Interim Report - 5 of 21

RNS Number : 9145Q

HSBC Holdings PLC

13 August 2010

 



Customer groups and global businesses

Summary

HSBC's senior management reviews operating activity on a number of bases, including by geographical region and by customer group and global business. Capital resources are allocated and performance is assessed primarily by geographical region, as presented on page 46.

In addition to utilising information by geographical region, management assesses performance 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.

The commentaries below present customer groups and global businesses followed by geographical regions. Performance is discussed in this order because certain strategic themes, business initiatives and trends affect more than one geographical region. All commentaries are on an underlying basis (see page 11) unless stated otherwise.

Profit/(loss) before tax

					Half-year to
	30 June 2010				30 June 2009				31 December 2009
	US$m		%		US$m		%		US$m		%
Personal Financial Services .........................................	1,171		10.5		(1,249)		(24.9)		(816)		(39.6)
Commercial Banking ..................................................	3,204		28.9		2,432		48.5		1,843		89.5
Global Banking and Markets .......................................	5,633		50.7		6,298		125.5		4,183		203.0
Private Banking .........................................................	556		5.0		632		12.6		476		23.1
Other22 .......................................................................	540		4.9		(3,094)		(61.7)		(3,626)		(176.0)
	11,104		100.0		5,019		100.0		2,060		100.0

Total assets²³

	At 30 June 2010				At 30 June 2009				At 31 December 2009
	US$m		%		US$m		%		US$m		%
Personal Financial Services ......................................	507,088		21.0		547,084		22.6		554,074		23.4
Commercial Banking ................................................	264,077		10.9		249,030		10.3		251,143		10.6
Global Banking and Markets .....................................	1,777,643		73.5		1,770,618		73.1		1,683,672		71.2
Private Banking .......................................................	108,499		4.5		117,468		4.9		116,148		4.9
Other .......................................................................	189,153		7.8		170,414		7.0		150,983		6.4
Intra-HSBC items .....................................................	(428,006)		(17.7)		(432,771)		(17.9)		(391,568)		(16.5)
	2,418,454		100.0		2,421,843		100.0		2,364,452		100.0

For footnotes, see page 95.

 

Basis of preparation

The results of customer groups and global businesses 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 Group Management

Office ('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  2010		30 June  2009	31 December  2009
	US$m		US$m		US$m
Net interest income ......	12,198		12,650		12,457
Net fee income .............	3,560		4,045		4,193
Trading income/(expense) excluding net interest income	(392)		450		187
Net interest income on trading activities ...	15		39		26
Net trading income/ (expense)25	(377)		489		213
Net income/(expense) from financial instruments designated at fair value	(127)		744		1,595
Gains less losses from financial investments	3		195		29
Dividend income ...........	14		17		16
Net earned insurance premiums	4,953		4,585		4,949
Other operating income.	387		302		507
Total operating income	20,611		23,027		23,959
Net insurance claims26 ...	(4,572)		(5,144)		(6,427)
Net operating income7	16,039		17,883		17,532
Loan impairment charges and other credit risk provisions	(6,317)		(10,673)		(9,229)
Net operating income	9,722		7,210		8,303
Employee expenses27 ....	(2,584)		(2,876)		(3,193)
Other operating expenses	(6,425)		(5,898)		(6,325)
Total operating expenses .......	(9,009)		(8,774)		(9,518)
Operating profit/(loss) .......	713		(1,564)		(1,215)
Share of profit in associates and joint ventures	458		315		399
Profit/(loss) before tax	1,171		(1,249)		(816)
By geographical region
Europe ..........................	562		212		100
Hong Kong ...................	1,422		1,337		1,391
Rest of Asia-Pacific ......	476		135		328
Middle East ...................	58		35		(161)
North America ..............	(1,484)		(2,843)		(2,383)
Latin America ...............	137		(125)		(91)
	1,171		(1,249)		(816)
	%		%		%
Share of HSBC's profit before tax	10.5		(24.9)		(39.6)
Cost efficiency ratio .....	56.2		49.1		54.3
Balance sheet data23
	US$m		US$m		US$m
Loans and advances to customers (net)	377,467		400,692		399,460
Total assets ...................	507,088		547,084		554,074
Customer accounts ........	488,249		482,935		499,109
For footnotes, see page 95.

Financial and business highlights

·      Personal Financial Services reported a profit before tax of US$1.2 billion, compared with reported and underlying losses of US$1.2 billion and US$1.3 billion, respectively, in the first half of 2009. Loan impairment charges fell in line with the managed reduction of the run-off portfolios and as global economic conditions improved, the latter also creating opportunities to expand insurance and wealth management revenues. This was partly offset by fair value losses on non-qualifying hedges in the US due to a decline in long-term interest rates, compared with fair value gains in 2009 (see page 82).

·      Net interest income was constrained by lower asset balances in the run-off portfolios in the US, Latin America and the Middle East, and significant deposit spread compression in the Group's major deposit-taking entities due to the effect of continuing low interest rates. This was partly offset by higher secured lending volumes and spreads in Europe.

·      Net fee income benefited from higher investment income as market sentiment improved, most notably in Asia. However, this was more than offset by a decrease in credit card fees in the US from lower volumes and delinquency levels and the impact on charging practices of the Credit Card Accountability, Responsibility and Disclosure Act ('CARD Act').

·      Net earned insurance premiums rose as a result of strong life insurance sales in Hong Kong, Brazil and France, partly offset by the closure of the UK motor insurance business in 2009.

·      The decrease in costs was primarily due to a reduction in staff numbers and a US$113 million pension curtailment accounting gain in the US. This was partly offset by the non‑recurrence of an accounting gain relating to a change in the delivery of certain staff benefits in the main UK pension scheme in 2009 and continuing investment in the branch networks in mainland China and Taiwan. The cost efficiency ratio increased as revenues were lower in the period.

