HSBC Holdings Q1 2017 Earnings Release

RNS Number : 1299E
HSBC Holdings PLC
04 May 2017
 
 
 
HSBC HOLDINGS PLC
 
1Q17 EARNINGS RELEASE - HIGHLIGHTS
Strategic execution
   
•
Strong momentum in Asia with customer advances in the Pearl River Delta up 17% on 1Q16, new insurance sales up 13% and growth in assets under management of 15%.
   
•
Achieved annualised run-rate savings of $4.3bn since inception, while continuing to invest in growth, and regulatory programmes and compliance. Incremental $0.4bn savings in 1Q17.
   
•
Adjusted profit before tax growth in all three NAFTA countries. Lower LICs in the US and Canada; revenue growth in Mexico.
   
•
Exceeded our RWA reduction target (FX rebased).
   
•
Completed our $1.0bn share buy-back in April.
Stuart Gulliver, Group Chief Executive, said:
"This is a good set of results. The increase in adjusted profit was driven by strong performances in three of our four global businesses. Global Banking and Markets had a great quarter; Commercial Banking delivered higher revenue from our liquidity and cash management activities; and Retail Banking and Wealth Management was supported by rising interest rates and renewed customer investment appetite.
"In addition, we completed a $1bn buy-back, and made progress on our cost-saving programmes, giving us further confidence in our ability to hit the higher cost-saving target that we announced at our annual results."
Financial performance
   
•
Reported profit before tax of $5.0bn down $1.1bn or 19%, primarily due to adverse movements in significant items including fair value movements on our own debt from changes in our own credit spread in 1Q16; adjusted profit before tax of $5.9bn, up $0.6bn or 12% compared with 1Q16, reflecting lower LICs and higher revenue.
   
•
Reported revenue of $13.0bn was 13% lower primarily due currency translation differences and the absence of fair value movements on our own debt and revenue from the operations in Brazil that we sold, which were the key elements of the adverse movement in significant items; adjusted revenue of $12.8bn, up $0.3bn or 2%, mainly in RBWM from life insurance manufacturing and growth in current accounts, savings and deposits, and in GB&M from Rates and Credit.
   
•
Reported operating expenses of $8.3bn were $0.1bn or 1% higher; adjusted operating expenses of $7.2bn were $0.2bn or 3% higher, mainly due to a credit in the prior year relating to the 2015 UK bank levy. Excluding this, inflation and continued investment in our regulatory and growth programmes were partly offset by the impact of our cost-saving initiatives.
   
•
Adjusted jaws was negative 0.6%.
   
•
Compared with 4Q16, reported profit before tax was up $8.4bn; adjusted profit before tax was up $3.3bn.
   
•
Strong capital base with a common equity tier 1 ('CET1') ratio of 14.3% and a leverage ratio of 5.5%.
 
             
Financial highlights and key ratios
 
Quarter ended 31 Mar
 
2017
 
2016
 
Change
 
 
$m
 
$m
 
%
 
Reported PBT
4,961
 
6,106
 
(19
)
Adjusted PBT
5,937
 
5,296
 
12
 
 
%
 
%
 
%
 
Return on average ordinary shareholders' equity (annualised)
8.0
 
9.0
 
(11.1
)
Adjusted jaws
(0.6
)
 
 
We use adjusted performance to understand the underlying trends in the business. The main differences between reported and adjusted figures are foreign currency translation and significant items.
 
         
Capital and balance sheet
 
At
 
31 Mar
 
31 Dec
 
 
2017
 
2016
 
 
%
 
%
 
Common equity tier 1 ratio1
14.3
 
13.6
 
Leverage ratio
5.5
 
5.4
 
 
$m
 
$m
 
Loans and advances to customers
875,969
 
861,504
 
Customer accounts
1,272,957
 
1,272,386
 
Risk-weighted assets1
857,865
 
857,181
 
   
1
Unless otherwise stated, risk-weighted assets and capital are calculated and presented on a transitional CRD IV basis as implemented in the UK by the Prudential Regulation Authority.
 
 
   
HSBC Holdings plc  Earnings Release 1Q17
1
 
Earnings Release - 1Q17
 
 
                 
Table of contents
 
Page
 
 
 
Page
 
Highlights
1
 
 
Summary information - global businesses
19
 
Group Chief Executive's review
3
 
 
Summary information - geographical regions
21
 
Adjusted performance
4
 
 
Appendix - selected information
 
22
 
Financial performance commentary
6
 
 
- Reconciliation of reported and adjusted results - global businesses
22
 
Cautionary statement regarding forward-looking statements
12
 
 
- Reconciliation of reported and adjusted risk-weighted assets
25
 
Summary consolidated income statement
13
 
 
- Reconciliation of reported and adjusted results - geographical regions
25
 
Summary consolidated balance sheet
14
 
 
Capital
15
 
 
Gross loans and advances by industry sector and geographical region
28
 
Minimum requirement for own funds and eligible liabilities
15
 
 
First interim dividend for 2017
29
 
Risk-weighted assets
15
 
 
Dividend on Series A dollar preference shares
29
 
Leverage
18
 
 
Terms and abbreviations
30
 
 
 
 
HSBC Holdings plc - Earnings Release
HSBC Holdings plc will be conducting a trading update conference call with analysts and investors today to coincide with the publication of its Earnings Release. The call will take place at 07.30am BST. Details of how to participate in the call and the live audio webcast can be found at www.hsbc.com/investor-relations.
 
Note to editors
HSBC Holdings plc
HSBC Holdings plc, the parent company of HSBC, is headquartered in London. HSBC serves customers worldwide from approximately 4,000 offices in 70 countries and territories in our geographical regions: Europe, Asia, North America, Latin America, and Middle East and North Africa. With assets of $2,416bn at 31 March 2017, HSBC is one of the world's largest banking and financial services organisations.
 
 
 
   
2
HSBC Holdings plc  Earnings Release 1Q17
 
Earnings Release - 1Q17
 
 
 
Review by Stuart Gulliver, Group Chief Executive
Business performance
HSBC performed well in the first quarter.
Reported profits were down, due largely to a change in the accounting treatment of the fair value on our own debt. In addition, last year's first-quarter reported profit included the operating results of the Brazil business that we sold in July 2016. Both of these items will feature in comparisons with 2016 reported results throughout 2017.
Adjusted profit and revenue both grew as our global businesses maintained their momentum from the end of 2016.
Global Banking and Markets had a strong quarter, with large adjusted revenue increases in the majority of businesses compared with the same period last year. Retail Banking and Wealth Management also performed well, supported by rising interest rates, renewed customer investment appetite, the impact of market movements on our life insurance manufacturing business, and strong wealth product and insurance sales across all categories. Rising interest rates and increased balances in Global Liquidity and Cash Management helped deliver improved adjusted revenue in Commercial Banking.
We continued to grow lending in support of increased economic activity in the quarter, particularly in Commercial Banking in Hong Kong and the UK.
We further strengthened our common equity tier 1 ratio to 14.3%, while completing in April the $1bn equity buy-back that we announced at our annual results.
Strategy execution
2017 is the final year of our programme to complete the strategic actions announced at our 2015 Investor Update.
Targeted initiatives removed another $13bn of risk-weighted assets in the first quarter. We have now exceeded the risk-weighted asset reduction target that we set in 2015 and will continue to remove low-return risk-weighted assets.
Our cost-saving programme remains on track to hit the higher cost-saving target we announced at our annual results.
Our pivot to Asia continues. We increased advances to customers and grew mortgages and business lending in the Pearl River Delta. Insurance sales grew by 13% in Asia, and assets under management increased by 15%. We also launched new insurance products in China, and generated further business around the China-led Belt and Road initiative.
All three of our North American businesses delivered material increases in profit before tax.
 
 
 
   
HSBC Holdings plc  Earnings Release 1Q17
3
 
Earnings Release - 1Q17
 
 
 
Adjusted performance
Adjusted performance is computed by adjusting reported results for the period-on-period effects of foreign currency translation differences and significant items, which distort period-on-period comparisons.
We use 'significant items' to describe collectively the group of individual adjustments excluded from reported results when arriving at adjusted performance. These items, which are detailed below, are ones that management and investors would ordinarily identify and consider separately when assessing performance to understand better the underlying trends in the business.
We consider adjusted performance provides useful information for investors by aligning internal and external reporting, identifying and quantifying items management believes to be significant, and providing insight into how management assesses period-on-period performance.
Global business performance
The Group Chief Executive as supported by the Group Management Board is considered to be the Chief Operating Decision Maker ('CODM') for the purposes of identifying the Group's reportable segments. They review operating activity on a number of bases, including by global business and geographical region.
Following the changes in internal reporting to the CODM in 2016, global businesses are considered more prominent than the geographical region view in the way the CODM assesses performance and allocates resources. The global businesses are therefore considered our reportable segments under IFRS 8.
Global business results are assessed by the CODM on the basis of adjusted performance that removes the effects of significant items and currency translation from reported results. We therefore present these results on an adjusted basis as required by IFRSs.
Reconciliations of the total adjusted global business results of the Group reported results are presented on page 5. Supplementary reconciliations from reported to adjusted results by global business are presented on pages 22 to 25 for information purposes.
Foreign currency translation differences
Foreign currency translation differences reflect the movements of the US dollar against most major currencies during 1Q17. We exclude our reporting currency translation differences when deriving constant currency data because using these data allows us to assess balance sheet and income statement performance on a like-for-like basis to understand better the underlying trends in the business.
 
 
Foreign currency translation differences
Foreign currency translation differences for 1Q17 are computed by retranslating into US dollars for non-US dollar branches, subsidiaries, joint ventures and associates:
•
the income statements for 4Q16 and 1Q16 at the average rates of exchange for 1Q17; and
•
the closing prior period balance sheets at the prevailing rates of exchange on 31 March 2017.
No adjustment has been made to the exchange rates used to translate foreign currency denominated assets and liabilities into the functional currencies of any HSBC branches, subsidiaries, joint ventures or associates. When reference is made to foreign currency translation differences in tables or commentaries, comparative data reported in the functional currencies of HSBC's operations have been translated at the appropriate exchange rates applied in the current period on the basis described above.
 
Significant items
The tables on pages 22 to 25 detail the effects of significant items on each of our global business segments and geographical regions in 1Q17, 4Q16 and 1Q16.
Management view of adjusted revenue
Our global business segment commentary includes tables which provide breakdowns of revenue by major product. These reflect the basis on which revenue performance of the businesses is assessed and managed. Adjusted return on risk-weighted assets ('RoRWA') is used to measure the performance of RBWM, CMB, GB&M and GPB, and is also presented. For GPB, a further measure of business performance is client assets, which is presented on page 21.
Change to presentation from 1 January 2017
Own credit spread
'Own credit spread' includes the fair value movements on our long-term debt attributable to credit spread where the net result of such movements will be zero upon maturity of the debt. This does not include fair value changes due to own credit risk in respect of trading liabilities or derivative liabilities.On
1 January 2017, HSBC adopted the requirements of IFRS 9 relating to the presentation of gains and losses on financial liabilities designated at fair value. As a result, the effects of changes in those liabilities' credit risk is presented in other comprehensive income.
Adjusted performance - foreign currency translation of significant items
The foreign currency translation differences related to significant items are now presented as a separate component of significant items. This is considered a more meaningful presentation as it allows better comparison of period-on-period movements in performance.
 
 
 
   
4
HSBC Holdings plc  Earnings Release 1Q17
 
Earnings Release - 1Q17
 
 
             
Reconciliation of reported and adjusted results
 
Quarter ended
 
31 Mar
 
31 Dec
 
31 Mar
 
 
2017
 
2016
 
2016
 
 
$m
 
$m
 
$m
 
Revenue
 
 
 
Reported
12,993
 
8,984
 
14,976
 
Currency translation
 
(74
)
(466
)
Significant items
(150
)
2,015
 
(1,931
)
- DVA on derivative contracts
97
 
70
 
(158
)
- fair value movements on non-qualifying hedges
(91
)
302
 
233
 
- gain on disposal of our membership interest in Visa - US
(146
)
(116
)
-
 
-  own credit spread1
-
 
1,648
 
(1,151
)
- portfolio disposals
(10
)
112
 
-
 
- trading results from disposed-of operations in Brazil
-
 
-
 
(721
)
- currency translation of significant items
 
(1
)
(134
)
Adjusted
12,843
 
10,925
 
12,579
 
LICs
 
 
 
Reported
(236
)
(468
)
(1,161
)
Currency translation
 
12
 
(55
)
Significant items
-
 
-
 
416
 
- trading results from disposed-of operations in Brazil
-
 
-
 
334
 
- currency translation of significant items
 
-
 
82
 
Adjusted
(236
)
(456
)
(800
)
Operating expenses
 
 
 
Reported
(8,328
)
(12,459
)
(8,264
)
Currency translation
 
42
 
274
 
Significant items
1,126
 
4,042
 
974
 
- costs associated with portfolio disposals
-
 
28
 
-
 
- costs to achieve
833
 
1,086
 
341
 
- costs to establish UK ring-fenced bank
83
 
76
 
31
 
- impairment of GPB - Europe goodwill
-
 
2,440
 
-
 
- regulatory provisions in GPB
-
 
390
 
1
 
- settlements and provisions in connection with legal matters
-
 
(42
)
-
 
- UK customer redress programmes
210
 
70
 
-
 
- trading results from disposed-of operations in Brazil
-
 
-
 
504
 
- currency translation of significant items
 
(6
)
97
 
Adjusted
(7,202
)
(8,375
)
(7,016
)
Share of profit in associates and joint ventures
 
 
 
Reported
532
 
498
 
555
 
Currency translation
 
(4
)
(23
)
Significant items
-
 
-
 
1
 
- trading results from disposed-of operations in Brazil
-
 
-
 
1
 
- currency translation of significant items
 
-
 
-
 
Adjusted
532
 
494
 
533
 
Profit before tax
 
 
 
Reported
4,961
 
(3,445
)
6,106
 
Currency translation
 
(24
)
(270
)
Significant items
976
 
6,057
 
(540
)
- revenue
(150
)
2,015
 
(1,931
)
-  LICs
-
 
-
 
416
 
- operating expenses
1,126
 
4,042
 
974
 
-  share in profit of associates and joint ventures
-
 
-
 
1
 
Adjusted
5,937
 
2,588
 
5,296
 
   
1
'Own credit spread' includes the fair value movements on our long-term debt attributable to credit spread where the net result of such movements will be zero upon maturity of the debt. This does not include fair value changes due to own credit risk in respect of trading liabilities or derivative liabilities. On 1 January 2017, HSBC adopted the requirements of IFRS 9 relating to the presentation of gains and losses on financial liabilities designated at fair value. As a result, the effects of changes in those liabilities' credit risk is presented in other comprehensive income.
 
