Annual Financial Report - 37 of 41

RNS Number : 8711D
HSBC Holdings PLC
30 March 2011
 



25    Property, plant and equipment


  Freehold  land and buildings


        Long leasehold  land and buildings


       Short

leasehold

  land and

buildings1


Equipment,

   fixtures

            and fittings2


Equipment

             on

operating

      leases


        Total3


       US$m


       US$m


       US$m


       US$m


       US$m


       US$m

Cost or fair value












At 1 January 2010 .....................................

3,915


1,327


3,135


11,552


5,236


25,165

Additions at cost4 ......................................

349


76


632


1,456


65


2,578

Fair value adjustments ...............................

31


24


38


-


-


93

Disposals5 ..................................................

(307)


(8)


(82)


(355)


(5,113)


(5,865)

Reclassified to held for sale ........................

(73)


(16)


(3)


(35)


-


(127)

Transfers ...................................................

(47)


(147)


199


(5)


-


-

Exchange differences .................................

(47)


(5)


(17)


(62)


(135)


(266)

Other changes ...........................................

131


422


102


(22)


-


633













At 31 December 2010 ...............................

3,952


1,673


4,004


12,529


53


22,211













Accumulated depreciation and impairment












At 1 January 2010 .....................................

(450)


(229)


(1,065)


(7,743)


(1,876)


(11,363)

Depreciation charge for the year ...............

(91)


(46)


(203)


(1,178)


(150)


(1,668)

Disposals5 ..................................................

31


-


68


344


1,956


2,399

Reclassified (from)/to held for sale ............

24


-


1


26


-


51

Transfers ...................................................

23


20


(43)


-


-


-

Impairment losses recognised ....................

(22)


-


1


(24)


-


(45)

Exchange differences .................................

5


2


5


54


45


111

Other changes ...........................................

(106)


(54)


(32)


15


2


(175)













At 31 December 2010 ...............................

(586)


(307)


(1,268)


(8,506)


(23)


(10,690)













Net carrying amount at 31 December 2010 ...............................................................

3,366


1,366


2,736


4,023


30


11,521













Cost or fair value












At 1 January 2009 .....................................

4,126


1,736


2,924


10,320


4,547


23,653

Additions at cost4 ......................................

344


35


179


1,253


299


2,110

Acquisition of subsidiaries ..........................

-


-


15


7


-


22

Fair value adjustments ...............................

(58)


16


18


-


-


(24)

Disposals ...................................................

(201)


(510)


(98)


(640)


(117)


(1,566)

Reclassified to held for sale ........................

(697)


-


(20)


(63)


-


(780)

Transfers ...................................................

-


(2)


2


-


-


-

Exchange differences .................................

342


62


90


737


507


1,738

Other changes ...........................................

59


(10)


25


(62)


-


12













At 31 December 2009 ...............................

3,915


1,327


3,135


11,552


5,236


25,165













Accumulated depreciation and impairment












At 1 January 2009 .....................................

(368)


(228)


(886)


(6,614)


(1,532)


(9,628)

Depreciation charge for the year ...............

(82)


(44)


(193)


(1,160)


(169)


(1,648)

Disposals ...................................................

39


46


90


495


(4)


666

Reclassified to held for sale ........................

46


-


3


30


-


79

Impairment losses recognised ....................

(30)


(1)


(26)


(20)


-


(77)

Exchange differences .................................

(25)


(7)


(42)


(496)


(173)


(743)

Other changes ...........................................

(30)


5


(11)


22


2


(12)













At 31 December 2009 ...............................

(450)


(229)


(1,065)


(7,743)


(1,876)


(11,363)













Net carrying amount at 31 December 2009 ...............................................................

3,465


1,098


2,070


3,809


3,360


13,802

Including assets held on finance leases with a net book value of US$11m (2009: US$18m).

Including assets held on finance leases with a net book value of US$204m (2009: US$513m).

3  Including assets with a net book value of US$31m (2009: US$36m) pledged as security for liabilities.

4  At 31 December 2010, HSBC had US$593m (2009: US$878m) of contractual commitments to acquire property, plant and equipment.

5  The disposals included under 'Equipment on operating leases' relate to the sale of a subsidiary, Eversholt Rail Group, during the year.

Leasehold land and buildings

Leasehold land and buildings are considered to be held under finance lease contracts where the value of the land cannot reliably be separated from the value of the lease and the respective contracts do not meet the criteria for classification as operating leases. Included within 'Short leasehold land and buildings' are the following amounts in respect of assets classed as improvements to buildings, which are carried at depreciated historical cost:

Leasehold land and buildings


2010


2009


               Cost


Accumulated  depreciation

 

                Cost


    Accumulated
    depreciation


             US$m


             US$m

 

              US$m


              US$m









At 1 January ......................................................................

1,824


(831)


1,621


(675)

Additions ...........................................................................

181


-


175


-

Disposals ............................................................................

(81)


54


(89)


71

Depreciation charge for the year ........................................

-


(133)


-


(133)

Impairment loss recognised ................................................

-


-


-


(24)

Exchange differences .........................................................

(16)


-


86


(40)

Other changes ....................................................................

36


(23)


31


(30)









At 31 December .................................................................

1,944


(933)


1,824


(831)









Net carrying amount at 31 December .................................

1,011




993



 

Investment properties

Movement on the fair value of investment properties


        Freehold

        land and

       buildings


               Long

       leasehold

        land and

       buildings


              Short

       leasehold

        land and

       buildings


               Total


US$m


US$m


US$m


US$m

Fair value








At 1 January 2010 .............................................................

640


184


237


1,061

Additions at cost ................................................................

240


-


-


240

Fair value adjustments ........................................................

31


24


38


93

Disposals ............................................................................

(216)


(2)


-


(218)

Transfers ...........................................................................

-


(42)


42


-

Exchange differences .........................................................

(34)


(1)


(1)


(36)

Other changes ....................................................................

6


(7)


(6)


(7)









At 31 December 2010 ........................................................

667


156


310


1,133









Fair value








At 1 January 2009 .............................................................

566


188


217


971

Additions at cost ................................................................

36


-


-


36

Fair value adjustments ........................................................

(58)


16


18


(24)

Disposals ............................................................................

-


(25)


-


(25)

Exchange differences .........................................................

57


5


-


62

Other changes ....................................................................

39


-


2


41









At 31 December 2009 ........................................................

640


184


237


1,061

Investment properties are valued on an open market value basis as at 31 December each year by independent professional valuers who have recent experience in the location and type of properties. Investment properties in Hong Kong, the Macau Special Administrative Region and mainland China, which represent more than 35% by value of HSBC's investment properties subject to revaluation, were valued by an independent valuer who is a member of the Hong Kong Institute of Surveyors and who has recent experience in the locations and categories of the investment properties.

Included within 'Other operating income' was rental income of US$26m (2009: US$81m; 2008: US$23m) earned by HSBC on its investment properties. Direct operating expenses of US$3m (2009: US$2m; 2008: US$2m) incurred in respect of the investment properties during the year were recognised in 'General and administrative expenses'. Direct operating expenses arising in respect of investment properties that did not generate rental income during 2010 amounted to nil (2009 and 2008: nil).

At 31 December 2010, HSBC had no contractual obligations to purchase, construct, develop, maintain or enhance investment properties (2009: nil).

HSBC Holdings had no investment properties at 31 December 2010 or 2009.


HSBC properties leased to customers

HSBC properties leased to customers included US$441m at 31 December 2010 (2009: US$434m) let under operating leases, net of accumulated depreciation of US$19m (2009: US$18m). None was held by HSBC Holdings.

26    Investments in subsidiaries

Principal subsidiaries of HSBC Holdings

 

At 31 December 2010

 

Country of incorporation or registration


HSBC's interest in equity capital %


Issued
equity
capital


                          Share
                            class

Europe








HSBC Asset Finance (UK) Limited ...........................

England


100


£265m


             Ordinary £1

HSBC Bank A.S. .......................................................

Turkey


100


TRL652m


     A-Common TRL1

     B-Common TRL1

HSBC Bank Malta p.l.c. ............................................

Malta


70.03


€88m


        Ordinary €0.30

HSBC Bank plc .........................................................

England


100


£797m


             Ordinary £1

Preferred Ordinary £1

          Series 2 Third Dollar
Preference US$0.01

             Third Dollar
Preference US$0.01

HSBC France ............................................................

France


99.99


€337m


             Shares €5.00

HSBC Bank International Limited ............................

Jersey


100


£1m


             Ordinary £1

HSBC Life (UK) Limited ..........................................

England


100


£94m


             Ordinary £1

HSBC Private Banking Holdings (Suisse) S.A. ...........

Switzerland


100


CHF1,363m


Ordinary CHF1,000

HSBC Trinkaus & Burkhardt AG ..............................

Germany


80.40


€28m


      Shares of no par value

Marks and Spencer Retail Financial Services Holdings
Limited .................................................................

England


100


£67m


             Ordinary £1

 








Hong Kong








Hang Seng Bank Limited7 .........................................

