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0001156973-09-000141.txt : 20090310
0001156973-09-000141.hdr.sgml : 20090310
20090310161153
ACCESSION NUMBER: 0001156973-09-000141
CONFORMED SUBMISSION TYPE: 20-F
PUBLIC DOCUMENT COUNT: 35
CONFORMED PERIOD OF REPORT: 20081231
FILED AS OF DATE: 20090310
DATE AS OF CHANGE: 20090310
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: HSBC HOLDINGS PLC
CENTRAL INDEX KEY: 0001089113
STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTION, FEDERALLY CHARTERED [6035]
IRS NUMBER: 000000000
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 20-F
SEC ACT: 1934 Act
SEC FILE NUMBER: 001-14930
FILM NUMBER: 09669658
BUSINESS ADDRESS:
STREET 1: 8 CANADA SQUARE
CITY: LONDON
STATE: X0
ZIP: E145HQ
BUSINESS PHONE: 442079912652
MAIL ADDRESS:
STREET 1: 8 CANADA SQUARE
CITY: LONDON
STATE: X0
ZIP: E14 5HQ
20-F
1
u06425-20f.htm
As filed with the Securities and Exchange Commission on March 10, 2009.
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
|
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|
REGISTRATION STATEMENT PURSUANT TO SECTION
12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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or |
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ANNUAL REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended
December 31, 2008 |
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or |
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TRANSITION REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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or |
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SHELL COMPANY REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|
Date of event requiring this shell company
report . . . . . . . . . . . . . . . |
For the transition period from
N/A to N/A
Commission file number: 1-14930
HSBC Holdings plc
(Exact name of Registrant as specified
in its charter)
N/A |
United Kingdom |
(Translation of Registrants
name into English) |
(Jurisdiction of incorporation
or organisation) |
8 Canada Square
London E14 5HQ
United Kingdom
(Address of principal executive offices)
Russell C Picot
8 Canada Square
London E14 5HQ
United Kingdom
Tel +44 (0) 20 7991 8888
Fax +44 (0) 20 7992 4880
(Name, Telephone, Email and/or Facsimile
number and Address of Company Contact Person)
Securities registered or to be registered pursuant
to Section 12(b) of the Securities Exchange Act of 1934:
Title of each
class |
Name of each
exchange on which registered |
|
|
Ordinary Shares,
nominal value US$0.50
each. |
London Stock
Exchange
Hong Kong Stock Exchange
Euronext Paris
Bermuda Stock Exchange
New York Stock Exchange* |
American
Depository Shares, each representing 5
Ordinary
Shares of nominal value US$0.50
each. |
New York Stock Exchange |
6.20% Non-Cumulative
Dollar Preference Shares,
Series A |
New York Stock
Exchange* |
American
Depositary Shares,
each representing
one-fortieth of a Share of 6.20% |
|
Non-Cumulative
Dollar Preference Shares,
Series
A |
New York Stock
Exchange |
5.25% Subordinated
Notes 2012 |
New York Stock
Exchange |
6.5% Subordinated
Notes 2036 |
New York Stock
Exchange |
6.5% Subordinated
Notes 2037 |
New York Stock
Exchange |
6.8% Subordinated
Notes Due 2038 |
New York Stock
Exchange |
8.125% Perpetual Subordinated Capital Securities
Exchangeable at the Issuers Option into
Non-Cumulative Dollar Preference
Shares |
New York Stock
Exchange |
|
|
Securities registered or to be registered pursuant to Section 12(g) of the Securities
Exchange Act of 1934: None
Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Securities Exchange Act of 1934: None
Indicate the
number of outstanding shares of each of the issuers classes of capital
or common stock as of the period covered by the annual
report:
Ordinary Shares, nominal value US$0.50 each |
12,105,265,082 |
Indicate by check mark if the
registrant is a well-known seasoned issuer, as defined in Rule 405 of the
Securities Act.
Yes |
No |
If this report is an annual or transition report, indicate by
check mark if the registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934.
Yes |
No. |
Indicate by check mark whether
the registrant (1) has filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the
past 90 days.
Yes |
No |
Indicate by check mark whether
the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated
filer. See definition of accelerated filer and large accelerated filer in
Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filter |
Accelerated filter |
Non-accelerated filter |
Indicate by check mark which basis
of accounting the registrant has used to prepare the financial statements
included in this filing:
U.S. GAAP |
International Financial Reporting Standards as issued by the
International Accounting Standards Board |
Other |
If Other has been
checked in response to the previous question indicate by check mark which
financial statement item the registrant has elected to follow.
Item 17 |
Item 18 |
If this is an annual report, indicate by check mark whether
the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act).
Yes |
No |
* Not for trading, but only in connection with the registration
of American Depositary Shares.
Back to Contents
H S B C H O L
D I N G S P L C |
|
Annual Report and Accounts
2008 |
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|
Headquartered in London, HSBC is one of the largest banking and financial services
organisations in the world. Its international network comprises some 10,000 properties
in 86 countries and territories in Europe; Hong Kong; Rest of Asia-Pacific, including
the Middle East and Africa; North America and Latin
America.
With listings on
the London, Hong Kong, New York, Paris and Bermuda stock exchanges, shares
in HSBC Holdings
plc are held by over 210,000 shareholders in 120 countries and territories.
The shares are traded on the New York Stock Exchange in the form of American
Depositary Shares.
HSBC provides a
comprehensive range of financial services to more than 100 million customers
through four
customer groups and global businesses: Personal Financial Services (including
consumer finance); Commercial Banking; Global Banking and Markets; and Private
Banking.
Certain defined terms
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|
Unless the context requires otherwise, HSBC
Holdings means HSBC Holdings plc and HSBC or the Group means
HSBC Holdings together with its subsidiaries. Within this document the
Hong Kong Special Administrative Region of the |
|
Peoples Republic of China is referred
to as Hong Kong. When used in the terms shareholders equity and total
shareholders equity, shareholders means holders
of HSBC Holdings ordinary shares and those preference shares classified
as equity. |
Back to Contents
H S B C H O L
D I N G S P L C |
|
Contents |
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1
Back to Contents
H S B C H O L D I
N G S P L C |
|
Financial Highlights |
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Highlights / Ratios |
For the year |
|
|
• |
Total operating income up by 1 per cent to US$88,571 million (2007: US$87,601
million). |
|
|
• |
Net operating income before loan impairment charges up by 3 per
cent to US$81,682 million (2007: US$78,993 million). |
|
|
• |
Group pre-tax profit down by 62 per cent to US$9,307 million (2007: US$24,212
million). |
|
|
• |
Profit attributable to shareholders of the parent company down by
70 per cent to US$5,728 million (2007: US$19,133
million). |
|
|
• |
Return on average shareholders equity of 4.7 per cent (2007:
15.9 per cent). |
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|
• |
Earnings per ordinary share down by 72 per cent to US$0.47 (2007: US$1.65). |
|
|
At the year-end1 |
|
|
• |
Total equity down by 26 per cent to US$100,229 million (2007: US$135,416
million). |
|
|
• |
Customer accounts and deposits by banks up by 1 per cent to US$1,245,411
million (2007: US$1,228,321 million). |
|
|
• |
Risk-weighted assets up by 2 per cent to US$1,147,974 million (2007: US$1,123,782
million). |
|
|
Dividends and capital position1 |
|
|
• |
Total dividends declared in respect of 2008 of US$0.64 per share,
a decrease of 28.9 per cent over dividends for 2007; fourth
interim dividend for 2008 of US$0.10 per
share, a decrease of 74.4 per cent. |
|
|
• |
Tier 1 ratio of 8.3 per cent and total capital ratio of 11.4 per cent. |
|
Dividends per share2
(US dollars) |
|
Return on average
invested capital
(per cent) |
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|
|
|
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|
|
Earnings per share
(US dollars) |
|
Cost efficiency ratio
(per cent) |
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|
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|
For footnotes, see page 5.
2
Back to Contents
Capital and performance ratios |
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|
2008 |
|
2007 |
|
|
% |
|
% |
|
Capital ratios1 |
|
|
|
|
Tier 1 ratio |
8.3 |
|
9.3 |
|
Total capital ratio |
11.4 |
|
13.6 |
|
|
|
|
|
|
Performance ratios |
|
|
|
|
Return on average invested capital3 |
4.0 |
|
15.3 |
|
Return on average total shareholders equity4 |
4.7 |
|
15.9 |
|
Post-tax return on average total assets |
0.26 |
|
0.97 |
|
Post-tax return on average risk-weighted assets |
0.55 |
|
1.95 |
|
|
|
|
|
|
Credit coverage ratios |
|
|
|
|
Loan impairment charges as a percentage of total operating income |
27.24 |
|
19.61 |
|
Loan impairment charges as a percentage of average gross customer advances |
2.46 |
|
1.97 |
|
Total impairment allowances outstanding as a percentage of impaired loans at
the year-end |
94.3 |
|
98.1 |
|
|
|
|
|
|
Efficiency and revenue mix ratios |
|
|
|
|
Cost efficiency ratio5 |
60.1 |
|
49.4 |
|
As a percentage of total operating income: |
|
|
|
|
net
interest income |
48.1 |
|
43.1 |
|
net
fee income |
22.6 |
|
25.1 |
|
net
trading income |
7.4 |
|
11.2 |
|
|
|
|
|
|
Financial ratios |
|
|
|
|
Loans and advances to customers as a percentage of customer accounts |
83.6 |
|
89.5 |
|
Average total shareholders equity
to average total assets |
4.87 |
|
5.69 |
|
|
|
|
|
|
Share information at the year-end |
|
|
|
|
|
|
|
|
|
|
2008 |
|
2007 |
|
US$0.50 ordinary shares in issue (million) |
12,105 |
|
11,829 |
|
Market capitalisation (billion) |
US$114 |
|
US$198 |
|
Closing market price per ordinary share: |
|
|
|
|
London |
£6.62 |
|
£8.42 |
|
Hong
Kong |
HK$73.70 |
|
HK$131.70 |
|
Closing market price per American Depositary Share7 |
US$48.67 |
|
US$83.71 |
|
|
|
|
|
|
|
|
|
Over 1 year |
|
Over 3 years |
|
Over 5 years |
|
HSBC total shareholder return to 31 December 20088 |
84.5 |
|
84.5 |
|
98.5 |
|
Benchmarks: |
|
|
|
|
|
|
FTSE
1009 |
71.7 |
|
88.1 |
|
118.3 |
|
MSCI
World10 |
81.8 |
|
93.6 |
|
123.7 |
|
MSCI
Banks11 |
63.0 |
|
60.8 |
|
82.7 |
|
For footnotes, see page 5. |
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3
Back to Contents
H S B C H O L D I
N G S P L C |
|
Financial Highlights (continued) |
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|
5-year comparison |
Five-year comparison |
|
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|
2008
|
|
2007
|
|
2006
|
|
2005
|
|
200412
|
|
|
US$m
|
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
For the year |
|
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|
|
|
|
|
|
Net interest income |
42,563
|
|
37,795
|
|
34,486
|
|
31,334
|
|
31,099
|
|
Other operating income |
46,008
|
|
49,806
|
|
35,584
|
|
30,370
|
|
24,889
|
|
Loan
impairment charges and other credit
risk provisions |
(24,937
|
) |
(17,242
|
) |
(10,573
|
) |
(7,801
|
) |
(6,191
|
) |
Total operating expenses |
(49,099
|
) |
(39,042
|
) |
(33,553
|
) |
(29,514
|
) |
(26,487
|
) |
Profit before tax |
9,307
|
|
24,212
|
|
22,086
|
|
20,966
|
|
18,943
|
|
Profit
attributable to shareholders of the parent
company |
5,728
|
|
19,133
|
|
15,789
|
|
15,081
|
|
12,918
|
|
Dividends2 |
11,301
|
|
10,241
|
|
8,769
|
|
7,750
|
|
6,932
|
|
|
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|
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At the year-end |
|
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Called up share capital |
6,053
|
|
5,915
|
|
5,786
|
|
5,667
|
|
5,587
|
|
Total shareholders equity |
93,591
|
|
128,160
|
|
108,352
|
|
92,432
|
|
85,522
|
|
Capital resources1,13 |
131,460
|
|
152,640
|
|
127,074
|
|
105,449
|
|
90,780
|
|
Customer accounts |
1,115,327
|
|
1,096,140
|
|
896,834
|
|
739,419
|
|
693,072
|
|
Undated subordinated loan capital |
2,843
|
|
2,922
|
|
3,219
|
|
3,474
|
|
3,686
|
|
Preferred
securities and dated subordinated
loan capital14 |
50,307
|
|
49,472
|
|
42,642
|
|
35,856
|
|
32,914
|
|
Loans and advances to customers15 |
932,868
|
|
981,548
|
|
868,133
|
|
740,002
|
|
672,891
|
|
Total assets |
2,527,465
|
|
2,354,266
|
|
1,860,758
|
|
1,501,970
|
|
1,279,974
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US$
|
|
US$
|
|
US$
|
|
US$
|
|
US$
|
|
Per ordinary share |
|
|
|
|
|
|
|
|
|
|
Basic earnings |
0.47
|
|
1.65
|
|
1.40
|
|
1.36
|
|
1.18
|
|
Diluted earnings |
0.47
|
|
1.63
|
|
1.39
|
|
1.35
|
|
1.17
|
|
Dividends |
0.93
|
|
0.87
|
|
0.76
|
|
0.69
|
|
0.63
|
|
Net asset value at year-end16 |
7.44
|
|
10.72
|
|
9.24
|
|
8.03
|
|
7.66
|
|
|
|
|
|
|
|
|
|
|
|
|
Share information |
|
|
|
|
|
|
|
|
|
|
US$0.50
ordinary shares in issue
(millions) |
12,105
|
|
11,829
|
|
11,572
|
|
11,334
|
|
11,172
|
|
|
|
|
|
|
|
|
|
|
|
|
|
%
|
|
%
|
|
%
|
|
%
|
|
%
|
|
Financial ratios |
|
|
|
|
|
|
|
|
|
|
Dividend payout ratio17 |
197.9
|
|
52.7
|
|
54.3
|
|
50.7
|
|
53.4
|
|
Post-tax return on average total assets |
0.26
|
|
0.97
|
|
1.00
|
|
1.06
|
|
1.14
|
|
Return on average total shareholders equity |
4.7
|
|
15.9
|
|
15.7
|
|
16.8
|
|
16.3
|
|
Loans
and advances to customers as a percentage
of customer accounts |
83.6
|
|
89.5
|
|
96.8
|
|
100.1
|
|
97.1
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
total shareholders equity to average total
assets |
4.87
|
|
5.69
|
|
5.97
|
|
5.96
|
|
6.35
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital ratios1 |
|
|
|
|
|
|
|
|
|
|
Tier 1 ratio |
8.3
|
|
9.3
|
|
9.4
|
|
9.0
|
|
8.9
|
|
Total capital ratio |
11.4
|
|
13.6
|
|
13.5
|
|
12.8
|
|
12.0
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange translation rates to US$ |
|
|
|
|
|
|
|
|
|
|
Closing |
£:US$1 |
0.686
|
|
0.498
|
|
0.509
|
|
0.581
|
|
0.517
|
|
|
:US$1 |
0.717
|
|
0.679
|
|
0.759
|
|
0.847
|
|
0.733
|
|
Average |
£:US$1 |
0.545
|
|
0.500
|
|
0.543
|
|
0.550
|
|
0.546
|
|
|
:US$1 |
0.684
|
|
0.731
|
|
0.797
|
|
0.805
|
|
0.805
|
|
|
|
|
|
|
|
|
|
|
|
|
For
footnotes, see page 5. |
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4
Back to Contents
Consolidated Financial Statements |
The consolidated financial statements of HSBC and the separate financial statements
of HSBC Holdings have been prepared in accordance with International Financial
Reporting Standards (IFRSs) as issued by the International Accounting
Standards Board (IASB) and as endorsed by the European Union (EU).
EU-endorsed IFRSs may differ from IFRSs as issued by the IASB if, at any point
in time, new or amended IFRSs have not been endorsed by the EU. At 31 December
2008, there were no unendorsed standards effective for the year ended 31 December
2008 affecting these consolidated and separate financial statements, and there
was no difference between IFRSs endorsed by the EU and IFRSs issued by the IASB
in terms of their application to HSBC. Accordingly, HSBCs financial statements
for the year ended 31 December 2008 are prepared in accordance with IFRSs as
issued by the IASB.
HSBC uses the US dollar as its presentation currency
because the US dollar and currencies linked to it form the major currency
bloc in which
HSBC transacts its business. Unless otherwise stated, the information presented
in this document has been prepared in accordance with IFRSs.
When reference to underlying or underlying basis is made
in tables or commentaries, comparative information has been expressed at constant
currency (see page 23) and adjusted for the effects of acquisitions and disposals.
A reconciliation of reported and underlying profit before tax is presented on
page 22.
Footnotes
to Financial Highlights |
|
|
1 |
The calculation of capital resources,
capital ratios and risk-weighted assets for 31 December 2008 is on a Basel
II basis. Comparatives are on a Basel I basis. |
2 |
Dividends recorded in the
financial statements are dividends per ordinary share declared in a year
and are not dividends in respect of, or for, that year. First, second and
third interim dividends for 2008, each of US$0.18 per ordinary share,
were paid on 9 July 2008, 8 October 2008 and 14 January 2009, respectively.
Note 12 on the Financial Statements provides more information on the dividends
declared in 2008. On 2 March 2009 the Directors declared a fourth interim
dividend for 2008 of US$0.10 per ordinary share in lieu of a final dividend,
which will be payable to ordinary shareholders on 6 May 2009 in cash in
US dollars, or in pounds sterling or Hong Kong dollars at exchange rates
to be determined on 27 April 2009, with a scrip dividend alternative. The
reserves available for distribution at 31 December 2008 were US$18,838
million. |
|
|
|
Quarterly dividends of US$15.50 per
6.20 per cent non-cumulative Series A US dollar preference share, equivalent
to a dividend of US$0.3875 per Series A ADS, each of which represents
one-fortieth of a Series A dollar preference share, were paid on 17 March
2008, 16 June 2008, 15 September 2008 and 15 December 2008. |
|
Quarterly coupons per 8.125 per cent capital
securities of US$0.541 and US$0.508 were paid on 15 July 2008 and
15 October 2008 respectively. |
3 |
The definition of return on average invested
capital and a reconciliation to the equivalent GAAP measures are set out
on page 19. |
4 |
The return on average total shareholders
equity is defined as profit attributable to shareholders of the parent company
divided by average total shareholders equity. |
5 |
The cost efficiency ratio is defined as
total operating expenses divided by net operating income before loan impairment
charges and other credit risk provisions. |
6 |
This footnote is intentionally left blank.
|
7 |
Each American Depositary Share (ADS)
represents five ordinary shares. |
8 |
Total shareholder return is defined on
page 19. |
9 |
The Financial Times Stock Exchange 100
Index. |
10 |
The Morgan Stanley Capital International
World Index. |
11 |
The Morgan Stanley Capital International
World Bank Index |
12 |
Data for 2004 exclude the provisions of
IAS 32, IAS 39 and IFRS 4, which were adopted with effect from 1 January
2005. |
13 |
Capital resources are total regulatory
capital, the calculation of which is set out on page 278. |
14 |
Includes perpetual preferred securities,
details of which can found in Note 32 on the Financial Statements. |
15 |
Net of impairment allowances. |
16 |
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. |
17 |
Dividends per share expressed as a percentage
of earnings per share. |
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H S B C H O L D I
N G S P L C |
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Cautionary Statement Regarding Forward-Looking
Statements |
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Cautionary Statement |
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The Annual Report and Accounts 2008 contains
certain forward-looking statements with respect to the financial condition,
results of operations and business of HSBC. |
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Statements
that are not historical facts, including statements about HSBCs
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, and it should not be assumed that
they have been revised or updated in the light of new information or
future events. |
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Written
and/or oral forward-looking statements may also be made in the periodic
reports to the United States 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 HSBCs Directors, officers or employees
to third parties, including
financial analysts. |
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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 factors include, among others: |
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• |
changes in general economic conditions in
the markets in which HSBC operates, such as: |
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continuing or deepening recessions and fluctuations in employment; |
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changes in foreign exchange rates, in both market exchange rates (for example,
between the US dollar and pound sterling) and government-established exchange
rates (for example, between the Hong Kong dollar and US
dollar); |
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– |
volatility in interest rates; |
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volatility in equity markets, including in the smaller and less liquid trading
markets in Asia and Latin America; |
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lack of liquidity in wholesale funding markets; |
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– |
illiquidity and downward price pressure in national real estate markets, particularly
consumer-owned real estate markets; |
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the length and severity of current market turmoil; |
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the impact of lower than expected investment returns on the funding of private
and public sector defined benefit pensions; |
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the effect of unexpected changes in actuarial assumptions on longevity which
would influence the funding of private and public sector defined benefit pensions;
and |
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consumer perception as to the continuing availability of credit, and price competition
in the market segments served by HSBC. |
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• |
changes in government policy and regulation,
including: |
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– |
the monetary, interest rate and other policies of central banks and other regulatory
authorities, including the UK Financial Services Authority, the Bank of England,
the Hong Kong Monetary Authority, the US
Federal Reserve, the US Securities and Exchange Commission, the US Office of
the Comptroller of the Currency, the European Central Bank, the
Peoples Bank of China and the central banks of other leading economies
and
markets where HSBC operates; |
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– |
expropriation, nationalisation, confiscation of assets and changes in legislation
relating to foreign ownership; |
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initiatives by local, state and national regulatory agencies or legislative bodies
to revise the practices, pricing or responsibilities of financial institutions
serving their consumer markets; |
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– |
changes in bankruptcy legislation in the principal markets in which HSBC operates
and the consequences thereof; |
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– |
general changes in government policy that may significantly influence investor
decisions, in particular in markets in which HSBC operates, including financial
institutions newly taken into state ownership on a full or
partial basis; |
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extraordinary government actions as a result of current market turmoil; |
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– |
other unfavourable political or diplomatic developments producing social instability or legal uncertainty which in turn may affect demand
for HSBCs products and services; |
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the costs, effects and outcomes of regulatory reviews, actions or litigation, including any additional compliance requirements; and |
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the effects of competition in the markets where HSBC operates including increased competition from non-bank financial services companies, including securities firms. |
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factors specific to HSBC: |
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– |
the success of HSBC in adequately identifying the risks it faces, 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, HSBCs ability through stress testing and other
techniques to prepare for events that cannot be captured by the statistical models
it uses. |
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the success of HSBC in addressing operational, legal and regulatory and litigation
challenges. |
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H S B C H O L D I
N G S P L C |
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Group Chairmans Statement |
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Group Chairmans Statement |
2008 was the most extraordinary year for the global economy and financial services
in well over half a century. It marked the first crisis of the era of globalised
securitisation. And it also marked the first crisis of the just-in-time global
economy as the impact of the financial crisis fed rapidly straight into the performance
of the real economy.
Causes of the crisis
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|
The causes of the crisis are complex and interrelated.
But we can clearly see
that a number of different factors contributed: |
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• |
First, the global financial imbalances that arose from the accelerating global economic shift towards emerging markets. The rapid growth of emerging economies created a macro-economic triangle, made up of: the major consumer markets, in particular the US but also a number of other Western economies; major producer nations notably
a number of fast-growing emerging markets which have been manufacturing
a vast range of goods for consumption in the West; and resource providers whose wealth of hydrocarbons and other commodities have helped power the
producer economies and have thus commanded such high prices until recently. This macro-economic triangle delivered high rates of growth, but
also created major financial imbalances as producer nations and resource providers accumulated massive reserves whilst the US and other consumer markets ran significant and growing deficits. |
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• |
Second, cheap credit. A large proportion of the accumulated savings of the producers and resource
providers was invested in the worlds reserve currency, the US dollar, keeping rates low. This cheap money fuelled a consumer |
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boom
and rising house prices. It encouraged increased
borrowing by banks and by their customers, fuelling
asset price bubbles particularly in housing markets.
Loose monetary conditions in the US and in much
of the emerging world gave added strength to this already
potent cocktail. |
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• |
Third, securitisation based on overly
complex product structures. The complexity and
opacity of certain financial instruments reached
a point where even senior and experienced bankers and professional
investors had trouble understanding them. This
meant that people were selling and buying assets
whose risks they had not properly assessed. |
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• |
And finally, excessive gearing. Many
banks became overgeared and too dependent on wholesale
funding, which they assumed, incorrectly, would
never dry up. Assets were created on the back of
ever higher leverage, both direct and indirect.
And when the securitisation market began to collapse,
banks found themselves with assets that they could
neither sell nor fund, so forcing large losses
on the asset side and a funding challenge on the
liability side for which they were entirely unprepared. |
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The result
has been unprecedented stress in the financial system, and it has led
to a major breakdown in trust. In many countries, huge support from
taxpayers has been required in order to
stabilise the system. |
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Failings in the banking industry |
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The industry has done many things
wrong. It is important to remember that many ordinary bankers have always
sought to provide good service to their customers; but we must also recognise
that there have been too many who have profoundly damaged the industrys
reputation. |
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Inappropriate
products were sold inappropriately by many. Compensation practices
ran out of control and perverse incentives led to dangerous outcomes.
There is genuine and widespread anger that the contributors to the
crisis were in some cases amongst the biggest beneficiaries of the
system. |
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Underlying
all these events is a question about the culture and ethics of the
industry. It is as if, too often, people had given up asking whether
something was the right thing to do, and focused only whether it was
legal and complied with the rules. The industry needs to recover a
sense of what is right and suitable as a key impulse for doing business. |
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HSBC strategy intact
We at HSBC were not immune from the crisis. But we have built our business on
very strong foundations and are able to report results which demonstrate our
ability to withstand the storm.
Our strategy
has been tested and remains intact. We will continue to build our business
by focusing on faster-growing markets around the world and on businesses
where international connectivity
is important all from a position of financial strength. If anything, the current crisis validates our renewed focus over the last few years on fast-growing economies, since it will accelerate the shift in the worlds
centre of economic
gravity from west to east.
Our robust balance sheet and liquidity means that we have continued to lend. In 2008, we grew our lending to commercial customers by 10 per cent on an underlying basis. Lending to personal
customers increased in all regions except North America. And our brand strength continues to underpin our performance. It was noticeable that, at times of stress in many markets, HSBC was a beneficiary of funds flowing in. Recently, the HSBC brand
was recognised as the number one brand in banking by Brand Finance.
Profitable from a broad-based earnings platform
Excluding the goodwill impairment on our North America Personal Financial Services
business, HSBC reported a pre-tax profit for 2008 of US$19.9 billion, a decline
of 18 per cent. On a reported basis, pre-tax profit was
US$9.3 billion, down 62 per cent. Within this were some strong regional and
business line performances. However, there is one area on which I would like
to comment.
For North America,
we reported a loss of US$15.5 billion including the goodwill impairment charge of US$10.6
billion in Personal Financial Services. The significant deterioration in
US employment and economic outlook in the fourth quarter of 2008 were the
primary factors in causing us to write off all the remaining goodwill carried
on our balance sheet in respect of our Personal Financial Services business
in North
America.
The management team has worked tirelessly to address this problem acquisition in the US and we have considered all viable options. We saw the disruption in sub-prime lending as early as 2006
and sharply scaled back in 2007 while others continued
to grow. We also devoted considerable resources to helping our customers. Virtually
no one then foresaw the subsequent scale of the deterioration in the US economy
and financial markets. It is now clear that models of direct personal lending
that depend on wholesale markets for funding are no longer viable. In light of
this, we have taken the difficult decision that, with the exception of credit
cards, we will write no further consumer finance business through the HFC and
Beneficial brands in the US and close the majority of the network. Thus, in terms
of new business, we are drawing a line and we will run off our existing business,
providing all necessary support to HSBC Finance to enable it to do so in a measured
way and meet all its commitments.
HSBC has a reputation for telling it as it is. With the benefit of hindsight, this is an acquisition we wish we had not undertaken.
The US remains
the worlds largest economy and HSBC remains committed to the US, which we see as a core market for HSBC. HSBC Bank in the US is not affected by the restructure. In the
immediate future we will focus on those businesses and customers for whom our global connectivity gives us advantage primarily
in corporate and commercial business, and in Private and Premier banking.
Performance overview and strategic activity
In this difficult environment, we missed our profitability targets. We hit our
capital target with our tier 1 ratio at 8.3 per cent. We maintained a very conservative
advances-to-deposits ratio at 84 per cent. We grew lending in each region outside
North America on an underlying basis. And we constrained costs, with the cost
efficiency ratio improving to 47.2 per cent, excluding the goodwill impairment
mentioned above. We also continued implementation of OneHSBC, our programme to
enhance customer experience and improve cost efficiency through standardising
products, processes and technology around the world.
We also acquired
businesses in strategic areas we acquired the assets, liabilities and operations of The Chinese Bank in Taiwan in March; IL&FS Investsmart, a retail brokerage in
India in May; and, in October, the acquisition of Bank Ekonomi in Indonesia was announced. The first two are complete and being integrated, the last is expected to be completed in the second quarter. The most notable disposal was the sale of our
regional bank network in France for a consideration of US$3.2 billion.
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H S B C H O L D I
N G S P L C |
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Group Chairmans Statement (continued) |
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Group Chairman's Statement |
Thank you to our people
This was an extraordinary year and made extraordinary demands on many of our
people. I want to express my sincere thanks for all their efforts and achievements.
Our industry has rightly been under considerable public scrutiny and banks have
been indiscriminately bunched together. It is through our staff
that HSBCs distinctive character stands out for our customers and it is
they who ensure that not all banks are the same.
Dividend declaration and progressive dividend policy
The Directors have declared a fourth interim dividend for 2008 of
US$0.10 per ordinary share (in lieu of a final dividend) which, together
with the first three interim dividends for 2008 of US$0.18 already paid,
will make a total distribution in respect of the year of US$0.64 per ordinary
share. The payments in total represent a decrease of 29 per cent in US dollar
terms compared with 2007 and of 15 per cent in sterling terms. The dividend will
be payable on 6 May 2009 to shareholders on the register at the close of business
on 20 March 2009.
After 15 years of double-digit dividend growth, we did not make the decision to lower the dividend lightly. Very careful consideration was given to the current operating environment and the
increased uncertainty over both the supply of capital required in an increasingly volatile financial world and a pro-cyclical regulatory capital framework.
For 2009, HSBC
has rebased the envisaged dividend per share for the first three interim
dividends to US$0.08 to reflect the impact of the enlarged ordinary share capital following the
Rights Issue we are announcing today, prevailing business conditions and capital requirements. The dividend payments remain substantial and reflect managements
long-term confidence in the business. HSBC will continue to aim to pay progressive
dividends in line with the long-term growth of the business.
Maintaining HSBCs financial strength
The logic of maintaining HSBCs distinctive financial strength which we
have applied to our dividend also applies to our capital position. We have announced
today a Rights Issue to strengthen further our capital ratios. We propose to
raise, on a fully underwritten basis, approximately US$17.7 billion of equity
which will increase our capital ratios by 150 basis points, strengthening the
core equity tier 1 ratio to 8.5 per cent and the tier 1 ratio to 9.8 per cent,
both on a pro forma basis as at
31 December 2008. I shall be writing to all shareholders with full details.
Over the past
12 months, many of our competitors have received significant government
capital injections something we said we could not envisage or
have raised capital from shareholders and other investors. Higher regulatory
capital requirements, in part from the effect of the economic downturn
on capital requirements under the Basel II regime, as well as changing
market sentiment on appropriate levels of leverage,
have also raised expectations regarding capital levels. We are determined that
HSBC should maintain its signature financial strength and we are now raising
the top of our target range for the tier 1 ratio so that the range will
be from 7.5 per cent to 10 per cent.
Planned internal capital generation
remains strong and this capital raising will enhance our ability to deal
with the impact of an uncertain economic environment and to respond to
unforeseen events. Importantly, it will also give us
options with respect to opportunities which we believe will present themselves
to those with superior financial strength. These may involve organic
investment in the continued taking of market share from more capital constrained
competitors.
There may also be opportunities to grow through targeted acquisitions
by taking advantage of attractive valuations where the opportunities in
question
align with our strategy and the risks are understood.
Culture and compensation
We believe in the profound importance of culture and ethics in business.
HSBCs longstanding traditions of financial strength, long-term customer
relationships and conservative management are as important today as ever. They
have not always been fashionable and we have not always been perfect. One of
the consequences of the crisis and rightly is that we are going
to see a fundamental re-evaluation of the rules and regulations that govern our
business. But we should remember that no amount of rules and regulations will
be sufficient if the culture does not encourage people to do the right thing.
It is the responsibility of Boards to supervise and management to embed a sustainable
culture into the very fibre of the organisation. For HSBC, there is nothing more
important.
We also intend to play our part in rebuilding public trust in our industry. This means we must be willing to take part in and shape the debate on how our industry should evolve in the coming
years, based on the lessons which must be learnt from this crisis. In particular, we strongly believe that the
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industry must respond to the requirement for a more sober and reasonable approach
to compensation. At HSBC, we are committed to the principle of sensible market-related
pay, structured to align executive actions with long-term shareholder interests.
A small number of individuals in a market system will inevitably receive compensation
that is high in absolute terms, but this must be genuinely linked to long-term
shareholder interests. It is clear that the banking industry got it wrong in
the go-go years: we will play our part in helping the industry respond appropriately
to the new realities.
It is right
therefore that in HSBCs case, I outline our present position. As Chairman I elected in 2007 to no longer receive any cash bonus award; any variable compensation would be
delivered through performance share awards which would only vest if performance hurdles are met. And no performance share awards will be made in the Group in respect of 2008. Mike Geoghegan, Group Chief Executive, and Stuart Gulliver, Chief
Executive Global Banking and Markets, and Douglas Flint, Group Finance Director, have asked the Remuneration Committee not to consider them for any bonus award for 2008. No cash bonus award will be made to any Executive Director for 2008. Full
details on Directors remuneration can be found in the Annual Report.
Learning the lessons
We are living through a genuinely global crisis; it cannot be solved by one nation
alone. Governments need to work together with our industry to tackle the root
causes of the crisis, while maintaining the open, globalised markets that have
helped spread prosperity in the last two decades. Protectionism, both in trade
and in capital flows, is a threat and in all its forms must be resisted.
We must also urgently improve governance and regulation to create a more stable financial framework. The globalisation of financial markets contrasts sharply with the domestic agenda of the
regulatory regimes that underpin it. We support intergovernmental efforts to enhance the coordination of regulatory oversight, since we believe that this is essential to the stable development of the international capital markets for the benefit of
the common good.
Continued economic strain
The coming twelve months will be difficult. We expect parts of Asia, the Middle
East and Latin America to continue to outperform Western economies, but to be
constrained by the global downturn.
We see unemployment rising through 2009 into 2010 in both the US and the UK, together with continuing declines in housing markets. We should remember that the US is the driver of the global
economy and global growth depends on the US recovery.
We remain confident
that HSBC is well-placed in todays environment and that our strength leads to opportunity. Our strategy has served HSBC well and positions it for long-term growth with
attractive returns. HSBC continues to combine its position as the worlds
leading emerging markets bank with an extensive international network across
both developed and faster growing markets. At the same time, as the financial
system exhibits stress, our competitive position is improving as the capacity
and capabilities of financial institutions are constrained by lack of capital
and funding; many of them are also focusing more on their domestic markets.
Further strengthening our capital base will enhance our ability to deal with the impact of an uncertain economic environment and to respond to unforeseen events, as well as giving us options
regarding opportunities which will undoubtedly present themselves to those with superior financial strength.
S K Green, Group Chairman
2 March 2009
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H S B C H O L
D I N G S P L C |
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Report of
the Directors: Operating and Financial Review |
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Principal activities / Strategic
direction / Challenges and uncertainties |
HSBC is one of the largest banking and financial services organisations in the
world, with a market capitalisation of US$114 billion at 31 December
2008.
Through its
subsidiaries and associates, HSBC provides a comprehensive range of banking
and related financial services. Headquartered in London, HSBC operates
through long-established businesses and has an international network of
some 10,000 properties in 86 countries and territories in five geographical
regions: Europe; Hong Kong; Rest of Asia-Pacific, including the Middle
East and Africa; North America and Latin America.
Within these regions, a comprehensive range of financial services is offered
to personal, commercial, corporate, institutional, investment and private
banking clients. Services are delivered primarily by domestic banks, typically
with large retail deposit bases, and consumer finance operations. Taken
together, the five largest customers of HSBC do not account for more than
one per cent of HSBCs income.
There were
no significant acquisitions during the year (for details of acquisitions
see page 418). HSBC disposed of its seven French regional banks for US$3.2
billion in July 2008 (see
pages 418 and 458).
HSBCs strategic direction reflects its position as The worlds
local bank, combining the largest global emerging markets banking business
and a uniquely cosmopolitan customer base with an extensive international network
and substantial
financial strength.
The Groups strategy is aligned with key trends which are shaping the global economy. In particular, HSBC recognises that, over the long term, developing markets are growing faster than
the mature economies, world trade is expanding at a greater rate than gross domestic product and life expectancy is lengthening virtually everywhere. Against this backdrop, HSBCs strategy is focused on delivering superior growth and earnings
over time by building on the Groups heritage and skills. Its origins in trade in Asia have had a considerable influence over the development of the Group and, as a consequence, HSBC has an established and longstanding presence in many
countries. The combination of local knowledge and international breadth is supported by a substantial financial capability founded on balance sheet strength, largely attributable to the scale of the Groups
retail deposit bases.
HSBC is, therefore,
continuing to invest primarily in the faster growing markets and, in the
more developed markets, by focusing on businesses which have international
connectivity. Central to these reshaping activities is a policy of maintaining
HSBCs capital strength and strong liquidity position.
The Group has
identified three main business models for its customer groups and global
businesses that embody HSBCs areas of natural advantage:
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• |
businesses with international customers for whom developing markets connectivity is crucial Global
Banking and Markets, Private Banking, the large business segment of Commercial Banking and the mass affluent segment of Personal Financial Services; |
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• |
businesses with local customers where efficiency can be enhanced through global scale the
small business segment of Commercial Banking and the mass market segment of Personal Financial Services; and |
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• |
products where global scale is possible through building
efficiency, expertise and brand global product platforms such as global transaction
banking. |
The means of executing the strategy, and further
utilising the linkages within the Group, are clear:
• |
the HSBC brand and global networks will be leveraged to reach new customers and offer further services to existing clients; |
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• |
efficiency will be enhanced by taking full advantage of local, regional and global economies of scale, in particular by adopting a common systems architecture wherever possible; and |
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• |
objectives and incentives will be aligned to motivate and reward staff for being fully engaged in delivering the strategy. |
Challenges and uncertainties |
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Current economic and market conditions may adversely affect HSBCs results.
The global economy has entered the most severe
downturn for 80 years, with the financial services industry facing extraordinary
turbulence. A shortage of liquidity,
lack of funding, pressure on capital and extreme price volatility across a
wide range of asset classes are putting financial institutions under considerable
pressure. This is leading governments and central banks to undertake unprecedented
intervention designed to stabilise the global and
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domestic financial systems, to stimulate new lending and to support systemically
important institutions at risk of failing. Many developed economies have entered
recession and growth has slowed in many emerging countries, with serious adverse
consequences for asset values, employment, consumer confidence and levels of
economic activity. Commodity prices have significantly retrenched, in many
cases from recent historical highs, interest rate yield curves have flattened,
interest rates have fallen in absolute terms and trade flows have contracted.
Global equity markets have experienced severe declines and various currencies,
including sterling, have depreciated significantly against the US dollar. Emerging
markets have suffered as portfolio investments have been repatriated and cross-border
inter-bank funding has been withdrawn. Numerous governments and central banks
have responded by proposing programmes to make substantial funds and guarantees
available to boost liquidity and confidence in their financial systems, as
well as cutting taxes and lowering interest rates. It is not known whether
these responses will be effective in addressing the severe economic and market
conditions or whether recently proposed measures will be implemented as initially
proposed.
HSBCs
earnings are affected by global and local economic and market conditions.
Dramatic declines in 2007 and 2008 in the housing markets in the US, the
UK and elsewhere have combined with increasing unemployment to affect negatively
the credit performance of real estate-related exposures, resulting in significant
write-downs of asset values by financial institutions, including HSBC.
These write-downs, initially of asset-backed
securities but spreading to other securities and loans, have caused many financial
institutions to seek additional capital, to reduce or eliminate dividends,
to merge with larger and stronger competitors or, in some cases, to fail.
A worsening
of these conditions may exacerbate the impact of these difficult market
conditions on HSBC and other financial institutions and could have an adverse
effect on HSBCs operating
results. In particular, the Group may face the following challenges in connection
with these events:
• |
HSBCs ability to assess the creditworthiness of its customers or to estimate the values of its assets may be impaired if the models and techniques it uses become less accurate in their predictions of future behaviour, valuations or estimates. The process HSBC uses to estimate losses inherent in its credit exposure or assess the value of certain assets requires difficult, |
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subjective and complex judgements. These include forecasts of economic conditions and how predicted economic scenarios might impair the
ability of HSBCs borrowers to repay their loans or might affect the value of assets. As a consequence, this process may be less capable of making accurate estimates which, in turn, may undermine the reliability of the process.
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• |
The demand for borrowing from creditworthy customers may diminish as economic activity slows. |
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• |
Lower interest rates will reduce net interest income earned by HSBC on its excess deposits. |
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• |
HSBCs ability to borrow from other financial institutions or to engage in funding transactions on favourable terms, or at all, could be adversely affected by further disruption in the capital markets or deteriorating investor sentiment. |
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• |
Market developments may affect consumer confidence and may cause declines in credit card usage and adverse changes in payment patterns, leading to increases in delinquencies and default rates, write-offs and loan impairment
charges beyond HSBCs expectations. |
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• |
Loan impairment allowances and write-offs are likely to rise as a result of a deterioration in payment patterns and increased delinquencies and default rates caused by weakening consumer confidence and increased business failures. A worsening of these economic factors may exacerbate the adverse effects of these difficult market conditions on HSBC and others in the financial services industry. |
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• |
HSBC expects to face increased regulation and supervision of the financial services industry, following new or proposed regulatory measures in countries in which it operates. |
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• |
Trade and capital flows may further contract as a result of protectionist measures being introduced in certain markets. |
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• |
Increased government ownership and control over financial institutions and further consolidation in the financial industry, which could significantly alter the competitive landscape. |
As a worldwide financial institution,
HSBC is exposed to these developments across all its businesses, both directly
and through their impact on its customers and clients. Local variations exist,
however, reflecting regional circumstances and
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H S B C H O L
D I N G S P L C |
|
Report
of the Directors: Operating and Financial Review (continued) |
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Challenges
and uncertainties |
presenting challenges to HSBC which are specific to those areas.
Europe
In the UK, the economy has entered recession and the currency has fallen in value
against the US dollar, the yen and the euro. Changes in the marketplace are emerging
following the part-nationalisation of some major financial institutions, and
political interaction with the regulatory environment is becoming more frequent
as the government seeks to stimulate lending to preserve economic activity. A
period of low interest rates will reduce deposit spreads and
HSBCs retail business model will be more dependent on transactional fees
and lending margin. Pension funding requirements, in particular for UK defined
benefit schemes, will place increased financing demands on corporates, which
may lead to unfunded commitments being drawn down, adding to pressure on system
liquidity. The recent deterioration in credit quality is expected to continue
as the economy contracts, with loan impairment charges rising as a result. Market
volatility is also
expected to continue.
In France,
changes in the marketplace are slowly emerging following government measures
to stimulate lending and preserve economic activity. A period of low interest
rates will not adversely impact spreads in the short-term but will have
an adverse effect in later years. HSBCs retail business model is
dependent on banking fees to maintain profitability and a recovery in financial
markets is necessary in order to enhance brokerage and management fees
and stimulate fund management activities. Deterioration in credit quality
is expected to continue as the economy contracts, with commercial loan
impairment charges rising as a result. Personal loan impairment charges
are expected to remain at around current levels unless there is a very
deep recession.
Conditions are likely to remain difficult in a number of markets in which HSBC currently trades and volatility is expected to continue.
Hong Kong and Rest of Asia-Pacific
In Asia-Pacific, a prolonged period of low interest rates is expected which will
put pressure on HSBCs net interest income from its strong deposit base.
With capital market and currency volatility endemic, customers are likely to
seek capital protection and become increasingly rate and risk sensitive, seeking
out products which offer deposit insurance and government guarantees. Regulatory
reforms in the areas of wealth management product complexity,
sales requirements and liquidity and reserve ratios are likely, and these will
lead to a higher cost of compliance, greater standardisation and slower product
approvals. International trade is expected to continue to contract, affecting
import and export volumes and reducing HSBCs earnings from trade financing.
The quality of the asset book will deteriorate if economic factors beyond HSBCs
control do not improve, reducing customer credit ratings and, as a consequence,
increasing risk- weighted asset allocations and capital requirements. This could
be exacerbated if capital continues to be repatriated from emerging markets to
more developed economies to take advantage of lower asset prices, adversely affecting
emerging markets balance of payments and foreign exchange reserves. However,
Asia is expected to adapt quickly to secure recovery from the global recession,
led by mainland China and India.
The fall in global demand for oil products and related prices, and the contraction in financial surpluses held by key oil-producing countries following the declines in capital markets, will
reduce the ability of some countries in the Middle East to maintain spending, borrowing and investment domestically and internationally. This will result in the cancellation or postponement of infrastructure projects which, together with weakening
property prices, is expected to reduce both credit cover and revenue streams for financial institutions. The availability of economically priced, long-term funding is likely to contract. Business activity and private investment will also slow as
consumer confidence declines. These factors will combine to place pressure on net revenues and on capital requirements.
North America
In the US, the steep decline in the housing market, with falling home prices
and increasing foreclosures, and rising unemployment have resulted in significant
write-downs of loans and advances and mortgage-backed securities. The effect
of these write-downs subsequently spread to other capital market activities,
leading many financial institutions to seek additional capital, merge with larger
and stronger institutions and, in some cases, fail. Many lenders reduced or stopped
providing funding to borrowers, including to other financial institutions. This
market turmoil and resultant tightening of credit have led to an increased level
of delinquencies, a fall in consumer confidence, increased market volatility
and a widespread reduction in business activity in general. To date, various
government intervention measures designed to stabilise the markets, including
14
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the decision of the Federal Reserve to reduce interest rates to unprecedentedly
low levels, appear to be having an impact on the trading of both guaranteed and
non-guaranteed debt in early 2009. A prolonged period of low Federal funds rates
will put pressure on deposit spreads earned on HSBCs deposit base. It is
likely that these conditions will continue to adversely affect the Groups
results into 2010, the degree to which remains uncertain.
Latin America
Markets in Latin America are expected to be affected by recession in the developed
world, particularly in the US. Output will fall as a decline in the demand for
exports will adversely affect the export sector, and these factors are likely
to combine with currency volatility to weaken the balance sheets of financial
institutions. This may lead to a further contraction in the availability of credit,
increasing the likelihood of bankruptcies and unemployment and reducing economic
activity and consumption. Lower commodity prices and reduced remittance inflows
are likely to affect economies in the region, particularly in Mexico and Central
America. Exchange rates are likely to remain under pressure as growth stalls,
and inflation may rise. The possibility of a combined credit crunch and stagflation
in Latin America cannot be ruled out. The authorities may react with stricter
prudential regulation and price controls. Public finances will come under strain
if oil and other commodity prices remain low, restricting the authorities room
for manoeuvre.
Risks associated with liquidity and funding, which are inherent
in HSBCs business, have been greatly increased by the current global market
conditions
HSBCs business model depends upon its ability to access
financial resources whenever required to meet its obligations. To this end, HSBC
seeks to maintain a diversified and stable funding base comprising core retail
and corporate customer deposits and institutional balances and to augment this
with wholesale funding and portfolios of highly liquid assets diversified by
currency and maturity which are held to enable HSBC to respond to unforeseen
liquidity requirements.
HSBCs earnings are affected by its ability to properly value financial
instruments. In certain illiquid markets, determining the value at which financial
instruments can be realised is highly subjective, and processes to ascertain
value and estimates of value, both of which require substantial elements of
judgement, assumptions and estimates (which may change over time), are required.
Increased
illiquidity adds to
uncertainty over the accessibility of financial resources and may reduce capital
resources as valuations decline. Rating agencies, which determine
HSBCs own credit ratings and thereby influence the Groups cost of
funds, take into consideration management effectiveness and the success with
which HSBCs liquidity risk factors are managed. Actions by third parties
and independent market participants, such as rating agency downgrades of instruments
to which HSBC has exposure, can result in reduced liquidity and valuations of
those instruments. HSBCs liquidity could also be constrained by an inability
to access the debt capital markets due to a variety of unforeseen market dislocations
or
interruptions.
The extreme
market conditions facing the financial services industry have been reflected
in shortages of liquidity, lack of funding, pressure on capital and extreme
price volatility across a wide range of asset classes. Illiquidity of these
assets has prevented the realisation of existing asset positions and has constrained
risk distribution in ongoing banking activities. The extreme market conditions,
which have highlighted the importance of a strong diversified core
deposit base, have also lead to increased competition for such deposits and the risk
of deposit migration. HSBCs Global Banking and Markets business operates
in the markets affected by illiquidity and extreme price volatility, either
directly or indirectly, through exposures to securities, loans, derivatives
and other commitments, and HSBC has made substantial write-downs and impairments
on illiquid legacy credit and structured credit positions. While it is difficult
to predict how long the conditions described above will exist and which of
HSBCs markets, products and other businesses will be affected, continuation
of these factors could have an adverse effect on the Groups results.
HSBC has significant exposure to counterparty
risk
HSBCs ability to engage in routine
transactions to fund its operations and manage its risks could be adversely
affected by the actions and commercial soundness of other financial services
institutions. Financial institutions are extremely interdependent because
of trading, clearing, counterparty or other relationships. As a consequence,
a default by, or decline in market confidence in, individual institutions,
or anxiety about the financial services industry generally, can lead to further
individual and/or systemic difficulties, defaults and losses. HSBC has exposure
to virtually all major industries and counterparties, and it routinely executes
15
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H S B C H O L D I
N G S P L C |
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Report of the
Directors: Operating and Financial Review (continued) |
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|
Challenges and uncertainties / KPIs |
transactions with counterparties in financial services, including brokers and
dealers, commercial banks, investment banks, mutual and hedge funds, and other
institutional clients. Many of these transactions expose HSBC to credit risk
in the event of default by its counterparty or client. Where counterparty risk
has been mitigated by taking collateral, HSBCs credit risk may be exacerbated
if the collateral it holds cannot be realised or has to be liquidated at prices
which are insufficient to recover the full amount of its loan or derivative exposure.
The failure of one of HSBCs counterparties could have an adverse effect
on its results.
HSBC operates in a highly competitive environment, and competition could intensify
as a result of current global market conditions
Consolidation in the financial services industry is increasingly concentrating
activity in companies that are capable of offering a wide array of financial
products at competitive prices, with globalisation exposing HSBC to competition
in capital markets and financial services at global and local levels alike. In
addition, technological advances, the growth of e-commerce, regulatory developments
and public sector participation or guarantees have made it possible for non-depository
institutions to offer products and services that traditionally were the preserve
of banks. The prominence in recent years of sovereign wealth funds, private equity
and hedge funds as alternative sources of funding which has increased
competition for traditional financial institutions may ease as investors
seek safer, more traditional alternatives. Competition may further
intensify or the competitive landscape may change as the consolidation
of financial services companies continues and others are brought into part or
full public ownership in
response to the current market conditions. HSBCs ability to grow its businesses,
and therefore its earnings, is affected by these competitive pressures and is
dependent on HSBCs ability to attract and retain talented and dedicated
employees.
HSBC is subject to political and economic risks in the countries in which
it operates
HSBC operates through an international network
of subsidiaries and affiliates in 86 countries and territories around the
world. Its results are therefore subject to the risk of loss from unfavourable
political developments, currency fluctuations, social instability and change
in government policies on such matters as expropriation, authorisations,
international ownership, interest-rate caps, limits
on dividend flows and tax in the jurisdictions in which it operates. These factors may also negatively affect revenues from the
trading of securities and investment in securities, the effect being accentuated
through certain international trading markets, particularly those in emerging
market countries, being typically smaller, less liquid and more volatile than
developed trading markets. HSBCs subsidiaries and affiliates ability
to pay dividends could be restricted by changes to official banking measures,
exchange controls and other requirements. Because HSBC prepares its accounts
in US dollars, while a substantial part of its assets, liabilities, assets under
management, revenues and expenses are denominated in other currencies, changes
in foreign exchange rates have an effect on its reported income and shareholders equity.
For a detailed discussion of global and regional factors that impact the results
of HSBCs
operations, see page 12.
Operational risks are inherent in HSBCs business
HSBC is exposed to many types of operational risk,
including fraudulent and other criminal activities (both internal and external),
breakdowns in processes or procedures and systems failure or non-availability.
HSBC is also subject to the risk of disruption of its business arising from
events that are wholly or partially beyond its control (for example natural
disasters, acts of terrorism, epidemics and transport or utility failures)
which may give rise to losses in service to customers and/or economic loss
to HSBC. All of these risks are also applicable where HSBC relies on outside
suppliers or vendors to provide services to it and its customers.
HSBC is subject to legal risks, which have an adverse effect
on the Groups reputation
The risks to HSBCs reputation arise from a variety of sources with the
potential to cause harm to the Group and its ability to operate. These issues
require the Group to deal appropriately with potential conflicts of interest;
legal and regulatory requirements; ethical issues; anti-money laundering laws
or regulations; privacy laws; information security policies; sales and trading
practices; and the conduct of companies with which it is associated. Failure
to address these issues appropriately may give rise to additional legal and compliance
risk to HSBC, with an increase in the number of litigation claims and the amount
of damages asserted against HSBC, or subject HSBC to regulatory enforcement actions,
fines or penalties.