 
   
HSBC Holdings plc  Earnings Release 1Q17
5
 
Earnings Release - 1Q17
 
 
 
Financial performance commentary
 
             
Distribution of results by global business
 
Quarter ended
 
31 Mar
 
31 Dec
 
31 Mar
 
 
2017
 
2016
 
2016
 
 
$m
 
$m
 
$m
 
Adjusted profit/(loss) before tax
 
 
 
Retail Banking and Wealth Management
1,781
 
1,140
 
1,216
 
Commercial Banking
1,795
 
1,389
 
1,487
 
Global Banking and Markets
1,709
 
1,319
 
1,262
 
Global Private Banking
70
 
24
 
85
 
Corporate Centre
582
 
(1,284
)
1,246
 
 
5,937
 
2,588
 
5,296
 
 
             
Distribution of results by geographical region
 
Quarter ended
 
31 Mar
 
31 Dec
 
31 Mar
 
 
2017
 
2016
 
2016
 
 
$m
 
$m
 
$m
 
Reported profit/(loss) before tax
 
 
 
Europe1
(206
)
(6,741
)
1,698
 
Asia
4,094
 
2,962
 
3,530
 
Middle East and North Africa1
387
 
195
 
509
 
North America
572
 
69
 
364
 
Latin America
114
 
70
 
5
 
 
4,961
 
(3,445
)
6,106
 
Adjusted profit/(loss) before tax
 
 
 
Europe1
595
 
(1,163
)
908
 
Asia
4,307
 
3,185
 
3,437
 
Middle East and North Africa1
395
 
212
 
446
 
North America
512
 
264
 
366
 
Latin America
128
 
90
 
139
 
 
5,937
 
2,588
 
5,296
 
   
1
In 3Q16, HSBC Bank plc executed a management services agreement, transferring its governance responsibilities over HSBC Bank A.S. (Turkey) to HSBC Bank Middle East Limited to leverage the strong commercial ties between Turkey and MENA. Comparative data for Europe and MENA have been re-presented accordingly.
Adjusted PBT by global business and region is presented to support the commentary on adjusted performance on the following pages.
The tables on pages 22 to 29 reconcile reported to adjusted results for each of our global business segments and geographical regions.
Group
1Q17 compared with 1Q16 - reported results
 
                 
Movement in reported profit before tax compared with 1Q16
 
1Q17
 
1Q16
 
1Q17 vs. 1Q16
 
$m
 
$m
 
$m
 
%
 
Revenue
12,993
 
14,976
 
(1,983
)
(13
)
LICs
(236
)
(1,161
)
925
 
80
 
Operating expenses
(8,328
)
(8,264
)
(64
)
(1
)
Share of profit from associates and JVs
532
 
555
 
(23
)
(4
)
Profit before tax
4,961
 
6,106
 
(1,145
)
(19
)
Reported profit before tax of $5.0bn in 1Q17 was $1.1bn or 19% lower than in 1Q16. This was due to lower reported revenue ($2.0bn), partly offset by lower reported LICs ($0.9bn).
Excluding the net adverse effects of significant items ($1.5bn) and net adverse currency translation differences ($0.3bn), profit before tax increased by $0.6bn or 12%.
 
Revenue
Reported revenue of $13.0bn in 1Q17 was $2.0bn or 13% lower. This reflected a net unfavourable movement in significant items of $1.8bn. Significant items included:
   
•
In 1Q16, favourable fair value movements on our own debt designated at fair value reflecting changes in our own credit spread of $1.2bn. These movements are reported in the statement of comprehensive income, following the implementation of IFRS 9 Financial Instruments on 1 January 2017.
   
•
Revenue of $0.7bn in 1Q16 related to the operations in Brazil that we sold in July 2016.
Excluding significant items and adverse currency translation differences of $0.5bn, revenue increased by $0.3bn or 2%.
LICs
Reported LICs of $0.2bn were $0.9bn or 80% lower, reflecting reductions in CMB and GB&M, primarily in North America, as well as the effects of the disposal of our Brazil operations ($0.3bn). These were partly offset by the unfavourable effect of currency translation differences of $0.1bn.
Excluding significant items and currency translation differences, LICs reduced by $0.6bn or 71%.
 
 
   
6
HSBC Holdings plc  Earnings Release 1Q17
 
Earnings Release - 1Q17
 
Operating expenses
Reported operating expenses of $8.3bn were $0.1bn or 1% higher and included an increase in significant items of $0.2bn. Significant items included:
   
•
costs to achieve of $0.8bn, compared with $0.3bn in 1Q16; and
   
•
a provision of $0.2bn in 1Q17 relating to customer redress in the UK.
These were partly offset by:
   
•
the operating expenses incurred in 1Q16 in our Brazil business of $0.5bn.
Excluding significant items and favourable currency translation differences of $0.3bn, operating expenses increased by $0.2bn or 3%.
Share of income from associates
Reported income from associates of $0.5bn was broadly unchanged.
Group
1Q17 compared with 1Q16 - adjusted results
 
                 
Movement in adjusted profit before tax compared with 1Q16
 
1Q17
 
1Q16
 
1Q17 vs. 1Q16
 
$m
 
$m
 
$m
 
%
 
Revenue
12,843
 
12,579
 
264
 
2
 
LICs
(236
)
(800
)
564
 
71
 
Operating expenses
(7,202
)
(7,016
)
(186
)
(3
)
Share of profit from associates and JVs
532
 
533
 
(1
)
-
 
Profit before tax
5,937
 
5,296
 
641
 
12
 
On an adjusted basis, profit before tax of $5.9bn was $0.6bn or 12% higher, as we grew revenue and LICs decreased.
Adjusted revenue
Adjusted revenue of $12.8bn was $0.3bn or 2% higher.
   
•
In RBWM, revenue increased by $0.7bn. This was mainly in life insurance manufacturing, which benefited from favourable market impacts in Asia and Europe, compared with adverse market impacts in 1Q16. In current accounts, savings and deposits, revenue also increased, reflecting growth in balances and wider spreads, primarily in Asia.
   
•
In GB&M, revenue increased by $0.4bn, primarily in Rates and Credit, as we captured increased client flows. This was partly offset by net adverse movements on credit and funding valuation adjustments.
These were partly offset:
   
•
In Corporate Centre, revenue decreased by $0.7bn, driven by Central Treasury and the US run-off portfolio. The reduction in Central Treasury reflected minimal adverse fair value movements, relating to the economic hedging of interest and exchange rate risk on our long-term debt with long-term derivatives, compared with favourable movements of $0.2bn in 1Q16. In addition, interest expense on debt increased. These factors were partly offset by higher revenue in Balance Sheet Management.
Adjusted LICs
Adjusted LICs of $0.3bn were $0.6bn or 71% lower. This reflected a reduction in CMB ($0.2bn) as 1Q16 included a small number of individually assessed LICs related to exposures within the oil and gas sector, notably in Canada and the US. We also recorded lower individually assessed LICs in GB&M, as well as lower LICs in the US run-off portfolio in Corporate Centre.
 
Adjusted operating expenses
Adjusted operating expenses of $7.2bn increased by $0.2bn or 3%. This was mainly due to a credit in 1Q16 relating to the 2015 UK bank levy.
Excluding the UK bank levy credit, operating expenses increased due to inflationary pressures and continued investment in our regulatory and growth programmes. This was partly offset by the impact of our cost-saving initiatives.
Our total investment in regulatory programmes and compliance was $0.8bn, up $81m or 12%. This reflected the continued implementation of our Global Standards programme to enhance financial crime risk controls and capabilities, and meet external commitments.
The number of employees expressed in FTEs at 31 March 2017 was 235,854, an increase of 679 from 31 December 2016. This was driven by investment in compliance, partly offset by transformation savings.
Adjusted share of income from associates
Adjusted income from associates of $0.5bn was broadly unchanged.
Tax expense
The effective tax rate for 1Q17 of 24.2% was lower than the 25.7% in 1Q16, principally due to lower prior year adjustments in 1Q17.
First interim dividend for 2017
The Board announces a first interim dividend for 2017 of $0.10 per ordinary share, further details of which are set out at the end of this release.
Retail Banking and Wealth Management
1Q17 compared with 1Q16 - adjusted results
 
                     
Management view of adjusted revenue
 
1Q17
 
4Q16
 
1Q16
 
1Q17 vs. 1Q16
 
$m
 
$m
 
$m
 
$m
 
%
 
Net operating income1
 
 
 
 
 
 
 
 
 
 
Retail Banking
3,213
 
3,120
 
3,125
 
88
 
3
 
Current accounts, savings and deposits
1,453
 
1,319
 
1,261
 
192
 
15
 
Personal lending
1,760
 
1,801
 
1,864
 
(104
)
(6
)
- mortgages
590
 
609
 
642
 
(52
)
(8
)
- credit cards
722
 
731
 
778
 
(56
)
(7
)
- other personal lending2
448
 
461
 
444
 
4
 
1
 
Wealth Management
1,652
 
1,280
 
1,137
 
515
 
45
 
- investment distribution3
799
 
674
 
689
 
110
 
16
 
- life insurance manufacturing
606
 
365
 
212
 
394
 
186
 
- asset management
247
 
241
 
236
 
11
 
5
 
Other4
144
 
163
 
95
 
49
 
52
 
Total
5,009
 
4,563
 
4,357
 
652
 
15
 
RoRWA5
6.4
 
4.0
 
4.3
 
 
 
For footnotes see page 11
Adjusted profit before tax of $1.8bn was $0.6bn or 46% higher. This was driven by increased revenue in life insurance manufacturing, current accounts, savings and deposits and investment distribution, partly offset by a fall in personal lending. By contrast, we recorded small increases in costs and LICs.
 
 
   
HSBC Holdings plc  Earnings Release 1Q17
7
 
Earnings Release - 1Q17
 
Adjusted revenue of $5.0bn was $0.7bn or 15% higher, as revenue grew in Wealth Management and Retail Banking. In Wealth Management, this was mainly driven by life insurance manufacturing reflecting favourable market impacts ($138m), notably in Asia and Europe, compared with adverse market impacts in 1Q16 ($168m). In addition, income from investment distribution increased, reflecting higher sales of mutual funds, retail securities and wealth insurance distribution in Asia, following increased investor confidence. In Retail Banking, revenue increased, mainly from current accounts, savings and deposits due to wider spreads and balance growth in Asia and Latin America. This was partly offset by lower personal lending revenue in Asia, partly reflecting spread compression.
Adjusted LICs of $296m increased by $46m or 18%. This included an increase of $22m in Mexico, reflecting growth in unsecured lending balances and an increase in delinquencies. In addition, in the UK we increased collective allowances against our mortgages and cards exposures.
Adjusted operating expenses increased by $43m or 1%, as transformational and other cost savings were more than offset by inflation and investments.
Commercial Banking
1Q17 compared with 1Q16 - adjusted results
 
                     
Management view of adjusted revenue
 
1Q17
 
4Q16
 
1Q16
 
1Q17 vs. 1Q16
 
$m
 
$m
 
$m
 
$m
 
%
 
Net operating income1
 
 
 
 
 
 
 
 
 
 
Global Trade and
Receivables Finance
449
 
443
 
468
 
(19
)
(4
)
Credit and Lending
1,207
 
1,215
 
1,233
 
(26
)
(2
)
Global Liquidity and
Cash Management
1,104
 
1,076
 
1,030
 
74
 
7
 
Markets products, Insurance and Investments, and Other6
431
 
290
 
413
 
18
 
4
 
Total
3,191
 
3,024
 
3,144
 
47
 
1
 
RoRWA5
2.6
 
2.0
 
2.2
 
 
 
For footnotes see page 11
Adjusted profit before tax of $1.8bn was $0.3bn or 21% higher, primarily due to lower LICs and an increase in revenue.
Adjusted revenue was $47m or 1% higher, mainly in Global Liquidity and Cash Management ('GLCM') reflecting wider spreads and increased deposit balances in Hong Kong. In the UK, we increased our GLCM average deposit balances by 16%, compared with 1Q16, but this was offset by narrower spreads resulting from the base rate reduction.
Revenue growth was partly offset in Credit and Lending, as narrower spreads outweighed balance growth, particularly in Asia. Revenue in Global Trade and Receivables Finance ('GTRF') was also lower, although revenue has stabilised since 4Q16.
Net loan impairment releases of $3m in 1Q17 compared with adjusted LICs of $258m in 1Q16. This movement reflected lower individually assessed LICs compared with 1Q16, particularly in Canada and the US, primarily against oil and gas sector exposures. LICs also included a net release of collective allowances in the UK during 1Q17, reflecting reduced exposures and lower loss rates relating to the oil and gas sector.
Adjusted operating expenses of $1.4bn were unchanged as cost savings offset salary inflation and investment in Global Standards.
 
Global Banking and Markets
1Q17 compared with 1Q16 - adjusted results
 
                     
Management view of adjusted revenue
 
1Q17
 
4Q16
 
1Q16
 
1Q17 vs. 1Q16
 
$m
 
$m
 
$m
 
$m
 
%
 
Net operating income1
 
 
 
 
 
 
 
 
 
 
Global Markets
1,934
 
1,526
 
1,501
 
433
 
29
 
- Foreign Exchange
625
 
733
 
692
 
(67
)
(10
)
- Credit
327
 
73
 
153
 
174
 
114
 
- Rates
648
 
496
 
424
 
224
 
53
 
- Equities
334
 
224
 
232
 
102
 
44
 
Global Banking
894
 
978
 
874
 
20
 
2
 
Global Liquidity and
Cash Management
518
 
483
 
459
 
59
 
13
 
Securities Services
405
 
391
 
363
 
42
 
12
 
Global Trade and Receivables Finance
180
 
169
 
170
 
10
 
6
 
Principal Investments
29
 
49
 
3
 
26
 
867
 
Credit and funding
valuation adjustments7
(2
)
(26
)
137
 
(139
)
(101
)
Other8
(72
)
4
 
33
 
(105
)
(318
)
Total
3,886
 
3,574
 
3,540
 
346
 
10
 
RoRWA5
2.3
 
1.7
 
1.6
 
 
 
For footnotes see page 11
Adjusted profit before tax of $1.7bn was $447m or 35% higher, reflecting a strong revenue performance in the quarter. Revenue increased by $346m or 10%, including a net adverse movement of $139m on credit and funding valuation adjustments. Excluding this movement, profit before tax rose by $586m (52%), and revenue increased by $485m (14%), with increases in the majority of our businesses.
The rise in adjusted revenue was driven by Global Markets (up  $0.4bn), notably in Rates and Credit, as we captured increased client flows. Revenue in 1Q16 in these businesses was impacted by market volatility, which led to reduced client activity. In GLCM, revenue increased as we won client mandates, grew balances in mainland China and benefited from wider spreads in Asia. We also grew balances in the UK, but this was offset by narrower spreads. In Securities Services, revenue grew by  $42m. By contrast, revenue fell in Foreign Exchange by $67m, reflecting reduced market volatility in 1Q17.
Net loan impairment releases of $20m in 1Q17 compared with adjusted LICs of $178m in 1Q16. This largely reflected a reduction in individually assessed charges, notably as the prior year included LICs on exposures in the oil and gas sector in the US, and in the mining sector in Australia.
Adjusted operating expenses increased by $0.1bn or 5%, reflecting higher performance-related pay and, in the US, increased deposit insurance costs. Our continued cost management, efficiency improvements and FTE reductions more than offset the cost of our investments in the business.
 
