HSBC Holdings plc 2010 Interi

RNS Number : 3187Q
HSBC Holdings PLC
02 August 2010
 



 

HSBC HOLDINGS PLC

2010 INTERIM RESULTS - HIGHLIGHTS

 

Strong increase in profitability

 

·    Pre-tax profit more than doubled to US$11.1 billion on a reported basis - US$10 billion1 excluding fair value on own debt, up 34 per cent.

·    Underlying pre-tax profit up by US$2.2 billion or 30 per cent to US$9.6 billion.

·    Profit attributable to shareholders more than doubled to US$6.8 billion on a reported basis.

·    Loan impairment charges and other credit risk provisions down US$6.4 billion to US$7.5 billion, the lowest since the start of the financial crisis.

·    Earnings per share up 81 per cent to US$0.38 (first half 2009: US$0.21).

·    Declared dividends of US$2.8 billion or 16 cents per ordinary share in respect of the period.

 

Universal banking model delivering profits through the cycle

 

·    Profitable in every customer group and in all regions outside North America2.

·    Diversified Global Banking and Markets business delivered another very strong performance.

·    Commercial Banking exceptionally well placed to support rebounding international trade.

·    Strategic repositioning of Personal Financial Services driving improved profitability.

·    Strong Asia profits reflect investment in building presence across the region.

 

Financial strength core to our philosophy and key to future growth

 

·    Profits added US$6.0 billion to tier 1 capital. Tier 1 ratio 11.5 per cent, well above target range; core tier 1 ratio 9.9 per cent.

·    Funding strength underpinned by customer deposits of US$1.15 trillion and customer
advances-to-deposits ratio below 80 per cent.

·    Lending up in all regions since 31 December 20092.

 

Building our customer base and investing for the long term

 

·    Customer acquisition focused on international financial needs:

Ø Premier customers up to 3.9 million; on target for six million by the end of 2011.

Ø Commercial Banking customers up to 3.5 million, 85 per cent of new customers in emerging markets.

·    Leadership in emerging markets extended by additional investments in India, China, Vietnam and Kazakhstan.

·    Strengthened position as leading international bank in China: opened 100th mainland outlet; supported Bank of Communications rights issue; grew leadership in renminbi services.

·    World's most valuable banking brand for third year running3; Euromoney's'Best Global Emerging Markets Bank'.

 

1      Reported profit before tax excluding changes in fair value of own debt due to credit spread.

2      Underlying basis.

3      Brand Finance Banking 500 2010 League Table.


HSBC HOLDINGS REPORTS PRE-TAX PROFIT OF US$11,104 MILLION

 

HSBC made a profit before tax of US$11,104 million, an increase of US$6,085 million, or 121 per cent, compared with the first half of 2009.

 

Net interest income of US$19,757 million was US$781 million, or 3.8 per cent, lower than the first half of 2009.

 

Net operating income before loan impairment charges and other credit risk provisions of US$35,551 million was US$810 million, or 2.3 per cent, higher than the first half of 2009.

 

Total operating expenses of US$18,111 million increased by US$1,453 million, or 8.7 per cent, compared with the first half of 2009. On an underlying basis, and expressed in terms of constant currency, operating expenses increased by 5 per cent.

 

HSBC's cost efficiency ratio was 50.9 per cent compared with 47.9 per cent in the first half of 2009.

 

Loan impairment charges and other credit risk provisions were US$7,523 million in the first half of 2010, US$6,408 million lower than the first half of 2009.

 

The Directors have declared a second interim dividend for 2010 of US$0.08 per ordinary share, a distribution of approximately US$1,401 million.

 

The core tier 1 ratio and tier 1 ratio for the Group remained strong at 9.9 per cent and 11.5 per cent, respectively, at 30 June 2010.

 

The Group's total assets at 30 June 2010 were US$2,418 billion, an increase of US$54 billion, or 2.3 per cent, since 31 December 2009.

 

 


Geographical distribution of results

 

Profit/(loss) before tax



Half-year to


30 June 2010


30 June 2009


31 December 2009


US$m


%


US$m


%


US$m


%













Europe

3,521


31.7


2,976


59.3


1,033


50.2

Hong Kong

2,877


25.9


2,501


49.8


2,528


122.7

Rest of Asia-Pacific

2,985


26.9


2,022


40.3


2,178


105.7

Middle East

346


3.1


643


12.8


(188)


(9.1)

North America

492


4.4


(3,703)


(73.8)


(4,035)


(195.9)

Latin America

883


8.0


580


11.6


544


26.4

 



 


 


 




 

 

11,104


100.0


5,019


100.0


2,060


100.0

 



 


 






 

Tax expense

(3,856)


 


(1,286)




901


 

 



 


 






 

Profit/(loss) for the period

7,248


 


3,733




2,961


 

 



 


 






 

Profit/(loss) attributable to



 


 






 

   shareholders of the



 


 






 

   parent company

6,763


 


3,347




2,487


 

 



 


 






 

Profit attributable to



 


 






 

   non-controlling interests

485


 


386




474


 

 

 

Distribution of results by customer group and global business

 

Profit/(loss) before tax



Half-year to


30 June 2010


30 June 2009


31 December 2009


US$m


%


US$m


%


US$m


%













Personal Financial Services

1,171


10.5


(1,249)


(24.9)


(816)


(39.6)

Commercial Banking

3,204


28.9


2,432


48.5


1,843


89.5

Global Banking and Markets

5,633


50.7


6,298


125.5


4,183


203.0

Private Banking

556


5.0


632


12.6


476


23.1

Other

540


4.9


(3,094)


(61.7)


(3,626)


(176.0)

 



 


 


 




 

 

11,104


100.0


5,019


100.0


2,060


100.0

 

 


Review by Michael Geoghegan, Group Chief Executive

 

Group financial performance strongly ahead

 

At HSBC, we have a clear and distinctive strategy. It is to rebalance the Group towards the needs of a fast-changing global economy, while keeping our strong capital and liquidity position. Our focus is therefore to build upon our unrivalled franchise in emerging markets, while delivering connectivity for our customers everywhere in an increasingly connected world. That HSBC delivered a strongly improved performance in the first half of 2010 is in large part thanks to this strategy and our success in repositioning and transforming the business to deliver on it.

 

Our Personal Financial Services and Commercial Banking businesses delivered significantly improved results, adding to another very strong performance in Global Banking and Markets. On a reported basis, pre-tax profits more than doubled to US$11.1 billion compared with the first half of 2009, including the impact of movements on the fair value on our own debt relating to credit spreads. Underlying pre-tax profits1 increased by 30 per cent to US$9.6 billion year-on-year, driven by significantly reduced loan impairment charges.

 

With regulatory change ahead, capital and funding strength will become even more important in deciding which banks can grow and which are left behind. Maintaining our strong balance sheet therefore remains core to our banking philosophy. We further strengthened our tier 1 capital through underlying profit generation and capital issuance. We increased our tier 1 capital ratio to 11.5 per cent, we grew our core tier 1 ratio to 9.9 per cent and the outcome of the EU-wide stress test exercise by the Committee of European Banking Supervisors in July2 confirmed the robustness of our capital position. Our ratio of customer advances to deposits remained steady at under 80 per cent, providing a broad indication of our funding strength and keeping our distinctive liquidity position.

 

As one of the industry's leading dividend payers, HSBC recognises the importance of dividend income to all our shareholders, not least our many retail investors. We declared dividends on ordinary shares of US$2.8 billion in respect of the first half of the year including a second interim dividend of eight US cents per ordinary share, payable on 6 October 2010. Return on average total shareholders' equity improved to 10.4 per cent on a reported basis and was 9.3 per cent excluding the impact of movements on the fair value of our own debt related to credit spreads. As we reduce our run-off portfolios, we believe shareholders' continuing support of HSBC will be rewarded with improving returns - albeit towards the lower end of the target range - in the medium term.

 

Once again, emerging economies led the global recovery in the first half. Government infrastructure investment continued apace, while flows of cross-border trade and investment sustained their rapid recovery. We continued to rebalance our assets steadily towards the world's emerging markets and to build new revenue streams across the Group, positioning the business for sustainable growth.

 

Despite increasing economic uncertainty towards the end of the period, we saw appetite for credit grow steadily, especially among our business customers. This is now feeding through into lending growth, a trend we expect to continue. In the first half of the year, we added assets in targeted segments to the balance sheet, more than offsetting the effect of the run-off in our exit portfolios. We grew loans and advances to customers in all regions and by four per cent overall, compared with  the end of 2009. Geographically, the strongest growth was in Asia, where we grew lending by 15 per cent. In Commercial Banking we grew lending by nine per cent globally.

 

We gained share of international trade volumes, made progress in building our Insurance and Wealth Management businesses, and expanded our advisory services in Global Banking and Markets. As a result, fee income rose overall outside the US.

 

Overall, revenues were broadly in line with the second half of 2009. However, as we expected, they were lower than in the first half, given the exceptional market conditions in that period, especially in Global Banking and Markets. This also reflected our success in reducing and repositioning Personal Financial Services portfolios away from Consumer Finance and other unsecured lending products.

 

As we focus on building a high quality asset base for the future, it is encouraging that loan impairment charges now stand at their lowest levels since the start of the financial crisis.  They almost halved overall, reducing by US$6.8 billion to US$7.5 billion year-on-year. This reflects the benefit of more stable economic conditions for many of our customers and follows our actions, begun before the crisis, to reduce exposure to unsecured lending outside our key relationships, to exit unprofitable business lines and to tighten underwriting standards for new business.

 

We continued to invest in expanding the business and transforming our operations. However, we did so with a focus on cost control. As a result, our cost efficiency ratio was only slightly above our target range at 53.1 per cent. Costs were broadly unchanged, excluding the impact of the one-off pension gain in the first half of 2009, and the UK and French payroll taxes on 2009 bonuses and pension curtailment accounting gain in the US which were accounted for in the current period. Overall, operating expenses were five per cent higher.

 

Profitable in every region outside North America

 

In Asia, performance was comfortably ahead, with pre-tax profits increasing by 20 per cent to US$5.6 billion. As levels of trade activity improved from the lows of a year ago and demand for credit, investment and insurance products increased, we continued to meet our customers' growing financial needs. The contribution of Asian profits generated outside Hong Kong grew to 50 per cent, underlining our growing presence across the region.

 

Pre-tax profits in Latin America increased by 36 per cent to US$0.9 billion, largely driven by improved credit experience in our retail businesses as we ran off higher risk consumer portfolios.

 

In the Middle East, pre-tax profits were down by 39 per cent at US$393 million but were well ahead of the second half of 2009. Loan impairment charges were modestly higher year-on-year but more than halved in comparison with the second half of 2009 as credit delinquency trends improved. We have seen customer activity beginning to pick up and believe the region has a sustainable and strong future.

 

In Europe, pre-tax profits were strongly ahead in Personal Financial Services and were also higher in Commercial Banking. Overall, they were 19 per cent lower at US$2.8 billion, as Global Banking and Markets revenues reduced from the exceptional first half performance of 2009.

 

Profits in the UK accounted for 52 per cent of the European total. In the UK, we grew international trade volumes and increased mortgage lending. The quality of the new mortgage book is illustrated by a low average loan to value ratio of 53 per cent.

 

Continental Europe represented 48 per cent of total European pre-tax profits. We strengthened our management team to focus more closely on opportunities for growth across the region and began to centralise our processing operations to deliver greater economies of scale. Despite weak and volatile market conditions, HSBC successfully managed its sovereign risk exposures in respect of Greece, Portugal, Spain and Ireland which were US$4 billion and the overall quality of our sovereign debt portfolio remains strong.

 

It is an encouraging sign of progress in the US that performance in North America was ahead by some US$2 billion, resulting in a significantly reduced pre-tax loss of US$80 million. Loan impairment charges fell markedly and we made good progress in developing our continuing businesses generally - including Premier, international trade finance, and our Global Banking and Markets business where we continued to support the needs of our Latin American corporate clients.

