TIDMHSBA
RNS Number : 0414I
HSBC Holdings PLC
25 August 2016
Risk (continued)
Trading VaR, 99% 1 day
Foreign
exchange and Interest Credit Portfolio
commodity rate Equity spread diversification(11) Total
$m $m $m $m $m $m
Half-year to 30 Jun
2016 10.9 41.8 18.3 9.0 (27.7) 52.3
Average 11.0 40.2 23.2 17.5 (30.9) 61.0
Maximum 16.9 49.2 32.4 28.1 - 91.5
Minimum 6.5 31.8 15.2 9.0 - 44.0
====================
Half-year to 30 Jun
2015 11.6 48.5 17.9 14.9 (35.8) 57.1
Average 15.3 49.9 20.5 16.3 (38.5) 63.5
Maximum 22.0 57.0 29.0 21.8 - 77.9
Minimum 9.3 40.4 15.2 9.9 - 51.3
====================
Half-year to 31 Dec
2015 8.0 34.9 21.4 13.9 (24.9) 53.3
Average 14.1 42.2 18.6 15.0 (33.0) 56.9
Maximum 25.4 51.9 23.8 23.3 - 67.7
Minimum 6.3 32.6 11.9 9.8 - 47.5
====================
For footnote, see page 87.
The risk not in VaR ('RNIV') framework captures risks from
exposures in the HSBC trading book which are not captured well by
the VaR model. The VaR-based RNIVs are included within the metrics
for each asset class and the previously reported 30 June 2015
balances were restated to reflect this. The total trading VaR did
not change whereas the individual VaR components and portfolio
diversification did as the VaR-based RNIVs were added to each asset
class.
Backtesting
There were two backtesting exceptions against hypothetical
profit and loss for the Group in 1H16: a loss exception in
February, driven by Libor against overnight index spread widening
on long positions; and a profit exception in June, driven by
significant devaluations in sterling and the euro against the US
dollar resulting from the UK's referendum on EU membership.
Non-trading portfolios
Value at risk of the non-trading portfolios
Non-trading VaR of the Group includes contributions from all
global businesses. There is no commodity risk in the non-trading
portfolios. The VaR for non-trading activity at 30 June 2016 was
slightly higher than at 31 December 2015 driven by an increase in
non-trading interest rate VaR component and a decrease in
diversification benefit, largely offset by a decrease in
non-trading credit spread VaR component.
Non-trading VaR also includes the interest rate risk of
non-trading financial instruments held in portfolios managed by
Balance Sheet Management ('BSM'). The management of interest rate
risk in the banking book is described further in 'Non-trading
interest rate risk' below, including the role of BSM.
Non-trading VaR excludes the insurance operations which are
discussed further on page 84.
The Group non-trading VaR for the half-year is shown in the
table below.
Non-trading VaR, 99% 1 day
Interest Credit
rate spread Portfolio diversification(11) Total
$m $m $m $m
Half-year to 30 Jun 2016 123.6 43.7 (29.6) 137.7
=============================
Average 125.1 59.0 (42.6) 141.5
=============================
Maximum 140.1 82.8 - 164.8
=============================
Minimum 100.2 43.7 - 123.3
=============================
Half-year to 30 Jun 2015 106.4 66.7 (45.3) 127.8
=============================
Average 86.6 61.7 (33.6) 114.7
=============================
Maximum 112.6 71.9 - 128.1
=============================
Minimum 70.5 54.3 - 91.5
=============================
Half-year to 31 Dec 2015 114.1 72.7 (54.0) 132.8
=============================
Average 107.8 69.7 (50.1) 127.4
=============================
Maximum 131.5 89.4 - 156.8
=============================
Minimum 89.6 52.1 - 103.5
=============================
For footnote, see page 87.
Non-trading VaR excludes equity risk on available-for-sale
securities, structural foreign exchange risk and interest rate risk
on fixed-rate securities issued by HSBC Holdings.
This section and the sections below describe the scope of HSBC's
management of market risks in non-trading books.
HSBC HOLDINGS PLC
79
Interest rate risk in the banking book
Our policies regarding the management of interest rate risk in
the banking book and the funds transfer pricing process are
described on pages 215 and 207, respectively, of the Annual Report
and Accounts 2015.
The component of the interest rate risk in the banking book
outside of Balance Sheet Management or Global Markets that can be
economically neutralised by fixed-rate government bonds or interest
rate derivatives is transfer-priced to and managed by Balance Sheet
Management. The banking book interest rate risk transferred to
Balance Sheet Management is reflected in the Group's non-traded VaR
measure.
The Group utilises sensitivity of net interest income to assess
the overall level of interest rate risk in the banking book. This
measure reflects both the structural banking book interest rate
risk remaining after risk transfer to Balance Sheet Management and
the banking book interest rate risk managed by Balance Sheet
Management and Global Markets.
Third-party assets in Balance Sheet Management
Third-party assets in BSM increased by 12% during the first half
of 2016. The movement in cash and balances at central banks,
reverse repurchase agreements and financial investments were driven
by Europe and America where increased commercial surplus funds were
deployed into these assets.
Third-party assets in Balance Sheet Management
At
------------------
30 Jun 31 Dec
2016 2015
$m $m
Cash and balances at central banks 96,261 71,116
====================================
Trading assets 2,159 639
====================================
Loans and advances
- to banks 40,461 42,059
====================================
- to customers 2,958 2,773
====================================
Reverse repurchase agreements 46,235 29,760
====================================
Financial investments 350,438 335,543
====================================
Other 4,095 4,277
==================================== ------- -------
542,607 486,167
------- -------
Sensitivity of net interest income
The table below sets out the effect on our future net interest
income ('NII') of an incremental 25 basis points parallel rise or
fall in all yield curves worldwide at the beginning of each quarter
during the 12 months from 1 July 2016.
The sensitivities shown represent the change in the base case
projected NII that would be expected under the two rate scenarios
assuming that all other non-interest rate risk variables remain
constant, and there are no management actions. In deriving our base
case net interest income projections, the repricing rate of assets
and liabilities used is derived from current yield curves. The
interest rate sensitivities are indicative and based on simplified
scenarios.
Assuming no management response, a sequence of such rises
('up-shock scenario') would increase planned net interest income
for the 12 months to 30 June 2017 by $1,373m (to 31 December 2016:
$1,252m), while a sequence of such falls ('down-shock scenario')
would decrease planned net interest income by $2,201m (to 31
December 2016: $2,258m).
The NII sensitivity of the Group can be split into three key
components: the structural sensitivity arising from the four global
businesses excluding BSM and Global Markets, the sensitivity of the
funding of the trading book (Global Markets) and the sensitivity of
BSM.
The structural sensitivity is positive in a rising rate
environment and negative in a falling rate environment. The
sensitivity of the funding of the trading book is negative in a
rising rate environment and positive in a falling rate environment.
The sensitivity of BSM depends on its position. Typically, assuming
no management response, the sensitivity of BSM is negative in a
rising rate environment and positive in a falling rate
environment.
The NII sensitivity figures below also incorporate the effect of
any interest rate behaviouralisation applied and the effect of any
assumed repricing across products under the specific interest rate
scenario. They do not incorporate the effect of any management
decision to change the composition of HSBC's balance sheet.
The NII sensitivity in BSM arises from a combination of the
techniques that BSM uses to mitigate the transferred interest rate
risk and the methods it uses to optimise net revenues in line with
its defined risk mandate. The figures in the table below do not
incorporate the effect of any management decisions within BSM, but
in reality it is likely that there would be some short-term
adjustment in BSM positioning to offset the NII effects of the
specific interest rate scenario where necessary.
The NII sensitivity arising from the funding of the trading book
comprises the expense of funding trading assets, while the revenue
from these trading assets is reported in net trading income. This
leads to an asymmetry in the NII sensitivity figures which is
cancelled out in our global business results, where we include both
NII and net trading income. It is likely, therefore, that the
overall effect on profit before tax of the funding of the trading
book will be much less pronounced than is shown in the figures
below.
The scenario sensitivities remained broadly unchanged in
1H16.
HSBC HOLDINGS PLC
80
Risk (continued)
Sensitivity of projected net interest income
Hong
US Rest of Kong Rest of
dollar Americas dollar Asia Sterling Euro
bloc bloc bloc bloc bloc bloc Total
$m $m $m $m $m $m $m
Change in Jul
2016 to Jun 2017
projected net
interest income
arising from a
shift in yield
curves at the
beginning of each
quarter of:
+ 25 basis
points 496 57 615 2 82 121 1,373
==================
- 25 basis
points (779) (62) (817) (79) (442) (22) (2,201)
==================
Change in Jan
2016 to Dec 2016
projected net
interest income
arising from a
shift in yield
curves at the
beginning of each
quarter of:
+ 25 basis
points 410 72 217 369 135 49 1,252
==================
- 25 basis
points (691) (74) (645) (290) (528) (30) (2,258)
==================
Change in Jul
2015 to Jun 2016
projected net
interest income
arising from a
shift in yield
curves at the
beginning of each
quarter of:
+ 25 basis
points 347 5 307 297 174 (103) 1,027
==================
- 25 basis
points (470) (22) (580) (246) (565) (22) (1,905)
==================
Sensitivity of capital and reserves
Available-for-sale ('AFS') reserves are included as part of CET1
capital. We measure the potential downside risk to the CET1 ratio
due to interest rate and credit spread risk in the AFS portfolio by
the portfolio's stressed VaR, using a 99% confidence level and an
assumed holding period of one quarter. At June 2016, the stressed
VaR of the portfolio was $2.9bn.
We monitor the sensitivity of reported cash flow hedging
reserves to interest rate movements on a monthly basis by
assessing the expected reduction in valuation of cash flow
hedges due to parallel movements of plus or minus 100bps in all
yield curves. These particular exposures form only a part of our
overall interest rate exposures.
The table below describes the sensitivity of our cash flow hedge
reported reserves to the stipulated movements in yield curves and
the maximum and minimum month-end figures during the year. The
sensitivities are indicative and based on simplified scenarios.
Sensitivity of cash flow hedging reported reserves to interest
rate movements
Impact in the preceding 6 months
--------------------------------------
Maximum Minimum
$m $m $m
At 30 Jun 2016
+ 100 basis point parallel move in all yield curves (1,173) (1,235) (1,173)
=====================================================
As a percentage of total shareholders' equity (0.6%) (0.6%) (0.6%)
=====================================================
- 100 basis point parallel move in all yield curves 1,145 45 1,224
=====================================================
As a percentage of total shareholders' equity 0.6% 0.6% 0.6%
=====================================================
At 30 Jun 2015
+ 100 basis point parallel move in all yield curves (1,137) (1,259) (1,137)
=====================================================
As a percentage of total shareholders' equity (0.6%) (0.7%) (0.6%)
=====================================================
- 100 basis point parallel move in all yield curves 1,149 1,226 1,149
=====================================================
As a percentage of total shareholders' equity 0.6% 0.6% 0.6%
=====================================================
At 31 Dec 2015
+ 100 basis point parallel move in all yield curves (1,235) (1,259) (1,137)
=====================================================
As a percentage of total shareholders' equity (0.7%) (0.7%) (0.6%)
=====================================================
- 100 basis point parallel move in all yield curves 1,224 1,232 1,133
=====================================================
As a percentage of total shareholders' equity 0.7% 0.7% 0.6%
=====================================================
HSBC HOLDINGS PLC
81
Additional market risk measures applicable only to the parent
company
The principal tools used in the management of market risk are
VaR for foreign exchange rate risk and the projected sensitivity of
HSBC Holdings' NII to future changes in yield curves and interest
rate gap repricing for interest rate risk.
Foreign exchange risk
Total foreign exchange VaR arising within HSBC Holdings in the
first half of 2016 was as follows:
HSBC Holdings - foreign exchange VaR
Half-year to
------------------------
30 Jun 30 Jun 31 Dec
2016 2015 2015
$m $m $m
At period-end 56.3 47.1 45.6
===============
Average 49.2 38.0 45.7
===============
Maximum 58.2 47.1 46.8
===============
Minimum 44.6 32.9 44.1
===============
The foreign exchange risk largely arises from loans to
subsidiaries of a capital nature that are not denominated in the
functional currency of either the provider or the recipient and
which are accounted for as financial assets. Changes in the
carrying amount of these loans due to foreign exchange rate
differences are taken directly to HSBC Holdings' income statement.
These loans, and most of the associated foreign exchange exposures,
are eliminated on consolidation.
Interest rate repricing gap table
The interest rate risk on the fixed-rate securities issued by
HSBC Holdings is not included within the Group VaR but is managed
on a repricing gap basis. The interest rate repricing gap table
below analyses the full-term structure of interest rate mismatches
within HSBC Holdings' balance sheet.
Repricing gap analysis of HSBC Holdings
Up to 1 to 5 to More than Non-interest
Total 1 year 5 years 10 years 10 years bearing
$m $m $m $m $m $m
Total assets 166,646 61,048 842 684 - 104,072
========================
Total liabilities and
equity (166,646) (3,804) (14,601) (18,664) (16,325) (113,252)
========================
Off-balance sheet items
attracting interest
rate sensitivity - (38,393) 13,989 16,123 8,281 -
======================== -------- ------- -------- -------- --------- ------------
Net interest rate risk
gap at 30 Jun 2016 - 18,851 230 (1,857) (8,044) (9,180)
======================== -------- ------- -------- -------- --------- ------------
Cumulative interest rate
risk gap - 18,851 19,081 17,224 9,180 -
======================== -------- ------- -------- -------- --------- ------------
Total assets 148,926 46,084 402 2,144 - 100,296
========================
Total liabilities and
equity (148,926) (2,345) (6,850) (10,104) (14,507) (115,120)
========================
Off-balance sheet items
attracting interest
rate sensitivity - (21,248) 5,351 9,222 5,763 912
======================== -------- ------- -------- -------- --------- ------------
Net interest rate risk
gap at 30 Jun 2015 - 22,491 (1,097) 1,262 (8,744) (13,912)
======================== -------- ------- -------- -------- --------- ------------
Cumulative interest rate
risk gap - 22,491 21,394 22,656 13,912 -
======================== -------- ------- -------- -------- --------- ------------
Total assets 150,194 45,888 388 1,136 - 102,782
========================
Total liabilities and
equity (150,194) (2,522) (6,613) (11,495) (13,332) (116,232)
========================
Off-balance sheet items
attracting interest
rate sensitivity - (22,748) 5,351 10,722 5,763 912
======================== -------- ------- -------- -------- --------- ------------
Net interest rate risk
gap at 31 Dec 2015 - 20,618 (874) 363 (7,569) (12,538)
======================== -------- ------- -------- -------- --------- ------------
Cumulative interest rate
risk gap - 20,618 19,744 20,107 12,538 -
======================== -------- ------- -------- -------- --------- ------------
HSBC HOLDINGS PLC
82
Risk (continued)
Operational risk
Operational risk is the risk to achieving our strategy or
objectives as a result of inadequate or failed internal processes,
people or systems, or external events.
There were no material changes to the policies and practices for
the management of operational risk described in the Annual Report
and Accounts 2015.
Activity to further enhance and embed our operational risk
management framework ('ORMF') continued in 1H16.
Responsibility for minimising operational risk lies with HSBC's
management and staff. All regional, global business, country, and
functional staff are required to manage the operational risks of
the business and activities for which they are responsible.
A diagrammatic representation of our ORMF is provided on page
176 of the Annual Report and Accounts 2015.
A summary of our current policies and practices regarding
operational risk is provided in the Appendix to Risk on page 217 of
the Annual Report and Accounts 2015 Appendix to Risk.
Operational risk profile in the first half of 2016
During 1H16, our operational risk profile continued to be driven
mainly by compliance risks and we continued to see operational risk
losses that relate to events from prior years (significant events
are outlined in Notes 16 and 19 on the Financial Statements). A
number of mitigating actions are being undertaken to prevent future
conduct-related incidents.
Operational risk areas include:
-- Compliance with regulatory agreements and consent orders: Breach of the US deferred prosecution
agreement ('DPA') may allow US authorities to prosecute HSBC with respect to matters covered
thereunder. The work of the Monitor is discussed on page 60, and compliance risk is described
below.
-- Fraud risks: Losses continue to be at acceptable levels in most markets, but the introduction
of new technologies and ways of banking mean we are subject to new types of fraud attacks.
We have increased monitoring and enhanced detective controls to help mitigate these risks
in accordance with our risk appetite.
-- Information security risk: Like other banks, we face numerous cyber threats. These include
denial of service attacks, in which hackers try to prevent our customers accessing our services
online. We continue to strengthen internal security controls to prevent unauthorised access
to our systems and network, and improve the controls and security to protect customers using
digital channels. Strong engagement with our industry, government agencies and intelligence
providers helps ensure we keep abreast of developments.
-- Third-party risk management: HSBC is implementing a multi-year strategic plan to enhance its
third-party risk management capability. We have defined a framework to provide a holistic
view of third-party risks which will help enable the consistent risk assessment of any third-party
service. Third-party engagement will be assessed against key criteria, combined with the associated
control monitoring, testing and assurance throughout the relationship lifecycle.
Other operational risks are also monitored and managed through
the use of the ORMF and governing policies.
Compliance risk
Compliance risk arises from activities subject to rules,
regulations, Group policies and other formal standards relating to
anti-money laundering ('AML'), counter-terrorist and proliferation
financing, sanctions compliance, anti-bribery and corruption,
conduct of business and other regulations.
A summary of our current policies and practices regarding
compliance risk is provided on pages 217 and 218 of the Annual
Report and Accounts 2015.
AML and sanctions
In 1H16, we continued to embed the procedures required to effect
the AML and sanctions policies in our day-to-day business
operations globally. This supports our ongoing effort to address
the US DPA requirements. These actions are in line with our
strategic target to implement the highest or most effective
standards globally. The work of the Monitor, who was appointed to
assess the effectiveness of our AML and sanctions compliance
programme, is discussed on page 60 and our progress on implementing
Global Standards is detailed on page 11.
Anti-bribery and corruption
We have introduced a strategic programme to address bribery and
corruption risks. We are also embedding an enhanced global suite of
policies to make clear to staff that employees or other associated
persons or entities must not engage in or facilitate any form of
bribery, directly or indirectly.
The anti-bribery and corruption programme emphasises the
importance of consistent procedures to drive 'detect, deter and
protect' principles, and help ensure they are incorporated into
every aspect of our activities.
Conduct of business
We continue to recognise that delivering fair outcomes for our
customers and upholding financial market integrity are critical to
a sustainable business model. The global businesses are refining
the range of measures, appropriate to their specific customer bases
and markets, used to assess the ongoing effectiveness of the
management of conduct, and enable action to be taken where
potential conduct issues arise. The measures include information
relating to the products we sell, sales quality, customer
experience and market behaviour. Oversight of the management of
conduct is being embedded within country, regional and global
governance structures.
We continue to take steps to raise our standards of conduct. In
1H16, these included:
-- the launch of a new global mandatory training module, Embedding Good Conduct, building on
training launched in 2015, to help ensure employees have a strong understanding of conduct
and how it applies to them, and understand good conduct behaviours;
-- enhanced values and behaviours-based components within employee recruitment and performance
management processes;
-- continued focus on improving the identification and treatment of potentially vulnerable customers;
HSBC HOLDINGS PLC
83
-- a review to further enhance delivery of products and services through digital channels;
-- continued enhancement of, and investment in, our surveillance capabilities and the use of
new technologies to strengthen our ability to detect suspicious trading activity and misconduct;
and
-- development of a conduct maturity model to assess the effectiveness of improvements we are
making to customer outcomes and our financial markets activities.
Whistleblowing
We actively encourage our employees to raise concerns and
escalate issues so they can be dealt with effectively. In most
cases, individuals will raise their concerns with line management
or Global Human Resources. However, where an individual believes
that their normal reporting channels are unavailable or
inappropriate, it is important that they have alternative channels
available to them to raise concerns confidentially without fear of
personal repercussions. This is referred to as
'whistleblowing'.
We operate a global whistleblowing platform, HSBC Confidential,
which can be accessed by telephone, email, web and mail. We also
maintain an external email address for concerns about accounting
and internal financial controls or auditing matters
(accountingdisclosures@hsbc.com). Matters raised are independently
investigated by appropriate subject matter teams and details of
investigations and outcomes including remedial action taken are
reported to the Conduct & Values Committee. Matters raised in
respect of audit, accounting and internal control over financial
reporting are reported to the Group Audit Committee.
Reputational risk
Reputational risk is the risk of failure to meet stakeholder
expectations as a result of any event, behaviour, action or
inaction, either by HSBC itself, our employees or those with whom
we are associated, that might cause stakeholders to form a negative
view of the Group. This may have financial or non-financial
effects, resulting in a loss of confidence or have other
consequences.
The Global Head of Financial Crime Compliance and the Global
Head of Regulatory Compliance are the risk stewards for
reputational risk. The Reputational Risk and Client Selection
sub-function is responsible for: setting policies to guide the
Group's management of reputational risk; devising strategies to
protect against reputational risk; and advising the global
businesses and global functions to help them identify, assess and
mitigate such risks where possible. For further details on the
reputational risk policies and practices, see page 224 of the
Annual Report and Accounts 2015.
We have zero tolerance for knowingly engaging in any business,
activity or association where foreseeable reputational risk or
damage has not been considered and appropriately mitigated. There
must be no barriers to open discussion and the escalation of issues
that could affect the Group negatively. While there is a level of
risk in every aspect of business activity, appropriate
consideration of potential harm to HSBC's good name must be a part
of all business decisions.
We continue to take steps to address the requirements of the US
DPA and to enhance our AML, sanctions and other regulatory
compliance frameworks. These measures should also serve over time
to enhance our reputational risk management. For further details on
the implementation of the Global Standards, see page 11 and
'Compliance risk', see above.
Risk management of insurance operations
The majority of the risks in our insurance business derive from
manufacturing activities and can be categorised as financial risk
and insurance risk. Financial risks include market risk, credit
risk and liquidity risk. Insurance risk is the risk, other than
financial risk, of loss transferred from the holder of the
insurance contract to the issuer (HSBC).
There have been no material changes to the policies and
practices for the management of risks arising in our insurance
operations described in the Annual Report and Accounts 2015.
A summary of our policies and practices regarding the risk
management of insurance operations, our insurance model and the
main contracts we manufacture are provided on page 180 of the
Annual Report and Accounts 2015.
Risk management of insurance manufacturing operations in the
first half of 2016
We measure the risk profile of our insurance manufacturing
businesses using an economic capital approach where assets and
liabilities are measured on a market value basis. On this basis,
there is a minimum economic capital requirement to ensure that
there is a less than one in 200 chance of insolvency, given the
risks the businesses are exposed to over the next year. The
methodology for the economic capital calculation is largely aligned
to the new pan-European Solvency II insurance capital
regulations.
The sale of our Brazilian insurance operations completed on 1
July 2016. These operations are reported as part of the disposal
group held for sale at 30 June 2016 and 31 December 2015.
The risk profile of our remaining life insurance manufacturing
businesses did not change materially during 1H16. The increase in
policyholder liabilities during the period to $79.4bn (31 December
2015: $76.0bn) is primarily a result of new premiums collected.
Asset and liability matching
A principal tool used to manage exposures to both financial and
insurance risk, in particular for life insurance contracts, is
asset and liability matching. In many markets in which we operate
it is neither possible nor appropriate to follow a perfect asset
and liability matching strategy. For long-dated non--linked
contracts, in particular, this results in a duration mismatch
between assets and liabilities. Portfolios are structured to
support these projected liabilities, with limits set to control the
duration mismatch.
The table on the next page shows the composition of assets and
liabilities by contract type and demonstrates that there were
sufficient assets to cover the liabilities to policyholders, in
each case at 30 June 2016.
HSBC HOLDINGS PLC
84
Risk (continued)
Balance sheet of insurance manufacturing subsidiaries by type of
contract
Insurance contracts Investment contracts
------------------------------------ ----------------------
Other
With Unit- With Unit- assets and
DPF linked Annuities Other(12) DPF(13) linked Other liabilities(14) Total
Footnotes $m $m $m $m $m $m $m $m $m
Financial
assets 33,713 6,560 1,126 7,758 22,576 2,196 3,982 5,111 83,022
===============
- trading
assets - - 2 - - - - - 2
===============
- financial
assets
designated
at fair
value 4,958 6,434 310 576 6,481 1,982 1,904 671 23,316
===============
- derivatives 107 - - 5 147 1 38 65 363
===============
- financial
investments
- HTM 15 24,308 - 436 2,936 - - 1,378 2,881 31,939
===============
- financial
investments
- AFS 15 1,867 - 325 4,081 13,984 - 22 1,379 21,658
===============
- other
financial
assets 16 2,473 126 53 160 1,964 213 640 115 5,744
=============== ------ ------ --------- --------- ------- ------ ----- --------------- ------
Reinsurance
assets 419 313 - 1,004 - - - - 1,736
===============
PVIF 17 - - - - - - - 6,036 6,036
===============
Other assets
and investment
properties 890 1 21 104 864 11 22 5,777 7,690
=============== ------ ------ --------- --------- ------- ------ ----- --------------- ------
Total assets at
30 Jun 2016 35,022 6,874 1,147 8,866 23,440 2,207 4,004 16,924 98,484
=============== ------ ------ --------- --------- ------- ------ ----- --------------- ------
Liabilities
under
investment
contracts: - - - - - 2,185 3,806 - 5,991
===============
- designated
at fair
value - - - - - 2,185 3,806 - 5,991
=============== ------ ------ --------- --------- ------- ------ ----- --------------- ------
Liabilities
under
insurance
contracts 34,217 6,846 1,067 7,912 23,374 - - - 73,416
===============
Deferred tax 18 12 - - 35 - - - 1,128 1,175
===============
Other
liabilities - - - 173 - - - 6,420 6,593
=============== ------ ------ --------- --------- ------- ------ ----- --------------- ------
Total
liabilities 34,229 6,846 1,067 8,120 23,374 2,185 3,806 7,548 87,175
===============
Total equity - - - - - - - 11,309 11,309
=============== ------ ------ --------- --------- ------- ------ ----- --------------- ------
Total equities
and
liabilities at
30 Jun 2016 19 34,229 6,846 1,067 8,120 23,374 2,185 3,806 18,857 98,484
=============== ------ ------ --------- --------- ------- ------ ----- --------------- ------
HSBC HOLDINGS PLC
85
Insurance contracts Investment contracts
------------------------------------ ----------------------
Other assets
With Unit- With Unit- and
DPF linked Annuities Other(12) DPF(13) linked Other liabilities(14) Total
Footnotes $m $m $m $m $m $m $m $m $m
Financial
assets 31,801 6,569 1,138 6,618 21,270 2,271 3,935 5,531 79,583
===============
- trading
assets - - 2 - - - - - 2
===============
- financial
assets
designated
at fair
value 4,698 6,435 296 563 6,421 2,000 1,859 1,015 23,287
===============
- derivatives 49 - - 4 111 1 29 62 256
===============
- financial
investments
- HTM 15 22,840 - 468 2,334 - - 1,387 3,050 30,079
===============
- financial
investments
- AFS 15 1,743 - 312 3,685 13,334 - 23 1,233 20,330
===============
- other
financial
assets 16 2,471 134 60 32 1,854 270 637 171 5,629
=============== ------ ------ --------- --------- ------- ------ ----- --------------- ------
Reinsurance
assets 202 264 - 951 - - - - 1,417
===============
PVIF 17 - - - - - - - 5,685 5,685
===============
Other assets
and investment
properties 838 1 11 105 888 6 23 4,576 6,448
=============== ------ ------ --------- --------- ------- ------ ----- --------------- ------
Total assets at
31 Dec 2015 32,841 6,834 1,149 7,674 22,608 2,277 3,958 15,792 93,133
=============== ------ ------ --------- --------- ------- ------ ----- --------------- ------
Liabilities
under
investment
contracts: - - - - - 2,256 3,771 - 6,027
===============
- designated
at fair
value - - - - - 2,256 3,771 - 6,027
=============== ------ ------ --------- --------- ------- ------ ----- --------------- ------
Liabilities
under
insurance
contracts: 32,414 6,791 1,082 7,042 22,609 - - - 69,938
===============
Deferred tax 18 11 - 11 3 - - - 1,056 1,081
===============
Other
liabilities - - - - - - - 5,553 5,553
=============== ------ ------ --------- --------- ------- ------ ----- --------------- ------
Total
liabilities 32,425 6,791 1,093 7,045 22,609 2,256 3,771 6,609 82,599
===============
Total equity - - - - - - - 10,534 10,534
=============== ------ ------ --------- --------- ------- ------ ----- --------------- ------
Total equity
and
liabilities at
31 Dec 2015 19 32,425 6,791 1,093 7,045 22,609 2,256 3,771 17,143 93,133
=============== ------ ------ --------- --------- ------- ------ ----- --------------- ------
For footnotes, see page 87.
Insurance risk
A principal risk we face is that, over time, the cost of the
contract, including claims and benefits, may exceed the total
amount of premiums and investment income received. In
respect of insurance risk, the cost of claims and benefits can
be influenced by many factors, including mortality and morbidity
experience, and lapse and surrender rates.
HSBC HOLDINGS PLC
86
Risk (continued)
Footnotes to Risk
Credit risk
1 The amount of loan commitments reflects, where relevant, the expected level of take-up of
pre-approved loan offers made by mailshots to personal customers. In addition to those amounts,
there is a further maximum possible exposure to credit risk of $49bn (31 December 2015: $59bn),
reflecting the full take-up of loan commitments. The take-up of such offers is generally at
low levels.
2 'Other commercial loans and advances' includes advances in respect of agriculture, transport,
energy utilities and ABSs reclassified to 'Loans and advances'.
3 'Loans and advances to customers' includes asset-backed securities that have been externally
rated as strong (30 June 2016: $392m; 31 December 2015: $504bn), good (30 June 2016: $65m;
31 December 2015: $95m), satisfactory (30 June 2016: $99m; 31 December 2015: $107m), sub-standard
(30 June 2016: $19m; 31 December 2015: $19m) and impaired (30 June 2016: $64m; 31 December
2015: $73m).
4 Corporate and commercial includes commercial real estate renegotiated loans of $1,870m (31
December 2015: $2,134m) of which $442m (31 December 2015: $477m) were neither past due nor
impaired, $19m (31 December 2015: $1m) were past due but not impaired and $1,409m (31 December
2015: $1,656m) were impaired.
5 Included within 'Exchange and other movements' is $1.1bn of impairment allowances reclassified
to held for sale (31 December 2015: $2.1bn).
6 The charge for impairment losses as a percentage of average gross loans and advances to customers
includes Brazil, which was classified as held for sale in 1H15.
7 'Currency translation adjustment' is the effect of translating the results of subsidiaries
and associates for the previous period at the average rates of exchange applicable in the
current period.
Liquidity and funding
8 The HSBC UK Liquidity Group shown comprises four legal entities; HSBC Bank plc (including
all overseas branches, and SPEs consolidated by HSBC Bank plc for Financial Statement purposes),
Marks and Spencer Financial Services plc, HSBC Private Bank (UK) Ltd and HSBC Trust Company
(UK) Limited, managed as a single operating entity, in line with the application of UK liquidity
regulation as agreed with the UK PRA.
9 The Hongkong and Shanghai Banking Corporation - Hong Kong branch and The Hongkong and Shanghai
Banking Corporation - Singapore branch represent the material activities of The Hongkong and
Shanghai Banking Corporation. Each branch is monitored and controlled for liquidity and funding
risk purposes as a stand-alone operating entity.
10 The total shown for other principal HSBC operating entities represents the combined position
of all the other operating entities overseen directly by the Risk Management Meeting of the
Group Management Board.
Market risk
11 When VaR is calculated at a portfolio level, natural offsets in risk can occur when compared
to aggregating VaR at the asset class level. This difference is called portfolio diversification.
The asset class VaR maxima and minima reported in the table occurred on different dates within
the reporting period. For this reason, we do not report an implied portfolio diversification
measure between the maximum (minimum) asset class VaR measures and the maximum (minimum) Total
VaR measures in this table.
Risk management of insurance operations
12 'Other' includes term assurance, credit life insurance, universal life insurance and remaining
non-life insurance.
13 Although investment contracts with discretionary participation features ('DPF') are financial
investments, HSBC continues to account for them as insurance contracts as required by IFRS
4.
14 'Other assets and liabilities' shows shareholder assets as well as assets and liabilities
classified as held for sale. The majority of the assets for insurance businesses classified
as held for sale are reported as 'Other assets and investment properties' and totalled $5.3bn
at 30 June 2016 (31 December 2015: $4.1bn). The majority of these assets at 30 June 2016 were
debt and equity securities and PVIF. All liabilities for insurance businesses classified as
held for sale are reported in 'Other liabilities' and totalled $4.8bn at 30 June 2016 (31
December 2015: $3.7bn). The majority of these liabilities at 30 June 2016 were liabilities
under insurance contracts and liabilities under investment contracts.
15 Financial investments held to maturity ('HTM') and available for sale ('AFS').
16 Comprises mainly loans and advances to banks, cash and intercompany balances with other non-insurance
legal entities.
17 Present value of in-force long-term insurance contracts and investment contracts with DPF.
18 'Deferred tax' includes the deferred tax liabilities arising on recognition of PVIF.