 
   
8
HSBC Holdings plc  Earnings Release 1Q17
 
Earnings Release - 1Q17
 
Global Private Banking
1Q17 compared with 1Q16 - adjusted results
 
                     
Management view of adjusted revenue
 
1Q17
 
4Q16
 
1Q16
 
1Q17 vs. 1Q16
 
$m
 
$m
 
$m
 
$m
 
%
 
Net operating income1
 
 
 
 
 
 
 
 
 
 
Investment revenue
176
 
158
 
193
 
(17
)
(9
)
Lending
91
 
92
 
106
 
(15
)
(14
)
Deposit
89
 
82
 
91
 
(2
)
(2
)
Other
59
 
65
 
62
 
(3
)
(5
)
Total
415
 
397
 
452
 
(37
)
(8
)
RoRWA5
1.9
 
0.6
 
2.0
 
 
 
For footnotes see page 11
Adjusted profit before tax of $70m decreased by $15m or 18%, reflecting the impact of our previously announced repositioning actions.
Adjusted revenue of $415m decreased by $37m or 8%, due to the continued impact of client repositioning. This was partly offset in Hong Kong as we grew deposits and spreads widened, and increased client activity resulted in higher investment revenue.
In 1Q17, we attracted net new money of $4.8bn in key markets targeted for growth, notably Hong Kong, the UK and the Channel Islands.
Adjusted operating expenses decreased by $23m or 6%, reflecting a managed reduction in FTEs and the impact of our cost-saving initiatives.
Corporate Centre
1Q17 compared with 1Q16 - adjusted results
 
                     
Management view of adjusted revenue
 
1Q17
 
4Q16
 
1Q16
 
1Q17 vs. 1Q16
 
$m
 
$m
 
$m
 
$m
 
%
 
Net operating income1
 
 
 
 
 
 
 
 
Central Treasury9
373
 
(289
)
736
 
(363
)
(49
)
Legacy portfolios
33
 
123
 
210
 
(177
)
(84
)
- US run-off portfolio
33
 
125
 
248
 
(215
)
(87
)
- legacy credit
-
 
(2
)
(38
)
38
 
(100
)
Other10
(64
)
(467
)
140
 
(204
)
(146
)
Total
342
 
(633
)
1,086
 
(744
)
(69
)
For footnotes see page 11
Adjusted profit before tax of $0.6bn was $0.7bn or 53% lower, as revenue decreased and operating expenses increased. This was partly offset by a reduction in LICs.
Adjusted revenue was down $0.7bn or 69%, reflecting a decrease in Central Treasury and continuing sales and disposals in the US run-off portfolio.
In Central Treasury, revenue decreased as a result of minimal adverse fair value movements ($32m) relating to the economic hedging of interest-rate and exchange-rate risk on our long-term debt with long-term derivatives, compared with favourable movements of $249m in 1Q16. We also recorded higher interest expense on our debt ($0.2bn), reflecting a higher cost of funds. This was partly offset by an increase in revenue in Balance Sheet Management ($0.1bn), driven by higher investment yields in Hong Kong.
Adjusted LICs were $152m lower as net releases in the US run-off portfolio in 1Q17, compared with net charges in 1Q16. In addition, LICs decreased in legacy credit (down $49m) as we recorded net releases in 1Q17 compared with net charges in 1Q16.
 
Adjusted operating expenses were $0.1bn or 27% higher as a result of a credit booked in 1Q16 relating to the 2015 UK bank levy ($0.1bn). This was partly offset by FTE reductions in the US run-off portfolio.
Group
1Q17 compared with 4Q16 - reported results
 
               
Movement in reported profit before tax compared with 4Q16
 
1Q17
 
4Q16
 
1Q17 vs. 4Q16
 
$m
 
$m
 
$m
 
%
Revenue
12,993
 
8,984
 
4,009
 
45
LICs
(236
)
(468
)
232
 
50
Operating expenses
(8,328
)
(12,459
)
4,131
 
33
Share of profit from associates and JVs
532
 
498
 
34
 
7
Profit before tax
4,961
 
(3,445
)
8,406
 
244
Reported profit before tax of $5.0bn in 1Q17 was $8.4bn higher than in 4Q16. This was largely due to significant items recorded in 4Q16.
Excluding a net favourable effect of significant items of  $5.1bn, profit before tax increased by $3.3bn to $5.9bn.
Revenue
Reported revenue of $13.0bn in 1Q17 was $4.0bn or 45% higher than in 4Q16, due to an overall favourable movement in significant items of $2.2bn. Significant items included:
   
•
adverse fair value movements on our own debt designated at fair value from changes in credit spreads of $1.6bn in 4Q16; and
   
•
favourable fair value movements on non-qualifying hedges in 1Q17 of $0.1bn, compared with adverse movements in 4Q16 of $0.3bn.
Excluding significant items and currency translation differences, revenue increased by $1.9bn or 18% reflecting revenue growth in all global businesses and Corporate Centre.
LICs
Reported LICs of $0.2bn were $0.2bn or 50% lower than in 4Q16, notably due to a reduction in individually assessed LICs in CMB.
Excluding currency translation differences, LICs were $0.2bn or 48% lower.
Operating expenses
Reported operating expenses of $8.3bn were $4.1bn or 33% lower than in 4Q16. This reduction in reported operating expenses was largely caused by a decrease in significant items of $2.9bn, notably the write-off of $2.4bn of goodwill related to our GPB business in Europe in 4Q16. Other significant items reduced by $0.5bn and included:
   
•
costs to achieve of $0.8bn in 1Q17, compared with $1.1bn in 4Q16; and
   
•
regulatory provisions in GPB in 4Q16 of $0.4bn.
Excluding significant items and currency translation differences, operating expenses decreased by $1.2bn or 14%, primarily as 4Q16 included the UK bank levy charge of $1.0bn.
Share of income from associates
Reported income from associates of $0.5bn was $34m or 7% higher than in 4Q16.
 
 
   
HSBC Holdings plc  Earnings Release 1Q17
9
 
Earnings Release - 1Q17
 
Group
1Q17 compared with 4Q16 - adjusted results
 
               
Movement in adjusted profit before tax compared with 4Q16
 
1Q17
 
4Q16
 
1Q17 vs. 4Q16
 
$m
 
$m
 
$m
 
%
Revenue
12,843
 
10,925
 
1,918
 
18
LICs
(236
)
(456
)
220
 
48
Operating expenses
(7,202
)
(8,375
)
1,173
 
14
Share of profit from associates and JVs
532
 
494
 
38
 
8
Profit before tax
5,937
 
2,588
 
3,349
 
129
On an adjusted basis, profit before tax of $5.9bn was $3.3bn higher than in 4Q16, reflecting higher revenue, lower operating expenses and a reduction in LICs.
Adjusted revenue
Adjusted revenue of $12.8bn increased by $1.9bn or 18% compared with 4Q16, mainly reflecting higher revenue in RBWM, GB&M and Corporate Centre.
   
•
In RBWM, revenue increased by $0.4bn, mainly as a result of favourable market impacts in life insurance manufacturing and higher revenue from investment distribution. In addition, revenue in Retail Banking increased, notably from current accounts, savings and deposits, reflecting higher customer deposits and balance growth in Asia.
   
•
In GB&M revenue increased by $0.3bn, primarily driven by Global Markets as we captured increased client flows in Rates and Credit. This was partly offset by a lower revenue from Global Banking, as 4Q16 included restructuring gains which did not recur.
   
•
In Corporate Centre, revenue increased by $1.0bn, notably as a result of adverse fair value movements of $32m relating to the hedging of our long-term debt in 1Q17 (4Q16: $741m).
Adjusted LICs
Adjusted LICs of $0.2bn were $0.2bn or 48% lower than in 4Q16. The reduction was mainly in CMB reflecting releases of individually assessed allowances, notably on exposures related to the oil and gas sector.
Adjusted operating expenses
Adjusted operating expenses of $7.2bn were $1.2bn or 14% lower than in 4Q16, primarily due to a UK bank levy charge of $1.0bn recorded in 4Q16. Excluding this charge, adjusted operating expenses decreased by $0.1bn or 2%, partly reflecting the impact of our cost-saving initiatives.
Adjusted share of income from associates
Adjusted income from associates of $0.5bn was $38m or 8% higher than in 4Q16.
 
Balance sheet commentary compared with 31 December 2016
Total assets grew by $41.5bn or 2% on a reported basis and $20.6bn or 1% on a constant currency basis. This reflected increases in reported trading assets of $59.5bn as activity increased after the seasonal reduction in December 2016, and higher non-trading reverse repurchase agreements, partly offset by a decrease in derivative assets.
Loans and advances to customers grew by $14.5bn or 2%, primarily driven by growth in Asia, partly offset by our strategic focus on reducing legacy portfolios
Customer accounts were broadly unchanged on a reported basis. On a constant currency basis, customer accounts decreased, primarily in Asia in GB&M and CMB, partly offset by continuing growth in RBWM, notably in Hong Kong and the UK.
Reported loans and advances to customers increased by $14.5bn  during 1Q17 and included the following items:
   
•
favourable currency translation differences of $9.2bn; and
   
•
a $6.4bn reduction in corporate overdraft balances in the UK relating to a small number of customers (with a corresponding decrease in customer accounts). These balances were previously managed on a net basis with their corresponding current accounts.
Excluding these factors, loans and advances to customers grew by $11.7bn, which includes a $3.9bn reduction from the sale of CML run-off portfolio loans in the US. We continued to grow lending in Asia (up $10.1bn) across all our global businesses, notably in CMB and GB&M term lending in Hong Kong, with growth also in mainland China and Australia. This reflected our strategic focus on growth in the region.
Lending in Europe increased by $8.5bn, notably in the UK from growth in CMB term lending (up $1.6bn) and from an increase in UK overdrafts of $6.0bn as a result of customers in CMB and GB&M who no longer settled their overdraft and deposit balances on a net basis. We also recorded growth in residential mortgages.
These lending increases were partly offset by a $2.2bn reduction across GB&M and CMB balances in North America, reflecting our active management of overall client returns.
Reported customer accounts increased by $0.6bn during 1Q17 and included the following items:
   
•
favourable currency translation of $11.3bn; and
   
•
a $6.4bn reduction in corporate current account balances, in line with the decrease in corporate overdrafts.
Excluding these factors, customer accounts decreased by $4.3bn, despite growth of $10.8bn in RBWM, notably in Hong Kong and the US. Balances decreased in Asia in GB&M and CMB ($14.1bn) in both Hong Kong and mainland China, as customer outflows were higher than new deposit growth.
In Europe, customer accounts grew by $4.7bn, primarily as a result of customers in the UK who no longer settled their overdraft and deposit balances net, as noted above.
 
 
   
10
HSBC Holdings plc  Earnings Release 1Q17
 
Earnings Release - 1Q17
 
Net interest margin
 
             
Net interest margin
 
1Q17
 
1Q16
 
2016
 
 
$m
 
$m
 
$m
 
Net interest income
6,787
 
7,913
 
29,813
 
Average interest earning assets
1,683,136
 
1,716,128
 
1,723,702
 
 
%
 
%
 
%
 
Gross yield
2.33
 
2.68
 
2.46
 
Less: cost of funds
(0.83
)
(0.99
)
(0.87
)
Net interest spread
1.50
 
1.69
 
1.59
 
Net interest margin
1.64
 
1.85
 
1.73
 
In 2016, we earned net interest income of $0.9bn in Brazil (1Q16: $0.5bn) from average interest-earning assets of $25.8bn (1Q16: $35.4bn). Excluding Brazil, our net interest margin for 2016 was 1.70% (1Q16: 1.80%) with a gross yield of 2.34% (1Q16: 2.43%) and a cost of funds of 0.76% (1Q16: 0.77%)
Net interest margin of 1.64% fell by 9bps compared with net interest margin for 2016, or 6bps if we exclude our operations in Brazil. This was primarily driven by an increase of 7bps in the cost of funds and a fall of 1bp in our gross yields.
Gross yields benefited from US dollar rate rises, notably from increased yields on surplus liquidity in Asia, which have had the effect of widening deposit spreads in our global businesses, and in North America. Additionally, gross yields on reverse repurchase agreements rose in all regions, in line with the rise in costs of repurchase agreements. However, these benefits were more than offset by the effects of the UK base rate fall during 2016, the continuing run-off of our higher-yielding US run-off portfolio and continuing pressures on customer lending yields, notably in mortgages and term lending in the UK. Lending yields also fell marginally in Asia.
Cost of funds rose by 7bps, partly driven by an increase in the cost of Group debt, primarily relating to the higher cost of issuances of senior debt from HSBC Holdings. In addition, costs of repurchase agreements rose in line with movements in reverse repurchase agreements. These rises were broadly offset by a fall in the cost of customer accounts in both Europe and Asia, the latter reflecting a change in the mix of the portfolio towards lower-cost current accounts.
Compared with the fourth quarter of 2016, net interest margin rose by 4bps, reflecting benefits from US dollar interest rate rises. Gross yields rose on surplus liquidity in Asia, which had the effect of widening deposit spreads in RBWM and GLCM, and also in North America. Our net interest margin also benefitted from increased interest income on customer lending, despite a marginal fall in lending yields. These benefits were, however, partly offset by a rise in the cost of Group debt and further disposals in the higher-yielding US run-off portfolio.
 
 
 
Notes
   
•
Income statement comparisons, unless stated otherwise, are between the quarter ended 31 March 2017 and the quarter ended 31 March 2016. Balance sheet comparisons, unless otherwise stated, are between balances at 31 March 2017 and the corresponding balances at 31 December 2016.
   
•
The financial information on which this Earnings Release is based, and the data set out in the appendix to this statement, are unaudited and have been prepared in accordance with HSBC's significant accounting policies as described on pages 194 to 203 of our Annual Report and Accounts 2016.
   
•
The Board has adopted a policy of paying quarterly interim dividends on ordinary shares. Under this policy, it is intended to have a pattern of three equal interim dividends with a variable fourth interim dividend. Dividends are declared in US dollars and, at the election of the shareholder, paid in cash in one of, or in a combination of, US dollars, sterling and Hong Kong dollars or, subject to the Board's determination that a scrip dividend is to be offered in respect of that dividend, may be satisfied in whole or in part by the issue of new shares in lieu of a cash dividend. Details of the first interim dividend for 2017 and the series A dollar preference share dividend are set out at the end of this release.
 
