TIDMHSBA
RNS Number : 3189O
HSBC Holdings PLC
17 August 2017
Connecting customers to opportunities
HSBC aims to be where the growth is, enabling businesses to
thrive and economies to prosper, and ultimately helping people to
fulfil their hopes and realise their ambitions.
As a reminder
Reporting currency
We use US dollars.
Adjusted measures
We supplement our IFRS figures with adjusted measures used by
management internally. These measures are highlighted with the
following symbol: ^
In this document we use the following abbreviations to refer to
reporting periods.
1H17 First half of 2017
2H16 Second half of 2016
1H16 First half of 2016
For a full list of abbreviations see page 114.
Unless stated otherwise, risk-weighted assets and capital are
calculated and presented on a transitional CRD IV basis as
implemented by the Prudential Regulation Authority.
Overview
02 Highlights
04 Group Chairman's Statement
07 Group Chief Executive's Review
10 Strategic actions
12 Financial overview
16 Global businesses
20 Risk overview
Interim Management Report
22 Financial summary
36 Global businesses
46 Geographical regions
54 Risk
73 Capital
Financial Statements
76 Financial Statements
82 Notes on the Financial Statements
104 Directors' Responsibility Statement
105 Independent Review Report by PricewaterhouseCoopers LLP to HSBC Holdings plc
Additional Information
106 Shareholder information
113 Cautionary statement regarding forward-looking statements
114 Abbreviations
Our photo competition winners
In 2016, we ran a Group-wide photo competition which attracted
over 6,200 submissions from 1,100 employees. The joint overall
winning photos are featured in this report. The image on the inside
front cover shows a rice farmer at harvest time in north-east
Vietnam, and the photo on the inside back cover was taken at
sunrise at Situ (Lake) Patenggang, West Java, Indonesia.
Cover image:
The Hong Kong-Zhuhai-Macau Bridge is one of the most ambitious
infrastructure projects in the Pearl River Delta. It will link
three key cities, cutting transport costs and travelling times, and
boosting economic development. HSBC has extended a HK$700m
receivables finance facility to one of the companies building the
bridge. Receivables finance is an area where HSBC has particular
expertise, and this facility is the largest it has provided for
infrastructure in the region.
HSBC Holdings plc Interim Report 1
Highlights
Our international network, universal banking model and capital
strength deliver long-term value for customers and shareholders
Group
- Our operating model consists of four global businesses and a
Corporate Centre, supported by 11 global functions.
Performance highlights for 1H17
Strategy execution
- Delivered growth from our international network with a 7%
increase in revenue from transaction banking products; 17% rise in
revenue synergies.
- Achieved annualised run-rate savings of $4.7bn since our 2015
Investor Update. Incremental savings in 1H17 were $1.0bn.
- Targeted initiatives removed a further $29bn of RWAs in 1H17.
RWA reduction programmes have extracted $296bn of RWAs since the
start of 2015.
- Maintained momentum in Asian Insurance and Asset Management,
with annualised new business premiums and assets under management
up 14% and 17% respectively.
- Successfully achieved a non-objection to our US capital plan,
as part of the Comprehensive Capital Analysis and Review
('CCAR').
Financial performance
- Reported profit before tax of $10.2bn was $0.5bn higher than
in 1H16. This included significant items of $1.7bn, which adversely
impacted reported performance, compared with $1.5bn in 1H16.
- Reported revenue of $26.2bn was $3.3bn lower than in 1H16,
primarily reflecting the effects of significant items. However,
reported loan impairment charges and other credit risk provisions
('LICs') decreased by $1.7bn, and reported operating expenses
decreased by $2.2bn.
- Adjusted profit before tax of $12.0bn was $1.3bn higher,
reflecting increased adjusted revenue and lower adjusted LICs,
partly offset by higher adjusted operating expenses. In 1H17, we
achieved positive adjusted jaws of 0.5%.
- Adjusted revenue increased by $0.8bn or 3%, reflecting
improved performance in RBWM, GB&M and CMB. This was partly
offset by lower adjusted revenue in Corporate Centre and GPB.
- Adjusted LICs decreased by $0.9bn, notably reflecting lower
individually assessed LICs in CMB and GB&M.
- Adjusted operating expenses increased by $0.4bn or 3%,
reflecting a UK bank levy credit of $0.1bn in 1H16, together with
investments in business growth, primarily in RBWM where investments
were partly funded by one-off disposal proceeds.
Capital
- Our capital position further strengthened, with a common
equity tier 1 ('CET1') ratio at 30 June 2017 of 14.7%, up from
13.6% at 31 December 2016, primarily due to capital generation
through profits net of dividends and scrip, and favourable foreign
currency translation differences.
For the half-year to 30 June 2017
(1H16: $9.7bn)
$10.2bn
(1H16: $10.7bn)
$12.0bn
(1H16: $29.5bn)
$26.2bn
At 30 June 2017
(31 Dec 2016: $857.2bn)
$876.1bn
(31 Dec 2016: 13.6%)
14.7%
(31 Dec 2016: $2,375bn)
$2,492bn
HSBC Holdings plc Interim Report 2
Our global businesses
Retail Banking
and Wealth Commercial Global Banking Global Private
Management Banking and Markets Banking
('RBWM') ('CMB') ('GB&M') ('GPB')
We help millions We support We provide We help high
of people across approximately financial services net worth individuals
the world to 1.7 million and products and their families
manage their business customers to companies, to grow, manage
finances, buy in 54 countries governments and preserve
their homes, and territories and institutions. their wealth.
and save and with banking Our comprehensive
invest for products and range of products
the future. services to and solutions,
Our Insurance help them operate across capital
and Asset Management and grow. Our financing,
businesses customers range advisory and
support all from small transaction
our global enterprises banking services,
businesses focused primarily can be combined
in meeting on their domestic and customised
their customers' markets, through to meet clients'
needs. to large companies specific objectives.
operating globally.
---------------------- ---------------------
Adjusted profit before tax^
(1H16: $2.5bn) (1H16: $2.9bn) (1H16: $2.6bn) (1H16: $0.2bn)
$3.4bn $3.4bn $3.4bn $0.1bn
Risk-weighted
assets
(31 Dec 2016: (31 Dec 2016: (31 Dec 2016: (31 Dec 2016:
$115.1bn) $275.9bn) $300.4bn) $15.3bn)
$116.6bn $289.2bn $306.1bn $16.4bn
---------------------- --------------------- ---------------------- -----------------------
^Our global businesses are presented on an adjusted basis, which
is consistent with the way in which we assess the performance of
our global businesses.
.
Delivery against Group financial targets
Return on equity Adjusted jaws^ Dividends per
8.8% +0.5% ordinary share
in respect
of 1H17
$0.20
----------------- --------------- ----------------
For further details, see page 15.
HSBC Holdings plc Interim Report 3
Group Chairman's Statement
The Group delivered strong results across its major businesses,
providing further evidence of a successful repositioning. Its
diversified business model, international network and capital
strength provide a solid foundation for further growth.
As the Group approaches a periodic transition in leadership, it
is extremely pleasing to report that, in the first half of 2017, it
delivered a strong set of results across its major businesses. As
well as being financially robust, these results added further
evidence of the successful repositioning of the Group since 2011.
This has created a solid foundation, with attractive optionality,
for the future.
'One of the most significant opportunities for HSBC going
forward is participation in China's domestic capital markets as
these open up'
The benefits of diversification, combined with the Group's
capital and funding strength, once again were apparent.
Notwithstanding uncertainties arising from increasing geopolitical
tensions and ambiguous predictions around the shape of transition
to, and final form of, the UK's future relationship with its major
trading partners in the EU, customer activity across all business
segments was resilient. Markets-based revenues benefited from
market share advances, commercial banking customer activity was
robust, wealth management and insurance revenues were notably
stronger in Hong Kong, and credit experience globally remained
remarkably sound. As central bank interest rates edged higher, led
by the US, we began to benefit from improved margins on our core
deposit bases, providing a welcome enhancement to the Group's
revenue mix, given the likely trajectory of interest rates over the
medium term.
These factors drove reported profit before tax for the Group in
the first six months of 2017 to $10.2bn, 5% higher than what was
achieved in the first half of 2016. Earnings per share amounted to
$0.35 (1H16: $0.32).
On the adjusted basis used to assess management performance,
pre-tax profits were $12.0bn, 12% higher than in the comparable
period. It was particularly pleasing to note improvements within
both revenue and cost performance that derive from management
actions taken in recent years to reshape the Group around its core
strengths. Stuart Gulliver will address these in more detail in his
review.
