Interim Report - 9 of 21

RNS Number : 9182Q

HSBC Holdings PLC

13 August 2010

 



North America

Profit/(loss) before tax by country within customer groups and global businesses

	Personal   Financial     Services         US$m		Commercial     Banking         US$m	Global Banking &       Markets           US$m			Private     Banking         US$m		Other         US$m		Total         US$m
Half-year to 30 June 2010
US .............................................................	(1,579)		265		843		55		342		(74)
Canada ......................................................	73		289		133		-		7		502
Bermuda ....................................................	22		18		21		(2)		7		66
Other ........................................................	-		-		1		1		(4)		(2)
	(1,484)		572		998		54		352		492
Half-year to 30 June 2009
US .............................................................	(2,858)		52		384		23		(1,519)		(3,918)
Canada ......................................................	(12)		151		75		-		(70)		144
Bermuda ....................................................	30		19		19		2		3		73
Other ........................................................	(3)		2		(1)		(2)		2		(2)
	(2,843)		224		477		23		(1,584)		(3,703)
Half-year to 31 December 2009
US .............................................................	(2,434)		106		121		(72)		(2,107)		(4,386)
Canada ......................................................	29		196		84		-		(30)		279
Bermuda ....................................................	19		18		28		(4)		7		68
Other ........................................................	3		(1)		2		3		(3)		4
	(2,383)		319		235		(73)		(2,133)		(4,035)

Loans and advances to customers (net) by country

	At           30 June                2010              US$m		At             30 June                2009               US$m		At   31 December                2009               US$m
US ......................................................................................................	156,288		177,641		156,638
Canada ...............................................................................................	48,448		45,761		47,158
Bermuda .............................................................................................	3,405		2,856		3,057
	208,141		226,258		206,853

Customer accounts by country

	At           30 June                2010              US$m		At             30 June                2009               US$m		At   31 December                2009               US$m
US ......................................................................................................	97,804		96,059		99,371
Canada ...............................................................................................	42,438		36,514		41,565
Bermuda .............................................................................................	9,196		7,768		8,221
	149,438		140,341		149,157

Economic briefing

Economic conditions improved in the US during the first half of the year. The level of GDP rose by 3.7 per cent and 2.4 per cent in the first and second quarters, respectively, in seasonally adjusted, annualised terms. The housing sector, typically a strong contributor to recovery from recession, continued to experience difficult conditions. Temporary tax subsidies for home purchases helped stabilise home sales and prices for a time, but once these incentives expired, both sales and prices came under renewed downward pressure. The high rate of unemployment, averaging 9.7 per cent in the second quarter of 2010, contributed to concerns over the rising trend of delinquencies on secured debt within the household sector while also working to depress consumer confidence and household expenditure growth. Consumer prices also proved weak during the first half of 2010, with the annual rate of inflation falling to 1.1 per cent in June 2010 from 2.7 per cent in December 2009. The Federal Reserve's programme to purchase a large quantity

Profit/(loss) before tax

	Half-year to
	30 June 2010		30 June                2009		31 December 2009
North America	US$m		US$m		US$m
Net interest income ............................................................................	6,353		7,177		6,493
Net fee income ...................................................................................	1,801		2,535		2,282
Net trading income/(expense) .............................................................	(67)		394		(63)
Changes in fair value of long-term debt issued and related derivatives .	412		(1,507)		(1,990)
Net income/(expense) from other financial instruments designated at fair value ........................................................................................	2		(2)		3
Net income/(expense) from financial instruments designated at fair value ........................................................................................................	414		(1,509)		(1,987)
Gains less losses from financial investments .......................................	118		257		39
Dividend income ................................................................................	21		23		30
Net earned insurance premiums ..........................................................	126		164		145
Other operating income .....................................................................	306		292		274
Total operating income ..................................................................	9,072		9,333		7,213
Net insurance claims incurred and movement in liabilities to policyholders ..............................................................................	(72)		(143)		(98)
Net operating income before loan impairment charges and other credit risk provisions ..................................................................	9,000		9,190		7,115
Loan impairment charges and other credit risk provisions ..................	(4,554)		(8,538)		(7,126)
Net operating income/(expense) ...................................................	4,446		652		(11)
	-
Operating expenses ............................................................................	(3,957)		(4,362)		(4,029)
Operating profit/(loss) ...................................................................	489		(3,710)		(4,040)
Share of profit in associates and joint ventures ...................................	3		7		5
Profit/(loss) before tax ....................................................................	492		(3,703)		(4,035)
	%		%		%
Share of HSBC's profit before tax ......................................................	4.4		(73.8)		(195.9)
Cost efficiency ratio ...........................................................................	44.0		47.5		56.6
Period-end staff numbers (full-time equivalent) ..................................	33,988		37,021		35,458
Balance sheet data23
	US$m		US$m		US$m
Loans and advances to customers (net) ...............................................	208,141		226,258		206,853
Loans and advances to banks (net) .....................................................	17,068		10,048		15,386
Trading assets, financial instruments designated at fair value, and financial investments29 ...................................................................	142,628		125,321		123,288
Total assets ........................................................................................	495,408		494,778		475,014
Deposits by banks ...............................................................................	16,905		12,389		13,970
Customer accounts .............................................................................	149,438		140,341		149,157

For footnotes, see page 95.

The commentary on North America is on an underlying basis unless stated otherwise.

of government-sponsored agency debt and mortgage-backed securities came to an end in March 2010. However, the Federal Reserve maintained an accommodative policy stance, holding the fed funds rate to a narrow range between zero and 25 basis points throughout the first half of 2010.

Canadian GDP rose by 2.7 per cent during the first five months of 2010 compared with the equivalent period of 2009, helped by a rebound in output within the manufacturing sector. Labour market conditions also improved as the unemployment rate fell from 8.4 per cent in December 2009 to 7.9 per cent in June 2010, while the headline CPI inflation rate proved volatile during the period, falling from 1.9 per cent in January 2010 to 1.0 per cent in June 2010. Responding to the improved economic outlook, the Bank of Canada increased its overnight interest rate to 0.5 per cent in June 2010.

