Interim Report - 5 of 21

RNS Number : 3089X

HSBC Holdings PLC

14 August 2009

 



Customer groups and global businesses

Summary

HSBC manages its business through two customer groups, Personal Financial Services and Commercial Banking, and two global businesses, Global Banking 

and Markets, and Private Banking. Personal Financial Services incorporates the Group's consumer finance businesses.

All commentaries on the customer groups and global businesses are on an underlying basis unless stated otherwise.

Profit/(loss) before tax

	Half-year to
	30 June 2009				30 June 2008				31 December 2008
	US$m		%		US$m		%		US$m		%
Personal Financial Services	(1,249)		(24.9)		2,313		22.6		(13,287)		(1,413.5)
Commercial Banking	2,432		48.5		4,611		45.0		2,583		274.8
Global Banking and Markets	6,298		125.5		2,690		26.2		793		84.3
Private Banking	632		12.6		822		8.0		625		66.5
Other22	(3,094)		(61.7)		(189)		(1.8)		8,346		887.9
	5,019		100.0		10,247		100.0		(940)		(100.0)

Total assets23

	At 30 June 2009				At 30 June 2008				At 31 December 2008
	US$m		%		US$m		%		US$m		%
Personal Financial Services	547,084		22.6		619,528		24.3		527,901		20.9
Commercial Banking	249,030		10.3		292,871		11.5		249,218		9.9
Global Banking and Markets	1,770,618		73.1		1,823,167		71.6		1,991,852		78.8
Private Banking	117,468		4.9		144,331		5.7		133,216		5.2
Other	170,414		7.0		141,946		5.6		145,581		5.8
Intra-HSBC items	(432,771)		(17.9)		(475,165)		(18.7)		(520,303)		(20.6)
	2,421,843		100.0		2,546,678		100.0		2,527,465		100.0

For footnotes, see page 94.

Basis of preparation

Customer group results are presented in accordance with the accounting policies used in the preparation of HSBC's consolidated financial statements. HSBC's operations are closely integrated and, accordingly, the presentation of customer group data includes internal allocations of certain items of income and expense. These allocations include the costs of certain support services and GMO functions, to the extent that these can be meaningfully

attributed to operational business lines. While such allocations have been made on a systematic and consistent basis, they necessarily involve a degree of subjectivity.

Where relevant, income and expense amounts presented include the results of inter-segment funding as well as inter-company and inter-business line transactions. All such transactions are undertaken on arm's length terms.

Personal Financial Services

Profit/(loss) before tax
	Half-year to
	30 June     2009		30 June     2008	31 December     2008
	US$m		US$m		US$m
Net interest income	12,650		15,217		14,202
Net fee income	4,045		5,626		4,481
Trading income excluding net interest income	450		142		33
Net interest income  on trading activities	39		42		37
Net trading income24	489		184		70
Net income/(expense) from financial instruments designated at fair value	744		(1,135)		(1,777)
Gains less losses from financial investments	195		585		78
Dividend income	17		15		75
Net earned insurance premiums	4,585		4,746		5,337
Other operating income/ (expense)	302		390		(131)
Total operating income	23,027		25,628		22,335
Net insurance claims25	(5,144)		(3,206)		(3,268)
Net operating income7	17,883		22,422		19,067
Loan impairment charges  and other credit risk provisions	(10,673)		(9,384)		(11,836)
Net operating income	7,210		13,038		7,231
Total operating expenses (excluding goodwill impairment)	(8,774)		(10,572)		(10,568)
Goodwill impairment	-		(527)		(10,037)
Operating profit/(loss)	(1,564)		1,939		(13,374)
Share of profit in associates and joint ventures	315		374		87
Profit/(loss) before tax	(1,249)		2,313		(13,287)
By geographical region
Europe	212		1,324		334
Hong Kong	1,337		2,036		1,392
Rest of Asia-Pacific17	135		326		(115)
Middle East17	35		209		80
North America	(2,843)		(2,050)		(15,178)
Latin America	(125)		468		200
	(1,249)		2,313		(13,287)
	%		%		%
Share of HSBC's profit before tax	(24.9)		22.6		(1,413.5)
Cost efficiency ratio	49.1		49.5		108.1
Balance sheet data23
	US$m		US$m		US$m
Loans and advances to customers (net)	400,692		458,302		401,402
Total assets	547,084		619,528		527,901
Customer accounts	482,935		474,263		440,338
For footnotes, see page 94.

Financial and business highlights

• The reported loss before tax of US$1.2 billion compared with a profit of US$2.3 billion in the first half of 2008 as loan impairment charges rose in all regions, particularly in North America, following further deterioration in global economic conditions. 

• Net interest income was constrained by lower average customer loans as the US loan portfolio contracted, and by deposit spread compression following lower base rates. Revenue was further affected by a reduction in non-interest income due to lower spending levels and reduced transaction volumes in most regions, and weaker investment and insurance income. 

• Costs were essentially unchanged excluding the US$527 million goodwill impairment charge in North America in the first half of 2008 and a US$225 million accounting benefit from a change in the first half of 2009 in the way death-in-service, ill health and early retirement benefits for some UK employees is delivered. Further restructuring of the consumer finance businesses, principally in the US, and tight control of discretionary expenditure in all regions funded infrastructure growth in developing markets.