Hong Kong


62.14


HK$9,559m


   Ordinary HK$5.00

HSBC Insurance (Asia) Limited ................................

Hong Kong


100


HK$318m


Ordinary HK$1,000

HSBC Life (International) Limited ...........................

Bermuda


100


HK$421m


   Ordinary HK$1.00

The Hongkong and Shanghai Banking Corporation Limited .................................................................

Hong Kong


100


HK$22,494m


   Ordinary HK$2.50

            CIP1 US$1.00

          CRP2 US$1.00

            NIP3 US$1.00

 








Rest of Asia-Pacific








HSBC Bank Australia Limited ...................................

Australia


100


A$751m


      Shares of no par value

HSBC Bank (China) Company Limited .....................

PRC4


100


RMB8,000m


  Ordinary CNY1.00

HSBC Bank Malaysia Berhad ....................................

Malaysia


100


RM115m


    Ordinary RM0.50

 








Middle East








HSBC Bank Middle East Limited ..............................

Jersey


100


US$931m


          CRP2 US$1.00

   Ordinary US$1.00

HSBC Bank Egypt S.A.E. .........................................  

Egypt


94.53


EGP1,511m


Ordinary EGP84.00

 








North America








HSBC Bank Bermuda Limited ...................................

Bermuda


100


US$30m


  Common BMD1.00

HSBC Bank Canada ..................................................

Canada


100


C$1,225m


         Class 1 Pref of NPV5

         Class 2 Pref of NPV5

      Common of NPV

HSBC Bank USA, N.A. .............................................

United States


100


US$2m


     Common US$100

HSBC Finance Corporation ......................................

United States


100


-6


    Common US$0.01

HSBC Securities (USA) Inc. ......................................

United States


100


-6


    Common US$0.05









Latin America








HSBC Bank Argentina S.A. .......................................

Argentina


99.99


ARS1,244m


              Ordinary-A ARS1.00

              Ordinary-B ARS1.00

HSBC Bank Brasil S.A. - Banco Múltiplo .................

Brazil


100


BRL5,178m


      Shares of no par value

HSBC Mexico, S.A., Institución de Banca Múltiple,
Grupo Financiero HSBC ........................................

Mexico


99.99


MXN5,087m


  Ordinary MXN2.00

HSBC Bank (Panama) S.A. .......................................

Panama


100


US$10m


  Ordinary PAB 1.00

 

1  Cumulative Irredeemable Preference shares.


5  Preference shares of nil par value.

2  Cumulative Redeemable Preference shares


6  Issued equity capital is less than US$1m.

3  Non-cumulative Irredeemable Preference shares.


7  Listed in Hong Kong.

4  People's Republic of China



Details of the debt, subordinated debt and preference shares issued by the principal subsidiaries to parties external to the Group are included in the Notes 30 'Debt securities in issue', 34 'Subordinated liabilities' and 38 'Non-controlling  interests', respectively.

All the above subsidiaries are included in the HSBC consolidated financial statements.

Details of all HSBC subsidiaries will be annexed to the next Annual Return of HSBC Holdings filed with the UK Registrar of Companies.

All the above make their financial statements up to 31 December except for HSBC Bank Argentina S.A., whose financial statements are made up to 30 June annually.

The principal countries of operation are the same as the countries of incorporation except for HSBC Bank Middle East Limited which operates mainly in the Middle East and HSBC Life (International) Limited which operates mainly in Hong Kong.

Subsidiaries which experience significant restrictions on their ability to transfer funds to HSBC in the form of cash dividends or to repay loans and advances

During 2010 and 2009, none of the Group's subsidiaries experienced significant restrictions on paying dividends or repaying loans and advances.

Subsidiaries excluding SPEs where HSBC owns less than 50% of the voting rights

At 31 December 2009, HSBC consolidated HSBC Private Equity Fund 3 ('HPEF3') but only had a 38.8% interest in its equity capital. HSBC had control under IAS 27 because it was the investment adviser/manager of the fund and had a significant equity interest.

On 30 November 2010, the Group completed the sale of an 80.1% interest in HSBC Private Equity (Asia) Limited ('HPEA') to HPEA's management. As a result, the Group no longer controls HPEF3. The Group previously consolidated HPEF 3 by virtue of its control over HPEA, which in turn controlled HPEF3. Upon deconsolidation, the group retains its 38.8% interest in HPEF3 as an available for sale investment. HPEF3 has been renamed The Headland Private Equity Fund 3 Limited.

SPEs consolidated by HSBC where HSBC owns less than 50% of the voting rights


Carrying value of total
consolidated assets


Nature of SPE


               2010


               2009




            US$bn


             US$bn









Barion Funding Limited .......................................................

4.5


                  4.4


Structured investment conduit

Bryant Park Funding LLC ...................................................

3.0


                  3.8


Conduit

HSBC Affinity Corporation I ..............................................

4.2


                  4.9


Securitisation

HSBC Auto Receivables Corporation ...................................

-


                  1.3


Securitisation

HSBC Corporate Money Fund (Euro) ..................................

-


                  0.8


Money market fund

HSBC Funding Inc V ............................................................

5.4


                  5.3


Securitisation

HSBC Home Equity Loan Corporation I ..............................

2.8


                  3.1


Securitisation

HSBC Home Equity Loan Corporation II ............................

2.8


                  3.3


Securitisation

HSBC Investor Prime Money Market Fund .........................

-


                10.7


Money market fund

HSBC Receivables Funding, Inc I .........................................

3.7


                  5.4


Securitisation

HSBC Receivables Inc Funding II .........................................

2.0


                  1.8


Securitisation

HSBC Sterling Liquidity Fund ...............................................

-


                  7.5


Money market fund

HSBC US Dollar Liquidity Fund ...........................................

-


                23.4


Money market fund

Malachite Funding Limited ..................................................

3.9


                  4.3


Structured investment conduit

Mazarin Funding Limited .....................................................

10.3


                11.3


Structured investment conduit

Metrix Funding Ltd .............................................................

1.4


                  3.7


Securitisation

Metrix Securities plc ............................................................

1.0


                  4.2


Securitisation

Regency Assets Limited .......................................................

6.3


                  6.8


Conduit

Solitaire Funding Ltd ...........................................................

13.5


                12.8


Conduit

Turquoise Receivable Trustee Ltd ........................................

-


                  0.5


Securitisation

In addition to the above, HSBC consolidates a number of individually insignificant SPEs with total assets of US$10.6bn. For further details, see 'Special purpose entities' on page 361.

In each of the above cases, HSBC has less than 50% of the voting rights, but consolidates because it has the majority of risks and rewards of ownership of the SPE, or the substance of the relationship with the SPE is such that its activities are conducted on behalf of HSBC according to its specific business needs so that HSBC obtains benefit from the SPE's operation. The consolidation of SPEs sponsored by HSBC is discussed on page 251.


Acquisitions

There were minor acquisitions and increases in investment in subsidiaries which increased goodwill by US$16m.

27   Other assets


2010


2009


US$m


US$m





Bullion ....................................................................................................................................

18,446


13,757

Assets held for sale ..................................................................................................................

1,991


3,118

Reinsurers' share of liabilities under insurance contracts (Note 32) ..........................................

1,865


2,069

Endorsements and acceptances ................................................................................................

10,116


9,311

Other accounts ........................................................................................................................

10,833


16,279






43,251


44,534

At 31 December 2010, 'Assets held for sale' included US$520m related to the sale of a majority interest in the UK‑based global real estate and infrastructure private equity fund management business to the unit's senior management team. The transaction is expected to complete in the first half of 2011. Associated liabilities of US$86m are included in 'Other Liabilities'.


2010


2009


US$m


US$m





Interests in associates ..............................................................................................................

-


105

Property, plant and equipment ................................................................................................

1,333


1,639

Investment properties .............................................................................................................

9


1

Financial assets .......................................................................................................................

116


1,359

Other ......................................................................................................................................

3


14






1,461


3,118

The property, plant and equipment classified as held for sale is the result of repossession of property that had been pledged as collateral by customers. Substantially all of these assets are disposed of within 12 months of acquisition. The majority arose within the geographical segment of North America. At 31 December 2009, property, plant and equipment held for sale also included US$257m in relation to the proposed sale of 452 Fifth Avenue and 1 W. 39th Street in New York and US$370m in relation to the proposed sale of 103 Champs Elysées and 15 Rue Vernet in Paris. On completion of these transactions in 2010 gains of US$56m and US$194m respectively were recognised within 'Other operating income'.

At 31 December 2009, financial assets classified as held for sale included US$972m of vehicle finance loans and US$366m of credit card portfolios, presented in the geographical segment of North America.

Neither a gain nor loss was recognised on reclassifying assets as held for sale during the year.

28    Trading liabilities


               2010

             US$m


               2009

              US$m





Deposits by banks ...................................................................................................................

38,678


41,165

Customer accounts ..................................................................................................................

125,684


99,306

Other debt securities in issue (Note 30) ...................................................................................

33,726


37,592

Other liabilities - net short positions in securities....................................................................

