Annual Financial Report - 43 of 44

RNS Number : 1659A

HSBC Holdings PLC

27 March 2012

 



Taxation of shares and dividends

Taxation - UK residents

The following is a summary, under current law, of certain UK tax considerations that are likely to be material to the ownership and disposition of shares. The summary does not purport to be a comprehensive description of all the tax considerations that may be relevant to a holder of shares. In particular, the summary deals principally with shareholders who are resident solely in the UK for UK tax purposes and only with holders who hold the shares as investments and who are the beneficial owners of the shares, and does not address the tax treatment of certain classes of holders such as dealers in securities. Holders and prospective purchasers should consult their own advisers regarding the tax consequences of an investment in shares in light of their particular circumstances, including the effect of any national, state or local laws.

Taxation of dividends

Currently no tax is withheld from dividends paid by HSBC Holdings. However, dividends are paid with an associated tax credit which is available for set-off by certain shareholders against any liability they may have to UK income tax. Currently, the associated tax credit is equivalent to 10% of the combined cash dividend and tax credit, i.e. one‑ninth of the cash dividend.

For individual shareholders who are resident in the UK for taxation purposes and liable to UK income tax at the basic rate, no further UK income tax liability arises on the receipt of a dividend from HSBC Holdings. Individual shareholders who are liable to UK income tax at the higher rate or additional rate are taxed on the combined amount of the dividend and the tax credit at the dividend upper rate (currently 32.5%) and the dividend additional rate (currently 42.5%), respectively. The tax credit is available for set‑off against the dividend upper rate and the dividend additional rate liability. Individual UK resident shareholders are not entitled to any tax credit repayment.

Although non-UK resident shareholders are generally not entitled to any repayment of the tax credit in respect of any UK dividend received, some such shareholders may be so entitled under the provisions of a double taxation agreement between their country of residence and the UK. However, in most cases no amount of the tax credit is, in practice, repayable.

Information on the taxation consequences of the HSBC Holdings scrip dividends offered in lieu of the 2010 fourth interim dividend and the first, second and third interim dividends for 2011 was set out in the Secretary's letters to shareholders of 30 March, 1 June, 31 August and 7 December 2011. In no case, was the difference between the cash dividend foregone and the market value of the scrip dividend in excess of 15% of the market value. Accordingly, the amount of the dividend income chargeable to tax, and, the acquisition price of HSBC Holdings US$0.50 ordinary shares (the 'shares') for UK capital gains tax purposes, was the cash dividend foregone.

Taxation of capital gains

The computation of the capital gains tax liability arising on disposals of shares in HSBC Holdings by shareholders subject to UK tax on capital gains can be complex, partly depending on whether, for example, the shares were purchased since April 1991, acquired in 1991 in exchange for shares in The Hongkong and Shanghai Banking Corporation Limited, or acquired subsequent to 1991 in exchange for shares in other companies.

For capital gains tax purposes, the acquisition cost for ordinary shares is adjusted to take account of subsequent rights and capitalisation issues. Any capital gain arising on a disposal by a UK company may also be adjusted to take account of indexation allowance. If in doubt, shareholders are recommended to consult their professional advisers.

Stamp duty and stamp duty reserve tax

Transfers of shares by a written instrument of transfer generally will be subject to UK stamp duty at the rate of 0.5% of the consideration paid for the transfer, and such stamp duty is generally payable by the transferee.

An agreement to transfer shares, or any interest therein, normally will give rise to a charge to stamp duty reserve tax at the rate of 0.5% of the consideration. However, provided an instrument of transfer of the shares is executed pursuant to the agreement and duly stamped before the date on which the stamp duty reserve tax becomes payable, under the current practice of UK HM Revenue and Customs it will not be necessary to pay the stamp duty reserve tax, nor to apply for such tax to be cancelled. Stamp duty reserve tax is generally payable by the transferee.

Paperless transfers of shares within CREST, the UK's paperless share transfer system, are liable to

stamp duty reserve tax at the rate of 0.5% of the consideration. In CREST transactions, the tax is calculated and payment made automatically. Deposits of shares into CREST generally will not be subject to stamp duty reserve tax, unless the transfer into CREST is itself for consideration. Following the case HSBC pursued before the European Court of Justice (Case C-569/07 HSBC Holdings plc and Vidacos Nominees v The Commissioners for HM Revenue & Customs) HMRC now accepts that the charge to stamp duty reserve tax at 1.5% on the issue of shares to a depositary receipt issuer or a clearance service located within the European Union is prohibited.

Taxation - US residents

The following is a summary, under current law, of the principal UK tax and US federal income tax considerations that are likely to be material to the ownership and disposition of shares or ADSs by a holder that is a resident of the US for US federal income tax purposes (a 'US holder') and who is not resident or ordinarily resident in the UK for UK tax purposes. The summary does not purport to be a comprehensive description of all of the tax considerations that may be relevant to a holder of shares or ADSs. In particular, the summary deals only with US holders that hold shares or ADSs as capital assets, and does not address the tax treatment of holders that are subject to special tax rules, such as banks, tax-exempt entities, insurance companies, dealers in securities or currencies, persons that hold shares or ADSs as part of an integrated investment (including a 'straddle') comprised of a share or ADS and one or more other positions, and persons that own, directly or indirectly, 10% or more of the voting stock of HSBC Holdings. This discussion is based on laws, treaties, judicial decisions and regulatory interpretations in effect on the date hereof, all of which are subject to change. Under the current income tax treaty between the UK and the US, US holders are no longer entitled to claim a special foreign tax credit in respect of dividends.

Holders and prospective purchasers should consult their own advisers regarding the tax consequences of an investment in shares or ADSs in light of their particular circumstances, including the effect of any national, state or local laws.

Any US federal tax advice included in this Annual Report is for informational purposes only; it was not intended or written to be used, and cannot be used, for the purpose of avoiding US federal tax penalties.

Taxation of dividends

Currently no tax is withheld from dividends paid by HSBC Holdings. A US holder must include cash dividends paid on the shares or ADSs in ordinary income on the date that such holder or the ADS depositary receives them, translating dividends paid in UK pounds sterling into US dollars using the exchange rate in effect on the date of receipt. A US holder that elects to receive shares in lieu of a cash dividend must include in ordinary income the fair market value of such shares on the dividend payment date, and the tax basis of those shares will equal such fair market value.

Subject to certain exceptions for positions that are held for less than 61 days or are hedged, and subject to a foreign corporation being considered a 'qualified foreign corporation' (which includes not being classified for US federal income tax purposes as a passive foreign investment company), certain dividends ('qualified dividends') received by an individual US holder before 2013 generally will be subject to US taxation at a maximum rate of 15%. Based on the company's audited financial statements and relevant market and shareholder data, HSBC Holdings does not anticipate being classified as a passive foreign investment company. Accordingly, dividends paid on the shares or ADSs generally should be treated as qualified dividends.

Taxation of capital gains

Gains realised by a US holder on the sale or other disposition of shares or ADSs normally will not be subject to UK taxation unless at the time of the sale or other disposition the holder carries on a trade, profession or vocation in the UK through a branch or agency or permanent establishment and the shares or ADSs are or have been used, held or acquired for the purposes of such trade, profession, vocation, branch or agency or permanent establishment. Such gains will be included in income for US tax purposes, and will be long-term capital gains if the shares or ADSs were held for more than one year. A long-term capital gain realised by an individual holder before 2013 generally will be subject to US tax at a maximum rate of 15%.

