Interim Report - 25 of 25

RNS Number : 6336J

HSBC Holdings PLC

10 August 2012

 



Abbreviations

Abbreviation	Brief description
A
ABS1	Asset-backed security
ADS	American Depositary Share
AIEA	Average interest-earning assets
ALCM	Asset, Liability and Capital Management
ALCO	Asset and Liability Management Committee
AML	Anti-money laundering
ARM1	Adjustable-rate mortgage
B
Barion	Barion Funding Limited, a term funding vehicle
Basel Committee	Basel Committee on Banking Supervision
Basel I	1988 Basel Capital Accord
Basel II1	2006 Basel Capital Accord
Basel III1	Basel Committee's reforms to strengthen global capital and liquidity rules
BBA	British Bankers' Association
BoCom	Bank of Communications Co., Limited, one of China's largest banks
bps	Basis points. One basis point is equal to one-hundredth of a percentage point
BSA	Bank Secrecy Act (US)
C
CCP1	Central counterparty
CDO1	Collateralised debt obligation
CDPC1	Credit derivative product companies
CDS1	Credit default swap
CET11	Common equity tier 1 ratio
CGU	Cash-generating unit
CMB	Commercial Banking, a global business
CML1	Consumer Mortgage and Lending (US)
COREP1	Common Reporting
CP1	Commercial paper
CPI	Consumer price index
CRD	Capital Requirements Directive
CRR1	Customer risk rating
CVA1	Credit valuation adjustment
D
DLG	Defined liquidity group
DoJ	Department of Justice (US)
DPF	Discretionary participation feature of insurance and investment contracts
E
EAD1	Exposure at default
EBA	European Banking Authority
EL1	Expected loss
EU	European Union
EURIBOR	European Interbank Offered Rates
F
Fannie Mae	Federal National Mortgage Association (US)
FICO	A US credit scoring system that assesses the creditworthiness of borrowers
FINREP1	Financial Reporting
Freddie Mac	Federal Home Loan Mortgage Corporation (US)
FSA	Financial Services Authority (UK)
FTSE	Financial Times Stock Exchange index
FuM	Funds under management
G
G20	Leaders, finance ministers and central bank governors of the Group of Twenty countries
GB&M	Global Banking and Markets, a global business
GDP	Gross domestic product
Ginnie Mae	Government National Mortgage Association (US)
Global Markets	HSBC's treasury and capital markets services in Global Banking and Markets
GMB	Group Management Board
GPB	Global Private Banking, a global business
Group	HSBC Holdings together with its subsidiary undertakings
G-SIB1	Global systemically important bank
GSE1	Government-sponsored enterprises

Abbreviation	Brief description
H
HELoC1	Home equity lines of credit
HIBOR	Hong Kong Interbank Offered Rate
Hong Kong	Hong Kong Special Administrative Region of the People's Republic of China
HRTM1	Historical rating transition matrices
HSBC	HSBC Holdings together with its subsidiary undertakings
HSBC Assurances	HSBC Assurances Vie, comprising Erisa S.A., the French life insurer, and Erisa I.A.R.D., the property and casualty insurer (together, formerly Erisa)
HSBC Bank	HSBC Bank plc, formerly Midland Bank plc
HSBC Bank Bermuda	HSBC Bank Bermuda Limited, formerly The Bank of Bermuda Limited
HSBC Bank USA	HSBC's retail bank in the US, HSBC Bank USA, N.A. (formerly HSBC Bank USA, Inc.)
HSBC Canada	The sub-group, HSBC Bank Canada, HSBC Trust Company Canada, HSBC Mortgage Corporation Canada, HSBC Securities Canada and HSBC Financial Co. Canada, consolidated for liquidity purposes
HSBC Finance	HSBC Finance Corporation, the US consumer finance company (formerly Household International, Inc.)
HSBC France	HSBC's French banking subsidiary, formerly CCF S.A.
HSBC Holdings	HSBC Holdings plc, the parent company of HSBC
HSBC Oman	HSBC's operations in the Sultanate of Oman
HSBC USA	The sub-group, HSBC USA Inc and HSBC Bank USA, consolidated for liquidity purposes
I
IAS	International Accounting Standards
IASB	International Accounting Standards Board
ICB	Independent Commission on Banking
IFRSs	International Financial Reporting Standards
IMM1	Internal model method
Industrial Bank	Industrial Bank Co. Limited, a national joint-stock bank in mainland China in which Hang Seng Bank Limited has a shareholding
IRB1	Internal ratings-based
K
KPMG	KPMG Audit Plc and its affiliates
L
LGD1	Loss given default
LIBOR	London Interbank Offered Rate
LTRO	Long-term refinancing operation
LTV1	Loan-to-value ratio
M
M&S Money	Marks and Spencer Retail Financial Services Holdings Limited
Madoff Securities	Bernard L Madoff Investment Securities LLC
Mainland China	People's Republic of China excluding Hong Kong
Malachite	Malachite Funding Limited, a term funding vehicle
Mazarin	Mazarin Funding Limited, an asset-backed CP conduit
MBS1	US mortgage-backed security
MENA	Middle East and North Africa
Monoline1	Monoline insurance company
MSCI	Morgan Stanley Capital International index
MTN1	Medium term notes
O
OFAC	Office of Foreign Assets Control (US)
OIB	Oman International Bank S.A.O.G.
OIS1	Overnight index swap
OTC1	Over-the-counter
P
PD1	Probability of default
Ping An	Ping An Insurance (Group) Company of China, Ltd., the second-largest life insurer in the People's Republic of China
PPI	Payment protection insurance product
Premier	HSBC Premier, HSBC's premium personal global banking service
PVIF	Present value of in-force long-term insurance business

