Interim Report - 5 of 28

RNS Number : 8821L

HSBC Holdings PLC

16 August 2013

 



Global businesses

	Page		Tables	Page
Portfolio repositioning ...........................................	44
Summary .................................................................	44		Profit/(loss) before tax .................................................	45
			Total assets ..................................................................	45
			Risk-weighted assets .....................................................	45
Selected items included in profit before tax by global business ...................................................................	45		Acquisitions, disposals and dilutions ............................	45
Retail Banking and Wealth Management ...........	46
Review of performance ..............................................	46		Analysis of RBWM profit before tax ..............................	47
Growth priorities ........................................................	48
Other strategic imperatives ........................................	48
Commercial Banking .............................................	49
Review of performance ..............................................	49		Management view of revenue .......................................	49
Growth priorities ........................................................	50
Global Banking and Markets ................................	52
Review of performance ..............................................	52		Management view of revenue .......................................	53
Growth priorities ........................................................	53
Global Private Banking .........................................	55
Review of performance ..............................................	55		Client assets .................................................................	55
Growth priorities ........................................................	56
Other ........................................................................	57
Notes .........................................................................	57
Analysis by global business ...................................	58		HSBC profit/(loss) before tax and balance sheet data ..	58

 

Portfolio repositioning

We have initiated a comprehensive programme to reposition our portfolios to better manage our business. We are reviewing our customer base and are establishing robust customer selection filters devised to ensure that we have sufficient controls and information flows in place so that we can be confident that we only do business with customers who meet the Group's criteria. This review will continue in the second half of the year and into 2014. Client selection is core to our growth strategy as we seek to generate long-term relationships and sustainable revenue streams within acceptable risk parameters. As we reposition our portfolios and become more focused in client selection, our balance sheet composition in terms of products and segments may also change.

Summary

HSBC reviews operating activity on a number of bases, including by geographical region and by global business.

The commentaries below present global businesses followed by geographical regions (page 61).

Performance is discussed in this order because certain strategic themes, business initiatives and trends affect more than one geographical region. All commentaries are on a constant currency basis (see page 18) unless stated otherwise.

Basis of preparation

The results of global businesses are presented in accordance with the accounting policies used in the preparation of HSBC's consolidated financial statements. Our operations are closely integrated and, accordingly, the presentation of global business data includes internal allocations of certain items of income and expense. These allocations include the costs of certain support services and global 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. Those costs which are not allocated to global businesses are included in 'Other'.

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.

Profit/(loss) before tax

					Half-year to
	30 June 2013				30 June 2012				31 December 2012
	US$m		%		US$m		%		US$m		%
Retail Banking and Wealth Management .....................	3,267		23.2		6,410		50.3		3,165		40.0
Commercial Banking ...................................................	4,133		29.4		4,429		34.8		4,106		51.9
Global Banking and Markets ........................................	5,723		40.7		5,047		39.6		3,473		43.9
Global Private Banking ................................................	108		0.8		527		4.1		482		6.1
Other52 ........................................................................	840		5.9		(3,676)		(28.8)		(3,314)		(41.9)
	14,071		100.0		12,737		100.0		7,912		100.0

Total assets⁵³

	At 30 June 2013				At 30 June 2012				At 31 December 2012
	US$m		%		US$m		%		US$m		%
Retail Banking and Wealth Management .....................	504,205		19.1		526,069		19.8		536,244		19.9
Commercial Banking ...................................................	350,503		13.2		351,157		13.2		363,659		13.5
Global Banking and Markets ........................................	1,992,770		75.3		1,905,455		71.8		1,942,470		72.1
Global Private Banking ...............................................	114,883		4.3		119,271		4.5		118,440		4.4
Other ..........................................................................	176,122		6.7		179,703		6.8		201,741		7.5
Intra-HSBC items ........................................................	(493,167)		(18.6)		(429,321)		(16.1)		(470,016)		(17.4)
	2,645,316		100.0		2,652,334		100.0		2,692,538		100.0

Risk-weighted assets

	At 30 June 2013				At 30 June 2012				At 31 December 2012
	US$bn		%		US$bn		%		US$bn		%
Retail Banking and Wealth Management .....................	243.4		22.0		298.7		25.7		276.6		24.6
Commercial Banking ...................................................	385.9		34.9		397.8		34.3		397.0		35.3
Global Banking and Markets ........................................	429.2		38.9		412.9		35.6		403.1		35.9
Global Private Banking ................................................	21.8		2.0		21.8		1.9		21.7		1.9
Other ...........................................................................	24.5		2.2		28.7		2.5		25.5		2.3
	1,104.8		100.0		1,159.9		100.0		1,123.9		100.0

 

Selected items included in profit before tax by global business

Acquisitions, disposals and dilutions⁵⁴

	Half-year to
	30 June		30 June		31 December
	2013		2012		2012
	US$m		US$m		US$m
Retail Banking and Wealth Management ......................................................	(73)		5,074		488
Commercial Banking ....................................................................................	2		418		449
Global Banking and Markets .........................................................................	(6)		224		269
Global Private Banking .................................................................................	-		56		(1)
Other ...........................................................................................................	1,089		133		2,974
	1,012		5,905		4,179

For footnotes, see page 100.

