滙豐控股 (HSBC) 2005 Q3 法說會逐字稿

This presentation, including the accompanying slides, and subsequent discussion contains certain forward-looking information with respect to the financial conditions, results of operations, and business of HSBC Holding PLC, HSBC Finance Corporation, HSBC USA, Inc. and HSBC North America Holdings, Inc.

This information represents expectations or beliefs concerning future events, and is subject to unknown risks and uncertainties.

This information speaks only as of the date on which it is provided.

Additional detailed information concerning important factors that could cause actual results to differ materially is available in the HSBC Holdings PLC annual report, HSBC Finance Corporation annual report on Form 10-K, and HSBC USA, Inc. annual report on Form 10-K for the year ended the 31st of December 2004.

Please further be advised that Regulation FD prohibits HSBC representatives from answering certain specific questions during the Q&A session.

Please hold the line, the conference will begin shortly. (music playing)

Good afternoon ladies and gentlemen, and welcome to the HSBC Finance Corporation and HSBC USA, Inc. third quarter 2005 results.

Today's call is being hosted by Mr. Bobby Mehta, Chief Executive HSBC North America Holdings, Inc. and Chairman and Chief Executive HSBC Finance Corporation;

Mr. Douglas Flint, Group Finance Director for HSBC Holdings;

Martin Glynn, Chief Executive Officer HSBC USA, Inc.; and Simon Penney, Chief Financial Officer, HSBC North America Holdings, Inc.

Once the presentation has finished, there will be an opportunity for questions and answers.

At this point I would like to hand over to Douglas Flint to bring began the presentation.

Thank you Mr. Flint.

Please go ahead.

Thank you very much, and thanks to everyone who is on the, line including those in Asia who are up very late.

I really just want to say a few words by way of setting the scene in terms of what we are going to cover in the call today which will be an element, certainly the most important element, of our North American segment results, HSBC Finance Corporation and the Bank HSBC USA does not, of course, include Canada and Mexico, which are also in the North American segment when this call takes place because we today filed with the SEC documents for these two -- for these two operations.

You will -- looking at the slide pack see the normal statement on forward-looking statements.

And we will take that as read.

The other things simply to observe is that what we do in this presentation is to seek to draw to your attention not the U.S.

GAAP results, but move to a managed basis which puts back on balance securitizations, and then more importantly goes to more a management bases which tries to put together the legacy Household, if you like, by adjusting for the transfer of businesses and intergroup transactions between HSBC Finance and HSBC Bank in the U.S.

At this point I would like to pass over to Bobby to go through the rest of the presentation.

And after that -- after he and Martin have spoken, we will have time for questions.

Thanks to all of the participants on the call for your interest.

As Douglas said, we will be using the 8-K document that was filed earlier.

And we will be talking principally, again as Douglas said, on the basis of IFRS Management Basis Accounts.

Where we talk -- refer to U.S.

GAAP numbers, I will specifically reference those as well.

Since we're not webcasting the slides, and some of you may now have it in front of you, I will cover the major points on the slides in narrative fashion.

But for those of you who have the slides, I'll also reference the slides and indicate when I am moving from one slide to the other.

I will cover our overall results for HSBC USA, Inc., which is our bank in the U.S., and HSBC Finance.

Then discuss HSBC Finance in some more detail, and then hand over to Martin to talk about the results of the U.S. Bank.

Turning then to side No. 5, I think the key message from our perspective is that we are seeing strong underlying business performance supported by good credit experience, good customer loan growth, and good expense trends.

All of which have conflated into upticks in RAR and upticks in return on managed assets.

I will talk more about this as we go through.

Obviously, a main feature of the earnings announcement and results of ourselves and of our peers in this quarter, or for the past quarter, have really been around the impact of Hurricane Katrina and the impact of bankruptcy.

And we are no exception in this respect.

The impact of Hurricane Katrina resulted in a $206 million before tax, or 139 million after-tax, incremental loan impairment charge, and about $11 million before tax of foregone operating income in the quarter.

And I will brake that down for you in a little bit more detail in alignment with our segmental disclosures a little further on in the presentation.

Thirdly, or secondly, we expect higher bankruptcy charge-offs in the fourth quarter in the region of about $200 million before tax due to U.S. bankruptcy legislation.

And from our perspective we believe we have substantially covered those by existing allowances.

We increased our loan loss allowance for the incremental bankruptcy by $100 million in Q3, and that is substantially affecting our MasterCard user segment of our business.

To close the gap between incremental 200 million expected charge-off, an incremental 100 of loan loss provision, in essence what we have been -- there are a couple of elements do it.

Obviously there is the incremental 100 in loan loss provisions.

Second, a number of the bankrupt accounts come from delinquency and X in 30 days buckets for which we already had reserves.

And third, in anticipation of the bankruptcy legislation, we have been building up our judgmental reserves through the first -- through the second and third quarters of this year.

Obviously, like everybody else, the extent of the spike, particularly in September and October, were above what we had anticipated, which is what led to the incremental 100 million of loan loss mosque provision.

Taking all of these three elements in the whole, or in the round, we believe we have substantially covered the incremental charge-off which we anticipate to be in the 200 million range in the fourth quarter.

Lastly on page 5, therefore excluding the impacts of Hurricane Katrina, but including the additional loan loss impairment charge for bankruptcy, combined profit for the period for HSBC Finance Corporation and HSBC USA, Inc. increased 10% compared to Q3 '04, and 4% on a year-to-date basis compared to the first nine months of 2004.

So the headline I think is, absent those two unexpected events, I would say that we've had strong growth for the quarter and strong growth and performance for the year to date.

Moving on to page 6, beginning to get into some of the numbers.

Page 6 indicates and has the Q3 '05 and the Q3 '04 combined income statements HSBC Finance and HSBC USA, Inc.

Q3 '04 on an IAS “lite” basis, and Q3 '05 is on an IFRS basis.

If you look at -- this also, as Douglas -- this P&L also as Douglas says, eliminates the intercompany charges for the transferred assets and all intercompany servicing fees etc.

Combined profit for the period as reported is 688 million for Q3 '05 compared to 755 for Q3 '04, a negative 9% on that basis.

If you then adjust for add backs, the impact of Hurricane Katrina, which is $139 million net of tax, i.e., after-tax, a combined profit for the period adjusted grows from 688 to 827. and then compare that to the Q3 '04 number of 755 million, you see about a 10% increase from Q3 '04 to Q3 '05.

That number would be in the midteens if you were to add back the impact of the incremental provision that we took in Q3 for bankruptcy as well.

Moving on then to side 7, which compares again on an IFRS basis the nine months results for HSBC Finance Corporation and HSBC USA.

Once again I draw your attention to the combined profit for the period of 2,751,000,000 for the first nine months of 2005 as compared to 2,780,000,000 for the first nine months of '04, about a 1 percent decline on that basis.

