Interim Report - 14 of 28

RNS Number : 2005P

HSBC Holdings PLC

15 August 2014

 



Footnotes to pages 2 to 95

Financial highlights

  1  Dividends recognised in the financial statements are dividends per ordinary share declared in the period and are not dividends in respect of, or for, the period.

  2  The cost efficiency ratio is defined as total operating expenses divided by net operating income before loan impairment charges and other credit risk provisions.

  3  From 1 January 2014, non-trading reverse repos and repos are presented as separate lines in the balance sheet. Previously, non-trading reverse repos were included within 'Loans and advances to banks' and 'Loans and advances to customers' and non-trading repos were included within 'Deposits by banks' and 'Customer accounts'. Comparative data have been re-presented accordingly. Non-trading reverse repos and repos have been presented as separate lines in the balance sheet to align disclosure with market practice and provide more meaningful information in relation to loans and advances. The extent to which reverse repos and repos represent loans to/from customers and banks is set out in Note 11 on the Financial Statements.

  4  The return on average ordinary shareholders' equity is defined as profit attributable to shareholders of the parent company divided by average ordinary shareholders' equity.

  5  On 1 January 2014, CRD IV came into force and capital and RWAs at 30 June 2014 are calculated and presented on this basis. Prior to this date, capital and RWAs were calculated and presented on a Basel 2.5 basis. In addition, capital and RWAs at 31 December 2013 were also estimated based on the Group's interpretation of final CRD IV legislation and final rules issued by the PRA.

  6  Pre-tax return on average risk-weighted assets ('RWA's) is calculated using average RWAs based on a Basel 2.5 basis for all periods  up to and including 31 December 2013 and on a CRD IV end point basis for 31 March 2014 and 30 June 2014.

  7  The basis of calculation of the June 2014 leverage ratio has changed from previous disclosures based on the approach prescribed by the PRA. For further details of the leverage ratio, see page 186.

  8  Each ADS represents five ordinary shares.

  9  Total shareholder return is defined as the growth in share value and declared dividend income during the relevant period.

10  The Morgan Stanley Capital International World Banks Index.

Business and operating models

11  From 1 January 2014, the geographical region 'Asia' replaced the geographical regions previously reported as 'Hong Kong' and 'Rest of Asia-Pacific' (see Note 23 on the Financial Statements for further details). Comparative data have been re-presented to reflect this change.

12  The reporting structure of Hong Kong and the rest of Asia is aligned to the regional Asia management structure.

13  Net operating income before loan impairment charges and other credit risk provisions, also referred to as revenue.

14  Intermediation of securities, funds and insurance products, including Securities Services in GB&M.

15  Merger and acquisition, event and project financing, and co-investments in GPB.

16  Including Foreign Exchange, Rates, Credit and Equities.

17  Including portfolio management.

18  Including private trust and estate planning (for financial and non-financial assets).

19  Including hedge funds, real estate and private equity.

20  The sum of balances presented does not agree to consolidated amounts because inter-company eliminations are not presented here.

21  Targets for 2014-16 were announced at our Investor Update in May 2013.

Reconciliations of constant currency profit before tax

22  'Currency translation adjustment' is the effect of translating the results of subsidiaries and associates for the previous half-years at the average rates of exchange applicable in the current half-year.

23  Positive numbers are favourable: negative numbers are unfavourable.

24  Changes in fair value due to movements in own credit spread on long-term debt issued. This does not include the fair value changes due to own credit risk in respect of trading liabilities or derivative liabilities.

25  The operating results of these disposals were removed from underlying results in addition to disposal gains and losses.

26  The operating results of these disposals were not removed from underlying results as they were not significant.

27  Other income in this context comprises net trading income, net income/(expense) from other financial instruments designated at fair value, gains less losses from financial investments, dividend income, net earned insurance premiums and other operating income less net insurance claims incurred and movement in liabilities to policyholders.

28  Excludes items where there are substantial offsets in the income statement for the same period.

Financial summary

29  Net interest income includes the cost of internally funding trading assets, while the related revenues are reported in net trading income. In our global business results, the total cost of funding trading assets is included within Global Banking and Markets' net trading income as an interest expense.

30  Gross interest yield is the average annualised interest rate earned on average interest-earning assets ('AIEA').

31  Net interest spread is the difference between the average annualised interest rate earned on AIEA, net of amortised premiums and loan fees, and the average annualised interest rate payable on average interest-bearing funds. Net interest margin is net interest income expressed as an annualised percentage of AIEA.

32  The accounting for the disposal of our interest in Ping An is described on page 521 of the Annual Report and Accounts 2013. In the first half of 2013, we recognised a net gain on the completion of the Ping An disposal of US$553m which offset the US$553m loss on the contingent forward sale contract recognised in the second half of 2012. The gain of US$553m represented the net effect of the US$1,235m gain on derecognition of the Ping An equity securities classified as available-for-sale investments and recorded in 'Gains less losses from financial investments', offset by the US$682m adverse change in fair value of the contingent forward sale contract in the period to the point of delivery of the equity securities recorded in 'Net trading income'.

33  The cost of internal funding of trading assets was US$123m (first half of 2013: US$74m; second half of 2013: US$101m) and is excluded from the reported 'Net trading income' line and included in 'Net interest income'. However, this cost is reinstated in 'Net trading income' in our global business reporting.

34  Net trading income includes an unfavourable movement of US$28m (first half of 2013: favourable movement of US$4m; second half of 2013: unfavourable movement of US$70m) associated with changes in the fair value of issued structured notes and other hybrid instrument liabilities derived from movements in HSBC issuance spreads.