   
Footnotes to financial performance
commentary
1
Net operating income before loan impairment charges and other credit risk provisions, also referred to as revenue.
2
'Other personal lending' includes personal non-residential closed-end loans and personal overdrafts.
3
'Investment distribution' includes Investments, which comprises mutual funds (HSBC manufactured and third party), structured products and securities trading, and Wealth Insurance distribution, consisting of HSBC manufactured and third-party life, pension and investment insurance products.
4
'Other' mainly includes the distribution and manufacturing (where applicable) of retail and credit protection insurance.
5
Adjusted RoRWA is calculated using adjusted annualised profit before tax and adjusted average risk-weighted assets.
6
'Markets products, Insurance and Investments and Other' includes revenue from Foreign Exchange, insurance manufacturing and distribution, interest rate management and Global Banking products.
7
In 1Q17, credit and funding valuation adjustments included an adverse fair value movement of $119m on the widening of credit spreads on structured liabilities (1Q16: favourable fair value movement of $233m; 4Q16: adverse fair value movement of $156m).
8
'Other' in GB&M includes net interest earned on free capital held in the global business not assigned to products, allocated funding costs and gains resulting from business disposals. Within the management view of total operating income, notional tax credits are allocated to the businesses to reflect the economic benefit generated by certain activities which is not reflected within operating income, such as notional credits on income earned from tax-exempt investments where the economic benefit of the activity is reflected in tax expense. In order to reflect the total operating income on an IFRS basis, the offset to these tax credits is included within 'Other'.
9
Central Treasury includes revenue relating to BSM of $845m (4Q16: $763m; 1Q16: $719m), interest expense of $331m (4Q16: $273m; 1Q16: $155m) and adverse valuation differences on issued long-term debt and associated swaps of $32m (4Q16: adverse movements of $742m; 1Q16: favourable movements of $249m). Revenue relating to BSM includes other internal allocations, including notional tax credits to reflect the economic benefit generated by certain activities which is not reflected within operating income, for example notional credits on income earned from tax-exempt investments where the economic benefit of the activity is reflected in tax expense. In order to reflect the total operating income on an IFRS basis, the offset to these tax credits is included in other Central Treasury.
10
Other miscellaneous items in Corporate Centre includes internal allocations relating to legacy credit.
 
 
   
HSBC Holdings plc  Earnings Release 1Q17
11
 
Earnings Release - 1Q17
 
Cautionary statement regarding forward-looking statements
This Earnings Release contains certain forward-looking statements with respect to HSBC's financial condition, results of operations, capital position and business.
Statements that are not historical facts, including statements about HSBC's beliefs and expectations, are forward-looking statements. Words such as 'expects', '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; and consumer perception as to the continuing availability of credit and price competition in the market segments we serve;
 
   
•
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 conduct of business of financial institutions in serving their retail customers, corporate clients and counterparties; the standards of market conduct; the costs, effects and outcomes of product regulatory reviews, actions or litigation, including any additional compliance requirements; 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; 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 we use; our success in addressing operational, legal and regulatory, and litigation challenges, notably compliance with the Deferred Prosecution Agreement with US authorities; and other risks and uncertainties we identify in the 'top and emerging risks' on pages 64 to 67 of the Annual Report and Accounts 2016.
 
For further information contact:
 
   
Investor Relations
Media Relations
UK - Richard O'Connor
UK - Heidi Ashley
Email: investorrelations@hsbc.com
Tel: +44 (0) 20 7992 2045
 
 
 
 
Hong Kong - Hugh Pye
Hong Kong - Gareth Hewett
Tel: +852 2822 4908
Tel: +852 2822 4929
 
 
   
12
HSBC Holdings plc  Earnings Release 1Q17
 
Earnings Release - 1Q17
 
 
 
Summary consolidated income statement
 
             
 
Quarter ended
 
31 Mar
 
31 Dec
 
31 Mar
 
 
2017
 
2016
 
2016
 
 
$m
 
$m
 
$m
 
Net interest income
6,787
 
6,868
 
7,913
 
Net fee income
3,224
 
2,929
 
3,197
 
Net trading income
2,246
 
1,897
 
2,836
 
Net income/(expense) from financial instruments designated at fair value
929
 
(2,413
)
695
 
- changes in fair value of long-term debt issued and related derivatives
(60
)
(2,572
)
690
 
- net income/(expense) from other financial instruments designated at fair value
989
 
159
 
5
 
Gains less losses from financial investments
338
 
114
 
192
 
Dividend income
13
 
17
 
28
 
Net insurance premium income
2,793
 
2,060
 
2,915
 
Other operating income/(expense)
202
 
(125
)
172
 
Total operating income
16,532
 
11,347
 
17,948
 
Net insurance claims and benefits paid and movement in liabilities to policyholders
(3,539
)
(2,363
)
(2,972
)
Net operating income before loan impairment charges and other credit risk provisions
12,993
 
8,984
 
14,976
 
Loan impairment charges and other credit risk provisions
(236
)
(468
)
(1,161
)
Net operating income
12,757
 
8,516
 
13,815
 
Total operating expenses
(8,328
)
(12,459
)
(8,264
)
Operating profit/(loss)
4,429
 
(3,943
)
5,551
 
Share of profit in associates and joint ventures
532
 
498
 
555
 
Profit/(loss) before tax
4,961
 
(3,445
)
6,106
 
Tax expense
(1,201
)
(572
)
(1,571
)
Profit/(loss) after tax
3,760
 
(4,017
)
4,535
 
Attributable to:
 
 
 
- ordinary shareholders of the parent company
3,130
 
(4,440
)
3,888
 
- preference shareholders of the parent company
22
 
23
 
22
 
- other equity holders
313
 
188
 
391
 
- non-controlling interests
295
 
212
 
234
 
Profit/(loss) after tax
3,760
 
(4,017
)
4,535
 
 
$
 
$
 
$
 
Basic earnings per share
0.16
 
(0.22
)
0.20
 
Diluted earnings per share
0.16
 
(0.22
)
0.20
 
Dividend per ordinary share (in respect of the period)
0.10
 
0.21
 
0.10
 
 
%
 
%
 
%
 
Return on average ordinary shareholders' equity (annualised)
8.0
 
(10.9
)
9.0
 
Return on risk-weighted assets1  
2.3
 
(1.6
)
2.2
 
Cost efficiency ratio
64.1
 
138.7
 
55.2
 
   
1
Return on risk-weighted assets ('RoRWA') is calculated using annualised profit before tax and reported average RWAs.
 
 
 
   
HSBC Holdings plc  Earnings Release 1Q17
13
 
Earnings Release - 1Q17
 
 
 
Summary consolidated balance sheet
 
         
 
At
 
31 Mar
 
31 Dec
 
 
2017
 
2016
 
 
$m
 
$m
 
Assets
 
 
Cash and balances at central banks
132,265
 
128,009
 
Trading assets
294,588
 
235,125
 
Financial assets designated at fair value
26,735
 
24,756
 
Derivatives
234,048
 
290,872
 
Loans and advances to banks
87,993
 
88,126
 
Loans and advances to customers
875,969
 
861,504
 
Reverse repurchase agreements - non-trading
193,014
 
160,974
 
Financial investments
414,022
 
436,797
 
Assets held for sale
2,925
 
4,389
 
Other assets
154,908
 
144,434
 
Total assets
2,416,467
 
2,374,986
 
Liabilities and Equity
 
 
Liabilities
 
 
Deposits by banks
67,178
 
59,939
 
Customer accounts
1,272,957
 
1,272,386
 
Repurchase agreements - non-trading
118,197
 
88,958
 
Trading liabilities
197,777
 
153,691
 
Financial liabilities designated at fair value
91,379
 
86,832
 
Derivatives
226,724
 
279,819
 
Debt securities in issue
66,877
 
65,915
 
Liabilities of disposal groups held for sale
2,114
 
2,790
 
Liabilities under insurance contracts
77,771
 
75,273
 
Other liabilities
109,467
 
106,805
 
Total liabilities
2,230,441
 
2,192,408
 
Equity
 
 
Total shareholders' equity
178,784
 
175,386
 
Non-controlling interests
7,242
 
7,192
 
Total equity
186,026
 
182,578
 
Total liabilities and equity
2,416,467
 
2,374,986
 
 
%
 
%
 
Ratio of customer advances to customer accounts
68.8
 
67.7
 
 
 
 
   
14
HSBC Holdings plc  Earnings Release 1Q17
 
Earnings Release - 1Q17
 
 
 
Capital
 
           
Transitional own funds disclosure
 
 
At
 
 
31 Mar
 
31 Dec
 
 
 
2017
 
2016
 
Ref*
 
$m
 
$m
 
6
Common equity tier 1 capital before regulatory adjustments
154,290
 
149,291
 
28
Total regulatory adjustments to common equity tier 1
(31,925
)
(32,739
)
29
Common equity tier 1 capital
122,365
 
116,552
 
36
Additional tier 1 capital before regulatory adjustments
19,914
 
21,624
 
43
Total regulatory adjustments to additional tier 1 capital
(107
)
(154
)
44
Additional tier 1 capital
19,807
 
21,470
 
45
Tier 1 capital
142,172
 
138,022
 
51
Tier 2 capital before regulatory adjustments
31,587
 
34,750
 
57
Total regulatory adjustments to tier 2 capital
(465
)
(414
)
58
Tier 2 capital
31,122
 
34,336
 
59
Total capital
173,294
 
172,358
 
60
Total risk-weighted assets
857,865
 
857,181
 
 
Capital ratios
%
 
%
 
61
Common equity tier 1 ratio
14.3
 
13.6
 
62
Tier 1 ratio
16.6
 
16.1
 
63
Total capital ratio
20.2
 
20.1
 
   
*
The references identify the lines prescribed in the EBA template.
Capital
Our CET1 capital ratio increased to 14.3%.
CET1 capital increased in the quarter by $5.8bn, due to:
   
•
$2.5bn of capital generation through profits, net of dividends and scrip;
   
•
favourable foreign currency translation differences of $1.6bn; and
   
•
regulatory netting of $1.5bn.
These increases were partly offset by:
   
•
the share buy-back of $1.0bn.
 
 
Minimum requirement for own funds
and eligible liabilities
MREL
During the first quarter HSBC received its indicative non-binding MREL requirement from the Bank of England. HSBC's resolution strategy has been confirmed as multiple point of entry and our MREL requirement set at the higher of: (i) 16% of RWAs from 1 January 2019 (18% from 1 January 2022); (ii) 6% of leverage exposures from 1 January 2019 (6.75% from 1 January 2022); or (iii) the sum of requirements relating to each of its resolution groups. CET1 capital buffers have to be added to these requirements. The final requirements may change due to a number of factors, although based on our understanding of the indicative requirement, HSBC currently meets its 2019 MREL requirement.
 
 
Risk-weighted assets
RWAs
RWAs increased by $0.7bn in the first quarter, including a positive impact of $6.7bn due to foreign currency translation differences and an underlying decrease of $6.0bn. The following comments describe RWA movements excluding foreign currency translation differences.
 
RWA initiatives
The main drivers for these reductions were:
   
•
$7.8bn through the continued reduction in legacy credit and US run-off portfolios; and
   
•
$5.5bn as a result of reduced exposures, refined calculations and process improvements.
Asset size
Asset size movements increased RWAs by $1.9bn, principally from:
   
•
increased corporate lending in CMB, increasing RWAs by $3.4bn in Asia and Europe.
This increase was partly offset by:
   
•
movements in market parameters reducing market risk RWAs by $2.1bn.
Methodology and policy
Methodology and policy movements increased RWAs by $5.7bn, mainly as a result of changes to the treatment of:
   
•
netting of current accounts, increasing RWAs by $2.8bn; and
   
•
non-recourse purchased receivables, increasing RWAs by $1.8bn.
 
 
 
   
HSBC Holdings plc  Earnings Release 1Q17
15
 
Earnings Release - 1Q17
 
 
               
Overview of RWAs
 
 
a
b
c
 
 
31 Mar
 
31 Dec
 
31 Mar
 
 
 
2017
 
2016
 
2017
 
 
 
RWA
 
RWA
 
Capital
requirement1
 
 
 
$bn
 
$bn
 
$bn
 
1
Credit risk (excluding Counterparty credit risk)
592.8
 
589.1
 
47.4
 
2
Standardised approach
122.5
 
120.6
 
9.8
 
3
Foundation IRB (FIRB) approach2
26.0
 
25.9
 
2.1
 
4
Advanced IRB (AIRB) approach
444.3
 
442.6
 
35.5
 
6
Counterparty credit risk
61.2
 
61.8
 
4.9
 
7
Mark to market
36.3
 
35.8
 
2.9
 
10
Internal model method (IMM)
9.9
 
10.9
 
0.8
 
11
Risk exposure amount for contributions to the default fund of a CCP
0.7
 
0.7
 
0.1
 
12
CVA
14.3
 
14.4
 
1.1
 
13
Settlement risk
0.2
 
0.2
 
-
 
14
Securitisation exposures in the banking book (after the cap)
21.3
 
21.8
 
1.7
 
15
IRB approach
18.5
 
19.1
 
1.5
 
16
IRB supervisory formula approach (SFA)
0.2
 
0.2
 
-
 
17
Internal assessment approach (IAA)
1.5
 
1.6
 
0.1
 
18
Standardised approach
1.1
 
0.9
 
0.1
 
19
Market risk
38.9
 
41.5
 
3.1
 
20
Standardised approach
4.8
 
5.0
 
0.4
 
21
Internal models approach (IMA)
34.1
 
36.5
 
2.7
 
23
Operational risk
98.0
 
98.0
 
7.8
 
25
Standardised approach
98.0
 
98.0
 
7.8
 
27
Amounts below the thresholds for deduction (subject to 250% risk weight)
45.5
 
44.8
 
3.7
 
28
Floor adjustment
-
 
-
 
-
 
29
Total
857.9
 
857.2
 
68.6
 
   
1
'Capital requirement' here and in all tables where the term is used, represents the Pillar 1 capital charge at 8% of the RWAs.
   