Retail Banking and Wealth Management

	RBWM provides banking and wealth management services for our personal customers to help them to manage their finances and protect and build their financial futures.
		Half-year to
		30 Jun		30 Jun		31 Dec
		2013		2012		2012
		US$m		US$m		US$m
	Net interest income ......	9,310		10,774		9,524
	Net fee income .............	3,586		3,760		3,445
	Other income/(expense)	393		4,781		1,577
	Net operating income22 ...................................	13,289		19,315		14,546
	LICs55 ...........................	(1,768)		(3,273)		(2,242)
	Net operating income	11,521		16,042		12,304
	Total operating expenses ...................................	(8,451)		(10,218)		(9,551)
	Operating profit ........	3,070		5,824		2,753
	Income from associates56 ...................................	197		586		412
	Profit before tax .........	3,267		6,410		3,165
	RoRWA49 .....................	2.5%		3.9%		2.2%
76% of profit before tax from faster-growing regions
Announced 9 new transactions in 2013
Emerging Markets Asset Manager of the Year (UK Pension Awards, 2013)
Strategic direction RBWM provides retail banking and wealth management services for personal customers in markets where we have, or can build, the scale to do so cost effectively. We focus on three growth priorities: ·  building a consistent, high standard, customer needs-driven wealth management service for retail customers drawing on our Insurance and Asset Management businesses; ·  leveraging global expertise to improve customer service and productivity, to provide a high standard of banking solutions and service to our customers efficiently; and ·  simplifying and re-shaping the RBWM portfolio of businesses globally, to focus our capital and resources on key markets. To support these imperatives, we have targeted growth in priority markets, deepening customer relationships and enhancing distribution capabilities. Implementing Global Standards, enhancing risk management control models and simplifying processes also remain top priorities for RBWM.
For footnotes, see page 100. The commentary is on a constant currency basis unless stated otherwise.

Review of performance

·     RBWM reported profit before tax of US$3.3bn compared with US$6.4bn in the first half of 2012 on both a reported and constant currency basis. This decrease was driven by the non-recurrence of the gains on sale of the CRS business and US branches of US$3.6bn and the absence of profits from non-strategic businesses sold or closed in 2012, including our investment in Ping An.

·     On an underlying basis, profit before tax increased by US$2.0bn, driven by lower loan impairment charges in the US run-off portfolio which reflected the decline in lending balances, improvements in housing market conditions and improved delinquency levels. In addition, operating expenses declined, driven by lower customer redress provisions in the UK.

·     Loss before tax in the US run-off portfolio decreased, due to lower loan impairment charges. This was partly offset by higher operating expenses due to a customer remediation provision related to our former CRS business. Revenue reduced, driven by the loss on sale of the non-real estate portfolio and insurance business and losses arising from the early termination of qualifying accounting hedges, partly offset by favourable movements in the fair value of non-qualifying hedges in HSBC Finance of US$263m, compared with adverse movements of US$217m in the first half of 2012.

·     Profit before tax in RBWM excluding the CRS business and the US run-off portfolio ('the Rest of RBWM') grew by US$44m, mainly driven by a decrease in operating expenses which reflected lower customer redress provisions in the UK and sustainable cost savings resulting from our organisational effectiveness programmes and portfolio management activities. This was partly offset by a significant decline in our share of profit from associates following the sale of our investment in Ping An.

·     Revenue in the Rest of RBWM declined by 6%, reflecting lower net gains on sale of our non-strategic operations (most notably the US branches) and various Insurance manufacturing businesses, the loss on sale of an HFC Bank UK secured lending portfolio, and the consequent reduction in operating revenue. Excluding the items above, revenue grew by over 2%, reflecting improved performance in Hong Kong and Europe.

·    

Analysis of Retail Banking and Wealth Management profit before tax

	RBWM		US CRS business		US run-off portfolio		Rest of RBWM
	US$m		US$m		US$m		US$m
Half-year to 30 June 2013
Net interest income...........................................................	9,310		-		1,151		8,159
Net fee income/(expense) .................................................	3,586		-		(3)		3,589
Other income/(expense) ...................................................	393		-		(355)		748
Net operating income22 .................................................	13,289		-		793		12,496
LICs55 ...............................................................................	(1,768)		-		(396)		(1,372)
Net operating income ...................................................	11,521		-		397		11,124
Total operating expenses...................................................	(8,451)		-		(631)		(7,820)
Operating profit/(loss)...................................................	3,070		-		(234)		3,304
Income from associates56 ..................................................	197		-		-		197
Profit/(loss) before tax ..................................................	3,267		-		(234)		3,501
RoRWA49 .........................................................................	2.5%		-		(0.5%)		4.5%
Half-year to 30 June 2012
Net interest income...........................................................	10,774		1,267		1,278		8,229
Net fee income/(expense) .................................................	3,760		409		(9)		3,360
Other income/(expense) ...................................................	4,781		3,155		(269)		1,895
Net operating income22 .....................................................	19,315		4,831		1,000		13,484
LICs55 ...............................................................................	(3,273)		(322)		(1,577)		(1,374)
Net operating income/(expense) .......................................	16,042		4,509		(577)		12,110
Total operating expenses...................................................	(10,218)		(593)		(384)		(9,241)
Operating profit/(loss).......................................................	5,824		3,916		(961)		2,869
Income from associates56 ..................................................	586		-		-		586
Profit/(loss) before tax .....................................................	6,410		3,916		(961)		3,455
RoRWA49 .........................................................................	3.9%		21.1%		(1.5%)		4.1%
Half-year to 31 December 2012
Net interest income ..........................................................	9,524		-		1,285		8,239
Net fee income/(expense) .................................................	3,445		(14)		42		3,417
Other income ...................................................................	1,577		-		69		1,508
Net operating income/(expense)22 .....................................	14,546		(14)		1,396		13,164
LICs55 ...............................................................................	(2,242)		-		(992)		(1,250)
Net operating income/(expense) .......................................	12,304		(14)		404		11,914
Total operating expenses...................................................	(9,551)		(136)		(719)		(8,696)
Operating profit/(loss).......................................................	2,753		(150)		(315)		3,218
Income from associates56 ..................................................	412		-		2		410
Profit/(loss) before tax .....................................................	3,165		(150)		(313)		3,628
RoRWA49 .........................................................................	2.2%		3.4%		(0.5%)		4.4%

