TIDMHSBA
RNS Number : 8114U
HSBC Holdings PLC
02 August 2015
3 August 2015
HSBC HOLDINGS PLC
2015 INTERIM RESULTS - HIGHLIGHTS
Financial performance
-- Reported profit before tax ('PBT') up 10% in the first half
of 2015 ('1H15') at $13,628m compared with $12,340m in the same
period in 2014 ('1H14').
-- Adjusted PBT up 2% in 1H15 at $13,002m compared with $12,722m
in 1H14, driven by a strong performance in Asia.
-- Earnings per share were $0.48 and dividends per ordinary
share were $0.20 (in respect of the period), compared with $0.50
and $0.20 respectively for the equivalent period in 2014. The
second interim dividend was $0.10.
-- Adjusted revenue up 4% at $30,772m driven by revenue growth
in client-facing GB&M, principally in Equities and Foreign
Exchange. Revenue also increased in Principal RBWM and CMB.
-- Adjusted operating expenses up 7% at $17,642m reflecting
investment in growth, and regulatory programmes and compliance
costs.
-- Strong capital base with a CRD IV end point CET1 capital
ratio of 11.6%, up from 11.1% at 31 December 2014.
Strategy execution
-- Clearly defined actions to capture value from our global network in a changed world:
- Growth of 6% in Global business synergies, demonstrating the
strength of our universal banking model
- Revenue from transaction banking products grew 8% highlighting
the value and potential of our international network
- Progress on reducing Group RWAs with a $50bn reduction relating mainly to GB&M
- Entered into an agreement to sell entire business in Brazil
- Commenced initiatives to reduce costs
Stuart Gulliver, Group Chief Executive, said:
"Our performance in the first half of 2015 demonstrated the
underlying strength of our business. Our diversified, universal
model enabled the Group to deliver increased profitability in spite
of slow global growth. We are executing the actions that we
announced at our Investor Update in June and our focus is on making
significant progress during the remainder of the year."
Half-year to 30 June
----------------------------------------------
2015 2014 Change
$m $m %
Income statement and performance measures(1)
Reported profit before tax 13,628 12,340 10.4%
------------------------------------------------
Adjusted profit before tax 13,002 12,722 2.2%
------------------------------------------------
Return on average ordinary shareholders'
equity (annualised) 10.6% 10.7% (0.1)ppt
------------------------------------------------
Return on average tangible equity (annualised) 12.0% 12.6% (0.6)ppt
------------------------------------------------
Pre-tax return on average risk-weighted
assets (annualised) 2.3% 2.1% (0.2)ppt
------------------------------------------------
Cost efficiency ratio 58.2% 58.6% (0.4)ppt
------------------------------------------------
Adjusted jaws (2.9%) n/a n/a
------------------------------------------------
At At
30 June 31 December
2015 2014
% %
Capital and balance sheet
Common equity tier 1 ratio (transitional)(2) 11.6 10.9
----------------------------------------------
Common equity tier 1 ratio (end point)(2) 11.6 11.1
----------------------------------------------
Leverage ratio 4.9 4.8
----------------------------------------------
Change
$m $m $m
Loans and advances to customers 953,985 974,660 (20,675)
----------------------------------------------
Customer accounts 1,335,800 1,350,642 (14,842)
----------------------------------------------
CRD IV risk-weighted assets 1,193,154 1,219,765 (26,611)
----------------------------------------------
$bn $bn $bn
Leverage exposure measure 2,957 2,953 4
----------------------------------------------
For footnotes, see page 2.
Half-year to 30
June
------------------
2015 2014
$m $m
Reported
Revenue(3) 32,943 31,167
--------------------------------------------------------
Loan impairment charges and other credit risk
provisions (1,439) (1,841)
--------------------------------------------------------
Operating expenses (19,187) (18,266)
--------------------------------------------------------
Profit before tax 13,628 12,340
--------------------------------------------------------
Adjusted
Revenue(3) 30,772 29,456
--------------------------------------------------------
Loan impairment charges and other credit risk
provisions (1,439) (1,572)
--------------------------------------------------------
Operating expenses (17,642) (16,436)
--------------------------------------------------------
Profit before tax 13,002 12,722
--------------------------------------------------------
Significant items affecting adjusted performance
- Gains/(losses)
Revenue
-------------------------------------------------------
Debit valuation adjustment on derivative contracts 165 (155)
--------------------------------------------------------
Fair value movements on non-qualifying hedges (45) (322)
--------------------------------------------------------
Releases/(provisions) arising from the ongoing
review of compliance with the Consumer Credit
Act in the UK 12 (367)
--------------------------------------------------------
Gain/(loss) on sale of several tranches of real
estate secured accounts in the US 17 (15)
--------------------------------------------------------
Gain on sale of shareholding in Bank of Shanghai - 428
--------------------------------------------------------
Gain on sale arising from HSBC Latin America Holdings
UK Limited's disposal of HSBC Bank (Colombia)
S.A. - 18
--------------------------------------------------------
Gain on the partial sale of shareholding in Industrial
Bank 1,372 -
--------------------------------------------------------
Operating expenses
Restructuring and other related costs (117) (82)
--------------------------------------------------------
Regulatory provisions in GPB (147) -
--------------------------------------------------------
Settlements and provisions in connection with
legal matters (1,144) -
--------------------------------------------------------
UK customer redress programmes (137) (234)
--------------------------------------------------------
1 Adjusted performance is computed by adjusting reported results
for the period-on-period effects of foreign currency translation
differences and significant items which distort period-on-period
comparisons.
2 From 1 January 2015 the CRD IV transitional CET1 and end point
CET1 capital ratios became aligned for HSBC Holdings plc due to the
recognition of unrealised gains on investment property and
available-for-sale securities.
3 Net operating income before loan impairment charges and other
credit risk provision, also referred to as revenue.
Statement by Douglas Flint, Group Chairman
We have had an encouraging start to 2015 with the interim
results once again demonstrating the resilience and balance
inherent within HSBC's geographically diversified universal banking
model. Particularly encouraging was the revenue growth from areas
we have been investing in to offset the understandable decline in
revenues from our run-off portfolios and divestments.
We are continuing to invest to capture the opportunities which
are arising from changing trade and investment flows and from the
clear momentum in greater customer adoption of mobile and digital
banking. In the continuing low interest rate environment, it is
essential we build these incremental revenues and use technology
and process improvement to generate further cost savings to offset
the growing expenditure needed to embed regulatory changes and
provide greater assurance over financial crime risks. These factors
provided much of the context to our Investor Update in June, when
Stuart Gulliver and his senior management team laid out very
clearly the priorities and objectives being set to build
sustainable value for you, our shareholders.
Pre-tax profits in the first six months of 2015 on a reported
basis of $13.6bn were 10% higher than those delivered in the first
half of 2014. On the adjusted basis, which is one of the key
metrics used by the Board to assess current management performance,
pre-tax profits were 2% better at $13.0bn, with the difference
explained by the reconciliations on pages 50 to 55 of the Interim
Report 2015. Earnings per share were $0.48, providing more than
twice cover for the first two interim dividends per ordinary share
in respect of 2015 amounting to $0.20 in aggregate (2014: $0.50 and
$0.20, respectively).
The Group's capital position remains strong, benefiting from a
higher than normal scrip dividend take-up in the period and from
actions taken to manage down risk-weighted assets. At 30 June 2015,
our end point common equity tier 1 ratio stood at 11.6% compared
with 11.1% at the beginning of the year and 11.3% a year ago.
In the following pages, Stuart Gulliver, in his 'Group Chief
Executive's Review' reflects on the key drivers of first half
performance and summarises the actions presented in the Investor
Update which underpin the Group's target to deliver a return on
equity in excess of 10% by the end of 2017.
Board oversight of management is now tightly focused on the
delivery of the actions set out in this plan and management
performance scorecards have been adjusted to reflect this. Initial
progress is encouraging with the highlight clearly being the
agreement reached for the sale of our Brazilian operations. I want
to underscore three points which are crucial to achieving what is a
challenging set of objectives.
An ever more connected world needs international banking and
within this, a diversified universal banking model promotes revenue
synergies and resilience.
What drives HSBC's rating as one of the two most systemically
important banks in the world is the extent to which we do business
outside the country from which we are regulated on a consolidated
basis; we see this as a strength in a globalised world. As many
banks shrink to domestic or regional bases, our international
network and product capabilities are demonstrating significant
competitive advantages as we pick up cross-border business. This
was the key message from our Investor Update and, as Stuart
illustrates in his review, the depth and breadth of the network are
creating value in terms of revenue growth. In the first half of
this year, transaction banking, which captures trade and investment
flows, grew revenues by 8%. Further collaboration between our
global businesses drove revenue synergies by 6%.
Nothing illustrates the importance of trade corridors better
than the focus of China on its 'One Belt, One Road' initiative.
This, together with the creation of the Asian Infrastructure
Investment Bank, led by China but now with 57 founding member
states, is planned to create opportunities for infrastructure
investment coupled with green technology on a massive global scale.
HSBC's presence along the trade corridor, as well as at both ends,
places it in a strong position to partner with participating firms.
As investment grows, this will also accelerate the use of the
renminbi as a global currency, an area where HSBC is the leading
international bank.
The current period also illustrates convincingly the benefits of
our international universal banking model and the revenue synergies
noted above. A few examples will illustrate the point.
While eurozone anxieties over Greece dampened trade flows and
falls in commodity prices led to a lower value of commodity related
trade finance, the resultant volatility in foreign exchange led to
a greater volume of activity through our dealing rooms. Although
equity flows into emerging markets retreated, equity volumes in
Hong Kong and mainland China expanded markedly with the
Shanghai-Hong Kong stock connect system surpassing all expectations
in terms of flows in both directions. As a result, HSBC's Wealth
Management revenues in Hong Kong from equities, mutual funds and
asset management increased significantly.
Finally and importantly, the significant progress made in
resolution planning, both by international and national regulatory
bodies and by firms themselves, means that the contingent risk to
home country taxpayers from international business activities has
markedly reduced. This should allow international firms like HSBC
to grow faster than the economies that host them without undue
concerns being raised.
Technology is changing the shape of banking at a rapid pace
There is no doubt that banking is in a period of fundamental
change as a consequence of technological developments that,
firstly, allow storage and analysis of an almost unlimited amount
of data and, secondly, allow customers to directly access third
party providers when transacting or investing.
The opportunities are exciting; the risks are not
insignificant.
The benefits to customers and society are potentially
substantial. Better use of data will allow more accurate knowledge
about the customer to be built, leading to improved customer
segmentation and therefore less risk of mis-selling in the future.
The same data, together with transaction monitoring, will enhance
our ability to identify bad actors within the system, so reducing
financial crime. A lower cost of delivery will flow through to
lower intermediation costs for customers and allow banking services
to reach communities currently under-served.
The nature, scale and pace of change do, however, pose a number
of public policy questions still under review as well as
highlighting new risks to financial stability that need to be
addressed. The sheer scale of data to be collected and stored
demands clarity over responsibility for data security and
transparency over who has access to that data and for what purpose.
Customers need to understand the value of their data so that they
can assess the bargain that is being offered by non-traditional
providers in return for their financial footprint. Customers also
need to know in a disaggregated service model to whom they should
complain if a transaction goes awry. Finally, ever larger digital
databases of financial credentials and transaction data will need
best-in-class protection from cyber crime. This will require even
greater co-operation between the industry and public sector law
enforcement and intelligence services than exists today.
Restoring trust is essential
One of the most encouraging observations in the first half of
2015 was the growing emphasis in public policy and regulatory
consultations and proposals on looking forwards not back. Much of
the focus was on setting clarity over the behaviours expected of
individuals within our industry and of those charged with
supervising or providing governance over their activities.
We welcomed the 'Fair and Effective Markets Review' conducted
jointly by the Bank of England, HM Treasury and the Financial
Conduct Authority to reinforce confidence in wholesale markets in
light of the serious misconduct evidenced in recent years. The
consequential creation of an FICC Markets Standards Board to sit
alongside the Banking Standards Board which came into being in
April is a further contribution to creating a framework capable of
reassuring market participants of the integrity of financial
markets.
The focus of both these bodies, together with the Senior
Managers Regime which comes into force next year, is to stress
personal accountability for conduct within markets and in relation
to consumers of financial products. Recent instances of misconduct
have highlighted the inadequacy of legal and regulatory frameworks
to attach appropriate sanctions in a timely way to responsible
individuals, leaving shareholders to bear the burden of penalties
imposed on the employing institutions, in many cases long after the
events in question occurred and where the evidence is either
insufficient or too dated to pursue the individuals concerned. This
is not a sustainable or a desirable model.
We absolutely concur, therefore, with this emphasis on personal
responsibility and accountability. It is essential that regulatory
governance in this area is seen to be transparent, fair and
proportionate. However, the potential benefits are significant and
we believe that if the clarity intended from the greater focus
being given through these initiatives to expected behaviours is
achieved, then this, together with the discipline derived from the
greater incidence of deferred remuneration, will greatly enhance
the prospects for the restoration of trust.
That restoration of trust will of course only be earned over
time by the actions of firms being increasingly recognised by
market participants and consumers as appropriate to the
circumstances, balancing the interests of the firm with those of
the customer.
Again actions speak louder than words. By way of example, in the
first half of 2015, measures taken to assist customers in the UK to
manage their financial affairs better delivered improved outcomes
for customers and reduced a source of recurring frustration. These
actions formed part of a comprehensive review of value exchange
within RBWM conducted over the past year. As a consequence
overdraft fees in the UK fell by some $88m, reflecting lower
pricing and fewer instances of unauthorised overdrawn accounts,
which was prompted by a new policy of text messaging when customers
approached their agreed limits.
Three other areas are worthy of comment.
Progress on Global Standards and regulatory change
We are now firmly in the second phase of the Global Standards
initiative, moving from design to implementation and assurance.
Virtually all of the recommendations in the Monitor's initial
report have now been actioned with those remaining not due until
later this year. Further recommendations for improvement, as they
arise from the Monitor's update reviews, regular regulatory
examinations and the work of our own internal audit function, will
continue to be incorporated as they arise. Similarly, in the area
of regulatory change the focus is now firmly on embedding the
changes now finalised.
The global functions and our operations and technology teams
continued to add resources to meet the demands of the Global
Standards programme and of continuing regulatory change. In the
first half of 2015, the Group's headcount increased by some 2,200.
Reflecting the prioritisation being given to the above programmes,
more than this number were in fact recruited into Compliance,
principally in Financial Crime Compliance and to address the
regulatory change programmes. As systems are upgraded we should
realise planned productivity improvements to release resources
currently allocated to manual processes and parallel working.
The above comments illustrate how the cost dynamics of our
business model are clearly changing, and we are challenging afresh
the sustainability of some of our smaller operations in light of
the cost burdens they are now facing. This analysis, as was
highlighted in the Investor Update, will inform some further
streamlining of our geographical footprint over the next few
years.
UK ring-fencing
During the period, the business design of the ring-fenced bank
was settled and Birmingham was chosen as its headquarters location.
A new HQ building is being constructed which will be available in
2018. Both the ring--fenced bank and the remaining activities
outside the ring fence will be served by a new service company
which will host shared infrastructure and employees. 22,000 UK
employees of our UK bank will migrate to this new employer by the
end of this year.
Review of headquarters location
Following the announcement at the Annual General Meeting that we
would embark upon a review of the optimal location for our global
headquarters, detailed work has commenced in line with the criteria
laid out in the June Investor Update. It remains the Board's
intention to conclude the review by the end of this year.
Board changes
Since the AGM we have announced two new members of the Board.
Irene Lee brings to the Board considerable banking experience and
knowledge of Asia and joined the Board on 1 July, having served as
a non-executive Director of The Hongkong and Shanghai Banking
Corporation Limited and of Hang Seng Bank Limited since 2013 and
2014, respectively.
Irene is currently Executive Chairman of Hysan Development
Company Limited and a non-executive director of Cathay Pacific
Airways Limited, China Light & Power Holdings Limited and Noble
Group Limited. She has over 30 years of finance industry
experience, having held senior positions in investment banking and
fund management in the UK, USA and Australia with the Commonwealth
Bank of Australia, SealCorp Holdings Limited and Citibank.
Pauline van der Meer Mohr brings to the Board considerable legal
and human resources experience and will join the Board on 1
September. Pauline is currently president of the Executive Board of
Erasmus University Rotterdam, a role which she has held since 2010.
Pauline began her career in the legal profession and held several
legal and management positions with the Royal Dutch Shell Group
from 1989 to 2004, rising to become HR Director, Information
Technology. In 2004, she was appointed group human resources
director at TNT NV before moving to become senior executive vice
president and head of group human resources at ABN AMRO Bank NV in
2006. Pauline also served as a member of the Dutch Banking Code
Monitoring Commission, which was aimed at restoring trust in the
Dutch banking sector.
Looking forward
The environment for banking remains challenging. As Stuart
points out in his review, economic conditions remain uncertain in
many parts of the world, in particular in the eurozone and in
China. On top of this, geopolitical risks are heightened.
Regulatory workloads have never been higher as we embed structural
change, build systems to respond to demands for greater
transparency, and augment stress testing models and reinforce
business continuity design as part of recovery and resolution
planning. Technology is empowering disruptive business models and
facilitating new entrants whilst also offering good opportunities
to improve efficiency and build better customer propositions.
Responsibilities to protect the financial system from bad actors
and from cyber threats are expanding at the same time as concerns
are raised over risks of consequential financial exclusion.