•     Loan impairment charges grew by 20 per cent, most notably in Consumer Lending in the US, as the economic downturn continued. Outside the US, credit quality deteriorated across a range of products and regions, with stresses most evident in the unsecured lending portfolios in the UK, the Middle East, Brazil, Mexico and India. HSBC continued to limit asset growth and to reduce risk in these markets where economic conditions remain uncertain and unemployment is rising by improving collections, reducing credit lines and further tightening lending criteria.

  • Customer accounts were broadly in line with December 2008 levels as HSBC retained most of the balances gained during the market turmoil experienced in 2008, and deposit growth was strong in Asia. Loans and advances to customers fell by 5 per cent as the US consumer finance portfolio declined and, globally, customers reduced their use of credit. At 30 June 2009, the aggregate ratio of customer advances to deposits was 83 per cent, compared with 91 per cent at the end of December 2008.

  • The HSBC Premier ('Premier') product offering grew to 2.9 million customers in the first half of 2009 and remained at the core of HSBC's wealth management proposition. The Premier service was launched in Russia and Colombia during the period, taking the total number of territories to 43. 541,000 net new customers joined Premier, of whom more than 68 per cent were new to the Group.

Reconciliation of reported and underlying profit/(loss) before tax

	Half-year to 30 June 2009 ('1H09') compared with half-year to 30 June 2008 ('1H08')
Personal Financial Services	1H08     as     reported     US$m	1H08 acquisitions     and      disposals1     US$m			Currency     translation2     US$m		1H08         at 1H09    exchange     rates3     US$m	1H09     acquisitions     and      disposals1     US$m			Under-    lying     change     US$m		1H09     as     reported     US$m		Re-    ported     change4    %		Under-    lying     change4     %
Net interest income	15,217		(36)		(1,363)		13,818		-		(1,168)		12,650		(17)		(8)
Net fee income	5,626		(32)		(536)		5,058		-		(1,013)		4,045		(28)		(20)
Other income6	1,579		(50)		(224)		1,305		-		(117)		1,188		(25)		(9)
Net operating income7	22,422		(118)		(2,123)		20,181		-		(2,298)		17,883		(20)		(11)
Loan impairment charges and other credit risk provisions	(9,384)		3		488		(8,893)		-		(1,780)		(10,673)		(14)		(20)
Net operating income	13,038		(115)		(1,635)		11,288		-		(4,078)		7,210		(45)		(36)
Operating expenses (excluding goodwill impairment)	(10,572)		38		1,228		(9,306)		-		532		(8,774)		17		6
Goodwill impairment	(527)		-		-		(527)		-		527		-		100		100
Operating profit/(loss)	1,939		(77)		(407)		1,455		-		(3,019)		(1,564)		(181)		(207)
Income from associates	374		-		14		388		-		(73)		315		(16)		(19)
Profit/(loss) before tax	2,313		(77)		(393)		1,843		-		(3,092)		(1,249)		(154)		(168)

	Half-year to 30 June 2009 ('1H09') compared with half-year to 31 December 2008 ('2H08')
Personal Financial Services	2H08     as     reported     US$m	2H08     acquisitions     and      disposals1     US$m			Currency     translation2     US$m		2H08         at 1H09    exchange     rates8     US$m	1H09     acquisitions     and      disposals1     US$m			Under-    lying     change     US$m		1H09     as     reported     US$m		Re-    ported     change4     %		Under-     lying     change4     %
Net interest income	14,202		-		(740)		13,462		-		(812)		12,650		(11)		(6)
Net fee income	4,481		-		(288)		4,193		-		(148)		4,045		(10)		(4)
Other income6	384		(71)		(94)		219		-		969		1,188		209		442
Net operating income7	19,067		(71)		(1,122)		17,874		-		9		17,883		(6)		-
Loan impairment charges and other credit risk provisions	(11,836)		-		318		(11,518)		-		845		(10,673)		10		7
Net operating income	7,231		(71)		(804)		6,356		-		854		7,210		-		13
Operating expenses (excluding goodwill impairment)	(10,568)		-		707		(9,861)		-		1,087		(8,774)		17		11
Goodwill impairment	(10,037)		-		-		(10,037)		-		10,037		-		100		100
Operating loss	(13,374)		(71)		(97)		(13,542)		-		11,978		(1,564)		88		88
Income from associates	87		-		-		87		-		228		315		262		262
Loss before tax	(13,287)		(71)		(97)		(13,455)		-		12,206		(1,249)		91		91

For footnotes, see page 94.

Commercial Banking 

Profit before tax
	Half-year to
	30 June     2009		30 June     2008	31 December     2008
	US$m		US$m		US$m
Net interest income	3,809		4,747		4,747
Net fee income	1,749		2,165		1,932
Trading income excluding net interest income	183		197		172
Net interest income/ (expense) on trading activities	11		24		(7)
Net trading income24	194		221		165
Net expense from financial instruments designated  at fair value	(17)		(59)		(165)
Gains less losses from financial investments	25		191		2
Dividend income	3		3		85
Net earned insurance premiums	390		360		319
Other operating income	519		718		221
Total operating income	6,672		8,346		7,306
Net insurance claims25	(328)		(190)		(145)
Net operating income7	6,344		8,156		7,161
Loan impairment charges and other credit risk provisions	(1,509)		(563)		(1,610)
Net operating income	4,835		7,593		5,551
Total operating expenses	(2,740)		(3,280)		(3,301)
Operating profit	2,095		4,313		2,250
Share of profit in associates and joint ventures	337		298		333
Profit before tax	2,432		4,611		2,583
By geographical region
Europe	852		1,940		782
Hong Kong	424		869		446
Rest of Asia-Pacific17	459		653		582
Middle East17	252		308		250
North America	224		430		228
Latin America	221		411		295
	2,432		4,611		2,583
	%		%		%
Share of HSBC's profit before tax	48.5		45.0		274.8
Cost efficiency ratio	43.2		40.2		46.1
Balance sheet data23
	US$m		US$m		US$m
Loans and advances to customers (net)	198,903		238,116		203,949
Total assets	249,030		292,871		249,218
Customer accounts	239,933		247,705		235,879
For footnotes, see page 94.