Inheritance tax

Shares or ADSs held by an individual whose domicile is determined to be the US for the purposes of the United States-United Kingdom Double Taxation Convention relating to estate and gift taxes (the 'Estate Tax Treaty') and who is not for such purposes a national of the UK will not, provided any US Federal estate or gift tax chargeable has been paid, be subject to UK inheritance tax on the individual's death or on a lifetime transfer of shares or ADSs except in certain cases where the shares or ADSs (i) are comprised in a settlement (unless, at the time of the settlement, the settlor was domiciled in the US and was not a national of the UK), (ii) is part of the business property of a UK permanent establishment of an enterprise, or (iii) pertains to a UK fixed base of an individual used for the performance of independent personal services. In such cases, the Estate Tax Treaty generally provides a credit against US Federal tax liability for the amount of any tax paid in the UK in a case where the shares or ADSs are subject to both UK inheritance tax and to US Federal estate or gift tax.

Stamp duty and stamp duty reserve tax - ADSs

If shares are transferred to a clearance service or depository receipt ('ADR')  issuer located outside the European Union (which will include a transfer of shares to the Depository) UK stamp duty and/or stamp duty reserve tax will be payable. The stamp duty or stamp duty reserve tax is generally payable on the consideration for the transfer and is payable at the aggregate rate of 1.5%.

The amount of stamp duty reserve tax payable on such a transfer will be reduced by any stamp duty paid in connection with the same transfer.

No stamp duty will be payable on the transfer of, or agreement to transfer, an ADS, provided that the ADR and any separate instrument of transfer or written agreement to transfer remain at all times outside the UK, and provided further that any such transfer or written agreement to transfer is not executed in the UK. No stamp duty reserve tax will be payable on a transfer of, or agreement to transfer, an ADS effected by the transfer of an ADR.

US backup withholding tax and information reporting

Distributions made on shares or ADSs and proceeds from the sale of shares or ADSs that are paid within the US, or through certain financial intermediaries to US holders, are subject to information reporting and may be subject to a US 'backup' withholding tax unless, in general, the US holder complies with certain certification procedures or is a corporation or other person exempt from such withholding. Holders that are not US persons generally are not subject to information reporting or backup withholding tax, but may be required to comply with applicable certification procedures to establish that they are not US persons in order to avoid the application of such information reporting requirements or backup withholding tax to payments received within the US or through certain financial intermediaries.

Cautionary statement regarding forward-looking statements

The Annual Report and Accounts 2011 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', '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; and

·     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; and our success in addressing operational, legal and regulatory, and litigation challenges.

·    

Glossary

Abbreviation	Brief description
A
ABS1	Asset-backed security
ADR	American Depositary Receipt
ADS	American Depositary Share
Advance	HSBC Advance, a global banking proposition for the mass-affluent segment of customers
ALCO	Asset and Liability Committee
AML	Anti-money laundering
ARM	Adjustable-rate mortgage
ATM	Automated teller machine
B
Bao Viet	BaoViet Holdings, an insurance and financial services company in Vietnam
Barion	Barion Funding Limited, a term funding vehicle
Basel Committee	Basel Committee on Banking Supervision
Basel I	1988 Basel Capital Accord
Basel II1	2006 Basel Capital Accord
Basel III1	Basel Committee's reforms to strengthen global capital and liquidity rules
BBA	British Bankers' Association
BoCom	Bank of Communications Co., Limited, mainland China's fourth largest bank by market capitalisation
Bps	Basis points. One basis point is equal to one hundredth of a percentage point
Brazilian operations	HSBC Bank Brasil S.A.-Banco Múltiplo and subsidiaries, plus HSBC Serviços e Participações Limitada
C
CARD Act	Credit Card Accountability, Responsibility and Disclosure Act, US
CD	Certificate of deposit
CDS1	Credit default swap
CDO1	Collateralised debt obligation
CDPC	Credit derivative product companies
CGU	Cash-generating unit
CMB	Commercial Banking, a global business
CML	Consumer and Mortgage Lending portfolio in the US, comprising Consumer Lending and Mortgage Services business in run-off
CP1	Commercial paper
CPI	Consumer price index
CRR1	Customer risk rating
CVA	Credit valuation adjustment
D
Dodd-Frank	The Dodd-Frank Wall Street Reform & Consumer Protection Act
DPF	Discretionary participation feature of insurance and investment contracts
DVA	Debit valuation adjustment
E
EBA	European Banking Authority
EL	Expected loss
EPS	Earnings per share
EU	European Union
F
Fannie Mae	Federal National Mortgage Association, US
Freddie Mac	Federal Home Loan Mortgage Corporation, US
FSA	Financial Services Authority (UK)
FTSE	Financial Times - Stock Exchange index
G
G20	Leaders, Finance Ministers and Central Bank Governors of the Group of Twenty
GB&M	Global Banking and Markets, a global business
GDP	Gross domestic product
Ginnie Mae	Government National Mortgage Association, US
Global Markets	HSBC's treasury and capital markets services in Global Banking and Markets
GMB	Group Management Board
GPB	Global Private Banking
GPSP	Group Performance Share Plan (which is part of the HSBC Share Plan 2011)
Group	HSBC Holdings together with its subsidiary undertakings
G-SIB	Global Systemically Important Bank

Abbreviation	Brief description
H
Hang Seng Bank	Hang Seng Bank Limited, one of Hong Kong's largest banks
HFC	HFC Bank Limited, the UK-based consumer finance business acquired through the acquisition by HSBC of HSBC Finance
HIBOR	Hong Kong Interbank Offer Rate
HNAH	HSBC North American Holdings Inc.
Hong Kong	The Hong Kong Special Administrative Region of the People's Republic of China
HSBC	HSBC Holdings together with its subsidiary undertakings
HSBC Afore	HSBC Afore S.A. de C.V.
HSBC Assurances	HSBC Assurances, comprising Erisa S.A., the French life insurer, and Erisa I.A.R.D., the property and casualty insurer (together, formerly Erisa)
HSBC Bank	HSBC Bank plc, formerly Midland Bank plc
HSBC Bank Argentina	HSBC Bank Argentina S.A.
HSBC Bank Bermuda	HSBC Bank Bermuda Limited formerly The Bank of Bermuda Limited
HSBC Bank Malaysia	HSBC Bank Malaysia Berhad
HSBC Bank Middle East	HSBC Bank Middle East Limited, formerly The British Bank of the Middle East
HSBC Bank USA	HSBC's retail bank in the US, HSBC Bank USA, N.A. (formerly HSBC Bank USA, Inc.)
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 Mexico	HSBC México S.A., the commercial banking subsidiary of Grupo Financiero HSBC, S.A. de C.V.
HSBC Premier	HSBC's premium global banking service
HSBC Private Bank (Suisse)	HSBC Private Bank (Suisse) S.A., HSBC's private bank in Switzerland
I
IAS	International Accounting Standard
IASB	International Accounting Standards Board
ICB	Independent Commission on Banking
IFRIC	International Financial Reporting Interpretations Committee
IFRSs	International Financial Reporting Standards
Industrial Bank	Industrial Bank Co. Limited, a national joint-stock bank in mainland China held by Hang Seng Bank
IPO	Initial public offering
IRB1	Internal ratings-based
K
KPI	Key performance indicator
KPMG	KPMG Audit Plc and its affiliates
L
LGD1	Loss given default
LIBOR	London Interbank Offer Rate
LTV	Loan to value ratio
M
Madoff Securities	Bernard L Madoff Investment Securities LLC
Mainland China	People's Republic of China excluding Hong Kong
Malachite	Malachite Funding Limited, a term funding vehicle
Mazarin	Mazarin Funding Limited, an asset-backed CP conduit
MBS1	US mortgage-backed security
MENA	Middle East and North Africa
Monoline1	Monoline insurance company
MSCI	Morgan Stanley Capital International index
N
NYSE	New York Stock Exchange
O
OFAC	Office of Foreign Asset Control
OTC1	Over-the-counter
P
PD1	Probability of default
Performance Shares	Awards of HSBC Holdings ordinary shares under employee share plans that are subject to corporate performance conditions
Ping An	Ping An Insurance (Group) Company of China, Limited, the second-largest life insurer in the PRC
PPI	Payment protection insurance product
PRC	People's Republic of China
Premier	See HSBC Premier
PVIF	Present value of in-force long-term insurance business