·     Net interest income in the Rest of RBWM increased by 1%despite the absence of US$215m of net interest income relating to businesses that were disposed of or closed in 2012. The increase from on-going businesses was driven by improved mortgage spreads and growth in mortgage balances in Hong Kong and the UK. In Hong Kong, the increase in net interest income was also driven by growth in the insurance debt securities portfolio. Average deposit balances increased, particularly in the UK and Hong Kong, though the benefit was more than offset by deposit spread compression, particularly in Hong Kong, reflecting the sustained low interest rate environment.

·     Net fee income in the Rest of RBWM grew by 8%, primarily due to higher investment product sales in Hong Kong, mainly in unit trusts and retail brokerage driven by favourable market sentiment and strong customer demand, higher foreign exchange income and higher asset management fees reflecting growth in average assets under management in Hong Kong and the US.

·     Other income in the Rest of RBWM declined by US$1.1bn from the portfolio rationalisations and other items described above. Revenue relating to the on-going business declined by US$245m driven by lower insurance revenue reflecting less favourable movements in the PVIF asset.

·     LICs in the Rest of RBWM increased by 4%, driven by Latin America, particularly Mexico, reflecting the non-recurrence of a provision release in the first half of 2012, higher lending balances and a revision to the assumptions used in our collective assessment models in the first half of 2013. In Brazil, higher collective provisions arising on restructured loans as a result of impairment model changes and assumption revisions were largely offset by an improvement in the quality of the portfolio following the modification of credit strategies in previous periods to mitigate rising delinquency rates. In Europe, LICs decreased marginally, mainly in the UK, partly offset by an increase in Turkey reflecting higher credit card balances due to business expansion.

·     Operating expenses in the Rest of RBWM decreased by US$1.2bn, mainly as a result of lower customer redress provisions in the UK of US$412m compared with US$1.1bn in the first half of 2012, sustainable cost savings of over US$150m resulting from organisational effectiveness programmes, and the disposals and run-off of businesses in 2012 and 2013. In addition, we reported an accounting gain of US$189m relating to changes in delivering ill‑health benefits to certain employees in the UK. These were partly offset by higher staff costs in Latin America and Hong Kong due, in part, to inflationary pressures and higher premises costs, mainly in Hong Kong.

·     Share of profit from associates and joint ventures decreased following the disposal of our investment in Ping An in December 2012.

Growth priorities

Growth in priority markets

·     Growth of our Premier franchise is a key priority. We provide our customers with exclusive access to an enhanced suite of wealth management products and HSBC's global market intelligence. We are progressing the roll-out of enhanced Relationship Manager ('RM') coverage to select customers, with a planned launch in six markets by the end of the year.

Deepen customer relationships

·     The new Global Wealth Incentive Plan aims to improve customer service and deepen client relationships, measuring all Wealth RMs on activities that improve customer experience while reinforcing the requirement for sales quality and suitability.

·     Further growth depends on our ability to deepen customer relationships and acquire new wealth management mandates in faster‑growing markets. Wealth management revenue increased by US$74m, driven by Hong Kong. This growth was supported by an increase in total relationship balances, mainly in Hong Kong, but also in Europe, Rest of Asia-Pacific and Middle East and North Africa.

Distribution

·     Digital distribution is key for the business. We launched a new mobile banking application which is currently live in 12 markets and will be in 26 markets by the end of the year. The RM Platform, a system that the RMs use to manage their day to day client relationships, was released in 11 countries and will be launched in a further two markets by the end of 2013. The Client Wealth Dashboard was rolled out in Taiwan, Singapore and the UAE with another seven markets expected to follow this year.

Other strategic imperatives

·     We continued to focus on business transformation in order to improve customer service and productivity. We are rationalising our internet banking platforms and continue to review our product range to simplify and standardise our offering to optimise customer choice and increase efficiencies. We recently completed a customer focused redesign of the UK mortgage process which isnow being rolled out in mainland China with a planned extension to other priority markets including France and Brazil during 2013.