Financial and business highlights

• •     Commercial Banking demonstrated considerable resilience in difficult economic markets, generating pre-tax profits of US$2.4 billion, including US$1.4 billion from emerging markets. The decline of 39 per cent on the first half of 2008 resulted from reduced deposit spreads in the low interest rate environment and from increased loan impairment charges. A gain on disposal of HSBC's remaining stake in its UK merchant card-acquiring business reported in other operating income was less than the related gain in the comparable period last year.

  • Revenues declined by 6 per cent, as the fall in deposit spreads exceeded increased spreads on new lending, and fee income was constrained by lower business volumes. The increase in loan impairment charges was broadly spread across geographical regions and segments, reflecting the global spread of the economic downturn and representing 153 basis points of average advances. Operating expenses were in line, as modest cost growth was offset by an accounting benefit of US$190 million (see page 23).

  • Customer balances were 3 per cent lower than at the end of 2008, but 7 per cent higher than at 30 June 2008 at US$240 billion, as the Group retained the majority of the balance growth attracted to HSBC's brand strength during the second half of 2008. Growth in new lending was achieved in selected emerging markets, though loans and advances to customers declined overall as muted customer demand reflected the contraction in global trade and the difficult economic situation. These movements strengthened liquidity, as seen in the ratio of aggregate customer advances to deposits of 83 per cent.

  • The success of the strategy of 'leading international business' was demonstrated by strong growth in product revenues, notably 19 per cent and 11 per cent increases in revenue from foreign exchange and from trade and supply chain products, respectively. The number of customers using the HSBCnet platform increased, particularly in India and Canada. The volume of successful referrals from Global Links increased by 7 per cent compared with the first half of 2008, contributing US$4 billion in aggregate transaction value.

  • • A deposit base of over US$100 billion illustrated Commercial Banking's success in positioning itself as the 'best bank for small business' as the vast majority of such customers are deposit and payment services customers. The recruitment of new customers in the small and micro segments increased total customer numbers to 3.1 million with developing markets contributing over 61 per cent of organic growth. Business Direct is now available in eight countries, with nearly 300,000 

registered customers. New receivables finance and insurance offerings were also launched in a number of countries.

• • • Commercial Banking deepened its connections within the Group through an initiative to increase cross-referrals with Premier. Referrals to Private Banking contributed over US$650 million in new client assets.

Reconciliation of reported and underlying profit before tax

	Half-year to 30 June 2009 ('1H09') compared with half-year to 30 June 2008 ('1H08')
Commercial Banking	1H08     as     reported     US$m	1H08 acquisitions     and      disposals1     US$m			Currency     translation2     US$m		1H08         at 1H09    exchange     rates3     US$m	1H09     acquisitions     and      disposals1     US$m			Under-    lying     change     US$m		1H09     as     reported     US$m		Re-    ported     change4    %		Under-    lying     change4     %
Net interest income	4,747		(29)		(638)		4,080		-		(271)		3,809		(20)		(7)
Net fee income	2,165		(26)		(337)		1,802		-		(53)		1,749		(19)		(3)
Other income6	1,244		(464)		(198)		582		280		(76)		786		(37)		(13)
Net operating income7	8,156		(519)		(1,173)		6,464		280		(400)		6,344		(22)		(6)
Loan impairment charges and other credit risk provisions	(563)		3		98		(462)		-		(1,047)		(1,509)		(168)		(227)
Net operating income	7,593		(516)		(1,075)		6,002		280		(1,447)		4,835		(36)		(24)
Operating expenses	(3,280)		30		485		(2,765)		-		25		(2,740)		17		1
Operating profit	4,313		(486)		(590)		3,237		280		(1,422)		2,095		(51)		(44)
Income from associates	298		-		6		304		-		33		337		13		11
Profit before tax	4,611		(486)		(584)		3,541		280		(1,389)		2,432		(47)		(39)

	Half-year to 30 June 2009 ('1H09') compared with half-year to 31 December 2008 ('2H08')
Commercial Banking	2H08     as     reported     US$m	2H08     acquisitions     and      disposals1     US$m			Currency     translation2     US$m		2H08         at 1H09    exchange     rates8     US$m	1H09     acquisitions     and      disposals1     US$m			Under-    lying     change     US$m		1H09     as     reported     US$m		Re-    ported     change4     %		Under-    lying     change4     %
Net interest income	4,747		-		(347)		4,400		-		(591)		3,809		(20)		(13)
Net fee income	1,932		-		(151)		1,781		-		(32)		1,749		(9)		(2)
Other income6	482		-		(39)		443		280		63		786		63		14
Net operating income7	7,161		-		(537)		6,624		280		(560)		6,344		(11)		(8)
Loan impairment charges and other credit risk provisions	(1,610)		-		64		(1,546)		-		37		(1,509)		6		2
Net operating income	5,551		-		(473)		5,078		280		(523)		4,835		(13)		(10)
Operating expenses	(3,301)		-		265		(3,036)		-		296		(2,740)		17		10
Operating profit	2,250		-		(208)		2,042		280		(227)		2,095		(7)		(11)
Income from associates	333		-		(1)		332		-		5		337		1		2
Profit before tax	2,583		-		(209)		2,374		280		(222)		2,432		(6)		(9)

For footnotes, see page 94.