Abbreviation	Brief description
R
RBWM	Retail Banking and Wealth Management, a global business
Repo	Sale and repurchase transaction
Restricted Shares	Awards of Restricted Shares define the number of HSBC Holdings ordinary shares to which the employee will become entitled, generally between one and three years from the date of the award, and normally subject to the individual remaining in employment
Reverse repo	Security purchased under commitments to sell
Risk Management Meeting	The Risk Management Meeting of the Group Management Board
RPI	Retail price index (UK)
RWA	Risk-weighted asset
S
S&P	Standard and Poor's rating agency
SEC	Securities and Exchange Commission (US)
SIC	Securities investment conduit
SIV1	Structured investment vehicle
SME	Small and medium-sized enterprise
Solitaire	Solitaire Funding Limited, a special purpose entity managed by HSBC
SPE1	Special purpose entity
T
The Hongkong and Shanghai Banking Corporation	The Hongkong and Shanghai Banking Corporation Limited, the founding member of the HSBC Group
TSR	Total shareholder return
U
UAE	United Arab Emirates
UK	United Kingdom
US	United States of America
US run-off portfolio	Includes our CML, vehicle finance and Taxpayer Financial Services businesses and insurance, commercial, corporate and treasury activities in HSBC Finance on an IFRSs management basis
V
VAR1	Value at risk
Visa	Visa Inc.

1  Full definition included in Glossary of Terms on page 426.

Term	Definition
A
Adjustable-rate mortgages ('ARM's)	Mortgage loans in the US on which the interest rate is periodically changed based on a reference price. These are included within 'affordability mortgages'.
Affordability mortgages	Mortgage loans where the customer's monthly payments are set out at a low initial rate, either variable or fixed, before resetting to a higher rate once the introductory period is over.
Agency exposures	Exposures to near or quasi-government agencies including public sector entities fully owned by government carrying out non-commercial activities, provincial and local government authorities, development banks and funds set up by government.
Alt-A	A US description for loans regarded as lower risk than sub-prime, but with higher risk characteristics than lending under normal criteria.
Arrears	Customers are said to be in arrears (or in a state of delinquency) when they are behind in fulfilling their obligations, with the result that an outstanding loan is unpaid or overdue. When a customer is in arrears, the total outstanding loans on which payments are overdue are described as delinquent.
Asset-backed securities ('ABS's)	Securities that represent an interest in an underlying pool of referenced assets. The referenced pool can comprise any assets which attract a set of associated cash flows but are commonly pools of residential or commercial mortgages.
B
Back-testing	A statistical technique used to monitor and assess the accuracy of a model, and how that model would have performed had it been applied in the past.
Bail-in/-inable debt	Bail-in refers to imposition of losses at the point of non viability (but before insolvency) on bank liabilities (bail-inable debt) that are not exposed to losses while the institution remains a viable, going concern. Whether by way of write-down or conversion into equity, this has the effect of recapitalising the bank (although it does not provide any new funding).
Bank levy	A levy that applies to UK banks, building societies and the UK operations of foreign banks from 1 January 2011. The amount payable is based on a percentage of the Group's consolidated liabilities and equity as at 31 December 2011 after deducting certain items the most material of which are those related to insured deposit balances, tier 1 capital, insurance liabilities, high quality liquid assets and items subject to a legally enforceable net settlement agreement.
Basel II	The capital adequacy framework issued by the Basel Committee on Banking Supervision in June 2006 in the form of the 'International Convergence of Capital Measurement and Capital Standards', amended by subsequent changes to the capital requirements for market risk and re-securitisations, commonly known as Basel 2.5, which took effect 31 December 2011.
Basel III	In December 2010, the Basel Committee issued 'Basel III rules: A global regulatory framework for more resilient banks and banking systems' and 'International framework for liquidity risk measurement, standards and monitoring'. Together these documents present the Basel Committee's reforms to strengthen global capital and liquidity rules with the goal of promoting a more resilient banking sector. In June 2011, the Basel Committee issued a revision to the former document setting out the finalised capital treatment for counterparty credit risk in bilateral trades. The Basel III requirements will be phased in starting on 1 January 2013 with full implementation by 1 January 2019.
C
Capital conservation buffer	A capital buffer, prescribed by regulators under Basel III, and designed to ensure banks build up capital buffers outside periods of stress which can be drawn down as losses are incurred. Should a bank's capital levels fall within the capital conservation buffer range, capital distributions will be constrained by the regulators.
Capital planning buffer	A capital buffer, prescribed by the FSA under Basel II, and designed to ensure banks build up capital buffers outside periods of stress which can be drawn down as losses are incurred. Should a bank's capital levels fall within the capital planning buffer range, a period of heightened regulatory interaction would be triggered.
Collateralised debt obligation ('CDO')	A security issued by a third-party which references ABSs and/or certain other related assets purchased by the issuer. CDOs may feature exposure to sub-prime mortgage assets through the underlying assets.
Collectively assessed impairment	Impairment assessment on a collective basis for homogeneous groups of loans that are not considered individually significant and to cover losses which have been incurred but have not yet been identified on loans subject to individual assessment.
Commercial paper ('CP')	An unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts receivable, inventories and meeting short-term liabilities. The debt is usually issued at a discount, reflecting prevailing market interest rates.
Commercial real estate	Any real estate investment, comprising buildings or land, intended to generate a profit, either from capital gain or rental income.
Common equity tier 1 capital	The highest quality form of regulatory capital under Basel III that comprises common shares issued and related share premium, retained earnings and other reserves excluding the cash flow hedging reserve, less specified regulatory adjustments.