Review of business performance

Reconciliation of reported and underlying profit/(loss) before tax

	Half-year to 30 June 2010 ('1H10') compared with half-year to 30 June 2009 ('1H09')
North America	1H09            as reported     US$m	1H09       adjust-        ments1         US$m			Currency translation2        US$m		1H09   at 1H10 exchange        rates3      US$m	1H10               as    reported         US$m			1H10     adjust-      ments1      US$m		1H10    under-      lying     US$m		Re- ported change4        %		Under-  lying change4        %
Net interest income ...	7,177		-		100		7,277		6,353		-		6,353		(11)		(13)
Net fee income ...	2,535		-		40		2,575		1,801		-		1,801		(29)		(30)
Changes in fair value5 ...............	(1,616)		1,616		-		-		506		(506)		-
Other income6...	1,094		-		14		1,108		340		(66)		274		(69)		(75)
Net operating income7 .	9,190		1,616		154		10,960		9,000		(572)		8,428		(2)		(23)
Loan impairment charges and other credit risk provisions ...............	(8,538)		-		(42)		(8,580)		(4,554)		-		(4,554)		47		47
Net operating income ..	652		1,616		112		2,380		4,446		(572)		3,874		582		63
Operating expenses .	(4,362)		-		(75)		(4,437)		(3,957)		-		(3,957)		9		11
Operating profit/(loss) ..........	(3,710)		1,616		37		(2,057)		489		(572)		(83)				96
Income from associates	7		-		-		7		3		-		3		(57)		(57)
Profit/(loss) before tax .........	(3,703)		1,616		37		(2,050)		492		(572)		(80)				96

For footnotes, see page 95.

In North America, HSBC reported a profit before tax of US$492 million for the first half of 2010 compared with a loss before tax of US$3.7 billion in the first half of 2009. On an underlying basis, a loss before tax of US$80 million compared with a loss before tax of US$2.1 billion in the first half of 2009, reflecting a marked decline in loan impairment charges partly offset by reduced revenue, in both cases driven by continued portfolio run-off.

HSBC continued to leverage on the Group's global scale and connectivity to grow in selected markets. The number of Premier customers increased by 20 per cent to over 600,000. In Commercial Banking, successful referrals to other regions increased by 15 per cent, and Global Banking and Markets continued to benefit from business flows from the Group's presence in emerging markets, especially Latin America.

Net interest income fell by 13 per cent compared with the first half of 2009, driven by the planned decline in lending balances in the run-off portfolios and lower lending balances in Card and Retail Services, lower overall yields, a shift in loan mix and a decline in revenue from Balance Sheet Management. These factors were partly offset by lower funding costs and repricing intiatives.

In May 2009, the CARD Act was passed into law in the US. HSBC has implemented the changes that have taken effect to date and will continue to make changes in order to comply with the remaining requirements by the effective date of August 2010. Management's current estimate is that the effect of the CARD Act, after taking mitigating action, will be to reduce revenue, net of loan impairment charges, by between US$200 million and US$300 million in 2010, mainly in the second half of the year.

Customer asset balances declined, compared with the first half of 2009, mainly due to the run-off of the Consumer Lending, Mortgage Services and vehicle finance portfolios. In order to accelerate this process, HSBC Finance sold US$1.0 billion of vehicle finance loans to Santander Consumer USA Inc. in the first half of 2010. In July 2010 HSBC reached agreement in principle with an unaffiliated third party to sell the remainder of the portfolio (US$4.3 billion). In Card and Retail Services, lower lending balances largely reflected fewer active accounts, the effects of management actions taken to reduce risk and an increased focus by consumers on reducing credit card debt.

Asset spreads in the real estate secured portfolios widened due to a lower cost of funds, partly offset by a reduction in yields. This reflected a change in mix as the proportion of modified or delinquent loans rose and there was an increase in the expected duration of participation by customers in payment incentive programmes. In Card and Retail Services, asset spreads widened due to repricing initiatives and a lower cost of funds, partly offset by the CARD Act as noted above. In Commercial Banking, spreads benefited from loan repricing initiatives in the second half of 2009.

Deposit balances remained buoyant reflecting the strength of HSBC's deposit franchise. Balances rose moderately from 31 December 2009, with larger year-on-year increases for Commercial Banking and Personal Financial Services. In Personal Financial Services, deposit growth reflected the ongoing success of HSBC's Premier and branch expansion strategies, in addition to the continued rise in online savings.

Liability spreads widened modestly but remained constrained in the low interest rate environment. Spreads benefited from re-pricing initiatives and less intensive price competition.

Net interest income from Balance Sheet Management activities declined markedly compared with the record first half of 2009 due to lower interest rates and flatter yield curves.

As portfolios ran off, loan impairment charges fell, driving significantly improved performance in North America.

Net fee incomedeclined by 30 per cent, mainly in the US credit card portfolio due to a decline in late and overlimit fees driven by lower volumes and delinquency levels, and changes in customer payment behaviour. Overlimit fees also fell due to changes in fee practices because of the requirements of the CARD Act. Enhancement services fee income declined due to fewer accounts and lower balances.

Net trading expense of US$67 million compared with net trading income in the first half of 2009. In Global Banking and Markets, trading income rose by US$325 million as higher asset prices generated recoveries of previous write-downs on legacy positions in credit trading and on monoline exposures. This compared with charges in the first half of 2009, and was offset by declines in trading income from Rates and foreign exchange, due to a rise in competition, and a decrease in market volatility. The increase in Global Banking and Markets was more than offset by fair value losses from non-qualifying hedges, mainly interest rate swaps used to economically hedge floating rate debt issued by HSBC Finance. The deterioration in marketplace and economic conditions since 2006 resulted in Consumer Lending and Mortgage Services mortgage loans remaining on the balance sheet longer because of lower prepayment rates due to loan modifications and the lack of refinancing alternatives. To offset the increase in duration of the mortgage loan portfolio and to mitigate the corresponding increase in interest rate risk, interest rate swap positions were entered into to more closely align the duration of the liabilities. The loss recognised in respect of non-qualifying hedges was a result of fair value losses on these instruments primarily driven by the decrease in long-term US interest rates. In the first half of 2009, fair value gains were recorded on these instruments.

A net expense of US$92 million was incurred on financial instruments designated at fair value, compared with net income of US$109 million in the first half of 2009, arising from fair value losses from interest rate ineffectiveness in the hedging of long-term debt designated at fair value issued by the Group's North American subsidiaries. This compared with gains on ineffectiveness in the economic hedging of long-term debt designated at fair value in the first half of 2009.

Gains less losses from financial investments declined by 55 per cent to US$118 million, due to lower gains on the disposal of available-for-sale assets in Balance Sheet Management, partly offset by gains on private equity investments compared with losses in the first half of 2009.

Net earned insurance premiums and net insurance claims incurred and movement in liabilities to policyholders both declined, This reflected the run-off of payment protection insurance following the decision to cease new real estate lending in HSBC Finance. The improvement in the economy and lower unemployment also led to lower claims. The business continued to collect premiums and pay claims on existing policies. There was also a significant reduction in reserving by the reinsurance business.