35  The change in fair value related to movements in the Group's credit spread on long-term debt resulted in an expense of US$215m in the first half of 2014 (first half of 2013: expense of US$19m; second half of 2013: expense of US$1.2bn).

36  Other changes in fair value include gains and losses arising from changes in the fair value of derivatives that are managed in conjunction with HSBC's long-term debt issued.

37  Discretionary participation features.

38  Net insurance claims incurred and movement in liabilities to policyholders arise from both life and non-life insurance business. For non-life business, amounts reported represent the cost of claims paid during the year and the estimated cost of incurred claims. For life business, the main element of claims is the liability to policyholders created on the initial underwriting of the policy and any subsequent movement in the liability that arises, primarily from the attribution of investment performance to savings-related policies. Consequently, claims rise in line with increases in sales of savings-related business and with investment market growth.

Consolidated balance sheet

39  Net of impairment allowances.

40  On 1 January 2014, CRD IV came into force and capital resources at 30 June 2014 are calculated and presented on this basis. Prior to this date, capital resources were calculated and presented on a Basel 2.5 basis.

41  Capital resources are total regulatory capital, the calculation of which is set out on page 186.

42  Includes perpetual preferred securities.

43  The definition of net asset value per share is total shareholders' equity, less non-cumulative preference shares and capital securities, divided by the number of ordinary shares in issue.

44  'Currency translation' is the effect of translating the assets and liabilities of subsidiaries and associates for the previous year-end at the rates of exchange applicable at the current period-end.

45  See Note 13 on the Financial Statements.

46  France primarily comprises the domestic operations of HSBC France, HSBC Assurances Vie and the Paris branch of HSBC Bank plc.

Reconciliation of RoRWA measures

47  Risk-weighted assets ('RWA's) and pre-tax return on average risk-weighted assets ('RoRWA').

48  Underlying RoRWA is calculated using underlying pre-tax return and reported average RWAs at constant currency and adjusted for the effects of business disposals.

49  Other includes treasury services related to the US Consumer Mortgage Lending business and commercial operations in run-off. US CML includes loan portfolios within the run-off business that are designated 'held for sale'.

Analyses by global business and by geographical region

50  The main items reported under 'Other' are the results of HSBC's holding company and financing operations, which includes net interest earned on free capital held centrally, operating costs incurred by the head office operations in providing stewardship and central management services to HSBC, along with the costs incurred by the Group Service Centres and Shared Service Organisations and associated recoveries. The results also include fines and penalties as part of the settlement of investigations into past inadequate compliance with anti-money laundering and sanctions laws, the UK bank levy together with unallocated investment activities, centrally held investment companies, gains arising from the dilution of interests in associates and joint ventures and certain property transactions. In addition, 'Other' also includes part of the movement in the fair value of long-term debt designated at fair value (the remainder of the Group's movement on own debt is included in GB&M).

51  Assets by geographical region and global business include intra-HSBC items. These items are eliminated, where appropriate, under the headings 'Intra-HSBC items' or 'Inter-segment elimination'.

52  For divested businesses, this includes the gain or loss on disposal and material results of operations as described on page 22.

53  Loan impairment charges and other credit risk provisions.

54  Share of profit in associates and joint ventures.

55  The Principal RBWM business measure excludes the effects of the US run-off portfolio and the disposed-of US CRS business. Concentrating on the Principal RBWM business allows management to identify material changes in the ongoing business and assess the factors and trends which are expected to have a material effect on it in future years. Tables which reconcile reported RBWM financial measures to Principal RBWM financial measures are provided in the Form 6-K filed with the SEC, which is available on www.hsbc.com.

56  '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.

57  'Other personal lending' includes personal non-residential closed-end loans and personal overdrafts.

58  'Other' includes the distribution and manufacturing (where applicable) of retail and credit protection insurance, any gains or losses on business disposals, movements in non-qualifying hedges, losses arising from a review of compliance with the Consumer Credit Act in the UK in 2014 and loss on disposal of HFC UK Bank secured lending portfolio in 2013.

59  In the analysis of global businesses, net trading income/(expense) comprises all gains and losses from changes in the fair value of financial assets and financial liabilities classified as held for trading, related external and internal interest income and interest expense, and dividends received; in the statutory presentation internal interest income and expense are eliminated.

60  The management view of income reflects the new management structure of GB&M which has been in place since 12 August 2013. Comparatives have been re-presented for this change.

61  Figures on a reported basis, unless otherwise stated.

62  In the first half of 2014, Markets included an unfavourable value movement of US$28m on structured liabilities (first half of 2013: favourable fair value movement of US$4m; second half of 2013: adverse fair value movement of US$70m).

63  'Other' in GB&M includes net interest earned on free capital held in the global business not assigned to products, 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, 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 are included within 'Other'.

64  '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. Client assets at 30 June 2014 included US$12bn (31 December 2013: US$12.5bn) of client assets held for sale.

65  Inter-segment elimination comprises (i) the costs of shared services and Group Service Centres included within 'Other' which are recovered from global businesses, and (ii) the intra-segment funding costs of trading activities undertaken within GB&M. HSBC's Balance Sheet Management business, reported within GB&M, provides funding to the trading businesses. To report GB&M's net trading income on a fully funded basis, 'Net interest income/(expense)' and 'Net interest income/(expense) on trading activities' are grossed up to reflect internal funding transactions prior to their elimination in the inter-segment column.

66  Net insurance claims incurred and movement in liabilities to policyholders.

67  'Employee expenses' comprises costs directly incurred by each global business. The reallocation and recharging of employee and other expenses directly incurred in the 'Other' category is shown in 'Other operating expenses'.

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

 

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