Abbreviation	Brief description
R
RBWM	Retail Banking and Wealth Management, a global business
Repo1	Sale and repurchase transaction
Restricted Shares1	Awards of Restricted Shares define the number of HSBC Holdings ordinary shares to which the employee will become entitled, generally between one and three years from the date of the award, and normally subject to the individual remaining in employment
Reverse repo	Security purchased under commitments to sell
RMBS	Residential mortgage-backed securities
RoRWA	Return on average risk-weighted assets
RWA1	Risk-weighted assets
S
S&P	Standard and Poor's rating agency
SEC	Securities and Exchange Commission (US)
SIC	Securities investment conduit
SIV1	Structured investment vehicle
SME	Small and medium-sized enterprise
Solitaire	Solitaire Funding Limited, a special purpose entity managed by HSBC
SPE1	Special purpose entity
T
TGLAC	Total gross loans and advances to customers
U
UAE	United Arab Emirates
UK	United Kingdom
US	United States of America
V
VAR1	Value at risk

1  For full definitions, see page 281.

Glossary

Term	Definition
A
Adjustable-rate mortgages ('ARM's)	Mortgage loans in the US on which the interest rate is periodically changed based on a reference price. These are included within 'affordability mortgages'.
Affordability mortgages	Mortgage loans where the customer's monthly payments are set out at a low initial rate, either variable or fixed, before resetting to a higher rate once the introductory period is over.
Agency exposures	Exposures to near or quasi-government agencies including public sector entities fully owned by governments carrying out non-commercial activities, provincial and local government authorities, development banks and funds set up by government.
Alt-A	A US description for loans regarded as lower risk than sub-prime, but with higher risk characteristics than lending under normal criteria.
Arrears	Customers are said to be in arrears (or in a state of delinquency) when they are behind in fulfilling their obligations, with the result that an outstanding loan is unpaid or overdue. When a customer is in arrears, the total outstanding loans on which payments are overdue are described as delinquent.
Asset-backed securities ('ABS's)	Securities that represent an interest in an underlying pool of referenced assets. The referenced pool can comprise any assets which attract a set of associated cash flows but are commonly pools of residential or commercial mortgages.
B
Back-testing	A statistical technique used to monitor and assess the accuracy of a model, and how that model would have performed had it been applied in the past.
Bail-inable debt	Bail-in refers to imposition of losses at the point of non-viability (but before insolvency) on bank liabilities ('bail-inable debt') that are not exposed to losses while the institution remains a viable, going concern. Whether by way of write-down or conversion into equity, this has the effect of recapitalising the bank (although it does not provide any new funding).
Bank levy	A levy that applies to UK banks, building societies and the UK operations of foreign banks from 1 January 2011. The amount payable is based on a percentage of the group's consolidated liabilities and equity at 31 December 2011 after deducting certain items the most material of which are those related to insured deposit balances, tier 1 capital, insurance liabilities, high quality liquid assets and items subject to a legally enforceable net settlement agreement.
Basel II	The capital adequacy framework issued by the Basel Committee on Banking Supervision in June 2006 in the form of the 'International Convergence of Capital Measurement and Capital Standards', amended by subsequent changes to the capital requirements for market risk and re-securitisations, commonly known as Basel 2.5, which took effect 31 December 2011.
Basel III	In December 2010, the Basel Committee issued Basel III rules: a global regulatory framework for more resilient banks and banking systems' and 'International framework for liquidity risk measurement, standards and monitoring'. Together these documents present the Basel Committee's reforms to strengthen global capital and liquidity rules with the goal of promoting a more resilient banking sector. In June 2011, the Basel Committee issued a revision to the former document setting out the finalised capital treatment for counterparty credit risk in bilateral trades. The Basel III requirements will be phased in starting on 1 January 2013 with full implementation by 1 January 2019.
C
Capital conservation buffer	A capital buffer, prescribed by regulators under Basel III, and designed to ensure banks build up capital buffers outside periods of stress which can be drawn down as losses are incurred. Should a bank's capital levels fall within the capital conservation buffer range, capital distributions will be constrained by the regulators.
Capital planning buffer	A capital buffer, prescribed by the FSA under Basel II, and designed to ensure banks build up capital buffers outside periods of stress which can be drawn down as losses are incurred. Should a bank's capital levels fall within the capital planning buffer range, a period of heightened regulatory interaction would be triggered.
Central counterparty ('CCP')	An intermediary between a buyer and a seller (generally a clearing house).
Collateralised debt obligation ('CDO')	A security issued by a third-party which references ABSs and/or certain other related assets purchased by the issuer. CDOs may feature exposure to sub-prime mortgage assets through the underlying assets.
Collectively assessed impairment	Impairment assessment on a collective basis for homogeneous groups of loans that are not considered individually significant and to cover losses which have been incurred but have not yet been identified on loans subject to individual assessment.
Commercial paper ('CP')	An unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts receivable, inventories and meeting short-term liabilities. The debt is usually issued at a discount, reflecting prevailing market interest rates.
Commercial real estate	Any real estate investment, comprising buildings or land, intended to generate a profit, either from capital gain or rental income.
Common equity tier 1 capital ('CET1')	The highest quality form of regulatory capital under Basel III that comprises common shares issued and related share premium, retained earnings and other reserves excluding the cash flow hedging reserve, less specified regulatory adjustments.