19 Does not include associated insurance company SABB Takaful Company or joint venture insurance
company Canara HSBC Oriental Bank of Commerce Life Insurance Company Limited.
HSBC HOLDINGS PLC
87
Capital
Capital
Capital overview 88
Risk-weighted assets 89
Capital 90
Leverage ratio 90
Regulatory disclosures 92
============================
Our objective in managing Group capital is to maintain
appropriate levels of capital to support our business strategy and
meet regulatory and stress testing related requirements.
Capital highlights
-- Our common equity tier 1 ('CET1') ratio(1) of 12.1% was up from 11.9% at the end of 2015.
-- Our CET1 ratio(1) strengthened as we continued to generate capital from profit and implement
our RWA initiatives, creating capacity for growth.
-- Our leverage ratio remained strong at 5.1%.
We manage Group capital to ensure we exceed current regulatory
requirements and respect the payment priority of our capital
providers. Throughout 1H16, we complied with the UK Prudential
Regulation Authority's ('PRA') regulatory capital adequacy
requirements, including those relating to stress testing. We are
well placed to meet our expected future capital requirements.
We continue to manage Group capital to meet a target for return
on equity of more than 10%. This is modelled on a CET1 ratio (on an
end point basis) in the range of 12% to 13%, which takes into
account known and quantifiable end point CET1 requirements
including a regulatory and management buffer of 1.0% to 2.0%. This
buffer is based on our estimate of the additional CET1 we will need
to hold to cover the new time-varying buffers and other factors. It
will be kept under review as clarity in respect of future
regulatory developments improves.
A summary of our policies and practices regarding capital
management, measurement and allocation is provided on page 243 of
the Annual Report and Accounts 2015.
Our CET1 capital decreased in 1H16 by $0.2bn to $130.7bn. We
generated $1.5bn of capital through profits net of dividends and
scrip, offset by foreign currency differences of $2.3bn.
Capital overview
Capital ratios
At
----------------
30 Jun 31 Dec
2016 2015
Footnotes % %
Transitional basis
Common equity tier 1 ratio 1 12.1 11.9
============================
Tier 1 ratio 14.1 13.9
============================
Total capital ratio 17.3 17.2
============================
For footnote, see page 100.
Total regulatory capital and risk-weighted assets
At
----------------------
30 Jun 31 Dec
2016 2015
Footnotes $m $m
Transitional basis
Common equity tier 1 capital 1 130,670 130,863
==============================
Additional tier 1 capital 21,642 22,440
==============================
Tier 2 capital 34,481 36,530
============================== --------- ---------
Total regulatory capital 186,793 189,833
============================== --------- ---------
Risk-weighted assets 1,082,184 1,102,995
==============================
For footnote, see page 100.
RWAs by risk type
RWAs Capital required(2)
$bn $bn
Credit risk 851.3 68.1
Counterparty credit risk 73.7 5.9
Market risk 41.8 3.3
Operational risk 115.4 9.2
==========================
At 30 Jun 2016 1,082.2 86.5
==========================
For footnote, see page 100.
Leverage ratio
At
----------------------
30 Jun 31 Dec
2016 2015
$bn $bn
Leverage ratio exposure 2,788 2,794
Tier 1 capital (end point) 142 140
============================= ------ ------
Leverage ratio 5.1% 5.0%
Quarterly average:
============================
Leverage ratio exposure 2,819
=============================
Leverage ratio 5.1%
=============================
HSBC HOLDINGS PLC
88
Capital (continued)
Risk-weighted assets
RWA movement by geographical region by key driver
Credit risk, counterparty credit risk and
operational risk
---------------------------------------------
North Latin Market Total
Europe Asia MENA America America risk RWAs
Footnotes $bn $bn $bn $bn $bn $bn $bn
RWAs at 1 Jan
2016 306.4 437.8 59.4 185.0 71.9 42.5 1,103.0
===============
RWA movements
RWA initiatives (15.8) (5.0) (1.1) (25.1) - (1.3) (48.3)
===============
Foreign
exchange
movement (13.0) (1.7) (1.0) 1.8 4.6 - (9.3)
Book size 3 14.6 (1.7) 0.5 4.2 0.5 0.6 18.7
Book quality 4.5 6.9 0.8 2.7 (0.1) - 14.8
===============
Model updates 0.3 - - (1.3) - - (1.0)
- portfolios
moving onto
IRB approach (0.1) - - - - - (0.1)
===============
- new/updated
models 0.4 - - (1.3) - - (0.9)
=============== ------ ----- ---- ------- ------- ------ -------
Methodology and
policy 2.4 1.3 - 0.1 0.5 - 4.3
- internal
updates 2.4 - - 0.1 0.5 - 3.0
- external
updates -
regulatory - 1.3 - - - - 1.3
=============== ------ ----- ---- ------- ------- ------ -------
Total RWA
movement (7.0) (0.2) (0.8) (17.6) 5.5 (0.7) (20.8)
=============== ------ ----- ---- ------- ------- ------ -------
RWAs at 30 Jun
2016 299.4 437.6 58.6 167.4 77.4 41.8 1,082.2
=============== ------ ----- ---- ------- ------- ------ -------
For footnote, see page 100.
RWA movement by global businesses by key driver
Credit risk, counterparty credit risk and operational risk
-------------------------------------------------------------
US
Principal run-off Total Market Total
RBWM portfolio RBWM CMB GB&M GPB Other risk RWAs
Footnotes $bn $bn $bn $bn $bn $bn $bn $bn $bn
RWAs at 1 Jan
2016 150.1 39.5 189.6 421.0 398.4 19.3 32.2 42.5 1,103.0
===============
RWA movements
==============
RWA initiatives (0.1) (12.3) (12.4) (11.3) (23.3) - - (1.3) (48.3)
===============
Foreign
exchange
movement (0.5) - (0.5) (5.6) (2.7) (0.2) (0.3) - (9.3)
Book size 3 0.7 - 0.7 3.5 12.2 (0.7) 2.4 0.6 18.7
Book quality (0.9) - (0.9) 5.9 9.5 0.1 0.2 - 14.8
Model updates (0.9) - (0.9) - (0.1) - - - (1.0)
- portfolios
moving onto
IRB approach - - - - (0.1) - - - (0.1)
- new/updated
models (0.9) - (0.9) - - - - - (0.9)
--------- --------- ----- ----- ----- ---- ----- ------ -------
Methodology and
policy 0.5 - 0.5 1.3 1.6 - 0.9 - 4.3
- internal
updates (0.8) - (0.8) 1.3 1.6 - 0.9 - 3.0
- external
updates -
regulatory 1.3 - 1.3 - - - - - 1.3
=============== --------- --------- ----- ----- ----- ---- ----- ------ -------
Total RWA
movement (1.2) (12.3) (13.5) (6.2) (2.8) (0.8) 3.2 (0.7) (20.8)
=============== --------- --------- ----- ----- ----- ---- ----- ------ -------
RWAs at 30 Jun
2016 148.9 27.2 176.1 414.8 395.6 18.5 35.4 41.8 1,082.2
=============== --------- --------- ----- ----- ----- ---- ----- ------ -------
For footnote, see page 100.
RWAs decreased in 1H16 by $20.8bn, of which $9.3bn was due to
foreign currency translation differences. The decrease was
primarily from RWA initiatives reducing RWAs by $48.3bn, partly
offset by book size movements of $18.7bn, and a deterioration of
credit quality and risk parameter movements that increased RWAs by
$14.8bn. Comments below describe RWA movements excluding foreign
currency translation differences.
RWA initiatives
The main drivers of these reductions were:
-- $19.3bn through the continued reduction in GB&M legacy credit and US run-off portfolios; and
-- $29.0bn as a result of reduced exposures, refined calculations and process improvements.
Book size
Book size movements were principally from:
-- higher corporate lending in GB&M and CMB in Europe, Middle East and North Africa, and North
America increasing RWAs by $7.1bn; and
-- increased trade volumes and mark-to-market movements on derivatives and securities financing
transactions increasing counterparty credit risk ('CCR') by $9.4bn.
Book quality
The main drivers for book quality movements were:
-- corporate and institution downgrades and changes in credit quality mix in Asia, North America
and Europe, increasing RWAs by $14.6bn; and
-- the downgrade of Brazil's and Egypt's internal credit rating, increasing RWAs by $2.0bn; partly
offset by
-- the upgrade of Argentina's sovereign rating, decreasing RWAs by $0.8bn.
HSBC HOLDINGS PLC
89
Capital
Source and application of total regulatory capital
Half-year to
------------
30 Jun
2016
Footnotes $m
Movement in total regulatory capital
Opening common equity tier 1 capital 1 130,863
=============================================================================
Contribution to common equity tier 1 capital from profit for the period 5,388
=============================================================================
- consolidated profits attributable to shareholders of the parent company 6,912
=============================================================================
- removal of own credit spread net of tax (1,094)
=============================================================================
- debit valuation adjustment (103)
=============================================================================
- deconsolidation of insurance entities and special purpose entities (327)
============================================================================= ------------
Net dividends including foreseeable net dividends 4 (3,853)
=============================================================================
- update for actual dividends and scrip take-up (413)
=============================================================================
- first interim dividend net of scrip take-up (1,433)
=============================================================================
- second interim dividend net of planned scrip (2,007)
============================================================================= ------------
Goodwill and intangible assets 786
=============================================================================
Ordinary shares issued 8
=============================================================================
Foreign currency translation differences (2,333)
=============================================================================
Other, including regulatory adjustments (189)
============================================================================= ------------
Closing common equity tier 1 capital 1 130,670
=============================================================================
Opening additional tier 1 capital on a transitional basis 22,440
=============================================================================
Movement in additional tier 1 securities (205)
=============================================================================
- new issuance net of redemptions (680)
=============================================================================
- grandfathering adjustments 574
=============================================================================
- foreign currency translation and other differences (99)
============================================================================= ------------
Other, including regulatory adjustments (593)
============================================================================= ------------
Closing tier 1 capital on a transitional basis 152,312
=============================================================================
Opening tier 2 capital on a transitional basis 36,530
=============================================================================
Movement in tier 2 securities (2,020)
=============================================================================
- new issuance net of redemptions 567
=============================================================================
- grandfathering adjustments (2,284)
=============================================================================
- foreign currency translation and other differences (303)
============================================================================= ------------
Other, including regulatory adjustments (29)
============================================================================= ------------
Closing total regulatory capital on a transitional basis 186,793
============================================================================= ------------
For footnotes, see page 100.
Leverage ratio
Summary reconciliation of accounting assets and leverage ratio
exposures
At
30 Jun
Ref* 2016
$bn
1 Total assets as per published financial statements 2,608
==================================================================================================
Adjustments for:
==================================================================================================
- entities which are consolidated for accounting purposes but are outside the scope of
regulatory
2 consolidation 116
==================================================================================================
4 - derivative financial instruments (236)
==================================================================================================
5 - securities financing transactions 9
==================================================================================================
- off-balance sheet items (i.e. conversion to credit equivalent amounts of off-balance sheet
6 exposures) 302
==================================================================================================
7 - other (11)
================================================================================================== -------
8 Total leverage ratio exposure 2,788
================================================================================================== -------
* The references identify the lines prescribed in the European Banking Authority ('EBA') template
which are applicable and where there is a value.
HSBC HOLDINGS PLC
90
Capital (continued)
Leverage ratio common disclosure
At
30 Jun
2016
Ref* $bn
On-balance sheet exposures (excluding derivatives and securities financing transactions
('SFT'))
On-balance sheet items (excluding derivatives, SFTs and fiduciary assets, but including
1 collateral) 2,161
=======================================================================================
2 (Asset amounts deducted in determining tier 1 capital) (34)
=======================================================================================
3 Total on-balance sheet exposures (excluding derivatives, SFTs and fiduciary assets) 2,127
======================================================================================= ----------------
Derivative exposures
4 Replacement cost associated with all derivatives transactions (i.e. net of eligible
cash variation
margin) 37
=======================================================================================
5 Add-on amounts for potential future exposures associated with all derivatives
transactions
(mark-to-market method) 120
=======================================================================================
6 Gross-up for derivatives collateral provided where deducted from the balance sheet
assets
pursuant to IFRSs 5
=======================================================================================
(Deductions of receivables assets for cash variation margin provided in derivatives
7 transactions) (43)
=======================================================================================
8 (Exempted CCP leg of client-cleared trade exposures) (3)
=======================================================================================
9 Adjusted effective notional amount of written credit derivatives 238
=======================================================================================
(Adjusted effective notional offsets and add-on deductions for written credit
10 derivatives) (217)
=======================================================================================
11 Total derivative exposures 137
======================================================================================= ----------------
Securities financing transaction exposures
Gross SFT assets (with no recognition of netting), after adjusting for sales accounting
12 transactions 291
=======================================================================================
13 (Netted amounts of cash payables and cash receivables of gross SFT assets) (78)
=======================================================================================
14 Counterparty credit risk exposure for SFT assets 9
=======================================================================================
16 Total securities financing transaction exposures 222
======================================================================================= ----------------
Other off-balance sheet exposures
17 Off-balance sheet exposures at gross notional amount 900
=======================================================================================
18 (Adjustments for conversion to credit equivalent amounts) (598)
=======================================================================================
19 Total off-balance sheet exposures 302
======================================================================================= ----------------
Capital and total exposures
20 Tier 1 capital 142
=======================================================================================
21 Total leverage ratio exposure 2,788
=======================================================================================
22 Leverage ratio 5.1%
=======================================================================================
EU-23 Choice on transitional arrangements for the definition of the capital measure Fully phased in
=======================================================================================
* The references identify the lines prescribed in the EBA template which are applicable and
where there is a value.
Split of on-balance sheet exposures (excluding derivatives and
SFTs)
At
30 Jun
Ref* 2016
$bn
Total on-balance sheet exposures (excluding derivatives, SFTs, and exempted exposures) of
EU-1 which: 2,161
==============================================================================================
EU-2 Trading book exposures 274
EU-3 Banking book exposures, of which: 1,887
EU-4 - covered bonds 1
EU-5 - exposures treated as sovereigns 568
- exposures to regional governments, multilateral development banks ('MDB'), international
EU-6 organisations and public sector entities ('PSE') not treated as sovereigns 6
EU-7 - institutions 105
EU-8 - secured by mortgages of immovable properties 283
EU-9 - retail exposures 108
EU-10 - corporate 662
EU-11 - exposures in default 15
EU-12 - other exposures (e.g. equity, securitisations, and other non-credit obligation assets) 139
============================================================================================== -------
* The references identify the lines prescribed in the EBA template which are applicable and
where there is a value.
Our leverage ratio calculated on both the PRA and Capital
Requirements Regulation ('CRR') bases was 5.1% at 30 June 2016. On
the CRR basis, the leverage ratio was up from 5.0% at 31 December
2015 because of increased capital. The PRA basis was introduced on
1 January 2016.
At 30 June 2016, our PRA minimum leverage ratio requirement of
3% was supplemented with an additional leverage ratio buffer of
0.2% that translates to a value of $6.1bn, and a countercyclical
leverage ratio buffer which results in no capital impact. We
comfortably exceeded these leverage requirements.
HSBC HOLDINGS PLC
91
The risk of excessive leverage is managed as part of HSBC's
global risk appetite framework and monitored using a leverage ratio
metric within our Risk Appetite Statement ('RAS'). The RAS
articulates the aggregate level and types of risk that HSBC is
willing to accept in its business activities in order to achieve
its strategic business objectives. The RAS is monitored via the
risk appetite profile report, which includes comparisons of actual
performance against the risk appetite
and tolerance thresholds assigned to each metric, to ensure that
any excessive risk is highlighted, assessed and mitigated
appropriately. The risk appetite profile report is presented
monthly to the Group Risk Management Meeting of the Group
Management Board and the Group Risk Committee. Our approach to risk
appetite is described on page 102 of the Annual Report and Accounts
2015.
Regulatory disclosures
Regulatory developments
Throughout 1H16, there was a series of documents issued by the
Basel Committee on Banking Supervision which proposed significant
changes to the regulatory framework. The key publications proposed
changes to:
-- the framework for credit risk capital requirements under both the internal model and standardised
approaches;
-- the operational risk framework;
-- the credit valuation adjustment capital framework;
-- the scope of consolidation to include entities giving rise to 'step-in risk'; and
-- the leverage ratio exposure calculation and buffers.
The final impact of these and other proposals will depend on the
outcome of the consultation processes and quantitative impact
studies, and any changes would need to be
transposed into law before coming into effect. This includes the
finalised changes that relate to the market risk, counterparty risk
and securitisation regimes. In the UK, the Bank of England's
Financial Policy Committee ('FPC') has indicated that there will be
an offset with the PRA's Pillar 2 capital framework as a result of
these changes but the full scope and size of this offset is
currently uncertain.
The FPC also, in July 2016, decided to keep the UK
countercyclical capital buffer requirement at 0% until at least
June 2017, having previously planned to raise it to 0.5% in March
2017. Furthermore, the FPC recommended that the PRA buffer
requirements reduce in line with this decision. The PRA did this
with immediate effect.
As part of Recovery and Resolution frameworks, the international
standard for Total Loss Absorbing Capacity was finalised by the
Financial Stability Board. The Bank of England expects to implement
this through the EU's Minimum Requirements for own funds and
Eligible Liabilities framework, which it has consulted on but has
yet to finalise.
Risk-weighted assets
RWAs by geographical region
North Latin
Europe Asia MENA America America Total
Footnotes $bn $bn $bn $bn $bn $bn
IRB approach 181.7 199.7 19.9 117.4 15.0 533.7
- IRB advanced approach 162.8 199.7 10.0 117.4 15.0 504.9
- IRB foundation approach 18.9 - 9.9 - - 28.8
------ ----- ---- -------- -------- -------
Standardised approach 46.1 175.1 31.1 20.0 45.3 317.6
------ ----- ---- -------- -------- -------
Credit risk 227.8 374.8 51.0 137.4 60.3 851.3
Counterparty credit risk 36.7 15.7 1.4 15.9 4.0 73.7
Market risk 5 31.8 24.7 1.1 7.7 1.2 41.8
Operational risk 34.9 47.1 6.2 14.1 13.1 115.4
============================= ------ ----- ---- -------- -------- -------
At 30 Jun 2016 331.2 462.3 59.7 175.1 78.6 1,082.2
============================= ------ ----- ---- -------- -------- -------
For footnote, see page 100.
RWAs by global business
US
Principal run-off Total
RBWM portfolio RBWM CMB GB&M GPB Other Total
Footnotes $bn $bn $bn $bn $bn $bn $bn $bn
IRB approach 57.6 20.8 78.4 225.3 210.7 7.8 11.5 533.7
- IRB
advanced
approach 57.6 20.8 78.4 205.5 202.9 7.7 10.4 504.9
- IRB
foundation
approach - - - 19.8 7.8 0.1 1.1 28.8
----- ----- ----- ---- ----- -------
Standardised
approach 57.9 4.0 61.9 158.5 66.8 7.1 23.3 317.6
--------- --------- ----- ----- ----- ---- ----- -------
Credit risk 115.5 24.8 140.3 383.8 277.5 14.9 34.8 851.3
Counterparty
credit risk - - - - 72.9 0.3 0.5 73.7
Market risk 5 - - - - 41.5 - 0.3 41.8
Operational
risk 33.4 2.4 35.8 31.0 45.2 3.3 0.1 115.4
============== --------- --------- ----- ----- ----- ---- ----- -------
At 30 Jun 2016 148.9 27.2 176.1 414.8 437.1 18.5 35.7 1,082.2
============== --------- --------- ----- ----- ----- ---- ----- -------
For footnote, see page 100.
HSBC HOLDINGS PLC
92
Capital (continued)
RWA and Capital requirements for credit risk and information on
risk exposures
Credit risk RWAs by exposure class
Exposure value RWAs Capital required(2)
Footnotes $bn $bn $bn
IRB advanced approach 1,493.7 504.9 40.4
=================================================== -----
Retail:
- secured by mortgages on immovable property SME 2.9 0.6 -
- secured by mortgages on immovable property
non-SME 261.9 47.7 3.8
- qualifying revolving retail 65.3 15.1 1.2
- other SME 10.8 5.2 0.4
- other non-SME 45.2 10.7 0.9
Total retail 386.1 79.3 6.3
===================================================
Central governments and central banks 350.2 50.7 4.1
Institutions 77.1 19.0 1.5
Corporates 6 589.5 321.4 25.7
Securitisation positions 37.2 21.1 1.7
Non-credit obligation assets 53.6 13.4 1.1
-------------- ----- -------------------
IRB foundation approach 46.3 28.8 2.3
Central governments and central banks 0.1 0.1 -
Institutions 0.3 0.1 -
Corporates 45.9 28.6 2.3
-------------- ----- -------------------
Standardised approach 601.3 317.6 25.4
Central governments and central banks 223.4 19.9 1.6
Institutions 34.3 13.8 1.1
Corporates 212.8 195.9 15.6
Retail 43.4 31.9 2.6
Secured by mortgages on immovable property 43.1 15.3 1.2
Exposures in default 5.0 6.4 0.5
Regional governments or local authorities 2.6 0.8 0.1
Equity 7 6.8 12.0 1.0
Items associated with particularly high risk 4.5 6.8 0.5
Securitisation positions 0.8 0.7 0.1
Claims in the form of collective investment
undertakings ('CIUs') 0.5 0.5 -
Claims on institutions and corporates with a
short-term credit assessment 0.1 - -
International organisations 2.7 - -
Multilateral development banks 0.2 - -
===================================================
Other items 21.1 13.6 1.1
=================================================== -------------- ----- -------------------
At 30 Jun 2016 2,141.3 851.3 68.1
--------------------------------------------------- -------------- ----- -------------------
For footnotes, see page 100.
Counterparty credit risk RWAs by exposure class
Capital
RWAs required(2)
Footnotes $bn $bn
IRB advanced approach 48.1 3.8
Central governments and central banks 2.8 0.2
Institutions 18.7 1.5
Corporates 26.6 2.1
========================================= ---- -----------
IRB foundation approach 2.0 0.2
Corporates 2.0 0.2
========================================= ---- -----------
Standardised approach 4.7 0.3
Institutions 0.4 -
Corporates 4.3 0.3
========================================= ---- -----------
CVA advanced 8 3.5 0.3
CVA standardised 8 13.3 1.1
CCP standardised 2.1 0.2
=========================================
At 30 Jun 2016 73.7 5.9
----------------------------------------- ---- -----------
For footnotes, see page 100.
HSBC HOLDINGS PLC
93
Market risk - RWAs and capital required
RWAs Capital required(2)
$bn $bn
Internal model based 35.8 2.8
================================== ---- -------------------
VaR 6.9 0.6
Stressed VaR 9.6 0.7
Incremental risk charge 11.1 0.8
Other VaR and stressed VaR 8.2 0.7
================================== ---- -------------------
Standardised approach 6.0 0.5
==================================
Interest rate position risk 2.4 0.2
Foreign exchange position risk 0.3 -
Equity position risk 1.0 0.1
Securitisation positions 2.3 0.2
================================== ---- -------------------
At 30 Jun 2016 41.8 3.3
---------------------------------- ---- -------------------
For footnote, see page 100.
Wholesale IRB exposure - by obligor grade(9) - Central governments and central banks
Average Mapped
Exposure exposure Undrawn Average Average RWA external
CRR PD range value value commit-ments PD(10) LGD(10) density(10) RWAs rating
Footnotes % $bn $bn $bn % % % $bn
Default risk
0.000 to
Minimal 0.1 0.010 145.8 143.6 0.7 0.01 39.9 7 10.1 AAA
0.011 to AA+ to
1.1 0.028 116.3 112.6 0.7 0.02 45.0 6 7.5 AA
0.029 to AA- to
1.2 0.053 38.3 39.7 0.4 0.04 45.2 14 5.4 A+
=============
0.054 to
Low 2.1 0.095 13.1 11.5 0.1 0.07 45.0 28 3.7 A
0.096 to
2.2 0.169 10.4 11.0 0.2 0.13 45.0 30 3.1 A-
=============
0.170 to
Satisfactory 3.1 0.285 4.5 4.2 - 0.22 44.5 38 1.7 BBB+
0.286 to
3.2 0.483 0.4 3.3 - 0.37 45.0 50 0.2 BBB
0.484 to
3.3 0.740 12.5 8.8 - 0.63 45.0 70 8.7 BBB-
=============
0.741 to
Fair 4.1 1.022 0.1 0.1 - 0.87 45.0 100 0.1 BB+
1.023 to
4.2 1.407 1.0 1.0 0.1 1.20 45.0 90 0.9 BB
1.408 to
4.3 1.927 1.1 1.1 - 1.65 45.0 100 1.1 BB-
=============
1.928 to
Moderate 5.1 2.620 1.8 3.6 0.9 2.25 45.0 111 2.0 BB-
2.621 to
5.2 3.579 3.6 1.6 - 3.05 45.0 117 4.2 B+
3.580 to
5.3 4.914 1.1 1.0 - 4.20 45.0 136 1.5 B
=============
4.915 to
Significant 6.1 6.718 - - - - - - - B
6.719 to
6.2 8.860 0.3 0.5 - 7.85 45.0 200 0.6 B-
=============
8.861 to
High 7.1 11.402 - 0.3 - 10.00 45.0 - - CCC+
11.403
to
7.2 15.000 - - - - - - - CCC+
=============
15.001
Special to
management 8.1 22.000 - - - - - - - CCC+
22.001
to
8.2 50.000 - - - - - - - CCC+
50.001
to
8.3 99.999 - - - - - - - CCC to C
=============
Default 11 9/10 100.0 - - - - - - - Default
============= -------- -------- ------------ ----
At 30 Jun
2016 350.3 343.9 3.1 0.12 42.9 15 50.8
============= -------- -------- ------------ ----
For footnotes, see page 100.
HSBC HOLDINGS PLC
94
Capital (continued)
Wholesale IRB exposure - by obligor grade(9) - Institutions
Average Mapped
PD Exposure exposure Undrawn Average Average RWA external
CRR range value value commit-ments PD(10) LGD(10) density(10) RWAs rating
Footnotes % $bn $bn $bn % % % $bn
Default risk
0.000
to
Minimal 0.1 0.010 0.8 1.8 0.1 0.03 45.7 13 0.1 AAA
0.011
to AA+ to
1.1 0.028 16.1 15.4 1.4 0.03 37.1 11 1.7 AA
0.029
to
1.2 0.053 27.5 31.3 3.8 0.04 40.8 13 3.5 AA-
=============
0.054
to
Low 2.1 0.095 10.6 16.0 4.4 0.07 40.4 21 2.2 A+ to A
0.096
to
2.2 0.169 11.7 10.5 3.6 0.13 37.3 26 3.1 A-
=============
0.170
to
Satisfactory 3.1 0.285 2.0 2.7 1.5 0.22 40.9 40 0.8 BBB+
0.286
to
3.2 0.483 2.7 3.5 0.6 0.37 46.0 59 1.6 BBB
0.484
to
3.3 0.740 2.7 2.6 0.7 0.63 45.3 104 2.8 BBB-
=============
0.741
to
Fair 4.1 1.022 2.2 1.2 0.7 0.87 43.7 91 2.0 BB+
1.023
to
4.2 1.407 0.5 0.5 0.2 1.20 45.6 100 0.5 BB
1.408
to
4.3 1.927 0.2 0.2 0.1 1.65 46.4 100 0.2 BB-
=============
1.928
to
Moderate 5.1 2.620 0.1 0.1 0.2 2.25 48.5 100 0.1 BB-
2.621
to
5.2 3.579 0.1 0.1 - 3.05 45.0 100 0.1 B+
3.580
to
5.3 4.914 0.1 0.1 - 4.20 18.7 - - B
=============
4.915
to
Significant 6.1 6.718 0.1 - - 5.75 45.5 100 0.1 B-
6.719
to
6.2 8.860 - - - - - - - B-
=============
8.861
to
High 7.1 11.402 - - - 10.00 45.4 - 0.1 CCC+
11.403
to
7.2 15.000 - - - - - - - CCC+
=============
15.001
Special to
management 8.1 22.000 - - - - - - - CCC
22.001
to CCC- to
8.2 50.000 - - 0.2 35.97 54.9 - 0.1 CC
50.001
to
8.3 99.999 - - - - - - - C
=============
Default 11 9/10 100.0 - - - 100.00 45.0 - 0.1 Default
============= -------- -------- ------------ ----
At 30 Jun
2016 77.4 86.0 17.5 0.20 40.0 25 19.1
============= -------- -------- ------------ ----
For footnotes, see page 100.
Wholesale IRB exposure - by obligor grade(9) - Corporates(12)
Average Mapped
PD Exposure exposure Undrawn Average Average RWA external
CRR range value value commit-ments PD(10) LGD(10) density(10) RWAs rating
(Footnotes) % $bn $bn $bn % % % $bn
Default risk
0.000
to
Minimal 0.1 0.010 - - - - - - -
0.011
to AAA to
1.1 0.028 19.4 14.8 13.8 0.03 27.5 12 2.4 AA
0.029
to
1.2 0.053 43.2 49.5 37.2 0.04 36.8 14 6.2 AA-
=============
0.054
to
Low 2.1 0.095 63.8 64.8 57.0 0.07 40.3 22 14.0 A+ to A
0.096
to
2.2 0.169 74.3 80.0 65.6 0.13 39.3 31 23.0 A-
=============
0.170
to
Satisfactory 3.1 0.285 75.0 76.6 61.9 0.22 39.3 40 30.2 BBB+
0.286
to
3.2 0.483 69.5 72.9 52.7 0.37 39.4 51 35.3 BBB
0.484
to
3.3 0.740 65.6 69.4 43.9 0.63 36.3 60 39.4 BBB-
=============
0.741
to
Fair 4.1 1.022 44.2 43.6 31.4 0.87 39.1 74 32.9 BB+
1.023
to
4.2 1.407 33.6 35.4 22.6 1.20 39.8 85 28.3 BB
1.408
to
4.3 1.927 35.0 32.5 18.4 1.65 33.7 84 29.3 BB-
=============
1.928
to
Moderate 5.1 2.620 27.7 27.4 15.8 2.24 35.5 92 25.6 BB-
2.621
to
5.2 3.579 12.8 12.5 8.9 3.06 36.8 106 13.6 B+
3.580
to
5.3 4.914 10.7 11.4 8.2 4.14 38.4 118 12.6 B
=============
4.915
to
Significant 6.1 6.718 7.6 6.8 6.8 5.73 37.8 130 9.9 B-
6.719
to
6.2 8.860 4.6 3.9 2.0 7.85 37.1 146 6.7 B-
=============
8.861
to
High 7.1 11.402 2.9 2.6 1.3 10.01 36.6 155 4.5 CCC+
11.403
to
7.2 15.000 0.8 1.0 0.5 13.00 31.8 150 1.2 CCC+
=============
15.001
Special to
management 8.1 22.000 1.8 1.2 1.2 19.00 32.6 178 3.2 CCC
22.001
to CCC- to
8.2 50.000 0.5 0.5 0.1 35.86 34.9 200 1.0 CC
50.001
to
8.3 99.999 0.3 0.3 0.1 75.00 41.4 133 0.4 C
=============
Default 11 9/10 100.0 7.9 7.4 1.2 100.00 44.3 82 6.5 Default
============= -------- -------- ------------ -----
At 30 Jun
2016 601.2 614.5 450.6 2.28 37.9 54 326.2
============= -------- -------- ------------ -----
For footnote, see page 100.
