Interim Report - 3 of 21

RNS Number : 9137Q

HSBC Holdings PLC

13 August 2010

 



Principal activities

HSBC is one of the largest banking and financial services organisations in the world, with a market capitalisation of US$161 billion at 30 June 2010.

Through its subsidiaries and associates, HSBC provides a comprehensive range of banking and related financial services. Headquartered in London, HSBC operates through long-established businesses and has an international network of some 8,000 offices in 87 countries and territories in six geographical regions: Europe; Hong Kong; Rest of Asia-Pacific; the Middle East; North America and Latin America. Within these regions, a comprehensive range of financial services is offered to personal, commercial, corporate, institutional, investment and private banking clients. Services are delivered primarily by domestic banks, typically with large retail deposit bases, and by consumer finance operations.

Strategic direction

HSBC's strategic direction reflects its position as 'The world's local bank', combining the largest global developing markets banking business and a uniquely cosmopolitan customer base with an extensive international network and substantial financial strength.

The Group's strategy is aligned with the key trends which are shaping the global economy. In particular, HSBC recognises that, over the long term, developing markets are growing faster than the mature economies, world trade is expanding at a greater rate than gross domestic product and life expectancy is lengthening virtually everywhere. HSBC's strategy is focused on delivering superior growth and earnings over time by building on the Group's heritage and skills. Its origins in trade in Asia have had a considerable influence over the development of the Group and, as a consequence, HSBC has an established and longstanding presence in many countries. The combination of local knowledge and international breadth is supported by a substantial financial capability founded on balance sheet strength, largely attributable to the scale of the Group's retail deposit bases.

HSBC is, therefore, continuing to direct incremental investment primarily to the faster growing markets and, in the more developed markets, is focusing on businesses and customer segments which have international connectivity. A policy of maintaining HSBC's capital strength and strong liquidity position remains complementary to these activities and is the foundation of decisions about the pace and direction of investment.

The Group has identified three main business models for its customer groups and global businesses that embody HSBC's areas of natural advantage:

·     businesses with international customers for whom connections with developing markets are crucial - Global Banking and Markets, Private Banking, the large business segment of Commercial Banking and the mass affluent segment of Personal Financial Services;

·     businesses with local customers where service efficiencies can be enhanced through global scale - the small business segment of Commercial Banking and the mass market segment of Personal Financial Services; and

·     products where global scale is possible by applying the Group's efficiency, expertise and brand - product platforms such as global transaction banking.

The means of executing the strategy and making greater use of the linkages within the Group are clear:

·     the HSBC brand and global networks will be leveraged to reach new customers and offer further services to existing clients;

·     efficiency will be enhanced by taking full advantage of local, regional and global economies of scale, in particular by adopting a common systems architecture wherever possible; and

·    objectives and incentives will be aligned to motivate and reward staff for being fully engaged in delivering the strategy.

Challenges and uncertainties

A detailed account of HSBC's challenges and uncertainties is provided on pages 12 to 18 of the Annual Report and Accounts 2009. Further comments on expected risks and uncertainties are made throughout this Interim Management Report, particularly in the sections on Market Turmoil and Risk.

Reconciliation of reported and underlying profit before tax

HSBC measures its performance internally on a like-for-like basis by eliminating the effects of foreign currency translation differences; acquisitions and disposals of subsidiaries and businesses; fair value movements on own debt designated at fair value attributable to changes in HSBC's own credit spread as the net result of such movements will be zero upon maturity of the debt; and gains from the dilution of the Group's interests in associates, all of which distort period-on-period comparisons. HSBC refers to this as its 'underlying performance'.

This approach is used to monitor progress against operating plans and previous period results because management believes that the underlying basis more accurately reflects operating performance. Reported results include the effect of the above items.

Constant currency

Constant currency comparatives for the half-years to 30 June 2009 and 31 December 2009, used in the 2010 commentaries, are computed by retranslating into US dollars for non-US dollar branches, subsidiaries, joint ventures and associates:

·     the income statements for the half-years to 30 June 2009 and 31 December 2009 at the average rates of exchange for the half-year to 30 June 2010; and

·     the balance sheets at 30 June 2009 and 31 December 2009 at the rates of exchange ruling at 30 June 2010.

No adjustment has been made to the exchange rates used to translate foreign currency-denominated assets and liabilities into the functional currencies of any HSBC branches, subsidiaries, joint ventures or associates.

When reference is made to 'constant currency' in tables or commentaries, comparative data reported in the functional currencies of HSBC's operations have been translated at the appropriate exchange rates applied in the current period on the basis described above.