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Increased regulation of the financial services industry could have an adverse
effect on HSBCs operations
HSBC, its subsidiaries and its affiliates are
subject to extensive and increasing regulation, accounting standards and
interpretations thereof and legislation in the various countries in which
the Group operates. From time to time, new laws are introduced, including
tax, consumer protection, privacy and other legislation, which affect the
operating environment in which the Group operates. As a result of the
recent interventions by governments in response to global economic conditions,
it is widely expected that there will be a substantial increase in government
regulation and supervision of the financial services industry, including
the imposition of higher capital requirements and restrictions on certain
types of transaction structure. If enacted, such new regulations could require
additional capital to be injected into HSBCs subsidiaries and affiliates,
require HSBC to enter into business transactions that are not otherwise part
of its current Group strategy, prevent HSBC from continuing current lines
of operations, restrict the type or volume of transactions HSBC may enter
into, limit HSBCs subsidiaries and
affiliates ability to declare dividends to HSBC, or set limits on or require
the modification of rates or fees that HSBC charges on certain loan or other
products. HSBC may also face increased compliance costs and limitations on its
ability to pursue business opportunities. Separately, the Basel II Accords
requirement for financial institutions to increase their capital in response
to deteriorating market conditions may have secondary effects on lending, which
could exacerbate the current market downturn. These measures, alone or in combination,
could have an adverse effect on HSBCs operations.
In the UK for
example, the Banking Act 2009 includes a Special Resolutions Regime which
gives wide powers in respect of UK banks and their parent companies to
the UK Treasury, the FSA and the Bank of England in circumstances where
any such UK bank has encountered, or is likely to encounter, financial
difficulties.
HSBC is subject to tax-related risks in the countries in which it operates,
which could have an adverse effect on its operating results
HSBC is subject to the substance and interpretation of tax laws in all countries
in which it operates.
A number of double taxation agreements entered into between countries also affect the taxation of the Group. Tax risk is the risk
associated with changes in tax law or in the interpretation of tax law. It also
includes the risk of changes in tax rates and the risk of consequences arising
from failure to comply with procedures required by tax authorities. Failure to
manage tax risks could lead to increased tax charges, including financial or
operating penalties, for not complying as required with tax laws.
Key performance indicators |
|
The Board of Directors and the Group Management Board monitor HSBCs progress
against its strategic objectives. Progress is assessed by comparison with the
Groups strategy, its operating plan targets and its historical performance
using both
financial and non-financial measures.
As a prerequisite
for the vesting of Performance Shares, the Remuneration Committee must
satisfy itself that HSBC Holdings financial performance has shown a sustained improvement in the
period since the award date. In determining this, the Remuneration Committee will take account of all relevant factors but in particular comparisons against the total shareholder return (TSR) comparator group with regard to the financial
key performance indicators (KPIs) described below.
Financial KPIs
To support the Groups strategy and ensure that HSBCs
performance can be monitored, management utilises a number of financial KPIs.
The table below
presents these KPIs for the period from 2004 to 2008. At a business level,
the KPIs are complemented by a range of benchmarks which are relevant to the
planning
process and to reviewing business performance.
HSBC has published
a number of key targets against which future performance can be measured.
Financial targets have been set as follows: the return on average total
shareholders equity
over the medium term has been set at 15-19 per cent; the cost efficiency ratio
has been set in the range of 48-52 per cent; and the TSR in the top half
of that achieved by peers. The cost efficiency ratio has been set as a
range within which the business is expected to remain in order to accommodate
the need for continued investment in support of future business growth.
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H S B C H O L D I
N G S P L C |
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Report of the
Directors: Operating and Financial Review (continued) |
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|
KPIs |
Financial KPIs trend analysis
|
2008 |
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|
2007 |
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
|
% |
|
|
% |
|
|
% |
|
|
% |
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue growth1 |
3.4 |
|
|
20.8 |
|
|
13.4 |
|
|
12.2 |
|
|
|
|
|
Revenue mix2 |
|
|
|
|
|
|
|
|
|
|
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Net interest income |
52.1
|
|
|
47.8 |
|
|
52.8 |
|
|
54.4 |
|
|
60.6 |
|
|
Net fee income |
24.5
|
|
|
27.9 |
|
|
26.3 |
|
|
25.1 |
|
|
25.2 |
|
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Other income3 |
23.4
|
|
|
24.3 |
|
|
20.9 |
|
|
20.5 |
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|
14.2 |
|
|
Cost efficiency4 |
60.1 |
|
|
49.4 |
|
|
51.3 |
|
|
51.2 |
|
|
51.6 |
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|
Credit performance as measured
by risk adjusted margin5 |
4.8 |
|
|
6.0 |
|
|
6.3 |
|
|
6.3 |
|
|
6.8 |
|
|
Return on average invested capital6 |
4.0 |
|
|
15.3 |
|
|
14.9 |
|
|
15.9 |
|
|
15.0 |
|
|
Dividends per share growth7 |
(28.9 |
) |
|
11.1 |
|
|
11.0 |
|
|
10.6 |
|
|
10.0 |
|
|
Basic earnings per ordinary share8
(US$) |
0.47 |
|
|
1.65 |
|
|
1.40 |
|
|
1.36 |
|
|
1.18 |
|
|
Return on average total
shareholders equity9 |
4.7 |
|
|
15.9 |
|
|
15.7 |
|
|
16.8 |
|
|
16.3 |
|
|
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|
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|
|
|
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|
|
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|
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Over |
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|
Over |
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|
Over |
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|
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|
|
|
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|
|
1 year |
|
|
3 years |
|
|
5 years |
|
|
|
|
|
|
|
|
Total shareholder return |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HSBC TSR |
84.5 |
|
|
84.5 |
|
|
98.5 |
|
|
|
|
|
|
|
|
Benchmarks: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FTSE 100 |
71.7 |
|
|
88.1 |
|
|
118.3 |
|
|
|
|
|
|
|
|
MSCI World |
81.8 |
|
|
93.6 |
|
|
123.7 |
|
|
|
|
|
|
|
|
MSCI Banks |
63.0 |
|
|
60.8 |
|
|
82.7 |
|
|
|
|
|
|
|
|
|
|
1 |
The percentage increase in net operating
income before loan impairment and other credit risk charges since the previous
year. |
2 |
As a percentage of net operating income
before loan impairment charges and other credit risk provisions. |
3 |
Other income comprises net operating income
before loan impairment charges and other credit risk provisions less net
interest income and net fee income. |
4 |
Total operating expenses divided by net
operating income before loan impairment and other credit risk charges.
|
5 |
Net operating income divided by average
risk-weighted assets. |
6 |
Profit attributable to ordinary shareholders
divided by average invested capital. |
7 |
The percentage increase in dividends per
share since the previous year, based on the dividends paid in respect of
the year to which the dividend relates. |
8 |
Basic earnings per ordinary share is defined
in Note 13 on the Financial Statements. |
9 |
The return on average total shareholders
equity is defined as profit attributable to shareholders of the parent company
divided by the average total shareholders equity. |
Revenue growth provides
an important guide to the Groups success in generating business. In 2008, total revenue grew by 3.4 per cent to US$81.7
billion, 2.1 per cent on an underlying basis, reflecting the resilience of HSBCs
income generating capabilities in these exceptionally difficult economic circumstances.
Revenue mix represents
the relative distribution of revenue streams between net interest income,
net fee income and other revenue. It is used to understand how changing
economic factors affect the Group, to highlight dependence on balance sheet
utilisation for income generation and to indicate success in cross-selling
fee-based services to customers with loan facilities. This understanding
assists management in making business investment decisions. Comparison
of the revenue mix between 2005 and 2007 shows a trend of net fee income
increasing at a faster rate than net interest income. This trend has been
reversed in 2008 as net fee
incomes contribution fell by 3.4 percentage points mainly due to lower
fees on cards and equity-related products.
Cost efficiency is
a relative measure that indicates the consumption of resources in generating
revenue. Management uses this to assess the success of technology utilisation
and, more generally, the productivity of the Groups distribution
platforms and sales forces. The cost efficiency ratio for 2008 deteriorated
by 10.7 percentage points to 60.1 per cent. This included writing off goodwill
in the US.
Credit performance as measured by risk-adjusted margin is
an important gauge for assessing whether credit is correctly priced so
that the returns available after recognising impairment charges meet the
Groups required return parameters. The ratio for 2008 was 4.8 per
cent, showing a decline of 1.2 percentage points over 2007, as loan impairment
charges rose at a faster rate than income on higher average risk-weighted
assets.
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Return
on average invested capital measures the return on the
capital investment made in the business, enabling management to benchmark HSBC
against competitors. In 2008, the ratio of 4.0 per cent was 11.3 percentage points
lower than that reported in 2007. This decrease reflected the decline in profit
driven by goodwill impairment, the significant increase in loan impairment charges,
write-downs in credit trading,
leveraged and acquisition finance, and monoline exposures. The comparative period
included dilution gains which were not repeated.
HSBC aims to deliver sustained dividend per share growth for
its shareholders. The total dividend for 2008, based on the year to which
the dividends relate (rather than when they were paid), amounts to US$0.64,
a reduction of 28.9 per cent on 2007, reflecting the decline in profitability,
prevailing business conditions and capital requirements. This basis differs
from the disclosure in the five-year comparison on page 4.
Basic earnings per share (EPS) is a ratio that shows the level of earnings generated per ordinary share. EPS is one of two KPIs used in
rewarding employees and is discussed in more detail in the Directors Remuneration Report on page 315. EPS for 2008 was US$0.47,
a decline of 71.5 per cent on 2007. This, in part, reflected the effect of recognising
goodwill impairment in North America as well as the broad based impact of the
global economic crisis. In 2007, EPS grew by 17.9 per cent over that reported
in 2006.
Return on
average total shareholders equity measures
the return on average shareholders investment in the business. This enables management
to benchmark Group performance against competitors and its own targets. In 2008, the ratio was 4.7 per cent or 11.2 percentage points lower than in 2007 of which 8.6 percentage points related to the goodwill impairment recognised. This absolute
performance is not regarded as satisfactory, being lower than managements
target range of between 15 and 19 per cent.
Total shareholder return (TSR) is used as a method of assessing the overall return to shareholders on their investment in HSBC, and is
defined as the growth in share value and declared dividend income during the relevant period. TSR is a key performance measure in rewarding employees. In calculating TSR, dividend income is assumed to be invested in the underlying shares. The TSR
benchmark is an index set at 100 and measured over one, three and five years for the purpose of comparison with the performance of a group of competitor banks which reflect HSBCs
range and
breadth of activities. As the comparator group includes companies listed on overseas
markets, a common currency is used to ensure that TSR is measured on a consistent
basis. The TSR levels at the end of 2008 were 84.5, 84.5, and 98.5 over one,
three and five years respectively. HSBCs TSR over all periods, while disappointing
in absolute terms, has significantly outperformed the peer group as the current
financial crisis has had a significantly more adverse impact on their performance
and rating.
Management
believes that financial KPIs must remain relevant to the business so they
may be changed over time to reflect changes in the Groups composition
and the strategies employed.
Non-financial KPIs
HSBC has chosen four non-financial KPIs which are important to the future success
of the Group in delivering its strategic objectives. These non-financial KPIs
are currently reported internally within HSBC on a local basis.
Employee engagement
Employee engagement is a measure of employees emotional and rational attachment
to HSBC. It is critical to the long-term success of the Group and, as such, an
employee engagement target was included in the 2008 objectives for Group Executives
(see Directors Remuneration Report, page
315).
In 2008, HSBC
conducted its second Global People Survey of HSBCs permanent workforce
worldwide. The 2008 participation rate of 93 per cent improved on the 2007
figure of 88 per cent,
which was already around the highest in the industry.
The Groups
employee engagement score rose from 60 per cent in 2007 to 67 per cent
in 2008. In achieving 67 per cent, HSBC exceeded its target for 2008 of
62 per cent, the external global norm and the sector norm. Its 2009 target
is 69 per cent.
The 2008 survey covered 13 dimensions which included assessing for the first time whether action had been perceived to have been taken on the results of the 2007 survey. Employees rated HSBC
above the external global norm across all dimensions. HSBC exceeded the external best-in-class norm for Corporate Sustainability, and the dimensions covering Strategy and Vision, Reputation, Direct Manager and Leadership were close to this norm.
19
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H S B C H O L D I
N G S P L C |
|
Report of the Directors: Business Review (continued) |
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|
|
|
Reconciliation of reported
and underlying profit before tax |
Brand perception
In order to manage the HSBC brand most effectively,
the Group tracks brand health amongst Personal Financial Services and Commercial
Banking customers in each
of HSBCs major markets. The survey is conducted on a consistent basis by
accredited, independent, third-party organisations. A weighted scorecard of brand
measures produces an overall score for each market on a 100-point scale, which
is then benchmarked against HSBCs main competitors. The scores from each
market are then weighted according to the risk-adjusted revenues in that market
to obtain the overall Group score.
In 2008, Personal
Financial Services customers judged HSBCs brand to be 9 points stronger than its competitors (+9), up from 6 points in 2007 and above the 8 point target. Commercial
Banking customers judged the brand to be 6 points higher than HSBCs competitors
(+6), the same as in 2007.
For 2009, HSBC will track brand health in more countries. During 2008, competitors were acquired or withdrew from certain markets, so HSBC re-benchmarked its 2008 performance in respect of both
brand and customer satisfaction for Personal Financial Services and Commercial Banking. For 2009, the benchmark is +4 with a target of +5 for the former and, for the latter, the equivalent numbers are +6 and +7, respectively.
Customer satisfaction
Customer recommendation is an important driver of business growth for HSBC. HSBC
uses a consistent measure of customer recommendation around the world to continue
to improve the services provided by the Group to customers of Personal Financial
Services and Commercial Banking. This measurement is carried out by accredited,
independent, third-party organisations and the resulting recommendation scores
are benchmarked against competitors.
The 2008 customer recommendation target for Personal Financial Services increased from +1 to +2, failing to meet the target of +3 by a small margin. Commercial Banking met the target of +7 over
competitors, up from +6 in 2007.
In 2009, HSBC has adopted a new benchmark of +1 and a 2009 target of +3 for Personal Financial Services and a benchmark of +4 and a target of +4 for Commercial Banking.
IT performance and systems reliability
HSBC tracks two key measures as indicators of IT performance; namely, the number
of customer transactions processed and the reliability and resilience of systems
measured in terms of service availability targets.
Number of customer transactions processed
The number of customer transactions processed reflects the dependency on IT in
the delivery channels that customers use to interact with HSBC. Monitoring the
volumes by channel enables the Group to allocate resources appropriately. Overall,
the results show the desired decrease in staff-assisted transactions. Self-service
transactions increased as a result of the redesign of the Groups distribution
network and the continuing rollout of One HSBC
Technologies, HSBCs project to standardise its primary systems, products
and processes. Internet transactions unexpectedly decreased as a direct result
of lower online trading volumes in retail securities in 2008. To improve efficiency
HSBC aims to manage the rate of increase in IT transaction processing costs to
below the volume increase. The following chart shows the 2005 to 2008 volumes
per delivery channel:
Number of customer transactions (millions)
Percentage of IT services meeting or exceeding targets
HSBCs IT function establishes with its end-users service levels for systems
performance, such as systems running 99.9 per cent of the time or credit card
authorisations within two seconds, and monitors the achievement of each of
these commitments. The following chart shows the percentage of IT services
meeting or exceeding the agreed service targets by region. Overall, the results
show a trend of improving service performance.
20
Back to Contents
Percentage of IT services meeting or exceeding targets
Reconciliation
of reported and underlying profit before tax |
|
HSBC
measures its performance internally on a like-for-like basis by eliminating the
effects of foreign currency translation differences, acquisitions, disposals
and gains from the dilution of the Groups interests in associates in 2007,
which distort a year-on-year comparison. HSBC refers to this as its underlying
performance.
The tables
below compare HSBCs underlying performance in 2008 with 2007, and 2007 with 2006. Equivalent tables are provided for each of HSBCs
customer groups and geographical segments in their respective sections
below.
The foreign
currency translation differences were mainly due to the strengthening of
the US dollar against sterling in the second half of 2008 and its relative
weakness against the euro and the Chinese renminbi in 2008 compared with
2007. The Groups reported profit before tax in 2008 was 62 per cent
lower than in 2007, with the effect of the change in foreign currency translation
rates making a negligible difference. Comparing 2007 with 2006, the reported
profit before tax growth was 10 per
cent, of which 4 per cent was explained by exchange rate movements.
The following acquisitions and disposals, which are listed in chronological order, affected both comparisons:
• |
the acquisition of HSBCs partners shares in life insurer, Erisa S.A., and property and casualty insurer, Erisa I.A.R.D. (together renamed HSBC Assurances) in France in March 2007; |
|
|
• |
the deemed disposals of the stakes in Ping An Insurance
(Group) Company of China, Limited (Ping An Insurance),
Bank of Communications
Co., Limited (Bank of Communications) and Industrial
Bank Co. Limited (Industrial Bank), as a consequence
of their share offerings on
the domestic A share market in mainland China
in the first half of 2007, and of the stakes in Financiera
Independencia S.A.B. de
C.V. (Financiera Independencia) in Mexico and Vietnam
Technological and Commercial Joint Stock
Bank (Techcombank) following their
share issues; |
|
|
• |
the disposal of the Hamilton Insurance Company Limited and Hamilton Life Assurance Company Limited in the UK in October 2007; |
|
|
• |
the sale of Wealth and Tax Advisory Services to its management in December 2007; |
|
|
• |
the acquisition of the assets, liabilities and operations of The Chinese Bank Co., Ltd. (The Chinese Bank) in Taiwan in March 2008; |
|
|
• |
the sale of HSBCs UK merchant acquiring business to a joint venture 49 per cent owned by the Group in June 2008; and |
|
|
• |
the disposal of seven French regional banking subsidiaries in July 2008. |
21
Back to Contents
H S B C H O L D I
N G S P L C |
|
Report of the Directors: Operating and
Financial Review (continued) |
|
|
|
|
Reconciliation of reported
and underlying profit before tax / Financial summary |
Reconciliation of reported and underlying profit before tax
|
2008 compared with 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
acquisitions,
|
|
|
|
2007
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
disposals
|
|
|
|
at 2008 |
|
acquisitions |
|
|
|
|
|
|
|
|
|
|
2007 as
|
|
& dilution
|
|
Currency |
|
exchange |
|
and
|
|
Underlying
|
|
2008 as
|
|
Reported
|
|
Underlying
|
|
|
reported
|
|
gains1 |
|
translation2 |
|
rates3 |
|
disposals1 |
|
change
|
|
reported
|
|
change
|
|
change
|
|
HSBC |
US$m
|
|
US$m
|
|
US$m
|
|
US$m
|
|
US$m
|
|
US$m
|
|
US$m
|
|
%
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
37,795
|
|
(389
|
) |
(4
|
) |
37,402
|
|
250
|
|
4,911
|
|
42,563
|
|
13
|
|
13
|
|
Net fee income |
22,002
|
|
(239
|
) |
(152
|
) |
21,611
|
|
18
|
|
(1,605
|
) |
20,024
|
|
(9
|
) |
(7
|
) |
Other income4 |
19,196
|
|
(1,232
|
) |
(329
|
) |
17,635
|
|
3,148
|
|
(1,688
|
) |
19,095
|
|
(1
|
) |
(10
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income5
|
78,993
|
|
(1,860
|
) |
(485
|
) |
76,648
|
|
3,416
|
|
1,618
|
|
81,682
|
|
3
|
|
2
|
|
Loan
impairment charges and other credit risk provisions |
(17,242
|
) |
31
|
|
113
|
|
(17,098
|
) |
(6
|
) |
(7,833
|
) |
(24,937
|
) |
(45
|
) |
(46
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income |
61,751
|
|
(1,829
|
) |
(372
|
) |
59,550
|
|
3,410
|
|
(6,215
|
) |
56,745
|
|
(8
|
) |
(10
|
) |
Operating
expenses (excluding goodwill impairment) |
(39,042
|
) |
514
|
|
301
|
|
(38,227
|
) |
(198
|
) |
(110
|
) |
(38,535
|
) |
1
|
|
|
|
Goodwill impairment |
|
|
|
|
|
|
|
|
|
|
(10,564
|
) |
(10,564
|
) |
n/a
|
|
n/a
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit |
22,709
|
|
(1,315
|
) |
(71
|
) |
21,323
|
|
3,212
|
|
(16,889
|
) |
7,646
|
|
(66
|
) |
(79
|
) |
Income from associates |
1,503
|
|
(12
|
) |
107
|
|
1,598
|
|
|
|
63
|
|
1,661
|
|
11
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit before tax |
24,212
|
|
(1,327
|
) |
36
|
|
22,921
|
|
3,212
|
|
(16,826
|
) |
9,307
|
|
(62
|
) |
(73
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 compared with 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
2006,
|
|
acquisitions |
|
|
|
|
|
|
|
|
|
|
|
|
acquisitions
|
|
|
|
at 2007
|
|
disposals
|
|
Under-
|
|
|
|
|
|
|
|
|
2006
as
|
|
and
|
|
Currency
|
|
exchange
|
|
& dilution
|
|
lying
|
|
2007 as
|
|
Reported
|
|
Underlying
|
|
|
reported
|
|
disposals1 |
|
translation2 |
|
rates6
|
|
gains1
|
|
change
|
|
reported
|
|
change
|
|
change
|
|
HSBC |
US$m
|
|
US$m
|
|
US$m
|
|
US$m
|
|
US$m
|
|
US$m
|
|
US$m
|
|
%
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
34,486
|
|
(3
|
) |
1,086
|
|
35,569
|
|
794
|
|
1,432
|
|
37,795
|
|
10
|
|
4
|
|
Net fee income |
17,182
|
|
53
|
|
750
|
|
17,985
|
|
(47
|
) |
4,064
|
|
22,002
|
|
28
|
|
23
|
|
Other income4 |
13,698
|
|
(53
|
) |
733
|
|
14,378
|
|
1,113
|
|
3,705
|
|
19,196
|
|
40
|
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income5 |
65,366
|
|
(3
|
) |
2,569
|
|
67,932
|
|
1,860
|
|
9,201
|
|
78,993
|
|
21
|
|
14
|
|
Loan
impairment charges and other credit risk provisions |
(10,573
|
) |
|
|
(243
|
) |
(10,816
|
) |
(133
|
) |
(6,293
|
) |
(17,242
|
) |
(63
|
) |
(58
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income |
54,793
|
|
(3
|
) |
2,326
|
|
57,116
|
|
1,727
|
|
2,908
|
|
61,751
|
|
13
|
|
5
|
|
Operating expenses |
(33,553
|
) |
2
|
|
(1,536
|
) |
(35,087
|
) |
(397
|
) |
(3,558
|
) |
(39,042
|
) |
(16
|
) |
(10
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit |
21,240
|
|
(1
|
) |
790
|
|
22,029
|
|
1,330
|
|
(650
|
) |
22,709
|
|
7
|
|
(3
|
) |
Income from associates |
846
|
|
|
|
20
|
|
866
|
|
(41
|
) |
678
|
|
1,503
|
|
78
|
|
78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit before tax |
22,086
|
|
(1
|
) |
810
|
|
22,895
|
|
1,289
|
|
28
|
|
24,212
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For footnotes, see page 143.
22
Back to Contents
Consolidated financial statements
The consolidated financial statements of HSBC and the separate financial statements
of HSBC Holdings have been prepared in accordance with International Financial
Reporting Standards (IFRSs) as issued by the International Accounting
Standards Board (IASB) and as endorsed by the European Union (EU).
EU-endorsed IFRSs may differ from IFRSs as issued by the IASB if, at any point
in time, new or amended IFRSs have not been endorsed by the EU. At 31 December
2008, there were no unendorsed standards effective for the year ended 31 December
2008 affecting these consolidated and separate financial statements, and there
was no difference between IFRSs endorsed by the EU and IFRSs issued by the
IASB in terms of their application to HSBC. Accordingly, HSBCs financial
statements for the year ended 31 December 2008 are prepared in accordance with
IFRSs as issued by the IASB.
HSBC uses the US dollar as its
presentation currency because the US dollar and currencies linked to it form
the major currency bloc in which HSBC transacts its business. Unless otherwise
stated, the accounting information presented in this document has been prepared
in accordance with IFRSs.
Constant currency
Constant currency comparatives for 2007 and 2006 used in the 2008 and 2007
commentaries, respectively, are computed by retranslating into US dollars,
for non-US dollar branches, subsidiaries, joint ventures and associates:
• |
the income statements for 2007 and 2006 at the average rates of exchange for 2008 and 2007, respectively; and |
|
|
• |
the balance sheets at 31 December 2007 and 2006 at the prevailing rates of exchange on 31 December 2008 and 2007, respectively. |
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 constant currency in tables or commentaries, comparative data reported in the functional currencies of HSBCs
operations have been translated at the appropriate exchange rates applied
in the current period on the basis described above.
23
Back to Contents
H S B C H O L D I
N G S P L C |
|
Report of the Directors: Operating and
Financial Review (continued) |
|
|
|
|
Financial summary > Income
statement |
Income statement |
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
US$m
|
|
|
US$m
|
|
|
US$m
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
91,301
|
|
|
92,359
|
|
|
75,879
|
|
|
Interest expense |
(48,738
|
) |
|
(54,564
|
) |
|
(41,393
|
) |
|
Net interest income |
42,563
|
|
|
37,795
|
|
|
34,486
|
|
|
Fee income |
24,764
|
|
|
26,337
|
|
|
21,080
|
|
|
Fee expense |
(4,740
|
) |
|
(4,335
|
) |
|
(3,898
|
) |
|
Net fee income |
20,024
|
|
|
22,002
|
|
|
17,182
|
|
|
Trading income excluding net interest income |
847
|
|
|
4,458
|
|
|
5,619
|
|
|
Net interest income on trading activities |
5,713
|
|
|
5,376
|
|
|
2,603
|
|
|
Net trading income |
6,560
|
|
|
9,834
|
|
|
8,222
|
|
|
Changes in fair value of long-term debt issued and related derivatives |
6,679
|
|
|
2,812
|
|
|
(35
|
) |
|
Net income/(expense) from other financial instruments designated at fair value |
(2,827
|
) |
|
1,271
|
|
|
692
|
|
|
Net income from financial instruments designated at fair value |
3,852
|
|
|
4,083
|
|
|
657
|
|
|
Gains less losses from financial investments |
197
|
|
|
1,956
|
|
|
969
|
|
|
Gains arising from dilution of interests in associates |
|
|
|
1,092
|
|
|
|
|
|
Dividend income |
272
|
|
|
324
|
|
|
340
|
|
|
Net earned insurance premiums |
10,850
|
|
|
9,076
|
|
|
5,668
|
|
|
Gains on disposal of French regional banks |
2,445
|
|
|
|
|
|
|
|
|
Other operating income |
1,808
|
|
|
1,439
|
|
|
2,546
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income |
88,571
|
|
|
87,601
|
|
|
70,070
|
|
|
Net insurance claims incurred and movement in liabilities to policyholders . |
(6,889
|
) |
|
(8,608
|
) |
|
(4,704
|
) |
|
|
|
|
|
|
|
|
|
|
|
Net operating
income before loan impairment charges and other credit risk provisions |
81,682
|
|
|
78,993
|
|
|
65,366
|
|
|
Loan impairment charges and other credit risk provisions |
(24,937
|
) |
|
(17,242
|
) |
|
(10,573
|
) |
|
|
|
|
|
|
|
|
|
|
|
Net operating income |
56,745
|
|
|
61,751
|
|
|
54,793
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee compensation and benefits |
(20,792
|
) |
|
(21,334
|
) |
|
(18,500
|
) |
|
General and administrative expenses |
(15,260
|
) |
|
(15,294
|
) |
|
(12,823
|
) |
|
Depreciation and impairment of property, plant and equipment |
(1,750
|
) |
|
(1,714
|
) |
|
(1,514
|
) |
|
Amortisation and impairment of intangible assets |
(733
|
) |
|
(700
|
) |
|
(716
|
) |
|
Goodwill impairment |
(10,564
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
(49,099
|
) |
|
(39,042
|
) |
|
(33,553
|
) |
|
|
|
|
|
|
|
|
|
|
|
Operating profit |
7,646
|
|
|
22,709
|
|
|
21,240
|
|
|
Share of profit in associates and joint ventures |
1,661
|
|
|
1,503
|
|
|
846
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit before tax |
9,307
|
|
|
24,212
|
|
|
22,086
|
|
|
Tax expense |
(2,809
|
) |
|
(3,757
|
) |
|
(5,215
|
) |
|
|
|
|
|
|
|
|
|
|
|
Profit for the year |
6,498
|
|
|
20,455
|
|
|
16,871
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit attributable to shareholders of the parent company |
5,728
|
|
|
19,133
|
|
|
15,789
|
|
|
Profit attributable to minority interests |
770
|
|
|
1,322
|
|
|
1,082
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 compared with 2007
Reported pre-tax profits in 2008 fell by 62 per cent to US$9.3 billion
and earnings per share declined to US$0.47. In a year characterised by
a significant deterioration in the credit markets and by unprecedented illiquidity
in most asset classes, return on average total shareholders equity fell
to 4.7 per cent.
The fall in profit before tax
was exacerbated by recognition of a US$10.6 billion
impairment
charge which wrote off in full the goodwill carried on the balance sheet in
respect of the Groups investment in its North America Personal Financial
Services business. This non-cash charge arose substantially in the second half
of 2008 as heightened risk premia in the market increased discount rates and
cash flows estimated from ongoing activities fell as the US economy continued
to decline and the outlook for the business deteriorated.
Asian performance was strong, generating profit
24
Back to Contents
before tax of US$11.9 billion, broadly in line with results excluding the dilution gains which arose in 2007 when HSBC did not participate in share offerings by its mainland Chinese associates. Within Asia, Global
Banking and Markets results were strongly ahead, driven by foreign exchange, Rates and securities services. Balance Sheet Management revenues rose significantly from positioning ahead of interest rate cuts, and were especially strong in Europe
despite losses from the defaults of certain financial sector companies.
With the exception of Personal Financial Services, which incurred significant losses in North America, all customer groups remained profitable. Commercial Banking and Private Banking delivered
results broadly in line with 2007, while Global Banking and Markets profits declined.
Performance was overshadowed by a US$7.7 billion rise in loan impairment charges and other credit risk provisions, largely from the US consumer finance business, and a further US$5.4
billion in trading write-downs on illiquid legacy positions in credit trading, leveraged and acquisition finance and monoline credit exposure in Global Banking and Markets. Increases in loan impairment charges and other credit risk provisions in
Personal Financial Services and Commercial Banking, the latter rising rapidly in the second half of 2008 from a low base, occurred as the global economy slowed. Global Banking and Markets also experienced a rise in loan impairment charges and other
credit risk provisions as refinancing options dried up for a number of companies as the market for long-term asset financing became increasingly illiquid. The market turmoil also led to impairments on equity securities in the available-for-sale
portfolio.
|
The following items were significant: |
|
|
• |
the non-recurrence of US$1.1 billion of
gains which arose in 2007 on the dilution
of the Groups stakes in various
associates; |
|
|
• |
a US$3.9 billion increase (from US$2.8
billion in 2007 to US$6.7 billion)
in fair value gains from wider credit
spreads recorded predominantly on HSBCs own long-term debt
designated at fair value. These gains are reported
in the Other segment, are not allocated to customer groups and are not included
within regulatory capital calculations; |
|
|
• |
the gain of US$2.4 billion on the sale
of the French regional banks; and |
|
|
• |
a charge against trading income of US$984
million following the alleged fraud in December
2008 relating to Bernard L Madoff |
Investment Securities LLC (Madoff
Securities).
On an underlying basis, profit before tax declined by 73 per cent compared with 2007. The difference between the reported and underlying results is explained on page 21. Except where stated
otherwise, the commentaries in the Financial Summary are on an underlying basis.
2007 compared with 2006
The strength of HSBCs geographically diversified business model was demonstrated by profit growth in a year in which financial markets experienced significant dislocation and the credit environment, particularly in
the US, deteriorated markedly. Pre-tax profits in 2007 increased by 10 per cent to US$24.2 billion and earnings per share rose by 18 per cent to US$1.65. Despite difficult market conditions, the return on shareholders equity exceeded
15 per cent, capital ratios remained strong, revenue growth was in double digits and the cost efficiency ratio improved. For the first time in recent years, pre-tax profits from the Groups emerging markets operations exceeded 60 per cent of
total profits.
On an underlying basis, profit before tax was broadly in line with 2006.
The Group had a notably strong year in most emerging markets. Vigorous economic activity, strong trade flows and buoyant equity markets helped drive broadly based profit growth, with profits in
all customer groups ahead of 2006. A strong performance in Asia in all customer groups compensated for the effect of deteriorating conditions in the US and slower growth in other mature markets. Commercial Banking and Private Banking again delivered
record results, as did many of the businesses within Global Banking and Markets, including foreign exchange, payments and cash management, equities, HSBC Global Asset Management and securities services.
The deterioration in credit quality which began in 2006 in a particular portfolio of purchased mortgages in the US consumer finance business widened in the second half of 2007, leading to
significantly increased loan impairment charges in the US as economic conditions deteriorated and global market liquidity for asset-backed securities dried up. This lack of liquidity adversely affected credit trading and asset-backed securities
businesses within Global Banking and Markets, where de-leveraging of traded markets contributed to volatility and lower valuations. The effect of these factors was partially offset by a gain on HSBCs own debt designated at fair
value.
25
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H S B C H O L
D I N G S P L C |
|
Report
of the Directors: Operating and Financial Review (continued) |
|
|
|
|
Financial summary > Group
performance > Net interest income / net fee income |
Group performance by income and expense item
Net interest income
|
2008 |
|
2007 |
|
2006 |
|
Net interest income1 (US$m) |
42,563 |
|
37,795 |
|
34,486 |
|
Average interest-earning assets (US$m) |
1,466,622 |
|
1,296,701 |
|
1,113,404 |
|
Gross interest yield2 (per cent) |
6.23 |
|
7.12 |
|
6.82 |
|
Net interest spread3 (per cent) |
2.87 |
|
2.86 |
|
2.94 |
|
Net interest margin4 (per cent) |
2.90 |
|
2.91 |
|
3.10 |
|
1 |
Net interest income includes the cost of
funding trading assets, while the related external revenues are reported
in trading income. In HSBCs customer group results, the cost of funding
trading assets is included with Global Banking and Markets net trading
income as an interest expense. |
|
|
2 |
Gross interest yield is the average annualised
interest rate earned on average interest-earning assets (AIEA). |
|
|
3 |
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 paid on average
interest-bearing funds. |
|
|
4 |
Net interest margin is net interest income
expressed as an annualised percentage of AIEA. |
|
|
2008 compared with 2007
Reported net interest income of US$42.6 billion rose by 13 per cent compared with 2007, 13 per cent on an underlying basis.
Growth in net interest income was driven by significantly higher revenues in Balance Sheet Management, in part reflecting favourable positioning to take advantage of falling interest rates.
Lending and deposit balances also grew strongly, while progressive reductions in central bank reference rates led to a decline in both asset yields and the cost of funds. Overall, spreads narrowed on an underlying basis.
Average interest-earning assets increased to US$1,467 billion, led by growth in average loans and advances to customers. This was mainly due to an increase in average term lending balances
in Europe and Asia.
An increase in average interest-bearing liabilities was driven by growth in average customer accounts, notably in Europe. HSBC attracted substantial deposits from customers who valued
HSBCs perceived strength at a time of global financial market turmoil and customers also expressed a preference for security and liquidity following declines in equity markets.
Interest rates were cut aggressively in many countries during 2008, as central banks reduced their reference rates as part of stimulus programmes introduced in response to deteriorating
economic conditions. This contributed to a decline in asset yields. The cost of funds also fell, but this was less significant than the decline in yields as spreads narrowed overall on an underlying basis.
In North America, net interest income was also adversely affected by rises in loan modifications designed to reduce the payment burden on the Groups customers, and impaired loans.
2007 compared with 2006
Reported net interest income increased by 10 per cent to US$37.8 billion, 4 per cent on an underlying basis. The increase was driven by an underlying 10 per cent rise in average interest earning assets to US$1,297
billion, partly offset by a decline in spreads as funding costs rose more than yields.
The growth in average interest earning assets was due to a 6 per cent rise in average loans and advances to customers. HSBC continued to focus on competitive liability products, with average
deposits and current account balances rising by 16 per cent, driven by customer acquisition in Rest of Asia-Pacific and deposit balance growth in North America, Europe and Hong Kong.
Balance Sheet Management revenues increased compared with 2006, particularly in Hong Kong and Rest of Asia-Pacific as deposits grew strongly.
Lending spreads in 2007 reflected the continued benign corporate and commercial credit conditions that have existed in the last three or four years. However, some upward re-pricing occurred in
personal lending as a result of growing delinquency and restricted credit appetite and, as market liquidity diminished in the last four months of 2007, the value and cost of funds, including the cost of funding HSBCs trading activities, rose
markedly.
26
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Net fee income
|
2008 |
|
2007 |
|
2006 |
|
|
US$m |
|
US$m |
|
US$m |
|
Cards |
5,844 |
|
6,496 |
|
5,367 |
|
Account services |
4,353 |
|
4,359 |
|
3,633 |
|
Funds under management |
2,757 |
|
2,975 |
|
2,718 |
|
Insurance |
1,771 |
|
1,836 |
|
1,358 |
|
Broking income |
1,738 |
|
2,012 |
|
1,354 |
|
Credit facilities |
1,313 |
|
1,138 |
|
922 |
|
Global custody |
1,311 |
|
1,404 |
|
797 |
|
Imports/exports |
1,014 |
|
866 |
|
780 |
|
Remittances |
610 |
|
556 |
|
472 |
|
Unit trusts |
502 |
|
875 |
|
520 |
|
Corporate finance |
381 |
|
409 |
|
255 |
|
Underwriting |
325 |
|
367 |
|
286 |
|
Trust income |
325 |
|
299 |
|
248 |
|
Taxpayer financial services |
168 |
|
252 |
|
263 |
|
Maintenance income on operating leases |
130 |
|
139 |
|
122 |
|
Mortgage servicing |
120 |
|
109 |
|
97 |
|
Other |
2,102 |
|
2,245 |
|
1,888 |
|
|
| |
| |
| |
Total fee income |
24,764 |
|
26,337 |
|
21,080 |
|
Less: fee expense |
(4,740 |
) |
(4,335 |
) |
(3,898 |
) |
|
| |
| |
|
|
Net fee income |
20,024 |
|
22,002 |
|
17,182 |
|
|
| |
| |
|
|
|
|
|
|
|
|
|
2008 compared with 2007
Reported net fee income declined by 9 per cent to US$20 billion, 7 per cent lower on an underlying basis.
Lower equity market-related revenues, notably in Hong Kong, were driven by weakened investor sentiment, and reflected in the fall of 17 per cent in the aggregate of broking income, global
custody and unit trust income. Similarly, fund management fees declined as equity markets retreated and lower performance fees were earned.
HSBC announced revisions to its credit card fee charging policies in the US in 2007, and this fed through as expected in the form of a substantial decline in overlimit fees, further compounded
by lower cash advance and interchange fee income as a result of reduced volumes. In the UK, the divestment in 2008 of the card acquiring business resulted in reduced card acquiring fees. Offsetting these factors were rises in card fees in Hong Kong,
the Middle East, India and Turkey.
Fee income from credit facilities rose, notably in the Middle East, in line with customer volumes. Growth in fee income from trade and supply chain products reflected higher volumes and
customer acquisition in India and, to a greater extent in the Middle East, increased activity driven by commodity price inflation.
2007 compared with 2006
Reported net fee income increased by 28 per cent to US$22 billion, 23 per cent on an underlying basis.
The rise in card fee income was mainly in the US and Mexico. Income growth in the US was driven by higher late and over-limit fees in addition to higher balances. Revenue from enhancement
services on cards also increased. In Mexico, the credit card business continued to grow, both in balances and in transaction volumes.
Higher income from funds under management products, broking services, unit trusts and global custody was driven by buoyant stock markets in Hong Kong and throughout the Rest of Asia-Pacific
region, enhanced by the launch of new investment schemes.
Increased account services income was due to higher levels of customer activity in Europe, North America and Latin America. In the US, growth in credit card balances triggered an increased use
of the Intellicheck service. In the UK, growth in the sale of fee-based packaged accounts contributed to a rise in account services fees.
An increase in insurance fees was driven by higher life insurance commission income, boosted by new product offerings in Hong Kong.
27
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H S B C H O L
D I N G S P L C |
|
Report
of the Directors: Operating and Financial Review (continued) |
|
|
|
|
Financial summary > Group
performance > Net trading income / Net income from financial instruments
at FV |
Net trading income |
|
|
|
|
|
|
|
|
|
|
2008 |
|
2007 |
|
2006 |
|
|
|
US$m |
|
US$m |
|
US$m |
|
Trading activities |
|
2,988 |
|
4,521 |
|
5,465 |
|
Net interest income on trading activities |
|
5,713 |
|
5,376 |
|
2,603 |
|
Other trading income hedge ineffectiveness: |
|
|
|
|
|
|
|
on cash
flow hedges |
|
(40 |
) |
(77 |
) |
(122 |
) |
on fair
value hedges |
|
5 |
|
19 |
|
16 |
|
Non-qualifying hedges |
|
(1,122 |
) |
(5 |
) |
260 |
|
Losses on collapse of Madoff Securities |
|
(984 |
) |
|
|
|
|
| |
| |
| |
| |
Net trading income1,2
|
|
6,560 |
|
9,834 |
|
8,222 |
|
| |
| |
| |
| |
1 |
The cost of internal funding of trading
assets was US$5,547 million (2007: US$5,433 million; 2006: US$2,658
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 HSBCs customer
group and global business reporting. |
|
|
2 |
Net trading income includes US$529 million
(2007: US$34 million), associated with changes in the fair value of
issued structured notes and other hybrid instrument liabilities derived
from movements in HSBC issuance spreads. |
|
2008 compared with 2007
Reported net trading income fell by 33 per cent to US$6.6 billion, 32 per cent lower on an underlying basis.
Net income from trading activities declined by 81 per cent, driven by the continuing effect of the market turmoil which led to US$5.4 billion of write-downs on legacy monoline credit
exposures, credit trading and leveraged and acquisition finance loans. More information about the losses, the associated assets and residual exposure is provided in Impact of Market Turmoil on pages 144 to 162.
Record foreign exchange trading income was due to increased customer volumes and market volatility across all regions, as investors sought to reduce risk in the second half of 2008, driving
growth in global foreign exchange trading as demand for assets denominated in US dollars and Japanese Yen increased.
Rates trading income rose substantially, with record revenues in the first half of 2008 due to favourable positioning against movements in interest rate yield curves as central banks responded
to the market turmoil by lowering short-term interest rates. Revenues were also boosted by an increased number of deals, widening spreads and increased customer demand for trading and hedging products.
The decline in equities trading income reflected weaker equity markets, particularly in Hong Kong, where demand for structured equity products fell. In addition, following the alleged fraud at
Madoff Securities, HSBC wrote off the value of units it held in funds that had invested with the company and took a US$984 million charge. The units had been acquired in connection with various financing transactions HSBC had entered into with
institutional clients.
The decline in non-qualifying hedges related to mark-to-market losses on cross-currency swaps as the US dollar appreciated and on interest rate swaps as interest rates fell in late 2008.
Widening credit spreads led to further gains on credit default swap transactions in parts of the Global Banking portfolio.
2007 compared with 2006
Reported net trading income increased by 20 per cent to US$9.8 billion, 13 per cent on an underlying basis.
Net interest income on trading activities more
than doubled, mainly due to increased holdings of shorter maturity assets
in the UK.
Net trading income was significantly affected by a total of US$2.1 billion of write-downs on credit trading, leveraged and acquisition financing positions, and monoline credit exposures,
resulting from deterioration in the credit market in the second half of 2007. The write-downs arose mainly in the US and, to a lesser extent, the UK.
Income from foreign exchange trading increased by 40 per cent to a record result. Revenues were driven by higher customer volumes, against the backdrop of a weakening US dollar and greater
market volatility.
Trading income from structured derivatives fell by 26 per cent. The structured credit business incurred losses in the second half of the year in the difficult trading conditions. This was
partly offset by higher trading income from other structured derivative products, following investment made in technical expertise and systems in previous years.
Record results were achieved in the equities business, reflecting strong growth across all regions, particularly Europe.
28
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Net income from financial instruments designated at fair value
|
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
|
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
Net income arising from: |
|
|
|
|
|
|
|
|
|
|
|
financial assets held to meet liabilities under insurance and |
|
|
|
|
|
|
|
|
|
|
|
investment contracts |
(5,064 |
) |
|
2,056 |
|
|
1,552 |
|
|
|
|
liabilities to customers under investment contracts |
1,751 |
|
|
(940 |
) |
|
(1,008 |
) |
|
|
|
HSBCs long-term debt issued and related derivatives |
6,679 |
|
|
2,812 |
|
|
(35 |
) |
|
|
|
change in own credit spread on long-term debt |
6,570 |
|
|
3,055 |
|
|
(388 |
) |
|
|
|
other changes in fair value1
|
109 |
|
|
(243 |
) |
|
353 |
|
|
|
|
other instruments designated at fair value and related derivatives |
486 |
|
|
155 |
|
|
148 |
|
|
| | |
|
| |
| | |
| |
|
Net income from financial instruments designated at fair value |
3,852 |
|
|
4,083 |
|
|
657 |
|
|
|
|
| |
| | |
| |
|
Financial assets designated at fair value at 31 December |
28,533 |
|
|
41,564 |
|
|
20,573 |
|
|
Financial liabilities designated at fair value at 31 December |
74,587 |
|
|
89,939 |
|
|
70,211 |
|
|
1 |
Includes gains and losses arising from changes in the fair value of derivatives that are managed in conjunction with HSBCs long-term debt issued. |
|
HSBC designates certain financial instruments at fair value to remove or reduce accounting mismatches in measurement or recognition, or where financial instruments are managed and their
performance is evaluated together on a fair value basis. All income and expense from financial instruments designated at fair value are included in this line except for interest arising from HSBCs issued debt securities and related derivatives
managed in conjunction with those debt securities, which is recognised in Interest expense.
HSBC principally uses the fair value designation in the following instances:
• |
for certain fixed-rate long-term debt issues whose rate profile has been changed to floating through interest rate swaps as part of a documented interest rate management strategy.
Approximately US$59 billion (2007:
US$66 billion) of the Groups debt
issues have been accounted for using
the fair value option.
The movement in fair value of these debt
issues includes the effect of own credit spread changes and any ineffectiveness in the economic relationship between the related swaps and
own debt. As credit spreads widen or narrow, accounting profits or losses are booked, respectively. The size and direction of the accounting consequences of changes in own credit spread and ineffectiveness can be volatile from year to year, but do not alter the cash flows envisaged as part of the documented interest rate management strategy; as a consequence of this, gains and losses arising from changes in own credit spread on long-term debt are not regarded internally as part of managerial performance. Similarly, such gains and losses are ignored in the calculation of regulatory capital. |
• |
for approximately US$11 billion (2007: US$17 billion) of financial assets held to meet liabilities under insurance contracts, and certain
liabilities under investment contracts with discretionary participation features; and |
| |
• |
for approximately US$7 billion (2007: US$14 billion) of financial assets held to meet liabilities under unit-linked and other investment contracts. |
2008 compared with 2007
Reported net income from financial instruments designated at fair value decreased by US$231 million to US$3.9 billion in 2008.
Credit spreads widened significantly during the
year, leading to US$6.6 billion of
positive fair value movements on certain long-term debt issued by the Group, compared with US$3.1 billion in 2007. These fair value movements will fully reverse over the life of the debt. The cumulative fair value adjustment at 31 December 2008
amounted to US$8.0 billion.
A negative movement of US$5.1 billion was recorded in the fair value of assets held to back insurance and investment contracts, compared with a positive movement of US$2.1 billion in
2007. This reflected investment losses driven by falling equity and bond markets, predominantly affecting the value of assets held in unit-linked and participating funds in Hong Kong, France and the UK. The negative movement in fair value is
partially offset by a corresponding reduction in Net insurance claims and movement in liabilities to policyholders, where unit-linked policyholders in particular participate in the investment performance experienced on the investment
portfolios held to support the liabilities.
29
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H S B C H O L D I
N G S P L C |
|
Report of the Directors: Operating
and Financial Review (continued) |
|
|
|
|
Financial summary > Group
performance > Gains less losses from financial investments / Dilution
gains / Net earned insurance premiums |
For assets held
to meet liabilities under investment contracts the corresponding reduction
in the liability to customers is also reported within net income from financial
instruments designated at fair value. A reduction of US$1.8 billion in
the movement in fair value of liabilities held under investment contracts
compared with an increase in the fair value of liabilities of US$940 million
in 2007.
2007 compared with 2006
Credit spreads widened significantly in the second
half of 2007, leading to a substantial increase in net income from financial
instruments designated at fair value compared with 2006. This was primarily
driven by a widening in credit spreads on certain fixed-rate long-term debt
issued by HSBC Holdings
and its subsidiaries. These cumulative gains will
fully reverse over the life of the debt. The cumulative adjustments to reserves
(when the policy is applied for the first time) and the income statement (subsequent
applications of the policy), reflecting the change in own credit spread since
the fair value option was available, was US$1.6 billion after taking into
account the US$3.1 billion credit in 2007.
Income from
assets held to meet liabilities under insurance and investment contracts also
rose, by 32 per cent, reflecting primarily premium growth and higher investment
returns on the portfolios held by the insurance businesses in the UK and Hong
Kong. The change in fair value of liabilities under investment contracts declined
by 7 per cent.
Gains less losses from financial
investments
|
2008 |
|
2007 |
|
2006 |
|
|
US$m |
|
US$m |
|
US$m |
|
Net gain from disposal of: |
|
|
|
|
|
|
debt securities |
19
|
|
120
|
|
252 |
|
equity securities |
1,216 |
|
1,864 |
|
702 |
|
other financial investments |
4
|
|
14 |
|
15 |
|
|
|
|
|
|
|
|
|
1,239
|
|
1,998
|
|
969 |
|
Impairment of available-for-sale
equity securities |
(1,042 |
) |
(42 |
) |
|
|
|
|
|
|
|
|
|
Gains less losses
from financial investments |
197
|
|
1,956
|
|
969 |
|
|
|
|
|
|
|
|
2008 compared 2007
Reported gains less losses of US$197 million from financial investments during 2008 were 90 per cent lower than in 2007, 93 per cent lower on an underlying basis. A reduction in net gains from disposals was compounded
by significant impairments recognised on equity securities held in the available-for-sale portfolio as certain investments were marked down to reflect the prevailing market conditions.
The redemption of Visa Inc. (Visa) shares following its IPO resulted in significant gains, and there were further gains from the sale of MasterCard Inc. (MasterCard)
shares. These were more than offset by losses in Principal Investments and the non-recurrence of various significant gains in 2007, mostly in respect of Euronext, the European stock exchange, and a credit bureau in Brazil.
Declining equity
markets caused impairments to be recognised against a number of strategic
investments in Asia, held in the available-for-sale portfolio and on private
equity investments, mainly in Europe. The market turmoil in the US also led
to impairments against investments in various US financial institutions.
2007 compared with 2006
Net gains of US$2.0 billion were reported by HSBC as a result of the disposal of financial investments during 2007, a two-fold increase over 2006 and 93 per cent higher on an underlying basis.
The increase was driven by the sale of shares and various equity investments in all regions, including holdings in Euronext (the European stock exchange), MasterCard in North America and a
credit bureau in Brazil. In Private Banking, a gain of US$91 million arose from the sale of a further holding in the Hermitage Fund, compared with US$117 million in 2006. The gains in 2007 were marginally offset by the non-recurrence of a
US$101 million gain on the sale of part of HSBCs stake in UTI Bank Limited in 2006.
30
Back to Contents
Gains arising from dilution of interests in associates
In 2007, HSBCs associates, Industrial Bank,
Ping An Insurance and Bank of Communications in mainland China, Financiera
Independencia in Mexico and Techcombank in Vietnam issued new shares for which
HSBC did not subscribe. As a
Net earned insurance premiums
consequence of the new monies raised by the associates, HSBCs share of their underlying
assets increased by US$1.1 billion, notwithstanding the reduction in the
Groups interests. These gains were presented in the income statement as
Gains arising from dilution of interests in associates, and should
be regarded as exceptional.
|
2008 |
|
2007 |
|
2006 |
|
|
US$m |
|
US$m |
|
US$m |
|
Gross insurance
premium income |
12,547
|
|
11,001
|
|
6,455
|
|
Reinsurance premiums |
(1,697 |
) |
(1,925 |
) |
(787 |
) |
|
|
|
|
|
|
|
Net earned insurance premiums |
10,850 |
|
9,076 |
|
5,668 |
|
|
|
|
|
|
|
|
2008 compared with 2007
Reported net earned insurance premiums amounted to US$10.9 billion, 20 per cent higher than in 2007. HSBC acquired the remaining interest in HSBC Assurances in France in March 2007 and, in October 2007, sold the
Hamilton Insurance Company Limited and Hamilton Life Assurance Company Limited in the UK. On an underlying basis, net earned insurance premiums increased by 14 per cent.
Growth in net earned insurance premiums was driven by a continued strong performance from the UK life assurance business, mainly as a result of higher sales of the Guaranteed Income Bond, a
non-linked product that was launched in June 2007. The introduction of enhanced life assurance benefits to certain pension products, which led to these products being reclassified as insurance contracts, also resulted in higher premiums.
The Hong Kong insurance business also performed well with respect to premium growth, due to stronger sales of products with discretionary participation features (DPF) and an
increase in regular premiums partly offset by a reduction in unit-linked premiums.
In France, HSBC
Assurances performed well in a declining market, as three promotional campaigns
during the year contributed to growth in sales of policies with DPF. However,
a significant one-off reinsurance transaction undertaken during 2008 caused
net earned insurance premiums to decrease compared with 2007.