 

Our US Consumer Finance run-off portfolios continued to decrease in line with our expectations. We reduced total balances across these portfolios by a further US$10 billion to US$69 billion since the end of 2009. In July, we also agreed in principle to sell the remainder of the vehicle finance loan portfolio and other related assets to an unaffiliated third party. The sale is expected to close in the third quarter of 2010.

 

Profitable in every customer group

 

Led by these improvements in the US, Personal Financial Services returned to profit for the first time in two years. Pre-tax profits were US$1.2 billion, following an improvement of US$2.5 billion year-on-year. We benefited from a stronger credit experience, in part driven by improved collections processes. We also saw stronger sales of wealth management, insurance and mortgage products and higher customer deposits.

 

In Commercial Banking, pre-tax profits were also well ahead, rising by 40 per cent to US$3.1 billion, reflecting an improvement in the economic environment, supported by active portfolio management during the crisis, robust revenues and progress in rebuilding the balance sheet through selective lending growth.

 

Although pre-tax profits were down 13 per cent at US$5.6 billion,  Global Banking and Markets reported its second best performance of any half-year period, reinforcing the success of our emerging markets-led, financing-focused strategy. The business remained highly diversified with the largest revenue stream contributing some 20 per cent of the total. Balance Sheet Management revenues were lower, but they were robust and opportunities remained to redeploy our liquidity efficiently.

 

Private Banking pre-tax profits were 13 per cent lower at US$0.6 billion, largely due to the impact of low interest rates. However, net new money inflows totalled US$7.3 billion, the majority of which were from emerging markets.

 

Building on our distinctive strengths

 

At HSBC, we are very clear about what makes us a different kind of bank and we are building on those strengths that enable us to serve our customers best.

 

Connecting customers across regions

 

As we see other companies in all industries working to build global scale, we are thankful for the global reach that comes from 145 years of doing business as an international bank. We are constantly working to harness the connectivity this provides so we can better meet the needs of our international customers.

Global Banking and Markets provides an excellent example of this in action. Our global network allows us to service customers with cross-border trading or financing needs anywhere in the world, by accessing the expertise in our major dealing rooms in centres like London, Paris, New York and Hong Kong. This has helped us to increase the revenue contribution from emerging markets, which grew from 35 per cent to 37 per cent year-on-year.

 

Reinforcing our position as the world's leading emerging markets bank

 

In July, Euromoney recognised the breadth and depth of HSBC's presence across the world's faster-growing regions by naming us 'Best Global Emerging Markets Bank'. Throughout the first half, we continued to rebalance our footprint towards these regions and we expect them to account for the majority of global growth for the foreseeable future.

 

There is no market of greater strategic importance to HSBC than Greater China. We continue to protect and build on our position as the leading international bank in mainland China, where we opened our 100th HSBC-branded outlet and opened a flagship new China Head Office in Shanghai. We are building on our strategic partnerships and subscribed for our full entitlement of H-shares in the Bank of Communications rights issue. We also incorporated locally in Taiwan which will complement our platforms in Hong Kong and  mainland China and improve our access to the region.

 

We are committed to building our presence in India too and so, in July, we announced our third investment in two years through the acquisition of the Indian retail and commercial operations of the Royal Bank of Scotland. This will significantly increase our scale in Asia's third largest economy and give us access to 1.1 million customer relationships. Subject to regulatory approvals, we expect to complete the deal in the first half of 2011.

 

In June, we also announced an acquisition to increase our presence in Kazakhstan, a fast-growing economy with important trade links to mainland China.

 

Maintaining our funding strength

 

One of the key lessons to emerge from the financial crisis was the critical importance of stable liquidity. At HSBC, deposits have always been fundamental to everything we do and they remain the fuel for our future growth.

 

It is proof of our brand strength that - at a time of low interest rates and intense competition for savings - we increased customer deposit balances by three per cent to US$1,147 billion during the period. The effect on our profits of low deposit spreads remains significant, but I believe HSBC is a bank well positioned to benefit from a progressive rise in interest rates. Just as important as the financial returns, our liquidity position means we can respond to new growth opportunities as soon as they emerge - not least in Asia, where our funding base is particularly strong.

 

Building a customer base for tomorrow

 

There is no greater opportunity for HSBC in Personal Financial Services than serving the needs of the world's 180 million mass affluent individuals. These customers are typically highly mobile, with significant cross-border requirements that play to our strengths as a global bank.

 

Premier is our flagship product for this sector and we are on track to build our customer base to six million by the end of 2011. In June, the monthly increase in Premier customer numbers reached 100,000 and, at the end of the period, total numbers reached 3.9 million. Revenues from Premier customers can be over four times that generated by a standard account in the current interest rate environment. Furthermore, wealth management products account for an increasing proportion of Premier revenues, highlighting our ability to manufacture and deliver a full suite of products of real value to affluent customers over their lifetimes. Looking to the longer term, we have now also launched Advance in 22 countries, an international proposition for the next generation of potential Premier customers.

 

As trade volumes recover and the direction of global investment shifts, international business customers have continued to turn to HSBC and to benefit from our global scale and connectivity across the world's emerging and developed markets. In Commercial Banking, international customers typically generate more than double the revenues of domestically focused companies and we grew this customer base by 16 per cent. Building relationships with small and medium-size companies is also core to our future growth strategy, and we increased these customer numbers by three per cent to 3.3 million, with 84 per cent of new customers in emerging markets.

 

Within Global Banking and Markets, we are focusing on building broad-based relationships with those international customers where we are best equipped to meet their full range of financial needs and we have the greatest opportunity to grow revenues. Working together, Private Banking and Global Banking and Markets launched a family office partnership to provide better, more holistic relationship management, for our wealthiest clients. Private Banking also continued to focus on developing business in emerging markets and was recognised as 'Best Global Wealth Manager' by Euromoney in July. 

 

Building sustainable revenue streams for the future

 

With a very clear understanding of our customers and their future needs, we are carefully developing our range of products and services in response. We are targeting those areas where we know HSBC has distinctive strengths, where the revenue opportunity is big enough to make a difference and where the risk-adjusted returns are most attractive.

 

Expanding our wealth management offering

 

People in most of our key markets are living longer and demanding longer-term financial products, presenting great opportunities to grow our wealth management business. We are increasing share in key markets including Hong Kong, the UK and Canada and developing new products to meet the needs of our Premier customers. In 2009, we launched World Selection, a dynamically managed multi-manager fund product, bringing a diverse range of international assets to our local retail customers. In the first half of 2010, we extended the product to 21 countries and increased funds under management by 59 per cent to US$4.1 billion. We also launched five new Exchange Traded Funds ('ETF's) and, in July, announced the launch of our first emerging market ETF for Brazil as we continue to make low-cost access to global markets available for our retail customers.

 

Building our emerging market insurance platforms

 

As growth in demand for insurance in emerging markets accelerates, we are investing for the future with encouraging success, particularly in Asia and Latin America. Our ambition is to be the leading international bancassurer in Asia within the next decade.

 

We have already built a leading life insurance business in Hong Kong through our integrated bancassurance strategy. In mainland China, HSBC Life has grown rapidly within its first year of operation. In India, our joint venture with Canara Bank and Oriental Bank of Commerce is a top 12 international insurer in the country after two years of operation. Our commitment to Asia was further underlined in January when we increased our investment in Vietnam - one of the fastest-growing ASEAN economies - by increasing our stake in Bao Viet Holdings from ten to 18 per cent.

 

In Latin America, sales of insurance products increased and we continued to tailor our proposition to different customer segments and successfully launched new products in Mexico and Brazil.

 

Extending our leadership in international trade

 

International trade is set to grow faster than GDP for the foreseeable future and our own research shows that the trade finance needs of most mid-sized companies are growing quickly. Thanks to our global connectivity and local knowledge, we are meeting these needs. HSBC's export-related trade volume continued to grow steadily and we progressively gained market share during the period.

 

To support the growing flows between emerging and developed economies, we are moving the right people and skills to the right places and, as the leading international emerging markets bank, we are particularly well placed to support the growing flows of 'South-South' trade. In Commercial Banking, we are seeing a rapid increase in trade flows between Latin America and mainland China and we are transferring bankers from Europe, the US and Latin America to mainland China and Hong Kong. In Global Banking, we transferred bankers from our Latin American operations into HSBC offices in mainland China, and set up a reciprocal China desk in Brazil.

 

Capturing the outflows from mainland China

 

I believe that the re-emergence of China's economy will drive the biggest change to global trade patterns in the generation ahead. We expect mainland China's total trade flows with the rest of the world to grow by some 13 per cent a year over the next five years to US$5 trillion.

 

Mainland Chinese companies expanding overseas accounted for about half of new customer growth in Commercial Banking in Hong Kong over the past twelve months. We also aim to be the pre-eminent international bank in renminbi trade, settlement and bond issuance, as regulations change and the offshore renminbi market gradually develops. In Hong Kong, HSBC had a significant share of the cross-border clearance market and we expect to grow this further in the second half of the year. In June, we executed the first cross-border renminbi transaction in the UK and we aspire to be the first international bank to execute transactions across six continents. In July, we also acted as sole bookrunner and lead manager for the first ever offshore renminbi certificate of deposit issue, which provides a new investment vehicle for market participants to manage portfolio risk.

 

Building out our equity platform

 

Over the past 15 years, HSBC has built a world-class debt capital market platform in the world's faster-growing markets, something Euromoney recognised when they named us 'Best Global Emerging Markets Debt House' in July. We are now leveraging these customer relationships and building out our equities platform in a co-ordinated and selective way across Advisory, Equity Capital Markets, Research and Distribution. We are expanding in Hong Kong, mainland China, India, the Middle East, Brazil and Mexico and developing our European business in the UK, France and Germany. This will enable us to deliver a comprehensive range of Equities products to key institutional clients and personal, commercial and private banking customers alike. During the period, we made key hires, continued to invest in our trading and infrastructure platform, and gained market share in Asia and Europe.

 

 

Growing our leadership in Islamic finance

 

Islamic finance is a fast-developing industry, currently growing at over 20 per cent a year. HSBC Amanah represents the largest and most comprehensive Islamic proposition of any international bank, with successful operations in the UK, the Middle East and Asia-Pacific. We continued to expand our product range across our customer groups and we were delighted to be recognised as Euromoney's 'Best International Islamic Bank' and 'Best Sukuk House' in 2010. In the first half of the year, we were the global lead underwriter for sukuk and we launched an Amanah Premier proposition in four markets in the Middle East and two markets in Asia-Pacific. In July, we opened our first Amanah-only branch in Qatar, the fourth country in which we have established dedicated branches to serve the full range of Islamic banking needs.

 

Transforming our business infrastructure

 

Of course, investment in building relationships and expanding our products and services will not be successful unless we continuously invest to improve customer service and deliver greater efficiency.

 

Above all, we are delivering a better and more consistent experience for our customers. This year, we will refresh, refurbish or expand over 1,000 branches including more than 200 in the UK, and we have begun a three-year programme to invest over US$500 million in our Latin American branch network. We have taken the first steps towards improving the account opening experience across our retail businesses which will, over time, free our staff to focus directly on customer needs.

 

We are also investing in adding front-line staff, to improve relationship management and drive future sales growth. In Personal Financial Services, we aim to recruit 1,000 additional relationship managers and other customer-facing staff this year to support the development of Premier. In Private Banking, we have begun a three-year programme to add up to 500 customer-facing staff covering key markets in Asia, Latin America and the Middle East. In Commercial Banking, we are recruiting up to 500 relationship managers and business specialists to drive business expansion in Brazil and Mexico.

 

At the same time, we are transforming our operations to create a more efficient, better connected bank. In Latin America, we are joining up our sites across the region so we can better compete with bigger local competitors. One example is the centralisation of our trade operations in Panama, which has allowed us to deliver a better, more consistent customer experience across a number of countries. We have adopted a new collections call model, allowing us to export our best practice in the US across the Group and, in the Middle East, this has led to a 40 per cent reduction in the number of outbound calls.

 

We also continued to improve our direct channels. As a result, one million small and medium-size business customers used our Business Internet Banking platform and we grew the number of users of our online platform for larger commercial customers, HSBCnet, by 17 per cent to 55,000.