Term	Definition
Common reporting ('COREP')	Harmonised European reporting framework established in the Capital Requirements Directives, to be mandated by the European Banking Authority.
Conduits	HSBC sponsors and manages multi-seller conduits and securities investment conduits ('SIC's). The multi-seller conduits hold interests in diversified pools of third-party assets such as vehicle loans, trade receivables and credit card receivables funded through the issuance of short-dated commercial paper and supported by a liquidity facility. The SICs hold predominantly asset-backed securities referencing such items as commercial and residential mortgages, vehicle loans and credit card receivables funded through the issuance of both long-term and short-term debt.
Constant net asset value fund	A fund that prices its assets on an amortised cost basis, subject to the amortised book value of the portfolio remaining within 50 basis points of its market value.
Consumer Mortgage and Lending ('CML')	In the US, the CML portfolio consists of our Consumer Lending and Mortgage Services businesses, which are in run-off. The Consumer Lending business offered secured and unsecured loan products, such as first and second lien mortgage loans, open-ended home equity loans and personal non-credit card loans through branch locations and direct mail. The majority of the mortgage lending products were for refinancing and debt consolidation rather than home purchases. In the first quarter of 2009, we discontinued all originations by our Consumer Lending business. Prior to the first quarter of 2007, when we ceased new purchase activity, the Mortgage Services business purchased non-conforming first and second lien real estate secured loans from unaffiliated third parties. The business also included the operations of Decision One Mortgage Company ('Decision One'), which historically originated mortgage loans sourced by independent mortgage brokers and sold these to secondary market purchasers. Decision One ceased originations in September 2007.
Contractual maturities	The date on which the final payment (principal or interest) of any financial instrument is due to be paid, at which point all the remaining outstanding principal and interest have been repaid.
Core tier 1 capital	The highest quality form of regulatory capital, under Basel II, that comprises total shareholders' equity and related non-controlling interests, less goodwill and intangible assets and certain other regulatory adjustments.
Countercyclical capital buffer	A capital buffer, prescribed by regulators under Basel III, which aims to ensure that capital requirements take account of the macro-financial environment in which banks operate. This will provide the banking sector with additional capital to protect it against potential future losses, when excess credit growth in the financial system as a whole is associated with an increase in system-wide risk.
Credit default swap ('CDS')	A derivative contract whereby a buyer pays a fee to a seller in return for receiving a payment in the event of a defined credit event (e.g. bankruptcy, payment default on a reference asset or assets, or downgrades by a rating agency) on an underlying obligation (which may or may not be held by the buyer).
Credit derivative product company ('CDPC')	Independent company that specialises in selling credit default protection on corporate exposures in the form of credit derivatives.
Credit enhancements	Facilities used to enhance the creditworthiness of financial obligations and cover losses due to asset default.
Credit risk	Risk of financial loss if a customer or counterparty fails to meet a payment obligation under a contract. It arises mainly from direct lending, trade finance and leasing business, but also from products such as guarantees, derivatives and debt securities.
Credit risk mitigation	A technique to reduce the credit risk associated with an exposure by application of credit risk mitigants such as collateral, guarantee and credit protection.
Credit risk spread	The premium over the benchmark or risk-free rate required by the market to accept a lower credit quality. The yield spread between securities with the same coupon rate and maturity structure but with different associated credit risks. The yield spread rises as the credit rating worsens.
Credit valuation adjustment ('CVA')	An adjustment to the valuation of OTC derivative contracts to reflect the creditworthiness of OTC derivative counterparties. Formerly described as 'Credit Risk Adjustment'.
Customer deposits	Money deposited by account holders. Such funds are recorded as liabilities.
Customer remediation	Customer remediation refers to activities carried out by HSBC to compensate customers for losses or damages associated with a failure to comply with regulations or to treat a customer fairly. Customer remediation is initiated by HSBC in response to customer complaints and/or industry developments in sales practices and not necessarily initiated by regulatory action.
Customer risk rating ('CRR')	A scale of 23 grades measuring internal obligor probability of default.
D
Debt restructuring	A restructuring by which the terms and provisions of outstanding debt agreements are changed. This is often done in order to improve cash flow and the ability of the borrower to repay the debt. It can involve altering the repayment schedule as well as debt or interest charge reduction.
Debt securities	Financial assets on the Group's balance sheet representing certificates of indebtedness of credit institutions, public bodies or other undertakings, excluding those issued by central banks.
Debt securities in issue	Transferable certificates of indebtedness of the Group to the bearer of the certificates. These are financial liabilities of the Group and include certificates of deposits.
Debit valuation adjustment	An adjustment made by an entity to the valuation of OTC derivative liabilities to reflect within fair value the entity's own credit risk.
Deed-in-lieu	An arrangement in which a borrower surrenders the deed for a property to the lender without going through foreclosure proceedings and is subsequently released from any further obligations on the loan.

