hsba201110316k.htm
 
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
 
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- ..............).
 
 

 

 
 
 
 
GRUPO FINANCIERO HSBC, S.A. DE C.V.
THIRD QUARTER 2011 FINANCIAL RESULTS - HIGHLIGHTS
 
 
HSBC Mexico S.A. (the bank) is Grupo Financiero HSBC, S.A. de C.V.'s (Grupo Financiero HSBC) primary subsidiary company and is subject to supervision by the Mexican Banking and Securities Commission. The bank is required to file financial information on a quarterly basis (in this case for the nine months to 30 September 2011) and this information is publicly available. Given that this information is available in the public domain, Grupo Financiero HSBC, S.A. de C.V. has elected to file this release.
 
Results are prepared in accordance with Mexican GAAP (Generally Accepted Accounting Principles).
 
 
Overview
 
Despite the current global economic uncertainties, the Mexican economy is expected to be able to withstand any potential economic slow-down, especially in the US. This is based on Mexico's sound macroeconomic position, a competitive and diversified exports base and a stronger domestic market.
 
Inflation is expected to be 3.5% for 2011 and no change is expected to monetary policy interest rates until the fourth quarter of 2012.
 
For the nine months to 30 September 2011, Grupo Financiero HSBC's net income was MXN2,720m, an increase of MXN833m or 44.1% compared with the same period of 2010. Higher trading income and lower impairment charges were partially offset by lower net interest income, net fee income and increased administrative expenses, the latter largely impacted by the restructuring charges incurred during the first half of 2011.
 
Net interest income was MXN16,129m, a decrease of MXN187m or 1.1% compared with the same period of 2010. This decline was mainly driven by higher funding costs and a contraction in spreads coupled with lower balances in the credit card portfolio, which were partially offset by higher spreads on available-for-sale securities.
 
Loan impairment charges were MXN4,750m, a decline of MXN2,758m or 36.7% compared with the same period of 2010. This decrease is due to a general improvement in credit quality across our portfolios and lower credit card volumes. In addition, a new credit provisioning methodology for States & Municipalities was approved by the CNBV and applied in September 2011. This resulted in a net release of MXN108.7m. The new methodology is based on an expected loss approach.
 
Net fee income was MXN4,448m, a decrease of MXN439m or 9.0% compared with the same period of 2010. This reduction was mainly a result of lower credit card volumes as well as reduced account services and ATM fees. Regulatory restrictions applied since the beginning of the current year affected fee income by limiting the fees that can be charged for ATM and customer deposit services.
 
Trading income was MXN2,502m, an increase of MXN141m or 6.0% compared with the same period of 2010. The improvement in trading income is mainly the result of a strong performance in derivatives and the sale of one of our equity investments, partially offset by lower foreign exchange and debt trading results.
 
Other operating income was MXN4,237m, an increase of MXN1,562m or 58.4% compared to the same period of 2010. This increase is driven by the gain on the sale and leaseback of certain branches in the network, the sale of HSBC Afore, tax recoveries from previous years and lower operational losses recognised during the year.
 
Administrative and personnel expenses were MXN18,825m, an increase of MXN2,410m or 14.7% compared with the same period of 2010. This increase is mainly driven by IT-related costs, higher personnel expenses and restructuring charges. Excluding the effect of the restructuring charges, the increase in expenses would have been MXN1,320m or 8.0% compared with the same period of 2010.
 
The performance of non-banking subsidiaries contributed positively to Grupo Financiero HSBC's results, particularly HSBC Seguros, which reported a net profit of MXN1,094m for the nine months to 30 September 2011, a 14.4% increase when compared with the same period of 2010. The higher results reported by HSBC Seguros were driven by increased product sales, mainly life products, reflecting a 7.3% increase in earned premiums, in addition to flat operating expenses. The claims ratio decreased by 4.9% when compared to the same period of 2010, mainly due to (T-5) individual life products.
 
Net loans and advances to customers increased MXN24.2bn or 15.8% to MXN177.1bn at 30 September 2011 compared to 30 September 2010. This increase is mainly driven by growth in the commercial portfolio. The consumer portfolio also increased, driven by higher personal and payroll loans, which more than offset a decrease in credit cards.
 