Global Banking and Markets

Profit before tax
	Half-year to
	30 June     2009		30 June     2008	31 December     2008
	US$m		US$m		US$m
Net interest income	4,667		3,737		4,804
Net fee income	1,968		2,354		1,937
Trading income/(expense) excluding net interest income	3,422		360		(203)
Net interest income on trading activities	1,056		273		51
Net trading income/ (expense)24	4,478		633		(152)
Net income/(expense) from financial instruments designated at fair value	329		(211)		(227)
Gains less losses from financial investments	158		244		(571)
Dividend income	23		49		27
Net earned insurance premiums	40		62		43
Other operating income	603		551		317
Total operating income	12,266		7,419		6,178
Net insurance claims25	(35)		(40)		(39)
Net operating income7	12,231		7,379		6,139
Loan impairment charges and other credit risk provisions	(1,732)		(115)		(1,356)
Net operating income	10,499		7,264		4,783
Total operating expenses	(4,405)		(4,827)		(4,265)
Operating profit	6,094		2,437		518
Share of profit in associates and joint ventures	204		253		275
Profit before tax	6,298		2,690		793
By geographical region
Europe	2,891		1,190		(995)
Hong Kong	907		770		666
Rest of Asia-Pacific17	1,239		1,546		1,424
Middle East17	304		426		390
North America	477		(1,625)		(950)
Latin America	480		383		258
	6,298		2,690		793
	%		%		%
Share of HSBC's profit before tax	125.5		26.2		84.3
Cost efficiency ratio	36.0		65.4		69.5

For footnotes, see page 94.

Financial and business highlights

•             Global Banking and Markets delivered a record half-year performance with pre-tax profits of US$6.3 billion, an increase of US$3.6 billion or 134 per cent compared with the first half of 2008, on a reported basis, underscored by robust performance in both developed and emerging markets. Higher margins and an increase in market share gave impetus to revenue growth across core businesses, with a record performance in Rates and an increase in revenues in foreign exchange and financing and equity capital markets. Balance Sheet Management also reported record revenues. The reported cost efficiency ratio improved by 29.4 percentage points to 36.0 per cent as revenues grew faster than operating expenses, with active cost management limiting the latter to a relatively modest rise.

• Write-downs on legacy positions in credit trading, leveraged and acquisition financing and monoline credit exposures, which totalled US$762 million, were significantly lower than those recorded in the first and second halves of 2008. The reduction was driven by relatively smaller decreases in asset prices, coupled with the non-recurrence of impairments on trading assets which were reclassified from trading assets to loans and receivables in the second half of 2008, following the IASB's amendments to IAS 39. This was partly offset by a fair value loss of US$127 million resulting from tightening credit spreads on structured liabilities; a gain of US$262 million was reported in the first half of 2008. 

• Loan impairment charges and other credit risk provisions increased by US$1.6 billion, from a very low base. Loan impairment charges were US$1.2 billion compared with only US$23 million in the first half of 2008, primarily driven by a deterioration in the credit position of a small number of clients. This is reflective of the continuing market trends of a rise in the number and severity of defaults on loans despite recent improvements in investor sentiment. Impairment charges on the available-for-sale portfolio were US$564 million compared with US$51 million and US$575 million in the first and second halves of 2008, respectively. These remained within the parameters of the stress tests described on page 149 of the Annual Report and Accounts 2008.

Management view of total operating income

	Half-year to
	30 June     2009		30 June    2008	31 December    2008
	US$m		US$m		US$m
Global Markets26	5,991		1,688		988
Credit	1,066		(3,124)		(2,378)
Rates	1,964		1,303		730
Foreign exchange	1,797		1,546		2,296
Equities	315		746		(810)
Securities services	712		1,112		1,004
Asset and structured finance	137		105		146
Global Banking	2,403		2,432		3,286
Financing and equity capital markets	1,609		1,371		2,201
Payments and cash management	535		839		826
Other transaction services	259		222		259
Balance Sheet  Management	3,350		1,630		1,988
Global Asset Management	414		669		265
Principal Investments	(38)		167		(582)
Other27	146		833		233
Total operating income	12,266		7,419		6,178

For footnotes, see page 94.

• Within the Group's available-for-sale portfolio, the negative reserves in respect of asset-backed securities reduced to US$17.5 billion. However, due to the underlying credit quality and seniority of the tranches held by HSBC, only a relatively modest impairment charge of US$539 million was identified on securities with a nominal value of US$721 million and was taken to the income statement in the first half of 2009. The expected cash flow impairment on these securities was US$148 million. A further US$646 million impairment was absorbed by income note holders who take the first loss on positions within the SICs now consolidated in HSBC's accounts. Further details on the SICs are provided on page 100.

• Reflecting the continuing success of the 'emerging markets-led and financing-focused' strategy were a number of key industry awards, including 'Best Global Debt House', 'Best Global Transaction Banking House', 'Best Debt House in Latin America', 'Best Debt House in Asia', and 'Best Debt House in the Middle East' in Euromoney.