·     During the first half of 2013, we continued the portfolio rationalisation programme, announcing nine new closures or disposals, including that of our operations in Panama. We also completed 10 transactions in the period, which resulted in an overall reduction in RWAs of more than US$9bn.

Commercial Banking

CMB offers a full range of commercial financial services and tailored solutions to over three million customers ranging from small and medium-sized enterprises to publicly quoted companies in more than 60 countries.
	Half-year to
	30 Jun		30 Jun		31 Dec
	2013		2012		2012
	US$m		US$m		US$m
Net interest income ......	5,050		5,144		5,217
Net fee income .............	2,337		2,224		2,246
Other income ................	476		885		835
Net operating income22 ...................................	7,863		8,253		8,298
LICs55 ...........................	(1,160)		(924)		(1,175)
Net operating income	6,703		7,329		7,123
Total operating expenses ...................................	(3,337)		(3,736)		(3,862)
Operating profit ........	3,366		3,593		3,261
Income from associates56 ...................................	767		836		845
Profit before tax .........	4,133		4,429		4,106
RoRWA49 .....................	2.2%		2.3%		2.0%
Double-digit lending growth in Global Trade and Receivables Finance
Best Transaction Banking House (Euromoney Awards for Excellence 2013)
Continued strong performance in Hong Kong with lending growth of 13%
Strategic direction CMB aims to be the banking partner of choice for international businesses by building on our rich heritage, international capabilities and relationships to enable connectivity and support trade and capital flows around the world, thereby strengthening our leading position in international business and trade. We have three growth priorities: ·  grow coverage in faster growing markets; ·  drive revenue growth through our international network; and ·  grow collaboration revenues. Implementing Global Standards, enhancing risk management controls models and simplifying processes also remain top priorities for CMB.
For footnotes, see page 100. The commentary is on a constant currency basis unless stated otherwise.

Review of performance

·     In the first half of 2013, CMB reported a profit before tax of US$4.1bn, 7% lower than in the same period in 2012. On a constant currency basis, profit before tax decreased by 6%, largely due to the effect of the disposal of US branches in 2012 and lower profit from associates following the reclassification of Industrial Bank from an associate to a financial investment in 2013.

·     On an underlying basis, profit before tax increased by 4% as higher revenues, lower operating expenses and increased income from associates were partly offset by higher loan impairment charges.

·     Revenuedecreased by 3% due to the effect of business disposals in 2012. Underlying revenue was 1% higher than in the first half of 2012. Net interest income increased marginally as growth in average customer loans and deposits was largely offset by spread compression. Revenue also benefited from collaboration with other global businesses, particularly with GB&M in Hong Kong, and increased lending fees.

Management view of revenue

	Half-year to
	30 Jun       2013		30 Jun       2012		31 Dec       2012
	US$m		US$m		US$m
Global Trade and Receivables Finance	1,459		1,482		1,486
Credit and Lending ......	3,008		3,057		3,189
Payments and Cash Management, current accounts and savings deposits ...................	2,579		2,651		2,718
Insurance and investments ............	326		374		353
Other ..........................	491		689		552
Net operating income22	7,863		8,253		8,298

For footnote, see page 100.

·     Global Trade and Receivables Finance revenue remained broadly unchanged compared with the first half of 2012. Despite a slowdown in global trade growth in the first half of 2013, Global Trade and Receivables Finance assets continued to grow strongly, driven by client demand for export and import lending, notably in Hong Kong and Rest of Asia-Pacific. However, the benefit of lending growth was largely offset by spread compression, particularly in Hong Kong and Latin America, reflecting competition and increased liquidity in the markets.

·     Similarly, Credit and Lending revenue remained largely unchanged, as higher average balances were broadly offset by spread compression. Growth in average lending balances continued, particularly in our home markets of the UK and Hong Kong, despite the rising number of corporate bond issuances in the market.

·     Payments and Cash Management revenue marginally declined compared with the first half of 2012. Revenue grew from new mandates and transaction volumes, supported by our focus on international customers. This growth was largely offset by the effect of business disposals in 2012 and a challenging interest rate environment.

·     The movement in 'Other' reflects the gains on business disposals recorded in the first half of 2012.

·     LICs increased by 30% compared with the first half of 2012 as we recorded higher individually assessed provisions in Latin America, Europe and North America partly offset by lower individually assessed provisions in Rest of Asia‑Pacific. In Latin America, collective impairments also rose mainly due to impairment model changes and assumption revisions for restructured loans in our Business Banking portfolios in Brazil.

·     Operating expenses declined by 9%, mainly due to an accounting gain relating to changes in delivering ill-health benefits in the UK in the first half of 2013 and the non-recurrence of charges relating to UK customer redress in Europe in the first half of 2012. Excluding these items, costs marginally decreased. In the first half of 2013, we generated over US$40m of sustainable savings through process re-engineering and organisational effectiveness programmes, allowing us to reinvest in growth initiatives and the implementation of Global Standards. Examples of this included simplifying the cross-border account opening and credit renewal processes, and moving customers to the single channel HSBCnet with the aim of demising 11 local Business Internet Banking systems by the end of 2013.