At 30 September 2011, total impaired loans increased by 11.2% to MXN6.5 bn compared with 30 September 2010, mainly as a result of recent restructures, partially offset by a reduction in impaired consumer loans, as collections and underwriting processes were tightened. Total impaired loans as a percentage of gross loans and advances to customers remained at 3.6% as reported at 30 September 2010.
 
Total loan loss allowances at 30 September 2011 were MXN10.2bn, an increase of MXN52m or 0.5% compared to 30 September 2010. The total coverage ratio (allowance for loan losses divided by impaired loans) was 158.4% at 30 September 2011 compared with 175.2% at 30 September 2010. This reduction in the coverage ratio is mainly the result of increased impaired loans.
 
Total deposits were MXN280.7bn at 30 September 2011, an increase of MXN35.0bn or 14.2% compared with 30 September 2010. This is the result of increased sales efforts and targeted promotions particularly for 'Advance', 'Inversion diaria', 'Inversion Express' and 'Premier' deposit products.
 
At 30 September 2011, the bank's capital adequacy ratio was 15.2% compared with 15.9% at 30 September 2010. The tier 1 capital ratio was 11.6% compared with 12.3% at 30 September 2010.
 
In March 2011, the bank paid a dividend of MXN1,800m representing MXN1.095 per share to Grupo Financiero HSBC and Grupo Financiero HSBC paid a dividend of MXN3,520m representing MXN1.377 per share.
 
Business highlights
 
Retail Banking and Wealth Management (RBWM)
 
RBWM achieved strong sales in its consumer portfolio and continued repositioning the wealth management business from a product-focused approach to a relationship approach.
 
Our sales focus was targeted through campaigns aimed at providing solutions to customers' needs based on business intelligence; understanding our customers through their spending and saving patterns and proposing solutions using customer relationship management capabilities, and cross-selling to our existing customer base and expanding our payroll base.
 
Special focus continues to be placed on leveraging our global banking and commercial banking relationships to cross-sell our payroll service capabilities. As a result, personal and payroll loans sales reported a 63% year-on-year growth while balances increased 85% year-on-year.
 
Credit card balances across the industry remained flat. However, we have increased credit card sales by 4% compared to the last quarter. Average credit card balances decreased 5.7%, from MXN16,405m to MXN15,478m. During the period, several strategies were launched aimed at reducing the credit card seasonal balance decrease with campaigns such as purchases on instalments, balance transfers, credit limit increases and extended preferential rates
 
During the third quarter of the year, customer deposits, both time and demand, increased MXN12.5bn compared to 30 September 2010.
 
Commercial Banking
 
During the third quarter of 2011, Commercial Banking continued to report growth in deposits, up by 25%, while loans have increased 12%, both compared to 30 September 2010.
 
Our business proposition for Corporate & Structured Banking was established in three of the country's main cities (Mexico City, Guadalajara and Monterrey), which should enable us to provide specialised services to our corporate customers such as international trade, treasury and investment banking.
 
Several initiatives have been implemented aimed to support the underwriting of business banking credit facilities, such as preferential interest rates on first draw-downs and benefits to current customers.
 
We have continued to manage our State and Municipalities portfolio actively through continuous contact and advice to this segment's customers.
 
Global Banking and Markets
 
As of 30 September 2011, Global Markets continued to report good revenues in balance sheet management and trading.

 
In the Debt Capital Markets business, Grupo Financiero HSBC continued to consolidate its position as a leading underwriter in Mexico, maintaining its second place in the local debt capital market league tables. As of September 2011, we have placed and participated in bond issuances for a total transaction amount of MXN112.1bn, including United Mexican States (UMS), CEMEX, Inbursa, Santander, INFONAVIT, Bancomext, Alsea, Gas Natural, Interacciones, Scotiabank, Cadena Mexicana de Exhibición and ICA.
 
For the nine months to 30 September 2011, Global Banking's credit and lending business originated new lending to corporate clients in excess of MXN17.7bn, compared to MXN7.6bn for the same period of 2010.

 
The Project and Export Finance business also reported a strong performance, executing transactions worth US$570m.
 
We continued focussing on customer onboarding processes, developing incremental Global Market product business and executing transactions for Global Banking clients.

Global Banking continued to grow average balances, particularly in Client Bank Deposits which have reported a 61% increase in average balances compared to 30 September 2010.
 