102,615


90,067






300,703


268,130

At 31 December 2010, the cumulative amount of change in fair value attributable to changes in HSBC credit risk was a gain of US$142m (2009: gain of US$119m).


29    Financial liabilities designated at fair value

HSBC


2010


2009


US$m


US$m





Deposits by banks and customer accounts ................................................................................

6,527


6,586

Liabilities to customers under investment contracts ................................................................

11,700


10,865

Debt securities in issue (Note 30) ............................................................................................

46,091


38,208

Subordinated liabilities (Note 34) .............................................................................................

19,395


20,180

Preferred securities (Note 34) .................................................................................................

4,420


4,253






88,133


80,092

The carrying amount at 31 December 2010 of financial liabilities designated at fair value was US$1,631m more than the contractual amount at maturity (2009: US$1,346m more). The cumulative amount of the change in fair value attributable to changes in credit risk was a gain of US$1,279m (2009: gain of US$1,510m).

HSBC Holdings


2010


2009


US$m


US$m

Subordinated liabilities (Note 34):




- owed to third parties .........................................................................................................

12,029


12,549

- owed to HSBC undertakings ..............................................................................................

4,259


4,360






16,288


16,909

The carrying amount at 31 December 2010 of financial liabilities designated at fair value was US$855m more than the contractual amount at maturity (2009: US$769m more). The cumulative amount of the change in fair value attributable to changes in credit risk was a gain of US$439m (2009: gain of US$191m).

30    Debt securities in issue


2010


2009


US$m


US$m





Bonds and medium-term notes ................................................................................................

162,948


160,295

Other debt securities in issue ....................................................................................................

62,270


62,401






225,218


222,696

Of which debt securities in issue reported as:




- trading liabilities (Note 28) ...............................................................................................

(33,726)


(37,592)

- financial liabilities designated at fair value (Note 29) ........................................................

(46,091)


(38,208)






145,401


146,896

Certain debt securities in issue are managed on a fair value basis as part of HSBC's interest rate risk management policies. The hedged portion of these debt securities is presented within the balance sheet caption 'Financial liabilities designated at fair value', with the remaining portion included within 'Trading liabilities'. The following table analyses the carrying amount of bonds and medium-term notes in issue at 31 December with original maturities greater than one year:


Bonds and medium-term notes

HSBC


2010


2009

 

US$m


US$m

Fixed rate




Secured financing:




0.01% to 3.99%: until 2068 ................................................................................................

6,666


5,929

4.00% to 4.99%: until 2013 ................................................................................................

1,956


1,948

5.00% to 5.99%: until 2022 ................................................................................................

387


1,315

7.00% to 7.99%: until 2019 ................................................................................................

209


9

8.00% to 9.99%: until 2028 ................................................................................................

394


417

10.00% or higher: until 2011 ..............................................................................................

-


43

Other fixed rate senior debt:




0.01% to 3.99%: until 2057 ................................................................................................

39,596


22,554

4.00% to 4.99%: until 2046 ................................................................................................

12,854


15,754

5.00% to 5.99%: until 2021 ................................................................................................

19,011


25,619

6.00% to 6.99%: until 2033 ................................................................................................

11,008


11,066

7.00% to 7.99%: until 2032 ................................................................................................

3,124


3,900

8.00% to 9.99%: until 2036 ................................................................................................

254


1,737

10.00% or higher: until 2021 ..............................................................................................

337


280






95,796


90,571





Variable interest rate




Secured financings - 0.01% to 13.99%: until 2068 ..................................................................

8,448


13,971

FHLB advances - 0.01% to 0.99%: until 2036 ........................................................................

1,000


1,000

Other variable interest rate senior debt - 0.01% to 12.99%: until 2068 ..................................

53,301


50,258






62,749


65,229





Structured notes




Interest rate linked ..................................................................................................................

4


5

Equity, equity index or credit-linked ........................................................................................

4,399


4,490






4,403


4,495






162,948


160,295

HSBC Holdings


2010


2009

 

US$m


US$m





Fixed rate senior debt, unsecured:




4.00% to 4.99%: until 2014 ................................................................................................

1,664


1,791

6.00% to 6.99%: until 2024 ................................................................................................

1,004


1,048






2,668


2,839

31    Other liabilities


HSBC


HSBC Holdings


2010


2009


2010


2009


US$m


US$m


US$m


US$m









Amounts due to investors in funds consolidated by HSBC ...

840


48,193


-


-

Obligations under finance leases (Note 42) .........................

454


644


-


-

Dividend declared and payable by HSBC Holdings (Note 11) .......................................................................................

1,203


1,231


1,203


1,231

Endorsements and acceptances ...........................................

10,123


9,313


-


-

Other liabilities ..................................................................

15,430


9,259


29


26










28,050


68,640


1,232


1,257


32    Liabilities under insurance contracts


Gross


Reinsurers'

share


Net


US$m


US$m


US$m

At 31 December 2010






Non-life insurance liabilities






Unearned premium provision .......................................................................

727


(129)


598

Notified claims .............................................................................................

879


(230)


649

Claims incurred but not reported ...................................................................

745


(75)


670

Other ...........................................................................................................

105


2


107








2,456


(432)


2,024







Life insurance liabilities to policyholders






Life (non-linked) ..........................................................................................

23,583


(673)


22,910

Investment contracts with discretionary participation features1 ....................

22,074


-


22,074

Life (linked) .................................................................................................

10,496


(760)


9,736








56,153


(1,433)


54,720








58,609


(1,865)


56,744







At 31 December 2009






Non-life insurance liabilities






Unearned premium provision .......................................................................

833


(135)


698

Notified claims .............................................................................................

1,032


(245)


787

Claims incurred but not reported ...................................................................

685


(82)


603

Other ...........................................................................................................

178


(5)


173








2,728


(467)


2,261







Life insurance liabilities to policyholders






Life (non-linked) ..........................................................................................

20,979


(771)


20,208

Investment contracts with discretionary participation features1 ....................

21,014


-


21,014

Life (linked) .................................................................................................

8,986


(831)


8,155








50,979


(1,602)


49,377








53,707


(2,069)


51,638

1  Though investment contracts with discretionary participation features are financial instruments, HSBC continues to treat them as insurance contracts as permitted by IFRS 4.


Movement on non-life insurance liabilities


Gross


Reinsurers'

share


Net


US$m


US$m


US$m

2010






Unearned premium reserve ('UPR')






At 1 January .................................................................................................

833


(135)


698

Changes in UPR recognised as (income)/expense ..........................................

(83)


(12)


(95)

Gross written premiums ............................................................................

1,192


(172)


1,020

Gross earned premiums .............................................................................

(1,275)


160


(1,115)







Exchange differences and other movements .................................................

(23)


18


(5)







At 31 December ...........................................................................................

727


(129)


598







Notified and incurred but not reported claims






At 1 January .................................................................................................

1,717


(327)


1,390

Notified claims .........................................................................................

1,032


(245)


787

Claims incurred but not reported ...............................................................

685


(82)


603







Claims paid in current year ...........................................................................

(815)


114


(701)

Claims incurred in respect of current year .....................................................

519


(111)


408

Claims incurred in respect of prior years .......................................................

106


11


117

Exchange differences and other movements .................................................

97


8


105







At 31 December ...........................................................................................

1,624


(305)


1,319

Notified claims .........................................................................................

879


(230)


649

Claims incurred but not reported ...............................................................

745


(75)


670







Other ...........................................................................................................

105


2


107







Total non-life insurance liabilities ................................................................

2,456


(432)


2,024







2009






Unearned premium reserve ('UPR')






At 1 January .................................................................................................

1,136


(159)


977

Changes in UPR recognised as (income)/expense ..........................................

(233)


10


(223)

Gross written premiums ............................................................................

1,339


(215)


1,124

Gross earned premiums .............................................................................

(1,572)


225


(1,347)

Exchange differences and other movements .................................................

(70)


14


(56)







At 31 December ...........................................................................................

833


(135)


698







Notified and incurred but not reported claims






At 1 January .................................................................................................

1,276


(271)


1,005

Notified claims .........................................................................................

908


(230)


678

Claims incurred but not reported ...............................................................

368


(41)


327







Claims paid in current year ...........................................................................

(987)


156


(831)

Claims incurred in respect of current year .....................................................

939


(156)


783

Claims incurred in respect of prior years .......................................................

342


(2)


340

Exchange differences and other movements .................................................

147


(54)


93







At 31 December ...........................................................................................

1,717


(327)


1,390

Notified claims .........................................................................................

1,032


(245)


787

Claims incurred but not reported ...............................................................

685


(82)


603







Other ...........................................................................................................

178


(5)


173







Total non-life insurance liabilities ................................................................

2,728


(467)


2,261

 


Life insurance liabilities to policyholders


Gross


Reinsurers'

share


Net


US$m


US$m


US$m

2010






Life (non-linked)






At 1 January .................................................................................................

20,979


(771)


20,208

Benefits paid ................................................................................................

(1,355)


143


(1,212)

Increase in liabilities to policyholders ...........................................................

5,108


(201)


4,907

Exchange differences and other movements .................................................