·      Loan impairment charges and other credit risk provisions fell in all regions, most notably in the US, due to the continued reduction of the run-off portfolios, the improvement in economic conditions, enhanced collection processes and tightened lending criteria.

·              Customer accounts were broadly in line with December 2009 levels, reflecting the strength of the HSBC brand and efforts to maintain strong

liquidity levels. Loans and advances to customers decreased as the reduction in balances in the run-off portfolios overshadowed growth in secured lending in the UK and Hong Kong.

·     HSBC Premier ('Premier'), the Group's flagship global customer proposition, attracted 469,000 net new customers in the first half of 2010, of whom 51 per cent were new to the bank. Asia exceeded the one million customer milestone in the period, extending HSBC's global reach to 3.9 million customers in 46 markets.

·     A second global proposition, HSBC Advance ('Advance'), for emerging mass affluent customers,

had a customer base of 3.6 million at 30 June 2010 and is now offered in 22 markets.

·      The Group's World Selection global investment offering is now available in 21 countries and increased its total assets under management to US$4.1 billion at 30 June 2010.

·      HSBC won a number of awards in the UK for its range of mortgages in the 2010 Moneyfacts awards. HSBC also won awards in various markets in Asia, including the best foreign retail bank in mainland China for the second year in a row from the Asian Banker Excellence in Retail Financial Services Awards 2010.

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

	Half-year to 30 June 2010 ('1H10') compared with half-year to 30 June 2009 ('1H09')
Personal Financial Services	1H09  as  reported  US$m	1H09  adjust-  ments1  US$m			Currency  translation2  US$m		1H09   at 1H10 exchange  rates3  US$m	1H10  as  reported  US$m			1H10  adjust-  ments1  US$m		1H10  under-  lying  US$m		Re-  ported  change4  %		Under- lying  change4  %
Net interest income ....	12,650		-		425		13,075		12,198		(8)		12,190		(4)		(7)
Net fee income ...........	4,045		(4)		121		4,162		3,560		(1)		3,559		(12)		(14)
Other income6 ............	1,188		-		71		1,259		281		(5)		276		(76)		(78)
Net operating income7 .................	17,883		(4)		617		18,496		16,039		(14)		16,025		(10)		(13)
Loan impairment charges and other credit risk provisions ................................	(10,673)		-		(252)		(10,925)		(6,317)		-		(6,317)		41		42
Net operating income ..................	7,210		(4)		365		7,571		9,722		(14)		9,708		35		28
Operating expenses .....	(8,774)		2		(426)		(9,198)		(9,009)		4		(9,005)		(3)		2
Operating profit/(loss) ...........	(1,564)		(2)		(61)		(1,627)		713		(10)		703
Income from associates	315		-		(1)		314		458		-		458		45		46
Profit/(loss) before tax ..........................	(1,249)		(2)		(62)		(1,313)		1,171		(10)		1,161

	Half-year to 30 June 2010 ('1H10') compared with half-year to 31 December 2009 ('2H09')
Personal Financial Services	2H09  as  reported  US$m	2H09  adjust-  ments1  US$m			Currency  translation2  US$m		2H09   at 1H10 exchange  Rates8  US$m	1H10  as  reported  US$m			1H10  adjust-  ments1  US$m		1H10  under-  lying  US$m		Re-  ported  change4  %		Under- lying  change4  %
Net interest income .....	12,457		-		(144)		12,313		12,198		-		12,198		(2)		(1)
Net fee income ............	4,193		(2)		(51)		4,140		3,560		-		3,560		(15)		(14)
Other income6 .............	882		-		12		894		281		(3)		278		(68)		(69)
Net operating income7 .	17,532		(2)		(183)		17,347		16,039		(3)		16,036		(9)		(8)
Loan impairment charges and other credit risk provisions	(9,229)		-		37		(9,192)		(6,317)		-		(6,317)		32		31
Net operating income ..	8,303		(2)		(146)		8,155		9,722		(3)		9,719		17		19
Operating expenses ......	(9,518)		1		133		(9,384)		(9,009)		-		(9,009)		5		4
Operating profit/(loss) .	(1,215)		(1)		(13)		(1,229)		713		(3)		710
Income from associates	399		-		(1)		398		458		-		458		15		15
Profit/(loss) before tax	(816)		(1)		(14)		(831)		1,171		(3)		1,168

For footnotes, see page 95.

Commercial Banking

Profit before tax
	Half-year to
	30 June  2010		30 June  2009	31 December  2009
	US$m		US$m		US$m
Net interest income ........	4,024		3,809		4,074
Net fee income ...............	1,935		1,749		1,953
Trading income excluding net interest income	222		183		149
Net interest income on trading activities	11		11		11
Net trading income25 ......	233		194		160
Net income/(expense) from financial instruments designated at fair value	26		(17)		117
Gains less losses from financial investments	3		25		(2)
Dividend income ............	5		3		5
Net earned insurance premiums	696		390		496
Other operating income .	355		519		220
Total operating income	7,277		6,672		7,023
Net insurance claims26 ....	(537)		(328)		(514)
Net operating income7	6,740		6,344		6,509
Loan impairment charges and other credit risk provisions	(705)		(1,509)		(1,773)
Net operating income .	6,035		4,835		4,736
Employee expenses27 ....	(1,063)		(876)		(1,196)
Other operating expenses	(2,203)		(1,864)		(2,027)
Total operating expenses .......	(3,266)		(2,740)		(3,223)
Operating profit ..........	2,769		2,095		1,513
Share of profit in associates and joint ventures	435		337		330
Profit before tax ..........	3,204		2,432		1,843
By geographical region
Europe ...........................	709		852		440
Hong Kong .....................	672		424		532
Rest of Asia-Pacific ........	757		459		605
Middle East ....................	258		252		(231)
North America ...............	572		224		319
Latin America ................	236		221		178
	3,204		2,432		1,843
	%		%		%
Share of HSBC's profit before tax	28.9		48.5		89.5
Cost efficiency ratio .......	48.5		43.2		49.5
Balance sheet data23
	US$m		US$m		US$m
Loans and advances to customers (net)	207,763		198,903		199,674
Total assets ....................	264,077		249,030		251,143
Customer accounts .........	263,616		239,933		267,388
For footnotes, see page 95.

