Consolidated income statement
Summary income statement
|
Half-year to |
||||
|
30 June 2011 |
|
30 June 2010 |
|
31 December 2010 |
|
US$m |
|
US$m |
|
US$m |
|
|
|
|
|
|
Net interest income ........................................................................ |
20,235 |
|
19,757 |
|
19,684 |
|
|
|
|
|
|
Net fee income ............................................................................... |
8,807 |
|
8,518 |
|
8,837 |
|
|
|
|
|
|
Net trading income ......................................................................... |
4,812 |
|
3,552 |
|
3,658 |
|
|
|
|
|
|
Net income/(expense) from financial instruments designated at fair value .......................................................................................... |
(100) |
|
1,085 |
|
135 |
Gains less losses from financial investments .................................... |
485 |
|
557 |
|
411 |
Gains arising from dilution of interests in associates ........................ |
181 |
|
188 |
|
- |
Dividend income ............................................................................. |
87 |
|
59 |
|
53 |
Net earned insurance premiums ....................................................... |
6,700 |
|
5,666 |
|
5,480 |
Other operating income .................................................................. |
1,104 |
|
1,290 |
|
1,084 |
|
|
|
|
|
|
Total operating income ............................................................... |
42,311 |
|
40,672 |
|
39,342 |
|
|
|
|
|
|
Net insurance claims incurred and movement in liabilities to policyholders .............................................................................. |
(6,617) |
|
(5,121) |
|
(6,646) |
|
|
|
|
|
|
Net operating income before loan impairment charges and other credit |
35,694 |
|
35,551 |
|
32,696 |
|
|
|
|
|
|
Loan impairment charges and other credit risk provisions .............. |
(5,266) |
|
(7,523) |
|
(6,516) |
|
|
|
|
|
|
Net operating income ................................................................. |
30,428 |
|
28,028 |
|
26,180 |
|
|
|
|
|
|
Total operating expenses ................................................................ |
(20,510) |
|
(18,111) |
|
(19,577) |
|
|
|
|
|
|
Operating profit .......................................................................... |
9,918 |
|
9,917 |
|
6,603 |
|
|
|
|
|
|
Share of profit in associates and joint ventures ............................... |
1,556 |
|
1,187 |
|
1,330 |
|
|
|
|
|
|
Profit before tax .......................................................................... |
11,474 |
|
11,104 |
|
7,933 |
|
|
|
|
|
|
Tax expense ................................................................................... |
(1,712) |
|
(3,856) |
|
(990) |
|
|
|
|
|
|
Profit for the period .................................................................... |
9,762 |
|
7,248 |
|
6,943 |
|
|
|
|
|
|
Profit attributable to shareholders of the parent company .............. |
9,215 |
|
6,763 |
|
6,396 |
Profit attributable to non-controlling interests ............................... |
547 |
|
485 |
|
547 |
|
|
|
|
|
|
Average foreign exchange translation rates to US$: |
|
|
|
|
|
US$1: £ .......................................................................................... |
0.619 |
|
0.656 |
|
0.639 |
US$1: € .......................................................................................... |
0.714 |
|
0.755 |
|
0.755 |
Reported profit before tax of US$11.5bn in the first half of 2011 was 3% higher than in the first half of 2010, 13% on an underlying basis, with a continued reduction in loan impairment charges more than offsetting higher operating costs. The difference between reported and underlying results is explained on page 10. Except where otherwise stated, the commentaries in the Financial Summary are on an underlying basis.
Net operating income before loan impairment charges and other credit risk provisions ('revenue') was marginally higher than in the first half of 2010. Revenue rose across Hong Kong, Rest of Asia‑Pacific and Latin America supported by strong lending growth, notably in Commercial Banking ('CMB') and Global Banking and Markets ('GB&M'), and increasing trade and transaction volumes. This was coupled with growth in investment and insurance income in Retail Banking and Wealth Management ('RBWM') as markets improved. We also recorded sustained growth in our mortgage portfolios, notably in the UK and Hong Kong. Offsetting these factors were the ongoing decrease in balances in North America in the Cards and run-off portfolios. Performance in GB&M was affected by lower revenues in legacy Credit, and in Balance Sheet Management.
Loan impairment charges and other credit risk provisions were US$2.4bn or 32% lower than in the first half of 2010 and the lowest reported since the first half of 2006, reflecting the benefits of our exit strategies for higher risk portfolios, ongoing risk management, a sustained trend towards higher quality, more secure lending and a general improvement in credit quality. This was most notable in North America in HSBC Finance as we continued the managed run-off of our sub-prime mortgage portfolio and the loss experience on credit card portfolios improved.
Operating expenses of US$20.5bn were 10% higher than in the first half of 2010, reflecting increased headcount, wage inflation in key markets and ongoing investment in strategic projects in GB&M and in the branch network, as well as a number of notable items. These included an increase of US$477m in restructuring costs which were incurred as a result of actions taken following the review of our businesses announced on the Strategy Day and the ongoing review of our cost base. In addition, operating expenses included provisions relating to customer redress programmes of US$611m, including a provision in respect of the adverse judgement in the Judicial Review relating to sales of payment protection insurance ('PPI') in the UK. This was offset by a credit of US$587m resulting from a change in the inflation measure used to calculate the defined benefit obligation of the HSBC Bank (UK) Pension Scheme defined benefit plan for deferred pensions (for further details see Note 5 on page 183). As a result of the increasing costs, our cost efficiency ratio for the first half of 2011 was 57.5%, higher than in the first half of 2010 and outside our target range. Significantly, however, it improved compared with both the second half of 2010 and the first quarter of 2011.
Reported profit after tax was US$2.5bn or 35% higher than in the first half of 2010, reflecting the increase in profit before tax and a lower tax charge in the first half of 2011. The latter included the benefit of deferred tax now eligible to be recognised in respect of foreign tax credits, partly offset by a current period tax charge in respect of prior periods. The tax charge in the first half of 2010 was exceptionally high as it included US$1.6bn attributable to a taxable gain arising from an internal reorganisation within our North American operations.
Group performance by income and expense item
Net interest income
|
Half-year to |
||||
|
30 June
|
|
30 June
|
|
31 December
|
|
US$m |
|
US$m |
|
US$m |
|
|
|
|
|
|
Interest income ............................................................................................ |
31,046 |
|
28,686 |
|
29,659 |
Interest expense ........................................................................................... |
(10,811) |
|
(8,929) |
|
(9,975) |
|
|
|
|
|
|
Net interest income18 (US$m) ...................................................................... |
20,235 |
|
19,757 |
|
19,684 |
|
|
|
|
|
|
Average interest-earning assets (US$m) ........................................................ |
1,607,626 |
|
1,431,458 |
|
1,512,462 |
Gross interest yield19 (%) .............................................................................. |
3.89 |
|
4.04 |
|
3.89 |
Net interest spread20 (%) .............................................................................. |
2.37 |
|
2.68 |
|
2.43 |
Net interest margin21 (%) ............................................................................. |
2.54 |
|
2.78 |
|
2.58 |
For footnotes, see page 81.