HSBC HOLDINGS PLC
95
Retail IRB exposure - by internal PD band
Average
Exposure exposure Undrawn Average Average RWA
PD range value value commit-ments PD(10) LGD(10) density(10) RWAs
% $bn $bn $bn % % % $bn
At 30 Jun
2016
Secured by
mortgages
on
immovable
property
SME
0.000 to
Band 1 0.483 0.6 0.6 - 0.16 12.7 - -
============
0.484 to
Band 2 1.022 0.5 0.5 0.1 0.76 19.5 20 0.1
============
1.023 to
Band 3 4.914 1.2 1.3 - 2.29 19.8 25 0.3
============
4.915 to
Band 4 8.860 0.3 0.2 - 6.76 22.4 33 0.1
============
8.861 to
Band 5 15.000 0.1 0.1 - 11.02 27.8 - -
============
15.001 to
Band 6 50.000 0.1 0.1 - 24.62 20.5 100 0.1
============
50.001 to
Band 7 100.000 0.1 0.2 - 100.00 18.7 - -
============ -------- -------- ------------ ----
2.9 3.0 0.1 5.56 18.6 21 0.6
-------- -------- ------------ ----
Secured by
mortgages
on
immovable
property
non-SME
0.000 to
Band 1 0.483 206.9 210.2 16.2 0.12 15.4 8 15.8
============
0.484 to
Band 2 1.022 22.0 23.2 1.0 0.71 21.3 26 5.7
============
1.023 to
Band 3 4.914 20.4 22.4 0.7 1.94 25.0 55 11.3
============
4.915 to
Band 4 8.860 4.3 5.3 - 5.69 28.1 116 5.0
============
8.861 to
Band 5 15.000 1.1 1.2 0.1 11.82 26.4 164 1.8
============
15.001 to
Band 6 50.000 1.9 2.2 - 25.20 46.1 300 5.7
============
50.001 to
Band 7 100.000 5.3 5.7 - 98.29 46.2 45 2.4
============ -------- -------- ------------ ----
261.9 270.2 18.0 2.63 17.8 18 47.7
-------- -------- ------------ ----
Qualifying
revolving
retail
exposures
0.000 to
Band 1 0.483 47.4 48.4 84.5 0.12 93.3 7 3.3
============
0.484 to
Band 2 1.022 6.9 7.0 6.6 0.71 92.6 29 2.0
============
1.023 to
Band 3 4.914 8.7 8.9 5.7 2.22 90.6 66 5.7
============
4.915 to
Band 4 8.860 1.2 1.3 0.5 6.65 90.1 142 1.7
============
8.861 to
Band 5 15.000 0.4 0.4 0.2 11.11 92.1 200 0.8
============
15.001 to
Band 6 50.000 0.5 0.5 0.1 23.32 91.3 260 1.3
============
50.001 to
Band 7 100.000 0.2 0.2 0.1 88.94 70.5 150 0.3
============ -------- -------- ------------ ----
65.3 66.7 97.7 1.16 92.7 23 15.1
-------- -------- ------------ ----
Other SME
0.000 to
Band 1 0.483 1.3 1.5 0.8 0.29 60.6 23 0.3
============
0.484 to
Band 2 1.022 1.9 2.0 0.8 0.75 50.6 37 0.7
============
1.023 to
Band 3 4.914 5.0 5.3 1.3 2.57 52.7 56 2.8
============
4.915 to
Band 4 8.860 1.2 1.2 0.3 6.62 49.2 58 0.7
============
8.861 to
Band 5 15.000 0.4 0.5 0.1 10.81 58.4 100 0.4
============
15.001 to
Band 6 50.000 0.3 0.2 - 25.47 60.1 100 0.3
============
50.001 to
Band 7 100.000 0.7 0.8 0.1 99.72 38.8 - -
============ -------- -------- ------------ ----
10.8 11.5 3.4 9.92 52.4 48 5.2
-------- -------- ------------ ----
Other
non-SME
0.000 to
Band 1 0.483 26.4 26.7 11.3 0.18 26.4 11 2.8
============
0.484 to
Band 2 1.022 6.7 6.7 1.5 0.66 31.4 27 1.8
============
1.023 to
Band 3 4.914 9.7 10.1 1.4 1.92 30.4 41 4.0
============
4.915 to
Band 4 8.860 0.9 0.9 0.1 7.14 54.9 89 0.8
============
8.861 to
Band 5 15.000 0.5 0.5 - 12.00 63.9 120 0.6
============
15.001 to
Band 6 50.000 0.4 0.4 - 28.04 60.1 125 0.5
============
50.001 to
Band 7 100.000 0.6 0.6 - 96.61 59.9 33 0.2
============ -------- -------- ------------ ----
45.2 45.9 14.3 2.36 29.6 24 10.7
-------- -------- ------------ ----
Total
retail
0.000 to
Band 1 0.483 282.6 287.4 112.8 0.13 29.7 8 22.2
============
0.484 to
Band 2 1.022 38.0 39.4 10.0 0.70 37.4 27 10.3
============
1.023 to
Band 3 4.914 45.0 48.0 9.1 2.07 41.8 54 24.1
============
4.915 to
Band 4 8.860 7.9 8.9 0.9 6.18 43.8 105 8.3
============
8.861 to
Band 5 15.000 2.5 2.7 0.4 11.53 49.9 144 3.6
============
15.001 to
Band 6 50.000 3.2 3.4 0.1 25.23 55.4 247 7.9
============
50.001 to
Band 7 100.000 6.9 7.5 0.2 98.00 47.0 42 2.9
============ -------- -------- ------------ ----
386.1 397.3 133.5 2.58 32.8 21 79.3
==================== -------- -------- ------------ ----
For footnote, see page 100.
HSBC HOLDINGS PLC
96
Capital (continued)
Regulatory balance sheet
Regulatory and accounting consolidations
The basis of consolidation for the purpose of financial
accounting under IFRSs, described in Note 1 on the Financial
Statements, differs from that used for regulatory purposes as
described below. The following table provides a reconciliation of
the financial accounting balance sheet to the regulatory scope of
consolidation.
Interests in banking associates are equity accounted in the
financial accounting consolidation, whereas their exposures are
proportionally consolidated for regulatory purposes by including
our share of assets, liabilities, profit and loss, and RWAs in
accordance with the PRA's application of Capital Requirements
Directive IV ('CRD IV').
Subsidiaries engaged in insurance activities are excluded from
the regulatory consolidation by excluding assets, liabilities and
post-acquisition reserves, leaving the investment of these
insurance subsidiaries to be recorded at cost and deducted from
CET1 (subject to thresholds).
The regulatory consolidation also excludes special purpose
entities ('SPEs') where significant risk has been transferred to
third parties. Exposures to these SPEs are risk-weighted as
securitisation positions for regulatory purposes.
Entities in respect of which the basis of consolidation for
financial accounting purposes differs from that used for regulatory
purposes can be found in table 5 of our Pillar 3 Disclosures 2015
document.
Reconciliation of balance sheets - financial accounting to
regulatory scope of consolidation
Accounting Deconsolidation Consolidation Regulatory
balance of insurance/ of banking balance
sheet other entities associates sheet
Ref* $m $m $m $m
Assets
Cash and balances at central
banks 128,272 (1) 26,726 154,997
================================
Items in the course of
collection from other banks 6,584 - 27 6,611
================================
Hong Kong Government
certificates of indebtedness 29,011 - - 29,011
================================
Trading assets 280,295 (87) 3,049 283,257
================================
Financial assets designated at
fair value 23,901 (23,539) - 362
================================
Derivatives 369,942 (175) 1,068 370,835
================================
Loans and advances to banks 92,199 (2,894) 15,660 104,965
================================
Loans and advances to customers 887,556 (5,116) 122,664 1,005,104
================================
Of which:
- impairment allowances
on IRB portfolios h (6,026) - - (6,026)
=========================
- impairment allowances on
standardised portfolios (2,927) - (2,818) (5,745)
================================ -------------- --------------- -------------- ---------------
Reverse repurchase agreements -
non-trading 187,826 425 2,621 190,872
================================
Financial investments 441,399 (54,824) 50,181 436,756
================================
Assets held for sale 50,305 (5,291) - 45,014
================================
Of which:
- goodwill and
intangible assets e 2,027 (268) - 1,759
=========================
- impairment allowances (2,220) - - (2,220)
================================ -------------- --------------- -------------- ---------------
Of which:
- IRB portfolios h (146) - - (146)
=========================
- standardised portfolios (2,074) - - (2,074)
================================ -------------- --------------- -------------- ---------------
Capital invested in insurance
and other entities - 2,347 - 2,347
================================
Current tax assets 714 (26) - 688
================================
Prepayments, accrued income and
other assets 60,569 (2,603) 9,560 67,526
================================
Of which:
- retirement benefit
assets i 5,781 - - 5,781
=========================
Interests in associates and
joint ventures 19,606 - (19,014) 592
================================
Of which:
- positive goodwill on
acquisition e 574 - (560) 14
========================= -------------- --------------- -------------- ---------------
Goodwill and intangible
assets e 24,053 (6,471) 616 18,198
=========================
Deferred tax assets f 5,917 163 491 6,571
=========================
Total assets at 30 Jun 2016 2,608,149 (98,092) 213,649 2,723,706
================================ -------------- --------------- -------------- ---------------
* The references (a) to (q) identify balance sheet components which are used in the calculation
of regulatory capital on page 99.
HSBC HOLDINGS PLC
97
Accounting Deconsolidation Consolidation Regulatory
balance of insurance/ of banking balance
sheet other entities associates sheet
Ref* $m $m $m $m
Liabilities and
equity
Hong Kong currency notes in
circulation 29,011 - - 29,011
===============================
Deposits by banks 69,900 (44) 48,095 117,951
===============================
Customer accounts 1,290,958 (43) 148,867 1,439,782
===============================
Repurchase agreements -
non-trading 98,342 - - 98,342
===============================
Items in the course of
transmission to other banks 7,461 - - 7,461
===============================
Trading liabilities 188,698 700 36 189,434
===============================
Financial liabilities
designated at fair value 78,882 (6,025) - 72,857
===============================
Of which:
- term subordinated
debt included in
tier 2 capital n,q 22,049 - - 22,049
=====================
- preferred
securities
included in tier 1
capital m 420 - - 420
===================== ---------------- --------------- --------------- ----------------
Derivatives 368,414 277 1,041 369,732
Debt securities in issue 87,673 (6,560) 6,294 87,407
===============================
Liabilities of disposal groups
held for sale 43,705 (4,765) 145 39,085
===============================
Current tax liabilities 1,569 (122) 457 1,904
===============================
Liabilities under insurance
contracts 73,416 (73,416) - -
===============================
Accruals, deferred income and
other liabilities 42,057 2,177 5,869 50,103
===============================
Of which:
- retirement benefit
liabilities 3,064 (3) 51 3,112
=============================== ---------------- --------------- --------------- ----------------
Provisions 5,797 (19) - 5,778
===============================
Of which:
- contingent liabilities and
contractual commitments 256 - - 256
=============================== ---------------- --------------- --------------- ----------------
Of which:
- credit-related
provisions on
IRB portfolios h 227 - - 227
=====================
- credit-related
provisions on
standardised portfolios 29 - - 29
=============================== ---------------- --------------- --------------- ----------------
Deferred tax liabilities 2,300 (991) 4 1,313
===============================
Subordinated liabilities 21,669 1 2,841 24,511
===============================
Of which:
- preferred
securities
included in tier 1
capital k,m 1,832 - - 1,832
=====================
- perpetual
subordinated debt
included in tier 2
capital o 1,968 - - 1,968
=====================
- term subordinated
debt included in
tier 2 capital n,q 17,253 - - 17,253
===================== ---------------- --------------- --------------- ----------------
o
Total liabilities at 30 Jun
2016 2,409,852 (88,830) 213,649 2,534,671
=============================== ---------------- --------------- --------------- ----------------
Called up share
capital a 9,906 (1,036) - 8,870
=====================
Share premium account a,k 12,772 (182) - 12,590
=====================
Other equity
instruments j,k 17,110 2,972 - 20,082
=====================
Other reserves c,g 5,759 1,245 - 7,004
=====================
Retained earnings b,c 145,710 (11,275) - 134,435
===================== ---------------- --------------- --------------- ----------------
Total shareholders' equity 191,257 (8,276) - 182,981
===============================
Non-controlling
interests d,l,m,p 7,040 (986) - 6,054
=====================
Of which:
- non-cumulative
preference shares
issued by
subsidiaries
included in tier 1
capital m 270 - - 270
===================== ---------------- --------------- --------------- ----------------
Total equity at 30 Jun 2016 198,297 (9,262) - 189,035
=============================== ---------------- --------------- --------------- ----------------
Total liabilities and equity at
30 Jun 2016 2,608,149 (98,092) 213,649 2,723,706
=============================== ---------------- --------------- --------------- ----------------
* The references (a) to (q) identify balance sheet components which are used in the calculation
of regulatory capital on page 99.
HSBC HOLDINGS PLC
98
Capital (continued)
Capital
Transitional own funds disclosure
At Final
30 Jun CRD IV
Ref * Ref 2016 CRD IV prescribed residual amount text
$m $m $m
Common equity tier 1 ('CET1') capital:
instruments and reserves
Capital instruments and the related
1 share premium accounts 21,273 21,273
======================================
Of which: ordinary shares a 21,273 21,273
====================================== ------- --------------------------------- -------
2 Retained earnings b 138,347 138,347
======================================
3 Accumulated other comprehensive income
(and other reserves) c (2,066) (2,066)
======================================
5 Minority interests (amount allowed in
consolidated CET1) d 3,659 3,659
======================================
5a Independently reviewed interim net
profits net of any foreseeable charge
or dividend b 4,905 4,905
====================================== ------- ------------------------------------ -------
6 Common equity tier 1 capital before
regulatory adjustments 166,118 166,118
====================================== ------- ------------------------------------ -------
Common equity tier 1 capital:
regulatory adjustments
7 Additional value adjustments (1,507) (1,507)
======================================
8 Intangible assets (net of related
deferred tax liability) e (20,086) (20,086)
======================================
10 Deferred tax assets that rely on
future profitability excluding those
arising from temporary
differences (net of related tax
liability) f (1,475) (1,475)
======================================
11 Fair value reserves related to gains
or losses on cash flow hedges g (408) (408)
======================================
12 Negative amounts resulting from the
calculation of expected loss amounts h (5,073) (5,073)
======================================
14 Gains or losses on liabilities at fair
value resulting from changes in own
credit standing (1,670) (1,670)
======================================
15 Defined-benefit pension fund assets i (4,290) (4,290)
======================================
16 Direct and indirect holdings of own
CET1 instruments (939) (939)
======================================
28 Total regulatory adjustments to common
equity tier 1 (35,448) - (35,448)
====================================== ------- --------------------------------- -------
29 Common equity tier 1 capital 130,670 - 130,670
====================================== ------- --------------------------------- -------
Additional tier 1 ('AT1') capital:
instruments
30 Capital instruments and the related
share premium accounts 11,259 - 11,259
======================================
31 Of which: classified as equity under
IFRSs j 11,259 - 11,259
====================================== ------- --------------------------------- -------
33 Amount of qualifying items and the
related share premium accounts subject
to phase out from
AT1 k 7,946 (7,946) -
======================================
34 Qualifying tier 1 capital included in
consolidated AT1 capital (including
minority interests
not included in CET1) issued by
subsidiaries and held by third parties l,m 2,579 (2,403) 176
======================================
35 Of which: instruments issued by
subsidiaries subject to phase out m 1,665 (1,665) -
====================================== ------- --------------------------------- -------
36 Additional tier 1 capital before
regulatory adjustments 21,784 (10,349) 11,435
====================================== ------- --------------------------------- -------
Additional tier 1 capital: regulatory
adjustments
37 Direct and indirect holdings of own
AT1 instruments (60) (60)
======================================
41b Residual amounts deducted from AT1
capital with regard to deduction from
tier 2 ('T2') capital
during the transitional period (82) 82 -
======================================
Of which: direct and indirect
holdings by the institution of the
T2 instruments and subordinated
loans of financial sector entities
where the institution has a
significant investment in those
entities (82) 82 -
====================================== ------- --------------------------------- -------
43 Total regulatory adjustments to
additional tier 1 capital (142) 82 (60)
====================================== ------- --------------------------------- -------
44 Additional tier 1 capital 21,642 (10,267) 11,375
====================================== ------- --------------------------------- -------
45 Tier 1 capital (T1 = CET1 + AT1) 152,312 (10,267) 142,045
====================================== ------- --------------------------------- -------
Tier 2 capital: instruments and
provisions
46 Capital instruments and the related
share premium accounts n 16,840 16,840
======================================
47 Amount of qualifying items and the
related share premium accounts subject
to phase out from
T2 o 5,695 (5,695 ) -
======================================
48 Qualifying own funds instruments
included in consolidated T2 capital
(including minority interests
and AT1 instruments not included in
CET1 or AT1) issued by subsidiaries
and held by third
parties p,q 12,314 (12,262 ) 52
====================================== ------- --------------------------------- -------
49 Of which: instruments issued by
subsidiaries subject to phase out q 12,283 (12,283 ) -
====================================== ------- --------------------------------- -------
51 Tier 2 capital before regulatory
adjustments 34,849 (17,957 ) 16,892
====================================== ------- --------------------------------- -------
HSBC HOLDINGS PLC
99
At Final
30 Jun CRD IV
Ref * Ref 2016 CRD IV prescribed residual amount text
$m $m $m
Tier 2 capital: regulatory
adjustments
Direct and indirect holdings of
52 own T2 instruments (40) (40)
================================
55 Direct and indirect holdings by
the institution of the T2
instruments and subordinated
loans
of financial sector entities
where the institution has a
significant investment in those
entities
(net of eligible short
positions) (328) (82) (410)
================================ --------- --------------------------------- ---------
57 Total regulatory adjustments to
tier 2 capital (368) (82) (450)
--------- --------------------------------- ---------
58 Tier 2 capital 34,481 (18,039) 16,442
--------- --------------------------------- ---------
59 Total capital (TC = T1 + T2) 186,793 (28,306) 158,487
--------- --------------------------------- ---------
60 Total risk-weighted assets 1,082,184 - 1,082,184
--------- --------------------------------- ---------
Capital ratios and buffers
61 Common equity tier 1(1) 12.1% 12.1%
================================
62 Tier 1 14.1% 13.1%
================================
63 Total capital 17.3% 14.6%
================================
Institution specific buffer
64 requirement 1.3%
================================
Of which:
================================
65 - capital conservation buffer
requirement 0.6%
================================
- countercyclical buffer
66 requirement 0.1%
================================
67a - Global Systemically
Important Institution
('G-SII') or Other
Systemically Important
Institution
('O-SII') buffer 0.6 %
================================
68 Common equity tier 1 available
to meet buffers 6.3 %
Amounts below the threshold for
deduction (before risk
weighting)
72 Direct and indirect holdings of
the capital of financial sector
entities where the institution
does not have a significant
investment in those entities
(amount below 10% threshold and
net
of eligible short positions) 2,940
================================
73 Direct and indirect holdings by
the institution of the CET1
instruments of financial sector
entities where the institution
has a significant investment in
those entities (amount below
10% threshold and net of
eligible short positions) 3,461
================================
75 Deferred tax assets arising from
temporary differences (amount
below 10% threshold, net of
related tax liability) 7,605
Applicable caps on the inclusion
of provisions in tier 2
77 Cap on inclusion of credit risk
adjustments in T2 under
standardised approach 4,030
================================
79 Cap for inclusion of credit risk
adjustments in T2 under internal
ratings-based approach 3,404
Capital instruments subject to
phase-out arrangements (only
applicable between 1 Jan 2013
and 1 Jan 2022)
82 Current cap on AT1 instruments
subject to phase out
arrangements 10,382
================================
83 Amount excluded from AT1 due to
cap (excess over cap after
redemptions and maturities) 201
================================
84 Current cap on T2 instruments
subject to phase out
arrangements 17,978
================================
85 Amount excluded from T2 due to
cap (excess over cap after
redemptions and maturities) 5,501
================================
* The references identify the lines prescribed in the EBA template which are applicable and
where there is a value.
The references (a) to (q) identify balance sheet components on page 97 which are used in the
calculation of regulatory capital.
A list of the features of our capital instruments in accordance
with Annex III of Commission Implementing Regulation 1423/2013 is
published on our website with reference to
our balance sheet at 30 June 2016, along with the full terms and
conditions.
Footnotes to Capital
1 Since 1 January 2015 the CRD IV transitional CET1 and end point CET1 capital ratios have been
aligned for HSBC Holdings plc.
2 'Capital required' represents the Pillar 1 capital charge at 8% of RWAs.
3 Book size now includes market risk movements previously categorised as movements in risk levels.
4 This includes dividends on ordinary shares, quarterly dividends on preference shares and coupons
on capital securities, classified as equity.
5 RWAs are non-additive across geographical regions due to market risk diversification effects
within the Group.
6 'Corporates' includes specialised lending exposures subject to a supervisory slotting approach
of $34.2bn and RWAs of $23.8bn.
7 This includes investment in insurance companies which are risk weighted at 250%.
8 The RWA impact due to the CVA capital charge is calculated based on the exposures under the
IRB and standardised approaches. No additional exposures are taken into account.
9 For a definition of obligor grade refer to our Capital and Risk Management Pillar 3 disclosures
2015, where a glossary of terms can be found.
10 Average PD, average LGD and RWA density percentages represent an exposure weighted average.
11 There is a requirement to hold additional capital for unexpected losses on defaulted exposures
where LGD exceeds our best estimate of EL. As a result, in some cases RWAs arise for exposures
in default.
12 Excludes specialised lending exposures subject to a supervisory slotting approach of $34.2bn
and RWAs of $23.8bn.
HSBC HOLDINGS PLC
100
Financial Statements (unaudited)
Financial Statements
Consolidated income statement
for the half-year to 30 June 2016
Half-year to
------------------------------
30 Jun 30 Jun 31 Dec
2016 2015 2015
Notes $m $m $m
Interest income 23,011 24,019 23,170
=====================================================================
Interest expense (7,251) (7,575) (7,083)
===================================================================== ------- ------- -------
Net interest income 15,760 16,444 16,087
=====================================================================
Fee income 8,202 9,372 8,644
=====================================================================
Fee expense (1,616) (1,647) (1,664)
===================================================================== ------- ------- -------
Net fee income 6,586 7,725 6,980
=====================================================================
Trading income excluding net interest income 4,594 3,520 3,428
=====================================================================
Net interest income on trading activities 730 1,053 722
===================================================================== ------- ------- -------
Net trading income 5,324 4,573 4,150
=====================================================================
Changes in fair value of long-term debt issued and related
derivatives 270 1,324 (461)
=====================================================================
Net income/(expense) from other financial instruments designated at
fair value 291 1,342 (673)
===================================================================== ------- ------- -------
Net income/(expense) from financial instruments designated at fair
value 561 2,666 (1,134)
=====================================================================
Gains less losses from financial investments 965 1,874 194
=====================================================================
Dividend income 64 68 55
=====================================================================
Net insurance premium income 5,356 5,607 4,748
=====================================================================
Other operating income 644 836 219
===================================================================== ------- ------- -------
Total operating income 35,260 39,793 31,299
=====================================================================
Net insurance claims and benefits paid and movement in liabilities to
policyholders (5,790) (6,850) (4,442)
===================================================================== ------- ------- -------
Net operating income before loan impairment charges and
other credit risk provisions 29,470 32,943 26,857
=====================================================================
Loan impairment charges and other credit risk provisions (2,366) (1,439) (2,282)
===================================================================== ------- ------- -------
Net operating income 27,104 31,504 24,575
===================================================================== ------- ------- -------
Employee compensation and benefits (9,354) (10,041) (9,859)
=====================================================================
General and administrative expenses (7,467) (8,129) (9,533)
=====================================================================
Depreciation and impairment of property, plant and equipment (605) (604) (665)
=====================================================================
Amortisation and impairment of intangible assets and goodwill (1,202) (413) (524)
===================================================================== ------- ------- -------
Total operating expenses (18,628) (19,187) (20,581)
===================================================================== ------- ------- -------
Operating profit 8,476 12,317 3,994
=====================================================================
Share of profit in associates and joint ventures 1,238 1,311 1,245
===================================================================== ------- ------- -------
Profit before tax 9,714 13,628 5,239
=====================================================================
Tax expense (2,291) (2,907) (864)
===================================================================== ------- ------- -------
Profit for the period 7,423 10,721 4,375
===================================================================== ------- ------- -------
Profit attributable to shareholders of the parent company 6,912 9,618 3,904
=====================================================================
Profit attributable to non-controlling interests 511 1,103 471
=====================================================================
$ $ $
Basic earnings per ordinary share 3 0.32 0.48 0.17
=====================================================================
Diluted earnings per ordinary share 3 0.32 0.48 0.17
=====================================================================
The accompanying notes on pages 107 to 138 form an integral part
of these financial statements(1) .
For footnote, see page 106.
HSBC HOLDINGS PLC
101
Consolidated statement of comprehensive income
for the half-year to 30 June 2016
Half-year to
------------------------------
30 Jun 30 Jun 31 Dec
2016 2015 2015
$m $m $m
Profit for the period 7,423 10,721 4,375
============================================================================
Other comprehensive income/(expense)
Items that will be reclassified subsequently to profit or loss when
specific conditions are
met:
Available-for-sale investments 1,010 (2,445) (627)
============================================================================
- fair value gains/(losses) 2,826 (355) (876)
============================================================================
- fair value gains reclassified to the income statement (1,228) (2,317) (120)
============================================================================
- amounts reclassified to the income statement in respect of impairment
losses 24 2 125
============================================================================
- income taxes (612) 225 244
============================================================================ ------- ------- -------
Cash flow hedges 340 (150) 126
- fair value (losses)/gains (1,796) 341 363
============================================================================
- fair value losses/(gains) reclassified to the income statement 2,242 (538) (167)
============================================================================
- income taxes (106) 47 (70)
============================================================================ ------- ------- -------
Share of other comprehensive (expense)/income of associates and joint
ventures (1) 2 (11)
- share for the period (1) 2 (11)
============================================================================
- reclassified to income statement on disposal - - -
=========================================================================== ------- ------- -------
Exchange differences (2,713) (3,267) (7,678)
- other exchange differences (2,619) (3,395) (7,717)
============================================================================
- income tax attributable to exchange differences (94) 128 39
============================================================================ ------- ------- -------
Items that will not be reclassified subsequently to profit or loss:
Remeasurement of defined benefit asset/liability 416 (1,680) 1,781
- before income taxes 533 (2,085) 2,215
============================================================================
- income taxes (117) 405 (434)
============================================================================ ------- ------- -------
Other comprehensive expense for the period, net of tax (948) (7,540) (6,409)
============================================================================ ------- ------- -------
Total comprehensive income/(expense) for the period 6,475 3,181 (2,034)
============================================================================ ------- ------- -------
Attributable to:
- shareholders of the parent company 6,010 2,856 (2,396)
============================================================================
- non-controlling interests 465 325 362
============================================================================ ------- ------- -------
Total comprehensive income/(expense) for the period 6,475 3,181 (2,034)
============================================================================ ------- ------- -------
The accompanying notes on pages 107 to 138 form an integral part
of these financial statements(1) .
For footnote, see page 106.
HSBC HOLDINGS PLC
102
Financial Statements (unaudited) (continued)
Consolidated balance sheet
at 30 June 2016
At
----------------------
30 Jun 31 Dec
2016 2015
(Notes) $m $m
Assets
Cash and balances at central banks 128,272 98,934
====================================================
Items in the course of collection from other banks 6,584 5,768
====================================================
Hong Kong Government certificates of indebtedness 29,011 28,410
====================================================
Trading assets (5) 280,295 224,837
====================================================
Financial assets designated at fair value (8) 23,901 23,852
====================================================
Derivatives (9) 369,942 288,476
====================================================
Loans and advances to banks 92,199 90,401
====================================================
Loans and advances to customers 887,556 924,454
====================================================
Reverse repurchase agreements - non-trading 187,826 146,255
====================================================
Financial investments (10) 441,399 428,955
====================================================
Assets held for sale (11) 50,305 43,900
====================================================
Prepayments, accrued income and other assets 60,569 54,398
====================================================
Current tax assets 714 1,221
====================================================
Interests in associates and joint ventures (13) 19,606 19,139
====================================================
Goodwill and intangible assets 24,053 24,605
====================================================
Deferred tax assets 5,917 6,051
==================================================== --------- ---------
Total assets 2,608,149 2,409,656
==================================================== --------- ---------
Liabilities and equity
Liabilities
Hong Kong currency notes in circulation 29,011 28,410
====================================================
Deposits by banks 69,900 54,371
====================================================
Customer accounts 1,290,958 1,289,586
====================================================
Repurchase agreements - non-trading 98,342 80,400
====================================================
Items in the course of transmission to other banks 7,461 5,638
====================================================
Trading liabilities (14) 188,698 141,614
====================================================
Financial liabilities designated at fair value 78,882 66,408
====================================================
Derivatives (9) 368,414 281,071
====================================================
Debt securities in issue 87,673 88,949
====================================================
Liabilities of disposal groups held for sale (11) 43,705 36,840
====================================================
Accruals, deferred income and other liabilities 42,057 38,116
====================================================
Current tax liabilities 1,569 783
====================================================
Liabilities under insurance contracts 73,416 69,938
====================================================
Provisions (16) 5,797 5,552
====================================================
Deferred tax liabilities (17) 2,300 1,760
====================================================
Subordinated liabilities 21,669 22,702
==================================================== --------- ---------
Total liabilities 2,409,852 2,212,138
==================================================== --------- ---------
Equity
Called up share capital 9,906 9,842
====================================================
Share premium account 12,772 12,421
====================================================
Other equity instruments 17,110 15,112
====================================================
Other reserves 5,759 7,109
====================================================
Retained earnings 145,710 143,976
==================================================== --------- ---------
Total shareholders' equity 191,257 188,460
====================================================
Non-controlling interests 7,040 9,058
==================================================== --------- ---------
Total equity 198,297 197,518
==================================================== --------- ---------
Total liabilities and equity 2,608,149 2,409,656
==================================================== --------- ---------
The accompanying notes on pages 107 to 138 form an integral part
of these financial statements(1) .
For footnote, see page 106.
HSBC HOLDINGS PLC
103
Consolidated statement of cash flows
for the half-year to 30 June 2016
Half-year to
---------------------------------
30 Jun 30 Jun 31 Dec
2016 2015 2015
$m $m $m
Cash flows from operating activities
Profit before tax 9,714 13,628 5,239
=========================================================================
Adjustments for:
- net gain from investing activities (1,034) (1,926) (9)
=========================================================================
- share of profit in associates and joint ventures (1,238) (1,311) (1,245)
=========================================================================
- other non-cash items included in profit before tax 5,817 4,522 6,243
=========================================================================
- change in operating assets 7,268 12,077 53,751
=========================================================================
- change in operating liabilities 59,093 (15,544) (91,218)
=========================================================================
- elimination of exchange differences(2) (3,193) 3,951 14,357
=========================================================================
- dividends received from associates 619 770 109
=========================================================================
- contributions paid to defined benefit plans (340) (226) (438)
=========================================================================
- tax paid (1,668) (1,351) (2,501)
========================================================================= -------- -------- --------
Net cash generated from/(used in) operating activities 75,038 14,590 (15,712)
========================================================================= -------- -------- --------
Cash flows from investing activities
Purchase of financial investments (233,153) (211,669) (226,707)
=========================================================================
Proceeds from the sale and maturity of financial investments 216,340 208,637 190,999
=========================================================================
Purchase of property, plant and equipment (429) (620) (732)
=========================================================================
Proceeds from the sale of property, plant and equipment 40 56 47
=========================================================================
Net cash inflow from disposal of customer and loan portfolios 4,186 321 1,702
=========================================================================
Net purchase of intangible assets (395) (400) (554)
=========================================================================
Net cash inflow from disposal of subsidiaries, businesses, associates and
joint ventures 16 6 2
=========================================================================
Net cash used in investing activities (13,395) (3,669) (35,243)
========================================================================= -------- -------- --------
Cash flows from financing activities
Issue of ordinary share capital 8 9 138
=========================================================================
Net (purchases)/sales of own shares for market-making and investment
purposes (78) 139 192
=========================================================================
Issue of other equity instruments 1,998 2,459 1,120
=========================================================================
Redemption of preference shares and other equity instruments (1,825) (462) -
=========================================================================
Subordinated loan capital issued 1,129 1,680 1,500
=========================================================================
Subordinated loan capital repaid (546) (778) (1,379)
=========================================================================
Dividends paid to ordinary shareholders of the parent company (3,729) (1,834) (4,714)
=========================================================================
Dividends paid to non-controlling interests (702) (386) (311)
=========================================================================
Dividends paid to holders of other equity instruments (556) (428) (522)
=========================================================================
Net cash generated (used in)/from financing activities (4,301) 399 (3,976)
========================================================================= -------- -------- --------
Net increase/(decrease) in cash and cash equivalents 57,342 11,320 (54,931)
========================================================================= -------- -------- --------
Cash and cash equivalents at the beginning of the period 243,863 301,301 308,792
=========================================================================
Exchange differences in respect of cash and cash equivalents (1,452) (3,829) (9,998)
========================================================================= -------- -------- --------
Cash and cash equivalents at the end of the period 299,753 308,792 243,863
========================================================================= -------- -------- --------
The accompanying notes on pages 107 to 138 form an integral part
of these financial statements(1) .
For footnote, see page 106.