2007 compared with 2006
Reported net earned insurance premiums of US$9.1
billion were 60 per cent higher than in 2006, boosted by HSBCs acquisition
in the first half of 2007 of the remaining shares in HSBC Assurances in France
and the purchase of HSBC Bank Panama in Central America in late 2006. Underlying
net insurance premiums grew by 21 per cent.
Growth in net earned insurance premiums was achieved in all regions except North America, primarily from new business growth in the life insurance business in Europe, Hong Kong and Latin
America. An increase in net earned premiums was recorded in the UK due to higher sales of Guaranteed Income Bonds and the introduction of enhanced death benefits to pension contracts. New product launches also aided growth in Hong Kong. In Latin
America, higher premiums in Brazil were driven by increased sales of pension products with linked-life policies.
In non-life insurance, the UK benefited from a decision to reduce the proportion of risk and corresponding premiums ceded to reinsurers compared with 2006. The Latin American business also
performed well, led by growth in motor premiums in Argentina. However, results in North America declined, as a reduction in loan volumes led to a fall in credit insurance sales and HSBC stopped reinsuring credit insurance for other lenders.
31
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H S B C H O L D I
N G S P L C |
|
Report of the Directors: Operating and Financial Review (continued) |
|
|
|
|
Financial summary > Group performance > Other operating income / Net insurance claims incurred |
Other operating income
|
2008 |
|
2007 |
|
2006 |
|
|
US$m |
|
US$m |
|
US$m |
|
Rent received |
606 |
|
630 |
|
687 |
|
Gains/(losses) recognised on assets
held for sale |
(130 |
) |
5 |
|
28 |
|
Valuation gains/(losses) on investment
properties |
(92 |
) |
152 |
|
164 |
|
Gain on disposal of property, plant
and equipment, intangible assets and non-financial investments |
465 |
|
213 |
|
781 |
|
Change in present value of in-force
long-term insurance business |
286 |
|
(145 |
) |
40 |
|
Gain on repurchase of 8 Canada
Square |
416 |
|
|
|
|
|
Other |
257 |
|
584 |
|
846 |
|
|
|
|
|
|
|
|
Other operating income |
1,808 |
|
1,439 |
|
2,546 |
|
|
|
|
|
|
|
|
2008 compared with 2007
Reported other operating income of US$1.8 billion was 26 per cent higher than in 2007. This included gains of US$425 million on the sale of the card merchant acquiring business in the UK and US$71 million on the
sale of HSBCs entire stake in Financiera Independencia, a Mexican consumer lending company. On an underlying basis, other operating income fell by 23 per cent.
The difficult property market conditions in the UK led to a loss in value of a property fund, lower income from the sale of property fund assets and a reduction in Group real estate disposals
in 2008. Similarly, in Hong Kong revaluation gains on investment properties did not recur.
Life assurance enhancements to pension products resulted in increased present value of in-force long-term insurance (PVIF) business, which also benefited from the non-recurrence of
regulatory changes in 2007 in the UK.
During 2008, HSBC recognised a gain of US$416 million in respect of the purchase of the subsidiary of Metrovacesa which owned the property and long leasehold comprising 8 Canada Square,
London. See Note 23 on the Financial Statements.
Other operating
income declined, driven by losses on sale of the Canadian vehicle finance
business and other loan portfolios in 2008, in addition to the non-recurrence
of gains on disposal of fixed assets and private equity investments in 2007.
2007 compared with 2006
Reported other operating income of US$1.4 billion was 43 per cent lower than in 2006, 51 per cent lower on an underlying basis.
Significant decreases in gain on disposal of property and other income were driven by lower proceeds from the sale of real estate in the declining US property market. This was compounded by the
non-recurrence of income earned on asset disposals in 2006, including the sale of the former head office building of Hang Seng Bank in Hong Kong and properties in Japan and India, and the transfer of the credit card acquiring business into a joint
venture with Global Payments Inc. A gain on the sale and leaseback of a London building in 2007 and the non-recurrence of a loss on sale on asset disposals in 2006 partially offset these factors.
Although HSBC sold its Canary Wharf headquarters building at 8 Canada Square in 2007, the gain remained unrecognised as the Group continued to provide bridge finance for the debt portion of the
transaction.
PVIF business declined, primarily due to a change in the calculation methodology employed in the UK as HSBC implemented regulatory changes to the rules governing the calculation of insurance
liabilities. This had a marginally positive effect on profit as there was a corresponding reduction in policyholder liabilities. Income rose in Mexico due to a refinement of the income recognition methodology in respect of long-term insurance
contracts.
32
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Net insurance claims incurred and movement in liabilities to policyholders
|
2008 |
|
2007 |
|
2006 |
|
|
US$m |
|
US$m |
|
US$m |
|
Insurance claims incurred and movement
in liabilities to policyholders: |
|
|
|
|
|
|
gross |
9,206
|
|
9,550
|
|
5,072
|
|
reinsurers
share |
(2,317 |
) |
(942 |
) |
(368 |
) |
|
|
|
|
|
|
|
net1 |
6,889 |
|
8,608 |
|
4,704 |
|
|
|
|
|
|
|
|
1 |
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. |
2008 compared with 2007
Reported net insurance claims incurred and movement in liabilities to policyholders decreased by 20 per cent to US$6.9 billion. HSBC acquired the remaining interest in HSBC Assurances in France in March 2007 and, in
October 2007, sold the Hamilton Insurance Company Limited and Hamilton Life Assurance Company Limited in the UK. On an underlying basis, net insurance claims incurred and movement in liabilities to policyholders fell by 22 per cent.
The reduction in net insurance claims incurred and movement in liabilities to policyholders primarily reflected the impact of markedly weaker investment markets worldwide. This led to a
reduction in liabilities to policyholders on unit-linked and, to a certain extent, participating policies where policyholders participate in the investment performance of the assets supporting the liabilities. As noted above, the losses experienced
on the assets held to support insurance contract liabilities are reported in Net income from financial instruments designated at fair value.
The decline arising
from market value movements was partially offset by an increase in claims
incurred and movement in liabilities to policyholders driven by new business
growth, most significantly in France, the UK and Hong Kong. In addition, 2007
was affected by the implementation of an FSA regulatory change, which led
to lower gross liability valuations in that year, along with a reduction in
the corresponding reinsurers share.
A significant increase in the reinsurers share of claims incurred and movement in liabilities to policyholders was primarily driven by the above regulatory change plus an increase in a
reserve provision on a unit-linked product in Hong Kong, which was fully reinsured. In addition, a significant one-off reinsurance transaction was undertaken in France during 2008.
2007 compared with 2006
Reported net insurance claims incurred and movement in liabilities to policyholders of US$8.6 billion were 83 per cent higher than in 2006 following the acquisition of the remaining shares in HSBC Assurances in France
in March 2007 and HSBC Bank Panama in late 2006. The increase was 32 per cent on an underlying basis.
Growth in net insurance claims incurred and movement in liabilities to policyholders was largely driven by the life insurance business. This reflected a combination of business growth, and was
in line with higher net earned insurance premiums and, where policyholders participate in the investment performance of the assets supporting the liabilities, higher investment returns on unit-linked and participating policies. This was most notable
in Hong Kong, the UK and Brazil. There was an offsetting increase in Net income from financial instruments designated at fair value which reflected these investment returns. In addition, FSA rule changes in the UK led to a lower
valuation of the liabilities to policyholders on life policies.
33
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H S B C H O L D I
N G S P L C |
|
Report of the Directors: Operating and Financial Review (continued) |
|
|
|
|
Financial summary > Group performance > Loan impairment charges |
Loan impairment charges and other credit risk provisions
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
Loan impairment charges |
|
|
|
|
|
|
|
|
|
New allowances net
of allowance releases |
24,965
|
|
|
18,182 |
|
|
11,326 |
|
|
Recoveries of amounts
previously written off |
(834 |
) |
|
(1,005 |
) |
|
(779 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
24,131 |
|
|
17,177 |
|
|
10,547 |
|
|
|
|
|
|
|
|
|
|
|
|
Individually assessed allowances |
2,064
|
|
|
796 |
|
|
458 |
|
|
Collectively assessed allowances |
22,067
|
|
|
16,381
|
|
|
10,089
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment of available-for-sale
debt securities |
737 |
|
|
44 |
|
|
21 |
|
|
Other credit risk provisions |
69 |
|
|
21 |
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
Loan impairment charges and other
credit risk provisions |
24,937 |
|
|
17,242 |
|
|
10,573 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% |
|
|
% |
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
As a percentage of net operating
income before loan impairment charges and other credit risk provisions |
30.5 |
|
|
21.8 |
|
|
16.2 |
|
|
Impairment charges on loans and
advances to customers as a percentage of gross average loans and advances
to customers |
2.5 |
|
|
2.0 |
|
|
1.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
Customer impaired loans |
25,352 |
|
|
19,582 |
|
|
15,071 |
|
|
Customer loan impairment allowances |
23,909 |
|
|
19,205 |
|
|
13,578 |
|
|
2008 compared with 2007
Reported loan impairment charges and other credit risk provisions were US$24.9 billion in 2008, an increase of 45 per cent over 2007, 46 per cent on an underlying basis.
A deterioration in credit quality was experienced across all customer groups and geographical regions as the global economy slowed. The rise in Group loan impairment charges and other credit
risk provisions also reflected an underlying 8 per cent increase in lending to customers (excluding the financial sector and settlement accounts).
Loan impairment charges rose significantly in the US by 38 per cent to US$16.3 billion, due to credit quality deterioration across all US portfolios in Personal Financial
Services.
In the US consumer lending portfolio, loan impairment charges rose as delinquency rates deteriorated sharply and the economy declined markedly in the second half of 2008, most notably in the
first lien portfolio. This was particularly apparent in the geographical regions most affected by house price depreciation and rising unemployment rates. In mortgage services, loan impairment charges rose as 2005 and 2006 vintages matured and moved
into the later stages of delinquency. This was partly offset by the benefit of lower balances as run-off continued, albeit at a slowing pace as house price depreciation restricted refinancing options for customers. In HSBC USA, loan impairment
charges rose as credit quality worsened across the real estate secured portfolio and private label cards. Delinquencies rose
in the prime first lien residential mortgage portfolio, Home Equity Line of Credit and Home Equity Loan second lien portfolios. The higher delinquency rate for prime first lien mortgages was in part due to lower balances
following US$7.0 billion of portfolio sales during the year.
Loan impairment charges in the US card and retail services portfolios rose, again driven by increasing unemployment, portfolio seasoning, higher levels of personal bankruptcy filings and
continued weakness in the US economy which was most apparent in regions with the most significant declines in house prices and rising unemployment.
Loan impairment charges in Commercial Banking in North America more than doubled from a low base in 2007, due to deterioration across the commercial real estate, middle market and corporate
banking portfolios in the US and, to a lesser extent, higher loan impairment charges against firms in the manufacturing, export and commercial real estate sectors in Canada.
In the UK, a modest decline in loan impairment charges in Personal Financial Services reflected the non-recurrence of a methodology change at HFC in 2007 which resulted in higher impairment
charges. Credit quality in the Personal Financial Services portfolio remained broadly stable, reflecting early risk mitigation through the tightening of lending controls and the sale of non-core credit card portfolios during the year. Credit quality
in the unsecured portfolios deteriorated slightly in 2008, particularly in the second half of the year, due to the weakening UK economy. Loan impairment charges in the commercial portfolio rose in 2008 as the
34
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weakening property market led to higher impairment charges against construction
companies and businesses dependent upon the real estate sector, particularly
in the final quarter of the year. Impairment charges against banks rose due to
some exposure to the Icelandic banks in 2008. In addition, rising levels of
personal indebtedness resulted in lower releases and recoveries of charges
than in 2007.
Higher loan impairment
and other credit risk provisions within Global Banking and Markets in Europe
reflected increased charges against certain corporate accounts and impairment
recorded on available-for-sale debt securities.
In Mexico,
loan impairment charges rose by US$513 million or 69 per cent, primarily
in the credit card portfolio. This was due to a combination of higher
lending
volumes from organic expansion and higher delinquency rates which were driven
by a deterioration in credit quality as the portfolio continued to season
and move into the later stages of delinquency. Management took action
to enhance
collection activity and improve the quality of new business. Impairment charges
in the commercial portfolio also rose due to credit quality deterioration
among small and medium-sized enterprises as the economy weakened.
In Hong Kong, the
rise in loan impairment charges was driven by weakness in parts of the export
sector within the commercial portfolio in the second half of 2008. In Global
Banking and Markets, credit impairment charges within Balance Sheet Management
principally reflected losses on debt securities and paper issued by financial
institutions previously rated at investment grade which failed in the year.
In Rest of Asia-Pacific,
the growth in loan impairment charges reflected a combination of the expansion
of consumer lending and credit quality deterioration in India and the Middle
East. In addition, higher impairment charges in Commercial Banking were driven
by a deterioration in credit quality in the second half of the year.
For the Group
as a whole, the aggregate outstanding customer loan impairment allowances
at
31 December 2008 of US$23.9 billion represented 2.6 per cent of gross
customer advances (net of reverse repos and settlement accounts), compared
with 2.0 per cent at the end of 2007.
2007 compared with 2006
Reported loan impairment charges and other credit risk provisions
were US$17.2 billion, a 63 per cent increase over 2006.
Loan impairment
charges increased by 58 per cent, reflecting substantially higher losses
in the US consumer finance loan book, primarily in mortgage lending, but
also in the credit cards portfolio in the final part of the year. US delinquency
rates increased during 2007 as falling house prices constrained customers ability
to refinance their loans.
The rise in Group charges also reflected an underlying 7 per cent increase in lending to customers (excluding lending to the financial sector and settlement accounts).
In North America,
loan impairment charges increased by 79 per cent to US$12.2 billion.
The main factor driving this deterioration was the impact of the weaker
housing market on both economic activity and the ability of borrowers to
extend or refinance debt. In addition, seasoning and mix change within
the credit cards portfolio, and increases in bankruptcy filings after the
exceptionally low levels seen in 2006 following
changes in legislation, added to loan impairment charges.
The real estate
secured portfolios experienced continuing deterioration in credit quality
as a lack of demand for securitised sub-prime mortgages and falls in house
prices severely restricted refinancing options for many customers. Loan
impairment charges rose by 41 per cent to US$3.1 billion and by 139 per cent to US$4.1
billion in the mortgage services business and in consumer lending, respectively.
Delinquency rates exceeded recent historical trends, particularly for those
loans originated in 2005 and 2006. Performance was weakest in housing markets
which had previously experienced the steepest home price appreciation,
as well as in second lien products and stated
income products.
US card services experienced an increase in loan impairment charges from a combination of growth in balances, higher losses in the final part of the year as the economy slowed, a rise in
bankruptcy rates to near historical levels, and a shift in portfolio mix to higher levels of non-prime loans.
In the UK, loan impairment charges rose, primarily in the consumer finance business. Delinquency rates on mortgages in the UK offered through HSBC Finance remained stable throughout 2007, with
delinquency rates for loans offered in 2006 and 2007 lower than in the preceding two
35
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H S B C H O L D I
N G S P L C |
|
Report of the Directors: Operating and
Financial Review (continued) |
|
|
|
|
Financial summary > Group
performance > Operating expenses |
years. In the rest of the UK business, loan impairment
charges in the second half of 2007 were lower than in the first half of the
year, as overall credit quality improved following measures taken to tighten
underwriting standards and improve the credit quality of new business. Although
losses from mortgage lending remained low, maximum loan to value ratios were
reduced during the year to mitigate the effects of a possible housing market
downturn.
In Mexico, higher loan impairment charges were driven by strong growth in loan balances, a deterioration in credit quality and portfolio seasoning.
For the Group
as a whole, the aggregate outstanding customer loan impairment allowances
at 31 December 2007 of US$19.2 billion represented 2.0 per cent of gross
customer advances (net of reverse repos and settlement accounts), compared
with 1.6 per cent at the end of 2006.
Impaired loans
to customers were US$18.3 billion at 31 December 2007 compared with
US$13.8 billion at 31 December 2006. On a constant currency basis,
impaired loans to customers were 28 per cent higher than in 2006 compared
with customer lending growth (excluding loans to the financial sector and
settlement accounts) of 7 per cent.
Operating expenses
|
2008 |
|
2007 |
|
2006 |
|
|
US$m |
|
US$m |
|
US$m |
|
By expense category |
|
|
|
|
|
|
Employee compensation and benefits1 |
20,792 |
|
21,334 |
|
18,500 |
|
Premises and equipment (excluding
depreciation and impairment) |
4,305 |
|
3,966 |
|
3,389 |
|
General and administrative expenses |
10,955 |
|
11,328 |
|
9,434 |
|
|
|
|
|
|
|
|
Administrative expenses |
36,052 |
|
36,628 |
|
31,323 |
|
Depreciation and impairment
of property, plant and equipment |
1,750 |
|
1,714 |
|
1,514 |
|
Amortisation and impairment
of intangible assets |
733 |
|
700 |
|
716 |
|
Goodwill impairment |
10,564 |
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
49,099 |
|
39,042 |
|
33,553 |
|
|
|
|
|
|
|
|
|
|
|
|
At 31 December
|
|
|
|
|
|
|
|
|
|
2008 |
|
2007 |
|
2006 |
|
Staff numbers (full-time
equivalent) |
|
|
|
|
|
|
Europe |
82,093 |
|
82,166 |
|
78,311 |
|
Hong Kong |
29,330 |
|
27,655 |
|
27,586 |
|
Rest of Asia-Pacific |
98,159 |
|
88,573 |
|
72,265 |
|
North America |
44,725 |
|
52,722 |
|
55,642 |
|
Latin America |
58,559 |
|
64,404 |
|
64,900 |
|
|
|
|
|
|
|
|
Total staff numbers |
312,866 |
|
315,520 |
|
298,704 |
|
|
|
|
|
|
|
|
1 |
A charge of US$135 million was realised
in 2006 arising from the waiver of the TSR-related performance condition
in respect of the 2003 awards under the HSBC Holdings Group Share Option
Plan. |
|
2008 compared with 2007
Reported operating expenses increased by US$10.1 billion to US$49.1 billion,
due to an impairment charge of US$10.6 billion to fully write off goodwill
in Personal Financial Services in North America. Excluding this, operating expenses
remained broadly in line on both reported
and underlying bases.
Employee compensation and benefits fell
marginally. Lower discretionary bonuses reflected weaker performance in
the current economic conditions. A review
of actuarial assumptions on employees defined benefit pensions resulted
in lower service costs in the UK. The restructuring of the consumer finance business
in North America led to reduced headcount and lower costs. This was partially
offset
by higher salaries and increased
headcount to support business expansion, mainly in Asia. Restructuring costs
were incurred primarily in Latin America and Europe.
Premises and equipment costs increased primarily in the UK and the Rest of Asia-Pacific region, driven by investment in technology and extensions and
improvements to the branch and ATM networks. As a consequence, repairs and maintenance costs rose. Commercial property rental costs also increased as a result of higher prices, new rentals and sale and leaseback deals.
General and administrative expenses decreased,
primarily due to a one-off recovery of US$110 million of previous years transactional
taxes in Brazil and the non-recurrence of a number of one-off items in
2007, most notably (i) ex-gratia payments made in the UK in respect of
overdraft
36
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fees, (ii) the provision for reimbursement of certain charges on historic will
trusts and other related services in the UK, (iii) the indemnification agreement
with Visa ahead of Visas IPO, and (iv) restructuring charges in the US
consumer finance business incurred in 2007. These were partly offset by an increase
in the Financial Services compensation scheme levy in the UK and an increase
in a litigation provision in Asia.
Goodwill impairment amounting to US$10.6
billion was booked following the continued deterioration in economic and credit
conditions in North America. For further information see Note 22 on
the Financial Statements.
2007 compared with 2006
Reported operating expenses increased by US$5.5 billion to US$39.0
billion. On an underlying basis, cost growth
was 10 per cent.
Employee compensation and benefits rose due to increased headcount employed to support business expansion in Rest of Asia-Pacific and Europe and higher
salaries and bonuses. Salary increases reflected inflationary pressures and performance as bonuses rose in response to revenue growth. A change in actuarial assumptions regarding the staff defined benefit pension scheme in the UK led to increased
costs. Staff numbers in North America fell as the consumer finance business was restructured, resulting in the discontinuation of certain business channels in mortgage services and the closing of branch offices in consumer lending.
Premises and equipment costs increased on investments in technology, straight-through
processing and extending and improving the branch and ATM networks. In particular,
there was investment in the distribution platform in Latin America, Middle East,
India and mainland China. The retail bank branch network in North America was
extended both within and beyond the Groups traditional spheres of operation
to support the expansion of retail and Commercial Banking businesses, increasing
premises and equipment costs as a consequence. Commercial property rental costs
rose in Hong Kongs dynamic economy, the effect magnified by a sale and
leaseback agreement on a headquarters building in 2006. In France, the IT systems
inherited with the acquisition of HSBC France were replaced with HSBCs
universal banking platform.
General and administrative expenses rose
in support of the business expansion and a number of one-off costs. Higher
transaction volumes drove processing costs and transactional taxes while
business expansion was supported by marketing expenditure. In the UK, ex-gratia
payments of US$227 million were expensed in respect of overdraft fees applied in previous years and a provision of US$169
million was raised for reimbursement of certain charges on historic will trusts and other related services. In the US, the business incurred US$70 million of one-off costs arising from the indemnification agreement with Visa ahead of its planned
IPO. The US consumer finance business incurred restructuring charges of US$103
million resulting from the discontinuation of the wholesale and correspondent
channels in mortgage services and the closing of branch offices in consumer lending.
Cost efficiency ratios
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
|
% |
|
|
% |
|
|
% |
|
|
HSBC |
60.1 |
|
|
49.4 |
|
|
51.3 |
|
|
|
|
|
|
|
|
|
|
|
|
Personal Financial Services |
76.4 |
|
|
50.3 |
|
|
49.7 |
|
|
Europe |
62.7 |
|
|
64.8 |
|
|
59.2 |
|
|
Hong Kong |
32.2 |
|
|
27.2 |
|
|
32.2 |
|
|
Rest of Asia-Pacific |
73.5 |
|
|
73.9 |
|
|
71.1 |
|
|
North America |
106.8 |
|
|
42.3 |
|
|
42.3 |
|
|
Latin America |
59.7 |
|
|
61.3 |
|
|
65.6 |
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Banking |
43.0 |
|
|
44.8 |
|
|
43.7 |
|
|
Europe |
44.2 |
|
|
49.3 |
|
|
46.7 |
|
|
Hong Kong |
26.2 |
|
|
24.9 |
|
|
26.1 |
|
|
Rest of Asia-Pacific |
41.0 |
|
|
42.9 |
|
|
42.5 |
|
|
North America |
46.1 |
|
|
45.1 |
|
|
44.9 |
|
|
Latin America |
55.0 |
|
|
54.3 |
|
|
55.9 |
|
|
37
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H S B C H O L D I
N G S P L C |
|
Report of the Directors: Operating and
Financial Review (continued) |
|
|
|
|
Financial summary > Group
performance > Share of profit in associates and joint ventures /
Economic profit |
Share of profit in associates and joint ventures
|
2008 |
|
2007 |
|
2006 |
|
|
US$m |
|
US$m |
|
US$m |
|
Bank of Communications |
741 |
|
445 |
|
259 |
|
Ping An Insurance |
324 |
|
518 |
|
245 |
|
Industrial Bank |
221 |
|
128 |
|
71 |
|
The Saudi British Bank |
251 |
|
216 |
|
258 |
|
Other |
63 |
|
159 |
|
(10 |
) |
|
|
|
|
|
|
|
Share of profit in: |
|
|
|
|
|
|
associates |
1,600 |
|
1,466 |
|
823 |
|
joint ventures |
61 |
|
37 |
|
23 |
|
|
|
|
|
|
|
|
Share of profit in associates
and joint ventures |
1,661 |
|
1,503 |
|
846 |
|
|
|
|
|
|
|
|
2008 compared with 2007
Share of profit in associates and joint ventures was US$1.7 billion, an increase
of 11 per cent compared with 2007, and 4 per cent on an
underlying basis.
This increase was driven by higher contributions from Bank of Communications, Industrial Bank, and The Saudi British Bank, partly offset by lower profits from Ping An Insurance.
HSBCs share of profits from the Bank of Communications rose by 52 per cent to US$741
million, primarily driven by increased margins, as yields rose following
higher base rates in mainland China through most of 2008, and balance sheet
growth. Growth in revenues from the asset custody business, financial advisory
services and bank card transactions also drove higher profits.
HSBCs share of profits from Ping An Insurance decreased by 43 per cent, primarily due to the impairment of Ping An Insurances investment in Fortis SA/NV and Fortis N.V.
(Fortis Investments), following significant declines in its market
value.
Profits from the Saudi British Bank were higher by 16 per cent due to strong balance sheet growth, particularly in the lending portfolio, augmented by higher fees from cards, account services
and trade.
Profits from Industrial Bank grew by 72 per cent, driven by increased investment income and balance sheet growth.
The share of profits from joint ventures rose due to growth in HSBC Saudi Arabia Ltd and the recognition of profits in HSBC Merchant Services UK Ltd, the new merchant acquiring venture with
Global Payments Inc.
An adjustment to the embedded value of HSBC Assurances in 2007 did not recur.
2007 compared with 2006
Share of profit in associates and joint ventures of US$1.5 billion was 78
per cent higher than in 2006, on both reported and underlying bases.
Profit from
associates and joint ventures rose due to increased contributions from
HSBCs strategic investments in mainland China. Profit from Bank of
Communications, Ping An Insurance and Industrial Bank improved significantly,
driven largely by the thriving local economy.
HSBCs share of profit from Ping An Insurance rose by 101 per cent to US$518 million as a result of robust growth, notably from life insurance products, and the realisation of
synergistic gains across Ping An Insurances other business offerings.
Profit from
the Bank of Communications rose by 64 per cent to US$445 million as a result of improved performance across the associates
various product offerings. Increased income from credit and treasury products
and significant growth in fee income contributed to the increase in profits.
HSBCs
share of profits from the Saudi British Bank decreased by 22 per cent to US$216
million, driven by the effects of a significant correction to the local stock
market in the second half of 2006.
A US$73
million adjustment to the embedded value of HSBC Assurances, an associate
in France, resulted in an increase in profits from associates.
38
Back to Contents
Economic profit
HSBCs internal performance measures include
economic profit, a calculation which compares the return on financial capital
invested in HSBC by its shareholders with the cost of that capital. HSBC
prices
its cost of capital internally and the difference between that cost and the
post-tax profit attributable to ordinary shareholders (less goodwill previously
amortised in respect of the French regional banks sold in 2008) represents
the
amount of economic profit generated. Economic profit generated is used by management
as a means of deciding where to allocate resources so that they will be most
productive.
In order to concentrate on external factors rather than measurement bases, HSBC emphasises the trend in economic profit ahead of absolute amounts within business units. In order to ensure
consistency and comparability with the five-year strategic plan completed in 2008, the cost of capital on a consolidated basis remains at 10 per cent.
Economic
profit decreased by US$14.8 billion to a loss of US$8.2 billion. Profit attributable
fell, while average shareholders equity increased marginally. The decline
in profit was predominately driven by the US$10.6 billion goodwill impairment
charge relating to the North American Personal Financial Services business,
alongside a significant increase in loan impairment charges and write-downs
in credit trading, leveraged and acquisition finance, and monoline exposures.
The comparative period included dilution gains of US$1.0 billion (excluding
minority interests) which were not repeated. These effects were partially
offset by fair value gains on own debt, driven by a widening of credit spreads,
of US$6.6 billion compared with US$3.1 billion in 2007. The lower
return on average invested capital led to a decrease in economic profit and
an erosion in economic spread, which fell by 11.3 percentage points compared
with 2007. Excluding the goodwill impairment charge, the economic profit
spread
decreased by 3.6 percentage points compared with 2007.
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
US$m |
|
% |
1 |
US$m |
|
% |
1 |
|
|
|
|
|
|
|
|
|
Average total shareholders equity |
122,292
|
|
|
|
120,346 |
|
|
|
Adjusted by: |
|
|
|
|
|
|
|
|
Goodwill previously
amortised or written off |
8,152 |
|
|
|
8,172 |
|
|
|
Property revaluation
reserves |
(828 |
) |
|
|
(898 |
) |
|
|
Reserves representing unrealised losses on
effective cash flow hedges |
997 |
|
|
|
425 |
|
|
|
Reserves
representing unrealised (gains)/losses on available-for-sale securities |
9,163 |
|
|
|
(1,918 |
) |
|
|
Preference shares
and other equity instruments |
(2,685 |
) |
|
|
(1,405 |
) |
|
|
|
|
|
|
|
|
|
|
|
Average invested capital2 |
137,091 |
|
|
|
124,722 |
|
|
|
|
|
|
|
|
|
|
|
|
Return on invested capital3 |
5,497 |
|
4.0 |
|
19,043 |
|
15.3 |
|
Benchmark cost of capital |
(13,709 |
) |
(10.0 |
) |
(12,472 |
) |
(10.0 |
) |
|
|
|
|
|
|
|
|
|
Economic profit/(loss) and spread |
(8,212 |
) |
(6.0 |
) |
6,571 |
|
5.3 |
|
|
|
|
|
|
|
|
|
|
1 |
Expressed as a percentage of
average invested capital. |
2 |
Average invested capital is
measured as average total shareholders equity after: |
|
|
adding back the average balance
of goodwill amortised pre-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 HSBCs revaluation surplus relating to property held for own use.
This reserve was generated when determining the deemed carrying cost of
such properties on transition to IFRSs and will run down over time 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. |
3 |
Return on invested capital is
based on the profit attributable to ordinary shareholders of the parent
company less goodwill previously amortised in respect of the French regional
banks sold in 2008. |
39
Back to Contents
H S B C H O L D I
N G S P L C |
|
Report of the Directors: Operating and Financial Review (continued) |
|
|
|
|
Financial summary > Balance
sheet > Movement in 2008 |
Balance sheet
|
At
31 December |
|
|
|
|
|
2008 |
|
2007 |
|
2006 |
|
|
US$m |
|
US$m |
|
US$m |
|
ASSETS |
|
|
|
|
|
|
Cash and balances at central banks |
52,396 |
|
21,765 |
|
12,732 |
|
Trading assets |
427,329 |
|
445,968 |
|
328,147 |
|
Financial assets designated at fair value |
28,533 |
|
41,564 |
|
20,573 |
|
Derivatives |
494,876 |
|
187,854 |
|
103,702 |
|
Loans and advances to banks |
153,766 |
|
237,366 |
|
185,205 |
|
Loans and advances to customers |
932,868 |
|
981,548 |
|
868,133 |
|
Financial investments |
300,235 |
|
283,000 |
|
204,806 |
|
Other assets |
137,462 |
|
155,201 |
|
137,460 |
|
|
| |
|
|
|
|
Total assets |
2,527,465 |
|
2,354,266 |
|
1,860,758 |
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY |
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
Deposits by banks |
130,084 |
|
132,181 |
|
99,694 |
|
Customer accounts |
1,115,327 |
|
1,096,140 |
|
896,834 |
|
Trading liabilities |
247,652 |
|
314,580 |
|
226,608 |
|
Financial liabilities designated at fair value |
74,587 |
|
89,939 |
|
70,211 |
|
Derivatives |
487,060 |
|
183,393 |
|
101,478 |
|
Debt securities in issue |
179,693 |
|
246,579 |
|
230,325 |
|
Liabilities under insurance contracts |
43,683 |
|
42,606 |
|
17,670 |
|
Other liabilities |
149,150 |
|
113,432 |
|
103,010 |
|
|
| |
|
|
|
|
Total liabilities |
2,427,236 |
|
2,218,850 |
|
1,745,830 |
|
|
|
|
|
|
|
|
Equity |
|
|
|
|
|
|
Total shareholders equity |
93,591 |
|
128,160 |
|
108,352 |
|
Minority interests |
6,638 |
|
7,256 |
|
6,576 |
|
|
|
|
|
|
|
|
Total equity |
100,229 |
|
135,416 |
|
114,928 |
|
|
| |
|
|
|
|
Total equity and liabilities |
2,527,465 |
|
2,354,266 |
|
1,860,758 |
|
|
|
|
|
|
|
|
A more detailed consolidated balance sheet is contained in the Financial Statements on page 334.
Movement from 31 December 2007 to 31 December 2008
Total assets amounted to US$2.5 trillion, 7 per cent higher than at 31 December 2007. After excluding currency movements, the disposal of HSBCs French regional subsidiaries and the acquisition of the assets,
liabilities and operations of The Chinese Bank in 2008, underlying assets rose by 22 per cent, driven by growth in derivative assets.
The expansion in the Groups balance sheet was largely attributable to increases in derivative assets and liabilities, and was due to growth in the fair value of these positions rather
than a rise in their notional contract amounts. Excluding the growth in derivative liabilities, customer accounts formed an increasing share of the Groups liabilities as depositors and savers responded to HSBCs reputation for strength
and security. As a result, a proportion of the Groups funding repayable on demand or within one year rose. For information on the Groups management of liquidity, see pages 235 to 240.
The Groups tier 1 capital ratio declined from 9.3 per cent to 8.3 per cent. For detail on regulatory capital and risk weighted assets, see pages 274 to 280.
The following commentary is on an underlying basis.
Assets
The Groups cash and balances at central banks rose substantially, particularly in Hong Kong as additional liquidity was injected into the banking system, and in the US where excess liquidity was required in the
short-term as part of a planned transfer of assets between the Groups subsidiaries.
Trading assets increased by 11 per cent. The majority of the rise occurred on 30 September 2008, following the Groups consolidation of five Constant Net Asset Value (CNAV)
funds with assets of around US$40 billion. The decision to consolidate these funds was based on actions taken to support them. For further details of these actions, see page 180. The rise was partly offset by the reclassification of US$18
billion of trading assets
40
Back to Contents
partly to Loans and Advances and partly to Financial investments following the changes to International Accounting Standard 39 Financial Instruments Recognition and
Measurement (IAS39) issued in October 2008 by the IASB.
Excluding these effects, trading assets remained broadly unchanged as rises in Europe and Asia, where the Group increased its holdings of government bonds, were offset by the run-off of the
mortgage-backed securities portfolio in the US and a reduction in debt securities held for balance sheet management purposes due to changes in liquidity and risk preference.
An 18 per cent decline in financial assets designated at fair value was driven by falling equity markets, which reduced
the value of assets held to meet life insurance liabilities, particularly in Hong Kong and France. To the extent that these liabilities related to unit-linked and participating insurance contracts, there was a corresponding decline in
liabilities under insurance contracts. The underperformance of certain investment products also led clients to withdraw funds.
Derivative assets rose significantly, led by an increase in interest rate derivatives with further growth in credit and foreign exchange derivatives. The
global falls in interest rates resulted in significant gaps between the fixed and floating legs of interest rate swaps, leading to substantial mark-to-market increases in the value of interest rate swap positions. Widening credit spreads and
increasing market volatility caused mark-to-market increases in the value of credit derivatives held in the UK and the US. Foreign exchange derivative asset growth was driven by a combination of increased volumes and mark-to-market rises in existing
positions in the UK. Under IFRS, only limited netting is allowed between derivative assets and liabilities with the same counterparty, and the balance sheet value is therefore significantly higher than the credit exposure. For information on maximum
exposure to credit risk, see pages 197 to 200.
A 29 per cent decline in loans and advances to banks occurred mainly in Hong Kong and the UK where Balance Sheet
Management invested a greater proportion of its assets in government and government-guaranteed debt.
HSBC also reduced counterparty credit risk in the UK by channelling an increasing proportion of lending to banks through the London Clearing House in the form of reverse repos. This is recorded
within customer loans even when the end counterparty is a bank, which means the fall in loans and advances to banks and the rise in loans
and advances to
customers are magnified. The rise in loans and advances to customers was also inflated by the reclassification of US$15 billion of assets following changes to IAS39 isused in
October 2008.
Further increases in loans and advances to customers were due to growth in mortgage lending in Europe and Asia, as well
as to a rise in overdraft balances to customers whose exposures are managed net but reported gross under IFRS. These rises were offset by a reduction in customer lending in the US due to the run-off of the mortgage services portfolio, the sale of
certain loan portfolios at HSBC USA, tighter underwriting criteria which restricted originations in the consumer lending and credit card portfolios, and the cessation of most new originations in the US vehicle finance portfolio.
Financial investments grew by 15 per cent as Balance Sheet Management assets were increasingly classified as available-for-sale financial investments
rather than trading assets. As noted above, there was also a rise in financial investments in the UK as the Group placed a greater proportion of surplus funds in government issued or guaranteed debt. The growth in the Groups financial
investments was partly offset by a reduction in holdings of asset-backed securities, including those held through special purpose entities, which decreased due to a combination of asset sales, amortisation and write-downs. For details of the
Groups asset-backed securities portfolios, see pages 145 to 158.
Liabilities
Deposits by banks rose by 14 per cent, driven, in particular, by increases in France, due to a rise in repo activity to finance increased trading activity, and in Hong Kong, where
banks responded to HSBCs reputation for strength and security and deposited their surplus liquidity with the Group.
Customer account balances grew by 16 per cent, driven by strong inflows from customers attracted by HSBCs relative financial strength as they
withdrew funds from more volatile investments.
Trading liabilities declined 9 per cent as a fall in third-party funding requirements allowed a reduction in liabilities in Hong Kong, and repo
transactions were reduced in Europe to manage liquidity and counterparty credit risk.
A significant widening of credit spreads led to further falls in the fair value of the Groups own debt which reduced financial liabilities designated
at fair value. This was compounded by a decline in liabilities in the UK due to the underperformance of certain investment products.
41
Back to Contents
H S B C H O L D I
N G S P L C |
|
Report of the Directors: Operating
and Financial Review (continued) |
|
|
|
|
Financial summary > Balance
sheet > Movement in 2008 / Average balance sheet and NII |
Derivative businesses are managed within market risk limits, and as a consequence the value of derivative liabilities broadly matched the value of derivative assets.
A decline of 22 per cent in debt securities in issue was driven by the US as maturing debt securities did not need
replacing as the funding requirements of the consumer finance business declined as its balance sheet contracted. There was also a reduction in debt securities in issue in line with the decrease in holdings of asset-backed securities.
Liabilities under insurance contracts increased by 10 per cent, largely due to new business sales in Hong Kong, France and the UK, partly offset by
reduced liabilities on unit-linked policies.
Other liabilities rose by 50 per cent due to the consolidation of the CNAV funds described above.
Equity
Total shareholders equity declined by 19 per cent, which mainly arose from a decline in the available-for-sale reserve. The continuing market turmoil led to falls in the market values of assets held in HSBCs
available-for-sale portfolio. These declines mainly represented market illiquidity rather than impairment of the assets concerned, but they nonetheless reduced the value of the available-for-sale reserve from a positive reserve of US$0.9 billion
to a negative reserve of US$20.6 billion.
Average balance sheet and net interest income
Average balances and related interest are shown for the domestic operations of HSBCs principal commercial banks by geographical region. Other operations comprise the operations of the principal Commercial
Banking and consumer finance entities outside their domestic markets and all other banking operations, including investment banking balances and transactions.
Average balances are based on daily averages for the principal areas of HSBCs banking activities with monthly or less frequent averages used elsewhere.
Balances and transactions with fellow subsidiaries are reported gross in the principal Commercial Banking and consumer finance entities within Other interest-earning assets and
Other interest-bearing liabilities as appropriate and the elimination entries are included within Other operations in those two categories.
Net interest margin numbers are calculated by dividing net interest income as reported in the income statement by the average interest-earning assets from which interest income is reported
within the Net interest income line of the income statement. Interest income and interest expense arising from trading assets and liabilities and the funding thereof is included within Net trading income in the income
statement.
42
Back to Contents
Assets
|
|
2008 |
|
2007 |
|
2006 |
|
|
|
|
|
|
|
|
|
Average
|
|
Interest |
|
|
|
Average |
|
Interest |
|
|
|
Average
|
|
Interest |
|
|
|
|
|
balance |
|
income |
|
Yield |
|
balance |
|
income |
|
Yield |
|
balance
|
|
income |
|
Yield |
|
|
|
US$m
|
|
US$m |
|
% |
|
US$m
|
|
US$m |
|
% |
|
US$m
|
|
US$m |
|
% |
|
Summary |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets (itemised below) |
1,466,622
|
|
91,301 |
|
6.23 |
|
1,296,701
|
|
92,359 |
|
7.12 |
|
1,113,404
|
|
75,879 |
|
6.82 |
|
Trading assets7 |
|
428,539
|
|
16,742 |
|
3.91 |
|
374,973
|
|
17,562 |
|
4.68 |
|
288,605
|
|
12,445 |
|
4.31 |
|
Financial assets designated at fair value8 |
37,303 |
|
1,108 |
|
2.97 |
|
14,899
|
|
813 |
|
5.46 |
|
7,681
|
|
290 |
|
3.78 |
|
Impairment provisions |
(20,360
|
) |
|
|
|
|
(15,309
|
) |
|
|
|
|
(11,864
|
) |
|
|
|
|
Non-interest-earning assets |
596,885
|
|
|
|
|
|
440,686
|
|
|
|
|
|
291,741
|
|
|
|
|
|
|
| |
| |
|
|
|
|
| |
|
|
|
|
| |
|
|
Total assets and interest income |
2,508,989
|
|
109,151 |
|
4.35 |
|
2,111,950
|
|
110,734
|
|
5.24 |
|
1,689,567 |
|
88,614 |
|
5.24 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term funds and loans and advances
to banks |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe |
HSBC Bank |
46,703
|
|
2,187 |
|
4.68 |
|
49,910
|
|
2,592 |
|
5.19 |
|
33,856
|
|
1,536 |
|
4.54 |
|
|
HSBC
Private Banking Holdings (Suisse) |
8,040
|
|
333 |
|
4.14 |
|
5,295
|
|
229 |
|
4.32 |
|
4,956
|
|
190 |
|
3.83 |
|
|
HSBC France |
35,801
|
|
1,495 |
|
4.18 |
|
31,591
|
|
1,294 |
|
4.10 |
|
20,197
|
|
690 |
|
3.42 |
|
Hong Kong |
Hang Seng Bank |
17,402
|
|
587 |
|
3.37 |
|
13,054
|
|
609 |
|
4.67 |
|
10,360
|
|
483 |
|
4.66 |
|
|
The
Hongkong and Shanghai Banking Corporation |
47,244
|
|
1,344 |
|
2.84 |
|
50,210
|
|
2,352 |
|
4.68 |
|
38,802
|
|
1,645 |
|
4.24 |
|
Rest of Asia-Pacific |
The
Hongkong and Shanghai Banking Corporation |
27,907
|
|
881 |
|
3.16 |
|
19,286
|
|
810 |
|
4.20 |
|
13,388
|
|
520 |
|
3.88 |
|
|
HSBC Bank Malaysia |
4,659
|
|
165 |
|
3.54 |
|
2,861
|
|
103 |
|
3.60 |
|
2,492
|
|
87 |
|
3.49 |
|
|
HSBC Bank Middle East |
6,028
|
|
188 |
|
3.12 |
|
6,328
|
|
324 |
|
5.12 |
|
4,279
|
|
208 |
|
4.86 |
|
North America |
HSBC Bank USA |
9,595
|
|
328 |
|
3.42 |
|
9,393
|
|
477 |
|
5.08 |
|
8,422
|
|
465 |
|
5.52 |
|
|
HSBC Bank Canada |
3,354
|
|
107 |
|
3.19 |
|
3,810
|
|
174 |
|
4.57 |
|
3,167
|
|
138 |
|
4.36 |
|
Latin America |
HSBC Mexico |
3,682
|
|
247 |
|
6.71 |
|
3,555
|
|
239 |
|
6.72 |
|
3,395
|
|
227 |
|
6.69 |
|
|
Brazilian operations9 |
7,959
|
|
951 |
|
11.95 |
|
5,790
|
|
645 |
|
11.14 |
|
4,129
|
|
572 |
|
13.85 |
|
|
HSBC Bank Panama |
1,133
|
|
30 |
|
2.65 |
|
897
|
|
33 |
|
3.68 |
|
130
|
|
9 |
|
6.92 |
|
|
HSBC Bank Argentina |
612
|
|
43 |
|
7.03 |
|
304
|
|
16 |
|
5.26 |
|
196
|
|
8 |
|
4.08 |
|
Other operations |
|
19,992
|
|
760 |
|
3.80 |
|
19,087
|
|
898 |
|
4.70 |
|
16,686
|
|
618 |
|
3.70 |
|
|
|
| |
| |
|
|
|
|
| |
|
|
|
|
| |
|
|
|
|
240,111
|
|
9,646 |
|
4.02 |
|
221,371
|
|
10,795 |
|
4.88 |
|
164,455
|
|
7,396 |
|
4.50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For footnotes, see page 143.
43
Back to Contents
H S B C H O L D I
N G S P L C |
|
Report of the Directors: Operating
and Financial Review (continued) |
|
|
|
|
Financial summary > Balance
sheet > Average balance sheet and NII |
Assets (continued)
|
|
2008 |
|
2007 |
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
Average |
|
Interest |
|
|
|
Average |
|
Interest |
|
|
|
Average |
|
Interest |
|
|
|
|
|
balance |
|
income |
|
Yield |
|
balance |
|
income |
|
Yield |
|
balance |
|
income |
|
Yield |
|
|
|
US$m |
|
US$m |
|
% |
|
US$m |
|
US$m |
|
% |
|
US$m |
|
US$m |
|
% |
|
Loans and advances to customers |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe |
HSBC Bank |
288,214 |
|
18,587 |
|
6.45 |
|
237,231 |
|
18,078 |
|
7.62 |
|
226,528 |
|
14,166 |
|
6.25 |
|
|
HSBC Private Banking Holdings (Suisse) |
12,355 |
|
494 |
|
4.00 |
|
9,805 |
|
507 |
|
5.17 |
|
7,134 |
|
338 |
|
4.74 |
|
|
HSBC France |
73,455 |
|
3,604 |
|
4.91 |
|
68,027 |
|
3,219 |
|
4.73 |
|
52,990 |
|
2,463 |
|
4.65 |
|
|
HSBC Finance |
4,808 |
|
505 |
|
10.50 |
|
5,492 |
|
611 |
|
11.13 |
|
5,932 |
|
671 |
|
11.31 |
|
Hong Kong |
Hang Seng Bank |
42,304 |
|
1,589 |
|
3.76 |
|
37,827 |
|
2,120 |
|
5.60 |
|
34,416 |
|
1,952 |
|
5.67 |
|
|
The Hongkong and Shanghai Banking Corporation |
54,628 |
|
2,291 |
|
4.19 |
|
48,134 |
|
2,901 |
|
6.03 |
|
47,292 |
|
2,843 |
|
6.01 |
|
Rest of Asia-Pacific
|
The Hongkong and
Shanghai Banking Corporation |
77,741 |
|
5,163 |
|
6.64 |
|
59,286 |
|
4,321 |
|
7.29 |
|
52,159 |
|
3,449 |
|
6.61 |
|
|
HSBC Bank Malaysia |
8,407 |
|
553 |
|
6.58 |
|
7,467 |
|
507 |
|
6.79 |
|
6,292 |
|
430 |
|
6.83 |
|
|
HSBC Bank Middle East |
23,697 |
|
1,549 |
|
6.54 |
|
15,125 |
|
1,200 |
|
7.93 |
|
12,757 |
|
957 |
|
7.50 |
|
North America |
HSBC Bank USA |
93,088 |
|
5,758 |
|
6.19 |
|
90,091 |
|
6,585 |
|
7.31 |
|
88,563 |
|
6,141 |
|
6.93 |
|
|
HSBC Finance |
140,957 |
|
15,835 |
|
11.23 |
|
153,658 |
|
18,086 |
|
11.77 |
|
147,336 |
|
17,061 |
|
11.58 |
|
|
HSBC Bank Canada |
48,331 |
|
2,455 |
|
5.08 |
|
43,570 |
|
2,598 |
|
5.96 |
|
35,055 |
|
2,037 |
|
5.81 |
|
Latin America |
HSBC Mexico |
17,252 |
|
2,565 |
|
14.87 |
|
16,469 |
|
2,187 |
|
13.28 |
|
13,193 |
|
1,532 |
|
11.61 |
|
|
Brazilian operations9
|
19,642 |
|
4,879 |
|
24.84 |
|
13,569 |
|
3,895 |
|
28.71 |
|
9,461 |
|
3,244 |
|
34.29 |
|
|
HSBC Bank Panama |
8,620 |
|
810 |
|
9.40 |
|
8,113 |
|
778 |
|
9.59 |
|
1,189 |
|
92 |
|
7.74 |
|
|
HSBC Bank Argentina |
2,136 |
|
378 |
|
17.70 |
|
1,667 |
|
241 |
|
14.46 |
|
838 |
|
107 |
|
12.77 |
|
Other operations |
|
28,027 |
|
1,707 |
|
6.09 |
|
21,318 |
|
1,790 |
|
8.40 |
|
19,795 |
|
1,528 |
|
7.72 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
943,662 |
|
68,722 |
|
7.28 |
|
836,849 |
|
69,624 |
|
8.32 |
|
760,930 |
|
59,011 |
|
7.76 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe |
HSBC Bank |
83,725 |
|
3,840 |
|
4.59 |
|
45,885 |
|
2,431 |
|
5.30 |
|
42,726 |
|
1,977 |
|
4.63 |
|
|
HSBC Private Banking Holdings
(Suisse) |
12,018 |
|
553 |
|
4.60 |
|
10,372 |
|
511 |
|
4.93 |
|
8,729 |
|
391 |
|
4.48 |
|
|
HSBC France |
14,862 |
|
795 |
|
5.35 |
|
10,357 |
|
511 |
|
4.93 |
|
2,545 |
|
95 |
|
3.73 |
|
Hong Kong |
Hang Seng Bank |
24,031 |
|
1,063 |
|
4.42 |
|
30,791 |
|
1,550 |
|
5.03 |
|
27,288 |
|
1,224 |
|
4.49 |
|
|
The Hongkong and Shanghai Banking Corporation |
15,361 |
|
563 |
|
3.67 |
|
20,717 |
|
1,017 |
|
4.91 |
|
20,362 |
|
911 |
|
4.47 |
|
Rest of Asia-Pacific
|
The Hongkong and Shanghai
BankingCorporation |
31,992 |
|
1,507 |
|
4.71 |
|
23,739 |
|
1,065 |
|
4.49 |
|
17,179 |
|
737 |
|
4.29 |
|
|
HSBC Bank Malaysia |
937 |
|
36 |
|
3.84 |
|
1,515 |
|
56 |
|
3.70 |
|
954 |
|
36 |
|
3.77 |
|
|
HSBC Bank Middle East |
5,671 |
|
144 |
|
2.54 |
|
3,654 |
|
174 |
|
4.76 |
|
1,387 |
|
72 |
|
5.19 |
|
North America |
HSBC Bank USA |
25,089 |
|
1,232 |
|
4.91 |
|
23,373 |
|
1,189 |
|
5.09 |
|
22,214 |
|
1,109 |
|
4.99 |
|
|
HSBC Finance |
2,908 |
|
143 |
|
4.92 |
|
4,072 |
|
229 |
|
5.62 |
|
3,724 |
|
200 |
|
5.37 |
|
|
HSBC Bank Canada |
7,037 |
|
197 |
|
2.80 |
|
6,068 |
|
258 |
|
4.25 |
|
4,351 |
|
174 |
|
4.00 |
|
Latin America |
HSBC Mexico |
3,470 |
|
244 |
|
7.03 |
|
3,327 |
|
319 |
|
9.59 |
|
4,049 |
|
427 |
|
10.55 |
|
|
Brazilian operations9
|
6,758 |
|
853 |
|
12.62 |
|
5,596 |
|
672 |
|
12.01 |
|
3,862 |
|
501 |
|
12.97 |
|
|
HSBC Bank Panama |
618 |
|
47 |
|
7.61 |
|
709 |
|
58 |
|
8.18 |
|
429 |
|
21 |
|
4.90 |
|
|
HSBC Bank Argentina |
287 |
|
47 |
|
16.38 |
|
563 |
|
68 |
|
12.08 |
|
311 |
|
38 |
|
12.22 |
|
Other operations |
|
29,632 |
|
1,354 |
|
4.57 |
|
27,252 |
|
1,407 |
|
5.16 |
|
24,742 |
|
1,191 |
|
4.81 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
264,396 |
|
12,618 |
|
4.77 |
|
217,990 |
|
11,515 |
|
5.28 |
|
184,852 |
|
9,104 |
|
4.93 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For footnotes, see page 143.