Financial and business highlights

·            The reported profit before tax in the first half of 2010 was US$3.2 billion, 32 per cent higher than in the first half of 2009. Revenue included gains from the sale of HSBC Insurance Brokers and the Group's stake in the Wells Fargo HSBC Trade Bank (see page 20). On an underlying basis, profit before tax increased by 40 per cent as credit quality improved, trade levels increased and 2009 repricing fed through into higher revenue.

·      HSBC's broad geographic presence allowed it to capitalise on growing levels of international trade flows. Revenue increased by 5 per cent to US$6.6 billion, mainly due to growth in trade-related fee income and an increase in insurance sales in Hong Kong. Reflecting the faster rate of economic growth, customers within emerging markets contributed 50 per cent of revenue, and 63 per cent of profit before tax.

·      Loan impairment charges were 56 per cent lower with declines across all regions as higher risk portfolios were actively managed down and the economic environment improved. The percentage of overall loan impairment charges to customer advances was broadly in line with historically low levels at less than 1 per cent.

·      Excluding the non-recurrence of a 2009 accounting gain related to a change in the delivery of certain staff benefits in the UK pension scheme, operating expenses increased by 8 per cent to US$3.3 billion. Costs grew as the business expanded, mainly in emerging markets, and HSBC invested in technology and front-line staff. On a reported basis, the cost efficiency ratio rose to 48.5 per cent.

·      Despite the low interest rate environment, deposit balances increased by 2 per cent, while customer advances, which had declined markedly during the financial crisis, increased by 9 per cent, with the strongest growth in Hong Kong, mainland China, Brazil and France.

·      In the first half of 2010, Business Banking customer numbers increased by 3 per cent to over 3.3 million, with 84 per cent of this growth generated in emerging markets. Business Banking represented 55 per cent of total deposit balances at 30 June 2010. HSBC was awarded the best SME's Partner award for the fifth

consecutive year by the Hong Kong Chamber of Small and Medium Business.

·     The number of successful cross-border referrals doubled compared with the first half of 2009, with 13 per cent of referral flow generated from developed markets into emerging markets. The total transaction value of cross-border referrals exceeded US$6.8 billion.

·      In Hong Kong, HSBC's renminbi-denominated trade settlement volume was over US$450 million in the first half of 2010, representing a significant share of the cross-border clearance business. With its strong foothold in Hong Kong and mainland China, HSBC is well positioned to build its market position and support businesses needing renminbi.

Reconciliation of reported and underlying profit before tax

	Half-year to 30 June 2010 ('1H10') compared with half-year to 30 June 2009 ('1H09')
Commercial Banking	1H09  as  reported  US$m	1H09  adjust-  ments1  US$m			Currency  translation2  US$m		1H09   at 1H10 exchange  rates3  US$m	1H10  as  reported  US$m			1H10  adjust-  ments1  US$m		1H10  under-  lying  US$m		Re-  ported  change4  %		Under- lying  change4  %
Net interest income ....	3,809		-		207		4,016		4,024		(20)		4,004		6		-
Net fee income ...........	1,749		(57)		71		1,763		1,935		(2)		1,933		11		10
Other income6 ............	786		(281)		5		510		781		(121)		660		-		29
Net operating income7 .................	6,344		(338)		283		6,289		6,740		(143)		6,597		6		5
Loan impairment charges and other credit risk provisions ................................	(1,509)		-		(81)		(1,590)		(705)		-		(705)		53		56
Net operating income ..................	4,835		(338)		202		4,699		6,035		(143)		5,892		25		25
Operating expenses .....	(2,740)		50		(143)		(2,833)		(3,266)		13		(3,253)		(19)		(15)
Operating profit ......	2,095		(288)		59		1,866		2,769		(130)		2,639		32		41
Income from associates	337		(1)		-		336		435		-		435		29		29
Profit before tax ......	2,432		(289)		59		2,202		3,204		(130)		3,074		32		40

	Half-year to 30 June 2010 ('1H10') compared with half-year to 31 December 2009 ('2H09')
Commercial Banking	2H09  as  reported  US$m	2H09  adjust-  ments1  US$m			Currency  translation2  US$m		2H09   at 1H10 exchange  Rates8  US$m	1H10  as  reported  US$m			1H10  adjust-  ments1  US$m		1H10  under-  lying  US$m		Re-  ported  change4  %		Under- lying  change4  %
Net interest income .....	4,074		-		(74)		4,000		4,024		-		4,024		(1)		1
Net fee income ............	1,953		(71)		(50)		1,832		1,935		-		1,935		(1)		6
Other income6 .............	482		(2)		(2)		478		781		(114)		667		62		40
Net operating income7 .	6,509		(73)		(126)		6,310		6,740		(114)		6,626		4		5
Loan impairment charges and other credit risk provisions	(1,773)		-		38		(1,735)		(705)		-		(705)		60		59
Net operating income ..	4,736		(73)		(88)		4,575		6,035		(114)		5,921		27		29
Operating expenses ......	(3,223)		64		67		(3,092)		(3,266)		-		(3,266)		(1)		(6)
Operating profit ..........	1,513		(9)		(21)		1,483		2,769		(114)		2,655		83		79
Income from associates	330		-		2		332		435		-		435		32		31
Profit before tax ..........	1,843		(9)		(19)		1,815		3,204		(114)		3,090		74		70

For footnotes, see page 95.