Net interest income increased by 2% compared with the first half of 2010. On an underlying basis, net interest income was broadly in line with the first half of 2010, as significant balance growth was offset by continuing pressure on spreads.
Average loans and advances to customers grew strongly in the first half of 2011, particularly in commercial lending in CMB and GB&M Group-wide and mortgages in the UK and Hong Kong. The benefit to interest income from higher balances was partly offset by the effect of declining yields on lending, as we continued to reposition the customer loan portfolio towards higher quality assets and reduce our exposure to higher yielding unsecured personal lending, coupled with intensive competition in certain markets.
The average balance of loans and advances to banks and financial investments also rose due to higher placements with central and commercial banks and this, together with rising yields in Asia, led to an increase in interest income. This was partly offset by Balance Sheet Management, where revenues continued to fall as higher-yielding positions matured and the opportunity to maintain yields on reinvestment was limited by the prevailing low interest rate environment, notably in Europe.
The increase in interest income was offset by higher interest expense on customer accounts and debt issued by the Group. Average customer account balances grew significantly, notably in Hong Kong and Rest of Asia-Pacific, reflecting the growth in
customer numbers and the success of deposit campaigns. The cost of funds across the Group also rose, driven by base rate increases and higher rates paid to customers in competitive markets.
The interest expense on debt issued by the Group also rose, reflecting a general rise in credit spreads in the financial sector which led to an increase in the cost of funds for new issuances in most regions during the second half of 2010 and the first half of 2011.
Net interest income includes the expense of internally funding trading assets, while related revenue is reported in 'Net trading income'. The cost of funding these assets rose as a result of growth in average trading assets. In reporting our customer group and global business results, this cost is included within 'Net trading income'.
The net interest spread decreased due to lower yields on loans and advances to customers as we continued to target higher quality assets, and the rising cost of funds relating to customer accounts and debt issued by the Group. Our net interest margin fell by a lesser amount due to the benefit from net free funds. The increase in net free funds was partly attributable to a rise in funding in line with the growth in trading assets. In addition, customers held more funds in liquid non-interest bearing current accounts in the low interest rate environment. The rise in the Group's cost of funds also contributed to the benefit from net free funds.
Net fee income
|
Half-year to |
||||
|
30 June |
|
30 June |
|
31 December |
|
|
|
|
|
|
Cards ............................................................................................................ |
1,977 |
|
1,900 |
|
1,901 |
Account services .......................................................................................... |
1,846 |
|
1,821 |
|
1,811 |
Funds under management .............................................................................. |
1,414 |
|
1,181 |
|
1,330 |
Broking income ............................................................................................ |
933 |
|
766 |
|
1,023 |
Credit facilities ............................................................................................. |
849 |
|
827 |
|
808 |
Imports/exports ........................................................................................... |
552 |
|
466 |
|
525 |
Insurance ...................................................................................................... |
545 |
|
578 |
|
569 |
Global custody .............................................................................................. |
391 |
|
439 |
|
261 |
Unit trusts .................................................................................................... |
374 |
|
267 |
|
293 |
Remittances ................................................................................................. |
371 |
|
329 |
|
351 |
Underwriting ................................................................................................ |
332 |
|
264 |
|
359 |
Corporate finance ........................................................................................ |
235 |
|
248 |
|
192 |
Trust income ................................................................................................ |
148 |
|
141 |
|
150 |
Mortgage servicing ....................................................................................... |
56 |
|
60 |
|
58 |
Taxpayer Financial Services ......................................................................... |
1 |
|
91 |
|
(18) |
Maintenance income on operating leases ...................................................... |
- |
|
53 |
|
46 |
Other ........................................................................................................... |
920 |
|
974 |
|
1,053 |
|
|
|
|
|
|
Fee income ................................................................................................... |
10,944 |
|
10,405 |
|
10,712 |
|
|
|
|
|
|
Less: fee expense .......................................................................................... |
(2,137) |
|
(1,887) |
|
(1,875) |
|
|
|
|
|
|
Net fee income ............................................................................................. |
8,807 |
|
8,518 |
|
8,837 |
Reported net fee income rose by 3.4% to US$8.8bn, and was in line on an underlying basis.
Fee income from wealth management products increased considerably within Asia and Europe, due to higher transaction volumes. This was particularly so for unit trusts in Hong Kong and funds under management in Europe, where growth was driven by stronger investment performance due to improved market conditions.
Trade-related fee income increased, notably in Hong Kong and the Rest of Asia-Pacific region due to higher trade and transaction volumes.
Net fee income related to cards increased in the first half of 2011, notably in the UK and in Hong Kong due to higher transaction volumes which were driven by increased retail spending and customer promotions. This was partly offset in North America, where reduced late and overlimit fees reflected lower delinquency and an increased willingness by customers to pay down their credit card debt, combined with the effects of lower balances and changes to charging practices under the Credit Card Accountability, Responsibility and Disclosure Act ('CARD Act').
Underwriting fees increased in GB&M as we increased our market share of global bond issuance volumes in the first half of 2011.
The negligible income from Taxpayer Financial Services in the US resulted from the decision to exit the business.
Fee expenses increased, notably in GB&M, which benefited from higher recoveries from the securities investment conduits in the first half of 2010.
Net trading income
|
Half-year to |
||||
|
30 June |
|
30 June |
|
31 December |
|
|
|
|
|
|
Trading activities ......................................................................................... |
3,615 |
|
3,419 |
|
2,289 |
Net interest income on trading activities ...................................................... |
1,581 |
|
1,242 |
|
1,288 |
Gain/(loss) on termination of hedges ............................................................ |
5 |
|
(3) |
|
3 |
Other trading income - hedge ineffectiveness: |
|
|
|
|
|
- on cash flow hedges .............................................................................. |
2 |
|
(24) |
|
15 |
- on fair value hedges .............................................................................. |
(77) |
|
17 |
|
21 |
Non-qualifying hedges .................................................................................. |
(314) |
|
(1,099) |
|
42 |
|
|
|
|
|
|
Net trading income22,23 ............. .................................................................... |
4,812 |
|
3,552 |
|
3,658 |
For footnotes, see page 81.
Reported net trading income was US$4.8bn, 35% higher than in the first half of 2010. On an underlying basis, it rose by 23%.
This increase was driven by lower adverse fair value movements on non-qualifying hedges compared with the first half of 2010. These instruments are derivatives entered into as part of a documented interest rate management strategy for which hedge accounting was not, or could not be, applied. They are principally cross-currency and interest rate swaps used to economically hedge fixed rate debt issued by HSBC Holdings and floating rate debt issued by HSBC Finance Corporation ('HSBC Finance'). Long-term US interest rates declined during the first half of 2011 but to a lesser extent than in the corresponding period in 2010, and the decrease relative to sterling and euro rates was also less pronounced, benefiting net trading income in North America and Europe. The size and direction of the changes in fair value of non-qualifying hedges that are recognised in the income statement can be volatile from period to period, but do not alter the cash flows expected as part of the documented interest rate management strategy for both the instruments and the underlying economically hedged assets and liabilities.