HSBC HOLDINGS PLC
104
Consolidated statement of changes in equity
for the half-year to 30 June 2016
Other reserves
----------------------------------------------
Called Available-
up Other for-sale Cash flow Foreign Total Non-
share Share equity Retained fair value hedging exchange Merger share-holders' controlling Total
capital premium instru-ments(3) earnings reserve(4) reserve(4) reserve(4) reserve equity interests(5) equity
$m $m $m $m $m $m $m $m $m $m $m
At 1 Jan 2016 9,842 12,421 15,112 143,976 (189) 34 (20,044) 27,308 188,460 9,058 197,518
================================
Profit for the period - - - 6,912 - - - - 6,912 511 7,423
================================
Other comprehensive income (net
of tax) - - - 451 1,024 341 (2,718) - (902) (46) (948)
================================
- available-for-sale
investments - - - - 1,024 - - - 1,024 (14) 1,010
================================
- cash flow hedges - - - - - 341 - - 341 (1) 340
================================
- remeasurement of defined
benefit asset/liability - - - 452 - - - - 452 (36) 416
================================
- share of other comprehensive
income of associates & joint
ventures - - - (1) - - - - (1) - (1)
================================
- exchange differences - - - - - - (2,718) - (2,718) 5 (2,713)
================================ ------- ------- --------------- -------- ---------- ---------- ---------- ------- -------------- ------------ -------
Total comprehensive income for
the period - - - 7,363 1,024 341 (2,718) - 6,010 465 6,475
================================
Shares issued under employee
remuneration and share plans 32 383 - (407) - - - - 8 - 8
================================
Shares issued in lieu of
dividends and amounts arising
thereon 32 (32) - 1,111 - - - - 1,111 - 1,111
================================
Dividends to shareholders - - - (6,674) - - - - (6,674) (702) (7,376)
================================
Capital securities issued - - 1,998 - - - - - 1,998 - 1,998
================================
Cost of share-based payment
arrangements - - - 305 - - - - 305 - 305
================================
Other movements - - - 36 3 - - - 39 (1,781) (1,742)
================================ ------- ------- --------------- -------- ---------- ---------- ---------- ------- -------------- ------------ -------
At 30 Jun 2016 9,906 12,772 17,110 145,710 838 375 (22,762) 27,308 191,257 7,040 198,297
================================ ------- ------- --------------- -------- ---------- ---------- ---------- ------- -------------- ------------ -------
At 1 Jan 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 & 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 Jun 2015 9,758 12,290 13,991 141,208 413 (93) (12,448) 27,308 192,427 8,955 201,382
================================ ------- ------- --------------- -------- ---------- ---------- ---------- ------- -------------- ------------ -------
Consolidated statement of changes in equity for the half-year to
30 June 2016 (continued)
Other reserves
----------------------------------------------
Called Available-
up for-sale Cash flow Foreign Total Non-
share Share Other equity Retained fair value hedging exchange Merger share-holders' controlling Total
capital premium instru-ments earnings reserve(4) reserve(4) reserve(4) reserve equity interests equity
$m $m $m $m $m $m $m $m $m $m $m
At 1 Jul 2015 9,758 12,290 13,991 141,208 413 (93) (12,448) 27,308 192,427 8,955 201,382
================================
Profit for the period - - - 3,904 - - - - 3,904 471 4,375
================================
Other comprehensive income (net
of tax) - - - 1,766 (597) 127 (7,596) - (6,300) (109) (6,409)
================================
- available-for-sale
investments - - - - (597) - - - (597) (30) (627)
================================
- cash flow hedges - - - - - 127 - - 127 (1) 126
================================
- remeasurement of defined
benefit asset/liability - - - 1,777 - - - - 1,777 4 1,781
================================
- share of other comprehensive
income of associates & joint
ventures - - - (11) - - - - (11) - (11)
================================
- exchange differences - - - - - - (7,596) - (7,596) (82) (7,678)
================================ ------- ------- ------------ -------- ---------- ---------- ---------- ------- -------------- ----------- -------
Total comprehensive income for
the period - - - 5,670 (597) 127 (7,596) - (2,396) 362 (2,034)
================================
Shares issued under employee
remuneration and share plans 14 201 - (77) - - - - 138 - 138
================================
Shares issued in lieu of
dividends and amounts arising
thereon 70 (70) - 920 - - - - 920 - 920
================================
Dividends to shareholders - - - (4,436) - - - - (4,436) (265) (4,701)
================================
Capital securities issued - - 1,121 - - - - - 1,121 - 1,121
================================
Cost of share-based payment
arrangements - - - 313 - - - - 313 - 313
================================
Other movements - - - 378 (5) - - - 373 6 379
================================ ------- ------- ------------ -------- ---------- ---------- ---------- ------- -------------- ----------- -------
At 31 Dec 2015 9,842 12,421 15,112 143,976 (189) 34 (20,044) 27,308 188,460 9,058 197,518
================================ ------- ------- ------------ -------- ---------- ---------- ---------- ------- -------------- ----------- -------
The accompanying notes on pages 107 to 138 form an integral part
of these financial statements(1) .
Footnotes to financial statements
1 The tables 'Gross loans and advances to customers by industry sector and by geographical region'
(see page 62) and 'Movement in impairment allowances on loans and advances to customers and
banks' (see page 67) also form an integral part of these financial statements.
2 Adjustment to bring changes between opening and closing balance sheet amounts to average rates.
This is not done on a line-by-line basis, as details cannot be determined without unreasonable
expense.
3 During June 2016, HSBC Holdings issued $2,000m of perpetual subordinated contingent convertible
capital securities, after issuance costs of $6m and tax benefits of $4m, which are classified
as equity under IFRSs.
4 At 30 June 2016, our operations in Brazil were classified as held for sale (see Note 11).
The cumulative amounts of other reserves attributable to these operations were as follows:
available-for-sale fair value reserve debit of $33m (30 June 2015: $65m debit; 31 December
2015: $176m debit), nil cash flow hedging reserve (30 June 2015: $29m debit; 31 December 2015:
$34m credit) and foreign exchange reserve debit of $1.9bn (30 June 2015: $1.7bn debit; 31
December 2015: $2.6bn debit).
5 During the period HSBC USA Inc. and HSBC Finance Corporation redeemed all outstanding preferred
securities at 31 December 2015 ($1,825m). Refer to Note 34 on pages 436 and 437 of the Annual
Report and Accounts 2015 for further details of all preferred securities outstanding at 31
December 2015.
Notes on the Financial Statements (unaudited)
Notes on the Financial Statements
======================================================================================================================
Basis of preparation and significant
1 accounting policies 107 13 Interests in associates and joint ventures 123
=============================================
2 Dividends 108 14 Trading liabilities 125
============================================= =============================================
3 Earnings per share 109 15 Maturity analysis of assets and liabilities 126
============================================= =============================================
4 Segmental analysis 109 16 Provisions 128
============================================= =============================================
5 Trading assets 110 17 Deferred tax 129
============================================= =============================================
Fair values of financial instruments carried 18 Contingent liabilities, contractual
6 at fair value 111 commitments and
Fair values of financial instruments not
7 carried at fair value 119 guarantees 129
============================================= =============================================
8 Financial assets designated at fair value 119 19 Legal proceedings and regulatory matters 130
=============================================
9 Derivatives 120 20 Goodwill impairment 137
=============================================
10 Financial investments 121 21 Transactions with related parties 138
=============================================
Assets held for sale and liabilities of
11 disposal groups held for 22 Events after the balance sheet date 138
=============================================
sale 122 23 Interim Report 2016 and statutory accounts 138
==== ============================================= =============================================
Assets charged as security for liabilities
12 and collateral
accepted as security for assets 123
==== =============================================
1 Basis of preparation and significant accounting policies
--- ----------------------------------------------------------
(a) Compliance with International Financial Reporting
Standards
The interim condensed 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.
These financial statements should be read in conjunction with the
Annual Report and Accounts 2015.
At 30 June 2016, there were no unendorsed standards effective
for the half-year to 30 June 2016 affecting these 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 2016
There were no new standards applied during the half-year to 30
June 2016. During the period, HSBC applied a number of
interpretations and amendments to standards which had an
insignificant effect on these financial statements.
(b) Use of estimates and judgements
Management believes that HSBC's critical accounting estimates
and judgements are those which relate to impairment of loans and
advances, goodwill impairment, the valuation of financial
instruments, deferred tax assets, provisions for liabilities and
interests in associates. There was no change in the current period
to the critical accounting estimates and judgements applied in
2015, which are stated on pages 64 and 353 of the Annual Report and
Accounts 2015.
(c) Composition of Group
There were no material changes in the composition of the HSBC
Group in the half-year to 30 June 2016.
(d) Future accounting developments
Information on future accounting developments and their
potential effect on the financial statements of HSBC are provided
on pages 347 to 352 of the Annual Report and Accounts 2015. The
IFRS 9 'Financial Instruments' Programme's focus continues to be on
developing the impairment models and processes which are needed for
the parallel run during 2017 in accordance with the project plan
and finalising implementation of the more complex requirements.
Until sufficient models have been developed and tested, we will not
have a reliable understanding of the potential impact on the
financial statements and any consequential effects on regulatory
capital requirements.
(e) Going concern
The financial statements are prepared on a going concern basis,
as the Directors are satisfied that the Group and parent company
have the resources to continue in business for the foreseeable
future. In making this assessment, the Directors have considered a
wide range of information relating to present and future
conditions, including future projections of profitability, cash
flows and capital resources.
(f) Accounting policies
The accounting policies applied by HSBC for these interim
condensed consolidated financial statements are consistent with
those described on pages 347 to 469 of the Annual Report and
Accounts 2015, as are the methods of computation.
HSBC HOLDINGS PLC
107
2 Dividends
--- ----------------------------------------------------------
On 3 August 2016, the Directors declared a second interim
dividend of $0.10 per ordinary share, in respect of the financial
year ending 31 December 2016, a distribution of approximately
$1,992m which will be payable on 28 September 2016. No liability is
recognised in the financial statements in respect of this
dividend.
Dividends paid to shareholders of HSBC Holdings plc
Half-year to
---------------------------------------------------------------------
30 Jun 2016 30 Jun 2015 31 Dec 2015
Settled Settled Settled
Per in Per in Per in
share Total scrip share Total scrip share Total scrip
$ $m $m $ $m $m $ $m $m
Dividends paid on
ordinary shares
In respect of
previous year:
- fourth interim
dividend 0.21 4,137 408 0.20 3,845 2,011 - - -
==================
In respect of
current year:
- first interim
dividend 0.10 1,981 703 0.10 1,951 231 - - -
==================
- second interim
dividend - - - - - - 0.10 1,956 160
==================
- third interim
dividend - - - - - - 0.10 1,958 760
================== ----- ----- ------- ----- ----- ------- ----- ----- -------
Total 0.31 6,118 1,111 0.30 5,796 2,242 0.20 3,914 920
================== ----- ----- ------- ----- ----- ------- ----- ----- -------
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
----------------------------------------------
30 Jun
2016 30 Jun 2015 31 Dec 2015
First Per Total Total Total
(Footnotes) call date security $m $m $m
Perpetual subordinated
capital securities (1)
- $2,200m Apr 2013 $ 2.032 89 89 90
=======================
- $3,800m Dec 2015 $ 2.000 152 152 152
=======================
Perpetual subordinated
contingent convertible
securities (2)
- $2,250m Sep 2024 $ 63.750 72 72 71
=======================
- $1,500m Jan 2020 $ 56.250 42 28 42
=======================
- EUR1,500m Sep 2022 EUR 52.500 44 42 44
=======================
- $2,450m Mar 2025 $ 63.750 78 - 78
=======================
- EUR1,000m Sep 2023 EUR 60.000 34 - -
======================= ----------- -----------
Total 511 383 477
======================= ---------- ----------- -----------
1 Discretionary coupons are paid quarterly on the perpetual subordinated capital securities,
in denominations of $25 per security.
2 Discretionary coupons are paid semi-annually on the perpetual subordinated contingent convertible
securities, in denominations of 1,000 per security.
On 15 July 2016, HSBC paid a further coupon on the $2,200m
subordinated capital securities of $0.508 per security,
representing a total distribution of $45m. On 18 July 2016, 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 June 2016, HSBC issued $2,000m of contingent convertible
securities issued at 6.875% which are classified as equity under
IFRSs. Discretionary coupons are paid semi-annually on these
contingent convertible securities and none were declared in
1H16.
HSBC HOLDINGS PLC
108
Notes on the Financial Statements (unaudited) (continued)
3 Earnings per share
--- ----------------------------------------------------------
Profit attributable to ordinary shareholders of the parent
company
Half-year to
---------------------------------
30 Jun 30 Jun 31 Dec
2016 2015 2015
$m $m $m
Profit attributable to shareholders of the parent company 6,912 9,618 3,904
====================================================================
Dividend payable on preference shares classified as equity (45) (45) (45)
====================================================================
Coupon payable on capital securities classified as equity (511) (383) (477)
==================================================================== -------- -------- --------
Profit attributable to ordinary shareholders of the parent company 6,356 9,190 3,382
==================================================================== -------- -------- --------
Basic and diluted earnings per share
Half-year to 30 Jun 2016 Half-year to 30 Jun 2015 Half-year to 31 Dec 2015
-------------------------- -------------------------- ----------------------------
Amount Amount Amount
Number per Number per Number per
Profit of shares share Profit of shares share Profit of shares share
(Footnotes) $m (millions) $ $m (millions) $ $m (millions) $
Basic (1) 6,356 19,672 0.32 9,190 19,249 0.48 3,382 19,380 0.17
============
Effect of
dilutive
potential
ordinary
shares 68 68 137
============ ------ ---------- ------ ---------- ------ ----------
Diluted (1) 6,356 19,740 0.32 9,190 19,317 0.48 3,382 19,517 0.17
============ ------ ---------- ------ ---------- ------ ----------
1 Weighted average number of ordinary shares outstanding (basic) or assuming dilution (diluted).
4 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
(Footnotes) $m $m $m $m $m $m $m
Net operating
income (1)
Half-year to 30
Jun 2016
Net operating
income 11,122 11,752 1,334 3,952 2,925 (1,615) 29,470
=================
- external 10,602 10,795 1,340 3,778 2,955 - 29,470
=================
- inter-segment 520 957 (6) 174 (30) (1,615) -
================= ------ ------ ----- ------- ------- ---------- ------
Half-year to 30
Jun 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 31
Dec 2015
Net operating
income 9,589 11,238 1,276 3,531 3,034 (1,811) 26,857
=================
- external 8,804 10,329 1,280 3,407 3,037 - 26,857
=================
- inter-segment 785 909 (4) 124 (3) (1,811) -
================= ------ ------ ----- ------- ------- ---------- ------
Profit/(loss)
before tax (2)
Half-year to:
30 Jun 2016 1,579 7,155 985 50 (55) - 9,714
=================
30 Jun 2015 2,205 9,400 901 690 432 - 13,628
=================
31 Dec 2015 (1,562) 6,363 636 (76) (122) - 5,239
=================
HSBC HOLDINGS PLC
109
North Latin Intra-HSBC
Europe Asia MENA America America items Total
$m $m $m $m $m $m $m
Balance sheet
information
At 30 Jun 2016
Total assets 1,251,513 946,998 58,802 438,658 93,067 (180,889) 2,608,149
===================
Total liabilities 1,193,445 866,283 49,171 399,682 82,160 (180,889) 2,409,852
===================
At 31 Dec 2015
Total assets 1,129,365 889,747 59,236 393,960 86,262 (148,914) 2,409,656
===================
Total liabilities 1,067,127 813,466 49,126 355,506 75,827 (148,914) 2,212,138
===================
1 Net operating income before loan impairment charges and other credit risk provisions.
2 During the period the Group recognised an impairment of $800m relating to the goodwill of
Global Private Banking - Europe. Further details are set out in Note 20.
5 Trading assets
--- ----------------------------------------------------------
At
------------------
30 Jun 31 Dec
2016 2015
Footnotes $m $m
Treasury and other eligible bills 20,141 7,829
==============================================
Debt securities 111,201 99,038
==============================================
Equity securities 49,757 66,491
============================================== ------- -------
Trading securities at fair value 181,099 173,358
==============================================
Loans and advances to banks 1 42,696 22,303
==============================================
Loans and advances to customers 1 56,500 29,176
============================================== ------- -------
280,295 224,837
------- -------
1 Loans and advances to banks and customers include settlement accounts, stock borrowing, reverse
repos and other amounts.
Trading securities valued at fair value(1)
At
------------------
30 Jun 31 Dec
2016 2015
Footnotes $m $m
US Treasury and US Government agencies 2 21,049 14,833
==============================================
UK Government 11,681 10,177
==============================================
Hong Kong Government 10,757 6,495
==============================================
Other government 62,105 48,567
==============================================
Asset-backed securities 3 2,774 3,135
==============================================
Corporate debt and other securities 22,976 23,660
==============================================
Equity securities 49,757 66,491
============================================== ------- -------
181,099 173,358
------- -------
1 Included within these figures are debt securities issued by banks and other financial institutions
of $14,873m (31 December 2015: $16,403m), of which $1,058m (31 December 2015: $1,034m) is
guaranteed by various governments.
2 Includes securities that are supported by an explicit guarantee issued by the US Government.
3 Excludes asset-backed securities included under US Treasury and US Government agencies.
HSBC HOLDINGS PLC
110
Notes on the Financial Statements (unaudited) (continued)
6 Fair values of financial instruments carried at fair value
--- ----------------------------------------------------------
The accounting policies, control framework and the hierarchy
used to determine fair values at 30 June 2016 are consistent with
those applied for the Annual Report and Accounts 2015.
Financial instruments carried at fair value and bases of
valuation
Valuation techniques
-----------------------------
Quoted Using With significant
market observable unobservable
price inputs inputs
Level 1 Level 2 Level 3 Total
$m $m $m $m
Recurring fair value measurements
At 30 Jun 2016
Assets
Trading assets 140,031 133,762 6,502 280,295
===================================================
Financial assets designated at fair value 18,915 4,426 560 23,901
===================================================
Derivatives 2,229 364,564 3,149 369,942
===================================================
Financial investments: available for sale 274,115 118,184 3,945 396,244
===================================================
Liabilities
Trading liabilities 49,850 134,201 4,647 188,698
===================================================
Financial liabilities designated at fair
value 4,472 74,375 35 78,882
===================================================
Derivatives 2,992 363,260 2,162 368,414
===================================================
At 31 Dec 2015
Assets
Trading assets 133,095 84,886 6,856 224,837
===================================================
Financial assets designated at fair value 18,947 4,431 474 23,852
===================================================
Derivatives 1,922 284,292 2,262 288,476
===================================================
Financial investments: available for sale 262,929 117,197 4,727 384,853
===================================================
Liabilities
Trading liabilities 41,462 95,867 4,285 141,614
===================================================
Financial liabilities designated at fair
value 5,260 61,145 3 66,408
===================================================
Derivatives 2,243 277,618 1,210 281,071
===================================================
The increase in Level 2 trading assets and liabilities reflects
an increase in settlement balances and cash collateral. The
increase in Level 2 derivative assets and liabilities is driven by
significant yield curve movements.
Transfers between Level 1 and Level 2 fair values
Assets Liabilities
------------------------------------------------ --------------------------------------
Designated Designated
at fair at fair
value value
through through
Available Held for profit or Held for profit or
for sale trading loss Derivatives trading loss Derivatives
$m $m $m $m $m $m $m
At 30 Jun
2016
Transfers
from Level
1 to Level
2 162 1,614 122 - 2,699 - -
============
Transfers
from Level
2 to Level
1 1,314 - - - 341 - -
============
At 31 Dec
2015
Transfers
from Level
1 to Level
2 - 67 - 56 1,563 857 100
============
Transfers
from Level
2 to Level
1 - 487 - 2 515 2 -
============
Fair value adjustments
Fair value adjustments are adopted when HSBC considers that
there are additional factors that would be considered by a market
participant that are not incorporated within the valuation model.
HSBC classifies fair value adjustments as either 'risk--related' or
'model-related'. The majority of these adjustments relate to
GB&M. Movements in the level of fair value adjustments do not
necessarily result in the recognition of profits or losses within
the income statement. For example, as models are enhanced, fair
value adjustments may no longer be required. Similarly, fair value
adjustments will decrease when the related positions are unwound,
but this may not result in profit or loss.
HSBC HOLDINGS PLC
111
Global Banking and Markets fair value adjustments
At
----------------------
30 Jun 31 Dec
2016 2015
$m $m
Type of adjustment
Risk-related 1,456 1,402
=============================================
- bid-offer 495 477
=============================================
- uncertainty 64 95
=============================================
- credit valuation adjustment 901 853
=============================================
- debit valuation adjustment (600) (465)
=============================================
- funding fair value adjustment 593 442
=============================================
- other 3 -
============================================= -------- --------
Model-related (196) 97
=============================================
- model limitation (196) 92
=============================================
- other - 5
============================================= -------- --------
Inception profit (Day 1 P&L reserves)(1) 84 97
============================================= -------- --------
1,344 1,596
-------- --------
1 See Note 9 on the Financial Statements on page 120.
Fair value adjustments declined by $252m during 1H16. The most
significant movement was a decline of $288m in respect of a model
limitation adjustment relating to derivative discounting
assumptions. This was driven by a tightening of the major currency
spreads during the period.
A description of HSBC's risk-related and model-related
adjustments is provided on pages 381 and 382 of the Annual Report
and Accounts 2015.
Fair value valuation bases
Financial instruments measured at fair value using a valuation
technique with significant unobservable inputs - Level 3
Assets Liabilities
--------------------------------------------------- -----------------------------------------
Held Held
Available for At fair for At fair
for sale trading value(1) Deriv-atives Total trading value(1) Deriv-atives Total
$m $m $m $m $m $m $m $m $m
Private equity
including
strategic
investments 2,933 79 544 - 3,556 49 - - 49
================
Asset-backed
securities 782 719 - - 1,501 - - - -
================
Loans held for
securitisation - 30 - - 30 - - - -
================
Structured notes - 4 - - 4 4,596 - - 4,596
================
Derivatives with
monolines - - - 223 223 - - - -
================
Other
derivatives - - - 2,926 2,926 - - 2,162 2,162
================
Other portfolios 230 5,670 16 - 5,916 2 35 - 37
================ --------- ------- --------- ------------ ------ ------- --------- ------------ -----
At 30 Jun 2016 3,945 6,502 560 3,149 14,156 4,647 35 2,162 6,844
================ --------- ------- --------- ------------ ------ ------- --------- ------------ -----
Private equity
including
strategic
investments 3,443 55 453 - 3,951 35 - - 35
================
Asset-backed
securities 1,053 531 - - 1,584 - - - -
================
Loans held for
securitisation - 30 - - 30 - - - -
================
Structured notes - 4 - - 4 4,250 - - 4,250
================
Derivatives with
monolines - - - 196 196 - - - -
================
Other
derivatives - - - 2,066 2,066 - - 1,210 1,210
================
Other portfolios 231 6,236 21 - 6,488 - 3 - 3
================ --------- ------- --------- ------------ ------ ------- --------- ------------ -----
At 31 Dec 2015 4,727 6,856 474 2,262 14,319 4,285 3 1,210 5,498
================ --------- ------- --------- ------------ ------ ------- --------- ------------ -----
1 Designated at fair value through profit or loss.
The basis for determining the fair value of the financial
instruments in the table above is explained on page 382 of the
Annual Report and Accounts 2015.
HSBC HOLDINGS PLC
112
Notes on the Financial Statements (unaudited) (continued)
Movement in Level 3 financial instruments
Assets Liabilities
----------------------------------------------- -------------------------------------
Designated Designated
at fair at fair
value value
Held through Held through
Available for profit for profit
for sale trading or loss Derivatives trading or loss Derivatives
(Footnotes) $m $m $m $m $m $m $m
At 1 Jan 2016 4,727 6,856 474 2,262 4,285 3 1,210
======================
Total gains/(losses)
recognised in profit
or loss 37 136 23 1,188 294 - 1,071
======================
- trading
income/(expense)
excluding net
interest income - 136 - 1,188 294 - 1,071
======================
- net
income/(expense)
from other
financial
instruments
designated at fair
value - - 23 - - - -
======================
- gains less losses
from financial
investments (28) - - - - - -
======================
- loan impairment
charges and other
credit risk
provisions 65 - - - - - -
====================== --------- ------- ---------- ----------- ------- ---------- -----------
Total gains/(losses)
recognised in other
comprehensive income (1) 132 (309) 1 (200) (86) - (151)
======================
- available-for-sale
investments: fair
value gains 238 - - - - - -
======================
- cash flow hedges:
fair value
gains/(losses) - - - - - - -
=====================
- exchange
differences (106) (309) 1 (200) (86) - (151)
====================== --------- ------- ---------- ----------- ------- ---------- -----------
Purchases 160 187 84 - - - -
======================
New issuances - - - - 1,318 - -
======================
Sales (810) (1,176) (3) - (16) (1) -
======================
Settlements (88) (24) (18) - (660) - (186)
======================
Transfers out (572) (36) (1) (105) (504) - (107)
======================
Transfers in 359 868 - 4 16 33 325
====================== --------- ------- ---------- ----------- ------- ---------- -----------
At 30 Jun 2016 3,945 6,502 560 3,149 4,647 35 2,162
====================== --------- ------- ---------- ----------- ------- ---------- -----------
Unrealised
gains/(losses)
recognised in profit
or loss relating to
assets and
liabilities
held at 30 Jun 2016 65 27 20 1,090 212 - 65
======================
- trading
income/(expense)
excluding net
interest income - 27 - 1,090 212 - 65
======================
- net
income/(expense)
from other
financial
instruments
designated at fair
value - - 20 - - - -
======================
- loan impairment
recoveries and
other credit risk
provisions 65 - - - - - -
====================== --------- ------- ---------- ----------- ------- ---------- -----------
HSBC HOLDINGS PLC
113
Assets Liabilities
----------------------------------------------- -------------------------------------
Designated Designated
at fair at fair
value value
Held through Held through
Available for profit for profit
for sale trading or loss Derivatives trading or loss Derivatives
Footnotes $m $m $m $m $m $m $m
At 1 Jan 2015 4,988 6,468 726 2,924 6,139 - 1,907
======================
Total gains/(losses)
recognised in profit
or loss (17) (14) (19) 344 (223) (1) (467)
======================
- trading
income/(expense)
excluding net
interest income - (14) - 344 (223) - (467)
======================
- net
income/(expense)
from other
financial
instruments
designated at fair
value - - (19) - - (1) -
======================
- gains less losses
from financial
investments (29) - - - - - -
======================
- loan impairment
charges and other
credit risk
provisions 12 - - - - - -
====================== --------- ------- ---------- ----------- ------- ---------- -----------
Total gains/(losses)
recognised in other
comprehensive income 1 72 (6) (9) 5 (20) (1) 1
======================
- available-for-sale
investments: fair
value gains 70 - - - - - -
======================
- cash flow hedges:
fair value gains - - - - - - -
=====================
- exchange
differences 2 (6) (9) 5 (20) (1) 1
====================== --------- ------- ---------- ----------- ------- ---------- -----------
Purchases 342 435 165 - - 9 -
======================
New issuances - - - - 863 - -
======================
Sales (420) (1,134) (46) - (10) (2) -
======================
Settlements (15) (90) (72) 43 (681) - 41
======================
Transfers out (1,257) (31) (272) (312) (889) - (52)
======================
Transfers in 314 112 - 64 126 - 13
====================== --------- ------- ---------- ----------- ------- ---------- -----------
At 30 Jun 2015 4,007 5,740 473 3,068 5,305 5 1,443
====================== --------- ------- ---------- ----------- ------- ---------- -----------
HSBC HOLDINGS PLC
114
Notes on the Financial Statements (unaudited) (continued)
Movement in Level 3 financial instruments (continued)
Assets Liabilities
----------------------------------------------- -------------------------------------
Designated Designated
at fair at fair
value value
Held through Held through
Available for profit for profit
for sale trading or loss Derivatives trading or loss Derivatives
$m $m $m $m $m $m $m
Unrealised
gains/(losses)
recognised in profit
or loss relating to
assets and
liabilities
held at 30 Jun 2015 13 (6) 17 444 (24) (1) (459)
======================
- trading
income/(expense)
excluding net
interest income - (6) - 444 (24) - (459)
======================
- net
income/(expense)
from other
financial
instruments
designated at fair
value - - 17 - - (1) -
======================
- loan impairment
recoveries and
other credit risk
provisions 13 - - - - - -
====================== --------- ------- ---------- ----------- ------- ---------- -----------
At 1 Jul 2015 4,007 5,740 473 3,068 5,305 5 1,443
======================
Total gains/(losses)
recognised in profit
or loss (17) 123 49 (249) (350) - 258
======================
- trading
income/(expense)
excluding net
interest income - 123 - (249) (350) - 258
======================
- net
income/(expense)
from other
financial
instruments
designated at fair
value - - - - - - -
=====================
- gains less losses
from financial
investments (240) - 49 - - - -
======================
- loan impairment
charges and other
credit risk
provisions 223 - - - - - -
====================== --------- ------- ---------- ----------- ------- ---------- -----------
Total gains recognised
in other
comprehensive
income(1) 154 (186) (2) (131) (98) - (65)
======================
- available-for-sale
investments: fair
value gains 323 - - - - - -
======================
- cash flow hedges:
fair value gains - - - (4) - - -
======================
- exchange
differences (169) (186) (2) (127) (98) - (65)
====================== --------- ------- ---------- ----------- ------- ---------- -----------
Purchases 252 1,310 85 - 2 - -
======================
New issuances - - - - 608 - -
======================
Sales (337) (72) (4) - (56) (2) -
======================
Settlements (17) (56) (63) (81) (579) - (282)
======================
Transfers out (214) (175) (64) (703) (854) - (231)
======================
Transfers in 899 172 - 358 307 - 87
====================== --------- ------- ---------- ----------- ------- ---------- -----------
At 31 Dec 2015 4,727 6,856 474 2,262 4,285 3 1,210
====================== --------- ------- ---------- ----------- ------- ---------- -----------
Unrealised
gains/(losses)
recognised in profit
or loss relating to
assets and
liabilities
held at 31 Dec 2015 222 (3) (5) (355) 408 - 726
- trading
income/(expense)
excluding net
interest income - (3) - (355) 408 - 726
======================
- net
income/(expense)
from other
financial
instruments
designated at fair
value - - (5) - - - -
======================
- loan impairment
recoveries and
other credit risk
provisions 222 - - - - - -
====================== --------- ------- ---------- ----------- ------- ---------- -----------
1 Included in 'Available-for-sale investments: fair value gains/(losses)' and 'Exchange differences'
in the consolidated statement of comprehensive income.
Transfers between levels of the fair value hierarchy are deemed
to occur at the end of the reporting period. Movements in
available-for-sale assets are mainly driven by sales of private
equity investments and the transfer out of Level 3 of legacy credit
assets following greater price certainty. Sales in trading assets
reflect sell-down of syndicated loans.
Effect of changes in significant unobservable assumptions to
reasonably possible alternatives
The following table shows the sensitivity of Level 3 fair values
to reasonably possible alternative assumptions:
HSBC HOLDINGS PLC
115
Sensitivity of fair values to reasonably possible alternative
assumptions
Reflected in Reflected in other
profit or loss comprehensive income
------------------------- ---------------------------
Favourable Unfavourable Favourable Unfavourable
changes changes changes changes
Footnotes $m $m $m $m
Derivatives, trading assets and
trading liabilities 1 229 (257) - -
=====================================
Financial assets and liabilities
designated at fair value 28 (28) - -
=====================================
Financial investments: available for
sale 43 (33) 193 (207)
===================================== ---------- ------------ ---------- ------------
At 30 Jun 2016 300 (318) 193 (207)
===================================== ---------- ------------ ---------- ------------
Derivatives, trading assets and
trading liabilities 1 255 (274) - -
=====================================
Financial assets and liabilities
designated at fair value 41 (42) - -
=====================================
Financial investments: available for
sale 33 (30) 222 (217)
===================================== ---------- ------------ ---------- ------------
At 30 Jun 2015 329 (346) 222 (217)
===================================== ---------- ------------ ---------- ------------
Derivatives, trading assets and
trading liabilities 1 335 (215) - -
=====================================
Financial assets and liabilities
designated at fair value 24 (24) - -
=====================================
Financial investments: available for
sale 35 (30) 230 (243)
===================================== ---------- ------------ ---------- ------------
At 31 Dec 2015 394 (269) 230 (243)
===================================== ---------- ------------ ---------- ------------
1 Derivatives, 'trading assets and trading liabilities' are presented as one category to reflect
the manner in which these financial instruments are risk--managed.
The reduction in the effect of both favourable and unfavourable
changes during the period reflects funding spread widening and
increased pricing certainty, in particular in private equity.
Sensitivity of fair values to reasonably possible alternative
assumptions by Level 3 instrument type
Reflected in Reflected in
profit or loss other comprehensive income
------------------------- -------------------------------
Favourable Unfavourable Favourable Unfavourable
changes changes changes changes
$m $m $m $m
Private equity including strategic
investments 63 (63) 121 (140)
============================================
Asset-backed securities 26 (13) 54 (49)
============================================
Loans held for securitisation 1 (1) - -
============================================
Structured notes 12 (9) - -
============================================
Derivatives with monolines 7 (7) - -
============================================
Other derivatives 132 (164) - -
============================================
Other portfolios 59 (61) 18 (18)
============================================ ---------- ------------ ------------ --------------
At 30 Jun 2016 300 (318) 193 (207)
============================================ ---------- ------------ ------------ --------------
Private equity including strategic
investments 79 (79) 171 (171)
============================================
Asset-backed securities 31 (9) 29 (24)
============================================
Loans held for securitisation 1 (1) - -
============================================
Structured notes 19 (14) - -
============================================
Derivatives with monolines 9 (9) - -
============================================
Other derivatives 117 (198) - -
============================================
Other portfolios 73 (36) 22 (22)
============================================ ---------- ------------ ------------ --------------
At 30 Jun 2015 329 (346) 222 (217)
============================================ ---------- ------------ ------------ --------------
Private equity including strategic
investments 54 (53) 152 (171)
============================================
Asset-backed securities 18 (12) 57 (51)
============================================
Loans held for securitisation 1 (1) - -
============================================
Structured notes 15 (11) - -
============================================
Derivatives with monolines 11 (11) - -
============================================
Other derivatives 179 (87) - -
============================================
Other portfolios 116 (94) 21 (21)
============================================ ---------- ------------ ------------ --------------
At 31 Dec 2015 394 (269) 230 (243)
============================================ ---------- ------------ ------------ --------------
Favourable and unfavourable changes are determined on the basis
of sensitivity analysis. The sensitivity analysis aims to measure a
range of fair values consistent with the application of a 95%
confidence interval. Methodologies take account of the nature of
the valuation technique employed, the availability and reliability
of observable proxies and historical data. When the available data
are not amenable to statistical analysis, the quantification of
uncertainty is judgemental, but remains guided by the 95%
confidence interval.
