Half-year Report 2b of 2

RNS Number : 4698K

HSBC Holdings PLC

28 August 2019

 

 

Footnotes to Risk

Credit risk profile

1	Total ECL is recognised in the loss allowance for the financial asset unless total ECL exceeds the gross carrying amount of the financial asset, in which case the ECL is recognised as a provision.
2	Includes only those financial instruments which are subject to the impairment requirements of IFRS 9. 'Prepayments, accrued income and other assets', as presented within the consolidated balance sheet on page 84, includes both financial and non-financial assets.
3	Represents the maximum amount at risk should the contracts be fully drawn upon and clients default.
4	Debt instruments measured at FVOCI continue to be measured at fair value with the allowance for ECL as a memorandum item. Change in ECL is recognised in 'Change in expected credit losses and other credit impairment charges' in the income statement.
5	Purchased or originated credit impaired ('POCI').
6	Days past due ('DPD'). Up-to-date accounts in stage 2 are not shown in amounts.
7	The 31 December 2018 comparative 'Reconciliation of changes in gross carrying/nominal amount and allowances for loans and advances to banks and customers' disclosure presents 'New financial assets originated or purchased', 'Assets derecognised (including final repayments)' and 'Changes to risk parameters - further lending/repayments' under 'Net new lending and further lending/repayments'. To provide greater granularity, these amounts have been separately presented in the 30 June 2019 disclosure. The 31 December 2018 total ECL income statement change of $1,893m is attributable to $501m for the six months ended 30 June 2018 and $1,392m to the six months ended 31 December 2018.
8	For the purposes of this disclosure, gross carrying value is defined as the amortised cost of a financial asset, before adjusting for any loss allowance. As such, the gross carrying value of debt instruments at FVOCI will not reconcile to the balance sheet as it excludes fair value gains and losses.
9	US mortgage-backed securities.
10	Included in loans and other credit-related commitments and financial guarantees is $97bn (31 December 2018: $65bn) relating to unsettled reverse repurchase agreements, which once drawn are classified as 'Reverse repurchase agreements - non-trading'.
11	Real estate lending within this disclosure corresponds solely to the industry of the borrower.

Liquidity and funding risk profile

12	The Hongkong and Shanghai Banking Corporation - Hong Kong branch and The Hongkong and Shanghai Banking Corporation - Singapore branch represent the material activities of The Hongkong and Shanghai Banking Corporation. Each branch is monitored and controlled for liquidity and funding risk purposes as a stand-alone operating entity.
13	The total shown for other principal HSBC operating entities represents the combined position of all the other operating entities overseen directly by the Risk Management Meeting of the Group Management Board.
14	The comparative figure for June 2018 has been re-presented to reflect revised data.

Market risk profile

15

When VaR is calculated at a portfolio level, natural offsets in risk can occur when compared with aggregating VaR at the asset class level. This difference is called portfolio diversification. The asset class VaR maxima and minima reported in the table occurred on different dates within the reporting period. For this reason, we do not report an implied portfolio diversification measure between the maximum (minimum) asset class VaR measures and the maximum (minimum) Total VaR measures in this table.

Insurance manufacturing operations risk profile

16	Does not include associates (Canara HSBC Oriental Bank of Commerce Life Insurance Company Limited).
17	'Other contracts' includes term assurance, credit life insurance, universal life insurance and certain investment contracts not included in the 'Unit-linked' or 'With DPF' columns.
18	Comprise mainly loans and advances to banks, cash and inter-company balances with other non-insurance legal entities.
19	Present value of in-force long-term insurance business.
20	'Deferred tax' includes the deferred tax liabilities arising on recognition of PVIF.

Capital
	Page
Capital overview	85
Capital management	85
Own funds	86
Risk-weighted assets	88
Leverage ratio	90
Regulatory disclosures	90

Our objective in managing Group capital is to maintain appropriate levels to support our business strategy, and meet our regulatory and stress testing related requirements.

Capital overview

Capital ratios1
	At
	30 Jun		31 Dec
	2019		2018
	%		%
Transitional basis
Common equity tier 1 ratio	14.3		14.0
Tier 1 ratio	17.2		17.0
Total capital ratio	20.1		20.0
End point basis
Common equity tier 1 ratio	14.3		14.0
Tier 1 ratio	16.9		16.6
Total capital ratio	18.7		19.4

Total regulatory capital and risk-weighted assets1
	At
	30 Jun		31 Dec
	2019		2018
	$m		$m
Transitional basis
Common equity tier 1 capital	126,949		121,022
Additional tier 1 capital	25,878		26,120
Tier 2 capital	25,432		26,096
Total regulatory capital	178,259		173,238
Risk-weighted assets	885,971		865,318
End point basis
Common equity tier 1 capital	126,949		121,022
Additional tier 1 capital	22,363		22,525
Tier 2 capital	16,107		24,511
Total regulatory capital	165,419		168,058
Risk-weighted assets	885,971		865,318

RWAs by risk type
	RWAs		Capital required2
	$bn		$bn
Credit risk	709.5		56.8
Counterparty credit risk	50.6		4.0
Market risk	34.8		2.8
Operational risk	91.1		7.3
At 30 Jun 2019	886.0		70.9

1     Capital figures and ratios at 30 June 2019 are calculated in accordance with the revisions to the Capital Requirements Regulation ('CRR II'). Prior period capital figures are reported under the Capital Requirements Regulation and Directive ('CRD IV'). Unless otherwise stated, all figures are calculated using the EU's regulatory transitional arrangements for IFRS 9 'Financial Instruments' in article 473a of the Capital Requirements Regulation.

2     'Capital required' represents the minimum total capital charge set at 8% of risk-weighted assets by article 92 of the Capital Requirements Regulation.

Capital management

Approach and policy

Our approach to capital management is driven by our strategic and organisational requirements, taking into account the regulatory, economic and commercial environment. We aim to maintain a strong capital base to support the risks inherent in our business and invest in accordance with our strategy, meeting both consolidated and local regulatory capital requirements at all times.

Our policy on capital management is underpinned by a capital management framework and our internal capital adequacy assessment process ('ICAAP'), which helps enable us to manage our capital in a consistent manner. The framework incorporates a number of different capital measures calculated on an economic capital and regulatory capital basis. The ICAAP is an assessment of our capital position, outlining both regulatory and internal capital resources and requirements with our business model, strategy, performance and planning, risks to capital, and the implications of stress testing to capital.

Our assessment of capital adequacy is aligned to our assessment of risks. These risks include credit, market, operational, pensions, insurance, structural foreign exchange, residual risk and interest rate risk in the banking book.

Planning and performance

Capital and risk-weighted asset ('RWA') plans form part of the annual operating plan that is approved by the Board. Revised RWA forecasts are submitted to the Group Management Board on a monthly basis, and reported RWAs are monitored against the plan.

The responsibility for global capital allocation principles rests with the Group Chief Financial Officer. Through our internal governance processes, we seek to maintain discipline over our investment and capital allocation decisions, and seek to ensure that returns on investment meet the Group's management objectives. Our strategy is to allocate capital to businesses and entities to support growth objectives where returns above internal hurdle levels have been identified and in order to meet their regulatory and economic capital needs.

We manage business returns by using a return on tangible equity ('RoTE') measure.

Risks to capital

Outside the stress testing framework, other risks may be identified that have the potential to affect our RWAs and/or capital position. The Downside or Upside scenarios are assessed against our capital management objectives and mitigating actions are assigned as necessary.

We closely monitor and consider future regulatory change. We continue to evaluate the impact upon our capital requirements of regulatory developments, including the amendments to the Capital Requirements Regulation, the Basel III reforms package, and the UK's withdrawal from the EU. There remains a significant degree of uncertainty due to the number of national discretions within Basel's reforms, the need for further supporting technical standards to be developed and the lack of clarity regarding their implementation following the UK's withdrawal from the EU.

Although it remains premature to provide details of an impact, we currently anticipate potential for an increase in RWAs. The primary drivers include changes in market risk, operational risk calculations and credit valuation adjustment ('CVA') methodologies, as well as the potential loss of equivalence for certain investments in funds and the introduction of an output floor.

Further details can be found in the 'Regulatory developments' section of the Group's Pillar 3 Disclosures at 30 June 2019.

Stress testing

In addition to annual internal stress tests, we are subject to supervisory stress testing in many jurisdictions. Supervisory stress testing requirements are increasing in frequency and in the granularity with which the results are required. These exercises include the programmes of the UK Prudential Regulation Authority ('PRA'), the US Federal Reserve Board, the European Banking Authority, the European Central Bank and the Hong Kong Monetary Authority, as well as stress tests undertaken in other jurisdictions. We take into account the results of regulatory stress testing and our internal stress tests when assessing our internal capital requirements. The outcome of stress testing exercises carried out by the PRA also feeds into a PRA buffer under Pillar 2 requirements, where required.

Capital generation

HSBC Holdings is the provider of equity capital to its subsidiaries and also provides them with non-equity capital where necessary. These investments are substantially funded by HSBC Holdings' own capital issuance and profit retention. As part of its capital management process, HSBC Holdings seeks to maintain a prudent balance between the composition of its capital and its investment in subsidiaries, including management of double leverage.

Double leverage is a measure of holding company leverage, and reflects the extent to which equity investments in operating entities are funded by holding company debt. Where Group capital requirements are less than the aggregate of operating entity capital requirements, double leverage can be used to improve Group capital efficiency provided it is managed appropriately.

HSBC manages double leverage having close regard to rating agency and regulatory constraints, notably PRA policy in this area. As a matter of long-standing policy, the holding company retains a substantial portfolio of high-quality liquid assets (currently in excess of $12bn) to mitigate holding company cash flow risk arising from double leverage and underpin the strength of support the holding company can offer its subsidiaries in times of stress. Further mitigation is provided by additional tier 1 ('AT1') securities issued in excess of the regulatory requirements of our subsidiaries.

Own funds

Own funds disclosure
		At
		30 Jun		31 Dec
		2019		2018
Ref*		$m		$m
6	Common equity tier 1 capital before regulatory adjustments	161,348		155,483
28	Total regulatory adjustments to common equity tier 1	(34,399	)	(34,461	)
29	Common equity tier 1 capital	126,949		121,022
36	Additional tier 1 capital before regulatory adjustments	25,938		26,180
43	Total regulatory adjustments to additional tier 1 capital	(60	)	(60	)
44	Additional tier 1 capital	25,878		26,120
45	Tier 1 capital	152,827		147,142
51	Tier 2 capital before regulatory adjustments	26,625		26,729
57	Total regulatory adjustments to tier 2 capital	(1,193	)	(633	)
58	Tier 2 capital	25,432		26,096
59	Total capital	178,259		173,238
60	Total risk-weighted assets	885,971		865,318
	Capital ratios	%		%
61	Common equity tier 1 ratio	14.3		14.0
62	Tier 1 ratio	17.2		17.0
63	Total capital ratio	20.1		20.0

*     The references identify the lines prescribed in the EBA template.

At 30 June 2019, our common equity tier 1 ('CET1') capital ratio increased to 14.3% from 14.0% at 31 December 2018. This was primarily due to CET1 capital growth during the period and was partly offset by the $20.7bn rise in RWAs.

CET1 capital increased in 1H19 by $5.9bn, mainly as a result of:

•     capital generation of $4.7bn through profits, net of cash and scrip dividends;

•     a $1.3bn increase in the fair value through other comprehensive income reserve; and

•     a $0.6bn decrease in threshold deductions as a result of an increase in the CET1 capital base.

These increases were partly offset by a $1.6bn increase in the deduction for goodwill and intangible assets.

As part of a review of the Group's outstanding capital instruments, it was determined that six tier 2 instruments issued by HSBC USA Inc, HSBC Finance Corporation and HSBC Bank Canada should no longer be included in tier 2 capital for the Group. The instruments with a total face value of $1.7bn were previously designated as grandfathered tier 2 under prevailing regulation and contributed $0.7bn to the Group's tier 2 capital at 31 March 2019. The local capital treatment of these instruments is unchanged. 

Risk-weighted assets

RWAs

Risk-weighted assets ('RWAs') increased by $20.7bn during the first half of the year, including an increase of $1.1bn due to foreign currency translation differences. Excluding foreign currency translation differences, the $19.6bn increase comprised growth of $27.8bn from asset size, $1.4bn from changes in asset quality, and $0.3bn from acquisitions and disposals, partly offset by reductions of $9.6bn due to methodology and policy changes and $0.3bn from model updates.

The following comments describe RWA movements excluding foreign currency translation differences.

Asset size

The $27.8bn increase due to asset size movements included lending growth of $11.5bn in CMB, $3.3bn in RBWM and $1.8bn in GB&M, mostly in Asia, Europe and Latin America.

Corporate Centre RWAs grew by $4.8bn, largely in Asia, notably as a result of a $1.9bn increase in the value of significant holdings and a $1.3bn increase from money market lending.

An increase of $4.6bn in GB&M counterparty credit risks, mostly in Europe, largely comprised mark-to-market movements that included the effects of heightened market uncertainty, increased volumes of securities financing transactions, and new derivative trades. Market risk RWAs increased by $1.8bn, notably due to higher sovereign exposures.

Asset quality

The $1.4bn increase in RWAs from asset quality was concentrated in CMB, Corporate Centre and GB&M. There was a $2.4bn increase in Europe and Asia, which was partly offset by a decrease of $1bn across North America and Latin America. These movements were primarily due to changes in portfolio mix.

Acquisitions and disposals

The merger in June between The Saudi British Bank and Alawwal bank increased RWAs attributable to HSBC's interests in associates by $0.3bn.

Methodology and policy

The $9.6bn reduction in RWAs due to methodology and policy changes largely comprised $11.1bn of management initiatives and a $2.8bn decrease in market risk RWAs due to increased diversification benefits following regulatory approval to expand the scope of consolidation. These were partly offset by a $4.5bn increase in tangible fixed assets within Corporate Centre as a result of implementing IFRS 16 'Leases' with effect from 1 January 2019, recognising right-of-use assets previously accounted for under operating leases.

Model updates

The $0.3bn reduction in RWAs from model updates mainly resulted from the application of internal ratings based models to receivables finance in North America. 

RWAs by global business
	RBWM		CMB		GB&M		GPB		Corporate Centre		Total
	$bn		$bn		$bn		$bn		$bn		$bn
Credit risk	101.2		303.2		172.6		13.4		119.1		709.5
Counterparty credit risk	-		-		48.7		0.3		1.6		50.6
Market risk	-		-		32.3		-		2.5		34.8
Operational risk	27.8		24.4		30.9		2.8		5.2		91.1
At 30 Jun 2019	129.0		327.6		284.5		16.5		128.4		886.0

RWAs by geographical region
		Europe		Asia		MENA		North America		Latin America		Total
	Footnotes	$bn		$bn		$bn		$bn		$bn		$bn
Credit risk		224.4		301.9		47.8		104.0		31.4		709.5
Counterparty credit risk		29.1		9.6		1.3		9.2		1.4		50.6
Market risk	1	28.6		20.7		1.6		8.6		1.7		34.8
Operational risk		27.3		39.5		6.8		11.7		5.8		91.1
At 30 Jun 2019		309.4		371.7		57.5		133.5		40.3		886.0

1     Market risk RWAs are non-additive across geographical regions due to diversification effects within the Group.

RWA movement by global businesses by key driver
	Credit risk, counterparty credit risk and operational risk
	RBWM		CMB		GB&M		GPB		Corporate Centre		Market risk		Total RWAs
	$bn		$bn		$bn		$bn		$bn		$bn		$bn
RWAs at 1 Jan 2019	126.9		321.2		248.6		16.8		116.0		35.8		865.3
Asset size	3.3		11.5		6.4		-		4.8		1.8		27.8
Asset quality	(0.2	)	0.7		0.4		(0.2	)	0.7		-		1.4
Model updates	(0.1	)	-		(0.2	)	-		-		-		(0.3	)
Methodology and policy	(1.0	)	(6.2	)	(3.3	)	(0.1	)	3.8		(2.8	)	(9.6	)
Acquisitions and disposals	-		-		-		-		0.3		-		0.3
Foreign exchange movements	0.1		0.4		0.3		-		0.3		-		1.1
Total RWA movement	2.1		6.4		3.6		(0.3	)	9.9		(1.0	)	20.7
RWAs at 30 Jun 2019	129.0		327.6		252.2		16.5		125.9		34.8		886.0

RWA movement by geographical region by key driver
	Credit risk, counterparty credit risk and operational risk
	Europe		Asia		MENA		North America		Latin America		Market risk		Total RWAs
	$bn		$bn		$bn		$bn		$bn		$bn		$bn
RWAs at 1 Jan 2019	274.1		340.6		54.8		123.1		36.9		35.8		865.3
Asset size	9.0		12.8		1.0		1.2		2.0		1.8		27.8
Asset quality	1.1		1.3		-		(0.5	)	(0.5	)	-		1.4
Model updates	(0.1	)	-		-		(0.2	)	-		-		(0.3	)
Methodology and policy	(2.6	)	(4.5	)	(0.2	)	0.3		0.2		(2.8	)	(9.6	)
Acquisitions and disposals	-		-		0.3		-		-		-		0.3
Foreign exchange movements	(0.7	)	0.8		-		1.0		-		-		1.1
Total RWA movement	6.7		10.4		1.1		1.8		1.7		(1.0	)	20.7
RWAs at 30 Jun 2019	280.8		351.0		55.9		124.9		38.6		34.8		886.0

Leverage ratio

		30 Jun		31 Dec
		2019		2018
Ref*		$bn		$bn
20	Tier 1 capital	149.3		143.5
21	Total leverage ratio exposure	2,786.5		2,614.9
		%		%
22	Leverage ratio	5.4		5.5
EU-23	Choice of transitional arrangements for the definition of the capital measure	Fully phased-in		Fully phased-in
	UK leverage ratio exposure - quarterly average1	2,550.1		2,464.4
		%		%
	UK leverage ratio - quarterly average	5.8		5.8
	UK leverage ratio - quarter end	5.8		6.0

*     The references identify the lines prescribed in the EBA template.

1       UK leverage ratio here and below denotes the Group's leverage ratio calculated under the PRA's UK leverage framework 

Our leverage ratio calculated in accordance with the Capital Requirements Regulation was 5.4% at 30 June 2019, down from 5.5% at 31 December 2018, mainly due to balance sheet growth.

The Group's UK leverage ratio at 30 June 2019 was 5.8%. This measure excludes qualifying central bank balances from the calculation of exposure.

At 30 June 2019, our UK minimum leverage ratio requirement of 3.25% was supplemented by an additional leverage ratio buffer of 0.7% and a countercyclical leverage ratio buffer of 0.2%. These additional buffers translated into capital values of $18.0bn and $6.1bn, respectively. We exceeded these leverage requirements.

Regulatory disclosures

Pillar 3 disclosure requirements

Pillar 3 of the Basel regulatory framework is related to market discipline and aims to make financial services firms more 
transparent by requiring publication of wide-ranging information on their risks, capital and management. Our Pillar 3 Disclosures at 30 June 2019 is expected to be published on or around 5 August 2019 on our website, www.hsbc.com/investors.

Directors' responsibility statement

The Directors¹ are required to prepare the financial statements on a going concern basis unless it is not appropriate. They are satisfied that the Group has the resources to continue in business for the foreseeable future and that the financial statements continue to be prepared on a going concern basis.

The Directors confirm that to the best of their knowledge:

•     the financial statements have been prepared in accordance with IAS 34 'Interim Financial Reporting' as adopted by the EU;

•     this Interim Report 2019 gives a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and

•     this Interim Report 2019 includes a fair review of the information required by:

-     DTR 4.2.7R of the Disclosure Guidance and Transparency Rules, being an indication of: important events that have occurred during the first six months of the financial year ending 31 December 2019 and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

-     DTR 4.2.8R of the Disclosure Guidance and Transparency Rules, being: related party transactions that have taken place in the first six months of the financial year ending 31 December 2019, which have materially affected the financial position or performance of HSBC during that period; and any changes in the related parties transactions described in the Annual Report and Accounts 2018 that could materially affect the financial position or performance of HSBC during the first six months of the financial year ending 31 December 2019. 

On behalf of the Board

Mark E Tucker

Group Chairman

5 August 2019 

 1    Kathleen Casey*, Laura Cha*, Henri de Castries*, Irene Lee*, José Meade*, Heidi Miller*, Marc Moses, David Nish*, Noel Quinn, Ewen Stevenson, Jonathan Symonds*, Jackson Tai*, Mark Tucker and Pauline van der Meer Mohr*. 

*     Independent non-executive Director.

Independent review report to HSBC Holdings plc

Report on the interim condensed consolidated financial statements

Our conclusion

We have reviewed HSBC Holdings plc's interim condensed consolidated financial statements (the "interim financial statements") in the interim report of HSBC Holdings plc and its subsidiaries (the 'Group') for the 6 month period ended 30 June 2019. Based on our review, nothing has come to our attention that causes us to believe that the interim financial statements are not prepared, in all material respects, in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

What we have reviewed

The interim financial statements comprise:

•     the consolidated balance sheet as at 30 June 2019;

•     the consolidated income statement and consolidated statement of comprehensive income for the six month period then ended;

•     the consolidated statement of cash flows for the six month period then ended;

•     the consolidated statement of changes in equity for the six month period then ended; and

•     the notes to the financial statements and certain other information¹.