Term	Definition
Defined benefit obligation	The present value of expected future payments required to settle the obligations of a defined benefit plan resulting from employee service.
Delinquency	See 'Arrears'.
E
Economic capital	The internally calculated capital requirement which is deemed necessary by HSBC to support the risks to which it is exposed.
Economic profit	The difference between the return on financial capital invested by shareholders and the cost of that capital. Economic profit may be expressed as a whole number or as a percentage.
Equity risk	The risk arising from positions, either long or short, in equities or equity-based instruments, which create exposure to a change in the market price of the equities or equity instruments.
Expected loss ('EL')	A regulatory calculation of the amount expected to be lost on an exposure using a 12-month time horizon and downturn loss estimates. EL is calculated by multiplying the Probability of Default (a percentage) by the Exposure at Default (an amount) and Loss Given Default (a percentage).
Exposure	A claim, contingent claim or position which carries a risk of financial loss.
Exposure at default ('EAD')	The amount expected to be outstanding after any credit risk mitigation, if and when the counterparty defaults. EAD reflects drawn balances as well as allowance for undrawn amounts of commitments and contingent exposures.
F
Fair value adjustment	An adjustment to the fair value of a financial instrument which is determined using a valuation technique (level 2 and level 3) to include additional factors that would be considered by a market participant that are not incorporated within the valuation model.
Financial Reporting ('FINREP')	Harmonised European reporting framework, endorsed by the European Union, applicable to firms reporting their published financial statements in accordance with IAS or IFRS and will be used to obtain a comprehensive view of a firm's risk profile.
First lien	A security interest granted over an item of property to secure the repayment of a debt that places its holder first in line to collect repayment from the sale of the underlying collateral in the event of a default on the debt.
Five filters	An internal measure designed to improve capital deployment across the Group. This examines the strategic relevance of each business in each country, in terms of connectivity and economic development, and the current returns, in terms of profitability, cost efficiency and liquidity.
Forbearance strategies	Strategies that are employed in order to improve the management of customer relationships, maximise collection opportunities and, if possible, avoid default, foreclosure or repossession. Such arrangements include extended payment terms, a reduction in interest or principal repayments, approved external debt management plans, debt consolidations, the deferral of foreclosures, other modifications and re‑ages.
FSA standard rules	The method prescribed by the FSA for calculating market risk capital requirements in the absence of VAR model approval.
Funded exposures	A funded exposure is one where the notional amount of a contract is or has been exchanged.
Funding risk	A form of liquidity risk arising when the liquidity needed to fund illiquid asset positions cannot be obtained at the expected terms and when required.
G
Global Systemically Important Bank ('G-SIB')	A bank that meets the criteria defined in the Basel Committee's final rules set out in their 4 November 2011 document 'Global systemically important banks: Assessment methodology and the additional loss absorbency requirement'. At 31 December 2011, the official list of such banks comprised the 29 names, which include HSBC, published by the Financial Stability Board also on 4 November 2011. The Financial Stability Board is co-ordinating, on behalf of the G20 Group of Governors and Heads of Supervision ('GHOS'), the overall set of measures to reduce the moral hazard and risks to the global financial system posed by global systemically important financial institutions ('G-SIFI's) of all kinds.
Government-sponsored enterprises ('GSE's)	A group of financial services enterprises created by the US Congress. Their function is to reduce the cost of capital for certain borrowing sectors of the economy, and to make them more efficient and transparent. Examples in the residential mortgage borrowing segment are Freddie Mac and Fannie Mae. GSEs carry the implicit backing, but are not direct obligations, of the US Government.
GPSP awards	Awards that define the number HSBC Holdings ordinary shares to which the employee will become entitled, generally five years from the date of the award, and normally subject to the individual remaining in employment. The shares to which the employee becomes entitled are subject to a retention requirement until cessation of employment.
H
Haircuts	A discount applied by management when determining the amount at which an asset can be realised. The discount takes into account the method of realisation including the extent to which an active market for the asset exists.
Historical rating transition matrices ('HRTM')	HRTMs show the probability of a counterparty with a particular rating moving to a different rating over a defined time horizon.