Term	Definition
Conduits	HSBC sponsors and manages multi-seller conduits and securities investment conduits ('SIC's). The multi-seller conduits hold interests in diversified pools of third-party assets such as vehicle loans, trade receivables and credit card receivables funded through the issuance of short-dated commercial paper and supported by a liquidity facility. The SICs hold predominantly asset-backed securities referencing such items as commercial and residential mortgages, vehicle loans and credit card receivables funded through the issuance of both long-term and short-term debt.
Constant net asset value fund	A fund that prices its assets on an amortised cost basis, subject to the amortised book value of the portfolio remaining within 50 basis points of its market value.
Contractual maturities	The date on which the final payment (principal or interest) of any financial instrument is due to be paid, at which point all the remaining outstanding principal and interest have been repaid.
Core tier 1 capital	The highest quality form of regulatory capital that comprises total shareholders' equity and related non-controlling interests, less goodwill and intangible assets and certain other regulatory adjustments.
Countercyclical capital buffer	A capital buffer, prescribed by regulators under Basel III, which aims to ensure that capital requirements take account of the macro-financial environment in which banks operate. This will provide the banking sector with additional capital to protect it against potential future losses, when excess credit growth in the financial system as a whole is associated with an increase in system-wide risk.
Credit default swap	A derivative contract whereby a buyer pays a fee to a seller in return for receiving a payment in the event of a defined credit event (e.g. bankruptcy, payment default on a reference asset or assets, or downgrades by a rating agency) on an underlying obligation (which may or may not be held by the buyer).
Credit derivative product companies ('CDPC's)	Independent companies that specialise in selling credit default protection on corporate exposures in the form of credit derivatives.
Credit enhancements	Facilities used to enhance the creditworthiness of financial obligations and cover losses due to asset default.
Credit risk	Risk of financial loss if a customer or counterparty fails to meet an obligation under a contract. It arises mainly from direct lending, trade finance and leasing business, but also from products such as guarantees, derivatives and debt securities.
Credit valuation adjustment	An adjustment to the valuation of OTC derivative contracts to reflect the creditworthiness of OTC derivative counterparties. Formerly described as Credit Risk Adjustment.
Credit risk mitigation	A technique to reduce the credit risk associated with an exposure by application of credit risk mitigants such as collateral, guarantee and credit protection.
Credit risk spread	The premium over the benchmark or risk-free rate required by the market to accept a lower credit quality. The yield spread between securities with the same coupon rate and maturity structure but with different associated credit risks. The yield spread rises as the credit rating worsens.
Customer deposits	Money deposited by account holders. Such funds are recorded as liabilities.
Customer remediation	Customer remediation refers to activities carried out by HSBC to compensate customers for losses or damages associated with a failure to comply with regulations. Customer remediation is initiated by HSBC in response to customer complaints, and not specifically initiated by regulatory action.
Customer risk rating ('CRR')	A scale of 23 grades measuring internal obligor probability of default.
D
Debit valuation adjustment	An adjustment made by an entity to the valuation of OTC derivative liabilities to reflect within fair value the entity's own credit risk.
Debt restructuring	A restructuring by which the terms and provisions of outstanding debt agreements are changed. This is often done in order to improve cash flow and the ability of the borrower to repay the debt. It can involve altering the repayment schedule as well as debt or interest charge reduction.
Debt securities	Assets on the Group's balance sheet representing certificates of indebtedness of credit institutions, public bodies or other undertakings, excluding those issued by Central Banks.
Debt securities in issue	Transferable certificates of indebtedness of the Group to the bearer of the certificates. These are liabilities of the Group and include certificates of deposits.
Deed-in-lieu	An arrangement in which a borrower surrenders the deed for a property to the lender without going through foreclosure proceedings and is subsequently released from any further obligations on the loan.
Defined benefit obligation	The present value of expected future payments required to settle the obligations of a defined benefit plan resulting from employee service.
Delinquency	See 'Arrears'.
E
Economic capital	The internally calculated capital requirement which is deemed necessary by HSBC to support the risks to which it is exposed.
Economic profit	The difference between the return on financial capital invested by shareholders and the cost of that capital. Economic profit may be expressed as a whole number or as a percentage.
Equity risk	The risk arising from positions, either long or short, in equities or equity-based instruments, which create exposure to a change in the market price of the equities or equity instruments.
Expected loss ('EL')	A regulatory calculation of the amount expected to be lost on an exposure using a 12 month time horizon and downturn loss estimates. EL is calculated by multiplying the Probability of Default (a percentage) by the Exposure at Default (an amount) and Loss Given Default (a percentage).
Exposure	A claim, contingent claim or position which carries a risk of financial loss.

Term	Definition
Exposure at default ('EAD')	The amount expected to be outstanding after any credit risk mitigation, if and when the counterparty defaults. EAD reflects drawn balances as well as allowance for undrawn amounts of commitments and contingent exposures.
F
Fair value adjustment	An adjustment to the fair value of a financial instrument which is determined using a valuation technique (level 2 and level 3) to include additional factors that would be considered by a market participant that are not incorporated within the valuation model.
First lien	A security interest granted over an item of property to secure the repayment of a debt that places its holder first in line to collect repayment from the sale of the underlying collateral in the event of a default on the debt.
Five filters	An internal measure designed to improve capital deployment across the Group. This examines the strategic relevance of each business in each country, in terms of connectivity and economic development, and the current returns, in terms of profitability, cost efficiency and liquidity.
Forbearance strategies	Strategies that are employed in order to improve the management of customer relationships, maximise collection opportunities and, if possible, avoid default, foreclosure or repossession. Such arrangements include extended payment terms, a reduction in interest or principal repayments, approved external debt management plans, debt consolidations, the deferral of foreclosures, other modifications and re‑ages.
FSA standard rules	The method prescribed by the FSA for calculating market risk capital requirements in the absence of VAR model approval.
Funded exposures	A funded exposure is one where the notional amount of a contract is or has been exchanged.
Funding risk	A form of liquidity risk arising when the liquidity needed to fund illiquid asset positions cannot be obtained at the expected terms and when required.
G
Global Systemically Important Bank ('G-SIB')	A bank that meets the criteria defined in the Basel Committee's final rules set out in their 4 November 2011 document 'Global systemically important banks: Assessment methodology and the additional loss absorbency requirement'. At 31 December 2011, the official list of such banks comprised the 29 names, which include HSBC, published by the Financial Stability Board also on 4 November 2011. The Financial Stability Board is co-ordinating, on behalf of the G20 Group of Governors and Heads of Supervision ('GHOS'), the overall set of measures to reduce the moral hazard and risks to the global financial system posed by global systemically important financial institutions ('G-SIFI's) of all kinds.
Government-sponsored enterprises ('GSE's)	A group of financial services enterprises created by the US Congress. Their function is to reduce the cost of capital for certain borrowing sectors of the economy, and to make them more efficient and transparent. Examples in the residential mortgage borrowing segment are Freddie Mac and Fannie Mae. GSEs carry the implicit backing, but are not direct obligations, of the US Government.
GPSP Awards	Awards that define the number of HSBC Holdings ordinary shares to which the employee will become entitled, generally five years from the date of the award, and normally subject to individual remaining in employment. The shares to which the employee becomes entitled are subject to a retention requirement until cessation of employment.
H
Historical rating transition matrices ('HRTM')	HRTMs show the probability of a counterparty with a particular rating moving to a different rating over a defined time horizon.
Home Equity Lines of Credit ('HELoC's)	A form of revolving credit facility provided to US customers, which is supported in the majority of cases by a second lien or lower ranking charge over residential property. Holdings of HELoCs are classified as sub-prime.
I
Impaired loans	Loans where the Group does not expect to collect all the contractual cash flows or expects to collect them later than they are contractually due.
Impairment allowances	Management's best estimate of losses incurred in the loan portfolios at the balance sheet date.
Individually assessed impairment	Exposure to loss is assessed on all individually significant accounts and all other accounts that do not qualify for collective assessment.
Insurance risk	A risk, other than a financial risk, transferred from the holder of a contract to the insurance provider. The principal insurance risk is that, over time, the combined cost of claims, administration and acquisition of the contract may exceed the aggregate amount of premiums received and investment income.
Internal Capital Adequacy Assessment Process	The Group's own assessment of the levels of capital that it needs to hold through an examination of its risk profile from regulatory and economic capital viewpoints.
Internal Model Method ('IMM')	One of three approaches defined by Basel II to determine exposure values for counterparty credit risk.
Internal ratings-based approach ('IRB')	A method of calculating credit risk capital requirements using internal, rather than supervisory, estimates of risk parameters.
Invested capital	Equity capital invested in HSBC by its shareholders, adjusted for certain reserves and goodwill previously amortised or written off.
IRB advanced approach	A method of calculating credit risk capital requirements using internal PD, LGD and EAD models.