Sale of HSBC Afore to Principal Financial Group
 
On 11 April 2011, Grupo Financiero HSBC signed an agreement to sell HSBC Afore, S.A. de C.V., its pension funds management business, to Principal Financial Group, S.A. de C.V. ('Principal') for a cash consideration of MXN2,360m (approximately US$198m). This sale transaction was successfully completed in August 2011.
 
Grupo Financiero HSBC 2011 financial results as reported to HSBC Holdings plc, our ultimate parent company, under International Financial Reporting Standards (IFRS)
 
For the nine months to 30 September 2011, on an IFRS basis, Grupo Financiero HSBC reported pre-tax profits of MXN7,231m, an increase of MXN2,899m or 66.9% compared with MXN4,332m in the first nine months of 2010. The 2011 results were affected by restructuring charges, the majority of which related to a reorganisation of the bank's regional services. Excluding the effect of these charges, net income before taxes would have been MXN8,321m, up by MXN3,989m or 92.1% compared to the same period of 2010.
 
The lower profit reported under Mexican GAAP is largely due to lower loan impairment charges as result of the different provisioning methodologies and the amount recognised as profit on the sale of the pension funds management business (Afore). The goodwill allocated under IFRS on the disposal of Afore is based on the goodwill held in the Grupo Financiero HSBC legal entity, but allocated on the HSBC Group cash generating unit basis. A reconciliation and explanation between the Mexican GAAP and IFRS results is included with the financial statements of this document.
 
 
 
About HSBC
 
Grupo Financiero HSBC, is one of the leading financial groups in Mexico with 1,078 branches, 6,062 ATMs, approximately eight and a half million total customer accounts and more than 19,000 employees. For more information, visit www.hsbc.com.mx.
 
Grupo Financiero HSBC is a 99.99% directly owned subsidiary of HSBC Latin America Holdings (UK) Limited, which is a wholly owned subsidiary of HSBC Holdings plc, and a member of the HSBC Group. With around 7,500 offices in over 80 countries and territories in Europe, the Asia-Pacific region, North and Latin America, the Middle East and Africa and with assets of US$2,691bn at 30 June 2011, HSBC is one of the world's largest banking and financial services organisations.
 
 
For further information contact:
 
 
London
  
Brendan McNamara
Alastair Brown
Group Media Relations
Investor Relations
Telephone: +44 (0)20 7991 0655
Telephone: +44 (0)20 7992 1938
   
Mexico City
  
Lyssette Bravo
Yordana Aparicio
Public Affairs
Investor Relations
Telephone: +52 (55) 5721 2888
Telephone: +52 (55) 5721 5192
 
 
Consolidated Balance Sheet
 
 
 
                                                                 GROUP
          BANK
Figures in MXN millions
30 Sep
30 Sep
30 Sep
30 Sep
2011
2010
2011
2010
Assets
        
         
Cash and deposits in banks
55,376
70,241
55,376
70,238
         
Margin accounts
-
2
-
2
         
Investment in securities
163,264
162,002
145,470
146,757
  Trading securities
37,699
53,076
27,757
46,020
  Available-for-sale securities
110,467
92,815
110,467
92,516
  Held to maturity securities
15,098
16,111
7,246
8,221
         
  Repurchase agreements
7,668
-
7,668
-
         
  Derivative transactions
50,979
35,337
50,979
35,337
         
Performing loans
        
  Commercial loans
100,133
78,507
100,133
78,507
  Loans to financial intermediaries
6,341
7,051
6,341
7,051
  Consumer loans
29,101
27,076
29,101
27,076
  Mortgage loans
17,828
19,302
17,828
19,302
  Loans to government entities
21,880
25,343
21,880
25,343
Total performing loans
175,283
157,279
175,283
157,279
Impaired loans
        