• In Global Markets, volatile markets and increased customer activity in Rates, most notably in Europe, provided a backdrop against which market share increased and revenue grew robustly. The increase in foreign exchange revenues was driven by higher

Record revenues in Rates were boosted by improved margins and greater opportunities to trade debt issued by governments and corporations, as they sought to alleviate symptoms of a capital drought. With greater liquidity in financial markets, credit spreads improved considerably and, in addition to the fall in write-downs on legacy positions noted above, performance in the Credit trading business improved.

• Securities services revenues declined as lower interest rates drove down overall margins, and assets under custody fell. In Asia, however, recent improvements in regional equity markets stimulated increases in volumes and assets under custody in the second quarter of 2009.

• In Global Banking, robust performance in the credit and lending business highlighted the strength of HSBC's franchise and the quality of the client portfolio; higher margins drove the 17 per cent increase in revenues. This increase was partly offset by modest fair value losses on credit default swap transactions as credit spreads tightened. Payments and cash management activities continued to be adversely affected by the low interest rate environment, partly countered by an increase in liability balances.

• Balance Sheet Management continued to benefit from increasing flows of surplus deposits from the other customer groups and correct positioning against interest rate falls.

• Global Asset Management continued to be adversely affected by the fall in equity markets during 2008 and the first quarter of 2009, resulting in decreases in management fees and performance fees. However, improving global markets and returning investor confidence resulted in a stronger performance in the second quarter. Funds under management at June 2009 were marginally down on June 2008. Global Asset Management launched a new range of funds, 'HSBC World Selection', in conjunction with Personal Financial Services, raising US$580 million in the first half of 2009 and demonstrating HSBC's breadth as a global asset manager and the value of close working relationships with other HSBC customer groups. 

• In Principal Investments, private equity revenues were adversely affected by an illiquid market. This, coupled with a small number of impairments on investments, resulted in a US$205 million decrease in revenues.

Reconciliation of reported and underlying profit before tax

	Half-year to 30 June 2009 ('1H09') compared with half-year to 30 June 2008 ('1H08')
Global Banking and Markets	1H08     as     reported     US$m	1H08 acquisitions     and      disposals1     US$m			Currency     translation2     US$m		1H08         at 1H09    exchange     rates3     US$m	1H09     acquisitions     and      disposals1     US$m			Under-    lying     change     US$m		1H09     as     reported     US$m		Re-    ported     change4    %		Under-    lying     change4     %
Net interest income	3,737		-		(411)		3,326		-		1,341		4,667		25		40
Net fee income	2,354		-		(264)		2,090		-		(122)		1,968		(16)		(6)
Other income6	1,288		-		(425)		863		-		4,733		5,596		334		548
Net operating income7	7,379		-		(1,100)		6,279		-		5,952		12,231		66		95
Loan impairment charges and other credit risk provisions	(115)		-		7		(108)		-		(1,624)		(1,732)		(1,406)		(1,504)
Net operating income	7,264		-		(1,093)		6,171		-		4,328		10,499		45		70
Operating expenses	(4,827)		-		635		(4,192)		-		(213)		(4,405)		9		(5)
Operating profit	2,437		-		(458)		1,979		-		4,115		6,094		150		208
Income from associates	253		-		5		258		-		(54)		204		(19)		(21)
Profit before tax	2,690		-		(453)		2,237		-		4,061		6,298		134		182

	Half-year to 30 June 2009 ('1H09') compared with half-year to 31 December 2008 ('2H08')
Global Banking and Markets	2H08     as     reported     US$m	2H08     acquisitions     and     disposals1     US$m			Currency     translation2     US$m		2H08         at 1H09    exchange     rates8     US$m	1H09     acquisitions     and     disposals1     US$m			Under-    lying     change     US$m		1H09     as     reported     US$m		Re-    ported     change4     %		Under-    lying     change4     %
Net interest income	4,804		-		(258)		4,546		-		121		4,667		(3)		3
Net fee income	1,937		-		(105)		1,832		-		136		1,968		2		7
Other income6	(602)		-		(166)		(768)		-		6,364		5,596		1,030		829
Net operating income7	6,139		-		(529)		5,610		-		6,621		12,231		99		118
Loan impairment charges and other credit risk provisions	(1,356)		-		133		(1,223)		-		(509)		(1,732)		(28)		(42)
Net operating income	4,783		-		(396)		4,387		-		6,112		10,499		120		139
Operating expenses	(4,265)		-		369		(3,896)		-		(509)		(4,405)		(3)		(13)
Operating profit	518		-		(27)		491		-		5,603		6,094		1,076		1,141
Income from associates	275		-		(1)		274		-		(70)		204		(26)		(26)
Profit before tax	793		-		(28)		765		-		5,533		6,298		694		723

For footnotes, see page 94. 

