Attached files
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8-K - FORM 8-K - HSBC Finance Corp | c64790e8vk.htm |
EX-99.01 - EX-99.01 - HSBC Finance Corp | c64790exv99w01.htm |
EX-99.03 - EX-99.03 - HSBC Finance Corp | c64790exv99w03.htm |
HSBC
Finance Corporation
EXHIBIT 99.02
The supplemental information below regarding our segment results
should be read in conjunction with the 2010
Form 10-K,
which was filed with the SEC on February 28, 2011.
Segment
Results IFRS Basis
We have two reportable segments: Card and Retail Services and
Consumer. Our segments are managed separately and are
characterized by different middle-market consumer lending
products, origination processes and locations. Our segment
results are reported on a continuing operations basis.
Our Card and Retail Services segment includes our MasterCard,
Visa, private label and other credit card operations. The Card
and Retail Services segment offers these products throughout the
United States primarily via strategic affinity and co-branding
relationships, merchant relationships and direct mail. We also
offer products and provide customer service through the
Internet. The private label receivables, along with the GM and
UP receivables are sold daily to HSBC Bank USA which we continue
to service for a fee.
Our Consumer segment consists of our run-off Consumer Lending
and Mortgage Services businesses. The Consumer segment provided
real estate secured and personal non-credit card loans. Loans
were offered with both revolving and closed-end terms and with
fixed or variable interest rates. Loans were originated through
branch locations and direct mail. Products were also offered and
customers serviced through the Internet. Prior to the first
quarter of 2007, we acquired loans through correspondent
channels and prior to September 2007 we also originated loans
sourced through mortgage brokers. While these businesses are
operating in run-off mode, they have not been reported as
discontinued operations because we continue to generate cash
flow from the ongoing collections of the receivables, including
interest and fees.
The All Other caption includes our Insurance and
Commercial businesses. Each of these businesses fall below the
quantitative threshold tests under segment reporting rules for
determining reportable segments. The All Other
caption also includes our corporate and treasury activities,
which includes the impact of FVO debt. Certain fair value
adjustments related to purchase accounting resulting from our
acquisition by HSBC and related amortization have been allocated
to corporate, which is included in the All Other
caption within our segment disclosure. Goodwill which was
established as a result of our acquisition by HSBC was not
allocated to or included in the reported results of our
reportable segments as the acquisition by HSBC was outside of
the ongoing operational activities of our reportable segments,
consistent with managements view of our reportable segment
results. During 2009, the remainder of this goodwill totaling
$2.4 billion was impaired. Goodwill relating to
acquisitions subsequent to our acquisition by HSBC were included
in the reported respective segment results as those acquisitions
specifically related to the business, consistent with
managements view of the segment results.
As discussed in Note 3, Discontinued
Operations, in the accompanying consolidated financial
statements, our Auto Finance business, which was previously
reported in our Consumer segment, and our Taxpayer Financial
Services business which was previously included in the All
Other caption, are now reported as discontinued operations
and are no longer included in our segment presentation.
We report results to our parent, HSBC, in accordance with its
reporting basis, International Financial Reporting Standards
(IFRSs). Our segment results are presented on an
IFRSs legal entity basis (IFRS Basis) (a
non-U.S. GAAP
financial measure) as operating results are monitored and
reviewed and trends are evaluated on an IFRS Basis. However, we
continue to monitor capital adequacy, establish dividend policy
and report to regulatory agencies on a U.S. GAAP basis. A
summary of the significant differences between U.S. GAAP
and IFRSs as they impact our results are summarized in
Note 24, Business Segments, in the accompanying
consolidated financial statements.
1
HSBC Finance Corporation
Card and Retail Services Segment The following
table summarizes the IFRS Basis results for our Card and Retail
Services segment for the years ended December 31, 2010,
2009 and 2008.