Adding back Katrina, the 2751 plus the 139 goes to 2890, which again compared to 2780 leads to about a 4% increase in net income for the first nine months of the year.

Moving on to slide 8, which details the impact of Katrina by our various segments.

What you have is a chart that in one column lists, or details, the loan impairment charges.

The second column details the foregone operating income.

And then along the side we have our different segmental disclosures.

For our Consumer segment in HSBC Finance, which really has all of the noncard, noncredit car and noninternational assets, our domestic noncard assets and businesses are in our Consumer segment.

The loan impairment charge was $125 million.

For our MasterCard/Visa business the loan impairment charge was 55 million.

A combination of those two is 180 million for the HSBC Finance Corporation legal entity.

For HSBC USA, Inc., which has from a legal entity basis our private-label card receivables, which is substantially what these charges relate to, we have an incremental 26 million.

So the 180 plus the 26 gets you to the 206 million of incremental provision we had set-aside for Katrina.

These estimates are based on the location of our customers and the real estate that we have come, the mean position.

We conducted significant numbers of site visits and had outbound and inbound telephone contact with literally thousands of customers in the affected areas.

And these estimates are based on analytic work, as well as our perspective based on the site visits and the discussions and conversations that we had with our customers.

Additionally, I think it would be important just to point out that from a philosophic standpoint HSBC North America raised just shy of $600,000 for the victims of the hurricane.

We participated in NBC's A Concert for Hurricane Relief.

We had about 1,000 volunteers and 700 call centers seats were dedicated.

And we raised about 2.3 million of the more than $30 million raised as a result of that telethon.

Other actions that we took really were consistent with the number of our peers where we deferred payment, we suspended actions in bureau reporting for 90 days.

For our card businesses we raised late over limit and cash advance for 60 days, in addition to deferred payments and emergency line increases for our qualified customers.

The foregone income, which are principally interest late and over limit fees, were $7 million for HSBC Finance, primarily again relating to our cards business, and for HSBC USA, Inc. about $4 million, a total of 11 million pretax.

Our exposure in the individual assistance areas is 1.8 billion in managed customer loans.

And 1.1 billion of this is secured by real estate.

Some of you will recall in mid-September we had an estimate of about -- an exposure of 1.4 billion.

That was based on initial estimates, number one.

And two, subsequent to that the zip codes for the individual assistance areas were expanded by FEMA, which is really what led to a slightly larger number for total exposure.

As ever, these estimates on loan impairment charges will continue to be refined as more information becomes available.

But this is our best estimate at this point.

Turning then to the HSBC Finance Corporation, and moving on to slide 10, let me overview the results and then go into them in a bit more detail.

Once again, I would echo the point I made earlier of strong underlying business performance.

Second, again underlying the point that we do expect higher bankruptcy charge-offs in the region of about 200 million in the fourth quarter due to U.S. bankruptcy legislation, which as I described earlier, we believe this substantially covered by existing allowances.

Adjusting for Katrina then, but including additional loan impairment charges for bankruptcy, profit for the period increased 3% from Q3 '04 and 6% year to date.

In line fundamentally with the momentum that we have now discussed in the first quarter and which are evident in the half-year results.

We have had good customer loan growth of 19% year-on-year, and fundamentally that is organic growth.

I'll talk more about that in a few slides.

We have seen some compression in net interest margin, which we believe is consistent with the current market environment of 20 basis points.

However, as I will again discuss, we've seen a tick up in yield of 10 basis points in the quarter, in Q3 relative to Q2.

And together with a higher proportion of real estate in the portfolio, actually from my perspective, it is solid performance in terms of management of net interest margin, and also early indications of some rationalization in real estate pricing where we are seeing the ability to price up more consistent with increases in cost of funds than we have for the first six months of the year.

We also seen higher risk-adjusted revenue, driven by credit quality improvements and increased fee generation of about 10 basis points in the quarter, once again given the higher real estate mix that indicates again strong underlying performance in credit, but also strong underlying performance from a fee income generation perspective.

Coming on to credit results, they are essentially a continuation of some other trends we've seen in the first couple of quarters of the year, really driven we believe by stronger analytics, improved collections, and the portfolio mix shifting to more secured, and a favorable economy.

We see charge-offs down 100 basis points compared to Q3 '04, and 2 plus delinquency down 80 basis points from September 30.

We also have seen improving expense trends.

I will detail those more, but expenses as a percent of receivables have come down, and even cost efficiency ratios have on some comparisons have risen, they have risen a lot less than we had expected, given the margin compression trends that we have experienced, particularly compared to Q3 '04 a year ago.

And that has really driven an increase in return on managed assets.

Moving on then to page 11, looking at HSBC Finance Corporation on an IFRS management basis.

And just to remind people, management basis is essentially legacy Household irrespective of whether the assets are securitized externally or are held on the balance sheet of the bank, comparing in the slide Q3 '05 to Q3 '04.

Operating expenses are essentially flat to a year ago.

Profit for the period, adjusting for the Katrina, is $562 million compared to 543 million from a year ago.

And that is up about 3%.

Actually if you round the numbers and allow for adjustable points it 2.5% growth a year ago.

If you add back the impact of incremental provision that we took for bankruptcy, that again takes the growth to midteens.

You see the efficiency ratio down from 36.5% to 36.1%.

And you see expenses to average customer loans down from 400 basis points to 360 basis points.

In essence, we are servicing 19% more customer loan accounts at essentially the same cost base, which I think points to the expense containment trends and measures that we have instituted since a year ago.

Moving on to page 12, which looks at the nine months results for 2005 compared to nine months of 2004, we see operating expenses growing about 5%.

Profit for the period, adding back the Katrina adjustment, up 6.4% for the year, $2 billion 6 versus 1980 for Q3 '04.

You see a cost efficiency ratio up 100 basis points, but I would point out to people that we didn't really begin to see the impact of rising rates on net interest margin for the first half of 2004.

So that is -- so therefore the Q3 nine months and nine months comparisons is adversely impacted by the rising rate -- disproportionately adversely impacted by the impact of the rising rate environment.

Once again, though you see the expense to average customer loans down 40 basis points.

And again points to, I think, improving expense trends, and substantiated really by about a 5% growth ikn operating expenses and a 19% growth in customer loans.

The other point on this slide that I should just briefly touch on is other operating income.

I have said so far that we see good underlying growth in fee income.

And yet what you will no doubt have noticed is that in the 2004 other operating income is 2.1 billion compared to -- 2102 million rather versus 2047.

And the underlying growth in fee income is strong.

And these numbers are essentially distorted by the change to IFRS and the impact on derivative accounting on the numbers.

So these distortions we believe should wash out over a period of time, and should be substantially -- these distortions should be substantially smaller when we get into 2006.

Moving on to page 13 where we show, as we've shown since the first -- we have shown for some time, the trends in net interest margin, risk-adjusted revenue and return on managed assets.

Let me first address net interest margin.