Other operating income declined by 16 per cent to US$240 million. This included a loss of US$77 million from the sale of the vehicle finance servicing operations and a US$1.0 billion associated loan portfolio to Santander Consumer USA Inc. and the non-recurrence of gains in the first half of 2009 which arose from the refinement of the income recognition methodology for long-term insurance contracts in HSBC Finance, and gains from the sale of prime residential mortgages. The decline was mitigated by a gain of US$56 million in the current period on the sale of HSBC's headquarters in New York and reduced losses on foreclosed properties as house prices continued to stabilise.

Loan impairment charges and other credit risk provisions decreased by 47 per cent to US$4.6 billion.The reduction reflected a marked decline in loan impairment charges in the HSBC Finance portfolios and, to a lesser extent, improvement across all customer groups in HSBC Bank USA and in Canada. Balances declined and delinquencies fell as economic conditions and credit quality improved.

Loan impairment charges in Card and Retail Services decreased by 51 per cent to US$1.3 billion. This was driven by a decline in lending balances as a result of actions taken in 2007 to manage risk, and better early stage delinquency rates which reflected improvements in economic conditions and the credit quality of the portfolio. The effects of the economic environment on loan impairment charges were less severe than had been expected, in part due to improved cash flow from government stimulus programmes that benefited customers significantly.

Loan impairment charges fell in Consumer Lending by 29 per cent to US$2.3 billion and, in the Mortgage Services portfolio, by 25 per cent to US$813 million. These declines in loan impairment charges were driven by the reduction in loan balances as noted above, fewer new delinquencies, improved economic conditions and less severe losses, which together more than offset a rise in the volume of restructured loans in both portfolios.

Loan impairment charges in the Personal Financial Services business of HSBC Bank USA declined, as delinquencies stabilised, the severity of losses on mortgage lending moderated and balances fell, leading to lower future loss estimates.

In Global Banking and Markets, there was a net recovery of loan impairment charges and other credit risk provisions as the credit environment improved and asset prices rose. Loan impairment charges in Commercial Banking fell from US$288 million to US$104 million as the upturn in the economy and managed reductions in exposures were reflected in lower write-offs and impairment of assets and fewer customer downgrades in all sectors in the US, and in the manufacturing, trade and service sectors in Canada.

Information on credit quality in the US Personal Financial Services portfolios is provided in 'Areas of special interest - personal lending' on page 150.

Operating expenses declined by 11 per cent to US$4.0 billion, mainly from a US$147 million pension curtailment accounting gain and the non-recurrence of restructuring costs associated with the closure of the Consumer Lending branch network in the first half of 2009. Excluding these items, operating expenses declined by 4 per cent due to lower staff costs in HSBC Finance following the run-off of the Consumer Lending, Mortgage Services and vehicle finance portfolios. Marketing expenditure rose modestly in Card and Retail Services as HSBC targeted certain segments selected for the resumption of new account originations, though these remained at low levels. Other administrative costs benefited from lower deposit insurance costs as a special assessment in the first half of 2009 did not recur, partly offset by increased expenses relating to real estate owned properties.

Reconciliation of reported and underlying profit/(loss) before tax

	Half-year to 30 June 2010 ('1H10') compared with half-year to 31 December 2009 ('2H09')
North America	2H09            as reported      US$m	2H09         adjust-          ments1          US$m			Currency translation2         US$m		2H09    at 1H10 exchange         rates8       US$m	1H10                as      reported          US$m			1H10       adjust-       ments1       US$m		1H10      under-        lying      US$m		Re- ported change4         %		Under-   lying change4         %
Net interest income ......	6,493		-		29		6,522		6,353		-		6,353		(2)		(3)
Net fee income ......	2,282		-		12		2,294		1,801		-		1,801		(21)		(21)
Changes in fair value5 ........	(2,072)		2,072		-		-		506		(506)		-
Other income6 ..................	412		-		(1)		411		340		(66)		274		(17)		(33)
Net operating income7 ....	7,115		2,072		40		9,227		9,000		(572)		8,428		26		(9)
Loan impairment charges and other credit risk provisions .	(7,126)		-		(9)		(7,135)		(4,554)		-		(4,554)		36		36
Net operating income/ (expense) ..	(11)		2,072		31		2,092		4,446		(572)		3,874				85
Operating expenses ...	(4,029)		-		(24)		(4,053)		(3,957)		-		(3,957)		2		2
Operating profit/(loss) ..................	(4,040)		2,072		7		(1,961)		489		(572)		(83)				96
Income from associates	5		-		-		5		3		-		3		(40)		(40)
Profit/(loss) before tax .	(4,035)		2,072		7		(1,956)		492		(572)		(80)				96

For footnotes, see page 95.

Analysis by customer group and global business

Profit/(loss) before tax

	Half-year to 30 June 2010
North America	Personal    Financial      Services          US$m		Commercial      Banking          US$m		Global Banking &      Markets          US$m		Private     Banking          US$m		Other          US$m		Inter-     segment elimination35         US$m		Total          US$m
Net interest income/ (expense) ...... ......................	5,190		758		425		94		(86)		(28)		6,353
Net fee income/(expense) ................. ...................... ...................... ......................	1,031		252		453		71		(6)		-		1,801
Trading income/(expense) excluding net interest income ..........	(567)		12		401		9		(16)		-		(161)
Net interest income on trading activities .......	13		1		40		-		12		28		94
Net trading income/ (expense)25 ....	(554)		13		441		9		(4)		28		(67)
Net income/(expense) from financial instruments designated at fair value .......	-		-		(3)		-		417		-		414
Gains less losses from financial investments ...	-		-		121		-		(3)		-		118
Dividend income ......................	9		3		6		1		2		-		21
Net earned insurance premiums ......	126		-		-		-		-		-		126
Other operating income/ (expense) ......	(4)		160		79		11		1,213		(1,153)		306
Total operating income .........	5,798		1,186		1,522		186		1,533		(1,153)		9,072
Net insurance claims26 .........	(76)		-		-		-		4		-		(72)
Net operating income7 .......	5,722		1,186		1,522		186		1,537		(1,153)		9,000
Loan impairment (charges)/ recoveries and other credit risk provisions ......................	(4,613)		(104)		152		11		-		-		(4,554)
Net operating income .........	1,109		1,082		1,674		197		1,537		(1,153)		4,446
Operating expenses ........	(2,593)		(511)		(676)		(143)		(1,187)		1,153		(3,957)
Operating profit/(loss) .	(1,484)		571		998		54		350		-		489
Share of profit in associates and joint ventures	-		1		-		-		2		-		3
Profit/(loss) before tax ....	(1,484)		572		998		54		352		-		492
	%		%		%		%		%				%
Share of HSBC's profit before tax ................	(13.4)		5.1		9.0		0.5		3.2				4.4
Cost efficiency ratio ..............	45.3		43.1		44.4		76.9		77.2				44.0
Balance sheet data23
	US$m		US$m		US$m		US$m		US$m				US$m
Loans and advances to customers (net) ..............	140,501		30,498		32,861		4,281		-				208,141
Total assets .......	164,555		38,525		299,345		5,608		7,290		(19,915)		495,408
Customer accounts ........	74,475		42,853		19,229		12,814		67				149,438