The Group's capital position remains strong, with the common
equity tier 1 ratio standing at 14.7% at 30 June (31 December:
13.6%). During the period we completed the further share buy-back
of $1bn that the Board approved in February and, also as previously
announced, we maintained the first two dividends in respect of the
year at $0.20 in aggregate, in line with the prior year. In light
of the strong capital position, the Board approved a further
buy-back of up to $2.0bn of ordinary shares, planned to commence
shortly after publication of these interim results.
HSBC is now better positioned for the future
Management continued to make good progress against the strategic
targets laid out in June 2015. The first half of the year included
a number of important events that will contribute to the
strengthening of HSBC's position in our two home markets and in
core product areas.
HSBC Holdings plc Interim Report 4
One of the most significant opportunities for HSBC going forward
is participation in China's domestic capital markets as these open
up. Meaningful progress in this regard was made in the first half
of this year, which saw the granting of further access to undertake
domestic corporate bond underwriting and the establishment of Bond
Connect, which enables offshore investors to trade onshore Chinese
interbank bonds through Hong Kong. In equity markets, Chinese
stocks traded higher in part on MSCI's decision in June to include
them in its global benchmark equity index for the first time.
Given these developments, we were delighted to receive approvals
at the end of June enabling The Hongkong and Shanghai Banking
Corporation to establish the first joint venture securities company
majority-owned by a foreign bank. This will enable HSBC to offer a
broad spectrum of securities and investment banking services
nationally, and is an important step in building out our global
banking and markets capabilities to serve the Chinese capital
markets.
The second area to highlight is the value of our network and how
we are investing to enhance that value. HSBC's position as the
leading bank in trade finance reflects its unique global network
and heritage. Technology is offering important opportunities to
automate and digitise paper-heavy supply chain processes, and
organise supply chain financing on a single platform. For example,
HSBC, working with its strategic business commerce partner,
Tradeshift, is now offering an integrated solution to enable our
clients to manage their global supply chains and working capital
requirements from a simple online platform. This will improve
transparency and reduce costs.
In terms of structural change, the creation of the UK
ring-fenced bank to meet the central recommendation of the
Independent Commission on Banking in 2011 has been one of the
largest projects ever undertaken by the Group. At its peak, the
project team numbered more than 2,000 and costs to date amount to
approximately half a billion dollars. In early July, the Prudential
Regulation Authority approved a restricted licence for the new
bank, representing an important milestone in meeting our legal
obligations. We are targeting 1 July 2018 as the deadline to
operationalise the UK ring-fenced bank, ahead of the statutory
implementation date of 1 January 2019. Transition towards this
deadline will be a key execution priority.
Finally, the Board was delighted that the successful
transformation of the Group over the last six and a half years was
recognised through HSBC being awarded the accolade of the 'World's
Best Bank' earlier this month by Euromoney magazine. This award
reflects the extraordinary efforts of the management team and all
of our colleagues in reshaping the Group to meet the expectations
of all our stakeholders. As ever, we owe them our sincere
gratitude.
As I head towards retirement from HSBC later this year, I have
taken the opportunity to set out the three public policy issues
that are top of mind in terms of allowing the financial system to
serve the global economy better.
Regulatory fragmentation must be avoided
The new administration in the US is leading the rest of the
world in applying a retrospective lens to the aggregate of
regulatory changes implemented and proposed in the aftermath of the
global financial crisis. This fresh look, focusing on
simplification and supporting economic growth, is to be welcomed.
Earlier concerns that it could lead to fragmentation of the
international regulatory concordat have substantially dissipated
following supportive comments from senior US officials regarding
continuing active participation in the international regulatory
bodies.
However, there remain concerns, particularly in Europe, that
outstanding work streams may be addressed over different time
frames globally. This, too, would lead to a fragmented framework
with the risk of skewing financial market activity to where the
capital support required is lightest. Such an outcome has to be
avoided to prevent capital misallocation, and is particularly
pertinent for traded markets activity. The best outcome remains
early finalisation of what has already been agreed globally in
principle, and a further agreement that remaining regulatory
changes will be implemented in lockstep across the major
jurisdictions.
Europe must not allow its financial capacity and capabilities to
be diminished
Negotiations concerning the future shape of financial service
provision as the UK prepares to leave the EU will undoubtedly be
complex and time-consuming. The essential questions that have to be
addressed are whether, at the conclusion of the negotiations, the
economies of Europe will continue to have access to at least the
same amount of financing capacity and related risk management
services, and as readily available and similarly priced, as they
have enjoyed with the UK as part of the EU.
On a highly positive note, we are encouraged that there has been
no suggestion of weakening regulatory or supervisory standards
anywhere in Europe in order to improve competitive positioning;
this is equally essential to preserve the credibility and capacity
of European financial markets.
HSBC Holdings plc Interim Report 5
Increased cooperation on tackling financial crime is
essential
Tackling financial crime remains both a priority and a key
challenge. We have made significant progress in detecting and
preventing bad actors accessing the financial system but recognise
this is a never-ending effort. Additionally, as digitalisation of
commercial activity increases, the risks of confidence-threatening
disruption and economic loss, not least from cyber attacks, are
amplified. Technology, and in particular data analytics and machine
learning applied to big data, will soon provide much greater
capabilities to help us meet our objectives. What is also clear is
that greater cooperation between the public and private sectors,
together with a refresh of bank secrecy laws and regulation
designed for a different age, would significantly increase the
effectiveness of our joint efforts.
The good news is that there is increasing evidence of such
discussions taking place. We should aspire to a unique digital
identity for all participants in the financial system; a mandatory
register of beneficial ownership of corporate and other
non-personal structures in every country; and finally, enabling law
and regulation to allow sanctioned sharing of customer information
within institutions cross-border, between peer institutions, and
between the industry and law enforcement services in pursuance of
tackling financial crime. With enhanced public/private cooperation
to combat financial crime, we could deploy the industry's
considerable investment in this area much more effectively to the
benefit of the societies we serve.
Outlook
In spite of geopolitical tensions and uncertainties, the major
economic regions seem more synchronised in their growth
trajectories than ever. Business investment is rising in the US and
could expand further if promised tax reform can be delivered.
Confidence is notably improving within the eurozone, with the
prospect of structural reform in France, following the recent
election outcomes, seen positively for future growth prospects.
China's economic data also is evidencing resilience after a slower
period, and against this backdrop China's financial regulators have
taken the opportunity to tackle risks evident in both the
traditional and so-called shadow banking systems. With careful
coordination and calibration, these moves are positive for the
economy. The UK is, however, showing some signs of slower growth as
the inflationary impacts of a weaker currency, Bank of England
caution over consumer indebtedness and uncertainties over the EU
exit negotiations constrain consumer and business confidence and
spending.
'We enter this period with confidence, given our geographical
and business line diversification, and strong balance sheet'
The risks to economic growth remain concentrated around
geopolitical events and political mis-steps. Additionally, the
formidable challenge within Europe of negotiating both the terms of
the UK's exit from the EU and the basis of the future relationship
will dominate political agendas for some time, crowding out time
for other policy considerations.
We enter this period with confidence, given our geographical and
business line diversification, and strong balance sheet. On top of
this, HSBC is served by an exceptional management team and 233,000
dedicated and talented colleagues.
For the past six and a half years, it has been my great
privilege to lead HSBC's employees as Group Chairman. As I prepare
to pass on the baton, I could not be more proud of what we have
achieved together and I thank them on behalf of the Board, for the
last time, for all their support.
Douglas Flint
Group Chairman
31 July 2017
HSBC Holdings plc Interim Report 6
Group Chief Executive's Review
We have a diversified, universal banking business model and an
integrated global network that work for our clients and deliver
industry-leading returns for our investors.
We have made an excellent start to 2017, reflecting the changes
we have made since our Investor Update in 2015 and the strength of
our competitive position. Our three main global businesses
performed well, generating significant increases in both reported
and adjusted profit before tax, and gaining market share in many of
the products that are central to our strategy. Revenue grew faster
than costs on an adjusted basis compared with last year's first
half, and we passed a number of major milestones on the way to
completing our strategic actions.
'Our international network continues to distinguish us from our
peers and we strengthened it further in the first half of the
year'
Our international network continues to distinguish us from our
peers and we strengthened it further in the first half of the year.