Global Banking and Markets

Profit before tax
	Half-year to
	30 June  2010		30 June  2009	31 December  2009
	US$m		US$m		US$m
Net interest income ........	3,720		4,667		3,943
Net fee income ...............	2,379		1,968		2,395
Trading income excluding net interest income	2,867		3,422		1,279
Net interest income on trading activities	888		1,056		1,118
Net trading income25 ......	3,755		4,478		2,397
Net income from financial instruments designated at fair value ................	8		329		144
Gains less losses from financial investments	505		158		107
Dividend income ............	22		23		45
Net earned insurance premiums	22		40		14
Other operating income .	438		603		543
Total operating income	10,849		12,266		9,588
Net insurance claims26 ....	(15)		(35)		1
Net operating income7	10,834		12,231		9,589
Loan impairment charges and other credit risk provisions	(500)		(1,732)		(1,436)
Net operating income .	10,334		10,499		8,153
Employee expenses27 .....	(2,520)		(2,492)		(1,843)
Other operating expenses	(2,427)		(1,913)		(2,289)
Total operating expenses .......	(4,947)		(4,405)		(4,132)
Operating profit ..........	5,387		6,094		4,021
Share of profit in associates and joint ventures	246		204		162
Profit before tax ..........	5,633		6,298		4,183
By geographical region
Europe ...........................	2,085		2,891		1,654
Hong Kong .....................	730		907		600
Rest of Asia-Pacific ........	1,306		1,239		1,080
Middle East ....................	49		304		163
North America ...............	998		477		235
Latin America ................	465		480		451
	5,633		6,298		4,183
	%		%		%
Share of HSBC's profit before tax	50.7		125.5		203.0
Cost efficiency ratio .......	45.7		36.0		43.1

For footnotes, see page 95.

Financial and business highlights

·                                              Global Banking and Markets delivered its second highest ever half-year performance with pre-tax profits of US$5.6 billion, below the record results of the first half of 2009 which benefited from exceptional market conditions. On an underlying basis, profit before tax fell by 13 per cent. Notably, market share gains captured in 2009 were broadly maintained and performance significantly exceeded the second half of 2009 with stronger revenues and lower loan impairment charges and other credit risk provisions. Operating results remained well diversified with a strong contribution from emerging markets and no single business contributing much more than a fifth of total revenues. The breadth of this performance demonstrated the continuing benefit of Global Banking and Markets' emerging markets-led and financing-focused strategy.

·      Revenues slowed in the second quarter of 2010, as European sovereign debt concerns and widening credit spreads were reflected in less client activity and reduced debt and equity issuance in the market. Operating expenses included initial costs of a number of strategic investments to drive future revenue growth, including the development of Prime Services and equity capital markets capabilities with increased focus on emerging markets and the expansion of the foreign exchange and Rates e‑commerce platform. Additionally, a charge of US$350 million was taken in respect of UK and French payroll taxes levied on certain 2009 bonus payments. The cost efficiency ratio, at 45.7 per cent, was 10 percentage points higher than in the first half of 2009.

·      There was an overall improvement in asset-backed securities ('ABS's) prices and a significant reduction in write-downs following a return of liquidity to financial markets. This was reflected in a net release of US$362 million relating to legacy positions in credit trading, leveraged and acquisition financing and monoline Credit exposures. 2009's results included a reported net charge of US$602 million in the first half and a US$271 million release in the second half. A fair value gain of US$255 million resulting from widening credit spreads on structured liabilities was reported during the first half of 2010 (losses of US$127 million and US$317 million were reported in the first and second halves of 2009, respectively).

·   

Management view of total operating income

	Half-year to
	30 June  2010		30 June 2009	31 December 2009
	US$m		US$m		US$m
Global Markets28 ............	5,542		5,991		4,373
Credit .........................	1,043		1,066		1,264
Rates ..........................	1,529		1,964		684
Foreign exchange ........	1,513		1,797		1,182
Equities .......................	479		315		326
Securities services29 .....	718		712		708
Asset and structured finance	260		137		209
Global Banking ...............	2,288		2,403		2,227
Financing and equity capital markets	1,420		1,609		1,461
Payments and cash management30	542		535		518
Other transaction services31.................	326		259		248
Balance Sheet Management ...............	2,269		3,350		2,040
Global Asset Management	540		414		525
Principal Investments ....	126		(38)		80
Other32 ...........................	84		146		343
Total operating income ..	10,849		12,266		9,588

For footnotes, see page 95.

·     Loan impairment charges and other credit risk provisions decreased by US$1.3 billion. Loan impairment charges of US$0.2 billion fell by US$0.9 billion and US$0.3 billion against the first and second halves of 2009, respectively. This reflected improving credit conditions which strengthened the credit quality of the portfolio. The significant impairments taken in relation to a small number of clients in both halves of 2009 did not recur.

·     The available-for-sale portfolio continued to track the impairment and loss expectations contained within the parameters of the stress tests described on page 156 of the Annual Report and Accounts 2009. Credit risk provisions were US$0.3 billion compared with US$0.6 billion and US$0.8 billion in the first and second halves of 2009, respectively. ABSs accounted for US$256 million of this charge; the expected cash flow impairment on which was US$122 million. A further US$488 million impairment was absorbed by income note holders who take the first loss on positions within the securities investment conduits ('SIC's) now consolidated in HSBC's accounts; details of the SICs are provided on page 126. The available-for-sale reserves in respect of these securities continued to fall, standing at US$8.1 billion at 30 June 2010 as a result of improved prices and continued amortisations and maturities in the portfolio.