44
Back to Contents
|
|
2008
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
Interest |
|
|
|
Average
|
|
Interest |
|
|
|
Average
|
|
Interest
|
|
|
|
|
|
balance
|
|
income |
|
Yield |
|
balance |
|
income |
|
Yield |
|
balance
|
|
income |
|
Yield |
|
|
|
US$m
|
|
US$m
|
|
% |
|
US$m
|
|
US$m
|
|
% |
|
US$m
|
|
US$m
|
|
% |
|
Other interest-earning assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe |
HSBC Bank |
25,885
|
|
630
|
|
2.43 |
|
11,170
|
|
652
|
|
5.84 |
|
9,938
|
|
652
|
|
6.56 |
|
|
HSBC Private Banking |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Holdings (Suisse) |
21,189
|
|
875
|
|
4.13 |
|
16,360
|
|
882
|
|
5.39 |
|
14,558
|
|
732
|
|
5.03 |
|
|
HSBC France |
23,414
|
|
630
|
|
2.69 |
|
12,158
|
|
419
|
|
3.45 |
|
6,434
|
|
173
|
|
2.69 |
|
|
Hong Kong |
Hang Seng Bank |
1,629
|
|
48
|
|
2.95 |
|
832
|
|
42
|
|
5.05 |
|
538
|
|
28
|
|
5.20 |
|
|
The Hongkong and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shanghai Banking |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporation |
33,571
|
|
949
|
|
2.83 |
|
27,057
|
|
1,237
|
|
4.57 |
|
19,246
|
|
909
|
|
4.72 |
|
Rest of |
The Hongkong and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asia-Pacific |
Shanghai Banking |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporation |
24,492
|
|
352
|
|
1.44 |
|
11,137
|
|
588
|
|
5.28 |
|
6,938
|
|
449
|
|
6.47 |
|
|
HSBC Bank Malaysia |
212
|
|
7
|
|
3.30 |
|
231
|
|
12
|
|
5.19 |
|
178
|
|
10
|
|
5.62 |
|
|
HSBC Bank Middle East |
843
|
|
63
|
|
7.47 |
|
758
|
|
52
|
|
6.86 |
|
380
|
|
32
|
|
8.42 |
|
North America |
HSBC Bank USA |
3,091
|
|
188
|
|
6.08 |
|
3,731
|
|
231
|
|
6.19 |
|
1,867
|
|
82
|
|
4.39 |
|
|
HSBC Finance |
2,638
|
|
63
|
|
2.39 |
|
1,724
|
|
89
|
|
5.16 |
|
767
|
|
43
|
|
5.61 |
|
|
HSBC Bank Canada |
1,025
|
|
25
|
|
2.44 |
|
960
|
|
31
|
|
3.23 |
|
1,006
|
|
32
|
|
3.18 |
|
Latin America |
HSBC Mexico |
193
|
|
2
|
|
1.04 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brazilian operations9 |
1,438
|
|
147
|
|
10.22 |
|
840
|
|
75
|
|
8.93 |
|
1,004
|
|
190
|
|
18.92 |
|
|
HSBC Bank Panama |
1,807
|
|
23
|
|
1.27 |
|
1,351
|
|
40
|
|
2.96 |
|
|
|
|
|
|
|
|
HSBC Bank Argentina |
58
|
|
1
|
|
1.72 |
|
39
|
|
1
|
|
2.56 |
|
23
|
|
3
|
|
13.04 |
|
|
Other operations |
|
(123,032
|
) |
(3,688
|
) |
|
|
(67,857
|
) |
(3,926
|
) |
|
|
(59,710
|
) |
(2,967
|
) |
|
|
|
|
| |
| |
|
|
| |
| |
|
|
|
|
| |
|
|
|
|
18,453
|
|
315
|
|
1.71 |
|
20,491
|
|
425
|
|
2.07 |
|
3,167
|
|
368
|
|
11.62 |
|
|
|
| |
| |
|
|
| |
| |
|
|
|
|
| |
|
|
|
Total interest-earning assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe |
HSBC Bank |
444,527
|
|
25,244
|
|
5.68 |
|
344,196
|
|
23,753
|
|
6.90 |
|
313,048
|
|
18,331
|
|
5.86 |
|
|
HSBC Private Banking |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Holdings (Suisse) |
53,602
|
|
2,255
|
|
4.21 |
|
41,832
|
|
2,129
|
|
5.09 |
|
35,377
|
|
1,651
|
|
4.67 |
|
|
HSBC France |
147,532
|
|
6,524
|
|
4.42 |
|
122,133
|
|
5,443
|
|
4.46 |
|
82,166
|
|
3,421
|
|
4.16 |
|
|
HSBC Finance |
4,808
|
|
505
|
|
10.50 |
|
5,492
|
|
611
|
|
11.13 |
|
5,932
|
|
671
|
|
11.31 |
|
|
Hong Kong |
Hang Seng Bank |
85,366
|
|
3,287
|
|
3.85 |
|
82,504
|
|
4,321
|
|
5.24 |
|
72,602
|
|
3,687
|
|
5.08 |
|
|
The Hongkong and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shanghai Banking |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporation |
150,804
|
|
5,147
|
|
3.41 |
|
146,118
|
|
7,507
|
|
5.14 |
|
125,702
|
|
6,308
|
|
5.02 |
|
Rest of |
The Hongkong and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asia-Pacific |
Shanghai Banking |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporation |
162,132
|
|
7,903
|
|
4.87 |
|
113,448
|
|
6,784
|
|
5.98 |
|
89,664
|
|
5,155
|
|
5.75 |
|
|
HSBC Bank Malaysia |
14,215
|
|
761
|
|
5.35 |
|
12,074
|
|
678
|
|
5.62 |
|
9,916
|
|
563
|
|
5.68 |
|
|
HSBC Bank Middle East |
36,239
|
|
1,944
|
|
5.36 |
|
25,865
|
|
1,750
|
|
6.77 |
|
18,803
|
|
1,269
|
|
6.75 |
|
|
North America |
HSBC Bank USA |
130,863
|
|
7,506
|
|
5.74 |
|
126,588
|
|
8,482
|
|
6.70 |
|
121,066
|
|
7,797
|
|
6.44 |
|
|
HSBC Finance |
146,503
|
|
16,041
|
|
10.95 |
|
159,454
|
|
18,404
|
|
11.54 |
|
151,827
|
|
17,304
|
|
11.40 |
|
|
HSBC Bank Canada |
59,747
|
|
2,784
|
|
4.66 |
|
54,408
|
|
3,061
|
|
5.63 |
|
43,579
|
|
2,381
|
|
5.46 |
|
|
Latin America |
HSBC Mexico |
24,597
|
|
3,058
|
|
12.43 |
|
23,351
|
|
2,745
|
|
11.76 |
|
20,637
|
|
2,186
|
|
10.59 |
|
|
Brazilian operations9
|
35,797
|
|
6,830
|
|
19.08 |
|
25,795
|
|
5,287
|
|
20.50 |
|
18,456
|
|
4,507
|
|
24.42 |
|
|
HSBC Bank Panama |
12,178
|
|
910
|
|
7.47 |
|
11,070
|
|
909
|
|
8.21 |
|
1,748
|
|
122
|
|
6.98 |
|
|
HSBC Bank Argentina |
3,093
|
|
469
|
|
15.16 |
|
2,573
|
|
326
|
|
12.67 |
|
1,368
|
|
156
|
|
11.40 |
|
|
Other operations |
|
(45,381
|
) |
133
|
|
|
|
(200
|
) |
169
|
|
|
|
1,513
|
|
370
|
|
|
|
|
|
| |
| |
|
|
| |
| |
|
|
|
|
| |
|
|
|
|
|
1,466,622
|
|
91,301
|
|
6.23 |
|
1,296,701
|
|
92,359
|
|
7.12 |
|
1,113,404
|
|
75,879
|
|
6.82 |
|
|
|
| |
| |
|
|
| |
| |
|
|
|
|
| |
|
|
For footnotes, see page 143. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45
Back to Contents
H S B C H O L
D I N G S P L C |
|
Report
of the Directors: Operating and Financial Review (continued) |
|
|
|
|
Financial summary > Balance sheet > Average balance sheet and NII |
Total equity and liabilities
|
|
2008 |
|
2007 |
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
Interest |
|
|
|
Average |
|
Interest |
|
|
|
Average |
|
Interest |
|
|
|
|
|
balance |
|
expense |
|
Cost |
|
balance |
|
expense |
|
Cost |
|
balance |
|
expense |
|
Cost |
|
|
|
US$m |
|
US$m |
|
% |
|
US$m |
|
US$m |
|
% |
|
US$m |
|
US$m |
|
% |
|
Summary |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities (itemised |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
below) |
|
1,451,842 |
|
48,738 |
|
3.36 |
|
1,279,460 |
|
54,564 |
|
4.26 |
|
1,067,646 |
|
41,393 |
|
3.88 |
|
Trading liabilities |
277,940 |
|
11,029 |
|
3.97 |
|
250,572 |
|
12,186 |
|
4.86 |
|
224,050 |
|
9,842 |
|
4.39 |
|
Financial liabilities designated at fair value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(excluding own debt issued) |
21,266 |
|
345 |
|
1.62 |
|
20,827 |
|
224 |
|
1.07 |
|
12,537 |
|
13 |
|
0.10 |
|
Non-interest-bearing current accounts |
98,193 |
|
|
|
|
|
83,958 |
|
|
|
|
|
71,744 |
|
|
|
|
|
Total equity and other non-interest-bearing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
liabilities |
|
659,747 |
|
|
|
|
|
477,133 |
|
|
|
|
|
313,590 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity and liabilities |
2,508,988 |
|
60,112 |
|
2.40 |
|
2,111,950 |
|
66,974 |
|
3.17 |
|
1,689,567 |
|
51,248 |
|
3.03 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits by banks10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe |
HSBC Bank |
48,167 |
|
1,875 |
|
3.89 |
|
44,787 |
|
2,148 |
|
4.80 |
|
32,825 |
|
1,311 |
|
3.99 |
|
|
HSBC Private Banking |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Holdings (Suisse) |
4,493 |
|
105 |
|
2.34 |
|
690 |
|
22 |
|
3.19 |
|
1,030 |
|
33 |
|
3.20 |
|
|
HSBC France |
37,851 |
|
1,672 |
|
4.42 |
|
30,816 |
|
1,358 |
|
4.41 |
|
23,171 |
|
886 |
|
3.82 |
|
|
Hong Kong |
Hang Seng Bank |
1,696 |
|
55 |
|
3.24 |
|
2,993 |
|
123 |
|
4.11 |
|
2,031 |
|
84 |
|
4.14 |
|
|
The Hongkong and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shanghai Banking |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporation |
3,665 |
|
70 |
|
1.91 |
|
3,634 |
|
150 |
|
4.13 |
|
2,745 |
|
125 |
|
4.55 |
|
Rest of |
The Hongkong and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asia-Pacific |
Shanghai Banking |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporation |
16,232 |
|
450 |
|
2.77 |
|
10,247 |
|
445 |
|
4.34 |
|
6,276 |
|
246 |
|
3.92 |
|
|
HSBC Bank Malaysia |
338 |
|
10 |
|
2.96 |
|
375 |
|
12 |
|
3.20 |
|
280 |
|
9 |
|
3.21 |
|
|
HSBC Bank Middle East |
1,680 |
|
29 |
|
1.73 |
|
672 |
|
32 |
|
4.76 |
|
453 |
|
23 |
|
5.08 |
|
|
North America |
HSBC Bank USA |
11,015 |
|
220 |
|
2.00 |
|
6,933 |
|
414 |
|
5.97 |
|
3,695 |
|
208 |
|
5.63 |
|
|
HSBC Bank Canada |
1,391 |
|
41 |
|
2.95 |
|
1,681 |
|
93 |
|
5.53 |
|
1,520 |
|
68 |
|
4.47 |
|
|
Latin America |
HSBC Mexico |
822 |
|
32 |
|
3.89 |
|
983 |
|
63 |
|
6.41 |
|
781 |
|
50 |
|
6.40 |
|
|
Brazilian operations9
|
2,790 |
|
190 |
|
6.81 |
|
1,549 |
|
106 |
|
6.84 |
|
1,033 |
|
101 |
|
9.78 |
|
|
HSBC Bank Panama |
1,016 |
|
43 |
|
4.23 |
|
1,137 |
|
66 |
|
5.80 |
|
349 |
|
17 |
|
4.87 |
|
|
HSBC Bank Argentina |
27 |
|
1 |
|
3.70 |
|
117 |
|
9 |
|
7.69 |
|
72 |
|
5 |
|
6.94 |
|
|
Other operations |
|
4,564 |
|
166 |
|
3.64 |
|
4,495 |
|
291 |
|
6.47 |
|
5,304 |
|
334 |
|
6.30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
135,747 |
|
4,959 |
|
3.65 |
|
111,109 |
|
5,332 |
|
4.80 |
|
81,565 |
|
3,500 |
|
4.29 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities designated at fair |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
value own
debt issued11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe |
HSBC Holdings |
18,675 |
|
721 |
|
3.86 |
|
15,142 |
|
822 |
|
5.43 |
|
15,132 |
|
745 |
|
4.92 |
|
|
HSBC Bank |
8,805 |
|
529 |
|
6.01 |
|
9,907 |
|
525 |
|
5.30 |
|
7,888 |
|
373 |
|
4.73 |
|
|
HSBC France |
1,515 |
|
79 |
|
5.21 |
|
143 |
|
11 |
|
7.69 |
|
|
|
|
|
|
|
|
Hong Kong |
Hang Seng Bank |
127 |
|
6 |
|
4.72 |
|
126 |
|
6 |
|
4.76 |
|
|
|
|
|
|
|
|
North America |
HSBC Bank USA |
1,504 |
|
67 |
|
4.45 |
|
1,620 |
|
125 |
|
7.72 |
|
1,892 |
|
116 |
|
6.13 |
|
|
HSBC Finance |
32,126 |
|
1,563 |
|
4.87 |
|
31,889 |
|
2,079 |
|
6.52 |
|
29,917 |
|
1,877 |
|
6.27 |
|
|
Other operations |
|
1,083 |
|
168 |
|
15.51 |
|
|
|
|
|
|
|
461 |
|
49 |
|
10.63 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63,835 |
|
3,133 |
|
4.91 |
|
58,827 |
|
3,568 |
|
6.07 |
|
55,290 |
|
3,160 |
|
5.72 |
|
|
|
|
|
|
|
|
| |
| |
|
|
| |
| |
|
|
|
For footnotes, see page 143. |
46
Back to Contents
|
|
2008 |
|
2007 |
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
Average |
|
Interest |
|
|
|
Average
|
|
Interest |
|
|
|
Average |
|
Interest |
|
|
|
|
|
balance |
|
expense |
|
Cost |
|
balance
|
|
expense |
|
Cost
|
|
balance |
|
expense |
|
Cost |
|
|
|
US$m |
|
US$m |
|
% |
|
US$m |
|
US$m
|
|
%
|
|
US$m |
|
US$m |
|
% |
|
Customer accounts12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe |
HSBC Bank |
305,702 |
|
10,092 |
|
3.30 |
|
270,965 |
|
10,576
|
|
3.90
|
|
221,369 |
|
7,031 |
|
3.18 |
|
|
HSBC Private Banking |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Holdings (Suisse) |
37,778 |
|
1,349 |
|
3.57 |
|
30,955 |
|
1,485
|
|
4.80
|
|
25,346 |
|
1,069 |
|
4.22 |
|
|
HSBC France |
39,428 |
|
1,583 |
|
4.01 |
|
31,845 |
|
1,226
|
|
3.85
|
|
23,579 |
|
752 |
|
3.19 |
|
|
Hong Kong |
Hang Seng Bank |
66,142 |
|
914 |
|
1.38 |
|
61,227 |
|
1,900
|
|
3.10
|
|
54,267 |
|
1,712 |
|
3.15 |
|
|
The Hongkong and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shanghai Banking |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporation |
139,169 |
|
1,365 |
|
0.98 |
|
125,478 |
|
3,499
|
|
2.79
|
|
104,441 |
|
2,934 |
|
2.81 |
|
Rest of |
The Hongkong and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asia-Pacific |
Shanghai Banking |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporation |
96,476 |
|
2,869 |
|
2.97 |
|
76,052 |
|
2,645
|
|
3.48
|
|
56,760 |
|
1,903 |
|
3.35 |
|
|
HSBC Bank Malaysia |
10,266 |
|
295 |
|
2.87 |
|
8,823 |
|
260
|
|
2.95
|
|
7,260 |
|
212 |
|
2.92 |
|
|
HSBC Bank Middle East |
19,922 |
|
422 |
|
2.12 |
|
15,685 |
|
578
|
|
3.69
|
|
11,713 |
|
411 |
|
3.51 |
|
|
North America |
HSBC Bank USA |
86,701 |
|
2,069 |
|
2.39 |
|
78,138 |
|
3,051
|
|
3.90
|
|
71,031 |
|
2,490 |
|
3.51 |
|
|
HSBC Bank Canada |
34,090 |
|
967 |
|
2.84 |
|
30,060 |
|
1,090
|
|
3.63
|
|
25,277 |
|
804 |
|
3.18 |
|
|
Latin America |
HSBC Mexico |
14,612 |
|
561 |
|
3.84 |
|
14,230 |
|
548
|
|
3.85
|
|
13,625 |
|
471 |
|
3.46 |
|
|
Brazilian operations9
|
26,288 |
|
3,110 |
|
11.83 |
|
19,581 |
|
2,163
|
|
11.05
|
|
14,887 |
|
2,056 |
|
13.81 |
|
|
HSBC Bank Panama |
7,761 |
|
296 |
|
3.81 |
|
7,604 |
|
314
|
|
4.13
|
|
998 |
|
34 |
|
3.41 |
|
|
HSBC Bank Argentina |
2,266 |
|
145 |
|
6.40 |
|
1,892 |
|
85
|
|
4.49
|
|
983 |
|
41 |
|
4.17 |
|
|
Other operations |
|
64,253 |
|
1,952 |
|
3.04 |
|
55,351 |
|
2,297
|
|
4.15
|
|
49,846 |
|
1,811 |
|
3.63 |
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
950,854 |
|
27,989 |
|
2.94 |
|
827,886 |
|
31,717
|
|
3.83
|
|
681,382 |
|
23,731 |
|
3.48 |
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Debt securities in issue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe |
HSBC Bank |
86,216 |
|
4,001 |
|
4.64 |
|
64,168 |
|
3,753
|
|
5.85
|
|
45,870 |
|
2,047 |
|
4.46 |
|
|
HSBC France |
30,815 |
|
1,447 |
|
4.70 |
|
28,757 |
|
1,207
|
|
4.20
|
|
19,818 |
|
633 |
|
3.19 |
|
|
HSBC Finance |
215 |
|
8 |
|
3.72 |
|
240 |
|
18
|
|
7.50
|
|
548 |
|
32 |
|
5.84 |
|
|
Hong Kong |
Hang Seng Bank |
1,685 |
|
57 |
|
3.38 |
|
1,734 |
|
80
|
|
4.61
|
|
1,622 |
|
64 |
|
3.95 |
|
Rest of |
The Hongkong and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asia-Pacific |
Shanghai Banking |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporation |
8,995 |
|
640 |
|
7.12 |
|
8,979 |
|
559
|
|
6.23
|
|
7,990 |
|
438 |
|
5.48 |
|
|
HSBC Bank Malaysia |
475 |
|
20 |
|
4.21 |
|
318 |
|
13
|
|
4.09
|
|
371 |
|
13 |
|
3.50 |
|
|
HSBC Bank Middle East |
2,650 |
|
90 |
|
3.40 |
|
2,086 |
|
119
|
|
5.70
|
|
|
|
|
|
|
|
|
North America |
HSBC Bank USA |
21,922 |
|
852 |
|
3.89 |
|
25,724 |
|
1,232
|
|
4.79
|
|
28,832 |
|
1,407 |
|
4.88 |
|
|
HSBC Finance |
98,096 |
|
3,765 |
|
3.84 |
|
115,520 |
|
5,311
|
|
4.60
|
|
112,353 |
|
5,047 |
|
4.49 |
|
|
HSBC Bank Canada |
16,957 |
|
604 |
|
3.56 |
|
14,771 |
|
640
|
|
4.33
|
|
10,616 |
|
460 |
|
4.33 |
|
|
Latin America |
HSBC Mexico |
2,693 |
|
243 |
|
9.02 |
|
1,147 |
|
110
|
|
9.59
|
|
249 |
|
23 |
|
9.24 |
|
|
Brazilian operations9
|
1,859 |
|
156 |
|
8.39 |
|
1,417 |
|
115
|
|
8.12
|
|
700 |
|
70 |
|
10.00 |
|
|
HSBC Bank Panama |
556 |
|
33 |
|
5.94 |
|
607 |
|
45
|
|
7.41
|
|
35 |
|
2 |
|
5.71 |
|
|
HSBC Bank Argentina |
2 |
|
|
|
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
|
Other operations |
|
13,691 |
|
66 |
|
0.48 |
|
6,446 |
|
(13
|
) |
(0.20
|
) |
3,070 |
|
108 |
|
3.52 |
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
286,827 |
|
11,982 |
|
4.18 |
|
271,926 |
|
13,189
|
|
4.85
|
|
232,074 |
|
10,344 |
|
4.46 |
|
|
|
|
|
|
| |
|
|
|
| |
|
|
|
|
|
|
|
|
|
For footnotes, see page 143. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47
Back to Contents
H S B C H O L
D I N G S P L C |
|
Report
of the Directors: Operating and Financial Review (continued) |
|
|
|
|
Financial summary > Balance
sheet > Average balance sheet and NII |
Total equity and liabilities (continued)
|
|
2008
|
|
2007 |
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
Interest
|
|
|
|
Average
|
|
Interest |
|
|
|
Average
|
|
Interest
|
|
|
|
|
|
balance
|
|
expense
|
|
Cost |
|
balance
|
|
expense |
|
Cost |
|
balance
|
|
expense
|
|
Cost |
|
|
|
US$m
|
|
US$m
|
|
% |
|
US$m
|
|
US$m
|
|
% |
|
US$m
|
|
US$m
|
|
% |
|
Other interest-bearing liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe |
HSBC Bank |
38,906
|
|
1,134
|
|
2.91 |
|
22,035
|
|
1,302
|
|
5.91 |
|
23,196
|
|
1,026
|
|
4.42 |
|
|
HSBC Private Banking |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Holdings (Suisse) |
4,203
|
|
135
|
|
3.21 |
|
3,427
|
|
163
|
|
4.76 |
|
3,545
|
|
155
|
|
4.37 |
|
|
HSBC France |
33,920
|
|
1,361
|
|
4.01 |
|
27,830
|
|
979
|
|
3.52 |
|
13,476
|
|
488
|
|
3.62 |
|
|
HSBC Finance |
3,712
|
|
191
|
|
5.15 |
|
4,557
|
|
227
|
|
4.98 |
|
4,211
|
|
219
|
|
5.20 |
|
|
Hong Kong |
Hang Seng Bank |
1,258
|
|
41
|
|
3.26 |
|
2,278
|
|
114
|
|
5.00 |
|
1,378
|
|
64
|
|
4.64 |
|
|
The Hongkong and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shanghai Banking |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporation |
10,557
|
|
288
|
|
2.73 |
|
9,866
|
|
535
|
|
5.42 |
|
8,140
|
|
365
|
|
4.48 |
|
Rest of |
The Hongkong and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asia-Pacific |
Shanghai Banking |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporation |
23,685
|
|
466
|
|
1.97 |
|
12,631
|
|
580
|
|
4.59 |
|
13,425
|
|
629
|
|
4.69 |
|
|
HSBC Bank Malaysia |
338
|
|
7
|
|
2.07 |
|
232
|
|
6
|
|
2.59 |
|
235
|
|
9
|
|
3.83 |
|
|
HSBC Bank Middle East |
1,918
|
|
89
|
|
4.64 |
|
1,168
|
|
81
|
|
6.93 |
|
1,046
|
|
63
|
|
6.02 |
|
|
North America |
HSBC Bank USA |
10,490
|
|
468
|
|
4.46 |
|
13,602
|
|
587
|
|
4.32 |
|
11,966
|
|
1,211
|
|
10.12 |
|
|
HSBC Finance |
4,670
|
|
141
|
|
3.02 |
|
1,941
|
|
113
|
|
5.82 |
|
542
|
|
18
|
|
3.32 |
|
|
HSBC Bank Canada |
1,306
|
|
19
|
|
1.45 |
|
1,151
|
|
27
|
|
2.35 |
|
1,134
|
|
22
|
|
1.94 |
|
|
HSBC Markets Inc |
10,349
|
|
78
|
|
0.75 |
|
8,889
|
|
255
|
|
2.87 |
|
2,883
|
|
88
|
|
3.05 |
|
|
Latin America |
HSBC Mexico |
187
|
|
20
|
|
10.70 |
|
207
|
|
16
|
|
7.73 |
|
135
|
|
8
|
|
5.93 |
|
|
Brazilian operations9
|
2,340
|
|
207
|
|
8.85 |
|
1,103
|
|
182
|
|
16.50 |
|
817
|
|
105
|
|
12.85 |
|
|
HSBC Bank Panama |
917
|
|
3
|
|
0.33 |
|
574
|
|
9
|
|
1.57 |
|
|
|
|
|
|
|
|
HSBC Bank Argentina |
92
|
|
6
|
|
6.52 |
|
95
|
|
4
|
|
4.21 |
|
79
|
|
10
|
|
12.66 |
|
|
Other operations |
|
(134,269
|
) |
(3,979
|
) |
|
|
(101,874
|
) |
(4,422
|
) |
|
|
(68,873
|
) |
(3,822
|
) |
|
|
|
|
| |
| |
|
|
| |
| |
|
|
| |
| |
|
|
|
|
14,579
|
|
675
|
|
4.63 |
|
9,712
|
|
758
|
|
7.80 |
|
17,335
|
|
658
|
|
3.80 |
|
|
|
| |
| |
|
|
| |
| |
|
|
| |
| |
|
|
|
Total interest-bearing liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe |
HSBC Bank |
487,796
|
|
17,631
|
|
3.61 |
|
411,862
|
|
18,304
|
|
4.44 |
|
331,148
|
|
11,788
|
|
3.56 |
|
|
HSBC Private Banking |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Holdings (Suisse) |
46,474
|
|
1,589
|
|
3.42 |
|
35,072
|
|
1,670
|
|
4.76 |
|
29,921
|
|
1,257
|
|
4.20 |
|
|
HSBC France |
143,529
|
|
6,142
|
|
4.28 |
|
119,391
|
|
4,781
|
|
4.00 |
|
80,044
|
|
2,759
|
|
3.45 |
|
|
HSBC Finance |
3,927
|
|
199
|
|
5.07 |
|
4,797
|
|
245
|
|
5.11 |
|
4,759
|
|
251
|
|
5.27 |
|
Hong Kong |
Hang Seng Bank |
70,908
|
|
1,073
|
|
1.51 |
|
68,358
|
|
2,223
|
|
3.25 |
|
59,298
|
|
1,924
|
|
3.24 |
|
|
The Hongkong and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shanghai Banking |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporation |
153,391
|
|
1,723
|
|
1.12 |
|
138,978
|
|
4,184
|
|
3.01 |
|
115,326
|
|
3,424
|
|
2.97 |
|
Rest of |
The Hongkong and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asia-Pacific |
Shanghai Banking |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporation |
145,388
|
|
4,425
|
|
3.04 |
|
107,909
|
|
4,229
|
|
3.92 |
|
84,451
|
|
3,216
|
|
3.81 |
|
|
HSBC Bank Malaysia |
11,417
|
|
332
|
|
2.91 |
|
9,748
|
|
291
|
|
2.99 |
|
8,146
|
|
243
|
|
2.98 |
|
|
HSBC Bank Middle East |
26,170
|
|
630
|
|
2.41 |
|
19,611
|
|
810
|
|
4.13 |
|
13,212
|
|
497
|
|
3.76 |
|
North America |
HSBC Bank USA |
131,632
|
|
3,676
|
|
2.79 |
|
126,017
|
|
5,409
|
|
4.29 |
|
117,416
|
|
5,432
|
|
4.63 |
|
|
HSBC Finance |
134,892
|
|
5,469
|
|
4.05 |
|
149,350
|
|
7,503
|
|
5.02 |
|
142,812
|
|
6,942
|
|
4.86 |
|
|
HSBC Bank Canada |
53,744
|
|
1,631
|
|
3.03 |
|
47,663
|
|
1,850
|
|
3.88 |
|
38,547
|
|
1,354
|
|
3.51 |
|
|
HSBC Markets Inc |
10,349
|
|
78
|
|
0.75 |
|
8,889
|
|
255
|
|
2.87 |
|
2,883
|
|
88
|
|
3.05 |
|
Latin America |
HSBC Mexico |
18,314
|
|
856
|
|
4.67 |
|
16,567
|
|
737
|
|
4.45 |
|
14,790
|
|
552
|
|
3.73 |
|
|
Brazilian operations9
|
33,277
|
|
3,663
|
|
11.01 |
|
23,650
|
|
2,566
|
|
10.85 |
|
17,437
|
|
2,332
|
|
13.37 |
|
|
HSBC Bank Panama |
10,250
|
|
375
|
|
3.66 |
|
9,922
|
|
434
|
|
4.37 |
|
1,383
|
|
53
|
|
3.83 |
|
|
HSBC Bank Argentina |
2,387
|
|
152
|
|
6.37 |
|
2,116
|
|
98
|
|
4.63 |
|
1,134
|
|
56
|
|
4.94 |
|
Other operations |
|
(32,003
|
) |
(906
|
) |
|
|
(20,440
|
) |
(1,025
|
) |
|
|
4,939
|
|
(775
|
) |
|
|
|
|
| |
| |
|
|
| |
| |
|
|
| |
| |
|
|
|
|
1,451,842
|
|
48,738
|
|
3.36 |
|
1,279,460
|
|
54,564
|
|
4.26 |
|
1,067,646 |
|
41,393
|
|
3.88 |
|
|
|
| |
| |
|
|
| |
| |
|
|
|
|
| |
|
|
|
For footnotes, see page 143. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48
Back to Contents
Net interest margin13
|
|
|
|
|
|
|
|
|
2008 |
|
2007 |
|
2006 |
|
|
|
% |
|
% |
|
% |
|
|
Europe |
HSBC Bank |
1.71 |
|
1.58 |
|
2.09 |
|
|
HSBC Private Banking Holdings (Suisse) |
1.24 |
|
1.10 |
|
1.11 |
|
|
HSBC France |
0.26 |
|
0.54 |
|
0.81 |
|
|
HSBC Finance |
6.36 |
|
6.66 |
|
7.08 |
|
Hong Kong |
Hang Seng Bank |
2.59 |
|
2.54 |
|
2.43 |
|
|
The Hongkong and Shanghai Banking Corporation |
2.27 |
|
2.27 |
|
2.29 |
|
|
Rest of Asia-Pacific |
The Hongkong and Shanghai Banking Corporation |
2.15 |
|
2.25 |
|
2.16 |
|
|
HSBC Bank Malaysia |
3.02 |
|
3.21 |
|
3.23 |
|
|
HSBC Bank Middle East |
3.63 |
|
3.63 |
|
4.11 |
|
North America |
HSBC Bank USA |
2.93 |
|
2.43 |
|
1.95 |
|
|
HSBC Finance |
7.22 |
|
6.84 |
|
6.83 |
|
|
HSBC Bank Canada |
1.93 |
|
2.23 |
|
2.36 |
|
Latin America |
HSBC Mexico |
8.95 |
|
8.60 |
|
7.92 |
|
|
Brazilian operations9
|
8.85 |
|
10.55 |
|
11.78 |
|
|
HSBC Bank Panama |
4.39 |
|
4.29 |
|
3.94 |
|
|
HSBC Bank Argentina |
10.25 |
|
8.86 |
|
7.31 |
|
|
|
|
|
|
|
|
|
|
|
2.90 |
|
2.91 |
|
3.10 |
|
|
|
|
|
|
|
|
|
Distribution of average total assets |
|
|
|
|
|
|
|
|
|
2008
|
|
2007 |
|
2006 |
|
|
|
%
|
|
% |
|
% |
|
Europe |
HSBC Bank |
36.7
|
|
34.6 |
|
30.6 |
|
|
HSBC Private Banking Holdings (Suisse) |
2.3
|
|
2.2 |
|
2.3 |
|
|
HSBC France |
13.8
|
|
12.0 |
|
10.0 |
|
|
HSBC Finance |
0.2
|
|
0.3 |
|
0.5 |
|
Hong Kong |
Hang Seng Bank |
3.9
|
|
4.4 |
|
4.3 |
|
|
The Hongkong and Shanghai Banking Corporation |
9.5
|
|
10.1 |
|
10.7 |
|
Rest of Asia-Pacific |
The Hongkong and Shanghai Banking Corporation |
8.8
|
|
6.9 |
|
6.0 |
|
|
HSBC Bank Malaysia |
0.6
|
|
0.7 |
|
0.6 |
|
|
HSBC Bank Middle East |
1.8
|
|
1.4 |
|
1.3 |
|
North America |
HSBC Bank USA |
11.2
|
|
10.1 |
|
11.3 |
|
|
HSBC Finance |
6.2
|
|
8.3 |
|
10.0 |
|
|
HSBC Bank Canada |
2.9
|
|
3.3 |
|
2.4 |
|
Latin America |
HSBC Mexico |
1.5
|
|
2.5 |
|
1.7 |
|
|
Brazilian operations9
|
2.1
|
|
1.6 |
|
1.5 |
|
|
HSBC Bank Panama |
0.6
|
|
0.7 |
|
0.2 |
|
|
HSBC Bank Argentina |
0.2
|
|
0.2 |
|
0.1 |
|
|
Other operations (including consolidation adjustments) |
(2.3
|
) |
0.7 |
|
6.5 |
|
|
| |
|
|
|
|
|
|
100.0
|
|
100.0 |
|
100.0 |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
For
footnotes, see page 143. |
|
|
|
|
|
|
49
Back to Contents
H S B C H O L
D I N G S P L C |
|
Report
of the Directors: Operating and Financial Review (continued) |
|
|
|
|
Financial summary > Balance
sheet > Changes in NII |
Analysis of changes in net interest income
The following table allocates changes in net interest income between volume and rate for 2008 compared with 2007, and for 2007 compared with 2006.
Interest income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase/(decrease)
|
|
|
|
Increase/(decrease)
|
|
|
|
|
|
|
|
in 2008
compared with 2007 |
|
|
|
in 2007 compared
with 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
Volume |
|
Rate |
|
2007 |
|
Volume |
|
Rate |
|
2006 |
|
|
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
Short-term funds and
loans and advances to banks |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe |
HSBC Bank |
2,187 |
|
(166 |
) |
(239 |
) |
2,592 |
|
729 |
|
327 |
|
1,536 |
|
|
HSBC
Private Banking Holdings (Suisse) |
333 |
|
119 |
|
(15 |
) |
229 |
|
13 |
|
26 |
|
190 |
|
|
HSBC France |
1,495 |
|
173 |
|
28 |
|
1,294 |
|
390 |
|
214 |
|
690 |
|
Hong Kong |
Hang Seng Bank |
587 |
|
203 |
|
(225 |
) |
609 |
|
126 |
|
|
|
483 |
|
|
The
Hongkong and Shanghai Banking Corporation |
1,344 |
|
(139 |
) |
(869 |
) |
2,352 |
|
484 |
|
223 |
|
1,645 |
|
Rest of Asia-Pacific |
The
Hongkong and Shanghai Banking
Corporation |
881 |
|
362 |
|
(291 |
) |
810 |
|
229 |
|
61 |
|
520 |
|
|
HSBC Bank Malaysia |
165 |
|
65 |
|
(3 |
) |
103 |
|
13 |
|
3 |
|
87 |
|
|
HSBC Bank Middle East |
188 |
|
(15 |
) |
(121 |
) |
324 |
|
100 |
|
16 |
|
208 |
|
North America |
HSBC Bank USA |
328 |
|
10 |
|
(159 |
) |
477 |
|
54 |
|
(42 |
) |
465 |
|
|
HSBC Bank Canada |
107 |
|
(21 |
) |
(46 |
) |
174 |
|
28 |
|
8 |
|
138 |
|
Latin America |
HSBC Mexico |
247 |
|
9 |
|
(1 |
) |
239 |
|
11 |
|
1 |
|
227 |
|
|
Brazilian operations9
|
951 |
|
242 |
|
64 |
|
645 |
|
230 |
|
(157 |
) |
572 |
|
|
HSBC Bank Panama |
30 |
|
9 |
|
(12 |
) |
33 |
|
24 |
|
|
|
9 |
|
|
HSBC Bank Argentina |
43 |
|
16 |
|
11 |
|
16 |
|
4 |
|
4 |
|
8 |
|
Other operations |
|
760 |
|
43 |
|
(181 |
) |
898 |
|
89 |
|
191 |
|
618 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,646 |
|
915 |
|
(2,064 |
) |
10,795 |
|
2,561 |
|
838 |
|
7,396 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans and advances
to customers |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe |
HSBC Bank |
18,587 |
|
3,885 |
|
(3,376 |
) |
18,078 |
|
669 |
|
3,243 |
|
14,166 |
|
|
HSBC
Private Banking Holdings (Suisse) |
494 |
|
132 |
|
(145 |
) |
507 |
|
127 |
|
42 |
|
338 |
|
|
HSBC France |
3,604 |
|
257 |
|
128 |
|
3,219 |
|
699 |
|
57 |
|
2,463 |
|
|
HSBC Finance |
505 |
|
(76 |
) |
(30 |
) |
611 |
|
(50 |
) |
(10 |
) |
671 |
|
Hong Kong |
Hang Seng Bank |
1,589 |
|
251 |
|
(782 |
) |
2,120 |
|
193 |
|
(25 |
) |
1,952 |
|
|
The
Hongkong and Shanghai Banking Corporation |
2,291 |
|
392 |
|
(1,002 |
) |
2,901 |
|
51 |
|
7 |
|
2,843 |
|
Rest of Asia-Pacific |
The
Hongkong and Shanghai Banking Corporation |
5,163 |
|
1,345 |
|
(503 |
) |
4,321 |
|
471 |
|
401 |
|
3,449 |
|
|
HSBC Bank Malaysia |
553 |
|
64 |
|
(18 |
) |
507 |
|
80 |
|
(3 |
) |
430 |
|
|
HSBC Bank Middle East |
1,549 |
|
680 |
|
(331 |
) |
1,200 |
|
178 |
|
65 |
|
957 |
|
North America |
HSBC Bank USA |
5,758 |
|
219 |
|
(1,046 |
) |
6,585 |
|
106 |
|
338 |
|
6,141 |
|
|
HSBC Finance |
15,835 |
|
(1,495 |
) |
(756 |
) |
18,086 |
|
732 |
|
293 |
|
17,061 |
|
|
HSBC Bank Canada |
2,455 |
|
284 |
|
(427 |
) |
2,598 |
|
495 |
|
66 |
|
2,037 |
|
Latin America |
HSBC Mexico |
2,565 |
|
104 |
|
274 |
|
2,187 |
|
380 |
|
275 |
|
1,532 |
|
|
Brazilian operations9
|
4,879 |
|
1,744 |
|
(760 |
) |
3,895 |
|
1,409 |
|
(758 |
) |
3,244 |
|
|
HSBC Bank Panama |
810 |
|
49 |
|
(17 |
) |
778 |
|
686 |
|
|
|
92 |
|
|
HSBC Bank Argentina |
378 |
|
68 |
|
69 |
|
241 |
|
106 |
|
28 |
|
107 |
|
Other operations |
|
1,707 |
|
564 |
|
(647 |
) |
1,790 |
|
118 |
|
144 |
|
1,528 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
68,722 |
|
8,887 |
|
(9,789 |
) |
69,624 |
|
5,891 |
|
4,722 |
|
59,011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For footnotes, see
page 143. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50
Back to Contents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase/(decrease)
in |
|
|
|
Increase/(decrease)
|
|
|
|
|
|
|
|
2008 compared with
2007 |
|
|
|
in 2007 compared with
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
Volume |
|
Rate |
|
2007 |
|
Volume |
|
Rate |
|
2006 |
|
|
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
Financial investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe |
HSBC Bank |
3,840 |
|
2,006
|
|
(597
|
) |
2,431 |
|
146 |
|
308 |
|
1,977 |
|
|
HSBC
Private Banking Holdings (Suisse) |
553 |
|
81 |
|
(39 |
) |
511 |
|
74 |
|
46 |
|
391 |
|
|
HSBC France |
795 |
|
222 |
|
62 |
|
511 |
|
291 |
|
125 |
|
95 |
|
Hong Kong |
Hang Seng Bank |
1,063 |
|
(340 |
) |
(147 |
) |
1,550 |
|
157 |
|
169 |
|
1,224 |
|
|
The
Hongkong and Shanghai Banking Corporation |
563 |
|
(263 |
) |
(191 |
) |
1,017 |
|
16 |
|
90 |
|
911 |
|
Rest of Asia-Pacific |
The
Hongkong and Shanghai Banking Corporation |
1,507 |
|
371 |
|
71 |
|
1,065 |
|
281 |
|
47 |
|
737 |
|
|
HSBC Bank Malaysia |
36 |
|
(21 |
) |
1 |
|
56 |
|
21 |
|
(1 |
) |
36 |
|
|
HSBC Bank Middle East |
144 |
|
96 |
|
(126 |
) |
174 |
|
118 |
|
(16 |
) |
72 |
|
North America |
HSBC Bank USA |
1,232 |
|
87 |
|
(44 |
) |
1,189 |
|
58 |
|
22 |
|
1,109 |
|
|
HSBC Finance |
143 |
|
(65 |
) |
(21 |
) |
229 |
|
19 |
|
10 |
|
200 |
|
|
HSBC Bank Canada |
197 |
|
41 |
|
(102 |
) |
258 |
|
69 |
|
15 |
|
174 |
|
Latin America |
HSBC Mexico |
244 |
|
14 |
|
(89 |
) |
319 |
|
(76 |
) |
(32 |
) |
427 |
|
|
Brazilian operations9
|
853 |
|
140 |
|
41 |
|
672 |
|
225 |
|
(54 |
) |
501 |
|
|
HSBC Bank Panama |
47 |
|
(7 |
) |
(4 |
) |
58 |
|
37 |
|
|
|
21 |
|
|
HSBC Bank Argentina |
47 |
|
(33 |
) |
12 |
|
68 |
|
31 |
|
(1 |
) |
38 |
|
Other operations |
|
1,354 |
|
123 |
|
(176 |
) |
1,407 |
|
121 |
|
95 |
|
1,191 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,618 |
|
2,450 |
|
(1,347 |
) |
11,515 |
|
1,634 |
|
777 |
|
9,104 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits by banks |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe |
HSBC Bank |
1,875 |
|
162 |
|
(435 |
) |
2,148 |
|
477 |
|
360 |
|
1,311 |
|
|
HSBC
Private Banking Holdings (Suisse) |
105 |
|
121 |
|
(38 |
) |
22 |
|
(11 |
) |
|
|
33 |
|
|
HSBC France |
1,672 |
|
310 |
|
4 |
|
1,358 |
|
292 |
|
180 |
|
886 |
|
Hong Kong |
Hang Seng Bank |
55 |
|
(53 |
) |
(15 |
) |
123 |
|
40 |
|
(1 |
) |
84 |
|
|
The
Hongkong and Shanghai Banking Corporation |
70 |
|
1 |
|
(81 |
) |
150 |
|
40 |
|
(15 |
) |
125 |
|
Rest of Asia-Pacific |
The
Hongkong and Shanghai Banking Corporation |
450 |
|
260 |
|
(255 |
) |
445 |
|
156 |
|
43 |
|
246 |
|
|
HSBC Bank Malaysia |
10 |
|
(1 |
) |
(1 |
) |
12 |
|
3 |
|
|
|
9 |
|
|
HSBC Bank Middle East |
29 |
|
48 |
|
(51 |
) |
32 |
|
11 |
|
(2 |
) |
23 |
|
North America |
HSBC Bank USA |
220 |
|
244 |
|
(438 |
) |
414 |
|
182 |
|
24 |
|
208 |
|
|
HSBC Bank Canada |
41 |
|
(16 |
) |
(36 |
) |
93 |
|
7 |
|
18 |
|
68 |
|
Latin America |
HSBC Mexico |
32 |
|
(10 |
) |
(21 |
) |
63 |
|
13 |
|
|
|
50 |
|
|
Brazilian operations9
|
190 |
|
85 |
|
(1 |
) |
106 |
|
50 |
|
(45 |
) |
101 |
|
|
HSBC Bank Panama |
43 |
|
(7 |
) |
(16 |
) |
66 |
|
49 |
|
|
|
17 |
|
|
HSBC Bank Argentina |
1 |
|
(7 |
) |
(1 |
) |
9 |
|
3 |
|
1 |
|
5 |
|
Other operations |
|
166 |
|
4 |
|
(129 |
) |
291 |
|
(51 |
) |
8 |
|
334 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,959 |
|
1,183 |
|
(1,556 |
) |
5,332 |
|
1,267 |
|
565 |
|
3,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For footnotes,
see page 143. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51
Back to Contents
H S B C H O L
D I N G S P L C |
|
Report
of the Directors: Operating and Financial Review (continued) |
|
|
|
|
Financial
summary > Balance sheet > Changes in NII / Share capital and
reserves |
Interest expense (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase/(decrease)
|
|
|
|
Increase/(decrease)
|
|
|
|
|
|
|
|
in 2008 compared
with 2007 |
|
|
|
in 2007 compared
with 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
Volume |
|
Rate |
|
2007 |
|
Volume |
|
Rate |
|
2006 |
|
|
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
Customer accounts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe |
HSBC Bank |
10,092 |
|
1,355 |
|
(1,839
|
) |
10,576 |
|
1,577 |
|
1,968 |
|
7,031 |
|
|
HSBC
Private Banking Holdings (Suisse) |
1,349 |
|
328 |
|
(464 |
) |
1,485 |
|
237 |
|
179 |
|
1,069 |
|
|
HSBC France |
1,583 |
|
292 |
|
65 |
|
1,226 |
|
264 |
|
210 |
|
752 |
|
Hong Kong |
Hang Seng Bank |
914 |
|
152 |
|
(1,138 |
) |
1,900 |
|
219 |
|
(31 |
) |
1,712 |
|
|
The
Hongkong and Shanghai Banking Corporation |
1,365 |
|
382 |
|
(2,516 |
) |
3,499 |
|
591 |
|
(26 |
) |
2,934 |
|
Rest of Asia-Pacific |
The
Hongkong and Shanghai Banking Corporation |
2,869 |
|
711 |
|
(487 |
) |
2,645 |
|
646 |
|
96 |
|
1,903 |
|
|
HSBC Bank Malaysia |
295 |
|
43 |
|
(8 |
) |
260 |
|
46 |
|
2 |
|
212 |
|
|
HSBC Bank Middle East |
422 |
|
156 |
|
(312 |
) |
578 |
|
139 |
|
28 |
|
411 |
|
North America |
HSBC Bank USA |
2,069 |
|
334 |
|
(1,316 |
) |
3,051 |
|
249 |
|
312 |
|
2,490 |
|
|
HSBC Bank Canada |
967 |
|
146 |
|
(269 |
) |
1,090 |
|
152 |
|
134 |
|
804 |
|
Latin America |
HSBC Mexico |
561 |
|
15 |
|
(2 |
) |
548 |
|
21 |
|
56 |
|
471 |
|
|
Brazilian operations9
|
3,110 |
|
741 |
|
206 |
|
2,163 |
|
648 |
|
(541 |
) |
2,056 |
|
|
HSBC Bank Panama |
296 |
|
6 |
|
(24 |
) |
314 |
|
280 |
|
|
|
34 |
|
|
HSBC Bank Argentina |
145 |
|
17 |
|
43 |
|
85 |
|
38 |
|
6 |
|
41 |
|
Other operations |
|
1,952 |
|
369 |
|
(714 |
) |
2,297 |
|
200 |
|
286 |
|
1,811 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,989 |
|
4,710 |
|
(8,438 |
) |
31,717 |
|
5,098 |
|
2,888 |
|
23,731 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
liabilities designated at fair value own
debt issued |
3,133 |
|
304 |
|
(739 |
) |
3,568 |
|
196 |
|
212 |
|
3,160 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities in
issue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe |
HSBC Bank |
4,001 |
|
1,290 |
|
(1,042 |
) |
3,753 |
|
816 |
|
890 |
|
2,047 |
|
|
HSBC France |
1,447 |
|
86 |
|
154 |
|
1,207 |
|
285 |
|
289 |
|
633 |
|
|
HSBC Finance |
8 |
|
(2 |
) |
(8 |
) |
18 |
|
(18 |
) |
4 |
|
32 |
|
Hong Kong |
Hang Seng Bank |
57 |
|
(2 |
) |
(21 |
) |
80 |
|
4 |
|
12 |
|
64 |
|
Rest of Asia-Pacific |
The
Hongkong and Shanghai Banking Corporation |
640 |
|
1 |
|
80 |
|
559 |
|
54 |
|
67 |
|
438 |
|
|
HSBC Bank Malaysia |
20 |
|
6 |
|
1 |
|
13 |
|
(2 |
) |
2 |
|
13 |
|
|
HSBC Bank Middle East |
90 |
|
32 |
|
(61 |
) |
119 |
|
119 |
|
|
|
|
|
North America |
HSBC Bank USA |
852 |
|
(182 |
) |
(198 |
) |
1,232 |
|
(152 |
) |
(23 |
) |
1,407 |
|
|
HSBC Finance |
3,765 |
|
(802 |
) |
(744 |
) |
5,311 |
|
142 |
|
122 |
|
5,047 |
|
|
HSBC Bank Canada |
604 |
|
95 |
|
(131 |
) |
640 |
|
180 |
|
|
|
460 |
|
Latin America |
HSBC Mexico |
243 |
|
148 |
|
(15 |
) |
110 |
|
83 |
|
4 |
|
23 |
|
|
Brazilian operations9
|
156 |
|
36 |
|
5 |
|
115 |
|
72 |
|
(27 |
) |
70 |
|
|
HSBC Bank Panama |
33 |
|
(4 |
) |
(8 |
) |
45 |
|
43 |
|
|
|
2 |
|
|
HSBC Bank Argentina |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other operations |
|
66 |
|
(14 |
) |
93 |
|
(13 |
) |
119 |
|
(240 |
) |
108 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,982 |
|
(723 |
) |
(1,930 |
) |
13,189 |
|
1,777 |
|
1,068 |
|
10,344 |
|
|
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52
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Share capital and reserves
Authorised share capital
The authorised share capital of HSBC Holdings at 31 December 2008 was US$7,500,100,000 divided into 15,000 million ordinary shares of US$0.50 each and 10 million non-cumulative preference shares of US$0.01 each;
£401,500 divided into 10 million non-cumulative preference shares of £0.01 each and 301,500 non-voting deferred shares of £1 each; and 100,000 divided into 10 million non-cumulative preference shares of 0.01
each.
The percentage of the total authorised share capital of HSBC Holdings at 31 December 2008 represented by the numbers of ordinary shares of US$0.50 each, non-cumulative preference shares of
£0.01 each, non-cumulative preference shares of US$0.01 each, non-cumulative preference shares of 0.01 each and non-voting deferred shares of £1 each was approximately 99.9890, 0.0019, 0.0013, 0.0019 and 0.0059 per cent
respectively.
Issued share capital
The issued share capital of HSBC Holdings at 31 December 2008 was US$6,052,647,041 divided into 12,105,265,082 ordinary shares of US$0.50 each and 1,450,000 non-cumulative preference shares of US$0.01
each; and £301,500 comprising 301,500 non-voting deferred shares of £1 each.
The percentage of the total issued share capital of HSBC Holdings at 31 December 2008 represented by the ordinary shares of US$0.50 each, non-cumulative preference shares of US$0.01
each and non-voting deferred shares of £1 each was approximately 99.9925, 0.0002, and 0.0073 per cent respectively.
Rights and obligations attaching to shares
The rights and obligations attaching to each class of share in the authorised share capital of HSBC Holdings are set out in the Articles of Association of HSBC Holdings. Set out below is a summary of the rights and
obligations attaching to each class of shares with respect to voting, dividends, capital and, in the case of the preference shares, redemption.
To be registered, a transfer of shares must be in relation to a share which is fully paid up and on which the Company has no lien and to one class of shares denominated in the same currency.
The transfer must be in favour of a single transferee or no more than four joint transferees and it must be duly stamped (if required). The transfer must be delivered to the registered office of the Company or to its
Registrars accompanied by the certificate to which it relates or such other evidence that proves the title of the transferor.
If a shareholder or any person appearing to be interested in the Companys shares has been sent a notice under section 793 of the Companies Act 2006 (which confers upon public companies
the power to require information from any person whom the Company knows or has reasonable cause to believe to be interested in the shares) and has failed in relation to any shares (the default shares) to supply the information requested
within the period set out in the notice, then the member is not entitled to be present at or to vote the default shares at any general meeting or to exercise any other right conferred by being a shareholder. If the default shares represent at least
0.25 per cent in nominal value of the issued shares of that class any dividend shall be withheld by the Company, without interest and no election for the scrip dividend alternative may be made. No transfer of any shares held by the member will be
registered, except in limited circumstances.
Ordinary shares
Subject to the Companies Act 2006 and the Articles of Association of HSBC Holdings, in a general meeting of HSBC Holdings, every holder of ordinary shares who is present in person or by proxy shall on a show of hands have
one vote and every holder of ordinary shares present in person or by proxy shall on a poll have one vote for every share he or she holds. Where any shareholder is, under the rules governing the listing of securities on any stock exchange on which
all or any shares of HSBC Holdings are for the time being listed or traded, required to abstain from voting on any particular resolution or restricted to voting only for or only against any particular resolution, any votes cast by or on behalf of
such holder in contravention of such requirement or restriction will not be counted.
Subject to the Companies Act 2006 and the Articles of Association of HSBC Holdings, HSBC Holdings may, by ordinary resolution, declare dividends to be paid to the holders of ordinary shares,
however, no dividend shall exceed the amount recommended by the Board. The Board may pay interim dividends as appears to the Board to be justified by the profits of HSBC Holdings available for distribution. All dividends shall be apportioned and
paid proportionately to the percentage of the nominal amount paid up on the shares during any portion or portions of the period in respect of which the dividend is paid, but if any share is issued on terms providing that it shall rank for dividend
as from a particular date, it shall rank for dividend
53
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H S B C H O L
D I N G S P L C |
|
Report
of the Directors: Operating and Financial Review (continued) |
|
|
|
|
Financial summary > Balance
sheet > Share capital and reserves |
accordingly. Subject to the Articles of Association of HSBC Holdings, the Board may, with the prior authority of an ordinary resolution of HSBC Holdings and subject to such terms and conditions as the Board may determine,
offer to any holders of ordinary shares the right to elect to receive ordinary shares of the same or a different currency, credited as fully paid, instead of cash in any currency in respect of the whole (or some part, to be determined by the Board)
of any dividend specified by the ordinary resolution. At the 2007 Annual General Meeting shareholders gave authority to the Directors to offer a scrip dividend alternative until the conclusion of the Annual General Meeting in 2012.