(1,149)


156


(993)







At 31 December ...........................................................................................

23,583


(673)


22,910







Investment contracts with discretionary participation features






At 1 January .................................................................................................

21,014


-


21,014

Benefits paid ................................................................................................

(2,023)


-


(2,023)

Increase in liabilities to policyholders ...........................................................

3,716


-


3,716

Exchange differences and other movements1 ................................................

(633)


-


(633)







At 31 December ...........................................................................................

22,074


-


22,074







Life (linked)






At 1 January .................................................................................................

8,986


(831)


8,155

Benefits paid ................................................................................................

(507)


45


(462)

Increase in liabilities to policyholders ...........................................................

2,520


99


2,619

Exchange differences and other movements2 ................................................

(503)


(73)


(576)







At 31 December ...........................................................................................

10,496


(760)


9,736







Total liabilities to policyholders ...................................................................

56,153


(1,433)


54,720







2009






Life (non-linked)






At 1 January .................................................................................................

17,370


(637)


16,733

Benefits paid ................................................................................................

(2,098)


159


(1,939)

Increase in liabilities to policyholders ...........................................................

4,669


(98)


4,571

Exchange differences and other movements .................................................

1,038


(195)


843







At 31 December ...........................................................................................

20,979


(771)


20,208







Investment contracts with discretionary participation features






At 1 January .................................................................................................

17,766


-


17,766

Benefits paid ................................................................................................

(1,818)


-


(1,818)

Increase in liabilities to policyholders ...........................................................

3,934


-


3,934

Exchange differences and other movements1 ................................................

1,132


-


1,132







At 31 December ...........................................................................................

21,014


-


21,014







Life (linked)






At 1 January .................................................................................................

6,067


(956)


5,111

Benefits paid ................................................................................................

(325)


21


(304)

Increase in liabilities to policyholders ...........................................................

2,676


146


2,822

Exchange differences and other movements2 ................................................

568


(42)


526







At 31 December ...........................................................................................

8,986


(831)


8,155







Total liabilities to policyholders ...................................................................

50,979


(1,602)


49,377

1 Includes movement in liabilities relating to discretionary profit participation benefits due to policyholders arising from net unrealised investment gains recognised in other comprehensive income.

2 Includes amounts arising under reinsurance agreements.

The increase in liabilities to policyholders represents the aggregate of all events giving rise to additional liabilities to policyholders in the year. The key factors contributing to the movement in liabilities to policyholders include death claims, surrenders, lapses, liabilities to policyholders created at the initial inception of the policies, the declaration of bonuses and other amounts attributable to policyholders.




33   Provisions


               2010


               2009


US$m


US$m





At 1 January ...........................................................................................................................

1,965


1,730

Additional provisions/increase in provisions ............................................................................

812


894

Provisions utilised ...................................................................................................................

(564)


(684)

Amounts reversed ...................................................................................................................

(132)


(225)

Exchange differences and other movements ............................................................................

57


250





At 31 December ......................................................................................................................

2,138


1,965

 

Provisions include US$1,257m (2009: US$1,025m) relating to legal proceedings, investigations and regulatory matters, US$405m (2009: US$449m) relating to costs arising from contingent liabilities and contractual commitments; and US$118m (2009: US$158m) relating to provisions for onerous property contracts.

34   Subordinated liabilities

HSBC


2010


2009


US$m


US$m

Subordinated liabilities




At amortised cost ................................................................................................................

33,387


30,478

28,309


23,893

5,078


6,585





Designated at fair value (Note 29) .......................................................................................

23,815


24,433

19,395


20,180

4,420


4,253










57,202


54,911





Subordinated liabilities




HSBC Holdings ....................................................................................................................

22,878


23,048

Other HSBC ........................................................................................................................

34,324


31,863






57,202


54,911


HSBC's subordinated liabilities



2010


2009



US$m


US$m






Amounts owed to third parties by HSBC Holdings (see page 349) ................................

22,878


23,048






Other HSBC subordinated liabilities




US$2,939m

6.676% senior subordinated notes 20211 ........................................................

2,174


-

€1,400m

5.3687% non-cumulative step-up perpetual preferred securities2 ....................

1,843


1,804

US$1,250m

4.875% subordinated notes 2020 ...................................................................

1,252


-

US$1,250m

4.61% non-cumulative step-up perpetual preferred securities2 ........................

1,185


1,077

£700m

5.844% non-cumulative step-up perpetual preferred securities3 ......................

1,087


1,136

€800m

Callable subordinated floating rate notes 20164 ..............................................

1,070


1,152

US$1,000m

4.625% subordinated notes 2014 ...................................................................

1,009


1,002

US$1,000m

5.911% trust preferred securities 20355 .........................................................

994


993

US$1,000m

5.875% subordinated notes 2034 ...................................................................

971


950

€750m

5.13% non-cumulative step-up perpetual preferred securities2 ........................

958


960

£600m

4.75% subordinated notes 2046 .....................................................................

919


961

US$900m

10.176% non-cumulative step-up perpetual preferred securities, series 22 .......

891


890

€600m

4.25% callable subordinated notes 20164 ........................................................

823


904

€600m

8.03% non-cumulative step-up perpetual preferred securities2 ........................

801


862

£500m

4.75% callable subordinated notes 20206 ........................................................

774


785

£500m

8.208% non-cumulative step-up perpetual preferred securities2 ......................

772


806

US$750m

Undated floating rate primary capital notes ...................................................

750


750

US$750m

5.00% subordinated notes 2020 .....................................................................

747


-

£500m

5.375% subordinated notes 2033 ...................................................................

729


776

US$750m

5.625% subordinated notes 2035 ...................................................................

728


712

US$700m

7.00% subordinated notes 2039 .....................................................................

694


688

€500m

Callable subordinated floating rate notes 20207 ..............................................

592


639

£350m

Callable subordinated variable coupon notes 20178..........................................

562


608

£350m

5.00% callable subordinated notes 20239 ........................................................

547


550

US$500m

6.00% subordinated notes 2017 .....................................................................

526


521

£350m

5.375% callable subordinated step-up notes 203010 ........................................

510


531

US$500m

Undated floating rate primary capital notes ...................................................

500


500

£300m

6.5% subordinated notes 2023 .......................................................................

462


483

US$450m

Callable subordinated floating rate notes 201611 .............................................

450


449

£300m

5.862% non-cumulative step-up perpetual preferred securities3 ......................

434


412

CAD400m

4.80% subordinated notes 2022 .....................................................................

417


382

US$400m

Primary capital undated floating rate notes ....................................................

407


407

US$400m

Primary capital undated floating rate notes (second series) ............................

403


404

US$400m

Primary capital undated floating rate notes (third series) ...............................

400


400

£225m

6.25% subordinated notes 2041 .....................................................................

347


363

US$300m

7.65% subordinated notes 2025 .....................................................................

342


312

US$300m

6.95% subordinated notes 2011 .....................................................................

310


321

BRL500m

Subordinated certificates of deposit 2016 .......................................................

301


287

US$300m

Undated floating rate primary capital notes, series 3 ......................................

300


300

US$300m

Callable subordinated floating rate notes 201712 .............................................

300


299

US$250m

Non-convertible subordinated obligations 2019...............................................

248


247

BRL383m

Subordinated certificates of deposit 2015 .......................................................

231


220

US$250m

7.20% subordinated debentures 2097 ..............................................................

213


213

AUD200m

Callable subordinated floating rate notes 201613 .............................................

204


180

AUD200m

Callable subordinated floating rate notes 2020 ...............................................

204


-

US$200m

7.808% capital securities 2026 ......................................................................

200


200

US$200m

8.38% capital securities 2027 ........................................................................

200


200

CAD200m

4.94% subordinated debentures 2021 ..............................................................

200


190

US$1,350m

9.547% non-cumulative step-up perpetual preferred securities, series 114 .......

-


1,349


Other subordinated liabilities each less than US$200m ...................................

3,343


3,688








34,324


31,863








57,202


54,911

Subordinated loan capital is repayable at par on maturity, but some is repayable prior to maturity at the option of the borrower, generally subject to prior notification to the Financial Services Authority and, where relevant, the consent of the local banking regulator, and in certain cases at a premium over par. Interest rates on the floating rate loan capital are related to interbank offered rates. On the remaining subordinated loan capital, interest is payable at fixed rates of up to 10.176%.


  1 Approximately 25% of the 6.676% senior subordinated notes 2021 is held by HSBC Holdings.

  2 See 'Step-up perpetual preferred securities' below, note (a) 'Guaranteed by HSBC Holdings'.

  3 See 'Step-up perpetual preferred securities' below, note (b) 'Guaranteed by HSBC Bank'.

  4 On 15 February 2011, HSBC gave notice to holders of its €800m callable subordinated floating rate notes 2016 and its €600m 4.25% callable subordinated notes 2016 that it will call and redeem the notes at par on 29 March 2011 and 18 March 2011, respectively.

  5 The distributions on the trust preferred securities change in November 2015 to three-month dollar LIBOR plus 1.926%.

  6 The interest rate on the 4.75% callable subordinated notes 2020 changes in September 2015 to three-month sterling LIBOR plus 0.82%.