Term	Definition
Home Equity Lines of Credit ('HELoC's)	A form of revolving credit facility provided to US customers, which is supported in the majority of cases by a second lien or lower ranking charge over residential property. Holdings of HELoCs are classified as sub-prime.
I
Impaired loans	Loans where the Group does not expect to collect all the contractual cash flows or expects to collect them later than they are contractually due.
Impairment allowances	Management's best estimate of losses incurred in the loan portfolios at the balance sheet date.
Individually assessed impairment	Exposure to loss is assessed on all individually significant accounts and all other accounts that do not qualify for collective assessment.
Insurance risk	A risk, other than a financial risk, transferred from the holder of a contract to the insurance provider. The principal insurance risk is that, over time, the combined cost of claims, administration and acquisition of the contract may exceed the aggregate amount of premiums received and investment income.
Internal Capital Adequacy Assessment Process	The Group's own assessment of the levels of capital that it needs to hold through an examination of its risk profile from regulatory and economic capital viewpoints.
Internal Model Method ('IMM')	One of three approaches defined by Basel II to determine exposure values for counterparty credit risk.
Internal ratings-based approach ('IRB')	A method of calculating credit risk capital requirements using internal, rather than supervisory, estimates of risk parameters.
Invested capital	Equity capital invested in HSBC by its shareholders, adjusted for certain reserves and goodwill previously amortised or written off.
IRB advanced approach	A method of calculating credit risk capital requirements using internal PD, LGD and EAD models.
IRB foundation approach	A method of calculating credit risk capital requirements using internal PD models but with supervisory estimates of LGD and conversion factors for the calculation of EAD.
ISDA	International Swaps and Derivatives Association.
ISDA Master agreement	Standardised contract developed by ISDA used as an umbrella contract under which bilateral derivatives contracts are entered into.
K
Key management personnel	Directors and Group Managing Directors of HSBC Holdings.
L
Legacy credit in GB&M	A separately identifiable, discretely managed business comprising Solitaire Funding Limited, the securities investment conduits, the asset-backed securities trading portfolios and credit correlation portfolios, derivative transactions entered into directly with monoline insurers, and certain other structured credit transactions.
Legal proceedings	Legal proceedings include civil court, arbitration or tribunal proceedings brought against HSBC companies (whether by way of claim or counterclaim) or civil disputes that may, if not settled, result in court, arbitration or tribunal proceedings.
Level 1 - quoted market price	Financial instruments with quoted prices for identical instruments in active markets.
Level 2 - valuation technique using observable inputs	Financial instruments with quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in inactive markets and financial instruments valued using models where all significant inputs are observable.
Level 3 - valuation technique with significant unobservable inputs	Financial instruments valued using valuation techniques where one or more significant inputs are unobservable.
Leveraged finance	Funding provided for entities with higher than average indebtedness, which typically arises from sub-investment grade acquisitions or event-driven financing.
Leverage ratio	A measure, prescribed by regulators under Basel III, which is the ratio of tier 1 capital to total exposures. Total exposures include on-balance sheet items, off-balance sheet items and derivatives, and should generally follow the accounting measure of exposure. This supplementary measure to the risk-based capital requirements is intended to constrain the build-up of excess leverage in the banking sector.
Liquidity coverage ratio ('LCR')	The ratio of the stock of high quality liquid assets to expected net cash outflows over the following 30 days. High quality liquid assets should be unencumbered, liquid in markets during a time of stress and, ideally, be central bank eligible. The Basel III rules require this ratio to be at least 100% with effect from 2015. The LCR is still subject to an observation period and review to address any unintended consequences.
Liquidity risk	The risk that HSBC does not have sufficient financial resources to meet its obligations as they fall due, or will have to do so at an excessive cost. This risk arises from mismatches in the timing of cash flows.
Loan modification	An account management action that results in a change to the original terms and conditions of a loan either temporarily or permanently without resetting its delinquency status, except in case of a 'modification re-age' where delinquency status is also reset to up-to-date. Account modifications may include revisions to one or more terms of the loan including, but not limited to, a change in interest rate, extension of the amortisation period, reduction in payment amount and partial forgiveness or deferment of principal.
Loan re-age	An account management action that results in the resetting of the contractual delinquency status of an account to up-to-date upon fulfilment of certain requirements which indicate that payments are expected to be made in accordance with the contractual terms.
Term	Definition
Loan-to-value ratio ('LTV')	A calculation that expresses the amount of the loan as a percentage of the value of security. A high LTV indicates that there is less cushion to protect the lender against house price falls or increases in the loan if repayments are not made and interest is added to the outstanding loan balance.
Loss given default ('LGD')	The estimated ratio (percentage) of the loss on an exposure to the amount outstanding at default ('EAD') upon default by a counterparty.
Loss severity	The realised amount of losses incurred (including ancillary amounts owed) when a loan is foreclosed or disposed of through the arrangement with the borrower. The loss severity is represented as a percentage of the outstanding loan balance.
M
Market risk	The risk that movements in market risk factors, including foreign exchange rates and commodity prices, interest rates, credit spreads and equity prices, will reduce income or portfolio values.
Medium term notes ('MTN's)	Notes issued by corporates across a range of maturities. MTNs are frequently issued by corporates under MTN Programmes whereby notes are offered on a regular and continuous basis to investors.
Monoline insurers ('monolines')	Entities which specialise in providing credit protection to the holders of debt instruments in the event of default by the debt security counterparty. This protection is typically held in the form of derivatives such as CDSs referencing the underlying exposures held.
Mortgage-backed securities ('MBS's)	Securities that represent interests in groups of mortgages, which may be on residential or commercial properties. Investors in these securities have the right to cash received from future mortgage payments (interest and/or principal). When the MBS references mortgages with different risk profiles, the MBS is classified according to the highest risk class.
Mortgage-related assets	Assets which are referenced to underlying mortgages.
Mortgage vintage	The year a mortgage was originated.
N
Negative equity mortgages	Equity is the value of the asset less the outstanding balance on the loan. Negative equity arises when the value of the property purchased is below the balance outstanding on the loan.
Net asset value per share	Total shareholders' equity, less non-cumulative preference shares and capital securities, divided by the number of ordinary shares in issue.
Net interest income	The amount of interest received or receivable on assets net of interest paid or payable on liabilities.
Net principal exposure	The gross principal amount of a financial asset after taking account of credit protection purchased but excluding the effect of any counterparty credit valuation adjustment to that protection. It includes assets that benefit from monoline protection, except where this protection is purchased with a CDS.
Net stable funding ratio ('NSFR')	The ratio of available stable funding to required stable funding over a one year time horizon, assuming a stressed scenario. Available stable funding would include items such as equity capital, preferred stock with a maturity of over one year and liabilities with an assessed maturity of over one year. The Basel III rules require this ratio to be over 100% with effect from 2018. The NSFR is still subject to an observation period and review to address any unintended consequences.
Non-conforming mortgages	US mortgages that do not meet normal lending criteria. Examples include mortgages where the expected level of documentation is not provided (such as with income self-certification), or where poor credit history increases the risk and results in pricing at a higher than normal lending rate.
O
Offset mortgages	A flexible type of mortgage where a borrower's savings balance(s) held at the same institution can be used to offset the mortgage balance owing. The borrower pays interest on the net balance which is calculated by subtracting the credit balance(s) from the debit balance. As part of the offset mortgage a total facility limit is agreed and the borrower may redraw past capital repayments up to this agreed limit.
Overnight Index Swap ('OIS') discounting	A method of valuing collateralised interest rate derivatives which uses a discount curve that reflects the overnight interest rate typically earned or paid in respect of collateral received.
Operational risk	The risk of loss resulting from inadequate or failed internal processes, people and systems or from external events, including legal risk.
Over-the-counter ('OTC')	A bilateral transaction (e.g. derivatives) that is not exchange traded and that is valued using valuation models.
P
Past due loans and advances	Loans on which repayments are overdue.
Performance Shares	Awards that define the number of HSBC Holdings ordinary shares to which the employee will become entitled subject to satisfaction of corporate performance conditions.
Prime	A US description for mortgages granted to the most creditworthy category of borrowers.
Private equity investments	Equity securities in operating companies not quoted on a public exchange, often involving the investment of capital in private companies or the acquisition of a public company that results in its delisting.
Probability of default ('PD')	The probability that an obligor will default within a one-year time horizon.
R
Refi rate	The refi (or refinancing) rate is set by the European Central Bank ('ECB') and is the price banks pay to borrow from the ECB.