Term	Definition
IRB foundation approach	A method of calculating credit risk capital requirements using internal PD models but with supervisory estimates of LGD and conversion factors for the calculation of EAD.
ISDA	International Swaps and Derivatives Association.
ISDA Master agreement	Standardised contract developed by ISDA used as an umbrella under which bilateral derivatives contracts are entered into.
K
Key management personnel	Directors and Group Managing Directors of HSBC Holdings.
L
Legacy credit	A portfolio of assets comprising Solitaire, SICs, ABS trading and correlation portfolios and derivative transactions entered into with monoline insurers.
Legal proceedings	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.
Level 1 - quoted market price	Financial instruments with quoted prices for identical instruments in active markets.
Level 2 - valuation technique using observable inputs	Financial instruments with quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in inactive markets and financial instruments valued using models where all significant inputs are observable.
Level 3 - valuation technique with significant unobservable inputs	Financial instruments valued using valuation techniques where one or more significant inputs are unobservable.
Leveraged finance	Funding provided for entities with higher than average indebtedness, which typically arises from sub-investment grade acquisitions or event-driven financing.
Leverage ratio	A measure, prescribed by regulators under Basel III, which is the ratio of tier 1 capital to total exposures. Total exposures include on-balance sheet items, off-balance sheet items and derivatives, and should generally follow the accounting measure of exposure. This supplementary measure to the risk-based capital requirements is intended to constrain the build-up of excess leverage in the banking sector.
Liquidity risk	The risk that HSBC does not have sufficient financial resources to meet its obligations as they fall due, or will have to do so at an excessive cost. This risk arises from mismatches in the timing of cash flows.
Loan modification	An account management action that results in a change to the original terms and conditions of a loan either temporarily or permanently without resetting its delinquency status, except in case of a 'modification re-age' where delinquency status is also reset to up-to-date. Account modifications may include revisions to one or more terms of the loan including, but not limited to, a change in interest rate, extension of the amortisation period, reduction in payment amount and partial forgiveness or deferment of principal.
Loan re-age	An account management action that results in the resetting of the contractual delinquency status of an account to up-to-date upon fulfilment of certain requirements which indicate that payments are expected to be made in accordance with the contractual terms.
Loans past due	Loans on which repayments are overdue.
Loan-to-value ratio ('LTV')	A mathematical calculation that expresses the amount of the loan as a percentage of the value of security. A high LTV indicates that there is less cushion to protect the lender against house price falls or increases in the loan if repayments are not made and interest is added to the outstanding loan balance.
Loss given default ('LGD')	The estimated ratio (percentage) of the loss on an exposure to the amount outstanding at default (EAD) upon default of a counterparty.
Loss severity	The realised amount of losses incurred (including ancillary amounts owed) when a loan is foreclosed or disposed of through the arrangement with the borrower. The loss severity is represented as a percentage of the outstanding loan balance.
M
Market risk	The risk that movements in market risk factors, including foreign exchange rates and commodity prices, interest rates, credit spreads and equity prices will reduce income or portfolio values.
Medium term notes ('MTN's)	Notes issued by corporates across a range of maturities. MTNs are frequently issued by corporates under MTN Programmes whereby notes are offered on a regular and continuous basis to investors.
Monoline insurers ('monolines')	Entities which specialise in providing credit protection to the holders of debt instruments in the event of default by the debt security counterparty. This protection is typically held in the form of derivatives such as CDSs referencing the underlying exposures held.
Mortgage-backed securities ('MBS's)	Securities that represent interests in groups of mortgages, which may be on residential or commercial properties. Investors in these securities have the right to cash received from future mortgage payments (interest and/or principal). When the MBS references mortgages with different risk profiles, the MBS is classified according to the highest risk class.
Mortgage-related assets	Assets which are referenced to underlying mortgages.
Mortgage vintage	The year a mortgage was originated.
N
Negative equity mortgages	Equity is the value of the asset less the outstanding balance on the loan. Negative equity arises when the value of the property purchased is below the balance outstanding on the loan.