When the fair value of a financial instrument is affected by
more than one unobservable assumption, the above table reflects the
most favourable or the most unfavourable change from varying the
assumptions individually.
HSBC HOLDINGS PLC
116
Notes on the Financial Statements (unaudited) (continued)
Key unobservable inputs to Level 3 financial instruments and
inter-relationships
The table below lists key unobservable inputs to Level 3
financial instruments, and provides the range of those inputs as at
30 June 2016. The core range of inputs is the estimated range
within which 90% of the inputs fall.
There has been no change to the key unobservable inputs to Level
3 financial instruments and inter-relationships therein which are
detailed on page 389 of the Annual Report and Accounts 2015.
Quantitative information about significant unobservable inputs
in Level 3 valuations
Fair value
-------------------
Key Full range of Core range of
Assets Liabilities unobservable inputs inputs
----------------- ------------------
Valuation
Footnotes $m $m technique inputs Lower Higher Lower Higher
Private equity
including
strategic See
investments 3,556 49 notes(3) See notes(3) n/a n/a n/a n/a
==================
Asset-backed
securities 1,501 -
==================
Market Prepayment
- CLO/CDO 1 371 - proxy rate 2% 7% 2% 7%
Market
- proxy Bid quotes 0 99 19 89
Market
- other ABSs 1,130 - proxy Bid quotes 0 99 50 88
================== ------ -----------
Loans held for
securitisation 30 -
==================
Structured notes 4 4,596
==================
Model -
- equity-linked option Equity
notes - 4,042 model volatility 12% 83% 18% 35%
Model -
option Equity
model correlation 35% 94% 46% 83%
Model -
- fund-linked option Fund
notes - 14 model volatility 7% 11% 7% 11%
==================
Model -
- FX-linked option FX
notes - 149 model volatility 4% 30% 7% 19%
==================
- other 4 391
================== ------ -----------
Model -
Derivatives with discounted Credit
monolines 223 - cash flow spread 3% 3% 3% 3%
==================
Other derivatives 2,926 2,162
==================
Interest rate
derivatives:
------ -----------
Model -
- securitisation discounted Prepayment
swaps 399 981 cash flow rate 0.5% 90% 21% 74%
==================
Model -
- long-dated option IR
swaptions 1,886 120 model volatility 5% 209% 16% 36%
==================
- other 208 60
================== ------ -----------
FX derivatives:
Model -
option FX
- FX options 212 188 model volatility 0.5% 30% 7% 14%
==================
- other 5 2
================== ------ -----------
Equity
derivatives:
- long-dated Model -
single stock option Equity
options 134 178 model volatility 10% 97% 18% 36%
==================
- other 47 306
================== ------ -----------
Credit
derivatives:
- other 35 327
================== ------ -----------
Other portfolios 5,916 37
==================
Model -
- structured discounted Credit
certificates 4,440 - cash flow volatility 2% 4% 2% 4%
==================
- EM corporate
debt 472 -
Market
proxy Bid quotes 99 127 110 126
Other 2 1,004 37
================== ------ -----------
At 30 Jun 2016 14,156 6,844
================== ------ -----------
1 Collateralised loan obligation/collateralised debt obligation.
2 'Other' includes a range of smaller asset holdings.
3 See notes on page 389 of the Annual Report and Accounts 2015.
HSBC HOLDINGS PLC
117
Quantitative information about significant unobservable inputs
in Level 3 valuations (continued)
Fair value
-------------------
Key
Assets Liabilities unobservable Full range of inputs Core range of inputs
-------------------- --------------------
Valuation
Footnotes $m $m technique inputs Lower Higher Lower Higher
Private equity
including
strategic See
investments 3,951 35 notes(3) See notes(3) n/a n/a n/a n/a
==================
Asset-backed
securities 1,584 -
Market Prepayment
- CLO/CDO 1 511 - proxy rate 1% 6% 1% 6%
Market
- proxy Bid quotes 3 147 54 117
Market
- other ABSs 1,073 - proxy Bid quotes
================== ------ -----------
Loans held for
securitisation 30 -
==================
Structured notes 4 4,250
==================
Model -
- equity-linked option Equity
notes - 3,719 model volatility 12% 72% 19% 43%
Model -
option Equity
model correlation 35% 93% 43% 79%
Model -
- fund-linked option Fund
notes - 13 model volatility 6% 8% 6% 8%
Model -
- FX-linked option FX
notes - 166 model volatility 5% 35% 5% 20%
==================
- other 4 352
================== ------ -----------
Model -
Derivatives with discounted Credit
monolines 196 - cash flow spread 4% 4% 4% 4%
==================
Other derivatives 2,066 1,210
==================
Interest rate
derivatives:
------ -----------
Model -
- securitisation discounted Prepayment
swaps 250 455 cash flow rate 0% 90% 14% 71%
==================
Model -
- long-dated option IR
swaptions 1,237 119 model volatility 3% 66% 20% 41%
==================
- other 176 65
================== ------ -----------
FX derivatives:
Model -
option FX
- FX options 180 186 model volatility 0.5% 35% 5% 14%
==================
- other 10 5
================== ------ -----------
Equity
derivatives:
- long-dated Model -
single stock option Equity
options 135 191 model volatility 8% 104% 18% 44%
==================
- other 39 170
================== ------ -----------
Credit
derivatives:
- other 39 19
================== ------ -----------
Other portfolios 6,488 3
==================
Model -
- structured discounted Credit
certificates 4,434 - cash flow volatility 2% 4% 2% 4%
==================
- EM corporate Market
debt 210 - proxy Bid quotes 70 124 100 123
Other 2 1,844 3
================== ------ -----------
At 31 Dec 2015 14,319 5,498
================== ------ -----------
1 Collateralised loan obligation/collateralised debt obligation.
2 'Other' includes a range of smaller asset holdings.
3 See notes on page 389 of the Annual Report and Accounts 2015.
HSBC HOLDINGS PLC
118
Notes on the Financial Statements (unaudited) (continued)
7 Fair values of financial instruments not carried at fair value
--- --------------------------------------------------------------
The basis for measuring the fair values of loans and advances to
banks and customers, financial investments, deposits by banks,
customer accounts, debt securities in issue, subordinated
liabilities and non-trading repurchase and reverse repurchase
agreements is explained on pages 391 and 392 of the Annual Report
and Accounts 2015.
Fair values of financial instruments which are not carried at
fair value on the balance sheet
At 30 Jun 2016 At 31 Dec 2015
-------------------- ----------------------
Carrying Fair Carrying Fair
amount value Amount value
$m $m $m $m
Assets
Loans and advances to banks 92,199 92,131 90,401 90,411
=============================================
Loans and advances to customers 887,556 886,637 924,454 922,469
=============================================
Reverse repurchase agreements - non-trading 187,826 187,869 146,255 146,266
=============================================
Financial investments: debt securities 45,155 47,744 44,102 45,258
=============================================
Liabilities
Deposits by banks 69,900 69,907 54,371 54,371
=============================================
Customer accounts 1,290,958 1,292,378 1,289,586 1,289,789
=============================================
Repurchase agreements - non-trading 98,342 98,344 80,400 80,400
=============================================
Debt securities in issue 87,673 87,892 88,949 89,023
=============================================
Subordinated liabilities 21,669 23,455 22,702 24,993
=============================================
Other financial instruments not carried at fair value are
typically short-term in nature and reprice to current market rates
frequently. Accordingly, their carrying amount is a reasonable
approximation of fair value.
8 Financial assets designated at fair value
--- ----------------------------------------------------------
At
------------------
30 Jun 31 Dec
2016 2015
$m $m
Treasury and other eligible bills 278 396
==============================================
Debt securities 4,390 4,341
==============================================
Equity securities 19,120 18,995
============================================== ------- -------
Securities designated at fair value 23,788 23,732
==============================================
Loans and advances to banks and customers 113 120
============================================== ------- -------
23,901 23,852
------- -------
Securities designated at fair value(1)
At
------------------
30 Jun 31 Dec
2016 2015
$m $m
US Treasury and US Government agencies 7 145
================================================
UK Government 95 103
================================================
Hong Kong Government 28 33
================================================
Other government 1,084 1,020
================================================
Asset-backed securities 36 25
================================================
Corporate debt and other securities 3,418 3,411
================================================
Equity securities 19,120 18,995
================================================ ------- -------
23,788 23,732
------- -------
1 Included within these figures are debt securities issued by banks and other financial institutions
of $1,680m (31 December 2015: $1,536m), of which $29m (31 December 2015: $35m) are guaranteed
by various governments.
HSBC HOLDINGS PLC
119
9 Derivatives
--- ----------------------------------------------------------
Fair values of derivatives by product contract type held by
HSBC
Assets Liabilities
--------------------------- -----------------------------
Trading Hedging Total Trading Hedging Total
$m $m $m $m $m $m
Foreign exchange 116,357 614 116,971 118,450 2,359 120,809
=========================
Interest rate 378,397 2,332 380,729 366,415 6,885 373,300
=========================
Equities 8,569 - 8,569 9,726 - 9,726
=========================
Credit 5,359 - 5,359 6,049 - 6,049
=========================
Commodity and other 2,052 - 2,052 2,268 - 2,268
========================= ------- ------- -------- ------- ------- --------
Gross total fair values 510,734 2,946 513,680 502,908 9,244 512,152
========================= ------- ------- ------- -------
Offset (143,738) (143,738)
========================= -------- --------
At 30 Jun 2016 369,942 368,414
========================= -------- --------
Foreign exchange 95,201 1,140 96,341 94,843 755 95,598
=========================
Interest rate 277,496 1,658 279,154 267,609 3,758 271,367
=========================
Equities 8,732 - 8,732 10,383 - 10,383
=========================
Credit 6,961 - 6,961 6,884 - 6,884
=========================
Commodity and other 3,148 - 3,148 2,699 - 2,699
========================= ------- ------- -------- ------- ------- --------
Gross total fair values 391,538 2,798 394,336 382,418 4,513 386,931
========================= ------- ------- ------- -------
Offset (105,860) (105,860)
========================= -------- --------
At 31 Dec 2015 288,476 281,071
========================= -------- --------
Derivative assets and liabilities increased during 1H16,
primarily driven by an increase in the fair value of interest rate
derivatives as yield curves in major currencies declined. This
resulted in the increase in gross fair values and corresponding
increase in the offset amount.
Trading derivatives
The notional contract amounts of derivatives held for trading
purposes indicate the nominal value of transactions outstanding at
the balance sheet date; they do not represent amounts at risk.
Notional contract amounts of derivatives held for trading
purposes by product type
At
------------------------
30 Jun 31 Dec
2016 2015
$m $m
Foreign exchange 6,040,629 5,658,030
===============================================
Interest rate 15,573,352 14,462,113
===============================================
Equities 487,893 501,834
===============================================
Credit 488,866 463,344
===============================================
Commodity and other 67,555 51,683
=============================================== ---------- ----------
22,658,295 21,137,004
---------- ----------
Credit derivatives
HSBC manages the credit risk arising on buying and selling
credit derivative protection by including the related credit
exposures within its overall credit limit structure for the
relevant counterparty. The trading of credit derivatives is
restricted to a small number of offices within the major centres
which have the control infrastructure and market skills to manage
effectively the credit risk inherent in the products.
The notional contract amount of credit derivatives of $489bn (31
December 2015: $463bn) consisted of protection bought of $251bn (31
December 2015: $237bn) and protection sold of $238bn (31 December
2015: $226bn).
HSBC HOLDINGS PLC
120
Notes on the Financial Statements (unaudited) (continued)
Derivatives valued using models with unobservable inputs
The difference between the fair value at initial recognition
(the transaction price) and the value that would have been derived
had valuation techniques used for subsequent measurement been
applied at initial recognition, less subsequent releases, is as
follows:
Unamortised balance of derivatives valued using models with
significant unobservable inputs
Half-year to
------------------------------
30 Jun 30 Jun 31 Dec
2016 2015 2015
Footnotes $m $m $m
Unamortised balance at beginning of period 97 114 117
===========================================================
Deferral on new transactions 67 118 78
===========================================================
Recognised in the income statement during the period: (74) (115) (92)
===========================================================
- amortisation (38) (69) (52)
===========================================================
- subsequent to unobservable inputs becoming observable (2) (1) (1)
===========================================================
- maturity or termination, or offsetting derivative (34) (45) (39)
=========================================================== ------- ------- -------
Exchange differences (6) - (6)
=========================================================== ------- ------- -------
Unamortised balance at end of period 1 84 117 97
=========================================================== ------- ------- -------
1 This amount is yet to be recognised in the consolidated income statement.
Hedge accounting derivatives
The notional contract amounts of derivatives held for hedge
accounting purposes indicate the nominal value of transactions
outstanding at the balance sheet date; they do not represent
amounts at risk.
Notional contract amounts of derivatives held for hedging
purposes by product type
At 30 Jun 2016 At 31 Dec 2015
--------------------- -----------------------
Cash flow Fair value Cash flow Fair value
hedges hedges hedges hedges
$m $m $m $m
Foreign exchange 29,922 460 32,128 196
==================================
Interest rate 106,954 135,377 107,796 105,127
================================== --------- ---------- --------- ----------
136,876 135,837 139,924 105,323
--------- ---------- --------- ----------
10 Financial investments
--- ----------------------------------------------------------
Carrying amounts and fair values of financial investments
At 30 Jun 2016 At 31 Dec 2015
----------------- -------------------
Carrying Fair Carrying Fair
amount value amount value
$m $m $m $m
Treasury and other eligible bills 94,690 94,690 104,551 104,551
===================================
- available for sale 94,690 94,690 104,551 104,551
=================================== -------- ------- -------- -------
Debt securities 341,496 344,085 318,569 319,725
===================================
- available for sale 296,341 296,341 274,467 274,467
===================================
- held to maturity 45,155 47,744 44,102 45,258
=================================== -------- ------- -------- -------
Equity securities 5,213 5,213 5,835 5,835
===================================
- available for sale 5,213 5,213 5,835 5,835
=================================== -------- ------- -------
441,399 443,988 428,955 430,111
-------- ------- -------- -------
HSBC HOLDINGS PLC
121
Financial investments at amortised cost and fair value
Amortised Fair
cost(1) value(2)
Footnotes $m $m
US Treasury 54,177 56,194
===========================================
US Government agencies 3 18,800 19,088
===========================================
US Government sponsored entities 3 13,196 13,798
===========================================
UK Government 26,174 27,199
===========================================
Hong Kong Government 57,050 57,070
===========================================
Other government 146,812 149,562
===========================================
Asset-backed securities 4 12,095 11,243
===========================================
Corporate debt and other securities 100,748 104,621
===========================================
Equities 3,512 5,213
=========================================== --------- ---------
At 30 Jun 2016 432,564 443,988
=========================================== --------- ---------
US Treasury 61,585 61,779
===========================================
US Government agencies 3 22,910 22,843
===========================================
US Government sponsored entities 3 10,365 10,627
===========================================
UK Government 27,250 27,316
===========================================
Hong Kong Government 53,676 53,674
===========================================
Other government 141,329 143,370
===========================================
Asset-backed securities 4 14,239 13,375
===========================================
Corporate debt and other securities 89,860 91,292
===========================================
Equities 4,057 5,835
=========================================== --------- ---------
At 31 Dec 2015 425,271 430,111
=========================================== --------- ---------
1 Represents the amortised cost or cost basis of the financial investment.
2 Included within the 'Fair value' figures are debt securities issued by banks and other financial
institutions of $68bn (31 December 2015: $61bn), of which $20bn (31 December 2015: $18bn)
are guaranteed by various governments.
3 Includes securities that are supported by an explicit guarantee issued by the US Government.
4 Excludes asset-backed securities included under US Government agencies and sponsored entities.
Maturities of investments in debt securities at their carrying
amount
5 years or 10 years or
1 year less but over less but over Over
or less 1 year 5 years 10 years Total
$m $m $m $m $m
Available for sale 66,345 144,929 45,498 39,569 296,341
==============================
Held to maturity 1,726 10,429 9,381 23,619 45,155
============================== -------- -------------- -------------- --------- -------
At 30 Jun 2016 68,071 155,358 54,879 63,188 341,496
============================== -------- -------------- -------------- --------- -------
Available for sale 61,664 131,023 42,140 39,640 274,467
==============================
Held to maturity 2,428 10,242 8,881 22,551 44,102
============================== -------- -------------- -------------- --------- -------
At 31 Dec 2015 64,092 141,265 51,021 62,191 318,569
============================== -------- -------------- -------------- --------- -------
11 Assets held for sale and liabilities of disposal groups held for sale
--- ---------------------------------------------------------------------
At
--------------------
30 Jun 31 Dec
2016 2015
$m $m
Disposal groups 48,899 41,715
Non-current assets held for sale 1,406 2,185
============================================== -------- --------
Total assets held for sale 50,305 43,900
============================================== -------- --------
Liabilities of disposal groups held for sale 43,705 36,840
==============================================
HSBC HOLDINGS PLC
122
Notes on the Financial Statements (unaudited) (continued)
Disposal groups
Brazil
In 1H15, we announced the plan to sell our operations in Brazil.
The resulting disposal group includes the assets and liabilities
expected to be sold plus allocated goodwill of $1.3bn as set out in
the table below. It is measured at its carrying amount at 30 June
2016 which is lower than its fair value less cost to sell.
The disposal group represents a foreign operation. Upon
completion, the cumulative amount of associated exchange
differences previously recognised in other comprehensive income
will be reclassified to the income statement. At 30 June 2016,
there was a cumulative loss of $1.9bn in the Group's foreign
exchange reserve attributable to the Brazilian operations.
Subsequent to 30 June 2016, we completed the sale of our
operations in Brazil to Banco Bradesco S.A. (1 July 2016) for cash
consideration of $4.9bn. This resulted in a loss on disposal of
$1.7bn which includes the reclassification of cumulative foreign
exchange differences.
The major classes of assets and associated liabilities of
disposal groups held for sale are as follows:
At 30 Jun 2016
-----------------------------------
Brazil Other Total
Footnotes $m $m $m
Assets of disposal groups held for sale
Trading assets 157 - 157
============================================================
Fair value of financial assets designated at fair value 4,056 - 4,056
============================================================
Loans and advances to banks 5,332 - 5,332
============================================================
Loans and advances to customers 19,203 582 19,785
============================================================
Reverse repurchase agreements 3,209 - 3,209
============================================================
Financial investments 6,726 - 6,726
============================================================
Goodwill and intangible assets 1,819 54 1,873
============================================================
Deferred tax asset 1 1,687 - 1,687
============================================================
Prepayments, accrued income and other assets 6,073 1 6,074
============================================================ ------------- -------- --------
Total assets 48,262 637 48,899
============================================================ ------------- -------- --------
Liabilities of disposal groups held for sale
Deposits by banks 1,863 - 1,863
============================================================
Customer accounts 19,357 1,174 20,531
============================================================
Debt securities in issue 8,908 - 8,908
============================================================
Liabilities under insurance contracts 4,347 - 4,347
============================================================
Accruals, deferred income and other liabilities 8,054 2 8,056
============================================================ ------------- -------- --------
Total liabilities 42,529 1,176 43,705
============================================================ ------------- -------- --------
Expected date of completion 1 July 2016 Various
===========================================================
Operating segment Latin America Various
===========================================================
Fair value of selected financial instruments which are not
carried at fair value on the balance
sheet
Loans and advances to banks and customers 23,874 585 24,459
============================================================
Customer accounts 19,056 1,173 20,229
============================================================
1 The recognition of deferred tax assets relies on an assessment of the probability and sufficiency
of future taxable profits and future reversals of existing taxable temporary differences.
In recognising the deferred tax asset management has critically assessed all available information,
including sufficiency of future taxable profits using internal and external benchmarks, and
historical performance.
12 Assets charged as security for liabilities and collateral accepted as security for assets
--- -----------------------------------------------------------------------------------------
Information on financial assets pledged as security for
liabilities and collateral accepted as security for assets is
disclosed on pages 401 and 402 of the Annual Report and Accounts
2015. There was no material change in the relative amounts of
assets charged as security for liabilities and collateral accepted
as security for assets at 30 June 2016.
13 Interests in associates and joint ventures
--- ----------------------------------------------------------
At 30 June 2016, the carrying amount of HSBC's interests in
associates and joint ventures was $19.6bn (31 December 2015:
$19.1bn).
HSBC HOLDINGS PLC
123
Principal associates of HSBC
At 30 Jun 2016 At 31 Dec 2015
------------------- ---------------------
Carrying Fair Carrying Fair
amount value(1) amount value(1)
$m $m $m $m
Bank of Communications Co., Limited 15,408 8,872 15,344 9,940
The Saudi British Bank 3,177 3,250 3,021 3,957
===================================== --------- --------
18,585 12,122 18,365 13,897
-------- --------- -------- ---------
1 Principal associates are listed on recognised stock exchanges. The fair values are based on
the quoted market prices of the shares held (Level 1 in the fair value hierarchy).
Bank of Communications Co., Limited
Impairment testing
At 30 June 2016, the fair value of HSBC's investment in Bank of
Communications Co., Limited ('BoCom') had been below the carrying
amount for approximately 50 months, apart from a short period in
2013 and briefly during 1H15. As a result, we performed an
impairment test on the carrying amount of the investment in BoCom.
The test confirmed that there was no impairment at 30 June
2016.
At 30 Jun 2016 At 31 Dec 2015
------------------------ --------------------------
Carrying Fair Carrying Fair
VIU value value VIU value value
$bn $bn $bn $bn $bn $bn
Bank of Communications Co., Limited 16.2 15.4 8.9 17.0 15.3 9.9
=====================================
Basis of recoverable amount
The impairment test was performed by comparing the recoverable
amount of BoCom, determined by a value-in-use ('VIU') calculation,
with its carrying amount. The VIU calculation uses discounted cash
flow projections based on management's estimates of earnings. Cash
flows beyond the short to medium term are then extrapolated in
perpetuity using a long-term growth rate. An imputed capital
maintenance charge ('CMC') is calculated to reflect the expected
regulatory capital requirements, and is deducted from forecast cash
flows. The principal inputs to the CMC calculation include
estimates of asset growth, the ratio of risk-weighted assets to
total assets, and the expected regulatory capital requirements.
Management judgement is required in estimating the future cash
flows of BoCom.
Key assumptions in VIU calculation
Long-term growth rate: the growth rate used was 5% (31 December
2015: 5%) for periods after 2019 and does not exceed forecast GDP
growth in mainland China.
Long-term asset growth rate: the growth rate used was 4% (31
December 2015: 4%) for periods after 2019 and this is the rate of
growth required for an assumed 5% long-term growth rate in
profit.
Discount rate: the discount rate of 13% (31 December 2015: 13%)
is derived from a range of values obtained by applying a capital
asset pricing model ('CAPM') calculation for BoCom, using market
data. Management supplements this by comparing the rates derived
from the CAPM with discount rates available from external sources,
and HSBC's discount rate for evaluating investments in mainland
China. The discount rate used was within the range of 10.1% to
15.0% (31 December 2015: 10.1% to 14.2%) indicated by the CAPM and
external sources.
Loan impairment charge as a percentage of customer advances: the
ratio used ranges from 0.76% to 0.83% (31 December 2015: 0.71% to
0.78%) in the short to medium term and is based on the forecasts
disclosed by external analysts. For periods after 2019, the ratio
used was 0.70% (31 December 2015: 0.70%), slightly higher than the
historical average.
Risk-weighted assets as a percentage of total assets: the ratio
used was 67% for all forecast periods (31 December 2015: 67%). This
is consistent with the forecasts disclosed by external
analysts.
Cost-income ratio: the ratio used was 41% (31 December 2015:
41%) in the short to medium term. The ratio was consistent with the
short- to medium-term range forecasts of 40.2% to 42.4% (31
December 2015: 40.3% to 40.7%) disclosed by external analysts.
HSBC HOLDINGS PLC
124
Notes on the Financial Statements (unaudited) (continued)
The following changes to each key assumption on its own used in
the VIU calculation would be necessary to reduce headroom to
nil:
Key assumption Changes to key assumption to reduce headroom to nil
============================== ===================================================
-- Decrease by 30 basis points
Long-term
growth
rate
===================================================
-- Increase by 31 basis points
Long-term
asset
growth
rate
-- Increase by 38 basis points
Discount
rate
-- Increase by 7 basis points
Loan
impairment
charge
as
a
percentage
of
customer
advances
-- Increase by 225 basis points
Risk-weighted
assets
as
a
percentage
of
total
assets
============================== ===================================================
-- Increase by 132 basis points
Cost-income
ratio
14 Trading liabilities
--- ----------------------------------------------------------
At
----------------------
30 Jun 31 Dec
2016 2015
Footnotes $m $m
Deposits by banks 1 38,521 27,054
=======================================================
Customer accounts 1, 2 62,805 40,208
=======================================================
Other debt securities in issue 3 31,860 30,525
=======================================================
Other liabilities - net short positions in securities 55,512 43,827
======================================================= --------- ---------
188,698 141,614
--------- ---------
1 'Deposits by banks' and 'Customer accounts' include repos, settlement accounts, stock lending
and other amounts.
2 Structured deposits placed at HSBC Bank USA and HSBC Trust Company (Delaware) National Association
are insured by the Federal Deposit Insurance Corporation, a US Government agency, up to $250,000
per depositor.
3 'Other debt securities in issue' comprises structured notes issued by HSBC for which market
risks are actively managed as part of trading portfolios.
At 30 June 2016, the cumulative amount of change in fair value
attributable to changes in credit risk was a gain of $346m (31
December 2015: gain of $122m).
HSBC HOLDINGS PLC
125
15 Maturity analysis of assets and liabilities
--- -------------------------------------------------------------------------------------------
HSBC
Maturity analysis of assets and liabilities
Due
Due over Due
Due over 6 over
over 3 months 9 Due Due
1 month months but months over over
but not but not not but 1 year 2 years
Due more more more not but not but not
not more than than than more more more Due
than 3 6 9 than than 2 than 5 over
1 month months months months 1 year years years 5 years Total
Footnotes $m $m $m $m $m $m $m $m $m
Financial assets
Cash and balances at
central banks 128,272 - - - - - - - 128,272
=========================
Items in the course of
collection from other
banks 6,584 - - - - - - - 6,584
=========================
Hong Kong Government
certificates of
indebtedness 29,011 - - - - - - - 29,011
=========================
Trading assets 277,876 261 906 353 1 898 - - 280,295
=========================
Financial assets
designated at fair value 245 88 520 149 170 967 2,442 19,320 23,901
=========================
Derivatives 367,166 19 50 94 84 365 1,089 1,075 369,942
=========================
Loans and advances to
banks 61,768 11,054 5,552 2,738 1,895 5,513 2,333 1,346 92,199
=========================
Loans and advances to
customers 171,009 64,540 49,377 30,743 33,016 78,342 199,297 261,232 887,556
=========================
Reverse repurchase
agreements - non-trading 140,887 26,874 10,808 2,617 4,626 1,515 499 - 187,826
=========================
Financial investments 35,975 51,952 33,529 22,986 18,247 52,017 102,502 124,191 441,399
=========================
Assets held for sale 1 38,398 1 10 7 10 87 8 - 38,521
=========================
Accrued income and other
financial assets 12,777 7,488 1,859 587 496 348 441 1,724 25,720
========================= --------- ------- ------- ------ ------ ------- ------- ------- ---------
Financial assets at 30
Jun 2016 1,269,968 162,277 102,611 60,274 58,545 140,052 308,611 408,888 2,511,226
=========================
Non-financial assets - - - - - - - 96,923 96,923
========================= --------- ------- ------- ------ ------ ------- ------- ------- ---------
Total assets at 30 Jun
2016 1,269,968 162,277 102,611 60,274 58,545 140,052 308,611 505,811 2,608,149
========================= --------- ------- ------- ------ ------ ------- ------- ------- ---------
Financial liabilities
Hong Kong currency notes
in circulation 29,011 - - - - - - - 29,011
=========================
Deposits by banks 59,052 1,694 806 1,799 1,612 315 3,701 921 69,900
=========================
Customer accounts 1,186,803 50,556 24,047 10,683 9,009 5,587 3,689 584 1,290,958
=========================
Repurchase agreements -
non-trading 89,718 3,938 3,142 519 25 - 750 250 98,342
=========================
Items in the course of
transmission to other
banks 7,461 - - - - - - - 7,461
=========================
Trading liabilities 157,132 1,341 3,092 1,327 1,056 5,784 6,583 12,383 188,698
=========================
Financial liabilities
designated at fair value 119 483 1,822 1,722 1,598 3,664 24,687 44,787 78,882
=========================
Derivatives 359,525 284 312 297 172 1,245 1,931 4,648 368,414
=========================
Debt securities in issue 16,161 12,604 9,389 6,624 5,796 11,609 22,247 3,243 87,673
=========================
Liabilities of disposal
groups held for sale 1 37,987 27 - - - - - - 38,014
=========================
Accruals and other
financial liabilities 16,256 6,881 2,064 1,380 696 818 1,542 609 30,246
=========================
Subordinated liabilities 11 - 11 77 159 2,394 4,889 14,128 21,669
========================= --------- ------- ------- ------ ------ ------- ------- ------- ---------
Financial liabilities at
30 Jun 2016 1,959,236 77,808 44,685 24,428 20,123 31,416 70,019 81,553 2,309,268
=========================
Non-financial liabilities - - - - - - - 100,584 100,584
========================= --------- ------- ------- ------ ------ ------- ------- ------- ---------
Total liabilities at 30
Jun 2016 1,959,236 77,808 44,685 24,428 20,123 31,416 70,019 182,137 2,409,852
========================= --------- ------- ------- ------ ------ ------- ------- ------- ---------
Maturity analysis of assets and liabilities (continued)
Due Due
Due Due over 6 over 9 Due Due
over 1 over 3 months months over 1 over 2
month months but but year years
Due but not but not not not but not but not
not more more more more more more more Due
than 1 than 3 than 6 than 9 than 1 than 2 than 5 over 5
month months months months year years years years Total
Footnotes $m $m $m $m $m $m $m $m $m
Financial assets
Cash and balances at
central banks 98,934 - - - - - - - 98,934
=========================
Items in the course of
collection from other
banks 5,768 - - - - - - - 5,768
=========================
Hong Kong Government
certificates of
indebtedness 28,410 - - - - - - - 28,410
=========================
Trading assets 224,691 34 - - - 112 - - 224,837
=========================
Financial assets
designated at fair value 429 194 222 83 390 896 2,603 19,035 23,852
=========================
Derivatives 285,797 215 223 198 33 499 841 670 288,476
=========================
Loans and advances to
banks 57,296 14,530 4,063 1,964 2,499 5,134 3,274 1,641 90,401
=========================
Loans and advances to
customers 176,862 69,638 54,730 33,095 34,774 81,560 201,253 272,542 924,454
=========================
Reverse repurchase
agreements - non-trading 110,478 21,978 7,220 2,786 580 2,985 228 - 146,255
=========================
Financial investments 35,104 59,098 36,897 19,102 17,293 48,634 94,549 118,278 428,955
=========================
Assets held for sale 1 15,816 2,628 2,544 1,218 2,611 4,675 6,365 4,422 40,279
=========================
Accrued income and other
financial assets 12,732 6,682 1,995 483 395 463 445 2,115 25,310
========================= --------- ------- ------- ------ ------ ------- ------- ------- ---------
Financial assets at 31
Dec 2015 1,052,317 174,997 107,894 58,929 58,575 144,958 309,558 418,703 2,325,931
=========================
Non-financial assets - - - - - - - 83,725 83,725
========================= --------- ------- ------- ------ ------ ------- ------- ------- ---------
Total assets at 31 Dec
2015 1,052,317 174,997 107,894 58,929 58,575 144,958 309,558 502,428 2,409,656
========================= --------- ------- ------- ------ ------ ------- ------- ------- ---------
Financial liabilities
Hong Kong currency notes
in circulation 28,410 - - - - - - - 28,410
=========================
Deposits by banks 46,693 2,225 1,049 325 116 712 3,182 69 54,371
=========================
Customer accounts 1,185,091 50,831 21,397 10,421 10,869 6,596 3,852 529 1,289,586
=========================
Repurchase agreements -
non-trading 73,478 3,788 1,816 164 154 - 500 500 80,400
=========================
Items in the course of
transmission to other
banks 5,638 - - - - - - - 5,638
=========================
Trading liabilities 111,691 1,471 1,529 882 2,184 4,344 10,105 9,408 141,614
=========================
Financial liabilities
designated at fair value 2,036 1,822 2,943 342 1,900 4,930 14,316 38,119 66,408
=========================
Derivatives 276,765 34 251 213 52 524 1,063 2,169 281,071
=========================
Debt securities in issue 16,536 9,326 16,295 5,542 1,365 10,754 22,866 6,265 88,949
=========================
Liabilities of disposal
groups held for sale 1 20,350 1,416 1,548 1,344 1,246 5,050 1,484 115 32,553
=========================
Accruals and other
financial liabilities 14,802 7,965 2,467 659 421 925 1,454 665 29,358
=========================
Subordinated liabilities - 401 - - 34 650 4,579 17,038 22,702
========================= --------- ------- ------- ------ ------ ------- ------- ------- ---------
Financial liabilities at
31 Dec 2015 1,781,490 79,279 49,295 19,892 18,341 34,485 63,401 74,877 2,121,060
=========================
Non-financial liabilities - - - - - - - 91,078 91,078
========================= --------- ------- ------- ------ ------ ------- ------- ------- ---------
Total liabilities at 31
Dec 2015 1,781,490 79,279 49,295 19,892 18,341 34,485 63,401 165,955 2,212,138
========================= --------- ------- ------- ------ ------ ------- ------- ------- ---------
1 The assets and liabilities of the disposal groups classified as held for sale are disclosed
in Note 11. Where an agreed or expected closing date exists, the underlying contractual maturities
of the related assets and liabilities are no longer relevant to HSBC and these assets and
liabilities are classified in accordance with the closing date of the disposal transaction.