·     Income from associates fell by 9% reflecting the reclassification of Industrial Bank as a financial investment and the disposal of our investment in Ping An. Excluding these, income from associates rose, driven by balance sheet growth and increased fee income in BoCom partly offset by higher operating expenses and a rise in loan impairment charges.

Growth priorities

Grow coverage in faster‑growing markets

·      In the first half of 2013, revenues from faster‑growing regions represented 55% of CMB's total revenue. CMB's top 20 markets contributed over 94% of our profit before tax in the period, of which 60% was generated from faster-growing regions.

Drive revenue growth through our international network

·     We have been successful in capturing international revenue growth opportunities. Overall cross-border revenues grew strongly, particularly revenues from the overseas operations of our mainland Chinese corporate customers. We continue to position HSBC as the leading international bank for renminbi ('RMB') business completing several high-profile deals in the first half of 2013.

·     We extended the International Relationship Managers'('IRM') programme into Hong Kong by adding 47 IRMs to focus on high value international customers, and will be launching the programme to a number of sites in the second half of 2013. We also launched an additional international SME fund in the UK of £5.0bn (US$7.7bn) to support UK businesses that trade, or aspire to trade, internationally. Similarly, in France and Mexico, we launched SME funds of €1.0bn (US$1.3bn) and MXN13bn (US$1.0bn), respectively, targeted at international customers.

·     In Corporate Banking, we have built on the success of our key hubs strategy to include the development of industry-focused units that enable intelligence sharing across our teams and our international customer base. The number of Corporate customers who generate revenue in two or more countries increased compared with the first half of 2012.

Grow collaboration revenues

·     Collaboration with global businesses generated revenue of around US$2bn for the Group, an increase of 5% compared with the first half of 2012. We continued to work closely with GB&M to provide our clients access to relevant products. This resulted in a rise in gross revenues of 9% which are shared between the two global businesses compared with the first half of 2012 particularly in Foreign Exchange and in debt capital markets, where gross revenue almost doubled. For example, in Hong Kong, the number of deals executed tripled.

·     Recruitment of around 100 additional full‑time equivalent ('FTE') staff is underway to drive growth in the sale of Global Markets products. In addition, we have increased the number of Specialised Finance units within priority countries to facilitate further collaboration opportunities with GB&M.

·     We continued to make Global Trade and Receivables Finance products increasingly available to GB&M clients as we established Key Account Management teams to strengthen our client coverage. We also expanded our Commodities and Structured Trade Finance offering in Latin America and in the Middle East and North Africa. Our new strategic Supply Chain Solutions platform was launched in London and Hong Kong, allowing CMB to serve global clients in a more consistent way.

Global Banking and Markets

GB&M provides tailored financial solutions to major government, corporate and institutional clients worldwide.
	Half-year to
	30 Jun		30 Jun		31 Dec
	2013		2012		2012
	US$m		US$m		US$m
Net interest income ......	3,334		3,625		3,335
Net fee income .............	1,818		1,598		1,731
Net trading income57 .....	5,606		3,735		1,955
Other income/(expense)	(96)		1,377		917
Net operating income22 ...................................	10,662		10,335		7,938
LICs55 ...........................	(174)		(598)		(72)
Net operating income	10,488		9,737		7,866
Total operating expenses ...................................	(5,007)		(5,073)		(4,834)
Operating profit ........	5,481		4,664		3,032
Income from associates56 ...................................	242		383		441
Profit before tax .........	5,723		5,047		3,473
RoRWA49 .....................	2.8%		2.4%		1.7%
Strong client flows in Credit and Foreign Exchange
Best Global Emerging Market Investment Bank (Euromoney Awards for Excellence, 2013)
Best Overall Primary Debt Provider and, for the 3rd consecutive year, Best Coverage Team (Euromoney Primary Debt Survey, 2013)
Strategic direction GB&M continues to pursue its well established 'emerging markets-led and financing-focused' strategy, with the objective of being a 'Top 5' bank to our priority clients. This strategy has evolved to include a greater emphasis on connectivity between the global businesses, and within GB&M, utilising the Group's extensive distribution network. We focus on four growth priorities: ·    leveraging our distinctive geographical network which connects developed and faster-growing regions; ·    connecting clients to global growth opportunities; ·    continuing to be well positioned in products that will benefit from global trends; and ·    enhancing collaboration with other global businesses to appropriately service the needs of our international client base. Implementing Global Standards, enhancing risk management controls and simplifying processes also remain top priorities for GB&M.

For footnotes, see page 100.

The commentary is on a constant currency basis unless stated otherwise.
Review of performance

·     GB&M reported profit before tax of US$5.7bn, 13% higher than in the first half of 2012. On a constant currency basis, profit before tax increased by 15%. This was driven by higher revenue, including a favourable DVA (see page 28), and lower impairment charges.

·     Revenue rose by 4% with growth in most of our businesses. Revenue in Credit increased, in part due to strong demand as clients sought to raise funding in the capital markets, along with reserve releases, compared with charges in the first half of 2012 and revaluation gains in the legacy portfolio. Foreign Exchange reported higher revenue as client volumes increased while our Credit and Lending business within Financing and Equity Capital Markets benefited from higher spreads and reduced funding costs compared with the same period in 2012. As expected, Balance Sheet Management revenue declined as proceeds from the sale and maturity of investments were reinvested at lower prevailing rates. While our Rates business reported a resilient performance, particularly in the first quarter, revenue declined compared with the first half of 2012 which benefited from central bank intervention. We reported favourable fair value movements from own credit spreads on structured liabilities of US$4m, compared with reported adverse fair value movements of US$330m in the comparable period of 2012.