  Commercial loans
2,014
1,809
2,014
1,809
  Consumer loans
1,256
1,826
1,256
1,826
  Mortgage loans
1,839
2,176
1,839
2,176
  Loans to government entities
1,352
-
1,352
-
Total impaired loans
6,461
5,811
6,461
5,811
Gross loans and advances to customers
181,744
163,090
181,744
163,090
Allowance for loan losses
(10,231)
(10,179)
(10,231)
(10,179)
Receivable
5,600
-
5,600
-
Net loans and advances to customers
177,113
152,911
177,113
152,911
Premium receivables
295
308
-
-
Accounts receivables from reinsurers and rebonding companies
284
419
-
-
Other accounts receivable
30,916
44,835
30,948
44,931
Foreclosed assets
195
167
191
167
Property, furniture and equipment, net
8,074
7,936
8,073
7,932
Long-term investments in equity securities
250
195
170
119
Long-term assets available for sale
2
2,431
3
-
Deferred taxes
5,508
4,102
5,386
4,088
Goodwill
1,218
1,218
-
-
Other assets, deferred charges and intangibles
5,135
5,075
4,642
4,623
Total assets
506,277
487,179
486,019
467,105
 
 
 
                                                                GROUP
         BANK
Figures in MXN millions
30 Sep
30 Sep
30 Sep
30 Sep
2011
2010
2011
2010
Liabilities
        
Deposits
280,728
245,777
281,464
245,986
  Demand deposits
159,366
143,392
160,102
143,601
  Time deposits
117,100
98,123
117,100
98,123
  Issued credit securities
4,262
4,262
4,262
4,262
         
Bank deposits and other liabilities
28,927
13,869
28,927
13,869
  On demand
-
3,000
-
3,000
  Short-term
27,243
9,282
27,243
9,282
  Long-term
1,684
1,587
1,684
1,587
         
     Repurchase agreements
17,176
38,176
22,598
42,476
     Stock borrowing
4
-
4
-
Settlement accounts
-
10,606
-
10,606
Collateral sold
12,095
8,715
6,673
4,415
Derivative transactions
50,669
38,175
50,669
38,175
Technical reserves
10,778
10,389
-
 -
Reinsurers
90
140
-
-
Other payable accounts
45,965
60,553
46,680
59,741
  Income tax
1,996
1,466
1,113
1,001
  Contributions for future capital increases
-
-
2,013
-
  Sundry creditors and other accounts Payable
43,969
59,087
43,554
58,740
         
Subordinated debentures outstanding
10,435
10,074
10,435
10,074
         
Deferred taxes
622
762
587
724
         
Total liabilities
457,489
437,236
448,037
426,066
         
Equity
        
Paid in capital
32,673
32,678
25,605
25,605
  Capital stock
5,111
9,434
5,087
5,087
  Additional paid in capital
27,562
23,244
20,518
20,518
         
Other reserves
16,105
17,253
12,374
15,431
  Capital reserves
1,832
1,726
11,069
14,449
  Retained earnings
11,262
13,058
-301
-
  Result from the mark-to-market of available-for-sale securities
758
890
758
750
  Result from cash flow hedging transactions
(467)
(308)
(467)
(308)
  Net income
2,720
1,887
1,315
540
Minority interest in capital
10
12
3
3
Total equity
48,788
49,943
37,982
41,039
Total liabilities and equity
506,277
487,179
486,019
467,105
 
 
 
 
                                                             GROUP
                      BANK
Figures in MXN millions
30 Sep
30 Sep
30 Sep
30 Sep
2011
2010
2011
2010
Memorandum Accounts
2,967,174
2,626,413
2,872,208
2,512,847
         
Third party accounts
96,899
86,560
51,821
51,096
Clients current accounts
-169
-37
-
-
Custody operations
33,640
25,462
-
-
Transactions on behalf of clients
11,607
10,039
-
-
Third party investment banking operations, net
51,821
51,096
51,821
51,096
         
Proprietary position
2,870,275
2,539,853
2,820,387
2,461,751
Guarantees granted
14
21
14
21
Contingent assets and liabilities
95
119
95
119
Irrevocable lines of credit granted
19,193
17,785
19,193
17,785
Goods in trust or mandate
313,369
282,699
313,370
282,699
Goods in custody or under administration
253,350
265,633
248,240
260,522
Collateral received by the institution
35,774
8,504
35,774
8,432
Collateral received and sold or delivered as guarantee
36,971
12,037
31,561
7,739
Values in deposit
53
53
-
-
Suspended interest on impaired loans
230
258
230
258
Recovery guarantees for issued bonds
34,191
48,011
-
-
Paid claims
56
13
-
-
Cancelled claims
24
17
-
-
Responsibilities from bonds in force
3,416
3,591
-
-
Other control accounts
2,173,539
1,901,112
2,171,910
1,884,176
 
 
 