 

Thanks to these important initiatives and the dedication and focus of all of our staff, we are making measurable progress in improving customer satisfaction. Among Business Banking customers, we have exceeded our brand health scores in a number of key markets. Meanwhile, among our Personal Financial Services customers, our ambition is to achieve a top three ranking for customer recommendation in all 15 markets that we track. We are already in the top three for nine of these markets. All of this is helping to reinforce the strength of our brand and we were delighted to be named the top banking brand by Brand Finance for the third year running in 2010.

 

Well positioned for the shifting economy and for regulatory change

 

Global demand will remain constrained as long as we face the likelihood of anaemic growth in various Western nations. But while these economies come to terms with austerity, we remain bullish on the outlook for emerging markets - both short and long-term. Some cooling off is possible, however I am confident that the authorities in leading economies like China can and will continue to deliver sustainable growth and support domestic demand.

 

Regulatory change is now beginning to move up a gear, and HSBC's capital strength positions us strongly for change. HSBC is preparing for a period which will be characterised by further intense public and political scrutiny of banks in the West and a complex compliance environment with a higher level of intervention by regulators. Meanwhile, finalising the shape of the global regulatory framework remains the most urgent challenge for the industry and its supervisors. Greater clarity is required, however reform is clearly moving in the right overall direction. Our collective responsibility now is to get the details and the timetable right so trade and capital can flow freely and banks are able to play their full part in financing these flows and supporting  economic growth.

 

The West is realising that it does not have all the answers and the commitment of the G20 in driving forward the reform agenda is promising, with policymakers in emerging markets playing an increasing part. We believe it is essential that all G20 members participate according to the same rules, otherwise we will end up with an uneven playing field that looks very different depending on where a company is headquartered. In a global marketplace where businesses and people are mobile, one country cannot afford to pursue its own particular policy agenda without considering the possible unintended consequences for the wider economy.

 

Finally, we believe that HSBC's results over the past decade - and throughout the latest crisis - prove that a well-balanced, universal banking model of scale really works. We have weathered the storms in different regions and in different sectors precisely because our business is large, broad and diverse. As we continue to debate the shape of the regulatory framework, it remains our view that the financial system needs banks which are 'big enough to cope.' Soundly-managed universal banks not only contribute to financial stability - but are also best placed to support economic growth by meeting the full range of customer needs in our globalised, connected world.

 

 

 

 

1      Commentary on financial performance is given on an underlying basis unless otherwise stated.

2      All references to July are July 2010.

 


Half-year to



Half-year to

30 June



30 June


30 June


31 December

2010



2010


2009


2009

£m


HK$m



US$m


US$m


US$m















For the period






7,284


86,300


Profit before tax

11,104


5,019


2,060





Profit attributable to shareholders of the






4,436


52,562


   parent company

6,763


3,347


2,487

2,139


25,344


Dividends

3,261


2,728


2,911





 










At the period-end






90,674


1,058,588


Total shareholders' equity

135,943


118,355


128,299

103,309


1,206,097


Total regulatory capital

154,886


155,186


155,729

850,183


9,925,599


Customer accounts and deposits by banks

1,274,637


1,292,494


1,283,906

1,613,108


18,832,501


Total assets

2,418,454


2,421,843


2,364,452

717,201


8,373,081


Risk-weighted assets at period end

1,075,264


1,159,274


1,133,168





 










 






£


HK$


 

US$


US$


US$





Per ordinary share






0.25


2.95


Basic earnings

0.38


0.21


0.13

0.25


2.95


Diluted earnings

0.38


0.21


0.13

0.12


1.40


Dividends1

0.18


0.18


0.16

4.90


57.23


Net asset value at period end

7.35


6.63


7.17





 










 










Share information










US$0.50 ordinary shares in issue

17,510m


17,315m


17,408m





Market capitalisation

US$161bn


US$141bn


US$199bn





Closing market price per ordinary share

£6.152


£5.025


£7.09





 










 

Over 1


Over 3


Over 5





 

year


years


years





Total shareholder return to










   30 June 20102

126.9


90.3


102.6





Benchmarks:   FTSE 100

119.8


83.8


115.8





                         MSCI World

110.8


70.6


103.1





                         MSCI Banks

106.9


48.6


68.9

 

1   Under IFRSs accounting rules, the dividend per share of US$0.18 shown in the accounts is the total of the dividends declared during the first half of 2010. This represents the fourth interim dividend for 2009 and the first interim dividend for 2010.

2   Total shareholder return ('TSR') is as defined on page 19 of the Annual Report and Accounts 2009.

 

 

Half-year to


30 June


30 June


31 December


2010


2009


2009


%


%


%







Performance ratios






Return on average invested capital1

9.4


5.0


3.3

Return on average total shareholders' equity

10.4


6.4


4.3

Post-tax return on average total assets

0.62


0.31


0.24

Post-tax return on average risk-weighted assets

1.33


0.66


0.51







Efficiency and revenue mix ratios






Cost efficiency ratio

50.9


47.9


56.4







As a percentage of total operating income:






- net interest income

48.6


51.0


52.6

- net fee income

20.9


20.9


24.1

- net trading income

8.7


15.5


9.4







Capital ratios






- Core tier 1 ratio

9.9


8.8


9.4

- Tier 1 ratio

11.5


10.1


10.8

- Total capital ratio

14.4


13.4


13.7

 

1   Return on average invested capital is based on the profit attributable to ordinary shareholders. Average invested capital is measured as average total shareholders' equity after adding back goodwill previously written-off directly to reserves, deducting average equity preference shares issued by HSBC Holdings and deducting/(adding) average reserves for unrealised gains/(losses) on effective cash flow hedges and available-for-sale securities. This measure reflects capital initially invested and subsequent profit.

 

 


Half-year to



Half-year to

30 June



30 June


30 June


31 December

2010



2010


2009


2009

£m


HK$m



US$m


US$m


US$m











18,818


222,948


Interest income

28,686


32,479


29,617

(5,857)


(69,397)


Interest expense

(8,929)


(11,941)


(9,425)





 



 



12,961


153,551


Net interest income

19,757


20,538


20,192





 



 



6,826


80,868


Fee income

10,405


10,191


11,212

(1,238)


(14,666)


Fee expense

(1,887)


(1,763)


(1,976)





 



 



5,588


66,202


Net fee income

8,518


8,428


9,236





 



 







Trading income excluding net interest



 



1,515


17,946


   income

2,309


4,301


1,935

815


9,660


Net interest income on trading activities

1,243


1,954


1,673





 



 



2,330


27,606


Net trading income

3,552


6,255


3,608





 



 







Changes in fair value of long-term debt



 



738


8,747


   issued and related derivatives

1,125


(2,300)


(3,947)





Net income/(expense) from other financial



 



(26)


(310)


   instruments designated at fair value

(40)


777


1,939





 



 







Net income/(expense) from financial



 



712


8,437


   instruments designated at fair value

1,085


(1,523)


(2,008)





 



 







Gains less losses from financial



 



365


4,329


   investments

557


323


197

39


459


Dividend income

59


57


69

3,717


44,036


Net earned insurance premiums

5,666


5,012


5,459

970


11,487


Other operating income

1,478


1,158


1,630





 



 



26,682


316,107


Total operating income

40,672


40,248


38,383





 



 







Net insurance claims incurred and



 



(3,359)


(39,800)


   movement in liabilities to policyholders

(5,121)


(5,507)


(6,943)





 



 







Net operating income before loan



 







   impairment charges and other credit



 



23,323


276,307


   risk provisions

35,551


34,741


31,440





Loan impairment charges and other



 



(4,935)


(58,469)


   credit risk provisions

(7,523)


(13,931)


(12,557)





 



 



18,388


217,838


Net operating income

28,028


20,810


18,883





 



 



(6,433)


(76,212)


Employee compensation and benefits

(9,806)


(9,207)


(9,261)

(4,603)


(54,517)


General and administrative expenses

(7,014)


(6,258)


(7,134)





Depreciation and impairment of property,



 



(547)


(6,482)


   plant and equipment

(834)


(814)


(911)





Amortisation and impairment of



 



(300)


(3,552)


   intangible assets

(457)


(379)


(431)





 



 



(11,883)


(140,763)


Total operating expenses

(18,111)


(16,658)


(17,737)





 



 



6,505


77,075


Operating profit

9,917


4,152


1,146





 



 







Share of profit in associates and



 



779


9,225


   joint ventures

1,187


867


914





 



 



7,284


86,300


Profit before tax

11,104


5,019


2,060





 



 



(2,530)


(29,969)


Tax expense

(3,856)


(1,286)


901





 



 



4,754


56,331


Profit for the period

7,248


3,733


2,961





 



 







Profit attributable to shareholders



 



4,436


52,562


   of the parent company

6,763

 

3,347

 

2,487





 

 

 

 

 

 

318


3,769


Profit attributable to non-controlling

485

 

386

 

474





   interests

 

 

 

 

 

 


 

Half-year to

 

30 June


30 June


31 December

 

2010


2009


2009

 

US$m


US$m


US$m

 






Profit for the period

7,248


3,733


2,961

 






Other comprehensive income






Available-for-sale investments:






- fair value gains taken to equity

4,698


4,067


5,754

- fair value (gains)/losses transferred to income statement on disposal

(574)


(720)


72

- amounts transferred to the income statement in respect of






      impairment losses

678


872


1,519

- income taxes

(596)


(349)


(398)

 






 

4,206


3,870


6,947

 






Cash flow hedges:






- fair value gains/(losses) taken to equity

(1,687)


(111)


592

- fair value gains/(losses) transferred to income statement

1,644


856


(48)

- income taxes

(2)


(293)


(224)

 



 



 

(45)


452


320

 



 



Actuarial gains/(losses) on defined benefit plans



 



- before income taxes

(82)


(3,578)


(8)

- income taxes

22


969


9

 



 



 

(60)


(2,609)


1

 



 



Share of other comprehensive income of associates and joint ventures

73


105


44

Exchange differences

(6,128)


3,450


1,525

 






Other comprehensive income for the period, net of tax

(1,954)


5,268


8,837

 






Total comprehensive income for the period

5,294


9,001


11,798

 






Total comprehensive income for the period attributable to:






- shareholders of the parent company

4,901


8,397


11,132

- non-controlling interests

393


604


666

 






 

5,294


9,001


11,798

 

 


At



At


At


At

30 June



30 June


30 June


31 December

2010



2010


2009


2009

£m


HK$m



US$m


US$m


US$m















ASSETS

 

 

 







 

 

 

 



47,741


557,362


Cash and balances at central banks

71,576


56,368


60,655





Items in the course of collection from


 




7,467


87,175


   other banks

11,195

 

16,613


6,395





Hong Kong Government certificates of






12,249


143,000


   indebtedness

18,364

 

16,156


17,463

269,334


3,144,391


Trading assets

403,800


414,358


421,381

21,506


251,076


Financial assets designated at fair value

32,243


33,361


37,181

192,282


2,244,829


Derivatives

288,279


310,796


250,886

130,929


1,528,557


Loans and advances to banks

196,296


182,266


179,781

595,856


6,956,415


Loans and advances to customers

893,337


924,683


896,231

257,109


3,001,663


Financial investments

385,471


353,444


369,158

28,107


328,144


Other assets

42,140


34,250


44,534

714


8,332


Current tax assets

1,070


1,201


2,937

7,728


90,220


Prepayments and accrued income

11,586


14,486


12,423

10,473


122,264


Interests in associates and joint ventures

15,701


12,316


13,011

18,582


216,938


Goodwill and intangible assets

27,859


29,105


29,994

8,865


103,497


Property, plant and equipment

13,291


14,573


13,802

4,166


48,638


Deferred tax assets

6,246


7,867


8,620





 






1,613,108


18,832,501


Total assets

2,418,454


2,421,843


2,364,452

 

 


At



At


At


At

30 June



30 June


30 June


31 December

2010



2010


2009


2009

£m


HK$m



US$m


US$m


US$m















LIABILITIES AND EQUITY

 

 

 







Liabilities

 

 

 