Yet there are also observable mega-trends supportive of
financial system growth. Growing urbanisation across Asia,
infrastructure development in both emerging and developed markets,
investment in new technology to address environmental efficiency
and the development of capital market solutions to add fresh
financing capabilities and contribute to the financial needs of an
ageing population all have positive implications for the role and
profitability of the financial system. Additionally, central banks
remain determined to maintain a policy environment that facilitates
the resumption of sustainable economic growth.
As set out by Stuart in the June Investor Update, our
positioning across the major trade and investment corridors of the
world is a privileged position from which to plan our future. We
have the financial strength and the right people at all levels of
the firm to make the most of the opportunities open to us. We look
forward to reporting on progress.
Review by Stuart Gulliver, Group Chief Executive
Our performance in the first half of 2015 demonstrated the
underlying strength of our business. Our diversified, universal
model enabled the Group to deliver increased profitability in spite
of slow global growth. In particular, a strong revenue performance
across our Asia businesses helped drive increased profits and
Global Banking and Markets had a good six months.
In June we announced a series of strategic actions to capture
the value of our international network in a much changed world.
These actions are designed to maximise revenue, significantly
reduce our operating expenses and meet our obligations regarding
the structure of the Group.
We are executing these plans and have significant momentum
moving into the second half of the year.
First half of 2015
Reported profit before tax was $13.6bn, 10% higher than for the
equivalent period in 2014.
Adjusted pre-tax profit, which excludes the period-on-period
effects of currency translation differences and significant items,
was $13.0bn, 2% higher than in the first half of 2014. This
reflected growth in revenue and lower loan impairment charges,
partially offset by increased costs.
Global Banking and Markets maintained its good start to the
year, especially in our client-facing Markets businesses. Equities
and Foreign Exchange were the main drivers of revenue growth.
Commercial Banking revenue continued to grow, particularly in
Hong Kong and the UK.
Principal Retail Banking & Wealth Management generated
increased revenue following a strong performance in our Wealth
Management business in Asia.
There was a 6% increase in revenue arising from cross-selling
between our global businesses, demonstrating the strength of our
universal banking model.
Loan impairment charges continued to fall, driven particularly
by reductions in North America and Latin America.
Operating expenses increased, although they were broadly flat
relative to the second half of 2014, excluding the effect of the UK
bank levy.
The common equity tier 1 ratio on a CRD IV end point basis was
11.6%.
Annualised return on equity was 10.6%, exceeding our target of
10%.
Maximising value from our international network
We continue to invest in the strategic product areas that
benefit most from our international network. The positive impact of
this investment was again apparent in the first half of the
year.
Foreign Exchange revenue grew by 21% compared with the first
half of 2014 and Payments and Cash Management revenue increased by
4%.
Global Trade & Receivables Finance continued to grow, and
HSBC was named 'Best Trade Bank in the World', 'Best Trade Bank in
Asia Pacific' and 'Best Trade Bank in the Middle East' in the Trade
and Forfaiting Review Excellence Awards 2015.
We maintained our leadership position in international renminbi
services, growing revenue by 9% compared with the first half of
2014. HSBC also received the Asiamoney 'Best Overall Offshore RMB
Products and Services' award for the fourth year in a row.
In FinanceAsia's International Banking Awards 2015, HSBC was the
winner of the 'Best Foreign Bank' awards for China, Indonesia,
Malaysia, Vietnam, Korea, Sri Lanka and Bangladesh. HSBC was also
named Best Bank in Hong Kong for the 12th consecutive year.
Investor Update
Our Annual Report and Accounts 2014 outlined some of the
considerable changes to our operating environment that have
occurred since 2011. In response to these changes the Board set a
new Group target of a return on equity of more than 10% by the end
of 2017.
At our Investor Update in June, we set out the actions that will
enable us to meet this goal.
We intend to:
-- reduce risk-weighted assets across the Group by at least 25%,
re-deploy some of these risk-weighted assets towards higher
performing businesses and return Global Banking and Markets to
Group target profitability;
-- sell underperforming operations in Turkey and Brazil, and
keep our network under review using our six--filter process;
-- exploit the strategic opportunity in the region covered by
the North American Free Trade Agreement to rebuild profitability in
Mexico and deliver satisfactory returns in the US;
-- set up a UK ring-fenced bank by 2018;
-- realise $4.5-5.0bn in cost savings and return operating
expenses to 2014 levels by the end of 2017;
-- deliver revenue growth greater than GDP growth from our international network;
-- capture growth opportunities in Asia, including in China's
Pearl River Delta and the Association of Southeast Asian Nations,
and in our Asset Management and Insurance businesses;
-- generate $2.0-2.5bn revenue from our global leadership position in business arising from the internationalisation of the Chinese currency, the renminbi; and
-- complete the implementation of Global Standards, our globally
consistent and rigorous financial crime controls.
Delivering these actions will create value for our customers and
shareholders, and enable us to meet global standards while driving
business success. It will also help us to continue to adapt to the
structural changes that are asked of us by regulators and
legislators.
Meeting our targets
We will update shareholders on progress in executing these
actions every quarter, beginning with our third quarter results in
November. Delivery is our number one priority.
Work is proceeding on all of our actions, in particular those
aimed at reducing risk-weighted assets ('RWAs'), cutting costs and
turning around or disposing of underperforming parts of the
business.
Reducing RWAs will be a gradual process, but we have made a good
start in the first half of the year. We reduced RWAs by $50bn,
largely through asset sales in the Global Banking and Markets
legacy book, the sale of part of our shareholding in Industrial
Bank, and more detailed mapping within RWA calculations and
improved recognition of collateral. We have redeployed $30bn RWAs
into higher returning areas. I am confident that we will continue
to make significant progress on this in the remainder of 2015.
Over the next two years we will continue to build our capital
base and redeploy some of the RWAs that we take out of the business
in line with the priorities we outlined in June.
Although we are aiming to 'pivot' our business towards
profitable growth opportunities in Asia, Asia is not the exclusive
focus of reinvestment. In order to maintain broad-based growth and
a diversified risk profile, we expect around half of incremental
RWAs to be redeployed to Asia, with the rest spread across Europe,
the Middle East and North Africa, North America and Mexico. If we
cannot find strategic opportunities to deploy capital with a return
on equity above 10% we will return the capital to shareholders,
subject to regulatory approval.
We have commenced our work to reduce costs and expect to be able
to demonstrate tangible progress in the coming quarters. Fulfilling
these actions will also entail a number of one-off transformation
costs, some of which will be incurred during the second half of
2015. We expect the largest portion of these costs to fall in
2016.
On 31 July we agreed to sell our Brazil business to Banco
Bradesco S.A. for $5.2bn. As we said at our Investor Update, we
plan to maintain a modest corporate banking presence in Brazil to
serve our international clients in the country. This transaction
delivers excellent value for shareholders and represents
significant delivery against the actions we announced in June.
Summary and outlook
We are hopeful for a modest improvement in the world economy in
the second half of the year. More accommodating monetary conditions
should help the mainland Chinese economy to stabilise after first
half challenges. US economic growth is also likely to accelerate.
Thanks to lower oil prices, real incomes are rising across much of
the eurozone and in the UK. Key uncertainties include the pace of
recovery in capital spending, the timing of any US monetary
tightening and ongoing challenges in the eurozone.
Our performance in July was satisfactory. Our focus is on making
significant progress in executing our strategic actions during the
remainder of the year.
Half-year to
---------------------------------------
30 June 30 June 31 December
2015 2014 2014
$m $m $m
For the period
Profit before tax 13,628 12,340 6,340
-------------------------------------------------
Profit attributable to shareholders of
the parent company 9,618 9,746 3,942
-------------------------------------------------
Dividends declared on ordinary shares 5,796 5,488 3,832
-------------------------------------------------
At the period end
Total shareholders' equity 192,427 190,281 190,447
-------------------------------------------------
Total regulatory capital 195,110 192,834 190,730
-------------------------------------------------
Customer accounts 1,335,800 1,415,705 1,350,642
-------------------------------------------------
Total assets 2,571,713 2,753,593 2,634,139
-------------------------------------------------
Risk-weighted assets 1,193,154 1,248,572 1,219,765
-------------------------------------------------
$ $ $
Per ordinary share
Basic earnings 0.48 0.50 0.19
-------------------------------------------------
Dividends(1) 0.30 0.29 0.20
-------------------------------------------------
Net asset value 9.11 9.64 9.24
-------------------------------------------------
Share information
$0.50 ordinary shares in issue 19,516m 19,071m 19,218m
-------------------------------------------------
Market capitalisation $175bn $193bn $182bn
------------------------------------------------
Closing market price per share GBP5.70 GBP5.93 GBP6.09
------------------------------------------------
Over 1 year Over 3 years Over 5 years
Total shareholder return to 30 June 2015 101.89 119.16 119.35
-------------------------------------------------
Benchmark: Morgan Stanley Capital International
Index Banks 99.45 152.46 158.85
-------------------------------------------------
1 The dividends per ordinary share of $0.30 shown in the
accounts comprise dividends declared during the first half of 2015.
This represents the fourth interim dividend for 2014 and the first
interim dividend for 2015.
Geographical distribution of results
Profit/(loss) before tax
Half-year to
--------------------------------------------------
30 June 2015 30 June 2014 31 December 2014
$m % $m % $m %
Europe 2,205 16.2 2,258 18.3 (1,662) (26.2)
-----------------------------
Asia 9,400 69.0 7,894 64.0 6,731 106.2
-----------------------------
Middle East and North
Africa 901 6.6 989 8.0 837 13.2
-----------------------------
North America 690 5.1 825 6.7 592 9.3
-----------------------------
Latin America 432 3.1 374 3.0 (158) (2.5)
----------------------------- ------- ----- ------- ----- --------- -------
Profit before tax 13,628 100.0 12,340 100.0 6,340 100.0
----------------------------- ----- ----- -------
Tax expense (2,907) (2,022) (1,953)
----------------------------- ------- ------- ---------
Profit for the period 10,721 10,318 4,387
----------------------------- ------- ------- ---------
Profit attributable to
shareholders of the parent
company 9,618 9,746 3,942
-----------------------------
Profit attributable to
non-controlling interests 1,103 572 445
-----------------------------
Distribution of results by global business
Profit/(loss) before tax
Half-year to
--------------------------------------------------
30 June 2015 30 June 2014 31 December 2014
$m % $m % $m %
Retail Banking and Wealth
Management(1) 3,362 24.7 3,002 24.4 2,579 40.7
----------------------------
Commercial Banking(1) 4,523 33.2 4,814 39.0 4,000 63.1
----------------------------
Global Banking and Markets 4,754 34.9 5,033 40.8 856 13.5
----------------------------
Global Private Banking 180 1.3 364 2.9 262 4.1
----------------------------
Other 809 5.9 (873) (7.1) (1,357) (21.4)
---------------------------- ------- ----- ------- ----- --------- -------
Profit before tax 13,628 100.0 12,340 100.0 6,340 100.0
---------------------------- ------- ----- ------- ----- --------- -------
1 In Q2 2015, a portfolio of customers was transferred from CMB
to RBWM in Latin America in order to better align the combined
banking needs of the customers with our established global
businesses. Comparative data have been re-presented
accordingly.
Consolidated income statement
for the half-year to 30 June 2015
Half-year to
----------------------------------------------------------------------------------------
30 June 30 June 31 December
2015 2014 2014
$m $m $m
Interest income 24,019 25,435 25,520
----------------------
Interest expense (7,575) (8,030) (8,220)
---------------------- ----------------------------- --------------------------- ----------------------------
Net interest income 16,444 17,405 17,300
----------------------
Fee income 9,372 10,031 9,514
----------------------
Fee expense (1,647) (1,854) (1,734)
---------------------- ----------------------------- --------------------------- ----------------------------
Net fee income 7,725 8,177 7,780
----------------------
Trading income
excluding net
interest
income 3,520 2,362 2,491
----------------------
Net interest income on
trading activities 1,053 913 994
---------------------- ----------------------------- --------------------------- ----------------------------
Net trading income 4,573 3,275 3,485
----------------------
Changes in fair value
of long-term debt
issued and related
derivatives 1,324 438 70
----------------------
Net income from other
financial instruments
designated at fair
value 1,342 1,222 743
---------------------- ----------------------------- --------------------------- ----------------------------
Net income from
financial instruments
designated at fair
value 2,666 1,660 813
----------------------
Gains less losses from
financial investments 1,874 946 389
----------------------
Dividend income 68 88 223
----------------------
Net insurance premium
income 5,607 6,137 5,784
----------------------
Other operating income 836 538 593
---------------------- ----------------------------- --------------------------- ----------------------------
Total operating income 39,793 38,226 36,367
----------------------
Net insurance claims
and benefits paid
and movement in
liabilities to
policyholders (6,850) (7,059) (6,286)
---------------------- ----------------------------- --------------------------- ----------------------------
Net operating income
before loan
impairment
charges and other
credit risk
provisions 32,943 31,167 30,081
Loan impairment
charges and other
credit
risk provisions (1,439) (1,841) (2,010)
---------------------- ----------------------------- --------------------------- ----------------------------
Net operating income 31,504 29,326 28,071
---------------------- ----------------------------- --------------------------- ----------------------------
Employee compensation
and benefits (10,041) (9,978) (10,388)
----------------------
General and
administrative
expenses (8,129) (7,127) (11,438)
----------------------
Depreciation and
impairment of
property,
plant and equipment (604) (712) (670)
----------------------
Amortisation and
impairment of
intangible
assets (413) (449) (487)
---------------------- ----------------------------- --------------------------- ----------------------------
Total operating
expenses (19,187) (18,266) (22,983)
---------------------- ----------------------------- --------------------------- ----------------------------
Operating profit 12,317 11,060 5,088
----------------------
Share of profit in
associates and joint
ventures 1,311 1,280 1,252
---------------------- ----------------------------- --------------------------- ----------------------------
Profit before tax 13,628 12,340 6,340
----------------------
Tax expense (2,907) (2,022) (1,953)
---------------------- ----------------------------- --------------------------- ----------------------------
Profit for the period 10,721 10,318 4,387
---------------------- ----------------------------- --------------------------- ----------------------------
Profit attributable to
shareholders of
the parent company 9,618 9,746 3,942
----------------------
Profit attributable to
non-controlling
interests 1,103 572 445
----------------------
$ $ $
Basic earnings per
ordinary share 0.48 0.50 0.19
----------------------
Diluted earnings per
ordinary share 0.48 0.50 0.19
----------------------
Consolidated statement of comprehensive income
for the half-year to 30 June 2015
Half-year to
----------------------------------------------
30
June 30 June 31 December
2015 2014 2014
$m $m $m
Profit for the period 10,721 10,318 4,387
----------------------------------------------------------------
Other comprehensive income/(expense)
Items that will be reclassified subsequently
to profit or loss when specific conditions
are met:
Available-for-sale investments (2,445) 958 2,014
---------------------------------------------------------------- ------------------------ ------- -----------
* fair value gains/(losses) (355) 2,183 2,611
----------------------------------------------------------------
* fair value gains reclassified to the income statement (2,317) (643) (1,029)
----------------------------------------------------------------
* amounts reclassified to the income statement in
respect of impairment losses 2 15 359
----------------------------------------------------------------
* income taxes 225 (597) 73
---------------------------------------------------------------- ------------------------ ------- -----------
Cash flow hedges (150) (17) 205
---------------------------------------------------------------- ------------------------ ------- -----------
* fair value gains/(losses) 341 (44) 1,556
----------------------------------------------------------------
* fair value (gains)/losses reclassified to the income
statement (538) 50 (1,294)
----------------------------------------------------------------
* income taxes 47 (23) (57)
---------------------------------------------------------------- ------------------------ ------- -----------
Share of other comprehensive income/(expense)
of associates and joint ventures 2 (16) 96
----------------------------------------------------------------
* share for the period 2 (18) 96
----------------------------------------------------------------
* reclassified to income statement on disposal - 2 -
---------------------------------------------------------------- ------------------------ ------- -----------
Exchange differences (3,267) 670 (9,573)
---------------------------------------------------------------- ------------------------ ------- -----------
* foreign exchange gains reclassified to the income
statement on disposal of a foreign operation - (21) -
----------------------------------------------------------------
* other exchange differences (3,395) 691 (9,608)
----------------------------------------------------------------
* income tax attributable to exchange differences 128 - 35
---------------------------------------------------------------- ------------------------ ------- -----------
Items that will not be reclassified subsequently
to profit or loss:
Remeasurement of defined benefit asset/liability (1,680) 316 1,669
---------------------------------------------------------------- ------------------------ ------- -----------
* before income taxes (2,085) 421 1,998
----------------------------------------------------------------
* income taxes 405 (105) (329)
---------------------------------------------------------------- ------------------------ ------- -----------
Other comprehensive income/(expense) for
the period, net of tax (7,540) 1,911 (5,589)
---------------------------------------------------------------- ------------------------ ------- -----------
Total comprehensive income/(expense) for
the period 3,181 12,229 (1,202)
---------------------------------------------------------------- ------------------------ ------- -----------
Attributable to:
* shareholders of the parent company 2,856 11,706 (2,461)
----------------------------------------------------------------
* non-controlling interests 325 523 1,259
---------------------------------------------------------------- ------------------------ ------- -----------