Consolidated Income Statement
 
 
 
                                                 GROUP
                                                       BANK
Figures in MXN millions
30 Sep
30 Sep
30 Sep
  
30 Sep
  
2011
2010
2011
  
2010
  
Interest income
22,674
21,459
22,098
  
20,972
  
Interest expense
(7,534)
(6,012)
(7,548)
  
(6,005)
  
             
Earned premiums
2,277
2,171
-
  
-
  
Increase in technical reserves
(214)
(228)
-
  
-
  
Claims
(1,074)
(1,074)
-
  
-
  
             
Net interest income
16,129
16,316
14,550
  
14,967
  
             
Loan impairment charges
(4,750)
(7,508)
(4,750)
  
(7,508)
  
Risk-adjusted net interest income
11,379
8,808
9,800
  
7,459
  
             
Fees and commissions receivable
5,953
6,537
5,649
  
6,271
  
             
Fees payable
(1,505)
(1,650)
(1,063)
  
(1,020)
  
             
Trading income
2,502
2,361
2,011
  
1,905
  
             
Other operating income
4,237
2,675
4,313
  
3,057
  
             
Total operating income
22,566
18,731
20,710
  
17,672
  
             
Administrative and personnel expenses
(18,825)
(16,415)
(19,031)
  
(16,795)
  
             
Net operating income
3,741
2,316
1,679
  
877
  
             
Undistributed income from subsidiaries
35
3
35
  
-
  
             
Net income before taxes
3,776
2,319
1,714
  
877
  
Income tax
(1,524)
(1,003)
(652)
  
(543)
  
Deferred income tax
275
229
234
  
197
  
Net income before discontinued operations
2,527
1,545
1,296
  
531
  
             
Discontinued operations
173
333
-
  
-
  
             
Minority interest
20
9
19
  
9
  
             
Net income
2,720
1,887
1,315
  
540
  
 
 
 
Consolidated Statement of Changes in Shareholders' Equity
 
GROUP
 
 
 
Capital 
contributed
Capital 
reserves
Retained 
earnings
Result from valuation of available-for-sale securities
Result from cash flow hedging transactions
Net 
income
Minority interest
Total 
equity
Figures in MXN millions
                
Balances at
1 January 2011
32,673
1,726
13,058
140
(213)
2,119
10
49,513
                 
Movements inherent to the shareholders'
decision
                
  Transfer of result of prior years
-
106
2,013
-
-
(2,119)
-
-
   Cash dividends
-
-
(3,520)
-
-
-
-
(3,520)
   Other
-
-
(289)
-
-
-
-
(289)
Total
-
106
(1,796)
-
-
(2,119)
-
(3,809)
                 
Movements for the recognition of the comprehensive income
                
                 
   Net income
-
-
-
-
-
2,720
-
2,720
   Result from
     valuation of available-
     for-sale securities
-
-
-
618
-
-
-
618
   Result from cash flow
   hedging transactions
-
-
-
-
(254)
-
-
(254)
Total
-
-
-
618
(254)
2,720
-
3,084
Balances at
30 September 2011
32,673
1,832
11,262
758
(467)
2,720
10
48,788
 
 
 
 
BANK
 
 
Figures in MXN millions
Capital 
contributed
Capital 
reserves
Retained 
earnings
Result from valuation of available-for-sale securities
Result from cash flow hedging transactions
Net 
income
Minority interest
Total 
equity
Balances at
1 January 2011
25,605
12,436
-
(48)
(213)
420
3
38,203
                 
Movements inherent to
   the shareholders'
   decision
                
   Transfer of result of prior years
-
-
420
-
-
(420)
-
-
   Constitution of reserves
-
433
(433)
-
-
-
-
-
    Cash dividends
-
(1,800)
-
-
-
-
-
(1,800)
    Other
-
-
(289)
-
-
-
-
(289)
Total
-
(1,367)
(302)
-
-
(420)
-
(2,089)
                 
Movements for the
   recognition of the
   comprehensive income
                
   Net income
-
-
-
-
-
1,315
-
1,315
   Result from
    valuation of available-
    for-sale securities
-
-
-
806
-
-
-
806
   Result from cash flow
   hedging transactions
-
-
-
-
(254)
-
-
(254)
   Others
-
-
1
-
-
-
-
1
Total
-
-
1
806
(254)
1,315
-
1,868
Balances at
30 September 2011
25,605
11,069
(301)
758
(467)
1,315
3
37,982
 