The interim financial statements included in the interim report have been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

As disclosed in Note 1 to the interim financial statements, the financial reporting framework that has been applied in the preparation of the full annual financial statements of the Group is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.

Responsibilities for the interim financial statements and the review

Our responsibilities and those of the directors

The interim report, including the financial statements is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the interim report in accordance with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

Our responsibility is to express a conclusion on the interim financial statements in the interim report based on our review. This report, including the conclusion, has been prepared for and only for the company for the purpose of complying with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority and for no other purpose. We do not, in giving this conclusion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

What a review of financial statements involves

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.

A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

We have read the other information contained in the interim report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the interim financial statements.

PricewaterhouseCoopers LLP

Chartered Accountants

London, United Kingdom

5 August 2019

1     Certain other information comprises the following tables: "HSBC adjusted profit before tax and balance sheet data" (excluding adjusted risk-weighted assets), "Adjusted results reconciliation", "Adjusted balance sheet reconciliation", "Adjusted profit reconciliation", ''Reconciliation of changes in gross carrying/nominal amount and allowances for loans and advances to banks and customers including loan commitments and financial guarantees" and "Distribution of financial instruments to which the impairment requirements of IFRS 9 are applied, by credit quality and stage allocation".

Financial statements
	Page
Consolidated income statement	93
Consolidated statement of comprehensive income	94
Consolidated balance sheet	95
Consolidated statement of cash flows	96
Consolidated statement of changes in equity	97

Consolidated income statement
		Half-year to
		30 Jun		30 Jun		31 Dec
		2019		2018		2018
	Notes	$m		$m		$m
Net interest income		15,240		15,100		15,389
-  interest income		27,750		23,422		26,187
-  interest expense		(12,510	)	(8,322	)	(10,798	)
Net fee income	2	6,124		6,767		5,853
-  fee income		7,804		8,469		7,575
-  fee expense		(1,680	)	(1,702	)	(1,722	)
Net income from financial instruments held for trading or managed on a fair value basis		5,331		4,883		4,648
Net income/(expense) from assets and liabilities of insurance businesses, including related derivatives, measured at fair value through profit or loss		2,196		(222	)	(1,266	)
Changes in fair value of long-term debt and related derivatives		88		(126	)	29
Changes in fair value of other financial instruments mandatorily measured at fair value through profit or loss		457		345		350
Gains less losses from financial investments		201		124		94
Dividend income		38		41		34
Net insurance premium income		6,323		5,776		4,883
Other operating income		2,034		359		526
Total operating income		38,032		33,047		30,540
Net insurance claims and benefits paid and movement in liabilities to policyholders		(8,660	)	(5,760	)	(4,047	)
Net operating income before change in expected credit losses and other credit impairment charges		29,372		27,287		26,493
Change in expected credit losses and other credit impairment charges		(1,140	)	(407	)	(1,360	)
Net operating income		28,232		26,880		25,133
Employee compensation and benefits		(9,255	)	(8,836	)	(8,537	)
General and administrative expenses		(6,372	)	(7,767	)	(7,586	)
Depreciation and impairment of property, plant and equipment and right-of-use assets1		(1,010	)	(568	)	(551	)
Amortisation and impairment of intangible assets and goodwill		(512	)	(378	)	(436	)
Total operating expenses		(17,149	)	(17,549	)	(17,110	)
Operating profit		11,083		9,331		8,023
Share of profit in associates and joint ventures		1,324		1,381		1,155
Profit before tax		12,407		10,712		9,178
Tax expense		(2,470	)	(2,296	)	(2,569	)
Profit for the period		9,937		8,416		6,609
Attributable to:
-  ordinary shareholders of the parent company		8,507		7,173		5,435
-  preference shareholders of the parent company		45		45		45
-  other equity holders		664		530		499
-  non-controlling interests		721		668		630
Profit for the period		9,937		8,416		6,609
		$		$		$
Basic earnings per ordinary share	4	0.42		0.36		0.27
Diluted earnings per ordinary share	4	0.42		0.36		0.27

    The accompanying notes on pages 89 to 109, the sections in 'Global businesses' (excluding adjusted risk-weighted assets and 'Reconciliation of reported and adjusted items - global businesses') on pages 29 to 32, and the following disclosures in the Risk section on pages 54 to 68 form an integral part of these financial statements: 'Distribution of financial instruments to which the impairment requirements of IFRS 9 are applied, by credit quality and stage allocation' and 'Reconciliation of changes in gross carrying/nominal amount and allowances for loans and advances to banks and customers including loan commitments and financial guarantees'.

For footnotes, see page 88.

For Notes, see page 89.

Consolidated statement of comprehensive income
	Half-year to
	30 Jun		30 Jun		31 Dec
	2019		2018		2018
	$m		$m		$m
Profit for the period	9,937		8,416		6,609
Other comprehensive income/(expense)
Items that will be reclassified subsequently to profit or loss when specific conditions are met:
Debt instruments at fair value through other comprehensive income	1,015		(265	)	22
-  fair value gains/(losses)	2,141		(658	)	490
-  fair value (gains)/losses transferred to the income statement on disposal	(794	)	329		(424	)
-  expected credit losses recognised in income statement	(5	)	(91	)	(3	)
-  income taxes	(327	)	155		(41	)
Cash flow hedges	239		(68	)	87
-  fair value gains/(losses)	241		(276	)	9
-  fair value losses reclassified to the income statement	68		184		133
-  income taxes and other movements	(70	)	24		(55	)
Share of other comprehensive income/(expense) of associates and joint ventures	73		(57	)	(7	)
-  share for the period	85		(57	)	(7	)
-  fair value gains transferred to the income statement on disposal	(12	)	-		-
Exchange differences	109		(4,252	)	(2,904	)
Items that will not be reclassified subsequently to profit or loss:
Remeasurement of defined benefit asset/liability	(45	)	297		(626	)
-  before income taxes	(50	)	421		(809	)
-  income taxes	5		(124	)	183
Changes in fair value of financial liabilities designated at fair value upon initial recognition arising from changes in own credit risk	(1,445	)	1,345		1,502
-  before income taxes	(1,816	)	1,653		1,953
-  income taxes	371		(308	)	(451	)
Equity instruments designated at fair value through other comprehensive income	268		(30	)	3
-  fair value gains/(losses)	265		(26	)	(45	)
-  income taxes	3		(4	)	48
Effects of hyperinflation	113		-		283
Other comprehensive expense for the period, net of tax	327		(3,030	)	(1,640	)
Total comprehensive income for the period	10,264		5,386		4,969
Attributable to:
-  ordinary shareholders of the parent company	8,741		4,229		3,854
-  preference shareholders of the parent company	45		45		45
-  other equity holders	664		530		499
-  non-controlling interests	814		582		571
Total comprehensive income for the period	10,264		5,386		4,969

Consolidated balance sheet
		At
		30 Jun		31 Dec
		2019		2018
	Notes	$m		$m
Assets
Cash and balances at central banks		171,090		162,843
Items in the course of collection from other banks		8,673		5,787
Hong Kong Government certificates of indebtedness		36,492		35,859
Trading assets		271,424		238,130
Financial assets designated and otherwise mandatorily measured at fair value through profit and loss		41,043		41,111
Derivatives	7	233,621		207,825
Loans and advances to banks		82,397		72,167
Loans and advances to customers		1,021,632		981,696
Reverse repurchase agreements - non-trading		233,079		242,804
Financial investments	8	428,101		407,433
Prepayments, accrued income and other assets		168,880		110,571
Current tax assets		804		684
Interests in associates and joint ventures	9	23,892		22,407
Goodwill and intangible assets		25,733		24,357
Deferred tax assets		4,412		4,450
Total assets		2,751,273		2,558,124
Liabilities and equity
Liabilities
Hong Kong currency notes in circulation		36,492		35,859
Deposits by banks		71,051		56,331
Customer accounts		1,380,124		1,362,643
Repurchase agreements - non-trading		184,497		165,884
Items in the course of transmission to other banks		9,178		5,641
Trading liabilities		94,149		84,431
Financial liabilities designated at fair value		165,104		148,505
Derivatives	7	229,903		205,835
Debt securities in issue		103,663		85,342
Accruals, deferred income and other liabilities		152,052		97,380
Current tax liabilities		1,653		718
Liabilities under insurance contracts		93,794		87,330
Provisions	10	3,025		2,920
Deferred tax liabilities		2,820		2,619
Subordinated liabilities		22,894		22,437
Total liabilities		2,550,399		2,363,875
Equity
Called up share capital		10,281		10,180
Share premium account		13,998		13,609
Other equity instruments		22,367		22,367
Other reserves		3,437		1,906
Retained earnings		142,593		138,191
Total shareholders' equity		192,676		186,253
Non-controlling interests		8,198		7,996
Total equity		200,874		194,249
Total liabilities and equity		2,751,273		2,558,124

      For Notes, see page 89.

Consolidated statement of cash flows
	Half-year to
	30 Jun		30 Jun		31 Dec
	2019		2018		2018
	$m		$m		$m
Profit before tax	12,407		10,712		9,178
Adjustments for non-cash items:
Depreciation and amortisation1	1,522		946		987
Net (gain)/loss from investing activities	(352	)	85		(211	)
Share of profit in associates and joint ventures	(1,324	)	(1,381	)	(1,155	)
Gain on disposal of subsidiaries, businesses, associates and joint ventures	(828	)	-		-
Change in expected credit losses gross of recoveries and other credit impairment charges	1,347		680		1,600
Provisions including pensions	1,012		1,244		700
Share-based payment expense	288		274		176
Other non-cash items included in profit before tax	(1,401	)	(899	)	(404	)
Change in operating assets	(98,152	)	(68,860	)	14,657
Change in operating liabilities	136,627		71,964		(20,708	)
Elimination of exchange differences2	(9,281	)	(5,967	)	11,168
Dividends received from associates	170		126		784
Contributions paid to defined benefit plans	(153	)	(103	)	(229	)
Tax paid	(1,347	)	(1,116	)	(2,301	)
Net cash from operating activities	40,535		7,705		14,242
Purchase of financial investments	(234,762	)	(207,747	)	(192,824	)
Proceeds from the sale and maturity of financial investments	204,600		210,880		175,176
Net cash flows from the purchase and sale of property, plant and equipment	(532	)	(520	)	(676	)
Net cash flows from purchase/(disposal) of customer and loan portfolios	435		(542	)	338
Net investment in intangible assets	(951	)	(751	)	(1,097	)
Net cash flow on disposal of subsidiaries, businesses, associates and joint ventures	(75	)	(19	)	23
Net cash from investing activities	(31,285	)	1,301		(19,060	)
Issue of ordinary share capital and other equity instruments	-		4,150		1,851
Cancellation of shares	-		(986	)	(1,012	)
Net sales of own shares for market-making and investment purposes	27		43		90
Redemption of preference shares and other equity instruments	-		(6,078	)	-
Subordinated loan capital repaid	(4,138	)	(4,020	)	(57	)
Dividends paid to shareholders of the parent company and non-controlling interests	(4,271	)	(4,965	)	(5,797	)
Net cash from financing activities	(8,382	)	(11,856	)	(4,925	)
Net increase/(decrease) in cash and cash equivalents	868		(2,850	)	(9,743	)
Cash and cash equivalents at the beginning of the period9	311,153		333,912		324,901
Exchange differences in respect of cash and cash equivalents	(46	)	(6,161	)	(4,005	)
Cash and cash equivalents at the end of the period9	311,975		324,901		311,153

For footnotes, see page 88.

Consolidated statement of changes in equity
							Other reserves
	Called up share capital  and share premium		Other equity instru-ments		Retained earnings		Financial assets at FVOCI reserve		Cash flow hedging reserve		Foreign exchange reserve		Merger and other reserves		Total share-holders' equity		Non- controlling interests		Total equity
	$m		$m		$m		$m		$m		$m		$m		$m		$m		$m
At 1 Jan 2019	23,789		22,367		138,191		(1,532	)	(206	)	(26,133	)	29,777		186,253		7,996		194,249
Profit for the period	-		-		9,216		-		-		-		-		9,216		721		9,937
Other comprehensive income (net of tax)	-		-		(1,297	)	1,202		237		92		-		234		93		327
-  debt instruments at fair value through other comprehensive income	-		-		-		1,001		-		-		-		1,001		14		1,015
-  equity instruments designated at fair value through other comprehensive income	-		-		-		201		-		-		-		201		67		268
-  cash flow hedges	-		-		-		-		237		-		-		237		2		239
-  changes in fair value of financial liabilities designated at fair value upon initial recognition arising from changes in own credit risk	-		-		(1,445	)	-		-		-		-		(1,445	)	-		(1,445	)
-  remeasurement of defined benefit asset/liability	-		-		(38	)	-		-		-		-		(38	)	(7	)	(45	)
-  share of other comprehensive income of associates and joint ventures	-		-		73		-		-		-		-		73		-		73
-  effects of hyperinflation	-		-		113		-		-		-		-		113		-		113
-  exchange differences	-		-		-		-		-		92		-		92		17		109
Total comprehensive income for the period	-		-		7,919		1,202		237		92		-		9,450		814		10,264
Shares issued under employee remuneration and share plans	490		-		(475	)	-		-		-		-		15		-		15
Shares issued in lieu of dividends and amounts arising thereon	-		-		1,160		-		-		-		-		1,160		-		1,160
Dividends to shareholders8	-		-		(4,915	)	-		-		-		-		(4,915	)	(516	)	(5,431	)
Cost of share-based payment arrangements	-		-		255		-		-		-		-		255		-		255
Other movements	-		-		458		-		-		-		-		458		(96	)	362
At 30 Jun 2019	24,279		22,367		142,593		(330	)	31		(26,041	)	29,777		192,676		8,198		200,874
At 1 Jan 2018	20,337		22,250		139,414		(1,371	)	(222	)	(19,072	)	27,308		188,644		7,580		196,224
Profit for the period	-		-		7,748		-		-		-		-		7,748		668		8,416
Other comprehensive income (net of tax)	-		-		1,589		(273	)	(66	)	(4,194	)	-		(2,944	)	(86	)	(3,030	)
-  debt instruments at fair value through other comprehensive income	-		-		-		(264	)	-		-		-		(264	)	(1	)	(265	)
-  equity instruments designated at fair value through other comprehensive income	-		-		-		(9	)	-		-		-		(9	)	(21	)	(30	)
-  cash flow hedges	-		-		-		-		(66	)	-		-		(66	)	(2	)	(68	)
-  changes in fair value of financial liabilities designated at fair value upon initial recognition arising from changes in own credit risk	-		-		1,346		-		-		-		-		1,346		(1	)	1,345
-  remeasurement of defined benefit asset/liability	-		-		300		-		-		-		-		300		(3	)	297
-  share of other comprehensive income of associates and joint ventures	-		-		(57	)	-		-		-		-		(57	)	-		(57	)
-  exchange differences	-		-		-		-		-		(4,194	)	-		(4,194	)	(58	)	(4,252	)
Total comprehensive income for the period	-		-		9,337		(273	)	(66	)	(4,194	)	-		4,804		582		5,386
Shares issued under employee remuneration and share plans	582		-		(570	)	-		-		-		-		12		-		12
Shares issued in lieu of dividends and amounts arising thereon	-		-		606		-		-		-		-		606		-		606
Capital securities issued3	-		4,150		-		-		-		-		-		4,150		-		4,150
Dividends to shareholders	-		-		(6,904	)	-		-		-		-		(6,904	)	(461	)	(7,365	)
Redemption of securities4	-		(5,827	)	(237	)	-		-		-		-		(6,064	)	-		(6,064	)
Cost of share-based payment arrangements	-		-		274		-		-		-		-		274		-		274
Cancellation of shares5	(986	)	-		(1,014	)	-		-		-		-		(2,000	)	-		(2,000	)
Other movements	-		-		2		83		-		-		-		85		(14	)	71
At 30 Jun 2018	19,933		20,573		140,908		(1,561	)	(288	)	(23,266	)	27,308		183,607		7,687		191,294

Consolidated statement of changes in equity (continued)
							Other reserves
	Called up share capital  and share premium		Other equity  instru- ments		Retained earnings		Financial assets at FVOCI reserve		Cash flow hedging reserve		Foreign exchange reserve		Merger and other reserves		Total share- holders' equity		Non- controlling interests		Total equity
	$m		$m		$m		$m		$m		$m		$m		$m		$m		$m
At 1 Jul 2018	19,933		20,573		140,908		(1,561	)	(288	)	(23,266	)	27,308		183,607		7,687		191,294
Profit for the period	-		-		5,979		-		-		-		-		5,979		630		6,609
Other comprehensive income (net of tax)	-		-		1,176		28		82		(2,867	)	-		(1,581	)	(59	)	(1,640	)
-  debt instruments at fair value through other comprehensive income	-		-		-		19		-		-		-		19		3		22
-  equity instruments designated at fair value through other comprehensive income	-		-		-		9		-		-		-		9		(6	)	3
-  cash flow hedges	-		-		-		-		82		-		-		82		5		87
-  changes in fair value of financial liabilities designated at fair value upon initial recognition arising from changes in own credit risk	-		-		1,501		-		-		-		-		1,501		1		1,502
-  remeasurement of defined benefit asset/liability	-		-		(601	)	-		-		-		-		(601	)	(25	)	(626	)
-  share of other comprehensive income of associates and joint ventures	-		-		(7	)	-		-		-		-		(7	)	-		(7	)
-  effects of hyperinflation	-		-		283		-		-		-		-		283		-		283
-  exchange differences	-		-		-		-		-		(2,867	)	-		(2,867	)	(37	)	(2,904	)
Total comprehensive income for the period	-		-		7,155		28		82		(2,867	)	-		4,398		571		4,969
Shares issued under employee remuneration and share plans	139		-		(40	)	-		-		-		-		99		-		99
Shares issued in lieu of dividends and amounts arising thereon	-		-		888		-		-		-		-		888		-		888
Capital securities issued3	-		1,818		-		-		-		-		-		1,818		-		1,818
Dividends to shareholders	-		-		(4,643	)	-		-		-		-		(4,643	)	(249	)	(4,892	)
Redemption of securities4	-		(24	)	-		-		-		-		-		(24	)	-		(24	)
Transfers6	-		-		(2,200	)	-		-		-		2,200		-		-		-
Cost of share-based payment arrangements	-		-		176		-		-		-		-		176		-		176
Cancellation of shares7	3,717		-		(3,984	)	-		-		-		269		2		-		2
Other movements	-		-		(69	)	1		-		-		-		(68	)	(13	)	(81	)
At 31 Dec 2018	23,789		22,367		138,191		(1,532	)	(206	)	(26,133	)	29,777		186,253		7,996		194,249

For footnotes, see page 88. 

Footnotes to financial statements

1       The impact of the right-of-use assets recognised under IFRS 16 at the beginning of 2019 is not recognised in 2018.

2       The adjustment to bring changes between opening and closing balance sheet amounts to average rates. This is not done on a line-by-line basis, as details cannot be determined without unreasonable expense.

3       During 1H18, HSBC Holdings issued $4,150m of perpetual subordinated contingent convertible capital securities, on which there were $8m of external issuance costs, $34m of intra-Group issuance costs and $8m of tax benefits. During 2H18 HSBC Holdings issued £1,000m and SGD750m of perpetual subordinated contingent convertible capital securities, on which there were $52m of external issuance costs, $15m of intra-Group issuance costs and $3m of tax benefits. Under IFRSs these issuance costs and tax benefits are classified as equity.

4       During 1H18, HSBC Holdings redeemed its $2,200m 8.125% perpetual subordinated capital securities and its $3,800m 8.000% perpetual subordinated capital securities, Series 2, on which there were $172m of external issuance costs. Under IFRSs external issuance costs are classified as equity.

5       For further details refer to Note 32 in the Annual Report and Accounts 2018. Relates to the $2,000m share buy-back announced in May 2018.

6       Permitted transfers from the merger reserve to retained earnings were made when the investment in HSBC Overseas Holdings (UK) Limited was previously impaired. A part reversal of this impairment results in a transfer from retained earnings back to the merger reserve of $2,200m.

7       This includes a re-presentation of the cancellation of shares to retained earnings and capital redemption reserve in respect of the 2017 share buy-back, under which retained earnings have been reduced by $3,000m, called up capital and share premium increased by $2,836m and other reserves increased by $164m. The remaining balance relates to the May 2018 share buy-back which completed in August 2018. 

8       At 30 June 2019, HSBC changed its accounting practice on the recognition of interim dividends to recognise them on the date of payment rather than the date of declaration, in line with generally accepted accounting practice. Prior periods have not been restated as all the relevant amounts are clearly disclosed, and the impact of the change in practice is not considered material.

9       At 30 June 2019, HSBC changed its accounting practice to include settlement accounts with bank counterparties of one month or less on a net basis. Comparatives have been re-presented and also include other cash equivalents not included in 2018 cash and cash equivalents. The net effect of these changes increased cash and cash equivalents by $10.8bn (30 Jun 2018: $15.2bn and 31 Dec 2018: $10.1bn).