As you can see, net interest margin is down 20 basis points from Q2 '05, and 90 basis points from Q3 '04, underlying what is going on from an underlying perspective.

Yield is up 10 basis points from Q2 '05 to Q3 '05 really due to pricing actions that we have taken on a portfolio basis.

Our cost of funds is up about 30 basis points from Q2 '05 to Q3 '05.

The increased yield, from my perspective that is notable given that the real estate proportion in the portfolio is now 53% compared to what it was a year ago of 49%.

So some proportion of the net margin compression clearly is driven by the mix shift in the the portfolio.

Therefore the ability to actually have an incremental yield we believe is indicative of strong underlying performance, and really emblematic I think of some of the success we have seen in terms of pricing, segmentation analytics in our ability to price.

And we are also beginning to see early signs of rationalization in the market, whereby some of our competitors are beginning to price as well.

Risk-adjusted revenue, up 10 basis points in -- from Q2 '05 to Q3 '05, and up 20 basis points a year ago.

Once again we believe that the lines indicates strong underlying growth, given the mix shift to a product base that has slightly lower risk-adjusted revenues then our unsecured business does.

Obviously driven by improved credit performance, but also driven by pricing actions we have taken in both our unsecured as well as our secured businesses.

Return on managed assets, these, you can see essentially a reduction in return on managed assets.

I would point out that these numbers exclude any gains from derivatives and exclude both the impact of Katrina and bankruptcies.

If all you did was normalize for Katrina, the return on managed assets would be 130 basis points, or in the region of 130 basis points, which is comparable to the return on managed assets of this business in the first quarter of this year.

I would also point out that first quarter for HSBC Finance there is usually a high return on managed assets quarter because of the seasonal taxpayer financial services business.

Once again, I think it points to good, strong underlying trends in terms of credit, in terms of pricing, but it also squares the circle with the point I was making earlier from the perspective of improving expense management.

Obviously, the key difference between RAR and ROMA is expenses and provisioning increases.

And provisions as you can see we increased fairly substantially.

From a return on managed assets basis, adjusting for Katrina, we would have about the same return on managed assets as we had in Q1, which fundamentally points to good, strong underlying trends in the business.

Moving on to slide 14, you can see the risk-adjusted revenue at the top, and you can see the 2 plus delinquencies of 3.6%, really flat to the second quarter.

And the charge-offs down by about 10 basis points from the previous quarter.

Again, absent Katrina and absent bankruptcies, we see actually strong underlying credit trends from a contractual charge-off and delinquency perspective.

I would also just point out for clarity, and I should have done it earlier, both sides 13 and 14 are on a U.S.

GAAP management basis.

It would be the derivatives of U.S.

GAAP numbers, so they don't have some of the noise with respect to the IFRS transition that you see in the reported net income results.

And once again, I think this is valuable from a trend basis we believe for investors to see in terms of the underlying trends of the business.

Moving on then to page 15, which outlines in some details the customer loan book on a management basis.

Overall as you can see for the quarter compared to the June '05 numbers, receivables grew 6%, and from a year ago quarter receivables grew 19%.

We have seen a continued shift in the real estate secured business growing as a proportion of the portfolio from a 49% in September in '0 to 53% in September '05.

We have seen that book grow 30% compared to September of '04.

If I look at our unsecured book MasterCard/Visa, private-label and our personal and loan credit card book, we can see all of them growing in high single digits to a 10% growth, which all of which are growing faster than the market.

If you also look at the growth in private-label compared to September of '04 that -- and compared to September '05 -- that probably understates the growth in the private-label book, because in December of '04 we shifted to full FFIEC charge-off policy, and as a result wrote off receivables in the later buckets, which depressed the loan accounts coming into '05.

Therefore the September '05 versus the September '04 comparison is in a sense growth comparison was adversely impacted by that incremental write-off.

If you adjust for that, you will see private-label growing at close to the historical rate of growth, sort of in the high single digit range.

And this overall is consistent with how we have grown that book year in, out.

And once again substantially to the point that our unsecured assets, while not growing as fast, as rapidly as the real estate secured, are growing faster than the market.

And in the auto finance business, we again see good, solid growth and predictable growth that I will come on and talk about.

Moving on then to page 16, these are the slides where we talk about and give you highlights of what is going on in each of our business units.

Let me then first talk about what is happening in terms of our real estate portfolio mix.

Because I think that is a topic of some interest -- and some interest with respect to how we position in respect of certain exotic mortgage products and how we position in respect of hot or bubble markets.

Again as we have said in the past, within the Finance Corporation we are under represented in hot markets.

Californian, I think is a good example of that, where within the Finance Corporation about 15% of our portfolio is in California.

The market as a whole is about 20%.

We also have lower loan to value ratios and tent to have higher FICOs in the hot bubble market.

We monitor these markets very carefully on a metropolitan statistical area, or largely on a city by city zip code basis, and continue to refine our exposure and our underwriting characteristics for those markets.

With respect to product mix, 73% of our portfolio is fixed, 23% it ARMed, 4% are interest only.

For our interest only and ARMs, which are done exclusively -- interest only is done exclusively for our mortgage and correspondent channel.

And the bulk of our ARMs are also done through our correspondent and mortgage channels.

We have higher FICOs and lower loan to value ratios for both of these products.

We do not have any negative amortization loans.

And, as I said again to reiterate, for our ARMs and interest only products, we have much more stringent underwriting criteria.

Drilling down then into our retail branch channel, which is our HSFC Beneficial branded branch network, we saw good growth in real estate, secured products up 17%.

That includes both near prime and subprime segments.

And again as we have said the past, while near prime has lower net interest margin and lower risk-adjusted revenue, it leverages the fixed cost nature of our 1,400 odd branches, and therefore increases the return on managed assets at that business.

And as a product, that is right adjacent to the space of the subprime real estate that has been the core of that business.

And we have seen great customer acceptance of that, and we continue to see I think good credit performance from that product.

We also continue to focus on junior liens (ph).

It has been -- comprises 11% of our new production, and cross-selling in terms of better propositions for upsell to existing customers.

And we continue to refine the credit characteristics of the offering.

And again we are seeing good incremental production from that at a lower cost of origination.

We're continuing to do more granular pricing based on risk and segmentation, particularly looking at characteristics of different geographical markets, and really tailoring product pricing and offering and underwriting to the characteristics of local markets.

We also see solid growth, as we said, in unsecured loans really driven by a very successful direct-mail campaign -- our new creative and really bringing a much more unified marketing and risk orientation to our direct-mail program.

As I also said, across -- we have also seeing the ability to price in this market.

So we are seeing a good pipeline of loans and good growth, despite having priced up in response to recent fed rate movements.

Moving on then to the correspondent and wholesale channels, obviously we have seen strong real estate secured volumes.

The portfolio is up 45% year-on-year.

We expanded our junior lien production as well, up 33 -- now comprised of about 33% of production.

We have also diversified in our mortgage services business to sellers from whom we're buying product.