  7 The interest margin on the callable subordinated floating rate notes 2020 increases by 0.5% from September 2015.

  8 The interest rate on the callable subordinated variable coupon notes 2017 is fixed at 5.75% until June 2012. Thereafter, the rate per annum is the sum of the gross redemption yield of the then prevailing five-year UK gilt plus 1.70%. 

  9 The interest rate on the 5.00% callable subordinated notes 2023 changes in March 2018 to become the rate per annum which is the sum of the gross redemption yield of the then prevailing five-year UK gilt plus 1.80%.

10 The interest rate on the 5.375% callable subordinated step-up notes 2030 changes in November 2025 to three-month sterling LIBOR plus 1.50%.

11 The interest margin on the US$450m callable subordinated floating rate notes 2016 increases by 0.5% from July 2011.

12 The interest margin on the callable subordinated floating rate notes 2017 increases by 0.5% from July 2012.

13 The interest margin on the callable subordinated floating rate notes 2016 increases by 0.5% from May 2011.

14 In June 2010, HSBC redeemed its 9.547% non-cumulative step-up preferred securities, series 1 at par.

Footnotes 4 to 13 relate to notes that are repayable at the option of the borrower on the date of the change of the interest rate, and at subsequent interest rate reset dates and interest payment dates in some cases, subject to prior notification to the Financial Services Authority and, where relevant, the consent of the local banking regulator.

Step-up perpetual preferred securities

(a)  Guaranteed by HSBC Holdings

The six issues of non-cumulative step-up perpetual preferred securities (footnote 2) were made by Jersey limited partnerships and are guaranteed, on a subordinated basis, by HSBC Holdings. The proceeds of the issues were on-lent to HSBC Holdings by the limited partnerships by issue of subordinated notes. The preferred securities qualify as tier 1 hybrid capital for HSBC. The preferred securities, together with the guarantee, are intended to provide investors with rights to income and capital distributions and distributions upon liquidation of HSBC Holdings that are equivalent to the rights that they would have had if they had purchased non-cumulative perpetual preference shares of HSBC Holdings.

The preferred securities are perpetual, but redeemable in 2014, 2013, 2016, 2030, 2012 and 2015, respectively, at the option of the general partner of the limited partnerships. If not redeemed, the distributions payable step-up and become floating rate or, for the sterling issue, for each successive five-year period the sum of the then five-year benchmark UK gilt plus a margin. There are limitations on the payment of distributions if prohibited under UK banking regulations or other requirements, if a payment would cause a breach of HSBC's capital adequacy requirements, or if HSBC Holdings has insufficient distributable reserves (as defined).

HSBC Holdings has covenanted that if it is prevented under certain circumstances from paying distributions on the preferred securities in full, it will not pay dividends or other distributions in respect of its ordinary shares, or effect repurchase or redemption of its ordinary shares, until after a distribution has been paid in full.

If (i) HSBC's total capital ratio falls below the regulatory minimum ratio required, or (ii) the Directors expect that, in view of the deteriorating financial condition of HSBC Holdings, the former will occur in the near term, then the preferred securities will be substituted by preference shares of HSBC Holdings having economic terms which are in all material respects equivalent to those of the preferred securities and the guarantee taken together.

(b)  Guaranteed by HSBC Bank

The two issues of non-cumulative step-up perpetual preferred securities (footnote 3) were made by Jersey limited partnerships and are guaranteed, on a subordinated basis, by HSBC Bank. The proceeds of the issues were on-lent to HSBC Bank by the limited partnerships by issue of subordinated notes. The preferred securities qualify as tier 1 hybrid capital for HSBC and for HSBC Bank on a solo and consolidated basis and, together with the guarantee, are intended to provide investors with rights to income and capital distributions and distributions upon liquidation of HSBC Bank that are equivalent to the rights they would have had if they had purchased non-cumulative perpetual preference shares of HSBC Bank.

The two issues of preferred securities are perpetual, but redeemable in 2031 and 2020, respectively, at the option of the general partner of the limited partnerships. If not redeemed, the distributions payable step-up and become floating rate. The same limitations on the payment of distributions apply to HSBC Bank as to HSBC Holdings, as described above. HSBC Bank has provided a similar covenant to that provided by HSBC Holdings, also as described above.

If (i) any of the two issues of preferred securities are outstanding in November 2048 or April 2049, respectively, or (ii) the total capital ratio of HSBC Bank on a solo and consolidated basis falls below the regulatory minimum ratio required, or (iii) in view of the deteriorating financial condition of HSBC Bank, the Directors expect (ii) to occur in the near term, then the preferred securities will be substituted by preference shares of HSBC Bank having economic terms which are in all material respects equivalent to those of the preferred securities and the guarantee taken together.


HSBC Holdings


2010


2009


US$m


US$m

Subordinated liabilities:




-. at amortised cost .............................................................................................................

13,313


14,406

-. designated at fair value (Note 29) ....................................................................................

16,288


16,909






29,601


31,315

HSBC Holdings' subordinated liabilities



               2010

             US$m


               2009

              US$m

Amounts owed to third parties




US$2,500m

6.5% subordinated notes 2037 .......................................................................

2,695


2,659

€1,750m

6.0% subordinated notes 2019 .......................................................................

2,578


2,835

€1,600m

6.25% subordinated notes 2018 .....................................................................

2,142


2,306

US$2,000m

6.5% subordinated notes 2036 .......................................................................

2,050


2,052

£900m

6.375% callable subordinated notes 20221 ......................................................

1,493


1,517

US$1,400m

5.25% subordinated notes 2012 .....................................................................

1,492


1,488

US$1,500m

6.8% subordinated notes 2038 .......................................................................

1,485


1,484

€1,000m

5.375% subordinated notes 2012 ...................................................................

1,405


1,549

£900m

6.0% subordinated notes 2040 .......................................................................

1,372


-

£750m

7.0% subordinated notes 2038 .......................................................................

1,210


1,267

£650m

6.75% subordinated notes 2028 .....................................................................

1,000


1,043

£650m

5.75% subordinated notes 2027 .....................................................................

971


1,000

€700m

3.625% callable subordinated notes 20202 ......................................................

928


1,005

US$750m

Callable subordinated floating rate notes 20163 ..............................................

750


750

US$488m

7.625% subordinated notes 2032 ...................................................................

582


587

£250m

9.875% subordinated bonds 20184 ..................................................................

467


496

US$222m

7.35% subordinated notes 2032 .....................................................................

258


260

US$750m

Callable subordinated floating rate notes 20155 ..............................................

-


750








22,878


23,048






Amounts owed to HSBC undertakings




€1,400m

5.3687% fixed/floating subordinated notes 2043 -

HSBC Capital Funding (Euro 2) LP ................................................................

1,957


2,042

US$1,250m

4.61% fixed/floating subordinated notes 2043 -

HSBC Capital Funding (Dollar 2) LP ..............................................................

1,274


1,223

€750m

5.13% fixed/floating subordinated notes 2044 -

HSBC Capital Funding (Euro 3) LP ................................................................

1,028


1,095

US$900m

10.176% subordinated step-up cumulative notes 2040 -

HSBC Capital Funding (Dollar 1) LP ..............................................................

891


890

€600m

8.03% subordinated step-up cumulative notes 2040 -

HSBC Capital Funding (Euro 1) LP ................................................................

801


862

£500m

8.208% subordinated step-up cumulative notes 2040 -

HSBC Capital Funding (Sterling 1) LP ............................................................

772


806

US$1,350m

9.547% subordinated step-up cumulative notes 2040 -

HSBC Capital Funding (Dollar 1) LP6 ............................................................

-


1,349








6,723


8,267








29,601


31,315

1  The interest rate on the 6.375% callable subordinated notes 2022 changes in October 2017 to become three-month sterling LIBOR plus 1.3%. The notes may be redeemed at par from October 2017 at the option of the borrower, subject to the prior notification to the FSA.


The interest rate on the 3.625% callable subordinated notes 2020 changes in June 2015 to become three-month EURIBOR plus 0.93%. The notes may be redeemed at par from June 2015 at the option of the borrower, subject to the prior notification to the FSA.

The interest margin on the callable subordinated floating rate notes 2016 increases by 0.5% from October 2011. The notes are repayable from their step up date at the option of the borrower, subject to the prior notification to the FSA.

4  The interest rate on the 9.875% subordinated bonds 2018 changes in April 2013 to become the higher of (i) 9.875% or (ii) the sum of the yield on the relevant benchmark treasury stock plus 2.5%. The bonds may be redeemed in April 2013 at par and redemption has also been allowed from April 1998, subject to the prior notification to the FSA, for an amount based on the redemption yields of the relevant benchmark treasury stocks.

In March 2010, HSBC Holdings redeemed its US$750m callable subordinated floating rate notes due 2015 at par.

In June 2010, HSBC Holdings redeemed its 9.547% subordinated step-up cumulative notes 2040 - HSBC Capital Funding (Dollar 1) LP at par.