Total comprehensive income/(expense) for
the period 3,181 12,229 (1,202)
---------------------------------------------------------------- ------------------------ ------- -----------
Consolidated balance sheet
at 30 June 2015
At At At
30 June 30 June 31 December
2015 2014 2014
$m $m $m
Assets
Cash and balances at central banks 144,324 132,137 129,957
---------------------------------------------------
Items in the course of collection from
other banks 10,190 8,144 4,927
---------------------------------------------------
Hong Kong Government certificates of indebtedness 28,104 26,640 27,674
---------------------------------------------------
Trading assets 283,138 347,106 304,193
---------------------------------------------------
Financial assets designated at fair value 25,168 31,823 29,037
---------------------------------------------------
Derivatives 296,942 269,839 345,008
---------------------------------------------------
Loans and advances to banks 109,405 127,387 112,149
---------------------------------------------------
Loans and advances to customers 953,985 1,047,241 974,660
---------------------------------------------------
Reverse repurchase agreements - non-trading 149,384 198,301 161,713
---------------------------------------------------
Financial investments 404,682 423,710 415,467
---------------------------------------------------
Assets held for sale 60,929 10,248 7,647
---------------------------------------------------
Prepayments, accrued income and other
assets 55,489 75,520 67,529
---------------------------------------------------
Current tax assets 566 1,068 1,309
---------------------------------------------------
Interests in associates and joint ventures 18,705 17,497 18,181
---------------------------------------------------
Goodwill and intangible assets 24,913 29,740 27,577
---------------------------------------------------
Deferred tax assets 5,789 7,192 7,111
--------------------------------------------------- --------- --------- -----------
Total assets 2,571,713 2,753,593 2,634,139
--------------------------------------------------- --------- --------- -----------
Liabilities and Equity
Liabilities
Hong Kong currency notes in circulation 28,104 26,640 27,674
---------------------------------------------------
Deposits by banks 71,140 92,764 77,426
---------------------------------------------------
Customer accounts 1,335,800 1,415,705 1,350,642
---------------------------------------------------
Repurchase agreements - non-trading 81,506 165,506 107,432
---------------------------------------------------
Items in the course of transmission to
other banks 12,711 9,936 5,990
---------------------------------------------------
Trading liabilities 181,435 228,135 190,572
---------------------------------------------------
Financial liabilities designated at fair
value 69,485 82,968 76,153
---------------------------------------------------
Derivatives 289,984 263,494 340,669
---------------------------------------------------
Debt securities in issue 102,656 96,397 95,947
---------------------------------------------------
Liabilities of disposal groups held for
sale 53,226 12,361 6,934
---------------------------------------------------
Accruals, deferred income and other liabilities 42,224 50,882 46,462
---------------------------------------------------
Current tax liabilities 1,322 1,434 1,213
---------------------------------------------------
Liabilities under insurance contracts 69,494 75,223 73,861
---------------------------------------------------
Provisions 5,125 4,283 4,998
---------------------------------------------------
Deferred tax liabilities 1,338 1,091 1,524
---------------------------------------------------
Subordinated liabilities 24,781 28,052 26,664
--------------------------------------------------- --------- --------- -----------
Total liabilities 2,370,331 2,554,871 2,434,161
--------------------------------------------------- --------- --------- -----------
Equity
Called up share capital 9,758 9,535 9,609
---------------------------------------------------
Share premium account 12,290 11,582 11,918
---------------------------------------------------
Other equity instruments 13,991 5,851 11,532
---------------------------------------------------
Other reserves 15,180 28,355 20,244
---------------------------------------------------
Retained earnings 141,208 134,958 137,144
--------------------------------------------------- --------- --------- -----------
Total shareholders' equity 192,427 190,281 190,447
---------------------------------------------------
Non-controlling interests 8,955 8,441 9,531
--------------------------------------------------- --------- --------- -----------
Total equity 201,382 198,722 199,978
--------------------------------------------------- --------- --------- -----------
Total liabilities and equity 2,571,713 2,753,593 2,634,139
--------------------------------------------------- --------- --------- -----------
Consolidated statement of cash flows
for the half-year to 30 June 2015
Half-year to
----------------------------------------------------------------------------------
30 June 30 June 31 December
2015 2014 2014
$m $m $m
Cash flows from operating
activities
Profit before tax 13,628 12,340 6,340
----------------------------
Adjustments for:
- net gain from investing
activities (1,926) (979) (949)
----------------------------
- share of profit in
associates and
joint ventures (1,311) (1,280) (1,252)
----------------------------
- (gain)/loss on disposal
of associates,
joint ventures,
subsidiaries and
businesses - (18) 27
----------------------------
- other non-cash items
included in profit
before tax 4,522 4,284 6,978
----------------------------
- change in operating
assets 12,077 (86,266) 112,143
----------------------------
- change in operating
liabilities (15,544) 59,108 (152,922)
----------------------------
- elimination of exchange
differences 3,951 (5,486) 30,057
----------------------------
- dividends received from
associates 770 127 630
----------------------------
- contributions paid to
defined benefit
plans (226) (315) (366)
----------------------------
- tax paid (1,351) (1,358) (2,215)
---------------------------- --------------------------------- -------------------------- -------------------
Net cash generated
from/(used in) operating
activities 14,590 (19,843) (1,529)
---------------------------- --------------------------------- -------------------------- -------------------
Cash flows from investing
activities
Purchase of financial
investments (211,669) (187,934) (196,265)
----------------------------
Proceeds from the sale and
maturity
of financial investments 208,637 194,335 188,502
----------------------------
Purchase of property, plant
and equipment (620) (523) (954)
----------------------------
Proceeds from the sale of
property,
plant and equipment 56 55 33
----------------------------
Net cash inflow/(outflow)
from disposal
of customer and loan
portfolios 321 950 (1,985)
----------------------------
Net purchase of intangible
assets (400) (385) (518)
----------------------------
Net cash inflow/(outflow)
from disposal
of subsidiaries,
businesses, associates
and joint ventures 7 (140) (102)
----------------------------
Net cash outflow from
acquisition of
or increase in stake of
associates (1) (30) -
----------------------------
-
Net cash generated
from/(used in) investing
activities (3,669) 6,328 (11,289)
---------------------------- --------------------------------- -------------------------- -------------------
Cash flows from financing
activities
Issue of ordinary share
capital 9 14 253
----------------------------
Net sales/(purchases) of own
shares
for market-making and
investment purposes 139 (25) (71)
----------------------------
Issue of other equity
instruments 2,459 - 5,681
----------------------------
Redemption of preference
shares and
other equity instruments (462) 234 (468)
----------------------------
Subordinated loan capital
issued 1,680 3,500 -
----------------------------
Subordinated loan capital
repaid (778) (3,042) (121)
----------------------------
Dividends paid to ordinary
shareholders
of the parent company (1,834) (1,755) (4,856)
----------------------------
Dividends paid to
non-controlling interests (386) (350) (289)
----------------------------
Dividends paid to holders of
other equity
instruments (428) (287) (286)
----------------------------
-
Net cash generated
from/(used in) financing
activities 399 (1,711) (157)
---------------------------- --------------------------------- -------------------------- -------------------
Net increase/(decrease) in
cash and
cash equivalents 11,320 (15,226) (12,975)
----------------------------
Cash and cash equivalents at
the beginning
of the period 301,301 346,281 334,498
----------------------------
Exchange differences in
respect of cash
and cash equivalents (3,829) 3,443 (20,222)
---------------------------- --------------------------------- -------------------------- -------------------
Cash and cash equivalents at
the end
of the period 308,792 334,498 301,301
---------------------------- --------------------------------- -------------------------- -------------------
Consolidated statement of changes in equity
for the half-year to 30 June 2015
Half-year to 30 June 2015
------------------------------------------------------------------------------------------------------------------------
Other reserves
--------------------------------------------
Available-
Called Other for-sale Cash
up equity fair flow Foreign Total Non-
share Share instru- Retained value hedging exchange Merger share-holders controlling Total
capital premium ments(1) earnings reserve(2) reserve(2) reserve(2) reserve equity interests equity
$m $m $m $m $m $m $m $m $m $m $m
At 1 January 2015 9,609 11,918 11,532 137,144 2,143 58 (9,265) 27,308 190,447 9,531 199,978
----------------------------------------------------------------
Profit for the period - - - 9,618 - - - - 9,618 1,103 10,721
----------------------------------------------------------------
-
Other comprehensive income (net of
tax) - - - (1,693) (1,735) (151) (3,183) - (6,762) (778) (7,540)
---------------------------------------------------------------- ------- ------- -------- --------- ---------- ---------- ---------- -------- ------------- ----------- -------
* available-for-sale investments - - - - (1,735) - - - (1,735) (710) (2,445)
----------------------------------------------------------------
* cash flow hedges - - - - - (151) - - (151) 1 (150)
----------------------------------------------------------------
* remeasurement of defined benefit asset/liability - - - (1,695) - - - - (1,695) 15 (1,680)
----------------------------------------------------------------
* share of other comprehensive income of associates and
joint ventures - - - 2 - - - - 2 - 2
----------------------------------------------------------------
* exchange differences - - - - - - (3,183) - (3,183) (84) (3,267)
---------------------------------------------------------------- ------- ------- -------- --------- ---------- ---------- ---------- -------- ------------- ----------- -------
Total comprehensive income for the
period - - - 7,925 (1,735) (151) (3,183) - 2,856 325 3,181
----------------------------------------------------------------
-
Shares issued under employee remuneration
and share plans 31 490 - (512) - - - - 9 - 9
----------------------------------------------------------------
Shares issued in lieu of dividends
and amounts arising thereon 118 (118) - 2,242 - - - - 2,242 - 2,242
----------------------------------------------------------------
Dividends to shareholders - - - (6,224) - - - - (6,224) (432) (6,656)
----------------------------------------------------------------
Capital securities issued - - 2,459 - - - - - 2,459 - 2,459
----------------------------------------------------------------
Cost of share-based payment arrangements - - - 444 - - - - 444 - 444
----------------------------------------------------------------
Other movements - - - 189 5 - - - 194 (469) (275)
----------------------------------------------------------------
At 30 June 2015 9,758 12,290 13,991 141,208 413 (93) (12,448) 27,308 192,427 8,955 201,382
---------------------------------------------------------------- ------- ------- -------- --------- ---------- ---------- ---------- -------- ------------- ----------- -------
1 During March 2015, HSBC Holdings issued $2,450m of Perpetual
Subordinated Contingent Convertible Capital Securities, after
issuance costs of $8m and tax benefits of $17m, which are
classified as equity under IFRSs.
2 At 30 June 2015, our operations in Brazil were classified as
held for sale (see Note 12 of the interim consolidated financial
statements). The cumulative amount of other reserves attributable
to these operations were as follows: available-for-sale fair value
reserve debit of $65m, cash flow hedging reserve debit of $29m and
foreign exchange reserve debit of $1,724m.
Consolidated statement of changes in equity (continued)
for the half-year to 30 June 2015 (continued)
Half-year to 30 June 2014
-----------------------------------------------------------------------------------------------------------------
Other reserves
---------------------------------------
Available-
Called for-sale Cash Total
up Other fair flow Foreign share- Non-
share Share equity Retained value hedging exchange Merger holders' controlling Total
capital premium instru-ments earnings reserve reserve reserve reserve equity interests equity
$m $m $m $m $m $m $m $m $m $m $m
At 1 January 2014 9,415 11,135 5,851 128,728 97 (121) (542) 27,308 181,871 8,588 190,459
----------------------------------------------------------------
Profit for the period - - - 9,746 - - - - 9,746 572 10,318
----------------------------------------------------------------
Other comprehensive income (net
of tax) - - - 300 956 (16) 720 - 1,960 (49) 1,911
---------------------------------------------------------------- ------- ------- ------------ -------- ---------- ------- -------- -------- -------- ----------- -------
* available-for-sale investments - - - - 956 - - - 956 2 958
----------------------------------------------------------------
* cash flow hedges - - - - - (16) - - (16) (1) (17)
----------------------------------------------------------------
* remeasurement of defined benefit asset/liability - - - 316 - - - - 316 - 316
----------------------------------------------------------------
* share of other comprehensive income of associates and
joint ventures - - - (16) - - - - (16) - (16)
----------------------------------------------------------------
* exchange differences - - - - - - 720 - 720 (50) 670
---------------------------------------------------------------- ------- ------- ------------ -------- ---------- ------- -------- -------- -------- ----------- -------
Total comprehensive income for the
period - - - 10,046 956 (16) 720 - 11,706 523 12,229
----------------------------------------------------------------
- - - -
Shares issued under employee remuneration
and share plans 28 539 - (553) - - - - 14 - 14
----------------------------------------------------------------
Shares issued in lieu of dividends
and amounts arising thereon 92 (92) - 2,111 - - - - 2,111 - 2,111
----------------------------------------------------------------
Dividends to shareholders - - - (5,774) - - - - (5,774) (432) (6,206)
----------------------------------------------------------------
Cost of share-based payment arrangements - - - 333 - - - - 333 - 333
----------------------------------------------------------------
Other movements - - - 67 (39) (8) - - 20 (238) (218)
----------------------------------------------------------------
At 30 June 2014 9,535 11,582 5,851 134,958 1,014 (145) 178 27,308 190,281 8,441 198,722
---------------------------------------------------------------- ------- ------- ------------ -------- ---------- ------- -------- -------- -------- ----------- -------
Consolidated statement of changes in equity (continued)
for the half-year to 30 June 2015 (continued)
Half-year to 31 December 2014
--------------------------------------------------------------------------------------------------------------
Other reserves
---------------------------------------
Available-
Called Other for-sale Cash Total
up equity fair flow Foreign share- Non-
share Share instru- Retained value hedging exchange Merger holders' controlling Total
capital premium ments earnings reserve reserve reserve reserve equity interests equity
$m $m $m $m $m $m $m $m $m $m $m
At 1 July 2014 9,535 11,582 5,851 134,958 1,014 (145) 178 27,308 190,281 8,441 198,722
----------------------------------------------------------------
Profit for the period - - - 3,942 - - - - 3,942 445 4,387
----------------------------------------------------------------
Other comprehensive income (net
of tax) - - - 1,766 1,069 205 (9,443) - (6,403) 814 (5,589)
---------------------------------------------------------------- ------- ------- ------- -------- ---------- ------- -------- -------- -------- ----------- -------
* available-for-sale investments - - - - 1,069 - - - 1,069 945 2,014
----------------------------------------------------------------
* cash flow hedges - - - - - 205 - - 205 - 205
----------------------------------------------------------------
* remeasurement of defined benefit asset/liability - - - 1,670 - - - - 1,670 (1) 1,669
----------------------------------------------------------------
* share of other comprehensive income of associates and
joint ventures - - - 96 - - - - 96 - 96
----------------------------------------------------------------
* exchange differences - - - - - - (9,443) - (9,443) (130) (9,573)
---------------------------------------------------------------- ------- ------- ------- -------- ---------- ------- -------- -------- -------- ----------- -------
Total comprehensive income for period - - - 5,708 1,069 205 (9,443) - (2,461) 1,259 (1,202)
----------------------------------------------------------------
Shares issued under employee remuneration
and share plans 32 378 - (157) - - - - 253 - 253
----------------------------------------------------------------
Shares issued in lieu of dividends
and amounts arising thereon 42 (42) - 598 - - - - 598 - 598
----------------------------------------------------------------
Dividends to shareholders - - - (4,119) - - - - (4,119) (280) (4,399)
----------------------------------------------------------------
Capital securities issued - - 5,681 - - - - - 5,681 - 5,681
----------------------------------------------------------------
Cost of share-based payment arrangements - - - 399 - - - - 399 - 399
----------------------------------------------------------------
Other movements - - - (243) 60 (2) - - (185) 111 (74)
----------------------------------------------------------------
At 31 December 2014 9,609 11,918 11,532 137,144 2,143 58 (9,265) 27,308 190,447 9,531 199,978
---------------------------------------------------------------- ------- ------- ------- -------- ---------- ------- -------- -------- -------- ----------- -------
1 Basis of preparation and significant accounting policies
The basis of preparation and summary of significant accounting
policies applicable to the interim consolidated financial
statements of HSBC can be found in Note 1 on the Financial
Statements in the Interim Report 2015.
Compliance with International Financial Reporting Standards
The interim consolidated financial statements of HSBC have been
prepared in accordance with the Disclosure Rules and Transparency
Rules of the Financial Conduct Authority and IAS 34 'Interim
Financial Reporting' as issued by the International Accounting
Standards Board ('IASB') and as endorsed by the EU. The interim
consolidated financial statements should be read in conjunction
with the Annual Report and Accounts 2014.
At 30 June 2015, there were no unendorsed standards effective
for the half-year to 30 June 2015 affecting the interim
consolidated financial statements, and there was no difference
between IFRSs endorsed by the EU and IFRSs issued by the IASB in
terms of their application to HSBC.
Standards applied during the half-year to 30 June 2015
There were no new standards adopted during the half-year to 30
June 2015. During the period, HSBC applied a number of
interpretations and amendments to standards which had an
insignificant effect on the interim consolidated financial
statements.
Accounting policies
The accounting policies applied by HSBC for the interim
consolidated financial statements are consistent with those
described on pages 345 to 457 of the Annual Report and Accounts
2014, as are the methods of computation.
Differences between IFRSs and Hong Kong Financial Reporting
Standards
There are no significant differences between IFRSs and Hong Kong
Financial Reporting Standards in terms of their application to HSBC
and consequently there would be no significant differences had the
interim consolidated financial statements been prepared in
accordance with Hong Kong Financial Reporting Standards.