 
 
Consolidated Statement of Cash Flows
 
GROUP
 
 
Figures in MXN millions
30 Sep 2011
   
Net income
2,720
Adjustments for items not involving cash flow:
10,644
Gain or loss on appraisal of activities associated with investment & financing
(1,074)
Allowances for loan losses
4,771
Depreciation and amortisation
1,951
Provisions
3,414
Income tax and deferred taxes
1,249
Technical reserves
214
Discontinued operations
173
Undistributed income from subsidiaries
(54)
   
Changes in items related to operating activities:
  
Margin accounts
42
Investment securities
(20,359)
Repurchase agreements
(5,812)
Stock borrowing
3
Derivative (assets)
(21,784)
Loan portfolio
(14,139)
Receivables
(5,600)
Foreclosed assets 
(53)
Operating assets
(7,915)
Deposits
27,394
Bank deposits and other liabilities
6,996
Settlement accounts
(2,359)
Creditors repo transactions
(12,736)
Collateral sold or delivered as guarantee
312
Derivative (liabilities)
20,124
Subordinated debentures outstanding
427
Accounts receivables from reinsurers and coinsurers
(284)
Accounts receivables from premiums
(295)
Reinsurers and bonding
90
Other operating liabilities
26,900
Funds provided by operating activities
(9,048)
   
Investing activities:
  
Acquisition of property, furniture and equipment
3,813
Intangible asset acquisitions
(268)
Funds used in investing activities
3,545
   
Financing activities:
  
Cash dividends
(3,520)
Others
(289)
Funds used in financing activities
(3,809)
   
Financing activities:
  
Decrease in cash and equivalents
4,052
Cash and equivalents at beginning of period
51,324
Cash and equivalents at end of period
55,376
 
 
 
BANK
 
 
Figures in MXN millions
30 Sep 2011
   
Net income
1,315
Adjustments for items not involving cash flow:
9,426
Gain or loss on appraisal of activities associated with investment & financing
(1,072)
Allowances for loan losses
4,769
Depreciation and amortisation
1,951
Provisions
3,414
Income tax and deferred taxes
418
Undistributed income from subsidiaries
(54)
   
Changes in items related to operating activities:
  
Margin accounts
42
Investment securities
(5,295)
Repurchase agreements
(5,812)
Derivative (assets)
(21,785)
Loan portfolio
(14,139)
Receivables
(5,600)
Foreclosed assets 
(50)
Operating assets
(8,075)
Deposits
27,852
Bank deposits and other liabilities
6,996
Settlement accounts
(2,359)
Creditors repo transactions
(12,270)
Stock borrowing
3
Collateral sold or delivered as guarantee
(154)
Derivative (liabilities)
20,124
Subordinated debentures outstanding
427
Other operating liabilities
16,335
Funds provided by operating activities
(3,760)
   
Investing activities:
  
Acquisition of property, furniture and equipment
(951)
Intangible asset acquisitions
111
Funds used in investing activities
(840)
   
Financing activities:
  
Cash dividends
(1,800)
Other
(289)
Funds used in financing activities
(2,089)
   
Financing activities:
  
Decrease in cash and equivalents
4,052
Cash and equivalents at beginning of period
51,324
Cash and equivalents at end of period
55,376
 
 
 
Differences between Mexican GAAP and International Financial Reporting Standards (IFRS)
 
 
Grupo Financiero HSBC
 
HSBC Holdings plc, the ultimate parent of Grupo Financiero HSBC, reports its results under International Financial Reporting Standards (IFRS). Set out below is a reconciliation of the results of Grupo Financiero HSBC from Mexican GAAP to IFRS for the nine months ended 30 September 2011 and an explanation of the key reconciling items.
 