	Half-year to 30 June 2009
North America	Personal       Financial        Services           US$m		Commercial        Banking           US$m		Global    Banking &        Markets           US$m		Private        Banking           US$m		Other           US$m		Inter-       segment elimination35          US$m		Total           US$m
Net interest income/ (expense) ...... ......................	5,976		661		528		91		(51)		(28)		7,177
Net fee income . ...................... ...................... ......................	1,711		213		539		69		3		-		2,535
Trading income/(expense) excluding net interest income ..........	204		-		(18)		4		13		-		203
Net interest income on trading activities .......	37		2		124		-		-		28		191
Net trading income25 .......	241		2		106		4		13		28		394
Net expense from financial instruments designated at fair value ...	-		-		(4)		-		(1,505)		-		(1,509)
Gains less losses from financial investments ...	6		4		248		-		(1)		-		257
Dividend income ......................	10		2		7		1		3		-		23
Net earned insurance premiums ......	164		-		-		-		-		-		164
Other operating income/ (expense) ......	(74)		78		223		6		975		(916)		292
Total operating income/ (expense) ......	8,034		960		1,647		171		(563)		(916)		9,333
Net insurance claims26 .........	(143)		-		-		-		-		-		(143)
Net operating income/ (expense)7 .....	7,891		960		1,647		171		(563)		(916)		9,190
Loan impairment charges and other credit risk provisions ......................	(7,825)		(271)		(438)		(4)		-		-		(8,538)
Net operating income/ (expense) ......	66		689		1,209		167		(563)		(916)		652
Operating expenses ........	(2,909)		(473)		(732)		(144)		(1,020)		916		(4,362)
Operating profit/(loss) ...	(2,843)		216		477		23		(1,583)		-		(3,710)
Share of profit/(loss) in associates and joint ventures	-		8		-		-		(1)		-		7
Profit/(loss) before tax ......	(2,843)		224		477		23		(1,584)		-		(3,703)
	%		%		%		%		%				%
Share of HSBC's profit before tax ................	(56.7)		4.5		9.5		0.5		(31.6)				(73.8)
Cost efficiency ratio ..............	36.9		49.3		44.4		84.2		(181.2)				47.5
Balance sheet data23
	US$m		US$m		US$m		US$m		US$m				US$m
Loans and advances to customers (net) ..............	160,293		33,011		28,320		4,634		-				226,258
Total assets .......	185,347		39,657		269,492		6,523		4,453		(10,694)		494,778
Customer accounts ........	71,176		37,601		19,268		12,185		111				140,341

Profit/(loss) before tax (continued)

	Half-year to 31 December 2009
North America	Personal      Financial        Services           US$m		Commercial       Banking          US$m		Global   Banking &       Markets          US$m		Private       Banking           US$m		Other           US$m		Inter-       segment elimination35          US$m		Total           US$m
Net interest income/ (expense) .......... .......................... ..........................	5,268		730		471		87		(33)		(30)		6,493
Net fee income ..... .......................... .......................... ..........................	1,463		240		506		73		-		-		2,282
Trading income/(expense) excluding net interest income ..............	53		(10)		(161)		(7)		(43)		-		(168)
Net interest income/(expense) on trading activities ...........	23		1		51		(1)		1		30		105
Net trading income/ (expense)25 .......	76		(9)		(110)		(8)		(42)		30		(63)
Net income/(expense) from financial instruments designated at fair value .................	-		-		4		-		(1,991)		-		(1,987)
Gains less losses from financial investments ......	10		(1)		29		-		1		-		39
Dividend income ...	11		3		20		1		(5)		-		30
Net earned insurance premiums ..........	145		-		-		-		-		-		145
Other operating income ..............	83		84		94		5		853		(845)		274
Total operating income/ (expense) ..........	7,056		1,047		1,014		158		(1,217)		(845)		7,213
Net insurance claims26 .............	(98)		-		-		-		-		-		(98)
Net operating income/ (expense)7 .........	6,958		1,047		1,014		158		(1,217)		(845)		7,115
Loan impairment charges and other credit risk provisions ..	(6,599)		(248)		(183)		(94)		(2)		-		(7,126)
Net operating income/ (expense) ..........	359		799		831		64		(1,219)		(845)		(11)
Operating expenses ..........................	(2,742)		(485)		(596)		(137)		(914)		845		(4,029)
Operating profit/(loss) .......	(2,383)		314		235		(73)		(2,133)		-		(4,040)
Share of profit in associates and joint ventures ............	-		5		-		-		-		-		5
Profit/(loss) before tax ....................	(2,383)		319		235		(73)		(2,133)		-		(4,035)
	%		%		%		%		%				%
Share of HSBC's profit before tax .........	(115.7)		15.4		11.4		(3.5)		(103.5)				(195.9)
Cost efficiency ratio ..................	39.4		46.3		58.8		86.7		75.1				56.6
Balance sheet data23
	US$m		US$m		US$m		US$m		US$m				US$m
Loans and advances to customers (net) .	151,671		31,292		18,654		5,236		-				206,853
Total assets ..........	179,597		38,232		260,131		6,572		2,071		(11,589)		475,014
Customer accounts	74,228		42,900		19,095		12,834		100				149,157

For footnotes, see page 95.