For all other disposal groups, the assets and liabilities are classified on the basis of the
contractual maturity of the underlying instruments and not on the basis of the disposal.
16 Provisions
--- ----------------------------------------------------------
Legal
proceedings
and
Restructuring Contractual regulatory Customer Other
costs commitments matters remediation provisions Total
$m $m $m $m $m $m
At 1 Jan 2016 463 240 3,174 1,340 335 5,552
=====================
Additional
provisions/increase
in provisions 128 65 799 114 93 1,199
=====================
Provisions utilised (96) - (180) (347) (54) (677)
=====================
Amounts reversed (66) (57) (39) (15) (42) (219)
=====================
Unwinding of
discounts - - (2) - 4 2
=====================
Exchange differences
and other movements (21) 8 33 (105) 25 (60)
===================== ------------- ----------- ----------- ----------- ---------- -------
At 30 Jun 2016 408 256 3,785 987 361 5,797
===================== ------------- ----------- ----------- ----------- ---------- -------
At 1 January 2015 197 234 2,184 1,831 552 4,998
=====================
Additional
provisions/increase
in provisions 92 35 1,432 155 45 1,759
=====================
Provisions utilised (47) (1) (145) (450) (71) (714)
=====================
Amounts reversed (13) (10) (86) (13) (50) (172)
=====================
Unwinding of
discounts - - 24 4 - 28
=====================
Exchange differences
and other movements (34) (89) (441) (173) (37) (774)
===================== ------------- ----------- ----------- ----------- ---------- -------
At 30 Jun 2015 195 169 2,968 1,354 439 5,125
===================== ------------- ----------- ----------- ----------- ---------- -------
At 1 Jul 2015 195 169 2,968 1,354 439 5,125
=====================
Additional
provisions/increase
in provisions 338 85 721 610 93 1,847
=====================
Provisions utilised (48) (1) (474) (406) (88) (1,017)
=====================
Amounts reversed (16) (5) (9) (157) (83) (270)
=====================
Unwinding of
discounts - - 16 2 - 18
=====================
Exchange differences
and other movements (6) (8) (48) (63) (26) (151)
===================== ------------- ----------- ----------- ----------- ---------- -------
At 31 Dec 2015 463 240 3,174 1,340 335 5,552
===================== ------------- ----------- ----------- ----------- ---------- -------
Further details of 'Legal proceedings and regulatory matters'
are set out in Note 19. Legal proceedings include civil court,
arbitration or tribunal proceedings brought against HSBC companies
(whether by way of claim or counterclaim) or civil disputes that
may, if not settled, result in court, arbitration or tribunal
proceedings. Regulatory matters refer to investigations, reviews
and other actions carried out by, or in response to the actions of,
regulators or law enforcement agencies in connection with alleged
wrongdoing by HSBC.
Further details of 'Customer remediation' are set out in this
note. The term refers to activities (root cause analysis, customer
contact, case reviews, decision making and redress calculations)
carried out by HSBC to compensate customers for losses or damages
associated with a failure to comply with regulations or to treat
customers fairly. Customer remediation is often initiated by HSBC
in response to customer complaints and/or industry developments in
sales practices, and is not necessarily initiated by regulatory
action.
Payment Protection Insurance
At 30 June 2016, a provision of $720m (31 December 2015:
$1,039m) was held relating to the estimated liability for redress
in respect of the potential mis-selling of payment protection
insurance ('PPI') policies in previous years. There has been no
additional charge recorded in 1H16 for PPI.
Cumulative provisions made since the Judicial Review ruling in
the first half of 2011 amount to $4.6bn of which $3.9bn has been
paid as at 30 June 2016.
The estimated liability for redress is calculated on the basis
of the total premiums paid by the customer plus simple interest of
8% per annum (or the rate inherent in the related loan product
where higher). The basis for calculating the redress liability is
the same for single premium and regular premium policies. Future
estimated redress levels are based on historically observed redress
per policy.
A total of 5.4m PPI policies have been sold by HSBC since 2000
which generated estimated gross written premiums of approximately
$4.6bn and revenues of approximately $3.7bn at 1H16 average
exchange rates. At 30 June 2016, the estimated total complaints
expected to be received was two million, representing 36% of total
policies sold. It is estimated that contact
HSBC HOLDINGS PLC
128
Notes on the Financial Statements (unaudited) (continued)
will be made with regard to 2.3m policies, representing 43% of
total policies sold. This estimate includes inbound complaints as
well as HSBC's proactive contact exercise on certain policies
('outbound contact').
The following table details the cumulative number of complaints
received at 30 June 2016 and the number of claims expected in the
future:
Future
Footnotes Cumulative to 30 Jun 2016 expected
Inbound complaints (000s of policies) 1 1,289 285
=========================================================
Outbound contact (000s of policies) 725 1
=========================================================
Response rate to outbound contact 42% 37%
=========================================================
Average uphold rate per claim 2 75% 85%
=========================================================
Average redress per claim ($) 2,824 2,873
=========================================================
Complaints to the Financial Ombudsman Service ('FOS')
(000s of policies) 130 41
=========================================================
Average uphold rate per FOS complaint 40% 61%
=========================================================
1 Excludes invalid claims where the complainant has not held a PPI policy and FOS complaints.
2 Claims include inbound and responses to outbound contact, but exclude FOS complaints.
A 100,000 increase/decrease in the total inbound complaints
would increase/decrease the redress provision by approximately
$199m. Each 1% increase/decrease in the response rate to our
outbound contact exercise would increase/decrease the redress
provision by approximately $12m.
Brazilian labour, civil and fiscal claims
Brazilian labour, civil and fiscal litigation provisions were
$495m (31 December 2015: $363m) at 30 June 2016. Of these
provisions, $229m (31 December 2015: $168m) was in respect of
labour and overtime litigation claims brought by past employees
against HSBC operations in Brazil following their departure from
the bank. The main assumptions involved in estimating the liability
are the expected number of departing employees, individual salary
levels and the facts and circumstances of each individual case.
These provisions form part of the Brazilian disposal group and were
classified as 'held for sale' at 30 June 2016 (see Note 11).
17 Deferred tax
--- ----------------------------------------------------------
Net deferred tax assets amounted to $3.6bn at 30 June 2016 (30
June 2015: $4.5bn; 31 December 2015: $4.3bn) and mainly relate to
timing differences in the US.
18 Contingent liabilities, contractual commitments and guarantees
--- --------------------------------------------------------------
At
------------------
30 Jun 31 Dec
2016 2015
$m $m
Guarantees and contingent liabilities
Guarantees 86,375 85,855
=================================================================================
Other contingent liabilities 546 490
================================================================================= ------- -------
86,921 86,345
------- -------
Commitments
Documentary credits and short-term trade-related transactions 9,518 10,168
=================================================================================
Forward asset purchases and forward forward deposits placed 3,055 981
=================================================================================
Undrawn formal standby facilities, credit lines and other commitments to lend 655,037 655,281
================================================================================= ------- -------
667,610 666,430
------- -------
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.
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 2016
HSBC had $402m (31 December 2015: $468m) of capital commitments
contracted but not provided for and $36m (31 December 2015: $100m)
of capital commitments authorised but not contracted for.
HSBC HOLDINGS PLC
129
19 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 2015. 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 2016 (see Note 16). 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
Household International, Inc. ('Household International') and
certain former officers were named as defendants in a securities
class action lawsuit, Jaffe v. Household International, Inc., et
al., filed in the US District Court for the Northern District of
Illinois (the 'Illinois District Court') in August 2002. 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 (some of which
ultimately led to a 2002 settlement with 46 states and the District
of Columbia) and certain accounting practices, as evidenced by an
August 2002 restatement of previously reported consolidated
financial statements. A class was certified on behalf of all
persons who acquired and disposed of Household International common
stock between July 1999 and October 2002.
In April 2009, a jury trial was decided partly in favour of the
plaintiffs.
After a court-appointed claims administrator reported that
45,921 claims generated an allowed aggregate loss of approximately
$2.2bn, the Illinois District Court entered a partial final
judgement against the defendants in October 2013 in the amount of
approximately $2.5bn (including pre-judgement interest). The
defendants appealed the partial final judgement.
In addition, there were objections regarding approximately $625m
in additional claims, prior to the imposition of pre-judgement
interest, which remained pending before the Illinois District
Court.
In May 2015, the US Court of Appeals for the Seventh Circuit
reversed the partial final judgement of the Illinois District Court
and remanded the case for a new trial on loss causation.
In June 2016, HSBC reached an agreement to pay $1.575bn to
settle all claims. The court granted preliminary approval of the
settlement, and HSBC made payment of the agreed settlement amount
into an escrow account in July 2016. Final court approval is
pending.
Bernard L. Madoff Investment Securities LLC
Bernard L. Madoff ('Madoff') was arrested in December 2008 and
later pleaded guilty to running a Ponzi scheme. 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, including
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 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 lawsuits against
various HSBC companies in the US Bankruptcy Court and in the
English High Court, seeking recovery of transfers from Madoff
Securities to HSBC in an amount not yet pleaded or determined. HSBC
and other parties to the action have moved to dismiss the Trustee's
US actions. The deadline by which the Trustee must serve HSBC with
his English action has been extended to the end of the third
quarter of 2016.
Alpha Prime Fund Ltd ('Alpha Prime') and Senator Fund SPC
('Senator'), co-defendants in one of the Trustee's US actions, have
each brought cross-claims against certain HSBC defendants. HSBC has
moved to dismiss those cross-claims.
Fairfield Sentry Limited, Fairfield Sigma Limited and Fairfield
Lambda Limited (together, 'Fairfield') (in liquidation since July
2009) have brought lawsuits in the US and the British Virgin
Islands ('BVI') against fund shareholders, including HSBC companies
that acted as nominees for clients, seeking restitution of
redemption payments. Fairfield's US actions are stayed pending the
outcome of the action in the BVI (see below).
In December 2014, three additional actions were filed in the US.
A purported class of direct investors in Madoff Securities asserted
common law claims against various HSBC companies in the United
States District Court for the Southern District of New York (the
'New York District Court'). Two investors in Hermes International
Fund Limited ('Hermes') also asserted common law claims against
various HSBC companies in the New York District Court. HSBC has
moved to dismiss both actions. In addition, SPV Optimal SUS Ltd
('SPV OSUS'), the purported assignee of the Madoff-invested
company, Optimal Strategic US Equity Ltd, filed a lawsuit in New
York state court against various HSBC companies and others, seeking
damages on various alleged grounds, including breach of fiduciary
duty and breach of trust.
BVI litigation: Beginning in October 2009, liquidators for
Fairfield ('Fairfield Liquidators') commenced lawsuits against fund
shareholders, including HSBC companies that acted as nominees for
clients, seeking recovery of redemption payments. In
HSBC HOLDINGS PLC
130
Notes on the Financial Statements (unaudited) (continued)
March 2016, the BVI court denied a motion brought by certain
non-HSBC defendants challenging the Fairfield Liquidators'
authorisation to pursue their US claims, which those defendants
have appealed.
Bermuda litigation: In January 2009, Kingate Global Fund Limited
and Kingate Euro Fund Limited (together, 'Kingate') brought an
action against HSBC Bank Bermuda Limited ('HBBM') for recovery of
funds held in Kingate's accounts, fees and dividends. This action
is pending, but is not expected to move forward until the
resolution of the Trustee's US actions against Kingate and
HBBM.
Thema Fund Limited ('Thema') and Hermes each brought three
actions in 2009. The first set of actions seeks recovery of funds
in frozen accounts held at HSBC Institutional Trust Services
(Bermuda) Limited. 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 HBBM and HSBC Securities Services (Bermuda) Limited. The
parties have agreed to a standstill in respect of all three sets of
actions.
Cayman Islands litigation: In February 2013, Primeo Fund Limited
('Primeo') (in liquidation since April 2009) brought an action
against HSBC Securities Services Luxembourg ('HSSL') and The Bank
of Bermuda (Cayman), alleging breach of contract and breach of
fiduciary duty, and claiming damages and equitable compensation.
Trial is scheduled to begin in November 2016.
Luxembourg litigation: In April 2009, Herald Fund SPC ('Herald')
(in liquidation since July 2013) brought an action against HSSL
before the Luxembourg District Court, seeking restitution of cash
and securities Herald purportedly lost because of Madoff
Securities' fraud, or money damages. The Luxembourg District Court
dismissed Herald's securities restitution claim, but reserved
Herald's cash restitution claim and its claim for money damages.
Herald has appealed this judgement.
In March 2010, Herald (Lux) SICAV ('Herald (Lux)') (in
liquidation since April 2009) brought an action against HSSL before
the Luxembourg District Court seeking restitution of securities, or
the cash equivalent, or money damages. Herald (Lux) has also
requested the restitution of fees paid to HSSL.
Alpha Prime and Senator have each brought an action against HSSL
before the Luxembourg District Court, seeking the restitution of
securities, or the cash equivalent, or money damages. Both matters
have been temporarily suspended at the request of Alpha Prime and
Senator, respectively. In April 2015, Senator commenced an action
against the Luxembourg branch of HSBC Bank plc asserting identical
claims before the Luxembourg District Court.
HSSL has also been named as a defendant in various actions by
shareholders in Primeo Select Fund, Herald, Herald (Lux), and
Hermes. Most of these actions have been dismissed, suspended or
postponed.
Ireland litigation: In November 2013, Defender Limited brought
an action against HSBC Institutional Trust Services (Ireland)
Limited ('HTIE') and others, alleging breach of contract and
claiming damages and indemnification for fund losses. A trial date
has not yet been scheduled.
In May 2016, following a hearing on two preliminary issues, HTIE
was successful in obtaining an order dismissing two remaining
claims by purported shareholders in Thema International Fund
plc.
SPV OSUS's action against HTIE and HSBC Securities Services
(Ireland) Limited alleging breach of contract and claiming damages
and indemnification for fund losses was dismissed in October 2015.
SPV OSUS's appeal is scheduled for hearing in January 2017.
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. 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, excluding costs and
interest. Due to uncertainties and limitations of this estimate,
the ultimate damages could differ significantly from this
amount.
US mortgage-related investigations
In April 2011, HSBC Bank USA N.A. ('HSBC Bank USA') entered into
a consent order with the Office of the Comptroller of the Currency
('OCC'), and HSBC Finance Corporation ('HSBC Finance') and HSBC
North America Holdings Inc. ('HNAH') entered into a similar consent
order with the Federal Reserve Board ('FRB') (together with the OCC
order, the 'Servicing Consent Orders'). The Servicing Consent
Orders require prescribed actions to address certain foreclosure
practice deficiencies. The Servicing Consent Orders also required
an independent foreclosure review which, pursuant to amendments to
the Servicing Consent Orders in February 2013, ceased and was
replaced by a settlement under which HSBC and 12 other
participating servicers agreed to provide cash payments and other
assistance to eligible borrowers. In June 2015, the OCC issued an
amended consent order citing the failure of HSBC Bank USA to be in
compliance with all requirements of the OCC order. 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.
In February 2016, HSBC Bank USA, HSBC Finance, HSBC Mortgage
Services Inc. and HNAH entered into an agreement with the US
Department of Justice (the 'DoJ'), the US Department of Housing and
Urban Development, the Consumer Financial Protection Bureau, other
federal agencies (the 'Federal Parties') and the Attorneys General
of 49 states and the District of Columbia (the 'State Parties') to
resolve civil claims related to past residential mortgage loan
origination and servicing practices (the 'National Mortgage
Settlement Agreement'). In addition, in February 2016, the FRB
announced the imposition against HSBC Finance and HNAH of a $131m
civil money penalty in connection with the FRB's consent order of
April 2011. Pursuant to the terms of the FRB's civil money penalty
order, the penalty will be satisfied through the cash payments made
to the Federal Parties and the consumer relief provided under the
National Mortgage Settlement Agreement.
HSBC HOLDINGS PLC
131
The Servicing Consent Orders and the National Mortgage
Settlement Agreement do not completely preclude other enforcement
actions by regulatory, governmental or law enforcement agencies
related to foreclosure and other mortgage servicing practices,
including, but not limited to, matters relating to the
securitisation of mortgages for investors, which could include the
imposition of civil money penalties, criminal fines or other
sanctions. In addition, these practices have in the past resulted
in private litigation, and may result in further private
litigation.
US mortgage securitisation activity and litigation
HSBC Bank USA was a sponsor or 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
$4.9bn as at 30 June 2016. In addition, HSBC Bank USA served as
trustee on behalf of various mortgage securitisation trusts.
As the industry's residential mortgage foreclosure issues
continue, HSBC Bank USA has taken title to a number of foreclosed
homes as trustee on behalf of various mortgage 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 relating to property upkeep and
tenants' rights. While HSBC believes and continues to maintain that
these obligations and any related liabilities are 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'.
Beginning in June 2014, a number of lawsuits were filed in state
and federal court in New York and Ohio against HSBC Bank USA as
trustee of over 320 mortgage securitisation trusts. These lawsuits
are brought on behalf of the trusts by a putative class of
investors including, among others, BlackRock and PIMCO funds. The
complaints allege that the trusts have sustained losses in
collateral value of approximately $38bn. The lawsuits seek
unspecified damages resulting from alleged breaches of the US Trust
Indenture Act, breach of fiduciary duty, negligence, breach of
contract and breach of the common law duty of trust. HSBC's motions
to dismiss in several of these lawsuits were, for the most part,
denied.
HSBC Bank USA, HSBC Finance and Decision One Mortgage Company
LLC (an indirect subsidiary of HSBC Finance) ('Decision One') have
been named as defendants in various mortgage loan repurchase
actions brought by trustees of mortgage securitisation trusts. In
the aggregate, these actions seek to have the HSBC defendants
repurchase mortgage loans, or pay compensatory damages, totalling
at least $1bn. One of these actions has been scheduled for trial in
September 2016.
HSBC Mortgage Corporation (USA) Inc. and Decision One have also
been named as defendants in two separate actions filed by
Residential Funding Company LLC ('RFC'), a mortgage loan purchase
counterparty, seeking unspecified damages in connection with
approximately 25,000 mortgage loans.
Since 2010, various HSBC entities have received subpoenas and
requests for information from the DoJ and the Massachusetts state
Attorney General seeking the production of documents and
information regarding HSBC's involvement in specific private-label
RMBS transactions as an issuer, sponsor, underwriter, depositor,
trustee, custodian or servicer. In November 2014, HNAH, on behalf
of itself and various subsidiaries including, but not limited to,
HSBC Bank USA, HSI Asset Securitization Corp., HSI, HSBC Mortgage
Corporation (USA), HSBC Finance and Decision One, received a
subpoena from the US Attorney's Office for the District of
Colorado, pursuant to the Financial Industry Reform, Recovery and
Enforcement Act ('FIRREA'), concerning the origination, financing,
purchase, securitisation and servicing of subprime and non-subprime
residential mortgages. Five non-HSBC banks have previously reported
settlements with the DoJ of FIRREA and other mortgage-backed
securities-related matters. HSBC is cooperating with the US
authorities and is continuing to produce documents and information
responsive to their requests.
There are many factors that may affect the range of possible
outcomes, and the resulting financial impact of these matters,
which could be significant.
HSBC expects the focus on mortgage securitisations to continue
and may be subject to additional claims, litigation and
governmental or regulatory scrutiny relating to its participation
in the US mortgage securitisation market.
Anti-money laundering and sanctions-related matters
In October 2010, HSBC Bank USA entered into a consent order with
the OCC, and HNAH entered into a consent order with the FRB (each
an 'Order' and together, the 'Orders'). These Orders required
improvements to establish an effective compliance risk management
programme across HSBC's US businesses, including risk management
related to the Bank Secrecy Act ('BSA') and AML compliance. HSBC
Bank USA is not currently in compliance with the OCC Order. Steps
are being 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, among others, the
DoJ (the 'US 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. HSBC Holdings also entered
into an agreement with the Office of Foreign Assets Control
('OFAC') regarding historical transactions involving parties
subject to OFAC sanctions, as well as an undertaking with the UK
FCA to comply with certain forward-looking AML and
sanctions-related obligations. In addition, HSBC Bank USA entered
into civil money penalty orders with the Financial Crimes
Enforcement Network of the US Treasury Department and the OCC.
Under these agreements, HSBC Holdings and HSBC Bank USA made
payments totalling $1.9bn to US authorities and undertook various
further obligations, including, among others, to continue to
cooperate fully with the DoJ in any and all investigations, not to
commit any crime under US federal law subsequent to the signing of
the agreement, and to retain an independent
HSBC HOLDINGS PLC
132
Notes on the Financial Statements (unaudited) (continued)
compliance monitor (the 'Monitor'). In January 2016, the Monitor
delivered his second annual follow-up review report. Through his
country-level reviews, the Monitor identified potential anti-money
laundering and sanctions compliance issues that the DoJ and HSBC
are reviewing further. Additionally, as discussed elsewhere in this
Note, HSBC is the subject of other ongoing investigations and
reviews by the DoJ. The potential consequences of breaching the US
DPA, as well as the role of the Monitor and his second annual
review, are discussed on pages 113 and 116 of the Annual Report and
Accounts 2015.
HSBC Bank USA also entered into two consent orders with the OCC.
These required HSBC Bank USA to correct the circumstances noted in
the OCC's report and to adopt an enterprise-wide compliance
programme, and imposed restrictions on acquiring control of, or
holding an interest in, any new financial subsidiary, or commencing
a new activity in its existing financial subsidiary, without the
OCC's prior approval.
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 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. In November 2015, the New York state court granted the
Nominal Corporate Defendants' motion to dismiss. The plaintiff has
appealed that decision.
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 alleged to have been 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. The plaintiffs allege that defendants violated
the US Anti-Terrorism Act ('US ATA') by altering or falsifying
payment messages involving Iran, Iranian parties and Iranian banks
for transactions processed through the US. Defendants filed a
motion to dismiss in May 2015.
In November 2015, a complaint was filed in the Illinois District
Court on behalf of representatives of US persons alleged to have
been killed or injured in terrorist attacks on three hotels in
Amman, Jordan in 2005. The complaint was filed against HSBC
Holdings, HSBC Bank USA, HNAH, HSI, HSBC Finance, HSBC USA Inc. and
HSBC Bank Middle East, as well as a non-HSBC bank. The plaintiffs
allege that the HSBC defendants violated the US ATA by failing to
enforce due diligence methods to prevent its financial services
from being used to support the terrorist attacks.
In February 2016, a complaint was filed in the US District Court
for the Southern District of Texas by representatives of US persons
alleged to have been killed or injured in Mexico by Mexican drug
cartels. The complaint was filed against HSBC Holdings, HSBC Bank
USA, HSBC México SA, and Grupo Financiero HSBC. The plaintiffs
allege that defendants violated the US ATA by providing financial
services to individuals and entities associated with the Mexican
drug cartels. In June 2016, HSBC filed a motion to transfer the
case to the New York District Court, and a motion to dismiss in
respect of certain of the HSBC defendants.
Based on the facts currently known, it is not practicable at
this time for HSBC to predict the resolution of these 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, including those associated with HSBC
Private Bank (Suisse) SA ('HSBC Swiss Private Bank') and an HSBC
company in India, acted appropriately in relation to certain
customers who had US tax reporting obligations. In connection with
these investigations, 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.
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 and other HSBC companies 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 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 of this
matter could differ significantly, however, from the bail amount of
EUR100m. In March 2016, 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 HSBC
Holdings, and have referred the matter to the public prosecutor for
a recommendation on any potential charges to be brought.
HSBC HOLDINGS PLC
133
In November 2014, the Argentine tax authority initiated a
criminal action against various individuals, including current and
former HSBC employees. The criminal action includes allegations of
tax evasion, conspiracy to launder undeclared funds and an unlawful
association among HSBC Swiss Private Bank, HSBC Bank Argentina,
HSBC Bank USA and certain HSBC employees, which allegedly enabled
numerous HSBC customers to evade their Argentine tax
obligations.
In February 2015, the Indian tax authority issued a summons and
request for information to an HSBC company in India. In August 2015
and November 2015, HSBC companies received notices issued by two
offices of the Indian tax authority, alleging that the Indian tax
authority had sufficient evidence to initiate prosecution against
HSBC Swiss Private Bank and its Dubai entity for abetting tax
evasion of four different Indian individuals and/or families and
requesting that the HSBC companies show why such prosecution should
not be initiated.
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 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.
Mossack Fonseca & Co.
HSBC has received requests for information from various
regulatory and law enforcement authorities around the world
concerning persons and entities believed to be linked to Mossack
Fonseca & Co., a service provider of personal investment
companies. HSBC is cooperating with the relevant authorities.
Based on the facts currently known, it is not practicable at
this time for HSBC to predict the resolution of this matter,
including the timing or any possible impact on HSBC, which could be
significant.
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
and Switzerland, 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 Libor,
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 May 2014, HSBC received a Statement of Objections from the
European Commission (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, and a hearing before the Commission took
place in June 2015. A decision by the Commission is pending.
US dollar Libor: Beginning in 2011, HSBC and other 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 ('US
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.
The New York District Court has issued decisions dismissing
certain of the claims in response to motions filed by the
defendants. Those decisions resulted in the dismissal of the
plaintiffs' federal and state antitrust claims, racketeering
claims, and unjust enrichment claims. Dismissal of certain of these
claims was appealed to the US Court of Appeals for the Second
Circuit, which reversed the New York District Court's dismissal of
plaintiffs' antitrust claims in May 2016.
Euroyen Tokyo interbank offered rate ('Tibor') and/or Japanese
yen Libor: In April 2012 and July 2015, HSBC and other panel banks
were named as defendants in putative class actions filed in the New
York District Court on behalf of persons who transacted in
financial instruments allegedly related to the euroyen Tibor and/or
Japanese yen Libor. The complaints allege, among 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 US
CEA, and state law. In May 2016, HSBC reached an agreement in
principle with plaintiffs to resolve both of these actions, subject
to court approval. The court granted preliminary approval of the
settlement in June 2016, and HSBC made payment of the agreed
settlement amount into an escrow account. The final settlement
approval hearing is scheduled for November 2016.
Euribor: In November 2013, HSBC and other panel banks were 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 allegedly related to
Euribor. The complaint alleges, among other things, misconduct
related to Euribor in violation of US antitrust laws, the US CEA
and state law. In May 2016, HSBC reached an agreement in principle
with plaintiffs to resolve this action, subject to court
approval.
Singapore Interbank Offered Rate ('SIBOR') and/or Singapore Swap
Offer Rate ('SOR'): In July 2016, HSBC and other panel banks were
named as defendants in a putative class action filed in the New
York District Court on behalf of persons who transacted in products
related to SIBOR and/or SOR. The complaint alleges, among other
things, misconduct related to SIBOR and/or SOR in violation of US
antitrust and racketeering laws, and state law. This matter is at
an early stage.
US dollar International Swaps and Derivatives Association fix
('ISDAfix'): In September 2014, HSBC and other panel banks were
named as defendants in a number of putative class actions
consolidated in the New York District Court on behalf of
HSBC HOLDINGS PLC
134
Notes on the Financial Statements (unaudited) (continued)
persons who transacted in interest rate derivatives or purchased
or sold financial instruments that were either tied to ISDAfix
rates or were executed shortly before, during, or after the time of
the daily ISDAfix setting window. The consolidated complaint
alleges, among other things, misconduct related to these activities
in violation of US antitrust laws, the US CEA and state law. HSBC's
motion to dismiss the complaint was denied in March 2016.
There are many factors that may affect the range of outcomes,
and the resulting financial impact, of these matters, which 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
and South Korea, are conducting investigations and reviews into
trading by HSBC and others on the foreign exchange markets. HSBC is
cooperating with these investigations and reviews.
In May 2015, the DoJ resolved its investigations with respect to
five non-HSBC financial institutions, four of whom agreed to plead
guilty to criminal charges of conspiring to manipulate prices in
the foreign exchange spot market, and resulting in the imposition
of criminal fines in the aggregate of more than $2.5bn. Additional
penalties were imposed at the same time by the FRB and other
banking regulators. HSBC was not a party to these resolutions, and
investigations into HSBC by the DoJ, FRB and others around the
world continue.
In late 2013 and early 2014, HSBC and other banks were named as
defendants in various putative class actions consolidated in the
New York District Court. The consolidated complaint alleged, among
other things, that the defendants conspired to manipulate the
WM/Reuters foreign exchange benchmark rates. In September 2015,
HSBC reached an agreement with plaintiffs to resolve the
consolidated action, subject to court approval. In December 2015,
the court granted preliminary approval of the settlement, and HSBC
made payment of the agreed settlement amount into an escrow
account. The court has not yet set a date for the final approval
hearing.
In June 2015, a putative class action was filed in the New York
District Court making similar allegations on behalf of Employee
Retirement Income Security Act of 1974 ('ERISA') plan participants,
and another complaint was filed in the US District Court for the
Northern District of California in May 2015. HSBC filed a motion to
transfer the California action to New York, which was granted in
November 2015.
In September 2015, two additional putative class actions making
similar allegations under Canadian law were issued in Canada
against various HSBC companies and other financial
institutions.
As at 30 June 2016, HSBC has recognised a provision in the
amount of $1.2bn. 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 investigations and litigation
Various regulators and competition and law enforcement
authorities, including in the US and the EU, are conducting
investigations and reviews relating to HSBC's precious metals
operations and trading. HSBC is cooperating with these
investigations and reviews. In November 2014, the Antitrust
Division and Criminal Fraud Section of the DoJ issued a document
request to HSBC Holdings, seeking the voluntary production of
certain documents in connection with a criminal investigation that
the DoJ is conducting of alleged anti-competitive and manipulative
conduct in precious metals trading. In January 2016, the Antitrust
Division of the DoJ informed HSBC that it was closing its
investigation; however, the Criminal Fraud Section's investigation
remains ongoing.
Gold: Beginning in March 2014, numerous putative class actions
were filed in the New York District Court and the US District
Courts for the District of New Jersey and the Northern District of
California, naming HSBC 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 for their collective benefit in
violation of US antitrust laws, the US CEA and New York state law.
The actions were consolidated in the New York District Court.
Defendants moved to dismiss the consolidated action and a hearing
took place in April 2016.
In December 2015, a putative class action under Canadian law was
filed in the Ontario Superior Court of Justice against various HSBC
companies and other financial institutions. Plaintiffs allege that,
from January 2004 to March 2014, defendants conspired to manipulate
the price of gold and gold-related investment instruments in
violation of the Canadian Competition Act and common law.
Silver: Beginning in July 2014, numerous putative class actions
were filed in the US District Courts for the Southern and Eastern
Districts of New York, naming HSBC and other members of The London
Silver Market Fixing Ltd as defendants. The complaints allege that,
from January 1999 to the present, defendants conspired to
manipulate the price of silver and silver derivatives for their
collective benefit in violation of US antitrust laws, the US CEA
and New York state law. The actions were consolidated in the New
York District Court. Defendants moved to dismiss the consolidated
action and a hearing took place in April 2016.
In April 2016, two putative class actions under Canadian law
were filed in the Ontario and Quebec Superior Courts of Justice
against various HSBC companies and other financial institutions.
Plaintiffs in both actions allege that, from January 1999 to August
2014, defendants conspired to manipulate the price of silver and
silver-related investment instruments in violation of the Canadian
Competition Act and common law. These actions are at an early
stage.
Platinum and palladium: Between late 2014 and early 2015,
numerous putative class actions were filed in the New York District
Court, naming HSBC and other members of The London Platinum and
Palladium Fixing Company Limited as defendants. The
HSBC HOLDINGS PLC
135
complaints allege that, from January 2008 to the present,
defendants conspired to manipulate the price of platinum group
metals ('PGM') and PGM-based financial products for their
collective benefit in violation of US antitrust laws and the US
CEA. Defendants have moved to dismiss the action.
There are many factors that may affect the range of outcomes,
and the resulting financial impact, of these matters, which could
be significant.
Credit default swap litigation
Various HSBC companies, among other financial institutions,
ISDA, and Markit, were named as defendants in numerous putative
class actions filed in the New York District Court and the Illinois
District Court. The actions alleged that the defendants, violated
US antitrust laws by, among other things, conspiring to restrict
access to credit default swap pricing exchanges and block new
entrants into the exchange market. The actions were subsequently
consolidated in the New York District Court. In September 2015, the
HSBC defendants reached an agreement with plaintiffs to resolve the
consolidated action, and final court approval of that settlement
was granted in April 2016.