We received regulatory approval in June to establish HSBC Qianhai
Securities Limited, which will be the first joint-venture
securities company in mainland China to be majority-owned by a
foreign bank. This is a landmark achievement that will increase
access to China's markets for our domestic and international
clients. The new business is expected to launch in December 2017,
pending the granting of the necessary securities licences.
HSBC was named 'World's Best Bank' at the Euromoney Awards for
Excellence 2017 in July. This is a fantastic endorsement of all
that we have achieved in transforming HSBC since 2011, and
recognises the effectiveness of our business model, the value of
our network and the superior ability that these things give us to
help clients achieve their international ambitions. I am grateful
to all 233,000 colleagues around the world for their considerable
efforts in making this possible.
Business performance
Global Banking and Markets had a strong first half with large
adjusted revenue increases in the majority of businesses compared
with the same period last year. Our Equities and Fixed Income
businesses performed well, growing revenue and capturing market
share in spite of difficult conditions at the start of the second
quarter. Debt Capital Markets also gained market share in Asia,
MENA and Latin America.
Retail Banking and Wealth Management adjusted revenue grew
significantly, with increases across multiple business lines. In
Retail Banking, our robust balance sheet and trademark capital
strength continued to attract deposits, particularly in Hong Kong,
with associated revenue growth supported by interest rate rises. We
also increased lending in our target markets, especially Hong Kong,
the UK and Mexico. Wealth management benefited from improving
customer investment appetite, strong product sales across all
categories, and the impact of market movements on our life
insurance manufacturing businesses.
Commercial Banking adjusted revenue increased on the back of
strong growth in Global Liquidity and Cash Management. This more
than compensated for marginal falls in revenue in Credit and
Lending, and Global Trade and Receivables Finance. While Global
Trade and Receivables Finance revenue
HSBC Holdings plc Interim Report 7
was down compared with last year's first half, it remained
stable from the end of 2016 as we grew the balance sheet in Asia.
We continued to capture trade finance market share in key hubs,
including Hong Kong and Singapore.
Adjusted operating expenses rose slightly compared with the same
period last year, as we invested more in business growth.
Performance-related compensation also rose in line with increases
in profit before tax. We remain on track to hit our revised
cost-saving target by the end of 2017.
Adjusted loan impairment charges were lower than in the first
half of 2016, mainly due to improved credit conditions in the oil
and gas industry in North America.
Delivering value for our shareholders
Our common equity tier 1 ratio was 14.7% at 30 June, up from
12.1% at the same point in 2016. In the past 12 months we have paid
more in dividends than any other European or American bank and
returned $3.5bn to shareholders through share buy-backs. We have
done this while strengthening one of the most resilient capital
ratios in the industry.
Where we have excess capital, we are open to returning it to
shareholders. To that end, and having received the appropriate
regulatory clearances, we will execute a further share buy-back of
up to $2bn in the second half of 2017. This will bring the total
value of shares repurchased since August 2016 to $5.5bn.
'Our Global Standards programme has transformed our ability to
manage financial crime risk, making the Group and its customers
safer and helping us to protect the integrity of the financial
system'
Strategic actions
The strategic actions that we announced at our Investor Day in
June 2015 have been instrumental in making HSBC a better and more
profitable bank. They continue to improve our ability to increase
returns and gain maximum value from our international network, and
we remain on track to complete the majority of actions by the end
of the year.
Targeted initiatives removed a further $29bn of RWAs from the
business in the first half of 2017. Our RWA reduction programmes
have extracted a total of $296bn of RWAs from the business since
the start of 2015, comfortably exceeding our target. We will
continue to identify and remove low-return RWAs to the end of 2017
and beyond.
We remain on track to achieve around $6bn of annualised cost
savings by the end of the year, in line with the revised
expectations that we set at our annual results. We removed a
further $0.9bn of costs in the first six months, taking the total
achieved since 2015 to $4.7bn.
HSBC Mexico maintained its momentum from 2016. Higher lending
balances, strong deposit growth and improved collaboration between
businesses helped to generate significantly higher profits than in
last year's first half. It also continued to capture market share
in targeted areas, particularly consumer lending.
Our US business remains a valuable source of business for other
parts of our global network, and is therefore integral to HSBC. It
is off track, but continues to make important progress. The run-off
of our legacy US consumer and mortgage lending portfolio has been
faster than we originally projected, and is almost complete. The US
business received a non-objection to its capital plan from the US
Federal Reserve Board as part of the Comprehensive Capital Analysis
and Review in June.
We have been granted a restricted banking licence from the
Financial Conduct Authority and the Prudential Regulation Authority
for our UK ring-fenced bank. This is a significant achievement and
an important milestone in the creation of HSBC UK. We have made
good progress in establishing the IT infrastructure for HSBC UK,
and have moved around 170,000 customer sterling accounts to new
HSBC UK sort codes. We expect to move all
HSBC Holdings plc Interim Report 8
remaining sterling accounts that require new HSBC UK sort codes
by the end of September 2017. We are very well advanced in filling
the roles that will move from London to Birmingham, and remain on
track to have a fully functioning team in place for the opening of
our new UK headquarters in the first quarter of 2018.
Our international network continues to drive revenue growth for
the business. Revenue from transaction banking products, which rely
on the strength of the network, grew relative to last year's first
half, particularly in Global Liquidity and Cash Management, and
Foreign Exchange. 49% of Group adjusted client revenue is now
linked to our international network, up from 45% at the same point
in 2016.
We continue to shift the Group's business mix towards Asia,
building on our improved financial performance and strong customer
acquisition in the region since June 2015. We won new mandates
related to the China-led Belt and Road initiative in the first half
of the year and helped connect more Chinese companies to
international opportunities. We also continued to expand our
product range in the Pearl River Delta, offering personal loans to
existing customers and launching retail business banking in the
region. We now have around a quarter of a million credit cards in
circulation in mainland China following the launch of our
exclusively HSBC-branded credit card in December 2016. HSBC was
named 'Asia's Best Bank' at the Euromoney Awards for Excellence
2017.
We remain the world's leading international bank for renminbi
business, and achieved a number one ranking among foreign banks for
onshore bonds in the first half of the year. HSBC was appointed one
of the first market makers for the new Bond Connect in mainland
China's Interbank Bond Market, and we underwrote the first new bond
issue under the scheme in July. We ranked number one for the sixth
consecutive year in the Asiamoney Offshore RMB Poll 2017.
Over the past five years, our Global Standards programme has
transformed our ability to manage financial crime risk, making the
Group and its customers safer and helping us to protect the
integrity of the financial system. We have more work to do this
year to complete the programme before integrating it fully into
'business as usual' risk management practices. Combating financial
crime will continue to be a high priority, and we will always look
for ways to strengthen our capabilities.
Douglas Flint
Douglas Flint steps down as Group Chairman in October and
retires from HSBC after 22 years' distinguished service. I am
grateful to Douglas for his support since the end of 2010 as we
have implemented our long-term strategy for HSBC. During that time,
he has not only helped HSBC to negotiate an ever-evolving
regulatory environment, but also played a leading role in helping
the banking industry recast the regulatory framework in response to
the global financial crisis. Douglas has a fantastic reputation
around the world for his knowledge, experience and technical
expertise. I am sure that he will continue to contribute all of
those things for the benefit of business and wider society. He
leaves with the best wishes of everyone at HSBC.
Looking forward
Our business is in good shape. We have a diversified, universal
banking business model and an integrated global network that work
for our clients and deliver industry-leading returns for our
investors. It is run efficiently, with strict risk-weighted asset
and cost discipline, and responsibly, with a robust balance sheet
and a formidable capital base. We remain focused on growing the
business, improving our competitive position and rewarding our
shareholders.
Stuart Gulliver
Group Chief Executive
31 July 2017
HSBC Holdings plc Interim Report 9
Strategic actions
We are well on our way towards achieving the
actions outlined in our June 2015 Investor Update.
Capturing value from our international network
In our June 2015 Investor Update, we outlined a series of
strategic actions to make the most of our competitive advantages
and respond to a changing environment. These actions are focused on
improving efficiency in how we use our resources, and on investing
for growth in line with our strategy. Each action has targets
defined to the end of 2017. The table opposite summarises our
progress in 2017 with additional details provided on this page.
Resizing and simplifying our business
We have exceeded our target to reduce RWAs, with a gross
reduction of $28.6bn achieved in 1H17 through management actions.