Net interest income earned on trading activities increased by 21%, attributable to a rise in holdings of government and government agency debt securities. The cost of internally funding these assets also
increased, but this interest expense is reported under 'Net interest income' and excluded from net trading income.
In GB&M, net income from trading activities declined, mainly driven by Rates, largely due to lower favourable fair value movements on structured liabilities as credit spreads widened to a lesser extent than in the first half of 2010. The decline was partly offset by higher revenues as customer demand for structured products increased.
This was partly offset by a rise in Equities revenues as improved competitive positioning helped capture increasing client flows, particularly during the global rally in the first quarter of 2011.
In addition, net trading income included favourable foreign exchange movements on trading assets held as economic hedges of foreign currency debt designated at fair value. These offset adverse foreign exchange movements on the foreign currency debt which are reported in 'Net income from financial instruments designated at fair value'.
The decline in GB&M was offset by other movements, notably in RBWM in North America where, in the first half of 2011, provisions for mortgage loan repurchase obligations associated with loans previously sold were lower. This related mainly to mortgages originated through broker channels. We regard these mortgage loan repurchase obligations as trading assets.
Net income/(expense) from financial instruments designated at fair value
|
Half-year to |
||||
|
30 June |
|
30 June |
|
31 December |
Net income/(expense) arising from: |
|
|
|
|
|
-. financial assets held to meet liabilities under insurance and |
547 |
|
(229) |
|
2,578 |
-. liabilities to customers under investment contracts ................................ |
(186) |
|
184 |
|
(1,130) |
|
|
|
|
|
|
-. HSBC's long-term debt issued and related derivatives ............................ |
(494) |
|
1,125 |
|
(1,383) |
Change in own credit spread on long-term debt24 ............................... |
(143) |
|
1,074 |
|
(1,137) |
Other changes in fair value25 ............................................................. |
(351) |
|
51 |
|
(246) |
|
|
|
|
|
|
-. other instruments designated at fair value and related derivatives .......... |
33 |
|
5 |
|
70 |
|
|
|
|
|
|
Net income/(expense) from financial instruments designated at fair value .... |
(100) |
|
1,085 |
|
135 |
Assets and liabilities from which net income/(expense) from financial instruments designated at fair value arose
|
At |
||||
|
30 June |
|
30 June |
|
31 December |
|
2011 US$m |
|
2010 US$m |
|
2010 US$m |
|
|
|
|
|
|
Financial assets designated at fair value at period-end ................................... |
39,565 |
|
32,243 |
|
37,011 |
Financial liabilities designated at fair value at period-end .............................. |
98,280 |
|
80,436 |
|
88,133 |
|
|
|
|
|
|
Including: |
|
|
|
|
|
Financial assets held to meet liabilities under: |
|
|
|
|
|
- insurance contracts and investment contracts with DPF26 ......................
|
8,109 |
|
5,894 |
|
7,167 |
- unit-linked insurance and other insurance and investment contracts ....... |
21,584 |
|
16,145 |
|
19,725 |
Long-term debt issues designated at fair value ............................................... |
79,574 |
|
63,692 |
|
69,906 |
For footnotes, see page 81.
The accounting policies for the designation of financial instruments at fair value and the treatment of the associated income and expenses are described in Notes 2i and 2b of the Annual Report and Accounts 2010, respectively.
The majority of the financial liabilities designated at fair value relate to certain fixed-rate long-term debt issues whose rate profile has been changed to floating through interest rate swaps as part of a documented interest rate management strategy. The movement in fair value of these long-term debt issues includes the effect of our credit spread changes and any ineffectiveness in the economic relationship between the related swaps and own debt. As credit spreads widen or narrow, accounting profits or losses, respectively, are booked. The size and direction of the changes in the credit spread on our debt and ineffectiveness, which are recognised in the income statement, can be volatile from period to period, but do not alter the cash flows envisaged as part of the documented interest rate management strategy. As a consequence, fair value movements arising from changes in our own credit spread on long-term debt and other fair value movements on the debt and related derivatives are not regarded internally as part of managed performance and are therefore not allocated to customer groups or global businesses, but are reported in 'Other'. Credit spread movements on own debt are excluded from underlying results, and related fair value movements are not included in the calculation of regulatory capital.
We reported a net expense from financial instruments designated at fair value of US$0.1bn in the first half of 2011 compared with net income of US$1.1bn in the first half of 2010. On an underlying basis, the equivalent figures were income of US$43m and an expense of US$5m, respectively. The difference between the reported and underlying results arose from the exclusion from the latter of the credit spread-related movements in the fair value of our own long-term debt, on which we reported adverse fair value movements of US$143m in the first half of 2011 and favourable movements of US$1.1bn in the first half of 2010. The adverse fair value movements during the first half of 2011 were driven by the tightening of credit spreads in Europe and North America, compared with widening credit spreads in the first half of 2010.
Net income arising from financial assets held to meet liabilities under insurance and investment contracts reflected investment gains in the period as equity markets improved, compared with losses in the first half of 2010. This predominantly affected the value of assets held to support unit-linked insurance and investment contracts in the UK and Hong Kong and participating contracts in France, while gains in Brazil were higher than in the comparable period in 2010.
The investment gains arising from the improved equity markets resulted in a corresponding increase in liabilities to customers, reflecting the extent to which unit-linked policyholders, in particular, participate in the investment performance of the associated asset portfolio. Where the gains relate to assets held to back investment contracts, the corresponding increase in liabilities to customers is also recorded under 'Net income from financial instruments designated at fair value'. This is in contrast to gains related to assets held to back insurance contracts or investment contracts with discretionary participation features ('DPF'), where the corresponding increase in liabilities to customers is recorded under 'Net insurance claims incurred and movement in liabilities to policyholders'.
Net income from financial instruments designated at fair value also included adverse foreign exchange movements on foreign currency debt designated at fair value, issued as part of our overall funding strategy, with an offset from trading assets held as economic hedges reported in 'Net trading income'.
Gains less losses from financial investments
|
Half-year to |
||||
|
30 June |
|
30 June |
|
31 December |
Net gains/(losses) from disposal of: |
|
|
|
|
|
-. debt securities ....................................................................................... |
306 |
|
382 |
|
182 |
-. equity securities .................................................................................... |
213 |
|
223 |
|
293 |
-. other financial investments .................................................................. |
(3) |
|
(8) |
|
1 |
|
|
|
|
|
|
|
516 |
|
597 |
|
476 |
Impairment of available-for-sale equity securities ......................................... |
(31) |
|
(40) |
|
(65) |
|
|
|
|
|
|
Gains less losses from financial investments ................................................. |
485 |
|
557 |
|
411 |
Net gains from financial investments decreased by 13% and 5% on a reported and an underlying basis, respectively, the latter excluding an accounting gain from the reclassification of Bao Viet as an associate following the purchase of additional shares in the first half of 2010.