Year Ended December 31, | 2010 | 2009 | 2008 | |||||||||
(dollars are in millions) | ||||||||||||
Net interest income
|
$ | 2,185 | $ | 2,595 | $ | 3,711 | ||||||
Other operating income
|
1,762 | 2,629 | 3,084 | |||||||||
Total operating income
|
3,947 | 5,224 | 6,795 | |||||||||
Loan impairment charges
|
1,002 | 2,355 | 3,770 | |||||||||
2,945 | 2,869 | 3,025 | ||||||||||
Operating expenses, excluding goodwill impairment charges
|
1,886 | 1,879 | 2,191 | |||||||||
Profit before tax and goodwill impairment charges
|
1,059 | 990 | 834 | |||||||||
Goodwill impairment charges
|
- | 530 | - | |||||||||
Profit before tax
|
$ | 1,059 | $ | 460 | $ | 834 | ||||||
Net interest margin
|
20.34 | % | 19.17 | % | 14.10 | % | ||||||
Efficiency ratio
|
47.78 | 46.11 | 32.24 | |||||||||
Return (after-tax) on average assets
|
6.84 | .98 | 1.91 | |||||||||
Balances at end of period:
|
||||||||||||
Customer loans
|
$ | 10,145 | $ | 12,042 | $ | 15,331 | ||||||
Assets
|
9,710 | 11,031 | 26,280 |
2010 profit before tax compared to 2009 Our Card and
Retail Services segment reported a higher profit before tax
during 2010 driven by lower loan impairment charges and lower
goodwill impairment charges, partially offset by lower other
operating income and lower net interest income, while operating
expenses, excluding goodwill impairment charges, remained
relatively flat.
On May 22, 2009, the Credit Card Accountability
Responsibility and Disclosure Act of 2009 was signed into law
and we have implemented all of its applicable provisions. The
Card Act has required us to make changes to our business
practices, and has required us and our competitors to manage
risk differently than has historically been the case. Pricing,
underwriting and product changes have either been implemented or
are under continuing analysis to partially mitigate the impact
of the new legislation and implementing regulations. We estimate
that the impact of the Card Act including the mitigating actions
referred to above resulted in a reduction in revenue, including
the impact to premium on the daily sales of loans to HSBC Bank
USA, net of credit loss provision of approximately
$200 million during 2010.
Loan impairment charges decreased during 2010 reflecting lower
loan levels as a result of actions taken beginning in the fourth
quarter of 2007 to manage risk and an increased focus and
ability by consumers to reduce outstanding credit card debt. The
decrease also reflects the impact of improvement in the
underlying credit quality of the portfolio including continuing
improvements in early stage delinquency roll rates and lower
delinquency levels as customer payment rates have been strong
throughout 2010 and recoveries on defaulted loans increased. The
impact on credit card loan losses from the current economic
environment, including high unemployment levels, has not been as
severe as originally expected due in part to improved customer
payment behavior. During 2010, we decreased credit loss reserves
to $982 million as loan impairment charges were
$882 million lower than net charge-offs.
Net interest income decreased during 2010 due to lower overall
loan levels as discussed more fully below, partially offset by
higher yields on our loan portfolio and lower interest expense
due to lower average borrowings and lower average rates. Loan
yields increased during 2010 as a result of lower levels of
nonperforming receivables, partially offset by the
implementation of certain provisions of the Card Act including
restrictions impacting repricing of delinquent accounts and
periodic re-evaluation of rate increases. We anticipate credit
card loan yields in future
2
HSBC Finance Corporation
periods may continue to be negatively impacted by various
provisions of the Card Act which require certain rate increases
to be periodically re-evaluated. Net interest margin increased
in 2010 due to higher loan yields as discussed above and a lower
cost of funds.
The decrease in other operating income was primarily due to
lower late, overlimit and interchange fees due to lower volumes,
lower delinquency levels, changes in customer behavior and
impacts from changes required by Card Act.