We completed asset sales totalling approximately $5.5bn from our US
consumer and mortgage lending ('CML') run-off portfolio. We
continue to manage RWAs in a disciplined way and aim for further
RWA reductions from management actions through to the end of
2017.
We continue to develop our businesses across the North American
Free Trade Agreement ('NAFTA') region. In Mexico, we grew adjusted
revenue by 14% compared with 1H16, driven mainly by increased RBWM
loan balances on improved product propositions. We grew adjusted
profit before tax in the US and Canada, as well as cross-border
revenue within the NAFTA region by 7%. Revenue from international
subsidiaries of our US clients based outside the NAFTA region
increased by 14% compared with 1H16.
We remain on course to complete the set-up of our UK ring-fenced
bank ('RFB') ahead of the 1 January 2019 statutory deadline. In
1H17, we passed several significant milestones including the
reconfiguration of several key IT systems required to operate the
RFB and also the successful migration of approximately 170,000
customer sterling accounts to new HSBC UK sort codes. In addition,
we received a restricted bank licence for the RFB and are now
working through an agreed mobilisation plan with the PRA and FCA to
receive an unrestricted licence in 2018.
Our programme to deliver total cost savings of around $6bn is on
track. Costs to achieve in 1H17 were $1.7bn and we expect around
$1bn of investment in the second half of 2017. Our cost savings
allow us to fund new digital and innovation initiatives, and meet
other costs related to regulatory programmes and compliance. For
example, we introduced a new customised payments screen for CMB and
GB&M customers, which is now live in 21 markets and has
resulted in a near 20% reduction in customer queries. We are also
one of the largest financial services users of biometrics globally,
and continue to introduce voice recognition and fingerprint
technology across our network.
Redeploying capital to grow our business
We continue to leverage our international network to support our
clients. International client revenue continues to represent
approximately one half of our total revenue. In 1H17, transaction
banking revenue rose by 7%, with strong growth in our Global
Liquidity and Cash Management ('GLCM') and foreign exchange
businesses. Revenue synergies across our businesses grew by 17%
compared with 1H16.
Our pivot towards Asia continues. In 1H17, we grew our loan
portfolio in the region by approximately $31bn to $401bn. Our asset
management and insurance businesses in Asia realised significant
revenue growth, driven by strong net flows, and market movements
supported by strong sales momentum, respectively. Since our launch
of credit cards in China at the end of last year, we have reached
nearly 250,000 cards in circulation.
We continue to be recognised as the leading bank for
international renminbi ('RMB') products and services, ranking first
for the sixth year in a row in the Asiamoney Offshore RMB Poll
2017. In 1H17, we were appointed as one of the first market makers
for the launch of Bond Connect, a bond trading link between
mainland China and Hong Kong. This allows, for the first time,
foreign fund managers to trade in China's bond markets without
using an onshore account. HSBC acted as joint lead underwriter for
the first Belt and Road initiative RMB-denominated bond issued in
mainland China by a non-Chinese issuer ('Panda bond') under Bond
Connect.
Selected awards and recognition in 1H2017
Euromoney Awards for Excellence 2017
World's Best Bank
World's Best Investment Bank in the Emerging Markets
Asia's Best Bank
Asiamoney Banking Awards 2017
Best International Bank in China
Asiamoney Offshore RMB Poll 2017
Best overall offshore RMB products / services
Extel Survey 2017
#1 SRI & Sustainability
#1 Integrated Climate Change
HSBC Holdings plc Interim Report 10
Progress against strategic actions
Actions to resize and simplify the
Group
Strategic Targeted Progress Key performance Status
actions outcome indicators
by the end
of 2017
Reduce Group RWA Further reduction RWA reduction a
Group reduction of $28.6bn from from management
risk-weighted $290bn management actions actions: circa
assets Return GB&M in 1H17, including $296bn (>100%
('RWAs') to Group $11bn in GB&M of the 2015-17
by circa target profitability; GB&M RWAs of $306.1bn, target on a constant
$290bn <1/3 of 35% of the Group currency basis)
Group RWAs total
Optimise Reduced Progressing previously Present in 67 a
global footprint announced transactions countries and
network Completed sale of territories at
Lebanon business end of 1H17 (down
Turkey legal entity from 73 at end
transfer completed of 2014)
in June 2017; Turkey
1H17 costs down
27% and adjusted
PBT up >400% on
1H16
Rebuild US profit Completed asset US (excluding -
NAFTA before tax sales totalling CML run-off portfolio)
region circa $2bn $5.5bn from US consumer adjusted profit
profitability Mexico profit and mortgage lending before tax: $501m a(1)
before tax ('CML') run-off (up 122% on 1H16)
circa $0.6bn portfolio; remaining Mexico adjusted
CML portfolio reduced profit before
to $1.6bn tax: $203m (up
Mexico adjusted 61% on 1H16)
revenues up 14%
driven primarily
by growth in RBWM
Set up Completed Received a restricted Implementation a
UK ring-fenced in 2018 banking licence in progress
bank from regulators
for UK ring-fenced
bank
On track to have
a fully functioning
team in place for
the opening of our
new UK headquarters
in the first quarter
of 2018
------------------------ -------
Deliver 2017 exit $0.9bn of cost savings Annual run-rate a
$4.5--5.0bn rate to realised in 1H17 savings of $4.7bn
of cost equal 2014 Positive adjusted achieved since
savings operating jaws continued in start of cost-saving
expenses 1H17 at 0.5% programme
FTE reduction of Adjusted costs
approximately 2,200 up 3% on 1H16
in 1H17
---------------- ----------------------- ------------------------- ------------------------ -------
Actions to redeploy capital and
invest
Deliver Revenue Strong revenue growth Transaction banking a
growth growth in GLCM (up 11%) revenue: $7.5bn
above of international and Foreign Exchange (up 7% on 1H16)
GDP from network (up 5%) Revenue synergies:
international above GDP Awarded 'North America's $5.9bn (up 17%
network Best Bank for Transaction on 1H16)
Services' by Euromoney
Investments Market share Received approval Guangdong loans: a
in gains from the China Securities $5.5bn (up 21%
Asia - Circa 10% Regulatory Commission on 1H16)
prioritise growth per to set up majority-owned ASEAN adjusted
and accelerate annum in joint venture securities revenue: $1.5bn
assets under firm (down 4% on 1H16)
management Ranked #1 among Asset Management
in Asia foreign banks in assets under management
1H17 in Panda bond distributed in
underwriting league Asia: $161bn (up
table 17% on 1H16)
$290m Innovation Insurance manufacturing
Growth Fund to support annualised new
leading names in business premiums
the Pearl River in Asia: $1.3bn
Delta high-tech (up 14% on 1H16)
sector
Grow business $2.0-2.5bn Appointed as one RMB internationalisation -
from renminbi revenue of first market revenue from offshore
('RMB') makers for Bond business partly
internationalisation Connect, a bond or wholly denominated
trading link between in RMB as well
China and Hong Kong as selected products
Ranked first in in mainland China:
offshore RMB bond $0.6bn (down 10%
underwriting league on 1H16)
table in 1H17 with
28.5% market share
according to Bloomberg
---------------------- ------------------ --------------------------- -------------------------- -----
Global Implementation We remain on track End of 2017: Introduction a(2)
Standards completed to complete the of major compliance
- safeguarding introduction of IT systems; AML
against the major compliance and sanctions
financial IT systems, to have policy framework
crime(3) our anti-money laundering in place; assessment
('AML') and sanctions against the capabilities
policy framework of our financial
in place, and to crime risk framework
complete all actions to enable the
committed to as capabilities to
part of the Global be fully integrated
Standards programme in our day-to-day
in 2013 by the end operations
of 2017 Post 2017: Policy
framework and
associated operational
processes fully
integrated into
day-to-day financial
crime risk management
practices in an
effective and
sustainable way.
Target end state
agreed with the
UK Financial Conduct
Authority to be
achieved. Major
compliance IT
systems continue
to be fine-tuned,
and recommendations
from the Monitor
continue to be
implemented
---------------------- ------------------ --------------------------- -------------------------- -----
(1) On track to achieve equivalent profit before tax target on a
local currency basis; US dollar target set using the 2014 average
exchange rate.
(2) As set out under 'Key performance indicators'.
(3) Further detail on the Monitor and the US deferred
prosecution agreement and related agreements and consent orders can
be found in our Annual Report and Accounts 2016 on pages 82 and 66,
respectively.
HSBC Holdings plc Interim Report 11
Financial overview
Reported results
This table shows our reported results for the last three
half-years, ended 30 June 2017 ('1H17'), 31 December 2016 ('2H16')
and 30 June 2016 ('1H16').