·     

·      HSBC was recognised in a number of key industry awards which highlighted the strength of Global Banking and Market's core businesses and its strategy. This included being awardedEuromoney's 'Best Global Emerging Markets Bank' and 'Best Global Emerging Markets Debt House'. Regionally, achievements were recognised through the attainment of 'Best Investment Bank in the Middle East' and 'Best Debt House' in Asia and in Central and Eastern Europe.

·      Global Markets recorded its second highest half-year performance with revenues exceeding US$5 billion, delivered through enhanced sales coverage and greater alignment across regions and with other customer groups. Revenues rose significantly on the second half of 2009, but were lower than in the record first half as the exceptional market conditions did not recur. Higher economic uncertainty and subdued market conditions resulted in lower demand for foreign exchange, Credit and Rates products in the second quarter of 2010. In credit trading, a net release of write-downs on legacy positions was more than offset by the non-recurrence of gains in other parts of the business due to the events described above.

·      The securities services business benefited from greater transaction volumes and an 8.9 per cent increase in assets under custody compared with the first half of 2009. However, this performance was offset in part by the continuation of spread compression, as interest rates in major economies remained at historical lows.

·      In Global Banking, revenues from financing and equity capital markets declined from the highs recorded in the latter part of 2008 and early 2009 due to lower client activity, while reduced credit and lending revenues reflected tighter spreads and a reduction in overall lending balances as clients repaid debt in order to strengthen their balance sheets. Compared with the second half of 2009, overall revenues were stable with well diversified income streams. Payments and cash management income was broadly in line with the first half of 2009.

·      As expected, Balance Sheet Management revenues fell compared with the record first half of 2009, as interest rates remained low and major yield curves flattened. Although revenues improved on the second half of 2009, the declining revenue trend is expected to resume in the second half of 2010 as a result of lower-yielding reinvestment opportunities with flatter yield curves in the major currencies.

·     Results in Global Asset Management reflected continuation of the momentum achieved in the second half of 2009. Management fees increased significantly with a notable growth in the contribution from emerging markets. Average funds under management at US$421 billion were 15 per cent higher than in the first half of 2009, assisted by net inflows in the first six months of 2010 of

US$12 billion. On 30 June 2010, HSBC announced the single brand of HSBC Global Asset Management, to reflect better the breadth, strength and expertise of its specialist global asset management businesses.

·    Principal Investments reported an increase in profits on the first half of 2009, due to higher realisations and lower impairments.

Reconciliation of reported and underlying profit before tax

	Half-year to 30 June 2010 ('1H10') compared with half-year to 30 June 2009 ('1H09')
Global Banking and Markets	1H09  as  reported  US$m	1H09  adjust-  ments1  US$m			Currency  translation2  US$m		1H09   at 1H10 exchange  rates3  US$m	1H10  as  reported  US$m			1H10  adjust-  ments1  US$m		1H10  under-  lying  US$m		Re-  ported  change4  %		Under- lying  change4  %
Net interest income ....	4,667		-		124		4,791		3,720		(3)		3,717		(20)		(22)
Net fee income ...........	1,968		(10)		51		2,009		2,379		-		2,379		21		18
Other income6 ............	5,596		-		153		5,749		4,735		(9)		4,726		(15)		(18)
Net operating income7 .................	12,231		(10)		328		12,549		10,834		(12)		10,822		(11)		(14)
Loan impairment charges and other credit risk provisions ................................	(1,732)		-		(32)		(1,764)		(500)		-		(500)		71		72
Net operating income ..................	10,499		(10)		296		10,785		10,334		(12)		10,322		(2)		(4)
Operating expenses ....	(4,405)		18		(116)		(4,503)		(4,947)		2		(4,945)		(12)		(10)
Operating profit ......	6,094		8		180		6,282		5,387		(10)		5,377		(12)		(14)
Income from associates	204		-		(1)		203		246		-		246		21		21
Profit before tax ......	6,298		8		179		6,485		5,633		(10)		5,623		(11)		(13)

	Half-year to 30 June 2010 ('1H10') compared with half-year to 31 December 2009 ('2H09')
Global Banking and Markets	2H09  as  reported  US$m	2H09  adjust-  ments1  US$m			Currency  translation2  US$m		2H09  at 1H10 exchange  Rates8  US$m	1H10  as  reported  US$m			1H10  adjust-  ments1  US$m		1H10  under-  lying  US$m		Re-  ported  change4  %		Under- lying  change4  %
Net interest income .....	3,943		-		(115)		3,828		3,720		-		3,720		(6)		(3)
Net fee income ............	2,395		(32)		(60)		2,303		2,379		-		2,379		(1)		3
Other income6 .............	3,251		-		(68)		3,183		4,735		(9)		4,726		46		48
Net operating income7 .	9,589		(32)		(243)		9,314		10,834		(9)		10,825		13		16
Loan impairment charges and other credit risk provisions	(1,436)		-		64		(1,372)		(500)		-		(500)		65		64
Net operating income ..	8,153		(32)		(179)		7,942		10,334		(9)		10,325		27		30
Operating expenses ......	(4,132)		34		131		(3,967)		(4,947)		-		(4,947)		(20)		(25)
Operating profit ..........	4,021		2		(48)		3,975		5,387		(9)		5,378		34		35
Income from associates	162		-		1		163		246		-		246		52		51
Profit before tax ..........	4,183		2		(47)		4,138		5,633		(9)		5,624		35		36

For footnotes, see page 95.

