Annual Financial Report - 23 of 48

RNS Number : 3786B

HSBC Holdings PLC

03 April 2013

 



Disposals, held for sale and run-off portfolios

In implementing our strategy, we have sold or agreed to sell a number of businesses and investments across the Group. We expect these disposals to have a significant effect on both the revenue and the profitability of the geographical regions in the future. In addition, significant portfolios are being run down. We expect the losses on these portfolios to

continue to affect the geographical regions in the future.

The table below presents the contribution of these businesses and investments to the historical results of geographical regions. We do not expect the historical results to be indicative of future results because of disposal or run-off. Fixed allocated costs, included in total operating costs, will not necessarily be removed upon disposal and have been separately identified on page 53.

Summary income statements for disposals, held for sale and run-off portfolios^69,70

	2012
	Europe		Hong Kong		Rest of Asia-Pacific		MENA		North       America		Latin       America
	US$m		US$m		US$m		US$m		US$m		US$m
Net interest income ......................	(54)		15		40		31		4,051		372
Net fee income/(expense) .............	(4)		(45)		(3)		10		401		30
Net trading income/(expense) .......	68		(6)		5		54		(186)		27
Net income/(expense) from financial instruments designated at fair value ..................................	10		-		5		-		(785)		3
Gains less losses from financial investments .............................	(70)		-		-		-		26		7
Dividend income ..........................	-		-		-		-		3		-
Net earned insurance premiums ....	1		229		133		-		190		192
Other operating income/(expense) .................................................	(1)		-		17		-		29		11
Total operating income/(expense) ..................	(50)		193		197		95		3,729		642
Net insurance claims incurred and movement in liabilities to policyholders ........................	(1)		(119)		(95)		-		(138)		(90)
Net operating income/(expense)21	(51)		74		102		95		3,591		552
Loan impairment charges and other credit risk provisions ......	(167)		-		-		(2)		(2,919)		(64)
Net operating income/(expense) .................................................	(218)		74		102		93		672		488
Total operating expenses .............	(66)		(37)		(122)		(47)		(2,104)		(371)
Operating profit/(loss) .............	(284)		37		(20)		46		(1,432)		117
Share of profit in associates and joint ventures ....................	2		9		772		-		2		1
Profit/(loss) before tax...............	(282)		46		752		46		(1,430)		118
By global business
Retail Banking and Wealth Management ............................	2		27		612		10		(656)		41
Commercial Banking ....................	-		13		91		-		9		42
Global Banking and Markets .........	(283)		6		57		36		2		54
Global Private Banking .................	(1)		-		(8)		-		-		-
Other ...........................................	-		-		-		-		(785)		(19)
Profit/(loss) before tax .................	(282)		46		752		46		(1,430)		118
Net gain/(loss) on sale ..................	(3)		375		3,317		(85)		4,095		40

For footnotes, see page 120.

Other information

Funds under management and assets held in custody

Funds under management

	2012		2011
	US$bn		US$bn
Funds under management
At 1 January ..........................	847		925
Net new money ......................	5		2
Value change ..........................	49		(40)
Exchange and other ...............	9		(40)
At 31 December .....................	910		847

	At 31 December
	2012		2011
	US$bn		US$bn
Funds under management by business
Global Asset Management ......	425		396
Global Private Banking ..........	288		259
Affiliates ................................	3		3
Other .....................................	194		189
	910		847

Funds under management ('FuM') at 31 December 2012 amounted to US$910bn, an increase of 7% compared with 31 December 2011. Total fund holdings increased in 2012, reflecting favourable market movements, the inclusion of custody assets in client assets in GPB and net new money inflows from Global Asset Management.

Global Asset Management funds, including emerging market funds, increased by 7% to US$425bn compared with 31 December 2011, driven by favourable global market movements and net inflows of US$16bn, mainly from sales of long-term funds, notably fixed income and multi-asset products, in Rest of Asia‑Pacific, Hong Kong and Latin America.

GPB funds increased by 11% on 31 December 2011 to US$288bn, mainly due to the inclusion of custody assets in client assets and favourable equity market and foreign exchange movements. Negative net new money was driven by net outflows in Europe, primarily due to a programme to reposition our client base towards higher net worth international and domestic relationships, and a review of certain client relationships with a view to reducing control risk, largely offset by net inflows originating from emerging markets.

Other FuM increased by 3% to US$194bn, primarily due to favourable equity market movements partly offset by the disposal of the full service retail brokerage business in Canada.

Assets held in custody and under administration

Custody is the safekeeping and servicing of securities and other financial assets on behalf of clients. At 31 December 2012, we held assets as custodian of US$6.0 trillion, 16% higher than the US$5.2 trillion held at 31 December 2011. This was mainly driven by favourable market movements together with increased new business and favourable movements in foreign exchange.