Term	Definition
Net asset value per share	Total shareholders' equity, less non-cumulative preference shares and capital securities, divided by the number of ordinary shares in issue.
Net interest income	The amount of interest received or receivable on assets net of interest paid or payable on liabilities.
Net principal exposure	The gross principal amount of a financial asset after taking account of credit protection purchased but excluding the effect of any counterparty credit valuation adjustment to that protection. It includes assets that benefit from monoline protection, except where this protection is purchased with a CDS.
Non-conforming mortgages	US mortgages that do not meet normal lending criteria. Examples include mortgages where the expected level of documentation is not provided (such as with income self-certification), or where poor credit history increases the risk and results in pricing at a higher than normal lending rate.
O
Offset mortgages	A flexible type of mortgage where a borrower's savings balance(s) held at the same institution can be used to offset the mortgage balance owing. The borrower pays interest on the net balance which is calculated by subtracting the credit balance(s) from the debit balance. As part of the offset mortgage a total facility limit is agreed and the borrower may redraw past capital repayments up this agreed limit.
Overnight Index Swap ('OIS') discounting	A method of valuing collateralised interest rate derivatives which uses a discount curve that reflects the overnight interest rate typically earned or paid in respect of collateral received.
Operational risk	The risk of loss resulting from inadequate or failed internal processes, people and systems or from external events, including legal risk.
Over-the-counter ('OTC')	A bilateral transaction (e.g. derivatives) that is not exchange traded and that is valued using valuation models.
P
Performance Shares	Awards of HSBC Holdings ordinary shares under employee share plans that are subject to the achievement of corporate performance conditions.
Prime	A US description for mortgages granted to the most creditworthy category of borrowers.
Private equity investments	Equity securities in operating companies not quoted on a public exchange, often involving the investment of capital in private companies or the acquisition of a public company that results in its delisting.
Probability of default ('PD')	The probability that an obligor will default within a one-year time horizon.
R
Refi rate	The refi (or refinancing) rate is set by the European Central Bank ('ECB') and is the price banks pay to borrow from ECB.
Regulatory capital	The capital which HSBC holds, determined in accordance with rules established by the FSA for the consolidated Group and by local regulators for individual Group companies.
Regulatory matters	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.
Renegotiated loans	Loans for which the contractual terms have been changed because of significant concerns about the borrower's ability to meet the contractual payments when due.
Restricted Shares	Awards that define the number of HSBC Holdings ordinary shares to which the employee will become entitled, generally between one and three years from the date of the award, and normally subject to the individual remaining in employment. The shares to which the employee becomes entitled may be subject to retention requirement.
Retail loans	Money lent to individuals rather than institutions. This includes both secured and unsecured loans such as mortgages and credit card balances.
Return on equity	Profit attributable to ordinary shareholders divided by average invested capital.
Risk appetite	An assessment of the types and quantum of risks to which HSBC wishes to be exposed.
Risk-weighted assets ('RWA's)	Calculated by assigning a degree of risk expressed as a percentage (risk weight) to an exposure in accordance with the applicable Standardised or IRB approach rules.
S
Sale and repurchase agreement	A repo is a short-term funding agreement that allows a borrower to create a collateralised loan by selling a financial asset to a lender. As part of the agreement the borrower commits to repurchase the security at a date in the future repaying the proceeds of the loan. For the party on the other end of the transaction (buying the security and agreeing to sell in the future) it is reverse repurchase agreement or a reverse repo.
Seasoning	The emergence of credit loss patterns in portfolios over time.
Second lien	A security interest granted over an item of property to secure the repayment of a debt that is issued against the same collateral as a first lien but that is subordinate to it. In the case of default, repayment for this debt will only be received after the first lien has been repaid.
Securitisation	A transaction or scheme whereby the credit risk associated with an exposure, or pool of exposures, is tranched and where payments to investors in the transaction or scheme are dependent upon the performance of the exposure or pool of exposures. A traditional securitisation involves the transfer of the exposures being securitised to an SPE which issues securities. In a synthetic securitisation, the tranching is achieved by the use of credit derivatives and the exposures are not removed from the balance sheet of the originator.

Term	Definition
Short sale	In relation to credit risk management, a 'short sale' is an arrangement in which a bank permits the borrower to sell the property for less than the amount outstanding under a loan agreement. The proceeds are used to reduce the outstanding loan balance and the borrower is subsequently released from any further obligations on the loan.
Single-issuer liquidity facility	A liquidity or stand-by line provided to a corporate customer which is different from a similar line provided to a conduit funding vehicle.
Sovereign exposures	Exposures to governments, ministries, departments of governments, embassies, consulates and exposures on account of cash balances and deposits with central banks.
Special purpose entities ('SPE's)	A corporation, trust or other non-bank entity, established for a narrowly defined purpose, including for carrying on securitisation activities. The structure of the SPE and its activities are intended to isolate its obligations from those of the originator and the holders of the beneficial interests in the securitisation.
Standardised approach	In relation to credit risk, a method for calculating credit risk capital requirements using External Credit Assessment Institutions ('ECAI') ratings and supervisory risk weights. In relation to operational risk, a method of calculating the operational capital requirement by the application of a supervisory defined percentage charge to the gross income of eight specified business lines.
Structured finance / notes	An instrument whose return is linked to the level of a specified index or the level of a specified asset. The return on a structured note can be linked to equities, interest rates, foreign exchange, commodities or credit. Structured notes may or may not offer full or partial capital protection in the event of a decline in the underlying index or asset.
Structured Investment Vehicles ('SIV's)	Special purpose entities which invest in diversified portfolios of interest-earning assets, generally funded through issues of commercial paper, medium-term notes and other senior debt to take advantage of the spread differentials between the assets in the SIV and the funding cost.
Student loan related assets	Securities with collateral relating to student loans.
Subordinated liabilities	Liabilities which rank after the claims of other creditors of the issuer in the event of insolvency or liquidation.
Sub-prime	A US description for customers with high credit risk, for example those who have limited credit histories, modest incomes, high debt-to-income ratios, high loan-to-value ratios (for real estate secured products) or have experienced credit problems caused by occasional delinquencies, prior charge-offs, bankruptcy or other credit-related problems.
T
Tier 1 capital	A component of regulatory capital, comprising core tier 1 and other tier 1 capital. Other tier 1 capital includes qualifying capital instruments such as non-cumulative perpetual preference shares and hybrid capital securities.
Tier 2 capital	A component of regulatory capital, comprising qualifying subordinated loan capital, related non-controlling interests, allowable collective impairment allowances and unrealised gains arising on the fair valuation of equity instruments held as available-for-sale. Tier 2 capital also includes reserves arising from the revaluation of properties.
Troubled debt restructuring	A US description for restructuring a debt whereby the creditor for economic or legal reasons related to a debtor's financial difficulties grants a concession to the debtor that it would not otherwise consider.
U
Unfunded exposures	An exposure where the notional amount of a contract has not been exchanged.
US Government agency and US Government sponsored enterprises mortgage-related assets	Securities that are guaranteed by US Government agencies such as Ginnie Mae, or by US Government sponsored entities including Fannie Mae and Freddie Mac.
V
Value-at-risk ('VAR')	A measure of the loss that could occur on risk positions as a result of adverse movements in market risk factors (e.g. rates, prices, volatilities) over a specified time horizon and to a given level of confidence.
W
Wholesale loans	Money lent to sovereign borrowers, banks, non-bank financial institutions and corporate entities.
Write-down	Reduction in the carrying value of an asset due to impairment or fair value movements.
Wrong-way risk	An adverse correlation between the counterparty's probability of default and the mark-to-market value of the underlying transaction.

Index

A

Accounting

developments (future) 293

policies (critical) 38

policies (significant) 38, 294

Accounts

approval 413

basis of preparation 42, 291

consolidation 292

presentation of information 291

use of estimates 292

Acquisitions and disposals 10, 379

Actuarial assumptions 324

Annual bonus 260

Annual General Meeting 248, 415

Areas of special interest 112

Asset-backed securities 149

Assets 33

average balance sheet 20

by country 341

by geographical region 59

by global business 43, 341

charged as security 392

deferred tax 331

five years 32

held for sale 105, 379

accounting policy 312

held in custody and under administration 94

intangible 371

maturity analysis 391

other 380

trading 345

underlying/reported reconciliation 35

Associates and joint ventures 371

interests in 369

share of profit in 31

transactions with 411

Auditors' remuneration 325

Auditors' Report 276

B

Balance sheet

average 20

consolidated 32, 281

data 57, 64, 75, 80, 86, 92, 340

HSBC Holdings 286

insurance manufacturing subsidiaries 173

underlying/reported reconciliation 35

Bancassurance 171

Bank levy 101

Basel 213

Board of Directors 5, 225

balance and independence 226

committees 230

meetings 226

powers 225

Brand 6, 15

Business model 10, 149

C

Calendar (dividends) 414

Capital 211

future developments 212, measurement and allocation 215, overview 211, regulatory 216, resources 32, return on average invested capital 3, risk 99, structure 214