Notes on the financial statements
		Page				Page
1	Basis of preparation and significant accounting policies	100		9	Interests in associates and joint ventures	111
2	Net fee income	101		10	Provisions	113
3	Dividends	101		11	Contingent liabilities, contractual commitments and guarantees	115
4	Earnings per share	102		12	Legal proceedings and regulatory matters	115
5	Fair values of financial instruments carried at fair value	103		13	Transactions with related parties	119
6	Fair values of financial instruments not carried at fair value	109		14	Events after the balance sheet date	120
7	Derivatives	110		15	Interim Report 2019 and statutory accounts	120
8	Financial investments	111

1	Basis of preparation and significant accounting policies

(a)     Compliance with International Financial Reporting Standards

Our interim condensed consolidated financial statements have been prepared in accordance with the Disclosure Guidance and Transparency Rules of the Financial Conduct Authority and IAS 34 'Interim Financial Reporting', as issued by the International Accounting Standards Board ('IASB') and as endorsed by the EU. Therefore, they include an explanation of events and transactions that are significant to an understanding of the changes in HSBC's financial position and performance since the end of 2018. These financial statements should be read in conjunction with the Annual Report and Accounts 2018 and the information about the application of IFRS 16 'Leases' set out below.

At 30 June 2019, there were no unendorsed standards effective for the half-year to 30 June 2019 affecting these financial statements, and there was no difference between IFRSs endorsed by the EU and IFRSs issued by the IASB in terms of their application to HSBC.

Standards applied during the half-year to 30 June 2019

IFRS 16 'Leases'

On 1 January 2019, we adopted the requirements of IFRS 16 retrospectively. The cumulative effect of initially applying the standard was recognised as an adjustment to the opening balance of retained earnings at that date. Comparatives were not restated. The adoption of the standard increased assets by $5bn and increased financial liabilities by the same amount with no effect on net assets or retained earnings.

On adoption of IFRS 16, we recognised lease liabilities in relation to leases that had previously been classified as 'operating leases' in accordance with IAS 17 'Leases'. These liabilities were recognised in 'other liabilities' and measured at the present value of the remaining lease payments, discounted at the lessee's incremental borrowing rate at 1 January 2019. The associated right of use ('ROU') assets were recognised in 'other assets' and measured at the amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments or provisions for onerous leases recognised on the balance sheet at 31 December 2018. In addition, the following practical expedients permitted by the standard were applied:

•     reliance was placed on previous assessments on whether leases were onerous;

•     operating leases with a remaining lease term of less than 12 months at 1 January 2019 were treated as short-term leases; and

•     initial direct costs were not included in the measurement of ROU assets for leases previously accounted for as operating leases.

The differences between IAS 17 and IFRS 16 are summarised in the table below:                              

IAS 17

IFRS 16

Leases were classified as either finance or operating leases. Payments made under operating leases were charged to profit or loss on a straight-line basis over the period of the lease.

Leases are recognised as an ROU asset and a corresponding liability at the date at which the leased asset is made available for use. Lease payments are allocated between the liability and finance cost. The finance cost is charged to profit or loss over the lease term so as to produce a constant period rate of interest on the remaining balance of the liability. The ROU asset is depreciated over the shorter of the ROU asset's useful economic life and the lease term on a straight-line basis. In determining the lease term, we consider all facts and circumstances that create an economic incentive to exercise an extension option or not exercise a termination option over the planning horizon of five years. In general, it is not expected that the discount rate implicit in the lease is available so the lessee's incremental borrowing rate is used. This is the rate that the lessee would have to pay to borrow the funds necessary to obtain an asset of a similar value in a similar economic environment with similar terms and conditions. The rates are determined for each economic environment in which we operate and for each term by adjusting swap rates with funding spreads (own credit spread) and cross-currency basis where appropriate.

Amendment to IAS 12 'Income Taxes'

An amendment to IAS 12 was issued in December 2017 as part of the annual improvement cycle. The amendment clarifies that an entity should recognise the tax consequences of dividends where the transactions or events that generated the distributable profits are recognised. This amendment was applied on 1 January 2019 and had no material impact. Comparatives have not been restated.

(b)     Use of estimates and judgements

Management believes that our critical accounting estimates and judgements are those that relate to the effect on hedge accounting of the fundamental review and reform of the major interest rate benchmarks, impairment of amortised cost and FVOCI financial assets, goodwill impairment, the valuation of financial instruments, deferred tax assets, provisions for liabilities and interests in associates. There were no changes in the current period to the critical accounting estimates and judgements applied in 2018, which are stated on pages 35 and 226 of the Annual Report and Accounts 2018.

(c)      Composition of Group

There were no material changes in the composition of the Group in the half-year to 30 June 2019.

(d)     Future accounting developments

IFRS 17 'Insurance Contracts' was issued in May 2017 and has not been endorsed for use in the EU. It sets out the requirements that an entity should apply in accounting for insurance contracts it issues and reinsurance contracts it holds. IFRS 17 is currently effective from 
1 January 2021. However, the IASB is consulting on delaying the mandatory implementation date by one year and may make additional changes to the standard. The Group is in the process of implementing IFRS 17. Industry practice and interpretation of the standard is still developing and there may be changes to implementation decisions as practice evolves, therefore the likely impact of its implementation remains uncertain.

(e)     Going concern

The financial statements are prepared on a going concern basis, as the Directors are satisfied that the Group and parent company have the resources to continue in business for the foreseeable future. In making this assessment, the Directors have considered a wide range of information relating to present and future conditions, including future projections of profitability, cash flows, capital requirements and capital resources.

(f)      Accounting policies

Except as described above and in footnotes 8 and 9 on page 88, the accounting policies that we applied for these interim condensed consolidated financial statements are consistent with those described on pages 224 to 237 of the Annual Report and Accounts 2018, as are the methods of computation.

2	Net fee income

	Half-year to
	30 Jun		30 Jun		31 Dec
	2019		2018		2018
	$m		$m		$m
Net fee income by product
Funds under management	1,067		1,149		1,072
Account services	1,034		1,156		1,021
Cards	968		965		991
Credit facilities	805		897		826
Unit trusts	546		613		425
Broking income	544		710		500
Underwriting	446		431		292
Remittances	373		361		417
Global custody	342		378		358
Imports/exports	338		362		347
Insurance agency commission	200		233		171
Other	1,141		1,214		1,155
Fee income	7,804		8,469		7,575
Less: fee expense	(1,680	)	(1,702	)	(1,722	)
Net fee income	6,124		6,767		5,853
Net fee income by global business
Retail Banking and Wealth Management	2,498		2,795		2,403
Commercial Banking	1,781		1,874		1,681
Global Banking and Markets	1,499		1,745		1,484
Global Private Banking	375		389		353
Corporate Centre	(29	)	(36	)	(68	)

3

Dividends

A first interim dividend of $0.10 per ordinary share in respect of the financial year ending 31 December 2019 was declared by the Directors on 3 May 2019. This distribution, amounting to $2,023m, was paid on 5 July 2019.

On 5 August 2019, the Directors declared a second interim dividend of $0.10 per ordinary share in respect of the financial year ending 31 December 2019. This distribution amounts to approximately $2,028m and will be payable on 26 September 2019. No liability is recognised in the financial statements in respect of these dividends. 

Dividends paid to shareholders of HSBC Holdings plc
	Half-year to
	30 Jun 2019						30 Jun 2018						31 Dec 2018
	Per share		Total		Settled in scrip		Per share		Total		Settled in scrip		Per share		Total		Settled in scrip
	$		$m		$m		$		$m		$m		$		$m		$m
Dividends paid on ordinary shares
In respect of previous year:
-  fourth interim dividend	0.21		4,206		1,160		0.21		4,197		393		-		-		-
In respect of current year:
-  first interim dividend1	-		-		-		0.10		2,008		213		-		-		-
-  second interim dividend	-		-		-		-		-		-		0.10		1,990		181
-  third interim dividend	-		-		-		-		-		-		0.10		1,992		707
Total	0.21		4,206		1,160		0.31		6,205		606		0.20		3,982		888
Total dividends on preference shares classified as equity (paid quarterly)	31.00		45				31.00		45				31.00		45
Total coupons on capital securities classified as equity			664						654						616
Dividends to shareholders			4,915						6,904						4,643

1     At 30 June 2019, HSBC changed its accounting practice on the recognition of interim dividends to recognise them on the date of payment rather than the date of declaration, in line with generally accepted accounting practice. Prior periods have not been restated as all the relevant amounts are clearly disclosed, and the change is not considered material.

Total coupons on capital securities classified as equity
				Half-year to
				30 Jun		30 Jun		31 Dec
				2019		2018		2018
				Total		Total		Total
	Footnotes	First call date	Per security	$m		$m		$m
Perpetual subordinated capital securities	1
-  $2,200m issued at 8.125%		Apr 2013	$2.032	-		89		-
-  $3,800m issued at 8.000%		Dec 2015	$2.000	-		76		-
Perpetual subordinated contingent convertible securities	2
-  $1,500m issued at 5.625%		Jan 2020	$56.250	42		42		42
-  $2,000m issued at 6.875%		Jun 2021	$68.750	69		69		69
-  $2,250m issued at 6.375%		Sep 2024	$63.750	72		72		71
-  $2,450m issued at 6.375%		Mar 2025	$63.750	78		78		78
-  $3,000m issued at 6.000%		May 2027	$60.000	90		90		90
-  $2,350m issued at 6.250%		Mar 2023	$62.500	73		-		73
-  $1,800m issued at 6.500%		Mar 2028	$65.000	58		-		59
-  €1,500m issued at 5.250%		Sep 2022	€52.500	45		48		47
-  €1,000m issued at 6.000%		Sep 2023	€60.000	34		36		36
-  €1,250m issued at 4.750%		July 2029	€47.500	34		36		34
-  SGD1,000m issued at 4.700%		Jun 2022	SGD47.000	17		18		17
-  SGD750m issued at 5.000%		Sep 2023	SGD50.000	14		-		-
-  £1,000m issued at 5.875%		Sep 2026	£58.750	38		-		-
Total				664		654		616

1     In 2H18, HSBC redeemed the $2,200m and $3,800m perpetual subordinated capital securities. 2018 discretionary coupons were paid quarterly on the perpetual subordinated capital securities, in denominations of $25 per security.

2     Discretionary coupons are paid twice a year on the perpetual subordinated contingent convertible securities, in denominations of 1,000 per security in each security's issuance currency.

4	Earnings per share

Basic earnings per ordinary share is calculated by dividing the profit attributable to ordinary shareholders of the parent company by the weighted average number of ordinary shares outstanding, excluding own shares held. Diluted earnings per ordinary share is calculated by dividing the basic earnings, which require no adjustment for the effects of dilutive potential ordinary shares, by the weighted average number of ordinary shares outstanding, excluding own shares held, plus the weighted average number of ordinary shares that would be issued on conversion of dilutive potential ordinary shares.

Profit attributable to ordinary shareholders of the parent company
	Half-year to
	30 Jun		30 Jun		31 Dec
	2019		2018		2018
	$m		$m		$m
Profit attributable to shareholders of the parent company	9,216		7,748		5,979
Dividend payable on preference shares classified as equity	(45	)	(45	)	(45	)
Coupon payable on capital securities classified as equity	(664	)	(530	)	(499	)
Profit attributable to ordinary shareholders of the parent company	8,507		7,173		5,435

Basic and diluted earnings per share
		Half-year to
		30 Jun 2019						30 Jun 2018						31 Dec 2018
		Profit		Number of shares		Amount per share		Profit		Number of shares		Amount per share		Profit		Number of shares		Amount per share
	Footnotes	$m		(millions)		$		$m		(millions)		$		$m		(millions)		$
Basic	1	8,507		20,124		0.42		7,173		19,998		0.36		5,435		19,786		0.27
Effect of dilutive potential ordinary shares				65						86						83
Diluted	1	8,507		20,189		0.42		7,173		20,084		0.36		5,435		19,869		0.27

1     Weighted average number of ordinary shares outstanding (basic) or assuming dilution (diluted).

5	Fair values of financial instruments carried at fair value

The accounting policies, control framework and hierarchy used to determine fair values at 30 June 2019 are consistent with those applied for the Annual Report and Accounts 2018.

Financial instruments carried at fair value and bases of valuation
			Valuation techniques
	Quoted market price  Level 1		Using observable inputs Level 2		With significant unobservable inputs Level 3		Total
	$m		$m		$m		$m
Recurring fair value measurements
At 30 Jun 2019
Assets
Trading assets	203,783		61,968		5,673		271,424
Financial assets designated and otherwise mandatorily measured at fair value through profit or loss	26,361		8,095		6,587		41,043
Derivatives	1,307		230,384		1,930		233,621
Financial investments	262,977		81,547		2,363		346,887
Liabilities
Trading liabilities	73,475		20,625		49		94,149
Financial liabilities designated at fair value	8,549		151,159		5,396		165,104
Derivatives	1,436		226,434		2,033		229,903
At 31 Dec 2018
Assets
Trading assets	178,100		53,271		6,759		238,130
Financial assets designated and otherwise mandatorily measured at fair value through profit or loss	23,125		12,494		5,492		41,111
Derivatives	1,868		203,534		2,423		207,825
Financial investments	263,885		78,882		2,000		344,767
Liabilities
Trading liabilities	66,300		18,073		58		84,431
Financial liabilities designated at fair value	6,815		136,362		5,328		148,505
Derivatives	2,845		201,234		1,756		205,835

Transfers between Level 1 and Level 2 fair values
	Assets								Liabilities
	Financial investments		Trading assets		Designated and otherwise mandatorily measured at fair value		Derivatives		Trading liabilities		Designated at fair value		Derivatives
	$m		$m		$m		$m		$m		$m		$m
At 30 Jun 2019
Transfers from Level 1 to Level 2	1,526		663		-		23		117		-		-
Transfers from Level 2 to Level 1	2,696		1,252		347		111		198		-		117
At 31 Dec 2018
Transfers from Level 1 to Level 2	367		435		2		1		79		-		-
Transfers from Level 2 to Level 1	17,861		4,959		85		128		1,821		-		138

Transfers between levels of the fair value hierarchy are deemed to occur at the end of each quarterly reporting period. Transfers into and out of levels of the fair value hierarchy are primarily attributable to observability of valuation inputs and price transparency. 

Fair value adjustments

We adopt the use of fair value adjustments when we consider there are additional factors that would be considered by a market participant that are not incorporated within the valuation model. We classify fair value adjustments as either 'risk-related' or 'model-related'. The majority of these adjustments relate to GB&M. Movements in the level of fair value adjustments do not necessarily result in the recognition of profits or losses within the income statement. For example, as models are enhanced, fair value adjustments may no longer be required. Similarly, fair value adjustments will decrease when the related positions are unwound, but this may not result in profit or loss.

Global Banking and Markets fair value adjustments
	At
	30 Jun 2019				31 Dec 2018
	GB&M		Corporate Centre		GB&M		Corporate Centre
	$m		$m		$m		$m
Type of adjustment
Risk-related	1,107		128		1,042		138
-  bid-offer	418		71		430		76
-  uncertainty	114		2		99		6
-  credit valuation adjustment	411		48		442		52
-  debit valuation adjustment	(129	)	-		(198	)	-
-  funding fair value adjustment	265		7		256		4
-  other	28		-		13		-
Model-related	76		3		79		3
-  model limitation	68		3		79		3
-  other	8		-		-		-
Inception profit (Day 1 P&L reserves)1	99		-		85		-
	1,282		131		1,206		141

1     See Note 7 on the financial statements on page 99.

A description of our risk-related and model-related adjustments is provided on pages 252 and 253 of the Annual Report and Accounts 2018.

Fair value valuation bases

Financial instruments measured at fair value using a valuation technique with significant unobservable inputs - Level 3
	Assets										Liabilities
	Financial investments		Trading assets		Designated and otherwise mandatorily measured at fair value through profit or loss		Derivatives		Total		Trading liabilities		Designated at fair value		Derivatives		Total
	$m		$m		$m		$m		$m		$m		$m		$m		$m
Private equity including strategic investments	611		10		6,125		-		6,746		7		-		-		7
Asset-backed securities	1,116		1,099		30		-		2,245		-		-		-		-
Loans held for securitisation	-		1		43		-		44		-		-		-		-
Structured notes	-		3		-		-		3		42		5,396		-		5,438
Derivatives with monolines	-		-		-		55		55		-		-		-		-
Other derivatives	-		-		-		1,875		1,875		-		-		2,014		2,014
Other portfolios	636		4,560		389		-		5,585		-		-		19		19
At 30 Jun 2019	2,363		5,673		6,587		1,930		16,553		49		5,396		2,033		7,478
Private equity including strategic investments	427		20		5,106		-		5,553		12		-		-		12
Asset-backed securities	1,030		1,140		32		-		2,202		-		-		-		-
Loans held for securitisation	-		-		49		-		49		-		-		-		-
Structured notes	-		3		-		-		3		46		5,328		-		5,374
Derivatives with monolines	-		-		-		65		65		-		-		-		-
Other derivatives	-		-		-		2,358		2,358		-		-		1,755		1,755
Other portfolios	543		5,596		305		-		6,444		-		-		1		1
At 31 Dec 2018	2,000		6,759		5,492		2,423		16,674		58		5,328		1,756		7,142

The basis for determining the fair value of the financial instruments in the table above is explained on pages 253 and 254 of the Annual Report and Accounts 2018.

Reconciliation of fair value measurements in Level 3 of the fair value hierarchy

Movement in Level 3 financial instruments
		Assets								Liabilities
		Financial investments		Trading assets		Designated and otherwise mandatorily measured at fair value through profit or loss		Derivatives		Trading liabilities		Designated at fair value		Derivatives
	Footnotes	$m		$m		$m		$m		$m		$m		$m
At 1 Jan 2019		2,000		6,759		5,492		2,423		58		5,328		1,756
Total gains/(losses) recognised in profit or loss		-		(2	)	195		(9	)	(4	)	246		591
-  net income from financial instruments held for trading or managed on a fair value basis		-		(2	)	-		(9	)	(4	)	-		591
-  changes in fair value of other financial instruments mandatorily measured at fair value through profit or loss		-		-		195		-		-		246		-
Total gains/(losses) recognised in other comprehensive income	1	191		(18	)	6		(6	)	(1	)	(6	)	(10	)
-  financial investments: fair value gains/(losses)		193		-		-		-		-		-		-
-  exchange differences		(2	)	(18	)	6		(6	)	(1	)	(6	)	(10	)
Purchases		243		1,145		1,145		-		5		118		-
New issuances		-		154		-		-		-		818		-
Sales		(6	)	(487	)	(87	)	-		(9	)	(180	)	-
Settlements		(240	)	(1,691	)	(184	)	94		-		(396	)	(136	)
Transfers out		(4	)	(409	)	(20	)	(622	)	(9	)	(550	)	(189	)
Transfers in		179		222		40		50		9		18		21
At 30 Jun 2019		2,363		5,673		6,587		1,930		49		5,396		2,033
Unrealised gains/(losses) recognised in profit or loss relating to assets and liabilities held at 30 Jun 2019		-		2		67		257		(23	)	(7	)	(320	)
-  net income from financial instruments held for trading or managed on a fair value basis		-		2		-		257		(23	)	-		(320	)
-  changes in fair value of other financial instruments mandatorily measured at fair value through profit or loss		-		-		67		-		-		(7	)	-

At 1 Jan 2018		1,767		5,080		3,958		2,444		93		4,107		1,949
Total gains/(losses) recognised in profit or loss		253		228		245		126		(2	)	(460	)	(185	)
-  net income from financial instruments held for trading or managed on a fair value basis		-		228		-		126		(2	)	-		(185	)
-  changes in fair value of other financial instruments mandatorily measured at fair value through profit or loss		-		-		245		-		-		(460	)	-
-  gains less losses from financial investments at fair value through other comprehensive income		253		-		-		-		-		-		-
Total gains/(losses) recognised in other comprehensive income ('OCI')	1	64		(201	)	(92	)	(56	)	(2	)	(72	)	(34	)
-  financial investments: fair value gains/(losses)		57		-		-		-		-		-		-
-  cash flow hedges: fair value gains/(losses)		-		-		6		6		-		-		2
-  exchange differences		7		(201	)	(98	)	(62	)	(2	)	(72	)	(36	)
Purchases		242		4,032		1,201		-		2		46		-
New issuances		-		975		-		-		5		1,309		-
Sales		(24	)	(1,212	)	(98	)	-		(4	)	-		-
Settlements		(70	)	(1,682	)	(213	)	137		-		(172	)	317
Transfers out		(373	)	(941	)	(31	)	(199	)	(17	)	(479	)	(235	)
Transfers in		369		268		36		18		-		76		58
At 30 Jun 2018		2,228		6,547		5,006		2,470		75		4,355		1,870
Unrealised gains/(losses) recognised in profit or loss relating to assets and liabilities held at 30 Jun 2018		-		(47	)	177		44		(5	)	82		(111	)
-  net income from financial instruments held for trading or managed on a fair value basis		-		(47	)	-		44		(5	)	-		(111	)
-  changes in fair value of other financial instruments mandatorily measured at fair value through profit or loss		-		-		177		-		-		82		-

Movement in Level 3 financial instruments (continued)
		Assets								Liabilities
		Financial investments		Trading assets		Designated at fair value through profit or loss		Derivatives		Trading liabilities		Designated at fair value		Derivatives
	Footnotes	$m		$m		$m		$m		$m		$m		$m
At 1 Jul 2018		2,228		6,547		5,006		2,470		75		4,355		1,870
Total gains/(losses) recognised in profit or loss		(2	)	56		363		471		(2	)	(177	)	440
-  net income from financial instruments held for trading or managed on a fair value basis		-		56		-		471		(2	)	-		440
-  changes in fair value of other financial instruments mandatorily measured at fair value through profit or loss		-		-		363		-		-		(177	)	-
-  gains less losses from financial investments at fair value through other comprehensive income		(2	)	-		-		-		-		-		-
Total gains/(losses) recognised in other comprehensive income ('OCI')	1	(47	)	(73	)	(15	)	(57	)	(1	)	(72	)	(48	)
-  financial investments: fair value gains/(losses)		(42	)	-		-		-		-		-		-
-  exchange differences		(5	)	(73	)	(15	)	(57	)	(1	)	(72	)	(48	)
Purchases		33		345		971		-		1		30		-
New issuances		-		-		-		-		1		1,133		-
Sales		(27	)	(377	)	(297	)	-		(7	)	-		-
Settlements		(71	)	(339	)	(328	)	(328	)	-		140		(335	)
Transfers out		(312	)	(461	)	(254	)	(138	)	(7	)	(633	)	(229	)
Transfers in		198		1,061		46		5		-		552		58
At 31 Dec 2018		2,000		6,759		5,492		2,423		58		5,328		1,756
Unrealised gains/(losses) recognised in profit or loss relating to assets and liabilities held at 31 Dec 2018		-		42		22		298		-		192		(240	)
-  net income from financial instruments held for trading or managed on a fair value basis		-		42		-		298		-		-		(240	)
-  changes in fair value of other financial instruments mandatorily measured at fair value through profit or loss		-		-		22		-		-		192		-

1     Included in 'financial investments: fair value gains/(losses)' in the current year and 'exchange differences' in the consolidated statement of comprehensive income.