Subject to the relevant insolvency laws and the Articles of Association of HSBC Holdings, if HSBC Holdings is wound up, the assets available for distribution among the holders of ordinary
shares will be distributed among such holders in proportion to the number of ordinary shares held by them respectively, such distribution to be adjusted to take account of any amount remaining unpaid on a holders share. On a winding up, the
liquidator may, with the sanction of a special resolution of HSBC Holdings and any other sanction required by law, divide among the shareholders in specie the whole or any part of the assets of HSBC Holdings and may, for that purpose, value any
assets and determine how the division shall be carried out as between the shareholders or different classes of shareholders.
Preference shares
The non-cumulative preference shares of £0.01 each, the non-cumulative preference shares of US$0.01 each (the Dollar Preference Shares) and the non-cumulative preference shares of 0.01 each carry
the same rights and obligations under the Articles of Association save in respect of the timing of and payment of proceeds from the redemption of each class of share, to the extent issued, and certain rights and obligations that attach to each class
of preference share as determined by the Board prior to allotment of the relevant preference shares. The Dollar Preference Shares are the only class of the preference shares which have been issued and allotted to date.
Holders of the preference shares will only be entitled to attend and vote at general meetings of HSBC Holdings if any dividend payable on the relevant preference shares in respect of such
period as the Board shall determine prior to allotment thereof (which, in the case of the Dollar Preference Shares in issue at 2 March 2009, is four consecutive dividend payment dates) is not paid in full or in such other circumstances, and upon and
subject to such
terms, as the Board may determine prior to allotment of the relevant preference shares. Whenever holders of the relevant preference shares are entitled to vote on a resolution at a general meeting, on a show of hands every
such holder who is present in person or by proxy shall have one vote and on a poll every such holder who is present in person or by proxy shall have one vote per preference share held by him or her or such number of votes per share as the Board
shall determine prior to allotment of such share.
Subject to the Articles of Association, holders of the relevant preference shares shall have the right to a non-cumulative preferential dividend at such rate, on such dates and on such other
terms and conditions as may be determined by the Board prior to allotment thereof in priority to the payment of any dividend to the holders of ordinary shares and any other class of shares of HSBC Holdings in issue (other than (i) the other
preference shares in issue and any other shares expressed to rank pari passu therewith as regards income; and (ii) any shares which by their terms rank in priority to the
relevant preference shares as regards income). Dividends on the Dollar Preference Shares in issue at 2 March 2009 are paid quarterly at the sole and absolute discretion of the Board of Directors. The Board of Directors will not declare a dividend on
the Dollar Preference Shares if payment of the dividend would cause HSBC Holdings not to meet the applicable capital adequacy requirements of the FSA or the profit of HSBC Holdings available for distribution as dividends is not sufficient to enable
HSBC Holdings to pay in full both dividends on the relevant preference shares and dividends on any other shares that are scheduled to be paid on the same date and that have an equal right to dividends. HSBC Holdings may not declare or pay dividends
on any class of its shares ranking lower in the right to dividends than the preference shares nor redeem nor purchase in any manner any of its other shares ranking equal with or lower than the preference shares unless it has paid in full, or set
aside an amount to provide for payment in full, the dividends on the preference shares for the then-current dividend period.
The preference shares carry no rights to participate in the profits or assets of HSBC Holdings other than as set out in the Articles of Association and subject to the Companies Act 1985, do not
confer any right to participate in any offer or invitation by way of rights or otherwise to subscribe for additional shares in HSBC Holdings, do no not confer any right of conversion and do not confer any right to participate in any issue or bonus
shares or
54
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shares issued by way of capitalisation of reserves.
Subject to the relevant insolvency laws and the
Articles of Association of HSBC Holdings, holders of the relevant preference
shares have the right in a winding up of HSBC Holdings to receive out of
the assets of HSBC Holdings available for distribution to its shareholders,
in priority to any payment to the holders of the ordinary shares and any
other class of shares of HSBC Holdings in issue (other than (i) the other
relevant preference shares and any other shares expressed to rank pari passu therewith as regards repayment of capital; and (ii) any shares which by their terms rank in
priority to the relevant preference shares as regards repayment of capital), a sum equal to any unpaid dividend on the relevant preference shares which is payable as a dividend in accordance with or pursuant to the Articles of Association and the
amount paid up or credited as paid up on the relevant preference shares together with such premium (if any) as may be determined by the Board prior to allotment thereof.
HSBC Holdings may redeem the relevant preference shares in accordance with the Articles of Association and the terms on which the relevant preference shares were issued and allotted. In the
case of the Dollar Preference Shares in issue at 2 March 2009, HSBC Holdings may redeem such shares in whole at any time on or after 16 December 2010, subject to prior notification to the FSA.
Non-voting deferred shares
The non-voting deferred shares are held by a subsidiary undertaking of HSBC Holdings. Holders of the non-voting deferred shares are not entitled to receive dividends on these shares. In addition, on winding up or other
return of capital, holders are entitled to receive the amount paid up on their shares after distribution to ordinary shareholders of £10 million in respect of each ordinary share held by them. The holders of the non-voting deferred shares are
not entitled to receive notice of or to attend (either personally or by proxy) any general meeting of HSBC Holdings or to vote (either personally or by proxy) on any resolution to be proposed thereat.
The following events occurred during the year in relation to the share capital of HSBC Holdings:
Scrip dividends
|
|
|
1.
|
36,524,050 ordinary shares were issued at
par in January 2008 to shareholders who elected to receive new shares
in lieu of the third interim dividend for 2007. The market value per share
used to calculate shareholders entitlements to |
|
new shares was US$16.821, being the US dollar
equivalent of £8.132. |
|
|
2. |
136,165,605 ordinary shares were issued at par in May 2008 to shareholders who elected to receive new shares in lieu of the fourth interim dividend for 2007. The market value per share used to calculate shareholders
entitlements to new shares was US$16.4022, being the US dollar equivalent of £8.132. |
|
3. |
15,191,514 ordinary shares were issued at par in July 2008 to shareholders who elected to receive new shares in lieu of the first interim dividend for 2008. The market value per share used to calculate shareholders
entitlements to new shares was US$16.8421, being the US dollar equivalent of £8.519. |
|
4. |
47,687,930 ordinary shares were issued at par in October 2008 to shareholders who elected to receive new shares in lieu of the second interim dividend for 2008. The market value per share used to calculate
shareholders entitlements to new shares was US$15.2466, being the US dollar equivalent of £8.266. |
|
|
All-Employee share plans |
|
|
5. |
In connection with the exercise of options under the HSBC Holdings savings-related share option plans: 27,491,176 ordinary shares were issued at prices ranging from £5.3496 to £7.6736 per share; 1,782,367 ordinary
shares were issued at prices ranging from HK$103.4401 to HK$108.4483 per share; 805,885 ordinary shares were issued at prices ranging from US$13.3290 to US$14.7478 per share; and 46,698 ordinary shares were issued at 10.4217
per share. Options over 18,163,336 ordinary shares lapsed. |
|
6. |
2,667,632 ordinary shares were issued at 8.3124 per share in connection with a Plan dEpargne Entreprise for the benefit of non-UK resident employees of HSBC France and its subsidiaries. |
|
7. |
Options over 32,951,305 ordinary shares were granted at nil consideration on 30 April 2008 to nearly 70,000 HSBC employees resident in nearly 70 countries and territories under the HSBC Holdings savings-related share option
plans. |
|
|
Discretionary share
incentive plans |
|
|
8. |
4,050,585 ordinary shares were issued at prices
ranging from £6.2767 to £7.460 per share in connection with the
exercise of options under |
55
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H S B C H O L
D I N G S P L C |
|
Report
of the Directors: Operating and Financial Review (continued) |
|
|
|
|
Financial summary > Balance
sheet > Share capital and reserves / Short-term borrowings > Contractual
obligations / Ratios |
|
the HSBC Holdings Executive Share Option
Scheme. Options over 223,951 ordinary shares
lapsed. |
|
9. |
3,734,125 ordinary shares were issued at prices
ranging from £6.9100 to £8.7120 per share in connection with
the exercise of options under the HSBC Holdings Group Share Option Plan. Options
over 5,889,067 ordinary shares lapsed. |
|
|
10. |
No options were exercised under and no
ordinary shares were issued in connection with the
HSBC Share Plan. Options over 224,728 ordinary
shares lapsed. |
|
|
|
HSBC Finance |
|
|
11. |
65,198 ordinary shares were issued at prices
ranging from US$14.59 to US$16.71 per
share in connection with the vesting of
Restricted Stock Rights under HSBC Finance
share plans that have been converted into
rights over HSBC Holdings ordinary shares. |
|
|
|
Authority to purchase ordinary shares |
|
|
12. |
At the Annual General Meeting in 2008,
shareholders renewed the authority for the Company
to make market purchases of ordinary shares.
The authority is to make market purchases
of up to 1,186,700,000 ordinary shares.
The Directors have not exercised this authority.
In accordance with the terms of a waiver
granted by the Hong Kong Stock Exchange
on 19 December 2005, HSBC Holdings will
comply with the applicable law and regulation
in the UK in relation to the holding of
any shares in treasury and with the |
|
|
conditions of the waiver, in connection with
any shares it may hold in treasury. |
|
|
Authority to allot shares |
|
|
13. |
At the Annual General Meeting in 2008 shareholders
renewed the general authority for the Directors to allot new shares. The
general authority is to allot up to 2,373,400,000 ordinary shares, 10,000,000
non-cumulative preference shares of £0.01 each, 8,550,000 non-cumulative
preference shares of US$0.01 each and 10,000,000 non-cumulative preference
shares of 0.01 each. Within this, the Directors have authority to
allot up to a maximum of 593,350,000 ordinary shares wholly for cash to
persons other than existing shareholders. |
|
|
Other than as described in paragraphs 1 to 6 and 8
to 10 above, the Directors did not allot any shares during
2008.
Short-term
borrowings
HSBC includes short-term borrowings within customer
accounts, deposits by banks and debt securities in issue and does not show
short-term borrowings separately on the balance sheet. Short- term borrowings
are defined by the US Securities and Exchange Commission (SEC)
as Federal funds purchased and securities sold under agreements to repurchase,
commercial paper and other short-term borrowings. HSBCs only significant
short-term borrowings are securities sold under agreements to repurchase
and certain debt securities in issue. Additional information on these is
provided in the tables below.
|
|
2008
|
|
2007
|
|
2006
|
|
|
|
US$m
|
|
US$m
|
|
US$m
|
|
Securities sold under agreements to repurchase |
|
|
|
|
|
|
|
Outstanding at 31 December |
|
145,180
|
|
140,001
|
|
97,139
|
|
Average amount outstanding during the year |
|
177,256
|
|
129,779
|
|
102,715
|
|
Maximum quarter-end balance outstanding during the year |
|
190,651
|
|
148,601
|
|
109,689
|
|
|
Weighted average interest rate during the year |
|
3.8% |
|
5.4%
|
|
4.3% |
|
Weighted average interest rate at the year-end |
|
2.9% |
|
4.8% |
|
4.6% |
|
|
Short-term bonds |
|
|
|
|
|
|
|
Outstanding at 31 December |
|
40,279
|
|
51,792
|
|
37,906
|
|
Average amount outstanding during the year |
|
45,330
|
|
39,153
|
|
37,729
|
|
Maximum quarter-end balance outstanding during the year |
|
55,842
|
|
51,792
|
|
38,907
|
|
|
Weighted average interest rate during the year |
|
5.0% |
|
7.0% |
|
5.1% |
|
Weighted average interest rate at the year-end |
|
3.1% |
|
6.5% |
|
4.8% |
|
56
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Contractual obligations
The table below provides details of HSBCs material contractual obligations as at 31 December 2008.
|
|
|
Payments due by period |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than |
|
|
|
More than |
|
|
Total |
|
1 year |
|
15 years |
|
5 years |
|
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
|
|
|
|
|
|
|
|
|
Long-term debt obligations |
254,946 |
|
92,191 |
|
99,353 |
|
63,402 |
|
Term deposits and certificates of deposit |
256,661 |
|
245,672 |
|
10,989 |
|
|
|
Capital (finance) lease obligations |
979 |
|
55 |
|
188 |
|
736 |
|
Operating lease obligations |
4,139 |
|
766 |
|
1,800 |
|
1,573 |
|
Purchase obligations |
1,541 |
|
948 |
|
593 |
|
|
|
Short positions in debt securities and equity shares |
66,774 |
|
52,679 |
|
4,477 |
|
9,618 |
|
Current tax liability |
1,822 |
|
1,822 |
|
|
|
|
|
Pension obligations |
15,137 |
|
1,208 |
|
5,393 |
|
8,536 |
|
|
|
|
|
|
|
|
|
|
|
601,999 |
|
395,341 |
|
122,793 |
|
83,865 |
|
|
|
|
|
|
|
|
|
|
Ratios of earnings to combined fixed charges (and preference share dividends)
|
|
2008 |
|
2007 |
|
2006 |
|
2005 |
|
2004 |
|
|
|
% |
|
% |
|
% |
|
% |
|
% |
|
Ratios of earnings to combined fixed charges and
preference share
dividends |
|
|
|
|
|
|
|
|
|
|
|
Ratios in accordance with IFRSs |
|
|
|
|
|
|
|
|
|
|
|
excluding
interest on deposits |
|
2.97 |
|
6.96 |
|
7.22 |
|
9.16 |
|
8.64 |
|
including
interest on deposits |
|
1.13 |
|
1.34 |
|
1.40 |
|
1.59 |
|
1.86 |
|
|
Ratios in accordance with UK GAAP |
|
|
|
|
|
|
|
|
|
|
|
excluding
interest on deposits |
|
|
|
|
|
|
|
|
|
8.07 |
|
including
interest on deposits |
|
|
|
|
|
|
|
|
|
1.81 |
|
|
Ratios of earnings to combined fixed charges |
|
|
|
|
|
|
|
|
|
|
|
Ratios in accordance with IFRSs |
|
|
|
|
|
|
|
|
|
|
|
excluding
interest on deposits |
|
3.17 |
|
7.52 |
|
7.93 |
|
9.60 |
|
8.64 |
|
including
interest on deposits |
|
1.14 |
|
1.34 |
|
1.41 |
|
1.59 |
|
1.86 |
|
|
Ratios in accordance with UK GAAP |
|
|
|
|
|
|
|
|
|
|
|
excluding
interest on deposits |
|
|
|
|
|
|
|
|
|
8.07 |
|
including
interest on deposits |
|
|
|
|
|
|
|
|
|
1.81 |
|
For the purpose of calculating the ratios, earnings consist of income from continuing operations before taxation and minority interests, 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, dividends on preference shares and other equity instruments, as applicable, and the proportion of rental expense
deemed representative of the interest factor.
57
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H S B C H O L
D I N G S P L C |
|
Report
of the Directors: Operating and Financial Review (continued) |
|
|
|
|
Financial
summary > Balance sheet > Loan maturities / Deposits |
Loan maturity and interest sensitivity analysis
At 31 December 2008, the geographical analysis of loan maturity and interest sensitivity by loan type on a contractual repayment basis was as follows:
|
|
|
|
|
|
Rest |
|
|
|
|
|
|
|
|
|
|
|
Hong |
|
of Asia- |
|
North |
|
Latin |
|
|
|
|
|
Europe |
|
Kong |
|
Pacific |
|
America |
|
America |
|
Total |
|
|
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
Maturity of 1 year or less |
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans and advances to banks |
|
58,520 |
|
29,258 |
|
35,668 |
|
10,966 |
|
11,919 |
|
146,331 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial loans to customers |
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial,
industrial and international trade |
|
83,772 |
|
14,666 |
|
31,433 |
|
5,611 |
|
8,827 |
|
144,309 |
|
Real estate
and other property related |
|
18,430 |
|
6,253 |
|
6,071 |
|
9,527 |
|
1,497 |
|
41,778 |
|
Non-bank financial
institutions |
|
57,853 |
|
1,070 |
|
4,188 |
|
21,490 |
|
1,116 |
|
85,717 |
|
Governments |
|
1,121 |
|
117 |
|
1,260 |
|
243 |
|
309 |
|
3,050 |
|
Other commercial |
|
35,652 |
|
1,919 |
|
5,648 |
|
8,737 |
|
1,955 |
|
53,911 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
196,828 |
|
24,025 |
|
48,600 |
|
45,608 |
|
13,704 |
|
328,765 |
|
Hong Kong Government
Home Ownership Scheme |
|
|
|
442 |
|
|
|
|
|
|
|
442 |
|
Residential mortgages and other
personal loans |
|
30,336 |
|
13,476 |
|
13,972 |
|
36,119 |
|
8,382 |
|
102,285 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans and advances to customers |
|
227,164 |
|
37,943 |
|
62,572 |
|
81,727 |
|
22,086 |
|
431,492 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
285,684 |
|
67,201 |
|
98,240 |
|
92,693 |
|
34,005 |
|
577,823 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturity after 1 year but within
5 years |
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans and advances to banks |
|
3,152 |
|
388 |
|
398 |
|
442 |
|
190 |
|
4,570 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial loans to customers |
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial,
industrial and international trade |
|
23,889 |
|
4,943 |
|
7,360 |
|
8,087 |
|
3,640 |
|
47,919 |
|
Real estate
and other property related |
|
13,760 |
|
13,716 |
|
6,182 |
|
8,002 |
|
790 |
|
42,450 |
|
Non-bank financial
institutions |
|
3,419 |
|
594 |
|
1,111 |
|
3,112 |
|
1,185 |
|
9,421 |
|
Governments |
|
323 |
|
784 |
|
355 |
|
78 |
|
769 |
|
2,309 |
|
Other commercial |
|
11,839 |
|
3,365 |
|
4,130 |
|
3,214 |
|
2,072 |
|
24,620 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
53,230 |
|
23,402 |
|
19,138 |
|
22,493 |
|
8,456 |
|
126,719 |
|
Hong Kong Government
Home Ownership Scheme |
|
|
|
1,404 |
|
|
|
|
|
|
|
1,404 |
|
Residential mortgages and other
personal loans |
|
31,595 |
|
8,991 |
|
9,948 |
|
52,234 |
|
5,755 |
|
108,523 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans and advances to customers |
|
84,825 |
|
33,797 |
|
29,086 |
|
74,727 |
|
14,211 |
|
236,646 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
87,977 |
|
34,185 |
|
29,484 |
|
75,169 |
|
14,401 |
|
241,216 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
rate sensitivity of loans and advances to banks and commercial loans to
customers Fixed interest rate |
|
11,333 |
|
185 |
|
2,734 |
|
5,066 |
|
2,460 |
|
21,778 |
|
Variable interest
rate |
|
45,049 |
|
23,605 |
|
16,802 |
|
17,869 |
|
6,186 |
|
109,511 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
56,382 |
|
23,790 |
|
19,536 |
|
22,935 |
|
8,646 |
|
131,289 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturity after 5 years |
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans and advances to banks |
|
340 |
|
|
|
75 |
|
50 |
|
2,463 |
|
2,928 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial loans to customers |
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial,
industrial and international trade |
|
13,386 |
|
577 |
|
1,354 |
|
1,480 |
|
815 |
|
17,612 |
|
Real estate
and other property related |
|
8,180 |
|
4,560 |
|
1,019 |
|
3,209 |
|
512 |
|
17,480 |
|
Non-bank financial
institutions |
|
551 |
|
738 |
|
88 |
|
2,958 |
|
63 |
|
4,398 |
|
Governments |
|
420 |
|
50 |
|
145 |
|
31 |
|
539 |
|
1,185 |
|
Other commercial |
|
15,923 |
|
1,514 |
|
1,428 |
|
991 |
|
535 |
|
20,391 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38,460 |
|
7,439 |
|
4,034 |
|
8,669 |
|
2,464 |
|
61,066 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hong Kong Government
Home Ownership Scheme |
|
|
|
2,036 |
|
|
|
|
|
|
|
2,036 |
|
Residential mortgages and other
personal loans |
|
79,601 |
|
19,738 |
|
13,491 |
|
107,181 |
|
5,526 |
|
225,537 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans and advances to customers |
|
118,061 |
|
29,213 |
|
17,525 |
|
115,850 |
|
7,990 |
|
288,639 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
118,401 |
|
29,213 |
|
17,600 |
|
115,900 |
|
10,453 |
|
291,567 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate sensitivity of loans
and advances to banks and commercial
loans to customers |
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
interest rate |
|
7,607 |
|
|
|
942 |
|
1,128 |
|
619 |
|
10,296 |
|
Variable interest
rate |
|
31,193 |
|
7,439 |
|
3,167 |
|
7,591 |
|
4,308 |
|
53,698 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38,800 |
|
7,439 |
|
4,109 |
|
8,719 |
|
4,927 |
|
63,994 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
58
Back to Contents
Deposits
The following tables summarise the average amount of bank deposits, customer deposits and certificates of deposit (CDs) and other money market instruments (which are included within Debt securities in
issue in the balance sheet), together
with the average interest rates paid thereon for each of the past three years. The geographical analysis of average deposits is based on the location of the office in which the deposits are recorded and excludes balances
with HSBC companies. The Other category includes securities sold under agreements to repurchase.
|
|
2008
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
Average |
|
Average |
|
Average |
|
Average |
|
Average |
|
|
|
balance |
|
rate |
|
balance |
|
rate |
|
balance |
|
rate |
|
|
|
US$m |
|
% |
|
US$m |
|
% |
|
US$m |
|
% |
|
Deposits by banks |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe |
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand and
other non-interest bearing |
|
5,231 |
|
|
|
6,359 |
|
|
|
9,814 |
|
|
|
Demand
interest bearing |
|
19,204 |
|
3.2 |
|
11,036 |
|
3.8 |
|
8,368 |
|
3.7 |
|
Time |
|
43,695 |
|
3.9 |
|
38,470 |
|
4.7 |
|
27,447 |
|
4.0 |
|
Other |
|
31,098 |
|
4.4 |
|
28,770 |
|
4.8 |
|
23,396 |
|
3.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
99,228 |
|
|
|
84,635 |
|
|
|
69,025 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hong Kong |
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand and
other non-interest bearing |
|
1,375 |
|
|
|
1,331 |
|
|
|
1,031 |
|
|
|
Demand
interest bearing |
|
2,780 |
|
2.0 |
|
2,420 |
|
4.3 |
|
2,428 |
|
4.6 |
|
Time |
|
1,583 |
|
2.7 |
|
3,267 |
|
4.5 |
|
2,016 |
|
4.3 |
|
Other |
|
178 |
|
3.4 |
|
251 |
|
0.4 |
|
362 |
|
3.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,916 |
|
|
|
7,269 |
|
|
|
5,837 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rest of Asia-Pacific |
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand and
other non-interest bearing |
|
1,911 |
|
|
|
1,897 |
|
|
|
1,618 |
|
|
|
Demand
interest bearing |
|
4,332 |
|
2.3 |
|
3,167 |
|
2.4 |
|
1,960 |
|
2.4 |
|
Time |
|
10,342 |
|
3.5 |
|
6,433 |
|
5.1 |
|
3,645 |
|
4.8 |
|
Other |
|
3,769 |
|
3.3 |
|
2,768 |
|
4.8 |
|
2,157 |
|
4.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,354 |
|
|
|
14,265 |
|
|
|
9,380 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand and
other non-interest bearing |
|
761 |
|
|
|
827 |
|
|
|
767 |
|
|
|
Demand
interest bearing |
|
5,684 |
|
1.7 |
|
3,759 |
|
4.8 |
|
3,033 |
|
5.3 |
|
Time |
|
7,941 |
|
2.3 |
|
6,746 |
|
6.0 |
|
3,543 |
|
5.4 |
|
Other |
|
449 |
|
1.6 |
|
169 |
|
7.1 |
|
699 |
|
5.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,835 |
|
|
|
11,501 |
|
|
|
8,042 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Latin America |
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand and
other non-interest bearing |
|
366 |
|
|
|
808 |
|
|
|
702 |
|
|
|
Demand
interest bearing |
|
81 |
|
2.5 |
|
153 |
|
5.9 |
|
96 |
|
6.3 |
|
Time |
|
3,357 |
|
5.6 |
|
2,690 |
|
6.5 |
|
1,732 |
|
5.5 |
|
Other |
|
1,254 |
|
7.8 |
|
1,010 |
|
8.0 |
|
683 |
|
9.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,058 |
|
|
|
4,661 |
|
|
|
3,213 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand and
other non-interest bearing |
|
9,644 |
|
|
|
11,222 |
|
|
|
13,932 |
|
|
|
Demand
interest bearing |
|
32,081 |
|
2.7 |
|
20,535 |
|
3.8 |
|
15,885 |
|
4.5 |
|
Time |
|
66,918 |
|
3.7 |
|
57,606 |
|
4.9 |
|
38,383 |
|
4.5 |
|
Other |
|
36,748 |
|
4.5 |
|
32,968 |
|
5.0 |
|
27,297 |
|
3.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
145,391 |
|
|
|
122,331 |
|
|
|
95,497 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
59
Back to Contents
H S B C H O L D
I N G S P L C |
|
Report of
the Directors: Operating and Financial Review
(continued) |
|
|
|
|
Financial
summary > Balance sheet > Deposits / CDs // Critical accounting policies
|
|
2008 |
|
2007 |
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
Average |
|
Average |
|
Average |
|
Average |
|
Average |
|
|
balance |
|
rate |
|
balance |
|
rate |
|
balance |
|
rate |
|
|
US$m |
|
% |
|
US$m |
|
% |
|
US$m |
|
% |
|
Customer accounts |
|
|
|
|
|
|
|
|
|
|
|
|
Europe |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand
and other non-interest bearing |
39,610 |
|
|
|
34,585 |
|
|
|
33,000 |
|
|
|
Demand
interest bearing |
225,034 |
|
2.9 |
|
210,692 |
|
3.5 |
|
173,150 |
|
2.7 |
|
Savings |
73,479 |
|
4.3 |
|
62,002 |
|
4.6 |
|
50,525 |
|
3.9 |
|
Time |
83,208 |
|
3.8 |
|
69,476 |
|
4.9 |
|
59,374 |
|
4.2 |
|
Other |
26,651 |
|
3.9 |
|
14,741 |
|
4.5 |
|
9,249 |
|
4.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
447,982 |
|
|
|
391,496 |
|
|
|
325,298 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hong Kong |
|
|
|
|
|
|
|
|
|
|
|
|
Demand
and other non-interest bearing |
15,620 |
|
|
|
14,214 |
|
|
|
13,011 |
|
|
|
Demand
interest bearing |
126,199 |
|
0.4 |
|
107,053 |
|
2.2 |
|
88,754 |
|
2.4 |
|
Savings |
65,068 |
|
2.4 |
|
63,649 |
|
3.9 |
|
58,883 |
|
3.8 |
|
Time |
27,659 |
|
2.3 |
|
26,712 |
|
3.9 |
|
20,454 |
|
3.6 |
|
Other |
1,563 |
|
1.2 |
|
1,164 |
|
4.3 |
|
51 |
|
3.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
236,109 |
|
|
|
212,792 |
|
|
|
181,153 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rest of Asia-Pacific |
|
|
|
|
|
|
|
|
|
|
|
|
Demand
and other non-interest bearing |
22,721 |
|
|
|
16,438 |
|
|
|
13,107 |
|
|
|
Demand
interest bearing |
55,653 |
|
1.9 |
|
41,089 |
|
2.4 |
|
29,816 |
|
2.1 |
|
Savings |
68,968 |
|
3.6 |
|
57,950 |
|
4.2 |
|
42,153 |
|
4.3 |
|
Time |
15,226 |
|
3.3 |
|
11,538 |
|
4.6 |
|
10,246 |
|
4.5 |
|
Other |
1,359 |
|
2.8 |
|
1,835 |
|
4.5 |
|
2,233 |
|
3.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
163,927 |
|
|
|
128,850 |
|
|
|
97,555 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
|
|
|
|
|
|
|
|
|
|
|
Demand
and other non-interest bearing |
16,759 |
|
|
|
15,175 |
|
|
|
13,662 |
|
|
|
Demand
interest bearing |
18,261 |
|
1.6 |
|
15,389 |
|
3.3 |
|
14,406 |
|
2.9 |
|
Savings |
87,001 |
|
2.5 |
|
79,529 |
|
3.3 |
|
65,216 |
|
2.8 |
|
Time |
17,838 |
|
3.2 |
|
17,655 |
|
5.9 |
|
21,124 |
|
5.4 |
|
Other |
5,123 |
|
2.4 |
|
3,234 |
|
3.7 |
|
3,339 |
|
2.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
144,982 |
|
|
|
130,982 |
|
|
|
117,747 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Latin America |
|
|
|
|
|
|
|
|
|
|
|
|
Demand
and other non-interest bearing |
12,507 |
|
|
|
10,530 |
|
|
|
7,995 |
|
|
|
Demand
interest bearing |
4,994 |
|
1.9 |
|
5,662 |
|
2.1 |
|
5,438 |
|
1.6 |
|
Savings |
31,442 |
|
10.3 |
|
24,861 |
|
8.8 |
|
16,512 |
|
11.3 |
|
Time |
15,179 |
|
5.2 |
|
12,443 |
|
5.9 |
|
7,665 |
|
5.9 |
|
Other |
949 |
|
8.2 |
|
1,212 |
|
9.5 |
|
2,145 |
|
13.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
65,071 |
|
|
|
54,708 |
|
|
|
39,755 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
Demand
and other non-interest bearing |
107,217 |
|
|
|
90,942 |
|
|
|
80,775 |
|
|
|
Demand
interest bearing |
430,141 |
|
1.9 |
|
379,885 |
|
3.0 |
|
311,564 |
|
2.6 |
|
Savings |
325,958 |
|
3.9 |
|
287,991 |
|
4.4 |
|
233,289 |
|
4.1 |
|
Time |
159,110 |
|
3.6 |
|
137,824 |
|
4.9 |
|
118,863 |
|
4.5 |
|
Other |
35,645 |
|
3.6 |
|
22,186 |
|
4.7 |
|
17,017 |
|
4.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,058,071 |
|
|
|
918,828 |
|
|
|
761,508 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CDs and other money market
instruments |
|
|
|
|
|
|
|
|
|
|
|
|
Europe |
74,007 |
|
4.5 |
|
66,164 |
|
5.0 |
|
48,238 |
|
4.2 |
|
Hong Kong |
745 |
|
3.0 |
|
941 |
|
3.9 |
|
1,191 |
|
3.5 |
|
Rest of Asia-Pacific |
7,614 |
|
6.4 |
|
7,230 |
|
6.0 |
|
6,621 |
|
5.6 |
|
North America |
22,278 |
|
3.3 |
|
23,735 |
|
5.4 |
|
23,472 |
|
4.6 |
|
Latin America |
3,036 |
|
7.8 |
|
1,526 |
|
6.8 |
|
318 |
|
10.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
107,680 |
|
4.5 |
|
99,596 |
|
5.2 |
|
79,840 |
|
4.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Certificates of deposit and other time deposits
At 31 December 2008, the maturity analysis of CDs and other wholesale time deposits, by remaining maturity, was as follows:
|
|
|
After |
|
After |
|
|
|
|
|
|
|
|
3 months |
|
6 months |
|
|
|
|
|
|
3 months |
|
but within |
|
but within |
|
After |
|
|
|
|
or less |
|
6 months |
|
12 months |
|
12 months |
|
Total |
|
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
Europe |
|
|
|
|
|
|
|
|
|
|
Certificates
of deposit |
23,911 |
|
483 |
|
192 |
|
|
|
24,586 |
|
Time deposits: |
|
|
|
|
|
|
|
|
|
|
banks |
34,951 |
|
1,943 |
|
2,418 |
|
4,649 |
|
43,961 |
|
customers |
78,562 |
|
5,140 |
|
4,135 |
|
1,598 |
|
89,435 |
|
|
|
|
|
|
|
|
|
|
|
|
|
137,424 |
|
7,566 |
|
6,745 |
|
6,247 |
|
157,982 |
|
|
|
|
|
|
|
|
|
|
|
|
Hong Kong |
|
|
|
|
|
|
|
|
|
|
Certificates
of deposit |
145 |
|
137 |
|
280 |
|
904 |
|
1,466 |
|
Time deposits: |
|
|
|
|
|
|
|
|
|
|
banks |
1,031 |
|
5 |
|
|
|
67 |
|
1,103 |
|
customers |
21,898 |
|
1,057 |
|
274 |
|
419 |
|
23,648 |
|
|
|
|
|
|
|
|
|
|
|
|
|
23,074 |
|
1,199 |
|
554 |
|
1,390 |
|
26,217 |
|
|
|
|
|
|
|
|
|
|
|
|
Rest of Asia-Pacific |
|
|
|
|
|
|
|
|
|
|
Certificates
of deposit |
2,324 |
|
1,383 |
|
928 |
|
248 |
|
4,883 |
|
Time deposits: |
|
|
|
|
|
|
|
|
|
|
banks |
3,912 |
|
887 |
|
310 |
|
164 |
|
5,273 |
|
customers |
13,106 |
|
1,651 |
|
670 |
|
1,490 |
|
16,917 |
|
|
|
|
|
|
|
|
|
|
|
|
|
19,342 |
|
3,921 |
|
1,908 |
|
1,902 |
|
27,073 |
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
|
|
|
|
|
|
|
|
|
Time deposits: |
|
|
|
|
|
|
|
|
|
|
banks |
10,209 |
|
2 |
|
5 |
|
201 |
|
10,417 |
|
customers |
13,882 |
|
720 |
|
248 |
|
310 |
|
15,160 |
|
|
|
|
|
|
|
|
|
|
|
|
|
24,091 |
|
722 |
|
253 |
|
511 |
|
25,577 |
|
|
|
|
|
|
|
|
|
|
|
|
Latin America |
|
|
|
|
|
|
|
|
|
|
Certificates
of deposit |
1,161 |
|
640 |
|
60 |
|
316 |
|
2,177 |
|
Time deposits: |
|
|
|
|
|
|
|
|
|
|
banks |
2,360 |
|
1,446 |
|
389 |
|
264 |
|
4,459 |
|
customers |
10,357 |
|
1,389 |
|
1,071 |
|
359 |
|
13,176 |
|
|
|
|
|
|
|
|
|
|
|
|
|
13,878 |
|
3,475 |
|
1,520 |
|
939 |
|
19,812 |
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
Certificates
of deposit |
27,541 |
|
2,643 |
|
1,460 |
|
1,468 |
|
33,112 |
|
Time deposits: |
|
|
|
|
|
|
|
|
|
|
banks |
52,463 |
|
4,283 |
|
3,122 |
|
5,345 |
|
65,213 |
|
customers |
137,805 |
|
9,957 |
|
6,398 |
|
4,176 |
|
158,336 |
|
|
|
|
|
|
|
|
|
|
|
|
|
217,809 |
|
16,883 |
|
10,980 |
|
10,989 |
|
256,661 |
|
|
|
|
|
|
|
|
|
|
|
|
The geographical analysis of deposits is based on the location of the office in which the deposits are recorded and excludes balances with HSBC companies. The majority of certificates of deposit and time deposits are in
amounts of US$100,000 and over or the equivalent in other currencies.
Critical accounting policies |
|
(Audited) |
Introduction
The results of HSBC are sensitive to the accounting policies, assumptions and estimates that underlie the preparation of its consolidated financial statements. The significant accounting policies used in the preparation of
the consolidated financial statements are described in Note 2 on the Financial Statements.
When preparing the financial statements, it is the Directors responsibility under UK company law to select suitable accounting policies and to make judgements and estimates that are reasonable and prudent.
The accounting policies that are deemed critical to HSBCs results and financial position, in terms of the materiality of the items to which the policy is applied, and which involve a high
degree of judgement including the use of assumptions and estimation, are discussed below.
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H S B C H O L D
I N G S P L C |
|
Report of
the Directors: Operating and Financial Review
(continued) |
|
|
|
|
Critical accounting policies |
Impairment of loans and advances
HSBCs accounting policy for losses arising from the impairment of customer loans and advances is described in Note 2g on the Financial Statements. Loan impairment allowances represent managements best estimate
of losses incurred in the loan portfolios at the balance sheet date.
Management is required to exercise judgement in making assumptions and estimations when calculating loan impairment allowances on both individually and collectively assessed loans and advances.
Of the Groups total loans and advances to customers before impairment allowances of US$957 billion (2007: US$1,001 billion), US$6.9 billion or 1 per cent (2007: US$6.5 billion; 1 per cent) were individually assessed for
impairment, and US$950 billion or 99 per cent (2007: US$994 billion; 99 per cent) were collectively assessed for impairment.
The most significant judgemental area is the calculation of collective impairment allowances. HSBCs most significant geographical area of exposure to collectively assessed loans and
advances is North America, which comprised US$271 billion or 29 per cent (2007: US$301 billion; 30 per cent) of HSBCs total collectively assessed loans and advances. Collective impairment allowances in North America were US$15.9
billion, representing 77 per cent (2007: US$11.9 billion; 72 per cent) of the total collectively assessed loan impairment allowance.
HSBC uses two alternative methods to calculate collective impairment allowances on homogeneous groups of loans that are not considered individually significant:
|
• |
when appropriate empirical information is available, HSBC utilises roll-rate methodology.
This methodology employs statistical analysis of historical data and experience of delinquency and default to estimate the likelihood that
loans will progress through the various stages of delinquency
and ultimately prove irrecoverable. The
estimated loss is the difference between the present value of expected future cash flows, discounted
at the original effective interest rate of
the portfolio, and the carrying amount of the portfolio; and |
|
|
|
|
• |
in other cases, when the portfolio size is small or when information is insufficient or not reliable enough to adopt a roll-rate methodology, HSBC adopts a formulaic approach which allocates progressively higher percentage loss rates the longer a customers |
|
|
loan is overdue. Loss rates are based on historical
experience. |
Both methodologies are subject to estimation uncertainty, in part because it is not practicable to identify losses on an individual loan basis because of the large number of individually
insignificant loans in the portfolio.
In addition, the use of statistically assessed historical information is supplemented with significant management judgement to assess whether current economic and credit conditions are such
that the actual level of inherent losses is likely to be greater or less than that suggested by historical experience. In normal circumstances, historical experience provides the most objective and relevant information from which to assess inherent
loss within each portfolio. In certain circumstances, historical loss experience provides less relevant information about the inherent loss in a given portfolio at the balance sheet date, for example, where there have been changes in economic,
regulatory or behavioural conditions such that the most recent trends in the portfolio risk factors are not fully reflected in the statistical models. In these circumstances, such risk factors are taken into account when calculating the appropriate
levels of impairment allowances, by adjusting the impairment allowances derived solely from historical loss experience.
This key area of judgement is subject to uncertainty and is highly sensitive to factors such as loan portfolio growth, product mix, unemployment rates, bankruptcy trends, geographic
concentrations, loan product features, economic conditions such as national and local trends in housing markets, the level of interest rates, portfolio seasoning, account management policies and practices, changes in laws and regulations, and other
factors that can affect customer payment patterns. Different factors are applied in different regions and countries to reflect different economic conditions and laws and regulations. The assumptions underlying this judgement are highly subjective.
The methodology and the assumptions used in calculating impairment losses are reviewed regularly in the light of differences between loss estimates and actual loss experience. For example, roll rates, loss rates and the expected timing of future
recoveries are regularly benchmarked against actual outcomes to ensure they remain appropriate.
The total amount of the Groups impairment allowances on homogeneous groups of loans is inherently uncertain because it is highly sensitive to changes in economic and credit conditions
across a
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large number of geographical areas. Economic and credit conditions within geographical areas are influenced by many factors with a high degree of interdependency so that there is no single factor to which the Groups
loan impairment allowances as a whole are sensitive. However, HSBCs loan impairment allowances are particularly sensitive to general economic and credit conditions in North America. For example, a 10 per cent increase in impairment allowances
on collectively assessed loans and advances in North America would increase loan impairment allowances by US$1.6 billion at 31 December 2008 (2007: US$1.2 billion). It is possible that the outcomes within the next financial year could be
different from the assumptions built into the models, resulting in a material adjustment to the carrying amount of loans and advances.
Goodwill impairment
HSBCs accounting policy for goodwill is described in Note 2(p) on the Financial Statements. Note 22 on the Financial Statements lists the Groups cash generating units (CGUs) by geographical region
and global business. Total goodwill for the Group amounted to US$22 billion as at 31 December 2008 (2007: US$34 billion).
The process of identifying and evaluating goodwill impairment is inherently uncertain because it requires significant management judgement in making a series of estimations, the results of
which are highly sensitive to the assumptions used. The review of goodwill impairment represents managements best estimate of the factors below:
|
• |
the future cash flows of the CGUs are sensitive to the cash flows projected for the periods for which detailed forecasts are available, and to assumptions regarding the long-term pattern of sustainable cash flows thereafter. Forecasts are compared with actual performance and verifiable economic data in future years; however, the cash flow forecasts necessarily and appropriately reflect managements view of future business prospects at the time of the assessment; and |
|
|
|
|
• |
the discount rate used to discount the future expected cash flows is based on the cost of capital assigned to an individual CGU, and can have a significant effect on the CGUs valuation. The cost of capital percentage is generally derived from a Capital Asset Pricing Model, which incorporates inputs reflecting a number of financial and economic variables, including the risk-free interest rate in the country concerned and a premium to reflect the |
|
|
inherent risk of the business being evaluated.
These variables are subject to fluctuations in external market rates and
economic conditions outside of managements control and are therefore
established on the basis of significant management judgement and are subject
to uncertainty. |
When this exercise demonstrates that the expected cash flows of a CGU have declined and/or that its cost of capital has increased, the effect is to reduce the CGUs estimated recoverable
amount. If this results in an estimated recoverable amount that is lower than the carrying value of the CGU, a charge for impairment of goodwill will be recognised in HSBCs income statement for the year.
The accuracy of forecast cash flows is subject to a high degree of uncertainty in volatile market conditions. In such market conditions, management retests goodwill for impairment more
frequently than annually to ensure that the assumptions on which the cash flow forecasts are based continue to reflect current market conditions and managements best estimate of future business prospects.
Given the extraordinary market events experienced globally during the second half of 2008, HSBC performed an additional impairment test on all the CGUs within the Group as at 31 December 2008.
As a result, HSBC recognised an impairment charge of US$10.6 billion on Personal Financial Services North America as at 31 December 2008 (2007: nil). Management concluded that the recoverable amount of the other CGUs to which goodwill has
been allocated exceeded their carrying value. However, in the event of further significant deterioration in the economic and credit conditions beyond the levels already reflected by management in the cash flow forecasts for the CGUs, a material
adjustment to a CGUs recoverable amount may occur which may result in the recognition of an impairment charge in the income statement.
Note 22 on the Financial Statements includes details of the CGUs with significant balances of goodwill, states the key assumptions used to assess the goodwill in each of those CGUs for
impairment, and provides a discussion of the sensitivity of the carrying value of goodwill to changes in key assumptions.
Valuation of financial instruments
HSBCs accounting policy for determining the fair value of financial instruments is described in Note 2d on the Financial Statements.
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H S B C H O L D
I N G S P L C |
|
Report of
the Directors: Operating and Financial Review
(continued) |
|
|
|
|
Critical accounting policies |
The best evidence of
fair value is a quoted price in an actively traded market. In the event that
the market for a financial instrument is not active, a valuation technique is
used. The majority of valuation techniques employ only observable market data,
and so the reliability of the fair value measurement is high. However, certain
financial instruments are valued on the basis of valuation techniques that feature
one or more significant market inputs that are unobservable. Valuation techniques
that rely to a greater extent on unobservable inputs require a higher level
of management judgement to calculate a fair value than those based wholly on
observable inputs.
Valuation techniques used to calculate fair values include comparisons with similar financial instruments for which market observable prices exist, discounted cash flow analysis, option pricing
models and other valuation techniques commonly used by market participants. Valuation techniques incorporate assumptions that other market participants would use in their valuations, including assumptions about interest rate yield curves, exchange
rates, volatilities, and prepayment and default rates. When valuing instruments by reference to comparable instruments, management takes into account the maturity, structure and rating of the instrument with which the position held is being
compared.
The main assumptions and estimates which management considers when applying a model with valuation techniques are:
|
• |
the likelihood and expected timing of future cash flows on the instrument. These cash flows are usually governed by the terms of the instrument, although management judgement may be required when the ability of the counterparty to service the instrument in accordance
with the contractual terms is in doubt. Future cash flows may be sensitive to changes in market rates; |
|
|
|
|
• |
selecting an appropriate discount rate for the instrument. Management bases the determination of this rate on its assessment of what a market participant would regard as the appropriate spread of the rate for the instrument over the appropriate risk-free rate; and |
|
|
|
|
• |
judgement to determine what model to use to calculate fair value in areas where the choice of valuation model is particularly subjective, for example, when valuing complex derivative products. |
When applying a model with unobservable inputs, estimates are made to reflect uncertainties in fair values resulting from a lack of market data inputs, for example, as a result of illiquidity
in the market. For these instruments, the fair value measurement is less reliable. Inputs into valuations based on unobservable data are inherently uncertain because there are little or no current market data available from which to determine the
level at which an arms length transaction would occur under normal business conditions. However, in most cases there are some market data available on which to base a determination of fair value, for example historical data, and the fair
values of most financial instruments will be based on some market observable inputs even where the unobservable inputs are significant.
An analysis of the basis for valuation of financial instruments measured at fair value in the financial statements is provided on page 162. The value of financial assets and liabilities that
use a valuation technique are US$876 billion (2007: US$626 billion) and US$671 billion (2007: US$401 billion) or 71 per cent (2007: 66 per cent) and 83 per cent (2007: 68 per cent) of total assets and total liabilities measured at
fair value, respectively. A sensitivity analysis of fair values for financial instruments with significant unobservable inputs to reasonably possible alternative assumptions and a range of assumptions and inputs used in valuation models in respect
of instruments of particular interest in the current market turmoil can be found on page 164. Given the uncertainty and subjective nature of valuing financial instruments at fair value, it is possible that the outcomes in the next financial year
could differ from the assumptions used, and this could result in a material adjustment to the carrying amount of financial instruments measured at fair value.
Impairment of available-for-sale financial assets
HSBCs accounting policy for impairment of
available-for-sale financial assets is described in Note 2(j) on the Financial
Statements.
Available-for-sale
financial assets are measured at fair value, and changes in fair value are
recognised in equity in the available-for-sale fair value reserve until the
financial assets are either sold or become impaired. An impairment loss is
recognised if there is objective evidence of impairment as a result of loss
events which have an impact on the estimated future cash flows of the financial
asset that can be reliably estimated. If an available-for-sale financial asset
becomes impaired, the entire balance in equity
64
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relating to that asset is removed from equity and recognised
in the income statement as an impairment loss. A further decline in the fair
value of an available-for-sale debt security subsequent to the initial impairment
is recognised in the income statement when there is further objective evidence
of impairment.
At 31 December 2008 the Groups total available-for-sale financial assets amounted to US$286 billion (2007: US$273 billion), of which US$279 billion or 98 per cent (2007:
US$261 billion; 95 per cent) were debt securities. At 31 December 2008, the available-for-sale fair value reserve relating to debt securities amounted to a deficit of US$21.4 billion (2007: deficit of US$2.4 billion). A deficit in the
available-for-sale fair value reserve occurs on an available-for-sale debt security when the fair value of the security is less than the securitys acquisition cost (net of any principal repayments and amortisation) less any previous impairment
loss recognised in the income statement, but there is no evidence of any impairment or, if an impairment was previously recognised, any subsequent impairment.
Management is required to exercise judgement in determining whether there is objective evidence that an impairment loss has occurred. Once an impairment has been identified, the amount of
impairment loss is measured in relation to the fair value of the asset. More information on assumptions and estimates requiring management judgement relating to the determination of fair values of financial instruments is provided above in
Valuation of financial instruments.
The objective evidence required to determine whether an available-for-sale debt security is impaired comprises evidence of the occurrence of a loss event and evidence that the loss event
results in a decrease in estimated future cash flows. Where cash flows are readily determinable, a low level of judgement may be involved. Where determination of estimated future cash flows requires consideration of a number of variables, some of
which may be unobservable in current market conditions, more significant judgement is required.
The most significant judgements concern more complex instruments, such as asset-backed securities (ABSs), where it is necessary to consider factors such as the estimated future cash
flows on underlying pools of collateral, the extent and depth of market price declines and changes in credit ratings. The review of estimated future cash flows on underlying collateral is subject to estimation uncertainties where the assessment is
based on historical information on pools of assets, and
judgement is required to determine whether historical performance is likely to be representative of current economic and credit conditions. A description of these securities is included in the Impact of market
turmoil section under Nature and extent of HSBCs exposures on page 150 and a more detailed description of the assumptions and estimates used in assessing these securities for impairment is disclosed in the section
Assessing available-for-sale assets for impairment on page 170.
There is no single factor to which the Groups charge for impairment of available-for-sale debt securities is particularly sensitive, because of the range of different types of securities
held, the range of geographical areas in which those securities are held, and the wide range of factors which can affect the occurrence of loss events and the cash flows of securities, including different types of collateral.
Managements
current assessment of the holdings of available-for-sale ABSs with the most
sensitivity to possible future impairment is focused on sub-prime and Alt-A
residential mortgage-backed securities (MBSs). The Groups
principal exposure to these securities is in the Global Banking and Markets
business. Excluding holdings in certain special purpose entities where significant
first loss risks are borne by external investors, the available-for-sale holdings
in these categories within Global Banking and Markets amounted to US$5.2
billion at 31 December 2008 (2007: US$11.8 billion). The deficit in the
available-for-sale fair value reserve as at 31 December 2008 in relation to
these securities was US$5.9 billion (2007: US$1.1 billion).
The main factors
in the reduction in fair value of these securities over the period were the
effects of reduced market liquidity and negative market sentiment. The level
of actual credit losses experienced was low in 2008, notwithstanding the deterioration
in the performance of the underlying mortgages in the period as US house prices
fell and defaults increased. The absence of material credit losses is judged
to be attributable to the seniority of the tranches held by HSBC as well as
the priority for cash flow held by these tranches.
Further details of the nature and extent of HSBCs exposures to asset backed securities classified as available-for-sale are provided in Impact of market turmoilnature and
extent of HSBCs exposures on page 150.
It is reasonably possible that outcomes in the next financial year could be different from the assumptions and estimates used in identifying
65
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H S B C H O L D I
N G S P L C |
|
Report of the Directors: Operating
and Financial Review (continued) |
|
|
|
Critical accounting policies
/ Customer groups > Summary |
impairment on available-for-sale debt securities,
as a result of which, evidence of impairment may be identified in available-for-sale
debt securities which had previously been determined not to be impaired. It
is possible that this could result in the recognition of material impairment
losses in the next financial year.
Deferred tax assets
HSBCs accounting policy for the recognition of deferred tax assets is described in Note 2s on the Financial Statements. A deferred tax asset is recognised to the extent that it is probable that future taxable profits
will be available against which deductible temporary differences can be utilised. The recognition of a deferred tax asset relies on managements judgements surrounding the probability and sufficiency of future taxable profits, future reversals
of existing taxable temporary differences and ongoing tax planning strategies.
HSBCs most significant judgements are around the US deferred tax assets, where there has been a recent history of losses in HSBCs US operations. Net US deferred tax assets amounted
to US$5.0 billion or 71 per cent (2007: US$3.7 billion; 70 per cent) of total net deferred tax assets recognised on the Groups balance sheet.
The amount of US deferred tax assets recognised is based on the evidence available about conditions at the balance sheet date, and requires significant judgements to be made by management,
especially those based on managements projections of credit losses and the timing of recovery in the US economy. Managements judgement takes into consideration the impact of both positive and negative evidence, including historical
financial performance, projections of future taxable income, future reversals of existing taxable temporary differences, and the availability of loss carrybacks. The recognition of the deferred tax asset is mainly dependent upon the projection of
future taxable profits, future reversals of existing taxable temporary differences and the capacity to carry back net operating losses arising in 2009.
Tax losses were incurred in HSBCs US operations in 2008. Management has evaluated the factors contributing to the losses to determine whether the factors leading to the losses are
temporary or indicative of a permanent decline in earnings. Based on its analysis, management has
determined that the losses were primarily caused by increases in credit losses in the US due to the current housing and credit market conditions, as well as continued weakening in the general economy, which has led to
higher unemployment levels and, consequently, higher credit losses.
In the US, managements projections of future taxable income are based on business plans, future capital requirements and ongoing tax planning strategies. These projections include
assumptions about the depth and severity of further house price depreciation, assumptions about the US recession, including unemployment levels and their related impact on credit losses, and assumptions about ongoing capital support from HSBC.
The assumptions surrounding future expected credit losses in the US represent the most subjective areas of judgement in managements projections of future taxable income.
Managements forecasts support the assumption that it is probable that the results of future operations will generate sufficient taxable income to utilise the deferred tax assets. In
managements judgement, the recent market conditions, which have resulted in losses being incurred in the US over the last two years, will create significant downward pressure and volatility on the profit or loss before tax in the next few
years. To reflect this, the assessment of recoverability of the deferred tax asset in the US significantly discounts any future expected taxable income and relies to a greater extent on continued capital support to the US operations from HSBC,
including tax planning strategies implemented in relation to such support. The most significant tax planning strategy is HSBCs investment of capital into its US operations to ensure the utilisation of the net operating loss carry forwards.
This strategy provides substantial support for the recoverability of the deferred tax assets. HSBC expects that its US operations will continue to be dependent upon its capital support, and will continue to execute their business strategies and
plans until they return to profitability. Based on managements forecasts, HSBC expects to provide capital support to its US operations in each of the next three years. If HSBC were to decide, however, not to provide this ongoing support, the
full recovery of the deferred tax asset may no longer be probable and could result in a material adjustment to the deferred tax asset which would be recognised in the income statement.