·     LICs decreased by US$414m. Credit risk provisions declined, driven by net releases on available-for-sale ABSs in our legacy portfolio compared with charges in the first half of 2012. As a result, the available-for-sale ABS reserve decreased from a negative balance of US$2.2bn as reported at 31 December 2012 to a negative balance of US$2.0bn at 30 June 2013. The decline in LICs also resulted from the non‑recurrence of impairments on certain available-for-sale debt securities in Principal Investments. In addition, loan impairment charges fell due to lower individually assessed provisions in Global Banking and in the legacy Credit loans and receivables portfolio.

·     Operating expenses remained broadly unchanged as reduction in performance-related costs and an accounting gain of US$81m relating to changes in delivering employee ill-health benefits to certain employees in the UK, were largely offset by higher litigation‑related costs.

Management view of revenue⁵⁸

	Half-year to
	30 Jun       2013		30 Jun       2012		31 Dec       2012
	US$m		US$m		US$m
Global Markets59 ...........	5,329		5,314		3,379
Credit ........................	670		370		409
Rates .........................	1,236		1,805		(34)
Foreign Exchange ......	1,833		1,733		1,482
Equities .....................	531		396		283
Securities Services ......	847		798		825
Asset and Structured Finance .................	212		212		414
Global Banking ..............	2,847		2,583		2,581
Financing and Equity Capital Markets .....	1,609		1,356		1,375
Payments and Cash Management .........	862		842		838
Other transaction services .................	376		385		368
Balance Sheet Management .............	1,680		2,206		1,532
Principal Investments ...	154		147		(22)
Debit valuation adjustment .................	451		-		518
Other60 .........................	201		85		(50)
Net operating income22 .	10,662		10,335		7,938

Balance Sheet Management revenues included a notional tax credit on income earned from tax-exempt investments of US$53m in the first half of 2013 (first half of 2012: US$59m; second half of 2012: US$57m), which is offset above within 'Other'. The above table reflects the management structure of GB&M prior to the organisational restructure, effective from the second half of 2013.

For footnotes, see page 100.

·     We continue to actively identify savings and simplify our business model, and delivered a further US$50m of sustainable savings in the first half of 2013.

·     Income from associates was lower, due to the reclassification of Industrial Bank as a financial investment.

·     Global Markets reported revenue in excess of US$5.3bn. Building on the momentum achieved in 2012, we earned record half‑year revenue from primary market issuances, mainly reported in Credit, with notable increases in Europe and Hong Kong. Additionally, trading revenue increased from strong volumes in our corporate debt securities portfolio in Europe, together with revaluation gains on securities in North America. Legacy credit revenue also rose as noted above. Equities revenue increased, reflecting higher equity derivatives income driven by strong client flows and larger market share in Asia, favourable fair value movements on certain assets and minimal fair value movements on structured liabilities compared with adverse fair value movements in the first half of 2012.

·     Foreign Exchange income rose due to increased client volumes which benefited from our improved electronic pricing and distribution capabilities, and our continuing collaboration with CMB. However, the benefit was partly offset by margin compression as a result of heightened competition.

·     As noted above, Rates revenue was lower as the first half of 2012 benefited from the significant tightening of spreads on eurozone bonds following the ECB's Long‑Term Refinancing Operation. In the current period, a strong first quarter performance was partly offset in the second quarter by more volatile market conditions as a result of expectations that the scale of government repurchase schemes and quantitative easing measures may be reduced.

·     Global Banking revenue increased in most regions from higher spreads and reduced funding costs than in the same period last year in our Credit and Lending business reported within Financing and Equity Capital Markets. Average lending balances remained stable despite some clients seeking funding from debt capital markets. Event-driven fee income in our underwriting and project finance businesses also increased. In addition, we reported gains on sale of equity positions, compared with losses on syndicated loans in the comparable period in the previous year.

·     Balance Sheet Management revenue declined by US$494m. Net interest income was adversely affected by reinvestment at prevailing rates while gains on the disposal of available-for-sale debt securities fell, notably in Europe, although partly offset by higher disposal gains in North America.

Growth priorities

Leveraging our distinctive geographical network which connects developed and faster-growing regions

·     We continue to leverage our distinctive international network and business model. For example, we provided advisory services to multinational corporates, helping them enhance their stakes in locally-listed subsidiaries in India. With operations in around 60 markets which connect developed and faster-growing regions, we are competitively positioned to service the needs of our multinational clients.

Connecting clients to global growth opportunities

·     Our product expertise and balance sheet strength enable us to connect our diversified client base to global growth opportunities. A number of recent event-driven transactions and new mandates demonstrated our ability to deliver services across the GB&M product suite, particularly in those areas geared towards growth opportunities.