Our assets under administration business, which includes the provision of various support function activities including the valuation of portfolios of securities and other financial assets on behalf of clients, complements the custody business. At 31 December 2012, the value of assets held under administration by the Group amounted to US$2.9 trillion, compared with US$2.6 trillion in 2011.

Property

At 31 December 2012, we operated from some 8,650 operational properties worldwide, of which approximately 2,150 were located in Europe, 2,600 in Hong Kong and Rest of Asia-Pacific, 550 in North America, 2,950 in Latin America and 400 in the Middle East and North Africa. These properties had an area of approximately 59.7m square feet (2011: 65.7m square feet).

Our freehold and long leasehold properties, together with all our leasehold land in Hong Kong, were valued in 2012. The value of these properties was US$9.7bn (2011: US$8.9bn) in excess of their carrying amount in the consolidated balance sheet an historical cost based measure. In addition, properties with a net book value of US$1.3bn (2011: US$1.3bn) were held for investment purposes.

Our operational properties are stated at cost, being historical cost or fair value at the date of transition to IFRSs (their deemed cost) less any impairment losses, and are depreciated on a basis calculated to write off the assets over their estimated useful lives. Properties owned as a consequence of an acquisition are recognised initially at fair value.

Further details are included in Note 24 on the Financial Statements.

Detailed list of disclosures in this report arising from EDTF recommendations

Type of risk	Recommendation	Disclosure	Page
General	1	The risks to which the business is exposed.	124 to 126
	2	Our risk appetite and stress testing.	126 to 128
	3	Top and emerging risks, and the changes during the reporting period.	130 to 136
	4	Discussion of future regulatory developments affecting our business model and Group profitability, and its implementation in Europe.	132 and 288 to 292
Risk governance, risk management and business model	5	Group Risk Committee, and their activities.	323 to 328
	6	Risk culture and risk governance and ownership.	124
	7	Diagram of the risk exposure by global business segment.	20
	8	Stress testing and the underlying assumptions.	127 to 128
Capital adequacy and risk-weighted assets	9	Pillar 1 capital requirements, and the impact for global systemically important banks. For calculation of Pillar 1 capital requirements, see pages 10 to 14 of Pillar 3 Disclosures 2012.	294 to 296 and 291 to 292
	10	Reconciliation of the accounting balance sheet to the regulatory balance sheet.	287
	11	Flow statement of the movements in regulatory capital since the previous reporting period, including changes in core tier 1, tier 1 and tier 2 capital.	285
	12	Discussion of targeted level of capital, and the plans on how to establish this.	288
	13	Analysis of risk-weighted assets by risk type, global business and geographical region, and market risk RWAs.	282 to 283
	14	For analysis of the capital requirements for each Basel asset class, see pages 10 to 14, 23, 58 and 61 of Pillar 3 Disclosures 2012.
	15	For analysis of credit risk for each Basel asset class, see pages 23 to 28 and 32 to 38 of Pillar 3 Disclosures 2012.
	16	Flow statements reconciling the movements in risk-weighted assets for each risk-weighted asset type.	283 and 284
	17	For discussion of Basel credit risk model performance, see pages 39 to 41 of the Pillar 3 Disclosures 2012 document.
Liquidity	18	Analysis of the Group's liquid asset buffer.	206 to 207
Funding	19	Encumbered and unencumbered assets analysed by balance sheet category.	211 to 214
	20	Consolidated total assets, liabilities and off-balance sheet commitments analysed by remaining contractual maturity at the balance sheet date.	485 to 492
	21	Analysis of the Group's sources of funding and a description of our funding strategy.	209 to 211
Market risk	22	Relationship between the market risk measures for trading and non-trading portfolios and the balance sheet, by business segment.	218 to 219
	23	Discussion of significant trading and non-trading market risk factors.	220 to 223
	24	VAR assumptions, limitations and validation.	266 to 267
	25	Discussion of stress tests, reverse stress tests and stressed VAR.	267
Credit risk	26	Analysis of the aggregate credit risk exposures, including details of both personal and wholesale lending.	139 to 141
	27	Discussion of the policies for identifying impaired loans, defining impairments and renegotiated loans, and explaining loan forbearance policies.	162 and 254 to 259
	28	Reconciliations of the opening and closing balances of impaired loans and impairment allowances during the year.	163 and 172
	29	Analysis of counterparty credit risk that arises from derivative transactions.	145
	30	Discussion of credit risk mitigation, including collateral held for all sources of credit risk.	163 to 168
Other risks	31	Quantified measures of the management of operational risk.	227 to 230
	32	Discussion of publicly known risk events.	130 to 136

The 32 recommendations listed above are made in the report 'Enhancing the Risk Disclosures of Banks' issued by the Enhanced Disclosure Task Force of the Financial Stability Board on 29 October 2012.

 

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