Balance sheet data significant to Global Banking and Markets

	Europe		Hong     Kong		Rest of     Asia-     Pacific17		Middle     East17		North     America		Latin     America		Total
	US$m		US$m		US$m		US$m		US$m		US$m		US$m
At 30 June 2009
Trading assets28	287,752		24,818		15,812		500		68,707		7,600		405,189
Derivative assets	178,579		20,034		19,355		682		84,307		3,921		306,878
Loans and advances to:
- customers (net)	198,290		23,182		21,682		6,799		28,320		9,055		287,328
- banks (net)	66,639		33,833		27,487		4,470		8,703		15,572		156,704
Financial investments28	95,658		76,095		33,532		9,479		49,878		10,700		275,342
Total assets23	1,060,344		221,196		138,266		27,423		269,492		53,897		1,770,618
Deposits by banks	84,262		10,006		12,394		974		11,297		3,959		122,892
Customer accounts	208,792		34,875		42,712		7,312		19,268		18,003		330,962
Trading liabilities	161,294		11,019		3,747		39		66,308		5,737		248,144
Derivative liabilities	173,563		20,200		18,606		678		80,583		3,680		297,310
At 30 June 2008
Trading assets28	334,769		13,990		21,746		986		89,813		8,792		470,096
Derivative assets	147,265		14,344		17,115		630		68,405		3,511		251,270
Loans and advances to:
- customers (net)	210,727		20,257		28,609		6,392		27,137		10,704		303,826
- banks (net)	78,488		64,186		30,587		8,996		18,624		13,812		214,693
Financial investments28	88,717		34,455		33,595		7,036		35,902		11,781		211,486
Total assets23	1,100,421		201,094		151,490		28,966		284,015		57,181		1,823,167
Deposits by banks	105,792		4,417		18,225		1,888		10,909		2,812		144,043
Customer accounts	196,432		31,577		48,625		9,537		23,709		19,072		328,952
Trading liabilities	219,526		13,565		8,388		86		82,312		4,107		327,984
Derivative liabilities	145,997		12,330		16,543		642		69,781		3,771		249,064
At 31 December 2008
Trading assets28	281,089		45,398		19,192		414		74,498		5,004		425,595
Derivative assets	303,265		26,989		25,492		1,014		125,848		5,145		487,753
Loans and advances to:
- customers (net)	185,818		23,042		27,941		6,649		35,583		8,273		287,306
- banks (net)	49,508		20,970		21,309		5,401		9,238		12,574		119,000
Financial investments28	105,546		46,964		29,772		7,574		39,841		8,179		237,876
Total assets23	1,180,759		233,187		147,714		27,975		348,347		53,870		1,991,852
Deposits by banks	79,509		11,509		12,261		944		16,244		3,871		124,338
Customer accounts	199,687		30,866		42,977		7,628		23,844		15,384		320,386
Trading liabilities	144,759		13,056		3,633		54		72,325		2,546		236,373
Derivative liabilities	300,200		28,536		25,465		1,016		122,699		4,615		482,531

For footnotes, see page 94.

Private Banking 

Profit before tax
	Half-year to
	30 June     2009		30 June     2008	31 December     2008
	US$m		US$m		US$m
Net interest income	784		783		829
Net fee income	602		814		662
Trading income excluding net interest income	154		211		197
Net interest income on trading activities	9		7		7
Net trading income24	163		218		204
Net income/(expense) from financial instruments designated at fair value	-		1		(1)
Gains less losses from financial investments	(2)		80		(16)
Dividend income	2		4		4
Other operating income	40		16		33
Total operating income	1,589		1,916		1,715
Net insurance claims25	-		-		-
Net operating income7	1,589		1,916		1,715
Loan impairment (charges)/ recoveries and other credit risk provisions	(14)		4		(72)
Net operating income	1,575		1,920		1,643
Total operating expenses	(949)		(1,098)		(1,018)
Operating profit	626		822		625
Share of profit in associates and joint ventures	6		-		-
Profit before tax	632		822		625
By geographical region
Europe	447		579		419
Hong Kong	106		123		114
Rest of Asia-Pacific17	47		52		57
Middle East17	5		2		2
North America	23		58		25
Latin America	4		8		8
	632		822		625
	%		%		%
Share of HSBC's profit before tax	12.6		8.0		66.5
Cost efficiency ratio	59.7		57.3		59.4
Balance sheet data23
	US$m		US$m		US$m
Loans and advances to customers (net)	34,282		45,895		37,590
Total assets	117,468		144,331		133,216
Customer accounts	108,278		109,776		116,683

For footnotes, see page 94.

Financial and business highlights

• Pre-tax profits of US$632 million declined by 23 per cent or 18 per cent on an underlying basis. Underlying net operating income decreased by 13 per cent, driven by a fall in the value of client assets and lower transaction volumes as a result of client risk aversion and volatile equity markets. In addition, gains recorded in the first half of 2008 on the sale of HSBC's residual interest in the Hermitage Fund did not recur. These factors were partly offset by an increase in net interest income following successful positioning in the expectation of falling interest rates and growth in deposits. Loan impairment charges remained at a low level, despite the financial crisis.

• Operating expenses decreased by 9 per cent to US$949 million, mainly from reduced performance-related pay reflecting lower profits and strong cost control, including the implementation of a number of cost saving initiatives. The benefit from lower overall staff numbers was partly offset by redundancy costs and the hiring of almost 300 new front office staff in HSBC's core faster-growing markets, including mainland China, India and Russia, where Private Banking operations continued to expand.

Client assets

	Half-year to
	30 June     2009		30 June     2008	31 December     2008
	US$bn		US$bn		US$bn
At beginning of period	352		421		421
Net new money	(7)		15		9
Value change	7		(20)		(51)
Exchange/other	(7)		5		(27)
At end of period	345		421		352

• Reported client assets were relatively unchanged at US$345 billion, as portfolio appreciation and foreign exchange movements offset a net outflow of funds caused by redemptions of hedge fund products, client deleveraging and deposit price competition. There were positive inflows in Latin America and Asia, and net inflows of more than US$2 billion were generated from referrals of clients by other parts of the HSBC Group.