12,249


143,000


Hong Kong currency notes in circulation

18,364

 

16,156


17,463

84,920


991,410


Deposits by banks

127,316

 

129,151


124,872

765,263


8,934,189


Customer accounts

1,147,321

 

1,163,343


1,159,034





Items in the course of transmission to


 




7,988


93,257


   other banks

11,976

 

16,007


5,734

183,316


2,140,148


Trading liabilities

274,836

 

264,562


268,130

53,651


626,355


Financial liabilities designated at fair value

80,436

 

77,314


80,092

191,438


2,234,978


Derivatives

287,014

 

298,876


247,646

102,451


1,196,083


Debt securities in issue

153,600

 

156,199


146,896

47,846


558,577


Other liabilities

71,732

 

70,125


68,640

1,706


19,919


Current tax liabilities

2,558

 

2,274


2,140

35,028


408,942


Liabilities under insurance contracts

52,516

 

48,184


53,707

8,120


94,799


Accruals and deferred income

12,174

 

13,184


13,190

1,219


14,235


Provisions

1,828

 

1,949


1,965

843


9,843


Deferred tax liabilities

1,264

 

1,849


1,837

2,634


30,751


Retirement benefit liabilities

3,949

 

7,238


6,967

18,840


219,959


Subordinated liabilities

28,247

 

30,134


30,478





 

 

 




1,517,512


17,716,445


Total liabilities

2,275,131

 

2,296,545


2,228,791





 

 

 








Equity

 

 

 



5,840


68,175


Called up share capital

8,755

 

8,658


8,705

5,618


65,590


Share premium account

8,423

 

8,390


8,413

3,903


45,562


Other equity instruments

5,851

 

2,133


2,133

13,333


155,654


Other reserves

19,989

 

19,186


22,236

61,980


723,607


Retained earnings

92,925

 

79,988


86,812





 

 

 




90,674


1,058,588


Total shareholders' equity

135,943

 

118,355


128,299

4,922


57,468


Non-controlling interests

7,380

 

6,943


7,362





 

 

 




95,596


1,116,056


Total equity

143,323

 

125,298


135,661





 

 

 




1,613,108


18,832,501


Total equity and liabilities

2,418,454

 

2,421,843


2,364,452

 

 


 

Half-year to

 

30 June


30 June


31 December

 

2010


2009


2009

 

US$m


US$m


US$m

 






Cash flows from operating activities

 

 

 



Profit before tax

11,104

 

5,019


2,060


 

 




Adjustments for:

 

 




- non-cash items included in profit before tax

9,553

 

16,255


15,129

- change in operating assets

14,130

 

(37,279)


16,476

- change in operating liabilities

(1,389)

 

22,246


(7,601)

- elimination of exchange differences

17,993

 

(7,878)


(11,146)

- net gain from investing activities

(1,111)

 

(911)


(999)

- share of profits in associates and joint ventures

(1,187)

 

(867)


(914)

- dividends received from associates

198

 

195


219

- contribution paid to defined benefit plans

(2,899)

 

(440)


(534)

- tax paid

(247)

 

118


(2,250)


 

 




Net cash generated from/(used in) operating activities

46,145

 

(3,542)


10,440


 

 




Cash flows from investing activities

 

 




Purchase of financial investments

(199,567)

 

(163,988)


(140,641)

Proceeds from the sale and maturity of financial investments

178,272

 

112,927


128,414

Purchase of property, plant and equipment

(739)

 

(781)


(1,219)

Proceeds from the sale of property, plant and equipment

3,338

 

2,203


2,498

Proceeds from the sale of loan portfolios

929

 

3,961


891

Net purchase of intangible assets

(521)

 

(463)


(493)

Net cash outflow from acquisition of and increase in stake of subsidiaries

(34)

 

(574)


(103)

Net cash inflow from disposal of subsidiaries

191

 

-


45

Net cash outflow from acquisition of and increase in stake of associates

(563)

 

(20)


(42)

Proceeds from disposal of associates and joint ventures

171

 

308


-


 

 




Net cash used in investing activities

(18,523)

 

(46,427)


(10,650)


 

 




Cash flows from financing activities

 

 




Issue of ordinary share capital

 

 




- rights issue

-

 

18,179


147

- other

-

 

2


70

Issue of other equity instruments

3,718

 

-


-

Net (purchases)/sales of own shares for market-making


 




  and investment purposes

61

 

(51)


(125)

(Purchases)/sales of own shares to meet share awards and

 

 




   share option awards

19

 

(62)


11

On exercise of share options

61

 

-


12

Subordinated loan capital issued

1,329

 

2,763


196

Subordinated loan capital repaid

(2,408)

 

(154)


(4,483)

Dividends paid to shareholders of the parent company

(2,126)

 

(2,426)


(1,838)

Dividends paid to non-controlling interests

(329)

 

(433)


(269)

Dividends paid to holders of other equity instruments

(134)

 

(89)


(180)


 

 




Net cash generated from/(used in) financing activities

191

 

17,729


(6,459)


 

 

 



Net increase/(decrease) in cash and cash equivalents

27,813

 

(32,240)


(6,669)


 

 

 



Cash and cash equivalents at beginning of period

250,766

 

278,872


251,696

Exchange differences in respect of cash and cash equivalents

(12,669)

 

5,064


5,739

 

 

 




Cash and cash equivalents at end of period

265,910

 

251,696


250,766

 

 


 

Half-year to

 

30 June


30 June


31 December

 

2010


2009


2009

 

US$m


US$m


US$m

 






Called up share capital






At beginning of period

8,705


6,053


8,658

Shares issued under employee share plans

3


-


4

Shares issued in lieu of dividends and amounts arising thereon

47


75


43

Shares issued in respect of rights issue

-


2,530


-







At end of period

8,755


8,658


8,705







Share premium






At beginning of period

8,413


8,463


8,390

Shares issued under employee share plans

58


3


66

Shares issued in lieu of dividends and amounts arising thereon

(48)


(75)


(44)

Other movements

-


(1)


1







At end of period

8,423


8,390


8,413







Other equity instruments






At beginning of period

2,133


2,133


2,133

Capital securities issued during the period

3,718


-


-







At end of period

5,851


2,133


2,133







Retained earnings






At beginning of period

86,812


80,689


79,988

Shares issued in lieu of dividends and amounts arising thereon

1,584


814


856

Dividends to shareholders

(3,261)


(2,728)


(2,911)

Tax credits on dividends

54


-


50

Own shares adjustment

80


(113)


(114)

Exercise and lapse of share options and vesting of share awards

736


658


149

Income taxes on share-based payments

(14)


(9)


18

Other movements

(30)


(103)


313

Transfers

173


-


5,945

Total comprehensive income for the period

6,791


780


2,518







At end of period

92,925


79,988


86,812







Other reserves






Available-for-sale fair value reserve






   At beginning of period

(9,965)


(20,550)


(16,795)

   Other movements

294


-


(18)

   Total comprehensive income for the period

4,151


3,755


6,848







   At end of period

(5,520)


(16,795)


(9,965)







Cash flow hedging reserve






   At beginning of period

(26)


(806)


(340)

   Other movements

8


-


(11)

   Total comprehensive income for the period

(39)


466


325







   At end of period

(57)


(340)


(26)







Foreign exchange reserve






   At beginning of period

2,994


(1,843)


1,553

   Other movements

(2)


-


-

   Total comprehensive income for the period

(6,002)


3,396


1,441







   At end of period

(3,010)


1,553


2,994

 

 


 

Half-year to

 

30 June


30 June


31 December

 

2010


2009


2009

 

US$m


US$m


US$m

 






Share-based payment reserve






   At beginning of period

1,925


1,995


1,662

   Exercise and lapse of share options and vesting of share awards

(855)


(699)


(70)

   Cost of share-based payment arrangements

371


355


328

   Other movements

-


11


5

   Transfers

(173)


-


-







   At end of period

1,268


1,662


1,925







Merger reserve






   At beginning of period

27,308


17,457


33,106

   Shares issued in respect of rights issue

-


15,649


147

   Transfers

-


-


(5,945)







At end of period

27,308


33,106


27,308







Total shareholders' equity






At beginning of period

128,299


93,591


118,355

Shares issued under employee share plans

61


3


70

Shares issued in lieu of dividends and amounts arising thereon

1,583


814


855

Shares issued in respect of rights issue

-


18,179


147

Capital securities issued during the period

3,718

 

-


-

Dividends to shareholders

(3,261)


(2,728)


(2,911)

Tax credits on dividends

54


-


50

Own shares adjustment

80


(113)


(114)

Exercise and lapse of share options and vesting of share awards

(119)


(41)


79

Cost of share-based payment arrangements

371


355


328

Income taxes on share-based payments

(14)


(9)


18

Other movements

270


(93)


290

Total comprehensive income for the period

4,901


8,397


11,132







At end of period

135,943


118,355


128,299







Non-controlling interests






At beginning of period

7,362


6,638


6,943

Dividends to shareholders

(409)


(513)


(319)

Other movements

(1)


12


65

Change in ownership interest in subsidiaries

35


202


7

Total comprehensive income for the period

393


604


666







At end of period

7,380


6,943


7,362







Total equity

 

 

 



At beginning of period

135,661

 

100,229


125,298

Shares issued under employee share plans

61

 

3


70

Shares issued in lieu of dividends and amounts arising thereon

1,583

 

814


855

Shares issued in respect of rights issue

-

 

18,179


147

Capital securities issued during the period

3,718

 

-


-

Dividends to shareholders

(3,670)

 

(3,241)


(3,230)

Tax credits on dividends

54

 

-


50

Own shares adjustment

80

 

(113)


(114)

Exercise and lapse of share options and vesting of share awards

(119)

 

(41)


79

Cost of share-based payment arrangements

371

 

355


328

Income taxes on share-based payments

(14)

 

(9)


18

Other movements

269

 

(81)


355

Change in ownership interest in subsidiaries

35

 

202


7

Total comprehensive income for the period

5,294

 

9,001


11,798



 

 



At end of period

143,323

 

125,298


135,661

 


1. Basis of preparation

 

The basis of preparation applicable to the interim consolidated financial statements of HSBC can be found in Note 1 of the Interim Report 2010.

 

The interim consolidated financial statements of HSBC have been prepared in accordance with the Disclosure Rules and Transparency Rules of the Financial Services Authority and IAS 34 'Interim Financial Reporting' ('IAS 34') as issued by the International Accounting Standards Board ('IASB') and as endorsed by the EU.

 

The consolidated financial statements of HSBC at 31 December 2009 were prepared in accordance with International Financial Reporting Standards ('IFRSs') as issued by the IASB and as endorsed by the EU. EU endorsed IFRSs may differ from IFRSs as issued by the IASB if, at any point in time, new or amended IFRSs have not been endorsed by the EU. At 31 December 2009, there were no unendorsed standards effective for the year ended 31 December 2009 affecting the consolidated financial statements at that date, and there was no difference between IFRSs endorsed by the EU and IFRSs issued by the IASB in terms of their application to HSBC. Accordingly, HSBC's financial statements for the year ended 31 December 2009 were prepared in accordance with IFRSs as issued by the IASB.

 

At 30 June 2010, there were no unendorsed standards effective for the period ended 30 June 2010 affecting these interim consolidated financial statements, and there was no difference between IFRSs endorsed by the EU and IFRSs issued by the IASB in terms of their application to HSBC.

 

IFRSs comprise accounting standards issued by the IASB and its predecessor body as well as interpretations issued by the International Financial Reporting Interpretations Committee ('IFRIC') and its predecessor body.

 

During the period ended 30 June 2010, HSBC adopted the revised IFRS 3 'Business Combinations' and the amendments to IAS 27 'Consolidated and Separate Financial Statements'. Further details of this revised standard and amendments are provided in Note 1(a) of the Interim Report 2010. In addition to the above, HSBC adopted a number of standards and interpretations, and amendments thereto which had an insignificant effect on the consolidated financial statements.