And looking at and moving more to the smaller medium-sized sellers where we have the ability to get a better return on that portfolio that we're buying.

We continue to enhance our market pricing and segmentation for those products, as well as channel.

And we are seeing continued improvements in the origination expense ratio through our Decision One business, which is part of our wholesale and correspondent channels.

So once again, focus on growth and growth in volume certainly, but also a lot of focus on managing net interest margin and risk-adjusted revenues.

Moving on then to our card businesses.

In our credit card business, we had a strong quarter, with strong profits, and organic loan growth and operating income growth.

In this business we have expanded net interest margins by both growing the non-prime book, as well as significant repricing.

And we are seeing lower than anticipated loan runoff as a result of the new pricings.

As a result we are seeing good loan growth as well as expansion in interest margin in risk adjusted revenue.

We have seen strong growth in C and other operating income due to the growing portfolio, better enhancement services revenue, and higher interchange.

Underlying credit quality is good, adjusting for the Katrina and the bankruptcy spike.

We have seen good risk-adjusted revenues, both of which you can pick up by looking at our segmental disclosures on a U.S.

GAAP basis in our 10-Q.

Going forward we will continue to focus on the non-prime card sectors, while growing in the prime base businesses as well's our partner business, comprised by GM and BP.

And you see the Metris acquisition really being on track for a fourth quarter close.

So a lot of good things going on in that business as well.

In our private-label business we signed and funded two additional department store merchants, Nieman Marcus and Bon Tons.

And really building on the capability and expertise we developed as a result of out servicing Saks Department Stores.

We are growing our commercial card capability, including OfficeMax and Advanced Auto Parts.

This is a business we have been investing in for several years.

And with the acquisition of these two merchants, believe we getting to critical mass in this part of our business.

We continue to see strong merchant renewals, which gives us good solidity and good foundation to our business on a go forward basis.

Right in our credit card business we also see good credit quality based on continued improvement in front and underwriting through local collections management.

We are also testing into certain new segments in very deliberate and scientific manner, particularly going through the next level in terms of lower credit tier, as well as customers with -- who don't have the depth of credit history, and what is called in the vernacular, sin files, with the bureaus.

And we believe this begins to lay a foundation for some more profitable growth into '06 and beyond.

Both our card businesses are also in the process of implementing minimum payments -- minimum payment changes.

As we have again stated in our 10-Q, we do not expect any impact of this in 2005.

It will have an impact in 2006.

This impact is not expected to be material to the overall results of HSBC Finance Corporation or HSBC Finance on a management basis, but will have a material impact on the profit of the individual card businesses.

As we know, more I am sure will talk more about this getting into 2006.

Moving on to slide 18, talking about our auto and international businesses.

In our auto business let me first talk a little bit about the market environment.

As many of you will have observed, we have a very aggressive employee pricing, or in essence the other auto companies in the interest of clearing out inventory gave the general market the same deal that they gave to their own employees, which really created full ahead sales of volume and cleared out the inventory.

And we have certainly seen that.

That also had, I think, a beneficial impact on used car prices.

For the Manheim Index, which is an index of used car pricing, it is up to 110.9 as an index in September, up 4.3 % from its year ago level.

So that is kind of the market environment that we're in.

We have seen in the business strong organic growth, principally in the near prime portfolio.

As we have said to you, starting in the first quarter we believe the near prime portfolio -- near prime segment is the most stable and predictable and profitable segment of the business to be in.

And we have have continued to progressively shift our mix into this element of this part of the market.

We see the benefit of this mix shift as the evidence in our results, which has been good credit, stabilization and risk-adjusted margins and improvements in return on assets in the business.

And an important aspect of this is because of lower incidence of charge-offs in the near prime segment, we see lower expenses in operating this business as compared to the sub prime, which has a higher incidence of charge-off, and therefore the business then has to incur the cost of repossessing automobiles and then remarketing those.

We also continue to expand our distribution through the direct channels.

So while the dealer channels continue to be a very important element, we believe that diversifying our distribution to a direct channel is strategically imperative for us, because we see better credit performance for like customers in the direct channel.

And given the partnership orientation that we have in many of our businesses, the auto business being no different, we believe we're competitively positioned to do this.

We optimized collections and portfolio management in the business, and we continue to improve front-end underwriting.

So overall from an auto perspective, we see stable and improving results as fundamentally as a result of the shift in mix that we took about six to eight months ago.

In international segment, Canada, our Consumer Finance business in Canada, which was rebranded HSBC Financial, we see good, strong customer loan growth really underpinned by good growth in the branch network, led by both secured and unsecured.

We have launched growth initiatives in the auto business.

We recently converted the credit card business for our Canadian bank on to the same credit card platform as we have and are rolling out worldwide.

And that is off to a good start with the production of credit cards in the bank branches, but serviced by HSBC Financial at good significantly higher run rates that they have been in the past.

We continued to expand our Consumer Finance branches, and credit quality is stable.

In the UK, as we have again talked about, there has been a difficult credit environment in the UK, both driven by consumer indebtedness, concerns about slowdowns in the economy, as well as bankruptcy legislation.

And we have really been focused on credit and loss mitigation.

In the (indiscernible) retail branches we have increased dramatically the usage of risk-based pricing and proprietary analytics for risk management, an example of which is the deployment of proprietary bankruptcy scores, which will enable us to better predict bankruptcies, and therefore manage those accounts more proactively.

In credit cards, much like in our U.S. credit card business, we are focused on, and acted on risk-based pricing.

We've repriced -- we have segmented and repriced our accounts.

We are seeing lower than expected customer loan run off, and therefore seen improvement from a revenue perspective.

And from a credit point of view, while 2 plus delinquencies have risen, that rate of growth is flattening out.

And that has really been a function of increased collections, resources both onshore in the UK and offshore in our global service centers, analytics and collections score cards that really focused the collections effort to the highest risk accounts.

That is Consumer.

A very quick run through of the highlights of the key business units within the Finance Corporation.

And before I hand over to Martin, I would simply like to reiterate my overall point of view, which is we have had a strong quarter, ex Katrina, ex bankruptcy.

We had substantially reserved for the incremental BK in the fourth quarter.

And what I hope comes across as a strong underlying trend in terms of yield, in terms of growth, in terms of credit, and in terms of expense management that we as a management team are very focused on.

So with that, Martin, I'm going to hand over to you to talk about the bank.

I'm on page 20 of the presentation.

Excluding non-recurring items, the core bank has been performing well both in revenue and profitability in growth terms.

And there's clearly a segment outlined in the 10-Q that people can refer to.

We have had good core loan and deposit growth over 2004.

Commercial loan growth was a highlight in terms of the asset side of 20%.

We're very pleased with double-digit, and in fact, 17% deposit growth overall, against a balance sheet increase in the high single digits.

And clearly funding and deposit growth is a critical strategy for us going forward.

We also pleased with high levels of credit quality.