Latin America

Profit/(loss) before tax by country within customer groups and global businesses

	Personal   Financial     Services         US$m		Commercial     Banking         US$m	Global Banking &       Markets           US$m			Private     Banking         US$m		Other         US$m		Total         US$m
Half-year to 30 June 2010
Argentina ..................................................	38		41		54		-		-		133
Brazil ........................................................	34		160		253		2		29		478
Mexico .....................................................	91		(2)		116		1		18		224
Panama .....................................................	18		26		15		1		-		60
Other ........................................................	(44)		11		27		-		(6)		(12)
	137		236		465		4		41		883
Half-year to 30 June 2009
Argentina ..................................................	13		42		62		-		-		117
Brazil ........................................................	(165)		107		267		2		3		214
Mexico .....................................................	8		51		115		3		-		177
Panama .....................................................	41		25		7		-		-		73
Other ........................................................	(22)		(4)		29		(1)		(3)		(1)
	(125)		221		480		4		-		580
Half-year to 31 December 2009
Argentina ..................................................	11		44		60		-		-		115
Brazil ........................................................	(59)		104		248		3		-		296
Mexico .....................................................	(39)		15		115		4		-		95
Panama .....................................................	28		30		17		-		-		75
Other ........................................................	(32)		(15)		11		-		(1)		(37)
	(91)		178		451		7		(1)		544

Loans and advances to customers (net) by country

	At           30 June                2010              US$m		At             30 June                2009               US$m		At    31 December                2009               US$m
Argentina ...........................................................................................	2,796		2,222		2,319
Brazil .................................................................................................	23,474		20,038		22,765
Mexico ...............................................................................................	11,901		11,913		12,114
Panama ..............................................................................................	5,973		5,921		5,989
Other .................................................................................................	4,685		4,596		4,442
	48,829		44,690		47,629

Customer accounts by country

	At           30 June                2010              US$m		At             30 June                2009               US$m		At    31 December                2009               US$m
Argentina ...........................................................................................	3,505		2,963		3,083
Brazil .................................................................................................	41,001		33,508		39,022
Mexico ...............................................................................................	18,160		16,311		18,195
Panama ..............................................................................................	7,083		6,468		6,996
Other .................................................................................................	5,468		5,631		5,593
	75,217		64,881		72,889

Profit before tax

	Half-year to
	30 June 2010		30 June                2009		31 December 2009
Latin America	US$m		US$m		US$m
Net interest income ............................................................................	3,119		2,620		2,953
Net fee income ...................................................................................	855		823		906
Net trading income .............................................................................	353		599		249
Changes in fair value from long-term debt issued and related derivatives	-		-		-
Net income from other financial instruments designated at fair value .	130		188		307
Net income from financial instruments designated at fair value ..........	130		188		307
Gains less losses from financial investments .......................................	53		132		36
Dividend income ................................................................................	5		4		7
Net earned insurance premiums ..........................................................	957		724		1,176
Other operating income .....................................................................	10		61		72
Total operating income ..................................................................	5,482		5,151		5,706
Net insurance claims incurred and movement in liabilities to policyholders .............................................................................	(767)		(699)		(1,134)
Net operating income before loan impairment charges and other credit risk provisions .................................................................	4,715		4,452		4,572
Loan impairment charges and other credit risk provisions ..................	(820)		(1,385)		(1,141)
Net operating income .....................................................................	3,895		3,067		3,431
Operating expenses ............................................................................	(3,013)		(2,488)		(2,887)
Operating profit ..............................................................................	882		579		544
Share of profit in associates and joint ventures ...................................	1		1		-
Profit before tax ..............................................................................	883		580		544
	%		%		%
Share of HSBC's profit before tax ......................................................	8.0		11.6		26.4
Cost efficiency ratio ...........................................................................	63.9		55.9		63.1
Period-end staff numbers (full-time equivalent) ..................................	54,886		54,812		54,288
Balance sheet data23
	US$m		US$m		US$m
Loans and advances to customers (net) ...............................................	48,829		44,690		47,629
Loans and advances to banks (net) .....................................................	21,595		17,696		18,608
Trading assets, financial instruments designated at fair value, and financial investments ......................................................................	32,323		24,606		28,779
Total assets ........................................................................................	121,885		107,515		115,967
Deposits by banks ...............................................................................	4,924		5,333		5,421
Customer accounts .............................................................................	75,217		64,881		72,889

For footnote, see page 95.

The commentary on Latin America is on an underlying basis unless stated otherwise.

1 

Economic briefing

Economic recovery continued in Mexico during the first quarter of 2010, with the level of GDP rising by 4.3 per cent year-on-year due in large part to a rebound in regional manufacturing activity, particularly within the US. CPI inflation remained at a relatively subdued level, helped by low levels of regional inflation, strong domestic currencies and spare capacity in the economy. The Central Bank of Mexico maintained its overnight target rate at 4.5 per cent throughout the period.

In Brazil, the recovery gained further momentum during the first quarter of the year with the level of GDP rising by a robust 8.9 per cent in year-on-year terms, driven by the continued strength of consumer expenditure. Labour market conditions continued to improve, with the unemployment rate averaging 7.4 per cent during the first five months of 2010 against 8.7 per cent during the comparable period in 2009. The annual CPI inflation rate rose from 4.3 per cent in December 2009 to 5.3 per cent in April 2010, before moderating to 4.8 per cent in June. This mixture of rising inflation and strong growth led to a tightening of monetary policy conditions, with the Central Bank of Brazil raising the Selic policy target rate by a cumulative 150 basis points during the first half of 2010, placing the rate at 10.25 per cent at the end of the period.

Economic recovery was evident in Argentina, with the Statistics Bureau reporting an increase in overall activity of 12.4 per cent in the first five months of 2010 compared with the equivalent period in 2009. Industrial production was reported to have increased by 9.8 per cent over the year to June 2010, while a record level of production within the agricultural sector, which was recovering from a severe drought in 2009, provided broad-based support to the economy.

Review of business performance

Reconciliation of reported and underlying profit before tax

	Half-year to 30 June 2010 ('1H10') compared with half-year to 30 June 2009 ('1H09')
Latin America	1H09            as reported     US$m	1H09       adjust-        ments1         US$m			Currency translation2        US$m		1H09   at 1H10 exchange        rates3      US$m	1H10                as     reported         US$m			1H10     adjust-      ments1      US$m		1H10    under-      lying     US$m		Re- ported change4        %		Under-  lying change4        %
Net interest income ..	2,620		-		356		2,976		3,119		-		3,119		19		5
Net fee income ..	823		-		110		933		855		-		855		4		(8)
Other income6	1,009		-		145		1,154		741		-		741		(27)		(36)
Net operating income7 ..............	4,452		-		611		5,063		4,715		-		4,715		6		(7)
Loan impairment charges and other credit risk provisions ............	(1,385)		-		(203)		(1,588)		(820)		-		(820)		41		48
Net operating income	3,067		-		408		3,475		3,895		-		3,895		27		12
Operating expenses	(2,488)		-		(341)		(2,829)		(3,013)		-		(3,013)		(21)		(7)
Operating profit ...	579		-		67		646		882		-		882		52		37
Income from associates	1		-		-		1		1		-		1		-		-
Profit before tax ........	580		-		67		647		883		-		883		52		36

For footnotes, see page 95.