 

 

2. Dividends

 

The Directors have declared a second interim dividend in respect of the financial year ending 31 December 2010 of US$0.08 per ordinary share, a distribution of approximately US$1,401 million. The second interim dividend will be payable on 6 October 2010 to holders of record on 19 August 2010 on the Hong Kong Overseas Branch Register and 20 August 2010 on the Principal Register in the United Kingdom or the Bermuda Overseas Branch Register.

 

The dividend will be payable in cash, in US dollars, sterling or Hong Kong dollars, or a combination of these currencies, at the forward exchange rates quoted by HSBC Bank plc in London at or about 11.00 am on 27 September 2010, and with a scrip dividend alternative. Particulars of these arrangements will be mailed to shareholders on or about 1 September 2010 and elections must be received by 22 September 2010. As this dividend was declared after the balance sheet date, it has not been included in 'Other liabilities' at 30 June 2010.

 

 

The dividend will be payable on ordinary shares held through Euroclear France, the settlement and central depositary system for Euronext Paris, on 6 October 2010 to the holders of record on 20 August 2010. The dividend will be payable in cash, in euros at the exchange rate quoted on 27 September 2010, and with a scrip dividend alternative. Particulars of these arrangements will be announced through Euronext Paris on 16 August 2010 and 25 August 2010.

 

The dividend will be payable on American Depositary Shares ('ADSs'), each of which represents five ordinary shares, on 6 October 2010 to holders of record on 20 August 2010. The dividend of US$0.40 per ADS will be payable in cash, in US dollars, and with a scrip dividend alternative of new ADSs. Particulars of these arrangements will be mailed to holders on or about 1 September 2010. Elections must be received by the depositary on or before 15 September 2010. Alternatively, the cash dividend may be invested in additional ADSs for participants in the dividend reinvestment plan operated by the depositary.

 

HSBC Holdings' ordinary shares will be quoted ex-dividend in London, Hong Kong, Paris and Bermuda on 18 August 2010. The ADSs will be quoted ex-dividend in New York on 18 August 2010. On 15 July 2010, HSBC paid a further coupon on the capital securities of US$0.508 per security, a distribution of US$45 million. No liability is recorded in the balance sheet at 30 June 2010 in respect of this coupon payment.

 

Dividends to shareholders of the parent company were as follows:

 

Half-year to


30 June 2010


30 June 2009


31 December 2009


Per




Settled


Per




Settled


Per




Settled


share 


Total


in scrip


share


Total


in scrip


share


Total


in scrip


US$


US$m


US$m


US$


US$m


US$m


US$


US$m


US$m



















Dividends declared on


















   ordinary shares


















In respect of previous year:


















- fourth interim dividend

0.10


1,733


838


0.10


1,210


624


-


-


-

In respect of current year:


















- first interim dividend

0.08


1,394


746


0.08


1,384


190


-


-


-

- second interim dividend

-


-


-


-


-


-


0.08


1,385


696

- third interim dividend

-


-


-


-


-


-


0.08


1,391


160



















 

0.18


3,127


1,584


0.18


2,594


814


0.16


2,776


856

 


















Quarterly dividends on


















   preference shares classified


















   as equity


















March dividend

15.50


22




15.50


22




-


-



June dividend

15.50


23




15.50


23




-


-



September dividend

-


-




-


-




15.50


22



December dividend

-


-




-


-




15.50


23



 


















 

31.00


45




31.00


45




31.00


45



 


















Quarterly coupons on capital


















   securities classified as equity


















January coupon

0.508


44




0.508


44




-


-



April coupon

0.508


45




0.508


45




-


-



July coupon

-


-




-


-




0.508


45



October coupon

-


-




-


-




0.508


45



 


















 

1.016


89




1.016


89




1.016


90



 


3. Earnings and dividends per ordinary share

 

 

Half-year to

 

30 June


30 June


31 December

 

2010


2009


2009

 

US$


US$


US$

 






Basic earnings per ordinary share

0.38


0.21


0.13

Diluted earnings per ordinary share

0.38


0.21


0.13

Dividends per ordinary share

0.18


0.18


0.16

Net asset value at period end

7.35


6.63


7.17







Dividend pay out ratio1

47.4%


85.7%


123.1%

 

1   Dividends per ordinary share expressed as a percentage of basic earnings per ordinary share.

 

Basic earnings per ordinary share was calculated by dividing the profit attributable to ordinary shareholders of the parent company by the weighted average number of ordinary shares outstanding, excluding own shares held. Diluted earnings per ordinary share was calculated by dividing the basic earnings, which require no adjustment for the effects of dilutive potential ordinary shares, by the weighted average number of ordinary shares outstanding, excluding own shares held, plus the weighted average number of ordinary shares that would be issued on conversion of dilutive potential ordinary shares.

 

 

Half-year to

 

30 June


30 June


31 December

 

2010


2009


2009

 

US$m


US$m


US$m

 






Profit attributable to shareholders of the parent company

6,763

 

3,347

 

2,487

Dividend payable on preference shares classified as equity

(45)

 

(45)

 

(45)

Coupon payable on capital securities classified as equity

(89)

 

(89)

 

(90)

 

 

 


 


Profit attributable to ordinary shareholders of the parent company

6,629

 

3,213

 

2,352

 

 

4. Tax expense

 

 

Half-year to

 

30 June


30 June


31 December

 

2010


2009


2009

 

US$m


US$m


US$m

 






UK corporation tax charge

609

 

60

 

146

Overseas tax

2,439

 

1,472

 

375

 


 


 


Current tax

3,048

 

1,532

 

521

Deferred tax

808

 

(246)

 

(1,422)

 


 


 

 

Tax expense

3,856

 

1,286

 

(901)

 


 


 

 

Effective tax rate

34.7%

 

25.6%

 

(43.7%)

 

The UK corporation tax rate applying to HSBC was 28 per cent (2009: 28 per cent). Overseas tax included Hong Kong profits tax of US$426 million (first half of 2009: US$416 million; second half of 2009: US$367 million). Subsidiaries in Hong Kong provided for Hong Kong profits tax at the rate of 16.5 per cent (2009: 16.5 per cent) on the profits for the period assessable in Hong Kong. Other overseas subsidiaries and overseas branches provided for taxation at the appropriate rates in the countries in which they operate. The following table reconciles the overall tax expense which would apply if all profits had been taxed at the UK corporation tax rate:

 

4. Tax expense (continued)

 

Analysis of overall tax expense:

 

 

Half-year to

 

30 June


30 June


31 December

 

2010


2009


2009

 

US$m


US$m


US$m

 






Taxation at UK corporation tax rate of 28 per cent (2009: 28 per cent)

3,109

 

1,405

 

577

 

 

 

 

 

 

Non-deductible loss on foreign exchange swaps on rights issue proceeds

-

 

-

 

96

Effect of taxing overseas profit in principal locations at different rates

(326)

 

(598)

 

(747)

Gains not subject to tax

(180)

 

(34)

 

(204)

Adjustments in respect of prior period liabilities

(20)

 

(5)

 

(34)

Low income housing tax credits

(44)

 

(49)

 

(49)

Effect of profit in associates and joint ventures

(332)

 

(243)

 

(256)

Deferred tax temporary differences not provided

8

 

813

 

(453)

Non-taxable income

(164)

 

(109)

 

(256)

Permanent disallowables

99

 

138

 

85

Additional provision for tax on overseas dividends

-

 

2

 

339

Tax impact of intragroup transfer of subsidiary

1,590

 

-

 

-

Bank payroll tax

91

 

-

 

-

Other items

25

 

(34)

 

1


 

 

 

 

 

Overall tax expense

3,856

 

1,286

 

(901)

 

 

5. Analysis of net fee income

 

 

Half-year to

 

30 June


30 June


31 December

 

2010


2009


2009

 

US$m


US$m


US$m

 






Cards

1,900

 

2,209

 

2,416

Account services

1,821

 

1,771

 

1,821

Funds under management

1,181

 

945

 

1,227

Broking income

766

 

749

 

868

Credit facilities

827

 

729

 

750

Insurance

578

 

688

 

733

Global custody

439

 

471

 

517

Imports/Exports

466

 

438

 

459

Underwriting

264

 

348

 

398

Remittances

329

 

281

 

332

Corporate finance

248

 

164

 

232

Unit trusts

267

 

137

 

226

Trust income

141

 

134

 

144

Taxpayer financial services

91

 

91

 

(4)

Mortgage servicing

60

 

62

 

62

Maintenance income on operating leases

53

 

55

 

56

Other

974

 

919

 

975



 


 


Total fee income

10,405

 

10,191

 

11,212

Less: fee expense

(1,887)

 

(1,763)

 

(1,976)



 


 


Net fee income

8,518

 

8,428

 

9,236

 

6. Loan impairment charge

 

 

Half-year to

 

30 June


30 June


31 December

 

2010


2009


2009

 

US$m


US$m


US$m

 






Individually assessed impairment allowances:


 


 


   - Net new allowances

1,129

 

2,284

 

2,308

   - Recoveries

(60)

 

(34)

 

(100)

 


 


 


 

1,069

 

2,250

 

2,208

 


 


 


Collectively assessed impairment allowances:


 


 


   - Net new allowances

6,558

 

11,426

 

9,814

   - Recoveries

(393)

 

(343)

 

(413)

 


 


 


 

6,165

 

11,083

 

9,401

 


 


 


Total charge for impairment losses

7,234

 

13,333

 

11,609

 


 


 


Customers

7,222

 

13,320

 

11,552

Banks

12

 

13

 

57

 

 


7. Capital resources

 

 

At


At


At

 

30 June


30 June


31 December

 

2010


2009


2009

 

US$m


US$m


US$m

 






Composition of regulatory capital


 


 


Tier 1 capital



 



Shareholders' equity          

136,719


131,024


135,252

Shareholders' equity per balance sheet      

135,943


118,355


128,299

Preference share premium              

(1,405)


(1,405)


(1,405)

Other equity instruments               

(5,851)


(2,133)


(2,133)

Deconsolidation of special purpose entities              

8,032


16,207


10,491







Non-controlling interests  

3,949


3,634


3,932

Non-controlling interests per balance sheet               

7,380


6,943


7,362

Preference share non-controlling interests

(2,391)


(2,342)


(2,395)

Non-controlling interest transferred to tier 2 capital

(676)


(644)


(678)

Non-controlling interest in deconsolidated subsidiaries          

(364)


(323)


(357)







Regulatory adjustments to the accounting basis          

(3,079)


(147)


164

Unrealised (gains)/losses on available-for-sale debt securities               

(797)


2,020


906

Own credit spread           

(1,779)


(4,360)


(1,050)

Defined benefit pension fund adjustment   

1,940


4,103


2,508

Reserves arising from revaluation of property and unrealised gains on
available-for-sale equities          

(2,500)


(2,250)


(2,226)

Cash flow hedging reserve            

57


340


26







Deductions          

(30,753)


(32,806)


(33,088)

Goodwill capitalised and intangible assets

(26,398)


(28,130)


(28,680)

50% of securitisation positions    

(1,754)


(1,690)


(1,579)

50% of tax credit adjustment for expected losses      

269


389


546

50% of excess of expected losses over impairment allowances               

(2,870)


(3,375)


(3,375)







Core tier 1 capital              

106,836


101,705


106,260







Other tier 1 capital before deductions             

17,577


15,691


15,798

Preference share premium              

1,405


1,405


1,405

Preference share non-controlling interests

2,391


2,342


2,395

Innovative tier 1 securities            

13,781


11,944


11,998







Deductions          

(345)


(43)


99

Unconsolidated investments        

(614)


(432)


(447)

50% of tax credit adjustment for expected losses      

269


389


546







Tier 1 capital       

124,068


117,353


122,157







Tier 2 capital






Total qualifying tier 2 capital before deductions           

48,170


53,466


50,075

Reserves arising from revaluation of property and unrealised gains on
available-for-sale equities          

2,500


2,250


2,226

Collective impairment allowances

3,526


3,917


4,120

Perpetual subordinated debt         

2,982


2,972


2,987

Term subordinated debt

38,862


44,027


40,442

Non-controlling interest in tier 2 capital      

300


300


300







Total deductions other than from tier 1 capital              

(17,352)


