Annual Financial Report - 4 of 41

RNS Number : 8229D

HSBC Holdings PLC

30 March 2011

 



Consolidated balance sheet

Five-year summary consolidated balance sheet and selected financial information

	At 31 December
	2010 US$m		2009 US$m		2008 US$m		2007 US$m		2006 US$m
ASSETS
Cash and balances at central banks ....................................	57,383		60,655		52,396		21,765		12,732
Trading assets ...................................................................	385,052		421,381		427,329		445,968		328,147
Financial assets designated at fair value .............................	37,011		37,181		28,533		41,564		20,573
Derivatives .......................................................................	260,757		250,886		494,876		187,854		103,702
Loans and advances to banks ............................................	208,271		179,781		153,766		237,366		185,205
Loans and advances to customers35 ...................................	958,366		896,231		932,868		981,548		868,133
Financial investments .......................................................	400,755		369,158		300,235		283,000		204,806
Other assets ......................................................................	147,094		149,179		137,462		155,201		137,460
Total assets ......................................................................	2,454,689		2,364,452		2,527,465		2,354,266		1,860,758
LIABILITIES AND EQUITY
Liabilities
Deposits by banks .............................................................	110,584		124,872		130,084		132,181		99,694
Customer accounts ............................................................	1,227,725		1,159,034		1,115,327		1,096,140		896,834
Trading liabilities ..............................................................	300,703		268,130		247,652		314,580		226,608
Financial liabilities designated at fair value ........................	88,133		80,092		74,587		89,939		70,211
Derivatives .......................................................................	258,665		247,646		487,060		183,393		101,478
Debt securities in issue ......................................................	145,401		146,896		179,693		246,579		230,325
Liabilities under insurance contracts ..................................	58,609		53,707		43,683		42,606		17,670
Other liabilities .................................................................	109,954		148,414		149,150		113,432		103,010
Total liabilities .................................................................	2,299,774		2,228,791		2,427,236		2,218,850		1,745,830
Equity
Total shareholders' equity ................................................	147,667		128,299		93,591		128,160		108,352
Non-controlling interests ..................................................	7,248		7,362		6,638		7,256		6,576
Total equity ......................................................................	154,915		135,661		100,229		135,416		114,928
Total equity and liabilities .................................................	2,454,689		2,364,452		2,527,465		2,354,266		1,860,758
Five-year selected financial information
Called up share capital ......................................................	8,843		8,705		6,053		5,915		5,786
Capital resources36,37 .........................................................	167,555		155,729		131,460		152,640		127,074
Undated subordinated loan capital .....................................	2,781		2,785		2,843		2,922		3,219
Preferred securities and dated subordinated loan capital38 ..	54,421		52,126		50,307		49,472		42,642
Risk weighted assets and capital ratios36
Risk weighted assets ..........................................................	1,103,113		1,133,168		1,147,974		1,123,782		938,678
	%		%		%		%		%
Tier 1 ratio .......................................................................	12.1		10.8		8.3		9.3		9.4
Total capital ratio ............................................................	15.2		13.7		11.4		13.6		13.5
Financial statistics
Loans and advances to customers as a percentage of customer accounts .........................................................	78.1		77.3		83.6		89.5		96.8
Average total shareholders' equity to average total assets .	5.53		4.72		4.87		5.69		5.97
Net asset value per ordinary share at year-end39 (US$) ......	7.94		7.17		7.44		10.72		9.24
Number of US$0.50 ordinary shares in issue (millions) ......	17,686		17,408		12,105		11,829		11,572
Closing foreign exchange translation rates to US$:
US$1: £ ............................................................................	0.644		0.616		0.686		0.498		0.509
US$1: € ............................................................................	0.748		0.694		0.717		0.679		0.759

For footnotes, see page 83.

A more detailed consolidated balance sheet is contained in the Financial Statements on page 240.

Movement in 2010

Total assets amounted to US$2.5 trillion, 4% higher than at 31 December 2009. Excluding the effect of currency movements, underlying total assets increased by 5%. This reflected higher mortgage lending in Hong Kong and the UK, strong demand for commercial loans and a rise in trading assets in North America and Asia as a result of customer demand, supported by improved liquidity generated by higher deposits and our debt issuance programme.

The Group's reported tier 1 ratio increased from 10.8% to 12.1% due to the contribution from profits attributable to shareholders for the year net of dividends paid, the issue of hybrid capital securities net of redemptions, and a reduction in the reported level of risk-weighted assets ('RWA's). The latter was driven by a decline in some retail portfolio exposures in North America as a result of run-off, partly offset by the effect of lending growth in Asia. Market risk RWAs decreased as a result of reduced volatility and continuing exposure management. For more details of capital and RWAs, see page 177.