HSBC's operations in Latin America reported pre‑tax profits of US$883 million compared with US$580 million in the first half of 2009, an increase of 52 per cent. On an underlying basis, pre-tax profits increased by 36 per cent as loan impairment charges in Personal Financial Services and, to a lesser extent in Commercial Banking, fell, reflecting actions taken to improve the quality of the loan portfolio and a recovery in the overall credit environment. Revenue was lower, due to a change in the portfolio mix away from higher yielding unsecured lending, and lower fees from reduced transaction volumes in Personal Financial Services. Revenues also declined due to the non-recurrence of the strong performance in trading income in Global Banking and Markets and gains on Visa Inc. shares, both of which took place in the first half of 2009. In Mexico, the regulator announced in July 2010 new regulations limiting the fees that can be charged for various banking services. This is expected to have a significant impact on future fee income.

HSBC continued to build its base of high quality Personal Financial Services customers via the Premier and Advance propositions. The number of Premier customers reached 690,000 at 30 June 2010. Advance was launched in Mexico, Brazil, Panama and Chile and customer numbers exceeded 50,000 at 30 June 2010. Strong performance continued in insurance as improved sales drove higher premiums on pension products in Brazil, along with improved premiums and claims in term life products in Mexico.

Global Banking and Markets and Commercial Banking built on HSBC's positioning to benefit from increasing intra-regional and inter-regional connectivity. In particular, linkages with other emerging markets were strengthened through the establishment of Latin America sales desks in Hong Kong, mainland China and London to leverage cross-selling opportunities.

Net interest income increased by 5 per cent. In Global Banking and Markets, a strong performance in Balance Sheet Management resulted from an increase in volumes of financial investments, a decline in market interest rates and a change in the portfolio mix to higher-yielding longer-term assets.

Average customer lending balances fell in Personal Financial Services, primarily as a result of the managed decline in credit cards and unsecured personal loan balances in Mexico. This was partly offset by an expansion in lending in Global Banking and Commercial Banking as the economic recovery resulted in a greater drawdown of credit facilities. Spreads on lending products narrowed in Brazil, particularly for overdraft products, due to stronger competition encouraged by the economic recovery.

Average customer accounts were higher in Brazil while, in Mexico, sales and marketing initiatives supported by product and channel enhancements resulted in an increase in current and savings account balances. Spreads on customer accounts narrowed as a result of falling interest rates in Mexico.

Underlying pre-tax profits grew by 36 per cent in Latin America as a reduction in loan impairment charges and credit risk provisions more than offset the decline in revenue.

Fee income of US$855 million fell by 8 per cent, driven by lower originations and fewer transaction volumes in credit cards and account services in Mexico, and reduced account services income in Brazil following regulatory changes. In Global Banking and Markets, fee income increased in Brazil due to higher corporate finance advisory and structuring fees and an increase in funds under management fees as volumes grew.

Trading income of US$353 million was 49 per cent lower as the strong performance in foreign exchange and Rates in the first half of 2009, which benefited from greater market volatility and favourable positioning ahead of interest rate movements, did not recur.

Net income on financial instruments designated at fair value declined by 41 per cent to US$130 million, primarily due to lower investment returns experienced on assets held in support of the pension portfolio in Brazil. An offsetting decrease was recorded in net insurance claims incurred and movement in liabilities to policyholders.

Gains less losses from financial investments declined by US$101 million, largely due to the non-recurrence of the gains on the sale of Visa Inc. shares in 2009.

Net earned insurance premiums increased by 17 per cent to US$957 million, driven by improved economic conditions and higher sales, mainly in pension-linked products in Brazil. An offsetting increase was recorded in net insurance claims incurred and movement in liabilities to policyholders.

Other operating income of US$10 million was lower by 85 per cent, due to a decline in PVIF and the one-off gain in the first half of 2009 on the sale of the local head office building in Argentina.

Loan impairment charges and other credit risk provisions declined by 48 per cent on the first half of 2009 to US$820 million as credit conditions improved and actions taken to improve the quality of the lending portfolio continued to have an effect. In Personal Financial Services, the reduction in loan impairment charges reflected a significant decline in the size of the Mexico cards portfolio and an improvement in its quality, achieved through tighter origination criteria and better collection practices. In Commercial Banking, loan impairment charges fell in Brazil, reflecting an improvement in economic conditions.

Operating expenses increased by 7 per cent to US$3.0 billion. Expense growth was largely driven by investment in the region and inflationary pressure. Within this, staff expenses increased, mainly due to union agreements in Brazil and Argentina. The cost was partly mitigated by a decline in average staff numbers, following the restructuring of mass market operations in Brazil. As the quality of the customer portfolio was upgraded and customer propositions were enhanced, there was a corresponding increase in marketing costs in Brazil, greater investment in Mexico on regional infrastructure, technology projects and the renovation of the branch network, and further investment in One HSBC across the region.

Reconciliation of reported and underlying profit before tax

	Half-year to 30 June 2010 ('1H10') compared with half-year to 31 December 2009 ('2H09')
Latin America	2H09            as reported      US$m	2H09         adjust-          ments1          US$m			Currency translation2         US$m		2H09    at 1H10 exchange         rates8       US$m	1H10                as      reported          US$m			1H10       adjust-       ments1       US$m		1H10      under-        lying      US$m		Re- ported change4         %		Under-   lying change4         %
Net interest income .....	2,953		-		37		2,990		3,119		-		3,119		6		4
Net fee income .....	906		-		15		921		855		-		855		(6)		(7)
Other income6 ..................	713		-		6		719		741		-		741		4		3
Net operating income7 ....	4,572		-		58		4,630		4,715		-		4,715		3		2
Loan impairment charges and other credit risk provisions .	(1,141)		-		(20)		(1,161)		(820)		-		(820)		28		29
Net operating income .....	3,431		-		38		3,469		3,895		-		3,895		14		12
Operating expenses ...	(2,887)		-		(39)		(2,926)		(3,013)		-		(3,013)		(4)		(3)
Operating profit ........	544		-		(1)		543		882		-		882		62		62
Income from associates	-		-		-		-		1		-		1
Profit before tax ............	544		-		(1)		543		883		-		883		62		63

For footnotes, see page 95.