Capital and performance ratios 2, 3

Cash flow

accounting policy 312

consolidated statement 282

HSBC Holdings 287

notes 397

Cautionary statement regarding forward-looking statements 422

Client assets 54

Collateral and credit enhancements 144, 393

Commercial Banking 44, 48

underlying/reported profit 17

Commercial real estate 119

Committees (Board) 230

Communication with shareholders 254, 416

Compliance risk 203

Concentration of exposure 108, 190

Conduits 150, 403

Constant currency 16

Contents inside front cover

Contingent liabilities and contractual commitments 399

Contractual maturity of financial liabilities 158

Core tier 1 capital 14, 32

Corporate governance

codes 229, report 218

Corporate sustainability committee 239

Cost efficiency ratio 3, 14, 30, 57, 64, 69, 75, 80, 86, 92

Credit cards 125

Credit coverage ratios 3

Credit exposure 105

Credit quality 189

classifications 191

Credit risk 104

in 2011 104

insurance 177, 207

management thereof 189

Critical accounting policies 38

Cross-border exposures 190

Customer accounts (by country) 36

Customer recommendation 15

D

Daily distribution of revenues 164

Dealings in HSBC Holdings plc shares 255

Debt securities in issue 359, 381

accounting policy 311

Deferred bonus arrangements 95

Defined terms inside front cover

Deposits 158, 359

accounting policy 311

average balances and average rates 20

Derivatives 147, 361

accounting policy 303

Directors

appointments and re-election 225, 228

biographies 218

Board of Directors 225

bonus 260

composition of reward 259

emoluments 265, 325

fees 269

interests 252

non-executive 268

other directorships 268

pensions 267, 271

performance evaluation 228

remuneration (executive) 259, 265

responsibilities (statement of) 226, 275

service contracts 268

share plans 261, 272

Disposal groups 379, 383

Diversity and inclusion 244

Dividends 253, 334, 414

per share 15, 18

E

Earnings per share 2, 15, 18, 335

Economic background

Europe 60, Hong Kong 66, Latin America 89, Middle East and North Africa 77, North America 82, Rest of Asia-Pacific 71

Economic profit 37, 265

Efficiency and revenue mix ratios 3

Employees 243

compensation and benefits 269, 316

disabled 244

diversity and inclusion 244

engagement 14

numbers 29, 243, 316

remuneration policy 245

Encumbered assets 160

Enquiries (from shareholders) 416

Equity 34

Equity securities 165

Europe

balance sheet data 69, 340

collateral 144-147

customer accounts 36

economic background 60

lending 110, 111, 121, 123

loan impairment charges/allowances 135

principal operations 60

profit/(loss) 60, 64, 337

profit/(loss) by country 61

review of business performance 60

risk-weighted assets 59

underlying/reported profit 17

Eurozone

exposures 113, 121

risk 99

Events after the balance sheet date 413

Exposures 105, 108, 112, 149

F

Fair value 346

accounting policy 300

adjustments 348

governance structure 347

valuation bases 351

Fee income (net) 22

Financial assets

accounting policy 40, 305

designated at fair value 360

not qualifying for de-recognition 368

reclassification 359

Financial assets and liabilities

accounting policy 40, 305

by measurement basis 341

Financial guarantee contracts

accounting policy 309

Financial highlights 2

Financial instruments 346

accounting policy (fair value) 300

accounting policy (valuation) 295

at fair value 24

credit quality 126, 128, 191

net income from 313

not at fair value 357

Financial investments 365

accounting policy 40, 301

gains less losses from 25

Financial liabilities designated at fair value 381

Financial risks (insurance) 175, 205

Financial Services Compensation Scheme 400

Financial statements 278

Five-year comparison 18, 32

Footnotes 95, 185, 214, 290

Forbearance 133, 192

Foreclosures 125

Foreign currencies/exchange 167

accounting policy 309

exposures 392

rates 18, 32

Funding sources (diversity) 161

Funds under management 94

G

Geographical regions 59

Global businesses 44

Global Banking and Markets 45, 51

underlying/reported profit 17

Global People Survey 243

Global Private Banking 45, 54

underlying/reported profit 17

Glossary 423

Going concern 243

Goodwill

accounting policy 39, 305

and intangible assets 371, 375

Governance codes 229

Group Audit Committee 230

Group CEO's Business Review 7

Group Chairman's Statement 4

Group Management Board 230

Group Remuneration Committee 238, 256

Group Risk Committee 233

H

Health and safety 244

Highlights 1

Hong Kong

balance sheet data 69, 340

collateral 144-147

customer accounts 36

economic background 66

lending 110, 111, 121, 123

loan impairment charges/allowances 135

principal operations 66

profit/(loss) 66, 69

review of performance 66

risk-weighted assets 59

underlying/reported profit 17

HSBC Holdings plc

balance sheet 286, cash flow 287, credit risk 148, deferred tax 334, dividends 334, employee compensation 317, 325, financial assets and liabilities 344, financial instruments not at fair value 359, liquidity and funding 162, 198, market risk 167, 202, maturity analysis of assets and liabilities 391, net income from financial instruments 313, share plans 327, statement of changes in equity 288, structural foreign exchange exposures 392, subordinated liabilities 390, transactions with subsidiaries 412