All commentary in this Financial overview compares the 1H17
results with 1H16, unless otherwise stated.
Reported profit before tax
Reported profit before tax of $10.2bn was $0.5bn or 5% higher
than in 1H16, despite net adverse movements of significant items
and unfavourable effects of foreign currency translation, which are
described in more detail on page 22. Excluding significant items
and currency translation, profit before tax increased by $1.3bn or
12%.
Reported revenue
Reported revenue of $26.2bn was $3.3bn or 11% lower, largely
reflecting a net unfavourable movement in significant items of
$3.1bn, which included:
- in 1H16, favourable fair value movements on our own debt
designated at fair value reflecting changes in our own credit
spread of $1.2bn, which are now reported in other comprehensive
income, following our partial early adoption of IFRS 9 'Financial
Instruments' on 1 January 2017;
- revenue of $1.5bn in 1H16 relating to the operations in Brazil
that we sold in July 2016; and
- in 1H16, a $0.6bn gain on the disposal of our membership
interest in Visa Europe. This compared with a $0.3bn gain on the
disposal of our shares in Visa Inc. in 1H17.
Excluding significant items, and adverse effects of foreign
currency translation of $1.0bn, revenue increased by $0.8bn or
3%.
Reported LICs
Reported LICs of $0.7bn were $1.7bn or 72% lower, notably from
reductions in CMB and GB&M, as well as the effect of our sale
of operations in Brazil ($0.7bn). We also recorded lower LICs in
our US run-off portfolio in Corporate Centre, and favourable
effects of foreign currency translation of $0.1bn.
Reported operating expenses
Reported operating expenses of $16.4bn were $2.2bn or 12% lower.
This reflected a reduction in significant items of $2.0bn, which
included:
- in 1H16, a $0.8bn write-off of goodwill in our GPB business in
Europe;
- a net release of $0.3bn in 1H17 related to settlements and
provisions in connection with legal matters compared with charges
of $0.7bn in 1H16; and
- operating expenses of $1.1bn in 1H16 incurred in the
operations in Brazil that we sold.
These were partly offset by:
- costs to achieve of $1.7bn, compared with $1.0bn in 1H16.
Excluding significant items and the favourable effects of
foreign currency translation of $0.6bn, operating expenses
increased by $0.4bn, partly due to a $0.1bn credit in 1H16 related
to the 2015 UK bank levy. The remaining increase reflected
investment in growth programmes, primarily in RBWM where
investments were in part funded by the proceeds from our sale of
Visa shares.
Reported income from associates
Reported income from associates and joint ventures of $1.2bn
decreased by $55m, primarily reflecting the adverse impact of
foreign currency translation.
Half-year to
Reported results 30 Jun 30 Jun 31 Dec
2017 2016 2016
$m $m $m
-------- -------- ----------
Net interest income 13,777 15,760 14,053
Net fee income 6,491 6,586 6,191
Net trading income 3,928 5,324 4,128
Other income 1,970 1,800 (5,876)
Net operating income
before loan impairment
charges and other
credit risk provisions
('revenue') 26,166 29,470 18,496
Loan impairment
charges and other
credit risk provisions
('LICs') (663) (2,366) (1,034)
Net operating income 25,503 27,104 17,462
Total operating
expenses (16,443) (18,628) (21,180)
Operating profit 9,060 8,476 (3,718)
Share of profit
in associates and
joint ventures 1,183 1,238 1,116
Profit before tax 10,243 9,714 (2,602)
------------------------- ------- ------- -------
HSBC Holdings plc Interim Report 12
Adjusted performance
Our reported results are prepared in accordance with IFRSs as
detailed in the Financial Statements on page 76. We also present
adjusted performance measures to align internal and external
reporting, identify and quantify items management believes to be
significant, and provide insight into how management assesses
period-on-period performance. Adjusted performance measures are
highlighted with the following symbol: ^
To derive adjusted performance, we adjust for:
- the period-on-period effects of foreign currency translation;
and
- the effect of significant items that distort period-on-period
comparisons, which are excluded in order to understand better the
underlying trends in the business.
For reconciliations of our reported results to an adjusted
basis, including lists of significant items, see page 38.
Adjusted results^
This table shows our adjusted results for 1H17 and 1H16. These
are discussed in more detail on the following pages.
Movements compared
Half-year to with 1H16
---
30 Jun 30 Jun
2017 2016
Adjusted results^ $m $m Adverse Favourable (%)
---
Net operating income
before loan impairment
charges and other credit
risk provisions ('revenue') 26,053 25,235 818 3
---
Loan impairment charges
and other credit risk
provisions ('LICs') (663) (1,556) 893 57
---
Total operating expenses (14,606) (14,222) (384) (3)
--- --------
Operating profit 10,784 9,457 1,327 14
---
Share of profit in associates
and joint ventures 1,183 1,194 (11) (1)
--- --------
Profit before tax 11,967 10,651 1,316 12
------------------------------- ------- ------- --- ------------ ----------
Adjusted profit before tax^
On an adjusted basis, profit before tax of $12.0bn was $1.3bn or
12% higher than in 1H16. This reflected higher revenue (up $0.8bn)
and lower LICs (down $0.9bn), partly offset by an increase in
operating expenses (up $0.4bn).
Adjusted revenue^
Adjusted revenue of $26.1bn was $0.8bn or 3% higher. The
increase reflected the following:
- In RBWM, revenue increased by $1.1bn or 12%, primarily in
Wealth Management, driven by insurance manufacturing (up $554m), as
favourable market impacts compared with adverse impacts in 1H16,
notably in Asia and France. Investment distribution income also
grew, notably in Asia, reflecting improved investor confidence. In
Retail Banking, revenue grew in current accounts, savings and
deposits, reflecting wider spreads and increased balances in Hong
Kong. This was partly offset by lower personal lending revenue as a
result of narrower spreads in Hong Kong and the UK.
- In GB&M, revenue increased by $0.6bn or 8%. Revenue rose
in Fixed Income, Currencies and Commodities ('FICC') (up $176m),
primarily in Rates and Credit, as we captured higher client flows
and increased our market share, notably in Europe, and in Equities
(up $167m) as we grew market share in Prime Financing. In Global
Banking, revenue increased (up $168m), with continued momentum in
investment banking products and growth in lending
HSBC Holdings plc Interim Report 13
balances, which more than offset spread compression; the
increase also reflected recoveries on restructured facilities in
1H17 compared with write-downs in 1H16. Revenue also increased by
$129m in Global Liquidity and Cash Management ('GLCM'), reflecting
balance growth from increased client mandates, and wider spreads,
notably in Asia. These increases were partly offset by net adverse
movements on credit and funding valuation adjustments of $147m.
- In CMB, revenue increased by $0.1bn or 1%, notably in GLCM
from balance growth and wider spreads in Hong Kong. In the UK, we
grew balances, though this was more than offset by narrower
spreads. Revenue decreased in Credit and Lending from narrower
spreads, notably in Hong Kong, although we increased average
lending balances in both the UK (up 14%) and Hong Kong (up 13%).
Revenue also decreased in Global Trade and Receivables Finance
('GTRF'), notably reflecting managed customer exits in the Middle
East and North Africa ('MENA').
These increases were partly offset:
- In Corporate Centre, revenue decreased by $0.9bn or 50%,
mainly in Central Treasury ($0.6bn). This reflected lower
favourable fair value movements ($0.1bn in 1H17 compared with
$0.4bn in 1H16) relating to the economic hedging of our long-term
debt, as well as higher interest expense on our debt ($0.3bn).
Revenue also fell in the US run-off portfolio ($0.3bn) from
continuing disposals. These reductions were partly offset by a rise
in Legacy Credit as a result of net favourable movements on credit
and funding valuation adjustments.
- In GPB, revenue decreased by $48m or 5%, reflecting the
continued impact of our repositioning actions. These actions are
now largely completed. Revenue increased in markets targeted for
growth, notably in Hong Kong reflecting an increase in client
activity and wider deposit spreads.