2
Internal ratings based.
 
                         
RWAs by global business
 
RBWM
 
CMB
 
GB&M
 
GPB
 
Corporate
Centre
 
Total
 
 
$bn
 
$bn
 
$bn
 
$bn
 
$bn
 
$bn
 
Credit risk
86.1
 
256.3
 
171.6
 
12.4
 
133.2
 
659.6
 
Counterparty credit risk
-
 
-
 
58.5
 
0.2
 
2.7
 
61.4
 
Market risk
-
 
-
 
34.9
 
-
 
4.0
 
38.9
 
Operational risk
27.4
 
24.3
 
31.0
 
2.8
 
12.5
 
98.0
 
At 31 Mar 2017
113.5
 
280.6
 
296.0
 
15.4
 
152.4
 
857.9
 
 
                         
RWAs by geographical region
 
Europe
 
Asia
 
MENA
 
North
America
 
Latin
America
 
Total
 
 
$bn
 
$bn
 
$bn
 
$bn
 
$bn
 
$bn
 
Credit risk
212.8
 
265.8
 
48.1
 
108.4
 
24.5
 
659.6
 
Counterparty credit risk
31.0
 
15.0
 
1.2
 
12.6
 
1.6
 
61.4
 
Market risk1
26.8
 
18.6
 
2.1
 
6.8
 
0.6
 
38.9
 
Operational risk
30.9
 
36.6
 
7.5
 
12.8
 
10.2
 
98.0
 
At 31 Mar 2017
301.5
 
336.0
 
58.9
 
140.6
 
36.9
 
857.9
 
   
1
RWAs are non-additive across geographical regions due to market risk diversification effects within the Group.
 
 
   
16
HSBC Holdings plc  Earnings Release 1Q17
 
Earnings Release - 1Q17
 
 
                             
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 2017
115.1
 
275.9
 
261.9
 
15.3
 
147.5
 
41.5
 
857.2
 
RWA initiatives
(0.4
)
(2.0
)
(2.5
)
(0.1
)
(7.7
)
(0.5
)
(13.2
)
Asset size
0.8
 
2.4
 
(0.6
)
0.1
 
1.3
 
(2.1
)
1.9
 
Asset quality
0.1
 
0.5
 
(1.8
)
0.1
 
0.6
 
-
 
(0.5
)
Model updates
-
 
-
 
-
 
-
 
-
 
-
 
-
 
- portfolios moving onto IRB approach
-
 
-
 
-
 
-
 
-
 
-
 
-
 
- new/updated models
-
 
-
 
-
 
-
 
-
 
-
 
-
 
Methodology and policy
(3.1
)
1.3
 
1.9
 
(0.2
)
5.8
 
-
 
5.7
 
- internal updates
(3.1
)
1.3
 
2.0
 
(0.2
)
5.8
 
-
 
5.8
 
- external updates - regulatory
-
 
-
 
(0.1
)
-
 
-
 
-
 
(0.1
)
Acquisitions and disposals
-
 
-
 
-
 
-
 
-
 
-
 
-
 
Foreign exchange movements
1.0
 
2.5
 
2.2
 
0.2
 
0.9
 
-
 
6.8
 
Total RWA movement
(1.6
)
4.7
 
(0.8
)
0.1
 
0.9
 
(2.6
)
0.7
 
RWAs at 31 Mar 2017
113.5
 
280.6
 
261.1
 
15.4
 
148.4
 
38.9
 
857.9
 
 
                             
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 2017
267.6
 
312.7
 
57.7
 
143.9
 
33.8
 
41.5
 
857.2
 
RWA initiatives
(1.6
)
(2.4
)
(0.4
)
(8.3
)
-
 
(0.5
)
(13.2
)
Asset size
3.2
 
3.0
 
(0.3
)
(2.0
)
0.1
 
(2.1
)
1.9
 
Asset quality
(0.4
)
-
 
-
 
(0.6
)
0.5
 
-
 
(0.5
)
Model updates
-
 
-
 
-
 
-
 
-
 
-
 
-
 
- portfolios moving onto IRB approach
-
 
-
 
-
 
-
 
-
 
-
 
-
 
- new/updated models
-
 
-
 
-
 
-
 
-
 
-
 
-
 
Methodology and policy
3.7
 
1.5
 
(0.1
)
0.6
 
-
 
-
 
5.7
 
- internal updates
3.7
 
1.5
 
-
 
0.6
 
-
 
-
 
5.8
 
- external updates - regulatory
-
 
-
 
(0.1
)
-
 
-
 
-
 
(0.1
)
Acquisitions and disposals
-
 
-
 
-
 
-
 
-
 
-
 
-
 
Foreign exchange movements
2.2
 
2.6
 
(0.1
)
0.2
 
1.9
 
-
 
6.8
 
Total RWA movement
7.1
 
4.7
 
(0.9
)
(10.1
)
2.5
 
(2.6
)
0.7
 
RWAs at 31 Mar 2017
274.7
 
317.4
 
56.8
 
133.8
 
36.3
 
38.9
 
857.9
 
 
             
 
 
 
 
 
RWA flow statements of credit risk exposures under the IRB approach1
 
 
 
a
b
 
 
 
RWA
 
Capital requirement
 
 
 
 
$bn
 
$bn
 
 
1
RWAs at 1 Jan 2017
468.5
 
37.5
 
 
2
Asset size
2.0
 
0.2
 
 
3
Asset quality
-
 
-
 
 
4
Model updates
-
 
-
 
 
5
Methodology and policy
1.2
 
0.1
 
 
6
Acquisitions and disposals
(5.7
)
(0.5
)
 
7
Foreign exchange movements
4.3
 
0.3
 
 
8
Other
-
 
-
 
 
9
RWAs at 31 Mar 2017
470.3
 
37.6
 
   
1
This table includes RWA initiatives of $9.7bn allocated across the RWA flow layers to which they relate.
 
 
   
HSBC Holdings plc  Earnings Release 1Q17
17
 
Earnings Release - 1Q17
 
 
             
 
 
 
 
 
RWA flow statements of counterparty credit risk exposures under the IMM1
 
 
 
a
b
 
 
 
RWA
 
Capital requirement
 
 
 
 
$bn
 
$bn
 
 
1
RWAs at 1 Jan 2017
14.4
 
1.2
 
 
2
Asset size
(0.4
)
-
 
 
3
Credit quality of counterparties
(0.2
)
-
 
 
4
Model updates (IMM only)
1.0
 
-
 
 
5
Methodology and policy (IMM only)
(0.5
)
-
 
 
6
Acquisitions and disposals
-
 
-
 
 
7
Foreign exchange movements
-
 
-
 
 
8
Other
-
 
-
 
 
9
RWAs at 31 Mar 2017
14.3
 
1.2
 
   
1
This table includes an increase in RWAs of $0.6bn associated with RWA initiatives.
 
                                   
 
 
 
 
 
 
 
 
 
 
RWA flow statements of market risk exposures under the IMA1
 
 
 
a
b
c
d
e
f
g
 
 
 
VaR
 
Stressed
VaR
 
IRC
 
CRM
 
Other
 
Total RWA
 
Capital requirement
 
 
 
 
$bn
 
$bn
 
$bn
 
$bn
 
$bn
 
$bn
 
$bn
 
 
1
 
RWAs at 1 Jan 2017
8.7
 
15.8
 
9.5
 
-
 
2.5
 
36.5
 
2.9
 
 
2
 
Movement in risk levels
0.8
 
(3.5
)
0.6
 
-
 
(0.3
)
(2.4
)
(0.2
)
 
3
 
Model updates/changes
-
 
-
 
-
 
-
 
-
 
-
 
-
 
 
4
 
Methodology and policy
-
 
-
 
-
 
-
 
-
 
-
 
-
 
 
5
 
Acquisitions and disposals
-
 
-
 
-
 
-
 
-
 
-
 
-
 
 
6
 
Foreign exchange movements
-
 
-
 
-
 
-
 
-
 
-
 
-
 
 
7
 
Other
-
 
-
 
-
 
-
 
-
 
-
 
-
 
 
8
 
RWAs at 31 Mar 2017
9.5
 
12.3
 
10.1
 
-
 
2.2
 
34.1
 
2.7
 
   
1
This table includes RWA initiatives of $0.2bn allocated across the RWA flow layers to which they relate.
 
 
Leverage
 
           
Leverage ratio
 
 
At
 
 
31 Mar
 
31 Dec
 
 
 
2017
 
2016
 
Ref*
 
$bn
 
$bn
 
20
Tier 1 capital (end point)
133.7
 
127.3
 
21
Total leverage ratio exposure
2,449.8
 
2,354.4
 
 
 
%
 
%
 
22
Leverage ratio
5.5
 
5.4
 
EU-23
Choice on transitional arrangements for the definition of the capital measure
Fully phased in
 
Fully phased in
 
 
UK leverage ratio exposure - quarterly average
2,313.0
 
 
 
 
%
 
%
 
 
UK leverage ratio - quarterly average
5.7
 
 
 
UK leverage ratio - quarter end
5.8
 
5.7
 
   
*
The references identify the lines prescribed in the EBA template.
Our leverage ratio calculated on the CRR basis was 5.5% at 31 March 2017, up from 5.4% at 31 December 2016. This was mainly due to increased capital.
The Group's UK leverage ratio on a modified basis, excluding qualifying central bank balances, was 5.8%. This modification to the leverage ratio exposure measure was made following recommendations by the Bank of England's Financial Policy Committee.
 
The Financial Policy Committee has stated that it intends to recalibrate the leverage ratio in 2017 to take account of this modification. HSBC's UK leverage ratio should be considered in this context.
At 31 March 2017, our UK minimum leverage ratio requirement of 3% was supplemented by an additional leverage ratio buffer of 0.4% that translates to a value of $10bn, and a countercyclical leverage ratio buffer which results in no capital impact. We comfortably exceeded these leverage requirements.
 
 
   
18
HSBC Holdings plc  Earnings Release 1Q17
 
Earnings Release - 1Q17
 
 
 
Summary information - global businesses
 
                         
HSBC adjusted profit before tax
 
Quarter ended 31 Mar 2017
 
Retail Banking
and Wealth
Management
 
Commercial
Banking
 
Global
Banking and
Markets
 
Global
Private
Banking
 
Corporate Centre
 
Total
 
 
$m
 
$m
 
$m
 
$m
 
$m
 
$m
 
Net interest income
3,336
 
2,117
 
1,063
 
189
 
82
 
6,787
 
Net fee income
1,224
 
908
 
912
 
176
 
4
 
3,224
 
Net trading income1
139
 
125
 
1,864
 
49
 
75
 
2,252
 
Other income2
310
 
41
 
47
 
1
 
181
 
580
 
Net operating income before loan impairment charges and other credit risk provisions
5,009
 
3,191
 
3,886
 
415
 
342
 
12,843
 
Loan impairment (charges)/recoveries and other credit risk provisions
(296
)
3
 
20
 
(1
)
38
 
(236
)
Net operating income
4,713
 
3,194
 
3,906
 
414
 
380
 
12,607
 
Total operating expenses
(2,941
)
(1,399
)
(2,197
)
(344
)
(321
)
(7,202
)
Operating profit
1,772
 
1,795
 
1,709
 
70
 
59
 
5,405
 
Share of profit in associates and joint ventures
9
 
-
 
-
 
-
 
523
 
532
 
Adjusted profit before tax
1,781
 
1,795
 
1,709
 
70
 
582
 
5,937
 
 
%
 
%
 
%
 
%
 
%
 
%
 
Share of HSBC's adjusted profit before tax
30.0
 
30.2
 
28.8
 
1.2
 
9.8
 
100.0
 
Adjusted cost efficiency ratio
58.7
 
43.8
 
56.5
 
82.9
 
93.9
 
56.1
 
 
                         
 
Quarter ended 31 Dec 2016
Net interest income
3,227
 
2,097
 
1,121
 
199
 
176
 
6,820
 
Net fee income
1,149
 
843
 
724
 
171
 
30
 
2,917
 
Net trading income1
121
 
78
 
1,589
 
37
 
430
 
2,255
 
Other income/(expense)2
66
 
6
 
140
 
(10
)
(1,269
)
(1,067
)
Net operating income/(expense) before loan impairment charges and other credit risk provisions
4,563
 
3,024
 
3,574
 
397
 
(633
)
10,925
 
Loan impairment (charges)/recoveries and other credit risk provisions
(252
)
(194
)
(12
)
(9
)
11
 
(456
)
Net operating income/(expense)
4,311
 
2,830
 
3,562
 
388
 
(622
)
10,469
 
Total operating expenses
(3,173
)
(1,441
)
(2,243
)
(364
)
(1,154
)
(8,375
)
Operating profit/(loss)
1,138
 
1,389
 
1,319
 
24
 
(1,776
)
2,094
 
Share of profit in associates and joint ventures
2
 
-
 
-
 
-
 
492
 
494
 
Adjusted profit/(loss) before tax
1,140
 
1,389
 
1,319
 
24
 
(1,284
)
2,588
 
 
%
 
%
 
%
 
%
 
%
 
%
 
Share of HSBC's adjusted profit before tax
44.0
 
53.7
 
51.0
 
0.9
 
(49.6
)
100.0
 
Adjusted cost efficiency ratio
69.5
 
47.7
 
62.8
 
91.7
 
(182.3
)
76.7
 
 
                         
 
Quarter ended 31 Mar 2016
Net interest income
3,123
 
2,103
 
1,148
 
204
 
464
 
7,042
 
Net fee income/(expense)
1,120
 
888
 
782
 
201
 
(15
)
2,976
 
Net trading income1
112
 
108
 
1,557
 
48
 
825
 
2,650
 
Other income/(expense)2
2
 
45
 
53
 
(1
)
(188
)
(89
)
Net operating income before loan impairment charges and other credit risk provisions
4,357
 
3,144
 
3,540
 
452
 
1,086
 
12,579
 
Loan impairment charges and other credit risk provisions
(250
)
(258
)
(178
)
-
 
(114
)
(800
)
Net operating income
4,107
 
2,886
 
3,362
 
452
 
972
 
11,779
 
Total operating expenses
(2,898
)
(1,399
)
(2,100
)
(367
)
(252
)
(7,016
)
Operating profit
1,209
 
1,487
 
1,262
 
85
 
720
 
4,763
 
Share of profit in associates and joint ventures
7
 
-
 
-
 
-
 
526
 
533
 
Adjusted profit before tax
1,216
 
1,487
 
1,262
 
85
 
1,246
 
5,296
 
 
%
 
%
 
%
 
%
 
%
 
%
 
Share of HSBC's adjusted profit before tax
23.0
 
28.1
 
23.8
 
1.6
 
23.5
 
100.0
 
Adjusted cost efficiency ratio
66.5
 
44.5
 
59.3
 
81.2
 
23.2
 
55.8
 
   
1
Net trading income includes the revenues of internally funding trading assets, while the related costs are reported in net interest income. In our global business results, the total cost of funding trading assets is included within Corporate Centre net trading income as an interest expense. In the statutory presentation, internal interest income and expense are eliminated.
   
2
Other income in this context comprises where applicable net income/(expense) from other financial instruments designated at fair value, gains less losses from financial investments, dividend income, net insurance premium income and other operating income less net insurance claims and benefits paid and movement in liabilities to policyholders.
 
 
   
HSBC Holdings plc  Earnings Release 1Q17
19
 
Earnings Release - 1Q17
 
 
               
 
 
 
 
 
Global Private Banking - reported client assets1
 
 
Quarter ended
 
 
31 Mar
 
31 Dec
 
31 Mar
 
 
 
2017
 
2016
 
2016
 
 
 
$bn
 
$bn
 
$bn
 
 
Opening balance
298
 
315
 
349
 
 
Net new money
1
 
(7
)
(5
)
 
- of which: areas targeted for growth
5
 
(3
)
4
 
 
Value change
7
 
(1
)
(6
)
 
Disposals
(7
)
(2
)
-
 
 
Exchange and other
7
 
(7
)
3
 
 
Closing balance
306
 
298
 
341
 
 
               
 
 
 
 
 
Global Private Banking - reported client assets by geography1
 
 
Quarter ended
 
 
31 Mar
 
31 Dec
 
31 Mar
 
 
 
2017
 
2016
 
2016
 
 
 
$bn
 
$bn
 
$bn
 
 
Europe
153
 
147
 
162
 
 
Asia
111
 
108
 
108
 
 
North America
42
 
40
 
62
 
 
Latin America
-
 
3
 
8
 
 
Middle East2
-
 
-
 
1
 
 
Closing balance
306
 
298
 
341
 
   
1
Client assets are translated at the rates of exchange applicable for their respective period-ends, with the effects of currency translation reported separately. The main components of client assets are funds under management, which are not reported on the Group's balance sheet, and customer deposits, which are reported on the Group's balance sheet.
   