Transfers between levels of the fair value hierarchy are deemed to occur at the end of each quarterly reporting period. Transfers into and out of levels of the fair value hierarchy are primarily attributable to observability of valuation inputs and price transparency.

Effect of changes in significant unobservable assumptions to reasonably possible alternatives

The following table shows the sensitivity of Level 3 fair values to reasonably possible alternative assumptions:

Sensitivity of fair values to reasonably possible alternative assumptions
		Reflected in profit or loss				Reflected in other comprehensive income
		Favourable changes		Unfavourable changes		Favourable changes		Unfavourable changes
	Footnotes	$m		$m		$m		$m
Derivatives, trading assets and trading liabilities	1	298		(303	)	-		-
Financial assets and liabilities designated and otherwise mandatorily measured at fair value		461		(355	)	-		-
Financial investments		43		(46	)	26		(26	)
At 30 Jun 2019		802		(704	)	26		(26	)
Derivatives, trading assets and trading liabilities	1	320		(270	)	-		-
Financial assets and liabilities designated and otherwise mandatorily measured at fair value		344		(279	)	-		-
Financial investments		48		(51	)	15		(10	)
At 30 Jun 2018		712		(600	)	15		(10	)
Derivatives, trading assets and trading liabilities	1	269		(257	)	-		-
Financial assets and liabilities designated and otherwise mandatorily measured at fair value through profit or loss		394		(310	)	-		-
Financial investments		34		(36	)	23		(22	)
At 31 Dec 2018		697		(603	)	23		(22	)

1     'Derivatives, trading assets and trading liabilities' is presented as one category to reflect the manner in which these financial instruments are risk-managed.

Sensitivity of fair values to reasonably possible alternative assumptions by Level 3 instrument type
	Reflected in profit or loss				Reflected in other comprehensive income
	Favourable changes		Unfavourable changes		Favourable changes		Unfavourable changes
	$m		$m		$m		$m
Private equity including strategic investments	482		(376	)	-		-
Asset-backed securities	56		(29	)	26		(26	)
Loans held for securitisation	1		(1	)	-		-
Structured notes	7		(7	)	-		-
Derivatives with monolines	1		(1	)	-		-
Other derivatives	161		(175	)	-		-
Other portfolios	94		(115	)	-		-
At 30 Jun 2019	802		(704	)	26		(26	)
Private equity including strategic investments	357		(288	)	-		-
Asset-backed securities	71		(40	)	15		(10	)
Loans held for securitisation	1		(1	)	-		-
Structured notes	15		(12	)	-		-
Derivatives with monolines	-		-		-		-
Other derivatives	200		(166	)	-		-
Other portfolios	68		(93	)	-		-
At 30 Jun 2018	712		(600	)	15		(10	)
Private equity including strategic investments	400		(317	)	-		-
Asset-backed securities	62		(34	)	23		(22	)
Loans held for securitisation	1		(1	)	-		-
Structured notes	13		(13	)	-		-
Derivatives with monolines	-		-		-		-
Other derivatives	157		(153	)	-		-
Other portfolios	64		(85	)	-		-
At 31 Dec 2018	697		(603	)	23		(22	)

The sensitivity analysis aims to measure a range of fair values consistent with the application of a 95% confidence interval.

Methodologies take account of the nature of the valuation technique employed, as well as the availability and reliability of observable

proxy and historical data.

When the fair value of a financial instrument is affected by more than one unobservable assumption, the table above reflects the most

favourable or the most unfavourable change from varying the assumptions individually.

Key unobservable inputs to Level 3 financial instruments

The following table lists key unobservable inputs to Level 3 financial instruments, and provides the range of those inputs at 30 June 2019. The core range of inputs is the estimated range within which 90% of the inputs fall.

There has been no change to the key unobservable inputs to Level 3 financial instruments and inter-relationships therein, which are detailed on pages 256 and 257 of the Annual Report and Accounts 2018.

Quantitative information about significant unobservable inputs in Level 3 valuations
		Fair value				Valuation technique	Key unobservable inputs
		Assets		Liabilities				Full range of inputs			Core range of inputs1
	Footnotes	$m		$m				Lower	Higher		Lower		Higher
Private equity including strategic investments		6,746		7		See footnote 2	See footnote 2
Asset-backed securities		2,245		-
-  CLO/CDO	3	401		-		Market proxy	Prepayment rate	0%	9%		0%		9%
				-		Market proxy	Bid quotes	0	101		-		101
-  other ABSs		1,844		-		Market proxy	Bid quotes	0	103		71		99
Loans held for securitisation		44		-
Structured notes		3		5,438
-  equity-linked notes		-		3,922		Model - option model	Equity volatility	7%	65%		10%		53%
						Model - option model	Equity correlation	6%	93%		6%		82%
-  fund-linked notes		-		17		Model - option model	Fund volatility	5%	21%		5%		21%
-  FX-linked notes		-		1,397		Model - option model	FX volatility	1%	31%		3%		27%
-  other		3		102
Derivatives with monolines		55		-		Model - discounted cash flow	Credit spread	1%	1.4%		1%		1.4%
Other derivatives		1,875		2,014
-  interest rate derivatives:
securitisation swaps		217		709		Model - discounted cash flow	Prepayment rate	6%	7%		6%		7%
long-dated swaptions		732		40		Model - option model	IR volatility	9%	36%		14%		33%
other		258		163
-  FX derivatives
FX options		150		234		Model - option model	FX volatility	1%	31%		4%		14%
other		114		89
-  equity derivatives
long-dated single stock options		249		347		Model - option model	Equity volatility	0%	97%		4%		97%
other		83		374
-  credit derivatives
other		72		58
Other portfolios		5,585		19
-  structured certificates		1,515		-		Model - discounted cash flow	Credit volatility	2%	4%		2%		4%
-  repurchase agreements		2,086		-
-  other	4	1,984		19
At 30 Jun 2019		16,553		7,478

Quantitative information about significant unobservable inputs in Level 3 valuations (continued)
		Fair value				Valuation technique
		Assets		Liabilities			Key unobservable inputs	Full range of inputs		Core range of inputs1
	Footnotes	$m		$m				Lower	Higher	Lower	Higher
Private equity including strategic investments		5,553		12		See footnote 2	See footnote 2	n/a	n/a	n/a	n/a
Asset-backed securities		2,202		-
-  CLO/CDO	3	394		-		Market proxy	Prepayment rate	0%	10%	0%	10%
						Market proxy	Bid quotes	0	100	50	100
-  other ABSs		1,808		-		Market proxy	Bid quotes	0	271	71	99
Loans held for securitisation		49		-
Structured notes		3		5,374
-  equity-linked notes		-		3,882		Model - option model	Equity volatility	8%	79%	13%	53%
						Model - option model	Equity correlation	17%	93%	40%	77%
-  fund-linked notes		-		83		Model - option model	Fund volatility	21%	21%	21%	21%
-  FX-linked notes		-		1,382		Model - option model	FX volatility	1%	27%	3%	25%
-  other		3		27
Derivatives with monolines		65		-		Model - discounted cash flow	Credit spread	0.2%	1%	0.2%	1%
Other derivatives		2,358		1,755
-  interest rate derivatives
securitisation swaps		233		700		Model - discounted cash flow	Prepayment rate	6%	7%	6%	7%
long-dated swaptions		1,019		27		Model - option model	IR volatility	13%	39%	14%	36%
other		250		148
-  FX derivatives
FX options		186		244		Model - option model	FX volatility	1%	27%	7%	12%
other		113		77
-  equity derivatives
long-dated single stock options		215		267		Model - option model	Equity volatility	5%	83%	5%	81%
other		310		216
-  Credit derivatives
Other		32		76
Other portfolios		6,444		1
-  structured certificates		3,013		-		Model - discounted cash flow	Credit volatility	2%	4%	2%	4%
-  other	4	3,431		1
At 31 Dec 2018		16,674		7,142

1     The core range of inputs is the estimated range within which 90% of the inputs fall.

2     See notes on page 256 of the Annual Report and Accounts 2018.

3     Collateralised loan obligation/collateralised debt obligation.

4     'Other' includes a range of smaller asset holdings.

6	Fair values of financial instruments not carried at fair value

The bases for measuring the fair values of loans and advances to banks and customers, financial investments, deposits by banks, customer accounts, debt securities in issue, subordinated liabilities and non-trading repurchase and reverse repurchase agreements are explained on pages 258 and 259 of the Annual Report and Accounts 2018.

Fair values of financial instruments not carried at fair value on the balance sheet
	At 30 Jun 2019				At 31 Dec 2018
	Carrying amount		Fair value		Carrying amount		Fair value
	$m		$m		$m		$m
Assets
Loans and advances to banks	82,397		82,485		72,167		72,169
Loans and advances to customers	1,021,632		1,023,961		981,696		985,077
Reverse repurchase agreements - non-trading	233,079		233,137		242,804		242,857
Financial investments - at amortised cost	81,214		83,924		62,666		62,079
Liabilities
Deposits by banks	71,051		71,034		56,331		56,308
Customer accounts	1,380,124		1,380,598		1,362,643		1,362,945
Repurchase agreements - non-trading	184,497		184,495		165,884		165,884
Debt securities in issue	103,663		104,238		85,342		85,430
Subordinated liabilities	22,894		26,888		22,437		25,341

Other financial instruments not carried at fair value are typically short term in nature and reprice to current market rates frequently. Accordingly, their carrying amount is a reasonable approximation of fair value.

7	Derivatives

Notional contract amounts and fair values of derivatives by product contract type held by HSBC
	Notional contract amount				Fair value amount
	Assets and liabilities				Assets						Liabilities
	Trading		Hedging		Trading		Hedging		Total		Trading		Hedging		Total
	$m		$m		$m		$m		$m		$m		$m		$m
Foreign exchange	8,167,223		30,119		73,788		437		74,225		73,226		663		73,889
Interest rate	28,855,791		182,018		237,022		1,301		238,323		230,001		3,093		233,094
Equities	1,268,944		-		8,356		-		8,356		8,837		-		8,837
Credit	410,473		-		4,956		-		4,956		5,880		-		5,880
Commodity and other	95,725		-		1,779		-		1,779		2,221		-		2,221
Gross total fair values	38,798,156		212,137		325,901		1,738		327,639		320,165		3,756		323,921
Offset									(94,018	)					(94,018	)
At 30 Jun 2019	38,798,156		212,137		325,901		1,738		233,621		320,165		3,756		229,903
Foreign exchange	7,552,462		29,969		85,959		458		86,417		82,494		653		83,147
Interest rate	24,589,916		163,271		155,293		1,080		156,373		154,257		2,261		156,518
Equities	1,256,550		-		10,198		-		10,198		10,750		-		10,750
Credit	346,596		-		3,414		-		3,414		3,776		-		3,776
Commodity and other	74,159		-		1,134		-		1,134		1,355		-		1,355
Gross total fair values	33,819,683		193,240		255,998		1,538		257,536		252,632		2,914		255,546
Offset									(49,711	)					(49,711	)
At 31 Dec 2018	33,819,683		193,240		255,998		1,538		207,825		252,632		2,914		205,835

The notional contract amounts of derivatives held for trading purposes and derivatives designated in qualifying hedge accounting relationships indicate the nominal value of transactions outstanding at the balance sheet date, not amounts at risk. Derivative assets and liabilities increased during 1H19, reflecting changes in yield curves and the number of outstanding contracts.

Derivatives valued using models with unobservable inputs

The following table shows the difference between the fair value at initial recognition, which is the transaction price, and the value that would have been derived had valuation techniques used for subsequent measurement been applied at initial recognition, less subsequent releases.

Unamortised balance of derivatives valued using models with significant unobservable inputs
		Half-year to
		30 Jun		30 Jun		31 Dec
		2019		2018		2018
	Footnotes	$m		$m		$m
Unamortised balance at beginning of period		86		106		80
Deferral on new transactions		90		86		75
Recognised in the income statement during the period		(78	)	(90	)	(68	)
-  amortisation		(36	)	(52	)	(44	)
-  subsequent to unobservable inputs becoming observable		(6	)	(1	)	(1	)
-  maturity, termination or offsetting derivative		(36	)	(37	)	(23	)
Exchange differences		-		(2	)	(2	)
Other		1		(20	)	1
Unamortised balance at end of period	1	99		80		86

1     This amount is yet to be recognised in the consolidated income statement.

Hedge accounting derivatives

The notional contract amounts of derivatives held for hedge accounting purposes indicate the nominal value of transactions outstanding at the balance sheet date, not amounts at risk.

Notional contract amounts of derivatives held for hedging purposes by product type
	At 30 Jun 2019				At 31 Dec 2018
	Cash flow hedges		Fair value hedges		Cash flow hedges		Fair value hedges
	$m		$m		$m		$m
Foreign exchange	22,604		15		24,954		15
Interest rate	44,222		137,796		39,720		123,551
Total	66,826		137,811		64,674		123,566

The Group applies hedge accounting in respect of certain consolidated net investments. Hedging is undertaken using forward foreign exchange contracts or by financing with foreign currency borrowings. At 30 June 2019, the notional contract values of outstanding financial instruments designated as hedges of net investments in foreign operations were $7,500m (31 December 2018: $5,000m).

8	Financial investments

Carrying amounts of financial investments
		30 Jun		31 Dec
		2019		2018
	Footnotes	$m		$m
Financial investments measured at fair value through other comprehensive income		346,887		344,767
-  treasury and other eligible bills		75,470		96,642
-  debt securities		269,471		246,371
-  equity securities		1,851		1,657
-  other instruments	1	95		97
Debt instruments measured at amortised cost	2	81,214		62,666
-  treasury and other eligible bills		6,744		679
-  debt securities		74,470		61,987
At the end of the period		428,101		407,433

1     'Other Instruments' are comprised of loans and advances.

2     Fair value: $83.9bn (31 December 2018: $62.1bn).

9	Interests in associates and joint ventures

At 30 June 2019, the carrying amount of HSBC's interests in associates and joint ventures was $23,892m (31 December 2018: $22,407m).

Principal associates of HSBC
	At
	30 Jun 2019				31 Dec 2018
	Carrying amount		Fair value1		Carrying amount		Fair value1
	$m		$m		$m		$m
Bank of Communications Co., Limited	18,166		10,734		17,754		10,991
The Saudi British Bank	4,496		6,512		3,557		5,222

1     Principal associates are listed on recognised stock exchanges. The fair values are based on the quoted market prices of the shares held (Level 1 in the fair value hierarchy).

In June, the merger between The Saudi British Bank ('SABB') and Alawwal bank ('Alawwal') became effective. The merger involved  SABB issuing a fixed number of new shares to Alawwal's shareholders in exchange for the transfer of Alawwal's net assets and cancellation of its shares. HSBC's 40.0% interest in SABB reduced to 29.2% of the combined entity, resulting in a dilution gain of $828m recognised in HSBC's consolidated income statement for the half-year to 30 June 2019. The dilution gain represents the difference between the carrying amount of HSBC's interest in SABB that was derecognised proportionate to the percentage reduction, and HSBC's share of the increase in the combined entity's net assets. The combined entity continues to be an associate of HSBC.

Bank of Communications Co., Limited

The Group's investment in Bank of Communications Co., Limited ('BoCom') is classified as an associate. Significant influence in BoCom was established via representation on BoCom's Board of Directors and participation in a technical cooperation and exchange programme ('TCEP'). Under the TCEP, a number of HSBC staff have been seconded to assist in the maintenance of BoCom's financial and operating policies. Investments in associates are recognised using the equity method of accounting in accordance with IAS 28, whereby the investment is initially recognised at cost and adjusted thereafter for the post-acquisition change in the Group's share of BoCom's net assets. An impairment test is required if there is any indication of impairment.

Impairment testing

At 30 June 2019, the fair value of the Group's investment in BoCom had been below the carrying amount for approximately 86 months. As a result, the Group performed an impairment test on the carrying amount, which confirmed that there was no impairment at 30 June 2019 as the recoverable amount as determined by a value-in-use ('VIU') calculation was higher than the carrying value.

At

30 Jun 2019

31 Dec 2018

VIU

Carrying value

Fair value

VIU

Carrying value

Fair value

$bn

$bn

$bn

$bn

$bn

$bn

BoCom

20.2

18.2

10.7

18.0

17.8

11.0

The increase in VIU for the first half of 2019 was principally driven by BoCom's actual performance exceeding earlier forecasts, and upward revisions to management's best estimates of BoCom's future earnings.

In future periods, the VIU may increase or decrease depending on the effect of changes to model inputs. The main model inputs are described below and are based on factors observed at period-end. The factors that could result in a change in the VIU and an impairment include a short-term underperformance by BoCom, a change in regulatory capital requirements, or an increase in uncertainty regarding the future performance of BoCom resulting in a downgrade of the future asset growth or profitability. An increase in the discount rate as a result of an increase in the risk premium or risk-free rates could also result in a reduction of VIU and an impairment. At the point where the carrying value exceeds the VIU, impairment would be recognised.

If the Group did not have significant influence in BoCom, the investment would be carried at fair value rather than the current carrying value.

Basis of recoverable amount

The impairment test was performed by comparing the recoverable amount of BoCom, determined by a VIU calculation, with its carrying amount. The VIU calculation uses discounted cash flow projections based on management's best estimates of future earnings available to ordinary shareholders prepared in accordance with IAS 36. Significant management judgement is required in arriving at the best estimate. There are two main components to the VIU calculation. The first component is management's best estimate of BoCom's earnings, which is based on explicit forecasts over the short to medium term. This results in forecast earnings growth that is lower than recent historical actual growth and also reflects the uncertainty arising from the current economic outlook. Earnings beyond the short to medium term are then extrapolated in perpetuity using a long-term growth rate to derive a terminal value, which comprises the majority of the VIU. The second component is the capital maintenance charge ('CMC'), which is management's forecast of the earnings that need to be withheld in order for BoCom to meet regulatory capital requirements over the forecast period, meaning that CMC is deducted when arriving at management's estimate of future earnings available to ordinary shareholders. The principal inputs to the CMC calculation include estimates of asset growth, the ratio of risk-weighted assets to total assets, and the expected minimum regulatory capital requirements. An increase in the CMC as a result of a change to these principal inputs would reduce VIU. Additionally, management considers other factors, including qualitative factors, to ensure that the inputs to the VIU calculation remain appropriate.

Key assumptions in value-in-use calculation

We used a number of assumptions in our VIU calculation, in accordance with the requirements of IAS 36:

•      Long-term profit growth rate: 3% (31 December 2018: 3%) for periods after 2022. This does not exceed forecast GDP growth in mainland China and is consistent with forecasts by external analysts.

•      Long-term asset growth rate: 3% (31 December 2018: 3%) for periods after 2022. This is the rate that assets are expected to grow to achieve long-term profit growth of 3%.