The decline was driven by lower net gains on the disposal of debt securities, including available-for-sale government debt securities and mortgage-backed securities, mostly due to the high level of realised gains in Hong Kong and Rest of Asia-Pacific in the first half of 2010.
The decrease was partly offset by an increase in net gains on the disposal of available-for-sale equity investments, and a lower level of impairments on available-for-sale investments reflecting a general improvement in the economic environment.
Net earned insurance premiums
|
Half-year to |
||||
|
30 June |
|
30 June |
|
31 December |
|
|
|
|
|
|
Gross insurance premium income .................................................................. |
6,928 |
|
5,902 |
|
5,707 |
Reinsurance premiums .................................................................................. |
(228) |
|
(236) |
|
(227) |
|
|
|
|
|
|
Net earned insurance premiums .................................................................... |
6,700 |
|
5,666 |
|
5,480 |
Net earned insurance premiums increased by 18% and 14% on a reported and an underlying basis, respectively. This was primarily attributable to the continued growth of the life insurance business, particularly in Hong Kong.
In Hong Kong, sales of unit-linked and deferred annuity products rose. This resulted from increased demand for insurance products, together with higher levels of renewals from a larger in-force book of business. Sales were also higher in Rest of Asia-Pacific, particularly in Singapore and Malaysia, driven by successful sales initiatives and increased demand for insurance products as economic conditions in the region continued to improve.
Investment products with DPF continued to generate strong net earned premium income in France, driven by successful targeted sales campaigns. Life insurance premiums in the UK were also higher, due to increased sales of a unit-linked product driven by our enhanced distribution capabilities.
In Latin America, net earned premium growth was strong, particularly for credit-related, term life and unit-linked products in Brazil, reflecting the improved economic environment and an increase in the salesforce. In Argentina, repricing initiatives drove higher premiums on the motor book.
The above growth was partly offset by a reduction in premiums resulting from the non-renewal and transfer to third parties of certain contracts in our Irish business, and the run-off of the legacy motor book in the UK.
Other operating income
|
Half-year to |
||||
|
30 June |
|
30 June |
|
31 December |
|
|
|
|
|
|
Rent received ............................................................................................... |
75 |
|
297 |
|
238 |
Losses recognised on assets held for sale ....................................................... |
(4) |
|
(100) |
|
(163) |
Valuation gains/(losses) on investment properties ......................................... |
38 |
|
(8) |
|
101 |
Gain on disposal of property, plant and equipment, intangible assets |
27 |
|
274 |
|
427 |
Gains arising from dilution of interests in associates ..................................... |
181 |
|
188 |
|
- |
Change in present value of in-force long-term insurance business ................. |
658 |
|
325 |
|
380 |
Other ........................................................................................................... |
310 |
|
502 |
|
101 |
|
|
|
|
|
|
Other operating income ............................................................................... |
1,285 |
|
1,478 |
|
1,084 |
Reported other operating income of US$1.3bn decreased by 13% in the first half of 2011. Income in the period included a gain of US$181m arising from a further dilution of our holding in Ping An following its issue of share capital to a third party. Income in the first half of 2010 also included a gain of US$188m following a dilution of our holding in Ping An, a gain of US$107m from the sale of HSBC Insurance Brokers, a gain of US$66m from the disposal of our interest in the Wells Fargo HSBC Trade Bank and a write-down of US$47m resulting from an agreement to sell our shareholding in British Arab Commercial Bank plc. The first half of 2010 also included rent received as a component of the operating result of Eversholt Rail Group which was sold in December 2010.
On an underlying basis, excluding these items, other operating income increased by 13% as the non-recurrence of gains of US$194m and US$56m recognised in 2010 on the sale and leaseback of our Paris and New York headquarters, respectively, was more than offset by favourable movements in the present value of in-force ('PVIF') long-term insurance business. The calculation of the PVIF asset was refined during the period to bring greater comparability and consistency across our insurance operations, which led to a gain of US$243m (see footnote 27 on page 81). Higher sales of life insurance products, notably in Hong Kong, also contributed to the increase in the PVIF asset.
Net losses recognised on assets held for sale declined as a US$77m loss recognised on the sale of the US vehicle finance servicing operations and associated US$1.0bn loan portfolio in the first half of 2010 did not recur. In addition, the first half of 2011 included gains on the sale of buildings including the sale and leaseback of branches in Mexico.
Net insurance claims incurred and movement in liabilities to policyholders
|
Half-year to |
||||
|
30 June |
|
30 June |
|
31 December |
|
|
|
|
|
|
Insurance claims incurred and movement in liabilities to policyholders: |
|
|
|
|
|
- gross ..................................................................................................... |
6,761 |
|
5,281 |
|
6,688 |
- reinsurers' share .................................................................................... |
(144) |
|
(160) |
|
(42) |
|
|
|
|
|
|
- net28 .......................... ........................................................................... |
6,617 |
|
5,121 |
|
6,646 |
For footnote, see page 81.
Net insurance claims incurred and movement in liabilities to policyholders increased by 29% on a reported basis and by 26% on an underlying basis.
Additional reserves were established for new business written, driven by premium growth in Hong Kong, Rest of Asia-Pacific, Latin America and Europe, reflecting sales campaigns and improved market conditions.
Further increases in the movement in liabilities to policyholders resulted from gains on the fair value of the assets held to support policyholder funds as equity markets improved, particularly on unit-linked contracts in the UK and Hong Kong and on investment contracts with DPF in France, compared with losses in the first half of 2010. Gains on the fair value of the assets held to support unit-linked contracts in Brazil increased compared with the equivalent period in 2010.
The gains or losses experienced on the financial assets designated at fair value held to support insurance contract liabilities and investment contracts with DPF are reported in 'Net income from financial instruments designated at fair value'.
The non-renewal and transfer to third parties of certain contracts in the Irish business and the run-off of the legacy motor book in the UK resulted in a decrease in net insurance claims incurred and movement in liabilities to policyholders, partly offsetting the above.
Loan impairment charges and other credit risk provisions
|
Half-year to |
||||
|
30 June |
|
30 June |
|
31 December |
Loan impairment charges |
|
|
|
|
|
New allowances net of allowance releases .................................................. |
5,703 |
|
7,687 |
|
6,881 |
Recoveries of amounts previously written off ........................................... |
(730) |
|
(453) |
|
(567) |
|
|
|
|
|
|
|
4,973 |
|
7,234 |
|
6,314 |
|
|
|
|
|
|
Individually assessed allowances .................................................................... |
638 |
|
1,069 |
|
1,556 |
Collectively assessed allowances ................................................................... |
4,335 |
|
6,165 |
|
4,758 |
|
|
|
|
|
|
Impairment of available-for-sale debt securities ............................................ |
308 |
|
282 |
|
190 |
|
|
|
|
|
|
Other credit risk provisions/(recoveries) ....................................................... |
(15) |
|
7 |
|
12 |
|
|
|
|
|
|
Loan impairment charges and other credit risk provisions ............................ |
5,266 |
|
7,523 |
|
6,516 |
|
|
|
|
|
|
|
% |
|
% |
|
% |
- as a percentage of net operating income excluding the effect of fair |
14.7 |
|
21.8 |
|
19.3 |
|
|
|
|
|
|
Impairment charges on loans and advances to customers as a percentage |
1.0 |
|
1.7 |
|
1.4 |
|
|
|
|
|
|
|
US$m |
|
US$m |
|
US$m |
|
|
|
|
|
|
Customer impaired loans .............................................................................. |
25,982 |
|
27,887 |
|
28,091 |
Customer loan impairment allowances .......................................................... |
18,732 |
|
22,033 |
|
20,083 |
On a reported basis loan impairment charges and other credit risk provisions decreased from US$7.5bn to US$5.3bn, a decline of 30% compared with the first half of 2010 and 32% on an underlying basis. Within this, collectively assessed allowances and individually assessed impairment allowances fell by 31% and 43%, respectively.