Half-year to
30 Jun 30 Jun %
2017 2016 Variance
Adjusted revenue^ $m $m $m
RBWM 10,043 8,955 1,088 12
CMB 6,407 6,315 92 1
GB&M 7,823 7,213 610 8
GPB 846 894 (48) (5)
Corporate Centre 934 1,858 (924) (50)
Total 26,053 25,235 818 3
------------------- ------- ------- -------- ---
Adjusted LICs^
Adjusted LICs of $0.7bn were $0.9bn or 57% lower, reflecting
reductions in:
- CMB ($0.4bn lower), notably in North America and the UK,
reflecting lower individually assessed LICs, primarily against
exposures in the oil and gas sector. In addition, there was a net
release in 1H17 in the UK relating to the construction sector. This
was partly offset by higher LICs in Hong Kong relating to a small
number of customers;
- GB&M ($0.4bn lower), as individually assessed LICs
reduced, notably because 1H16 included charges against exposures in
the oil and gas, and mining sectors in the US; and
- Corporate Centre ($0.1bn lower), primarily from lower
collective LICs in the US run-off portfolio in 1H17.
Adjusted operating expenses^
Adjusted operating expenses of $14.6bn were $0.4bn or 3% higher.
This was partly due to a credit of $0.1bn in 1H16 relating to the
2015 UK bank levy.
Excluding the impact of the UK bank levy, adjusted operating
expenses were higher reflecting investments in business growth,
primarily in RBWM where investments were in part funded by the
proceeds from our sale of Visa shares. The impact of our
cost-saving initiatives broadly offset inflation and continued
investment in our regulatory programmes and compliance.
Our total investment in regulatory and compliance programmes in
1H17 was $1.6bn, up $168m or 12%. This reflected the continued
implementation of our Global Standards programme to enhance
financial crime risk controls and capabilities, and investment in
stress testing and other regulatory programmes. These costs
included spend incurred to deliver the programmes, as well as
recurring costs to maintain the activities.
The number of employees expressed in full-time equivalent staff
('FTEs') at 30 June 2017 was 232,957, a decrease of 2,218 from 31
December 2016. This reflected reductions resulting from our
transformation programmes, partly offset by investment in our
Global Standards programme of 5,585 FTEs.
Adjusted income from associates^
Adjusted income from associates and joint ventures of $1.2bn
fell by $11m compared with 1H16.
HSBC Holdings plc Interim Report 14
Balance sheet and capital
Balance sheet strength
Total reported assets were $2.5tn, 5% higher than at 31 December
2016 on a reported basis, and 2% higher on a constant currency
basis. We have increased the size of our balance sheet, reflecting
targeted asset growth, supported by growth in customer
accounts.
Distributable reserves
The distributable reserves of HSBC Holdings at 30 June 2017 were
$41bn, compared with $42bn at 31 December 2016. The decrease was
primarily driven by distributions to shareholders of $4.0bn, which
were higher than profits generated of $3.7bn, as well as fair value
losses due to movements in our own credit spread of $486m.
Capital strength
We manage our capital aiming to ensure we exceed current
regulatory requirements and are well placed to meet those expected
in the future. We monitor our position using capital ratios. These
measure capital relative to a regulatory assessment of risks taken.
We quantify how these risks relate to our business using RWAs.
Our CET1 ratio at 30 June 2017 was 14.7%, up from 13.6% at 31
December 2016.
Delivery against Group financial targets
Return on equity
Our medium-term target is to achieve a return on equity ('RoE')
of more than 10%. In 1H17, we achieved an RoE of 8.8% compared with
7.4% in 1H16.
Adjusted jaws^
Jaws measures the difference between the rates of change in
revenue and costs. Positive jaws occurs when the figure for the
percentage change in revenue is higher than, or less negative than,
the corresponding rate for costs.
We calculate adjusted jaws using adjusted revenue and costs. Our
target is to maintain positive adjusted jaws.
In 1H17, adjusted revenue increased by 3.2%, whereas our
adjusted operating expenses increased by 2.7%. Adjusted jaws was
therefore positive 0.5%.
Dividends
In the current uncertain environment, we plan to sustain the
annual dividend in respect of the year at its current level for the
foreseeable future. Growing our dividend in the future will depend
on the overall profitability of the Group, delivering further
release of less efficiently deployed capital and meeting regulatory
capital requirements in a timely manner. Actions to address these
points were core elements of the strategic actions set out in our
Investor Update in June 2015.
HSBC Holdings plc Interim Report 15
Global businesses
We manage our products and services globally through our global
businesses.
The 'Management view of adjusted revenue' tables provide a
breakdown of revenue by major products, and reflect the basis on
which revenue performance of each business is assessed and
managed.
The comparative periods have been restated to reflect changes to
reportable segments, as described on page 36.
Commentary is on an adjusted basis, which is consistent with how
we assess the performance of our global businesses.^
Retail Banking and Wealth Management
RBWM serves close to 36 million customers worldwide through four
main businesses: Retail Banking, Wealth Management, Asset
Management and Insurance. Our HSBC Premier and Advance propositions
are aimed at mass affluent and emerging affluent customers who
value international connectivity and benefit from our global reach
and scale. For customers with simpler banking needs, RBWM offers a
full range of products and services reflecting local
requirements.
Key events
- Continued to attract customer deposits (up 3% from December
2016), providing potential benefits from future rate rises.
- Gains on our sale of Visa shares are being used to finance
strategic investments in Insurance and Retail Business Banking
business growth.
Financial performance
Adjusted profit before tax of $3.4bn was $0.8bn or 32% higher
than for 1H16, reflecting strong revenue growth, partly offset by
higher costs and LICs, with positive adjusted jaws of 8.3%.
Adjusted revenue of $10.0bn was $1.1bn or 12% higher, as revenue
grew in both Wealth Management and Retail Banking.
The revenue increase in Wealth Management resulted from:
- growth in insurance manufacturing revenue from favourable
market impacts of $217m due to interest rates and equity markets,
notably in Asia and France, compared with adverse market impacts in
1H16 of $319m, and higher insurance sales in Asia; and
- higher investment distribution revenue, primarily driven by
higher sales of mutual funds in Hong Kong, reflecting increased
investor confidence.
The revenue increase in Retail Banking resulted from:
- current accounts, savings and deposits due to wider spreads
and balances in Hong Kong and Mexico.
This was partly offset by:
- lower personal lending revenue reflecting narrower spreads in
mortgages, notably in Hong Kong and the UK, as well as lower
revenue in the UK from current accounts, savings and deposits as
spreads narrowed, though balances grew.
Adjusted LICs of $556m were $25m or 5% higher, reflecting our
strategy to shift our portfolio to unsecured lending. This included
an increase of $43m in Mexico, reflecting targeted growth in
unsecured lending and associated higher delinquency rates. In
addition, LICs in the UK increased by $47m, primarily against our
mortgages and cards exposures. LICs in the UK remain at low levels,
representing 16bps of the overall portfolio. The increases in LICs
were partly offset by lower LICs in Turkey and the US.
Adjusted operating expenses of $6.1bn were $0.2bn or 4% higher,
as transformational and other cost savings were more than offset by
investments, increased technology costs resulting partly from
higher transaction volumes, performance-related pay and
inflation.
Half-year to 1H17 vs
1H16
-------------------------------------
30 Jun 30 Jun 31 Dec
2017 2016 2016
Management
view of adjusted
revenue^ $m $m $m $m %
-------------------------------------
Net operating income
(1)
Retail Banking 6,549 6,275 6,310 274 4
Current accounts,
savings and
deposits 3,011 2,574 2,619 437 17
Personal
lending 3,538 3,701 3,691 (163) (4)
- mortgages 1,150 1,274 1,249 (124) (10)
- credit
cards 1,479 1,521 1,504 (42) (3)
- other personal
lending (2) 909 906 938 3 -
Wealth Management 3,221 2,443 2,821 778 32
- investment
distribution
(3) 1,598 1,414 1,477 184 13
* life insurance manufacturing 1,113 559 837 554 99
- asset management 510 470 507 40 9
Other (4) 273 237 266 36 15
Total 10,043 8,955 9,397 1,088 12
RoRWA (%)
(5) 5.9 4.5 4.7
------------------------------------- ------ ------ ------ ------ ------
For footnotes, see page 53.
Change in adjusted
profit before tax
+32%
HSBC Holdings plc Interim Report 16
Commercial Banking
CMB serves approximately 1.7 million customers in 54 countries
and territories. Our customers range from small enterprises focused
primarily on their domestic markets through to corporates operating
globally. We support customers with tailored financial products and
services to allow them to operate efficiently and grow.
Services provided include working capital, term loans, payment
services and international trade facilitation, as well as expertise
in mergers and acquisitions, and access to financial markets.
Key events
- Launched Move Money, a single payments screen customised for specific clients, in 21 markets.