•      Discount rate: 11.82% (31 December 2018: 11.82%). This is based on a capital asset pricing model ('CAPM') calculation for BoCom, using market data. Management also compares the rate derived from the CAPM with discount rates from external sources. The discount rate used is within the range of 10.3% to 14.3% (31 December 2018: 10.4% to 15.0%) indicated by external sources.

•      Expected credit losses as a percentage of customer advances: ranges from 0.88% to 0.94% (31 December 2018: 0.73% to 0.79%) in the short to medium term. This reflects increases due to the US-China trade tensions. For periods after 2022, the ratio is 0.70% (31 December 2018: 0.70%), which is slightly higher than the historical average.

•      Risk-weighted assets as a percentage of total assets: 61% (31 December 2018: 62%) for all forecast periods. This is slightly higher than BoCom's actual results and the forecasts disclosed by external analysts.

•      Cost-income ratio: ranges from 38.1% to 38.9% (31 December 2018: 38.7% to 39.0%) in the short to medium term. This is slightly higher than the forecasts disclosed by external analysts.

•      Effective tax rate: ranges from 13.9% to 22.0% (31 December 2018:13.8% to 22.3%) in the short to medium term. This reflects an expected increase towards the long-term assumption. For periods after 2022, the rate is 22.5% (31 December 2018: 22.5%), which is slightly higher than the historical average.

•      Capital requirements: Capital adequacy ratio of 11.5% (31 December 2018: 11.5%) and tier 1 capital adequacy ratio of 9.5% (31 December 2018: 9.5%). This is based on the minimum regulatory requirements.

The following table shows the change to each key assumption in the VIU calculation that on its own would reduce the headroom to nil:

Key assumption	Changes to key assumption to reduce headroom to nil
•     Long-term profit growth rate	Decrease by 87 basis points
•     Long-term asset growth rate	Increase by 74 basis points
•     Discount rate	Increase by 106 basis points
•     Expected credit losses as a percentage of customer advances	Increase by 14 basis points
•     Risk-weighted assets as a percentage of total assets	Increase by 515 basis points
•     Cost-income ratio	Increase by 327 basis points
•     Long-term effective tax rate	Increase by 750 basis points
•     Capital requirements - capital adequacy ratio	Increase by 97 basis points
•     Capital requirements - tier 1 capital adequacy ratio	Increase by 172 basis points

The following table further illustrates the impact on VIU of reasonably possible changes to key assumptions. This reflects the sensitivity of the VIU to each key assumption on its own. It is possible that more than one favourable and/or unfavourable change may occur at the same time. The selected rates of reasonably possible changes to key assumptions are largely based on external analysts' forecasts, which can change period to period.

Sensitivity of VIU to reasonably possible changes in key assumptions
	Favourable change						Unfavourable change
			Increase  in VIU		VIU				Decrease in VIU		VIU
	bps		$bn		$bn		bps		$bn		$bn
At 30 Jun 2019
Long-term profit growth rate	-		-		20.2		(50	)	(1.2	)	19.0
Long-term asset growth rate	(50	)	1.2		21.4		-		-		20.2
Discount rate	(72	)	1.7		21.9		38		(0.8	)	19.4
Expected credit losses as a percentage of customer advances	2019 to 2022: 0.90% 2023 onwards: 0.69%		0.2		20.4		2019 to 2022: 0.95% 2023 onwards: 0.79%		(1.1	)	19.1
Risk-weighted assets as a percentage of total assets	(125	)	0.5		20.7		150		(0.6	)	19.6
Cost-income ratio	(190	)	1.4		21.6		-		-		20.2
Long-term effective tax rate	(345	)	1.0		21.2		250		(0.7	)	19.5
Earnings in short to medium term - compound annual growth rate1	102		1.0		21.2		(272	)	(1.7	)	18.5
Capital requirements - capital adequacy ratio	-		-		20.2		273		(6.2	)	14.0
Capital requirements - tier 1 capital adequacy ratio	-		-		20.2		273		(4.5	)	15.7
At 31 Dec 2018
Long-term profit growth rate	100		2.6		20.6		(10	)	(0.2	)	17.8
Long-term asset growth rate	(10	)	0.3		18.3		100		(2.8	)	15.3
Discount rate	(142	)	3.2		21.3		28		(0.5	)	17.5
Expected credit losses as a percentage of customer advances	2018 to 2022: 0.70% 2023 onwards: 0.65%		0.9		18.9		2018 to 2022: 0.83%       2023 onwards: 0.77%		(1.0	)	17.0
Risk-weighted assets as a percentage of total assets	(140	)	0.5		18.6		80		(0.3	)	17.8
Cost-income ratio	(160	)	1.1		19.2		200		(1.4	)	16.7
Long-term effective tax rate	(280	)	0.7		18.7		250		(0.6	)	17.5
Earnings in short to medium term - compound annual growth rate1,2	204		1.1		19.1		(366	)	(1.8	)	16.2
Capital requirements - capital adequacy ratio	-		-		18.0		258		(5.0	)	13.0
Capital requirements - tier 1 capital adequacy ratio	-		-		18.0		243		(3.2	)	14.8

1     Based on management's explicit forecasts over the short to medium term.

2     Amounts at 31 December 2018 have been updated to align with the 2019 approach to describe the impact of the change in isolation.

Considering the interrelationship of the changes set out in the table above, management estimates that the reasonably possible range of VIU is $17.5bn to $21.3bn (31 December 2018: $15.5bn to $19.6bn). The range is based on the favourable/unfavourable change in the earnings in the short- to medium-term and long-term expected credit losses as a percentage of customer advances as set out in the table above. All other long-term assumptions, the discount rate and the basis of the CMC have been kept unchanged when determining the reasonably possible range of the VIU.

10	Provisions

	Restructuring costs		Legal proceedings and regulatory matters		Customer remediation		Other provisions		Total
	$m		$m		$m		$m		$m
Provisions (excluding contractual commitments)
At 31 Dec 2018	130		1,128		788		357		2,403
Additions	224		99		687		100		1,110
Amounts utilised	(148	)	(80	)	(389	)	(42	)	(659	)
Unused amounts reversed	(21	)	(30	)	(35	)	(78	)	(164	)
Exchange and other movements	(15	)	10		(4	)	(131	)	(140	)
At 30 Jun 2019	170		1,127		1,047		206		2,550
Contractual commitments1
At 31 Dec 2018									517
Net change in expected credit loss provision and other movements									(42	)
At 30 Jun 2019									475
Total provisions
At 31 Dec 2018									2,920
At 30 Jun 2019									3,025

1     The contractual commitments provision includes off-balance sheet loan commitments and guarantees, for which expected credit losses are provided under IFRS 9.

Further details of 'Legal proceedings and regulatory matters' are set out in Note 12. Legal proceedings include civil court, arbitration or tribunal proceedings brought against HSBC companies (whether by way of claim or counterclaim); or civil disputes that may, if not settled, result in court, arbitration or tribunal proceedings. 'Regulatory matters' refers to investigations, reviews and other actions carried out by, or in response to, the actions of regulators or law enforcement agencies in connection with alleged wrongdoing by HSBC.

Customer remediation refers to HSBC's activities to compensate customers for losses or damages associated with a failure to comply with regulations or to treat customers fairly. Customer remediation is often initiated by HSBC in response to customer complaints and/or industry developments in sales practices, and is not necessarily initiated by regulatory action. Further details of customer remediation are set out in this note.

Further disclosure on 'ECL on undrawn loan commitments and financial guarantees' can be found in the 'Credit risk' section of the Interim Management Report on page 49.

Payment protection insurance

At 30 June 2019, $847m (31 December 2018: $555m) of the customer remediation provision relates to the estimated liability for redress in respect of the possible mis-selling of payment protection insurance ('PPI') policies in previous years. The balance at 31 December 2018 was $555m, of which $327m had been utilised in the six months to 30 June 2019.

An increase in provisions of $615m was recognised during the six months to 30 June 2019, primarily reflecting:

i.     an adjustment to expected future complaint volumes to reflect the automatic conversion of information requests between 29 June 2019 and 29 August 2019. The provision has been updated to reflect the incremental increase in complaints which this is expected to generate;

ii.   an industry-wide exercise by the Official Receiver to pursue redress amounts in respect of bankrupt and insolvent customers. This reflects the obligation of the Official Receiver to identify and attain their assets and to then disperse them to those who are owed funds; and

iii.  an increased level of information requests and complaint experience together with increased levels of forecast information requests and therefore complaints for the remaining period to 29 August 2019.

The provision was also increased for the operational expenses related to these populations of potential claims.

The estimated liability for redress is calculated on the basis of the total premiums paid by the customer plus simple interest of 8% per annum (or the rate inherent in the related loan product where higher). The basis for calculating the redress liability is the same for single premium and regular premium policies. Future estimated redress levels are based on the historically observed redress per policy.

A total of 5.4 million PPI policies have been sold since 2000, generating estimated revenue of $3.4bn at 2019. The gross written premiums on these policies were approximately $4.4bn. At 30 June 2019, it is estimated that contact will be made with regard to 
2.9 million policies, representing 54% of total policies sold. This estimate includes inbound complaints as well as the Group's proactive contact exercise on certain policies ('outbound contact').

The following table details the cumulative number of complaints received at 30 June 2019 and the number of claims expected in the future:

Cumulative PPI complaints received to 30 June 2019 and future claims expected
	Footnotes	Cumulative to 30 Jun 2019		Future expected
Inbound complaints (000s of policies)	1	1,891		359
Outbound contact (000s of policies)		685		-
Response rate to outbound contact		44%		n/a
Average uphold rate per claim	2	78%		83%
Average redress per claim ($)		2,798		2,544
Information requests (000s of policies)		-		964
Complaints to the Financial Ombudsman Service ('FOS') (000s of policies)		171		3
Average uphold rate per FOS complaint		38%		28%

1     Excludes invalid claims for which no PPI policy exists.

2     Claims include inbound and responses to outbound contact.

The PPI provision is based upon assumptions and estimates. Consequently, actual complaint volumes may vary from the future expected volumes set out above. In particular, in the lead-up to 29 August 2019, the volume and quality of information requests could differ significantly from that included in arriving at the provision. HSBC continued to monitor complaint and information request volumes and other available information up until the date of the approval of the Interim Report to ensure the provision estimate was appropriate.

A 100,000 increase/decrease in the total inbound complaints would increase/decrease the redress provision by approximately $211m.

A 50,000 increase/decrease in the total information requests would increase/decrease the redress provision by approximately $18m.

11	Contingent liabilities, contractual commitments and guarantees

		At
		30 Jun		31 Dec
		2019		2018
	Footnotes	$m		$m
Guarantees and contingent liabilities:
- financial guarantees		21,290		23,518
- performance and other guarantees		74,614		71,484
- other contingent liabilities		1,471		1,408
At the end of the period		97,375		96,410
Commitments:	1
- documentary credits and short-term trade-related transactions		6,671		7,083
- forward asset purchases and forward deposits placed		99,208		67,265
- standby facilities, credit lines and other commitments to lend		711,989		705,918
At the end of the period		817,868		780,266

1     Includes $629,891m of commitments at 30 June 2019 (31 December 2018: $592,008m), to which the impairment requirements in IFRS 9 are applied where HSBC has become party to an irrevocable commitment.

The preceding table discloses the nominal principal amounts of off-balance sheet liabilities and commitments for the Group, which represent the maximum amounts at risk should the contracts be fully drawn upon and the clients default. As a significant portion of guarantees and commitments are expected to expire without being drawn upon, the total of the nominal principal amounts is not indicative of future liquidity requirements. The expected credit loss provision relating to guarantees and commitments is disclosed in Note 10.

Approximately half the guarantees have a term of less than one year, while guarantees with terms of more than one year are subject to HSBC's annual credit review process.

Contingent liabilities arising from legal proceedings, regulatory and other matters against Group companies are disclosed in Notes 10 
and 12.

12	Legal proceedings and regulatory matters

HSBC is party to legal proceedings and regulatory matters in a number of jurisdictions arising out of its normal business operations. Apart from the matters described below, HSBC considers that none of these matters are material. The recognition of provisions is determined in accordance with the accounting policies set out in Note 1 of the Annual Report and Accounts 2018. While the outcome of legal proceedings and regulatory matters is inherently uncertain, management believes that, based on the information available to it, appropriate provisions have been made in respect of these matters as at 30 June 2019 (see Note 10). Where an individual provision is material, the fact that a provision has been made is stated and quantified, except to the extent that doing so would be seriously prejudicial. Any provision recognised does not constitute an admission of wrongdoing or legal liability. It is not practicable to provide an aggregate estimate of potential liability for our legal proceedings and regulatory matters as a class of contingent liabilities.

Bernard L. Madoff Investment Securities LLC

Bernard L. Madoff ('Madoff') was arrested in December 2008 and later pleaded guilty to running a Ponzi scheme. His firm, Bernard L. Madoff Investment Securities LLC ('Madoff Securities'), is being liquidated in the US by a trustee (the 'Trustee').

Various non-US HSBC companies provided custodial, administration and similar services to a number of funds incorporated outside the US whose assets were invested with Madoff Securities. Based on information provided by Madoff Securities as at 30 November 2008, the purported aggregate value of these funds was $8.4bn, including fictitious profits reported by Madoff.

Based on information available to HSBC, the funds' actual transfers to Madoff Securities minus their actual withdrawals from Madoff Securities during the time HSBC serviced the funds are estimated to have totalled approximately $4bn. Various HSBC companies have been named as defendants in lawsuits arising out of Madoff Securities' fraud.

US litigation: The Trustee has brought lawsuits against various HSBC companies and others in the US Bankruptcy Court for the Southern District of New York (the 'US Bankruptcy Court'), seeking recovery of transfers from Madoff Securities to HSBC in an amount not yet pleaded or determined. HSBC and other parties to the actions have moved to dismiss the Trustee's claims. The US Bankruptcy Court granted HSBC's motion to dismiss with respect to certain of the Trustee's claims in November 2016. In February 2019, the US Court of Appeals for the Second Circuit (the 'Second Circuit Court of Appeals') reversed that dismissal and remanded the cases to the US Bankruptcy Court. Further proceedings in the US Bankruptcy Court have been stayed pending the filing and disposition of a petition by HSBC and other parties to the US Supreme Court.

Fairfield Sentry Limited, Fairfield Sigma Limited and Fairfield Lambda Limited (together, 'Fairfield') (in liquidation since July 2009) have brought a lawsuit in the US against fund shareholders, including HSBC companies that acted as nominees for clients, seeking restitution of redemption payments. In December 2018, the US Bankruptcy Court issued an opinion, which ruled in favour of the defendants' motion to dismiss in respect of certain claims by the liquidators for Fairfield and granted a motion by the liquidators to file amended complaints. As a result of that opinion, all claims against one of the HSBC companies have been dismissed, and certain claims against the remaining HSBC defendants have also been dismissed. In May 2019, the liquidators appealed certain issues from the US Bankruptcy Court opinion to the US District Court for the Southern District of New York (the 'New York District Court').

UK litigation: The Trustee has filed a claim against various HSBC companies in the High Court of England and Wales, seeking recovery of transfers from Madoff Securities to HSBC in an amount not yet pleaded or determined. The deadline for service of the claim has been extended to September 2019 for UK-based defendants and November 2019 for all other defendants.

Bermuda litigation: In January 2009, Kingate Global Fund Limited and Kingate Euro Fund Limited (together, 'Kingate') brought an action against HSBC Bank Bermuda Limited ('HBBM') for recovery of funds held in Kingate's accounts, fees and dividends. In June 2019, the Trustee, Kingate and HBBM entered into a global settlement agreement pursuant to which the Trustee and Kingate released HBBM from any and all claims arising out of or relating to Kingate including all pending litigation in the US, UK and Bermuda. This settlement is subject to final approval from courts in the US and British Virgin Islands.

Cayman Islands litigation: In February 2013, Primeo Fund Limited ('Primeo') (in liquidation since April 2009) brought an action against HSBC Securities Services Luxembourg ('HSSL') and Bank of Bermuda (Cayman) Limited (now known as HSBC Cayman Limited), alleging breach of contract and breach of fiduciary duty and claiming damages and equitable compensation. The trial concluded in February 2017 and, in August 2017, the court dismissed all claims against the defendants. In September 2017, Primeo appealed to the Court of Appeal of the Cayman Islands and, in June 2019, the Court of Appeal of the Cayman Islands dismissed Primeo's claims against HSSL and HSBC Cayman Limited. Primeo has the right to appeal to the UK Privy Council.

Luxembourg litigation: In April 2009, Herald Fund SPC ('Herald') (in liquidation since July 2013) brought an action against HSSL before the Luxembourg District Court, seeking restitution of cash and securities that Herald purportedly lost because of Madoff Securities' fraud, or money damages. The Luxembourg District Court dismissed Herald's securities restitution claim, but reserved Herald's cash restitution claim and its claim for money damages. Herald has appealed this judgment to the Luxembourg Court of Appeal, where the matter is pending. In late 2018, Herald brought additional claims against HSSL and HSBC Bank plc ('HSBC Bank') before the Luxembourg District Court, seeking further restitution and damages.

In October 2009, Alpha Prime Fund Limited ('Alpha Prime') brought an action against HSSL before the Luxembourg District Court, seeking the restitution of securities, or the cash equivalent, or money damages. This action has been temporarily suspended at the plaintiffs' request. In December 2018, Alpha Prime brought additional claims before the Luxembourg District Court seeking damages against various HSBC companies.

In December 2014, Senator Fund SPC ('Senator') brought an action against HSSL before the Luxembourg District Court, seeking restitution of securities, or the cash equivalent, or money damages. In April 2015, Senator commenced a separate action against the Luxembourg branch of HSBC Bank asserting identical claims before the Luxembourg District Court. In December 2018, Senator brought additional claims against HSSL and HSBC Bank Luxembourg branch before the Luxembourg District Court, seeking restitution of Senator's securities or money damages.

Ireland litigation: In November 2013, Defender Limited brought an action against HSBC Institutional Trust Services (Ireland) Limited ('HTIE') and others, based on allegations of breach of contract and claiming damages and indemnification for fund losses. The trial commenced in October 2018. In December 2018, the Irish High Court issued a judgment in HTIE's favour on a preliminary issue, holding that Defender Limited had no effective claim against HTIE. This judgment concluded the trial without further issues in dispute being heard. In February 2019, Defender Limited appealed the judgment.

There are many factors that may affect the range of possible outcomes, and the resulting financial impact, of the various Madoff-related proceedings described above, including but not limited to the multiple jurisdictions in which the proceedings have been brought. Based upon the information currently available, management's estimate of the possible aggregate damages that might arise as a result of all claims in the various Madoff-related proceedings is up to or exceeding $500m, excluding costs and interest. Due to uncertainties and limitations of this estimate, the ultimate damages could differ significantly from this amount.

Anti-money laundering and sanctions-related matters

In December 2012, among other agreements, HSBC Holdings plc ('HSBC Holdings') agreed to an undertaking with the UK Financial Conduct Authority ('FCA') and consented to a cease-and-desist order with the US Federal Reserve Board ('FRB'), both of which contained certain forward-looking anti-money laundering ('AML') and sanctions-related obligations. HSBC also agreed to retain an independent compliance monitor (who is, for FCA purposes, a 'Skilled Person' under section 166 of the Financial Services and Markets Act and, for FRB purposes, an 'Independent Consultant') to produce periodic assessments of the Group's AML and sanctions compliance programme (the 'Skilled Person/Independent Consultant'). In December 2012, HSBC Holdings also entered into an agreement with the Office of Foreign Assets Control ('OFAC') regarding historical transactions involving parties subject to OFAC sanctions. The Skilled Person/Independent Consultant will continue to conduct country reviews and provide periodic reports for a period of time at the FCA's and FRB's discretion. The role of the Skilled Person/Independent Consultant is discussed on page 85 of the Annual Report and Accounts 2018.

Through the Skilled Person/Independent Consultant's country-level reviews, as well as internal reviews conducted by HSBC, certain potential AML and sanctions compliance issues have been identified that HSBC is reviewing further with the FRB, FCA and/or OFAC. The Financial Crimes Enforcement Network of the US Treasury Department, as well as the Civil Division of the US Attorney's Office for the Southern District of New York, are investigating the collection and transmittal of third-party originator information in certain payments instructed over HSBC's proprietary payment systems. The FCA is also conducting an investigation into HSBC Bank's compliance with UK money laundering regulations and financial crime systems and controls requirements. HSBC is cooperating with all of these investigations.

In May 2014, a shareholder derivative action was filed by a shareholder of HSBC Holdings purportedly on behalf of HSBC Holdings, HSBC Bank USA N.A. ('HSBC Bank USA'), HSBC North America Holdings Inc. and HSBC USA Inc. (the 'Nominal Corporate Defendants') in New York state court against certain current and former directors and officers of the Nominal Corporate Defendants (the 'Individual Defendants'). The complaint alleges that the Individual Defendants breached their fiduciary duties to the Nominal Corporate Defendants and caused a waste of corporate assets by allegedly permitting and/or causing the conduct underlying the five-year deferred prosecution agreement with the US Department of Justice ('DoJ'), entered into in December 2012. In November 2015, the New York state court granted the Nominal Corporate Defendants' motion to dismiss. In November 2018, the appellate court reversed the New York state court's decision and reinstated the action; furthermore, in March 2019, the appellate court denied the Nominal Corporate Defendants' motion for reargument or for leave to appeal to the New York Court of Appeals. In February 2019, the Nominal Corporate Defendants and most of the Individual Defendants filed a further motion to dismiss in New York state court, where the matter is pending.

