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Fair value of derivative transactions
with monolines
3
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1
The net exposure at 31 March 2008 included an increase of US$2.6 billion related
to non-agency collateralised mortgage obligations (' CMO') positions which had not
experienced any material write-downs at 31 December 2007 and, as a result of
restructuring transactions, a further US$1.0 billion of ABS-related assets
purchased in the first quarter of 2008.
2
Commitments in respect of leveraged finance transactions at 31 March 2008 were
US$9.1 billion (31 December 2007: US$8.9 billion), of which US$7.0 billion
were funded (31 December 2007: US$6.0 billion).
3
Net exposure after credit risk adjustment.
The proportion of our trading assets valued using a valuation technique with
significant non-observable inputs was broadly unchanged from the end of 2007.
Personal Financial Services
The results of our Personal Financial Services business reflected the very varied
market conditions experienced across our global network, as discussed above.
We continue to build on the success of the HSBC Premier business, which was
re-launched last year. Premier was launched in a further three countries during the
first four months of 2008. During the first quarter, Premier customer numbers
increased by nearly 100,000, of which approximately three quarters were new to the
Group, and annualised average income per customer continued to exceed US$2,000.
Credit quality outside the
US
Credit quality outside the
US
was generally stable, including in Personal Financial Services in the
UK
. In
Mexico
, we continued to experience higher loan impairment charges as the portfolio
seasoned, though these were covered by lending spreads.
Capital strength maintained
HSBC's capital position remains an important strength in the current environment.
During the quarter, we generated capital organically to support balance sheet
growth in emerging markets and meet higher capital requirements necessitated by the
volatile financial market conditions. We also took advantage of market
opportunities to add to our capital in April by issuing preferred securities in
the
US
and subordinated debt in
Europe
.
During the period we have declared and paid a fourth interim dividend for 2007 of
US$0.39 and declared a first interim dividend for 2008 of US$0.18, payable on 9
July 2008.
Looking ahead, Group Chairman Stephen Green commented: "The outlook for the rest of
the year remains unusually difficult to foresee in the current environment.
"Many parts of the world continue to enjoy strong economic growth. In particular,
emerging market economies remain relatively robust, with infrastructure spending
growing and demand for energy, minerals and steel rising accordingly. The demand
for capital goods to support domestic expansion in these markets is increasing
export opportunities for the developed world.
However, it seems increasingly likely that the
US
will enter a recession in 2008, the length and depth of which is uncertain.
The timing of any recovery in the US housing market, which is likely to be the
primary stimulus in restoring confidence to the US economy, is also unclear. A
housing market upturn will itself depend on liquidity returning to credit markets
and a resumption of securitisation activity. While illiquidity in financial markets
remains of continuing concern, the major economic risks facing the global economy
now include inflationary pressures, particularly from rises in food and energy
prices.
"We remain alert to the risks but also see opportunity ahead. HSBC will continue to
position itself in those markets and businesses where we expect sustainable
long-term growth, in line with our strategy."
HSBC Holdings plc
HSBC Holdings plc serves over 128 million customers worldwide through around 10,000
offices in 83 countries and territories in Europe, the Asia-Pacific region,
the
Americas
, the Middle East and
Africa
. With assets of some US$2,354 billion at 31 December 2007, HSBC is one of the
world's largest banking and financial services organisations.
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: May 12th, 2008