Term	Definition
Regulatory capital	The capital which HSBC holds, determined in accordance with rules established by the FSA for the consolidated Group and by local regulators for individual Group companies.
Regulatory matters	Regulatory matters refer to investigations, reviews and other actions carried out by, or in response to the actions of, regulators or law enforcement agencies in connection with alleged wrongdoing by HSBC.
Renegotiated loans	Loans for which the contractual terms have been changed because of significant concerns about the borrower's ability to meet the contractual payments when due.
Restricted Shares	Awards that define the number of HSBC Holdings ordinary shares to which the employee will become entitled, generally between one and three years from the date of the award, and normally subject to the individual remaining in employment. The shares to which the employee becomes entitled may be subject to a retention requirement.
Retail loans	Money lent to individuals rather than institutions. This includes both secured and unsecured loans such as residential mortgages, overdrafts and credit card balances.
Return on equity	Profit attributable to ordinary shareholders divided by average invested capital.
Risk appetite	An assessment of the types and quantum of risks to which HSBC wishes to be exposed.
Risk-weighted assets ('RWA's)	Calculated by assigning a degree of risk expressed as a percentage (risk weight) to an exposure in accordance with the applicable Standardised or IRB approach rules.
Run-off portfolios	Legacy credit in GB&M, the US CML portfolio and other US run-off portfolios, including the treasury services related to the US CML businesses and commercial operations in run-off. Origination of new business in the run-off portfolios has been discontinued and balances are being managed down through attrition and sale.
S
Sale and repurchase agreement ('repo')	A repo is a short-term funding agreement that allows a borrower to create a collateralised loan by selling a financial asset to a lender. As part of the agreement the borrower commits to repurchase the security at a date in the future repaying the proceeds of the loan. For the party on the other end of the transaction (buying the security and agreeing to sell in the future) it is a reverse repurchase agreement or a reverse repo.
Seasoning	The emergence of credit loss patterns in portfolios over time.
Second lien	A security interest granted over an item of property to secure the repayment of a debt that is issued against the same collateral as a first lien but that is subordinate to it. In the case of default, repayment for this debt will only be received after the first lien has been repaid.
Securitisation	A transaction or scheme whereby the credit risk associated with an exposure, or pool of exposures, is tranched and where payments to investors in the transaction or scheme are dependent upon the performance of the exposure or pool of exposures. A traditional securitisation involves the transfer of the exposures being securitised to an SPE which issues securities. In a synthetic securitisation, the tranching is achieved by the use of credit derivatives and the exposures are not removed from the balance sheet of the originator.
Short sale	In relation to credit risk management, a 'short sale' is an agreement in which a bank permits the borrower to sell the property for less than the amount outstanding under a loan agreement. The proceeds are used to reduce the outstanding loan balance and the borrower is subsequently released from any further obligations on the loan.
Single-issuer liquidity facility	A liquidity or stand-by line provided to a corporate customer which is different from a similar line provided to a conduit funding vehicle.
Sovereign exposures	Exposures to governments, ministries, departments of governments, embassies, consulates and exposures on account of cash balances and deposits with central banks.
Special purpose entities ('SPE's)	A corporation, trust or other non-bank entity, established for a narrowly defined purpose, including for carrying on securitisation activities. The structure of the SPE and its activities are intended to isolate its obligations from those of the originator and the holders of the beneficial interests in the securitisation.
Structured finance / notes	An instrument whose return is linked to the level of a specified index or the level of a specified asset. The return on a structured note can be linked to equities, interest rates, foreign exchange, commodities or credit. Structured notes may or may not offer full or partial capital protection in the event of a decline in the underlying index or asset.
Structured Investment Vehicles ('SIV's)	Special purpose entities which invest in diversified portfolios of interest-earning assets, generally funded through issues of commercial paper, medium-term notes and other senior debt to take advantage of the spread differentials between the assets in the SIV and the funding cost.
Student loan related assets	Securities with collateral relating to student loans.
Subordinated liabilities	Liabilities which rank after the claims of other creditors of the issuer in the event of insolvency or liquidation.
Sub-prime	A US description for customers with high credit risk, for example those who have limited credit histories, modest incomes, high debt-to-income ratios, high loan-to-value ratios (for real estate secured products) or have experienced credit problems caused by occasional delinquencies, prior charge-offs, bankruptcy or other credit-related problems.
Sustainable cost savings	Permanent cost reductions at a given level of business activity. Sustainable cost savings exclude cost avoidance and revenue and loan impairment charge benefits as these do not represent operational expense reductions. Cost savings resulting from business disposals are not classified as sustainable.