In July 2014, a claim was filed in the Ontario Superior Court of Justice against HSBC Holdings and a former employee purportedly on behalf of a class of persons who purchased HSBC common shares and American Depositary Shares between July 2006 and July 2012. The complaint, which seeks monetary damages of up to CA$20bn, alleges that the defendants made statutory and common law misrepresentations in documents released by HSBC Holdings and its wholly-owned indirect subsidiary, HSBC Bank Canada, relating to HSBC's compliance with the Bank Secrecy Act, AML, sanctions and other laws. In September 2017, the Ontario Superior Court of Justice dismissed the statutory claims against HSBC Holdings and the former employee for lack of jurisdiction, and stayed the common law misrepresentation claim against HSBC Holdings on the basis of forum non conveniens. In October 2017, the plaintiff appealed to the Court of Appeal for Ontario and, in July 2018, that appeal was dismissed. In October 2018, the plaintiff applied for leave to appeal to the Supreme Court of Canada and, in March 2019, the plaintiff's application for leave to appeal was denied.

Since November 2014, a number of lawsuits have been filed in federal courts in the US against various HSBC companies and others on behalf of plaintiffs who are, or are related to, victims of terrorist attacks in the Middle East or of cartel violence in Mexico. In each case, it is alleged that the defendants aided and abetted the unlawful conduct of various sanctioned parties in violation of the US Anti-Terrorism Act. Currently, 10 actions are pending in federal court in New York, with one on appeal. In July 2018, in one case, the New York District Court granted HSBC's motion to dismiss, while in a different case, the magistrate judge issued a recommendation that the New York District Court should deny the defendants' motion to dismiss. The plaintiffs appealed the decision in the case granting dismissal and that appeal is pending. Motions to dismiss were filed in two other cases; the court in one of those cases granted HSBC's motion in March 2019. The plaintiffs in that case are now seeking to amend their complaint. The six remaining actions are at a very early stage.

In July 2018, a claim was issued against HSBC Holdings in the High Court of England and Wales alleging that HSBC Holdings made untrue and/or misleading statements and/or omissions in public statements between 2007 and 2012 regarding compliance by HSBC with AML, anti-terrorist financing and sanctions laws, regulations and requirements, and the regulatory compliance of HSBC more generally.

There are many factors that may affect the range of outcomes, and the resulting financial impact, of these matters, which could be significant.

Tax-related investigations

Various tax administration, regulatory and law enforcement authorities around the world, including in the US, Belgium, Argentina, India and Spain, are conducting investigations and reviews of HSBC Private Bank (Suisse) SA ('HSBC Swiss Private Bank') and other HSBC companies in connection with allegations of tax evasion or tax fraud, money laundering and unlawful cross-border banking solicitation.

HSBC continues to cooperate in ongoing investigations by the DoJ and the US Internal Revenue Service regarding whether certain HSBC companies and employees, including those associated with HSBC Swiss Private Bank and an HSBC company in India, acted appropriately in relation to certain customers who may have had US tax reporting obligations. In connection with these investigations, HSBC Swiss Private Bank, with due regard for Swiss law, has produced records and other documents to the DoJ. In August 2013, the DoJ informed HSBC Swiss Private Bank that it was not eligible for the 'Program for Non-Prosecution Agreements or Non-Target Letters for Swiss Banks' since a formal investigation had previously been authorised. These investigations remain pending.

In November 2014, HSBC Swiss Private Bank was placed under formal criminal examination in Belgium for alleged historical tax-related offences. In June 2017, Belgian authorities also placed HSBC Holdings and HSBC Private Bank Holdings (Suisse) SA, a Swiss holding company, under formal criminal examination. In June 2019, HSBC Swiss Private Bank reached a settlement in principle to resolve the Belgian authorities' investigation. The settlement in principle is subject to court approval, and there can be no assurance that the proposed resolution will be approved. Management's estimate of the expected outflow under the settlement in principle is already covered by the existing amount provisioned for this matter.

In November 2014, the Argentine tax authority initiated a criminal action against various individuals, including current and former HSBC employees. The criminal action includes allegations of tax evasion, conspiracy to launder undeclared funds and an unlawful association among HSBC Swiss Private Bank, HSBC Bank Argentina, HSBC Bank USA and certain HSBC employees, which allegedly enabled numerous HSBC customers to evade their Argentine tax obligations. HSBC is cooperating with this ongoing investigation.

In February 2015, the Indian tax authority issued a summons and request for information to an HSBC company in India. In August 2015 and November 2015, HSBC companies received notices issued by two offices of the Indian tax authority, alleging that the Indian tax authority had sufficient evidence to initiate prosecution against HSBC Swiss Private Bank and an HSBC company in Dubai for allegedly abetting tax evasion of four different Indian individuals and/or families and requesting that the HSBC companies show cause as to why such prosecution should not be initiated. HSBC Swiss Private Bank and the HSBC company in Dubai have responded to the show cause notices. HSBC is cooperating with this ongoing investigation.

As at 30 June 2019, HSBC has recognised a provision for these various matters in the amount of $629m. There are many factors that may affect the range of outcomes, and the resulting financial impact, of these investigations and reviews. Due to uncertainties and limitations of these estimates, the ultimate penalties could differ from this amount.

In light of the media attention regarding these matters, it is possible that other tax administration, regulatory or law enforcement authorities will also initiate or enlarge similar investigations or regulatory proceedings.

London interbank offered rates, European interbank offered rates and other benchmark interest rate investigations and litigation

Euro interest rate derivatives: In December 2016, the European Commission (the 'EC') issued a decision finding that HSBC, among other banks, engaged in anti-competitive practices in connection with the pricing of euro interest rate derivatives in early 2007. The EC imposed a fine on HSBC based on a one-month infringement. HSBC has appealed the decision.

US dollar Libor: Beginning in 2011, HSBC and other panel banks have been named as defendants in a number of private lawsuits filed in the US with respect to the setting of US dollar Libor. The complaints assert claims under various US laws, including US antitrust and racketeering laws, the US Commodity Exchange Act ('US CEA') and state law. The lawsuits include individual and putative class actions, most of which have been transferred and/or consolidated for pre-trial purposes before the New York District Court.

In 2017 and 2018, HSBC reached agreements with plaintiffs to resolve putative class actions brought on behalf of the following five groups of plaintiffs: persons who purchased US dollar Libor-indexed bonds; persons who purchased US dollar Libor-indexed exchange-traded instruments; US-based lending institutions that made or purchased US dollar Libor-indexed loans (the 'Lender class'); persons who purchased US dollar Libor-indexed interest rate swaps and other instruments directly from the defendant banks and their affiliates (the 'OTC class'); and persons who purchased US dollar Libor-indexed interest rate swaps and other instruments from certain financial institutions that are not the defendant banks or their affiliates. During 2018, the New York District Court granted final approval of the settlements with the OTC and Lender classes. The remaining settlements are subject to final court approval. Additionally, a number of other US dollar Libor-related actions remain pending against HSBC in the New York District Court and the Second Circuit Court of Appeals.

Intercontinental Exchange ('ICE') Libor: Between January and March 2019, HSBC and other panel banks were named as defendants in three putative class actions filed in the New York District Court on behalf of persons and entities who purchased instruments paying interest indexed to US dollar ICE Libor from a panel bank. The complaints allege, among other things, misconduct related to the suppression of this benchmark rate in violation of US antitrust and state law. In July 2019, the three putative class actions were consolidated, and the plaintiffs filed a consolidated amended complaint. This matter is at a very early stage.

Singapore interbank offered rate ('Sibor'), Singapore swap offer rate ('SOR') and Australia bank bill swap rate ('BBSW'): In July and August 2016, HSBC and other panel banks were named as defendants in two putative class actions filed in the New York District Court on behalf of persons who transacted in products related to the Sibor, SOR and BBSW benchmark rates. The complaints allege, among other things, misconduct related to these benchmark rates in violation of US antitrust, commodities and racketeering laws, and state law.

In the Sibor/SOR litigation, following a decision on the defendants' motion to dismiss in October 2018, the claims against a number of HSBC entities were dismissed, and the Hongkong and Shanghai Banking Corporation Limited ('HBAP') remains the only HSBC defendant in this action. In October 2018, HBAP filed a motion for reconsideration of the decision based on the issue of personal jurisdiction; this motion was denied in April 2019. Also in October 2018, the plaintiff filed a third amended complaint naming only the Sibor panel members, including HBAP, as defendants; the court dismissed the third amended complaint in its entirety in July 2019.

In the BBSW litigation, in November 2018, the court dismissed all foreign defendants, including all the HSBC entities, on personal jurisdiction grounds. In April 2019, the plaintiff filed an amended complaint, which the defendants have moved to dismiss.

There are many factors that may affect the range of outcomes, and the resulting financial impact, of these matters, which could be significant.

Foreign exchange-related investigations and litigation

Various regulators and competition authorities around the world, including in the EU, Switzerland, Brazil and South Africa, are conducting investigations and reviews into trading by HSBC and others on the foreign exchange markets. HSBC is cooperating with these investigations and reviews.

In January 2018, HSBC Holdings entered into a three-year deferred prosecution agreement with the Criminal Division of the DoJ (the 'FX DPA'), regarding fraudulent conduct in connection with two particular transactions in 2010 and 2011. This concluded the DoJ's investigation into HSBC's historical foreign exchange activities. Under the terms of the FX DPA, HSBC has a number of ongoing obligations, including implementing enhancements to its internal controls and procedures in its Global Markets business, which will be the subject of annual reports to the DoJ. In addition, HSBC agreed to pay a financial penalty and restitution.

In December 2016, Brazil's Administrative Council of Economic Defense ('CADE') initiated an investigation into the onshore foreign exchange market and identified a number of banks, including HSBC, as subjects of its investigation.

In February 2017, the Competition Commission of South Africa referred a complaint for proceedings before the South African Competition Tribunal against 18 financial institutions, including HSBC Bank, for alleged misconduct related to the foreign exchange market in violation of South African antitrust laws. In April 2017, HSBC Bank filed an exception to the complaint based on a lack of jurisdiction and statute of limitations. In January 2018, the South African Competition Tribunal approved the provisional referral of additional financial institutions, including HSBC Bank USA, to the proceedings. In June 2019, the South African Competition Tribunal issued a decision requiring the Competition Commission to revise its complaint. Several financial institutions named in the complaint, including HSBC Bank USA, have appealed part of the decision to the Competition Appeal Court of South Africa, and the Competition Commission has cross-appealed.

In October 2018, HSBC Holdings and HSBC Bank received an information request from the EC concerning potential coordination in foreign exchange options trading. This matter is at an early stage.

In late 2013 and early 2014, various HSBC companies and other banks were named as defendants in various putative class actions consolidated in the New York District Court. The consolidated complaint alleged, among other things, that the defendants conspired to manipulate the WM/Reuters foreign exchange benchmark rates. In September 2015, HSBC reached an agreement with the plaintiffs to resolve the consolidated action, and the court granted final approval of the settlement in August 2018.

A putative class action complaint making similar allegations on behalf of retail customers of foreign exchange products was filed in the US District Court for the Northern District of California in 2015, and was subsequently transferred to the New York District Court where it remains pending. In 2017, putative class action complaints making similar allegations on behalf of purported 'indirect' purchasers of foreign exchange products were filed in New York and were subsequently consolidated in the New York District Court, where they remain pending.

In September 2018, various HSBC companies and other banks were named as defendants in two motions for certification of class actions filed in Israel alleging foreign exchange-related misconduct. In July 2019, the Tel Aviv Court allowed the plaintiffs to consolidate their claims and file a motion for certification of the consolidated class action. In November and December 2018, complaints alleging foreign exchange-related misconduct were filed in the New York District Court and the High Court of England and Wales against HSBC and other defendants, by certain plaintiffs that opted out of the US class action settlement. These matters are at an early stage. It is possible that additional civil actions will be initiated against HSBC in relation to its historical foreign exchange activities.

There are many factors that may affect the range of outcomes, and the resulting financial impact, of these matters, which could be significant.

Precious metals fix-related litigation

Gold: Beginning in March 2014, numerous putative class actions were filed in the New York District Court and the US District Courts for the District of New Jersey and the Northern District of California, naming HSBC and other members of The London Gold Market Fixing Limited as defendants. The complaints allege that, from January 2004 to June 2013, the defendants conspired to manipulate the price of gold and gold derivatives for their collective benefit in violation of US antitrust laws, the US CEA and New York state law. The actions were consolidated in the New York District Court. The defendants' motion to dismiss the consolidated action was granted in part and denied in part in October 2016. In June 2017, the court granted the plaintiffs leave to file a third amended complaint, naming a new defendant. The court has denied the pre-existing defendants' request for leave to file a joint motion to dismiss, and discovery is proceeding.

Beginning in December 2015, numerous putative class actions under Canadian law were filed in the Ontario and Quebec Superior Courts of Justice against various HSBC companies and other financial institutions. The plaintiffs allege that, among other things, from January 2004 to March 2014, the defendants conspired to manipulate the price of gold and gold derivatives in violation of the Canadian Competition Act and common law. These actions are at an early stage.

Silver: Beginning in July 2014, numerous putative class actions were filed in the US District Courts for the Southern and Eastern Districts of New York, naming HSBC and other members of The London Silver Market Fixing Limited as defendants. The complaints allege that, from January 2007 to December 2013, the defendants conspired to manipulate the price of silver and silver derivatives for their collective benefit in violation of US antitrust laws, the US CEA and New York state law. The actions were consolidated in the New York District Court. The defendants' motion to dismiss the consolidated action was granted in part and denied in part in October 2016. In June 2017, the court granted the plaintiffs leave to file a third amended complaint, which names several new defendants. The court has denied the pre-existing defendants' request for leave to file a joint motion to dismiss, and discovery is proceeding.

In April 2016, two putative class actions under Canadian law were filed in the Ontario and Quebec Superior Courts of Justice against various HSBC companies and other financial institutions. The plaintiffs in both actions allege that, from January 1999 to August 2014, the defendants conspired to manipulate the price of silver and silver derivatives in violation of the Canadian Competition Act and common law. The Ontario action is at an early stage. The Quebec action has been temporarily stayed.

Platinum and palladium: Between late 2014 and early 2015, numerous putative class actions were filed in the New York District Court, naming HSBC and other members of The London Platinum and Palladium Fixing Company Limited as defendants. The complaints allege that, from January 2008 to November 2014, the defendants conspired to manipulate the price of platinum group metals ('PGM') and PGM-based financial products for their collective benefit in violation of US antitrust laws and the US CEA. In March 2017, the defendants' motion to dismiss the second amended consolidated complaint was granted in part and denied in part. In June 2017, the plaintiffs filed a third amended complaint. The defendants filed a joint motion to dismiss, which remains pending.

Based on the facts currently known, it is not practicable at this time for HSBC to predict the resolution of these matters, including the timing or any possible impact on HSBC, which could be significant.

Film finance litigation

In July and November 2015, two actions were brought by individuals against HSBC Private Bank (UK) Limited ('PBGB') in the High Court of England and Wales seeking damages on various alleged grounds, including breach of duty to the claimants, in connection with their participation in certain Ingenious film finance schemes. These actions are ongoing.

In December 2018, a separate action was brought against PBGB in the High Court of England and Wales by multiple claimants seeking damages for alleged unlawful means conspiracy and dishonest assistance in connection with lending provided by PBGB to third parties in respect of certain Ingenious film finance schemes in which the claimants participated. In June 2019, a similar claim was issued against PBGB in the High Court of England and Wales by additional claimants. These matters are at early stages.

In February 2019, PBGB received a letter before claim by investors in Eclipse film finance schemes asserting various claims against PBGB and others in connection with their roles in facilitating the design, promotion and operation of such schemes. This matter is at an early stage.

It is possible that additional actions or investigations will be initiated against PBGB as a result of its historical involvement in the provision of certain film finance-related services.

Based on the facts currently known, it is not practicable to predict the resolution of these matters, including the timing or possible aggregate impact, which could be significant.

Other regulatory investigations, reviews and litigation

HSBC Holdings and/or certain of its affiliates are subject to a number of other investigations and reviews by various regulators and competition and law enforcement authorities, as well as litigation, in connection with various matters relating to the firm's businesses and operations, including:

•     an investigation by the DoJ regarding US Treasury securities trading practices;

•     investigations by the US Commodity Futures Trading Commission regarding (a) certain swap dealer trading conduct; and (b) swap data reporting and other regulatory issues related to prior periods;

•     an investigation by the Swiss Competition Commission in connection with the setting of Euribor and Japanese yen Libor;

•     an information request from the UK Competition and Markets Authority concerning the financial services sector;

•     putative individual and class actions brought in the New York District Court relating to the credit default swap market, the Mexican government bond market and the US government-sponsored enterprise bond market, and putative class actions brought in the New York District Court and in the Superior and Federal Courts in Canada relating to the market for US dollar-denominated supranational sovereign and agency bonds;

•     putative class actions brought in the US District Court for the Northern District of Texas and a claim issued in the High Court of England and Wales in connection with HSBC Bank's role as a correspondent bank to Stanford International Bank Ltd from 2003 to 2009; and

•      litigation brought against various HSBC companies in the US courts relating to residential mortgage-backed securities, based primarily on (a) claims brought against HSBC Bank USA in connection with its role as trustee on behalf of various securitisation trusts; and (b) claims against several HSBC companies seeking that the defendants repurchase various mortgage loans.

There are many factors that may affect the range of outcomes, and the resulting financial impact, of these matters, which could be significant.

13	Transactions with related parties

There were no changes in the related party transactions described in the Annual Report and Accounts 2018 that have had a material effect on the financial position or performance of HSBC in the half-year to 30 June 2019. All related party transactions that took place in the half-year to 30 June 2019 were similar in nature to those disclosed in the Annual Report and Accounts 2018.

14	Events after the balance sheet date

In its assessment of events after the balance sheet date, HSBC considered, among other risks, the events related to the process of the UK's withdrawal from the European Union that occurred between 30 June 2019 and the date when the financial statements were authorised for issue, and concluded that no adjustments to the financial statements were required.

A second interim dividend in respect of the financial year ending 31 December 2019 was declared by the Directors on 5 August 2019, as described in Note 3.

On 5 August 2019, the Board approved a share buy-back of up to $1.0bn.

15	Interim Report 2019 and statutory accounts

The information in this Interim Report 2019 is unaudited and does not constitute statutory accounts within the meaning of section 434 of the Companies Act 2006. This Interim Report 2019 was approved by the Board of Directors on 5 August 2019. The statutory accounts of HSBC Holdings plc for the year ended 31 December 2018 have been delivered to the Registrar of Companies in England and Wales in accordance with section 447 of the Companies Act 2006. The Group's auditor PricewaterhouseCoopers LLP ('PwC') has reported on those accounts. Its report was unqualified, did not include a reference to any matters to which PwC drew attention by way of emphasis without qualifying its report and did not contain a statement under section 498(2) or (3) of the Companies Act 2006.

Shareholder information

		Page				Page
1	Directors' interests	121		11	Corporate governance	126
2	Employee share plans	123		12	Changes in Directors' details	126
3	Other equity instruments	124		13	Going concern basis	126
4	Notifiable interests in share capital	124		14	Telephone and online share dealing service	126
5	Dealings in HSBC Holdings listed securities	124		15	Stock symbols	127
6	First interim dividend for 2019	124		16	Copies of the Interim Report 2019 and shareholder enquiries and communications	127
7	Second interim dividend for 2019	125
8	Proposed interim dividends for 2019	125
9	Earnings release	125
10	Final results	125

1	Directors' interests

According to the register of Directors' interests maintained by HSBC Holdings pursuant to section 352 of the Securities and Futures Ordinance of Hong Kong, at 30 June 2019 (or date of retirement from the Board, if earlier) the Directors of HSBC Holdings had the following interests, all beneficial unless otherwise stated, in the shares or debentures of HSBC and its associates:

Directors' interests - shares and debentures
				At 30 Jun 2019
	Footnotes	At 1 Jan 2019		Beneficial owner		Child under 18 or spouse		Jointly with another person		Trustee		Total interests
HSBC Holdings ordinary shares
Kathleen Casey	1	9,635		9,880		-		-		-		9,880
Laura Cha		10,200		10,200		-		-		-		10,200
Henri de Castries		18,064		18,524		-		-		-		18,524
Lord Evans of Weardale	4	12,892		12,892		-		-		-		12,892
John Flint†	2	827,691		1,055,160				5,439		-		1,060,599
Irene Lee		11,172		11,456		-		-		-		11,456
José Meade	5	-		-		-		-		-		-
Heidi Miller	1	4,420		4,530		-		-		-		4,530
Marc Moses	2	1,533,039		1,713,955		-		-		-		1,713,955
David Nish		50,000				50,000		-		-		50,000
Ewen Stevenson	2	6,420		170,239		-		-		-		170,239
Jonathan Symonds		43,821		38,823		4,998		-		-		43,821
Jackson Tai	1,3	56,075		32,800		11,965		21,750		-		66,515
Mark Tucker		288,381		295,728		-		-		-		295,728
Pauline van der Meer Mohr		15,000		15,000		-		-		-		15,000

†     On 5 August 2019, John Flint stepped down as Group Chief Executive and as a Director of HSBC Holdings.