(15,633)


(16,503)

Unconsolidated investments        

(12,727)


(10,568)


(11,547)

50% of securitisation positions    

(1,754)


(1,690)


(1,579)

50% of excess of expected losses over impairment allowances               

(2,870)


(3,375)


(3,375)

Other deductions            

(1)


-


(2)







Total regulatory capital    

154,886


155,186


155,729

 

 

At


At


At

 

30 June


30 June


31 December

 

2010


2009


2009

 

US$m


US$m


US$m







Risk-weighted assets






Credit risk

839,079


908,231


903,518

Counterparty credit risk

57,323


53,824


51,892

Market risk

52,964


76,105


51,860

Operational risk

125,898


121,114


125,898







Total      

1,075,264


1,159,274


1,133,168







 

%


%


%

Capital ratios






Core tier 1 ratio

9.9


8.8


9.4

Tier 1 ratio

11.5


10.1


10.8

Total capital ratio

14.4


13.4


13.7

 

 

8. Notes on the statement of cash flows

 

 

Half-year to

 

30 June


30 June


31 December

 

2010


2009


2009

 

US$m


US$m


US$m

 






Non-cash items included in profit before tax

 

 

 

 

 

Depreciation, amortisation and impairment

1,442

 

1,153

 

1,385

Gains arising from dilution of interests in associates

(188)

 

-

 

-

Revaluations on investment property

8

 

43

 

(19)

Share-based payment expense

371

 

355

 

328

Loan impairment losses gross of recoveries and other


 


 


   credit risk provisions

7,976

 

14,308

 

13,070

Provisions

158

 

361

 

308

Impairment of financial investments

40

 

281

 

77

Charge/(credit) for defined benefit plans

246

 

(150)

 

342

Accretion of discounts and amortisation of premiums

(500)

 

(96)

 

(362)


 

 

 

 


 

9,553

 

16,255

 

15,129

 

 

 

 

 

 

Change in operating assets

 

 


 

 

Change in prepayments and accrued income

839

 

1,311

 

1,887

Change in net trading securities and net derivatives

20,176

 

1,922

 

13,466

Change in loans and advances to banks

(8,515)

 

(28,458)

 

(1,896)

Change in loans and advances to customers

(3,812)

 

(9,279)

 

15,428

Change in financial assets designated at fair value

5,460

 

(4,946)

 

(3,965)

Change in other assets

(18)

 

2,171

 

(8,444)


 

 

 

 


 

14,130

 

(37,279)

 

16,476

 

 

 

 

 


Change in operating liabilities

 

 

 

 


Change in accruals and deferred income

(1,016)

 

(2,264)

 

6

Change in deposits by banks

2,444

 

(937)

 

(4,279)

Change in customer accounts

(11,714)

 

46,291

 

(4,308)

Change in debt securities in issue

6,583

 

(23,494)

 

(9,303)

Change in financial liabilities designated at fair value

342

 

262

 

7,168

Change in other liabilities

1,972

 

2,388

 

3,115


 

 


 


 

(1,389)

 

22,246

 

(7,601)

 


 

 

 

Half-year to

 

30 June


30 June


31 December

 

2010


2009


2009

 

US$m


US$m


US$m

 






Cash and cash equivalents

 

 

 

 

 

Cash and balances at central banks

71,576

 

56,368

 

60,655

Items in the course of collection from other banks

11,195

 

16,613

 

6,395

Loans and advances to banks of one month or less

171,022

 

157,856

 

160,673

Treasury bills, other bills and certificates of deposit

 

 


 


   less than three months

24,093

 

36,866

 

28,777

Less: items in the course of transmission to other banks

(11,976)

 

(16,007)

 

(5,734)


 

 

 

 


 

265,910

 

251,696

 

250,766

 

 

 

 

 

 

Interest and dividends

 

 

 

 

 

Interest paid

(9,932)

 

(16,696)

 

(12,334)

Interest received

31,397

 

36,975

 

37,087

Dividends received

380

 

835

 

188

 

 

 


9. Segmental analysis

 

Net operating income

Europe


Hong Kong


Rest of Asia-

Pacific


Middle

East


North

America


Latin

America


Intra-HSBC

items


Total


US$m


US$m


US$m


US$m


US$m


US$m


US$m


US$m

















Half-year to:
















30 June 2010

11,220


4,833


4,351


750


4,446


3,895


(1,467)


28,028

30 June 2009

9,541


4,441


3,478


978


652


3,067


(1,347)


20,810

31 December 2009

8,435


4,526


3,629


282


(11)


3,431


(1,409)


18,883

 

Profit/(loss) before tax

Europe


Hong Kong


Rest of Asia-

Pacific


Middle

East


North

America


Latin

America


Intra-HSBC

tems


Total


US$m


US$m


US$m


US$m


US$m


US$m


US$m


US$m

Half-year to:
















30 June 2010

3,521


2,877


2,985


346


492


883


-


11,104

30 June 2009

2,976


2,501


2,022


643


(3,703)


580


-


5,019

31 December 2009

1,033


2,528


2,178


(188)


(4,035)


544


-


2,060

 

Balance sheet information





Rest of







 

Intra-






Hong


Asia-


Middle


North


Latin

 

HSBC




Europe


Kong


Pacific


East


America


America

 

items


Total


US$m


US$m


US$m


US$m


US$m


US$m


US$m


US$m

Total assets
















At 30 June 2010

1,280,698


410,991


244,624


49,637


495,408


121,885


(184,789)


2,418,454

At 30 June 2009

1,324,687


413,107


217,794


48,601


494,778


107,515


(184,639)


2,421,843

At 31 December 2009

1,268,600


399,243


222,139


48,107


475,014


115,967


(164,618)


2,364,452

 

 


10. Reconciliation of reported and underlying profit before tax

 

Half-year to 30 June 2010 ('1H10') compared with half-year to 30 June 2009 ('1H09')








1H09 at














1H10








1H09 as


1H09


Currency


exchange


1H10 as


1H10


1H10


reported


adjustments


translation


rates


reported


adjustments


underlying

HSBC

US$m


US$m


US$m


US$m


US$m


US$m


US$m















Net interest income

20,538


-


707


21,245


19,757


(31)


19,726

Net fee income

8,428


(71)


248


8,605


8,518


(3)


8,515

Changes in fair value1

(2,457)


2,457


-


-


1,074


(1,074)


-

Other income

8,232


(281)


264


8,215


6,202


(385)


5,817

 

 














Net operating income2

34,741


2,105


1,219


38,065


35,551


(1,493)


34,058















Loan impairment charges














   and other credit risk














   provisions

(13,931)


-


(363)


(14,294)


(7,523)


-


(7,523)















Net operating income

20,810


2,105


856


23,771


28,028


(1,493)


26,535















Operating expenses

(16,658)


70


(663)


(17,251)


(18,111)


19


(18,092)















Operating profit

4,152


2,175


193


6,520


9,917


(1,474)


8,443















Income from associates

867


(1)


(1)


865


1,187


-


1,187















Profit before tax

5,019


2,174


192


7,385


11,104


(1,474)


9,630

 

Half-year to 30 June 2010 ('1H10') compared with half-year to 31 December 2009 ('2H09')








2H09 at














1H10








2H09 as


2H09


Currency


exchange


1H10 as


1H10


1H10


reported


adjustments


translation


rates


reported


adjustments


underlying

HSBC

US$m


US$m


US$m


US$m


US$m


US$m


US$m















Net interest income

20,192


-


(316)


19,876


19,757


-


19,757

Net fee income

9,236


(105)


(177)


8,954


8,518


-


8,518

Changes in fair value1

(4,076)


4,076


-


-


1,074


(1,074)


-

Other income

6,088


(2)


(104)


5,982


6,202


(376)


5,826

 

 














Net operating income2

31,440


3,969


(597)


34,812


35,551


(1,450)


34,101















Loan impairment charges














   and other credit risk














   provisions

(12,557)


-


141


(12,416)


(7,523)


-


(7,523)















Net operating income

18,883


3,969


(456)


22,396


28,028


(1,450)


26,578















Operating expenses

(17,737)


99


323


(17,315)


(18,111)


-


(18,111)















Operating profit

1,146


4,068


(133)


5,081


9,917


(1,450)


8,467















Income from associates

914


-


1


915


1,187


-


1,187















Profit before tax

2,060


4,068


(132)


5,996


11,104


(1,450)


9,654

 

 

1    Changes in fair value of own debt designated at fair value attributable to credit spread.

2    Net operating income before loan impairment charges and other credit risk provisions.

 


11. Distribution of results by customer group and global business

 

Personal Financial Services


 

Half-year to

 

30 June


30 June


31 December

 

2010


2009


2009

 

US$m


US$m


US$m

 






Net interest income

12,198

 

12,650

 

12,457

Net fee income

3,560

 

4,045

 

4,193

 


 


 


Net trading income/(expense)

(377)

 

489

 

213

Net income/(expense) from financial instruments


 


 


   designated at fair value

(127)

 

744

 

1,595

Gains less losses from financial investments

3

 

195

 

29

Dividend income

14

 

17

 

16

Net earned insurance premiums

4,953

 

4,585

 

4,949

Other operating income

387

 

302

 

507

 


 


 


Total operating income

20,611

 

23,027

 

23,959

 


 


 


Net insurance claims incurred and movement in liabilities to


 


 


   policyholders

(4,572)

 

(5,144)

 

(6,427)

Net operating income before loan impairment charges


 


 


   and other credit risk provisions

16,039

 

17,883

 

17,532

 


 


 


Loan impairment charges and other credit risk provisions

(6,317)

 

(10,673)

 

(9,229)

 


 


 


Net operating income

9,722

 

7,210

 

8,303

 


 


 


Direct employee expenses

(2,584)

 

(2,876)

 

(3,193)

Other operating expenses, including reallocations

(6,425)

 

(5,898)

 

(6,325)

 


 


 


Total operating expenses

(9,009)

 

(8,774)

 

(9,518)

 


 


 


Operating profit/(loss)

713

 

(1,564)

 

(1,215)

 


 


 


Share of profit in associates and joint ventures

458

 

315

 

399

 


 


 


Profit/(loss) before tax

1,171

 

(1,249)

 

(816)

 

 


 

 

Commercial Banking


 

Half-year to

 

30 June


30 June


31 December

 

2010


2009


2009

 

US$m


US$m


US$m

 






Net interest income

4,024

 

3,809

 

4,074

Net fee income

1,935

 

1,749

 

1,953

 


 


 


Net trading income

233

 

194

 

160

Net income/(expense) from financial instruments


 


 

 

   designated at fair value

26

 

(17)

 

117

Gains less losses from financial investments

3

 

25

 

(2)

Dividend income

5

 

3

 

5

Net earned insurance premiums

696

 

390

 

496

Other operating income

355

 

519

 

220

 


 


 

 

Total operating income

7,277

 

6,672

 

7,023

 


 


 

 

Net insurance claims incurred and movement in liabilities to


 


 

 

   policyholders

(537)

 

(328)

 

(514)

Net operating income before loan impairment charges


 


 

 

   and other credit risk provisions

6,740

 

6,344

 

6,509

 


 


 

 

Loan impairment charges and other credit risk provisions

(705)

 

(1,509)

 

(1,773)

 


 


 

 

Net operating income

6,035

 

4,835

 

4,736

 


 


 

 

Direct employee expenses

(1,063)

 

(876)

 

(1,196)

Other operating expenses, including reallocations

(2,203)

 

(1,864)

 

(2,027)

 


 


 

 

Total operating expenses

(3,266)

 

(2,740)

 

(3,223)

 


 


 

 

Operating profit

2,769

 

2,095

 

1,513

 


 


 

 

Share of profit in associates and joint ventures

435

 

337

 

330

 


 


 

 

Profit before tax

3,204

 

2,432

 

1,843

 

 


 

 

Global Banking and Markets


 

Half-year to

 

30 June


30 June


31 December

 

2010


2009


2009

 

US$m


US$m


US$m

 






Net interest income

3,720


4,667


3,943

Net fee income

2,379


1,968


2,395

 