 
   
 30 Sep   
 
 
 Figures in MXN millions
2011   
 
       
 
Grupo Financiero HSBC - Net Income Under Mexican GAAP
2,720
  
       
 
Differences arising from:
    
       
 
   Valuation of defined benefit pensions and post retirement healthcare benefitsW
72
  
 
   Acquisition costs relating to long-term investment contractsW
(5)
  
 
   Deferral of fees received and paid on the origination of loans
9
  
 
   Loan impairment chargesW
774
  
 
   Purchase accounting adjustmentsW
(146)
  
 
   Recognition of the present value in-force of long-term insurance contractsW
131
  
 
   Sale of 100% of the outstanding shares of a Social Security Company (Afore) W
976
  
 
   OtherW
834
  
 
Net income under IFRS
5,365
  
 
US dollar equivalent (millions)
443
  
 
Add back tax expense
1,866
  
 
Profit before tax under IFRS
7,231
  
 
US dollar equivalent (millions)
597
  
 
Exchange rate used for conversion
12.11
  
       
 
W Net of tax at 30%.
 
Summary of key differences between Grupo Financiero HSBC's results as reported under Mexican GAAP and IFRS
 
Valuation of defined benefit pensions and post retirement healthcare benefits
Mexican GAAP
Defined benefit pension costs and the present value of defined benefit obligations are calculated at the reporting date by the schemes' actuaries using the Projected Unit Credit Method and real interest rates.
 
IFRS
Defined benefit pension costs and the present value of defined benefit obligations are calculated at the reporting date by the schemes' actuaries using the Projected Unit Credit Method. The net charge to the income statement mainly comprises the current service cost, plus the unwinding of the discount rate on plan liabilities, less the expected return on plan assets, and is presented in operating expenses. Past service costs are charged immediately to the income statement to the extent that the benefits have vested, and are otherwise recognised on a straight-line basis over the average period until the benefits vest. Actuarial gains and losses comprise experience adjustments (the effects of differences between the previous actuarial assumptions and what has actually occurred), as well as the effects of changes in actuarial assumptions. Actuarial gains and losses are recognised in other comprehensive income in the period in which they arise.
 
Acquisition costs of long-term investment contracts
Mexican GAAP
All costs related to the acquisition of long-term investment contracts are expensed as they are incurred.
 
Summary of key differences between Grupo Financiero's results as reported under Mexican GAAP and IFRS (continued)
 
IFRS
Incremental costs relating to the acquisition of long-term investment contracts are deferred and amortised over the expected life of the contract.
 
Fees paid and received on the origination of loans
Mexican GAAP
From 1 January 2007, loan origination fees are required to be deferred and amortised over the life of the loan on a straight line basis. Prior to 2007, loan origination fees were recognised up-front.
 
IFRS
Fees and expenses received or paid on origination of a loan that are directly attributable to the origination of that loan are accounted for using the effective interest rate method over the expected life of the loan. This policy has been in effect since 1 January 2005.
 
Loan impairment charges
Mexican GAAP
Loan impairment charges are calculated following the rules issued by the Mexican Ministry of Finance and the National Banking and Securities Commission. Such rules establish methodologies for determining the amount of provision for each type of loan.
 
IFRS
Impairment losses on collectively assessed loans are calculated as follows:
 
  ·      
When appropriate empirical information is available, the Bank utilises roll rate methodology. This methodology employs statistical analysis of historical data and experience of delinquency and default to estimate the amount of loans that will eventually be written off as a result of events occurring before the balance sheet date which the Bank is not able to identify on an individual loan basis, and that can be reliably estimated.
  ·      
 In other cases, loans are grouped together according to their credit risk characteristics for the purpose of calculating an estimated collective loss.
 
Impairment losses on individually assessed loans are calculated by discounting the expected future cash flows of a loan at its original effective interest rate, and comparing the resultant present value with the loans current carrying value.
 
Purchase accounting adjustments
Purchase accounting adjustments arose from the valuation of assets and liabilities on acquiring Grupo Financiero Bital in November 2002 under IFRS. Under Mexican GAAP, a different valuation methodology is applied.
 
Recognition of present value of in-force long-term life insurance contracts
Mexican GAAP
The present value of future earnings is not recognised. Premiums are accounted for on a received basis and reserves are calculated in accordance with guidance as set out by the Insurance Regulator (Comisión Nacional de Seguros y Fianzas).
 
IFRS
A value is placed on insurance contracts that are classified as long-term insurance business and are in-force at the balance sheet date. The present value of in-force long-term insurance business is determined by discounting future earnings expected to emerge from business currently in force using appropriate assumptions in assessing factors such as recent experience and general economic conditions.
 
ends/all
 



 
 
 

 

 
 
 
 
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, 2011