66
Back to Contents
The Group Chairman and Group Finance Director, with the assistance of other members of management, carried out an evaluation of the effectiveness of the design and operation of HSBC Holdings disclosure controls and
procedures as of 31 December 2008. Based upon that evaluation, the Group Chairman and Group Finance Director concluded that HSBCs disclosure controls and procedures as of 31 December 2008 were effective to provide reasonable assurance that
information required to be disclosed in the reports which the company files and submits under the US Securities Exchange Act of 1934, as amended, is recorded, processed, summarised and reported as and when required. There are inherent limitations to
the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can
only provide reasonable assurance of achieving their control objectives.
There has been no change in HSBC Holdings
internal control over financial reporting during the year ended 31 December
2008 that has materially affected, or is reasonably likely to materially affect,
HSBC Holdings internal control over financial reporting.
Managements assessment
of internal control over financial reporting |
|
|
Management is responsible for establishing and maintaining
an adequate internal control structure and procedures for financial reporting,
and has completed an assessment of the effectiveness of the Groups internal
control over financial reporting as of 31 December 2008. In making the assessment,
management used the framework for Directors internal control evaluation
contained within the Combined Code (The Revised Turnbull Guidance),
as well as the criteria established by the Committee of Sponsoring Organisations
of the Treadway Commission (COSO) in Internal Control-Integrated
Framework.
Based on the assessment performed, management concluded that as at 31 December 2008, the Groups internal control over financial reporting was effective.
KPMG Audit Plc, which has audited the consolidated financial statements of the Group for the year ended 31 December 2008, has also audited the effectiveness of the Groups internal control over financial reporting
under Auditing Standard No.5 of the Public Company Accounting Oversight Board (United States) as stated in their report on pages 330 and 331.
66a
Back to Contents
Summary
HSBC manages its business through two customer groups, Personal Financial Services and Commercial Banking, and two global businesses, Global Banking and Markets (previously Corporate, Investment Banking and Markets), and
Private Banking. Personal Financial Services incorporates the Groups consumer finance businesses; the largest of these is HSBC Finance Corporation (HSBC Finance).
All commentaries on the customer groups and global businesses are on an underlying basis unless stated otherwise.
Profit/(loss) before
tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
2007 |
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US$m |
|
% |
|
US$m |
|
% |
|
US$m |
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personal Financial
Services |
|
(10,974 |
) |
(117.9 |
) |
5,900 |
|
24.4 |
|
9,457 |
|
42.8 |
|
Commercial Banking |
|
7,194 |
|
77.3 |
|
7,145 |
|
29.5 |
|
5,997 |
|
27.2 |
|
Global Banking and Markets |
|
3,483 |
|
37.4 |
|
6,121 |
|
25.3 |
|
5,806 |
|
26.3 |
|
Private Banking |
|
1,447 |
|
15.6 |
|
1,511 |
|
6.2 |
|
1,214 |
|
5.5 |
|
Other13
|
|
8,157 |
|
87.6 |
|
3,535 |
|
14.6 |
|
(388 |
) |
(1.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,307 |
|
100.0 |
|
24,212 |
|
100.0 |
|
22,086 |
|
100.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 31 December |
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
2007 |
|
|
|
US$m |
|
% |
|
US$m |
|
% |
|
|
|
|
|
|
|
|
|
|
|
Personal Financial Services |
|
514,419 |
|
20.4 |
|
621,356 |
|
26.4 |
|
Commercial Banking |
|
249,218 |
|
9.9 |
|
307,944 |
|
13.1 |
|
Global Banking and Markets |
|
1,896,630 |
|
75.0 |
|
1,561,468 |
|
66.3 |
|
Private Banking |
|
133,216 |
|
5.3 |
|
130,893 |
|
5.6 |
|
Other |
|
135,001 |
|
5.3 |
|
155,685 |
|
6.6 |
|
Intra-HSBC items |
|
(401,019 |
) |
(15.9 |
) |
(423,080 |
) |
(18.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
2,527,465 |
|
100.0 |
|
2,354,266 |
|
100.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For footnotes, see page 145. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basis of preparation
The results are presented in accordance with the accounting policies used in the preparation of HSBCs consolidated financial statements. HSBCs operations are closely integrated and, accordingly, the presentation
of customer group data includes internal allocations of certain items of income and expense. These allocations include the costs of certain support services and Group Management Office (GMO) functions, to the extent that these
can be meaningfully attributed to operational business lines. While such allocations have been made on a systematic and consistent basis, they necessarily involve a degree of subjectivity.
Where relevant, income and expense amounts presented include the results of inter-segment funding as well as inter-company and inter-business line transactions. All such transactions are
undertaken on arms length terms.
67
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H S B C H O L D I
N G S P L C |
|
Report of the Directors: Operating
and Financial Review (continued) |
|
|
|
Customer groups > Personal
Financial Services |
Personal Financial
Services |
|
Profit/(loss) before
tax |
|
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
29,419 |
|
|
29,069 |
|
|
26,076 |
|
Net fee income |
|
10,107 |
|
|
11,742 |
|
|
8,762 |
|
Trading
income excluding net interest income |
|
175 |
|
|
38 |
|
|
391 |
|
Net
interest income on trading activities |
|
79 |
|
|
140 |
|
|
220 |
|
Net trading income16
|
|
254 |
|
|
178 |
|
|
611 |
|
Net
income/(expense) from financial instruments designated at fair value |
|
(2,912 |
) |
|
1,333 |
|
|
739 |
|
Gains
less losses from financial investments |
|
663 |
|
|
351 |
|
|
78 |
|
Dividend income |
|
90 |
|
|
55 |
|
|
31 |
|
Net
earned insurance premiums |
|
10,083 |
|
|
8,271 |
|
|
5,130 |
|
Other operating income |
|
259 |
|
|
387 |
|
|
782 |
|
|
|
|
|
|
|
|
|
|
|
Total operating income |
|
47,963 |
|
|
51,386 |
|
|
42,209 |
|
Net insurance claims17
|
|
(6,474 |
) |
|
(8,147 |
) |
|
(4,365 |
) |
|
|
|
|
|
|
|
|
|
|
Net operating income5
|
|
41,489 |
|
|
43,239 |
|
|
37,844 |
|
Loan
impairment charges and other credit risk provisions |
|
(21,220 |
) |
|
(16,172 |
) |
|
(9,949 |
) |
|
|
|
|
|
|
|
|
|
|
Net operating income |
|
20,269 |
|
|
27,067 |
|
|
27,895 |
|
Operating
expenses (excluding goodwill impairment) |
|
(21,140 |
) |
|
(21,757 |
) |
|
(18,818 |
) |
Goodwill impairment |
|
(10,564 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit/(loss) |
|
(11,435 |
) |
|
5,310 |
|
|
9,077 |
|
Share
of profit in associates and joint ventures |
|
461 |
|
|
590 |
|
|
380 |
|
|
|
|
|
|
|
|
|
|
|
Profit/(loss) before tax |
|
(10,974 |
) |
|
5,900 |
|
|
9,457 |
|
|
|
|
|
|
|
|
|
|
|
By geographical region |
|
|
|
|
|
|
|
|
|
Europe |
|
1,658 |
|
|
1,581 |
|
|
1,909 |
|
Hong Kong |
|
3,428 |
|
|
4,212 |
|
|
2,880 |
|
Rest of Asia-Pacific |
|
500 |
|
|
760 |
|
|
477 |
|
North America |
|
(17,228 |
) |
|
(1,546 |
) |
|
3,391 |
|
Latin America |
|
668 |
|
|
893 |
|
|
800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,974 |
) |
|
5,900 |
|
|
9,457 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% |
|
|
% |
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
Share
of HSBCs profit before tax |
|
(117.9 |
) |
|
24.4 |
|
|
42.8 |
|
Cost efficiency ratio |
|
76.4 |
|
|
50.3 |
|
|
49.7 |
|
|
|
|
|
|
|
|
|
|
|
Balance sheet data15 |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
|
|
|
|
|
|
|
|
|
Loans
and advances to customers (net) |
|
401,402 |
|
|
464,726 |
|
|
448,545 |
|
Total assets |
|
514,419 |
|
|
621,356 |
|
|
602,342 |
|
Customer accounts |
|
440,338 |
|
|
450,071 |
|
|
388,468 |
|
|
|
|
|
|
|
|
|
|
|
For
footnotes, see page 143. |
Strategic direction |
|
|
HSBCs strategy for Personal
Financial Services is to use its global reach and local knowledge to grow
profitably in selected markets. The strategy focuses on growth in: |
|
|
– |
markets where HSBC already has scale, such
as Hong Kong and the UK; and |
|
|
– |
markets where HSBC can build or acquire scale,
particularly in Asia-Pacific, Latin America,
Turkey and the Middle East. |
|
|
|
Within these markets, there are two key target
segments: |
|
|
– |
customers who value seamless international
banking and wealth management; and |
|
|
– |
customers who are confident about using direct
channels (internet, ATM, telephone, mobile) to
access financial services. |
|
|
Financial performance in 2008 |
|
|
• |
The reported loss before tax of US$11.0
billion compared with a profit of US$5.9
billion in 2007, driven substantially by
higher loan impairment charges and a goodwill impairment charge
of US$10.6 billion which wrote down in full
the goodwill relating to the North American Personal Financial Services business. Excluding the
loss before tax incurred in this business, pre- tax
profits fell by 17 per cent on an underlying basis, with an increase in loan impairments and
lower fee income more than offsetting an increase
in revenue from deposit growth and higher gains on the sale of MasterCard and Visa shares. |
|
|
• |
Net fee income fell by 13 per cent. This was
driven by weak market sentiment, which
resulted in lower fees from retail securities
and investments, particularly in Hong Kong, and changes
in fee billing practices in the credit card business
to improve the customer proposition in North America. |
|
|
• |
A net expense of US$2.9 billion was recorded
on financial instruments designated at fair value,
compared with income of US$1.3 billion in
2007. This was largely due to the fall in value
of assets held to meet liabilities under
insurance and investment contracts driven
by poor equity market performances, predominantly
affecting operations in Hong Kong, the
UK and France.
For assets held to meet liabilities under unit-
linked and, to a certain extent, participating
insurance contracts, the movement from income
to expense was offset by a corresponding |
68
Back to Contents
|
reduction in policyholder liabilities where investment
losses can be passed to policyholders. |
|
|
• |
Loan impairment charges rose by 32 per cent, primarily
due to further deterioration in credit quality
in the North American Personal Financial Services business. Delinquency rates increased
across all portfolios in HSBC Finance, particularly
consumer lending, and in the real estate secured portfolios in HSBC USA, following
the sustained downturn in the housing market
and the onset of economic recession. |
|
|
• |
A rise in loan impairments in Mexico, Turkey
and India was attributable to higher delinquencies
following growth of the credit card and personal loan portfolios. Actions taken to
curtail asset growth in these markets focused on
tightening lending criteria and deploying advanced credit analytics. |
|
|
• |
Operating expenses were 48 per cent higher, largely
due to the goodwill impairment charge. Excluding this, operational costs were slightly lower,
driven by a 12 per cent reduction in North
America following initiatives taken since 2007 to cease originations in mortgage services, limit
new originations in consumer lending and reduce
marketing spend in cards. This benefit was partially offset by investment in business expansion
in mainland China and Japan and an increase
in restructuring costs and union-agreed salaries in Latin America. |
|
|
• |
Profit before tax increased in Europe, with
a solid performance in the UK partially
offset by a fall in Turkey as an investment
in 98 additional branches was made in order to attain nationwide coverage.
Profits were lower in France. |
|
|
• |
In the Middle East, profit rose by 17 per cent
on 2007, with strong growth in revenue
from cards. |
|
|
Business highlights in 2008 |
|
|
• |
HSBC Premier (Premier), which offers
mass affluent customers a seamless international banking
and wealth management service, grew to 2.6 million customers in 2008. During the year,
the service was extended to a further six countries,
taking the total to 41. 472,000 net new customers joined Premier, of whom 80
per cent were new to the Group. |
• |
The strength of the HSBC brand helped attract an increase in customer accounts of US$50 billion, or 13 per cent, to US$440 billion, despite the low interest rate environment. In North America, net loans and advances to customers fell by 16 per cent as HSBC reduced its balance sheet and lowered its risk profile in the US. Excluding North America, lending increased by 10 per cent, demonstrating HSBCs commitment to supporting its core customer base. At 31 December 2008, the advances-to-deposits ratio was 91 per cent, compared with 106 per cent at the end of December 2007. |
|
|
• |
The HSBC Direct online savings offering in the US performed well in difficult market conditions. Average balances increased by US$2.0 billion to US$13.2 billion, reducing the overall funding costs of the US Personal Financial Services business. |
|
|
• |
In the UK, HSBC launched a RateMatcher mortgage promotion to attract quality customers facing an interest rate reset in the near term. HSBC attracted a strong flow of new business totalling US$9.9 billion during the campaign. In December 2008, HSBC announced that the bank will make available up to £15 billion of UK residential mortgages in 2009. |
|
|
• |
Consistent with HSBCs strategy to increase the sale of insurance products to existing customers, the major life businesses in Europe and Asia
grew and underlying net premium income rose by 15 per cent. However, declining worldwide equity markets led to a reduction in insurance profits compared with 2007. |
|
|
• |
In the US, declining house prices, rising unemployment and increasing bankruptcies fuelled growing customer delinquencies. HSBC continued to take measures to help customers manage their mortgage repayments and avoid foreclosure. During 2008, HSBC Finance expanded
its mortgage loan modification programme which included longer-term modifications. The loan obligations of over 92,000 customers with aggregate
mortgages of US$13.5 billion were modified during 2008, helping to maximise cash flow for HSBC and preserve home ownership for
customers. |
69
Back to Contents
H S B C H O L
D I N G S P L C |
|
Report
of the Directors: Operating and Financial Review (continued) |
|
|
|
|
Customer groups > Personal
Financial Services |
Subsequent developments
The branch-based US consumer lending business of HSBC Finance has historically focused on sub-prime customers who rely on drawing cash against the equity in their homes to help meet their cash needs. Unsecured consumer
lines of credit have served as a means of generating new customer accounts, with the potential to subsequently provide the customer with a mortgage product, typically a secured debt consolidation loan. As a result, the bulk of the mortgage lending
products sold in the US consumer lending branch network have been for refinancing and debt consolidation rather than for house purchase.
The unprecedented deterioration in the US housing market over the last two years, including declining property values and lower secondary market demand for sub-prime mortgages, has undermined
the ability of many real estate loan customers to make payments or refinance their loans. In many cases, there is no equity in their homes or, if there is, few institutions are willing to finance its withdrawal. As a result, loan originations in
this business have fallen dramatically for both HSBC Finance and the industry as a whole. Management believes it will take years before property values return to the levels seen prior to the decline and, as such, has concluded that recovery in the
sub-prime mortgage lending business is uncertain and the industry is unlikely to stabilise for a number of years. Management also expects that changes in regulation and practice will make it problematic to plan and execute a sub-prime lending
business strategy with a reasonable degree of confidence.
Given the above, in 2008 HSBC began to reposition its US consumer lending business to reduce risk by tightening lending criteria and expanding its lending to include government sponsored entity
and conforming loan products. As part of this repositioning, HSBC intended to place greater emphasis on unsecured loan products while decreasing secured loan production. To date, the results of this repositioning effort have not met expectations, in
part due to the continued deterioration in the economy, leading management to re-evaluate whether, given the Groups risk appetite, the initiative can produce the volume necessary to ensure that the consumer lending business will return to
profitability in the foreseeable future.
As a consequence, at the end of February 2009, the Board of HSBC endorsed managements recommendation to discontinue as soon as practicable originations of all products by the branch-based
US consumer lending business of HSBC Finance. At 31 December 2008 this business had outstanding balances of US$62 billion comprising US$46 billion in real estate secured and US$16 billion in unsecured loan balances. HSBC will continue to
service and collect the existing loan portfolio as it runs off, and will continue the Groups efforts to help customers in need of loan modification and other account management programmes to maximise collection and preserve, as far as
possible, home ownership. In the US, substantially all consumer lending branches branded HFC and Beneficial will cease taking loan applications and will be closed. HSBC Finance will also continue to run-off the loan portfolios of its mortgage
services business and its vehicle finance business. HSBC will provide all necessary support to HSBC Finance to enable it to run off these businesses in a measured way and to meet all its commitments.
The operations of HSBCs other US Personal Financial Services businesses, including its card business, and the retail bank branch business of HSBC USA are unaffected by this decision. HSBC
USA will continue to service its customers with real estate secured and unsecured products.
HSBC expects as a result of this decision affecting the US consumer lending business of HSBC Finance that total revenue will fall by approximately US$50 million in 2009 and operating
expenses by approximately US$700 million on an annualised basis. Closure costs of up to US$195 million will be incurred, predominantly related to one-off termination and other employee benefit costs, a substantial portion of which will be
recorded in the first half of 2009.
In addition, a non-cash charge of approximately US$70 million is expected to be incurred in relation to the impairment of fixed assets associated with the consumer lending branch network,
also to be recognised in the first half of 2009.
Employees supporting originations operations will be evaluated for service elsewhere in HSBCs operations, but it is currently expected that approximately 6,100 employees will be
displaced.
70
Back to Contents
Reconciliation of reported
and underlying profit/(loss) before tax |
|
2008 compared with 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
acquisitions,
|
|
|
|
2007
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
disposals
|
|
|
|
at 2008
|
|
acquisitions |
|
Under-
|
|
2008
|
|
Re-
|
|
Under-
|
|
|
as
|
|
& dilution
|
|
Currency
|
|
exchange |
|
and
|
|
lying
|
|
as
|
|
ported
|
|
lying
|
|
Personal Financial |
reported
|
|
gains
|
1 |
translation |
2 |
rates
|
3 |
disposals |
1 |
change
|
|
reported
|
|
change
|
|
change
|
|
Services |
US$m
|
|
US$m
|
|
US$m
|
|
US$m
|
|
US$m
|
|
US$m
|
|
US$m
|
|
%
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
29,069
|
|
(224
|
) |
(126
|
) |
28,719
|
|
215
|
|
485
|
|
29,419
|
|
1
|
|
2
|
|
Net fee income |
11,742
|
|
(21
|
) |
(105
|
) |
11,616
|
|
(9
|
) |
(1,500
|
) |
10,107
|
|
(14
|
) |
(13
|
) |
Other income4
|
2,428
|
|
(91
|
) |
(10
|
) |
2,327
|
|
83
|
|
(447
|
) |
1,963
|
|
(19
|
) |
(19
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income5
|
43,239
|
|
(336
|
) |
(241
|
) |
42,662
|
|
289
|
|
(1,462
|
) |
41,489
|
|
(4
|
) |
(3
|
) |
Loan impairment charges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and other credit risk |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
provisions |
(16,172
|
) |
4
|
|
75
|
|
(16,093
|
) |
(3
|
) |
(5,124
|
) |
(21,220
|
) |
(31
|
) |
(32
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income |
27,067
|
|
(332
|
) |
(166
|
) |
26,569
|
|
286
|
|
(6,586
|
) |
20,269
|
|
(25
|
) |
(25
|
) |
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(excluding goodwill |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
impairment) |
(21,757
|
) |
236
|
|
117
|
|
(21,404
|
) |
(98
|
) |
362
|
|
(21,140
|
) |
3
|
|
2
|
|
Goodwill impairment |
|
|
|
|
|
|
|
|
|
|
(10,564
|
) |
(10,564
|
) |
n/a
|
|
n/a
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit/(loss) |
5,310
|
|
(96
|
) |
(49
|
) |
5,165
|
|
188
|
|
(16,788
|
) |
(11,435
|
) |
(315
|
) |
(325
|
) |
Income from associates |
590
|
|
|
|
52
|
|
642
|
|
|
|
(181
|
) |
461
|
|
(22
|
) |
(28
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit/(loss) before tax |
5,900
|
|
(96
|
) |
3
|
|
5,807
|
|
188
|
|
(16,969
|
) |
(10,974
|
) |
(286
|
) |
(292
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 compared with 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
2006
|
|
acquisitions,
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
acquisitions
|
|
|
|
at 2007
|
|
disposals
|
|
Under-
|
|
2007
|
|
Re-
|
|
Under-
|
|
|
as
|
|
and
|
|
Currency
|
|
exchange
|
|
& dilution
|
|
lying
|
|
as
|
|
ported
|
|
lying
|
|
Personal Financial |
reported
|
|
disposals |
1 |
translation |
2 |
rates |
6 |
gains |
1 |
change
|
|
reported
|
|
change
|
|
change
|
|
Services |
US$m
|
|
US$m
|
|
US$m
|
|
US$m
|
|
US$m
|
|
US$m
|
|
US$m
|
|
%
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
26,076
|
|
(3
|
) |
746
|
|
26,819
|
|
653
|
|
1,597
|
|
29,069
|
|
11
|
|
6
|
|
Net fee income |
8,762
|
|
53
|
|
322
|
|
9,137
|
|
(77
|
) |
2,682
|
|
11,742
|
|
34
|
|
30
|
|
Other income4
|
3,006
|
|
(53
|
) |
87
|
|
3,040
|
|
(38
|
) |
(574
|
) |
2,428
|
|
(19
|
) |
(19
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income5
|
37,844
|
|
(3
|
) |
1,155
|
|
38,996
|
|
538
|
|
3,705
|
|
43,239
|
|
14
|
|
10
|
|
Loan impairment charges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and other credit risk |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
provisions |
(9,949
|
) |
|
|
(205
|
) |
(10,154
|
) |
(72
|
) |
(5,946
|
) |
(16,172
|
) |
(63
|
) |
(59
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income |
27,895
|
|
(3
|
) |
950
|
|
28,842
|
|
466
|
|
(2,241
|
) |
27,067
|
|
(3
|
) |
(8
|
) |
Operating expenses |
(18,818
|
) |
2
|
|
(753
|
) |
(19,569
|
) |
(285
|
) |
(1,903
|
) |
(21,757
|
) |
(16
|
) |
(10
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit |
9,077
|
|
(1
|
) |
197
|
|
9,273
|
|
181
|
|
(4,144
|
) |
5,310
|
|
(42
|
) |
(45
|
) |
Income from associates |
380
|
|
|
|
13
|
|
393
|
|
6
|
|
191
|
|
590
|
|
55
|
|
49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit before tax |
9,457
|
|
(1
|
) |
210
|
|
9,666
|
|
187
|
|
(3,953
|
) |
5,900
|
|
(38
|
) |
(41
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For footnotes, see page 143. |
71
Back to Contents
H S B C H O L
D I N G S P L C |
|
Report
of the Directors: Operating and Financial Review (continued) |
|
|
|
|
Customer
groups > Commercial Banking |
Commercial
Banking |
|
|
|
|
|
|
|
|
|
Profit before tax |
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
|
|
|
|
|
|
|
|
Net interest
income |
9,494
|
|
|
9,055
|
|
|
7,514
|
|
Net fee income |
4,097 |
|
|
3,972 |
|
|
3,207 |
|
Trading
income excluding net interest income |
369
|
|
|
265
|
|
|
204
|
|
Net
interest income on trading activities |
17
|
|
|
31
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
Net
trading income16 |
386
|
|
|
296
|
|
|
224
|
|
Net
income/(expense) from financial instruments
designated at fair value |
(224 |
) |
|
22 |
|
|
(22 |
) |
Gains
less losses from financial investments
|
193
|
|
|
90
|
|
|
44
|
|
Dividend income |
88 |
|
|
8 |
|
|
6 |
|
Net
earned insurance premiums |
679
|
|
|
733
|
|
|
258
|
|
Other operating income |
939 |
|
|
165 |
|
|
250 |
|
|
|
|
|
|
|
|
|
|
Total operating
income |
15,652
|
|
|
14,341
|
|
|
11,481
|
|
Net insurance claims17
|
(335 |
) |
|
(391 |
) |
|
(96 |
) |
|
|
|
|
|
|
|
|
|
Net
operating income5
|
15,317
|
|
|
13,950
|
|
|
11,385
|
|
Loan
impairment charges and other credit risk
provisions |
(2,173 |
) |
|
(1,007 |
) |
|
(697 |
) |
|
|
|
|
|
|
|
|
|
Net operating
income |
13,144
|
|
|
12,943
|
|
|
10,688
|
|
|
Total operating expenses |
(6,581 |
) |
|
(6,252 |
) |
|
(4,979 |
) |
|
|
|
|
|
|
|
|
|
Operating
profit |
6,563
|
|
|
6,691
|
|
|
5,709
|
|
Share
of profit in associates and joint
ventures |
631 |
|
|
454 |
|
|
288 |
|
|
|
|
|
|
|
|
|
|
Profit before
tax |
7,194
|
|
|
7,145
|
|
|
5,997
|
|
|
|
|
|
|
|
|
|
|
|
By geographical region |
|
|
|
|
|
|
|
|
Europe |
2,722
|
|
|
2,516
|
|
|
2,234
|
|
Hong Kong |
1,315 |
|
|
1,619 |
|
|
1,321 |
|
Rest
of Asia-Pacific |
1,793
|
|
|
1,350
|
|
|
1,034
|
|
North America |
658 |
|
|
920 |
|
|
957 |
|
Latin
America |
706
|
|
|
740
|
|
|
451
|
|
|
|
|
|
|
|
|
|
|
|
7,194
|
|
|
7,145
|
|
|
5,997
|
|
|
|
|
|
|
|
|
|
|
|
|
% |
|
|
% |
|
|
% |
|
|
|
|
|
|
|
|
|
|
Share
of HSBCs profit before tax
|
77.3
|
|
|
29.5
|
|
|
27.2
|
|
Cost efficiency ratio |
43.0 |
|
|
44.8 |
|
|
43.7 |
|
|
Balance sheet data15
|
|
|
|
|
|
|
|
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
|
|
|
|
|
|
|
|
Loans
and advances to customers (net) |
203,949
|
|
|
220,068
|
|
|
172,976
|
|
Total assets |
249,218 |
|
|
307,944 |
|
|
228,668 |
|
Customer accounts |
235,879
|
|
|
237,987
|
|
|
190,853
|
|
|
For footnotes,
see page 143. |
Strategic direction
|
|
|
HSBCs Commercial Banking strategy is focused
on two key initiatives: |
|
|
|
to be the leading international business bank, using HSBCs extensive geographical network together with product expertise in payments, trade, receivables finance and foreign exchange to actively support customers trading and investing across borders; and |
|
|
|
to be the best bank for small businesses in target markets, building global scale and creating efficiencies by sharing best practice, including customer experience and credit scoring, and selectively rolling out the direct banking model. |
|
|
Financial performance in 2008 |
|
|
• |
Reported pre-tax profit was broadly in line
with 2007 at US$7.2 billion as revenue
growth was offset by the rise in loan
impairment charges and operating costs.
Pre-tax profit growth was evident in emerging
markets, with their contribution increasing
to 56 per cent excluding a gain of US$425 million on the disposal of the UK
merchant acquiring division, recorded in Other
operating income. Profit growth was most significant in Australia, India, mainland China,
United Arab Emirates (UAE), Turkey, Brazil
and Argentina. |
|
|
• |
HSBC remained committed to new lending, increasing
lending balances by 10 per cent. Deposit growth of 15 per cent was driven by brand
strength, particularly in the UK, the US and
Hong Kong. |
|
|
• |
Balance sheet growth drove a 7 per cent rise
in net interest income, notwithstanding
the adverse affect of widespread reductions
in interest rates on liability spreads.
This was partly offset by higher lending
spreads from improved pricing. |
|
|
• |
Net fee income rose by 8 per cent with income from
trade services and foreign exchange growing
particularly strongly. |
|
|
• |
Other income was boosted by a number of significant
gains, notably from the sale of shares in
MasterCard and Visa. |
|
|
• |
Loan impairment charges increased from US$1.0
billion in 2007 to US$2.2 billion, as the previously
benign credit environment was replaced by economic slowdown in most countries.
Loan impairment charges increased by 44
basis points to 1 per cent of average reported
assets, with most of the increase coming
in the second half of 2008. |
72
Back to Contents
• |
The cost efficiency ratio improved to 44.2 per cent excluding the US$425 million gains noted above. Costs were tightly controlled in Europe and North America, but grew elsewhere as the Group continued to expand operations in emerging markets, particularly in Asia. |
|
|
• |
Customer numbers grew to 2.9 million, with continuing recruitment of new customers through existing operations and gains from the acquisition of the assets, liabilities and operations of The Chinese Bank in Taiwan, despite a reduction from the sale of the French regional banks. |
|
|
Business highlights in 2008 |
|
|
Commercial Banking achieved key
objectives toward its international business strategy in 2008 as the proportion
of its total revenues derived from international customers and products
increased. |
|
|
• |
Revenue from foreign exchange and trade and supply
chain products grew strongly, with increases
of 66 per cent and 27 per cent, respectively. This was driven by improved cross-selling
of products, particularly in foreign exchange,
as customers sought protection from volatile currency movements. A number of initiatives
were launched to extend foreign exchange
services, which included enhancing relationship management in the US and UAE, and
introducing dedicated sales desks in India. |
|
|
• |
The volume of international trade finance increased
significantly and revenue grew commensurately
as HSBC benefited from higher commodity prices, the reintermediation of traditional
trade instruments in respect of which the
Group demonstrated continued capacity to lend, and improved pricing reflecting market trends.
HSBCs growth outpaced market growth in
a number of key countries, particularly in Asia and the Middle East. |
|
|
• |
Successful Global Links referrals nearly doubled
to 5,600, with the aggregate transaction value
exceeding US$11 billion, an increase of 96 per cent. The use of electronic account opening SmartForms improved
customer experience. |
|
|
|
In support of its strategy to be the best bank
for small businesses, HSBC focused on
deposit gathering and transaction banking,
and was particularly successful in attracting customer deposits. |
|
|
• |
With over US$100 billion in customer deposits, HSBCs
small and micro segments are a |
|
significant source of funding for Commercial Banking, generating over twice
as much in liabilities as loans and advances to customers. Customer numbers
in the small and micro segments rose by 7 per cent to 2.6 million. In Taiwan,
the acquisition of the assets, liabilities and operations of The Chinese
Bank expanded the branch network to 33 and added over 15,000 small business
customers. |
|
|
• |
Customer loyalty was evidenced by an increase in the use of internet banking, with the number of active users of Business Internet Banking growing by 16 per cent and the number of transactions by 18 per cent. |
|
|
• |
New small business offerings continued to be initiated. BusinessDirect was extended to seven countries and total customer numbers exceeded 180,000. BusinessVantage was launched in Indonesia while, in the US, the autumn marketing campaign led to over 9,000 new accounts.
New business card products were rolled out in a further six countries. |
|
|
• |
The announcement of HSBCs US$5 billion International SME Fund in December under- scored the Groups commitment to lending to small and medium-sized enterprises, and led to significant interest from existing and prospective customers. Specific initiatives were launched in the UK, Hong Kong, France and Malta. |
|
|
|
Commercial Banking increased its intra-Group referrals,
in part by extending the Global Links platform
to facilitate cross-customer group referrals. |
|
|
• |
In Hong Kong and India, an initiative to increase referrals across customer groups resulted in a two-fold rise in the number of Premier account referrals, and significant growth in referrals from Personal Financial Services to Commercial Banking. Similar programmes
in the UK contributed to sales of Premier accounts and mortgage products, and plans are underway to extend these programmes to other regions in
2009. |
|
|
• |
Referrals to Private Banking grew by 30 per cent, and led to US$2.7 billion in new assets under management, while referrals from Private Banking led to a three-fold increase in new relationships. |
|
|
• |
Sales of Global Markets products were particularly strong in foreign exchange under Commercial Bankings strategy to be the leading bank for international business. |
73
Back to Contents
H S B C H O L D
I N G S P L C |
|
Report of the Directors: Operating
and Financial Review (continued) |
|
|
|
|
Customer groups > Commercial Banking / Global Banking and Markets |
Reconciliation of reported and underlying profit before tax
|
2008 compared with 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
acquisitions,
|
|
|
|
2007
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
disposals
|
|
|
|
at 2008
|
|
acquisitions |
|
Under-
|
|
2008
|
|
Re-
|
|
Under-
|
|
|
as
|
|
& dilution
|
|
Currency
|
|
exchange |
|
and
|
|
lying
|
|
as
|
|
ported
|
|
lying
|
|
|
reported
|
|
gains1
|
|
translation2 |
|
rates3
|
|
disposals1 |
|
change
|
|
reported
|
|
change
|
|
change
|
|
Commercial Banking |
US$m
|
|
US$m
|
|
US$m
|
|
US$m
|
|
US$m
|
|
US$m
|
|
US$m
|
|
%
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
9,055
|
|
(166
|
) |
(77
|
) |
8,812
|
|
41
|
|
641
|
|
9,494
|
|
5
|
|
7
|
|
Net fee income
|
3,972
|
|
(113
|
) |
(76
|
) |
3,783
|
|
27
|
|
287
|
|
4,097
|
|
3
|
|
8
|
|
Other income4
|
923
|
|
(7
|
) |
(28
|
) |
888
|
|
525
|
|
313
|
|
1,726
|
|
87
|
|
35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income5
|
13,950
|
|
(286
|
) |
(181
|
) |
13,483
|
|
593
|
|
1,241
|
|
15,317
|
|
10
|
|
9
|
|
Loan
impairment charges and other credit risk provisions |
(1,007
|
) |
3
|
|
36
|
|
(968
|
) |
(3
|
) |
(1,202
|
) |
(2,173
|
) |
(116
|
) |
(124
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income |
12,943
|
|
(283
|
) |
(145
|
) |
12,515
|
|
590
|
|
39
|
|
13,144
|
|
2
|
|
|
|
Operating expenses
|
(6,252
|
) |
180
|
|
47
|
|
(6,025
|
) |
(106
|
) |
(450
|
) |
(6,581
|
) |
(5
|
) |
(7
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit |
6,691
|
|
(103
|
) |
(98
|
) |
6,490
|
|
484
|
|
(411
|
) |
6,563
|
|
(2
|
) |
(6
|
) |
Income from associates
|
454
|
|
|
|
26
|
|
480
|
|
|
|
151
|
|
631
|
|
39
|
|
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit before tax |
7,145
|
|
(103
|
) |
(72
|
) |
6,970
|
|
484
|
|
(260
|
) |
7,194
|
|
1
|
|
(4
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 compared
with 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
2006
|
|
acquisitions,
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
acquisitions
|
|
|
|
at 2007
|
|
disposals
|
|
Under-
|
|
2007
|
|
Re-
|
|
Under-
|
|
|
as
|
|
and
|
|
Currency
|
|
exchange
|
|
& dilution
|
|
lying
|
|
as
|
|
ported
|
|
lying
|
|
|
reported
|
|
disposals1
|
|
translation2 |
|
rates6
|
|
gains1
|
|
change
|
|
reported
|
|
change
|
|
change
|
|
Commercial Banking |
US$m
|
|
US$m
|
|
US$m
|
|
US$m
|
|
US$m
|
|
US$m
|
|
US$m
|
|
%
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
7,514
|
|
|
|
382
|
|
7,896
|
|
114
|
|
1,045
|
|
9,055
|
|
21
|
|
13
|
|
Net fee income |
3,207
|
|
|
|
189
|
|
3,396
|
|
17
|
|
559
|
|
3,972
|
|
24
|
|
16
|
|
Other income4 |
664
|
|
|
|
27
|
|
691
|
|
48
|
|
184
|
|
923
|
|
39
|
|
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income5 |
11,385
|
|
|
|
598
|
|
11,983
|
|
179
|
|
1,788
|
|
13,950
|
|
23
|
|
15
|
|
Loan
impairment charges and other credit risk provisions |
(697
|
)
|
|
|
(47
|
)
|
(744
|
)
|
(61
|
)
|
(202
|
)
|
(1,007
|
)
|
(44
|
)
|
(27
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income |
10,688
|
|
|
|
551
|
|
11,239
|
|
118
|
|
1,586
|
|
12,943
|
|
21
|
|
14
|
|
Operating expenses |
(4,979
|
)
|
|
|
(291
|
)
|
(5,270
|
)
|
(73
|
)
|
(909
|
)
|
(6,252
|
)
|
(26
|
)
|
(17
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit |
5,709
|
|
|
|
260
|
|
5,969
|
|
45
|
|
677
|
|
6,691
|
|
17
|
|
11
|
|
Income from associates |
288
|
|
|
|
9
|
|
297
|
|
1
|
|
156
|
|
454
|
|
58
|
|
53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit before tax
|
5,997
|
|
|
|
269
|
|
6,266
|
|
46
|
|
833
|
|
7,145
|
|
19
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For footnotes, see page 143.
74
Back to Contents
Global Banking and Markets
Profit before tax
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
US$m
|
|
|
US$m
|
|
|
US$m
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
8,541
|
|
|
4,430
|
|
|
3,168
|
|
|
Net fee income |
4,291
|
|
|
4,901
|
|
|
3,718
|
|
|
Trading
income excluding net interest income |
157
|
|
|
3,503
|
|
|
4,890
|
|
|
Net
interest income/ (expense) on trading activities |
324
|
|
|
(236
|
) |
|
(379
|
) |
|
Net trading income16 |
481
|
|
|
3,267
|
|
|
4,511
|
|
|
Net income/(expense) from
financial instruments
designated at fair value |
(438
|
) |
|
(164
|
) |
|
20
|
|
|
Gains less losses from financial
investments |
(327
|
) |
|
1,313
|
|
|
534
|
|
|
Dividend income |
76
|
|
|
222
|
|
|
235
|
|
|
Net
earned insurance premiums |
105
|
|
|
93
|
|
|
73
|
|
|
Other operating income
|
868
|
|
|
1,218
|
|
|
1,378
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income |
13,597
|
|
|
15,280
|
|
|
13,637
|
|
|
Net insurance claims17 |
(79
|
) |
|
(70
|
) |
|
(62
|
) |
|
|
|
|
|
|
|
|
|
|
|
Net operating income5 |
13,518
|
|
|
15,210
|
|
|
13,575
|
|
|
Loan
impairment (charges)/ recoveries and other credit
risk provisions |
(1,471
|
) |
|
(38
|
) |
|
119
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income |
12,047
|
|
|
15,172
|
|
|
13,694
|
|
|
Total operating expenses |
(9,092
|
) |
|
(9,358
|
) |
|
(7,991
|
) |
|
|
|
|
|
|
|
|
|
|
|
Operating profit |
2,955
|
|
|
5,814
|
|
|
5,703
|
|
|
Share
of profit in associates and joint ventures |
528
|
|
|
307
|
|
|
103
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit before tax |
3,483
|
|
|
6,121
|
|
|
5,806
|
|
|
|
|
|
|
|
|
|
|
|
|
By geographical region |
|
|
|
|
|
|
|
|
|
Europe |
195
|
|
|
2,527
|
|
|
2,304
|
|
|
Hong
Kong |
1,436
|
|
|
1,578
|
|
|
955
|
|
|
Rest
of Asia-Pacific |
3,786
|
|
|
2,464
|
|
|
1,649
|
|
|
North
America |
(2,575
|
) |
|
(965
|
) |
|
423
|
|
|
Latin
America |
641
|
|
|
517
|
|
|
475
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,483
|
|
|
6,121
|
|
|
5,806
|
|
|
|
|
|
|
|
|
|
|
|
|
|
%
|
|
|
%
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Share
of HSBCs profit before tax |
37.4
|
|
|
25.3
|
|
|
26.3
|
|
|
Cost efficiency ratio |
67.3
|
|
|
61.5
|
|
|
58.9
|
|
|
For footnotes, see page 143.
Strategic direction |
|
|
In 2008, Global Banking and Markets continued
to pursue its emerging markets-led and financing-focused strategy,
which was introduced in 2006 and fully implemented in 2007. HSBCs
strategy is to be a
leading wholesale bank by: |
|
|
– |
utilising HSBCs extensive distribution network; |
|
|
– |
developing Global Banking and Markets hub-and-spoke business model; and |
|
|
– |
continuing to build capabilities in major hubs to support the delivery of an advanced suite of services to corporate, institutional and government clients across the HSBC network. |
|
|
Ensuring that
this combination of product depth and distribution strength meets the needs
of existing and new clients will allow Global Banking and Markets to achieve
its strategic goals. |
|
|
Financial performance in 2008 |
|
|
• |
Global Banking and Markets delivered a pre-tax profit of US$3.5 billion, a decline of US$2.6 billion or 43 per cent compared with 2007. Although credit trading was significantly impacted by the adverse market conditions, revenues in other core businesses grew strongly in both developed and emerging markets. At constant exchange rates, total operating expenses were slightly below 2007 with a progressive decline over the last four half-years. |
|
|
• |
Core businesses such as foreign exchange, Rates, Balance Sheet Management and financing and equity capital markets posted record revenues. |
|
|
• |
In 2008, some US$5.4 billion of write-downs were absorbed on legacy positions in credit trading, leveraged and acquisition financing and monoline credit exposures. This compared with US$2.1 billion of write-downs recorded in 2007. Results for 2008 included a US$529 million fair value gain on the widening of credit spreads on structured liabilities. |
|
|
• |
In addition, because of an alleged fraud, HSBC wrote off the value of units in funds which had invested with Madoff Securities, and took a charge against trading income of US$984 million in the equities business in December 2008. The units had been acquired in connection with various financing transactions entered into with institutional clients. |
75
Back to Contents
H S B C H O L D
I N G S P L C |
|
Report of the Directors: Operating
and Financial Review (continued) |
|
|
|
|
Customer groups > Global Banking and Markets |
Management view of total operating income
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
US$m
|
|
|
US$m
|
|
|
US$m
|
|
|
|
|
|
|
|
|
|
|
|
|
Global Markets18
|
2,676
|
|
|
5,720
|
|
|
6,059
|
|
|
Credit
|
(5,502
|
) |
|
(1,319
|
)
|
|
931
|
|
|
Rates
|
2,033
|
|
|
1,291
|
|
|
1,207
|
|
|
Foreign exchange
|
3,842
|
|
|
2,178
|
|
|
1,552
|
|
|
Equities
|
(64
|
) |
|
1,177
|
|
|
721
|
|
|
Securities services
|
2,116
|
|
|
1,926
|
|
|
1,378
|
|
|
Asset
and structured finance |
251
|
|
|
467
|
|
|
270
|
|
|
Global Banking
|
5,718
|
|
|
4,190
|
|
|
3,388
|
|
|
Financing
and equity capital markets |
3,572
|
|
|
2,186
|
|
|
1,730
|
|
|
Payments
and cash management |
1,665
|
|
|
1,632
|
|
|
1,257
|
|
|
Other
transaction services |
481
|
|
|
372
|
|
|
401
|
|
|
Balance
Sheet Management |
3,618
|
|
|
1,226
|
|
|
713
|
|
|
Global
Asset Management |
934
|
|
|
1,336
|
|
|
1,061
|
|
|
Principal Investments
|
(415
|
) |
|
1,253
|
|
|
686
|
|
|
Other19
|
1,066
|
|
|
1,555
|
|
|
1,730
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income
|
13,597
|
|
|
15,280
|
|
|
13,637
|
|
|
|
|
|
|
|
|
|
|
|
|
Comparative information has been adjusted to reflect the current management view.
For footnotes, see page 143.
• |
Loan impairment charges and other credit risk provisions of US$1.5 billion were higher than in 2007, reflecting loan impairment charges resulting from the deteriorating credit environment, coupled with a relatively modest impairment charge within the available-for-sale portfolio, taken through the income statement and detailed below. |
|
|
• |
Within the Groups available-for-sale portfolio, continuing
illiquidity in asset-backed securities markets
led to further write-downs. However,
due to the underlying credit quality and seniority of
the tranches held by HSBC, only a relatively modest
impairment charge of US$279 million
was identified on securities with a nominal value
of US$570 million and was taken to the income
statement. The expected cash flow impairment on these securities was US$86
million. A further US$293 million impairment
was absorbed by income note holders who
take the first loss on positions within the
securities investment conduits (SICs)
now consolidated in HSBCs accounts. Further
details on the SICs are provided on pages 174
to 179. |
|
Business highlights in 2008 |
|
|
• |
The success of Global Banking and Markets two-year-old emerging markets-led and financing-focused strategy was recognised by a number of key industry awards, including Sterling Bond House, Islamic Bond House, Middle East Loan House and Latin
America Bond House in International Financing Review; Best Emerging Markets Bank,
Best Investment Bank in the Middle East and Best Debt House in Europe in Euromoney;
Best Bond House in Asia in FinanceAsia, Asiamoney and
The Asset; Bond House of the Year in Latin Finance; and Emerging Markets
Manager of the Year in European Pensions. |
|
|
• |
In Global Markets, foreign exchange revenues rose by 76 per cent to a record US$3.8 billion due to increased market volatility and higher levels of customer activity. While foreign exchange revenues rose in all regions, performance was notably strong in Europe, where
revenues rose by 75 per cent to US$1.4 billion, in the Rest of Asia-Pacific region, and in North America, where revenues more than
doubled. |
|
|
• |
The Rates business also reported record revenues, reflecting increased customer activity against a backdrop of greater market volatility. |
|
|
• |
Securities services revenues grew despite the lower interest rate environment, benefiting from new customer flows and additional business from existing customers. Assets under custody decreased by 34 per cent to US$3.6 trillion, driven by the downturn in the equity markets and the net redemptions experienced across the industry in the final quarter. |
|
|
• |
Growth in Global Banking was driven by improved
margins in the credit and lending business and
substantial gains on credit default swap transactions in certain portfolios. Payments
and cash management continued to deliver revenue
growth, primarily due to strong growth in liability
balances, although margins narrowed in the latter part of the year. |
|
|
• |
Balance Sheet Management income rose in Europe, Asia and North America, reflecting positioning ahead of rate reductions by a number of central banks. |
|
|
• |
In Principal Investments, markets remained closed for realisations and certain private equity holdings were marked down to reflect market conditions. |
76
Back to Contents
• |
In Global Asset Management, although underlying management fees remained strong, overall revenues fell, primarily due to the costs associated with the provision of support to certain money market funds. A fall in |
performance fees reflected a 20 per cent decrease in funds under management following recent equity market declines. Nevertheless, HSBC remained one of the leading emerging markets asset managers.
Reconciliation of reported and underlying profit before tax
|
2008
compared with 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
acquisitions, |
|
|
|
2007
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
2007
|
|
disposals |
|
|
|
at 2008 |
|
acquisitions |
|
Under-
|
|
2008
|
|
Re-
|
|
Under-
|
|
|
as
|
|
& dilution |
|
Currency
|
|
exchange |
|
and |
|
lying
|
|
as
|
|
ported
|
|
lying
|
|
|
reported
|
|
gains1
|
|
translation2 |
|
rates3 |
|
disposals1 |
|
change
|
|
reported
|
|
change
|
|
change
|
|
Global Banking and Markets |
US$m
|
|
US$m |
|
US$m
|
|
US$m
|
|
US$m |
|
US$m
|
|
US$m
|
|
%
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
4,430
|
|
|
|
(32
|
) |
4,398
|
|
|
|
4,143
|
|
8,541
|
|
93
|
|
94
|
|
Net fee income
|
4,901
|
|
|
|
(46
|
) |
4,855
|
|
|
|
(564
|
) |
4,291
|
|
(12
|
) |
(12
|
) |
Other income4
|
5,879
|
|
|
|
(57
|
) |
5,822
|
|
|
|
(5,136
|
) |
686
|
|
(88
|
) |
(88
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income5
|
15,210
|
|
|
|
(135
|
) |
15,075
|
|
|
|
(1,557
|
) |
13,518
|
|
(11
|
) |
(10
|
) |
Loan
impairment charges and other credit risk provisions |
(38
|
) |
|
|
1
|
|
(37
|
) |
|
|
(1,434
|
) |
(1,471
|
) |
(3,771
|
) |
(3,876
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income |
15,172
|
|
|
|
(134
|
) |
15,038
|
|
|
|
(2,991
|
) |
12,047
|
|
(21
|
) |
(20
|
) |
Operating expenses
|
(9,358
|
) |
|
|
175
|
|
(9,183
|
) |
|
|
91
|
|
(9,092
|
) |
3
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit |
5,814
|
|
|
|
41
|
|
5,855
|
|
|
|
(2,900
|
) |
2,955
|
|
(49
|
) |
(50
|
) |
Income from associates
|
307
|
|
|
|
18
|
|
325
|
|
|
|
203
|
|
528
|
|
72
|
|
62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit before tax |
6,121
|
|
|
|
59
|
|
6,180
|
|
|
|
(2,697
|
) |
3,483
|
|
(43
|
) |
(44
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
compared with 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
2006
|
|
acquisitions,
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
acquisitions |
|
|
|
at 2007
|
|
disposals
|
|
Under-
|
|
2007
|
|
Re-
|
|
Under-
|
|
|
as
|
|
and
|
|
Currency
|
|
exchange
|
|
& dilution
|
|
lying
|
|
as
|
|
ported
|
|
lying
|
|
|
reported
|
|
disposals1
|
|
translation2 |
|
rates6
|
|
gains1
|
|
change
|
|
reported
|
|
change
|
|
change
|
|
Global Banking and Markets |
US$m
|
|
US$m
|
|
US$m
|
|
US$m
|
|
US$m
|
|
US$m
|
|
US$m
|
|
%
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
3,168
|
|
|
|
175
|
|
3,343
|
|
25
|
|
1,062
|
|
4,430
|
|
40
|
|
32
|
|
Net fee income
|
3,718
|
|
|
|
182
|
|
3,900
|
|
9
|
|
992
|
|
4,901
|
|
32
|
|
25
|
|
Other income4
|
6,689
|
|
|
|
360
|
|
7,049
|
|
10
|
|
(1,180
|
)
|
5,879
|
|
(12
|
)
|
(17
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income5
|
13,575
|
|
|
|
717
|
|
14,292
|
|
44
|
|
874
|
|
15,210
|
|
12
|
|
6
|
|
Loan
impairment charges and other credit risk provisions |
119
|
|
|
|
6
|
|
125
|
|
|
|
(163
|
)
|
(38
|
)
|
(132
|
)
|
(130
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income
|
13,694
|
|
|
|
723
|
|
14,417
|
|
44
|
|
711
|
|
15,172
|
|
11
|
|
5
|
|
Operating expenses
|
(7,991
|
)
|
|
|
(406
|
)
|
(8,397
|
)
|
(35
|
)
|
(926
|
)
|
(9,358
|
)
|
(17
|
)
|
(11
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit
|
5,703
|
|
|
|
317
|
|
6,020
|
|
9
|
|
(215
|
)
|
5,814
|
|
2
|
|
(4
|
)
|
Income from associates
|
103
|
|
|
|
(4
|
)
|
99
|
|
2
|
|
206
|
|
307
|
|
198
|
|
208
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit before tax
|
5,806
|
|
|
|
313
|
|
6,119
|
|
11
|
|
(9
|
)
|
6,121
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For footnotes, see page 143.
77
Back to Contents
H S B C H O L D I
N G S P L C |
|
Report of the Directors: Operating
and Financial Review (continued) |
|
|
|
|
Customer groups > Global
Banking and Markets / Private Banking |
Balance sheet data significant to Global Banking and Markets15
|
Year ended 31 December
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rest of |
|
|
|
|
|
|
|
|
|
|
Hong |
|
Asia- |
|
North |
|
Latin |
|
|
|
|
Europe |
|
Kong |
|
Pacific |
|
America |
|
America |
|
Total |
|
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading assets20
|
281,089 |
|
45,398 |
|
19,606 |
|
74,498 |
|
5,004 |
|
425,595 |
|
Derivative assets
|
303,265 |
|
26,989 |
|
26,506 |
|
125,848 |
|
5,145 |
|
487,753 |
|
Loans and advances to:
|
|
|
|
|
|
|
|
|
|
|
|
|
customers (net)
|
185,818 |
|
23,042 |
|
34,590 |
|
35,583 |
|
8,273 |
|
287,306 |
|
banks (net)
|
49,508 |
|
20,970 |
|
26,710 |
|
9,238 |
|
12,574 |
|
119,000 |
|
Financial investments20
|
105,546 |
|
46,964 |
|
37,346 |
|
39,841 |
|
8,179 |
|
237,876 |
|
Total assets
|
1,131,721 |
|
225,853 |
|
172,049 |
|
318,139 |
|
48,868 |
|
1,896,630 |
|
Deposits by banks
|
79,509 |
|
11,509 |
|
13,205 |
|
16,244 |
|
3,871 |
|
124,338 |
|
Customer accounts
|
199,687 |
|
30,866 |
|
50,605 |
|
23,844 |
|
15,384 |
|
320,386 |
|
Trading liabilities
|
144,759 |
|
13,056 |
|
3,687 |
|
72,325 |
|
2,546 |
|
236,373 |
|
Derivative liabilities
|
300,200 |
|
28,536 |
|
26,481 |
|
122,699 |
|
4,615 |
|
482,531 |
|
|
Year
ended 31 December 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rest of
|
|
|
|
|
|
|
|
|
|
|
Hong
|
|
Asia-
|
|
North
|
|
Latin
|
|
|
|
|
Europe
|
|
Kong
|
|
Pacific
|
|
America
|
|
America
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading assets20
|
294,078
|
|
26,877
|
|
19,732
|
|
93,395
|
|
8,570
|
|
442,652
|
|
Derivative assets
|
102,409
|
|
11,492
|
|
10,234
|
|
56,531
|
|
1,814
|
|
182,480
|
|
Loans and advances to:
|
|
|
|
|
|
|
|
|
|
|
|
|
customers (net)
|
163,066
|
|
19,171
|
|
32,106
|
|
26,186
|
|
9,935
|
|
250,464
|
|
banks (net)
|
89,651
|
|
53,725
|
|
30,853
|
|
14,938
|
|
10,339
|
|
199,506
|
|
Financial investments20
|
94,416
|
|
46,765
|
|
39,448
|
|
33,273
|
|
10,155
|
|
224,057
|
|
Total assets
|
892,712
|
|
215,801
|
|
155,106
|
|
252,804
|
|
45,045
|
|
1,561,468
|
|
Deposits by banks
|
85,315
|
|
6,251
|
|
17,174
|
|
14,825
|
|
2,830
|
|
126,395
|
|
Customer accounts
|
163,713
|
|
37,364
|
|
54,120
|
|
30,732
|
|
13,950
|
|
299,879
|
|
Trading liabilities
|
201,010
|
|
15,939
|
|
8,601
|
|
73,081
|
|
4,998
|
|
303,629
|
|
Derivative liabilities
|
104,687
|
|
10,865
|
|
9,656
|
|
53,058
|
|
1,986
|
|
180,252
|
|
|
Year
ended 31 December 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rest of
|
|
|
|
|
|
|
|
|
|
|
Hong
|
|
Asia-
|
|
North
|
|
Latin
|
|
|
|
|
Europe
|
|
Kong
|
|
Pacific
|
|
America
|
|
America
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading assets20
|
165,116
|
|
30,895
|
|
14,726
|
|
105,645
|
|
7,575
|
|
323,957
|
|
Derivative assets
|
53,223
|
|
6,259
|
|
6,575
|
|
32,357
|
|
1,230
|
|
99,644
|
|
Loans and advances to:
|
|
|
|
|
|
|
|
|
|
|
|
|
customers (net)
|
140,277
|
|
20,270
|
|
24,311
|
|
17,215
|
|
8,147
|
|
210,220
|
|
banks (net)
|
63,788
|
|
45,023
|
|
22,171
|
|
15,862
|
|
9,704
|
|
156,548
|
|
Financial investments20
|
54,009
|
|
48,407
|
|
20,890
|
|
30,496
|
|
8,169
|
|
161,971
|
|
Total assets
|
526,468
|
|
182,540
|
|
109,535
|
|
203,639
|
|
37,564
|
|
1,059,746
|
|
Deposits by banks
|
65,963
|
|
4,363
|
|
9,849
|
|
9,664
|
|
3,115
|
|
92,954
|
|
Customer accounts
|
139,416
|
|
24,530
|
|
36,623
|
|
23,711
|
|
11,685
|
|
235,965
|
|
Trading liabilities
|
97,015
|
|
17,292
|
|
6,243
|
|
88,275
|
|
4,898
|
|
213,723
|
|
Derivative liabilities
|
55,581
|
|
6,376
|
|
6,149
|
|
32,148
|
|
1,266
|
|
101,520
|
|
For footnotes, see page 143.