Net trading income

3,755


4,478


2,397

Net income from financial instruments designated at fair value

8


329


144

Gains less losses from financial investments

505


158


107

Dividend income

22


23


45

Net earned insurance premiums

22


40


14

Other operating income

438


603


543

 






Total operating income

10,849


12,266


9,588

 






Net insurance claims incurred and movement in liabilities to






   policyholders

(15)


(35)


1

Net operating income before loan impairment charges






   and other credit risk provisions

10,834


12,231


9,589

 






Loan impairment charges and other credit risk recoveries

(500)


(1,732)


(1,436)

 






Net operating income

10,334


10,499


8,153

 






Direct employee expenses

(2,520)


(2,492)


(1,843)

Other operating expenses, including reallocations

(2,427)


(1,913)


(2,289)

 






Total operating expenses

(4,947)


(4,405)


(4,132)

 






Operating profit

5,387


6,094


4,021

 






Share of profit in associates and joint ventures

246


204


162

 






Profit before tax

5,633


6,298


4,183

 

 


11. Distribution of results by customer group and global business (continued)

 

Private Banking


 

Half-year to

 

30 June


30 June


31 December

 

2010


2009


2009

 

US$m


US$m


US$m

 






Net interest income

646


784


690

Net fee income

643


602


634

 






Net trading income

219


163


181

Gains less losses from financial investments

11


(2)


7

Dividend income

3


2


3

Other operating income

21


40


8

 






Net operating income before loan impairment charges

 






   and other credit risk provisions

1,543


1,589


1,523

 






Loan impairment charges and other credit risk provisions

-


(14)


(114)

 






Net operating income

1,543


1,575


1,409

 






Direct employee expenses

(609)


(604)


(594)

Other operating expenses, including reallocations

(358)


(345)


(341)

 






Total operating expenses

(967)


(949)


(935)

 






Operating profit

576


626


474

 






Share of profit in associates and joint ventures

(20)


6


2

 






Profit before tax

556


632


476

 

 


11. Distribution of results by customer group and global business (continued)

 

Other


 

Half-year to

 

30 June


30 June


31 December

 

2010


2009


2009

 

US$m


US$m


US$m

 






Net interest expense

(537)


(551)


(484)

Net fee income

1


64


61

 






Net trading income/(expense)

(572)


110


169

 






Net income/(expense) from financial instruments designated at fair value

1,178


(2,579)


(3,864)

 






Gains less losses from financial investments

35


(53)


56

Dividend income

15


12


-

Net earned insurance premiums

(5)


(3)


-

Other operating income

3,114


2,172


2,870

 






Total operating income/(expenses)

3,229


(828)


(1,192)

 






Net insurance claims incurred and movement in liabilities to






   policyholders

3


-


(3)

Net operating income/(expense) before loan impairment charges






   and other credit risk provisions

3,232


(828)


(1,195)

 






Loan impairment charges and other credit risk provisions

(1)


(3)


(5)

 






Net operating income/(expense)

3,231


(831)


(1,200)

 





 

Direct employee expenses

(3,030)


(2,358)


(2,432)

Other operating expenses, including reallocations

271


90


(15)

 





 

Total operating expenses

(2,759)


(2,268)


(2,447)

 






Operating profit/(loss)

472


(3,099)


(3,647)

 






Share of profit in associates and joint ventures

68


5


21

 






Profit/(loss) before tax

540


(3,094)


(3,626)

 

12. Geographical distribution of results

 

Europe


 

Half-year to

 

30 June


30 June


31 December

 

2010


2009


2009

 

US$m


US$m


US$m

 






Interest income

8,811


10,673


9,610

Interest expense

(3,009)


(4,695)


(3,320)

 






Net interest income

5,802


5,978


6,290

 






Fee income

4,111


3,998


4,578

Fee expense

(934)


(1,155)


(1,154)

 






Net fee income

3,177


2,843


3,424

 






Net trading income

1,604


3,429


2,030

 






Changes in fair value of long-term debt issued and related derivatives

715


(788)


(1,958)

Net income/(expense) from other financial instruments designated at
   fair value

(142)


212


1,109

 






Net income/(expense) from financial instruments designated at
   fair value

573


(576)


(849)

 






Gains less losses from financial investments

237


(60)


110

Dividend income

14


13


16

Net earned insurance premiums

2,137


2,134


2,089

Other operating income

1,141


976


1,286

 






Total operating income

14,685


14,737


14,396

 






Net insurance claims incurred and movement in liabilities to






   policyholders

(1,964)


(2,383)


(3,206)

Net operating income before loan impairment charges






   and other credit risk provisions

12,721


12,354


11,190

 






Loan impairment charges and other credit risk provisions

(1,501)


(2,813)


(2,755)

 






Net operating income

11,220


9,541


8,435

 






Operating expenses

(7,704)


(6,587)


(7,401)

 






Operating profit

3,516


2,954


1,034

 






Share of profit/(loss) in associates and joint ventures

5


22


(1)

 






Profit before tax

3,521


2,976


1,033

 

 

 

 

12. Geographical distribution of results (continued)

 

Hong Kong


 

Half-year to

 

30 June


30 June


31 December

 

2010


2009


2009

 

US$m


US$m


US$m

 






Interest income

2,414


2,923


2,404

Interest expense

(420)


(691)


(441)

 






Net interest income

1,994


2,232


1,963

 






Fee income

1,626


1,409


1,690

Fee expense

(231)


(209)


(221)

 






Net fee income

1,395


1,200


1,469

 






Net trading income

688


704


521

 






Changes in fair value of long-term debt issued and related derivatives

(2)


(3)


-

Net income/(expense) from other financial instruments designated at
   fair value

(28)


348


440

 






Net income/(expense) from financial instruments designated at
   fair value

(30)


345


440

 






Gains less losses from financial investments

111


2


7

Dividend income

13


14


14

Net earned insurance premiums

2,248


1,838


1,836

Other operating income

644


505


769

 






Total operating income

7,063


6,840


7,019

 






Net insurance claims incurred and movement in liabilities to






   policyholders

(2,167)


(2,126)


(2,266)

Net operating income before loan impairment charges






   and other credit risk provisions

4,896


4,714


4,753

 






Loan impairment charges and other credit risk provisions

(63)


(273)


(227)

 






Net operating income

4,833


4,441


4,526

 






Operating expenses

(1,968)


(1,935)


(2,011)

 






Operating profit

2,865


2,506


2,515

 






Share of profit/(loss) in associates and joint ventures

12


(5)


13

 






Profit before tax

2,877


2,501


2,528

 

 


12. Geographical distribution of results (continued)

 

Rest of Asia-Pacific


 

Half-year to

 

30 June


30 June


31 December

 

2010


2009


2009

 

US$m


US$m


US$m

 






Interest income

2,976


3,025


2,852

Interest expense

(1,154)


(1,257)


(1,081)

 






Net interest income

1,822


1,768


1,771

 






Fee income

1,138


908


1,064

Fee expense

(204)


(189)


(226)

 






Net fee income

934


719


838

 






Net trading income

780


909


697

 






Changes in fair value of long-term debt issued and related derivatives

-


(2)


1

Net income/(expense) from other financial instruments designated at
   fair value

(2)


31


80

 






Net income/(expense) from financial instruments designated at
   fair value

(2)


29


81

 






Gains less losses from financial investments

39


(21)


2

Dividend income

1


1


1

Net earned insurance premiums

198


152


213

Other operating income

877


608


630

 






Total operating income

4,649


4,165


4,233

 






Net insurance claims incurred and movement in liabilities to






   policyholders

(151)


(156)


(239)

Net operating income before loan impairment charges






   and other credit risk provisions

4,498


4,009


3,994

 






Loan impairment charges and other credit risk provisions

(147)


(531)


(365)

 






Net operating income

4,351


3,478


3,629

 






Operating expenses

(2,417)


(2,151)


(2,299)

 






Operating profit

1,934


1,327


1,330

 






Share of profit in associates and joint ventures

1,051


695


848

 






Profit before tax

2,985


2,022


2,178

 

 


12. Geographical distribution of results (continued)

 

Middle East


 

Half-year to

 

30 June


30 June


31 December

 

2010


2009


2009

 

US$m


US$m


US$m

 






Interest income

979


1,217


1,043

Interest expense

(312)


(454)


(321)

 






Net interest income

667


763


722

 






Fee income

382


337


345

Fee expense

(26)


(29)


(28)

 






Net fee income

356


308


317

 






Net trading income

194


220


174

 






Gains less losses from financial investments

(1)


13


3

Dividend income

5


2


1

Other operating income

(33)


63


8

 






Total operating income

1,188


1,369


1,225

 






Net insurance claims incurred and movement in liabilities to






   policyholders

-


-


-

 






Net operating income before loan impairment charges






   and other credit risk provisions

1,188


1,369


1,225

 






Loan impairment charges and other credit risk provisions

(438)


(391)


(943)

 






Net operating income

750


978


282

 






Operating expenses

(519)


(482)


(519)

 






Operating profit/(loss)

231


496


(237)

 






Share of profit in associates and joint ventures

115


147


49

 






Profit/(loss) before tax

346


643


(188)

 

 


 

 

North America


 

Half-year to

 

30 June


30 June


31 December

 

2010


2009


2009

 

US$m


US$m


US$m

 






Interest income

8,637


10,485


9,041

Interest expense

(2,284)


(3,308)


(2,548)

 






Net interest income

6,353


7,177


6,493

 






Fee income

2,329


2,805


2,691

Fee expense

(528)


(270)


(409)

 






Net fee income

1,801


2,535


2,282

 






Net trading income/(expense)

(67)


394


(63)

 






Changes in fair value of long-term debt issued and related derivatives

412


(1,507)


(1,990)

Net income/(expense) from other financial instruments






   designated at fair value

2


(2)


3

Net income/(expense) from financial instruments






   designated at fair value

414


(1,509)


(1,987)

 






Gains less losses from financial investments

118


257


39

Dividend income

21


23


30

Net earned insurance premiums

126


164


145

Other operating income

306


292


274

 






Total operating income

9,072


9,333


7,213

 






Net insurance claims incurred and movement in liabilities to






   policyholders

(72)


(143)


(98)

 






Net operating income before loan impairment charges






   and other credit risk provisions

9,000


9,190


7,115

 






Loan impairment charges and other credit risk provisions

(4,554)


(8,538)


(7,126)

 






Net operating income

4,446


652


(11)

 






Operating expenses

(3,957)


(4,362)


(4,029)

 






Operating profit/(loss)

489


(3,710)


(4,040)

 






Share of profit in associates and joint ventures

3


7


5

 






Profit/(loss) before tax

492


(3,703)


(4,035)

 

 


 

 

Latin America


 

Half-year to

 

30 June


30 June


31 December

 

2010


2009


2009

 

US$m


US$m


US$m

 






Interest income

5,434


4,890


5,201

Interest expense

(2,315)


(2,270)


(2,248)

 






Net interest income

3,119


2,620


2,953

 






Fee income

1,140


1,060


1,170

Fee expense

(285)


(237)


(264)

 






Net fee income

855


823


906

 






Net trading income

353


599


249

 






Changes in fair value of long-term debt issued and related derivatives

-


-


-

Net income from other financial instruments designated at






   fair value

130


188


307

 






Net income from financial instruments designated at fair value

130


188


307

 






Gains less losses from financial investments

53


132


36

Dividend income

5


4


7

Net earned insurance premiums

957


724


1,176

Other operating income

10


61


72

 






Total operating income

5,482


5,151


5,706

 






Net insurance claims incurred and movement in liabilities to






   policyholders

(767)


(699)


(1,134)

Net operating income before loan impairment charges






   and other credit risk provisions

4,715


4,452


4,572

 






Loan impairment charges and other credit risk provisions

(820)


(1,385)


(1,141)

 






Net operating income

3,895


3,067


3,431

 






Operating expenses

(3,013)


(2,488)


(2,887)

 






Operating profit

882


579


544

 






Share of profit in associates and joint ventures

1


1


-

 






Profit before tax

883


580


544

 

13. Foreign currency amounts

 

The sterling and Hong Kong dollar equivalent figures in the consolidated income statement and balance sheet are for information only. These are translated at the average rate for the period for the income statement and the closing rate for the balance sheet as follows:

 

 

 

Half-year to

 

 

30 June


30 June


31 December

 

 

2010


2009


2009

 

 

US$m


US$m


US$m

 

 

 





Closing:

HK$/US$

7.787


7.750


7.754

 

£/US$

0.667


0.605


0.616

 

 






Average:

HK$/US$

7.772


7.753


7.751

 

£/US$

0.656


0.673


0.611

 


14. Litigation

 

Bernard L. Madoff Investment Securities LLC

 

As referred to in the Annual Report and Accounts 2009, on 29 June 2009 Bernard L. Madoff ('Madoff') was sentenced to 150 years in prison following his guilty plea to fraud and other charges. The relevant US authorities are continuing their investigations into the fraud, and have brought charges against others, including several employees of Bernard L. Madoff Investment Securities LLC ('Madoff Securities') as well as its external auditor. Some details of the fraud have come to light as a result of these and other investigations and proceedings; however, significant uncertainty remains as to the facts of the fraud and the total amount of assets that will ultimately be available for distribution by the Madoff Securities trustee.