Balance sheet data significant to Global Banking and Markets

	Europe		Hong          Kong		Rest of          Asia-       Pacific		Middle            East		North     America		Latin     America		Total
	US$m		US$m		US$m		US$m		US$m		US$m		US$m
At 30 June 2010
Trading assets33 ......................	265,958		26,406		19,976		733		76,015		6,786		395,874
Derivative assets34 .................	227,337		18,858		17,268		827		71,490		3,268		339,048
Loans and advances to:
- customers (net) ...............	163,031		25,501		30,718		6,389		32,861		10,006		268,506
- banks (net) ......................	77,976		25,428		28,108		6,583		16,606		15,932		170,633
Financial investments33 ..........	91,468		83,284		36,576		10,066		59,244		17,426		298,064
Total assets23 .........................	1,021,875		214,091		153,877		29,106		299,345		59,349		1,777,643
Deposits by banks ..................	74,808		10,181		14,642		1,623		16,327		3,246		120,827
Customer accounts .................	170,697		26,142		46,089		5,359		19,229		23,158		290,674
Trading liabilities ...................	162,471		9,838		5,131		48		81,118		4,616		263,222
Derivative liabilities34 ............	227,156		19,159		16,744		849		71,874		3,545		339,327
At 30 June 2009
Trading assets33 ......................	287,752		24,818		15,812		500		68,707		7,600		405,189
Derivative assets34 .................	227,424		20,034		19,355		682		84,307		3,921		355,723
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 investments33 ..........	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 liabilities34 ............	222,408		20,200		18,606		678		80,583		3,680		346,155
At 31 December 2009
Trading assets33 ......................	294,951		25,742		15,960		511		67,466		6,283		410,913
Derivative assets34 .................	190,900		16,937		15,660		668		61,192		2,820		288,177
Loans and advances to:
- customers (net) ...............	176,123		21,991		23,989		6,554		18,654		9,645		256,956
- banks (net) ......................	59,171		27,789		29,388		6,385		14,403		16,638		153,774
Financial investments33 ..........	83,715		92,181		36,355		9,688		49,386		14,659		285,984
Total assets23 .........................	981,831		217,146		138,884		28,189		260,131		57,491		1,683,672
Deposits by banks ..................	88,043		5,824		7,874		1,357		13,229		3,948		120,275
Customer accounts .................	169,390		26,650		43,698		5,752		19,095		20,142		284,727
Trading liabilities ...................	169,814		10,720		3,040		13		69,302		2,875		255,764
Derivative liabilities34 ............	191,480		16,619		15,500		651		60,178		3,270		287,698

For footnotes, see page 95.

Private Banking

Profit before tax
	Half-year to
	30 June  2010		30 June  2009	31 December  2009
	US$m		US$m		US$m
Net interest income ........	646		784		690
Net fee income ...............	643		602		634
Trading income excluding net interest income	209		154		168
Net interest income on trading activities	10		9		13
Net trading income25 ......	219		163		181
Gains less losses from financial investments	11		(2)		7
Dividend income ............	3		2		3
Other operating income .	21		40		8
Total operating income	1,543		1,589		1,523
Net insurance claims26 ....	-		-		-
Net operating income7	1,543		1,589		1,523
Loan impairment charges and other credit risk provisions	-		(14)		(114)
Net operating income .	1,543		1,575		1,409
Employee expenses27 .....	(609)		(604)		(594)
Other operating expenses	(358)		(345)		(341)
Total operating expenses .......	(967)		(949)		(935)
Operating profit ..........	576		626		474
Share of profit/(loss) in associates and joint ventures	(20)		6		2
Profit before tax ..........	556		632		476
By geographical region
Europe ...........................	359		447		407
Hong Kong .....................	119		106		91
Rest of Asia-Pacific ........	43		47		43
Middle East ....................	(23)		5		1
North America ...............	54		23		(73)
Latin America ................	4		4		7
	556		632		476
	%		%		%
Share of HSBC's profit before tax	5.0		12.6		23.1
Cost efficiency ratio .......	62.7		59.7		61.4
Balance sheet data23
	US$m		US$m		US$m
Loans and advances to customers (net)	36,590		34,282		37,031
Total assets ....................	108,499		117,468		116,148
Customer accounts .........	104,025		108,278		106,533

For footnotes, see page 95.

Financial and business highlights

·      Profit before tax of US$556 million was 12 per cent lower than reported in the first half of 2009, 13 per cent lower on an underlying basis. This was primarily due to lower net interest income and a loss from associates. Fee income and trading income rose and costs were broadly in line with the first half of 2009.

·      Net interest income fell as continued low interest rates adversely affected customer deposit spreads. However, fee income grew as an improvement in market sentiment drove a rise in client activity levels and an increase in average client assets under management compared with the same period in 2009. Net trading income also rose, driven by higher client transaction volumes as client risk appetite returned, particularly in foreign exchange and debt securities trading. 

·      Loan impairment charges were lower than in the first half of 2009, with a net recovery in North America, compared with a small charge in the first half of 2009. 

·      Operating expenses were broadly in line with the comparable period in 2009 despite recruitment in faster-growing markets. The cost efficiency ratio deteriorated by 3 percentage points as revenue declined.

·      The share of profit from associates fell due to an increase in loan impairment charges in The Saudi British Bank.