The Card Act has resulted in significant decreases in late fees
due to limits on fees that can be assessed and overlimit fees as
customers must now opt-in for such overlimit fees as well as
restrictions on fees charged to process on-line and telephone
payments. Other operating income also reflects lower enhancement
services revenue due to lower new origination volumes and lower
loan levels. The decrease in other operating income during 2010
was partially offset by higher gains on the daily sales of
private label and certain credit card account originations to
HSBC Bank USA reflecting higher overall premiums partially
offset by lower overall origination volumes. The higher overall
premium reflects the impact of contract renegotiation with
certain merchants, repricing initiatives in certain portfolios
as well as the impact of improving credit quality during 2010,
partially offset by the impact of the Card Act. Other operating
income in 2009 includes gains on the January 2009 bulk loan
sales of the GM and UP Portfolios to HSBC Bank USA. No similar
transaction occurred during 2010.
Excluding the goodwill impairment charges in the prior year
period which is discussed more fully below, operating expenses
increased slightly during 2010 as higher marketing expenses,
higher third party collection costs and higher support services
from affiliates were largely offset by lower salary expenses and
lower pension expenses. The lower pension expenses were driven
by a curtailment gain due to a change in the pension plan which
resulted in the ceasing of all future benefit accruals for
legacy participants under the final average pay formula
components. While marketing expenses were higher as compared to
the prior year, overall marketing levels continue to remain low
as compared to historical levels.
The efficiency ratio for 2009 was significantly impacted by the
goodwill impairment recorded in the prior year. Excluding the
impact of the goodwill impairment in the prior year period, the
efficiency ratio deteriorated significantly during 2010 driven
by the decrease in other operating income, primarily due to
lower fee income as a result of the Card Act, lower delinquency
levels and the impact of the gains in January 2009 on the bulk
loan sales of the GM and UP Portfolios, as well as the impact of
lower net interest income and higher operating expenses as
previously discussed.
ROA during 2009 was significantly impacted by the goodwill
impairment recorded during the prior year. Excluding the impact
of the goodwill impairment in the prior year period, ROA
improved 171 basis points during 2010 primarily due to the
impact of the higher profit before tax in 2010, driven by the
lower loan impairment charges as well as the impact of lower
average loan levels as discussed below.
2009 profit before tax compared to 2008 Our Card and
Retail Services segment reported a lower profit before tax
during 2009 due to lower net interest income, lower other
operating income and higher goodwill impairment charges,
partially offset by lower loan impairment charges and lower
operating expenses excluding goodwill impairment charges.
Loan impairment charges decreased during 2009 due to lower loan
levels and more stable credit conditions as well as an improved
outlook on future loss estimates as the impact of higher
unemployment rates on losses was not as severe as previously
anticipated due in part to lower gas prices and improved cash
flow from government stimulus activities that meaningfully
benefit our customers. Lower loan levels reflect lower consumer
spending and actions taken beginning in the fourth quarter of
2007 and continuing through 2009 to manage risk. These decreases
in loan impairment charges were partially offset by portfolio
seasoning, continued deterioration in the U.S. economy
including higher unemployment rates, higher levels of personal
bankruptcy filings and lower recovery rates on defaulted loans.
In 2009, we decreased credit loss reserves to $1.9 billion
as loan impairment charges were $424 million lower than net
charge-offs.
Net interest income decreased due to lower interest income,
partially offset by lower interest expense. The lower interest
income reflects the impact of lower overall loan levels,
partially offset by higher loan yields. The higher
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HSBC Finance Corporation
loan yields during 2009 reflect a significant shift in mix to a
higher proportion of non-prime receivables which carry higher
rates as a result of the bulk loan sale of the GM and UP
Portfolios in January 2009 to HSBC Bank USA. The higher loan
yields also reflect the impact of interest rate floors in
portions of our credit card receivable portfolio which were
removed, partially offset by decreases in rates on variable rate
products which reflect market rate movements. Net interest
margin increased primarily due to a lower cost of funds and the
higher loan yields as discussed above.