• Reported total client assets remained relatively unchanged at US$426 billion. 'Total client assets' is equivalent to many industry definitions of assets under management which include some     non-financial assets held in client trusts.

•     HSBC Alternative Investments Limited achieved strong returns on fund of hedge fund products for the year to date, including 5.4 per cent on the     flagship HSBC GH fund. Subscription levels improved and a 'Distressed Markets' fund of hedge funds launched in May 2009 received strong support from clients with US$111 million raised so far. Hedge fund redemptions have also reduced.

• With interest rates at all time lows, clients invested heavily in higher yielding structured notes products issued by HSBC, with take up of around US$3.0 billion. Other new initiatives are being developed in preparation for the market turnaround.

• The legal merger of HSBC's two Swiss private banks was completed in April 2009 and good progress has been made on IT and operational integration, due to be finished later this year. 

• Operations were launched in Russia in 2009, supporting HSBC's strategy of investing in emerging markets and domestic operations. Work also commenced with the Group's associate in Saudi Arabia on expanding the local Private Banking business.

Reconciliation of reported and underlying profit before tax

	Half-year to 30 June 2009 ('1H09') compared with half-year to 30 June 2008 ('1H08')
Private Banking	1H08     as     reported     US$m	1H08 acquisitions     and      disposals1     US$m			Currency     translation2     US$m		1H08         at 1H09    exchange     rates3     US$m	1H09     acquisitions     and      disposals1     US$m			Under-    lying     change     US$m		1H09     as     reported     US$m		Re-    ported    change4     %		Under-    lying     change4     %
Net interest income	783		-		(48)		735		-		49		784		-		7
Net fee income	814		-		(36)		778		-		(176)		602		(26)		(23)
Other income6	319		-		(24)		295		-		(92)		203		(36)		(31)
Net operating income7	1,916		-		(108)		1,808		-		(219)		1,589		(17)		(12)
Loan impairment charges and other credit risk provisions	4		-		-		4		-		(18)		(14)		(450)		(450)
Net operating income	1,920		-		(108)		1,812		-		(237)		1,575		(18)		(13)
Operating expenses	(1,098)		-		58		(1,040)		-		91		(949)		14		9
Operating profit	822		-		(50)		772		-		(146)		626		(24)		(19)
Income from associates	-		-		-		-		-		6		6		-		-
Profit before tax	822		-		(50)		772		-		(140)		632		(23)		(18)

	Half-year to 30 June 2009 ('1H09') compared with half-year to 31 December 2008 ('2H08')
Private Banking	2H08     as     reported     US$m	2H08     acquisitions     and      disposals1     US$m			Currency     translation2     US$m		2H08         at 1H09    exchange     rates8     US$m	1H09     acquisitions     and      disposals1     US$m			Under-    lying     change     US$m		1H09     as     reported     US$m		Re-    ported     change4     %		Under-    lying     change4     %
Net interest income	829		-		(20)		809		-		(25)		784		(5)		(3)
Net fee income	662		-		(14)		648		-		(46)		602		(9)		(7)
Other income6	224		-		(2)		222		-		(19)		203		(9)		(9)
Net operating income7	1,715		-		(36)		1,679		-		(90)		1,589		(7)		(5)
Loan impairment charges and other credit risk provisions	(72)		-		6		(66)		-		52		(14)		81		79
Net operating income	1,643		-		(30)		1,613		-		(38)		1,575		(4)		(2)
Operating expenses	(1,018)		-		22		(996)		-		47		(949)		7		5
Operating profit	625		-		(8)		617		-		9		626		-		1
Income from associates	-		-		-		-		-		6		6		-		-
Profit before tax	625		-		(8)		617		-		15		632		1		2

For footnotes, see page 94.

Other

Profit/(loss) before tax
	Half-year to
	30 June     2009		30 June     2008	31 December     2008
	US$m		US$m		US$m
Net interest expense	(551)		(375)		(581)
Net fee income	64		32		21
Trading income/(expense) excluding net interest income	92		(271)		9
Net interest income/ (expense) on trading activities	18		(82)		(186)
Net trading income/ (expense)24	110		(353)		(177)
Changes in fair value of long-term debt issued  and related derivatives	(2,300)		577		6,102
Net income/(expense)  from other financial instruments designated  at fair value	(279)		243		504
Net income/(expense) from financial instruments designated at fair value	(2,579)		820		6,606
Gains less losses from financial investments	(53)		(283)		(113)
Dividend income	12		17		(7)
Net earned insurance premiums	(3)		(15)		(2)
Gains on disposal of  French regional banks	-		-		2,445
Other operating income	2,172		1,943		2,318
Total operating income/ (expense)	(828)		1,786		10,510
Net insurance claims25	-		(1)		-
Net operating income/(expense)7	(828)		1,785		10,510
Loan impairment charges and other credit risk provisions	(3)		-		(5)
Net operating income/ (expense)	(831)		1,785		10,505
Total operating expenses	(2,268)		(2,019)		(2,155)
Operating profit/(loss)	(3,099)		(234)		8,350
Share of profit/(loss) in associates and joint ventures	5		45		(4)
Profit/(loss) before tax	(3,094)		(189)		8,346
By geographical region
Europe	(1,426)		144		5,152
Hong Kong	(273)		(725)		(230)
Rest of Asia-Pacific17	142		57		140
Middle East17	47		45		34
North America	(1,584)		294		3,240
Latin America	-		(4)		10
	(3,094)		(189)		8,346
	%		%		%
Share of HSBC's profit before tax	(61.7)		(1.8)		887.9
Cost efficiency ratio	(273.9)		113.1		20.5

For footnotes, see page 94.