Client assets

	Half-year to
	30 June  2010		30 June  2009	31 December  2009
	US$bn		US$bn		US$bn
At beginning of period ............	367		352		345
Net new money	7		(7)		-
Value change ....	(4)		7		20
Exchange/other	(16)		(7)		2
At end of period .......................	354		345		367

·      Reported client assets of US$354 billion were marginally lower than at 31 December 2009, as net inflows were more than offset by negative market and foreign exchange movements. Net new money amounted to US$7 billion and resulted from increased client leverage and strong inflows in a number of regions, particularly from Asia and other emerging markets. In Switzerland, HSBC reported net inflows as management reinforced their relationships with the core customer base as part of the communication initiatives around the local data theft incident reported in March.

·     Reported total client assets decreased to US$445 billion from US$460 billion at 31 December 2009. 'Total client assets' is equivalent to many industry definitions of assets under management and includes some non-financial assets held in client trusts.

·     Cross-business referrals continued to result in good inflows with over US$2 billion raised during the first half of 2010.

·     Hedge fund inflows into HSBC Alternative Investments Limited returned to levels last seen prior to the global financial crisis.

·      A Family Office Partnership initiative was launched with Global Banking and Markets, targeting ultra high net worth clients and family offices seeking quasi-institutional client services.

·      HSBC Private Bank was named the 'Best Global Wealth Manager' in the Euromoney Awards for Excellence 2010 and FT Money and Investors Chronicle Magazine voted HSBC Private Bank as 'Best Wealth Manager for Alternative Investments'.

Reconciliation of reported and underlying profit before tax

	Half-year to 30 June 2010 ('1H10') compared with half-year to 30 June 2009 ('1H09')
Private Banking	1H09 as reported US$m	1H09 adjust- ments1 US$m			Currency translation2 US$m		1H09 at 1H10 exchange rates3 US$m	1H10 as reported US$m			1H10 adjust- ments1 US$m		1H10 under- lying US$m		Re- ported change4 %		Under-lying change4 %
Net interest income .	784		-		3		787		646		-		646		(18)		(18)
Net fee income .	602		-		5		607		643		-		643		7		6
Other income6	203		-		2		205		254		-		254		25		24
Net operating income7 ..............	1,589		-		10		1,599		1,543		-		1,543		(3)		(4)
Loan impairment charges and other credit risk provisions ...........	(14)		-		-		(14)		-		-		-
Net operating income	1,575		-		10		1,585		1,543		-		1,543		(2)		(3)
Operating expenses ..............	(949)		-		(6)		(955)		(967)		-		(967)		(2)		(1)
Operating profit ...	626		-		4		630		576		-		576		(8)		(9)
Income from associates	6		-		-		6		(20)		-		(20)
Profit before tax .......	632		-		4		636		556		-		556		(12)		(13)

	Half-year to 30 June 2010 ('1H10') compared with half-year to 31 December 2009 ('2H09')
Private Banking	2H09 as reported US$m	2H09 adjust- ments1 US$m			Currency translation2 US$m		2H09 at 1H10 exchange Rates8 US$m	1H10 as reported US$m			1H10 adjust- ments1 US$m		1H10 under- lying US$m		Re- ported change4 %		Under-lying change4 %
Net interest income .....	690		-		(11)		679		646		-		646		(6)		(5)
Net fee income .....	634		-		(14)		620		643		-		643		1		4
Other income6 ...	199		-		(3)		196		254		-		254		28		30
Net operating income7 ...	1,523		-		(28)		1,495		1,543		-		1,543		1		3
Loan impairment charges and other credit risk provisions	(114)		-		2		(112)		-		-		-
Net operating income .....	1,409		-		(26)		1,383		1,543		-		1,543		10		12
Operating expenses ..	(935)		-		15		(920)		(967)		-		(967)		(3)		(5)
Operating profit .......	474		-		(11)		463		576		-		576		22		24
Income from associates	2		-		-		2		(20)		-		(20)
Profit before tax ...........	476		-		(11)		465		556		-		556		17		20

For footnotes, see page 95.

 

Other

Profit/(loss) before tax
	Half-year to
	30 June  2010		30 June  2009	31 December  2009
	US$m		US$m		US$m
Net interest expense .......	(537)		(551)		(484)
Net fee income ...............	1		64		61
Trading income/(expense) excluding net interest income	(597)		92		152
Net interest income on trading activities	25		18		17
Net trading income/ (expense)25	(572)		110		169
Net income/(expense) from financial instruments designated at fair value	1,178		(2,579)		(3,864)
Gains less losses from financial investments	35		(53)		56
Dividend income ............	15		12		-
Net earned insurance premiums	(5)		(3)		-
Other operating income .	3,114		2,172		2,870
Total operating income/ (expense)	3,229		(828)		(1,192)
Net insurance claims26 ....	3		-		(3)
Net operating income/ (expense)7	3,232		(828)		(1,195)
Loan impairment charges and other credit risk provisions	(1)		(3)		(5)
Net operating income/ (expense)	3,231		(831)		(1,200)
Employee expenses27 .....	(3,030)		(2,358)		(2,432)
Other operating income/ (expenses)	271		90		(15)
Total operating expenses .......	(2,759)		(2,268)		(2,447)
Operating profit/(loss) .......	472		(3,099)		(3,647)
Share of profit in associates and joint ventures	68		5		21
Proft/(loss) before tax .	540		(3,094)		(3,626)
By geographical region
Europe ...........................	(194)		(1,426)		(1,568)
Hong Kong .....................	(66)		(273)		(86)
Rest of Asia-Pacific ........	403		142		122
Middle East ....................	4		47		40
North America ...............	352		(1,584)		(2,133)
Latin America ................	41		-		(1)
	540		(3,094)		(3,626)
	%		%		%
Share of HSBC's profit before tax	4.9		(61.7)		(176.0)
Cost efficiency ratio .......	85.4		(273.9)		(204.8)

For footnotes, see page 95.