2 Tax
Half-year to
------------------------------------------------------------------------------------
30 30
June June 31 December
2015 2014 2014
$m $m $m
Current tax
UK corporation tax
charge 343 165 (96)
--------------------------
Overseas tax(1) 2,071 1,803 2,078
--------------------------
2,414 1,968 1,982
Deferred tax 493 54 (29)
--------------------------
Tax expense 2,907 2,022 1,953
-------------------------- --------------------------- ----------------------------- ------------------------
Effective tax rate 21.3% 16.4% 30.8%
--------------------------
1 Overseas tax included Hong Kong profits tax of $714m (first
half of 2014: $589m; second half of 2014: $546m). Subsidiaries in
Hong Kong provided for Hong Kong profits tax at the rate of 16.5%
(2014: 16.5%) on the profits for the period assessable in Hong
Kong. Other overseas subsidiaries and overseas branches provided
for taxation at the appropriate rates in the countries in which
they operated.
Deferred taxation
Net deferred tax assets amounted to $4.5bn at 30 June 2015 (30
June 2014: $6.1bn; 31 December 2014: $5.6bn), mainly relating to
timing differences in the US. Net deferred tax assets have fallen
since 31 December 2014 mainly because the net assets of Brazilian
operations were transferred to 'Held for Sale' (see Note 12 of the
Interim Report 2015).
3 Dividends
On 3 August 2015, the Directors declared a second interim
dividend in respect of the financial year ending 31 December 2015
of $0.10 per ordinary share, a distribution of approximately
$1,954m which will be payable on 2 October 2015. No liability is
recognised in the financial statements in respect of this
dividend.
Dividends to shareholders of the parent company
Half-year to
--------------------------------------------------------------------
30 June 2015 30 June 2014 31 December 2014
--------------------- --------------------- ----------------------
Per Settled Per Settled Per Settled
in in
share Total scrip share Total scrip share Total in scrip
$ $m $m $ $m $m $ $m $m
Dividends paid on
ordinary shares
In respect of previous
year:
* fourth interim dividend 0.20 3,845 2,011 0.19 3,582 1,827 - - -
----------------------------------
In respect of current
year:
* first interim dividend 0.10 1,951 231 0.10 1,906 284 - - -
----------------------------------
* second interim dividend - - - - - - 0.10 1,914 372
----------------------------------
* third interim dividend - - - - - - 0.10 1,918 226
---------------------------------- ----- ----- -------
Total 0.30 5,796 2,242 0.29 5,488 2,111 0.20 3,832 598
---------------------------------- ----- ----- ------- ----- ----- ------- ----- ----- --------
Total dividends
on preference shares
classified as equity
(paid quarterly) 31.00 45 31.00 45 31.00 45
----------------------------------
Total coupons on capital securities classified as equity
Half-year to
----------------------------------------------------
31 December
30 June 2015 30 June 2014 2014
Per Per Per
First security Total security Total security Total
call date $ $m $ $m $ $m
Perpetual subordinated capital
securities(1)
* $2,200m issued at 8.125% Apr 2013 1.016 89 1.016 89 1.016 90
-------------------------------------
* $3,800m issued at 8.000% Dec 2015 1.000 152 1.000 152 1.000 152
-------------------------------------
Perpetual subordinated contingent
convertible securities(2)
* $2,250m issued at 6.375% Sep 2024 31.875 72 - - - -
-------------------------------------
* $1,500m issued at 5.625% Jan 2020 28.125 28 - - - -
-------------------------------------
* EUR1,500m issued at 5.250% Sep 2022 29.396 42 - - - -
-------------------------------------
Total 383 241 242
-------------------------------------------------- ----- ----- -----
1 Discretionary coupons are paid quarterly on the perpetual subordinated capital securities.
2 Discretionary coupons are paid semi-annually on the perpetual
subordinated contingent convertible securities.
On 15 July 2015, HSBC paid a further coupon on the $2,200m
subordinated capital securities of $0.508 per security,
representing a total distribution of $45m. On 17 July 2015, HSBC
paid a further coupon on the $1,500m subordinated contingent
convertible securities, representing a total distribution of $42m.
No liability is recognised in the financial statements in respect
of these coupon payments.
In March 2015, HSBC issued $2,450m of contingent convertible
securities issued at 6.375% which are classified as equity under
IFRSs. Discretionary coupons are paid semi-annually on these
contingent convertible securities and none were declared in the
first half of 2015.
Second interim dividend for 2015 on ordinary shares
On 3 August 2015, the Directors declared a second interim
dividend for 2015 of $0.10 per ordinary share. The second interim
dividend will be payable on 2 October 2015 to holders of record on
14 August 2015 on the Principal Register in the United Kingdom,
Hong Kong and Bermuda Overseas Branch registers. The dividend will
be payable in cash, US dollars, sterling or Hong Kong dollars, or a
combination of these currencies, at the forward exchange rates
quoted by HSBC Bank plc in London at or about 11.00am on 21
September 2015. A scrip dividend will also be offered. Particulars
of these arrangements will be sent to shareholders on or about 26
August 2015 and elections must be received by 17 September
2015.
The dividend will be payable on ordinary shares held through
Euroclear France, the settlement and central depositary system for
Euronext Paris, on 2 October 2015 to the holders of record on 14
August 2015. The dividend will be payable by Euroclear France in
cash, in euros, at the forward exchange rate quoted by HSBC France
on 21 September 2015, or as a scrip dividend. Particulars of these
arrangements will be announced through Euronext Paris on 5 August
2015, 20 August 2015 and 21 September 2015.
The dividend will be payable on ADSs, each of which represents
five ordinary shares, on 2 October 2015 to holders of record on 14
August 2015. The dividend of $0.50 per ADS will be payable by the
depositary in cash, in US dollars or as a scrip dividend of new
ADSs. Elections must be received by the depositary on or before 11
September 2015. Alternatively, the cash dividend may be invested in
additional ADSs for participants in the dividend reinvestment plan
operated by the depositary.
Ordinary shares will be quoted ex-dividend in London, Hong Kong,
Paris and Bermuda on 13 August 2015. The ADSs will be quoted
ex-dividend in New York on 12 August 2015.
Any person who has acquired ordinary shares registered on the
Principal Register in the United Kingdom, the Hong Kong Overseas
Branch register or the Bermuda Overseas Branch register but who has
not lodged the share transfer with the Principal Registrar, the
Hong Kong or Bermuda Branch Registrar should do so before 4.00pm
local time on 14 August 2015 in order to receive the dividend.
Ordinary shares may not be removed to or from the Principal
Register in the United Kingdom, the Hong Kong Overseas Branch
register or the Bermuda Overseas Branch register on 14 August 2015.
Any person wishing to remove ordinary shares to or from each
register must do so before 4.00pm local time on 13 August 2015.
Transfers of ADSs must be lodged with the depositary by 12 noon
on 14 August 2015 in order to receive the dividend.
Dividend on 6.20% non-cumulative US Dollar Preference Shares,
Series A ('Series A Dollar Preference Shares')
In 2005, 1,450,000 Series A Dollar Preference Shares were issued
for a consideration of $1,000 each, and Series A American
Depositary Shares, each of which represents one-fortieth of a
Series A Dollar Preference Share, were listed on the New York Stock
Exchange.
A non-cumulative fixed-rate dividend of 6.20% per annum is
payable on the Series A Dollar Preference Shares on 16 March, 15
June, 15 September and 15 December 2015 for the quarter then ended
at the sole and absolute discretion of the Board of HSBC Holdings
plc. Accordingly, the Board of HSBC Holdings plc has declared a
dividend of $0.3875 per Series A American Depositary Share for the
quarter ending 15 September 2015.
The dividend will be payable on 15 September 2015 to holders of
record on 28 August 2015.
Any person who has acquired Series A American Depositary Shares
but who has not lodged the transfer documentation with the
depositary should do so before 12 noon on 28 August 2015 in order
to receive the dividend.
On 15 July 2015, HSBC paid a further coupon on the capital
securities of $0.508 per security, a distribution of $45m. No
liability is recorded in the financial statements in respect of
this coupon payment.
4 Earnings per share
Profit attributable to ordinary shareholders of the parent
company
Half-year to
------------------------------------------
30 30 31
June June December
2015 2014 2014
$m $m $m
Profit attributable to shareholders of
the parent company 9,618 9,746 3,942
-------------------------------------------------
Dividend payable on preference shares
classified as equity (45) (45) (45)
-------------------------------------------------
Coupon payable on capital securities classified
as equity (383) (241) (242)
------------------------------------------------- ------------------------ ----- ---------
Profit attributable to ordinary shareholders
of the parent company 9,190 9,460 3,655
------------------------------------------------- ------------------------ ----- ---------
Basic and diluted earnings per share
Half-year to 30 Half-year to 30 Half-year to 31
June 2015 June 2014 December 2014
--------------------------- --------------------------- ---------------------------
Number Amount Number Amount Amount
of per of per Number per
Profit shares share Profit shares share Profit of shares share
$m (millions) $ $m (millions) $ $m (millions) $
Basic(1) 9,190 19,249 0.48 9,460 18,847 0.50 3,655 18,960 0.19
-------------
Effect of
dilutive
potential
ordinary
shares 68 101 96
-------------
Diluted(1) 9,190 19,317 0.48 9,460 18,948 0.50 3,655 19,056 0.19
------------- ------ ----------- ------ ----------- ------ -----------
1 Weighted average number of ordinary shares outstanding (basic) or assuming dilution (diluted).
5 Net fee income
Half-year to
-----------------------------
30 June 30 June 31 December
2015 2014 2014
$m $m $m
Account services 1,383 1,734 1,673
-----------------------------
Funds under management 1,310 1,283 1,375
-----------------------------
Cards 1,120 1,210 1,250
-----------------------------
Credit facilities 989 963 927
-----------------------------
Broking income 817 664 707
-----------------------------
Unit trusts 595 518 487
-----------------------------
Imports/exports 485 558 557
-----------------------------
Underwriting 450 536 336
-----------------------------
Remittances 387 411 422
-----------------------------
Global custody 371 359 367
-----------------------------
Insurance agency commission 284 302 214
-----------------------------
Other 1,181 1,493 1,199
----------------------------- ------- ------- -----------
Fee income 9,372 10,031 9,514
-----------------------------
Less: fee expense (1,647) (1,854) (1,734)
----------------------------- ------- ------- -----------
Net fee income 7,725 8,177 7,780
----------------------------- ------- ------- -----------
6 Loan impairment charges and other credit risk provisions
Half-year to
------------------------------------------------
30 31
30 June June December
2015 2014 2014
$m $m $m
Loan impairment charges
--------------------------------------------------------
- new allowances net of allowance releases 1,797 2,581 2,429
------------------------------------------------------------
- recoveries of amounts previously written
off (350) (556) (399)
------------------------------------------------------------ --------------------------- ------ ---------
1,447 2,025 2,030
- individually assessed allowances 480 558 1,222
------------------------------------------------------------
- collectively assessed allowances 967 1,467 808
------------------------------------------------------------ --------------------------- ------ ---------
Releases of impairment allowances of available-for-sale
debt securities (38) (214) (105)
------------------------------------------------------------
Other credit risk provisions 30 30 85
------------------------------------------------------------ --------------------------- ------ ---------
Loan impairment charges and other credit
risk provisions 1,439 1,841 2,010
------------------------------------------------------------ --------------------------- ------ ---------
% % %
Impairment charges on loans and advances
to customers as a percentage
* of average gross loans and advances to customers
(annualised) 0.31 0.44 0.43
------------------------------------------------------------
7 Segmental analysis
HSBC operates a matrix management structure which includes
geographical regions and global businesses. HSBC considers that
geographical operating segments represent the most appropriate
information for users of the financial statements to best evaluate
the nature and financial effects of HSBC's business activities and
the economic environment in which it operates. HSBC's operating
segments are Europe, Asia, Middle East and North Africa, North
America and Latin America.
North Latin Intra-HSBC
Europe Asia MENA America America items Total
$m $m $m $m $m $m $m
Net operating income(1)
Half-year to 30 June
2015
Net operating income 11,469 14,065 1,289 4,126 3,558 (1,564) 32,943
------------------------ ------------------ ---------------------- ----------------- ---------------------- ------------------------ -------------- ----------------------
* external 10,974 13,148 1,279 3,979 3,563 - 32,943
------------------------
* inter-segment 495 917 10 147 (5) (1,564) -
------------------------ ------------------ ---------------------- ----------------- ---------------------- ------------------------ -------------- ----------------------
Half-year to 30 June
2014
Net operating income 10,873 12,107 1,294 4,067 4,265 (1,439) 31,167
------------------------ ------------------ ---------------------- ----------------- ---------------------- ------------------------ -------------- ----------------------
* external 10,335 11,343 1,271 3,948 4,270 - 31,167
------------------------
* inter-segment 538 764 23 119 (5) (1,439) -
------------------------ ------------------ ---------------------- ----------------- ---------------------- ------------------------ -------------- ----------------------
Half-year to 31
December
2014
Net operating income 10,698 11,570 1,254 4,085 4,007 (1,533) 30,081
------------------------ ------------------ ---------------------- ----------------- ---------------------- ------------------------ -------------- ----------------------
* external 10,115 10,728 1,253 3,989 3,996 - 30,081
------------------------
* inter-segment 583 842 1 96 11 (1,533) -
------------------------ ------------------ ---------------------- ----------------- ---------------------- ------------------------ -------------- ----------------------
Profit/(loss) before
tax
Half-year to:
30 June 2015 2,205 9,400 901 690 432 - 13,628
------------------------
30 June 2014 2,258 7,894 989 825 374 - 12,340
------------------------
31 December 2014 (1,662) 6,731 837 592 (158) - 6,340
------------------------
Balance sheet
information
At 30 June 2015
Total assets 1,236,270 917,489 61,625 411,601 104,203 (159,475) 2,571,713
------------------------
Total liabilities 1,171,686 842,077 51,745 372,300 91,998 (159,475) 2,370,331
------------------------
At 30 June 2014
Total assets 1,430,863 874,334 61,289 437,706 125,630 (176,229) 2,753,593
------------------------
Total liabilities 1,362,091 807,906 51,619 398,776 110,708 (176,229) 2,554,871
------------------------
At 31 December 2014
Total assets 1,290,926 878,723 62,417 436,859 115,354 (150,140) 2,634,139
------------------------
Total liabilities 1,223,371 807,998 52,569 398,356 102,007 (150,140) 2,434,161
------------------------
1 Net operating income before loan impairment charges and other credit risk provisions.
8 Reconciliation of the difference between reported and adjusted items
Currency translation and significant items
Half-year to
------------------------------------------------------------------
30 30 31
June June December
2015 2014 2014
$m $m $m
Revenue(1)
Reported 32,943 31,167 30,081
----------------------------------------------------------------
Currency translation(4) (2,326) (1,698)
----------------------------------------------------------------
Significant items (2,171) 615 139
---------------------------------------------------------------- ----------------------- ----------------------- ----------------
* debit valuation adjustment on derivative contracts (165) 155 177
----------------------------------------------------------------
* fair value movements on non-qualifying hedges(3) 45 322 219
----------------------------------------------------------------
* provisions/(releases) arising from the ongoing review
of compliance with the Consumer Credit Act in the UK (12) 367 265
----------------------------------------------------------------
* gain on the partial sale of shareholding in
Industrial Bank (1,372) - -
----------------------------------------------------------------
* impairment of our investment in Industrial Bank - - 271
----------------------------------------------------------------
* own credit spread(2) (650) 215 (632)
----------------------------------------------------------------
* (gain)/loss on sale of several tranches of real
estate secured accounts in the US (17) 15 (183)
----------------------------------------------------------------
* loss on sale arising from HSBC Bank Middle East
Limited's disposal of its operations in Pakistan - - 27
----------------------------------------------------------------
* gain on sale of shareholding in Bank of Shanghai - (428) -
----------------------------------------------------------------
* gain on sale arising from HSBC Latin America Holdings
UK Limited's disposal of HSBC Bank (Colombia) S.A.