1     Kathleen Casey has an interest in 1,976, Heidi Miller has an interest in 906 and Jackson Tai has an interest in 13,303 listed American Depositary Shares ('ADSs'), which are categorised as equity derivatives under Part XV of the Securities and Futures Ordinance of Hong Kong. Each ADS represents five HSBC Holdings ordinary shares.

2     Executive Directors' other interests in HSBC Holdings ordinary shares arising from the HSBC Holdings savings-related share option plans and the HSBC Share Plan 2011 are set out on the following pages. At 30 June 2019, the aggregate interests under the Securities and Futures Ordinance of Hong Kong in HSBC Holdings ordinary shares, including interests arising through employee share plans, were: John Flint - 2,224,917; Marc Moses - 3,498,991; and Ewen Stevenson - 1,116,160. Each Director's total interests represents less than 0.04% of the shares in issue and 0.04% of the shares in issue excluding treasury shares.

3     Jackson Tai's holding includes a non-beneficial interest in 11,965 shares of which he is custodian.

4     Lord Evans of Weardale retired from the Board on 12 April 2019.

5     José Meade joined the Board on 1 March 2019.

Savings-related share option plan

HSBC Holdings savings-related share option plan
							HSBC Holdings ordinary shares
	Date of award	Footnotes	Exercise price (£)		Exercisable		Held at		Held at
					from	until	1 Jan 2019		30 Jun 2019
John Flint†	22 September 2015	1	4.0472		1 November 2018	30 April 2019	4,447		-
	21 September 2018		5.4490		1 November 2023	30 April 2024	5,505		5,505

†     On 5 August 2019, John Flint stepped down as Group Chief Executive and as a Director of HSBC Holdings.

1     Options over 4,447 shares were exercised on 13 March 2019. The market value on the date of exercise was £6.2010.

There are no performance criteria for savings-related share options. No changes have been made to the terms of these awards since they were made. See page 112 for more details on the savings-related share option plans. The market value per ordinary share at 30 June 2019 was £6.5690. The highest and lowest market values per ordinary share during the half-year to 30 June 2019 were £6.8060 and £6.1240. Market value is the mid-market price derived from the London Stock Exchange Daily Official List on the relevant date. Under the Securities and Futures Ordinance of Hong Kong, the options are categorised as unlisted physically settled equity derivatives.

HSBC Share Plan 2011

Conditional awards of deferred shares

Vesting of deferred share awards is normally subject to the Director remaining an employee on the vesting date. The awards may vest at an earlier date in certain circumstances. Under the Securities and Futures Ordinance of Hong Kong, interests in conditional share awards are categorised as the interests of the beneficial owner.

Deferred share awards
				HSBC Holdings ordinary shares
	Date of award		Year in which awards may vest	Awards held at		Awards made during the period to 30 Jun 2019				Awards vested during the period to 30 Jun 20191				Awards held at
		Footnotes		1 Jan 2019		Number		Monetary value		Number		Monetary value		30 Jun 20191
								£000				£000
John Flint†	29 Feb 2016	2	2017-2019	50,866		-		-		52,162		324		-
	27 Feb 2017	3	2020-2024	109,879		-		-		-		-		112,679
	26 Feb 2018	4	2021-2025	166,014		-		-		-		-		166,014
	25 Feb 2019	5	2019			155,252		968		155,252		968		-
Marc Moses	29 Feb 2016	2	2017-2019	21,370		-		-		21,915		136		-
	25 Feb 2019	5	2019			106,174		662		106,174		662		-
Ewen Stevenson	28 May 2019	6	2020-2025	-		703,933		4,676		-		-		703,933
	28 May 2019	7	2022-2026	-		241,988		1,509						241,988
	28 May 2019	8	2019	-		84,397		561		84,397		561		-

†     On 5 August 2019, John Flint stepped down as Group Chief Executive and as a Director of HSBC Holdings.

1     Includes any additional shares arising from dividend equivalents.

2     At the date of the award (29 February 2016), the market value per share was £4.6735. Shares equivalent in number to those that vest under the award (net of tax liabilities) must be retained for six months from the vesting date. On 13 March 2019, the final tranche of the award vested. On that date, the market value per share was £6.2099.

3     At the date of the award (27 February 2017), the market value per share was £6.5030. Shares equivalent in number to those that vest under the award (net of tax liabilities) must be retained for six months from the vesting date. The award will vest in five equal annual tranches commencing in March 2020.

4     At the date of the award (26 February 2018), the market value per share was £7.2340. Shares equivalent in number to those that vest under the award (net of tax liabilities) must be retained for one year from the vesting date. The award will vest in five equal annual tranches commencing in March 2021.

5     The non-deferred award vested immediately on 25 February 2019 and was based on the market value of £6.2350. Shares equivalent in number to those that vest under the award (net of tax liabilities) must be retained for one year from the vesting date.

6     At the date of the award (28 May 2019), the market value per share was £6.6430 and was taken on 30 November 2018. Shares equivalent in number to those that vest under the award (net of tax liabilities) must be retained for up to one year from the vesting date. The award will vest in annual tranches commencing in March 2020. The award replaces the 2015 to 2018 LTIPs forfeited by the Royal Bank of Scotland Group plc ('RBS') and will be subject to any performance adjustments assessed and disclosed in the relevant annual report and accounts of RBS.

7     At the date of the award (28 May 2019), the market value per share was £6.2350 and was taken on 22 February 2019. Shares equivalent in number to those that vest under the award (net of tax liabilities) must be retained for up to one year from the vesting date. The award will vest in five annual tranches commencing in March 2022. The award is in respect of 2018 performance year granted based on Ewen Stevenson's maximum opportunity under RBS's policy and the outcome of the 2018 scorecard as disclosed in RBS's Annual Report and Accounts 2018. The number of shares that vest may be adjusted based on any 'pre-vest performance test' assessed and disclosed in RBS's Annual Report and Accounts.

8     The award vested immediately on 28 May 2019. Shares equivalent in number to those that vested under the award (net of tax liabilities) must be retained for six months from the vesting date. The market value per share was £6.6430 and was taken on 30 November 2018. The award replaces awards forfeited by RBS.

Conditional awards under the Group Performance Share Plan

The Group Performance Share Plan ('GPSP') is a plan designed to offer long-term incentives governed by the rules of the HSBC Share Plan 2011. Vesting of GPSP awards is normally subject to the Director remaining an employee on the vesting date. Any shares (net of tax) that the Director becomes entitled to on the vesting date are subject to a retention requirement until cessation of employment. Under the Securities and Futures Ordinance of Hong Kong, interests in awards are categorised as beneficial.

Group Performance Share Plan
				HSBC Holdings ordinary shares
	Date of award		Year in which awards may vest	Awards held at		Awards made during the period to 30 Jun 2019				Awards vested during the period to 30 Jun 20191				Awards held at
		Footnotes		1 Jan 2019		Number		Monetary value		Number		Monetary value		30 Jun 20191
								£000				£000
John Flint†	10 Mar 2014	2	2019	155,242		-		-		159,197		997		-
	2 Mar 2015		2020	32,562		-		-		-		-		33,392
	29 Feb 2016		2021	56,359		-		-		-		-		57,795
Marc Moses	10 Mar 2014	2	2019	464,034		-		-		475,857		2,981		-
	2 Mar 2015		2020	250,140		-		-		-		-		256,513
	29 Feb 2016		2021	283,898		-		-		-		-		291,132

†     On 5 August 2019, John Flint stepped down as Group Chief Executive and as a Director of HSBC Holdings.

1     Includes additional shares arising from dividend equivalents.

2     On 11 March 2019, the deferred awards granted in 2014 vested. On that date, the market value per share was £6.2636.

Long-term incentive awards

The long-term incentive award is an award of shares with a three-year performance period. At the end of this performance period and subject to the award terms, the number of shares that vest will be determined based on an assessment against financial and non-financial measures. Subject to that assessment, the shares will vest in five equal annual instalments. On vesting, awards are subject to a retention period of up to one year. Under the Securities and Futures Ordinance of Hong Kong, interests in awards are categorised as beneficial.

Long-term incentive awards
				HSBC Holdings ordinary shares
	Date of award	Footnotes	Year in which awards may vest	Awards held at		Awards made during the period to 30 Jun 2019				Awards vested during the period to 30 Jun 2019				Awards held at
				1 Jan 2019		Number		Monetary value		Number		Monetary value		30 Jun 2019
								£000				£000
John Flint†	25 Feb 2019	1	2022-2026	-		788,933		4,919		-		-		788,933
Marc Moses	27 Feb 2017		2020-2024	373,908		-		-		-		-		383,436
	26 Feb 2018		2021-2025	395,388		-		-		-		-		395,388
	25 Feb 2019	1	2022-2026	-		458,567		2,859		-		-		458,567

†     On 5 August 2019, John Flint stepped down as Group Chief Executive and as a Director of HSBC Holdings.

1     Awards were made on 25 February 2019 and were based on the market value of £6.2350.

No Directors held any short position (as defined in the Securities and Futures Ordinance of Hong Kong) in the shares or debentures of HSBC Holdings and its associated corporations. Save as stated in the tables above, none of the Directors had an interest in any shares or debentures of HSBC Holdings or any associates at the beginning or at the end of the period, and none of the Directors or members of their immediate families were awarded or exercised any right to subscribe for any shares or debentures in any HSBC corporation during the period. Since 30 June 2019, the interests of each of the following Directors have increased by the number of HSBC Holdings ordinary shares shown against their name:

Increase in Directors' interests since 30 June 2019
	Footnotes	HSBC Holdings ordinary shares
Beneficial owner
Henri de Castries	1	223
John Flint†	2	2,455
Irene Lee	1	137
Heidi Miller	1, 3	50
Marc Moses	2	11,215
Mark Tucker	1	3,562

†     On 5 August 2019, John Flint stepped down as Group Chief Executive and as a Director of HSBC Holdings.

1     Additional shares arising from scrip dividends.

2     Comprises dividend equivalents on deferred share awards, GPSP awards and long-term incentive awards granted under the HSBC Share Plan 2011.

3     Heidi Miller had an interest in 916 ADSs, which are categorised as equity derivatives under Part XV of the Securities and Futures Ordinance of Hong Kong. Each ADS represents five HSBC Holdings ordinary shares.

2	Employee share plans

Share options and discretionary awards of shares are granted under HSBC share plans to help align the interests of employees with those of shareholders. The following are particulars of outstanding options, including those held by employees working under employment contracts that are regarded as 'continuous contracts' for the purposes of the Hong Kong Employment Ordinance. The options were granted for nil consideration. No options have been granted to substantial shareholders, suppliers of goods or services, or in excess of the individual limit for each share plan. No options were cancelled by HSBC during the period to 30 June 2019.

A summary for each plan of the total number of options granted, exercised or lapsed during the period is shown in the following table. Particulars of options held by Directors of HSBC Holdings are set out on page 110. Further details required to be disclosed pursuant to Chapter 17 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited are available on our website at www.hsbc.com, and on the website of The Stock Exchange of Hong Kong Limited at www.hkex.com.hk. Copies may be obtained upon request from the Group Company Secretary, 8 Canada Square, London E14 5HQ.

All-employee share plans

The HSBC Holdings Savings-Related Share Option Plan is an all-employee share plan under which eligible employees have been granted options to acquire HSBC Holdings ordinary shares. The HSBC International Employee Share Purchase Plan was introduced in 2013 and includes employees based in 27 jurisdictions, although no options are granted under this plan.

For options granted under the HSBC Holdings Savings-Related Share Option Plan, employees save up to £500 each month over a period of three or five years. Employees may elect within six months following the third or fifth anniversary of the commencement of the relevant savings contract, to use these savings, to exercise the options. Alternatively, the employee may elect to have the savings, plus (where applicable) any interest or bonus, repaid in cash. In the case of redundancy, ceasing employment on grounds of injury or disability, retirement, death, the transfer of the employing business to another party, or a change of control of the employing company, options may be exercised before completion of the relevant savings contract. In certain limited circumstances, in accordance with the plan rules, the exercise period of options granted under the all-employee share plans may be extended.

Under the HSBC Holdings Savings-Related Share Option Plan, the option exercise price has been determined by reference to the average market value of the ordinary shares on the five business days immediately preceding the invitation date, then applying a discount of 20%. The HSBC Holdings Savings-Related Share Option Plan has an expiry date of 23 May 2025 (at which time the plan may be extended with approval from shareholders) unless the Directors resolve to terminate the plan at an earlier date.

HSBC Holdings All-employee Share Option Plans

HSBC Holdings ordinary shares

Dates of award

Exercise price

Exercisable

At 1 Jan 2019

Granted in period

Exercised in period

Lapsed in period

At 30 Jun  2019

from

to

from

to

from

to

Footnotes

Savings-Related Share Option Plan

1

20 Sep 2013

21 Sep 2018

(£) 4.0472

(£) 5.9640

1 Nov 2018

30 April 2024

57,065,513

-

3,128,857

1,940,389

51,996,267

1     The weighted average closing price of the shares immediately before the dates on which options were exercised was £6.4560.

3	Other equity instruments

Additional tier 1 capital - contingent convertible securities

We continue to issue contingent convertible securities that are included in our capital base as fully CRR II-compliant additional tier 1 capital securities on an end point basis. These securities are marketed principally and subsequently allotted to corporate investors and fund managers. The net proceeds of the issuances are used for our general corporate purposes and to further strengthen our capital base to meet requirements under CRR II. These securities bear a fixed rate of interest until their initial call dates. After the initial call dates, if they are not redeemed, the securities will bear interest at rates fixed periodically in advance for five-year periods based on credit spreads, fixed at issuance, above prevailing market rates. Interest on the contingent convertible securities will be due and payable only at our sole discretion, and we have sole and absolute discretion at all times to cancel for any reason (in whole or part) any interest payment that would otherwise be payable on any payment date. Distributions will not be paid if they are prohibited under UK banking regulations or if we have insufficient reserves or fail to meet the solvency conditions defined in the securities' terms.

The contingent convertible securities are undated and are repayable at our option in whole at the initial call date or on any fifth anniversary after this date. In addition, the securities are repayable at our option in whole for certain regulatory or tax reasons. Any repayments require the prior consent of the PRA. These securities rank pari passu with our dollar and sterling preference shares and therefore rank ahead of ordinary shares. The contingent convertible securities will be converted into fully paid ordinary shares at a predetermined price, should our consolidated end point CET1 ratio fall below 7.0%. Therefore, in accordance with the terms of the securities, if the end point CET1 ratio breaches the 7.0% trigger, the securities will convert into ordinary shares at fixed contractual conversion prices in the issuance currencies of the relevant securities, equivalent to £2.70 at the prevailing rate of exchange on the issuance date, subject to anti-dilution adjustments. During the first half of 2019, HSBC did not issue contingent convertible securities.

4	Notifiable interests in share capital

At 30 June 2019, HSBC Holdings had received the following notification of major holdings of voting rights pursuant to the requirements of Rule 5 of the UK Disclosure Guidance and Transparency Rules:

•     BlackRock, Inc. gave notice on 21 May 2019 that on 20 May 2019 it had an indirect interest in HSBC Holdings of 1,223,934,536 ordinary shares, qualifying financial instruments with 21,503,997 voting rights that may be acquired if the instruments are exercised or converted, and financial instruments with similar economic effect to qualifying financial instruments which refer to 6,191,087 voting rights. These represented 6.04%, 0.10% and 0.03%, respectively, of the total voting rights at 20 May 2019.

At 30 June 2019, as recorded in the register maintained by HSBC Holdings pursuant to section 336 of the Securities and Futures Ordinance of Hong Kong:

•     BlackRock, Inc. gave notice on 22 May 2019 that on 17 May 2019 it had the following interests in HSBC Holdings ordinary shares: a long position of 1,352,436,957 shares and a short position of 12,345,929 representing 6.58% and 0.06%, respectively, of the ordinary shares in issue at 17 May 2019.

•     Ping An Asset Management Co., Ltd. gave notice on 2 November 2018 that on 1 November 2018 it had a long position of 1,418,925,452 in HSBC Holdings ordinary shares, representing 7.01% of the ordinary shares in issue at that date.

•     The Bank of New York Mellon Corporation gave notice on 18 September 2018 that on 14 September 2018 it had the following interests in HSBC Holdings ordinary shares: a long position of 1,123,775,445 shares and a short position of 812,085,965 shares, representing 5.55% and 4.01% respectively, of the ordinary shares in issue at that date. The notification includes the shares held in custody under the HSBC Holdings plc American Depositary Receipt programme.

5	Dealings in HSBC Holdings listed securities

HSBC has policies and procedures that, except where permitted by statute and regulation, prohibit it undertaking specified transactions in respect of its securities listed on The Stock Exchange of Hong Kong Limited ('HKEx'). Except for the share buy-back and dealings as intermediaries or as trustees by subsidiaries of HSBC Holdings, neither HSBC Holdings nor any of its subsidiaries has purchased, sold or redeemed any of its securities listed on HKEx during the half-year ended 30 June 2019.

6	First interim dividend for 2019

The first interim dividend for 2019 of $0.10 per ordinary share was paid on 5 July 2019.

7	Second interim dividend for 2019

On 5 August 2019, the Directors declared a second interim dividend in respect of 2019 of $0.10 per ordinary share. The ordinary shares in London, Hong Kong, Paris and Bermuda, and the American Depositary Shares ('ADSs') in New York, will be quoted ex-dividend on 15 August 2019. The dividend will be payable on 26 September 2019 to holders of record on 16 August 2019.

The dividend will be payable in US dollars, sterling or Hong Kong dollars, or a combination of these currencies, at the forward exchange rates quoted by HSBC Bank plc in London at or about 11.00am on 16 September 2019. A scrip dividend will also be offered. Particulars of these arrangements will be sent to shareholders on or about 28 August 2019 and elections must be received by 12 September 2019.

The dividend will be payable on ordinary shares held through Euroclear France, the settlement and central depositary system for Euronext Paris, on 26 September 2019 to the holders of record on 16 August 2019. The dividend will be payable in US dollars or as a scrip dividend. Particulars of these arrangements will be announced through Euronext Paris on 6 August 2019, 23 August 2019 and 27 September 2019.

The dividend will be payable on ADSs, each of which represents five ordinary shares, on 26 September 2019 to holders of record on 16 August 2019. The dividend of $0.50 per ADS will be payable by the depositary in US dollars or as a scrip dividend of new ADSs. Particulars of these arrangements will be sent to holders on or about 28 August 2019 and elections will be required to be made by 6 September 2019. Alternatively, the cash dividend may be invested in additional ADSs by participants in the dividend reinvestment plan operated by the depositary.

Any person who has acquired ordinary shares registered on the Principal Register in the UK, the Hong Kong Overseas Branch Register or the Bermuda Overseas Branch Register but who has not lodged the share transfer with the Principal Registrar, the Hong Kong or Bermuda Branch Registrar should do so before 4.00pm local time on 16 August 2019 in order to receive the dividend.

Ordinary shares may not be removed from or transferred to the Principal Register in the UK, the Hong Kong Overseas Branch Register or the Bermuda Overseas Branch Register on 16 August 2019. Any person wishing to remove ordinary shares to or from each register must do so before 4.00pm local time on 15 August 2019.

Transfers of ADSs must be lodged with the depositary by 11.00am local time on 16 August 2019 in order to receive the dividend.

ADS dividend fee

In order to cover costs associated with the management of the American Depositary Receipt programme, which was previously covered by fees generated from issuance and cancellation, a dividend fee will be introduced on cash dividends paid on ADSs, in line with common market practice. ADS holders who receive a cash dividend will be charged a fee, which will be deducted by the depositary, of $0.005 per ADS per cash dividend. This will commence from the 2019 third interim cash dividend payment payable on 20 November 2019. No fee will be deducted from the second interim dividend for 2019.

Dividend on preference shares

A quarterly dividend of $15.50 per 6.20% non-cumulative US dollar preference share, Series A ('Series A dollar preference share'), (equivalent to a dividend of $0.3875 per Series A American Depositary Share, each of which represents one-fortieth of a Series A dollar preference share), and £0.01 per Series A sterling preference share is payable on 15 March, 15 June, 15 September and 15 December 2019 for the quarter then ended at the sole and absolute discretion of the Board of HSBC Holdings plc. Accordingly, the Board of HSBC Holdings plc has declared a quarterly dividend be payable on 16 September 2019 to holders of record on 30 August 2019.