The decrease in other operating income was primarily due to
lower cash advance, interchange fees, late and overlimit fees
and enhancement services revenue due to lower volumes and
changes in customer behavior. These decreases were partially
offset by gains on the January 2009 bulk loan sales of the GM
and UP Portfolios to HSBC Bank USA, higher gains on the daily
sales of private label and certain credit card account
originations to HSBC Bank USA due to higher sales volumes
resulting from the sales of new loan originations in the GM and
UP Portfolios beginning in January 2009 and higher premiums on
co-brand credit card accounts, The decreases in other operating
income were also partially offset by higher servicing income
from affiliates resulting from the January 2009 bulk loan sales
of the GM and UP Portfolios which we continue to service for a
fee.
Operating expenses decreased due to lower marketing expenses in
our effort to manage risk in our credit card loan portfolio as
well as lower salary expenses. These decreases were partially
offset by restructuring costs in 2009 and 2008 of
$4 million and $15 million, respectively. Goodwill
impairment charges in 2009 reflect the impairment of all
remaining goodwill recorded at the segment level in the first
half of the year as a result of continual deterioration of
economic and credit conditions in the United States. See
Note 5, Strategic Initiatives, in the
accompanying consolidated financial statements for additional
information on the restructuring activities in 2009 and 2008.
The efficiency ratio for 2009 was impacted by the goodwill
impairment charges. Excluding the goodwill impairment charges,
the efficiency ratio deteriorated 373 basis points driven
by the lower total operating income, partially offset by the
impact of lower operating expenses.
The deterioration in the ROA ratio during 2009 was primarily a
result of the goodwill impairment charge and lower total
operating income, partially offset by the impact of lower loan
impairment charges and lower average assets.
Customer loans Customer loans for our Card and Retail
Services segment totaled $10.1 billion, $12.0 billion
and $15.3 billion at December 31, 2010, 2009 and 2008,
respectively.
Customer loans decreased 16 percent to $10.1 billion
at December 31, 2010 as compared to $12.0 billion at
December 31, 2009 reflecting the impact of actions
previously taken to manage risk. The decrease also reflects an
increased focus and ability by consumers to reduce outstanding
credit card debt. In 2008, we identified certain segments of our
credit card portfolio which had been the most impacted by the
housing and economic conditions and we stopped all new account
originations in those market segments. In the second half of
2009, we began increasing direct marketing mailings and new
customer account originations for portions of our non-prime
credit card portfolio which will likely result in lower run-off
of credit card loans during 2011. However, we expect a certain
level of attrition will continue as credit card loans at
December 31, 2010 include $4.3 billion associated with
certain segments of our portfolio for which we no longer
originate new accounts.
Customer loans decreased to $12.0 billion at
December 31, 2009 compared to $15.3 billion at
December 31, 2008 reflecting the aforementioned actions
taken beginning in the fourth quarter of 2007 to manage risk.
See Receivables Review in this MD&A for
additional discussion of the decreases in our receivable
portfolios.
4
HSBC Finance Corporation
Consumer Segment The following table summarizes
the IFRS Basis results for our Consumer segment for the years
ended December 31, 2010, 2009 and 2008.