35    Maturity analysis of assets and liabilities

The following is an analysis, by remaining contractual maturities at the balance sheet date, of asset and liability line items that represent amounts expected to be recovered or settled within one year, and after more than one year.

Trading assets and liabilities are excluded because they are not held for collection or settlement over the period of contractual maturity.

Maturity analysis of assets and liabilities

HSBC


At 31 December 2010


At 31 December 2009


Due within

one year


Due after
more than
one year


Total


Due within
one year


Due after
more than
one year


Total


US$m


US$m


US$m


US$m


US$m


US$m

Assets












Financial assets designated at fair value ........

3,030


33,981


37,011


3,786


33,395


37,181

Loans and advances to banks .......................

200,098


8,173


208,271


172,916


6,865


179,781

Loans and advances to customers ................

424,713


533,653


958,366


381,967


514,264


896,231

Financial investments ..................................

149,954


250,801


400,755


134,824


234,334


369,158

Other financial assets ..................................

19,417


5,519


24,936


26,189


7,383


33,572














797,212


832,127


1,629,339


719,682


796,241


1,515,923













Liabilities












Deposits by banks ........................................

105,462


5,122


110,584


118,308


6,564


124,872

Customer accounts ......................................

1,181,095


46,630


1,227,725


1,114,149


44,885


1,159,034

Financial liabilities designated at fair value ...

10,141


77,992


88,133


4,666


75,426


80,092

Debt securities in issue .................................

86,096


59,305


145,401


83,590


63,306


146,896

Other financial liabilities .............................

24,865


4,792


29,657


67,061


3,606


70,667

Subordinated liabilities .................................

791


32,596


33,387


369


30,109


30,478














1,408,450


226,437


1,634,887


1,388,143


223,896


1,612,039

HSBC Holdings


At 31 December 2010


At 31 December 2009


Due within
one year


Due after
more than
one year


Total


Due within
one year


Due after
more than
one year


Total


US$m


US$m


US$m


US$m


US$m


US$m

Assets












Loans and advances to HSBC undertakings ..

13,691


7,547


21,238


18,067


5,145


23,212

Financial investments ..................................

-


2,025


2,025


-


2,455


2,455

Other financial assets ..................................

1


-


1


4


-


4














13,692


9,572


23,264


18,071


7,600


25,671













Liabilities












Amounts owed to HSBC undertakings ..........

1,480


1,452


2,932


277


3,434


3,711

Financial liabilities designated at fair value ...

-


16,288


16,288


-


16,909


16,909

Debt securities in issue .................................

-


2,668


2,668


-


2,839


2,839

Other financial liabilities .............................

1,782


-


1,782


1,240


17


1,257

Subordinated liabilities .................................

-


13,313


13,313


-


14,406


14,406














3,262


33,721


36,983


1,517


37,605


39,122

 


36   Foreign exchange exposures

Structural foreign exchange exposures

HSBC's structural foreign exchange exposures are represented by the net asset value of its foreign exchange equity and subordinated debt investments in subsidiaries, branches, joint ventures and associates with non-US dollar functional currencies. Gains or losses on structural foreign exchange exposures are recognised in other comprehensive income. HSBC's management of its structural foreign exchange exposures is discussed in the 'Report of the Directors: Risk' on page 149.

In its separate financial statements, HSBC Holdings recognises its foreign exchange gains and losses on structural foreign exchange exposures in the income statement.

Net structural foreign exchange exposures


2010


2009


US$m


US$m

Currency of structural exposure




Pound sterling .........................................................................................................................

23,247


21,369

Euro ........................................................................................................................................

23,222


25,284

Chinese renminbi ....................................................................................................................

17,454


13,398

Brazilian reais .........................................................................................................................

6,004


5,234

Mexican pesos ........................................................................................................................

5,991


5,393

Indian rupees ...........................................................................................................................

4,754


3,836

Canadian dollars ......................................................................................................................

4,012


3,620

Swiss francs .............................................................................................................................

3,357


2,910

Hong Kong dollars ..................................................................................................................

2,659


3,842

UAE dirhams ..........................................................................................................................

2,469


2,209

Turkish lira .............................................................................................................................

1,854


1,741

Malaysian ringgit ....................................................................................................................

1,619


1,300

Korean won ............................................................................................................................

1,456


1,412

Taiwanese dollars ....................................................................................................................

1,429


547

Australian dollars ....................................................................................................................

1,381


1,017

Indonesian rupiah ....................................................................................................................

1,190


1,057

Saudi riyals ..............................................................................................................................

907


657

Argentine pesos ......................................................................................................................

881


675

Egyptian pounds .....................................................................................................................

642


561

Philippine pesos ......................................................................................................................

635


473

Vietnamese dong .....................................................................................................................

621


505

Singapore dollars .....................................................................................................................

596


556

Qatari rial ...............................................................................................................................

510


384

Thai baht ................................................................................................................................

424


357

Costa Rican colon ...................................................................................................................

416


375

Honduran lempira ...................................................................................................................

291


282

Japanese yen ...........................................................................................................................

267


228

Colombian pesos .....................................................................................................................

266


220

Russian rouble .........................................................................................................................

257


295

Chilean pesos ..........................................................................................................................

249


230

South African rand ..................................................................................................................

238


201

Omani rial ...............................................................................................................................

234


210

Brunei dollars ..........................................................................................................................

227


132

Jordanian dinar ........................................................................................................................

181


159

New Zealand dollars ................................................................................................................

172


161

Algerian dinar .........................................................................................................................

155


146

Sri Lankan rupee .....................................................................................................................

136


141

Bahraini dinar .........................................................................................................................

133


85

Kazakh tenge ..........................................................................................................................

109


64

Others, each less than US$100m .............................................................................................

658


523





Total ......................................................................................................................................

111,303


101,789

Shareholders' equity would decrease by US$2,213m (2009: US$2,222m) if euro and sterling foreign currency exchange rates weakened by 5% relative to the US dollar.


37    Assets charged as security for liabilities and collateral accepted as security for assets

Financial assets pledged to secure liabilities                                                              


Assets pledged at 31 December


2010


2009


US$m


US$m





Treasury bills and other eligible securities ................................................................................

5,859


3,970

Loans and advances to banks ...................................................................................................

11,773


6,767

Loans and advances to customers ............................................................................................

60,500


77,699

Debt securities .........................................................................................................................

214,126


203,766

Equity shares ...........................................................................................................................

7,216


7,305

Other ......................................................................................................................................

931


646






300,405


300,153

These transactions are conducted under terms that are usual and customary to collateralised transactions, including, where relevant, standard securities lending and repurchase agreements.

Collateral accepted as security for assets

The fair value of assets accepted as collateral that HSBC is permitted to sell or repledge in the absence of default is US$333,921m (2009: US$362,560m). The fair value of any such collateral that has been sold or repledged was US$205,470m (2009: US$215,940m). HSBC is obliged to return equivalent securities.

These transactions are conducted under terms that are usual and customary to standard securities borrowing and reverse repurchase agreements.

38   Non-controlling interests


2010


2009


US$m


US$m





Non-controlling interests attributable to holders of ordinary shares in subsidiaries ...................

      4,522


4,665

Preference shares issued by subsidiaries ....................................................................................

      2,726


2,697






      7,248


7,362

Preference shares issued by subsidiaries



2010


2009



US$m


US$m






US$575m

6.36% non-cumulative preferred stock, Series B1 ...........................................

         559


559

US$518m

Floating rate non-cumulative preferred stock, Series F2 ..................................

         518


518

US$374m

Floating rate non-cumulative preferred stock, Series G3 .................................

         374


374

US$374m

6.50% non-cumulative preferred stock, Series H3 ...........................................

         374


374

CAD250m

Non-cumulative 5 year rate reset class 1 preferred shares, Series E4 ...............

         251


238

CAD175m

Non-cumulative redeemable class 1 preferred shares, Series C5 .......................

         175


167

CAD175m

Non-cumulative class 1 preferred shares, Series D5 .........................................

         175


167

US$150m

 

Depositary shares each representing 25% interest in a share of
adjustable-rate cumulative preferred stock, Series D6 ..................................

         150


150

US$150m

Cumulative preferred stock7 ...........................................................................

         150


150








2,726


2,697

1  The Series B preferred stock has been redeemable at the option of HSBC Finance Corporation, in whole or in part, from 24 June 2010 at par.

The Series F preferred stock has been redeemable at par at the option of HSBC USA, Inc., in whole or in part, on any dividend payment date from 7 April 2010.

The Series G and Series H preferred stock are redeemable at par at the option of HSBC USA, Inc., in whole or in part, at any time from 1 January 2011 and 1 July 2011, respectively.

The Series E preferred shares are redeemable at par at the option of HSBC Bank Canada, in whole or in part commencing 30 June 2014 and on 30 June every five years thereafter.

The Series C and Series D preferred shares have been redeemable at a declining premium above par at the option of HSBC Bank Canada, in whole or in part, from 30 June 2010 and 31 December 2010, respectively.

The preferred stock has been redeemable at the option of HSBC USA, Inc., in whole or in part, from 1 July 1999 at par.