8	Proposed interim dividends for 2019

The Board has adopted a policy of paying quarterly dividends on ordinary shares, under which it is intended to have a pattern of three equal interim dividends with a variable fourth interim dividend. The proposed timetables for dividends payable on ordinary shares in respect of 2019 that have not yet been declared are as follows:

Interim dividends for 2019 not yet declared
	Footnotes	Third interim dividend for 2019	Fourth interim dividend for 2019
Announcement		2 Oct 2019	18 Feb 2020
Shares quoted ex-dividend in London, Hong Kong, New York, Paris and Bermuda		10 Oct 2019	27 Feb 2020
Record date in London, Hong Kong, New York, Paris and Bermuda	1	11 Oct 2019	28 Feb 2020
Payment date		20 Nov 2019	14 Apr 2020

1     Removals from or transfers to the Principal Register in the UK, the Hong Kong Overseas Branch Register or the Bermuda Overseas Branch Register will not be permitted on these dates.

9	Earnings release

An earnings release for the three-month period ending 30 September 2019 is expected to be issued on 28 October 2019.

10	Final results

The results for the year to 31 December 2019 are expected to be announced on 18 February 2020.

11	Corporate governance

We are subject to corporate governance requirements in both the UK and Hong Kong. Throughout the six months ended 30 June 2019,  we complied with the applicable provisions of the UK Corporate Governance Code and also the requirements of the Hong Kong Corporate Governance Code. The UK Corporate Governance Code is available at www.frc.org.uk and the Hong Kong Corporate Governance Code is available at www.hkex.com.hk.

Under the Hong Kong Code, the audit committee should be responsible for the oversight of all risk management and internal control systems, unless expressly addressed by a separate risk committee. Our Group Risk Committee is responsible for oversight of internal control, other than internal financial controls, and risk management systems.

The Board has codified obligations for transactions in HSBC Group securities in accordance with the requirements of the Market Abuse Regulation and the rules governing the listing of securities on the HKEx, save that the HKEx has granted waivers from strict compliance with the rules that take into account accepted practices in the UK, particularly in respect of employee share plans.

Following specific enquiries, all Directors have confirmed that they have complied with their obligations in respect of transacting in Group securities throughout the period.

There have been no material changes to the information disclosed in the Annual Report and Accounts 2018 in respect of the remuneration of employees, remuneration policies, bonus and share option plans and training schemes. Details of the number of employees are provided on page 25.

The remuneration policy for our Directors, as disclosed on pages 176 to 194 of our Annual Report and Accounts 2018, along with the change to the maximum pension allowance for our current and new executive Directors from 30% to 10% of salary, announced on 
15 March 2019, was approved by our shareholders at the Annual General Meeting on 12 April 2019.

12	Changes in Directors' details

Changes in current Directors' details since the date of the Annual Report and Accounts 2018, which are required to be disclosed pursuant to Rule 13.51(2) and Rule 13.51B(1) of the Hong Kong Listing Rules, are set out below.

Kathleen Casey

Appointed as a member of the Financial System Vulnerabilities Committee on 12 April 2019.

Jonathan Evans

Retired from the Board and resigned as Chair of the Financial System Vulnerabilities Committee on 12 April 2019.

John Flint^†

Appointed as Global Commissioner of New Climate Economy on 27 March 2019.

Irene Lee

Resigned as an independent non-executive Director of Cathay Pacific Airways Limited on 15 May 2019.

José Meade

Appointed to the Board and as a member of the Nomination & Corporate Governance Committee on 1 March 2019.

Appointed as a non-executive Director of ALFA S.A.B. de C.V on 28 March 2019.

Appointed as a member of the Group Risk Committee on 1 June 2019.

David Nish

Resigned as a Director of Zurich Insurance Group on 1 April 2019.

Noel Quinn

Appointed to the Board on 5 August 2019.

Jackson Tai

Resigned as a non-executive Director of Koninklijke Philips N.V. on 31 March 2019.

Resigned as a non-executive Director of Canada Pension Plan Investment Board on 31 March 2019.

Appointed as Chair of the Financial System Vulnerabilities Committee on 12 April 2019.

Mark Tucker

Appointed as non-executive Chairman of Discovery Limited on 1 March 2019.

Appointed as Chairman of TheCityUK on 31 May 2019.

† On 5 August 2019, John Flint stepped down as Group Chief Executive and as a Director of HSBC Holdings.

13	Going concern basis

As mentioned in Note 1 'Basis of preparation and significant accounting policies' on page 89, the financial statements are prepared on a going concern basis as the Directors are satisfied that the Group and parent company have the resources to continue in business for the foreseeable future. In making this assessment, the Directors considered a wide range of information relating to present and future conditions, including future projections of profitability, cash flows, capital requirements and capital resources.

In particular, HSBC's principal activities, business and operating models, strategic direction and top and emerging risks are addressed in the Overview section; a financial summary, including a review of the consolidated income statement and consolidated balance sheet, is provided in the Interim Management Report section; HSBC's objectives, policies and processes for managing credit, liquidity and market risk are described in the Risk section of the Annual Report and Accounts 2018; and HSBC's approach to capital management and allocation is described in the Capital section of the Annual Report and Accounts 2018.

14	Telephone and online share dealing service

For shareholders on the Principal Register who are resident in the UK, with a UK postal address, and who hold an HSBC Bank plc personal current account, the HSBC InvestDirect share dealing service is available for buying and selling HSBC Holdings ordinary shares. Details are available from: HSBC InvestDirect, Forum 1, Parkway, Whiteley PO15 7PA; or UK telephone: [phone], or from an overseas telephone: [phone]; or website: www.hsbc.co.uk/investments/products-and-services/invest-direct.

15	Stock symbols

HSBC Holdings plc ordinary shares trade under the following stock symbols:

London Stock Exchange	HSBA*
Hong Kong Stock Exchange	5
New York Stock Exchange (ADS)	HSBC
Euronext Paris	HSB
Bermuda Stock Exchange	HSBC.BH
*HSBC's primary market

16	Copies of the Interim Report 2019 and shareholder enquiries and communications

Further copies of the Interim Report 2019 may be obtained from Global Communications, HSBC Holdings plc, 8 Canada Square, London E14 5HQ, United Kingdom; from Communications (Asia), The Hongkong and Shanghai Banking Corporation Limited, 1 Queen's Road Central, Hong Kong; or from US Communications, HSBC Bank USA, N.A., 1 West 39th Street, 9th Floor, New York, NY 10018, USA. The Interim Report 2019 may also be downloaded from the HSBC website, www.hsbc.com.

Shareholders may at any time choose to receive corporate communications in printed form or to receive notifications of their availability on HSBC's website. To receive notifications of the availability of a corporate communication on HSBC's website by email, or to revoke or amend an instruction to receive such notifications by email, go to www.hsbc.com/ecomms. If you provide an email address to receive electronic communications from HSBC, we will also send notifications of your dividend entitlements by email. If you received a notification of the availability of this document on HSBC's website and would like to receive a printed copy or, if you would like to receive future corporate communications in printed form, please write or send an email (quoting your shareholder reference number) to the appropriate Registrar at the address given below. Printed copies will be provided without charge.

Any enquiries relating to your shareholdings on the share register (for example transfers of shares, change of name or address, lost share certificates or dividend cheques) should be sent to the Registrar at the address given below. The Registrars offer an online facility, Investor Centre, which enables shareholders to manage their shareholding electronically.

Principal Register	Hong Kong Overseas Branch Register	Bermuda Overseas Branch Register
Computershare Investor Services PLC The Pavilions Bridgwater Road Bristol BS99 6ZZ United Kingdom	Computershare Hong Kong Investor Services Limited Rooms 1712-1716, 17th Floor Hopewell Centre 183 Queen's Road East Hong Kong	Investor Relations Team HSBC Bank Bermuda Limited 37 Front Street Hamilton HM 11 Bermuda
Telephone: [phone] Email: via website Web: www.investorcentre.co.uk/contactus	Telephone: [phone] Email: [e-mail] Web: www.investorcentre.com/hk	Telephone: [phone] Email: [e-mail] Web: www.investorcentre.com/bm

Any enquiries relating to ADSs should be sent to the depositary at:

The Bank of New York Mellon Shareowner Services PO Box 505000 Louisville, KY 40233-5000 USA

Telephone (US): [phone] Telephone (international): [phone] Email: [e-mail] Web: www.mybnymdr.com

Any enquiries relating to shares held through Euroclear France, the settlement and central depositary system for NYSE Euronext Paris, should be sent to the paying agent:

CACEIS Corporate Trust 14, rue Rouget de Lisle 92130 Issy-les-Moulineaux France

Telephone: [phone] Email: [e-mail] Website: www.caceis.com

A Chinese translation of this and future documents may be obtained on request from the Registrar. Please also contact the Registrar if you have received a Chinese translation of this document and do not wish to receive such translations in future.

Persons whose shares are held on their behalf by another person may have been nominated to receive communications from HSBC pursuant to section 146 of the UK Companies Act 2006 ('nominated person'). The main point of contact for a nominated person remains the registered shareholder (for example your stockbroker, investment manager, custodian or other person who manages the investment on your behalf). Any changes or queries relating to a nominated person's personal details and holding (including any administration thereof) must continue to be directed to the registered shareholder and not HSBC's Registrar. The only exception is where HSBC, in exercising one of its powers under the UK Companies Act 2006, writes to nominated persons directly for a response.

Cautionary statement regarding forward- looking statements

This Interim Report 2019 contains certain forward-looking statements with respect to HSBC's financial condition, results of operations and business, including the strategic priorities and 2020 financial, investment and capital targets described herein.

Statements that are not historical facts, including statements about HSBC's beliefs and expectations, are forward-looking statements. Words such as 'expects', 'targets', 'anticipates', 'intends', 'plans', 'believes', 'seeks', 'estimates', 'potential' and 'reasonably possible', variations of these words and similar expressions are intended to identify forward-looking statements. These statements are based on current plans, estimates and projections, and therefore undue reliance should not be placed on them. Forward-looking statements speak only as of the date they are made. HSBC makes no commitment to revise or update any forward-looking statements to reflect events or circumstances occurring or existing after the date of any forward-looking statements.

Written and/or oral forward-looking statements may also be made in the periodic reports to the US Securities and Exchange Commission, summary financial statements to shareholders, proxy statements, offering circulars and prospectuses, press releases and other written materials, and in oral statements made by HSBC's Directors, officers or employees to third parties, including financial analysts.

Forward-looking statements involve inherent risks and uncertainties. Readers are cautioned that a number of factors could cause actual results to differ, in some instances materially, from those anticipated or implied in any forward-looking statement. These include, but are not limited to:

•     changes in general economic conditions in the markets in which we operate, such as continuing or deepening recessions and fluctuations in employment beyond those factored into consensus forecasts; changes in foreign exchange rates and interest rates; volatility in equity markets; lack of liquidity in wholesale funding markets; illiquidity and downward price pressure in national real estate markets; adverse changes in central banks' policies with respect to the provision of liquidity support to financial markets; heightened market concerns over sovereign creditworthiness in over-indebted countries; adverse changes in the funding status of public or private defined benefit pensions; consumer perception as to the continuing availability of credit and price competition in the market segments we serve; and deviations from the market and economic assumptions that form the basis for our ECL measurements;

•     changes in government policy and regulation, including the monetary, interest rate and other policies of central banks and other regulatory authorities; initiatives to change the size, scope of activities and interconnectedness of financial institutions in connection with the implementation of stricter regulation of financial institutions in key markets worldwide; revised capital and liquidity benchmarks, which could serve to deleverage bank balance sheets and lower returns available from the current business model and portfolio mix; imposition of levies or taxes designed to change business mix and risk appetite; the practices, pricing or responsibilities of financial institutions serving their consumer markets; expropriation, nationalisation, confiscation of assets and changes in legislation relating to foreign ownership; changes in bankruptcy legislation in the principal markets in which we operate and the consequences thereof; general changes in government policy that may significantly influence investor decisions; extraordinary government actions as a result of current market turmoil; other unfavourable political or diplomatic developments producing social instability or legal uncertainty, which in turn may affect demand for our products and services; the costs, effects and outcomes of product regulatory reviews, actions or litigation, including any additional compliance requirements; and the effects of competition in the markets where we operate including increased competition from non-bank financial services companies, including securities firms; and

•     factors specific to HSBC, including our success in adequately identifying the risks we face, such as the incidence of loan losses or delinquency, and managing those risks (through account management, hedging and other techniques). Effective risk management depends on, among other things, our ability through stress testing and other techniques to prepare for events that cannot be captured by the statistical models it uses; our success in addressing operational, legal and regulatory, and litigation challenges; and the other risks and uncertainties we identify in 'Top and emerging risks' on pages 16 and 17.

Certain defined terms

Unless the context requires otherwise, 'HSBC Holdings' means HSBC Holdings plc and 'HSBC', the 'Group', 'we', 'us' and 'our' refer to HSBC Holdings together with its subsidiaries. Within this document the Hong Kong Special Administrative Region of the People's Republic of China is referred to as 'Hong Kong'. When used in the terms 'shareholders' equity' and 'total shareholders' equity', 'shareholders' means holders of HSBC Holdings ordinary shares and those preference shares and capital securities issued by HSBC Holdings classified as equity. The abbreviations '$m', '$bn' and '$tn' represent millions, billions (thousands of millions) and trillions of US dollars, respectively.

Abbreviations

Currencies
CA$	Canadian dollar
€	Euro
HK$	Hong Kong dollar
RMB	Chinese renminbi
SGD	Singapore dollar
$	United States dollar
Abbreviation
1H18	First half of 2018
1H19	First half of 2019
1Q18	First quarter of 2018
1Q19	First quarter of 2019
2H18	Second half of 2018
2Q18	Second quarter of 2018
2Q19	Second quarter of 2019
4Q18	Fourth quarter of 2018
A
ABS	Asset-backed security
ADS	American Depositary Share
AIBL	Average interest-bearing liabilities
AIEA	Average interest-earning assets
AML	Anti-money laundering
ANP	Annualised new business premiums
B
Basel Committee	Basel Committee on Banking Supervision
Basel III	Basel Committee's reforms to strengthen global capital and liquidity rules
BoCom	Bank of Communications Co., Limited, one of China's largest banks
BoE	Bank of England
Bps	Basis points. One basis point is equal to one hundredth of a percentage point
BSM	Balance Sheet Management
C
C&L	Credit and Lending
CAPM	Capital asset pricing model
CDO	Collateralised debt obligation
CEA	Commodity Exchange Act (US)
CET1	Common equity tier 1
CLO	Collateralised loan obligation
CMB	Commercial Banking, a global business
CMC	Capital maintenance charge
CODM	Chief Operating Decision Maker
CRR	Credit risk rating
CRR II	Revisions to the Capital Requirements Regulation
CRD IV	Capital Requirements Regulation and Directive
CVA	Credit valuation adjustment
D
DoJ	Department of Justice (US)
DPA	Deferred prosecution agreement (US)
DPD	Days past due
DPF	Discretionary participation feature of insurance and investment contracts
E
EBA	European Banking Authority
EC	European Commission
ECL	Expected credit losses. In the income statement, ECL is recorded as a change in expected credit losses and other credit impairment charges. In the balance sheet, ECL is recorded as an allowance for financial instruments to which only the impairment requirements in IFRS 9 are applied.
Eonia	Euro Overnight Index Average
ESG	Environmental, social and governance
EU	European Union
Euribor	European interbank offered rate
F
FCA	Financial Conduct Authority (UK)
FICC	Fixed Income, Currencies and Commodities
FOS	Financial Ombudsman Service
FRB	Federal Reserve Board (US)
FTE	Full-time equivalent staff
FVOCI	Fair value through other comprehensive income
FX	Foreign exchange
FX DPA	Three-year deferred prosecution agreement with the US Department of Justice, entered into in January 2018
G
GAAP	Generally accepted accounting principles
GB&M	Global Banking and Markets, a global business
GDP	Gross domestic product
GLCM	Global Liquidity and Cash Management
Global Markets	HSBC's capital markets services in Global Banking and Markets
GMB	Group Management Board
GPB	Global Private Banking, a global business
GPSP	Group Performance Share Plan
Group	HSBC Holdings together with its subsidiary undertakings
GTRF	Global Trade and Receivables Finance
H
HKEx	The Stock Exchange of Hong Kong Limited
HNAH	HSBC North America Holdings Inc.
Hong Kong	Hong Kong Special Administrative Region of the People's Republic of China
HSBC	HSBC Holdings together with its subsidiary undertakings
HSBC Bank	HSBC Bank plc
HSBC Bank Middle East	HSBC Bank Middle East Limited
HSBC Bank USA	HSBC Bank USA, N.A., HSBC's retail bank in the US
HSBC Finance	HSBC Finance Corporation, the US consumer finance company (formerly Household International, Inc.)
HSBC France	HSBC's French banking subsidiary, formerly CCF S.A.
HSBC Holdings	HSBC Holdings plc, the parent company of HSBC
HSBC Private Bank Suisse	HSBC Private Bank (Suisse) SA, HSBC's private bank in Switzerland
HSBC UK	HSBC UK Bank plc
HSBC USA	The sub-group, HSBC USA Inc and HSBC Bank USA, consolidated for liquidity purposes
HSI	HSBC Securities (USA) Inc.
HSSL	HSBC Securities Services (Luxembourg)
HTIE	HSBC Institutional Trust Services (Ireland) Limited
I
IAS	International Accounting Standards
IASB	International Accounting Standards Board
Ibor	Interbank offered rate
ICAAP	Internal capital adequacy assessment process
IFRSs	International Financial Reporting Standards
IRB	Internal ratings-based
ISDA	International Swaps and Derivatives Association
J
Jaws	Adjusted jaws measures the difference between the rates of change in adjusted revenue and adjusted operating expenses.
L
LCR	Liquidity coverage ratio
LFRF	Liquidity and funding risk management framework
LGD	Loss given default
Libor	London interbank offered rate
LTV	Loan to value
M
Madoff Securities	Bernard L Madoff Investment Securities LLC
Mainland China	People's Republic of China excluding Hong Kong and Macau
MBS	US mortgage-backed security
MENA	Middle East and North Africa
MREL	EU minimum requirements for own funds and eligible liabilities
N
NII	Net interest income
NIM	Net interest margin
NSFR	Net stable funding ratio
O
OCC	Office of the Comptroller of the Currency (US)
OFAC	Office of Foreign Assets Control
ORMF	Operational risk management framework
P
PBT	Profit before tax
PD	Probability of default
POCI	Purchased or originated credit impaired
PPI	Payment protection insurance product
PRA	Prudential Regulation Authority (UK)
PRD	Pearl River Delta (China)
Premier	HSBC Premier, HSBC's premium personal global banking service
PVIF	Present value of in-force long-term insurance business
PwC	PricewaterhouseCoopers LLP and its network of firms
R
RBWM	Retail Banking and Wealth Management, a global business
Repo	Sale and repurchase transaction
Reverse repo	Security purchased under commitments to sell
RMBS	Residential mortgage-backed securities
RNIV	Risk not in VaR
RoE	Return on equity
RoTE	Return on tangible equity. It is calculated as reported profit attributable to ordinary shareholders less changes in goodwill and the present value of in-force long-term insurance business, divided by average tangible shareholders' equity
ROU	Right of use
RWAs	Risk-weighted assets
S
SABB	The Saudi British Bank
SEC	Securities and Exchange Commission (US)
ServCo group	Separately incorporated group of service companies planned in response to UK ringfencing proposals
Sibor	Singapore interbank offered rate
T
The Hongkong and Shanghai Banking Corporation	The Hongkong and Shanghai Banking Corporation Limited, the founding member of HSBC
U
UAE	United Arab Emirates
UK	United Kingdom
US	United States of America
US run-off portfolio	Includes the run-off CML residential mortgage loan portfolio of HSBC Finance on an IFRSs management basis
V
VaR	Value at risk
VIU	Value in use

This document comprises the Interim Report 2019 and information herein has been filed on Form 6-K with the US Securities and Exchange Commission for HSBC Holdings plc and its subsidiary and associated undertakings.

HSBC Holdings PLC

Incorporated in England with limited liability. Registered in England: number 617987

Registered Office and Group Head Office

8 Canada Square, London E14 5HQ, United Kingdom

Web: www.hsbc.com

© Copyright HSBC Holdings plc 2019

All rights reserved

No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of HSBC Holdings plc.

Published by Group Finance, HSBC Holdings plc, London

Designed by Superunion, London (cover and 'Overview' section) and by Group Finance, HSBC Holdings plc, London (rest of the Interim Report 2019)

Photography

Our strategy (page 4): Boat navigating off the coast of Thailand. Taken by Joanna S Ellis, who supports with retail customer due diligence and is based in India

Global businesses (page 10): Hong Kong skyline at night. Taken by John Oldham, who works in the legal team in the UK

How we do business (page 15): Fish off Raja Ampat, Indonesia, one of the world's most diverse marine regions. Taken by Faith Li, who works in asset management in China

Risk (page 16): Raindrops on a peacock feather. Taken by Noman Anwar, who works in communications in Bangladesh

Inside back cover: Crowds below an escalator in Incheon Airport, South Korea. Taken by Michael Hu, who works in China's finance team

 

END

 

 

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