At 30 June 2011, the aggregate balance of customer loan impairment allowances was US$18.7bn. This represented 2% of gross loans and advances to customers (net of reverse repos and settlement accounts) compared with 3% at 30 June 2010.
The improvement in loan impairment charges and other credit risk provisions was seen across all regions. The most significant diminution in loan impairment charges was in RBWM in North America due to the continued decline in the run-off portfolios and the ongoing reduction of outstanding credit card debt by customers in the Card and Retail Services business, as well as a general improvement in credit quality. In addition, credit quality also improved for our RBWM business in Europe, reflecting the continued shift from unsecured to secured lending. Loan impairment charges and other credit risk provisions in GB&M and CMB also declined.
Impairments on available-for-sale debt securities were broadly in line with the first half of 2010.
In North America, loan impairment charges and other credit risk provisions fell by 33% to US$3bn, representing 62% of the Group's reduction in loan impairment charges and other credit risk provisions compared with the first half of 2010.
Loan impairment charges in our Consumer Lending and Mortgage Services businesses in the US fell by 30% to US$2.2bn, driven by lower lending balances, delinquency and write-off levels as the portfolios continued to run off. These decreases were partly offset by an incremental charge resulting from changes to economic assumptions on the pace of recovery in home prices and delays in the timing of expected cash flows as a consequence of the suspension of foreclosure activity which began in late 2010.
In Card and Retail Services, loan impairment charges fell by 47% to US$705m. The decrease was driven by lower lending balances reflecting fewer active accounts and consumers' continued efforts to reduce their credit card debt. The easing in economic conditions, lower delinquency levels and higher recovery rates were also factors in the reduction.
In Europe, loan impairment charges and other credit risk provisions decreased by 26% to US$1.2bn. In RBWM, loan impairment charges declined due to improved delinquency trends across both the secured and unsecured portfolios, reflecting enhanced credit risk management practices, improved collections and the effects of the low interest rate environment in the UK. In CMB, loan impairment charges and other credit risk provisions fell by US$69m, driven by lower customer-specific impairments.
In Europe we recorded an impairment of US$105m in the first half of 2011 in respect of available-for-sale Greek sovereign debt. Further information on our exposures to countries in the eurozone, is provided in 'Areas of special interest - wholesale lending' on page 98.
In the Middle East and North Africa, loan impairment charges and other credit risk provisions declined by 77% to US$99m, primarily in our GB&M business, due to the non-recurrence of impairment charges against a small number of large corporate customers in the United Arab Emirates ('UAE') in the first half of 2010. In our RBWM business, loan impairment charges also reduced, by 59% to US$58m, due to lower lending balances and a significant improvement in delinquency rates driven by the repositioning of the loan book, higher quality lending and strengthened collections practices.
Loan impairment charges and other credit risk provisions in Latin America decreased by 8% to US$820m, primarily in RBWM. This was mainly in the credit card portfolios in Mexico due to the managed decline of riskier portfolios and lower delinquency rates as a result of tightened underwriting criteria, better collections practices and improved credit conditions. In our CMB portfolios, loan impairment charges and other credit risk provisions declined by 3% to US$180m, principally as improved economic conditions resulted in lower specific impairment charges against commercial real estate exposures in Mexico.
In the Rest of Asia-Pacific region, loan impairment charges decreased by 36%, notably in RBWM as certain unsecured lending portfolios continued to be managed down in India. This reduction was partly offset by the non-recurrence of impairment releases in GB&M that occurred in the first half of 2010.
In Hong Kong, loan impairment charges and other credit risk provisions fell by 60% to US$25m, primarily from the non-recurrence of a specific impairment charge in GB&M along with higher recoveries and a reduction in the level of collective loan impairment allowances in the first half of 2011. Despite the low level of impairment charges in the region, we remained vigilant on maintaining underwriting standards and continued to focus on maintaining high levels of asset quality.
Operating expenses
|
Half-year to |
||||
|
30 June |
|
30 June |
|
31 December |
|
US$m |
|
US$m |
|
US$m |
By expense category |
|
|
|
|
|
Employee compensation and benefits ........................................................... |
10,521 |
|
9,806 |
|
10,030 |
Premises and equipment (excluding depreciation and impairment) ................ |
2,196 |
|
2,089 |
|
2,259 |
General and administrative expenses ............................................................. |
6,223 |
|
4,925 |
|
5,883 |
|
|
|
|
|
|
Administrative expenses ............................................................................... |
18,940 |
|
16,820 |
|
18,172 |
Depreciation and impairment of property, plant and equipment ................... |
805 |
|
834 |
|
879 |
Amortisation and impairment of intangible assets ........................................ |
765 |
|
457 |
|
526 |
|
|
|
|
|
|
Operating expenses ...................................................................................... |
20,510 |
|
18,111 |
|
19,577 |
|
At |
||||
|
30 June |
|
30 June |
|
31 December |
Staff numbers (full-time equivalent) |
|
|
|
|
|
Europe ......................................................................................................... |
76,879 |
|
73,431 |
|
75,698 |
Hong Kong ................................................................................................... |
30,214 |
|
28,397 |
|
29,171 |
Rest of Asia-Pacific ...................................................................................... |
91,924 |
|
88,605 |
|
91,607 |
Middle East and North Africa ....................................................................... |
8,755 |
|
8,264 |
|
8,676 |
North America ............................................................................................. |
32,605 |
|
33,988 |
|
33,865 |
Latin America .............................................................................................. |
55,618 |
|
54,886 |
|
56,044 |
|
|
|
|
|
|
Staff numbers ............................................................................................... |
295,995 |
|
287,571 |
|
295,061 |
Cost efficiency ratios
|
Half-year to |
||||
|
30 June |
|
30 June |
|
31 December |
|
% |
|
% |
|
% |
|
|
|
|
|
|
HSBC ......................................................................................................... |
57.5 |
|
50.9 |
|
59.9 |
|
|
|
|
|
|
Geographical regions |
|
|
|
|
|
Europe ......................................................................................................... |
70.7 |
|
60.6 |
|
77.2 |
Hong Kong ................................................................................................... |
43.2 |
|
40.2 |
|
46.4 |
Rest of Asia-Pacific ...................................................................................... |
53.0 |
|
53.7 |
|
57.6 |
Middle East and North Africa ....................................................................... |
46.4 |
|
43.7 |
|
45.7 |
North America ............................................................................................. |
55.8 |
|
44.0 |
|
54.2 |
Latin America .............................................................................................. |
65.3 |
|
63.9 |
|
67.4 |
|
|
|
|
|
|
Customer groups and global businesses |
|
|
|
|
|
Retail Banking and Wealth Management16 ........................ ........................... |
61.2 |
|
56.5 |
|
59.7 |
Commercial Banking .................................................................................... |
45.1 |
|
48.5 |
|
50.3 |
Global Banking and Markets16 .............................. ........................................ |
50.2 |
|
44.6 |
|
53.8 |
Global Private Banking ................................................................................. |
66.1 |
|
62.7 |
|
68.9 |
For footnote, see page 81.