And in terms of our third quarter to third quarter performance, we see a 4% increase, and that is adjusting for Katrina and non-recurring items.

And that in fact includes the fact that we have a significant temporary drag in 2005 from the private-label purchased premium amortization.

Our cost efficiency ratios, while they rose slightly over 2004, still remain very satisfactory at 50.7%.

And in fact, it is down from a year-to-date number of 51.4%.

In terms of the analysis on page 21 and 22 of the quarter-over-quarter and year-to-date over year-to-date, I'm going to bypass the analysis, largely as Bobby has covered it, and of course it is affected significantly by non-recurring items and the private-label amortization, and it is more described -- described more fully in our 10-Q.

As far as business unit highlights, we have had a very active and positive quarter.

And I'm just turning to page 23 under Personal Financial Services.

As I described we have had good core loan and deposit growth.

It was a major objective for us to get into double-digit deposit growth, and so we have achieved that year-to-date.

We're very pleased with a strategic initiative we have taken where we've gone to a hard launch on an online savings account last week.

And we have now over $0.5 billion in deposits from that area.

And I and getting very positive reception with a 4% rate offered over the net.

Our mortgage results have been excellent this year, and have turned around from '04 both in volumes and retail area, and in managing mortgage servicing rights.

We have had a number of customer service initiatives in many areas in the bank, including new branch openings.

And we have a very significant multiyear strategy to open at the new branches.

And in fact we have opened 12 year-to-date, we will have 28 by year end, and expanding in states outside of New York State, such as New Jersey, Florida and California.

And the impact in the early performance are performing better than plan in terms of deposit rates.

We had a very interesting initiative around a high yield deposit instrument called, HSBC Premier Investor, which raised over $1 billion.

And we have been expanding in our niche markets, both with regard to the Chinese market and also embassy business in Washington.

As far as commercial banking is concerned, the highlight has been in our small-business area, where we continue to be ranked number one.

And as an SBA lender in New York State, we've had incredible growth there both in loans, but also more importantly in deposits.

In mid market area and we have expanded into new geographies, L.A., San Francisco, Boston, Miami and Philadelphia.

And have had a satisfactory growth on the commercial real estate side.

On page 24, turning to private banking, private banking has also performed well, and has had good loan growth as well as good customer growth right across the piece.

They are also raising deposits at a significant level for the amortization as well.

And has gone through a process of reengineering and restructuring, particularly in their Latin American business.

As far as CIBM is concerned, I'm going to pass this shortly over to Douglas, but I did one to point out that their net interest income has been affected by the yield curve.

And so that is an issue for us, as it is for the market.

However, their operating income, particularly in the fee area, has risen and improved and reflects improving trends in trading.

They continue to make investment spends on an organic basis, and we are seeing good progress there.

And one highlight that CIBM also includes our transaction banking businesses, which have raised significant amount of deposits through our cash management facilities.

And have had some interesting wins from a NAFTA perspective where we have a very big sister bank in Canada and Mexico.

With that introduction, of CIBM and the conclusion of my remarks, I would like to turn it over to Douglas.

I think you have started very well.

I think the only thing I would add is that those of you that would wish to make a comparison with other houses looking at their U.S. results, remember that the heart of our markets business is really in Europe and in Asia, and therefore the global books that we have are centered outside the United States.

But as Martin says, I think the important thing is that the investment phase is coming to an end.

And some of the businesses we have been investing in are beginning to show good traction in terms of customer revenues and trading.

But the shift of the yield curves is clearly having an impact on money market income.

I think at this point, that is the formal remarks that we wanted to make.

We would be very pleased to respond to questions that any of you might have.

Clearly this call was all about HSBC Finance and HSBC Bank in the U.S.

So if we could please restrict any questions to those entities, that would be great.

And if you could identify yourself so that we have a proper record who you are before you make the question, and then we will direct the question to the person best able to deal with it.

Thank you very much.

(OPERATOR INSTRUCTIONS).

Ian Smillie.

Ian Smillie from ABN.

The question centers around the repricing initiatives that you pushed through, particularly in the variable rate product.

And I was wondering if you could give us a bit more detail in terms of what volume impact, if any, you are starting to see from having put the prices up?

And if you are not seeing any slowdown in volume appetite, does that mean that there will be capacity for further repricing upwards over the next three or six months?

Douglas, would you like me to take that one?

I would be pleased if you would.

Yes.

Thanks for the question.

Obviously, as we look at repricing, as you alluded to, is we look at what the price volume trade-offs are, and we continue to look at that.

What we have seen, particularly over the last sort of six to eight weeks is as we have increased pricing, we have not yet seen a volume impact in our branch networks.

And I don't believe we've also seen a volume impact in our correspondent and mortgage channel.

So we're progressively looking to take -- to readjust pricing based on the volume impact, or lack of volume impact that we've seen to date.

And I would expect that we will continue to do that, as we have done it over the last six to twelve months in that face of the net interest margin pressure that we saw.

Could I ask a follow-up on that?

How would encourage us to think about the repricing upwards in terms of is it generally like for like for the same risk profile, or should we think about it as partially moving further along the risk curve, such that the charge-off ratio will rise after a period of time?

This pricing I would say is largely like for like from a risk or credit perspective.

Alastair Ryan.

Alastair Ryan at UBS.

Just trying to understand on the liability side how much more pain is yet to come, given where the yield curve is?

Typically how would we think about your exposure to the changes in rates we have experienced to date (indiscernible).

The second thing would be (indiscernible) the figures you have given us, the previous figures you have given us, I appreciate the complexity of even providing these figures in the first place.

But it feels like Q3 filled (ph) year-over-year, but down on the second quarter.

Excluding the impact of the tax mix in lending in Q1, should we typically think that there is seasonality in the (indiscernible) or the U.S. businesses (indiscernible) today?

And finally, just a technical one.

The 72 million that is given that the bank is now amortizing for the book you acquired from Amsol (ph) at the end of last year -- am I right that is just a non-cash item that will jump out of the group, so it comes straight into the bank numbers, the benchmark of what show up in grid figures at year-end on COGS and all that figure, eh?

I will do the accounting.

Yes, you can eliminate the other payments amortizing intergroup items on consolidation, and indeed on the presentations you saw they have been eliminated.

So the amortization of the intangible asset on selling the book -- or buying the book goes away.

The other bit of noise between the 3Q and the first half is, as Bobby mentioned, there's no element of volatility on derivative accounting nonqualifying hedges, which was for the benefit of the first half until the disbenefit of Q3.

So there is a bit of noise, which will even out because obviously over the period that these instruments are being accounted the profit and loss charge goes back to the actual cash flow.

But in individual periods you can have mark-to-market gains and losses.

There was gains in the first half and a loss in the Q. So that is part of the impact.

For the seasonality -- the big seasonality in the business is in the tax up here services business in Q1.