The following commentary is on an underlying basis.

Assets

Cash and balances at central banks decreased by 4% as a result of lower year-end cash balances in North America as excess liquidity was redeployed into highly-rated government debt securities. This was partly offset by higher year-end cash balances in Europe.

Trading assets fell by 6%, due to the deconsolidation of the Constant Net Asset Value ('CNAV') funds totalling US$44bn (see Note 43 on the Financial Statements). This was offset, in part, by higher issuance of and customer demand for government and government agency debt securities, particularly in North America and Asia, and an increase in holdings of equities to hedge derivative positions arising from a rise in client trading activity. Higher customer-driven trading volumes also resulted in an increase in reverse repo balances in North America; this was partly offset by a reduction in reverse repo balances in Europe due to market uncertainty.

Strong increase in loans and advances to customers and customer accounts, notably in Asia, drove balance sheet growth.

Financial assets designated at fair value grew by 3% due to an increase in volumes in equity funds and a rise in the fair value of equity securities held within the insurance business, particularly in Europe and Hong Kong, as market values recovered and client risk appetite returned. This was partly offset by the sale of European government debt securities by Balance Sheet Management.

Derivative assets rose by 8%. This was driven by increases in the fair value of interest rate contracts as a result of downward shifts of major yield curves, offset by higher netting from increased trading with clearing houses. The notional value of outstanding contracts also rose, reflecting an increase in the number of open transactions compared with 2009.

Loans and advances to banks increased by 16% due to higher placements with commercial and central banks in Europe and Latin America.

Loans and advances to customers grew by 8% as we targeted commercial loans and, in the improved economic conditions, demand grew from customers, notably in Asia. The increase in demand for credit, along with competitive pricing, also drove continued growth in mortgage lending in Hong Kong and the UK, though mortgage balances declined in North America as the Consumer Lending and Mortgage Services portfolios continued to run off and credit card lending fell.

Financial investments rose by 9%, mainly in North America and Europe, as Balance Sheet Management redeployed cash into available-for-sale treasury bills and government agency debt securities. This was partly offset by a decline in financial investments in Asia, as a result of disposals and debt securities that matured and were not replaced to support growth in commercial lending.

Liabilities

Deposits by banks decreased by 8%, reflecting a notable decline in central bank deposits in Europe which was partly offset by an increase in central bank deposits in Asia.

Customer accounts were 7% higher, driven by an overall increase in savings and current accounts across most regions, particularly in Asia and Europe. Growth in Premier and online savings contributed to a significant increase in current account balances as customers responded well to targeted promotional campaigns.

Trading liabilities increased by 16%. Higher repo balances in North America were reported as a result of increased trading volumes of treasury and corporate bonds driven by market volatility in the bond market. In Europe, short bond and equity positions used to hedge derivative transactions increased, reflecting higher client demand.

Financial liabilities designated at fair value rose by 12% due to debt issuances by HSBC entities in Europe during 2010.

Derivative businesses are managed within market risk limits and, as a consequence, the increase in the value of derivative liabilities broadly matched that of derivative assets.

Debt securities in issue were in line with 2009, as new issuances of medium-term notes by HSBC entities in Europe during 2010 were offset by lower funding requirements in North America as the consumer finance portfolios in run-off declined.

Liabilities under insurance contracts grew by 12%. This was driven by strong life insurance sales in Hong Kong following the launch of several new products, and gains on unit-linked products as investment market values improved.

Other liabilities were 26% lower than at 31 December 2009 due to the deconsolidation of the CNAV funds (see 'Trading assets' above).

Equity

Total shareholders' equity increased by 17%, driven by profits generated during the year and the issue of Perpetual Subordinated Capital Securities, a form of tier 1 hybrid capital securities, in June 2010. In addition, the negative balance on the available-for‑sale reserve declined from US$10.0bn at 31 December 2009 to US$4.1bn at 31 December 2010, largely reflecting improvements in the market value of assets.