Operating expenses increased by 13% to US$20.5bn on a reported basis. On an underlying basis, they increased by 10% and 2% compared with the first and second halves of 2010, respectively. There were a number of significant items during the first half of 2011, notably US$611m of provisions relating to customer redress programmes in the UK, including a provision of US$455m in respect of the adverse judgement in the Judicial Review relating to sales of PPI. Litigation costs increased in the US. This was offset by a credit of US$587m resulting from a change in the inflation measure used to calculate the defined benefit obligation in the UK for deferred pensions. In the first half of 2010, payroll and bonus taxes in the UK and France amounting in aggregate to US$398m (US$367m as reported) and the US pension curtailment, which generated accounting credits of US$148m, were recorded.
The growth in business volumes, which was primarily in Hong Kong, Rest of Asia-Pacific and Latin America and was partly driven by expansion during 2010 and the first half of 2011, was supported by a rise in staff numbers as we recruited selectively. Overall average staff numbers (expressed in full-time equivalents) grew by 3% over the comparable period and by 2% over the second half of 2010. Higher wages and salaries reflected the rising demand for talent in certain countries, union-agreed salary increases and an acceleration in the expense recognition for deferred bonus awards of US$138m as employees now have a better understanding of the likely nature of their deferred awards. (See page 80).
GB&M continued to develop the operational capabilities of their Prime Services and equity market products and expanded their Rates and Foreign Exchange e-commerce platforms, which resulted in higher costs.
Marketing and advertising costs increased, primarily in support of the Group brand through the sponsorship of various activities.
In order to improve cost efficiency and organisational effectiveness we initiated a Group‑wide review during the period which resulted in restructuring costs of US$477m, primarily in the US, Latin America and Europe, which included impairments on certain software projects now deferred or cancelled.
Share of profit in associates and joint ventures
|
Half-year to |
||||
|
30 June |
|
30 June |
|
31 December |
|
|
|
|
|
|
Associates |
|
|
|
|
|
Bank of Communications Co., Limited ...................................................... |
642 |
|
467 |
|
520 |
Ping An Insurance (Group) Company of China, Limited ............................ |
469 |
|
377 |
|
471 |
Industrial Bank Co., Limited ...................................................................... |
199 |
|
146 |
|
181 |
The Saudi British Bank ............................................................................... |
171 |
|
101 |
|
60 |
Other ......................................................................................................... |
56 |
|
84 |
|
72 |
|
|
|
|
|
|
Share of profit in associates ........................................................................... |
1,537 |
|
1,175 |
|
1,304 |
Share of profit in joint ventures ..................................................................... |
19 |
|
12 |
|
26 |
|
|
|
|
|
|
Share of profit in associates and joint ventures .............................................. |
1,556 |
|
1,187 |
|
1,330 |
The share of profit in associates and joint ventures was US$1.6bn, an increase of 31% compared with the first half of 2010 on a reported basis and 27% on an underlying basis. This increase was driven by higher contributions from the mainland China associates as they capitalised on the robust economic conditions in the country.
Our share of profits from the Bank of Communications Co., Limited ('Bank of Communications') was 32% higher than in the first half of 2010 from strong loan growth, an improvement in deposit spreads as base rates increased and expanding fee-based revenue streams. Profits from Ping An also rose, driven by strong sales growth and the performance of the insurance, banking and wealth management business. Profits from Industrial Bank Co., Limited ('Industrial Bank') similarly increased as a result of continued strong loan growth.
Tax expense
|
Half-year to |
||||
|
30 June |
|
30 June |
|
31 December |
|
2011 US$m |
|
2010 US$m |
|
2010 US$m |
|
|
|
|
|
|
Profit before tax .......................................................................................... |
11,474 |
|
11,104 |
|
7,933 |
Tax expense ................................................................................................. |
(1,712) |
|
(3,856) |
|
(990) |
|
|
|
|
|
|
Profit after tax ............................................................................................. |
9,762 |
|
7,248 |
|
6,943 |
|
|
|
|
|
|
Effective tax rate ......................................................................................... |
14.9% |
|
34.7% |
|
12.5% |
Our tax charge in the first half of 2011 was 55.6% lower than in the first half of 2010 on a reported basis. The lower tax charge in the first half of 2011 included the benefit of deferred tax now eligible to be recognised in respect of foreign tax credits, partly offset by a current period tax charge in respect of prior periods.
The tax charge in the first half of 2010 included US$1.6bn attributable to a taxable gain arising from an internal reorganisation within our North American operations. The resulting reported effective tax rate for the first half of 2011 was 14.9% compared with 34.7% for the first half of 2010.