2
'Middle East' is an offshore business, therefore client assets are booked across to various regions, primarily in Europe.
 
 
 
   
20
HSBC Holdings plc  Earnings Release 1Q17
 
Earnings Release - 1Q17
 
 
 
Summary information - geographical regions
 
                             
HSBC reported profit/(loss) before tax
 
 
Quarter ended 31 Mar 2017
 
Europe3
 
Asia
 
MENA3
 
North America
 
Latin
America
 
Intra-HSBC
items
 
Total
 
 
$m
 
$m
 
$m
 
$m
 
$m
 
$m
 
$m
 
Net interest income
1,704
 
3,332
 
407
 
894
 
488
 
(38
)
6,787
 
Net fee income
1,043
 
1,406
 
158
 
494
 
123
 
-
 
3,224
 
Net trading income1
1,044
 
904
 
83
 
114
 
63
 
38
 
2,246
 
Other income2
422
 
898
 
5
 
274
 
61
 
(924
)
736
 
Net operating income before loan impairment charges and other credit risk provisions
4,213
 
6,540
 
653
 
1,776
 
735
 
(924
)
12,993
 
Loan impairment (charges)/recoveries and other credit risk provisions
5
 
(167
)
(57
)
106
 
(123
)
-
 
(236
)
Net operating income
4,218
 
6,373
 
596
 
1,882
 
612
 
(924
)
12,757
 
Total operating expenses
(4,428
)
(2,694
)
(322
)
(1,310
)
(498
)
924
 
(8,328
)
Operating profit/(loss)
(210
)
3,679
 
274
 
572
 
114
 
-
 
4,429
 
Share of profit in associates and joint ventures
4
 
415
 
113
 
-
 
-
 
-
 
532
 
Profit/(loss) before tax
(206
)
4,094
 
387
 
572
 
114
 
-
 
4,961
 
 
%
 
%
 
%
 
%
 
%
 
 
%
 
Share of HSBC's profit before tax
(4.2
)
82.6
 
7.8
 
11.5
 
2.3
 
 
100.0
 
Cost efficiency ratio
105.1
 
41.2
 
49.3
 
73.8
 
67.8
 
 
64.1
 
 
 
 
 
 
 
 
 
 
Quarter ended 31 Dec 2016
Net interest income
1,800
 
3,196
 
426
 
965
 
507
 
(26
)
6,868
 
Net fee income
962
 
1,240
 
161
 
450
 
116
 
-
 
2,929
 
Net trading income1
926
 
650
 
81
 
132
 
82
 
26
 
1,897
 
Other income/(expense)2
(2,041
)
482
 
(36
)
(14
)
21
 
(1,122
)
(2,710
)
Net operating income before loan impairment charges and other credit risk provisions
1,647
 
5,568
 
632
 
1,533
 
726
 
(1,122
)
8,984
 
Loan impairment charges and other credit risk provisions
(60
)
(125
)
(133
)
(27
)
(123
)
-
 
(468
)
Net operating income
1,587
 
5,443
 
499
 
1,506
 
603
 
(1,122
)
8,516
 
Total operating expenses
(8,333
)
(2,898
)
(377
)
(1,440
)
(533
)
1,122
 
(12,459
)
Operating profit/(loss)
(6,746
)
2,545
 
122
 
66
 
70
 
-
 
(3,943
)
Share of profit in associates and joint ventures
5
 
417
 
73
 
3
 
-
 
-
 
498
 
Profit/(loss) before tax
(6,741
)
2,962
 
195
 
69
 
70
 
-
 
(3,445
)
 
%
 
%
 
%
 
%
 
%
 
 
%
 
Share of HSBC's loss before tax
195.7
 
(86.0
)
(5.7
)
(2.0
)
(2.0
)
 
100.0
 
Cost efficiency ratio
506.0
 
52.0
 
59.7
 
93.9
 
73.4
 
 
138.7
 
 
                             
 
Quarter ended 31 Mar 2016
Net interest income
2,291
 
3,046
 
459
 
1,144
 
989
 
(16
)
7,913
 
Net fee income
1,047
 
1,266
 
202
 
451
 
231
 
-
 
3,197
 
Net trading income1
1,546
 
909
 
131
 
79
 
155
 
16
 
2,836
 
Other income2
748
 
612
 
43
 
320
 
44
 
(737
)
1,030
 
Net operating income before loan impairment charges and other credit risk provisions
5,632
 
5,833
 
835
 
1,994
 
1,419
 
(737
)
14,976
 
Loan impairment charges and other credit risk provisions
(151
)
(190
)
(46
)
(328
)
(446
)
-
 
(1,161
)
Net operating income
5,481
 
5,643
 
789
 
1,666
 
973
 
(737
)
13,815
 
Total operating expenses
(3,784
)
(2,543
)
(405
)
(1,302
)
(967
)
737
 
(8,264
)
Operating profit
1,697
 
3,100
 
384
 
364
 
6
 
-
 
5,551
 
Share of profit/(loss) in associates and joint ventures
1
 
430
 
125
 
-
 
(1
)
-
 
555
 
Profit before tax
1,698
 
3,530
 
509
 
364
 
5
 
-
 
6,106
 
 
%
 
%
 
%
 
%
 
%
 
 
%
 
Share of HSBC's profit before tax
27.8
 
57.8
 
8.3
 
6.0
 
0.1
 
 
100.0
 
Cost efficiency ratio
67.2
 
43.6
 
48.5
 
65.3
 
68.1
 
 
55.2
 
   
1
Net trading income includes the revenues of internally funding trading assets, while the related costs are reported in net interest income.
   
2
Other income in this context comprises where applicable net income/(expense) from other financial instruments designated at fair value, gains less losses from financial investments, dividend income, net insurance premium income and other operating income less net insurance claims and benefits paid and movement in liabilities to policyholders.
   
3
In 3Q16, HSBC Bank plc executed a management services agreement, transferring its governance responsibilities over HSBC Bank A.S. (Turkey) to HSBC Bank Middle East Limited to leverage the strong commercial ties between Turkey and MENA. Comparative data for Europe and MENA have been re-presented accordingly.
 
 
   
HSBC Holdings plc  Earnings Release 1Q17
21
 
Earnings Release - 1Q17
 
 
 
Appendix - selected information
Supplementary analysis of significant items by global business is presented below.
 
                         
Reconciliation of reported and adjusted results - global businesses
 
Quarter ended 31 Mar 2017
 
Retail Banking
and Wealth
Management
 
Commercial
Banking
 
Global Banking
and Markets
 
Global Private
Banking
 
Corporate Centre
 
Total
 
 
$m
 
$m
 
$m
 
$m
 
$m
 
$m
 
Revenue
 
 
 
 
 
 
 
 
 
 
 
 
Reported
5,082
 
3,191
 
3,789
 
419
 
512
 
12,993
 
Significant items
(73
)
-
 
97
 
(4
)
(170
)
(150
)
- DVA on derivative contracts
-
 
-
 
97
 
-
 
-
 
97
 
- fair value movements on non-qualifying hedges1
-
 
-
 
-
 
-
 
(91
)
(91
)
- gain on disposal of our membership interest in Visa - US
(146
)
-
 
-
 
-
 
-
 
(146
)
- portfolio disposals
73
 
-
 
-
 
(4
)
(79
)
(10
)
Adjusted
5,009
 
3,191
 
3,886
 
415
 
342
 
12,843
 
Loan impairment charge and other credit risk provisions ('LICs')
 
 
 
 
 
 
 
 
 
 
 
 
Reported
(296
)
3
 
20
 
(1
)
38
 
(236
)
Adjusted
(296
)
3
 
20
 
(1
)
38
 
(236
)
Operating expenses
 
 
 
 
 
 
 
 
 
 
 
 
Reported
(3,276
)
(1,398
)
(2,245
)
(344
)
(1,065
)
(8,328
)
Significant items
335
 
(1
)
48
 
-
 
744
 
1,126
 
- costs to achieve
125
 
(1
)
48
 
-
 
661
 
833
 
- costs to establish UK ring-fenced bank
-
 
-
 
-
 
-
 
83
 
83
 
- UK customer redress programmes
210
 
-
 
-
 
-
 
-
 
210
 
Adjusted
(2,941
)
(1,399
)
(2,197
)
(344
)
(321
)
(7,202
)
Share of profit in associates and joint ventures
 
 
 
 
 
 
 
 
 
 
 
 
Reported
9
 
-
 
-
 
-
 
523
 
532
 
Adjusted
9
 
-
 
-
 
-
 
523
 
532
 
Profit/(loss) before tax
 
 
 
 
 
 
 
 
 
 
 
 
Reported
1,519
 
1,796
 
1,564
 
74
 
8
 
4,961
 
Significant items
262
 
(1
)
145
 
(4
)
574
 
976
 
- revenue
(73
)
-
 
97
 
(4
)
(170
)
(150
)
- operating expenses
335
 
(1
)
48
 
-
 
744
 
1,126
 
Adjusted
1,781
 
1,795
 
1,709
 
70
 
582
 
5,937
 
   
1
Excludes items where there are substantial offsets in the income statement for the same period.
 
 
 
   
22
HSBC Holdings plc  Earnings Release 1Q17
 
Earnings Release - 1Q17
 
 
                         
Reconciliation of reported and adjusted results - global businesses (continued)
 
Quarter ended 31 Dec 2016
 
Retail Banking
and Wealth
Management
 
Commercial
Banking
 
Global Banking
and Markets
 
Global Private
Banking
 
Corporate
Centre
 
Total
 
 
$m
 
$m
 
$m
 
$m
 
$m
 
$m
 
Revenue
 
 
 
 
 
 
 
 
 
 
 
 
Reported
4,664
 
3,041
 
3,521
 
373
 
(2,615
)
8,984
 
Currency translation
(29
)
(17
)
(17
)
(1
)
(10
)
(74
)
Significant items
(72
)
-
 
70
 
25
 
1,992
 
2,015
 
- DVA on derivative contracts
-
 
-
 
70
 
-
 
-
 
70
 
- fair value movements on non-qualifying hedges1
(2
)
-
 
-
 
-
 
304
 
302
 
- gain on disposal of our membership interest in Visa - US
(72
)
-
 
-
 
-
 
(44
)
(116
)
- own credit spread2
-
 
-
 
-
 
-
 
1,648
 
1,648
 
- portfolio disposals
-
 
-
 
-
 
26
 
86
 
112
 
- currency translation on significant items
2
 
-
 
-
 
(1
)
(2
)
(1
)
Adjusted
4,563
 
3,024
 
3,574
 
397
 
(633
)
10,925
 
LICs
 
 
 
 
 
 
 
 
 
 
 
 
Reported
(259
)
(201
)
(12
)
(8
)
12
 
(468
)
Currency translation
7
 
7
 
-
 
(1
)
(1
)
12
 
Adjusted
(252
)
(194
)
(12
)
(9
)
11
 
(456
)
Operating expenses
 
 
 
 
 
 
 
 
 
 
 
 
Reported
(3,417
)
(1,472
)
(2,300
)
(3,204
)
(2,066
)
(12,459
)
Currency translation
22
 
7
 
9
 
1
 
3
 
42
 
Significant items
222
 
24
 
48
 
2,839
 
909
 
4,042
 
- costs associated with portfolio disposals
-
 
-
 
-
 
10
 
18
 
28
 
- costs to achieve
164
 
14
 
91
 
-
 
817
 
1,086
 
- costs to establish UK ring-fenced bank
1
 
-
 
-
 
-
 
75
 
76
 
- impairment of GPB - Europe goodwill
-
 
-
 
-
 
2,440
 
-
 
2,440
 
- regulatory provisions in GPB
-
 
-
 
-
 
389
 
1
 
390
 
- settlements and provisions in connection with legal matters
-
 
-
 
(42
)
-
 
-
 
(42
)
- UK customer redress programmes
59
 
11
 
-
 
-
 
-
 
70
 
- currency translation on significant items
(2
)
(1
)
(1
)
-
 
(2
)
(6
)
Adjusted
(3,173
)
(1,441
)
(2,243
)
(364
)
(1,154
)
(8,375
)
Share of profit in associates and joint ventures
 
 
 
 
 
 
 
 
 
 
 
 
Reported
2
 
-
 
-
 
-
 
496
 
498
 
Currency translation
-
 
-
 
-
 
-
 
(4
)
(4
)
Adjusted
2
 
-
 
-
 
-
 
492
 
494
 
Profit/(loss) before tax
 
 
 
 
 
 
 
 
 
 
 
 
Reported
990
 
1,368
 
1,209
 
(2,839
)
(4,173
)
(3,445
)
Currency translation
-
 
(3
)
(8
)
(1
)
(12
)
(24
)
Significant items
150
 
24
 
118
 
2,864
 
2,901
 
6,057
 
- revenue
(72
)
-
 
70
 
25
 
1,992
 
2,015
 
- operating expenses
222
 
24
 
48
 
2,839
 
909
 
4,042
 
Adjusted
1,140
 
1,389
 
1,319
 
24
 
(1,284
)
2,588
 
   
1
Excludes items where there are substantial offsets in the income statement for the same period.
   
2
'Own credit spread' includes the fair value movements on our long-term debt attributable to credit spread where the net result of such movements will be zero upon maturity of the debt. This does not include fair value changes due to own credit risk in respect of trading liabilities or derivative liabilities. On 1 January 2017, HSBC adopted the requirements of IFRS 9 relating to the presentation of gains and losses on financial liabilities designated at fair value. As a result, the effects of changes in those liabilities' credit risk is presented in other comprehensive income.
 