('HSBC Colombia') - (18) -
----------------------------------------------------------------
* reclassification loss in respect of our holding in
Vietnam Technological & Commercial Joint Stock Bank
following the loss of significant influence - 32 -
----------------------------------------------------------------
* trading results - HSBC Colombia - (9) -
----------------------------------------------------------------
* trading results - HSBC Bank Middle East Limited's
Pakistan operations - (8) (5)
----------------------------------------------------------------
* trading results - HSBC Bank Middle East Limited's
banking business in Jordan - (28) -
---------------------------------------------------------------- ----------------------- ----------------------- ----------------
Adjusted 30,772 29,456 28,522
---------------------------------------------------------------- ----------------------- ----------------------- ----------------
Loan impairment charges and other credit
risk provisions
Reported (1,439) (1,841) (2,010)
Currency translation(4) 267 285
Significant items - 2 (2)
----------------------- ----------------------- ----------------
* trading results - HSBC Colombia - 2 -
* trading results - HSBC Bank Middle East Limited's
Pakistan operations - - (2)
---------------------------------------------------------------- ----------------------- ----------------------- ----------------
Adjusted (1,439) (1,572) (1,727)
---------------------------------------------------------------- ----------------------- ----------------------- ----------------
Operating expenses
Reported (19,187) (18,266) (22,983)
----------------------------------------------------------------
Currency translation(4) 1,479 1,287
----------------------------------------------------------------
Significant items 1,545 351 3,044
---------------------------------------------------------------- ----------------------- ----------------------- ----------------
* restructuring and other related costs 117 82 196
----------------------------------------------------------------
* regulatory provisions in GPB 147 - 65
----------------------------------------------------------------
* UK customer redress programmes 137 234 1,041
----------------------------------------------------------------
* charge in relation to the settlement agreement with
the Federal Housing Finance Authority - - 550
----------------------------------------------------------------
* settlements and provisions in connection with legal
matters 1,144 - 1,187
----------------------------------------------------------------
* trading results - HSBC Colombia - 9 -
----------------------------------------------------------------
* trading results - HSBC Bank Middle East Limited's
Pakistan operations - 9 5
----------------------------------------------------------------
* trading results - HSBC Bank Middle East Limited's
banking business in Jordan - 17 -
---------------------------------------------------------------- ----------------------- ----------------------- ----------------
Adjusted (17,642) (16,436) (18,652)
---------------------------------------------------------------- ----------------------- ----------------------- ----------------
Share of profit in associates and joint
ventures
Reported 1,311 1,280 1,252
----------------------------------------------------------------
Currency translation(4) (6) (8)
----------------------------------------------------------------
Adjusted 1,311 1,274 1,244
---------------------------------------------------------------- ----------------------- ----------------------- ----------------
Half-year to
-------------------------
30 30 31
June June December
2015 2014 2014
$m $m $m
Profit before tax
Reported 13,628 12,340 6,340
-----------------------------------------------------------
Currency translation(4) (586) (134)
-----------------------------------------------------------
Significant items (626) 968 3,181
----------------------------------------------------------- ----------------------- ------ ------------------
* revenue (2,171) 615 139
-----------------------------------------------------------
* loan impairment charges and other credit risk
provisions - 2 (2)
-----------------------------------------------------------
* operating expenses 1,545 351 3,044
-----------------------------------------------------------
* share of profit in associates and joint ventures - - -
---------------------------------------------------------- ----------------------- ------ ------------------
Adjusted 13,002 12,722 9,387
----------------------------------------------------------- ----------------------- ------ ------------------
1 Net operating income before loan impairment charges and other
credit risk provisions, also referred to as revenue.
2 'Own credit spread' includes the fair value movements on our
long-term debt attributable to credit spread where the net result
of such movements will be zero upon maturity of the debt. This does
not include fair value changes due to own credit risk in respect of
trading liabilities or derivative liabilities.
3 Excludes items where there are substantial offsets in the income statement for the same year.
4 'Currency translation' is the effect of translating the
results of subsidiaries and associates for the previous year at the
average rates of exchange applicable in the current year.
9 Contingent liabilities, contractual commitments and guarantees
At
-----------------------
31
30 June 30 June December
2015 2014 2014
$m $m $m
Guarantees and
contingent
liabilities
Guarantees 88,103 87,800 86,385
---------------------
Other contingent
liabilities 297 394 346
--------------------- ------- ------- ----------
88,400 88,194 86,731
------- ------- ----------
Commitments
Documentary
credits and
short-term
trade-related
transactions 11,720 12,986 12,082
---------------------
Forward asset
purchases and
forward forward
deposits placed 1,174 2,353 823
---------------------
Undrawn formal
standby
facilities,
credit
lines and other
commitments to
lend 637,558 626,729 638,475
--------------------- ------- ------- ----------
650,452 642,068 651,380
------- ------- ----------
The above table discloses the nominal principal amounts of
commitments, guarantees and other contingent liabilities.
Contingent liabilities arising from legal proceedings, regulatory
and other matters against the Group are disclosed in Note 19 of the
Interim Report 2015 and in this document in Note 10. Nominal
principal amounts represent the amounts at risk should contracts be
fully drawn upon and clients default. As a significant proportion
of guarantees and commitments is expected to expire without being
drawn upon, the total of the nominal principal amounts is not
indicative of future liquidity requirements.
Capital Commitments
In addition to the commitments disclosed above, at 30 June 2015
HSBC had $468m (30 June 2014: $513m; 31 December 2014: $656m) of
capital commitments contracted but not provided for and $174m (30
June 2014: $232m; 31 December 2014: $101m) of capital commitments
authorised but not contracted for.
10 Legal proceedings and regulatory matters
HSBC is party to legal proceedings and regulatory matters in a
number of jurisdictions arising out of its normal business
operations. Apart from the matters described below, HSBC considers
that none of these matters are material. The recognition of
provisions is determined in accordance with the accounting policies
set out in Note 29 of the Annual Report and Accounts 2014. While
the outcome of legal proceedings and regulatory matters is
inherently uncertain, management believes that, based on the
information available to it, appropriate provisions have been made
in respect of these matters as at 30 June 2015 (see Note 17). Where
an individual provision is material, the fact that a provision has
been made is stated and quantified, except to the extent doing so
would be seriously prejudicial. Any provision recognised does not
constitute an admission of wrongdoing or legal liability. It is not
practicable to provide an aggregate estimate of potential liability
for our legal proceedings and regulatory matters as a class of
contingent liabilities.
Securities litigation
As a result of an August 2002 restatement of previously reported
consolidated financial statements and other corporate events,
including the 2002 settlement with 46 states and the District of
Columbia relating to real estate lending practices, Household
International, Inc. ('Household International') and certain former
officers were named as defendants in a class action lawsuit, Jaffe
v. Household International, Inc., et al., filed in August 2002 in
the US District Court for the Northern District of Illinois (the
'Illinois District Court'). The complaint asserted claims under the
US Securities Exchange Act and alleged that the defendants
knowingly or recklessly made false and misleading statements of
material fact relating to Household International's Consumer
Lending operations, including collections, sales and lending
practices, some of which ultimately led to the 2002 state
settlement agreement, and facts relating to accounting practices
evidenced by the restatement. Ultimately, a class was certified on
behalf of all persons who acquired and disposed of Household
International common stock between July 1999 and October 2002.
A jury trial concluded in April 2009, which was decided partly
in favour of the plaintiffs. Various legal challenges to the
verdict were raised in post-trial briefing.
In December 2011, following the submission of claim forms by
class members, the court-appointed claims administrator to the
Illinois District Court reported that the total number of claims
that generated an allowed loss was 45,921, and that the aggregate
amount of these claims was approximately $2.2bn. The defendants
filed legal challenges regarding the presumption of reliance as to
the class and compliance with the claim form requirements, which
the Illinois District Court, in September 2012, rejected for the
most part. The Illinois District Court directed further proceedings
before a court-appointed Special Master to address certain claims
submission issues.
In October 2013, the Illinois District Court denied the
defendants' additional post-trial motions for judgement as a matter
of law or, in the alternative, for a new trial, and granted
plaintiffs' motions for a partial final judgement and awarded
pre-judgement interest at the prime rate, compounded annually.
Subsequently, in October 2013, the Illinois District Court entered
a partial final judgement against the defendants in the amount of
approximately $2.5bn (including pre-judgement interest).
In addition to the partial judgement that has been entered,
there also remain approximately $625m in claims, prior to
imposition of pre-judgement interest, that still are subject to
objections that have not yet been ruled upon by the Illinois
District Court.
The defendants filed a Notice of Appeal of the partial final
judgement, and oral argument was heard by the US Court of Appeals
for the Seventh Circuit (the 'Court of Appeals') in May 2014. In
May 2015, the Court of Appeals issued a decision reversing the
partial final judgement of the Illinois District Court and
remanding the case for a new trial on loss causation, which
ultimately will entail a reassessment of the quantum of damages. In
July 2015, the Court of Appeals denied plaintiffs' petition for a
panel rehearing of the decision of the Court of Appeals.
The timing and ultimate resolution of this matter remains highly
uncertain, and given the complexity and uncertainties associated
with a new trial on loss causation and a reassessment of the
quantification of damages, there continues to be a wide range of
possible outcomes. Depending on whether and to what extent the
plaintiffs are able to demonstrate loss causation, the amount of
damages, based upon the claims included in the reversed partial
final judgement, and other pending claims and the application of
pre-judgement interest on all pending claims, may lie in a range
from a relatively insignificant amount to an amount up to or
exceeding $3.6bn. A provision has been recognised based on
management's best estimate of probable outflows, but the amount of
such provision is not disclosed as it would prejudice seriously the
position of HSBC in the resolution of this matter.
Bernard L. Madoff Investment Securities LLC
Bernard L. Madoff ('Madoff') was arrested in December 2008, and
ultimately pleaded guilty to running a Ponzi scheme. He has
acknowledged, in essence, that while purporting to invest his
customers' money in securities, he in fact never invested in
securities and used other customers' money to fulfil requests to
return investments. His firm, Bernard L. Madoff Investment
Securities LLC ('Madoff Securities'), is being liquidated in the US
by a trustee (the 'Trustee').
Various non-US HSBC companies provided custodial, administration
and similar services to a number of funds incorporated outside the
US whose assets were invested with Madoff Securities. Based on
information provided by Madoff Securities, as at 30 November 2008,
the purported aggregate value of these funds was $8.4bn, an amount
that includes fictitious profits reported by Madoff. Based on
information available to HSBC, we have estimated that the funds'
actual transfers to Madoff Securities minus their actual
withdrawals from Madoff Securities during the time that HSBC
serviced the funds totalled approximately $4bn. Various HSBC
companies have been named as defendants in lawsuits arising out of
Madoff Securities' fraud.
US/UK litigation: The Trustee has brought suits against various
HSBC companies in the US Bankruptcy Court and in the English High
Court. The Trustee's US actions included common law claims,
alleging that HSBC aided and abetted Madoff's fraud and breach of
fiduciary duty. Those claims were dismissed on grounds of lack of
standing. The Trustee's remaining US claims seek recovery of
prepetition transfers pursuant to US bankruptcy law. The amount of
these remaining claims has not been pleaded or determined as
against HSBC.
Alpha Prime Fund Ltd ('Alpha Prime') and Senator Fund SPC
('Senator'), co-defendants in the Trustee's US actions, have
brought cross-claims against HSBC. These funds have also sued HSBC
in Luxembourg (discussed below).
The Trustee's English action seeks recovery of unspecified
transfers from Madoff Securities to or through HSBC. HSBC has not
yet been served with the Trustee's English action. The Trustee's
deadline for serving the claim has been extended through the third
quarter of 2015.
Fairfield Sentry Limited, Fairfield Sigma Limited and Fairfield
Lambda Limited (collectively, 'Fairfield'), funds whose assets were
invested with Madoff Securities, commenced multiple suits in the US
and the British Virgin Islands (the 'BVI') against fund
shareholders, including various HSBC companies that acted as
nominees for HSBC clients, seeking restitution of payments made in
connection with share redemptions. The US actions brought by
Fairfield are stayed pending the outcome of the Fairfield cases in
the BVI (discussed below).
In September 2013, the US Court of Appeals for the Second
Circuit ('Court of Appeals') affirmed the dismissal of purported
class action claims against HSBC and others brought by investors in
three Madoff-invested funds on grounds of forum non conveniens. The
plaintiffs filed petitions for certiorari to the US Supreme Court
which were denied in March 2015. In May 2015, plaintiffs filed a
motion asking the Court of Appeals to restore their class action
claims on the basis of an alleged change of law governing the
claims. In June 2015, the Court of Appeals denied plaintiffs'
motion.
In December 2014, three new Madoff-related actions were filed in
the US. The first is a purported class action brought in New York
federal court by direct investors in Madoff Securities who were
holding their investments as of December 2008, asserting various
common law claims and seeking to recover damages lost to Madoff
Securities' fraud on account of HSBC's purported knowledge and
alleged furtherance of the fraud. This matter has been stayed
pending the outcome of a similar case not involving HSBC. The other
two actions were filed by SPV Optimal SUS Ltd ('SPV OSUS'), the
purported assignee of the Madoff Securities-invested company,
Optimal Strategic US Equity Ltd. One of these actions was filed in
New York state court and the other in New York federal court. In
January 2015, SPV OSUS dismissed its federal lawsuit against HSBC.
The state court action against HSBC remains pending.
In May 2015, a new action was filed in New York federal court by
two investors in Hermes International Fund Limited ('Hermes')
asserting various common law claims against HSBC and seeking to
recover damages lost to Madoff Securities' fraud. A preliminary
conference is scheduled to take place in October 2015.
BVI litigation: Beginning in October 2009, the Fairfield funds,
whose assets were directly or indirectly invested with Madoff
Securities, commenced multiple suits in the BVI against numerous
fund shareholders, including various HSBC companies that acted as
nominees for clients of HSBC's private banking business and other
clients who invested in the Fairfield funds. The Fairfield funds
are seeking restitution of redemption payments made by the funds to
defendants on the grounds that they were mistakenly based on
inflated net asset values. In April 2014, the UK Privy Council
issued a ruling on two preliminary issues in favour of other
defendants in the BVI actions, and issued its order in October
2014. A motion was brought by other defendants before the BVI court
challenging the Fairfield liquidator's authorisation to pursue its
claims in the US. That motion was heard in March 2015 and judgement
is pending.
Bermuda litigation: In January 2009, Kingate Global Fund Limited
and Kingate Euro Fund Limited (collectively, 'Kingate'), funds
whose assets were directly or indirectly invested with Madoff
Securities, commenced an action in Bermuda against HSBC Bank
Bermuda Limited for recovery of funds held in Kingate's accounts,
fees and dividends. This action is currently pending, but is not
expected to move forward until there is a resolution as to the
Trustee's separate US actions against Kingate and HSBC Bank Bermuda
Limited.
Thema Fund Limited ('Thema') and Hermes, funds invested with
Madoff Securities, each also brought three actions in Bermuda in
2009. The first set of actions were brought against HSBC
Institutional Trust Services (Bermuda) Limited and seek recovery of
funds in frozen accounts held at HSBC. The second set of actions
asserts liability against HSBC Institutional Trust Services
(Bermuda) Limited in relation to claims for mistake, recovery of
fees and damages for breach of contract. The third set of actions
seeks return of fees from HSBC Bank Bermuda Limited and HSBC
Securities Services (Bermuda). There has been little progress in
these actions for several years, although in January 2015, Thema
and Hermes served notice of intent to proceed in respect of the
second set of actions referred to above. A hearing has not yet been
scheduled.
Cayman Islands litigation: In February 2013, Primeo Fund, a
Cayman Islands-based fund invested in Madoff Securities, brought an
action against the fund administrator, Bank of Bermuda (Cayman),
and the fund custodian, HSBC Securities Services (Luxembourg)
('HSSL'), alleging breaches of contract. Primeo Fund claims damages
from defendants to compensate it for alleged losses, including loss
of profit and any liability to the Trustee. Trial is scheduled to
begin in November 2016.
Luxembourg litigation: In April 2009, Herald Fund SPC ('Herald')
(in official liquidation since July 2013) commenced action against
HSSL before the Luxembourg District Court seeking restitution of
all cash and securities Herald purportedly lost because of Madoff
Securities' fraud, or in the alternative, money damages in the same
amount. In March 2013, the Luxembourg District Court dismissed
Herald's restitution claim for the return of the securities.
Herald's restitution claim for return of the cash and claim for
money damages were reserved. Herald appealed this judgement in May
2013. In May 2015, the Luxembourg Court of Appeal held that Herald
must pay security for costs before its claim can be pursued on
appeal. Herald filed a request for correction of material errors
with respect to the amount of the security, to which HSSL has
responded. The parties are awaiting a hearing on Herald's request.
Proceedings on the reserved restitution claim were suspended
pending resolution of the appeal.
In October 2009, Alpha Prime commenced an action against HSSL
before the Luxembourg District Court, alleging breach of contract
and negligence in the appointment of Madoff Securities as a
sub-custodian of Alpha Prime's assets. Alpha Prime was ordered to
provide a judicial bond. Alpha Prime requested a stay of these
proceedings pending its negotiations with the Trustee in the US
proceedings. The matter has been temporarily suspended at Alpha
Prime's request. The parties are awaiting the next hearing
date.
In March 2010, Herald (Lux) SICAV ('Herald (Lux)') (in official
liquidation since April 2009) commenced an action against HSSL
before the Luxembourg District Court seeking restitution of
securities, or the cash equivalent, or money damages in the
alternative. Herald (Lux) has also requested the restitution of
fees paid to HSSL as custodian and service agent of the fund. The
next preliminary hearing is scheduled to take place in September
2015.
In December 2014, Senator commenced an action against HSSL
before the Luxembourg District Court, seeking the restitution of
securities held as of the latest net asset value statement from
November 2008, or in the alternative, money damages. The matter has
been temporarily suspended at Senator's request. The parties are
awaiting the next hearing date.
In April 2015, Senator commenced an action against the
Luxembourg branch of HSBC Bank plc before the Luxembourg District
Court asserting identical claims to those asserted in Senator's
action against HSSL. This action is at an early stage.
HSSL has been sued in various actions by shareholders in the
Primeo Select Fund, Herald, Herald (Lux), and Hermes. These actions
are in different stages, most of which have been dismissed,
suspended or postponed.
Ireland litigation: In November 2013, Defender Limited, a fund
invested with Madoff securities, commenced an action against HSBC
Institutional Trust Services (Ireland) Limited ('HTIE'), alleging
breach of the custodian agreement and claiming damages and
indemnification for claims against Defender Limited for fund
losses. The action also includes four non-HSBC parties, who served
as directors and investment managers to Defender Limited. This
matter is ongoing.