Summary consolidated balance sheet
|
At |
|
At |
|
At |
ASSETS |
|
|
|
|
|
Cash and balances at central banks ................................................................ |
68,218 |
|
71,576 |
|
57,383 |
Trading assets ............................................................................................... |
474,950 |
|
403,800 |
|
385,052 |
Financial assets designated at fair value ......................................................... |
39,565 |
|
32,243 |
|
37,011 |
Derivatives ................................................................................................... |
260,672 |
|
288,279 |
|
260,757 |
Loans and advances to banks ........................................................................ |
226,043 |
|
196,296 |
|
208,271 |
Loans and advances to customers29 ............................................................... |
1,037,888 |
|
893,337 |
|
958,366 |
Financial investments ................................................................................... |
416,857 |
|
385,471 |
|
400,755 |
Other assets .................................................................................................. |
166,794 |
|
147,452 |
|
147,094 |
|
|
|
|
|
|
Total assets .................................................................................................. |
2,690,987 |
|
2,418,454 |
|
2,454,689 |
|
|
|
|
|
|
LIABILITIES AND EQUITY |
|
|
|
|
|
Liabilities |
|
|
|
|
|
Deposits by banks ......................................................................................... |
125,479 |
|
127,316 |
|
110,584 |
Customer accounts ....................................................................................... |
1,318,987 |
|
1,147,321 |
|
1,227,725 |
Trading liabilities .......................................................................................... |
385,824 |
|
274,836 |
|
300,703 |
Financial liabilities designated at fair value .................................................... |
98,280 |
|
80,436 |
|
88,133 |
Derivatives ................................................................................................... |
257,025 |
|
287,014 |
|
258,665 |
Debt securities in issue .................................................................................. |
149,803 |
|
153,600 |
|
145,401 |
Liabilities under insurance contracts ............................................................. |
64,451 |
|
52,516 |
|
58,609 |
Other liabilities ............................................................................................. |
123,601 |
|
152,092 |
|
109,954 |
|
|
|
|
|
|
Total liabilities ............................................................................................. |
2,523,450 |
|
2,275,131 |
|
2,299,774 |
|
|
|
|
|
|
Equity |
|
|
|
|
|
Total shareholders' equity ............................................................................ |
160,250 |
|
135,943 |
|
147,667 |
Non-controlling interests ............................................................................. |
7,287 |
|
7,380 |
|
7,248 |
|
|
|
|
|
|
Total equity ................................................................................................. |
167,537 |
|
143,323 |
|
154,915 |
|
|
|
|
|
|
Total equity and liabilities ............................................................................ |
2,690,987 |
|
2,418,454 |
|
2,454,689 |
|
|
|
|
|
|
Selected financial information |
|
|
|
|
|
Called up share capital .................................................................................. |
8,909 |
|
8,755 |
|
8,843 |
Capital resources30,31 .................................................................................... |
173,784 |
|
154,886 |
|
167,555 |
Undated subordinated loan capital ................................................................. |
2,782 |
|
2,780 |
|
2,781 |
Preferred securities and dated subordinated loan capital32 .............................. |
53,659 |
|
48,118 |
|
54,421 |
|
|
|
|
|
|
Risk-weighted assets and capital ratios30
|
|
|
|
|
|
Risk-weighted assets ..................................................................................... |
1,168,529 |
|
1,075,264 |
|
1,103,113 |
|
|
|
|
|
|
|
% |
|
% |
|
% |
|
|
|
|
|
|
Core tier 1 ratio ........................................................................................... |
10.8 |
|
9.9 |
|
10.5 |
Tier 1 ratio .................................................................................................. |
12.2 |
|
11.5 |
|
12.1 |
|
|
|
|
|
|
Financial statistics |
|
|
|
|
|
Loans and advances to customers as a percentage of |
78.7 |
|
77.9 |
|
78.1 |
Average total shareholders' equity to average total assets ............................. |
5.7 |
|
5.5 |
|
5.5 |
|
|
|
|
|
|
Net asset value per ordinary share at period-end33 (US$) .............................. |
8.59 |
|
7.35 |
|
7.94 |
Number of US$0.50 ordinary shares in issue (millions) ................................. |
17,818 |
|
17,510 |
|
17,686 |
|
|
|
|
|
|
Closing foreign exchange translation rates to US$: |
|
|
|
|
|
US$1: £ ........................................................................................................ |
0.625 |
|
0.667 |
|
0.644 |
US$1: € ........................................................................................................ |
0.690 |
|
0.815 |
|
0.748 |
For footnotes, see page 81.
A more detailed consolidated balance sheet is contained in the Financial Statements on page 173.
Movement from 31 December 2010 to 30 June 2011
Total reported assets were US$2.7 trillion, 10% higher than at 31 December 2010. Underlying assets, excluding the effect of currency movements, increased by 7%. Strong deposit gathering activities across all regions led to significant growth in customer accounts, which enabled us to support our customers' borrowing requirements. Growth in trading assets reflected an improvement in trading activity in the first half of 2011 and an increase in our share of global bond issuances for clients. We remain well capitalised and strongly liquid.
The following commentary is on an underlying basis, compared with the balance sheet at 31 December 2010.
Assets
Cash and balances at central banks rose by 16% due to higher overnight balances with central banks in North America and Asia. This was partly offset by lower residual cash from daily operations placed with central banks in Europe.
Trading assets grew by 20%. Holdings of debt securities, including government and government agency debt securities, increased, reflecting both our role as primary market maker and customer demand. Settlement account balances, which vary considerably in proportion to the level of trading activity, also grew significantly. Higher reverse repo balances were attributable to an increase in client trading and the development of repo products across the regions.
Financial assets designated at fair value were broadly in line with 31 December 2010 levels.
Derivative assets fell by 4%, largely driven by a reduction in the fair value of interest rate contracts in Europe as the euro yield curve moved upwards, coupled with higher netting as we increased our trading through clearing houses. This was partly offset by an increase in the fair value of foreign exchange contracts due to higher levels of client demand.
Loans and advances to banks increased by 5% due to a rise in term placements with commercial and central banks, particularly in Asia.
Loans and advances to customers rose by 6% with increases in all regions except North America. This reflected targeted customer lending growth in CMB and GB&M, mainly in Europe, Hong Kong and Rest of Asia-Pacific, as the economic environment improved and trade flows rose. Mortgage balances increased in Hong Kong and the UK as we continued to reposition RBWM towards higher quality secured lending and focus on target markets. This was partly offset by the planned decline in lending balances in the run-off portfolios in North America, coupled with a reduction in credit card advances as our customers continued to pay down their credit card debt.
Financial investments rose by 2% due to purchases of government, government agency and highly rated corporate debt securities, in line with the growth in deposit balances.
Other assets increased by 13% due to a rise in items in the course of collection, reflecting increased activity within the central clearing system, notably in Hong Kong.
Liabilities
Deposits by banks increased by 9% due to a rise in funds placed with HSBC by other financial institutions including higher balances relating to our Payments and Cash Management business.
Customer accounts were 5% higher. Strong growth was seen across most customer groups and regions, reflecting an increase in customer numbers and the success of promotional deposit campaigns. Repo balances also rose in Europe, driven by higher customer activity.
Trading liabilities grew by 24% due to an increase in settlement account balances which vary in proportion to the volume of trading activity. Repo balances increased to finance a rise in long inventory and client-driven trading positions. Short bond positions also rose, in line with the growth in the Rates portfolio.
Financial liabilities designated at fair value rose by 9% due to debt issuances by HSBC entities in Europe in the first half of 2011. This was partly offset by debt maturities that were not replaced in North America due to lower funding requirements as the consumer finance portfolios continued to decline.
Derivative businesses are managed within market risk limits and, as a consequence, the decrease in the value of derivative liabilities broadly matched that of derivative assets.
Debt securities in issue remained in line with 31 December 2010 levels as new issuances in Europe and Latin America were largely offset by lower funding requirements in North America in line with the reduction in lending balances.
Liabilities under insurance contracts grew by 6%, driven by higher sales and renewals of life insurance products in Hong Kong.
Other liabilities rose by 10% due to an increase in items in the course of transmission to other banks in Hong Kong, corresponding with the increase in items in the course of collection above.
Equity
Total shareholders' equity increased by 6%, driven by profits generated during the period and a reduction in the negative balance of the available-for-sale reserve reflecting a rise in market prices.