 
 
   
HSBC Holdings plc  Earnings Release 1Q17
23
 
Earnings Release - 1Q17
 
 
                         
Reconciliation of reported and adjusted results - global businesses (continued)
 
Quarter ended 31 Mar 2016
 
Retail Banking
and Wealth
Management
 
Commercial
Banking
 
Global Banking
and Markets
 
Global Private
Banking
 
Corporate
Centre
 
Total
 
 
$m
 
$m
 
$m
 
$m
 
$m
 
$m
 
Revenue
 
 
 
 
 
 
 
 
 
 
 
 
Reported
5,059
 
3,460
 
3,987
 
471
 
1,999
 
14,976
 
Currency translation
(127
)
(140
)
(119
)
(12
)
(68
)
(466
)
Significant items
(575
)
(176
)
(328
)
(7
)
(845
)
(1,931
)
- DVA on derivative contracts
-
 
-
 
(158
)
-
 
-
 
(158
)
- fair value movements on non-qualifying hedges1
-
 
-
 
-
 
-
 
233
 
233
 
- own credit spread2
-
 
-
 
-
 
-
 
(1,151
)
(1,151
)
- trading results from disposed-of operations in Brazil
(462
)
(142
)
(152
)
(6
)
41
 
(721
)
- currency translation on significant items
(113
)
(34
)
(18
)
(1
)
32
 
(134
)
Adjusted
4,357
 
3,144
 
3,540
 
452
 
1,086
 
12,579
 
LICs
 
 
 
 
 
 
 
 
 
 
 
 
Reported
(484
)
(386
)
(175
)
-
 
(116
)
(1,161
)
Currency translation
(36
)
(12
)
(9
)
-
 
2
 
(55
)
Significant items
270
 
140
 
6
 
-
 
-
 
416
 
- trading results from disposed-of operations in Brazil
217
 
113
 
4
 
-
 
-
 
334
 
- currency translation on significant items
53
 
27
 
2
 
-
 
-
 
82
 
Adjusted
(250
)
(258
)
(178
)
-
 
(114
)
(800
)
Operating expenses
 
 
 
 
 
 
 
 
 
 
 
 
Reported
(3,487
)
(1,561
)
(2,286
)
(382
)
(548
)
(8,264
)
Currency translation
87
 
48
 
100
 
8
 
31
 
274
 
Significant items
502
 
114
 
86
 
7
 
265
 
974
 
- costs to achieve
44
 
23
 
30
 
2
 
242
 
341
 
- costs to establish UK ring-fenced bank
-
 
-
 
-
 
-
 
31
 
31
 
- regulatory provisions in GPB
-
 
-
 
-
 
-
 
1
 
1
 
- trading results from disposed-of operations in Brazil
371
 
74
 
48
 
4
 
7
 
504
 
- currency translation on significant items
87
 
17
 
8
 
1
 
(16
)
97
 
Adjusted
(2,898
)
(1,399
)
(2,100
)
(367
)
(252
)
(7,016
)
Share of profit in associates and joint ventures
 
 
 
 
 
 
 
 
 
 
 
 
Reported
7
 
-
 
-
 
-
 
548
 
555
 
Currency translation
-
 
-
 
-
 
-
 
(23
)
(23
)
Significant items
-
 
-
 
-
 
-
 
1
 
1
 
- trading results from disposed-of operations in Brazil
-
 
-
 
-
 
-
 
1
 
1
 
- currency translation on significant items
-
 
-
 
-
 
-
 
-
 
-
 
Adjusted
7
 
-
 
-
 
-
 
526
 
533
 
Profit/(loss) before tax
 
 
 
 
 
 
 
 
 
 
 
 
Reported
1,095
 
1,513
 
1,526
 
89
 
1,883
 
6,106
 
Currency translation
(76
)
(104
)
(28
)
(4
)
(58
)
(270
)
Significant items
197
 
78
 
(236
)
-
 
(579
)
(540
)
- revenue
(575
)
(176
)
(328
)
(7
)
(845
)
(1,931
)
- LICs
270
 
140
 
6
 
-
 
-
 
416
 
- operating expenses
502
 
114
 
86
 
7
 
265
 
974
 
- share of profit in associates and joint ventures
-
 
-
 
-
 
-
 
1
 
1
 
Adjusted
1,216
 
1,487
 
1,262
 
85
 
1,246
 
5,296
 
   
1
Excludes items where there are substantial offsets in the income statement for the same period.
   
2
'Own credit spread' includes the fair value movements on our long-term debt attributable to credit spread where the net result of such movements will be zero upon maturity of the debt. This does not include fair value changes due to own credit risk in respect of trading liabilities or derivative liabilities. On 1 January 2017, HSBC adopted the requirements of IFRS 9 relating to the presentation of gains and losses on financial liabilities designated at fair value. As a result, the effects of changes in those liabilities' credit risk is presented in other comprehensive income.
 
 
 
   
24
HSBC Holdings plc  Earnings Release 1Q17
 
Earnings Release - 1Q17
 
 
                         
Reconciliation of reported and adjusted risk-weighted assets
 
Quarter ended 31 Mar 2017
 
Retail Banking
and Wealth
Management
 
Commercial
Banking
 
Global Banking
and Markets
 
Global Private
Banking
 
Corporate Centre
 
Total
 
 
$bn
 
$bn
 
$bn
 
$bn
 
$bn
 
$bn
 
Risk-weighted assets
 
 
 
 
 
 
Reported
113.5
 
280.6
 
296.0
 
15.4
 
152.4
 
857.9
 
Brazil operations
-
 
-
 
-
 
-
 
(5.2
)
(5.2
)
Adjusted
113.5
 
280.6
 
296.0
 
15.4
 
147.2
 
852.7
 
 
 
 
 
 
 
 
 
Quarter ended 31 Dec 2016
Risk-weighted assets
 
 
 
 
 
 
Reported
115.1
 
275.9
 
300.4
 
15.3
 
150.5
 
857.2
 
Currency translation
1.0
 
2.5
 
2.3
 
-
 
0.9
 
6.7
 
Brazil operations
(3.2
)
(1.0
)
(0.8
)
-
 
(0.2
)
(5.2
)
Adjusted
112.9
 
277.4
 
301.9
 
15.3
 
151.2
 
858.7
 
 
 
 
 
 
 
 
 
Quarter ended 31 Mar 2016
 
Risk-weighted assets
 
 
 
 
 
 
Reported
130.2
 
304.3
 
344.3
 
17.9
 
318.5
 
1,115.2
 
Currency translation
(3.7
)
(14.2
)
(5.8
)
(0.6
)
(14.9
)
(39.2
)
Brazil operations
(14.4
)
(16.2
)
(13.5
)
(0.2
)
(4.0
)
(48.3
)
Adjusted
112.1
 
273.9
 
325.0
 
17.1
 
299.6
 
1,027.7
 
 
 
                                 
Reconciliation of reported and adjusted results - geographical regions
 
Quarter ended 31 Mar 2017
 
Europe
 
Asia
 
MENA
 
North
America
 
Latin
America
 
Total
 
UK
 
Hong
Kong
 
 
$m
 
$m
 
$m
 
$m
 
$m
 
$m
 
$m
 
$m
 
Revenue
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Reported1
4,213
 
6,540
 
653
 
1,776
 
735
 
12,993
 
3,018
 
4,107
 
Significant items
(55
)
46
 
-
 
(142
)
1
 
(150
)
(60
)
22
 
- DVA on derivative contracts
51
 
36
 
-
 
9
 
1
 
97
 
43
 
10
 
- fair value movements on non-qualifying hedges2
(102
)
10
 
-
 
1
 
-
 
(91
)
(103
)
12
 
- gain on disposal of our membership interest in Visa - US
-
 
-
 
-
 
(146
)
-
 
(146
)
-
 
-
 
- portfolio disposals
(4
)
-
 
-
 
(6
)
-
 
(10
)
-
 
-
 
Adjusted1
4,158
 
6,586
 
653
 
1,634
 
736
 
12,843
 
2,958
 
4,129
 
LICs
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Reported
5
 
(167
)
(57
)
106
 
(123
)
(236
)
16
 
(155
)
Adjusted
5
 
(167
)
(57
)
106
 
(123
)
(236
)
16
 
(155
)
Operating expenses
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Reported1
(4,428
)
(2,694
)
(322
)
(1,310
)
(498
)
(8,328
)
(3,546
)
(1,393
)
Significant items
856
 
167
 
8
 
82
 
13
 
1,126
 
824
 
75
 
- costs to achieve
563
 
167
 
8
 
82
 
13
 
833
 
531
 
75
 
- costs to establish UK ring-fenced bank
83
 
-
 
-
 
-
 
-
 
83
 
83
 
-
 
- UK customer redress programmes
210
 
-
 
-
 
-
 
-
 
210
 
210
 
-
 
Adjusted1
(3,572
)
(2,527
)
(314
)
(1,228
)
(485
)
(7,202
)
(2,722
)
(1,318
)
Share of profit in associates and joint ventures
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Reported
4
 
415
 
113
 
-
 
-
 
532
 
5
 
7
 
Adjusted
4
 
415
 
113
 
-
 
-
 
532
 
5
 
7
 
Profit/(loss) before tax
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Reported
(206
)
4,094
 
387
 
572
 
114
 
4,961
 
(507
)
2,566
 
Significant items
801
 
213
 
8
 
(60
)
14
 
976
 
764
 
97
 
- revenue
(55
)
46
 
-
 
(142
)
1
 
(150
)
(60
)
22
 
- operating expenses
856
 
167
 
8
 
82
 
13
 
1,126
 
824
 
75
 
Adjusted
595
 
4,307
 
395
 
512
 
128
 
5,937
 
257
 
2,663
 
   
1
Amounts are non-additive across geographical regions due to intra-Group transactions.
   
2
Excludes items where there are substantial offsets in the income statement for the same period.
 
 
   
HSBC Holdings plc  Earnings Release 1Q17
25
 
Earnings Release - 1Q17
 
 
                                 
Reconciliation of reported and adjusted results - geographical regions (continued)
 
Quarter ended 31 Dec 2016
 
Europe
 
Asia
 
MENA
 
North
America
 
Latin
America
 
Total
 
UK
 
Hong
Kong
 
 
$m
 
$m
 
$m
 
$m
 
$m
 
$m
 
$m
 
$m
 
Revenue
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Reported1
1,647
 
5,568
 
632
 
1,533
 
726
 
8,984
 
525
 
3,315
 
Currency translation1
(31
)
(13
)
(35
)
3
 
(13
)
(74
)
(8
)
(2
)
Significant items
1,905
 
16
 
2
 
91
 
1
 
2,015
 
1,895
 
10
 
- DVA on derivative contracts
50
 
14
 
-
 
7
 
(1
)
70
 
45
 
7
 
- fair value movements on non-qualifying hedges2
303
 
(1
)
-
 
(2
)
2
 
302
 
311
 
1
 
- gain on the disposal of our membership interest in Visa - US
-
 
-
 
-
 
(116
)
-
 
(116
)
-
 
-
 
- own credit spread3
1,526
 
4
 
2
 
116
 
-
 
1,648
 
1,539
 
2
 
- portfolio disposals
26
 
-
 
-
 
86
 
-
 
112
 
-
 
-
 
- currency translation on significant items
-
 
(1
)
-
 
-
 
-
 
(1
)
-
 
-
 
Adjusted1
3,521
 
5,571
 
599
 
1,627
 
714
 
10,925
 
2,412
 
3,323
 
LICs
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Reported
(60
)
(125
)
(133
)
(27
)
(123
)
(468
)
(5
)
(90
)
Currency translation
-
 
2
 
7
 
1
 
2
 
12
 
1
 
-
 
Adjusted
(60
)
(123
)
(126
)
(26
)
(121
)
(456
)
(4
)
(90
)
Operating expenses
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Reported1
(8,333
)
(2,898
)
(377
)
(1,440
)
(533
)
(12,459
)
(4,661
)
(1,526
)
Currency translation1
27
 
7
 
16
 
(2
)
9
 
42
 
5
 
1
 
Significant items
3,677
 
215
 
27
 
102
 
21
 
4,042
 
773
 
97
 
- costs associated with portfolio disposals
28
 
-
 
-
 
-
 
-
 
28
 
-
 
-
 
- costs to achieve
720
 
214
 
29
 
102
 
21
 
1,086
 
651
 
97
 
- costs to establish UK ring-fenced bank
76
 
-
 
-
 
-
 
-
 
76
 
76
 
-
 
- impairment of GPB - Europe goodwill
2,440
 
-
 
-
 
-
 
-
 
2,440
 
-
 
-
 
- regulatory provisions in GPB
389
 
1
 
-
 
-
 
-
 
390
 
-
 
-
 
- settlements and provisions in connection with legal matters
(42
)
-
 
-
 
-
 
-
 
(42
)
(22
)
-
 
- UK customer redress programmes
70
 
-
 
-
 
-
 
-
 
70
 
70
 
-
 
- currency translation on significant items
(4
)
-
 
(2
)
-
 
-
 
(6
)
(2
)
-
 
Adjusted1
(4,629
)
(2,676
)
(334
)
(1,340
)
(503
)
(8,375
)
(3,883
)
(1,428
)
Share of profit in associates and joint ventures
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Reported
5
 
417
 
73
 
3
 
-
 
498
 
5
 
3
 
Currency translation
-
 
(4
)
-
 
-
 
-
 
(4
)
-
 
-
 
Adjusted
5
 
413
 
73
 
3
 
-
 
494
 
5
 
3
 
Profit/(loss) before tax
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Reported
(6,741
)
2,962
 
195
 
69
 
70
 
(3,445
)
(4,136
)
1,702
 
Currency translation
(4
)
(8
)
(12
)
2
 
(2
)
(24
)
(2
)
(1
)
Significant items
5,582
 
231
 
29
 
193
 
22
 
6,057
 
2,668
 
107
 
- revenue
1,905
 
16
 
2
 
91
 
1
 
2,015
 
1,895
 
10
 
- operating expenses
3,677
 
215
 
27
 
102
 
21
 
4,042
 
773
 
97
 
Adjusted
(1,163
)
3,185
 
212
 
264
 
90
 
2,588
 
(1,470
)
1,808
 
   
1
Amounts are non-additive across geographical regions due to intra-Group transactions.
   
2
Excludes items where there are substantial offsets in the income statement for the same period.
   
3
'Own credit spread' includes the fair value movements on our long-term debt attributable to credit spread where the net result of such movements will be zero upon maturity of the debt. This does not include fair value changes due to own credit risk in respect of trading liabilities or derivative liabilities. On 1 January 2017, HSBC adopted the requirements of IFRS 9 relating to the presentation of gains and losses on financial liabilities designated at fair value. As a result, the effects of changes in those liabilities' credit risk is presented in other comprehensive income.
 