Underlying performance

The tables below compare HSBC's underlying performance for the half-year to 30 June 2010 with the half-years to 30 June 2009 and 31 December 2009. Equivalent tables are provided for each of HSBC's customer groups and geographical segments in their respective sections below.

The foreign currency translation differences reflect the relative strengthening of the US dollar across Asia, as well as in Brazil, Mexico and the UK during the first half of 2010.

The following acquisitions and disposals were adjusted for in arriving at the underlying comparison:

·     the acquisition of Bank Ekonomi in May 2009;

·     the gain on sale of HSBC's 49 per cent interest in a joint venture for a UK merchant acquiring business in June 2009 of US$280 million;

·     the gain on reclassification of Bao Viet Holdings ('Bao Viet') from an available-for-sale asset to an associate in January 2010 of US$62 million;

·     the gain on the sale of HSBC's stake in Wells Fargo HSBC Trade Bank in March 2010 of US$66 million;

·     the gain on disposal of HSBC Insurance Brokers Limited in April 2010 of US$107 million;

·     the dilution gain which arose on HSBC's holding in Ping An Insurance (Group) Company of China, Limited ('Ping An Insurance') following the issue of shares by Ping An Insurance in May 2010, of US$188 million; and

·     the loss of US$47 million on reclassification of British Arab Commercial Bank plc from an associate to a held-for-sale asset in June 2010.

The timing of the Bank Ekonomi acquisition creates an underlying adjustment between the first half of 2009 and the first half of 2010 but not between the second half of 2009 and the first half of 2010.

·    

Reconciliation of reported and underlying profit before tax

	Half-year to 30 June 2010 ('1H10') compared with half-year to 30 June 2009 ('1H09')
HSBC	1H09            as reported     US$m	1H09       adjust-        ments1         US$m			Currency translation2        US$m		1H09   at 1H10 exchange        rates3      US$m	1H10                as     reported         US$m			1H10     adjust-      ments1      US$m		1H10    under-      lying     US$m		Re- ported change4        %		Under-  lying change4        %
Net interest income ..	20,538		-		707		21,245		19,757		(31)		19,726		(4)		(7)
Net fee income ..	8,428		(71)		248		8,605		8,518		(3)		8,515		1		(1)
Changes in fair value5.....	(2,457)		2,457		-		-		1,074		(1,074)		-
Other income6	8,232		(281)		264		8,215		6,202		(385)		5,817		(25)		(29)
Net operating income7 ..............	34,741		2,105		1,219		38,065		35,551		(1,493)		34,058		2		(11)
Loan impairment charges and other credit risk provisions ............	(13,931)		-		(363)		(14,294)		(7,523)		-		(7,523)		46		47
Net operating income	20,810		2,105		856		23,771		28,028		(1,493)		26,535		35		12
Operating expenses	(16,658)		70		(663)		(17,251)		(18,111)		19		(18,092)		(9)		(5)
Operating profit ...	4,152		2,175		193		6,520		9,917		(1,474)		8,443		139		29
Income from associates	867		(1)		(1)		865		1,187		-		1,187		37		37
Profit before tax ........	5,019		2,174		192		7,385		11,104		(1,474)		9,630		121		30

	Half-year to 30 June 2010 ('1H10') compared with half-year to 31 December 2009 ('2H09')
HSBC	2H09            as reported      US$m	2H09         adjust-          ments1          US$m			Currency translation2         US$m		2H09    at 1H10 exchange         rates8       US$m	1H10                as      reported          US$m			1H10       adjust-       ments1       US$m		1H10      under-        lying      US$m		Re- ported change4         %		Under-   lying change4         %
Net interest income .....	20,192		-		(316)		19,876		19,757		-		19,757		(2)		(1)
Net fee income .....	9,236		(105)		(177)		8,954		8,518		-		8,518		(8)		(5)
Changes in fair value5..	(4,076)		4,076		-		-		1,074		(1,074)		-
Other income6 ..................	6,088		(2)		(104)		5,982		6,202		(376)		5,826		2		(3)
Net operating income7 ....	31,440		3,969		(597)		34,812		35,551		(1,450)		34,101		13		(2)
Loan impairment charges and other credit risk provisions .	(12,557)		-		141		(12,416)		(7,523)		-		(7,523)		40		39
Net operating income .....	18,883		3,969		(456)		22,396		28,028		(1,450)		26,578		48		19
Operating expenses ...	(17,737)		99		323		(17,315)		(18,111)		-		(18,111)		(2)		(5)
Operating profit ........	1,146		4,068		(133)		5,081		9,917		(1,450)		8,467		765		67
Income from associates	914		-		1		915		1,187		-		1,187		30		30
Profit before tax ............	2,060		4,068		(132)		5,996		11,104		(1,450)		9,654		439		61

For footnotes, see page 95.

 

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