Reconciliation of reported and underlying changes in assets and liabilities
|
30 June 2011 compared with 31 December 2010 |
|
||||||||||||
HSBC |
31 Dec 10 |
|
Currency translation34 US$m |
|
31 Dec 10 at 30 Jun 11 exchange rates US$m |
|
Underlying change US$m |
|
30 Jun 11 as reported US$m |
|
Reported change % |
|
Under- lying change % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and balances at central banks ........... |
57,383 |
|
1,621 |
|
59,004 |
|
9,214 |
|
68,218 |
|
19 |
|
16 |
|
Trading assets .............. |
385,052 |
|
12,279 |
|
397,331 |
|
77,619 |
|
474,950 |
|
23 |
|
20 |
|
Financial assets designated at fair value ........................ |
37,011 |
|
1,541 |
|
38,552 |
|
1,013 |
|
39,565 |
|
7 |
|
3 |
|
Derivative assets ......... |
260,757 |
|
10,881 |
|
271,638 |
|
(10,966) |
|
260,672 |
|
- |
|
(4) |
|
Loans and advances to banks ....................... |
208,271 |
|
7,330 |
|
215,601 |
|
10,442 |
|
226,043 |
|
9 |
|
5 |
|
Loans and advances to customers ................ |
958,366 |
|
24,619 |
|
982,985 |
|
54,903 |
|
1,037,888 |
|
8 |
|
6 |
|
Financial investments .. |
400,755 |
|
6,983 |
|
407,738 |
|
9,119 |
|
416,857 |
|
4 |
|
2 |
|
Other assets ................. |
147,094 |
|
704 |
|
147,798 |
|
18,996 |
|
166,794 |
|
13 |
|
13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets ................. |
2,454,689 |
|
65,958 |
|
2,520,647 |
|
170,340 |
|
2,690,987 |
|
10 |
|
7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits by banks ........ |
110,584 |
|
4,188 |
|
114,772 |
|
10,707 |
|
125,479 |
|
13 |
|
9 |
|
Customer accounts ...... |
1,227,725 |
|
27,220 |
|
1,254,945 |
|
64,042 |
|
1,318,987 |
|
7 |
|
5 |
|
Trading liabilities ......... |
300,703 |
|
9,627 |
|
310,330 |
|
75,494 |
|
385,824 |
|
28 |
|
24 |
|
Financial liabilities designated at |
88,133 |
|
2,041 |
|
90,174 |
|
8,106 |
|
98,280 |
|
12 |
|
9 |
|
Derivative liabilities .... |
258,665 |
|
10,844 |
|
269,509 |
|
(12,484) |
|
257,025 |
|
(1) |
|
(5) |
|
Debt securities in issue . |
145,401 |
|
3,778 |
|
149,179 |
|
624 |
|
149,803 |
|
3 |
|
- |
|
Liabilities under insurance |
58,609 |
|
2,377 |
|
60,986 |
|
3,465 |
|
64,451 |
|
10 |
|
6 |
|
Other liabilities ............ |
109,954 |
|
1,929 |
|
111,883 |
|
11,718 |
|
123,601 |
|
12 |
|
10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities ............ |
2,299,774 |
|
62,004 |
|
2,361,778 |
|
161,672 |
|
2,523,450 |
|
10 |
|
7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders' equity ...................... |
147,667 |
|
3,895 |
|
151,562 |
|
8,688 |
|
160,250 |
|
9 |
|
6 |
|
Non-controlling interests ................... |
7,248 |
|
59 |
|
7,307 |
|
(20) |
|
7,287 |
|
1 |
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity ................ |
154,915 |
|
3,954 |
|
158,869 |
|
8,668 |
|
167,537 |
|
8 |
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity and liabilities .................. |
2,454,689 |
|
65,958 |
|
2,520,647 |
|
170,340 |
|
2,690,987 |
|
10 |
|
7 |
|
For footnote, see page 81.
In the first half of 2011, the effect of acquisitions and disposals was not significant.
Economic profit/(loss)
Our internal performance measures include economic profit/(loss), a calculation which compares the return on financial capital invested in HSBC by our shareholders with the cost of that capital. We price our cost of capital internally and the difference between that cost and the post-tax profit attributable to ordinary shareholders represents the amount of economic profit/(loss) generated. In order to concentrate on external factors rather than measurement bases, we emphasise the trend in economic profit/(loss) ahead of absolute amounts.
Our long-term cost of capital is reviewed annually and is 11% for 2011; this remains unchanged from 2010. We use the Capital Asset Pricing Model to determine our cost of capital. The following commentary is on a reported basis.
The return on invested capital increased by 2.0 percentage points to 11.4%, which is broadly in line with our benchmark cost of capital. Our economic profit was US$0.3bn, an increase of US$1.5bn compared with a loss at 30 June 2010, due to an increase in profit attributable to shareholders. This was predominantly driven by a lower tax charge as well as an increase in reported profit before tax due to lower loan impairment charges across all regions, notably in the US, partly offset by an increase in costs.
The increase in average invested capital reflected higher retained earnings and an increase in the average foreign exchange reserves primarily due to the effect of euro and sterling rate movements on our underlying assets.
Economic profit/(loss)
|
Half-year to |
||||||||||
|
30 June 2011 |
|
30 June 2010 |
|
31 December 2010 |
||||||
|
US$m |
|
%35 |
|
US$m |
|
%35 |
|
US$m |
|
%35 |
|
|
|
|
|
|
|
|
|
|
|
|
Average total shareholders' equity .................................. |
153,312 |
|
|
|
131,198 |
|
|
|
143,712 |
|
|
Adjusted by: |
|
|
|
|
|
|
|
|
|
|
|
Goodwill previously amortised or written off .............. |
8,123 |
|
|
|
8,123 |
|
|
|
8,123 |
|
|
Property revaluation reserves ..................................... |
(916) |
|
|
|
(786) |
|
|
|
(820) |
|
|
Reserves representing unrealised losses on |
384 |
|
|
|
25 |
|
|
|
155 |
|
|
Reserves representing unrealised losses on |
3,699 |
|
|
|
7,590 |
|
|
|
4,298 |
|
|
Preference shares and other equity instruments ........... |
(7,256) |
|
|
|
(3,661) |
|
|
|
(7,256) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average invested capital36 .............................................. |
157,346 |
|
|
|
142,489 |
|
|
|
148,212 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on invested capital37 ............................................ |
8,929 |
|
11.4 |
|
6,629 |
|
9.4 |
|
6,117 |
|
8.2 |
|
|
|
|
|
|
|
|
|
|
|
|
Benchmark cost of capital .............................................. |
(8,583) |
|
(11.0) |
|
(7,772) |
|
(11.0) |
|
(8,320) |
|
(11.0) |
|
|
|
|
|
|
|
|
|
|
|
|
Economic profit/(loss) and spread .................................. |
346 |
|
0.4 |
|
(1,143) |
|
(1.6) |
|
(2,203) |
|
(2.8) |
For footnotes, see page 81.