I

Impairment

accounting policy 38, 297

allowances 135

assessment 190

charges 27, 140

goodwill 372

impaired loans and advances 133, 134

losses as percentage of loans and advances 142

methodologies 151, 195

movement by industry and geographical region 137, 138

Income statement (consolidated) 18, 279

Information on HSBC (availability thereof) 417

Insurance

accounting policy 310

balance sheet of manufacturing subsidiaries 173

claims incurred (net) and movements in liabilities to policyholders 27, 314

in 2011 171

liabilities under contracts issued 383

net earned premiums 26, 314

products 204

PVIF business 181

risk management 204

Interest income/expense (net) 20

accounting policy 294

average balance sheet 20

sensitivity 166, 168, 201

Interim management statements 416

Interim results 416

Internal control 240

IFRS and Hong Kong Financial Reporting Standards comparison 291

Investment properties 377

Investor relations 417

J

Joint ventures 370

K

Key performance indicators 13

L

Latin America

balance sheet data 92, 340

collateral 144-147

customer accounts 36

economic background 89

lending 110, 111, 121, 123

loan impairment charges/allowances 135

principal operations 89

profit/(loss) 89, 92, 337

profit/(loss) by country 90

review of performance 89

risk-weighted assets 59

underlying/reported profit 17

Lease commitments 400

accounting policy 307

Legal

proceedings and regulatory matters 405

risk 203

Leveraged finance transactions 155, 405

Liabilities 34

average balance sheet 20

by geographical region 340

deferred tax 332

five years 32

maturity analysis 391

other 383

retirement benefit 317

subordinated 387

trading 381

underlying/reported reconciliation 35

Life insurance business 204

Liquidity and funding 157

in 2011 157

insurance 180, 208

management of risk 159, 196, 197

policies and procedures 196

primary sources of funding 196

Loans and advances

accounting policy 296

by country 111

collateral 144

concentration of exposure 108

credit quality of 126

delinquency in the US 126

impairment 27, 134-144

modifications and re-ageing 131

past due 128

renegotiated 129

to banks by geographical region 111

to customers by industry sector and geographical region 109, 110

write-off 190

M

Madoff 406

Market capitalisation 3

Market risk 163, 198

in 2011 163

insurance 176, 206

sensitivity analysis 199

Maturity analysis of assets and liabilities 391

Maximum exposure to credit risk 105

Middle East and North Africa

balance sheet data 80, 340

collateral 144-147

customer accounts 36

economic background 77

lending 110, 111, 121, 123

loan impairment charges/allowances 135

principal operations 77

profit/(loss) 77, 80, 337

profit/(loss) by country 78

review of performance 77

risk-weighted assets 59

underlying/reported profit 17

wholesale lending 119

Money market funds 404

Monoline insurers 154

Mortgages

lending 121

mortgage-backed securities 194

N

Nomination committee 238

Non-controlling interests 393

Non-interest income

accounting policy 295

Non-life insurance business 204

Non-money market investment funds 404

Non-trading portfolios 165

North America

balance sheet data 86, 340

collateral 144-147

customer accounts 36

economic background 82

lending 110, 111, 121, 123

loan impairment charges/allowances 135

mortgage lending 121

personal lending 124

principal operations 82

profit/(loss) 82, 86, 88, 337

profit/(loss) by country 83

review of performance 83

risk-weighted assets 59

underlying/reported profit 17

O

Operating expenses 29

Operating income 26, 52, 341

Operating profit 315

Operational risk 202

in 2011 170

Organisational structure chart 418

Other 55

Outlook 9

P

Payment protection insurance 386

Pension plans 317

accounting policy 308

defined benefit plans 167, 202, 321

for directors 271

risk 184

Performance in 2011 257

Personal lending 119, 121

Pillar 1, 2 and 3 216, 217

Preference shares 394

Preferred securities 32

Principal activities 10

Products and services 44

Profit before tax

by country 61, 72, 78, 83

by geographical region 59, 60, 64, 66, 69, 71, 75, 77, 80, 82, 86, 89, 92, 337

by global business 43, 46, 48, 51, 54, 57, 64, 67, 69, 75, 80, 86, 92

consolidated 18, 279

data 18, 339

underlying/reported reconciliations 16

Project Merlin 50

Property, plant and equipment 94, 376

accounting policy 306

Provisions 386

accounting policy 42, 309

PVIF 181, 311

R

Ratios

advances to core funding 14, 159, capital 2, credit coverage 3, cost efficiency 3, 14, 30, 57, 64, 69, 75, 80, 86, 92, dividends per share 2, earnings per share 2, 279, financial 2, key performance indicators 14, performance 3, risk adjusted revenue growth 15, return on average ordinary shareholders' equity 14, 18

Regulation and supervision

future developments 212

investigations 407, 409

Related party transactions 410

Remuneration

committee 238, 256, fixed pay 260, members 256, policy 245, regulation 259, report 256, reward strategy 256, variable pay pool 258

Renegotiated loans 129, 192

Representations and warranties 156

Repricing gap 168

Reputational risk 183, 209

Rest of Asia-Pacific

balance sheet data 75

collateral 144-147

customer accounts 36

economic background 71

lending 110, 111, 121, 123

loan impairment charges/allowances 135

principal operations 71

profit/(loss) 71, 75, 337

profit/(loss) by country 72

review of performance 72

underlying/reported profit 17

Retail Banking and Wealth Management 44, 46, 88

underlying/reported profit 17

Rights issue

accounting policy 312

Risk

appetite 234, committee 233, compliance 203, contingent liquidity 161, counterparty 350, credit 104, 189, credit spread 165, dispute 102, economic 102, eurozone 99, factors 12, foreign exchange 167, gap risk 165, geopolitical 100, governance 188, information security 103, insurance operations 171, 204, legal 203, liquidity and funding 157, management of 98, 188, market 163, operational 170, 202, pension 184, 209, policies and practices 188, 196, profile 98, regulatory 100, reputational 183, 209, scenario stress testing 188, 236, security and fraud 203, social media 103, sustainability 184, 210, top and emerging 13, 99, 235

Risk-weighted assets 32, 43, 59

movement in 2011 211

RoRWA (reconciliation of measures) 37

Run-off portfolio 46

S

Sale and repurchase agreements

accounting policy 303

Securities held for trading 108

Securitisations 149, 194, 404

Security and fraud risk 203

Segmental analysis 336

accounting policy 295

Senior management

biographies 223

changes 267

remuneration 269

Share-based payments 327

accounting policy 308

Share capital 249, 394

accounting policy 312

during 2011 251

notifiable interests in 254

ownership guidelines 267

rights and obligations 249

Share information 3

Share plans

discretionary plans 245

for directors 261

for employees 245, 327

HSBC Bank Bermuda plans 247, 397

HSBC Finance plans 247, 396

HSBC France plans 246, 395

Performance Shares and Restricted Share awards 265

Shareholder (communications with) 228

profile 415

Special purpose entities 401

Staff numbers 29

Statement of changes in equity 283

Statement of comprehensive income 280

Stock symbols 417

Strategic direction 8, 11, 46, 48, 51, 54

Structural foreign exchange exposure 166, 201

Subsidiaries 378

accounting policy 305

Supplier payment policy 253

Sustainability committee governance risk 184, 210

T

Tax

accounting policy 41, 307

deferred tax 331

expense 31

of shares and dividends 419

reconciliation 331

Tier 1 capital 212

Total shareholder return 3, 267

Trading assets 345

accounting policy 300

Trading income (net) 23

Trading liabilities 381

accounting policy 300

Trading portfolios 163, 200

U

Underlying performance 16

US budget deficit 118

V

Value at risk 164

Values (HSBC) 9, 13

W

Wholesale lending 112

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Rooms 1712-1716, 17^th floor
Hopewell Centre
183 Queen's Road East
Hong Kong
Telephone: [phone]

Email: [e-mail]

Web: www.computershare.com/hk/investors

Bermuda Overseas Branch Register
Investor Relations Team
HSBC Bank Bermuda Limited
6 Front Street
Hamilton HM11
Bermuda
Telephone: [phone]
Email: [e-mail]
Web: www.computershare.com/investor/bm

ADR Depositary
BNY Mellon Shareowner Services
PO Box 358516
Pittsburgh
PA15252 - 8516

USA
Telephone (US): 1 877 283 5786

Telephone (International): 1 201 680 6825

Email: [e-mail]

Web: www.bnymellon.com/shareowner

Paying Agent (France)
HSBC France
103 avenue des Champs Elysées
75419 Paris Cedex 08
France
Telephone: [phone]
Email: [e-mail]

Web: www.hsbc.fr

STOCKBROKERS

Goldman Sachs International
Peterborough Court
133 Fleet Street
London EC4A 2BB
United Kingdom

Credit Suisse Securities (Europe) Limited

One Cabot Square

London E14 4QJ

United Kingdom

HSBC Bank plc
8 Canada Square
London E14 5HQ
United Kingdom

 

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