 
 
   
26
HSBC Holdings plc  Earnings Release 1Q17
 
Earnings Release - 1Q17
 
 
                                 
Reconciliation of reported and adjusted results - geographical regions (continued)
 
Quarter ended 31 Mar 2016
 
Europe
 
Asia
 
MENA
 
North
America
 
Latin
America
 
Total
 
UK
 
Hong
Kong
 
 
$m
 
$m
 
$m
 
$m
 
$m
 
$m
 
$m
 
$m
 
Revenue
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Reported1
5,632
 
5,833
 
835
 
1,994
 
1,419
 
14,976
 
4,524
 
3,498
 
Currency translation1
(457
)
(13
)
(114
)
15
 
103
 
(466
)
(440
)
7
 
Significant items
(936
)
(70
)
(8
)
(52
)
(865
)
(1,931
)
(949
)
(22
)
- DVA on derivative contracts
(99
)
(64
)
-
 
(22
)
27
 
(158
)
(86
)
(24
)
- fair value movements on non-qualifying hedges2
111
 
4
 
-
 
119
 
(1
)
233
 
73
 
8
 
- own credit spread3
(985
)
(9
)
(8
)
(149
)
-
 
(1,151
)
(973
)
(6
)
- trading results from disposed-of operations in Brazil
-
 
-
 
-
 
-
 
(721
)
(721
)
-
 
-
 
- currency translation on significant items
37
 
(1
)
-
 
-
 
(170
)
(134
)
37
 
-
 
Adjusted1
4,239
 
5,750
 
713
 
1,957
 
657
 
12,579
 
3,135
 
3,483
 
LICs
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Reported
(151
)
(190
)
(46
)
(328
)
(446
)
(1,161
)
(89
)
(44
)
Currency translation
14
 
(2
)
4
 
(2
)
(69
)
(55
)
12
 
-
 
Significant items
-
 
-
 
-
 
-
 
416
 
416
 
-
 
-
 
- trading results from disposed-of operations in Brazil
-
 
-
 
-
 
-
 
334
 
334
 
-
 
-
 
- currency translation on significant items
-
 
-
 
-
 
-
 
82
 
82
 
-
 
-
 
Adjusted
(137
)
(192
)
(42
)
(330
)
(99
)
(800
)
(77
)
(44
)
Operating expenses
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Reported1
(3,784
)
(2,543
)
(405
)
(1,302
)
(967
)
(8,264
)
(2,847
)
(1,372
)
Currency translation1
302
 
11
 
46
 
(8
)
(77
)
274
 
280
 
(3
)
Significant items
289
 
2
 
9
 
49
 
625
 
974
 
224
 
19
 
- costs to achieve
277
 
3
 
11
 
49
 
1
 
341
 
212
 
19
 
- costs to establish UK ring-fenced bank
31
 
-
 
-
 
-
 
-
 
31
 
31
 
-
 
- regulatory provisions in GPB
1
 
-
 
-
 
-
 
-
 
1
 
-
 
-
 
- trading results from disposed-of operations in Brazil
-
 
-
 
-
 
-
 
504
 
504
 
-
 
-
 
- currency translation on significant items
(20
)
(1
)
(2
)
-
 
120
 
97
 
(19
)
-
 
Adjusted1
(3,193
)
(2,530
)
(350
)
(1,261
)
(419
)
(7,016
)
(2,343
)
(1,356
)
Share of profit in associates and joint ventures
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Reported
1
 
430
 
125
 
-
 
(1
)
555
 
(1
)
7
 
Currency translation
(2
)
(21
)
-
 
-
 
-
 
(23
)
-
 
-
 
Significant items
-
 
-
 
-
 
-
 
1
 
1
 
-
 
-
 
- trading results from disposed-of operations in Brazil
-
 
-
 
-
 
-
 
1
 
1
 
-
 
-
 
- currency translation on significant items
-
 
-
 
-
 
-
 
-
 
-
 
-
 
-
 
Adjusted
(1
)
409
 
125
 
-
 
-
 
533
 
(1
)
7
 
Profit/(loss) before tax
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Reported
1,698
 
3,530
 
509
 
364
 
5
 
6,106
 
1,587
 
2,089
 
Currency translation
(143
)
(25
)
(64
)
5
 
(43
)
(270
)
(148
)
4
 
Significant items
(647
)
(68
)
1
 
(3
)
177
 
(540
)
(725
)
(3
)
- revenue
(936
)
(70
)
(8
)
(52
)
(865
)
(1,931
)
(949
)
(22
)
- LICs
-
 
-
 
-
 
-
 
416
 
416
 
-
 
-
 
- operating expenses
289
 
2
 
9
 
49
 
625
 
974
 
224
 
19
 
- share of profit in associates and joint ventures
-
 
-
 
-
 
-
 
1
 
1
 
-
 
-
 
Adjusted
908
 
3,437
 
446
 
366
 
139
 
5,296
 
714
 
2,090
 
   
1
Amounts are non-additive across geographical regions due to intra-Group transactions.
   
2
Excludes items where there are substantial offsets in the income statement for the same period.
   
3
'Own credit spread' includes the fair value movements on our long-term debt attributable to credit spread where the net result of such movements will be zero upon maturity of the debt. This does not include fair value changes due to own credit risk in respect of trading liabilities or derivative liabilities. On 1 January 2017, HSBC adopted the requirements of IFRS 9 relating to the presentation of gains and losses on financial liabilities designated at fair value. As a result, the effects of changes in those liabilities' credit risk is presented in other comprehensive income.
 
 
 
   
HSBC Holdings plc  Earnings Release 1Q17
27
 
Earnings Release - 1Q17
 
 
                           
Gross loans and advances by industry sector and by geographical region
 
Europe
 
Asia
 
MENA
 
North
America
 
Latin
America
 
Total
 
As a %
of total
gross loans
 
$m
 
$m
 
$m
 
$m
 
$m
 
$m
 
At 31 Mar 2017
 
 
 
 
 
 
 
Personal
149,155
 
138,140
 
7,459
 
40,961
 
6,536
 
342,251
 
35.3
- first lien residential mortgages
110,765
 
101,301
 
2,503
 
35,532
 
2,156
 
252,257
 
26.0
- other personal
38,390
 
36,839
 
4,956
 
5,429
 
4,380
 
89,994
 
9.3
Wholesale
 
 
 
 
 
 
 
Corporate and commercial
163,636
 
218,543
 
21,395
 
55,955
 
11,384
 
470,913
 
48.4
- manufacturing
28,034
 
32,732
 
2,885
 
14,579
 
2,786
 
81,016
 
8.3
- international trade and services
56,876
 
72,743
 
8,743
 
10,483
 
2,674
 
151,519
 
15.6
- commercial real estate
22,220
 
34,168
 
740
 
8,069
 
1,533
 
66,730
 
6.9
- other property-related
7,829
 
39,045
 
1,870
 
8,375
 
327
 
57,446
 
5.9
- government
3,142
 
2,827
 
1,244
 
311
 
542
 
8,066
 
0.8
- other commercial
45,535
 
37,028
 
5,913
 
14,138
 
3,522
 
106,136
 
10.9
Financial
47,031
 
81,717
 
9,711
 
15,612
 
4,264
 
158,335
 
16.3
- non-bank financial institutions
32,678
 
24,049
 
2,565
 
10,305
 
744
 
70,341
 
7.2
- banks
14,353
 
57,668
 
7,146
 
5,307
 
3,520
 
87,994
 
9.1
Total wholesale
210,667
 
300,260
 
31,106
 
71,567
 
15,648
 
629,248
 
64.7
Total gross loans and advances at 31 Mar 2017
359,822
 
438,400
 
38,565
 
112,528
 
22,184
 
971,499
 
100.0
 
%
 
%
 
%
 
%
 
%
 
%
 
%
Percentage of total gross loans and advances
37.0
 
45.1
 
4.0
 
11.6
 
2.3
 
100.0
 
 
 
 
 
 
 
 
 
 
At 31 Dec 2016
 
 
 
 
 
 
 
Personal
146,499
 
134,700
 
7,744
 
44,956
 
5,899
 
339,798
 
35.5
- first lien residential mortgages
108,008
 
98,072
 
2,535
 
39,239
 
1,924
 
249,778
 
26.1
- other personal
38,491
 
36,628
 
5,209
 
5,717
 
3,975
 
90,020
 
9.4
Wholesale
 
 
 
 
 
 
 
Corporate and commercial
161,653
 
212,848
 
22,078
 
58,276
 
10,972
 
465,827
 
48.6
- manufacturing
27,005
 
32,564
 
2,941
 
15,348
 
2,785
 
80,643
 
8.4
- international trade and services
55,875
 
72,166
 
8,448
 
11,035
 
2,518
 
150,042
 
15.6
- commercial real estate
21,460
 
32,798
 
724
 
7,849
 
1,340
 
64,171
 
6.7
- other property-related
7,025
 
37,628
 
1,856
 
8,823
 
306
 
55,638
 
5.8
- government
3,009
 
2,919
 
1,619
 
354
 
541
 
8,442
 
0.9
- other commercial
47,279
 
34,773
 
6,490
 
14,867
 
3,482
 
106,891
 
11.2
Financial
43,666
 
79,254
 
10,370
 
14,823
 
3,742
 
151,855
 
15.9
- non-bank financial institutions
31,307
 
19,517
 
2,599
 
9,750
 
556
 
63,729
 
6.7
- banks
12,359
 
59,737
 
7,771
 
5,073
 
3,186
 
88,126
 
9.2
Total wholesale
205,319
 
292,102
 
32,448
 
73,099
 
14,714
 
617,682
 
64.5
Total gross loans and advances at 31 Dec 2016
351,818
 
426,802
 
40,192
 
118,055
 
20,613
 
957,480
 
100.0
 
%
 
%
 
%
 
%
 
%
 
%
 
%
Percentage of total gross loans and advances
36.7
 
44.6
 
4.2
 
12.3
 
2.2
 
100.0
 
 
 
 
   
28
HSBC Holdings plc  Earnings Release 1Q17
 
Earnings Release - 1Q17
 
 
 
First interim dividend for 2017
The Directors of HSBC Holdings plc have declared a first interim dividend of $0.10 per ordinary share in respect of the financial year ending 31 December 2017 in accordance with their intention, as set out in the Annual Report and Accounts 2016, to pay quarterly dividends on the ordinary shares in a pattern of three equal dividends with a variable fourth interim dividend. The ordinary shares will be quoted ex-dividend in London, Hong Kong, Paris and Bermuda on 18 May 2017. The American Depositary Shares will be quoted ex‑dividend in New York on 17 May 2017. The dividend will be payable on 5 July 2017 to holders of record on 19 May 2017.
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 26 June 2017. A scrip dividend will also be offered. Particulars of these arrangements will be sent to shareholders on or about 2 June 2017 and elections must be received by 22 June 2017.
The dividend will be payable on ordinary shares held through Euroclear France, the settlement and central depositary system for Euronext Paris, on 5 July 2017 to the holders of record on 19 May 2017. The dividend will be payable by Euroclear France, in euros, at the forward exchange rate quoted by HSBC France on 26 June 2017, or as a scrip dividend. Particulars of these arrangements will be announced through Euronext Paris on 5 May, 26 May and 26 June 2017.
The dividend will be payable on American Depositary Shares ('ADS'), each of which represents five ordinary shares, on 5 July 2017 to holders of record on 19 May 2017. 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 2 June 2017 and elections will be required to be made by 16 June 2017.
Alternatively, the cash dividend may be invested in additional ADSs for participants in the dividend reinvestment plan operated by the depositary.
Any person who has acquired ordinary shares registered on the Principal register in the United Kingdom, the Hong Kong Overseas Branch register or the Bermuda Overseas Branch register but who has not lodged the share transfer with the Principal Registrar, Hong Kong or Bermuda Overseas Branch Registrar should do so before 4.00pm local time on 19 May 2017 in order to receive the dividend.
Ordinary shares may not be removed to or from the Principal register in the United Kingdom, the Hong Kong Overseas Branch register or the Bermuda Overseas Branch register on 19 May 2017. Any person wishing to remove ordinary shares to or from each register must do so before 4.00pm local time on 18 May 2017.
Transfer of ADSs must be lodged with the depositary by 11.00am on 19 May 2017 to receive the dividend.
Dividend on 6.20% non-cumulative US dollar preference shares, series A ('Series A Dollar Preference Shares')
In 2005, 1,450,000 Series A Dollar Preference Shares were issued for a consideration of $1,000 each, and Series A American Depositary Shares, each of which represents one-fortieth of a Series A Dollar Preference Share, were listed on the New York Stock Exchange.
A non-cumulative fixed-rate dividend of 6.20% per annum is payable on the Series A Dollar Preference Shares on 15 March, 15 June, 15 September and 15 December 2017 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 dividend of $0.3875 per Series A American Depositary Share for the quarter ending 15 June 2017.
The dividend will be payable on 15 June 2017 to holders of record on 31 May 2017.
Any person who has acquired Series A American Depositary Shares but who has not lodged the transfer documentation with the depositary should do so before 12.00pm on 31 May 2017 in order to receive the dividend.
 
 
For and on behalf of
HSBC Holdings plc
 
 
Ben J S Mathews
Group Company Secretary
 
 
The Board of Directors of HSBC Holdings plc as at the date of this announcement are: Douglas Flint, Stuart Gulliver, Phillip Ameen†, Kathleen Casey†, Laura Cha†, Henri de Castries†, Lord Evans of Weardale†, Joachim Faber†, Irene Lee†, John Lipsky†, Iain Mackay, Heidi Miller†, Marc Moses, David Nish†, Jonathan Symonds†, Jackson Tai† and Pauline van der Meer Mohr†.
   
†
Independent non-executive Director.
 
 
 
   
HSBC Holdings plc  Earnings Release 1Q17
29
 
Earnings Release - 1Q17
 
 
 
Terms and abbreviations
 
   
1Q17
First quarter of 2017
1Q16
First quarter of 2016
3Q16
 
Third quarter of 2016
 
4Q16
Fourth quarter of 2016
BoCom
Bank of Communications Co., Limited, one of China's largest banks
Bps
 
Basis points. One basis point is equal to one-hundredth of a percentage point
 
CET1
Common equity tier 1
CMB
Commercial Banking, a global business
CML
Consumer and Mortgage Lending (US)
Corporate Centre
In December 2016, certain functions were combined to create a Corporate Centre. These include Balance Sheet Management, legacy businesses and interests in associates and joint ventures. The Corporate Centre also includes the results of our financing operations, central support costs with associated recoveries and the UK bank levy
Costs to achieve
Transformation costs to deliver the cost reduction and productivity outcomes outlined in the Investor Update in June 2015
CRD IV
Capital Requirements Directive IV
CRR
Capital Requirements Regulation
DVA
Debit valuation adjustment
EBA
European Banking Authority
FTEs
Full-time equivalent staff
FX
Foreign exchange
GB&M
Global Banking and Markets, a global business
GLCM
 
Global Liquidity and Cash Management
 
GPB
Global Private Banking, a global business
Group
HSBC Holdings together with its subsidiary undertakings
GTRF
 
Global Trade and Receivables Finance
IFRSs
International Financial Reporting Standards
IMA
Internal Models Approach
IRB
Internal ratings based
Jaws
The difference between the rate of growth of revenue and the rate of growth of costs. Positive jaws is where the revenue growth rate exceeds the cost growth rate. We calculate this on an adjusted basis
JV
Joint venture
Legacy credit
A portfolio of assets comprising Solitaire Funding Limited, securities investment conduits, asset-backed securities trading portfolios, credit correlation portfolios and derivative transactions entered into directly with monoline insurers
LICs
Loan impairment charges and other credit risk provisions
MENA
Middle East and North Africa
MREL
Minimum requirement for own funds and eligible liabilities
Own credit spread
Fair value movements on our long-term debt designated at fair value resulting from changes in credit spread
PBT
Profit before tax
PRA
Prudential Regulation Authority (UK)
Revenue
Net operating income before LICs
RBWM
Retail Banking and Wealth Management, a global business
RoRWA
Return on risk-weighted assets
RWAs
Risk-weighted assets
$m/$bn
United States dollar millions/billions
VaR
Value at risk

 

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30
HSBC Holdings plc  Earnings Release 1Q17

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