Balance sheet data23

	At      30 June     2009		At      30 June     2008	At  31 December     2008
	US$m		US$m		US$m
Loans and advances to customers (net)	3,478		3,061		2,621
Total assets	170,414		141,946		145,581
Customer accounts	1,235		1,227		2,041

Notes

• A loss before tax in Other of US$3.1 billion compared with a loss of US$189 million in the first half of 2008. This was attributable to losses on the fair value of HSBC's own debt which contrasted with gains booked in the comparable periods. For a description of the main items reported under 'Other', see footnote 22 on page 94.

• Net expense from financial investments designated at fair value was US$2.6 billion, compared with income of US$820 million in the first half of 2008. This was largely driven by the partial reversal of fair value gains booked in previous years on certain long-term debt issued by HSBC Holdings and its North American and European subsidiaries, and resulted from a significant contraction of credit spreads in the second quarter of 2009. 

• Net trading income rose by US$463 million on a reported basis to US$110 million driven largely by fair value gains on certain non-qualifying hedges. These gains were partly offset by losses of US$344 million on a forward foreign exchange contract associated with hedging the proceeds of the Group's US$17.8 billion rights issue, which was completed in April 2009.

• Net losses from financial investments amounted to US$53 million compared with a net loss of US$283 million in the first half of 2008, driven by lower impairment losses on certain equity investments. 

• The Group continued to pursue its Global Resourcing model, migrating further activities to Global Centres of Excellence. As a result, costs rose by 9 per cent in the Group Service Centres All costs are recharged to HSBC's customer groups and global businesses and related revenue reported under 'Other operating income'.

Reconciliation of reported and underlying profit/(loss) before tax

	Half-year to 30 June 2009 ('1H09') compared with half-year to 30 June 2008 ('1H08')
Other	1H08     as     reported     US$m	1H08 acquisitions     and      disposals1     US$m			Currency     translation2     US$m		1H08         at 1H09    exchange     rates3     US$m	1H09     acquisitions     and      disposals1     US$m			Under-    lying     change     US$m		1H09     as     reported     US$m		Re-    ported    change4     %		Under-    lying     change4     %
Net interest expense	(375)		-		15		(360)		-		(191)		(551)		(47)		(53)
Net fee income	32		-		(9)		23		-		41		64		100		178
Changes in fair value5	577		-		36		613		-		(2,913)		(2,300)		(499)		(475)
Other income6	1,551		-		(140)		1,411		-		548		1,959		27		39
Net operating income/ (expense)7	1,785		-		(98)		1,687		-		(2,515)		(828)		(146)		(149)
Loan impairment charges and other credit risk provisions	-		-		-		-		-		(3)		(3)		-		-
Net operating income/ (expense)	1,785		-		(98)		1,687		-		(2,518)		(831)		(147)		(149)
Operating expenses	(2,019)		-		73		(1,946)		-		(322)		(2,268)		(12)		(16)
Operating loss	(234)		-		(25)		(259)		-		(2,840)		(3,099)		(1,224)		(1,097)
Income from associates	45		-		1		46		-		(41)		5		(89)		(89)
Loss before tax	(189)		-		(24)		(213)		-		(2,881)		(3,094)		(1,537)		(1,353)

	Half-year to 30 June 2009 ('1H09') compared with half-year to 31 December 2008 ('2H08')
Other	2H08     as     reported     US$m	2H08     acquisitions     and      disposals1     US$m			Currency     translation2     US$m		2H08         at 1H09    exchange     rates8     US$m	1H09     acquisitions     and      disposals1     US$m			Under-    lying     change     US$m		1H09     as     reported     US$m		Re-    ported         change4     %		Under-    lying     change4     %
Net interest expense	(581)		-		1		(580)		-		29		(551)		5		5
Net fee income	21		-		-		21		-		43		64		205		205
Changes in fair value5	6,102		-		(101)		6,001		-		(8,301)		(2,300)		(138)		(138)
Gain on disposal of  French regional banks	2,445		(2,445)		-		-		-		-		-		(100)		-
Other income6	2,523		(95)		(84)		2,344		-		(385)		1,959		(22)		(16)
Net operating income/ (expense)7	10,510		(2,540)		(184)		7,786		-		(8,614)		(828)		(108)		(111)
Loan impairment charges and other credit risk provisions	(5)		-		-		(5)		-		2		(3)		40		40
Net operating income/ (expense)	10,505		(2,540)		(184)		7,781		-		(8,612)		(831)		(108)		(111)
Operating expenses	(2,155)		-		33		(2,122)		-		(146)		(2,268)		(5)		(7)
Operating profit/(loss)	8,350		(2,540)		(151)		5,659		-		(8,758)		(3,099)		(137)		(155)
Income from associates	(4)		-		-		(4)		-		9		5		225		225
Profit/(loss) before tax	8,346		(2,540)		(151)		5,655		-		(8,749)		(3,094)		(137)		(155)

For footnotes, see page 94.

 

END

 

 

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