Analysis by customer group and global business

Profit/(loss) before tax

	Half-year to 30 June 2010
Latin America	Personal   Financial     Services         US$m		Commercial      Banking          US$m		Global Banking &      Markets          US$m		Private     Banking          US$m		Other          US$m		Inter-     segment elimination35         US$m		Total          US$m
Net interest income .......... ......................	1,977		793		390		10		53		(104)		3,119
Net fee income . ...................... ...................... ......................	443		244		148		14		6		-		855
Trading income/(expense) excluding net interest income ..........	21		38		181		1		(4)		-		237
Net interest income on trading activities .......	-		-		11		-		1		104		116
Net trading income/ (expense)25 ....	21		38		192		1		(3)		104		353
Net income from financial instruments designated at fair value .......	102		28		-		-		-		-		130
Gains less losses from financial investments ...	1		-		52		-		-		-		53
Dividend income ......................	3		1		1		-		-		-		5
Net earned insurance premiums ......	769		171		17		-		-		-		957
Other operating income ..........	13		10		6		1		81		(101)		10
Total operating income..........	3,329		1,285		806		26		137		(101)		5,482
Net insurance claims26 .........	(628)		(129)		(10)		-		-		-		(767)
Net operating income7 .......	2,701		1,156		796		26		137		(101)		4,715
Loan impairment (charges)/ recoveries and other credit risk provisions ......................	(661)		(160)		3		-		(2)		-		(820)
Net operating income .........	2,040		996		799		26		135		(101)		3,895
Operating expenses ........	(1,904)		(760)		(334)		(22)		(94)		101		(3,013)
Operating profit ............	136		236		465		4		41		-		882
Share of profit in associates and joint ventures	1		-		-		-		-		-		1
Profit before tax ................	137		236		465		4		41		-		883
	%		%		%		%		%				%
Share of HSBC's profit before tax ......	1.2		2.2		4.2		-		0.4		-		8.0
Cost efficiency ratio ..............	70.5		65.7		42.0		84.6		68.6		100		63.9
Balance sheet data23
	US$m		US$m		US$m		US$m		US$m				US$m
Loans and advances to customers (net) ..............	19,350		19,434		10,006		39		-				48,829
Total assets .......	34,598		27,307		59,349		1,110		314		(793)		121,885
Customer accounts ........	26,618		20,115		23,158		5,326		-				75,217

	Half-year to 30 June 2009
Latin America	Personal      Financial       Services          US$m		Commercial        Banking           US$m		Global    Banking &        Markets           US$m		Private        Banking           US$m		Other           US$m		Inter-       segment elimination35          US$m		Total           US$m
Net interest income/ (expense) ...... ......................	1,800		750		275		9		(12)		(202)		2,620
Net fee income . ...................... ...................... ......................	463		240		101		12		7		-		823
Trading income/(expense) excluding net interest income ..........	33		30		452		1		(4)		-		512
Net interest income/(expense) on trading activities .......	2		2		(119)		-		-		202		87
Net trading income/ (expense)25 ....	35		32		333		1		(4)		202		599
Net income/(expense) from financial instruments designated at fair value .......	221		-		(50)		-		17		-		188
Gains less losses from financial investments ...	87		1		44		-		-		-		132
Dividend income ......................	3		-		1		-		-		-		4
Net earned insurance premiums ......	661		28		35		-		-		-		724
Other operating income/ (expense) ......	81		18		17		1		(14)		(42)		61
Total operating income/ (expense).......	3,351		1,069		756		23		(6)		(42)		5,151
Net insurance claims26 .........	(654)		(15)		(30)		-		-		-		(699)
Net operating income/ (expense)7 .....	2,697		1,054		726		23		(6)		(42)		4,452
Loan impairment (charges)/ recoveries and other credit risk provisions ......................	(1,125)		(261)		1		-		-		-		(1,385)
Net operating income/ (expense) ......	1,572		793		727		23		(6)		(42)		3,067
Operating expenses ........	(1,697)		(573)		(247)		(19)		6		42		(2,488)
Operating profit/(loss) ...	(125)		220		480		4		-		-		579
Share of profit in associates and joint ventures	-		1		-		-		-		-		1
Profit/(loss) before tax ......	(125)		221		480		4		-		-		580
	%		%		%		%		%				%
Share of HSBC's profit before tax ......	(2.5)		4.4		9.6		0.1		-				11.6
Cost efficiency ratio ..............	62.9		54.4		34.0		82.6		(100.0)				55.9
Balance sheet data23
	US$m		US$m		US$m		US$m		US$m				US$m
Loans and advances to customers (net) ..............	19,423		16,162		9,055		50		-				44,690
Total assets .......	33,262		20,615		53,897		313		249		(821)		107,515
Customer accounts ........	27,881		16,595		18,003		2,402		-				64,881

Profit/(loss) before tax (continued)

	Half-year to 31 December 2009
Latin America	Personal      Financial       Services          US$m		Commercial        Banking           US$m		Global    Banking &        Markets           US$m		Private        Banking           US$m		Other           US$m		Inter-       segment elimination35          US$m		Total           US$m
Net interest income ........... .......................	1,936		794		315		10		7		(109)		2,953
Net fee income .. ....................... ....................... .......................	485		250		150		16		5		-		906
Trading income/(expense) excluding net interest income .......................	(8)		8		121		2		4		-		127
Net interest income on trading activities ........	2		-		11		-		-		109		122
Net trading income/ (expense)25 ....	(6)		8		132		2		4		109		249
Net income/(expense) from financial instruments designated at fair value ........	289		12		12		-		(6)		-		307
Gains less losses from financial investments ...	4		(1)		33		-		-		-		36
Dividend income	6		1		-		-		-		-		7
Net earned insurance premiums .......	1,091		77		8		-		-		-		1,176
Other operating income ...........	89		17		7		1		13		(55)		72
Total operating income ...........	3,894		1,158		657		29		23		(55)		5,706
Net insurance claims26 ..........	(1,096)		(43)		5		-		-		-		(1,134)
Net operating income7 .........	2,798		1,115		662		29		23		(55)		4,572
Loan impairment (charges)/ recoveries and other credit risk provisions ......	(921)		(273)		56		-		(3)		-		(1,141)
Net operating income............	1,877		842		718		29		20		(55)		3,431
Operating expenses ........	(1,969)		(663)		(267)		(22)		(21)		55		(2,887)
Operating profit/(loss) ....	(92)		179		451		7		(1)		-		544
Share of profit/(loss) in associates and joint ventures .........	1		(1)		-		-		-		-		-
Profit/(loss) before tax ......	(91)		178		451		7		(1)		-		544
	%		%		%		%		%				%
Share of HSBC's profit before tax ......	(4.4)		8.6		21.9		0.3		-		-		26.4
Cost efficiency ratio ...............	70.4		59.5		40.3		75.9		91.3				63.1
Balance sheet data23
	US$m		US$m		US$m		US$m		US$m				US$m
Loans and advances to customers (net) .......................	19,748		18,205		9,645		31		-				47,629
Total assets .......	35,236		23,212		57,491		328		281		(581)		115,967
Customer accounts .........	30,628		19,775		20,142		2,344		-				72,889

For footnotes, see page 95.