Balance sheet data²³

	At  30 June 2010		At  30 June  2009	At 31 December  2009
	US$m		US$m		US$m
Loans and advances to customers (net) ...........................	3,011		3,478		3,110
Total assets ...........	189,153		170,414		150,983
Customer accounts .	757		1,235		1,277

Notes

·      Reported profit before tax of US$540 million compared with a loss of US$3.1 billion in the first half of 2009. This included gains of US$1.1 billion on the fair value of HSBC's own debt attributable to movements in credit spreads, compared with losses of US$2.5 billion in the first half of 2009. In addition, the first half of 2010 included gains of US$188 million following the dilution of HSBC's Holding in Ping An Insurance and US$62 million on the reclassification of Bao Viet to an associate following the purchase of an additional 8 per cent stake. On an underlying basis, loss before tax increased by 25 per cent to US$784 million. For a description of the main items reported under 'Other', see footnote 22 on page 95.

·      Net interest expense of US$537 million substantially comprised interest expense on long‑term debt issued by HSBC Holdings.

·      Net trading expense of US$572 million compared with reported net income of US$110 million. This was largely attributable to fair value losses on non-qualifying hedges, mainly cross-currency swaps used to economically hedge fixed rate long-term debt issued by HSBC Holdings. The fair value losses, which were driven by a decline in long-term US interest rates relative to sterling and euro interest rates, compared with fair value gains on these instruments in the first half of 2009; they were partly offset by the non-recurrence of a loss of US$344 million on forward foreign exchange contracts associated with the Group's rights issue in 2009, which were accounted as derivatives with fair value taken to profit or loss.

·      Net income from financial instruments designated at fair value was US$104 million compared with a net expense in the first half of 2009 due to fair value gains from interest and exchange rate ineffectiveness in the economic hedging of long-term debt designated at fair value which was issued by HSBC Holdings and

its North American and European subsidiaries. This compared with losses on the ineffectiveness in the economic hedging of long-term debt designated at fair value in the first half of 2009.

·     HSBC recognised gains of US$194 million and US$56 million, respectively, from the sale and leaseback of its headquarters buildings in Paris and New York.

·      Operating expenses increased by 20 per cent to US$2.8 billion as an increasing number of activities were centralised, notably in the US. These costs were previously incurred directly by customer groups, but are now recorded in 'Other' and charged to customer groups through a recharge mechanism with income reported as 'Other operating income'.

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

	Half-year to 30 June 2010 ('1H10') compared with half-year to 30 June 2009 ('1H09')
Other	1H09  as  reported  US$m	1H09  adjust-  ments1  US$m			Currency  translation2  US$m		1H09   at 1H10 exchange  rates3  US$m	1H10  as  reported  US$m			1H10  adjust-  ments1  US$m		1H10  under-  lying  US$m		Re-  ported  change4  %		Under- lying  change4  %
Net interest expense ...	(551)		-		20		(531)		(537)		-		(537)		3		(1)
Net fee income ...........	64		-		-		64		1		-		1		(98)		(98)
Changes in fair value5 .	(2,457)		2,457		-		-		1,074		(1,074)		-				-
Other income6 ............	2,116		-		12		2,128		2,694		(250)		2,444		27		15
Net operating income/ (expense)7 .............	(828)		2,457		32		1,661		3,232		(1,324)		1,908				15
Loan impairment charges and other credit risk provisions ................................	(3)		-		2		(1)		(1)		-		(1)		67		-
Net operating income/ (expense)	(831)		2,457		34		1,660		3,231		(1,324)		1,907				15
Operating expenses .....	(2,268)		-		(23)		(2,291)		(2,759)		-		(2,759)		(22)		(20)
Operating profit/(loss) ...........	(3,099)		2,457		11		(631)		472		(1,324)		(852)				(35)
Income from associates	5		-		1		6		68		-		68		1,260		1,033
Profit/(loss) before tax ..........................	(3,094)		2,457		12		(625)		540		(1,324)		(784)				(25)

	Half-year to 30 June 2010 ('1H10') compared with half-year to 31 December 2009 ('2H09')
Other	2H09  as  reported  US$m	2H09  adjust-  ments1  US$m			Currency  translation2  US$m		2H09   at 1H10 exchange  Rates8  US$m	1H10  as  reported  US$m			1H10  adjust-  ments1  US$m		1H10  under-  lying  US$m		Re-  ported  change4  %		Under- lying  change4  %
Net interest expense ....	(484)		-		27		(457)		(537)		-		(537)		(11)		(18)
Net fee income ............	61		-		(2)		59		1		-		1		(98)		(98)
Changes in fair value5 ..	(4,076)		4,076		-		-		1,074		(1,074)		-				-
Other income6 .............	3,304		-		(58)		3,246		2,694		(250)		2,444		(18)		(25)
Net operating income/ (expense)7 ................	(1,195)		4,076		(33)		2,848		3,232		(1,324)		1,908				(33)
Loan impairment charges and other credit risk provisions	(5)		-		-		(5)		(1)		-		(1)		80		80
Net operating income/ (expense) .................	(1,200)		4,076		(33)		2,843		3,231		(1,324)		1,907				(33)
Operating expenses ......	(2,447)		-		(7)		(2,454)		(2,759)		-		(2,759)		(13)		(12)
Operating profit/(loss) .	(3,647)		4,076		(40)		389		472		(1,324)		(852)
Income from associates	21		-		(1)		20		68		-		68		224		240
Profit/(loss) before tax	(3,626)		4,076		(41)		409		540		(1,324)		(784)

For footnotes, see page 95.

 

END

 

 

IR UASARRKAWAAR