Interest rate swap litigation
In February 2016, various HSBC companies, among others, were
added as defendants to a pending putative class action filed in the
New York District Court. The amended complaint, along with other
complaints filed in the New York District Court and the Illinois
District Court, alleged that the defendants violated US antitrust
laws by, among other things, conspiring to boycott and eliminate
various entities and practices that would have brought exchange
trading to buy--side investors in the interest rate swaps
marketplace. In June 2016, the actions were consolidated in the New
York District Court. This matter is at an early stage.
Based on the facts currently known, it is not practicable at
this time for HSBC to predict the resolution of this matter,
including the timing or any possible impact on HSBC, which could 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, among
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 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 is
considering matters relating to, among other things, contractual
and punitive interest rates to be applied to calculate any loss of
income.
In July 2016, HSBC completed the sale of HSBC Brazil to Banco
Bradesco S.A. (see Note 11).
Fédération Internationale de Football Association ('FIFA')
related investigations
HSBC has received inquiries from the DoJ regarding its banking
relationships with certain individuals and entities that are or may
be associated with FIFA. The DoJ is investigating whether multiple
financial institutions, including HSBC, permitted the processing of
suspicious or otherwise improper transactions, or failed to observe
applicable AML laws and regulations. HSBC is cooperating with the
DoJ's investigation.
Based on the facts currently known, it is not practicable at
this time for HSBC to predict the resolution of this matter,
including the timing or any possible impact on HSBC, which could be
significant.
Hiring practices investigation
The US Securities and Exchange Commission (the 'SEC') is
investigating multiple financial institutions, including HSBC, in
relation to hiring practices of candidates referred by or related
to government officials or employees of state-owned enterprises in
Asia-Pacific. HSBC has received various requests for information
and is cooperating with the SEC's investigation.
Based on the facts currently known, it is not practicable at
this time for HSBC to predict the resolution of this matter,
including the timing or any possible impact on HSBC, which could be
significant.
HSBC HOLDINGS PLC
136
Notes on the Financial Statements (unaudited) (continued)
20 Goodwill impairment
--- ----------------------------------------------------------
Impairment testing
As described on page 407 of the Annual Report and Accounts 2015,
we test goodwill for impairment at 1 July each year and whenever
there is an indication that goodwill may be impaired. At 30 June
2016, we reviewed the inputs used in our most recent impairment
test in the light of current economic and market conditions, and
identified indicators of impairment for two cash-generating units
('CGUs') disclosed as sensitive in the Annual Report and Accounts
2015.
The indicators related to the perceived increase in the cost of
equity for UK and European banks following the UK electorate's vote
to leave the European Union ('EU'), and current business
performance, as well as the continued reshaping of our Global
Private Banking business in Europe. As a result, impairment tests
were performed for Global Private Banking - Europe and Global
Banking and Markets - Europe at 30 June 2016. The key assumptions
and the results of the tests are included in the disclosure below.
There were no indicators of impairment in respect of our other
CGUs.
The discount rates used for Global Private Banking - Europe and
Global Banking and Markets - Europe include a 100bps uplift to
reflect the increased risk in European markets following the UK's
referendum on membership of the EU. Given the proximity of the
referendum to the end of 1H16 and the subsequent market volatility,
the adjustment represents management's judgement based on the
latest available information, including the latest broker reports.
Furthermore, the tests were based on recently updated internal
forecasts, which include a preliminary assessment of the impact of
the referendum result but may change. Finally, the structure of the
Global Private Banking business continues to evolve and this could
also impact future tests. All these factors could impact the
headroom of these two CGUs in the future.
Impairment test results
Nominal growth rate
Carrying Value in Headroom/ Discount beyond initial cash
amount(1) use (impairment) rate flow projections
Cash-generating unit $bn $bn $bn % %
Global Private Banking -
Europe 4.4 3.6 (0.8) 9.7 2.8
=========================
Global Banking and
Markets - Europe 18.9 22.7 3.8 10.7 3.8
=========================
1 Included in the carrying amounts of $4.4bn and $18.9bn is goodwill of $3.3bn and $2.6bn respectively.
As shown above, the Group's Global Private Banking - Europe
goodwill balance was impaired by $752m. This is in addition to a
$48m goodwill impairment charge recognised on certain Global
Private Banking - Europe assets classified as held for sale. These
amounts have been recognised in the income statement as an
impairment loss within 'Amortisation and impairment of intangible
assets and goodwill'. The previous value in use amounts for Global
Banking and Markets - Europe and Global Private Banking - Europe
are disclosed on page 410 of the Annual Report and Accounts 2015.
Due to the impairment recognised, Global Private Banking - Europe
had nil headroom at 30 June 2016 and therefore any negative
movement in the current assumptions would result in the recognition
of a further impairment.
Sensitivities of key assumptions in calculating VIU
At 30 June 2016, Global Banking and Markets - Europe was
sensitive to reasonably possible changes in the key assumptions
supporting the recoverable amount. In making an estimate of
reasonably possible changes to assumptions, management considers
the available evidence in respect of each input to the model. These
include the external range of observable discount rates, historical
performance against forecast, and risks attaching to the key
assumptions underlying cash flow projections.
Reasonably possible changes in key assumptions
Cash-generating unit Input Key assumptions Reasonably possible
Associated risks change
Global Private Cash flow projections -- -- --
Banking - Europe Achievement of Challenges achieving A
planned strategic strategic negative
repositioning. repositioning. change
in
any
assumption
would
result
in
an
additional
impairment.
-- --
Level of assets under Lower than expected
management. growth in assets
under management.
--
--
Return on assets.
--
Level of interest
rates.
--
Cost
savings
from
recent
investment
in
new
platforms.
Discount rate -- --
Discount External
rate evidence
used arises
is to
a suggest
reasonable that
estimate the
of rate
a used
suitable is
market not
rate appropriate
for to
the the
profile business.
of
the
business.
Long-term growth -- --
rates Business Growth does not
growth match GDP, or GDP
will forecasts fall.
reflect
GDP
growth
rates
in
the
long
term.
Global Banking and Cash flow projections -- --
Markets - Europe Level of interest Cash flow projections
rates. decrease by 20%.
HSBC HOLDINGS PLC
137
-- --
Recovery Lower than expected growth in
of key markets.
European
markets
over
the
forecast
period.
--
The
impact
of
regulatory
changes,
including
the
ring
fencing
of
the
UK
retail
bank.
Discount rate -- -- --
Discount External Discount rate increases by 100
rate evidence basis points.
used arises
is to
a suggest
reasonable that
estimate the
of rate
a used
suitable is
market not
rate appropriate
for to
the the
profile business.
of
the
business.
Long-term growth rates -- -- --
Business Growth does not match GDP, or Real
growth GDP forecasts fall. GDP
will growth
reflect does
GDP not
growth occur
rates or
in is
the not
long reflected
term. in
performance.
======== ====================== =========== =============================== ================================
The following table presents the change required to individual
current assumptions for Global Banking and Markets - Europe to
reduce headroom to nil (break even).
Changes to current assumptions to achieve nil headroom
Increase/(decrease)
---------------------------------------
Discount Long-term
rate Cash flow growth rate
bps % bps
Cash-generating unit
Global Banking and Markets - Europe 139 (16.7) (177)
=====================================
21 Transactions with related parties
--- ----------------------------------------------------------
There were no changes in the related party transactions
described in the Annual Report and Accounts 2015 that have had a
material effect on the financial position or performance of HSBC in
the half-year to 30 June 2016. All related party transactions that
took place in the half-year to 30 June 2016 were similar in nature
to those disclosed in the Annual Report and Accounts 2015.
22 Events after the balance sheet date
--- ----------------------------------------------------------
On 1 July 2016, we sold our operations in Brazil, comprising
HSBC Bank Brasil S.A. - Banco Múltiplo and HSBC Serviços e
Participações Ltda. (collectively 'HSBC Brazil'), to Banco Bradesco
S.A. for cash consideration of $4.9bn and recognised a loss on
disposal of $1.7bn. HSBC Brazil was classified as held for sale at
30 June 2016 (see Note 11).
On 3 August 2016, the Board approved a share buy-back programme
of up to $2.5bn.
A second interim dividend for the financial year ending 31
December 2016 was declared by the Directors on 3 August 2016, as
described in Note 2.
23 Interim Report 2016 and statutory accounts
--- ----------------------------------------------------------
The information in this Interim Report 2016 is unaudited and
does not constitute statutory accounts within the meaning of
section 434 of the Companies Act 2006. This Interim Report 2016 was
approved by the Board of Directors on 3 August 2016. The statutory
accounts of HSBC Holdings for the year ended 31 December 2015 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 auditor, PricewaterhouseCoopers LLP ('PwC') has reported on
those accounts. Its report was unqualified, did not include a
reference to any matters to which PwC 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.
HSBC HOLDINGS PLC
138
Statement of Directors' responsibilities
Statement of Directors' Responsibilities
The Directors(1) , who are required to prepare the financial
statements on a going concern basis unless it is not appropriate,
are satisfied that the Group has the resources to continue in
business for the foreseeable future and that the financial
statements continue to be prepared on a going concern basis.
The Directors confirm that to the best of their knowledge:
-- the financial statements have been prepared in accordance with IAS 34 'Interim Financial Reporting'
as adopted by the EU;
-- this Interim Report 2016 includes a fair review of the information required by:
(a) DTR 4.2.7R of the Disclosure Rules and Transparency Rules, being an indication of: important
events that have occurred during the first six months of the financial year ending 31 December
2016 and their impact on the condensed set of financial statements; and a description of the
principal risks and uncertainties for the remaining six months of the financial year; and
(b) DTR 4.2.8R of the Disclosure Rules and Transparency Rules, being: related party transactions
that have taken place in the first six months of the financial year ending 31 December 2016
and that have materially affected the financial position or performance of HSBC during that
period; and any changes in the related parties transactions described in the Annual Report
and Accounts 2015 that could materially affect the financial position or performance of HSBC
during the first six months of the financial year ending 31 December 2016.
On behalf of the Board
Douglas Flint
Group Chairman
3 August 2016
Phillip Ameen*, Kathleen Casey*, Laura Cha*, Henri de Castries*, Lord Evans of Weardale*,
Joachim Faber*, Douglas Flint, Stuart Gulliver, Sam Laidlaw*, Irene Lee*, John Lipsky*, Rachel
Lomax*, Iain Mackay, Heidi Miller*, Marc Moses, David Nish*, Jonathan Symonds*, Pauline van
der Meer Mohr* and Paul Walsh*.
* Independent non-executive Director.
HSBC HOLDINGS PLC
139
Independent Review Report by PricewaterhouseCoopers LLP to HSBC
Holdings plc
Independent Review Report to HSBC Holdings plc
Report on the condensed consolidated interim financial
statements
Our conclusion
We have reviewed the condensed consolidated interim financial
statements, defined below, in the interim financial report of HSBC
Holdings plc for the six months ended 30 June 2016. Based on our
review, nothing has come to our attention that causes us to believe
that the condensed consolidated interim financial statements are
not prepared, in all material respects, in accordance with
International Accounting Standard 34 as adopted by the European
Union and the Disclosure Rules and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
This conclusion is to be read in the context of what we say in
the remainder of this report.
What we have reviewed
The condensed consolidated interim financial statements, which
are prepared by HSBC Holdings plc, comprise:
-- the consolidated Balance Sheet as at 30 June 2016;
-- the consolidated income statement and the consolidated statement of comprehensive income for
the period then ended;
-- the consolidated statement of cash flows for the period then ended;
-- the consolidated statement of changes in equity for the period then ended; and
-- the explanatory notes to the condensed consolidated interim financial statements.
As disclosed in Note 1, the financial reporting framework that
has been applied in the preparation of the full annual financial
statements of the Group is applicable law and International
Financial Reporting Standards (IFRSs) as adopted by the European
Union.
The condensed consolidated interim financial statements included
in the interim financial report have been prepared in accordance
with International Accounting Standard 34, 'Interim Financial
Reporting', as adopted by the European Union and the Disclosure
Rules and Transparency Rules of the United Kingdom's Financial
Conduct Authority.
What a review of interim financial information involves
We conducted our review in accordance with 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 for use in
the United Kingdom. A review of interim financial information
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK and
Ireland) and, consequently, does not enable us to obtain assurance
that we would become aware of all significant matters that might be
identified in an audit. Accordingly, we do not express an audit
opinion.
We have read the other information contained in the interim
financial report and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the condensed consolidated interim financial statements.
Responsibilities for the interim financial information and the
review
Our responsibilities and those of the Directors
The interim financial report, including the condensed
consolidated interim financial statements, is the responsibility
of, and has been approved by, the Directors. The Directors are
responsible for preparing the interim financial report in
accordance with the Disclosure Rules and Transparency Rules of the
United Kingdom's Financial Conduct Authority.
Our responsibility is to express to the company a conclusion on
the condensed consolidated interim financial statements in the
interim financial report based on our review. This report,
including the conclusion, has been prepared for and only for the
company for the purpose of complying with the Disclosure Rules and
Transparency Rules of the United Kingdom's Financial Conduct
Authority and for no other purpose. We do not, in giving this
conclusion, accept or assume responsibility for any other purpose
or to any other person to whom this report is shown or into whose
hands it may come save where expressly agreed by our prior consent
in writing.
PricewaterhouseCoopers LLP
Chartered Accountants
London, United Kingdom
3 August 2016
HSBC HOLDINGS PLC
140
Shareholder information
Shareholder information
1 Directors' interests 141 9 Final results 146
=========================================== ==== ===================================================
2 Employee share plans 144 10 Corporate governance 146
=========================================== ==== ===================================================
3 Notifiable interests in share capital 145 11 Changes in Directors' details 146
=========================================== ==== ===================================================
4 Dealings in HSBC Holdings listed securities 145 12 Going concern basis 147
=========================================== ==== ===================================================
5 First interim dividend for 2016 145 13 Telephone and online share dealing service 147
=========================================== ==== ===================================================
6 Second interim dividend for 2016 145 14 Stock symbols 147
=========================================== ==== ===================================================
Copies of the Interim Report 2016 and shareholder
7 Proposed interim dividends for 2016 146 15 enquiries
===========================================
8 Earnings release 146 and communications 148
=========================================== ==== ===================================================
1 Directors' interests
--- ----------------------------------------------------------
According to the register of Directors' interests maintained by
HSBC Holdings pursuant to section 352 of the Securities and Futures
Ordinance of Hong Kong, at 30 June 2016 the Directors of HSBC
Holdings had the following interests, all beneficial unless
otherwise stated, in the shares or debentures of HSBC and its
associates:
Directors' interests - shares and debentures
At 30 Jun 2016
--------------------------------------------------------
Child Jointly
At under 18 with
1 Jan Beneficial or another Total
Footnotes 2016 owner spouse person Trustee interests(1)
HSBC Holdings
ordinary shares
Phillip Ameen 3 5,000 5,000 - - - 5,000
Kathleen Casey 3 3,540 8,260 - - - 8,260
Laura Cha 5,200 5,200 - - - 5,200
Henri de
Castries - 15,491 - - - 15,491
Lord Evans of
Weardale 7,416 7,416 - - - 7,416
Joachim Faber 45,778 66,605 - - - 66,605
Douglas Flint 401,450 401,796 - - - 401,796
Stuart Gulliver 2,861,265 3,056,229 176,885 - - 3,233,114
================
Sam Laidlaw 38,012 37,795 - - 1,416(2) 39,211
Irene Lee - 10,000 - - - 10,000
================
John Lipsky 3 16,165 16,165 - - - 16,165
Rachel Lomax 18,900 18,900 - - - 18,900
Iain Mackay 223,872 370,489 - - - 370,489
Heidi Miller 3 3,695 3,815 - - - 3,815
Marc Moses 624,643 762,161 - - - 762,161
David Nish - - 50,000 - - 50,000
Jonathan Symonds 21,771 16,886 4,885 - - 21,771
Pauline van der
Meer Mohr - 7,000 - - - 7,000
Paul Walsh - 5,000 - - - 5,000
================
1 Details of executive Directors' other interests in HSBC Holdings ordinary shares arising from
the HSBC Holdings savings-related share option plans and the HSBC Share Plan 2011 are set
out on the following pages. At 30 June 2016, the aggregate interests under the Securities
and Futures Ordinance of Hong Kong in HSBC Holdings ordinary shares, including interests arising
through employee share plans, were: Douglas Flint - 404,715; Stuart Gulliver - 6,330,295;
Iain Mackay - 1,804,677; and Marc Moses - 2,489,059. Each Director's total interests represent
less than 1% of the shares in issue.
2 Non-beneficial.
3 Interests in American Depositary Shares ('ADS'), which are categorised as equity derivatives
under Part XV of the Securities and Futures Ordinance of Hong Kong. Each ADS represents five
HSBC Holdings ordinary shares.
HSBC HOLDINGS PLC
141
Savings-related share option plans and the HSBC Share Plan
2011
HSBC Holdings savings-related share option plans
HSBC Holdings ordinary shares
-------------------------------
Held at Held at
Exercisable 1 Jan 30 Jun
----------------------
Date of Exercise
award price (GBP) from until 2016 2016
Douglas Flint 23 Sep 2014 5.1887 1 Nov 2019 1 May 2020 2,919 2,919
==================== ============= ============ ========== ==========
Iain Mackay 23 Sep 2014 5.1887 1 Nov 2017 1 May 2018 3,469 3,469
==================== ============= ============ ========== ==========
There are no performance criteria conditional upon which the
outstanding options are exercisable and there have been no
variations to the terms and conditions since the awards were made.
See page 144 for more details on the HSBC Holdings savings-related
share option plans. The market value per ordinary share at 30 June
2016 was GBP4.66. The highest and lowest market values per ordinary
share during the half-year to 30 June 2016 were GBP5.22 and
GBP4.16. Market value is the mid-market price derived from the
London Stock Exchange Daily Official List on the relevant date.
Under the Securities and Futures Ordinance of Hong Kong, the
options are categorised as unlisted physically settled equity
derivatives.
Awards of Restricted Shares
HSBC Share Plan 2011
Vesting of Restricted Share awards is normally subject to the
Director remaining an employee on the vesting date. The awards may
vest at an earlier date in certain circumstances. Under the
Securities and Futures Ordinance of Hong Kong, interests in
Restricted Share awards are categorised as the interests of the
beneficial owner.
HSBC Holdings ordinary shares
-----------------------------------------------------
Awards made Awards vested
Awards during during
held the period to the period to Awards
at 30 Jun 2016 30 Jun 2016 held at
---------------- ----------------
Year in
which
Date of awards 1 Jan Monetary Monetary 30 Jun
award Footnotes may vest 2016 Number value Number value 2016(1)
GBP000 GBP000
Stuart 11 Mar
Gulliver 2013 2 2018 92,185 - - - - 95,205
10 Mar
2014 3 2015-2017 66,016 - - 34,340 153 33,871
2 Mar
2015 4 2016-2018 71,004 - - 24,210 110 49,154
29 Feb
2016 5 2016 - 45,897 211 45,897 211 -
29 Feb
2016 6 2017-2019 - 68,845 317 - - 71,099
========= ======== ========= =========
Iain 11 Mar
Mackay 2013 2 2018 63,730 - - - - 65,817
10 Mar
2014 3 2015-2017 38,671 - - 20,116 90 19,841
2 Mar
2015 4 2016-2018 47,717 - - 16,270 74 33,033
29 Feb
2016 5 2016 - 45,704 210 45,704 210 -
29 Feb
2016 6 2017-2019 - 68,556 315 - - 70,801
========= ======== ========= =========
11 Mar
Marc Moses 2013 2 2018 61,917 - - - - 63,945
10 Mar
2014 3 2015-2017 38,668 - - 20,114 90 19,839
2 Mar
2015 4 2016-2018 56,893 - - 19,399 88 39,386
29 Feb
2016 5 2016 - 35,376 163 35,376 163 -
29 Feb
2016 6 2017-2019 - 53,065 244 - - 54,802
========= ======== ========= =========
1 Includes additional shares arising from scrip dividends.
2 Vesting of these awards is subject to satisfactory completion of the Deferred Prosecution
Agreement with the US Department of Justice.
3 At the date of the award, 10 March 2014, the market value per share was GBP6.16. These deferred
awards are subject to a six-month retention period upon vesting. On 10 March 2016, the second
anniversary of the award, a further 33% of the award vested. On that date the market value
per share was GBP4.46. The balance of the award will vest on the third anniversary of the
award.
4 At the date of the award, 2 March 2015, the market value per share was GBP5.83. These deferred
awards are subject to a six-month retention period upon vesting. On 14 March 2016, following
the first anniversary of the award, 33% of the award vested. On that date the market value
per share was GBP4.53. On the second anniversary of the award a further 33% of the award will
vest and the balance will vest on the third anniversary of the award.
5 The non-deferred award vested immediately on 29 February 2016. The shares (net of tax) are
subject to a six-month retention period. At the date of vesting, the market value per share
was GBP4.60.
6 At the date of the award, 29 February 2016, the market value per share was GBP4.60. These
deferred awards are subject to a six-month retention period upon vesting. On the first anniversary
of the award 33% of the award will vest, a further 33% of the award will vest on the second
anniversary and the balance will vest on the third anniversary of the award.
HSBC HOLDINGS PLC
142
Shareholder information (continued)
Conditional awards under the Group Performance Share Plan
HSBC Share Plan 2011
The Group Performance Share Plan ('GPSP') is a long-term
incentive plan governed by the rules of the HSBC Share Plan 2011.
Vesting of GPSP awards is normally subject to the Director
remaining an employee on the vesting date. Any shares (net of tax)
which the Director becomes entitled to on the vesting date are
subject to a retention requirement until cessation of employment.
Under the Securities and Futures Ordinance of Hong Kong, interests
in awards are categorised as beneficial.
HSBC Holdings ordinary shares
--------------------------------------------------------
Awards made Awards vested
during during
Awards the period to the period to Awards
held at 30 Jun 2016 30 Jun 2016 held at
----------------- -----------------
Year
in
which
awards
Date of may 1 Jan Monetary Monetary 30 Jun
award Footnotes vest 2016 Number value Number value 2016(1)
GBP000 GBP000
Stuart 23 Jun
Gulliver 2011 2 2016 482,292 - - 498,322 2,257 -
12 Mar
2012 2017 818,298 - - - - 845,098
11 Mar
2013 2018 472,750 - - - - 488,234
10 Mar
2014 2019 657,621 - - - - 679,159
2 Mar
2015 2020 387,638 - - - - 400,334
29 Feb
2016 3 2021 - 421,232 1,938 - - 435,027
======== ========= ========= ======
23 Jun
Iain Mackay 2011 2 2016 134,836 - - 139,318 631 -
12 Mar
2012 2017 152,748 - - - - 157,751
11 Mar
2013 2018 220,617 - - - - 227,842
10 Mar
2014 2019 385,215 - - - - 397,831
2 Mar
2015 2020 207,632 - - - - 214,432
29 Feb
2016 3 2021 - 235,654 1,084 - - 243,371
======== ========= ========= ======
23 Jun
Marc Moses 2011 2 2016 125,190 - - 129,351 586 -
12 Mar
2012 2017 425,514 - - - - 439,450
11 Mar
2013 2018 245,829 - - - - 253,881
10 Mar
2014 2019 385,177 - - - - 397,792
2 Mar
2015 2020 207,632 - - - - 214,432
29 Feb
2016 3 2021 - 235,654 1,084 - - 243,371
======== ========= ========= ======
1 Includes additional shares arising from scrip dividends.
2 On 15 March 2016, the deferred awards granted in 2011 vested. On that date the market value
per share was GBP4.53.
3 At the date of award, 29 February 2016, the market value per share was GBP4.60.
No Directors held any short position (as defined in the
Securities and Futures Ordinance of Hong Kong) in the shares or
debentures of HSBC Holdings and its associated corporations. Save
as stated above, none of the Directors had an interest in any
shares or debentures of HSBC Holdings or any associates at the
beginning or at the end of the period, and none of the Directors or
members of their immediate families were awarded or exercised any
right to subscribe for any shares or debentures in any HSBC
corporation during the period. Since 30 June 2016, the interests of
each of the following Directors have increased by the number of
HSBC Holdings ordinary shares shown against their name:
Increase in Directors' interests since 30 June 2016
HSBC Holdings
ordinary shares Footnotes
Beneficial owner
Kathleen Casey 130 1, 2
===================================================
Henri de Castries 244 2
===================================================
Douglas Flint 108 3
Stuart Gulliver 48,938 4
Sam Laidlaw 597 2
Iain Mackay 22,607 4
Heidi Miller 60 1, 2
Marc Moses 27,286 4
Paul Walsh 79 2
===================================================
1 Comprises interests in ADSs, which are categorised as equity derivatives under Part XV of
the Securities and Futures Ordinance of Hong Kong. Each ADS represents five HSBC Holdings
ordinary shares.
2 Additional shares arising from scrip dividends.
3 Comprises the acquisition of shares in the HSBC Holdings UK Share Incentive Plan through regular
monthly contributions (30 shares) and the automatic reinvestment of dividend income on shares
held in the HSBC Holdings UK Share Incentive Plan (78 shares).
4 Comprises scrip dividend on Restricted Share awards and GPSP awards granted under the HSBC
Share Plan 2011.
HSBC HOLDINGS PLC
143
2 Employee share plans
--- ----------------------------------------------------------
Share options and discretionary awards of shares are granted
under HSBC share plans to help align the interests of employees
with those of shareholders. The following are particulars of
outstanding options, including those held by employees working
under employment contracts that are regarded as 'continuous
contracts' for the purposes of the Hong Kong Employment Ordinance.
The options were granted for nil consideration. No options have
been granted to substantial shareholders, suppliers of goods or
services, or in excess of the individual limit for each share plan.
No options were cancelled by HSBC during the period.
A summary, for each plan, of the total number of options which
were granted, exercised or lapsed during the period is shown in the
following tables. Particulars of options held by Directors of HSBC
Holdings are set out on page 141. Further details required to be
disclosed pursuant to Chapter 17 of the Rules Governing the Listing
of Securities on The Stock Exchange of Hong Kong Limited are
available on our website at www.hsbc.com, and on the website of The
Stock Exchange of Hong Kong Limited at www.hkex.com.hk. Copies may
be obtained upon request from the Group Company Secretary, 8 Canada
Square, London E14 5HQ.
All-employee share plans
The HSBC Holdings Savings-Related Share Option Plan and the HSBC
Holdings Savings-Related Share Option Plan: International are
all-employee share plans under which eligible employees have been
granted options to acquire HSBC Holdings ordinary shares. There
will be no further grant of options under the HSBC Holdings
Savings-Related Share Option Plan: International; the final grant
was in 2012. The HSBC International Employee Share Purchase Plan
was introduced in 2013 and now includes employees based in 25
jurisdictions.
For options granted under the HSBC Holdings Savings-Related
Option Plan, employees make contributions of up to GBP500 each
month over a period of three or five years which may be used within
six months following the third or fifth anniversary of the
commencement of the relevant savings contract, at the employee's
election, to exercise the options. Alternatively, the employee may
elect to have the savings, plus (where applicable) any interest or
bonus, repaid in cash. In the case of redundancy, retirement
including on grounds of injury or ill health, the transfer of the
employing business to another party, or a change of control of the
employing company, options may be exercised before completion of
the relevant savings contract. In certain circumstances, the
exercise period of options granted under the all-employee share
plans may be extended, for example, on the death of a participant
the executors may exercise the option up to six months beyond the
normal exercise period.
The terms set out in the preceding paragraph also applied to
options granted up to April 2012 under the HSBC Holdings
Savings-Related Share Option Plan: International with the exception
that contributions were capped at the equivalent of GBP250.
Under the HSBC Holdings Savings-Related Share Option Plan and
the HSBC Holdings Savings-Related Share Option Plan: International
the option exercise price has been determined by reference to the
average market value of the ordinary shares on the five business
days immediately preceding the invitation date, then applying a
discount of 20%. Where applicable, the US dollar, Hong Kong dollar
and euro exercise prices were converted from the sterling exercise
price at the applicable exchange rate on the working day preceding
the relevant invitation date. The HSBC Holdings Savings-Related
Share Option Plan will terminate on 23 May 2025 unless the
Directors resolve to terminate the plan at an earlier date.
HSBC Holdings All-employee Share Option Plans
HSBC Holdings ordinary shares
------------------------------------------------------------------------------------
Dates of award Exercise price Exercisable
----------------------- ------------------------ -----------------------------
Granted At
At in Exercised Lapsed in 30 Jun
from to from to from to Footnotes 1 Jan 2016 period in period period 2016
Savings-Related Share Option Plan 1
22 Sep (GBP) (GBP)
21 Apr 2010 2015 4.0472 5.4738 1 Aug 2015 30 April 2021 71,709,819 - 951,619 8,930,274 61,827,926
=========== ====== ========= ========= ========== =============
Savings-Related Share Option Plan: International 2
21 Apr 24 Apr (GBP) (GBP) 31 Jan
2010 2012 4.4621 5.4573 1 Aug 2014 2018 1,130,991 - 333,065 258,887 539,039
=========== ====== ========= ========= ========== =============
21 Apr 24 Apr ($) ($) 31 Jan
2010 2012 7.1456 8.2094 1 Aug 2014 2018 665,445 - 13,569 415,504 236,372
=========== ====== ========= ========= ========== =============
21 Apr 24 Apr (EUR) (EUR) 31 Jan
2010 2012 5.3532 6.0657 1 Aug 2015 2018 153,610 - 23,777 19,553 110,280
=========== ====== ========= ========= ========== =============
21 Apr 24 Apr (HK$) (HK$) 1 Aug 31 Jan
2010 2012 55.4701 63.9864 2015 2018 1,114,830 - 60,141 505,889 548,800
=========== ====== ========= ========= ========== =============
1 The weighted average closing price of the shares immediately before the dates on which options
were exercised was GBP4.79.
2 The weighted average closing price of the shares immediately before the dates on which options
were exercised was GBP4.91.
HSBC HOLDINGS PLC
144
Shareholder information (continued)
3 Notifiable interests in share capital
--- ----------------------------------------------------------
At 30 June 2016, HSBC Holdings had received the following
notification of major holdings of voting rights pursuant to the
requirements of Rule 5 of the Disclosure Guidance and Transparency
Rules:
-- BlackRock, Inc. gave notice on 24 May 2016 that on 23 May 2016 it had an indirect interest
in HSBC Holdings ordinary shares of 1,141,129,047; qualifying financial instruments with 19,267,029
voting rights that may be acquired if the instruments are exercised or converted; and financial
instruments with similar economic effect to qualifying financial instruments which refer to
7,029,186 voting rights, each representing 5.75%, 0.09% and 0.03%, respectively, of the total
voting rights at that date.
At 30 June 2016, as recorded in the register maintained by HSBC
Holdings pursuant to section 336 of the Securities and Futures
Ordinance of Hong Kong:
-- JPMorgan Chase & Co. gave notice on 25 May 2016 that on 23 May 2016 it had the following interests
in HSBC Holdings ordinary shares: a long position of 930,672,268 shares; a short position
of 159,394,496 shares; and a lending pool of 536,945,956 shares, each representing 4.69%,
0.80% and 2.71%, respectively, of the ordinary shares in issue at that date. Since 30 June
2016, JPMorgan Chase & Co. gave notice on 6 July 2016 that on 1 July 2016 it had the following
interests in HSBC Holdings ordinary shares: a long position of 972,489,499 shares; a short
position of 224,324,049 shares; and a lending pool of 509,817,402 shares, each representing
4.90%, 1.13% and 2.57%, respectively, of the ordinary shares in issue at that date.
-- BlackRock, Inc. gave notice on 23 May 2016 that on 19 May 2016 it had the following interests
in HSBC Holdings ordinary shares: a long position of 1,285,704,498 shares and a short position
of 5,613,912 representing 6.49% and 0.03%, respectively, of the ordinary shares in issue at
that date.
4 Dealings in HSBC Holdings listed securities
--- ----------------------------------------------------------
Except for dealings as intermediaries by subsidiaries of HSBC
Holdings, 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 half-year ended 30
June 2016.
5 First interim dividend for 2016
--- ----------------------------------------------------------
The first interim dividend for 2016 of $0.10 per ordinary share
was paid on 6 July 2016.
6 Second interim dividend for 2016
--- ----------------------------------------------------------
On 3 August 2016, the Directors declared a second interim
dividend for 2016 of $0.10 per ordinary share. It will be payable
on 28 September 2016 to holders of record on 12 August 2016 on the
Principal Register in the United Kingdom, and the Hong Kong and
Bermuda Overseas Branch Registers. The dividend will be payable in
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 19 September 2016. A scrip
dividend will also be offered. Particulars of these arrangements
will be sent to shareholders on or about 25 August 2016 and
elections must be received by 14 September 2016.
The dividend will be payable on ordinary shares held through
Euroclear France, the settlement and central depositary system for
Euronext Paris, on 28 September 2016 to the holders of record on 12
August 2016. The dividend will be payable by Euroclear France in
euros, at the forward exchange rate quoted by HSBC France on 19
September 2016, or as a scrip dividend. Particulars of these
arrangements will be announced through Euronext Paris on 5 August
2016, 19 August 2016 and 19 September 2016.