And then I guess there is somewhat impact -- Bobby can say more than I can -- in the fourth quarter in relation to card activity, because we have a spot -- we have a large build up around the holiday season of spending.

Maybe I should let Martin talk about the deposit picture that you asked of the first question.

I think the question was focused on the yield curve, if I'm not mistaken.

Is that correct?

It is sort of -- yes, the treasury impact in the bank (indiscernible) the spending costs actually (inaudible) financing, and how much more of a drag you get from there?

If the question was really more around the impact of the rising short-term rates on net interest margin in the finance Corporation, I would ask Simon to talk to that.

Thank you, Bobby.

I am mindful of the opening remarks about forward-looking statements, but I think if you look at most market forecasts we would expect to see further increases in the Fed rate going out over the next twelve months, albeit that the rate of increase is going to be much less than what you have seen over the past twelve months.

Therefore all other things being equal, we would expect to see a rising cost of funds, but as I said the rate of increase should slowdown.

Within that we will be getting a diminishing benefit from purchase accounting as the debt that was on the books at a time Household was acquired, continues to runoff and get replaced by longer dated new issuance, which again has an impact on the cost as well.

So, yes, the short answer you can expect to see more, but it won't be as pronounced.

There's a table on page 58 of the filing that does this standard interest sensitivity analysis based on a 425 basis point stat rate increase, or decrease, over the next twelve months.

I think the other thing that we said in the past is that if the rate increases are consistent with inflation and growth, there is a corresponding compensating item in the credit experience, because inflation growth are consistent with more dollars and pay packets and therefore better servicing of credit.

But page 58 in the Q gives you the standard, all other things being equal, interest sensitivity.

And I think, Douglas, you appropriately covered the seasonality aspect of the business.

I will not add anything to that.

Tom Rayner.

Tom Rayner at Citigroup.

Could I just ask a question on the reserving in the Finance Corporation?

And I noticed it was a very marginal increase in reserves as a percentage of receivables and as a percentage of nonperformers.

My question really was how prudent do you think the current reserving is in relation to the bankruptcy situation, particularly if the spike turns out maybe to be not a spike?

It is Simon Penney.

I think we consider ourselves to be as ever so prudently reserved, having regard to the shape of the book.

As you would have seen from the presentation, charge-offs continue to become balanced as a percentage of receivables to cost delinquency also continues to trend favorably.

We have increased reserves, as Bobby Mehta has explained, to deal with both Katrina and with bankruptcy as best we can measure that.

I think we think we are comfortably positioned.

I think the other point I would make is that the real estate secured portion of the book is up from 49% to 53%.

And therefore that has an impact on the relationship of charge-offs to delinquencies as well.

So I would just reinforce Simon's point from my perspective.

Have you seen that there is -- as to whether it is a spike or not, I think there can be no question.

The rate of filings in the first couple of weeks of October were a factor of 4 or 5 times the behavior in the preceding period.

And therefore -- and there was an unprecedented media campaign to encourage people to get under the wire.

I think if you looked at the way the industry has got with it, there's a variety of approaches it would seem to where we are -- where we have sought to, as best we can, deal with the impact of those increased bankruptcy filings in this third quarter.

Others have done that more or less, and some have left the accounting to the fourth quarter.

I think we feel that we are cautious in the way we do it.

And early in the -- not early, I think appropriate in the recognition of the impairment that we can see.

John-Paul Crutchley.

It is J.P. here from Merrill.

I'm doing this on the road, so I haven't been able to review the full detail of the numbers.

But I just wanted to clarify from Bobby, actually.

You talked a little bit about the 19% year-on-year volume growth.

If I exclude the Katrina impact and look at the risk-adjusted margin, clearly that is going up year-on-year as well.

But the actual risk-adjusted levies themselves have only come up about 6%.

Is that a bankruptcy issue in there?

Is it a mix impact, do you see -- that you will see some greater convergence with the rate of volume growth and risk-adjusted revenue growth longer term?

I think -- go-ahead Simon.

I think -- it is Simon -- two factors, I think.

Firstly, is that the 19% is period end to period end.

As one of the slights pointed out, I think we have had a 6% growth just in the last quarter alone.

The growth in average receivables is probably more like 13% in the first nine months of this year compared to the first nine months of last year.

So then I think that brings the growth in net income closer to the growth in receivables.

The other factor is what is happening in provisions.

Certainly while risk-adjusted revenue takes into account charge-offs, what we have seen is in '05 as against '04 is a buildup of provision as we have seen that volume growth coming through.

Although credit quality continues to improve, as measured by charts and delinquency, there has been an impact on net income as we have raised the level of reserves commensurate with the growth in the book.

That is fine.

That is perfect.

Thank you.

Michael Lever.

It is Michael Lever at CSFB.

I've got two or three points just a clarification.

The first, just on the derivatives, there was $129 million negative swing between Q3 in Q2, which I understand from the both combination 8-K and 10-Q was due to the impact of rising rates on assets really held as hedges.

The impact of IFRS in terms of rendering some of those hedges ineffective.

The first question was, were there any compensating movements in this quarter in the other direction, or have there genuinely been, if you like, a depressing impact Q3 versus Q2 of that $129 million?

I think we're looking to see the exact figures that you're quoting.

The 8-K, page 3, for example.

You've got -- derivatives income expense, you've got a swing in the three months from 76 positive to 53 negative.

And as explained here and also in the 10-Q, it is due to essentially the impact of rising rates on securities held, and hedges which are deemed to be ineffective.

What I am wondering is whether if we look at Q3's revenue compared to 2Q's revenue, there has been a sort of genuine, if you like, quarter on quarter hit of 129 million.

Which also goes back actually to the previous question, in terms of the effect I think on the difference between managed asset growth and also the risk-adjusted margin would have also been impacted I think by that factor as well.

The numbers you're looking at and you referred to are our under U.S. GAAP?

Yes.

The presentation is focused around IFRS, and as you will know far better than me, that is a totally different basis of measurement, which is volatility under IFRS, strictly because a large portion of the book is now measured and accounted for under the fair value option under IFRS.

And there's no equivalent to SBO under FAS 133.

I thought that as we went through the presentation there was a comment made as to the impact of derivative income.

And I though that if it were ineffective hedges that would mean there would be negative charge fiscal Q3 this year.

But maybe I'm wrong here.

I don't know -- anyway that was one of the points I was seeking clarification on.

If you're looking at the IFRS numbers, overall they were a net positive in the nine-month period coming into income on the IFRS numbers in the Finance Corporation, but which is less than equivalent number which came through deferred gain accretion booked in the first nine months of '04.

And also, I think I heard you say that the -- there was benefit to the first half under full IFRS, but not just under negative in Q3?

This is Douglas.

Let's try and give you some -- I said that, and I think that is right.

Let's try and give you some numbers.

I don't think there's any compensating items that the derivatives are counting.

It is just noise.

And I think we did it -- at the half we tried to split out excluding derivatives to get underlying basis.