Footnotes to the Operating and Financial Review

Reconciliations of reported and underlying profit/(loss) before tax

  1  These columns comprise the net increments or decrements in profits in the current half-year (compared with the previous half-years) which are attributable to acquisitions or disposals of subsidiaries, gains arising on the dilution of interests in associates and/or movements in fair value of own debt designated at fair value attributable to credit spread. The inclusion of acquisitions and disposals is determined in the light of events in each period.

  2  'Currency translation' 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.

  3  Excluding acquisitions and disposals in the first half of 2009.

  4  Positive numbers are favourable: negative numbers are unfavourable.

  5  Changes in fair value of own debt designated at fair value attributable to credit spread.

  6  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.

  7  Net operating income before loan impairment charges and other credit risk provisions.

  8  Excluding acquisitions and disposals in the second half of 2009.

Financial summary

  9  The change in fair value related to movements in the Group's credit spread on long-term debt resulted in an income of US$1.1 billion in the first half of 2010 (first half of 2009: expense of US$2.5 billion; second half of 2009: expense of US$4.1 billion).

10  Net interest income includes the cost of funding trading assets, while the related external revenues are reported in trading income. In HSBC's customer group results, the cost of funding trading assets is included within Global Banking and Markets' net trading income as an interest expense.

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

12  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.

13  Net interest margin is net interest income expressed as an annualised percentage of AIEA.

14  The cost of internal funding of trading assets was US$294 million (first half of 2009: US$821 million; second half of 2009: US$488 million) 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 HSBC's customer group and global business reporting.

15  Net trading income includes an income of US$255 million (first half of 2009: expense of US$127 million; second half of 2009: expense of US$317 million) associated with changes in the fair value of issued structured notes and other hybrid instrument liabilities derived from movements in HSBC issuance spreads.

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

17  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 notified 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.

18  Expressed as a percentage of average invested capital.

19  Average invested capital is measured as average total shareholders' equity after:

-  adding back the average balance of goodwill amortised before the transition to IFRSs or subsequently written off directly to reserves (less goodwill previously amortised in respect of the French regional banks sold in 2008);

-  deducting the average balance of HSBC's revaluation surplus relating to property held for own use. This reserve was generated when determining the deemed cost of such properties on transition to IFRSs and will run down as the properties are sold;

-  deducting average preference shares and other equity instruments issued by HSBC Holdings; and

-  deducting average reserves for unrealised gains/(losses) on effective cash flow hedges and available-for-sale securities.

20  Return on invested capital is based on the profit attributable to ordinary shareholders of the parent company.

21   For the purpose of calculating the ratios, earnings consist of income from continuing operations before taxation and non controlling interest plus fixed charges and after deduction of the unremitted pre-tax income of associated undertakings. Fixed charges consist of total interest expense, including or excluding interest on deposits, as appropriate, preference share dividends, as applicable, and the proportion of rental expense deemed representative of the interest factor.

Analyses by customer group and global business and by geographical region

22  The main items reported under 'Other' are certain property activities, unallocated investment activities, centrally held investment companies, gains arising from the dilution of interests in associates, movements in the fair value of own debt designated at fair value (the remainder of the Group's gain on own debt is included in Global Banking and Markets), and HSBC's holding company and financing operations. The results also include net interest earned on free capital held centrally, operating costs incurred by the Group Management Office operations in providing stewardship and central management services to HSBC, and costs incurred by the Group Service Centres and Shared Service Organisations and associated recoveries.

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

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

25  In the analysis of customer groups and global businesses, net trading income 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.

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

27  'Employee expenses' comprises costs directly incurred by each customer group. The reallocation and recharging of employee and other expenses directly incurred in the 'Other' customer group is shown in 'Other operating expenses'.

28  In the first half of 2010, Global Markets included income of US$255 million from movements in credit spreads on structured liabilities (first half of 2009: expense of US$127 million; second half of 2009: expense of US$317 million).

29  Total income earned on securities services products in the Group amounted to US$0.7 billion (first half of 2009: US$0.7 billion; second half of 2009: US$0.7 billion), of which US$0.7 billion was in Global Banking and Markets (first half of 2009: US$0.7 billion; second half of 2009: US$0.7 billion) and US$11 million was in Commercial Banking (first half of 2009: US$8 million; second half of 2009: US$10 million).

30  Total income earned on payments and cash management products in the Group amounted to US$2.1 billion (first half of 2009: US$2.0 billion; second half of 2009: US$2.2 billion), of which US$1.6 billion was in Commercial Banking (first half of 2009: US$1.4 billion; second half of 2009: US$1.7 billion) and US$0.5 billion was in Global Banking and Markets (first half of 2009: US$0.5 billion; second half of 2009: US$0.5 billion).

31  Total income on other transaction services in the Group amounted to US$1.1 billion (first half of 2009: US$1.0 billion; second half of 2009: US$1.0 billion). Of this US$0.8 billion was in Commercial Banking relating to trade and supply chain (first half of 2009: US$0.7 billion; second half of 2009: US$0.7 billion) and US$0.3 billion was in Global Banking and Markets of which US$0.3 billion related to trade and supply chain (first half of 2009: US$0.2 billion; second half of 2009: US$0.2 billion) and US$71 million related to banknotes and other (first half of 2009: US$58 million; second half of 2009: US$67 million).

32  'Other' in Global Banking and Markets includes net interest earned on free capital held in the global business not assigned to products. 

33  Trading assets, financial instruments designated at fair value and financial investments held in Europe, and by Global Banking and Markets in North America, include financial assets which may be repledged or resold by counterparties.

34  Derivative assets and derivative liabilities of Global Banking and Markets include derivative transactions between different regions of Global Banking and Markets.

35  Inter-segment elimination comprises (i) the costs of shared services and Group Service Centres included within 'Other' which are recovered from customer groups, and (ii) the intra-segment funding costs of trading activities undertaken within Global Banking and Markets. HSBC's Balance Sheet Management business, reported within Global Banking and Markets, provides funding to the trading businesses. To report Global Banking and Markets' net trading income on a fully funded basis, 'Net interest income' 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.

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

37  Hong Kong Government certificates of indebtedness were reclassified from Personal Financial Services to 'Other'  at 1 January 2010.

 

END

 

 

IR UAAURRKAWAAR