In July 2013 and December 2013, settlements were reached in
respect of claims filed against HTIE in the Irish High Court by
Thema International Fund plc ('Thema International') and
Alternative Advantage Plc ('AA'), respectively. Two actions by
individual Thema International shareholders against HTIE and Thema
International remain active. A hearing on preliminary matters
relating to the plaintiffs' entitlement to bring the actions is
scheduled to take place in December 2015.
In December 2014, a new proceeding against HTIE and HSBC
Securities Services (Ireland) Limited was brought by SPV OSUS,
alleging breach of the custodian agreement and claiming damages and
indemnification for fund losses.
There are many factors that may affect the range of possible
outcomes, and the resulting financial impact, of the various
Madoff-related proceedings described above, including but not
limited to the multiple jurisdictions in which the proceedings have
been brought and the number of different plaintiffs and defendants
in such proceedings. Based upon the information currently
available, management's estimate of possible aggregate damages that
might arise as a result of all claims in the various Madoff-related
proceedings is up to or exceeding $800m. Due to uncertainties and
limitations of this estimate, the ultimate damages could differ
significantly from this amount.
US mortgage-related investigations
In April 2011, following completion of a broad horizontal review
of industry residential mortgage foreclosure practices, HSBC Bank
USA N.A. ('HSBC Bank USA') entered into a consent cease-and-desist
order with the Office of the Comptroller of the Currency (the
'OCC'). HSBC Finance Corporation ('HSBC Finance') and HSBC North
America Holdings Inc. ('HNAH') also entered into a similar consent
order with the Federal Reserve Board (the 'FRB') (together with the
OCC order, the 'Servicing Consent Orders'). The Servicing Consent
Orders require prescribed actions to address the deficiencies noted
in the joint examination and described in the consent orders. HSBC
Bank USA, HSBC Finance and HNAH continue to work with the OCC and
the FRB to align their processes with the requirements of the
consent orders and are implementing operational changes as
required. In June 2015, HSBC Bank USA entered into an amendment to
the OCC order ('Amended OCC Order') setting forth, inter alia, that
HSBC Bank USA is not yet in compliance with all requirements of the
OCC order and imposing business restrictions related to residential
mortgage servicing. The business restrictions, which include a
prohibition against the bulk acquisition of residential mortgage
servicing or residential mortgage servicing rights and a
requirement to seek OCC supervisory non-objection to outsource any
residential mortgage servicing activities that are not already
outsourced as of the date of the Amended OCC Order, will remain in
place until the OCC order is
terminated. A failure to satisfy all requirements of the OCC
order may result in a variety of regulatory consequences for HSBC
Bank USA, including the imposition of civil money penalties.
Pursuant to the Servicing Consent Orders, an independent
consultant was retained to conduct an independent review of
foreclosures pending or completed between January 2009 and December
2010 (the 'Independent Foreclosure Review') to determine if any
borrower was financially injured as a result of an error in the
foreclosure process. In February 2013, HSBC Bank USA entered into
an agreement with the OCC, and HSBC Finance and HNAH entered into
an agreement with the FRB (together, the 'IFR Settlement
Agreements'), pursuant to which the Independent Foreclosure Review
was replaced by a broader framework under which HSBC and 12 other
participating servicers agreed to provide, in the aggregate, over
$9.3bn in cash payments and other assistance to help eligible
borrowers. Pursuant to the IFR Settlement Agreements, HNAH made a
cash payment of $96m into a fund used to make payments to borrowers
that were in active foreclosure during 2009 and 2010, and in
addition, is providing other assistance (e.g. loan modifications)
to help eligible borrowers. Borrowers who receive compensation will
not be required to execute a release or waiver of rights and will
not be precluded from pursuing litigation concerning foreclosure or
other mortgage servicing practices. For participating servicers,
including HSBC Bank USA and HSBC Finance, fulfilment of the terms
of the IFR Settlement Agreements will satisfy the Independent
Foreclosure Review requirements of the Servicing Consent Orders,
including the wind-down of the Independent Foreclosure Review.
The Servicing Consent Orders do not preclude additional
enforcement actions against HSBC Bank USA, HSBC Finance or HNAH by
bank regulatory, governmental or law enforcement agencies, such as
the US Department of Justice (the 'DoJ') or state Attorneys
General, which could include the imposition of civil money
penalties and other sanctions relating to the activities that are
the subject of the Servicing Consent Orders. Pursuant to the IFR
Settlement Agreement with the OCC, however, the OCC has agreed that
it will not assess civil money penalties or initiate any further
enforcement action with respect to past mortgage servicing and
foreclosure-related practices addressed in the Servicing Consent
Orders, provided the terms of the IFR Settlement Agreements are
fulfilled. The OCC's agreement not to assess civil money penalties
is further conditioned on HNAH making payments or providing
borrower assistance pursuant to any agreement that may be entered
into with the DoJ in connection with the servicing of residential
mortgage loans. The FRB has agreed that any assessment of civil
money penalties by the FRB will reflect a number of adjustments,
including amounts expended in consumer relief and payments made
pursuant to any agreement that may be entered into with the DoJ in
connection with the servicing of residential mortgage loans. The
IFR Settlement Agreements do not preclude private litigation
concerning these practices.
Separate from the Servicing Consent Orders and the settlements
related to the Independent Foreclosure Review discussed above, in
February 2012, five of the largest US mortgage servicers (not
including any HSBC companies) reached a settlement with the DoJ,
the US Department of Housing and Urban Development and state
Attorneys General of 49 states with respect to foreclosure and
other mortgage servicing practices. Following the February 2012
settlement, these government agencies initiated discussions with
other mortgage industry servicers, including HSBC, HSBC Bank USA,
HSBC Finance and HNAH, and discussions have been held with US bank
regulators and other governmental agencies regarding a potential
resolution. Any such settlement, however, may not completely
preclude other enforcement actions by state or federal agencies,
bank regulators or law enforcement bodies related to foreclosure
and other mortgage servicing practices including, but not limited
to, matters relating to the securitisation of mortgages for
investors. These practices have in the past resulted in private
litigation, and such a settlement would not preclude further
private litigation concerning these practices.
US mortgage securitisation activity and litigation
HSBC Bank USA has been involved as a sponsor/seller of loans
used to facilitate whole loan securitisations underwritten by HSBC
Securities (USA) Inc. ('HSI'). From 2005 to 2007, HSBC Bank USA
purchased and sold $24bn of such loans to HSI which were
subsequently securitised and sold by HSI to third parties. The
outstanding principal balance on these loans was approximately
$5.5bn as at 30 June 2015.
Participants in the US mortgage securitisation market that
purchased and repackaged whole loans have been the subject of
lawsuits and governmental and regulatory investigations and
inquiries, which have been directed at groups within the US
mortgage market such as servicers, originators, underwriters,
trustees or sponsors of securitisations, and at particular
participants within these groups. As the industry's residential
mortgage foreclosure issues continue, HSBC Bank USA has taken title
to an increasing number of foreclosed homes as trustee on behalf of
various securitisation trusts. As nominal record owner of these
properties, HSBC Bank USA has been sued by municipalities and
tenants alleging various violations of law, including laws
regarding property upkeep and tenants' rights. While HSBC believes
and continues to maintain that the obligations at issue and any
related liabilities are properly those of the servicer of each
trust, HSBC continues to receive significant adverse publicity in
connection with these and similar matters, including foreclosures
that are serviced by others in the name of 'HSBC, as trustee'.
Between June and December 2014, a number of lawsuits were filed
in state and federal court in New York against HSBC Bank USA as
trustee of over 250 mortgage securitisation trusts. These lawsuits
are brought derivatively on behalf of the trusts by a class of
investors including, amongst others, BlackRock and PIMCO funds.
Similar lawsuits were filed simultaneously against other non-HSBC
financial institutions that served as mortgage securitisation pool
trustees. The complaints against HSBC Bank USA allege that the
trusts have sustained losses in collateral value of over $34bn. The
lawsuits seek unspecified damages resulting from alleged breaches
of the US Trust Indenture Act, breach of fiduciary duties,
negligence, breach of contract and breach of the common law duty of
trust. HSBC filed a motion to dismiss three of these lawsuits in
January 2015, which was unsuccessful.
Various HSBC companies have also been named as defendants in a
number of actions in connection with residential mortgage-backed
securities ('RMBS') offerings, which generally allege that the
offering documents for securities issued by securitisation trusts
contained material misstatements and omissions, including
statements regarding the underwriting standards governing the
underlying mortgage loans. In June 2015, HSBC's motion to dismiss
in one of these actions was granted in its entirety.
HSBC Bank USA, HSBC Finance and Decision One Mortgage Company
LLC (an indirect subsidiary of HSBC Finance) have been named as
defendants in various mortgage loan repurchase actions brought by
trustees of securitisation trusts. In the aggregate, these actions
seek to have the HSBC defendants repurchase mortgage loans, or pay
compensatory damages in lieu of repurchase totalling at least $1bn.
Motions to dismiss have been filed in two of these actions. In
respect of one of these actions, the motion to dismiss was denied
and a trial is scheduled to take place in February 2016. The other
motion to dismiss remains pending. In addition to actions brought
by trustees of securitisation trusts, HSBC Bank USA and Decision
One Mortgage Company LLC have been named as defendants in two
separate actions filed by Residential Funding Company LLC ('RFC'),
a mortgage loan purchase counterparty. These actions seek
unspecified damages in relation to alleged losses suffered by RFC
as a result of approximately 25,000 mortgage loans purchased from
HSBC between 1986-2007. These actions are at an early stage.
Since 2010, various HSBC entities have received subpoenas and
requests for information from US authorities seeking the production
of documents and information regarding HSBC's involvement, and the
involvement of its affiliates, in particular private-label RMBS
transactions as an issuer, sponsor, underwriter, depositor,
trustee, custodian or servicer. HSBC continues to cooperate with
these US authorities. In November 2014, HNAH, on behalf of itself
and various subsidiaries including, but not limited to, HSBC Bank
USA, HASCO, HSI, HSI Asset Loan Obligation, HSBC Mortgage
Corporation (USA), HSBC Finance and Decision One Mortgage Company
LLC, received a subpoena from the US Attorney's Office for the
District of Colorado, pursuant to the Financial Industry Reform,
Recovery and Enforcement Act, concerning the origination,
financing, purchase, securitisation and servicing of subprime and
non-subprime residential mortgages. This matter is at an early
stage and HSBC is cooperating fully.
HSBC expects the focus on mortgage securitisations to continue.
As a result, HSBC companies may be subject to additional claims,
litigation and governmental or regulatory scrutiny relating to its
participation in the US mortgage securitisation market, either as a
member of a group or individually.
There are many factors that may affect the range of possible
outcomes, and the resulting financial impact, of these private
lawsuits. Any liabilities that might arise as a result of the
claims in these actions could, however, be significant.
Anti-money laundering and sanctions-related matters
In October 2010, HSBC Bank USA entered into a consent
cease-and-desist order with the OCC, and HNAH entered into a
consent cease-and-desist order with the FRB (the 'Orders'). These
Orders required improvements to establish an effective compliance
risk management programme across HSBC's US businesses, including
risk management related to US Bank Secrecy Act (the 'BSA') and
anti-money laundering ('AML') compliance. Steps continue to be
taken to address the requirements of the Orders.
In December 2012, HSBC Holdings, HNAH and HSBC Bank USA entered
into agreements with US and UK government agencies regarding past
inadequate compliance with the BSA, AML and sanctions laws. Among
those agreements, HSBC Holdings and HSBC Bank USA entered into a
five-year deferred prosecution agreement with the DoJ, the US
Attorney's Office for the Eastern District of New York, and the US
Attorney's Office for the Northern District of West Virginia (the
'US DPA'); HSBC Holdings entered into a two-year deferred
prosecution agreement with the New York County District Attorney
(the 'DANY DPA'); and HSBC Holdings consented to a cease-and-desist
order and HSBC Holdings and HNAH consented to a civil money penalty
order with the FRB. In addition, HSBC Bank USA entered into a civil
money penalty order with a bureau of the US Treasury Department
known as the Financial Crimes Enforcement Network ('FinCEN') and a
separate civil money penalty order with the OCC. HSBC Holdings also
entered into an agreement with the Office of Foreign Assets Control
('OFAC') regarding historical transactions involving parties
subject to OFAC sanctions and an undertaking with the UK FCA to
comply with certain forward-looking AML and sanctions-related
obligations.
Under these agreements, HSBC Holdings and HSBC Bank USA made
payments totalling $1.9bn to US authorities and are continuing to
comply with ongoing obligations. In July 2013, the US District
Court for the Eastern District of New York approved the US DPA and
retained authority to oversee implementation of that agreement.
Under the agreements with the DoJ, FCA, and FRB, an independent
monitor (who is, for FCA purposes, a 'skilled person' under Section
166 of the Financial Services and Markets Act) is evaluating and
regularly assessing the effectiveness of HSBC's AML and sanctions
compliance function and HSBC's progress in implementing its
remedial obligations under the agreements.
HSBC Holdings has fulfilled all of the requirements imposed by
the DANY DPA, which expired by its terms at the end of the two-year
period of that agreement in December 2014. If HSBC Holdings and
HSBC Bank USA fulfil all of the requirements imposed by the US DPA,
the DoJ charges against those entities will be dismissed at the end
of the five-year period of that agreement. The DoJ may prosecute
HSBC Holdings or HSBC Bank USA in relation to any matters that are
the subject of the US DPA if HSBC Holdings or HSBC Bank USA
breaches the terms of the US DPA.
HSBC Bank USA also entered into a separate consent order with
the OCC, requiring it to correct the circumstances and conditions
as noted in the OCC's then most recent report of examination, and
imposing certain restrictions on HSBC Bank USA directly or
indirectly acquiring control of, or holding an interest in, any new
financial subsidiary, or commencing a new activity in its existing
financial subsidiary, unless it receives prior approval from the
OCC. HSBC Bank USA also entered into a separate consent order with
the OCC requiring it to adopt an enterprise-wide compliance
programme.
These settlements with US and UK authorities have led to private
litigation, and do not preclude further private litigation related
to HSBC's compliance with applicable BSA, AML and sanctions laws or
other regulatory or law enforcement actions for BSA, AML, sanctions
or other matters not covered by the various agreements.
In May 2014, a shareholder derivative action was filed by a
shareholder of HSBC Holdings purportedly on behalf of HSBC
Holdings, HSBC Bank USA, HNAH and HSBC USA Inc. (the 'Nominal
Corporate Defendants') in New York State Supreme Court against
certain current and former directors and officers of those HSBC
companies (the 'Individual Defendants'). The complaint alleges that
the Individual Defendants breached their fiduciary duties to the
Nominal Corporate Defendants and caused a waste of corporate assets
by allegedly permitting and/or causing the conduct underlying the
US DPA. Plaintiff filed an amended complaint in February 2015. In
March 2015, the Nominal Corporate Defendants moved to dismiss the
action, and the Individual Defendants who had been served also
responded to the complaint. The motion was fully briefed in May
2015. Oral argument is scheduled to take place in August 2015.
In July 2014, a claim was filed in the Ontario Superior Court of
Justice against HSBC Holdings and a former employee purportedly on
behalf of a class of persons who purchased HSBC common shares and
American Depositary Shares between July 2006 and July 2012. The
complaint, which seeks monetary damages of up to CA$20bn, alleges
that the defendants made statutory and common law
misrepresentations in documents released by HSBC Holdings and its
wholly owned subsidiary, HSBC Bank Canada, relating to HSBC's
compliance with BSA, AML, sanctions and other laws.
In November 2014, a complaint was filed in the US District Court
for the Eastern District of New York on behalf of representatives
of US persons killed or injured in Iraq between April 2004 and
November 2011. The complaint was filed against HSBC Holdings, HSBC
Bank plc, HSBC Bank USA and HSBC Bank Middle East, as well as other
non-HSBC banks and the Islamic Republic of Iran (together, the
'Defendants'). The plaintiffs allege that defendants conspired to
violate the US Anti-Terrorism Act, by altering or falsifying
payment messages involving Iran, Iranian parties and Iranian banks
for transactions processed through the US. Plaintiffs filed an
amended complaint in April 2015. Defendants filed a motion to
dismiss in May 2015. The motion will be fully briefed in August
2015.
Based on the facts currently known, it is not practicable at
this time for HSBC to predict the resolution of these private
lawsuits, including the timing or any possible impact on HSBC,
which could be significant.
Tax-related investigations
HSBC continues to cooperate in ongoing investigations by the DoJ
and the US Internal Revenue Service regarding whether certain HSBC
companies and employees acted appropriately in relation to certain
customers who had US tax reporting obligations. In connection with
these investigations, HSBC Private Bank (Suisse) SA ('HSBC Swiss
Private Bank'), with due regard for Swiss law, has produced records
and other documents to the DoJ. In August 2013, the DoJ informed
HSBC Swiss Private Bank that it was not eligible for the 'Program
for Non-Prosecution Agreements or Non-Target Letters for Swiss
Banks' since a formal investigation had previously been authorised.
The DoJ has requested additional information from HSBC Swiss
Private Bank and other Swiss banks regarding the transfer of assets
to and from US person-related accounts and employees who serviced
those accounts. HSBC Swiss Private Bank is preparing this data, in
a manner consistent with Swiss law.
Other HSBC companies have received subpoenas and requests for
information from US and other authorities, including with respect
to US-based clients of an HSBC company in India.