78
Back to Contents
Private Banking
Profit before tax
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
1,612
|
|
|
1,216 |
|
|
1,011 |
|
|
Net fee income |
1,476 |
|
|
1,615 |
|
|
1,323 |
|
|
Trading
income excluding net interest income
|
408 |
|
|
525 |
|
|
362 |
|
|
Net
interest income on trading activities
|
14
|
|
|
9 |
|
|
2 |
|
|
Net trading income16
|
422 |
|
|
534 |
|
|
364 |
|
|
Net
income/(expense) from financial instruments designated
at fair value
|
|
|
|
(1 |
)
|
|
1 |
|
|
Gains
less losses from financial investments |
64 |
|
|
119 |
|
|
166 |
|
|
Dividend income |
8 |
|
|
7 |
|
|
5 |
|
|
Other operating income |
49 |
|
|
58 |
|
|
61 |
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income |
3,631 |
|
|
3,548 |
|
|
2,931 |
|
|
Net insurance claims17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income5
|
3,631 |
|
|
3,548 |
|
|
2,931 |
|
|
Loan impairment charges and
other credit risk provisions
|
(68 |
) |
|
(14 |
)
|
|
(33 |
)
|
|
|
|
|
|
|
|
|
|
|
|
Net operating
income |
3,563 |
|
|
3,534 |
|
|
2,898 |
|
|
Total operating expenses
|
(2,116 |
) |
|
(2,025 |
)
|
|
(1,685 |
)
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit |
1,447 |
|
|
1,509 |
|
|
1,213 |
|
|
Share
of profit in associates and joint ventures |
|
|
|
2 |
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
Profit before tax |
1,447 |
|
|
1,511 |
|
|
1,214 |
|
|
|
|
|
|
|
|
|
|
|
|
By geographical region |
|
|
|
|
|
|
|
|
|
Europe
|
998 |
|
|
915 |
|
|
805 |
|
|
Hong Kong
|
237 |
|
|
305 |
|
|
201 |
|
|
Rest of Asia-Pacific
|
113 |
|
|
92 |
|
|
80 |
|
|
North America
|
83 |
|
|
174 |
|
|
114 |
|
|
Latin America
|
16 |
|
|
25 |
|
|
14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
1,447 |
|
|
1,511 |
|
|
1,214 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% |
|
|
% |
|
|
% |
|
|
Share of HSBCs
profit before tax |
15.6 |
|
|
6.2 |
|
|
5.5 |
|
|
Cost efficiency ratio
|
58.3 |
|
|
57.1 |
|
|
57.5 |
|
|
|
|
|
|
|
|
|
|
|
|
Balance sheet data15
|
|
|
|
|
|
|
|
|
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
Loans
and advances to customers (net) |
37,590 |
|
|
43,612 |
|
|
34,297 |
|
|
Total assets
|
133,216 |
|
|
130,893 |
|
|
106,178 |
|
|
Customer accounts
|
116,683 |
|
|
106,197 |
|
|
80,303 |
|
|
|
|
|
|
|
|
|
|
|
|
|
For footnotes,
see page 143.
|
Strategic direction |
|
|
The strategy for Private Banking
is to be the worlds leading international private bank, known for
excellent client experience and global connections. |
|
|
|
HSBCs global network, strong capital
position and recognised brand provide a
base from which Private Banking attracts
and retains clients and serves their complex
international needs. It uses both traditional
and innovative ways of managing and preserving
the wealth of high net worth individuals while optimising returns. |
|
|
|
Private Banking has built a network of domestic
and international operations that provide
diversified revenue streams, helped by product
leadership in areas such as credit, hedge funds, emerging
markets, investment advice and estate planning.
This is achieved by attracting, retaining and motivating talented individuals, by providing
close communication between clients and
staff, and by making targeted investments in IT, marketing and branding initiatives. |
Financial performance in 2008 |
|
|
• |
Reported pre-tax profit fell by 4 per cent
as clients moved progressively to a more
conservative investment stance in the turbulent
markets. This trend was reflected in reduced trading
income in Asia, lower fee income in Europe
and higher loan impairment charges and other credit risk provisions. By contrast, net interest
income grew strongly in Europe. On an underlying
basis, pre-tax profit decreased by 3 per cent. |
|
|
• |
Net interest income rose by 34 per cent to
US$1.6 billion as a result of an increase
in customer deposit balances in Switzerland,
the UK and Hong Kong as customers reduced risk in
response to market turbulence, choosing HSBC
for its strength and switching from investment
securities to cash deposits. Spreads improved
as interest rates declined sharply. |
|
|
• |
Net fee income decreased by 4 per cent to
US$1.5 billion, driven by a fall in funds
under management in all regions as a result
of equity market declines and clients switching from securities
into cash deposits. Transaction volumes
also fell, particularly in the fourth quarter. |
79
Back to Contents
H S B C H O L D
I N G S P L C |
|
Report of
the Directors: Operating and Financial Review
(continued) |
|
|
|
|
Customer groups > Private
Banking |
• |
Trading income fell by 21 per cent to
US$422 million, driven by lower demand for
structured products in Asia following the decline
in the Hong Kong stock market which led to clients
preferring more stable cash deposits. Partly
offsetting this was an increase in foreign exchange
trading revenue in the volatile currency
markets. |
|
|
• |
Gains less losses from financial investments
decreased by 47 per cent to US$64 million
due to lower gains from the disposal of
HSBCs residual holding in the Hermitage Fund in 2008, compared
with 2007. |
|
|
• |
Loan impairment charges and other credit risk
provisions increased by US$54 million to
US$68 million, primarily due to a loss on
a bond position in a failed US bank and higher provisions
on real estate-related products. |
|
|
• |
Operating expenses grew by 9 per cent to
US$2.1 billion, mainly due to the non-recurrence of a one-off pension-related credit
recognised in 2007. Staff numbers increased in Asia
and Europe in late 2007 and the first half of
2008, leading to higher costs, although these reduced in the second half of the year. As a result,
the cost efficiency ratio worsened by 1.9
percentage points to 58.3 per cent. |
Client assets
|
2008 |
|
|
2007 |
|
|
US$bn |
|
|
US$bn |
|
|
|
|
|
|
|
At 1 January |
421
|
|
|
333 |
|
Net new money
|
24 |
|
|
36 |
|
Value change
|
(71 |
) |
|
19 |
|
Exchange and other
|
(22 |
) |
|
33 |
|
|
|
|
|
|
|
At 31 December
|
352 |
|
|
421 |
|
|
|
|
|
|
|
Client assets by investment class
|
2008 |
|
|
2007
|
|
|
US$bn |
|
|
US$bn
|
|
|
|
|
|
|
|
Equities
|
53 |
|
|
81
|
|
Bonds
|
57 |
|
|
64
|
|
Structured
products |
7 |
|
|
12
|
|
Funds
|
87 |
|
|
123
|
|
Cash, fiduciary
deposits and other |
148 |
|
|
141
|
|
|
|
|
|
|
|
|
352 |
|
|
421
|
|
|
|
|
|
|
|
• |
Reported client assets decreased by 16 per
cent to US$352 billion in 2008, due
to the decline in equity market values
in all regions. Net new money flows continued
to be strong, particularly in Europe, as
clients were attracted by HSBCs strong
capital base during the market turbulence. However,
reduced leverage had a US$5.9 billion |
|
effect on net new money flows compared with
2007 and some outflows of client deposits were
experienced in the fourth quarter following the
introduction of government guarantees to certain competitor
banks. |
|
|
• |
Total client assets declined by 12 per cent
on a reported basis to US$433 billion,
with net new money of US$30 billion.
Total client assets is a measure
equivalent to many industry definitions of
assets under management which include some
non-financial assets held in client trusts. |
Business highlights in 2008
• |
Inward referrals from other customer groups
in HSBC resulted in US$6.8 billion
of net new money compared with US$5.7
billion in 2007. |
|
|
• |
The proportion of trading volumes that were
transacted with Global Banking and Markets
increased as more systems and processes were
connected. |
|
|
• |
Investments in emerging markets continued
as Private Banking clients invested over
US$1 billion in various HSBC Private Equity
and fund offerings. |
|
|
• |
The Euromoney
2009 Private Banking Survey
placed HSBC Private Bank second overall in the
Global Private Bank category, up from third in 2008.
HSBC Private Bank was also awarded Best
Private Bank in Asia and Best Private Bank in the Middle East. At the International Wealth
Management Summit, HSBC won Outstanding
Global Private Banker awarded to the Global CEO of HSBC Private Bank, and Outstanding
Private Bank in the Middle East. |
|
|
• |
In 2008, HSBC announced that it would merge
its two Swiss private banks under the HSBC
Private Bank brand. The merger is expected to
result in future strategic and cost benefits. |
|
|
• |
Following a comprehensive review in 2008,
HSBC Private Bank launched a fresh image
campaign in 2009, including the aim to be The
worlds private bank in alignment with the Groups
recognised global brand strategy. The launch
was combined with a targeted advertising and marketing campaign. |
|
|
• |
Offices in Guangzhou, Shanghai and Beijing
were formally opened as part of the launch of
Private Banking operations in mainland China. Preparations were also made for a launch of
domestic operations in Russia in 2009. |
80
Back to Contents
Reconciliation of reported and underlying profit before tax
|
|
|
|
|
|
|
2008 compared with
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
acquisitions, |
|
|
|
2007 |
|
2008 |
|
|
|
|
|
|
|
|
|
|
2007 |
|
disposals |
|
|
|
at 2008 |
|
acquisitions |
|
|
|
2008 |
|
|
|
|
|
|
as |
|
& dilution |
|
Currency |
|
exchange |
|
and |
|
Underlying |
|
as |
|
Reported |
|
Underlying |
|
|
reported |
|
gains1
|
|
translation2 |
|
rates3
|
|
disposals1 |
|
change |
|
reported |
|
change |
|
change |
|
Private Banking |
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
% |
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest
income |
1,216
|
|
1
|
|
(12
|
) |
1,205
|
|
|
|
407
|
|
1,612
|
|
33
|
|
34
|
|
Net fee income
|
1,615 |
|
(105 |
) |
26 |
|
1,536 |
|
|
|
(60 |
) |
1,476 |
|
(9 |
) |
(4 |
) |
Other income4
|
717
|
|
(18
|
) |
5
|
|
704
|
|
|
|
(161
|
) |
543
|
|
(24
|
) |
(23
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
operating income5 |
3,548
|
|
(122
|
) |
19
|
|
3,445
|
|
|
|
186
|
|
3,631
|
|
2
|
|
5
|
|
Loan
impairment charges and other credit risk provisions |
(14 |
) |
|
|
|
|
(14 |
) |
|
|
(54 |
) |
(68 |
) |
(386 |
) |
(386 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating
income |
3,534
|
|
(122
|
) |
19
|
|
3,431
|
|
|
|
132
|
|
3,563
|
|
1
|
|
4
|
|
Operating expenses |
(2,025 |
) |
98 |
|
(17 |
) |
(1,944 |
) |
|
|
(172 |
) |
(2,116 |
) |
(4 |
) |
(9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
profit |
1,509
|
|
(24
|
) |
2
|
|
1,487
|
|
|
|
(40
|
) |
1,447
|
|
(4
|
) |
(3
|
) |
Income from associates |
2 |
|
|
|
|
|
2 |
|
|
|
(2 |
) |
|
|
(100 |
) |
(100 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit before
tax |
1,511
|
|
(24
|
) |
2
|
|
1,489
|
|
|
|
(42
|
) |
1,447
|
|
(4
|
) |
(3
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 compared with 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
2006 |
|
acquisitions, |
|
|
|
|
|
|
|
|
|
|
2006 |
|
acquisitions
|
|
|
|
at 2007 |
|
disposals |
|
|
|
2007 |
|
|
|
|
|
|
as |
|
and
|
|
Currency |
|
exchange |
|
& dilution |
|
Underlying |
|
as |
|
Reported |
|
Underlying
|
|
|
reported |
|
disposals1
|
|
translation2 |
|
rates6
|
|
gains1
|
|
change |
|
reported |
|
change |
|
change |
|
Private Banking |
US$m |
|
US$m
|
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
% |
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest
income |
1,011
|
|
|
|
24
|
|
1,035
|
|
2
|
|
179
|
|
1,216
|
|
20
|
|
17
|
|
Net fee income |
1,323 |
|
|
|
32 |
|
1,355 |
|
4 |
|
256 |
|
1,615 |
|
22 |
|
19 |
|
Other income4
|
597 |
|
|
|
7 |
|
604 |
|
1 |
|
112 |
|
717 |
|
20 |
|
19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating
income5 |
2,931
|
|
|
|
63 |
|
2,994
|
|
7 |
|
547 |
|
3,548
|
|
21 |
|
18 |
|
Loan
impairment charges and other credit risk provisions |
(33 |
) |
|
|
|
|
(33 |
) |
|
|
19 |
|
(14 |
) |
58 |
|
58 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating
income |
2,898
|
|
|
|
63 |
|
2,961
|
|
7 |
|
566 |
|
3,534
|
|
22 |
|
19 |
|
Operating expenses |
(1,685 |
) |
|
|
(40 |
) |
(1,725 |
) |
(4 |
) |
(296 |
) |
(2,025 |
) |
(20 |
) |
(17 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit |
1,213
|
|
|
|
23 |
|
1,236
|
|
3 |
|
270 |
|
1,509
|
|
24 |
|
22 |
|
Income from associates |
1 |
|
|
|
|
|
1 |
|
|
|
1 |
|
2 |
|
100 |
|
100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit before
tax |
1,214
|
|
|
|
23 |
|
1,237
|
|
3 |
|
271 |
|
1,511
|
|
24 |
|
22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For footnotes, see page 143. |
|
81
Back to Contents
H S B C H O L D
I N G S P L C |
|
Report of
the Directors: Operating and Financial Review
(continued) |
|
|
|
|
Customer groups > Other |
Other
Profit/(loss) before tax
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
|
|
|
|
|
|
|
|
Net interest expense |
(956
|
) |
|
(542 |
)
|
|
(625 |
)
|
Net fee income/(expense) |
53 |
|
|
(228 |
)
|
|
172 |
|
Trading
income/(expense) excluding net interest income |
(262
|
) |
|
127
|
|
|
(228
|
)
|
Net
interest income/(expense) on trading activities |
(268
|
) |
|
(1
|
)
|
|
82
|
|
Net trading income/(expense)16
|
(530 |
) |
|
126 |
|
|
(146 |
)
|
Changes
in fair value of long-term debt issued and related derivatives |
6,679
|
|
|
2,812
|
|
|
(35
|
)
|
Net
income/(expense) from other financial instruments designated at fair
value |
747
|
|
|
81
|
|
|
(46
|
)
|
Net
income/(expense) from financial instruments designated at fair value |
7,426
|
|
|
2,893
|
|
|
(81
|
)
|
Gains less losses from financial
investments |
(396 |
) |
|
83 |
|
|
147 |
|
Gains
arising from dilution of interests in associates |
|
|
|
1,092
|
|
|
|
|
Dividend income |
10 |
|
|
32 |
|
|
63 |
|
Net earned
insurance premiums |
(17
|
) |
|
(21
|
)
|
|
207
|
|
Gains on disposal of French
regional banks |
2,445 |
|
|
|
|
|
|
|
Other operating
income |
4,261
|
|
|
3,523
|
|
|
3,254
|
|
|
|
|
|
|
|
|
|
|
Total operating
income |
12,296
|
|
|
6,958
|
|
|
2,991
|
|
Net insurance claims17
|
(1 |
) |
|
|
|
|
(181 |
)
|
|
|
|
|
|
|
|
|
|
Net
operating income5 |
12,295
|
|
|
6,958
|
|
|
2,810
|
|
Loan
impairment charges and other credit risk provisions |
(5 |
) |
|
(11 |
)
|
|
(13 |
)
|
|
|
|
|
|
|
|
|
|
Net operating
income |
12,290
|
|
|
6,947
|
|
|
2,797
|
|
Total operating expenses |
(4,174 |
) |
|
(3,562 |
)
|
|
(3,259 |
)
|
|
|
|
|
|
|
|
|
|
Operating
profit/(loss) |
8,116
|
|
|
3,385
|
|
|
(462
|
)
|
Share of profit in joint ventures
and associates |
41 |
|
|
150 |
|
|
74 |
|
|
|
|
|
|
|
|
|
|
Profit/(loss)
before tax |
8,157
|
|
|
3,535
|
|
|
(388
|
)
|
|
|
|
|
|
|
|
|
|
By geographical region |
|
|
|
|
|
|
|
|
Europe
|
5,296
|
|
|
1,056
|
|
|
(278
|
)
|
Hong Kong
|
(955 |
) |
|
(375 |
)
|
|
(175 |
)
|
Rest
of Asia-Pacific |
276
|
|
|
1,343
|
|
|
287
|
|
North America
|
3,534 |
|
|
1,508 |
|
|
(217 |
)
|
Latin
America |
6
|
|
|
3 |
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
8,157
|
|
|
3,535
|
|
|
(388
|
)
|
|
|
|
|
|
|
|
|
|
|
% |
|
|
% |
|
|
% |
|
|
|
|
|
|
|
|
|
|
Share of
HSBCs profit before tax |
87.6
|
|
|
14.6
|
|
|
(1.8
|
)
|
Cost efficiency ratio |
33.9 |
|
|
51.2 |
|
|
116.0 |
|
|
|
|
|
|
|
|
|
|
For footnotes, see page 143. |
|
|
|
|
|
|
|
|
Notes
• |
Reported profit before tax in Other was
US$8.2 billion, compared with US$3.5 billion
in 2007. For a description of the main items
reported under Other, see footnote 14 on page
143. |
|
|
• |
Net income from financial instruments
designated at fair value amounted to US$7.4
billion in 2008, compared with US$2.9 billion in 2007. This largely related to fair
value gains on own debt issued by HSBC Holdings
and its North American and European subsidiaries
and resulted primarily from the widening
of credit spreads. These gains will reverse over the life of the debt. |
|
|
• |
A loss of US$396 million reported in Gains
less losses from financial investments
included impairments related to non-trading
strategic equity investments, classified
as available for sale, following significant
declines in equity market prices. These
investments were primarily in Asian financial
services companies which are held for the
long term. |
|
|
• |
In 2007, the results included dilution gains
of US$1.1 billion following share offerings
made by HSBCs associates, Ping An
Insurance, Bank of Communications and Industrial
Bank in mainland China, Financiera Independencia
in Mexico and Techcombank in Vietnam. |
|
|
• |
Other gains included a US$2.4 billion pre-tax
profit from the sale of seven regional banks in
France. |
|
|
• |
HSBC recognised a gain of US$416 million
in respect of the purchase of the subsidiary
of Metrovacesa which owned the property
and long leasehold land comprising 8 Canada Square,
London. See Note 23 on the Financial Statements
for further details. |
|
|
• |
HSBC continued to increase the scope of
activities undertaken at its Group Service
Centres (GSCs) which are accounted
for within Other. Employee numbers increased accordingly
and an additional GSC was opened which,
together, contributed to a rise in operating
expenses. In North America, costs at the
IT Service Centres declined in line with reduced
operations in the region. Substantially all
service centre costs are recharged to HSBCs customer
groups and reported under Other operating
income. |
82
Back to Contents
Balance sheet data15
|
2008 |
|
2007
|
|
2006
|
|
|
US$m |
|
US$m
|
|
US$m
|
|
|
|
|
|
|
|
|
Loans and advances to customers (net) |
2,621 |
|
2,678
|
|
2,095
|
|
Total assets
|
135,001 |
|
155,685
|
|
137,291
|
|
Customer accounts
|
2,041 |
|
2,006
|
|
1,245
|
|
Reconciliation of reported and underlying profit/(loss)
before tax
|
|
|
|
|
|
|
2008 compared with
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
acquisitions, |
|
|
|
2007 |
|
2008 |
|
|
|
|
|
|
|
|
|
|
2007 |
|
disposals |
|
|
|
at 2008 |
|
acquisitions |
|
|
|
2008 |
|
|
|
|
|
|
as |
|
& dilution |
|
Currency |
|
exchange |
|
and |
|
Underlying |
|
as |
|
Reported |
|
Underlying |
|
|
reported |
|
gains1
|
|
translation2 |
|
rates3
|
|
disposals1 |
|
change |
|
reported |
|
change |
|
change |
|
Other |
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
% |
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest expense |
(542 |
) |
|
|
(38 |
) |
(580 |
) |
(6 |
) |
(370 |
) |
(956 |
) |
(76 |
) |
(64 |
) |
(Net
fee income/( expense) |
(228 |
) |
|
|
49 |
|
(179 |
) |
|
|
232 |
|
53 |
|
123 |
|
130 |
|
Other income4
|
7,728 |
|
(1,116 |
) |
36 |
|
6,648 |
|
2,540 |
|
4,010 |
|
13,198 |
|
71 |
|
60 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income5
|
6,958 |
|
(1,116 |
) |
47 |
|
5,889 |
|
2,534 |
|
3,872 |
|
12,295 |
|
77 |
|
66 |
|
Loan
impairment charges and other credit risk provisions |
(11 |
) |
24 |
|
1 |
|
14 |
|
|
|
(19 |
) |
(5 |
) |
55 |
|
(136 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income |
6,947 |
|
(1,092 |
) |
48 |
|
5,903 |
|
2,534 |
|
3,853 |
|
12,290 |
|
77 |
|
65 |
|
Operating expenses |
(3,562 |
) |
|
|
(15 |
) |
(3,577 |
) |
6 |
|
(603 |
) |
(4,174 |
) |
(17 |
) |
(17 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit |
3,385 |
|
(1,092 |
) |
33 |
|
2,326 |
|
2,540 |
|
3,250 |
|
8,116 |
|
140 |
|
140 |
|
Income from associates |
150 |
|
(12 |
) |
11 |
|
149 |
|
|
|
(108 |
) |
41 |
|
(73 |
) |
(72 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit before tax |
3,535 |
|
(1,104 |
) |
44 |
|
2,475 |
|
2,540 |
|
3,142 |
|
8,157 |
|
131 |
|
127 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 compared with
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
2006, |
|
acquisitions |
|
|
|
|
|
|
|
|
|
|
2006 |
|
acquisitions
|
|
|
|
at 2007 |
|
disposals |
|
|
|
2007 |
|
|
|
|
|
|
as |
|
and
|
|
Currency |
|
exchange |
|
& dilution |
|
Underlying |
|
as |
|
Reported |
|
Underlying |
|
|
reported |
|
disposals1
|
|
translation2 |
|
rates6
|
|
gains1
|
|
change |
|
reported |
|
change |
|
change |
|
Other
|
US$m |
|
US$m
|
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
% |
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
(625 |
)
|
|
|
(22 |
)
|
(647 |
)
|
|
|
105 |
|
(542 |
)
|
13 |
|
16 |
|
Net fee income
|
172 |
|
|
|
25 |
|
197 |
|
|
|
(425 |
) |
(228 |
) |
(233 |
) |
(216 |
) |
Other income4
|
3,263 |
|
|
|
77 |
|
3,340 |
|
1,092 |
|
3,296 |
|
7,728 |
|
137 |
|
99 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income5
|
2,810 |
|
|
|
80 |
|
2,890 |
|
1,092 |
|
2,976 |
|
6,958 |
|
148 |
|
103 |
|
Loan
impairment charges and other credit risk provisions |
(13 |
) |
|
|
3 |
|
(10 |
) |
|
|
(1 |
) |
(11 |
) |
15 |
|
(10 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income
|
2,797 |
|
|
|
83 |
|
2,880 |
|
1,092 |
|
2,975 |
|
6,947 |
|
148 |
|
103 |
|
Operating expenses
|
(3,259 |
) |
|
|
(90 |
) |
(3,349 |
) |
|
|
(213 |
) |
(3,562 |
) |
(9 |
) |
(6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit/(loss)
|
(462 |
) |
|
|
(7 |
) |
(469 |
) |
1,092 |
|
2,762 |
|
3,385 |
|
833 |
|
589 |
|
Income from associates
|
74 |
|
|
|
2 |
|
76 |
|
(50 |
) |
124 |
|
150 |
|
103 |
|
163 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit/(loss) before tax
|
(388 |
) |
|
|
(5 |
) |
(393 |
) |
1,042 |
|
2,886 |
|
3,535 |
|
1,011 |
|
734 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For footnotes, see page 143. |
83
Back to Contents
H S B C H O L D
I N G S P L C |
|
Report of
the Directors: Operating and Financial Review
(continued) |
|
|
|
|
Customer groups > Profit/(loss)
before tax
|
Analysis by customer group and global business
Profit/(loss) before tax
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personal |
|
|
|
|
|
Global |
|
|
|
|
|
|
|
|
Inter- |
|
|
|
|
|
|
Financial |
|
|
Commercial |
|
|
Banking & |
|
|
Private |
|
|
|
|
|
segment |
|
|
|
|
|
|
Services |
|
|
Banking |
|
|
Markets |
|
|
Banking |
|
|
Other |
14 |
|
elimination |
21 |
|
Total |
|
|
Total |
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income/(expense) |
29,419
|
|
|
9,494
|
|
|
8,541
|
|
|
1,612
|
|
|
(956
|
) |
|
(5,547
|
) |
|
42,563
|
|
|
Net fee income |
10,107 |
|
|
4,097 |
|
|
4,291 |
|
|
1,476 |
|
|
53 |
|
|
|
|
|
20,024 |
|
|
Trading income/(expense)
excluding net interest income |
175
|
|
|
369
|
|
|
157
|
|
|
408
|
|
|
(262
|
) |
|
|
|
|
847
|
|
|
Net interest
income/(expense) on trading activities |
79
|
|
|
17
|
|
|
324
|
|
|
14
|
|
|
(268
|
) |
|
5,547
|
|
|
5,713
|
|
|
Net trading income/(expense)16
|
254 |
|
|
386 |
|
|
481 |
|
|
422 |
|
|
(530 |
) |
|
5,547 |
|
|
6,560 |
|
|
Changes in
fair value of long-term debt issued and related derivatives |
|
|
|
|
|
|
|
|
|
|
|
|
6,679
|
|
|
|
|
|
6,679
|
|
|
Net income/(expense)
from other financial instruments designated at fair value |
(2,912
|
) |
|
(224
|
) |
|
(438
|
) |
|
|
|
|
747
|
|
|
|
|
|
(2,827
|
) |
|
Net income/(expense) from financial
instruments designated at fair value |
(2,912 |
) |
|
(224 |
) |
|
(438 |
) |
|
|
|
|
7,426 |
|
|
|
|
|
3,852 |
|
|
Gains less losses
from financial investments |
663
|
|
|
193
|
|
|
(327
|
) |
|
64
|
|
|
(396
|
) |
|
|
|
|
197
|
|
|
Dividend income |
90 |
|
|
88 |
|
|
76 |
|
|
8 |
|
|
10 |
|
|
|
|
|
272 |
|
|
Net earned insurance
premiums |
10,083
|
|
|
679
|
|
|
105
|
|
|
|
|
|
(17
|
) |
|
|
|
|
10,850
|
|
|
Gains on disposal of French regional
banks |
|
|
|
|
|
|
|
|
|
|
|
|
2,445 |
|
|
|
|
|
2,445 |
|
|
Other operating
income |
259
|
|
|
939
|
|
|
868
|
|
|
49
|
|
|
4,261
|
|
|
(4,568
|
) |
|
1,808
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income |
47,963 |
|
|
15,652 |
|
|
13,597 |
|
|
3,631 |
|
|
12,296 |
|
|
(4,568 |
) |
|
88,571 |
|
|
Net insurance
claims17 |
(6,474
|
) |
|
(335
|
) |
|
(79
|
) |
|
|
|
|
(1
|
) |
|
|
|
|
(6,889
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income5
|
41,489 |
|
|
15,317 |
|
|
13,518 |
|
|
3,631 |
|
|
12,295 |
|
|
(4,568 |
) |
|
81,682 |
|
|
Loan impairment
charges and other credit risk provisions |
(21,220
|
) |
|
(2,173
|
) |
|
(1,471
|
) |
|
(68
|
) |
|
(5
|
) |
|
|
|
|
(24,937
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income |
20,269 |
|
|
13,144 |
|
|
12,047 |
|
|
3,563 |
|
|
12,290 |
|
|
(4,568 |
) |
|
56,745 |
|
|
Operating expenses
(excluding goodwill impairment) |
(21,140
|
) |
|
(6,581
|
) |
|
(9,092
|
) |
|
(2,116
|
) |
|
(4,174
|
) |
|
4,568
|
|
|
(38,535
|
) |
|
Goodwill impairment |
(10,564 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,564 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
profit/(loss) |
(11,435
|
) |
|
6,563
|
|
|
2,955
|
|
|
1,447
|
|
|
8,116
|
|
|
|
|
|
7,646
|
|
|
Share of profit in associates
and joint ventures |
461 |
|
|
631 |
|
|
528 |
|
|
|
|
|
41 |
|
|
|
|
|
1,661 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit/(loss)
before tax |
(10,974
|
) |
|
7,194
|
|
|
3,483
|
|
|
1,447
|
|
|
8,157
|
|
|
|
|
|
9,307
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% |
|
|
% |
|
|
% |
|
|
% |
|
|
% |
|
|
|
|
|
% |
|
|
Share of HSBCs
profit before tax |
(117.9
|
) |
|
77.3
|
|
|
37.4
|
|
|
15.6
|
|
|
87.6
|
|
|
|
|
|
100.0
|
|
|
Cost efficiency ratio |
76.4 |
|
|
43.0 |
|
|
67.3 |
|
|
58.3 |
|
|
33.9 |
|
|
|
|
|
60.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
|
|
|
US$m |
|
|
Balance sheet data15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans and advances
to customers (net) |
401,402
|
|
|
203,949
|
|
|
287,306
|
|
|
37,590
|
|
|
2,621
|
|
|
|
|
|
932,868
|
|
|
Total assets |
514,419 |
|
|
249,218 |
|
|
1,896,630 |
|
|
133,216 |
|
|
135,001 |
|
|
(401,019 |
) |
|
2,527,465 |
|
|
Customer accounts
|
440,338
|
|
|
235,879
|
|
|
320,386
|
|
|
116,683
|
|
|
2,041
|
|
|
|
|
|
1,115,327
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For footnotes, see page 143. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
84
Back to Contents
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personal |
|
|
|
|
|
Global |
|
|
|
|
|
|
|
|
Inter- |
|
|
|
|
|
|
Financial |
|
|
Commercial |
|
|
Banking & |
|
|
Private |
|
|
|
|
|
segment |
|
|
|
|
|
|
Services |
|
|
Banking |
|
|
Markets |
|
|
Banking |
|
|
Other |
14 |
|
elimination |
21 |
|
Total |
|
|
Total |
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest
income/(expense) |
29,069
|
|
|
9,055
|
|
|
4,430
|
|
|
1,216
|
|
|
(542
|
) |
|
(5,433
|
) |
|
37,795
|
|
|
Net fee income/(expense)
|
11,742 |
|
|
3,972 |
|
|
4,901 |
|
|
1,615 |
|
|
(228 |
) |
|
|
|
|
22,002 |
|
|
Trading income
excluding net interest income |
38 |
|
|
265 |
|
|
3,503
|
|
|
525 |
|
|
127 |
|
|
|
|
|
4,458
|
|
|
Net interest
income/(expense) on trading activities |
140 |
|
|
31 |
|
|
(236
|
) |
|
9 |
|
|
(1 |
) |
|
5,433
|
|
|
5,376
|
|
|
Net trading income16
|
178 |
|
|
296 |
|
|
3,267 |
|
|
534 |
|
|
126 |
|
|
5,433 |
|
|
9,834 |
|
|
Changes in fair
value of long-term debt issued and related derivatives |
|
|
|
|
|
|
|
|
|
|
|
|
2,812
|
|
|
|
|
|
2,812
|
|
|
Net income/(expense)
from other financial instruments designated at fair value |
1,333
|
|
|
22 |
|
|
(164
|
) |
|
(1 |
) |
|
81 |
|
|
|
|
|
1,271
|
|
|
Net income/(expense) from financial
instruments designated at fair value |
1,333 |
|
|
22 |
|
|
(164 |
) |
|
(1 |
) |
|
2,893 |
|
|
|
|
|
4,083 |
|
|
Gains less losses
from financial investments |
351 |
|
|
90 |
|
|
1,313
|
|
|
119 |
|
|
83 |
|
|
|
|
|
1,956
|
|
|
Gains arising from dilution of
interests in associates |
|
|
|
|
|
|
|
|
|
|
|
|
1,092 |
|
|
|
|
|
1,092 |
|
|
Dividend income
|
55 |
|
|
8 |
|
|
222 |
|
|
7 |
|
|
32 |
|
|
|
|
|
324 |
|
|
Net earned insurance premiums .
|
8,271 |
|
|
733 |
|
|
93 |
|
|
|
|
|
(21 |
) |
|
|
|
|
9,076 |
|
|
Other operating
income |
387 |
|
|
165 |
|
|
1,218
|
|
|
58 |
|
|
3,523
|
|
|
(3,912
|
) |
|
1,439
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income |
51,386 |
|
|
14,341 |
|
|
15,280 |
|
|
3,548 |
|
|
6,958 |
|
|
(3,912 |
) |
|
87,601 |
|
|
Net insurance
claims17 |
(8,147
|
) |
|
(391
|
) |
|
(70 |
) |
|
|
|
|
|
|
|
|
|
|
(8,608
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income5
|
43,239 |
|
|
13,950 |
|
|
15,210 |
|
|
3,548 |
|
|
6,958 |
|
|
(3,912 |
) |
|
78,993 |
|
|
Loan impairment
charges and other credit risk provisions |
(16,172
|
) |
|
(1,007
|
) |
|
(38 |
) |
|
(14 |
) |
|
(11 |
) |
|
|
|
|
(17,242
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income |
27,067 |
|
|
12,943 |
|
|
15,172 |
|
|
3,534 |
|
|
6,947 |
|
|
(3,912 |
) |
|
61,751 |
|
|
Total operating
expenses |
(21,757
|
) |
|
(6,252
|
) |
|
(9,358
|
) |
|
(2,025
|
) |
|
(3,562
|
) |
|
3,912
|
|
|
(39,042
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit |
5,310 |
|
|
6,691 |
|
|
5,814 |
|
|
1,509 |
|
|
3,385 |
|
|
|
|
|
22,709 |
|
|
Share of profit
in associates and joint ventures |
590 |
|
|
454 |
|
|
307 |
|
|
2 |
|
|
150 |
|
|
|
|
|
1,503
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit before tax |
5,900 |
|
|
7,145 |
|
|
6,121 |
|
|
1,511 |
|
|
3,535 |
|
|
|
|
|
24,212 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% |
|
|
% |
|
|
% |
|
|
% |
|
|
% |
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share of HSBCs
profit before tax |
24.4
|
|
|
29.5
|
|
|
25.3
|
|
|
6.2 |
|
|
14.6
|
|
|
|
|
|
100.0
|
|
|
Cost efficiency ratio |
50.3 |
|
|
44.8 |
|
|
61.5 |
|
|
57.1 |
|
|
51.2 |
|
|
|
|
|
49.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
|
|
|
US$m |
|
|
Balance sheet data15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans and advances
to customers (net) |
464,726
|
|
|
220,068
|
|
|
250,464
|
|
|
43,612
|
|
|
2,678
|
|
|
|
|
|
981,548
|
|
|
Total assets |
621,356 |
|
|
307,944 |
|
|
1,561,468 |
|
|
130,893 |
|
|
155,685 |
|
|
(423,080 |
) |
|
2,354,266 |
|
|
Customer accounts
|
450,071
|
|
|
237,987
|
|
|
299,879
|
|
|
106,197
|
|
|
2,006
|
|
|
|
|
|
1,096,140
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For footnotes, see page 143. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
85
Back to Contents
H S B C H O L D
I N G S P L C |
|
Report of
the Directors: Operating and Financial Review
(continued) |
|
|
|
|
Customer groups > Profit/(loss)
before tax // Geographical regions > Summary |
Profit/(loss) before tax (continued)
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personal |
|
|
|
|
|
Global |
|
|
|
|
|
|
|
|
Inter- |
|
|
|
|
|
|
Financial |
|
|
Commercial |
|
|
Banking & |
|
|
Private |
|
|
|
|
|
segment |
|
|
|
|
|
|
Services |
|
|
Banking |
|
|
Markets |
|
|
Banking |
|
|
Other |
14 |
|
elimination |
21 |
|
Total |
|
|
Total |
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest
income/(expense) |
26,076
|
|
|
7,514
|
|
|
3,168
|
|
|
1,011
|
|
|
(625
|
) |
|
(2,658
|
) |
|
34,486
|
|
|
Net fee income |
8,762 |
|
|
3,207 |
|
|
3,718 |
|
|
1,323 |
|
|
172 |
|
|
|
|
|
17,182 |
|
|
Trading income/(expense)
excluding net interest income . |
391 |
|
|
204 |
|
|
4,890
|
|
|
362 |
|
|
(228
|
) |
|
|
|
|
5,619
|
|
|
Net interest
income/ (expense) on trading activities |
220 |
|
|
20 |
|
|
(379
|
) |
|
2 |
|
|
82 |
|
|
2,658
|
|
|
2,603
|
|
|
Net trading income/(expense)16
|
611 |
|
|
224 |
|
|
4,511 |
|
|
364 |
|
|
(146 |
) |
|
2,658 |
|
|
8,222 |
|
|
Changes in fair
value of long-term debt issued and related derivatives |
|
|
|
|
|
|
|
|
|
|
|
|
(35 |
) |
|
|
|
|
(35 |
) |
|
Net income/(expense)
from other financial instruments designated at fair value |
739 |
|
|
(22 |
) |
|
20 |
|
|
1 |
|
|
(46 |
) |
|
|
|
|
692 |
|
|
Net income/(expense) from financial
instruments designated at fair value |
739 |
|
|
(22 |
) |
|
20 |
|
|
1 |
|
|
(81 |
) |
|
|
|
|
657 |
|
|
Gains less losses
from financial investments |
78 |
|
|
44 |
|
|
534 |
|
|
166 |
|
|
147 |
|
|
|
|
|
969 |
|
|
Dividend income |
31 |
|
|
6 |
|
|
235 |
|
|
5 |
|
|
63 |
|
|
|
|
|
340 |
|
|
Net earned insurance
premiums |
5,130
|
|
|
258 |
|
|
73 |
|
|
|
|
|
207 |
|
|
|
|
|
5,668
|
|
|
Other operating income |
782 |
|
|
250 |
|
|
1,378 |
|
|
61 |
|
|
3,254 |
|
|
(3,179 |
) |
|
2,546 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating
income |
42,209
|
|
|
11,481
|
|
|
13,637
|
|
|
2,931
|
|
|
2,991
|
|
|
(3,179
|
) |
|
70,070
|
|
|
Net insurance claims17
|
(4,365 |
) |
|
(96 |
) |
|
(62 |
) |
|
|
|
|
(181 |
) |
|
|
|
|
(4,704 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating
income5 |
37,844
|
|
|
11,385
|
|
|
13,575
|
|
|
2,931
|
|
|
2,810
|
|
|
(3,179
|
) |
|
65,366
|
|
|
Loan impairment (charges)/recoveries
and other credit risk provisions |
(9,949 |
) |
|
(697 |
) |
|
119 |
|
|
(33 |
) |
|
(13 |
) |
|
|
|
|
(10,573 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating
income |
27,895
|
|
|
10,688
|
|
|
13,694
|
|
|
2,898
|
|
|
2,797
|
|
|
(3,179
|
) |
|
54,793
|
|
|
Total operating expenses
|
(18,818 |
) |
|
(4,979 |
) |
|
(7,991 |
) |
|
(1,685 |
) |
|
(3,259 |
) |
|
3,179 |
|
|
(33,553 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit/(loss)
|
9,077
|
|
|
5,709
|
|
|
5,703
|
|
|
1,213
|
|
|
(462
|
) |
|
|
|
|
21,240
|
|
|
Share of profit in associates
and joint ventures |
380 |
|
|
288 |
|
|
103 |
|
|
1 |
|
|
74 |
|
|
|
|
|
846 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit/(loss)
before tax |
9,457
|
|
|
5,997
|
|
|
5,806
|
|
|
1,214
|
|
|
(388
|
) |
|
|
|
|
22,086
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% |
|
|
% |
|
|
% |
|
|
% |
|
|
% |
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share of HSBCs
profit before tax |
42.8
|
|
|
27.2
|
|
|
26.3
|
|
|
5.5 |
|
|
(1.8
|
) |
|
|
|
|
100.0
|
|
|
Cost efficiency ratio |
49.7 |
|
|
43.7 |
|
|
58.9 |
|
|
57.5 |
|
|
116.0 |
|
|
|
|
|
51.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
|
|
|
US$m |
|
|
Balance sheet data15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans and advances
to customers (net) |
448,545
|
|
|
172,976
|
|
|
210,220
|
|
|
34,297
|
|
|
2,095
|
|
|
|
|
|
868,133
|
|
|
Total assets |
602,342 |
|
|
228,668 |
|
|
1,059,746 |
|
|
106,178 |
|
|
137,291 |
|
|
(273,467 |
) |
|
1,860,758 |
|
|
Customer accounts
|
388,468
|
|
|
190,853
|
|
|
235,965
|
|
|
80,303
|
|
|
1,245
|
|
|
|
|
|
896,834
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For footnotes, see page 143. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
86
Back to Contents
Additional information on results in 2008 may be found in the Financial Summary on pages 23 to 38.
Summary
Europe
HSBCs principal banking operations in Europe are HSBC Bank plc (HSBC Bank) in the UK, HSBC France, HSBC Bank A.S. in Turkey, HSBC Bank Malta p.l.c., HSBC Private Bank (Suisse) S.A., HSBC Trinkaus &
Burkhardt AG and HSBC Guyerzeller Bank AG. Through these operations HSBC provides a wide range of banking, treasury and financial services to personal, commercial and corporate customers across Europe.
Hong Kong
HSBCs principal banking subsidiaries in Hong Kong are The Hongkong and Shanghai Banking Corporation Limited (The Hongkong and Shanghai Banking Corporation) and Hang Seng Bank Limited (Hang Seng
Bank). The former is the largest bank incorporated in Hong Kong and is HSBCs flagship bank in the Asia-Pacific region. It is one of Hong Kongs three note-issuing banks, accounting for more than 65 per cent by value of banknotes in
circulation in 2007.
Rest of Asia-Pacific (including the Middle
East)
HSBC offers personal, commercial, global banking and markets services in mainland China, mainly through its local subsidiary, HSBC Bank (China) Company Limited (HSBC Bank China). HSBC also participates
indirectly in mainland China through its three associates, Bank of Communications (19.01 per cent owned), Ping An Insurance (16.78 per cent) and Industrial Bank (12.78 per cent), and has a further interest of 8 per cent in Bank of Shanghai.
Outside Hong Kong and mainland China, HSBC conducts business in 20 countries in the Asia-Pacific region, primarily through branches and subsidiaries of The Hongkong and Shanghai Banking
Corporation, with particularly strong coverage in India, Indonesia, South Korea, Singapore and Taiwan. HSBCs presence in the Middle East is led by HSBC Bank Middle East Limited (HSBC Bank Middle East), whose network of branches,
together with HSBCs subsidiaries and associates, gives it the widest coverage in the region; in Australia by HSBC Bank Australia Limited; and in Malaysia by HSBC Bank Malaysia Berhad (HSBC Bank Malaysia), which is the largest
foreign-owned bank in the country by operating income and pre-tax profits. HSBCs associate in Saudi Arabia, The Saudi British Bank (40 per cent owned), is the Kingdoms fifth largest bank by total assets.
North America
HSBCs North American businesses are located in the US, Canada and Bermuda. Operations in the US are primarily conducted through HSBC Bank USA, N.A. (HSBC Bank USA) which is concentrated in New York State,
and HSBC Finance, a national consumer finance company based in the Chicago metropolitan area. HSBC Markets (USA) Inc. is the intermediate holding company of, inter alia, HSBC
Securities (USA) Inc., a registered broker and dealer of securities and a registered futures commission merchant. HSBC Bank Canada and The Bank of Bermuda Limited (Bank of Bermuda) operate in their respective countries.
Latin America
HSBCs operations in Latin America principally comprise HSBC México, S.A. (HSBC Mexico), HSBC Bank Brasil S.A.-Banco Múltiplo (HSBC Bank Brazil), HSBC Bank Argentina S.A.
(HSBC Bank Argentina) and HSBC Bank (Panama) S.A. (HSBC Bank Panama), which owns subsidiaries in Costa Rica, Honduras, Colombia, Nicaragua and El Salvador. HSBC is also represented by subsidiaries in Chile, the Bahamas, Peru,
Paraguay and Uruguay and by a representative office in Venezuela. In addition to banking services, HSBC operates insurance businesses in Mexico, Argentina, Brazil, Panama, Honduras and El Salvador. In Brazil, HSBC offers consumer finance products
through its subsidiary, Losango.
87
Back to Contents
H S B C H O L D
I N G S P L C |
|
Report of
the Directors: Operating and Financial Review
(continued) |
|
|
|
|
Geographical regions >
Summary / Europe
|
In the analysis of
profit by geographical regions that follows, operating income and operating
expenses
include intra-HSBC items of US$2,492 million
(2007: US$1,985 million; 2006: US$1,494 million).
Profit/(loss) before tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US$m |
|
|
% |
|
|
US$m |
|
|
% |
|
|
US$m |
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe |
10,869 |
|
|
116.7 |
|
|
8,595 |
|
|
35.5 |
|
|
6,974 |
|
|
31.5 |
|
|
Hong Kong |
5,461 |
|
|
58.7 |
|
|
7,339 |
|
|
30.3 |
|
|
5,182 |
|
|
23.5 |
|
|
Rest of Asia-Pacific |
6,468 |
|
|
69.5 |
|
|
6,009 |
|
|
24.8 |
|
|
3,527 |
|
|
16.0 |
|
|
North America |
(15,528 |
) |
|
(166.8 |
) |
|
91 |
|
|
0.4 |
|
|
4,668 |
|
|
21.1 |
|
|
Latin America |
2,037 |
|
|
21.9 |
|
|
2,178 |
|
|
9.0 |
|
|
1,735 |
|
|
7.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,307 |
|
|
100.0 |
|
|
24,212 |
|
|
100.0 |
|
|
22,086 |
|
|
100.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 31
December
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
US$m |
|
|
% |
|
|
US$m |
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe
|
1,343,011
|
|
|
53.1
|
|
|
1,236,633
|
|
|
52.5
|
|
|
Hong Kong |
407,151 |
|
|
16.1 |
|
|
356,894 |
|
|
15.2 |
|
|
Rest of Asia-Pacific
|
262,305
|
|
|
10.4
|
|
|
243,205
|
|
|
10.3
|
|
|
North America |
552,612 |
|
|
21.9 |
|
|
549,285 |
|
|
23.3 |
|
|
Latin America
|
97,944
|
|
|
3.9
|
|
|
101,088
|
|
|
4.3 |
|
|
Intra-HSBC items |
(135,558 |
) |
|
(5.4 |
) |
|
(132,839 |
) |
|
(5.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,527,465 |
|
|
100.0 |
|
|
2,354,266 |
|
|
100.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For footnote, see page 143. |
|
|
|
|
|
|
|
|
|
|
|
|
88
Back to Contents
Europe
Profit/(loss) before tax by country within customer groups and global businesses
|
Personal
|
|
|
|
Global
|
|
|
|
|
|
|
|
|
Financial
|
|
Commercial
|
|
Banking &
|
|
Private
|
|
|
|
|
|
|
Services
|
|
Banking
|
|
Markets |
21 |
Banking
|
|
Other
|
|
Total |
|
|
US$m
|
|
US$m
|
|
US$m
|
|
US$m
|
|
US$m
|
|
US$m |
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
United Kingdom
|
1,546
|
|
2,361
|
|
(469
|
) |
250
|
|
2,997
|
|
6,685 |
|
France22
|
139
|
|
176
|
|
273
|
|
10
|
|
2,242
|
|
2,840 |
|
Germany
|
|
|
31
|
|
184
|
|
32
|
|
(22
|
) |
225 |
|
Malta
|
59
|
|
67
|
|
16
|
|
|
|
|
|
142 |
|
Switzerland
|
|
|
|
|
|
|
553
|
|
|
|
553 |
|
Turkey
|
3
|
|
91
|
|
130
|
|
|
|
|
|
224 |
|
Other
|
(89
|
) |
(4
|
) |
61
|
|
153
|
|
79
|
|
200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,658
|
|
2,722
|
|
195
|
|
998
|
|
5,296
|
|
10,869 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
United Kingdom
|
1,221
|
|
2,064
|
|
1,214
|
|
317
|
|
976
|
|
5,792
|
|
France22
|
173
|
|
192
|
|
692
|
|
25
|
|
(49
|
)
|
1,033
|
|
Germany
|
|
|
36
|
|
195
|
|
45
|
|
19
|
|
295
|
|
Malta
|
45
|
|
67
|
|
45
|
|
|
|
|
|
157
|
|
Switzerland
|
|
|
|
|
|
|
475
|
|
|
|
475
|
|
Turkey
|
144
|
|
75
|
|
118
|
|
(1
|
)
|
|
|
336
|
|
Other
|
(2
|
)
|
82
|
|
263
|
|
54
|
|
110
|
|
507
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,581
|
|
2,516
|
|
2,527
|
|
915
|
|
1,056
|
|
8,595
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
United Kingdom
|
1,496
|
|
1,801
|
|
1,299
|
|
380
|
|
(185
|
)
|
4,791
|
|
France22
|
174
|
|
236
|
|
545
|
|
22
|
|
(107
|
)
|
870
|
|
Germany
|
|
|
29
|
|
114
|
|
41
|
|
16
|
|
200
|
|
Malta
|
42
|
|
50
|
|
29
|
|
|
|
|
|
121
|
|
Switzerland
|
|
|
|
|
|
|
305
|
|
|
|
305
|
|
Turkey
|
121
|
|
50
|
|
64
|
|
|
|
(18
|
)
|
217
|
|
Other
|
76
|
|
68
|
|
253
|
|
57
|
|
16
|
|
470
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,909
|
|
2,234
|
|
2,304
|
|
805
|
|
(278
|
)
|
6,974
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans and advances to customers (net) by country
|
At 31 December
|
|
|
|
|
|
|
|
|
|
2008 |
|
2007
|
|
2006
|
|
|
US$m |
|
US$m
|
|
US$m
|
|
|
|
|
|
|
|
|
United Kingdom
|
313,065 |
|
326,927
|
|
305,758
|
|
France22
|
70,896 |
|
81,473
|
|
55,491
|
|
Germany
|
5,756 |
|
6,411
|
|
4,439
|
|
Malta
|
4,343 |
|
4,157
|
|
3,456
|
|
Switzerland
|
12,708 |
|
13,789
|
|
9,151
|
|
Turkey
|
6,125 |
|
7,974
|
|
5,233
|
|
Other
|
13,298 |
|
11,544
|
|
8,971
|
|
|
|
|
|
|
|
|
|
426,191 |
|
452,275
|
|
392,499
|
|
|
|
|
|
|
|
|
Customer accounts by country
|
At 31 December |
|
|
|
|
|
|
|
|
|
2008 |
|
2007
|
|
2006
|
|
|
US$m |
|
US$m
|
|
US$m
|
|
|
|
|
|
|
|
|
United Kingdom
|
351,253 |
|
367,363
|
|
318,614
|
|
France22
|
74,826 |
|
64,905
|
|
43,372
|
|
Germany
|
11,611 |
|
10,282
|
|
11,607
|
|
Malta
|
5,604 |
|
5,947
|
|
4,529
|
|
Switzerland
|
44,643 |
|
41,015
|
|
30,062
|
|
Turkey
|
5,845 |
|
6,473
|
|
4,140
|
|
Other
|
8,694 |
|
8,969
|
|
7,041
|
|
|
|
|
|
|
|
|
|
502,476 |
|
504,954
|
|
419,365
|
|
|
|
|
|
|
|
|
For footnotes, see page 143.