7  The preferred stock has been redeemable at the option of HSBC USA, Inc., in whole or in part, from 1 October 2007 at par.

All redemptions are subject to prior notification to the Financial Services Authority and, where relevant, the local banking regulator.

39   Called up share capital and other equity instruments

Issued and fully paid


2010


2009


US$m


US$m





HSBC Holdings ordinary shares1 ..............................................................................................

8,843


8,705






Number


US$m

HSBC Holdings ordinary shares of US$0.50 each




At 1 January 2010 ..................................................................................................................

17,408,206,768


8,705

Shares issued under HSBC employee share plans ......................................................................

25,001,734


12

Shares issued in lieu of dividends ..............................................................................................

252,947,400


126





At 31 December 2010 .............................................................................................................

17,686,155,902


8,843





At 1 January 2009 ..................................................................................................................

12,105,265,082


6,053

Shares issued under HSBC employee share plans ......................................................................

7,476,952


4

Shares issued in lieu of dividends ..............................................................................................

235,225,669


118

Shares issued in respect of rights issue ......................................................................................

5,060,239,065


2,530





At 31 December 2009 .............................................................................................................

17,408,206,768


8,705

All ordinary shares in issue confer identical rights in respect of capital, dividends, voting and otherwise.


Number


US$m

HSBC Holdings non-cumulative preference shares of US$0.01 each








At 1 January 2010 and 31 December 2010 ..............................................................................

1,450,000


-





At 1 January 2009 and 31 December 2009 ..............................................................................

1,450,000


-

Dividends on the HSBC Holdings non-cumulative dollar preference shares ('Dollar Preference Shares') in issue are paid quarterly at the sole and absolute discretion of the Board of Directors. The Board of Directors will not declare a dividend on the Dollar Preference Shares in issue if payment of the dividend would cause HSBC Holdings not to meet the applicable capital adequacy requirements of the FSA or the profit of HSBC Holdings available for distribution as dividends is not sufficient to enable HSBC Holdings to pay in full both dividends on the Dollar Preference Shares in issue and dividends on any other shares that are scheduled to be paid on the same date and that have an equal right to dividends. HSBC Holdings may not declare or pay dividends on any class of its shares ranking lower in the right to dividends than the Dollar Preference Shares in issue nor redeem nor purchase in any manner any of its other shares ranking equal with or lower than the Dollar Preference Shares in issue unless it has paid in full, or set aside an amount to provide for payment in full, the dividends on the Dollar Preference Shares in issue for the then-current dividend period. The Dollar Preference Shares in issue carry no rights to conversion into ordinary shares of HSBC Holdings. Holders of the Dollar Preference Shares in issue will only be entitled to attend and vote at general meetings of shareholders of HSBC Holdings if the dividend payable on the Dollar Preference Shares in issue has not been paid in full for four consecutive dividend payment dates. In such circumstances, holders of the Dollar Preference Shares in issue will be entitled to vote on all matters put to general meetings until such time as HSBC Holdings has paid a full dividend on the Dollar Preference Shares in issue. HSBC Holdings may redeem the Dollar Preference Shares in issue in whole at any time on or after 16 December 2010, subject to prior notification to the FSA.

HSBC Holdings non-cumulative preference shares of £0.01 each

On 29 December 2010 HSBC Holdings issued one non-cumulative sterling preference share of £0.01 ('Sterling Preference Share') to facilitate the cancellation of the non-voting deferred shares and comply with the provisions of the Companies (Authorised Minimum) Regulations 2009. Dividends on the Sterling Preference Share in issue are paid quarterly at the sole and absolute discretion of the Board. The Sterling Preference Share in issue carries no rights to conversion into ordinary shares of HSBC Holdings and no rights to attend and vote at general meetings of shareholders of HSBC Holdings. HSBC Holdings may redeem the Sterling Preference Share in issue in whole at any time at the option of the Company.


HSBC Holdings non-voting deferred shares

301,500 non-voting deferred shares of £1 each were in issue throughout 2009 and up to 29 December 2010 and were held by a subsidiary of HSBC Holdings. As part of a technical internal capital reorganisation necessitated by the amended EU Capital Requirements Directive 2, which applied to HSBC Holdings from 31 December 2010, all of the non-voting deferred shares of £1 each were cancelled.

Other equity instruments

On 9 April 2008, HSBC Holdings issued, in bearer form, 88m 8.125% Perpetual Subordinated Capital Securities ('Capital Securities'), each with a par value of US$25 and with an aggregate nominal value of US$2,200m. The Capital Securities were issued at par value, raising US$2,133m, net of issuance costs. The Capital Securities were issued to support the development of and to strengthen further HSBC's capital base. Coupon payments on the Capital Securities are paid quarterly in arrears from 15 July 2008 and may be deferred at the discretion of HSBC Holdings. The Capital Securities have no fixed maturity and are redeemable at HSBC's option on or after 15 April 2013 at their principal amounts together with any accrued, unpaid and deferred coupon payments. While any coupon payments are unpaid or deferred, HSBC Holdings will not declare, pay dividends or make distributions or similar periodic payments in respect of, or repurchase, redeem or otherwise acquire any securities of lower or equal rank. At the Company's discretion, and subject to certain conditions being satisfied, the Capital Securities may be exchanged on any coupon payment date for non-cumulative preference shares to be issued by HSBC Holdings and which would rank pari passu with the dollar and sterling preference shares in issue. The preference shares will be issued at a nominal value of US$0.01 per share and a premium of US$24.99 per share, with both such amounts being subscribed and fully paid.

During June 2010, HSBC Holdings issued, in bearer form, 152m 8.00% of Perpetual Subordinated Capital Securities, Series 2 ('Capital Securities, Series 2'), each with a par value of US$25 and with an aggregate nominal value of US$3,800m. The Capital Securities, Series 2 were issued at par value, raising US$3,718m, net of issuance costs. These securities were issued on substantially the same terms as the Capital Securities issued in 2008. Coupon payments on the Capital Securities, Series 2 are paid quarterly in arrears from 15 September 2010 and may be deferred at the discretion of HSBC Holdings. The Capital Securities, Series 2 have no fixed maturity and are redeemable at HSBC's option on or after 15 December 2015 at their principal amounts together with any accrued, unpaid and deferred coupon payments. At the Company's discretion, and subject to certain conditions being satisfied, the Capital Securities, Series 2 may be exchanged on any coupon payment date for non-cumulative preference shares to be issued by HSBC Holdings and which would rank pari passu with the dollar and sterling preference shares in issue. The preference shares will be issued at a nominal value of US$0.01 per share and a premium of US$24.99 per share, with both such amounts being subscribed and fully paid.

Shares under option

Details of the options outstanding to subscribe for HSBC Holdings ordinary shares under the HSBC Holdings Group Share Option Plan, HSBC Holdings Executive Share Option Scheme, the HSBC Share Plan and HSBC Holdings savings-related share option plans are given in Note 9.

Aggregate options outstanding under these plans


                  Number of

        HSBC Holdings         ordinary shares


     Period of exercise


                  Exercise price







31 December 2010 .........................................

249,242,968


               2011 to 2016


              £3.3116 - 8.4024


47,428,892


               2011 to 2016


     HK$37.8797 - 94.5057


3,128,508


               2011 to 2016


              €3.6361 - 9.5912


10,899,415


               2011 to 2016


       US$4.8876 - 12.0958







31 December 20091 ..........................................

270,742,989


               2010 to 2015


              £3.3116 - 8.4024


50,938,242


               2010 to 2015


     HK$37.8797 - 94.5057


3,283,710


               2010 to 2015


              €3.6361 - 9.5912


12,073,216


               2010 to 2015


        US$4.8876 - 12.0958







31 December 2008 ...........................................

211,226,573


               2009 to 2015


                £5.3496 - 9.642


11,344,167


               2009 to 2014


HK$103.4401 - 108.4483


1,304,119


               2009 to 2014


            €8.6720 - 11.0062


7,382,145


               2009 to 2014


      US$13.3290 - 14.7478

During 2009, the number and prices of unexercised share options were adjusted for the rights issue.


HSBC France and subsidiary company plans

Following the acquisition of HSBC France in 2000, outstanding employee share options over HSBC France shares vested. On exercise of the options, the HSBC France shares were exchangeable for HSBC Holdings ordinary shares at the ratio of 14.917916 HSBC Holdings ordinary shares for each HSBC France.

During 2010, no employee share options (2009: nil) were exercised and no HSBC France shares were issued and exchanged for HSBC Holdings ordinary shares (2009: nil). During 2010, 604,250 options over HSBC France shares lapsed (2009: 183,627). At 31 December 2010, there are no employee share options outstanding and the HSBC Holdings Employee Benefit Trust 2001 (No. 1) held no (2009: 9,963,718) HSBC Holdings ordinary shares to exchange for HSBC France shares arising from the exercise of options.