- Launched LinkScreen in the UK, making us the world's first
bank to provide small and medium-sized clients with key elements of
a traditional face-to-face meeting via an online platform.
Financial performance
Adjusted profit before tax of $3.4bn was $0.5bn or 17% higher,
reflecting lower LICs and higher revenue. We achieved positive
adjusted jaws of 1.5%.
Adjusted revenue rose by $0.1bn or 1%, as higher revenue in GLCM
was partly offset in Credit and Lending, and GTRF.
- In GLCM, revenue increased by $192m or 9%, reflecting wider
spreads in Hong Kong and mainland China. In the UK, growth in
average deposit balances of 14% was more than offset by narrower
spreads, following the UK base rate reduction in August 2016.
- In Credit and Lending, revenue decreased by $31m or 1%. This
reduction was mainly in Asia reflecting narrower spreads, notably
in Hong Kong and mainland China as a result of competitive
environments, partly offset by growth in average balances in Hong
Kong (13%). In the UK, revenue increased from growth in average
balances (14%) which more than offset the effects of spread
compression following the base rate reduction in August 2016.
- In GTRF, revenue decreased by $27m or 3%, primarily in MENA,
reflecting managed customer exits in the UAE. GTRF revenue has
stabilised since the end of 2016, supported by lending growth in
Asia. Despite challenges in global trade, we continued to increase
our share of key markets compared with 1H16, including trade
finance in Hong Kong and Singapore, and receivables finance in the
UK.
Adjusted LICs reduced by $0.4bn, notably in North America and
the UK, reflecting lower individually assessed LICs, primarily
against exposures in the oil and gas sector. 1H17 also included net
releases in the UK relating to the construction sector. These
reductions were partly offset by higher individually assessed LICs
in Hong Kong relating to a small number of customers. Collectively
assessed LICs were higher in Hong Kong and MENA, in part offset in
the UK where the reduction reflected reduced exposures and lower
loss rates in the oil and gas sector.
Adjusted operating expenses were unchanged as wage inflation and
investment in digital initiatives and Global Standards were offset
by cost-saving initiatives.
As a result of management initiatives, RWAs were reduced by
$7bn, resulting in a cumulative decrease of $53bn since our
Investor Update in June 2015, exceeding our target of $29bn.
Half-year to 1H17
vs 1H16
------------------
30 Jun 30 Jun 31 Dec
2017 2016 2016
Management
view of
adjusted
revenue^ $m $m $m $m %
------------------
Net operating
income (1)
Global
Trade and
Receivables
Finance 900 927 897 (27) (3)
Credit
and Lending 2,441 2,472 2,467 (31) (1)
Global
Liquidity
and
Cash Management 2,269 2,077 2,121 192 9
Markets
products,
Insurance
and Investments
and Other
(6) 797 839 670 (42) (5)
Total 6,407 6,315 6,155 92 1
RoRWA (%)
(5) 2.5 2.2 2.1
------------------ ------ ------ ------ -------- -----
For footnotes, see page 53.
Change in adjusted
profit before tax
+17%
HSBC Holdings plc Interim Report 17
Global Banking and Markets
GB&M serves approximately 4,100 clients in more than 50
countries and territories. It supports major government, corporate
and institutional clients worldwide. Our product specialists
continue to deliver a comprehensive range of transaction banking,
financing, advisory, capital markets and risk management
services.
Key events
- The first foreign bank with a majority-owned securities joint
venture in China, which will allow us to provide GB&M and CMB
clients with a broad spectrum of investment banking and markets
services in China.
- Growth of 4% in average balances in GLCM from December 2016
positioning us to benefit from potential interest rate rises.
Financial performance
Adjusted profit before tax of $3.4bn was $0.8bn or 33% higher,
reflecting a strong revenue performance in 1H17, as well as a
reduction in LICs of $0.4bn, partly offset by higher operating
expenses of $0.2bn. We achieved positive adjusted jaws of 4.9%.
Adjusted revenue increased by $0.6bn or 8% including a net adverse
movement of $147m on credit and funding valuation adjustments.
Excluding these movements, profit before tax rose by $1.0bn or 40%,
and revenue increased by $0.8bn or 11%, with increases in all of
our businesses. The rise in adjusted revenue was driven by:
- FICC (up $176m to $3.1bn), primarily in Rates and Credit, as
we captured higher client flows and grew our market share in
Europe, despite challenging industry-wide conditions at the start
of 2Q17.
- Equities (up $167m), as we continued to capture market share
in Prime Financing products. By contrast, performance in 1H16 was
affected by market volatility which led to reduced client
activity.
- A strong performance in Global Banking (up $168m), with
continued momentum in Investment Banking products and growth in
lending balances, which more than offset the effects of tightening
spreads on lending in Asia. The increase in revenue also included
recoveries on restructured facilities in 1H17 compared with
write-downs in 1H16.
- An increase from all our transaction banking products, notably
GLCM (up $129m) and Securities Services ('HSS') (up $92m). In GLCM,
balances grew as we won client mandates and spreads widened,
notably in Asia and the US, although UK balance growth was offset
by narrower spreads.
Adjusted LICs of $41m in 1H17 decreased by $387m. This largely
reflected a reduction in individually assessed charges,
particularly as the prior year included LICs on exposures in the
oil and gas, and mining sectors in the US.
Adjusted operating expenses increased by $152m or 4%, which
reflected higher performance and severance costs, including pension
costs. In addition, we made strategic investments in GLCM, HSS and
Foreign Exchange. Our continued cost management, efficiency
improvements and FTE reductions were broadly offset by the effects
of inflation.
We have now exceeded the RWA reduction target set in our
Investor Update in June 2015, with the cumulative reduction in RWAs
from management initiatives reaching $107bn. This includes a
further RWA reduction of $11bn in 1H17. Our adjusted RoRWA improved
to 2.3% from 1.6% in 1H16.
1H17 vs
Half-year to 1H16
30 Jun 30 Jun 31 Dec
2017 2016 2016
Management
view of
adjusted
revenue^ $m $m $m $m %
Net operating
income(1)
Global Markets 3,722 3,379 3,196 343 10
- Equities 659 492 482 167 34
- FICC 3,063 2,887 2,714 176 6
------------------ ----- -------
Foreign
Exchange 1,351 1,354 1,381 (3) -
Rates 1,147 1,053 1,039 94 9
Credit 565 480 294 85 18
----- ----- ----- ----- -------
Global Banking 1,950 1,782 1,954 168 9
Global Liquidity
and
Cash Management 1,042 913 953 129 14
Securities
Services 839 747 793 92 12
Global Trade
and
Receivables
Finance 358 340 341 18 5
Principal
Investments 77 (1) 223 78 > 100
Credit and
funding
valuation
adjustments(7) (95) 52 (104) (147) > (100)
Other(8) (70) 1 (34) (71) > (100)
Total 7,823 7,213 7,322 610 8
RoRWA (%)
(5) 2.3 1.6 1.9
------------------ ----- ----- ----- ------ ---------
For footnotes, see page 53.
Change in adjusted profit before tax
+33%
HSBC Holdings plc Interim Report 18
Global Private Banking
GPB serves high net worth individuals and families, including
those with international banking needs, through 12 booking centres
covering our priority markets.
We provide a full range of private banking services, including
Investment Management, which includes advisory and brokerage
services, and Private Wealth Solutions, which comprises trusts and
estate planning, to protect and preserve wealth for future
generations.
Key events
- Net new money of $1bn was driven by positive inflows of $8bn
in key markets targeted for growth, mainly in Hong Kong. This was
partly offset by outflows resulting from the repositioning of the
business. These repositioning actions are largely complete.
- Positive momentum with strong growth in client inflows.
Financial performance
Adjusted profit before tax of $143m was $39m or 21% lower as
revenue decreased, partly offset by a reduction in costs.
Adjusted revenue of $846m was $48m or 5% lower, reflecting the
continued impact of client repositioning. Revenue from markets
targeted for growth increased by 9%, mainly in Hong Kong reflecting
higher investment revenue and wider deposit spreads.
Adjusted operating expenses of $702m were $20m or 3% lower,
mainly as a result of the managed reduction in FTEs and the impact
of our cost-saving initiatives.