Continuing to be well positioned in products that will benefit from global trends

·     We have invested with the aim of ensuring we are well positioned to benefit from global growth trends. With RMB internationalisation a key area of focus, we are developing new capabilities within this growing market. In Payments and Cash Management, for example, we implemented an innovative cross-border RMB payments and collections product. In addition to reducing foreign exchange exposure, this provided a centralised approach to cash management and reduced intra-group settlement flows between mainland Chinese subsidiaries and their overseas parent companies. Our position as a leading international bank for RMB products and services was recognised in the 2013 Asiamoney Offshore RMB services survey which named us 'Best Provider of Offshore RMB Products and Services' for the second consecutive year.

·    
In debt capital markets, we captured growth in issuance demand, facilitating a broader and more diverse source of funding for our customers. We recognised the transition from traditional sources of funding towards debt capital financing, which resulted in us assuming leading positions in euro, sterling, emerging and Asia-Pacific (excluding Japan) markets. Investment in enhancing our product offerings in e-FX platforms also contributed to a strong performance in the Euromoney 2013 FX Poll, with HSBC volumes rising by 11% and our market share also increasing.

Enhancing collaboration with other global businesses to appropriately service the needs of our customers

·     We continued to enhance our collaborative efforts with other global business partners to better meet the needs of our customers across the Group. The sale of GB&M products to CMB clients generated gross revenues which are shared between the two global businesses. These revenues increased by 9%, compared with the first half of 2012, particularly within Foreign Exchange due to strong customer flows. Revenue from debt capital markets also increased, mainly in Hong Kong, as the number of transactions executed for CMB clients tripled. Revenue in our project and export finance business also increased.

Global Private Banking

GPB serves high net worth individuals and families with complex and international financial needs. We manage and preserve their wealth while connecting them to global opportunities.
	Half-year to
	30 Jun		30 Jun		31 Dec
	2013		2012		2012
	US$m		US$m		US$m
Net interest income ......	575		672		622
Net fee income .............	602		625		607
Other income/(expense)	(26)		344		302
Net operating income22 ...................................	1,151		1,641		1,531
LICs55 ...........................	(14)		(4)		(23)
Net operating income	1,137		1,637		1,508
Total operating expenses ...................................	(1,035)		(1,113)		(1,030)
Operating profit ........	102		524		478
Income from associates56 ...................................	6		3		4
Profit before tax .........	108		527		482
RoRWA49 .....................	1.0%		4.7%		4.4%
Continued progress on repositioning our business with a focus on priority markets
US$2.8bn of net new money from intra-Group referrals
Best Private Bank in Hong Kong (Private Banker International Greater China Awards)
Strategic direction GPB aims to build on HSBC's commercial banking heritage to be the leading private bank for high net worth business owners. We have two growth priorities: ·  repositioning the business to concentrate on home and priority markets, particularly onshore, aligned with Group priorities; and ·  capturing growth opportunities from Group collaboration, particularly by accessing owners and principals of CMB and GB&M clients. Implementing Global Standards, enhancing risk management controls, tax transparency and simplifying processes also remain top priorities for GPB.

For footnotes, see page 100.

The commentary is on a constant currency basis unless stated otherwise.

Review of performance

·     Reported profit before tax of US$108m was US$419m lower than in the first half of 2012 and US$405m lower on a constant currency basis.

·     On an underlying basis, which excludes the gain on the sale of our operations in Japan in 2012 of US$67m and associated operating results, profit before tax was US$349m lower as a result of reduced revenue, primarily due to the loss following the reclassification of our Monaco business to 'held for sale' (see also Note 25 on the Financial Statements) partly offset by decreased operating expenses.

·      Revenue declined by 29%, primarily due to the loss following reclassification to 'held for sale' and the sale of our operations in Japan in the first half of 2012, as noted above. Net interest income fell as higher yielding positions matured and opportunities for reinvestment were limited by lower prevailing yields. Narrower lending and deposit spreads coupled with a decline in average deposit balances contributed to the fall in net interest income. Brokerage fees also decreased, reflecting a reduction in client transaction volumes, in part due to lower volatility, and fewer large deals.

·     Operating expenses decreased by 7%, primarily due to a managed reduction in average staff numbers in both front and back office, lower restructuring and other related cost, reduced performance costs and the non-recurrence of a customer redress provision in June 2012. These factors were partly offset by an operational risk provision and a provision relating to our obligations under the UK Rubik agreement, a bilateral tax agreement between the UK and Swiss governments. We also delivered further sustainable savings of approximately US$35m in the first half of 2013.

Client assets⁶¹

	Half-year to
	30 Jun         2013		30 Jun         2012		31 Dec         2012
	US$bn		US$bn		US$bn
At beginning of period .............................	398		377		375
Net new money ......	(10)		(2)		(5)
Value change ...........	-		4		13
Exchange/other ......	(2)		(4)		15
At end of period .....	386		375		398

For footnote, see page 100.

·      Client assets, which include funds under management and cash deposits, have decreased by US$11.5bn since December 2012 due to negative net new money and adverse foreign exchange movements. Negative net new money was mainly affected by the adoption of new compliance and tax transparency standards as well as actions taken to reposition our client base towards higher net worth relationships. Negative net new money was also affected by a large number of client withdrawals, notably in Switzerland. However, we attracted positive net new money of US$3.0bn from clients in Asia.