Term	Definition
T
Tier 1 capital	A component of regulatory capital, comprising core tier 1 and other tier 1 capital. Other tier 1 capital includes qualifying capital instruments such as non-cumulative perpetual preference shares and hybrid capital securities.
Tier 2 capital	A component of regulatory capital, comprising qualifying subordinated loan capital, related non-controlling interests, allowable collective impairment allowances and unrealised gains arising on the fair valuation of equity instruments held as available-for-sale. Tier 2 capital also includes reserves arising from the revaluation of properties.
Troubled debt restructuring	A US description for restructuring a debt whereby the creditor for economic or legal reasons related to a debtor's financial difficulties grants a concession to the debtor that it would not otherwise consider.
U
Unfunded exposures	An exposure where the notional amount of a contract has not been exchanged.
US government agency and US government sponsored enterprises mortgage-related assets	Securities that are guaranteed by US government agencies such as Ginnie Mae, or by US government sponsored entities including Fannie Mae and Freddie Mac.
V
Value-at-risk ('VAR')	A measure of the loss that could occur on risk positions as a result of adverse movements in market risk factors (e.g. rates, prices, volatilities) over a specified time horizon and to a given level of confidence.
W
Wholesale lending	Money lent to sovereign borrowers, banks, non-bank financial institutions and corporate entities.
Write-down	Reduction in the carrying value of an asset due to impairment or fair value movements.
Wrong-way risk	An adverse correlation between the counterparty's probability of default and the mark-to-market value of the underlying transaction.

Index

A

Accounting

future developments 220

policies 222

standards 220

Anti-money laundering investigations 262

Areas of special interest 121

Asset-backed securities 154, 156

Assets

by geographical region 57

by global business 39

charged as security 250

constant currency/reported reconciliation 34

encumbered 167

held for sale 245

held in custody and under administration 99

liquid 189

maturity analysis 249

movement in 32

trading 228

Associates and joint ventures 29

Auditor's review report 265

B

Balance sheet

consolidated 31, 63, 213

data 31, 53, 63, 69, 76, 82, 89, 95

movement 32

constant currency/reported reconciliation 34

Balance Sheet Management 172

Basel II, III 198

Basis of preparation 39, 219

Business model 10

C

Capital

future developments 199

management 196, 202

measurement and allocation 196, 202

overview 196

ratios 2

regulatory 203

structure 198

tier 1 197

Cash flow

consolidated statement 214

notes 251

Cautionary statement regarding forward-looking statements 277

Client assets 50

Combined customer lending and deposits 36

Commercial Banking 43

constant currency/reported profit 13

Compliance risk 194

Compliance with IFRSs 219

Composition of Group (changes in) 222

Conduits 255

Constant currency 13

Contents - inside front cover

Contingent liabilities, contractual commitments and financial guarantee contracts 253