HSBC France options effectively outstanding over HSBC Holdings ordinary shares


                  Number of

            HSBC France

shares exchangeable

  for HSBC Holdings

         ordinary shares


     Period of exercise


            Exercise price







31 December 2010 ...............................................

                                  -


                                  -


                                  -

31 December 2009 .................................................

                       604,250


                            2010


                       €142.50

31 December 2008 .................................................

                       787,877


               2009 to 2010


          €81.71 - 142.50

HSBC Private Bank France plan

There are also outstanding options over the shares of HSBC Private Bank France, a subsidiary of HSBC France.

On exercise of the options, the HSBC Private Bank France shares are exchangeable for HSBC Holdings ordinary shares at the ratio of 2.099984 HSBC Holdings ordinary shares for each HSBC Private Bank France share. During 2010, 4,420 (2009: 33,456) HSBC Private Bank France shares were issued following the exercise of employee share options and exchanged for 9,281 (2009: 70,248) HSBC Holdings ordinary shares, such shares being delivered from The CCF Employee Benefit Trust 2001 (Private Banking France). During 2010, no options over HSBC Private Bank France shares lapsed (2009: 9,000). At 31 December 2010, The CCF Employee Benefit Trust 2001 (Private Banking France) held 989,502 (2009: 998,783) HSBC Holdings ordinary shares which may be exchanged for HSBC Private Bank France shares arising from the exercise of options.

HSBC Private Bank France options effectively outstanding over HSBC Holdings ordinary shares


      Number of HSBC

Private Bank France

shares exchangeable

  for HSBC Holdings

         ordinary shares


     Period of exercise


            Exercise price







31 December 2010 ...............................................

                       287,100


               2011 to 2012


            €20.80 - 22.22

31 December 2009 .................................................

                       291,520


               2010 to 2012


            €12.44 - 22.22

31 December 2008 .................................................

                       333,976


               2009 to 2012


            €10.84 - 22.22

HSBC Finance plan

Following the acquisition of HSBC Finance in 2003, all outstanding options and equity-based awards over HSBC Finance common shares were converted into rights to receive HSBC Holdings ordinary shares in the same ratio as the share exchange offer for HSBC Finance (2.675 HSBC Holdings ordinary shares for each HSBC Finance common share) and the exercise prices per share adjusted accordingly. During 2010, 306,964 options (2009: 20,000) over HSBC Holdings ordinary shares were exercised and 306,964 (2009: 20,000) HSBC Holdings ordinary shares delivered from The HSBC (Household) Employee Benefit Trust 2003 to satisfy the exercise of these options. During 2010, options over 6,681,169 (2009: 5,606,714) HSBC Holdings ordinary shares lapsed. At 31 December 2010, the Trust held a total of 2,335,315 (2009: 2,642,279) HSBC Holdings ordinary shares and 1,455 (2009: 1,455) ADSs, which may be used to satisfy the exercise of these options and equity-based awards under the HSBC Finance share plans. Each ADS represents five HSBC Holdings ordinary shares.


Options outstanding over HSBC Holdings ordinary shares under the HSBC Finance share plan


                  Number of

        HSBC Holdings         ordinary shares


     Period of exercise


            Exercise price







31 December 2010 ...............................................

                  11,117,826


               2011 to 2012


         US$9.29 - 18.62

31 December 20091 ................................................

                  18,105,959


               2010 to 2012


          US$9.29 - 18.62

31 December 2008 .................................................

                  20,681,582


               2009 to 2012


        US$10.66 - 21.37

During 2009, the number and prices of unexercised share options were adjusted for the rights issue.

HSBC Bank Bermuda plans

Following the acquisition of HSBC Bank Bermuda in 2004, all outstanding employee share options over HSBC Bank Bermuda shares were converted into rights to receive HSBC Holdings ordinary shares based on the consideration of US$40 for each HSBC Bank Bermuda share and the average closing price of HSBC Holdings ordinary shares, derived from the London Stock Exchange Daily Official List, for the five business days preceding the closing date of the acquisition. During 2010, options over 4,781 HSBC Holdings ordinary shares were exercised (2009: 18,153) and satisfied by delivery from the HSBC (Bank of Bermuda) Employee Benefit Trust 2004. During 2010, options over 137,888 (2009: 24,673) HSBC Holdings ordinary shares lapsed. At 31 December 2010, the HSBC (Bank of Bermuda) Employee Benefit Trust 2004 held 2,108,830 (2009: 2,113,611) HSBC Holdings ordinary shares which may be used to satisfy the exercise of options.


      Number of HSBC

                    Holdings          ordinary shares

                                   

     Period of exercise


            Exercise price







31 December 2010 ...............................................

                    2,339,033


               2011 to 2013


         US$9.32 - 15.99

31 December 20091.................................................

                    2,481,702


               2010 to 2013


          US$6.13 - 15.99

31 December 2008 .................................................

                    2,205,321


               2009 to 2013


          US$7.04 - 18.35

During 2009, the number and prices of unexercised share options were adjusted for the rights issue.

Maximum obligation to deliver HSBC Holdings ordinary shares

At 31 December 2010, the maximum obligation to deliver HSBC Holdings ordinary shares under all of the above option arrangements, together with awards of Performance Shares and Restricted Shares under the HSBC Share Plan, was 558,187,326 (2009: 559,960,290). The total number of shares at 31 December 2010 held by employee benefit trusts that may be used to satisfy such obligations to deliver HSBC Holdings ordinary shares was 79,541,700 (2009: 134,903,061).

40   Notes on the statement of cash flows

Non-cash items included in profit before tax


HSBC


HSBC Holdings


2010


2009


2008


2010


2009


US$m


US$m


US$m


US$m


US$m











Depreciation, amortisation and impairment ............

2,801


2,538


13,367


2


5,947

Gains arising from dilution of interests in associates

(188)


-


-


-


-

Revaluations on investment property ......................

(93)


24


92


-


-

Share-based payment expense ..................................

812


683


819


28


21

Loan impairment losses gross of recoveries and
other credit risk provisions ..................................

15,059


27,378


25,771


-


-

Provisions ...............................................................

680


669


591


-


-

Impairment of financial investments .......................

105


358


1,042


113


-

Charge for defined benefit plans ..............................

526


192


490


-


-

Accretion of discounts and amortisation of premiums .............................................................................

(815)


(458)


(867)


42


6












18,887


31,384


41,305


185


5,974


Change in operating assets


HSBC


HSBC Holdings


2010


2009


2008


2010


2009


US$m


US$m


US$m


US$m


US$m











Change in loans to HSBC undertakings ....................

-


-


-


1,974


(11,408)

Change in prepayments and accrued income ............

457


3,198


4,178


(5)


(44)

Change in net trading securities and net derivatives .

60,337


15,388


(23,293)


1,119


354

Change in loans and advances to banks ....................

5,213


(30,354)


22,596


-


-

Change in loans and advances to customers .............

(79,283)


6,149


7,279


-


-

Change in financial assets designated at fair value ....

154


(8,911)


12,757


-


-

Change in other assets .............................................

(145)


(6,273)


(5,394)


3


21












(13,267)


(20,803)


18,123


3,091


(11,077)

 

Change in operating liabilities


HSBC


HSBC Holdings


2010


2009


2008


2010


2009


US$m


US$m


US$m


US$m


US$m











Change in accruals and deferred income ...................

716


(2,258)


(6,169)


147


131

Change in deposits by banks ....................................

(14,288)


(5,216)


(3,038)


-


-

Change in customer accounts ...................................

68,691


41,983


32,372


-


-

Change in debt securities in issue ..............................

(1,495)


(32,797)


(67,152)


(171)


21

Change in financial liabilities designated at fair value .............................................................................

5,659


7,430


(15,352)


(621)


2,411

Change in other liabilities ........................................

(17,011)


5,503


(4,074)


(1,109)


(523)












42,272


14,645


(63,413)


(1,754)


2,040

Cash and cash equivalents


HSBC


HSBC Holdings


2010


2009


2008


2010


2009


US$m


US$m


US$m


US$m


US$m











Cash at bank with HSBC undertakings ......................



-


-


459


224

Cash and balances at central banks ...........................

57,383


60,655


52,396


-


-

Items in the course of collection from other banks ..

6,072


6,395


6,003


-


-

Loans and advances to banks of one month or less ..

189,197


160,673


165,066


-


-

Treasury bills, other bills and certificates of deposit
less than three months .........................................

28,087


28,777


62,639


-


-

Less: items in the course of transmission to
other banks ..........................................................

(6,663)


(5,734)


(7,232)


-


-












274,076


250,766


278,872


459


224

Interest and dividends


HSBC


HSBC Holdings


2010


2009


2008


2010


2009


US$m


US$m


US$m


US$m


US$m











Interest paid ............................................................

(21,405)


(29,030)


(60,342)


(2,363)


(2,513)

Interest received ......................................................

63,696


74,062


107,019


1,405


1,560

Dividends received ...................................................

563


1,023


1,876


7,008


7,488

The amount of cash and cash equivalents not available for use by HSBC at 31 December 2010 was US$37,413m (2009: US$19,119m), of which US$28,780m (2009: US$11,595m) related to mandatory deposits at central banks.

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
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