Year Ended December 31, | 2010 | 2009 | 2008 | |||||||||
(dollars are in millions) | ||||||||||||
Net interest income
|
$ | 2,316 | $ | 2,544 | $ | 4,540 | ||||||
Other operating income
|
(30 | ) | 71 | (85 | ) | |||||||
Total operating income
|
2,286 | 2,615 | 4,455 | |||||||||
Loan impairment charges
|
5,686 | 7,927 | 9,084 | |||||||||
(3,400 | ) | (5,312 | ) | (4,629 | ) | |||||||
Operating expenses
|
883 | 1,278 | 1,562 | |||||||||
Loss before tax
|
$ | (4,283 | ) | $ | (6,590 | ) | $ | (6,191 | ) | |||
Net interest margin
|
3.67 | % | 3.16 | % | 4.80 | % | ||||||
Efficiency ratio
|
38.63 | 48.87 | 35.06 | |||||||||
Return (after-tax) on average assets
|
(4.38 | ) | (5.51 | ) | (4.89 | ) | ||||||
Balances at end of period:
|
||||||||||||
Customer loans
|
$ | 56,650 | $ | 70,202 | $ | 87,404 | ||||||
Assets
|
57,460 | 71,298 | 85,605 |
2010 loss before tax compared to 2009 Our Consumer
segment reported a lower loss before tax during 2010 due to
lower loan impairment charges and lower operating expenses,
partially offset by lower net interest income and lower other
operating income.
Loan impairment charges decreased significantly during 2010 as
discussed below.
| Loan impairment charges for the real estate secured loan portfolios in our Consumer Lending and Mortgage Services business decreased during 2010. The decrease reflects lower loan levels as the portfolios continue to liquidate, lower delinquency levels, improved loss severities and improvements in economic conditions since 2009. The decrease also reflects lower loss estimates on TDR Loans, partially offset by the impact of continued high unemployment levels, lower loan prepayments, higher loss estimates on recently modified loans and for real estate secured loans in our Consumer Lending business, portfolio seasoning. Improvements in loss severities reflect an increase in the number of properties for which we accepted a deed-in-lieu and an increase in the number of short sales, both of which result in lower losses compared to loans which are subject to a formal foreclosure process for which average loss severities in 2010 remained relatively flat to 2009 levels. | |
| Loan impairment charges for our personal non-credit card loan portfolio reflects lower loan levels, lower delinquency levels and improvements in economic conditions since 2009, partially offset by higher reserve requirements on TDR Loans. |
During 2010, credit loss reserves decreased to $5.5 billion
as loan impairment charges were $1.6 billion lower than net
charge-offs reflecting lower loan levels and lower delinquency
levels as well as lower reserve requirements on real estate
secured TDR Loans, partially offset by higher reserve
requirements on personal non-credit card TDR Loans.
Net interest income decreased in 2010 due to lower average loans
as a result of liquidation, risk mitigation efforts, partially
offset by lower interest expense and higher overall loan yields.
During 2010, we experienced higher overall yields for all
products as a result of lower levels of nonperforming
receivables and reduced levels of nonperforming modified loans
due to charge-off and declines in new modification volumes.
Higher yields in our real estate secured loan portfolio were
partially offset by a shift in loan mix to higher levels of
lower yielding first lien real estate secured loans as higher
yielding second lien real estate secured and personal non-credit
card loans have run-off at a
5
HSBC Finance Corporation
faster pace than first lien real estate secured loans. Net
interest margin increased in 2010 as compared to 2009 reflecting
the higher loan yields as discussed above.
Other operating income decreased during 2010 due to lower credit
insurance commissions and higher losses on REO properties
reflecting an increase in the number of REO properties sold and
declines in home prices during the second half of 2010.
Operating expenses decreased during 2010 due to the reductions
in the scope of our business operations as well as other cost
containment measures and lower pension expense driven by a
curtailment gain as discussed above, partially offset by higher
collection costs and higher REO expense as a result of a higher
average number of REO properties held during the year and higher
overall expenses on the REO properties held. Operating expenses
during 2009 included $133 million of costs related to the
decision to discontinue new originations for all products in our
Consumer Lending business and closure of the Consumer Lending
branch offices. In addition, we were required to perform an
interim intangible asset impairment test for our remaining
Consumer Lending intangible asset which resulted in an
impairment charge of $5 million during 2009. See
Note 5, Strategic Initiatives, in the
accompanying consolidated financial statements for additional
information regarding this decision.