And indeed some of the slides here also, taking no other mark-to-market and derivatives, because it is just accounting noise through the periods.

But I think what you say is correct.

But off-line I will give you -- I will try and give you a more detailed technical and extremely boring explanation.

Can I just ask a further question, really which is on HSBC in the UK?

And I think I picked up you indicated that, or it was indicated that sort of the rate of deterioration on the credit was flattening out a bit.

Are there any numbers you can put to that, or any more sort of qualitative comments around that?

I think if you look at our 10-Q, you can see the rate of growth of the delinquencies beginning to flatten out.

And that is where that information is derived from.

I don't have exact page number reference, but --.

I'll take a look at that.

Okay.

And if not, please contact us -- Simon and we can point you to that.

Simon Samuels.

Simon Samuels at Citigroup.

I just wanted to kind of like a bigger picture question, which is really to do with understanding what has gone on in the third quarter of Household.

And I'm using your slides 11, your slide 12.

This is the IFRS management basis.

And obviously you've given us the nine months in those slides, and also the most recent quarter.

And obviously you have (indiscernible) disclosed the first half numbers on an IFRS basis.

And essentially, just taking a step back, it looks like reported profits in the third quarter are down for Households or HSBC Finance -- reports of profit are down 45%.

That is the third quarter of this year against the quarterly run rate for the first and second quarter of this year.

The report is down 45.

If I ex the Katrina, it is down 27%.

And if I exclude both Katrina and the bankruptcy issue, it is down 18%.

Maybe it is either down 18%, which might be the one that you have guided us towards.

And if I look back, historically, and this is going back to 1997, your third quarter numbers are -- in fact in seven of the last eight years have been in the third quarter higher in terms of their third quarter run rate than the preceding two quarters in those respective years.

So it doesn't look like there's a big kind of big seasonal fall off in earnings in 3Q. 2Q is normally the weaker quarter, as you guys know.

I was just trying to get an overall sensor of quite what is going on to this business.

Because on any way you cut it, profits in Q3 were down sharply against the first half run rate.

And that doesn't seem to be backed up by historical patterns within the Household business.

I was wondering if you could just comment on that.

This is Bobby.

I think first of all, in your comparisons the first quarter is always seasonally the strongest quarter on an underlying basis because of the (multiple speakers) financial services.

And both the first and second quarters are actually good -- have seasonal benefits from a charge-off perspective because of tax refunds coming in.

So our historical pattern underline has been that the first two quarters are strong seasonally.

The third quarter, typically with the summer back to school, etc., tends to be the quarter where we see upticks in charge-offs and high delinquencies as the portfolios run.

Because the portfolios the we add begin to season, and also because people are spending their money on summer holidays and getting their kids back to school.

So the first point I would make is taking an average of the first two quarters and comparing it to the third quarter is probably not a fair comparison.

Second, if I look at the nine months, if I look at slide 12, and add back, if you like, the tax affected impact of the incremental provision to the 2005 IFRS numbers, and compare it to the 1980 that we had in a comparable basis for 2004, we are up about 9, 9.5%.

So again, if I washout the seasonal impact and compare last year to this year for the first nine months, you essentially continuing really very much the same momentum that we had in the first three quarters of last year.

The third point I would make is, if you compare back to '97 versus today, what you also would see is that typically legacy Household did its securitization and gain on sales in the third and fourth quarters of the year, as opposed to the first and second quarters of the year.

And so there are a number of factors going on, therefore a 97 -- so I guess to recap, first two quarters are seasonally strong, therefore taking an average of the first two and comparing it to the third is not a fair comparison.

We believe nine months to nine months comparison are the appropriate one.

And thirdly, a lot of our securitizations, as I said, were down in the third and fourth quarters of the year as part of legacy Household.

Clearly we don't do that today.

So underlying, I think, I would stand very much behind the comments on page 10, which simply state that we believe, taking Katrina and taking bankruptcies out, we are seeing good momentum really across net interest margins, despite the difficult environment everybody is facing, not us individually, but all of our competitors as well.

But the fact in the face of that we have been able to price.

We are seeing good risk-adjusted revenues and good underlying C growth and strong expense management.

I feel very good about how we are positioned, not that we don't continue to have a lot of work to do.

May I just ask a further one on an unrelated topic?

In fact, just a clarification/ In our analysis we do a GS group and securitization gains that you referred to historically.

But just the other thing I just want to ask you about was the bankruptcy law change.

And whether you could just sort update us -- and I guess it would be for Bobby -- in terms of your sense of where that is going to pan out?

I noticed your comments on -- let's see it is page 22 of the 10-Q, saying that you believe a proportion of the increases in an acceleration of net charge-offs that would have otherwise been experienced in future periods, which I guess most of us can see.

But I'm interested to see that you're not saying that you think the whole thing is.

So I am interested to know your thoughts as to how much of this is just a step up in the charge-off levels in that business line, or whether it comes straight-back down again as you go into Q1 of next year?

We believe that there will be the some pull forward, some contractual charge-offs, that would otherwise have occurred in 2006 as a result of this spike, number one.

And number two -- that is one.

And two, as a result of that we don't believe that this bankruptcy law change per se will cause a fundamental shift in the charge-off characteristics of the business.

In fact, we believe that the bankruptcy filings will go back -- I think Visa is predicting this as well -- will go back to 2004 levels once this wave has kind of washed through.

I know you -- (indiscernible) that you said that you monitor this stuff daily -- or maybe half of that, I'm not sure there.

How have the last few days looked?

The last few days look like they have been down off a cliff.

And I think similar to what the Visa bankruptcy Notification Service actually indicates.

You have seen that too, I'm sure.

Robert Law.

Robert Law from Lehman.

I've got a couple of questions I I may.

The first one was referring to slide six of the presentation.

What you have effectively shown us there is group net combined profits are up 10%, if you ex out Katrina.

But if you look at the Company, HSBC Finance and HSBC Inc., essentially they are either flat or down.

And obviously, the growth rate as we can see here is from letting out consolidation.

I wondered if you could give us some feel for what you think the drivers of the 10% year-on-year profit growth in the combined business have been?

Has it been lower provisioning, or has it been underlying pre provision growth?

That is the first question.

Again, I think I would go back to the key points we make earlier, which is if you look at the underlying, we have seen yields basically tick up 10 basis points in the Finance Corporation.

We have seen credit continue to be good and significantly better than a year ago.

We have seen good underlying fee income generation.

And we have seen better expense management than we had a year ago, and therefore a reduction in expenses as a proportion of receivables down about 40 basis points.

All of which in my mind point to the drivers of the growth in net income.

From a bank perspective, I think we have seen good growth in the PFS businesses, good growth within CSS both in the branch-based business as well as in our mortgage business.

We have seen good positive momentum in our CMB business in our private banks.

And there has obviously been a countervailing impact of the impact of the yield curve and the expense buildup in respect to our CIBM strategy.