In addition, various tax administration, regulatory and law
enforcement authorities around the world, including in Belgium,
France, Argentina and India, are conducting investigations and
reviews of HSBC Swiss Private Bank in connection with allegations
of tax evasion or tax fraud, money laundering and unlawful
cross-border banking solicitation. HSBC Swiss Private Bank has been
placed under formal criminal examination by magistrates in both
Belgium and France. In February 2015, HSBC was informed that the
French magistrates are of the view that they have completed their
investigation with respect to HSBC Swiss Private Bank and have
referred the matter to the public prosecutor for a recommendation
on any potential charges to be brought, whilst reserving the right
to continue investigating other conduct at HSBC. In April 2015,
HSBC Holdings was informed that it has been placed under formal
criminal investigation by the French magistrates in connection with
the conduct of HSBC Swiss Private Bank in 2006 and 2007 for alleged
tax offences, and a EUR1bn bail was imposed. HSBC Holdings appealed
the magistrates' decision and, in June 2015, bail was reduced to
EUR100m. The ultimate financial impact could differ significantly
from the bail amount of EUR100m. In Argentina, in November 2014,
the Argentine tax authority filed a complaint alleging an unlawful
association between HSBC Swiss Private Bank, HSBC Bank Argentina,
HSBC Bank USA and certain current and former HSBC officers, which
allegedly enabled HSBC customers to evade Argentine tax
obligations. In February 2015, a public prosecutor in Switzerland
commenced an investigation of HSBC Swiss Private Bank, and the
Indian tax authority issued a summons and request for information
to an HSBC company in India. In June 2015, the public prosecutor's
investigation in Switzerland was closed.
With respect to each of these ongoing matters, HSBC is
cooperating with the relevant authorities. There are many factors
that may affect the range of outcomes, and the resulting financial
impact, of these investigations and reviews, which could be
significant.
In light of the recent media attention regarding these matters,
it is possible that other tax administration, regulatory or law
enforcement authorities will also initiate or enlarge similar
investigations or regulatory proceedings.
London interbank offered rates, European interbank offered rates
and other benchmark interest rate investigations and litigation
Various regulators and competition and law enforcement
authorities around the world, including in the UK, the US, the EU,
Switzerland and elsewhere, are conducting investigations and
reviews related to certain past submissions made by panel banks and
the processes for making submissions in connection with the setting
of London interbank offered rates ('Libor'), European interbank
offered rates ('Euribor') and other benchmark interest rates. As
certain HSBC companies are members of such panels, HSBC has been
the subject of regulatory demands for information and is
cooperating with those investigations and reviews.
In December 2013, the European Commission (the 'Commission')
announced that it had imposed fines on eight financial institutions
under its cartel settlement procedure for their participation in
illegal activity related to euro interest rate derivatives and/or
yen interest rate derivatives. Although HSBC was not one of the
financial institutions fined, the Commission announced that it had
opened proceedings against HSBC in connection with its
Euribor-related investigation of euro interest rate derivatives
only. This investigation will continue under the standard
Commission cartel procedure. In May 2014, HSBC received a Statement
of Objections from the Commission, alleging anti-competitive
practices in connection with the pricing of euro interest rate
derivatives. The Statement of Objections sets out the Commission's
preliminary views and does not prejudge the final outcome of its
investigation. HSBC responded to the Commission's Statement of
Objections in March 2015. The hearing before the Commission took
place in June 2015.
In addition, HSBC and other US dollar Libor panel banks have
been named as defendants in a number of private lawsuits filed in
the US with respect to the setting of US dollar Libor. The
complaints assert claims under various US laws, including US
antitrust and racketeering laws, the US Commodity Exchange Act
('CEA'), and state law. The lawsuits include individual and
putative class actions, most of which have been transferred and/or
consolidated for pre-trial purposes before the New York District
Court.
In March 2013, the New York District Court overseeing the
consolidated proceedings related to US dollar Libor issued a
decision in the six oldest actions, dismissing the plaintiffs'
federal and state antitrust claims, racketeering claims, and unjust
enrichment claims in their entirety, but allowing certain of their
CEA claims that were not barred by the applicable statute of
limitations to proceed. Some of those plaintiffs appealed the New
York District Court's decision to the US Court of Appeals for the
Second Circuit, which later dismissed those appeals. In January
2015, the US Supreme Court reversed the Court of Appeals' decision
and remanded the case to the Court of Appeals for consideration of
the merits of the plaintiffs' appeal. Briefing is ongoing in the
Court of Appeals.
Other plaintiffs sought to file amended complaints in the New
York District Court to assert additional allegations. In June 2014,
the New York District Court issued a decision that, amongst other
things, denied the plaintiffs' request for leave to amend their
complaints to assert additional theories of Libor manipulation
against HSBC and certain non-HSBC banks, but granted leave to
assert such manipulation claims against two other banks; and
granted defendants' motion to dismiss certain additional claims
under the CEA as barred by the applicable statute of limitations.
Proceedings with respect to all other actions in the consolidated
proceedings were stayed pending this decision. The stay was lifted
in September 2014. Amended complaints were filed in previously
stayed non-class actions in October 2014; and amended complaints
were filed in several of the previously stayed class actions in
November 2014. Motions to dismiss were filed in November 2014 and
January 2015, respectively, and remain pending.
Separately, HSBC and other panel banks have also been named as
defendants in a putative class action filed in the New York
District Court on behalf of persons who transacted in euroyen
futures and options contracts related to the euroyen Tokyo
interbank offered rate ('Tibor'). The complaint alleges, amongst
other things, misconduct related to euroyen Tibor, although HSBC is
not a member of the Japanese Bankers Association's euroyen Tibor
panel, as well as Japanese yen Libor, in violation of US antitrust
laws, the CEA, and state law. In March 2014, the New York District
Court issued an opinion dismissing the plaintiffs' claims under US
antitrust law and state law, but sustaining their claims under the
CEA. In June 2014, the plaintiffs moved for leave to file a third
amended complaint. That motion was denied in March 2015, except
insofar as it granted leave to add certain defendants not
affiliated with HSBC and reserving on the question of whether the
California State Teachers Retirement System may be added as a
plaintiff.
In November 2013, HSBC and other panel banks were also named as
defendants in a putative class action filed in the New York
District Court on behalf of persons who transacted in euro futures
contracts and other financial instruments related to Euribor. The
complaint alleges, amongst other things, misconduct related to
Euribor in violation of US antitrust laws, the CEA and state law.
The plaintiffs filed a second and later third amended complaint in
May 2014 and October 2014. The court previously stayed proceedings
until May 2015. The court has set a deadline for plaintiffs to file
a fourth amended complaint in August 2015, and for defendants to
respond in September 2015.
In September and October 2014, HSBC Bank plc and other panel
banks were named as defendants in a number of putative class
actions that were filed and consolidated in the New York District
Court on behalf of persons who transacted in interest rate
derivative transactions or purchased or sold financial instruments
that were either tied to US dollar International Swaps and
Derivatives Association fix ('ISDAfix') rates or were executed
shortly before, during, or after the time of the daily ISDAfix
setting window. The complaint alleges, amongst other things,
misconduct related to these activities in violation of US antitrust
laws, the CEA and state law. In October 2014, the plaintiffs filed
a consolidated amended complaint, and in February 2015, plaintiffs
filed a second consolidated amended complaint replacing HSBC Bank
plc with HSBC Bank USA. A motion to dismiss that complaint was
filed in April 2015 and remains pending.
There are many factors that may affect the range of possible
outcomes, and the resulting financial impact, of these private
lawsuits. Based upon the information currently available, it is
possible that any liabilities that might arise as a result of the
claims in these actions could be significant.
Foreign exchange rate investigations and litigation
Various regulators and competition and law enforcement
authorities around the world, including in the US, the EU, Brazil,
South Korea and elsewhere, are conducting investigations and
reviews into a number of firms, including HSBC, related to trading
on the foreign exchange markets. These include a criminal
investigation in the US, as well as investigations by the civil
competition authorities in the EU, Brazil and South Korea.
HSBC has been cooperating with these ongoing investigations. In
May 2015, the DOJ resolved its ongoing investigations against five
non-HSBC financial institutions, resulting in four pleading guilty
to a criminal charge for collusive efforts to influence foreign
exchange benchmark rates and agreeing to pay criminal fines of more
than $2.5bn. Additional penalties were imposed by the Board of
Governors of the FRB at the same time. HSBC was not a party to
these resolutions, and investigations into HSBC by the DOJ, FRB and
other authorities around the world continue.
In addition, in late 2013 and early 2014, HSBC Holdings, HSBC
Bank plc, HNAH and HSBC Bank USA were named as defendants, amongst
other banks, in various putative class actions filed in the New
York District Court. In March 2014, the plaintiffs filed a
consolidated amended complaint alleging, amongst other things, that
defendants conspired to manipulate the WM/ Reuters foreign exchange
benchmark rates by sharing customers' confidential order flow
information, thereby injuring plaintiffs and others by forcing them
to pay artificial and non-competitive prices for products based on
these foreign currency rates ('the Consolidated Action'). Separate
putative class actions were also brought on behalf of non-US
plaintiffs (the 'Foreign Actions'). Defendants moved to dismiss all
actions. In January 2015, the court denied defendants' motion to
dismiss as to the Consolidated Action, but granted defendants'
motion to dismiss as to the Foreign Actions. Five additional
putative class actions were subsequently filed in the New York
District Court making similar allegations on behalf of persons who
engaged in foreign exchange futures transactions on a US exchange.
An additional putative class action was filed in the New York
District Court making similar allegations on behalf of ERISA plan
participants, and one was filed in California District Court that
is similar to the Consolidated Action. HSBC has not yet responded
to the new actions.
As at 30 June 2015, HSBC has recognised a provision in the
amount of $1.3bn in respect of these ongoing investigations and
other actions. There are many factors that may affect the range of
outcomes, and the resulting financial impact, of these matters. Due
to uncertainties and limitations of these estimates, the ultimate
penalties could differ significantly from the amount provided.
Precious metals fix-related litigation and investigations
Since March 2014, numerous putative class actions have been
filed in the US District Courts for the Southern District of New
York, the District of New Jersey and the Northern District of
California naming HSBC Bank USA, HSBC Bank plc, HSI and other
members of The London Gold Market Fixing Limited as defendants. The
complaints allege that, from January 2004 to the present,
defendants conspired to manipulate the price of gold and gold
derivatives during the afternoon London gold fix in order to reap
profits on proprietary trades. These actions have been assigned to
and consolidated in the New York District Court. An amended
consolidated class action complaint was filed in December 2014, and
defendants filed a consolidated response in February 2015. A second
consolidated amended complaint was filed in March 2015. Defendants
filed a consolidated response in April 2015.
Since July 2014, putative class actions were filed in the US
District Court for the Southern District of New York and the
Eastern District of New York naming HSBC Holdings, HNAH, HSBC Bank
USA, HSBC USA Inc. and other members of The London Silver Market
Fixing Ltd as defendants. The complaints allege that, from January
2007 to the present, defendants conspired to manipulate the price
of physical silver and silver derivatives for their collective
benefit in violation of US antitrust laws and the CEA. These
actions have been assigned to and consolidated in the New York
District Court. An amended consolidated class action complaint was
filed in January 2015, and defendants filed a consolidated response
in March 2015. Plaintiffs filed a second amended complaint in April
2015. Defendants' consolidated response was filed in May 2015.
Between late 2014 and early 2015, numerous putative class
actions were filed in the New York District Court naming HSBC Bank
USA and other members of The London Platinum and Palladium Fixing
Company Limited as defendants. The complaints allege that, from
January 2007 to the present, defendants conspired to manipulate the
price of physical Platinum Group Metals ('PGM') and PGM-based
financial products for their collective benefit in violation of US
antitrust laws and the CEA. An amended consolidated class action
complaint was filed in April 2015. Defendants' consolidated
response was filed in June 2015.
Various regulators and competition and law enforcement
authorities in the US and the EU are conducting investigations and
reviews related to HSBC's precious metals operations. In November
2014, the DoJ issued a document request to HSBC Holdings, seeking
the voluntary production of certain documents relating to a
criminal antitrust investigation that the DoJ is conducting in
relation to precious metals. In January 2015, the CFTC issued a
subpoena to HSBC Bank USA, seeking the production of certain
documents related to HSBC Bank USA's precious metals trading
operations. In April 2015, the European Commission issued a request
for information seeking certain information related to HSBC's
precious metals operations. HSBC is cooperating with the
authorities.
Based on the facts currently known, it is not practicable at
this time for HSBC to predict the resolution of these matters,
including the timing or any possible impact on HSBC, which could be
significant.
Credit default swap regulatory investigation and litigation
In July 2013, HSBC received a Statement of Objections from the
Commission relating to its ongoing investigation of alleged
anti-competitive activity by a number of market participants in the
credit derivatives market between 2006 and 2009. The Statement of
Objections sets out the Commission's preliminary views and does not
prejudge the final outcome of its investigation. HSBC has submitted
a response and attended an oral hearing in May 2014. Following the
oral hearing, the Commission decided to conduct a further
investigation phase before deciding whether or how to proceed with
the case. HSBC is cooperating with this further investigation.
There are many factors that may affect the range of possible
outcomes, and the resulting financial impact, of this matter. The
amounts of any fines and/or penalties, however, could be
significant.
In addition, HSBC Bank USA, HSBC Holdings and HSBC Bank plc have
been named as defendants, amongst others, in numerous putative
class actions filed in the New York District Court and the Illinois
District Court. These class actions allege that the defendants,
which include ISDA, Markit and several other financial
institutions, conspired to restrain trade in violation of US
antitrust laws by, amongst other things, restricting access to
credit default swap pricing exchanges and blocking new entrants
into the exchange market, with the purpose and effect of
artificially inflating the bid/ask spread paid to buy and sell
credit default swaps in the US. The plaintiffs in these suits
purport to represent a class of all persons who purchased credit
default swaps from or sold credit default swaps to defendants
primarily in the US.
In October 2013, these cases were consolidated in the New York
District Court. An amended consolidated complaint was filed in
January 2014, naming HSBC Bank USA and HSBC Bank plc as defendants,
amongst other non-HSBC defendants. Following the filing of
defendants' initial motions to dismiss in March 2014, plaintiffs
filed a second amended consolidated complaint, which defendants
also moved to dismiss. In September 2014, the court granted in part
and denied in part the defendants' motion to dismiss. Discovery is
in process.
There are many factors that may affect the range of possible
outcomes, and the resulting financial impact, of these private
lawsuits. Any liabilities that might arise as a result of the
claims in these actions could, however, be significant.
Economic plans: HSBC Bank Brasil S.A.
In the mid-1980s and early 1990s, certain economic plans were
introduced by the government of Brazil to reduce escalating
inflation. The implementation of these plans adversely impacted
savings account holders, thousands of which consequently commenced
legal proceedings against financial institutions in Brazil,
including HSBC Bank Brasil S.A. ('HSBC Brazil'), alleging, amongst
other things, that savings account balances were adjusted by a
different price index than that contractually agreed, which caused
them a loss of income. Certain of these cases have reached the
Brazilian Supreme Court (the 'Supreme Court'). The Supreme Court
has suspended all cases pending before lower courts until it
delivers a final judgement on the constitutionality of the changes
resulting from the economic plans. It is anticipated that the
outcome of the Supreme Court's final judgement will set a precedent
for all cases pending before the lower courts. Separately, the
Brazilian Superior Civil Court (the 'Superior Civil Court') is
considering matters relating to, amongst other things, contractual
and punitive interest rates to be applied to calculate any loss of
income.
There is a high degree of uncertainty as to the terms on which
the proceedings in the Supreme Court and Superior Civil Court will
be resolved and the timing of such resolutions, including the
amount of losses that HSBC Brazil may be liable to pay in the event
of an unfavourable judgement. Such losses may lie in a range from a
relatively insignificant amount to an amount up to $700m, although
the upper end of this range is considered unlikely.
Regulatory review of consumer 'enhancement services
products'
HSBC Finance, through its legacy Cards and Retail Services
business, offered or participated in the marketing, distribution,
or servicing of products, such as identity theft protection and
credit monitoring products, that were ancillary to the provision of
credit to the consumer. HSBC Finance ceased offering these products
by May 2012. The offering and administration of these and other
enhancement services products, such as debt protection products,
has been the subject of enforcement actions against other
institutions by regulators, including the Consumer Financial
Protection Bureau, the OCC, and the Federal Deposit Insurance
Corporation. Such enforcement actions have resulted in orders to
pay restitution to customers and the assessment of penalties in
substantial amounts. We have made restitution to certain customers
in connection with certain enhancement services products, and we
continue to cooperate with our regulators in connection with their
ongoing review. In light of the actions that regulators have taken
in relation to other non-HSBC credit card issuers regarding their
enhancement services products, one or more regulators may order us
to pay additional restitution to customers and/or impose civil
money penalties or other relief arising from the prior offering and
administration of such enhancement services products by HSBC
Finance. There is a high degree of uncertainty as to the terms on
which this matter will be resolved and the timing of such
resolution, including the amount of any additional remediation
which may lie in a range from zero to an amount up to $500m.