The efficiency ratio during 2009 was impacted by the
$133 million in restructuring charges discussed above.
Excluding the impact of the restructuring charges from the prior
year, the efficiency ratio improved 516 basis points during
2010 as the decrease in operating expenses outpaced the decrease
in net interest income due to lower loan levels and lower yields.
ROA improved during 2010 primarily due to a lower net loss as
discussed above and the impact of lower average assets.
2009 loss before tax compared to 2008 Our Consumer
segment reported a higher loss before tax during 2009 due to
lower net interest income, partially offset by lower loan
impairment charges, lower operating expenses and higher other
operating income. As discussed in Note 8, Changes in
Charge-off Policies During 2009, in the accompanying
consolidated financial statements, in December 2009 we changed
our charge-off policies for our real estate secured and personal
non-credit card loans. On an IFRSs Basis the impact of these
policy changes was not material to net interest income, loan
impairment charges or loss before tax.
Loan impairment charges decreased significantly in 2009 as
discussed below:
| Loan impairment charges for real estate secured loans decreased in 2009 reflecting a lower provision for real estate secured loans in our Mortgage Services business and for second lien real estate secured loans in our Consumer Lending business, partially offset by higher provisions for first lien real estate secured receivables in our Consumer Lending business. The overall decrease in loan impairment charges for real estate secured loans reflects the continued liquidation in these portfolios which has resulted in lower charge-off levels. Additionally, for real estate secured receivables in our Consumer Lending business, the lower overall provisions for real estate secured receivables reflect a reduction in portfolio risk factors, principally an improved outlook on current inherent losses. | |
| Loan impairment charges for personal non-credit card loans increased during 2009 due to higher levels of charge-off resulting from deterioration in the 2006 and 2007 vintages which was more pronounced in certain geographic regions, partially offset by lower receivable levels. |
Loan impairment charges for all products in 2009 were negatively
impacted by rising unemployment rates in an increasing number of
markets, continued deterioration in the U.S. economy and
housing markets, higher levels of personal bankruptcy filings
and portfolio seasoning. On an IFRS Basis, the impact of the
December 2009 Charge-off Policy Changes was not material.
Excluding the impact of the December 2009 Charge-off Policy
Changes, credit loss reserves increased during 2009 as loan
impairment charges were $800 million greater than net
charge-offs reflecting higher reserve requirements in our
Consumer Lending real estate secured loan portfolio including
higher levels of troubled debt restructurings in both Consumer
Lending and Mortgage Services, partially offset by lower loan
levels as discussed below.
6
HSBC Finance Corporation
Net interest income decreased due to lower average customer
loans, lower origination volumes, lower levels of performing
receivables, the impact of changes in the income recognition
policy related to unrecorded interest on re-aged real estate
secured and personal non-credit card receivables as discussed
previously in the Executive Overview section of this MD&A
and lower overall yields partially offset by lower interest
expense. Overall yields decreased due to increased levels of
loan modifications, the impact of deterioration in credit
quality and lower amortization of net deferred fee income due to
lower loan prepayments and lower loan origination volumes. The
decrease in net interest margin was primarily a result of lower
overall yields as discussed above.
Other operating income increased primarily due to lower losses
on sales of REO properties, partially offset by lower credit
insurance commissions. Lower losses on sales during 2009 reflect
a stabilization of home prices during the second half of 2009
which resulted in less deterioration in value between the date
we take title to the property and when the property is
ultimately sold.
Operating expenses in 2009 included $133 million of costs,
net of a curtailment gain of $34 million related to other
postretirement benefits, related to the decision to discontinue
new originations for all products in our Consumer Lending
business and close the Consumer Lending branch offices. See
Note 5, Strategic Initiatives, in the
accompanying consolidated financial statements for additional
information. In addition, we were required to perform an interim
intangible asset impairment test for our remaining Consumer
Lending intangible asset which resulted in an impairment charge
of $5 million during 2009. Excluding these items, operating
expenses decreased by 27 percent due to the reductions in
the scope of our business operations as well as other cost
containment measures, and lower REO expenses.