 

Various non-US HSBC companies provide custodial, administration and similar services to a number of funds incorporated outside the US whose assets were invested with Madoff Securities. Based on information provided by Madoff Securities, as at 30 November 2008, the aggregate net asset value of these funds (which would include principal amounts invested and unrealised gains) was US$8.4 billion. Proceedings concerning Madoff and Madoff Securities have been issued by different plaintiffs (including funds, fund investors, and the Madoff Securities trustee) in various jurisdictions against numerous defendants and HSBC expects further proceedings may be brought. Various HSBC companies have been named as defendants in suits in the US, Ireland, Luxembourg, and other jurisdictions. All of the cases where HSBC companies are named as a defendant are at an early stage. HSBC considers that it has good defences to these claims and will continue to defend them vigorously. HSBC is unable reliably to estimate the liability, if any, that might arise as a result of such claims.

 

Various HSBC companies have also received requests for information from various regulatory and law enforcement authorities in connection with the fraud by Madoff. HSBC companies are co-operating with these requests for information.

 

Other litigation

These actions apart, HSBC is party to legal actions in a number of jurisdictions including the UK, Hong Kong and the US arising out of its normal business operations. HSBC considers that none of the actions is material, and none is expected to result in a significant adverse effect on the financial position of HSBC, either individually or in the aggregate. Management believes that adequate provisions have been made in respect of the litigation arising out of its normal business operations. HSBC has not disclosed any contingent liability associated with these legal actions because it is not practical to do so.

 

 

15. Events after the balance sheet date

 

On 2 July 2010, the Group entered into an agreement to acquire The Royal Bank of Scotland Group plc's retail and commercial banking businesses in India. The total consideration will comprise a premium of up to US$95 million over the net asset value of the businesses being acquired. The purchase price will be reduced in respect of 90 per cent of any credit losses incurred on the unsecured lending portfolio in the two years subsequent to completion. The initial consideration paid will be reduced by an estimate of these losses with an adjustment to reflect the actual losses at the end of the 2 year protection period. The acquisition is subject to regulatory approvals and is expected to be completed in the first half of 2011.



 

On 28 July 2010 HSBC agreed in principle the sale of the remaining US consumer finance run-off portfolio of vehicle finance loans. The carrying amount of the loans at 30 June 2010 was US$4.3 billion. The transaction is expected to be completed in the second half of 2010.

 

A second interim dividend for the financial year ending 31 December 2010 of US$0.08 per ordinary share (approximately US$1,401 million) was declared by the Directors after 30 June 2010. The second interim dividend will be payable on 6 October 2010 to holders of record on 19 August 2010 on the Hong Kong Overseas Branch Register and 20 August 2010 on the Principal Register in the United Kingdom or the Bermuda Overseas Branch Register.

 

 

16. Forward-looking statements

 

This media release contains certain forward-looking statements with respect to the financial condition, results of operations and business of HSBC. These forward-looking statements represent HSBC's expectations or beliefs concerning future events and involve known and unknown risks and uncertainty that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. Certain statements, such as those that include the words 'potential', 'estimated', and similar expressions or variations on such expressions may be considered 'forward-looking statements'.

 

 

17. Statutory accounts

 

The information in this media release does not constitute statutory accounts within the meaning of Section 434 of the Companies Act 2006. The Interim Report 2010 was approved by the Board of Directors on 2 August 2010. The statutory accounts for the year ended 31 December 2009 have been delivered to the Registrar of Companies in England and Wales in accordance with Section 447 of the Companies Act 2006. The auditor has reported on those accounts. Its report was unqualified: did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report; and did not contain a statement under Section 498(2) or (3) of the Companies Act 2006.

 

The information in this media release does not constitute the unaudited interim consolidated financial statements which are contained in the Interim Report 2010. The unaudited interim consolidated financial statements have been reviewed by the Company's auditor, KPMG Audit Plc, in accordance with the guidance contained in the International Standard on Review Engagements (UK and Ireland) 2410: Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Auditing Practices Board. On the basis of its review, KPMG Audit Plc was not aware of any material modifications that should be made to the unaudited consolidated financial statements as presented for the six months ended 30 June 2010 in the Interim Report to the shareholders. The full report of its review is included in the Interim Report 2010.

 

18. Dealings in HSBC Holdings plc shares

 

Except for dealings as intermediaries by HSBC Bank plc, HSBC Financial Products (France) SNC and The Hongkong and Shanghai Banking Corporation Limited, which are members of a European Economic Area exchange, neither HSBC Holdings plc nor any subsidiary undertaking has bought, sold or redeemed any securities of HSBC Holdings plc during the six months ended 30 June 2010.

 

19. Registers of shareholders

 

Any person who has acquired shares registered on the Hong Kong Overseas Branch Register but who has not lodged the share transfer with the Hong Kong Overseas Branch Registrar should do so before 4.00 pm on Thursday 19 August 2010 in order to receive the second interim dividend for 2010.

 

Any person who has acquired shares registered on the Principal Register in the United Kingdom or on the Bermuda Overseas Branch Register of shareholders but who has not lodged the share transfer with the Principal Registrar or the Bermuda Overseas Branch Registrar respectively, should do so before 4.00 pm on Friday 20 August 2010 in order to receive the dividend.

 

Removals of ordinary shares may not be made to or from the Hong Kong Overseas Branch Register on Friday 20 August 2010. Accordingly any person who wishes to remove shares to the Hong Kong Overseas Branch Register must lodge the removal request with the Principal Registrar in the United Kingdom or the Bermuda Branch Registrar by 4.00 pm on Wednesday 18 August 2010; any person who wishes to remove shares from the Hong Kong Overseas Branch Register must lodge the removal request with the Hong Kong Branch Registrar by 4.00 pm on Thursday 19 August 2010.

 

Transfers of American Depositary Shares should be lodged with the depositary by 12 noon on Friday 20 August 2010 in order to receive the dividend.

 

 

20. Proposed interim dividends for 2010

 

The Board has adopted a policy of paying quarterly dividends on the ordinary shares. Under this policy it is intended to have a pattern of three equal interim dividends with a variable fourth interim dividend. The proposed timetables for dividends payable on the ordinary shares in respect of 2010 that have not yet been declared are:

 

 

Third interim

 

Fourth interim

 

dividend for 2010

 

dividend for 2010

 

 

 

 

Announcement

1 November 2010

 

28 February 2011

 

 

 

 

Shares quoted ex-dividend in London, Hong Kong, Paris and Bermuda

17 November 2010

 

16 March 2011

 

 

 

 

American Depository Shares quoted ex-dividend in New York

17 November 2010

 

16 March 2011

 

 

 

 

Record date in Hong Kong

18 November 2010

 

17 March 2011

 

 

 

 

Record date in London, New York, Paris and Bermuda1

19 November 2010

 

18 March 2011

 

 

 

 

Payment date

12 January 2011

 

5 May 2011

 

1   Removals to and from the Overseas Branch Register of shareholders in Hong Kong will not be permitted on these dates.

 

 

21. Final results

 

The results for the year to 31 December 2010 will be announced on Monday 28 February 2011.

 

 

22. Corporate governance

 

HSBC is committed to high standards of corporate governance.

 

HSBC Holdings has complied throughout the six months to 30 June 2010 with the applicable code provisions of the Combined Code on Corporate Governance issued by the Financial Reporting Council and the Code on Corporate Governance Practices in Appendix 14 to the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited.

 

The Board of HSBC Holdings has adopted a code of conduct for transactions in HSBC Group securities by Directors. The code of conduct complies with The Model Code in the Listing Rules of the Financial Services Authority and with The Model Code for Securities Transactions by Directors of Listed Issuers ('Hong Kong Model Code') set out in the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited, save that The Stock Exchange of Hong Kong Limited has granted certain waivers from strict compliance with the Hong Kong Model Code. The waivers granted by The Stock Exchange of Hong Kong Limited primarily take into account accepted practices in the UK, particularly in respect of employee share plans. Following specific enquiry, each Director has confirmed he or she has complied with the code of conduct for transactions in HSBC Group securities throughout the period.

 

There have been no material changes to the information disclosed in the Annual Report and Accounts 2009 in respect of the number and remuneration of employees, remuneration policies bonus and share option plans and training schemes.

The Directors of HSBC Holdings plc as at the date of this announcement are:

S K Green, M F Geoghegan, S A Catz†, V H C Cheng, M K T Cheung†, J D Coombe†, R A Fairhead†, D J Flint, A A Flockhart, S T Gulliver, J W J Hughes-Hallett†, W S H Laidlaw†, J R Lomax†, G Morgan†, N R N Murthy†, Sir Simon Robertson†, J L Thornton† and Sir Brian Williamson†.

 

†   Independent non-executive Director

 

The Group Audit Committee has reviewed the results for the six months to 30 June 2010.

 

 

23. Interim Report

 

The Interim Report 2010 will be mailed to shareholders on or about 13 August 2010. Copies of the Interim Report and this Media Release may be obtained from Group Communications, HSBC Holdings plc, 8 Canada Square, London E14 5HQ, United Kingdom; from Group Communications (Asia), The Hongkong and Shanghai Banking Corporation Limited, 1 Queen's Road Central, Hong Kong; from Internal Communications, HSBC-North America, 26525 N Riverwoods Boulevard, Mettawa, Illinois 60045, USA; or from the HSBC Group website www.hsbc.com.

 

A Chinese translation of the Interim Report 2010 may be obtained on request from Computershare Hong Kong Investor Services Limited, Hopewell Centre, Rooms 1712-1716, 17th Floor, 183 Queen's Road East, Hong Kong.

 

The Interim Report 2010 will be available on the Stock Exchange of Hong Kong's website www.hkex.com.hk.

 

 

24. For further information contact:

 

Group Management Office - London

Richard Beck

Director of Group Communications

Telephone: +44 (0)20 7991 0633

 

 

 

 

Patrick McGuinness

Head of Group Press Office

Telephone: +44 (0)20 7991 0111

Alastair Brown

Manager Investor Relations

Telephone: +44 (0)20 7992 1938

 

 

Hong Kong

David Hall

Head of Group Communications (Asia)

Telephone: +852 2822 1133

 

Gareth Hewett

Deputy Head of Group Communications (Asia)

Telephone: +852 2822 4929

 

 

Chicago

Lisa Sodeika

Executive Vice President

Corporate Affairs

Telephone: +1 224 544 3299

 

 

 

 

Paris

Chantal Nedjib

Director of Communications

Telephone: +33 1 40 70 7729

 

Gilberte Lombard

Investor Relations Director

Telephone: +33 1 40 70 2257

 

 

An interview with Michael Geoghegan, Group Chief Executive, and Douglas Flint, Chief Financial Officer, Executive Director Risk and Regulation, will be available at http://www.hsbc.com/interimresults and through Cantos at http://sites.cantos.com/hsbc/10/2010-interim-results/public/.

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
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