Reconciliation of reported and underlying assets and liabilities

	31 December 2010 compared with 31 December 2009
	31 Dec 09               as    reported		Currency Translation40		31 Dec 09     at 31 Dec 10    exchange            rates		Under-          lying       change		31 Dec 10               as    reported		Reported       change		Under-          lying       change
HSBC	US$m		US$m		US$m		US$m		US$m		%		%
Cash and balances at central banks .....	60,655		(731)		59,924		(2,541)		57,383		(5)		(4)
Trading assets .......	421,381		(12,483)		408,898		(23,846)		385,052		(9)		(6)
Financial assets designated at fair value .......	37,181		(1,134)		36,047		964		37,011		-		3
Derivative assets ...	250,886		(9,285)		241,601		19,156		260,757		4		8
Loans and advances to banks ............	179,781		(5)		179,776		28,495		208,271		16		16
Loans and advances to customers ..........	896,231		(10,788)		885,443		72,923		958,366		7		8
Financial investments .......	369,158		(268)		368,890		31,865		400,755		9		9
Other assets ..........	149,179		(1,826)		147,353		(259)		147,094		(1)		-
Total assets ...........	2,364,452		(36,520)		2,327,932		126,757		2,454,689		4		5
Deposits by banks .	124,872		(4,182)		120,690		(10,106)		110,584		(11)		(8)
Customer accounts	1,159,034		(8,064)		1,150,970		76,755		1,227,725		6		7
Trading liabilities ..	268,130		(8,660)		259,470		41,233		300,703		12		16
Financial liabilities designated at fair value .......	80,092		(1,570)		78,522		9,611		88,133		10		12
Derivative liabilities ..........................	247,646		(9,262)		238,384		20,281		258,665		4		9
Debt securities in issue ..................	146,896		(1,066)		145,830		(429)		145,401		(1)		-
Liabilities under insurance contracts ...........	53,707		(1,593)		52,114		6,495		58,609		9		12
Other liabilities .....	148,414		(431)		147,983		(38,029)		109,954		(26)		(26)
Total liabilities ......	2,228,791		(34,828)		2,193,963		105,811		2,299,774		3		5
Total shareholders' equity ................	128,299		(1,679)		126,620		21,047		147,667		15		17
Non-controlling interests ............	7,362		(13)		7,349		(101)		7,248		(2)		(1)
Total equity ..........	135,661		(1,692)		133,969		20,946		154,915		14		16
Total equity and liabilities ............	2,364,452		(36,520)		2,327,932		126,757		2,454,689		4		5

For footnote, see page 83.

In 2010, the effect of acquisitions was not material.

Economic profit

Our internal performance measures include economic profit/(loss), a calculation which compares the return on financial capital invested in HSBC by our shareholders with the cost of that capital. We price our cost of capital internally and the difference between that cost and the post-tax profit attributable to ordinary shareholders represents the amount of economic profit/(loss) generated. Economic profit/(loss) generated is used by management as one input in deciding where to allocate capital and other resources.

In order to concentrate on external factors rather than measurement bases, we emphasise the trend in economic profit/(loss) ahead of absolute amounts within business units. Our long-term cost of capital is reviewed annually and for 2010 it was revised to 11% from the 10% used in 2009. We use a Capital Asset Pricing Model to determine our cost of capital. The main drivers of the increase were an increase in the risk free rate and an increase in the betas used in the calculation. The following commentary is on a reported basis.

Our economic loss decreased by US$4.7bn to US$3.3bn as a result of an increase in profit attributable to shareholders. This was predominantly driven by lower loan impairment charges across all regions and customer groups, notably in the US due to lower balances and decreased delinquency rates in Card and Retail Services, and the run-off of the Consumer Lending and mortgage services portfolio.

The increase in average invested capital reflected higher retained earnings and a significant decrease in reserves representing unrealised losses on available-for-sale securities due to a slowing in the rate of anticipated losses in the underlying collateral pools.

The return on invested capital increased by 4.6 percentage points, although it remained below our benchmark cost of capital. The economic spread improved by 3.6 percentage points, the result of an increase in return on invested capital, partly offset by the rise in the cost of capital in 2010.

	2010				2009
	US$m		%41		US$m		%40
Average total shareholders' equity ............................................................	138,224				115,431
Adjusted by:
Goodwill previously amortised or written off .........................................	8,123				8,123
Property revaluation reserves ...............................................................	(813)				(799)
Reserves representing unrealised losses on effective cash flow hedges ....	100				385
Reserves representing unrealised losses on available-for-sale securities ...	6,129				16,189
Preference shares and other equity instruments .....................................	(5,473)				(3,538)
Average invested capital42 .........................................................................	146,290				135,791
Return on invested capital43 ......................................................................	12,746		8.7		5,565		4.1
Benchmark cost of capital ........................................................................	(16,092)		(11.0)		(13,579)		(10.0)
Economic loss and spread .........................................................................	(3,346)		(2.3)		(8,014)		(5.9)

For footnotes, see page 83.

 

END

 

 

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