Copies of the Interim Report 275

Corporate governance 274

Credit derivative product companies 160

Credit quality 139

Credit risk 110, 183

credit exposure 112

Customer accounts 35

D

Daily distribution of trading revenues 169

Dealings in HSBC Holdings shares 272

Defined terms - Inside front cover

Derivatives 240

by product contract type 241

hedging instruments 241

interest rate 249

trading and credit 241

Directors

biographies 205

interests 266

responsibility statement 264

Disposals 37, 38, 56, 98, 252

Dividends 2, 222, 273

E

Earnings per share 2, 223

Economic background

Europe 58

Hong Kong 66

Latin America 95

Middle East and North Africa 79

North America 85

Rest of Asia-Pacific 72

Economic profit/(loss) 36

Equity 33, 215

Equity securities available for sale 170

Estimates and assumptions 220

Europe

assets 57

balance sheet data 63

constant currency/reported profit 14

customer accounts 35

economic background 58

impairment allowances 147

loans and advances 116

profit before tax 57, 58, 63

review of performance 58

risk-weighted assets 57

Eurozone exposures 121-130

risks 104

Events after the balance sheet date 263

F

Fair values

adjustments 231

control framework 230

of financial instruments at fair value 229

of financial instruments not at fair value 237

valuation bases 233

Fee income (net) 21

Final results 274

Financial assets

designated at fair value 23, 239

reclassification 238

Financial highlights 2

Financial instruments

at fair value 23

credit quality 139, 184

Financial investments 243

Financial liabilities designated at fair value 247

Footnotes 100, 180, 201, 218

Forbearance 143, 146, 184

Foreclosed properties in US 137

Foreign exchange rates 18, 31

Funding sources 162, 186

Funds under management 99

G

Gains less losses from financial investments 24

Geographical regions 10, 57, 58, 66, 72, 79, 85, 92, 197

Global businesses 10, 39, 43, 46, 49, 197

Global functions 11

Global Banking and Markets 46

ABSs classified as AFS 154

constant currency/reported profit 14

management view 47

Global Private Banking 49

constant currency/reported profit 14

Glossary 278

Going concern 274

Goodwill impairment 258

Group Chairman's Statement 4

Group Chief Executive's Business Review 7

Group Managing Directors 209

H

Held for sale 37, 38, 56, 98, 111

Highlights 1

Hong Kong

assets 57

balance sheet data 69

constant currency/reported profit 14

customer accounts 35

economic background 66

impairment allowances 147

loans and advances 116

profit before tax 57, 66, 69

review of performance 66

risk-weighted assets 57

HSBC Finance 134, 145, 164, 271

I

Impairment

allowances and charges 147

by geographical region 147

charges and other credit risk provisions 150

impaired loans 147

methodologies 155, 186

Income from financial instruments designated at fair value (net) 23

Income statement

consolidated 18, 211

disposals, held for sale and run-off portfolios 38

Independent Commission on Banking 106

Information security 109

Insurance

balance sheet by type of contract 178

claims incurred and movement in liabilities to policyholders (net) 26

net earned premiums 24

products 195

risk 176, 195

Interest-earning assets 20

Interest income (net) 20

sensitivity 171, 192

Interest rate repricing gap 173

Interim Management Statement 274

Interim Report 263, 275

Internet crime 108

L

Latin America

assets 57

balance sheet data 95

constant currency/reported profit 14

customer accounts 35

economic background 92

impairment allowances 147

loans and advances 116

profit before tax 57, 92, 95

review of performance 92

risk-weighted assets 57

Legal proceedings 258

Legal risk 194

Leveraged finance transactions 161, 257

Liabilities

constant currency/reported reconciliation 34

financial liabilities designated at fair value 247

maturity analysis 249

movement in 33

trading 247

LIBOR investigation 263

Liquidity and funding 162

contingent liquidity risk 166

regulation 167

Loans and advances

by country/region 116, 118

by credit quality 139

by industry sector 115, 116

delinquency in the US 138

exposure 113

impaired 147

mortgage lending 134, 136

past due but not impaired 142

personal lending 132, 136

renegotiated 143, 144

to banks 120

to customers 2, 116, 118

wholesale lending 131

Loan impairment charges and other credit risk provisions 26, 110

M

Madoff 259

Margin 20

Market capitalisation 3

Market risk 168, 190

measures applicable to parent 173

Middle East and North Africa

areas of special interest 131

balance sheet data 82

constant currency/reported profit 14

customer accounts 35

economic background 79

impairment allowances 147

loans and advances 116

profit/(loss) before tax 57, 79, 82

review of performance 79

risk-weighted assets 57

Money market funds 257

Monoline insurers 159

Mortgage lending 134, 136, 159

Mortgage sales 161

N

Non-GAAP measures 13

Non-trading portfolios 168, 192

North America

assets 57

balance sheet data 89

constant currency/reported profit 14

customer accounts 35

economic background 85

impairment allowances 147

loans and advances 116

profit before tax 57, 85, 89

review of performance 85

risk-weighted assets 57

Notifiable interests in share capital 272

O

Off-balance sheet arrangements 257

Offsets 114

Operating expenses 28

Operating income (net) 2

Operating income (other) 25

Operational risk 174, 193

'Other' segment 51

P

Payment protection insurance 248

Pension scheme 172, 193

Personal lending 132, 136

Pillar 1, 2 and 3 203

Post-employment benefits 223

Preferred securities 31

Presentation of information 219

Principal activities 10

Profit before tax 2

attributable 2, 211

by country 59, 73, 80, 86, 93

by geographical region 57, 58, 63, 66, 69, 72, 76, 79, 82, 85, 89

by global business 39, 40, 43, 46, 49, 51, 53

consolidated 2

constant currency/reported reconciliations 14

underlying/reported reconciliations 16

Provisions 248

PVIF 25

R

Ratios

advances to core funding 163, 187

capital 2, 31

cost efficiency 3, 29, 58, 66, 72, 79, 85, 92

credit coverage 3

dividends per share 2

earnings per share 2

net assets per share 2, 31

performance 3

return on average risk-weighted assets 3, 37, 40, 43, 46, 49, 58, 66, 72, 79, 85, 92

returns 2

stressed coverage 164

Recovery and resolution 201

Regulatory investigations 107

Related parties 99

Reputational risk 195

Responsibility statement 264

Rest of Asia-Pacific

assets 57

balance sheet data 76

constant currency/reported profit 14

customer accounts 35

economic background 72

impairment allowances 147

loans and advances 116

profit before tax 57, 72, 76

review of performance 74

risk-weighted assets 57

Retail Banking and Wealth Management 40

constant currency/reported profit 14

Review of performance 40, 44, 47, 50, 58, 60, 74, 85, 92

Risk policies and practices 183

Risks

appetite 12

compliance 174, 194

contingent liquidity 166, 190

cost efficiency 29

credit 110, 183, 203

credit spread 170, 192

factors 11

foreign exchange 173

gap 170

governance 183

information security 109

insurance operations 176

legal 194

liquidity and funding 162, 186

managing risk 103, 130, 183

market 168, 190

model 109

operational 109, 174, 204

pension 172, 193

profile 103

reputational 175, 195

security and fraud 194

top and emerging 11, 104

Risk-weighted assets 31, 39, 57, 196

Run-off portfolios 37, 38, 56, 98

S

Securities litigation 258

Securitisation 153, 185, 204, 256

Segmental analysis 258

Senior management 209

Sensitivity

projected net interest income 171, 190, 192

Share capital - notifiable interests 272

Shareholder enquiries 275

Share information 3

Share option plans

Directors 267

discretionary 271

subsidiary company plans 271

Directors' interests 266

employee share option plans 269

Shares information 3

Special purpose entities 253

Spread 20

Staff numbers 28, 58, 66, 72, 79, 85, 92

Statement of changes in equity (consolidated) 215

Statement of comprehensive income (consolidated) 212

Stock symbols 275

Strategic direction 11

Commercial Banking 43, 44

Global Banking and Markets 46, 48

Global Private Banking 49, 50

Retail Banking and Wealth Management 40, 42

Stress testing 191

Structural foreign exchange exposures 171, 192

Systemically important banks 199

T

Tax 30, 225

Telephone and online share-dealing service 275

Total shareholder return 3

Trading

activities 199

assets 228

derivatives 241

income (net) 22

liabilities 247

portfolios 168, 191

U

Underlying performance 15

US mortgage-related investigations 260

V

Value at risk 168, 190

Values 12

W

Wholesale lending 131

Y

Yield 20

 

END

 

 

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