The efficiency ratio in 2009 was impacted by $133 million
in restructuring charges related to the decision to cease new
account originations and close the Consumer Lending branch
network. Excluding the impact of the restructuring charges, the
efficiency ratio deteriorated 873 basis points due to the
decrease in total operating income during the year as discussed
above.
ROA deteriorated during 2009 primarily due to lower net interest
income, partially offset by lower loan impairment charges and
lower average assets.
Customer loans Customer loans for our Consumer segment
can be analyzed as follows:
Increases (Decreases) From | ||||||||||||||||||||
December 31, |
December 31, |
|||||||||||||||||||
December 31, |
2009 | 2008 | ||||||||||||||||||
2010 | $ | % | $ | % | ||||||||||||||||
(dollars are in millions) | ||||||||||||||||||||
Real estate
secured(1)
|
$ | 49,309 | $ | (10,183 | ) | (17.1 | )% | $ | (22,440 | ) | (31.3 | )% | ||||||||
Private label
|
- | - | - | (51 | ) | (100.0 | ) | |||||||||||||
Personal non-credit card
|
7,341 | (3,369 | ) | (31.5 | ) | (8,263 | ) | (53.0 | ) | |||||||||||
Total customer loans
|
$ | 56,650 | $ | (13,552 | ) | (19.3 | )% | $ | (30,754 | ) | (35.2 | )% | ||||||||
(1) | Real estate secured receivables are comprised of the following: |
Increases (Decreases) From | ||||||||||||||||||||
December 31, |
December 31, |
|||||||||||||||||||
December 31, |
2009 | 2008 | ||||||||||||||||||
2010 | $ | % | $ | % | ||||||||||||||||
(dollars are in millions) | ||||||||||||||||||||
Mortgage Services
|
$ | 16,040 | $ | (3,956 | ) | (19.8 | )% | $ | (9,517 | ) | (37.2 | )% | ||||||||
Consumer Lending
|
33,269 | (6,227 | ) | (15.8 | ) | (12,923 | ) | (28.0 | ) | |||||||||||
Total real estate secured
|
$ | 49,309 | $ | (10,183 | ) | (17.1 | )% | $ | (22,440 | ) | (31.3 | )% | ||||||||
7
HSBC Finance Corporation
Customer loans decreased 19 percent to $56.7 billion
at December 31, 2010 reflecting the continued liquidation
of these portfolios which will continue to decline going
forward. The liquidation rates in our real estate secured loan
portfolio continues to be impacted by declines in loan
prepayments as fewer refinancing opportunities for our customers
exist and the trends impacting the mortgage lending industry as
previously discussed in the Executive Overview section of this
MD&A.
Customer loans decreased to $70.2 billion at
December 31, 2009 as compared to $87.4 billion at
December 31, 2008. Real estate secured and personal
non-credit card receivables decreased for the reasons discussed
above as well as the impact of the December 2009 Charge-off
Policy Changes previously discussed which resulted in an
incremental $2.4 billion and $914 million of
delinquent real estate secured and personal non-credit card
loans, respectively, being charged-off.
See Receivables Review for a more detail discussion
of the decreases in our receivable portfolios.
Reconciliation of Segment Results As previously
discussed, segment results are reported on an IFRS Basis. See
Note 24, Business Segments, in the accompanying
consolidated financial statements for a discussion of the
differences between IFRSs and U.S. GAAP. For segment
reporting purposes, intersegment transactions have not been
eliminated. We generally account for transactions between
segments as if they were with third parties. Also see
Note 24, Business Segments, in the accompanying
consolidated financial statements for a reconciliation of our
IFRS Basis segment results to U.S. GAAP consolidated totals.
8