1H17 vs
Half-year to 1H16
30 Jun 30 Jun 31 Dec
2017 2016 2016
Management
view of
adjusted
revenue^ $m $m $m $m %
------ ------ ---- ------
Net operating
income(1)
Investment
Revenue 354 381 349 (27) (7)
Lending 186 211 198 (25) (12)
Deposit 191 176 164 15 9
Other 115 126 127 (11) (9)
Total 846 894 838 (48) (5)
RoRWA (%)
(5) 1.8 2.1 1.2
--------------- ------- ------ ------ ---- ------
For footnotes, see page 53.
Change in adjusted
profit before tax
-21%
Corporate Centre
Corporate Centre comprises Central Treasury, including Balance
Sheet Management ('BSM`), our legacy businesses, interests in our
associates and joint ventures, central stewardship costs that
support our businesses, and the UK bank levy.
Financial performance
Adjusted profit before tax of $1.6bn was $0.8bn or 33% lower, as
revenue decreased, partly offset by a reduction in LICs.
Adjusted revenue fell by $0.9bn or 50%, reflecting a decrease in
Central Treasury ($0.6bn) and continuing disposals in the US
run-off portfolio ($0.3bn). In Central Treasury, revenue decreased
as a result of:
- lower favourable fair value movements ($0.1bn in 1H17 compared
with $0.4bn in 1H16) relating to the economic hedging of
interest-rate and exchange-rate risk on our long-term debt with
long-term derivatives; and
- higher interest expense on our debt ($0.3bn), mainly
reflecting the higher cost of debt issued to meet regulatory
requirements.
These reductions were partly offset by an increase in legacy
credit ($0.2bn), primarily resulting from net favourable movements
in credit and funding valuation adjustments.
Adjusted LICs were $136m lower, primarily in the US run-off
portfolio.
Adjusted operating expenses were $29m or 5% higher, due to a
credit booked in 1H16 relating to the UK bank levy in 2015
($0.1bn), compared with minimal charges in 1H17. Excluding this,
operating expenses fell by $116m, due to lower costs in the US
run-off portfolio.
Adjusted income from associates rose by $13m or 1%.
1H17 vs
Half-year to 1H16
30 Jun 30 Jun 31 Dec
2017 2016 2016
Management
view of
adjusted
revenue^ $m $m $m $m %
Net operating
income(1)
Central
Treasury(9) 765 1,354 83 (589) (44)
Legacy
portfolios 134 328 392 (194) (59)
- US run-off
portfolio 75 420 272 (345) (82)
- Legacy
credit 59 (92) 120 151 > 100
Other(10) 35 176 (725) (141) (80)
Total 934 1,858 (250) (924) (50)
--------------- ------ ----- ----- ---- ----
For footnotes, see page 53.
HSBC Holdings plc Interim Report 19
Risk overview
We actively manage risk to protect
and enable the business.
Managing risk
HSBC has maintained a conservative and consistent approach to
risk throughout its history, helping to ensure we protect
customers' funds, lend responsibly and support economies. By
carefully aligning our risk appetite to our strategy, we aim to
deliver long-term shareholder returns.
All employees are responsible for the management of risk, with
ultimate accountability residing with the Board. We have a strong
risk culture, which is embedded through clear and consistent
communication and appropriate training for all employees. A
comprehensive risk management framework is applied throughout the
Group, with effective governance and corresponding risk management
tools. This framework is underpinned by our risk culture and
reinforced by the HSBC Values and our Global Standards
programme.
Our Global Risk function oversees the framework and is led by
the Group Chief Risk Officer, an executive Director. It is
independent from the global businesses, including their sales and
trading functions, to provide challenge, appropriate oversight, and
balance in risk/reward decisions.
HSBC's risk appetite defines its desired forward-looking risk
profile, and informs the strategic and financial planning process.
It is articulated in a risk appetite statement, which is approved
by the Board. Key elements include:
- risks that we accept as part of doing business, such as credit risk and market risk;
- risks that we incur as part of doing business, such as
operational risk, which are actively managed to remain below an
acceptable tolerance; and
- risks for which we have zero tolerance, such as knowingly
engaging in activities where foreseeable reputational risk has not
been considered.
Our risk management framework and risks associated with our
banking and insurance manufacturing operations are described on
pages 68 to 73 of the Annual Reports and Accounts 2016.
Top and emerging risks
Our top and emerging risks framework helps enable us to identify
forward-looking risks so that we may take action to either prevent
them materialising or limit their effect.
Top risks are those that may have a material impact on the
financial results, reputation or business model of the Group in the
year ahead. Emerging risks are those that have large unknown
components and may form beyond a one-year horizon. If any of these
risks were to occur, they could have a material effect on HSBC.
During 1H17, we made two changes to our top and emerging risks
to reflect our assessment of their potential effects on the Group.
The thematic issue 'Regulatory focus on conduct of business and
financial crime' was removed and 'Financial crime risk environment'
was added to further emphasise the heightened focus on, and robust
oversight, monitoring and active risk management of, financial
crime risks.
In addition, one thematic issue was renamed to better reflect
the challenges facing the Group. We use the new name in the table
opposite, which summarises our top and emerging risks.
Our top and emerging risks are also summarised and discussed in
more detail on pages 27 and 64 of the Annual Report and Accounts
2016.
Our approach to identifying and monitoring top and emerging
risks is described on page 70 of the Annual Reports and Accounts
2016.
HSBC Holdings plc Interim Report 20
Risk Trend Mitigants
Externally
driven
Geopolitical We continually assess the impact of
risk geopolitical events on our business
including examining a range of potential
impacts arising from the UK's exit
from the European Union ('EU'). Where
required, we take steps to mitigate
these risks to help ensure we remain
within our risk appetite. We have
also strengthened physical security
at our premises where the risk of
é terrorism is heightened.
Economic outlook We actively monitor our wholesale
and capital credit and trading portfolios, and
flows undertake stress tests and other analysis,
to identify sectors and clients that
may come under stress due to economic
conditions in the eurozone, mainland
China and the UK as its negotiations
é to exit from the EU commence.
Turning of We have conducted detailed reviews
the credit of our oil and gas, and commercial
cycle real estate portfolios. We are actively
assessing sectors likely to come under
stress due to macroeconomic or geopolitical
events, and reducing limits where
è appropriate.
Cyber threat We continue to enhance our cybersecurity
and unauthorised capabilities, strengthening the threat
access to detection capability within our security
systems operations centres, delivering enhanced
anti-malware capability across our
infrastructure, and improving our
é access control.
* Regulatory, We proactively engage with regulators
technological and policy makers to help ensure new
and sustainability regulatory requirements are effectively
developments implemented. We continue to engage
with adverse with non-governmental organisations
impact on to ensure we address environmental
business model concerns adopting changes in policy
and profitability è as required.
-------
Financial We remain on track to complete the
crime risk introduction of major compliance IT
environment systems by the end of 2017 to support
our global anti-money laundering ('AML')
and sanctions policy framework. We
are conducting an assessment against
the core capabilities of our financial
crime risk framework to enable the
capabilities to be fully integrated
è in our day-to-day operations.
US deferred We are taking concerted action to
prosecution remediate AML and sanctions compliance
agreement deficiencies and to implement our
and related Global Standards.
agreements
and consent
orders è
-------------------- -------
Internally driven
IT systems We continue to monitor and improve
infrastructure service resilience across our technology
and resilience infrastructure, enhancing our problem
diagnosis/resolution and change execution
capabilities. This has significantly
reduced service disruption to our
è customers since 1H16.
Impact of We continue to focus on resourcing
organisational and employee development to meet regulatory
change and changes, including the UK ring-fenced
regulatory bank, and to maintain and enhance
demands on our leadership strength.
employees è
Execution The Group Change Committee continues
risk to oversee the progress of the highest
priority programmes across the Group,
underpinning the implementation of
our strategic actions by managing
interdependencies, providing direction
and taking action to help ensure successful
è delivery.
Third-party We are implementing our enhanced Group
risk management policy and framework to strengthen
how we identify, assess, mitigate
and manage risks across the range
of third parties with which we do
è business.
Enhanced model We have established a model risk management
risk management sub-function in the second line of
expectations defence to further strengthen governance
of this risk type. We continue to
enhance our model risk management
framework in order to address evolving
è requirements, both internal and external.
Data management We continue to enhance our data governance,
quality and architecture to help enable
consistent data aggregation, reporting
è and management.
-------------------- ------- ---------------------------------------------
[é] Risk heightened during 2017
[è] Risk remained at the same level as 2016
* Thematic risk renamed during 1H17
HSBC Holdings plc Interim Report 21
This information is provided by RNS
The company news service from the London Stock Exchange
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