HSBC USA Inc. merged with Republic New York Corporation on 31 December 1999. The acquisition was accounted for using purchase accounting rather than pooling of interests, and Republic's results are included only from the date the transaction was completed. The addition of Republic's figures, not accounted for in 1999, was the principal reason for growth in earnings and the increase in the balance sheet.
After the merger, HSBC Bank USA had assets of US$79.6 billion and deposits of US$58.5 billion, making it the third-largest depository institution in New York State.
At 31 December 1999, HSBC Bank USA's expanded customer base included more than two million personal and 120,000 commercial and institutional customers. As a result of the merger, HSBC USA is now a world leader in banknotes and bullion trading and provides the fifth largest factoring service in the US.
In the first quarter:
* net income increased by 31 per cent to US$159 million
* Cash earnings increased by 65 per cent to US$217 million
* the cost:income ratio, excluding goodwill amortisation was 54 per cent compared with 45.5 per cent in the first quarter of 1999
* tier 1 capital to risk-weighted assets increased to 13.3 per cent from 8.7 per cent
* cash earnings as a percentage of average common equity were 9.2 per cent compared with 24.7 per cent during the same period of 1999, reflecting a substantial increase in common equity as a result of the merger.
* off balance sheet funds under management were US$45.5 billion.
HSBC USA recorded a net income of US$159 million for the quarter ended 31 March 2000, up 31 per cent from US$121 million in the first quarter of 1999. Cash earnings, which are primarily net income after preferred dividends and after adding back goodwill amortisation of US$64 million (1999: US$10 million)*, were US$217 million for the quarter, up 65.0 per cent from US$132 million last year.
Youssef Nasr, chief executive officer, said: “We are pleased with our first quarter operating and financial results. This is a merger that is working. Republic and HSBC USA are complementing each other well. Customer retention is strong and we are on target to achieve the levels of cost savings we announced originally.
“If the combined organisations had been one from the first quarter of last year and all the acquisition-related accounting and unusual items were left out, revenues would have been up modestly and expenses down.
“Deposit levels have remained steady and assets under management have grown over 4.0 per cent so far this year. Revenues from wealth management and insurance reached record highs. Total portfolio holdings for International Private Banking (New York, Florida and California) increased over 7 per cent, compared with 31 December 1999. Our capital ratios are high compared to our peers, making us one of the soundest financial institutions in the U,” Nasr concluded.
Total loans at 31 March 2000 were US$38.6 billion, up 63.1 per cent from US$23.7 billion at 31 March 1999, and compared with US$37.9 billion at 31 December 1999. Total assets were US$86.4 billion, compared with US$33.8 billion at 31 March 1999 and US$90.2 billion at 31 December 1999. Total deposits were US$54.2 billion at 31 March 2000, up 106 per cent from US$26.3 billion at 31 March 1999, and in comparison with US$56.4 billion at 31 December 1999.
Common equity increased to US$9.5 billion at 31 March 2000, compared with US$2.2 billion at 31 March 1999. As a percentage of total assets, common equity increased to 11 per cent from 6.4 per cent at 31 March 1999. The ratio of tier one capital to risk-weighted assets was 13.3 per cent compared with 8.7 per cent last year, and the ratio of total capital to risk-weighted assets was 15.1 per cent compared with 12.5 per cent.
The return on average common equity for the first quarter of 2000 was 6.5 per cent versus 22.8 per cent in the first quarter of last year. The return on average common equity was significantly affected by the amortisation of goodwill through the income statement and the substantial increase in common equity. The ratio of cash earnings to common equity was 9.2 per cent compared with 24.7 per cent at 31 March 1999.