·     Our return on assets, defined as the percentage of revenue to average client assets, was 57bps in the first half of 2013 compared with 83bps in the same period in 2012 and 77bps in the second half of 2012. This was primarily due to the loss following reclassification to 'held for sale' noted above and the non‑recurrence of the gain on the sale of our operations in Japan in 2012 which negatively affected the return on assets by 17bps. The fall in net interest income and the decline in brokerage fees also contributed to the reduction in our return on assets.

Growth priorities

Repositioning the business

·     The repositioning of GPB that commenced in 2012 has been accelerated, focusing on home and priority growth markets where wealth creation is strong and where our Group presence can be leveraged. On 24 June 2013, we decided to withdraw from our private banking activities and private banking-related fund businesses which are wholly‑owned Luxembourg subsidiaries of HSBC Trinkaus & Burkhardt AG. Subsequently, on 14 July 2013 we entered into an agreement to sell these
businesses and the transaction is expected to complete towards the end of this year. We also conducted a review of our operations in Monaco following receipt of unsolicited expressions of interest in this business. This review was completed in July and a decision was made to retain the business.

·     We have focused on growing domestic private banking, supplemented with a transparent international business operating from key hubs. We have also applied a disciplined client segmentation approach to focus on high net worth and ultra-high net worth segments.

Capturing growth opportunities

·     We have captured growth from collaboration with other global businesses, and the resulting referral flows generated net new money of US$2.8bn, US$0.7bn higher than in the first half of 2012. Collaboration with CMB strengthened, and the framework is being enhanced with a defined coverage model, and improved reporting in order to identify further opportunities and achieve further benefits in the second half of the year. Opportunities to share products and platforms with RBWM have been identified, including digital capabilities, which enable us to better meet client needs.

·     We continued to enhance our product offering to clients through the strengthening of the Alternatives platform, with five product launches concluded in the first half of 2013, comprising two private equity funds, two real estate club deals and a fund of hedge funds. We also continued to enhance our front office systems with the roll-out of Global Vision in the UK and improvements to Global Client Relationship Management in the UK and the US.

Other⁵²

'Other' contains the results of HSBC's holding company and financing operations, central support and functional costs with associated recoveries, unallocated investment activities, centrally held investment companies, certain property transactions and movements in fair value of own debt.
	Half-year to
	30 Jun		30 Jun		31 Dec
	2013		2012		2012
	US$m		US$m		US$m
Net interest expense .........	(376)		(464)		(266)
Net fee income	61		100		94
Net trading expense57 ......	(169)		(205)		(332)
Changes in fair value of long-term debt issued and related derivatives ....	(1,419)		(1,810)		(2,517)
Changes in other financial instruments designated at fair value ......	957		(465)		(671)
Net expense from financial instruments designated at fair value .......	(462)		(2,275)		(3,188)
Other income ..	5,096		3,182		5,686
Net operating income22 ......	4,150		338		1,994
Total operating expenses .......	(3,312)		(4,049)		(5,320)
Operating profit/(loss) .	838		(3,711)		(3,326)
Income from associates56 ...	2		35		12
Profit/(loss) before tax ....	840		(3,676)		(3,314)

For footnotes, see page 100.

The commentary is on a constant currency basis unless stated otherwise.

Notes

·     Reported profit before tax of US$840m compared with a loss of US$3.7bn in the first half of 2012 on both a reported and a constant currency basis.

·     On an underlying basis, a pre-tax loss of US$230m compared with the loss of US$1.6bn in the first half of 2012. This was driven by the non-recurrence of a provision for US anti-
money laundering, BSA and OFAC investigations of US$700m in the first half of 2012. In addition, we recognised a net gain on completion of the disposal of our investment in Ping An of US$553m together with foreign exchange gains of US$442m relating to sterling debt issued by HSBC Holdings.

·     Net trading expense decreased by 18%. In addition to the foreign exchange gains noted above, there were favourable fair value movements on non-qualifying hedges, notably in Europe, mainly related to cross-currency swaps used to economically hedge fixed rate long-term debt compared with adverse movements in the first half of 2012. This was partly offset by adverse fair value movements of US$682m on the contingent forward sale contract relating to Ping An.

·     Net expense from financial instruments designated at fair valuereduced by US$1.8bn. We reported minimal movements on the fair value of our own debt, compared with adverse movements of US$2.2bn in the first half of 2012, notably in Europe and North America. Excluding this, net expense increased due to higher adverse fair value movements from interest and exchange rate ineffectiveness in the hedging of long-term debt designated at fair value issued principally by HSBC Holdings and its European subsidiaries, compared with the first half of 2012.

·     Gains less losses from financial investments increased by US$909m, driven by a gain of US$1.2bn on disposal of our investment in Ping An, partly offset by the non‑recurrence of gains from the sale of our shares in two Indian banks in the first half of 2012.

·     Other operating income increased by US$1.0bn, driven by an accounting gain of US$1.1bn arising from the reclassification of Industrial Bank as a financial investment following its issue of additional share capital to third parties.

·     Operating expenses reduced by US$713m, mainly from the non-recurrence of the US fines and penalties, as noted above.

 

END

 

 

IR UNSKRORAWARR