11 Events after the balance sheet date
On 31 July 2015 we entered into an agreement to sell our entire
business in Brazil, comprising HSBC Bank Brasil S.A. - Banco
Multiplo and HSBC Servicos e Participacoes Ltda (collectively 'HSBC
Brazil'), to Banco Bradesco S.A. for an all cash consideration of
US$5.2bn. The purchase price is subject to adjustments to reflect
the net asset value of the businesses at completion. The
transaction is subject to regulatory approval and is expected to
complete by Q2 2016.
A second interim dividend for the financial year ending 31
December 2015 was declared by the Directors on 3 August 2015, as
described in Note 3.
12 Capital structure
Capital ratios
At At At
30 June 30 June 31 December
2015 2014 2014
% % %
CRD IV end point
Common equity tier 1 ratio(1) 11.6 11.3 11.1
-------------------------------
CRD IV transitional
Common equity tier 1 ratio(1) 11.6 11.2 10.9
-------------------------------
Tier 1 ratio 13.4 12.3 12.5
-------------------------------
Total capital ratio 16.3 15.4 15.6
-------------------------------
Total regulatory capital and risk-weighted assets
At At At
30 June 30 June 31 December
2015 2014 2014
$m $m $m
CRD IV end point
Common equity tier 1 capital(1) 138,080 141,557 135,953
---------------------------------
CRD IV transitional
Common equity tier 1 capital(1) 138,080 140,070 133,200
---------------------------------
Additional tier 1 capital 21,346 13,813 19,539
---------------------------------
Tier 2 capital 35,684 38,951 37,991
--------------------------------- --------- --------- -----------
Total regulatory capital 195,110 192,834 190,730
--------------------------------- --------- --------- -----------
Risk-weighted assets 1,193,154 1,248,572 1,219,765
---------------------------------
Estimated leverage ratio
Basel
III
2014
EU Delegated Act basis
basis at at
--------------------------------------------------------------
30 Jun 31 Dec 30 Jun
2015 2014 2014
$bn $bn $bn
Exposure
measure
after
regulatory
adjustments 2,957 2,953 3,277
-------------
Tier 1
capital
under CRD IV
(end point) 146 142 142
-------------
Estimated
leverage
ratio (end
point) 4.9% 4.8% 4.3%
-------------
1 From 1 January 2015 the CRD IV transitional CET1 and end point
CET1 capital ratios became aligned for HSBC Holdings plc due to the
recognition of unrealised gains on investment property and
available-for-sale securities.
Composition of regulatory capital
At
----------------------------------------------------------------------------------------------
30 June 30 June 31 December
2015 2014 2014
$m $m $m
Common equity tier 1 capital
Shareholders' equity 167,374 173,453 166,617
---------------------------------------------------------------- ------------------------------ ------------------------------ ------------------------------
- shareholders' equity per balance sheet(1) 192,427 190,281 190,447
----------------------------------------------------------------
- foreseeable interim dividend(2) (1,942) (1,671) (3,362)
----------------------------------------------------------------
- preference share premium (1,405) (1,405) (1,405)
----------------------------------------------------------------
- other equity instruments (13,991) (5,851) (11,532)
----------------------------------------------------------------
- deconsolidation of special purpose entities(3) (243) (686) (323)
----------------------------------------------------------------
- deconsolidation of insurance entities (7,472) (7,215) (7,208)
---------------------------------------------------------------- ------------------------------ ------------------------------ ------------------------------
Non-controlling interests 3,579 3,792 4,640
---------------------------------------------------------------- ------------------------------ ------------------------------ ------------------------------
- non-controlling interests per balance
sheet 8,955 8,441 9,531
----------------------------------------------------------------
- preference share non-controlling interests (2,106) (2,153) (2,127)
----------------------------------------------------------------
- non-controlling interests transferred
to tier 2 capital - (487) (473)
----------------------------------------------------------------
- non-controlling interests in deconsolidated
subsidiaries (911) (824) (851)
----------------------------------------------------------------
- surplus non-controlling interest disallowed
in CET1 (2,359) (1,185) (1,440)
---------------------------------------------------------------- ------------------------------ ------------------------------ ------------------------------
Regulatory adjustments to the accounting
basis (2,660) (1,072) (3,556)
---------------------------------------------------------------- ------------------------------ ------------------------------ ------------------------------
- own credit spread(4) 184 1,314 767
----------------------------------------------------------------
- debit valuation adjustment (318) (354) (197)
----------------------------------------------------------------
- defined benefit pension fund adjustment (2,583) (2,301) (4,069)
----------------------------------------------------------------
- cash flow hedging reserve 57 269 (57)
---------------------------------------------------------------- ------------------------------ ------------------------------ ------------------------------
Deductions (30,213) (34,616) (31,748)
---------------------------------------------------------------- ------------------------------ ------------------------------ ------------------------------
- goodwill and intangible assets (21,397) (24,752) (22,475)
----------------------------------------------------------------
* deferred tax assets that rely on future profitability
(excludes those arising from temporary differences) (859) (945) (1,036)
----------------------------------------------------------------
- additional valuation adjustment (referred
to as PVA) (1,177) (1,688) (1,341)
----------------------------------------------------------------
* investments in own shares through the holding of
composite products of which HSBC is a component
(exchange traded funds, derivatives and index stock) (990) (904) (1,083)
----------------------------------------------------------------
- negative amounts resulting from the
calculation of expected loss amounts (5,790) (6,327) (5,813)
---------------------------------------------------------------- ------------------------------ ------------------------------ ------------------------------
Common equity tier 1 capital on an end
point basis 138,080 141,557 135,953
---------------------------------------------------------------- ------------------------------ ------------------------------ ------------------------------
Tier 1 and tier 2 capital on a transitional
basis
Common equity tier 1 capital on an end
point basis 138,080 141,557 135,953
----------------------------------------------------------------
Transitional adjustments - (1,487) (2,753)
---------------------------------------------------------------- ------------------------------ ------------------------------ ------------------------------
- unrealised gains arising from revaluation
of property - (1,346) (1,375)
----------------------------------------------------------------
- unrealised gains in available-for-sale
debt and equities - (141) (1,378)
---------------------------------------------------------------- ------------------------------ ------------------------------ ------------------------------
Common equity tier 1 capital on a transitional
basis 138,080 140,070 133,200
----------------------------------------------------------------
Other tier 1 capital before deductions 21,449 13,977 19,687
---------------------------------------------------------------- ------------------------------ ------------------------------ ------------------------------
- preference share premium 1,015 1,160 1,160
----------------------------------------------------------------
- preference share non-controlling interests 1,711 1,955 1,955
----------------------------------------------------------------
- allowable non-controlling interest in
AT1 1,456 635 884
----------------------------------------------------------------
- hybrid capital securities 17,267 10,227 15,688
---------------------------------------------------------------- ------------------------------ ------------------------------ ------------------------------
Deductions (103) (164) (148)
---------------------------------------------------------------- ------------------------------ ------------------------------ ------------------------------
- unconsolidated investments(5) (103) (164) (148)
---------------------------------------------------------------- ------------------------------ ------------------------------ ------------------------------
Tier 1 capital on a transitional basis 159,426 153,883 152,739
----------------------------------------------------------------
Tier 2 capital on a transitional basis
Total qualifying tier 2 capital before
deductions 35,924 39,197 38,213
---------------------------------------------------------------- ------------------------------ ------------------------------ ------------------------------
- allowable non-controlling interest in
tier 2 8 47 99
----------------------------------------------------------------
- perpetual subordinated debt 1,941 2,218 2,218
----------------------------------------------------------------
- term subordinated debt 33,975 36,692 35,656
----------------------------------------------------------------
- non-controlling interests in tier 2
capital - 240 240
---------------------------------------------------------------- ------------------------------ ------------------------------ ------------------------------
Total deductions other than from tier
1 capital (240) (246) (222)
---------------------------------------------------------------- ------------------------------ ------------------------------ ------------------------------
- unconsolidated investments(5) (240) (246) (222)
---------------------------------------------------------------- ------------------------------ ------------------------------ ------------------------------
Total regulatory capital on a transitional
basis 195,110 192,834 190,730
---------------------------------------------------------------- ------------------------------ ------------------------------ ------------------------------
1 Includes externally verified profits for the half-year to 30 June 2015.
2 This includes dividends on ordinary shares, quarterly
dividends on preference shares and coupons on capital securities,
classified as equity.
3 Mainly comprises unrealised gains/losses in available-for-sale debt securities related to SPEs.
4 Includes own credit spread on trading liabilities.
5 Mainly comprise investments in insurance entities.
Reconciliation of regulatory capital from transitional basis to
an estimated CRD IV end point basis
At At At
30 June 30 June 31 December
2015 2014 2014
$m $m $m
Common equity tier 1
capital on a
transitional
basis 138,080 140,070 133,200
----------------------
Unrealised gains
arising from
revaluation
of property - 1,346 1,375
----------------------
Unrealised gains in
available-for-sale
debt
and equities - 141 1,378
---------------------- ---------------------------- ---------------------------- ----------------------------
Common equity tier 1
capital on an end
point
basis 138,080 141,557 135,953
---------------------- ---------------------------- ---------------------------- ----------------------------
Additional tier 1
capital on a
transitional
basis 21,346 13,813 19,539
----------------------
Grandfathered
instruments:
Preference share
premium (1,015) (1,160) (1,160)
----------------------
Preference share
non-controlling
interests (1,711) (1,955) (1,955)
----------------------
Hybrid capital
securities (9,127) (10,227) (10,007)
----------------------
Transitional
provisions:
Allowable
non-controlling
interest in AT1 (1,282) (231) (487)
----------------------
Unconsolidated
investments 103 164 148
---------------------- ---------------------------- ---------------------------- ----------------------------
Additional tier 1
capital on an end
point
basis 8,314 404 6,078
---------------------- ---------------------------- ---------------------------- ----------------------------
Tier 1 capital on an
end point basis 146,394 141,961 142,031
---------------------- ---------------------------- ---------------------------- ----------------------------
Tier 2 capital on a
transitional basis 35,684 38,951 37,991
----------------------
Grandfathered
instruments:
Perpetual
subordinated debt (1,941) (2,218) (2,218)
----------------------
Term subordinated
debt (19,033) (21,513) (21,513)
----------------------
Transitional
provisions:
Non-controlling
interest in tier 2
capital - (240) (240)
----------------------
Allowable
non-controlling
interest in tier
2 14 190 396
----------------------
Unconsolidated
investments (103) (164) (148)
---------------------- ---------------------------- ---------------------------- ----------------------------
Tier 2 capital on an
end point basis 14,621 15,006 14,268
---------------------- ---------------------------- ---------------------------- ----------------------------
Total regulatory
capital on an end
point
basis 161,015 156,967 156,299
---------------------- ---------------------------- ---------------------------- ----------------------------
13 Statutory accounts
The information in this media release does not constitute
statutory accounts within the meaning of section 434 of the
Companies Act 2006. The statutory accounts for the year ended 31
December 2014 have been delivered to the Registrar of Companies in
England and Wales in accordance with section 447 of the Companies
Act 2006. The Group's previous auditors, KPMG Audit plc, has
reported on those accounts. Its report was unqualified; did not
include a reference to any matters to which KPMG Audit plc drew
attention by way of emphasis without qualifying their report; and
did not contain a statement under section 498(2) or (3) of the
Companies Act 2006.
The information in this media release does not constitute the
unaudited interim consolidated financial statements which are
contained in the Interim Report 2015. The Interim Report 2015 was
approved by the Board of Directors on 3 August 2015. The unaudited
interim consolidated financial statements have been reviewed by the
Company's auditor, PricewaterhouseCoopers LLP, in accordance with
the guidance contained in the International Standard on Review
Engagements (UK and Ireland) 2410: Review of Interim Financial
Information Performed by the Independent Auditor of the Entity
issued by the Auditing Practices Board. The full report of its
review, which was unmodified, is included in the Interim Report
2015.
14 Dealings in HSBC Holdings plc listed securities
Except for dealings as intermediaries by HSBC Bank plc which is
a member of a European Economic Area ('EEA') exchange and The
Hongkong and Shanghai Banking Corporation Limited which has direct
access to a EEA exchange, neither HSBC Holdings nor any of its
subsidiaries purchased, sold or redeemed any of its securities
listed on the Stock Exchange of Hong Kong Limited during the six
months to 30 June 2015.
15 Proposed interim dividends for 2015
The Board has adopted a policy of paying quarterly dividends on
the ordinary shares, under which it is intended to have a pattern
of three equal interim dividends with a variable fourth interim
dividend. The timetables for dividends payable on the ordinary
shares in respect of 2015 that have not yet been declared are
proposed as follows:
Third interim Fourth interim
dividend for dividend for
2015 2015
22 February
Announcement 5 October 2015 2016
-----------------------------------------
21 October
ADSs quoted ex-dividend in New York 2015 2 March 2016
-----------------------------------------
Shares quoted ex-dividend in London, Hong 22 October
Kong, Paris and Bermuda 2015 3 March 2016
-----------------------------------------
Record date in London, Hong Kong, New 23 October
York, Paris and Bermuda(1) 2015 4 March 2016
-----------------------------------------
3 December
Payment date 2015 20 April 2016
-----------------------------------------
1 Removals to and from the Overseas Branch Register of
shareholders in Hong Kong will not be permitted on these dates.
16 Earnings Release and Final results
An Earnings Release for the three-month period ending 30
September 2015 is expected to be issued on 2 November 2015. The
results for the year to 31 December 2015 are expected to be
announced on 22 February 2016.
17 Corporate governance codes
HSBC is committed to high standards of corporate governance.
Throughout the six months to 30 June 2015, HSBC Holdings has
complied with the applicable code provisions of: (i) The UK
Corporate Governance Code issued by the Financial Reporting Council
in September 2014 and (ii) the Hong Kong Corporate Governance Code
set out in Appendix 14 to the Rules Governing the Listing of
Securities on The Stock Exchange of Hong Kong Limited, save that
the Group Risk Committee is responsible for the oversight of
internal control (other than internal controls over financial
reporting) and risk management systems (Hong Kong Corporate
Governance Code provision C.3.3 paragraphs (f), (g) and (h)). In
the absence of the Group Risk Committee, these matters would be the
responsibility of the Group Audit Committee. The UK Corporate
Governance Code is available at www.frc.org.uk and the Hong Kong
Corporate Governance Code is available at www.hkex.com.hk.
The Board of HSBC Holdings has adopted a code of conduct for
transactions in HSBC Group securities by Directors. The code of
conduct complies with The Model Code in the Listing Rules of the
Financial Conduct Authority and with The Model Code for Securities
Transactions by Directors of Listed Issuers ('Hong Kong Model
Code') set out in the Rules Governing the Listing of Securities on
The Stock Exchange of Hong Kong Limited, save that The Stock
Exchange of Hong Kong Limited has granted certain waivers from
strict compliance with the Hong Kong Model Code. The waivers
granted by The Stock Exchange of Hong Kong Limited primarily take
into account accepted practices in the UK, particularly in respect
of employee share plans. Following a specific enquiry, each
Director has confirmed that he or she has complied with the code of
conduct for transactions in HSBC Group securities throughout the
period. All Directors are routinely reminded of their obligations
under the code of conduct for transactions in HSBC Group
securities.
There have been no material changes to the information disclosed
in the Annual Report and Accounts 2014 in respect of the number and
remuneration of employees, remuneration policies, bonus and share
option plans and training schemes.
The Directors of HSBC Holdings plc as at the date of this
announcement are:
Douglas Flint, Stuart Gulliver, Phillip Ameen(1) , Kathleen
Casey(1) , Safra Catz(1) , Laura Cha(1) , Lord Evans of Weardale(1)
, Joachim Faber(1) , Rona Fairhead(1) , Sam Laidlaw(1) , Irene
Lee(1) , John Lipsky(1) , Rachel Lomax(1) , Iain Mackay, Heidi
Miller(1) , Marc Moses, Sir Simon Robertson(1) and Jonathan
Symonds(1) .
1 Independent non-executive Director.
The Group Audit Committee has reviewed the results for the
half-year to 30 June 2015.
18 Interim Report 2015
The Interim Report 2015 will be sent to shareholders on or about
26 August 2015. Copies of the Interim Report 2015 and this Media
Release may be obtained from Global Communications, HSBC Holdings
plc, 8 Canada Square, London E14 5HQ, United Kingdom; from
Communications (Asia), The Hongkong and Shanghai Banking
Corporation Limited, 1 Queen's Road Central, Hong Kong; or from
Global Publishing Services, HSBC-North America, SC1 Level, 452
Fifth Avenue, New York, NY 10018, USA. The Interim Report 2015 and
Media Release may also be downloaded from the HSBC website,
www.hsbc.com.
A Chinese translation of the Interim Report 2015 is available
upon request from Computershare Hong Kong Investor Services
Limited, Rooms 1712-1716, 17th Floor, Hopewell Centre, 183 Queen's
Road East, Hong Kong.
The Interim Report 2015 will be available on The Stock Exchange
of Hong Kong Limited's website www.hkex.com.hk.
19 For further information contact:
Media Relations Investor Relations
Heidi Ashley UK
Telephone: +44 (0)20 7992 2045 Telephone: +44 (0)20 7991 3643
Gareth Hewett HK
Telephone: +852 2822 4929 Telephone: +852 2822 4908
Robert Sherman USA
Telephone: +1 212 525 6901 Telephone: +1 224 880 8008
Click on, or paste the following link into your web browser, to
view the associated PDF document.
http://www.rns-pdf.londonstockexchange.com/rns/8114U_-2015-8-2.pdf
This information is provided by RNS
The company news service from the London Stock Exchange
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