The dividend will be payable on American Depositary Shares
('ADS'), each of which represents five ordinary shares, on 28
September 2016 to holders of record on 12 August 2016. The dividend
of $0.50 per ADS will be payable by the depositary in US dollars or
as a scrip dividend of new ADSs. Elections must be received by the
depositary on or before 9 September 2016. Alternatively, the cash
dividend may be invested in additional ADSs by 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 11 August 2016. The ADSs will be quoted
ex-dividend in New York on 10 August 2016.
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 12 August 2016 in order to receive the dividend.
Ordinary shares may not be removed from or transferred to the
Principal Register in the United Kingdom, the Hong Kong Overseas
Branch Register or the Bermuda Overseas Branch Register on 12
August 2016. Any person wishing to remove ordinary shares to or
from each register must do so before 4.00pm local time on 11 August
2016.
Transfers of ADSs must be lodged with the depositary by 12 noon
on 12 August 2016 in order to receive the dividend.
HSBC HOLDINGS PLC
145
7 Proposed interim dividends for 2016
--- ----------------------------------------------------------
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 proposed timetables for dividends payable on the
ordinary shares in respect of 2016 that have not yet been declared
are as follows:
Third interim Fourth interim
Footnotes dividend for 2016 dividend for 2016
Announcement 3 Oct 2016 21 Feb 2017
ADSs quoted ex-dividend in New York 19 Oct 2016 22 Feb 2017
Shares quoted ex-dividend in London, Hong Kong, Paris and
Bermuda 20 Oct 2016 23 Feb 2017
Record date in London, Hong Kong, New York, Paris and Bermuda 1 21 Oct 2016 24 Feb 2017
Payment date 6 Dec 2016 6 Apr 2017
===============================================================
1 Removals from or transfers to the Principal Register in the United Kingdom, the Hong Kong
Overseas Branch Register or the Bermuda Overseas Branch Register will not be permitted on
these dates.
8 Earnings release
--- ----------------------------------------------------------
An earnings release for the three-month period ending 30
September 2016 is expected to be issued on 7 November 2016.
9 Final results
--- ----------------------------------------------------------
The results for the year to 31 December 2016 are expected to be
announced on 21 February 2017.
10 Corporate governance
--- ----------------------------------------------------------
Throughout the six months to 30 June 2016, HSBC Holdings has
complied with the applicable code provisions of: The UK Corporate
Governance Code issued by the Financial Reporting Council in
September 2014; and 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(1) . 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 has adopted a dealing code for transactions in HSBC
Group securities by Directors ('Code for Dealing in HSBC Group
Securities'). For the period under review, this code met the
requirements of the FCA Listing Rules and 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 Rules which take
into account accepted practices in the UK, particularly in respect
of employee share plans.
Following specific enquiry, each Director has confirmed that he
or she has complied with the Code for Dealing throughout the
period. All Directors have been routinely reminded of their
obligations under the Code for Dealing in HSBC Group
Securities.
There have been no material changes to the information disclosed
in the Annual Report and Accounts 2015 in respect of the
remuneration of employees, remuneration policies, bonus and share
option plans and training schemes. Details of the number of
employees are provided on page 28.
1 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.
11 Changes in Directors' details
--- ----------------------------------------------------------
Changes in Directors' details since the date of the Annual
Report and Accounts 2015 which are required to be disclosed
pursuant to Rule 13.51(2) and Rule 13.51B(1) of the Hong Kong
Listing Rules are set out below.
David Nish, 56
Independent non-executive Director
Appointed to the Board: 1 May 2016.
Member of the Group Audit Committee since 1 May 2016.
Skills and experience: David served as Chief Executive Officer
of Standard Life plc between 2010 and 2015, having joined as Group
Finance Director in 2006. David led the investment in technology,
the complementary acquisitions and the disposal of the group's
Canadian operations. Other former appointments include Group
Finance Director of Scottish Power plc and partner of Price
Waterhouse. He is a qualified chartered accountant.
Current appointments include: A non-executive director of
Vodafone Group plc, London Stock Exchange Group plc, UK Green
Investment Bank plc and Zurich Insurance Group.
HSBC HOLDINGS PLC
146
Shareholder information (continued)
Henri de Castries
Henri de Castries will step down from his position as Chairman
and CEO of AXA from 1 September 2016.
Douglas Flint
Mentor at Chairman Mentors International (CMi) since the end of
May 2016.
Sam Laidlaw
Chair of the Saïd Business School's Business Advisory Council
and a member of its School Board since 27 June 2016.
Rachel Lomax
Member of the Group Audit Committee until 20 April 2016.
Pauline van der Meer Mohr
Member of the Group Nomination Committee since 22 April
2016.
Paul Walsh
Member of the Group Nomination Committee since 1 May 2016.
Irene Lee
Member of the Risk Committee and Chairman of the Audit Committee
for The Hongkong and Shanghai Banking Corporation Limited since 18
April 2016.
Rona Fairhead and Sir Simon Robertson retired from the Board at
the conclusion of the HSBC Holdings AGM on 22 April 2016.
12 Going concern basis
--- ----------------------------------------------------------
As mentioned in Note 1 Basis of preparation on page 107, the
financial statements are prepared on a going concern basis, as the
Directors are satisfied that the Group and parent company have the
resources to continue in business for the foreseeable future. In
making this assessment, the Directors have considered a wide range
of information relating to present and future conditions, including
future projections of profitability, cash flows and capital
resources.
In particular, HSBC's principal activities, business and
operating models, strategic direction and top and emerging risks
are addressed in the 'Overview' section; a financial summary,
including a review of the consolidated income statement and
consolidated balance sheet, is provided in the 'Interim Management
Report' section; HSBC's objectives, policies and processes for
managing credit, liquidity and market risk are described in the
'Risk' section of the Annual Report and Accounts 2015; and HSBC's
approach to capital management and allocation is described in the
'Capital' section of the Annual Report and Accounts 2015.
13 Telephone and online share dealing service
--- ----------------------------------------------------------
For shareholders on the Principal Register who are resident in
the UK, with a UK postal address, and who hold an HSBC Bank plc
personal current account, the HSBC InvestDirect share dealing
service is available for buying and selling HSBC Holdings ordinary
shares. Details are available from: HSBC InvestDirect, Forum 1,
Parkway, Whiteley PO15 7PA; or UK telephone: 03456 080848, or from
an overseas telephone: +44 (0) 1226 261090; or website:
www.hsbc.co.uk/shares.
14 Stock symbols
--- ----------------------------------------------------------
HSBC Holdings plc ordinary shares trade under the following
stock symbols:
London Stock Exchange HSBA
Hong Kong Stock Exchange 5
New York Stock Exchange (ADSs) HSBC
Euronext Paris HSB
Bermuda Stock Exchange HSBC.BH
HSBC HOLDINGS PLC
147
15 Copies of the Interim Report 2016 and shareholder enquiries and communications
--- ------------------------------------------------------------------------------
Further copies of the Interim Report 2016 may be obtained from
External Affairs, 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 Investor Relations, HSBC North America, 1421 West
Shure Drive, Suite 100, Arlington Heights, Illinois 60004. The
Interim Report 2016 may also be downloaded from the HSBC website,
www.hsbc.com.
Shareholders may at any time choose to receive corporate
communications in printed form or to receive notifications of their
availability on HSBC's website. To receive future notifications of
the availability of a corporate communication on HSBC's website by
email, or to revoke or amend an instruction to receive such
notifications by email, go to www.hsbc.com/ecomms. If you provide
an email address to receive electronic communications from HSBC, we
will also send notifications of your dividend entitlements by
email. If you received a notification of the availability of this
document on HSBC's website and would like to receive a printed copy
of it or, if you would like to receive future corporate
communications in printed form, please write or send an email
(quoting your shareholder reference number) to the appropriate
Registrar at the address given below. Printed copies will be
provided without charge.
Any enquiries relating to your shareholdings on the share
register, for example transfers of shares, change of name or
address, lost share certificates or dividend cheques, should be
sent to the Registrar at the address given below. The Registrar
offers an online facility, Investor Centre, which enables
shareholders to manage their shareholding electronically.
Principal Register Hong Kong Overseas Branch Register Bermuda Overseas Branch Register
Computershare Investor Services PLC Computershare Hong Kong Investor Investor Relations Team
The Pavilions Services Limited HSBC Bank Bermuda Limited
Bridgwater Road Rooms 1712-1716, 17th Floor 6 Front Street
Bristol BS99 6ZZ Hopewell Centre Hamilton HM 11
United Kingdom 183 Queen's Road East Bermuda
Hong Kong
Telephone: +44 (0) 370 702 0137 Telephone: +852 2862 8555 Telephone: +1 441 299 6737
Email via website: Email: Email: hbbm.shareholder.services@hsbc.bm
www.investorcentre.co.uk/contactus hsbc.ecom@computershare.com.hk
Investor Centre:
Investor Centre: Investor Centre: www.investorcentre.co.uk/bm
www.investorcentre.co.uk www.investorcentre.com/hk
Any enquiries relating to ADSs should be sent to the depositary
at:
The Bank of New York Mellon Telephone (US): +1 877 283 5786
Depositary Receipts Telephone (international): +1 201 680 6825
PO Box 30170 Email: shrrelations@bnymellon.com
College Station, TX 77842-3170 Website: www.computershare.com/us/contact/pages/default.aspx
USA
Any enquiries relating to shares held through Euroclear France,
the settlement and central depositary system for NYSE Euronext
Paris, should be sent to the paying agent:
HSBC France Telephone: +33 1 40 70 22 56
103, avenue des Champs Elysées Email: ost-agence-des-titres-hsbc-reims.hbfr-do@hsbc.fr
75419 Paris Cedex 08 Website: www.hsbc.fr
France
A Chinese translation of this and future documents may be
obtained on request from the Registrar. Please also contact the
Registrar if you have received a Chinese translation of this
document and do not wish to receive such translations in
future.
Persons whose shares are held on their behalf by another person
may have been nominated to receive communications from HSBC
pursuant to section 146 of the UK Companies Act 2006 ('nominated
person'). The main point of contact for a nominated person remains
the registered shareholder (for example your stockbroker,
investment manager, custodian or other person who manages the
investment on your behalf). Any changes or queries relating to a
nominated person's personal details and holding (including any
administration thereof) must continue to be directed to the
registered shareholder and not HSBC's Registrar. The only exception
is where HSBC, in exercising one of its powers under the UK
Companies Act 2006, writes to nominated persons directly for a
response.
HSBC HOLDINGS PLC
148
Shareholder information (continued)
Cautionary statement regarding forward-looking statements
This Interim Report 2016 contains certain forward-looking
statements with respect to HSBC's financial condition, results of
operations and business.
Statements that are not historical facts, including statements
about HSBC's beliefs and expectations, are forward-looking
statements. Words such as 'expects', 'targets', 'anticipates',
'intends', 'plans', 'believes', 'seeks', 'estimates', 'potential'
and 'reasonably possible', variations of these words and similar
expressions are intended to identify forward-looking statements.
These statements are based on current plans, estimates and
projections, and therefore undue reliance should not be placed on
them. Forward-looking statements speak only as of the date they are
made. HSBC makes no commitment to revise or update any
forward-looking statements to reflect events or circumstances
occurring or existing after the date of any forward-looking
statements.
Written and/or oral forward-looking statements may also be made
in the periodic reports to the US Securities and Exchange
Commission, summary financial statements to shareholders, proxy
statements, offering circulars and prospectuses, press releases and
other written materials, and in oral statements made by HSBC's
Directors, officers or employees to third parties, including
financial analysts.
Forward-looking statements involve inherent risks and
uncertainties. Readers are cautioned that a number of factors could
cause actual results to differ, in some instances materially, from
those anticipated or implied in any forward-looking statement.
These include, but are not limited to:
-- Changes in general economic conditions in the markets in which we operate, such as continuing
or deepening recessions and fluctuations in employment beyond those factored into consensus
forecasts; changes in foreign exchange rates and interest rates; volatility in equity markets;
lack of liquidity in wholesale funding markets; illiquidity and downward price pressure in
national real estate markets; adverse changes in central banks' policies with respect to the
provision of liquidity support to financial markets; heightened market concerns over sovereign
creditworthiness in over-indebted countries; adverse changes in the funding status of public
or private defined benefit pensions; and consumer perception as to the continuing availability
of credit and price competition in the market segments we serve.
-- Changes in government policy and regulation, including the monetary, interest rate and other
policies of central banks and other regulatory authorities;
initiatives to change the size, scope of activities and
interconnectedness of financial institutions in connection with the
implementation of stricter regulation of financial institutions in
key markets worldwide; revised capital and liquidity benchmarks
which could serve to deleverage bank balance sheets and lower
returns available from the current business model and portfolio
mix; imposition of levies or taxes designed to change business mix
and risk appetite; the practices, pricing or responsibilities of
financial institutions serving their consumer markets;
expropriation, nationalisation, confiscation of assets and changes
in legislation relating to foreign ownership; changes in bankruptcy
legislation in the principal markets in which we operate and the
consequences thereof; general changes in government policy that may
significantly influence investor decisions; extraordinary
government actions as a result of current market turmoil; other
unfavourable political or diplomatic developments producing social
instability or legal uncertainty which in turn may affect demand
for our products and services; the costs, effects and outcomes of
product regulatory reviews, actions or litigation, including any
additional compliance requirements; and the effects of competition
in the markets where we operate including increased competition
from non-bank financial services companies, including securities
firms.
-- Factors specific to HSBC, including our success in adequately identifying the risks we face,
such as the incidence of loan losses or delinquency, and managing those risks (through account
management, hedging and other techniques). Effective risk management depends on, among other
things, our ability through stress testing and other techniques to prepare for events that
cannot be captured by the statistical models it uses; our success in addressing operational,
legal and regulatory, and litigation challenges, notably compliance with the US DPA; and the
other risks and uncertainties we identify in 'top and emerging risks' on pages 16 and 17.
Certain defined terms
Unless the context requires otherwise, 'HSBC Holdings' means
HSBC Holdings plc and 'HSBC', the 'Group', 'we', 'us' and 'our'
refer to HSBC Holdings together with its subsidiaries. Within this
document the Hong Kong Special Administrative Region of the
People's Republic of China is referred to as 'Hong Kong'. When used
in the terms 'shareholders' equity' and 'total shareholders'
equity', 'shareholders' means holders of HSBC Holdings ordinary
shares and those preference shares and capital securities issued by
HSBC Holdings classified as equity. The abbreviations '$m' and
'$bn' represent millions and billions (thousands of millions) of US
dollars, respectively.
HSBC HOLDINGS PLC
149
Abbreviations
Abbreviation Brief description
1H15 First half of 2015
1H16 First half of 2016
1Q15 First quarter of 2015
1Q16 First quarter of 2016
2H15 Second half of 2015
2Q15 Second quarter of 2015
2Q16 Second quarter of 2016
A
ABS Asset-backed security
ADS American Depositary Share
AFS Available for sale
AIEA Average interest-earning assets
AML Anti-money laundering
ARM Adjustable-rate mortgage
AT1 Additional tier 1
B
Basel Committee Basel Committee on Banking Supervision
Basel III Basel Committee's reforms to strengthen global capital and liquidity rules
Bps Basis points. One basis point is equal to one hundredth of a percentage point
BoCom Bank of Communications Co., Limited, one of China's largest banks
BRRD Bank Recovery and Resolution Directive (EU)
BSA Bank Secrecy Act (US)
BSM Balance Sheet Management
BVI British Virgin Islands
C
CA$ Canadian dollars
CAPM Capital asset pricing model
CCAR Federal Reserve Comprehensive Capital Analysis and Review
CCB Capital conservation buffer
CCP Central counterparty
CCR Counterparty credit risk
CCyB Countercyclical capital buffer
CEA Commodity Exchange Act (US)
CET1 Common equity tier 1
CGUs Cash-generating units
CIUs Collective investment undertakings
CMB Commercial Banking, a global business
CMC Capital maintenance charge
CML Consumer and Mortgage Lending (US)
CRD Capital Requirements Directive
CRR Capital Requirements Regulation
CRS Card and Retail Services
CVA Credit valuation adjustment
D
DFAST Dodd-Frank Act Stress Testing
DoJ Department of Justice (US)
DPA Deferred prosecution agreement (US)
DPF Discretionary participation feature of insurance and investment contracts
DVA Debit value adjustment
E
EBA European Banking Authority
EU European Union
Euribor European Interbank Offered Rate
F
FCA Financial Conduct Authority (UK)
HSBC HOLDINGS PLC
150
Shareholder information (continued)
FOS Financial Ombudsman Service
FPC Financial Policy Committee (UK)
FRB Federal Reserve Board (US)
FTE Full-time equivalent staff
FuM Funds under management
G
GB&M Global Banking and Markets, a global business
GDP Gross domestic product
GLCM Global Liquidity and Cash Management
GPB Global Private Banking, a global business
GPSP Group Performance Share Plan
Group HSBC Holdings together with its subsidiary undertakings
G-SIB Global systemically important bank
G-SII Global systemically important institution
GTRF Global Trade and Receivables Finance
H
HK$ Hong Kong dollar
HNAH HSBC North America Holdings Inc.
Hong Kong Hong Kong Special Administrative Region of the People's Republic of China
HQLA High-quality liquid assets
HSBC HSBC Holdings together with its subsidiary undertakings
HSBC Bank HSBC Bank plc
HSBC Bank Middle East HSBC Bank Middle East Limited
HSBC Bank USA HSBC Bank USA, N.A., HSBC's retail bank in the US
HSBC Colombia HSBC Bank (Colombia) S.A.
HSBC Finance HSBC Finance Corporation, the US consumer finance company (formerly Household International,
Inc.)
HSBC France HSBC's French banking subsidiary, formerly CCF S.A.
HSBC Holdings HSBC Holdings plc, the parent company of HSBC
HSBC USA The sub-group, HSBC USA Inc and HSBC Bank USA, consolidated for liquidity purposes
HSI HSBC Securities (USA) Inc.
HSSL HSBC Securities Services (Luxembourg)
HTIE HSBC Institutional Trust Services (Ireland) Limited
HTM Held to maturity
I
IAS International Accounting Standards
IASB International Accounting Standards Board
IFRSs International Financial Reporting Standards
ILAA Individual liquidity adequacy assessment
ILR Inherent liquidity risk
Industrial Bank Industrial Bank Co. Limited, a national joint-stock bank in mainland China in which Hang Seng
Bank Limited has a shareholding
Investor Update The Investor Update in June 2015
IRB Internal ratings-based
ISDA International Swaps and Derivatives Association
L
LCR Liquidity coverage ratio
LFRF Liquidity and funding risk management framework
LGD Loss given default
Libor London Interbank Offered Rate
LICs Loan impairment charges and other credit risk provisions
LTV Loan to value
M
Madoff Securities Bernard L Madoff Investment Securities LLC
Mainland China People's Republic of China excluding Hong Kong and Macau
MBS US mortgage-backed security
MDB Multilateral development banks
MENA Middle East and North Africa
MREL EU minimum requirements for own funds and eligible liabilities
HSBC HOLDINGS PLC
151
N
NII Net interest income
NSFR Net stable funding ratio
O
OCC Office of the Comptroller of the Currency (US)
ORMF Operational risk management framework
O-SII Other systemically important institution
P
PBT Profit before tax
PPI Payment protection insurance product
PRA Prudential Regulation Authority (UK)
Premier HSBC Premier, HSBC's premium personal global banking service
PSE Public sector entities
PVIF Present value of in-force long-term insurance business and long-term
investment contracts
with DPF
PwC PricewaterhouseCoopers LLP and its network of firms
Q
QIS Quantitative impact study
R
RAS Risk Appetite Statement
RBWM Retail Banking and Wealth Management, a global business
Repo Sale and repurchase transaction
Reverse repo Security purchased under commitments to sell
RMB Renminbi
RMBS Residential mortgage-backed securities
RNIV Risk not in VaR
RoE Return on equity
RoRWA Return on average risk-weighted assets
RQFII Renminbi qualified foreign institutional investor
RTS Regulatory technical standards
RWAs Risk-weighted assets
S
ServCo group Separately incorporated group of service companies planned in response
to UK ring-fencing
proposals
SFT Securities financing transactions
SPE Special purpose entity
T
T1 Tier 1
T2 Tier 2
The Hongkong and Shanghai Banking Corporation The Hongkong and Shanghai Banking Corporation Limited, the founding
member of HSBC
TLAC Total loss absorbing capacity
U
UAE United Arab Emirates
UK United Kingdom
US United States of America
US DPA Five-year deferred prosecution agreement with the Department of Justice
and others (US)
US run-off portfolio Includes the run-off CML residential mortgage loan portfolio of HSBC
Finance on an IFRSs management
basis
V
VaR Value at risk
VIU Value in use
Glossary
Terminology used in this Interim Report is consistent with that
used in our Annual Report and Accounts 2015, and Capital and Risk
Management Pillar 3 disclosures 2015, where a glossary of terms can
be found.
HSBC HOLDINGS PLC
152
Shareholder information (continued)
Index
A
Abbreviations 150
Accounting
future developments 107
policies 107
Adjusted jaws 15
Adjusted performance 13, 18
Adjusted results 13
Anti-bribery and corruption 83
Anti-money laundering
investigations 132
sanctions 83
Areas of special interest 60
Asia
adjusted/reported reconciliation 53
assets 46
balance sheet data 110
by country 47, 50, 73
cost efficiency ratios 47
customer accounts 47
impaired loans 72
impairment allowances/charges 66, 67
loans and advances 47, 62, 69, 70
net operating income 109
profit before tax 47, 50, 109
renegotiated loans 65
risk-weighted assets 46
snapshot 5
staff numbers 47
Asset-backed securities 74
Assets
by geographical region 46
by global business 35, 43
charged as security 123
held for sale 43, 63, 122
maturity analysis 126
movement in 32
risk-weighted 2
total 2, 31, 103
trading 110
Associates and joint ventures (income from) 14, 30, 123
adjusted/reported reconciliation 53, 56
Auditor's review report 140
B
Backtesting 79
Balance sheet
consolidated 31, 103
data 43
insurance manufacturing subsidiaries 85
movement 32
Balance Sheet Management 80
Bank of Communications 124
Basis of preparation 35, 46, 107
Brazil 20, 123
Brazilian labour and fiscal claims 129, 136
C
Capital
commitments 129
management 88
overview 88
ratios 88
regulatory 32, 88
source and application of regulatory capital 90
subordinated loan 33
total regulatory 88
transitional own funds disclosure 99
Cash flows
consolidated statement 104
Cautionary statement regarding forward-looking statements
149
Client assets 41
Collateral 123
Combined customer lending and deposits 32
Commercial Banking 38
adjusted/reported reconciliation 56
cost efficiency ratios 30
management view 37
snapshot 4
Commitments 129
Compliance risk 83
Compliance with IFRSs 107
Composition of Group (changes in) 107
Conduct of business 83
Contents 1
Contingent liabilities, contractual commitments and guarantees
129
Copies of the Interim Report 148
Corporate governance 146
Counterparty risk 93
Credit default swap regulatory investigation and litigation
136
Credit quality 63
Credit risk 61
risk-weighted assets 89
Customer accounts
by country 33
by global business 43
Customer lending and deposits (combined) 32
D
Dealings in HSBC Holdings shares 145
Deferred tax 129
Defined terms 149
Derivatives 120
by product contract type 120
credit 120
hedging instruments 121
trading 120
Directors
Board changes 7
changes in details 146
interests 141
responsibility statement 139
Disposal groups 123
Dividends 108, 145, 146
E
Earnings per share 101, 109
Earnings release 146
Equity 2, 31, 103, 105
movement in 32
return on 15
Estimates and judgements 107
Europe
adjusted/reported reconciliation 53
assets 46
balance sheet data 110
by country 47, 50, 73
cost efficiency ratios 47
customer accounts 47
impaired loans 72
impairment allowances/charges 66, 67
loans and advances 47, 62, 69, 70
net operating income 109
profit before tax 47, 50, 109
renegotiated loans 65
risk-weighted assets 46
snapshot 5
staff numbers 47
Events after the balance sheet date 138
F
Fair values
adjustments 111
movements 113
of derivatives 120
of financial instruments at fair value 111
of financial instruments not at fair value 119
significant unobservable assumptions 115
HSBC HOLDINGS PLC
153
valuation bases 112
Fee income (net) 21
'FIFA' related investigations 136
Final results 146
Financial assets
designated at fair value 119
Financial crime compliance 84
Financial highlights 2
Financial instruments
at fair value 111
credit quality 63
net income from 23
not at fair value 119
Financial investments 121
Financial overview 12
Financial summary 18
Footnotes 59, 87, 100, 106
Forbearance 64
Foreign currency translation differences 18
Foreign exchange rates 32
investigations and litigation 136
Funding sources 77
Funds under management 52
G
Gains less losses from financial investments 24
significant items and currency translation 24
Geographical regions 46
Global Banking and Markets 39
adjusted/reported reconciliation 56
client-facing 39
cost efficiency ratios 30
fair value adjustments 111
management view 40
risk-weighted assets 10
snapshot 4
Global businesses 35
Global Private Banking 41
adjusted/reported reconciliation 56
cost efficiency ratios 30
snapshot 4
Global Standards 11
Glossary 152
Going concern 107, 147
Goodwill impairment 137
Group Chairman's Statement 6
Group Chief Executive's Review 8
Group performance by income and expense item 20
Guangdong loans 10
H
Held for sale 43, 63, 122
Highlights 2
Hiring practices investigation 136
HSBC Finance 70
HSBC Bank USA 70
HSBC Holdings 82
I
Impairment
allowances and charges 66, 69
by geographical region 66
charges and other credit risk provisions 27
constant currency/reported profit 72
impaired loans 64, 71, 72
Income from financial instruments designated at fair value (net)
23
Income statement
consolidated 19, 101
Information security 83
Insurance
asset and liability matching 84
balance sheet by type of contract 85
claims and benefits paid and movement in liabilities to
policyholders (net) 26
net insurance premium income 24
risk 86
Interest-earning assets 20
Interest expense 21
Interest income (net) 20
sensitivity 80
significant items and currency translation 20
Interest rate swap litigation 136
Interim Report 2016 138
L
Latin America
adjusted/reported reconciliation 53
assets 46
balance sheet data 110
by country 49, 50, 73
cost efficiency ratios 49
customer accounts 49
impaired loans 72
impairment allowances/charges 66
loans and advances 49, 62, 69, 70
net operating income 109
profit before tax 49, 50, 109
renegotiated loans 65
risk-weighted assets 44
snapshot 5
staff numbers 49
Legal proceedings 130
Leverage ratio 90
Liabilities
maturity analysis 126
movement in 32
total 31, 103
trading 125
Libor investigation 134
Liquidity and funding 75
depositor concentration 76
liquid assets 76
liquidity coverage ratio 75
management 75
net stable funding ratio 76
risk management framework 75
term funding 76
Loans and advances
by country/region 62, 73
by credit quality 63
by global business 43
by industry sector 62, 71
exposure 62
held for sale 43
impaired 64, 72
personal lending 70
renegotiated 64
wholesale lending 69
Loan impairment charges and other credit risk provisions 19, 27,
66
adjusted 14
adjusted/reported reconciliation 53, 56
on held for sale 63
M
Madoff 130
Margin 20
Market risk 78
measures applicable to parent 82
Middle East and North Africa
adjusted/reported reconciliation 53
assets 46
balance sheet data 110
by country 48, 50, 73
cost efficiency ratios 48
customer accounts 48
impaired loans 72
impairment allowances/charges 66
loans and advances 48, 62, 69, 70
net operating income 109
profit before tax 48, 50, 109
renegotiated loans 65
risk-weighted assets 46
snapshot 5
HSBC HOLDINGS PLC
154
Shareholder information (continued)
staff numbers 48
Monitor 60
Mortgage-related investigations (US) 131
Mortgage securitisation activity (US) 132
Mossack Fonseca & Co. 134
N
NAFTA area revenues 10
Non-GAAP measures 18
Non-trading portfolios 79
North America
adjusted/reported reconciliation 53
assets 46
balance sheet data 110
by country 48, 50, 73
cost efficiency ratios 48
customer accounts 48
impaired loans 72
impairment allowances/charges 66, 67
loans and advances 48, 62, 69, 70
net operating income 109
profit before tax 48, 50, 109
renegotiated loans 65
risk-weighted assets 46
snapshot 5
staff numbers 48
Notifiable interests in share capital 145
O
Oil and gas 61
Operating expenses 28
adjusted/reported reconciliation 53, 56
by geographical region 47 to 49
by global business 36 to 42
costs-to-achieve 28
change-the-bank 28
run-the-bank 28
significant items and currency translation 29
Operating income (other) 25
significant items and currency translation 25
Operational risk 83
'Other' segment 42
adjusted/reported reconciliation 56
Outlook 7, 9
P
Payment protection insurance 128
Performance
adjusted 13, 18
highlights 2
management 34
reported 12
Personal lending 70
Precious metals litigation 135
Preferred securities 32
Profit before tax
adjusted 2, 3, 9, 13
adjusted/reported reconciliation 53, 56
attributable 19, 101
by country 50
by geographical region 46, 47 to 49
by global business 35 to 41, 42
consolidated 101
reported 2, 3, 12
Provisions 128
PVIF 25
R
Ratios
capital (total) 88
common equity tier 1 2, 88
core tier 1 ratio 88
cost efficiency 30, 47 to 49
customer advances to customer accounts 32
earnings per share 101
leverage 90
LICs to advances 14
return on average risk-weighted assets 3, 34
return on equity 3, 15
shareholders' equity to total assets 31
Regulatory
balance sheet 97
capital 88
developments 96
disclosures 92
policy 7
risks 60
source and application 90
stress testing 60
Related parties 138
Reported results 12
Reputational risk 84
Responsibility statement 139
Retail Banking and Wealth Management 36
adjusted/reported reconciliation 56
cost efficiency ratios 30
management view 37
Principal RBWM 37
snapshot 4
Revenue
adjusted/reported reconciliation 13, 14, 53, 56
by geographical region 46 to 49
by global business 35 to 45
items (significant) 53 to 58
Review of performance 6, 8
Risks
compliance 83
counterparty credit risk 93
credit 61, 89
data management 17
economic outlook 17
foreign exchange 82
fraud 83
geopolitical 17
information security 83
insurance operations 84
interest rate repricing gap 82
liquidity and funding 75
managing risk 16
market 78
model 17
interest rate risk in the banking book 80
operational 83
regulatory 60
reputational 84
third parties 17, 83
top and emerging 16
Risk-weighted assets 2, 3, 34, 89
adjusted/reported reconciliation 34
by geographical region 46, 92
by global business 35, 92
S
Securities litigation 130
Securitisation 74
Segmental analysis 109
Sensitivity of capital and reserves 81
Sensitivity of fair values 116
Sensitivity of net interest income 80
Share capital 32
Share capital - notifiable interests 145
Shareholder enquiries 148
Share option plans
Directors' interests 141
employee share plans 144
Significant items 18, 53
Snapshot
Global business 4
Regional 5
Spread 20
Staff numbers 28
Statement of changes in equity (consolidated) 105
Statement of comprehensive income (consolidated) 102
Stock symbols 147
HSBC HOLDINGS PLC
155
Strategic actions 10
Strategy 10
Stress testing 60
T
Targets 11, 15
Tax 19, 30, 104
US tax-related investigations 133
Telephone and online share-dealing service 147
Trading
assets 110
derivatives 120
income (net) 22
significant items and currency translation 23
liabilities 125
portfolios 78
U
UK Referendum on EU membership 7, 60
V
Value at risk 78, 79, 82
W
Whistleblowing 84
Wholesale lending 69
Y
Yield 20
HSBC HOLDINGS PLC
156
This document comprises the Interim Report 2016 to shareholders
and information contained herein has been filed on Form 6-K with
the US Securities and Exchange Commission for HSBC Holdings plc and
its subsidiary and associated undertakings.
HSBC HOLDINGS PLC
Incorporated in England with limited liability. Registered in
England: number 617987
REGISTERED OFFICE AND GROUP HEAD OFFICE
8 Canada Square, London E14 5HQ, United Kingdom
Web: www.hsbc.com
(c) Copyright HSBC Holdings plc 2016
All rights reserved
No part of this publication may be reproduced, stored in a
retrieval system, or transmitted, in any form or by any means,
electronic, mechanical, photocopying, recording, or otherwise,
without the prior written permission of HSBC Holdings plc.
Published by Group Finance, HSBC Holdings plc, London
Designed by Addison Group, London (cover and 'Overview' section)
and by Group Finance, HSBC Holdings plc, London (rest of the
Interim Report)
Printed by Global Publishing Services, HSBC Bank plc, London;
and by Global Publishing Services, The Hongkong and Shanghai
Banking Corporation Limited, Hong Kong.
Photography
Cover, inside front cover to page 1, page 16: Getty Images
Group Chairman and Group Chief Executive by Charles Best
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR AKQDPKBKDCFB
(END) Dow Jones Newswires
August 25, 2016 05:03 ET (09:03 GMT)
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