So I think if you washout the intercompany piece those would be the key drivers that I referred to.

And --.

And we can take you through specific numbers once again if you are interested off-line in terms of the growth in interest income, risk-adjusted revenues, etc.

That 72 of transferred assets.

Am I my right from the presentation you said 71 of that is the elimination of the write-down of the purchased intangibles?

Is that right?

Yes.

The second question referred to the liability side.

Can you spread out for us how much is due to rising short rates, and how much is due to reduced benefit of purchase accounting?

And on the purchase accounting, over what further period does that benefit eliminate?

I will cry uncle on that one and defer it to Simon or maybe -- you want to address that, Simon?

Yes, you are asking about the various components of the rise in the cost of funds in the Finance Corporation?

Yes.

Cost of funds went up by about 30 basis points between Q2 and Q3.

Higher rates were about a half of that.

A funding mix we're probably doing more towards the longer end of the curve has added some as well.

You asked about purchase accounting.

I think the reduced benefit of purchase accounting in this quarter compared to the second quarter was about to 5 basis points of the increase in the cost of funds.

And that is probably still got another year or two to run.

It is gradually fading away.

Most of that is now paid down.

What is the contribution to -- what is the positive contribution to the liability spread from purchase accounting at this point?

I think you just have to look at where the spreads are today.

I think our five-year spread is around 75 basis points, which is a lot less than it would otherwise have been.

Stephen Chang.

This is Stephen Chang of (indiscernible).

I have two questions.

One is about clarification of the charge-off rates for HSBC Finance Corporation.

Just one is to clarify what is the charge (indiscernible) increase your '05 include the Katrina and bankruptcy effect.

Yes, what will be the actual charge-off if you exclude (indiscernible)?

The question is about HSBC Bank USA results.

I think it was partly affected -- partly adversely affected by the loss in the acquisition of private-label card, and also a lower profit of the CIBM.

Could you give us some guidance when we should start to see you could reverse the private-label card business from a loss to a profit?

And how are you going to do so?

And also, about the CIBM I think it was also partly related to a sharp rise in operating expenses on their part.

And also could you give us some guidance when we are going to see these operating expense growth to slow down?

This is Bobby Mehta.

Let me talk about the first question, which is whether Katrina and BK are in charge-off ratios at the end of the third quarter.

I would say largely they're not, because the Katrina charge-offs haven't yet come through, because we have deferred -- basically extended payment terms and on.

And I would not expect all that the Katrina charge-offs to really even come through this year.

But we have isolated those customers and accounts, and therefore have a specific reserve against it.

Similarly with respect to bankruptcies, the incremental charge-offs of 200 million that you referenced and the incremental provision we've taken against those are really fourth quarter events.

And so are not reflected in the charge-off ratios that reported as of the end of the third quarter.

Then, Martin, do you want to talk about the private-label amortization and the expense growth on the CIBM side?

Specifically, we have this year -- we acquired the private-label business from the Finance Company to the bank at the end of last year.

And so this is a year of obviously a negative profitability as we absorb the amortization of the purchase price.

But it will switch to a positive next year.

The private-label business is going well.

As you have heard, it is acquiring new clients.

So this is strictly an internal accounting issue.

And so it will switch to a positive for the bank in '06, and will be an important contributor of bank profitability going forward.

And as far as expense growth in CIBM is concerned, we would anticipate leveling off, as Douglas has said.

And so it is -- nothing has changed in that regard since we last reported on this particular subject.

Saneel Gard (ph).

Just to clarify, the 200 million charge on bankruptcy, that has already been booked in the third quarter?

And I have a second question which relates to provisioning as a -- in relation to charge-offs.

For most of 2004 and until first quarter this year, the provisioning was significantly less than the charge-offs.

And the management guidance at that time was that you were running down reserves because that is what the credit indicators were showing.

Both for the second quarter and third quarter we have seen loan loss provisions higher than charge-offs.

Is this something you expect will go back below 100% for 2006?

Let me first address the bankruptcy.

To be clear what we said was we expect incremental charges -- bankrupt charge-offs related to the new law of about 200 million.

The provisioning for that comes in three buckets.

One is some of those accounts come from delinquent buckets against which there are already some reserves.

Think of that as a category A. Then there is -- we were anticipating some increase in bankruptcies, so we were gradually building up judgmental reserves for what we had anticipated based on past experience with bankruptcy legislation about to pass.

And historically didn't pass, but before the buildup.

And so we used -- or built our expectations of what the bankruptcy increase would be based on that past experience.

So there is a category B., which is a second level of buildup of reserves, judgmental reserves.

And the third was what we actually experienced and saw in September and through October.

And we put the first two categories A. and B. together and said we needed an incremental 100 million of provision for the bankruptcies that we see coming through.

So that is the way we've done it.

And we believe we are appropriately provisioned there.

Second, in respect of the point you made with the provisioning policy, that is fundamentally driven by volume and our need of the statistical run rate in terms of provisioning and seasoning.

But once again, we don't see any fundamental change in the credit picture in the short term.

And it is primarily volume driven.

Simon, would you add anything to that?

No, I think that is right.

And I think it is very much to a point.

What you have seen is a faster rate of growth coming through to this year compared with a comparable period in 2004, particularly in the third quarter where we had a 6% loan growth in the quarter alone.

So what is driving the fact that we now have, as you rightly point out, a provision greater than charge-offs. it is to a large degree it is denominator effect of the size of the loan book, as Bobby has said, and as the chart shows, the actual credit quality in terms of charge-off in 2 plus continues to perform very well.

Just very quickly one more question on HSBC USA.

They had a very big jump in fee income in the third quarter.

Could you add some more color on that, please?

There is some noise as we described in our numbers.

And a big chunk of that comes from the private-label business as we have been acquiring new portfolios, as well as the original one that was acquired at the end of the year.

We have also seen some see CIBM, very positive growth in their trading revenues in the third quarter that --.

Those would be probably the two biggest areas in terms of explanation.

Now I was looking at just the fee income and just a quarter on quarter number, but okay that is fine.

Thank you.

(OPERATOR INSTRUCTIONS).

Gentlemen, there appears to be no further questions at this time.

I guess it falls to me then to say thank you again for taking the time to participate in the call.

Thank you to my colleagues in the states for ably handling so many questions.

To the extent that people have follow-ups once they look at their detail, please don't hesitate to call me or Simon or whoever, because we recognize that some of the accounting -- or to get from U.S. to managed to management to IFRS is complex.

It is complex for us as well.

But we will do our best to help (indiscernible) if that is in any way of assistance to you.

And we look forward to speaking to you again before too long.

And in fact in a few weeks time when we talk about an update for the year as a whole for HSBC.

And then obviously we will talk to you at the end of our results next year.

Thank you very much for participating in the call.

Bye.

Thank you, ladies and gentlemen, that concludes the HSBC Finance Corporation and HSBC USA, Inc. third quarter 2005 results conference call.

Thank you for participating.