89
Back to Contents
H S B C H O L D I
N G S P L C |
|
Report of the Directors: Operating
and Financial Review (continued)
|
|
|
|
|
Geographical regions > Europe > 2008 |
Profit before
tax |
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Europe |
US$m
|
|
|
US$m
|
|
|
US$m
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
9,696
|
|
|
7,746
|
|
|
8,289
|
|
|
Net fee income
|
7,492
|
|
|
8,431
|
|
|
7,108
|
|
|
Net trading income
|
5,357
|
|
|
6,943
|
|
|
4,529
|
|
|
Changes in fair value of long-term debt issued and related derivatives
|
2,939
|
|
|
1,059
|
|
|
28
|
|
|
Net income/(expense) from other financial
instruments designated at fair value
|
(1,826
|
) |
|
167
|
|
|
116
|
|
|
Net income from financial instruments designated at fair value
|
1,113
|
|
|
1,226
|
|
|
144
|
|
|
Gains less losses from financial investments
|
418
|
|
|
1,326
|
|
|
624
|
|
|
Dividend income
|
130
|
|
|
171
|
|
|
183
|
|
|
Net earned insurance premiums
|
5,299
|
|
|
4,010
|
|
|
1,298
|
|
|
Gains on disposal of French regional banks
|
2,445
|
|
|
|
|
|
|
|
|
Other operating income
|
2,096
|
|
|
1,193
|
|
|
1,428
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income |
34,046
|
|
|
31,046
|
|
|
23,603
|
|
|
Net insurance claims incurred and movement
in liabilities to policyholders
|
(3,367
|
) |
|
(3,479
|
)
|
|
(531
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
operating income before loan impairment charges and other credit
risk provisions |
30,679
|
|
|
27,567
|
|
|
23,072
|
|
|
Loan impairment charges and other credit risk provisions
|
(3,754
|
) |
|
(2,542
|
)
|
|
(2,155
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income |
26,925
|
|
|
25,025
|
|
|
20,917
|
|
|
Total operating expenses
|
(16,072
|
) |
|
(16,525
|
)
|
|
(13,871
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit |
10,853
|
|
|
8,500
|
|
|
7,046
|
|
|
Share of profit/(loss) in associates and joint ventures
|
16
|
|
|
95
|
|
|
(72
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Profit before tax |
10,869
|
|
|
8,595
|
|
|
6,974
|
|
|
|
|
|
|
|
|
|
|
|
|
|
%
|
|
|
%
|
|
|
%
|
|
|
Share of HSBCs profit before tax
|
116.7
|
|
|
35.5
|
|
|
31.5
|
|
|
Cost efficiency ratio
|
52.4
|
|
|
59.9
|
|
|
60.1
|
|
|
Year-end staff numbers (full-time equivalent)
|
82,093
|
|
|
82,166
|
|
|
78,311
|
|
|
Balance sheet data15
|
|
|
|
|
|
|
|
At 31 December
|
|
|
|
|
|
|
|
|
|
2008 |
|
2007
|
|
2006
|
|
|
US$m |
|
US$m
|
|
US$m
|
|
|
|
|
|
|
|
|
Loans and advances to customers (net)
|
426,191 |
|
452,275
|
|
392,499
|
|
Loans and advances to banks (net)
|
61,949 |
|
104,527
|
|
76,830
|
|
Trading assets, financial
assets designated at fair value and financial
investments20
|
433,885 |
|
445,258
|
|
242,010
|
|
Total assets
|
1,343,011 |
|
1,236,633
|
|
867,032
|
|
Deposits by banks
|
80,847 |
|
87,491
|
|
67,821
|
|
Customer accounts
|
502,476 |
|
504,954
|
|
419,365
|
|
|
|
|
|
|
|
|
For footnotes, see page 143. |
All commentaries on Europe are
on an underlying basis unless stated otherwise. |
|
|
|
|
|
|
|
2008 compared with 2007
Economic briefing
In the UK, growth in gross domestic product (GDP) decelerated markedly in 2008 to 0.7 per cent from 3.0 per cent in 2007, with a technical
recession of two successive quarterly contractions in GDP confirmed during the second half of the year. Weakness proved widespread across most of the
economy, prompting a sharp deterioration in labour market conditions as unemployment hit a 9-year high of 6.1 per cent in November 2008. Consumer Price Index (CPI) inflation reached a decade-long high of 5.2 per
cent in September 2008 before falling back to 3.1 per cent by the year-end, still some way above the Bank of Englands 2 per cent target. House prices continued to fall throughout the year and housing activity decreased sharply. The Bank of
90
Back to Contents
England reduced interest rates by 350 basis points during 2008, to finish the year at 2 per cent, as policymakers sought to mitigate the worst effects of the economic slowdown.
The expansion of the eurozone economy slowed sharply in 2008, with GDP growth of 0.7 per cent following a 2.6 per cent
expansion in 2007. As in the UK, conditions deteriorated markedly as the year progressed and three successive quarterly declines in GDP were recorded during 2008, confirming that the economy had entered a period
of recession. Consumer spending growth proved subdued following the sharp rise in oil prices during the first of half of 2008 and a progressive increase in the unemployment rate towards the year-end. Inflation remained a
concern for much of 2008, hitting a peak of 4.0 per cent in July before falling rapidly to 1.6 per cent in December. The European Central Bank, having initially raised interest rates by 25 basis points in July, cut them by 175 basis points to finish
the year at 2.5 per cent.
Reconciliation of reported and underlying profit before tax
|
2008 compared with 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
acquisitions,
|
|
|
|
2007
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
disposals
|
|
|
|
at 2008 |
|
acquisitions |
|
Under-
|
|
|
|
|
|
|
|
|
2007 as
|
|
& dilution
|
|
Currency |
|
exchange |
|
and
|
|
lying
|
|
2008 as
|
|
Reported
|
|
Underlying
|
|
|
reported
|
|
gains |
1 |
translation |
2 |
rates |
3 |
disposals |
1
|
change
|
|
reported
|
|
change
|
|
change
|
|
Europe |
US$m
|
|
US$m
|
|
US$m
|
|
US$m
|
|
US$m
|
|
US$m
|
|
US$m
|
|
%
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
7,746
|
|
(390
|
) |
(224
|
) |
7,132
|
|
219
|
|
2,345
|
|
9,696
|
|
25
|
|
33
|
|
Net fee income
|
8,431
|
|
(134
|
) |
(244
|
) |
8,053
|
|
15
|
|
(576
|
) |
7,492
|
|
(11
|
) |
(7
|
) |
Other income4
|
11,390
|
|
(121
|
) |
(380
|
) |
10,889
|
|
3,007
|
|
(405
|
) |
13,491
|
|
18
|
|
(4
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income5
|
27,567
|
|
(645
|
) |
(848
|
) |
26,074
|
|
3,241
|
|
1,364
|
|
30,679
|
|
11
|
|
5
|
|
Loan impairment charges and other credit risk
provisions |
(2,542
|
) |
30
|
|
152
|
|
(2,360
|
) |
(6
|
) |
(1,388
|
) |
(3,754
|
) |
(48
|
) |
(59
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income |
25,025
|
|
(615
|
) |
(696
|
) |
23,714
|
|
3,235
|
|
(24
|
) |
26,925
|
|
8
|
|
|
|
Operating expenses
|
(16,525
|
) |
416
|
|
531
|
|
(15,578
|
) |
(88
|
) |
(406
|
) |
(16,072
|
) |
3
|
|
(3
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit |
8,500
|
|
(199
|
) |
(165
|
) |
8,136
|
|
3,147
|
|
(430
|
) |
10,853
|
|
28
|
|
(5
|
) |
Income from associates
|
95
|
|
(12
|
) |
14
|
|
97
|
|
|
|
(81
|
) |
16
|
|
(83
|
) |
(84
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit before tax |
8,595
|
|
(211
|
) |
(151
|
) |
8,233
|
|
3,147
|
|
(511
|
) |
10,869
|
|
26
|
|
(6
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For footnotes, see page
143.
|
|
|
Review of business performance
HSBCs European operations reported a pre-tax profit of US$10.9 billion, compared with US$8.6 billion in 2007, an increase of 26 per cent.
These results included gains of US$2.4 billion on the disposal of seven regional banks in France in July 2008, and of US$425 million on the sale of the card acquiring business in the UK
to a joint venture with Global Payments, Inc. in June 2008. Excluding these disposals and, in 2007, the acquisition of HSBC Assurances and the disposal of Hamilton Insurance Company Limited and Hamilton Life Assurance Company Limited and substantial
fair value gains on own debt, underlying pre-tax profits fell by 33 per cent. This primarily reflected a sharp decline in Global Banking and Markets revenues, which was mainly attributable to the deterioration in credit markets, the continuing
illiquidity in asset-backed securities markets which led to further
write-downs, and a US$854 million charge within the equities business following the alleged fraud at Madoff Securities. Personal Financial Services and Private Banking delivered underlying growth.
Net interest income increased by 33 per cent. There was significant growth in Balance Sheet Management revenues, which reflected favourable interest rate
risk positioning in expectation of interest rate cuts by central banks. Net interest income also benefited from necessarily selective incremental lending as credit availability generally contracted. In Global Banking, net interest income was boosted
by improved spreads.
Falling confidence in the UK banking sector necessitated government intervention in a number of competitor banks. HSBC experienced a strong increase in customer numbers, with corresponding
growth in liability balances as the market turmoil intensified. The volume benefit was partially offset
91
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H S B C H O L D I
N G S P L C |
|
Report of the Directors: Operating and
Financial Review (continued) |
|
|
|
|
Geographical regions > Europe > 2008
/ 2007 |
by narrowing deposit spreads, as base rates were cut in the UK, and increased funding costs, principally for trading activities, in France. Higher net interest income from the expansion of credit card lending and commercial
loan portfolio growth in the small and mid-market customer segments in Turkey was partially offset by narrower spreads following credit card interest rate cap reductions by the central bank.
Net fee income fell by 7 per cent, with lower fees from mergers and acquisitions and equity capital markets due to origination and execution
difficulties, coupled with a rise in brokerage expenses in line with increased trading activity in France. Lower performance and management fees in the UK and France as the value of funds under management reduced, reflected the decline in global
equity markets. Increased customer acquisition partly offset this, with higher fees derived from growth in packaged accounts and transaction volumes in France and credit card fees in Turkey.
Trading income
was 20 per cent lower than in 2007, falling significantly in Global Banking
and Markets due to further write-downs on legacy exposures in credit, structured
credit derivatives and leveraged and acquisition finance caused by the ongoing
turmoil in the credit markets. In addition, a US$854 million charge was
taken in equities in respect of the alleged fraud at Madoff Securities. US$11.4
billion and US$2.4 billion of held-for-trading financial assets were reclassified
under revised IFRS rules as loans and receivables and available for sale,
respectively, preventing any further mark-to-market trading losses on these
assets. If these reclassifications had not been made, the profit before tax
would have been US$2.6 billion lower.
Excluding the write-downs on legacy exposures and
the charge relating to Madoff Securities, trading income grew by 11 per cent,
driven by a significant increase in foreign exchange revenues against the
backdrop of greater market volatility, and robust revenues in the Rates business,
which was positioned to take advantage of falling interest rates. The widening
of credit spreads, particularly in the second half of 2008, contributed to
fair value gains on structured liabilities and on credit protection bought
in the form of credit default swaps.
Net income from financial instruments designated at fair value increased by 36 per cent, primarily due to fair value gains from the effect of widening
credit spreads on certain fixed-rate long-term debt issued by HSBC Holdings. This movement was partly offset by a reduction in the value of assets held to meet liabilities under insurance and
investment contracts. The reduction in fair value of assets held to meet liabilities under unit-linked insurance contracts is offset by a corresponding reduction in Net insurance claims and liabilities to
policyholders. The fair value gains on HSBCs own debt will fully reverse over the life of the debt.
Gains less losses from financial investments of US$418 million were US$915 million lower than in 2007 as there were fewer disposal opportunities
in 2008 and the significant realisations from equity investments in the UK and France in 2007 did not recur. Gains largely reflected the sale of MasterCard shares in 2008.
Net earned insurance premiums increased by 22 per cent, largely due to growth in the Guaranteed Income Bond launched in June 2007 and the introduction of
enhanced death benefits to certain pension products in the UK. In France, HSBC Assurances performed well in a declining market, as the launch of new guaranteed rate products contributed to 3 per cent growth in gross earned premiums. However, net
earned insurance premiums fell following a significant re-insurance transaction undertaken in the first half of 2008.
Other operating income increased by 33 per cent. This was primarily due to recognition of the gain in respect of the purchase of the subsidiary of
Metrovacesa which owned the property and long leasehold land comprising 8 Canada Square, London. See Note 23 on the Financial Statements for further details. The growth in revenue also reflected the non-recurrence of a decrease in the value of PVIF
business in 2007 following regulatory changes to the rules governing the calculation of insurance liabilities. In addition, there was a favourable embedded value adjustment following HSBCs introduction of enhanced benefits to existing
commercial pension products in the first half of 2008. These benefits were partially offset by costs associated with the support of money market funds in the global asset management business.
Net insurance claims incurred and movement in liabilities to policyholders decreased by 5 per cent as a reduction in insurance liabilities reflected the
fall in value of market-linked funds. This was partially offset by an increase in liabilities following increased sales of the Guaranteed Income Bond and the implementation of FSA rule changes in 2007 which lowered the liability valuation on life
policies.
Loan impairment charges and credit risk provisions rose by 59 per cent to
US$3.8 billion; in the UK, primarily in Global Banking and Markets. The deteriorating credit environment resulted in a rise in loan impairment charges, largely reflecting an
92
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exposure to a single European property company, and additional credit risk provisions on debt securities held within the Groups available-for-sale portfolio, mainly in Solitaire Funding Limited
(Solitaire), a special purpose entity managed by HSBC. A modest improvement in the UK personal finance sector reflected the non-recurrence of a change in the methodology in the consumer finance business which resulted in a higher charge
in 2007. Excluding this factor, delinquency rates in cards were marginally higher and there was a rise in impairments in the consumer finance business driven by worsening economic conditions and credit quality deterioration, partly offset by action
taken to mitigate risk through the continued application of strict lending criteria and the sale of non-core credit card portfolios.
Credit conditions weakened in the commercial business and specific loan impairment charges increased in the UK and France due to the deteriorating credit environment in the second half of 2008.
In Turkey, credit card and personal loan delinquency rates were significantly higher, resulting in the implementation of tighter underwriting criteria, reduced credit limits and revised account management policies throughout 2008.
Operating costs increased by 3 per cent to US$16.1 billion. Costs in the UK were in line with 2007, which included ex-gratia payments expensed in
respect of overdraft fees applied in previous years and a provision for reimbursement of certain charges on historic will trusts and other related services. Excluding these items, costs rose as a result of an increase in the Financial Services
Compensation Scheme levy, restructuring costs and increased rental charges following the sale and leaseback of branch properties, partially offset by lower performance-related pay and a reduction in defined benefit pension scheme costs due to a
change in actuarial assumptions.
Operating costs in France decreased slightly with lower performance-related pay and a reduction in pension and retirement healthcare costs following the transfer of certain obligations to a
third-party offsetting the higher costs of a voluntary retirement programme.
There was investment in premises and new staff to support business expansion in Turkey, Russia and central and eastern Europe. In 2008, 112 new branches opened and staff numbers increased by 30
per cent in these markets.
Share of profit in associates and joint ventures declined by 84 per cent to US$16 million with 2007
benefiting from an adjustment to the embedded value of HSBC Assurances. The absence of this gain was partially offset by increased joint venture profits following the sale of the card acquiring business in the UK.
2007 compared with 2006
Economic briefing
In the UK, GDP growth accelerated in 2007 to 3.1 per cent from 2.9 per cent in 2006, mainly as a result of buoyant consumer and investment spending.
Net trade depressed GDP growth through 2007, and the current account deficit reached a record 5.7 per cent of GDP in the third quarter of the year. Employment growth was fairly subdued, rising by approximately 0.7 per cent during the year. CPI
inflation reached a decade-long high of 3.1 per cent in March but subsequently fell back to 2.1 per cent by the year-end, close to the Bank of Englands 2 per cent target. After a strong start to the year, nominal house prices declined and
housing activity diminished in the final months of 2007. The Bank of England raised interest rates by 75 basis points during 2007 to a peak of 5.75 per cent, but subsequently reduced them to 5.5 per cent at the end of 2007.
The expansion of the eurozone economy continued steadily in 2007, with GDP growth of 2.7 per cent. As in the UK, much of
the momentum came from strength in business investment and exports as global demand remained strong, particularly from emerging markets. Consumption was relatively subdued, despite declining unemployment, although fiscal reforms (particularly in
Germany) are believed to have depressed household expenditure. Eurozone inflation increased steadily during the second half of the year to an annual rate of 3.1 per cent in December, driven largely by rises in food and energy prices. The European
Central Bank (ECB) raised interest rates by 50 basis points during 2007, to finish the year at 4 per cent.
Review of business performance
European operations reported a pre-tax profit of US$8.6 billion, compared with US$7.0 billion in 2006, an increase of 23 per cent. On an underlying basis, pre-tax profits improved by 13 per cent.
In March 2007, HSBC acquired its partners shares in life, property and casualty insurer, HSBC Assurances. The results of HSBC Assurances are excluded from the commentary below, which is
on an underlying basis.
93
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H S B C H O L D I
N G S P L C |
|
Report of the Directors: Operating and Financial Review (continued) |
|
|
|
|
Geographical regions > Europe > 2007 |
Reconciliation of reported and underlying profit before tax
|
2007 compared with 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
2006
|
|
acquisitions,
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
acquisitions
|
|
|
|
at 2007
|
|
disposals
|
|
Under-
|
|
2007
|
|
Re-
|
|
Under-
|
|
|
as
|
|
and
|
|
Currency
|
|
exchange
|
|
& dilution
|
|
lying
|
|
as
|
|
ported
|
|
lying
|
|
|
reported
|
|
disposals |
1 |
translation |
2
|
rates
|
6
|
gains |
1 |
change
|
|
reported
|
|
change
|
|
change
|
|
Europe |
US$m
|
|
US$m
|
|
US$m
|
|
US$m
|
|
US$m
|
|
US$m
|
|
US$m
|
|
%
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
8,289
|
|
(3
|
) |
635
|
|
8,921
|
|
419
|
|
(1,594
|
) |
7,746
|
|
(7
|
) |
(18
|
) |
Net fee income |
7,108
|
|
53
|
|
586
|
|
7,747
|
|
(133
|
) |
817
|
|
8,431
|
|
19
|
|
11
|
|
Other income4 |
7,675
|
|
(53
|
) |
576
|
|
8,198
|
|
(90
|
) |
3,282
|
|
11,390
|
|
48
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income5 |
23,072
|
|
(3
|
) |
1,797
|
|
24,866
|
|
196
|
|
2,505
|
|
27,567
|
|
19
|
|
10
|
|
Loan
impairment charges and other credit
risk provisions |
(2,155
|
) |
|
|
(147
|
) |
(2,302
|
) |
|
|
(240
|
) |
(2,542
|
) |
(18
|
) |
(10
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income |
20,917
|
|
(3
|
) |
1,650
|
|
22,564
|
|
196
|
|
2,265
|
|
25,025
|
|
20
|
|
10
|
|
Operating expenses |
(13,871
|
) |
2
|
|
(1,076
|
) |
(14,945
|
) |
(51
|
) |
(1,529
|
) |
(16,525
|
) |
(19
|
) |
(10
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit |
7,046
|
|
(1
|
) |
574
|
|
7,619
|
|
145
|
|
736
|
|
8,500
|
|
21
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(expense) from associates |
(72
|
) |
|
|
(6
|
) |
(78
|
) |
(50
|
) |
223
|
|
95
|
|
232
|
|
286
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit before tax |
6,974
|
|
(1
|
) |
568
|
|
7,541
|
|
95
|
|
959
|
|
8,595
|
|
23
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For footnotes,
see page 143. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In Commercial Banking, growth in deposit and lending balances in the UK and ongoing business expansion in Turkey and Malta led to steady growth in revenues. This was partly offset by increased
loan impairment charges and higher costs associated with business expansion. In Global Banking and Markets, higher income from most businesses was offset by trading losses in Credit and Rates and increased costs. Strong profit growth in Private
Banking was driven by an increased client appetite for discretionary portfolios, a rise in lending volumes and further improvements in cross-referrals. In Personal Financial Services, a fall in pre-tax profits reflected ex gratia payments expensed
in respect of overdraft fees applied in previous years and a provision for reimbursement of certain charges on historic will trusts and other related services. The Other segment benefited from a US$1.3 billion fair value gain in
HSBCs own debt.
Net interest income declined by 18 per cent, mainly because the expansion of trading activities in both the UK and France resulted in higher funding
costs, with the related revenues reported in the trading income line. This was partly offset by higher net interest income in the personal and commercial businesses.
In the UK, Personal Financial Services spreads widened in a rising interest rate environment and competitive pricing attracted higher balances. This was mitigated by lower spreads on
mortgages as customers switched to fixed rate products. In
Commercial Banking, higher net interest income was largely driven by growth in the UK, Turkey, Germany and Malta. In the UK, a negotiated rate deposit product launched in previous years continued to be instrumental in
driving higher deposit balances. Strong growth in corporate and structured banking for micro customers, together with expansion in lending to small and mid-market customers, contributed to higher lending balances although this benefit was partially
constrained by spread compression in the competitive market.
Revenues from transactional balances held within the payments and cash management business increased by 13 per cent, as credit market dislocation in the second half of the year caused customers
to hold higher cash balances. After several years of decline, balance sheet management revenues in Europe increased.
In Turkey, higher net interest income was driven by new customer acquisition. In Switzerland, the Private Banking business earned higher net interest income from lending to existing clients as
they further leveraged their portfolios.
Net fee income rose by 11 per cent. Account services increased on higher customer balances and volumes of transactions in the UK and France, supported by
sales of fee-earning packaged accounts. Card fees increased in the UK, mainly on interchange and acquiring fees, and in Turkey, on interchange and cash advance fees. This was partly offset by a reduction in credit card default fees in the
94
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UK following regulatory intervention by the OFT in 2006. Broking income increased in the UK, Germany and Switzerland, mainly driven by growth in client assets and transaction volumes. Funds under management fell on lower
income from the Hermitage Fund following the part sale of HSBCs investment in it.
Trading income rose by 41 per cent, driven by the equities business and foreign exchange trading, where income increased strongly, with volume and
profitability reflecting market volatility. The increase was partly offset by write-downs in credit, structured derivatives and leveraged and acquisition finance. Net trading income increased following the strategic decision to expand the
collateralised lending and structured derivatives businesses, the funding costs of which are reported in net interest income.
Credit spreads, primarily on certain fixed-rate long-term debt issued by HSBC Holdings and its subsidiaries, widened significantly in the second half of 2007, leading to a sevenfold increase in
net income from financial instruments designated at fair value compared with 2006. These cumulative gains will fully reverse over the life of the debt.
The sale of shareholdings and various equity investments in the UK and France, including Euronext (the European stock exchange), contributed to gains from
financial investments of US$1.3 billion, an increase of 101 per cent on 2006.
Net earned insurance premiums increased by 50 per cent to US$4.0 billion, including growth of the Guaranteed Income Bond and motor insurance, and the
introduction of enhanced death benefits to pension contracts in the UK. Premiums also grew in the UK because of a higher retention of risk in the non-life business compared with 2006, when a greater proportion of risk and corresponding premiums were
ceded to reinsurers. There were also significant contributions from the reinsurance business in Ireland and the life assurance business in Malta.
Other operating income declined by 25 per cent. This largely resulted from a fall in the value of in-force business in UK insurance, driven by a change
in the calculation methodology of the PVIF business in the first half of 2007 when HSBC implemented regulatory changes to the rules governing the
calculation of insurance liabilities. This had a marginally positive effect on profit as there was a corresponding reduction in policyholder liabilities.
Net insurance claims incurred and movement in liabilities to policyholders grew by 121 per cent to US$3.5 billion. This growth, which paralleled the
growth in net earned insurance premiums, included the effect of higher risk retention in the non-life business, although it was offset by FSA rule changes which led to lower claims valuations on life policies. There was also a rise in flood-related
claims in the UK after record rainfalls during the summer.
Loan impairment charges rose by 10 per cent to US$2.5 billion. Overall credit quality remained broadly stable. In the UK, loan impairment charges
rose, primarily in consumer finance lending outside HSBC Bank; within HSBC Bank, steps taken in 2006 to tighten underwriting standards led to an improvement in loan impairment trends. Corporate loan impairment charges remained low in absolute terms,
although they were 23 per cent higher than in 2006, principally reflecting the effect of Individual Voluntary Arrangements on micro businesses and impairments on two large corporate accounts in the UK.
Operating costs increased by 10 per cent to US$16.5 billion, in line with the growth in net operating income before loan impairment charges. In the
UK, a change in actuarial assumptions regarding the principal staff defined benefit pension scheme led to increased costs. Ex-gratia payments were expensed in respect of overdraft fees applied in previous years and a provision for reimbursement of
certain charges on historic will trusts and other related services was raised which totalled US$396 million. Cost increases also reflected investments in technology, higher payments and cash management transaction volumes, investments in the
French structured derivatives business to support revenue growth and, in Turkey, technical infrastructure and additional headcount in support of business expansion.
Share of profit in associates and joint ventures rose by US$167 million, largely as a result of a US$73 million adjustment to the embedded value
of HSBC Assurances in France prior to the acquisition of its remaining share capital, following which it was accounted for as a subsidiary.
95
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H S B C H O L D I
N G S P L C |
|
Report of the Directors: Operating
and Financial Review (continued) |
|
|
|
|
Geographical regions > Europe > Profit/(loss) before tax by customer group |
Analysis by customer group and global business
Profit/(loss) before tax
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personal
|
|
|
|
|
|
Global
|
|
|
|
|
|
|
|
|
Inter-
|
|
|
|
|
|
Financial
|
|
|
Commercial
|
|
|
Banking & |
|
|
Private
|
|
|
|
|
|
segment
|
|
|
|
|
|
Services
|
|
|
Banking
|
|
|
Markets
|
|
|
Banking
|
|
|
Other
|
|
|
elimination
|
21
|
|
Total
|
|
Europe |
US$m
|
|
|
US$m
|
|
|
US$m
|
|
|
US$m
|
|
|
US$m
|
|
|
US$m
|
|
|
US$m
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income/(expense) |
6,464
|
|
|
3,435
|
|
|
3,488
|
|
|
1,046
|
|
|
(459
|
) |
|
(4,278
|
) |
|
9,696
|
|
Net fee income |
2,612
|
|
|
2,025
|
|
|
1,763
|
|
|
1,020
|
|
|
72
|
|
|
|
|
|
7,492
|
|
Trading
income/(expense) excluding net interest income |
47
|
|
|
71
|
|
|
1,513
|
|
|
198
|
|
|
(138
|
) |
|
|
|
|
1,691
|
|
Net
interest income/(expense) on
trading activities |
|
|
|
12
|
|
|
(655
|
) |
|
14
|
|
|
17
|
|
|
4,278
|
|
|
3,666
|
|
Net trading income/(expense)16 |
47
|
|
|
83
|
|
|
858
|
|
|
212
|
|
|
(121
|
) |
|
4,278
|
|
|
5,357
|
|
Changes
in fair value of long-term debt issued
and related derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
2,939
|
|
|
|
|
|
2,939
|
|
Net
income/(expense) from other financial
instruments designated at fair
value |
(1,634
|
) |
|
(214
|
) |
|
(611
|
) |
|
|
|
|
633
|
|
|
|
|
|
(1,826
|
) |
Net
income/(expense) from financial
instruments designated
at fair value |
(1,634
|
) |
|
(214
|
) |
|
(611
|
) |
|
|
|
|
3,572
|
|
|
|
|
|
1,113
|
|
Gains less losses
from financial investments |
281
|
|
|
132
|
|
|
(30
|
) |
|
62
|
|
|
(27
|
) |
|
|
|
|
418
|
|
Dividend income |
35
|
|
|
74
|
|
|
25
|
|
|
5
|
|
|
(9
|
) |
|
|
|
|
130
|
|
Net earned insurance premiums . |
4,927
|
|
|
391
|
|
|
|
|
|
|
|
|
(19
|
) |
|
|
|
|
5,299
|
|
Gains on disposal of French regional
banks |
|
|
|
|
|
|
|
|
|
|
|
|
2,445
|
|
|
|
|
|
2,445
|
|
Other operating income |
230
|
|
|
620
|
|
|
398
|
|
|
16
|
|
|
832
|
|
|
|
|
|
2,096
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income |
12,962
|
|
|
6,546
|
|
|
5,891
|
|
|
2,361
|
|
|
6,286
|
|
|
|
|
|
34,046
|
|
Net insurance claims17 |
(3,224
|
) |
|
(143
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,367
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income5
|
9,738
|
|
|
6,403
|
|
|
5,891
|
|
|
2,361
|
|
|
6,286
|
|
|
|
|
|
30,679
|
|
Loan impairment charges and other
credit risk provisions |
(1,971
|
) |
|
(867
|
) |
|
(875
|
) |
|
(38
|
) |
|
(3
|
) |
|
|
|
|
(3,754
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income |
7,767
|
|
|
5,536
|
|
|
5,016
|
|
|
2,323
|
|
|
6,283
|
|
|
|
|
|
26,925
|
|
Total operating expenses |
(6,107
|
) |
|
(2,830
|
) |
|
(4,823
|
) |
|
(1,325
|
) |
|
(987
|
) |
|
|
|
|
(16,072
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit |
1,660
|
|
|
2,706
|
|
|
193
|
|
|
998
|
|
|
5,296
|
|
|
|
|
|
10,853
|
|
Share of profit/(loss) in associates
and joint ventures |
(2
|
) |
|
16
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit before tax |
1,658
|
|
|
2,722
|
|
|
195
|
|
|
998
|
|
|
5,296
|
|
|
|
|
|
10,869
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
%
|
|
|
%
|
|
|
%
|
|
|
%
|
|
|
%
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share of HSBCs
profit before tax |
17.8
|
|
|
29.2
|
|
|
2.1
|
|
|
10.7
|
|
|
56.9
|
|
|
|
|
|
116.7
|
|
Cost efficiency ratio |
62.7
|
|
|
44.2
|
|
|
81.9
|
|
|
56.1
|
|
|
15.7
|
|
|
|
|
|
52.4
|
|
|
Balance sheet data15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US$m
|
|
|
US$m
|
|
|
US$m
|
|
|
US$m
|
|
|
US$m
|
|
|
|
|
|
US$m
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans and advances
to customers (net) |
126,909
|
|
|
87,245
|
|
|
185,818
|
|
|
25,722
|
|
|
497
|
|
|
|
|
|
426,191
|
|
Total assets |
171,962
|
|
|
107,495
|
|
|
1,131,721
|
|
|
84,485
|
|
|
64,423
|
|
|
(217,075
|
) |
|
1,343,011
|
|
Customer accounts |
145,411
|
|
|
91,188
|
|
|
199,687
|
|
|
66,007
|
|
|
183
|
|
|
|
|
|
502,476
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For footnotes, see page 143. |
96
Back to Contents
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personal
|
|
|
|
|
|
Global
|
|
|
|
|
|
|
|
|
Inter-
|
|
|
|
|
|
Financial
|
|
|
Commercial
|
|
|
Banking &
|
|
|
Private
|
|
|
|
|
|
segment
|
|
|
|
|
|
Services
|
|
|
Banking
|
|
|
Markets
|
|
|
Banking
|
|
|
Other
|
|
|
elimination
|
21
|
|
Total
|
|
Europe |
US$m
|
|
|
US$m
|
|
|
US$m
|
|
|
US$m
|
|
|
US$m
|
|
|
US$m
|
|
|
US$m
|
|
|
Net interest income |
6,604
|
|
|
3,419
|
|
|
1,361
|
|
|
793
|
|
|
86
|
|
|
(4,517
|
) |
|
7,746
|
|
Net fee income/(expense) |
3,060
|
|
|
2,194
|
|
|
2,316
|
|
|
1,032
|
|
|
(171
|
) |
|
|
|
|
8,431
|
|
Trading
income excluding net interest income |
60
|
|
|
36
|
|
|
2,657
|
|
|
161
|
|
|
89
|
|
|
|
|
|
3,003
|
|
Net
interest income/(expense) on trading
activities |
(7
|
) |
|
30
|
|
|
(610
|
) |
|
9
|
|
|
1
|
|
|
4,517
|
|
|
3,940
|
|
Net trading income16 |
53
|
|
|
66
|
|
|
2,047
|
|
|
170
|
|
|
90
|
|
|
4,517
|
|
|
6,943
|
|
Changes
in fair value of long- term debt issued
and related derivatives |
|
|
|
|
|
|
|
|
|
|
|
|
1,059
|
|
|
|
|
|
1,059
|
|
Net
income/(expense) from other financial
instruments designated
at fair value |
126
|
|
|
31
|
|
|
(185
|
) |
|
|
|
|
195
|
|
|
|
|
|
167
|
|
Net
income/(expense) from financial instruments designated
at fair value |
126
|
|
|
31
|
|
|
(185
|
) |
|
|
|
|
1,254
|
|
|
|
|
|
1,226
|
|
Gains
less losses from financial investments |
50
|
|
|
36
|
|
|
1,100
|
|
|
115
|
|
|
25
|
|
|
|
|
|
1,326
|
|
Dividend income |
1
|
|
|
4
|
|
|
155
|
|
|
7
|
|
|
4
|
|
|
|
|
|
171
|
|
Net earned insurance premiums . |
3,511
|
|
|
521
|
|
|
|
|
|
|
|
|
(22
|
) |
|
|
|
|
4,010
|
|
Other operating
income/ (expense) |
54
|
|
|
(35
|
) |
|
853
|
|
|
8
|
|
|
301
|
|
|
12
|
|
|
1,193
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income |
13,459
|
|
|
6,236
|
|
|
7,647
|
|
|
2,125
|
|
|
1,567
|
|
|
12
|
|
|
31,046
|
|
Net insurance claims17 |
(3,214
|
) |
|
(265
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,479
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income5 |
10,245
|
|
|
5,971
|
|
|
7,647
|
|
|
2,125
|
|
|
1,567
|
|
|
12
|
|
|
27,567
|
|
Loan
impairment (charges)/recoveries and other credit risk
provisions |
(2,044
|
) |
|
(515
|
) |
|
26
|
|
|
(4
|
) |
|
(5
|
) |
|
|
|
|
(2,542
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income |
8,201
|
|
|
5,456
|
|
|
7,673
|
|
|
2,121
|
|
|
1,562
|
|
|
12
|
|
|
25,025
|
|
Total operating expenses |
(6,635
|
) |
|
(2,941
|
) |
|
(5,150
|
) |
|
(1,208
|
) |
|
(579
|
) |
|
(12
|
) |
|
(16,525
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit |
1,566
|
|
|
2,515
|
|
|
2,523
|
|
|
913
|
|
|
983
|
|
|
|
|
|
8,500
|
|
Share
of profit in associates and joint ventures |
15
|
|
|
1
|
|
|
4
|
|
|
2
|
|
|
73
|
|
|
|
|
|
95
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit before tax |
1,581
|
|
|
2,516
|
|
|
2,527
|
|
|
915
|
|
|
1,056
|
|
|
|
|
|
8,595
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
%
|
|
|
%
|
|
|
%
|
|
|
%
|
|
|
%
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share of HSBCs
profitbefore tax |
6.5
|
|
|
10.4
|
|
|
10.4
|
|
|
3.8
|
|
|
4.4
|
|
|
|
|
|
35.5
|
|
Cost efficiency ratio |
64.8
|
|
|
49.3
|
|
|
67.3
|
|
|
56.8
|
|
|
36.9
|
|
|
|
|
|
59.9
|
|
|
Balance sheet data15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US$m
|
|
|
US$m
|
|
|
US$m
|
|
|
US$m
|
|
|
US$m
|
|
|
|
|
|
US$m
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans and advances
to customers (net) |
151,687
|
|
|
106,846
|
|
|
163,066
|
|
|
30,195
|
|
|
481
|
|
|
|
|
|
452,275
|
|
Total assets |
240,361
|
|
|
168,846
|
|
|
892,712
|
|
|
83,740
|
|
|
96,346
|
|
|
(245,372
|
) |
|
1,236,633
|
|
Customer accounts |
178,757
|
|
|
99,704
|
|
|
163,713
|
|
|
62,055
|
|
|
725
|
|
|
|
|
|
504,954
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For footnotes, see page 143. |
97
Back to Contents
H S B C H O L D I
N G S P L C |
|
Report of the Directors: Operating
and Financial Review (continued) |
|
|
|
|
Geographical regions > Europe > Profit/(loss) before tax by customer group // Hong Kong |
Analysis by customer group and global business (continued)
Profit/(loss) before tax
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personal
|
|
|
|
|
|
Global
|
|
|
|
|
|
|
|
|
Inter-
|
|
|
|
|
|
Financial
|
|
|
Commercial
|
|
|
Banking &
|
|
|
Private
|
|
|
|
|
|
segment
|
|
|
|
|
|
Services
|
|
|
Banking
|
|
|
Markets
|
|
|
Banking
|
|
|
Other
|
|
|
elimination
|
21
|
|
Total
|
|
Europe |
US$m
|
|
|
US$m
|
|
|
US$m
|
|
|
US$m
|
|
|
US$m
|
|
|
US$m
|
|
|
US$m
|
|
|
Net interest income |
5,653
|
|
|
2,923
|
|
|
1,222
|
|
|
675
|
|
|
14
|
|
|
(2,198
|
) |
|
8,289
|
|
Net fee income |
2,533
|
|
|
1,707
|
|
|
1,673
|
|
|
869
|
|
|
326
|
|
|
|
|
|
7,108
|
|
Trading
income/(expense) excluding net interest
income |
119
|
|
|
27
|
|
|
2,636
|
|
|
99
|
|
|
(39
|
) |
|
|
|
|
2,842
|
|
Net
interest income/(expense) on trading
activities |
(6
|
) |
|
15
|
|
|
(523
|
) |
|
2
|
|
|
1
|
|
|
2,198
|
|
|
1,687
|
|
Net trading income/(expense)16 |
113
|
|
|
42
|
|
|
2,113
|
|
|
101
|
|
|
(38
|
) |
|
2,198
|
|
|
4,529
|
|
Changes
in fair value of long-term debt issued
and related derivatives |
|
|
|
|
|
|
|
|
|
|
|
|
28
|
|
|
|
|
|
28
|
|
Net
income/(expense) from other financial
instruments designated at fair value |
80
|
|
|
27
|
|
|
11
|
|
|
|
|
|
(2
|
) |
|
|
|
|
116
|
|
Net
income/(expense) from financial instruments designated
at fair value |
80
|
|
|
27
|
|
|
11
|
|
|
|
|
|
26
|
|
|
|
|
|
144
|
|
Gains less losses from financial investments |
37
|
|
|
22
|
|
|
413
|
|
|
149
|
|
|
3
|
|
|
|
|
|
624
|
|
Dividend income |
2
|
|
|
3
|
|
|
171
|
|
|
5
|
|
|
2
|
|
|
|
|
|
183
|
|
Net earned insurance premiums . |
979
|
|
|
110
|
|
|
|
|
|
|
|
|
209
|
|
|
|
|
|
1,298
|
|
Other operating income |
128
|
|
|
103
|
|
|
957
|
|
|
13
|
|
|
256
|
|
|
(29
|
) |
|
1,428
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income |
9,525
|
|
|
4,937
|
|
|
6,560
|
|
|
1,812
|
|
|
798
|
|
|
(29
|
) |
|
23,603
|
|
Net insurance claims17 |
(331
|
) |
|
(19
|
) |
|
|
|
|
|
|
|
(181
|
) |
|
|
|
|
(531
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income5 |
9,194
|
|
|
4,918
|
|
|
6,560
|
|
|
1,812
|
|
|
617
|
|
|
(29
|
) |
|
23,072
|
|
Loan
impairment (charges)/recoveries and
other credit risk provisions |
(1,838
|
) |
|
(386
|
) |
|
64
|
|
|
2
|
|
|
3
|
|
|
|
|
|
(2,155
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income |
7,356
|
|
|
4,532
|
|
|
6,624
|
|
|
1,814
|
|
|
620
|
|
|
(29
|
) |
|
20,917
|
|
Total operating expenses |
(5,447
|
) |
|
(2,298
|
) |
|
(4,224
|
) |
|
(1,010
|
) |
|
(921
|
) |
|
29
|
|
|
(13,871
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit/(loss) |
1,909
|
|
|
2,234
|
|
|
2,400
|
|
|
804
|
|
|
(301
|
) |
|
|
|
|
7,046
|
|
Share
of profit/(loss) in associates and
joint ventures |
|
|
|
|
|
|
(96
|
) |
|
1
|
|
|
23
|
|
|
|
|
|
(72
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit/(loss) before tax |
1,909
|
|
|
2,234
|
|
|
2,304
|
|
|
805
|
|
|
(278
|
) |
|
|
|
|
6,974
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
%
|
|
|
%
|
|
|
%
|
|
|
%
|
|
|
%
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share of HSBCs
profit before tax |
8.6
|
|
|
10.1
|
|
|
10.4
|
|
|
3.6
|
|
|
(1.2
|
) |
|
|
|
|
31.5
|
|
Cost efficiency ratio |
59.2
|
|
|
46.7
|
|
|
64.4
|
|
|
55.7
|
|
|
149.3
|
|
|
|
|
|
60.1
|
|
|
Balance sheet data15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US$m
|
|
|
US$m
|
|
|
US$m
|
|
|
US$m
|
|
|
US$m
|
|
|
|
|
|
US$m
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans and advances
to customers (net) |
147,507
|
|
|
81,430
|
|
|
140,277
|
|
|
23,283
|
|
|
2
|
|
|
|
|
|
392,499
|
|
Total assets |
227,609
|
|
|
111,510
|
|
|
526,468
|
|
|
68,380
|
|
|
85,183
|
|
|
(152,118
|
) |
|
867,032
|
|
Customer accounts |
152,411
|
|
|
80,312
|
|
|
139,416
|
|
|
47,223
|
|
|
3
|
|
|
|
|
|
419,365
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For footnotes, see page 143. |
98
Back to Contents
Hong Kong
Profit/(loss) before tax by customer group and global
business
|
2008 |
|
2007 |
|
2006 |
|
|
US$m |
|
US$m |
|
US$m |
|
|
|
|
|
|
|
|
Personal Financial
Services |
3,428
|
|
4,212
|
|
2,880
|
|
Commercial Banking |
1,315 |
|
1,619 |
|
1,321 |
|
Global Banking
and Markets |
1,436
|
|
1,578
|
|
955 |
|
Private Banking |
237 |
|
305 |
|
201 |
|
Other |
(955
|
) |
(375 |
) |
(175 |
) |
|
|
|
|
|
|
|
|
5,461
|
|
7,339
|
|
5,182
|
|
|
|
|
|
|
|
|
Profit before tax
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
5,698
|
|
|
5,483
|
|
|
4,685
|
|
|
Net fee income |
2,580 |
|
|
3,362 |
|
|
2,056 |
|
|
Net trading income |
1,193
|
|
|
1,242
|
|
|
617 |
|
|
Changes in fair value of long-term
debt issued and related derivatives |
3
|
|
|
2 |
|
|
|
|
|
Net
income/(expense) from other financial instruments designated at fair
value |
(1,194
|
) |
|
674 |
|
|
260 |
|
|
Net income/(expense) from financial
instruments designated at fair value |
(1,191 |
) |
|
676 |
|
|
260 |
|
|
Gains less losses
from financial investments |
(309
|
) |
|
94 |
|
|
162 |
|
|
Dividend income |
41 |
|
|
31 |
|
|
61 |
|
|
Net earned insurance
premiums |
3,247
|
|
|
2,797
|
|
|
2,628
|
|
|
Other operating income |
817 |
|
|
845 |
|
|
834 |
|
|
|
|
|
|
|
|
|
|
|
|
Total operating
income |
12,076
|
|
|
14,530
|
|
|
11,303
|
|
|
Net insurance
claims incurred and movement in liabilities to policyholders |
(1,922 |
) |
|
(3,208 |
) |
|
(2,699 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net
operating income before loan impairment charges and other credit
risk provisions |
10,154
|
|
|
11,322
|
|
|
8,604
|
|
|
Loan impairment charges and other
credit risk provisions |
(765 |
) |
|
(231 |
) |
|
(172 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net operating
income |
9,389
|
|
|
11,091
|
|
|
8,432
|
|
|
Total operating expenses |
(3,943 |
) |
|
(3,780 |
) |
|
(3,269 |
) |
|
|
|
|
|
|
|
|
|
|
|
Operating profit |
5,446
|
|
|
7,311
|
|
|
5,163
|
|
|
Share of profit in associates and
joint ventures |
15 |
|
|
28 |
|
|
19 |
|
|
|
|
|
|
|
|
|
|
|
|
Profit before
tax |
5,461
|
|
|
7,339
|
|
|
5,182
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% |
|
|
% |
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
Share of HSBCs
profit before tax |
58.7
|
|
|
30.3 |
|
|
23.5 |
|
|
Cost efficiency ratio |
38.8 |
|
|
33.4 |
|
|
38.0 |
|
|
Year-end staff
numbers (full-time equivalent) |
29,330
|
|
|
27,655
|
|
|
27,586
|
|
|
Balance sheet data15
|
At 31 December |
|
|
|
|
|
|
|
|
|
2008 |
|
2007 |
|
2006 |
|
|
US$m |
|
US$m |
|
US$m |
|
|
|
|
|
|
|
|
Loans and advances
to customers (net) |
100,220 |
|
89,638 |
|
84,282 |
|
Loans and advances to banks (net) |
29,646 |
|
63,737 |
|
50,359 |
|
Trading assets,
financial assets designated at fair value, and financial
investments |
122,602 |
|
102,180 |
|
103,734 |
|
Total assets |
407,151 |
|
356,894 |
|
318,857 |
|
Deposits by banks |
11,769 |
|
6,420 |
|
4,799 |
|
Customer accounts |
250,517 |
|
234,488 |
|
196,691 |
|
For footnote, see page 143.
All commentaries on Hong Kong are on
an underlying basis unless stated otherwise.
99
Back to Contents
H S B C H O L D I
N G S P L C |
|
Report of the Directors: Operating and
Financial Review (continued) |
|
|
|
|
Geographical regions > Hong
Kong > 2008 / 2007 |
2008 compared with 2007
Economic briefing
Hong Kongs
GDP growth slowed to 2.5 per cent in 2008 from 6.4 per cent in 2007. After performing
strongly during the early months of the year, the economy slowed sharply and
a technical recession was confirmed with the release of the third quarter GDP
statistics. External demand proved especially weak during the second half of
2008 and the growth in private consumption also slowed sharply. The unemployment
rate rose from a ten-year low of
3.2 per cent in August 2008 to 4.1 per cent by the year-end. Consumer price inflation proved volatile during the year, rising to a ten-year high of 6.3 per cent in July before slowing to 2.1 per cent by December 2008,
although this movement largely reflected the trends in food and energy prices. In response to interest rate cuts in the US, Hong Kong cut its base interest rate on seven occasions during 2008, finishing the year at 0.5 per cent compared with 5.75
per cent at the end of 2007. The Hang Seng Index fell by 48 per cent during 2008.
Reconciliation of reported and underlying profit
before tax
|
2008 compared with
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
acquisitions, |
|
|
|
2007 |
|
2008 |
|
|
|
|
|
|
|
|
|
|
2007 |
|
disposals |
|
|
|
at 2008 |
|
acquisitions |
|
Under- |
|
2008 |
|
Re- |
|
Under- |
|
|
as |
|
& dilution |
|
Currency |
|
exchange |
|
and |
|
lying |
|
as |
|
ported |
|
lying |
|
|
reported |
|
gains |
1 |
translation |
2 |
rates |
3 |
disposals |
1 |
change |
|
reported |
|
change |
|
change |
|
Hong Kong |
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
% |
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
5,483 |
|
|
|
15 |
|
5,498 |
|
|
|
200 |
|
5,698 |
|
4 |
|
4 |
|
Net fee income |
3,362 |
|
|
|
9 |
|
3,371 |
|
|
|
(791 |
) |
2,580 |
|
(23 |
) |
(23 |
) |
Other income4 |
2,477 |
|
(1 |
) |
3 |
|
2,479 |
|
|
|
(603 |
) |
1,876 |
|
(24 |
) |
(24 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income5 |
11,322 |
|
(1 |
) |
27 |
|
11,348 |
|
|
|
(1,194 |
) |
10,154 |
|
(10 |
) |
(11 |
) |
Loan
impairment charges and other credit risk provisions |
(231 |
) |
1 |
|
(1 |
) |
(231 |
) |
|
|
(534 |
) |
(765 |
) |
(231 |
) |
(231 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income |
11,091 |
|
|
|
26 |
|
11,117 |
|
|
|
(1,728 |
) |
9,389 |
|
(15 |
) |
(16 |
) |
Operating expenses |
(3,780 |
) |
|
|
(9 |
) |
(3,789 |
) |
|
|
(154 |
) |
(3,943 |
) |
(4 |
) |
(4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit |
7,311 |
|
|
|
17 |
|
7,328 |
|
|
|
(1,882 |
) |
5,446 |
|
(26 |
) |
(26 |
) |
Income from associates |
28 |
|
|
|
|
|
28 |
|
|
|
(13 |
) |
15 |
|
(46 |
) |
(46 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit before tax |
7,339 |
|
|
|
17 |
|
7,356 |
|
|
|
(1,895 |
) |
5,461 |
|
(26 |
) |
(26 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For footnotes, see page 143.
Review of business performance
Hong Kong reported pre-tax profits of US$5.5
billion, a 26
per cent decline compared with record profits
of US$7.3 billion in 2007. Lower revenues largely reflected a decline in
wealth management and insurance income as economic conditions deteriorated.
Revenue decline was compounded by impairment charges recognised on certain
investments,
which arose as a consequence of significant falls in equity market prices.
Offsetting this, in part, was considerably stronger balance sheet management
income from
treasury positions which correctly anticipated the decline in interest rates.
Net interest income
rose by 4 per cent, driven by the strong Balance Sheet Management performance
in Global Banking and Markets mainly driven by liquidity generated by retail
banking in the environment of falling short-term interest rates.
Savings and deposit
balances grew strongly, particularly in Personal Financial Services, as customers
revealed a preference for security and liquidity following declines in equity
markets. Deposit growth was augmented by the launch of campaigns offering both
preferential time deposit rates and an enhanced HSBC online platform. The significant
decline in interest rates during 2008 led to a narrowing of deposit spreads.
Customer lending volumes
were 11 per cent higher, due in part to an 11 per cent rise in mortgage balances.
Lending margins narrowed, however, due to interest rate cuts, particularly affecting
mortgage lending and other loans linked to HIBOR. Balances outstanding on credit
cards rose, driven by increased cardholder spending, and spreads on this business
increased due to lower funding costs. Nearly one million new cards were issued
in the year, bringing the total cards in circulation to 5.3 million. Volumes
100
Back to Contents
of trade finance grew strongly, driven by demand
from corporates with international trade requirements, and commercial lending
balances rose, particularly during the first half of the year.
Fee income declined
by 23 per cent, driven by lower equity market-related revenues. Weak market
sentiment led to lower volumes of retail brokerage and a decrease in income
from wealth management activity. This was partly offset by a rise in fees
from cards following increases in both cards in circulation and cardholder
spending. Fees from account services rose due to greater customer activity
and there were higher fees generated from bundled products.
Trading income
was 4 per cent lower, driven by further
write-downs of US$0.2 billion in Global Banking and Markets on a legacy
monoline exposure. Excluding these write-downs, trading income grew due to
a rise in foreign exchange and rates income as continuing market volatility
generated increased trading opportunities and demand for active hedging products.
The net loss of US$1.2
billion on financial instruments designated
at fair value compared with income of US$676 million in 2007. The loss reflected
a decline in the value of assets linked to the insurance business. To a large
extent, these losses are attributable to policyholders, with an equivalent
reduction in net insurance claims and
movement in liabilities to policyholders.
While the decline in the value of assets which relate to unit-linked products
is allocated to policyholders in full, the portion of decline in the value
passed on to clients who have products with discretionary participation features
and guarantees may be restricted.
Losses from financial investments of US$309
million reflected impairments required on investments which have experienced
significant falls in equity market prices.
These equity investments are classified as available for sale, are not held
for trading, and remain part of the strategic positioning of HSBCs businesses
in Asia. These losses were partly offset by an aggregate gain of US$203
million from the redemption of shares in the Visa initial public offering
(IPO) and the disposal of MasterCard shares.
Net earned insurance
premiums increased by 16 per cent to
US$3.2 billion, largely due to growth in the life insurance business,
in particular for policies with discretionary participation features.
Net insurance claims
and movement in liabilities to policyholders fell
by 40 per cent, reflecting the decline in asset values noted above
partly offset by increases due to growth in premiums.
Loan impairment
charges and
other credit risk provisions rose markedly
from the previously low level to US$765 million as economic conditions
deteriorated. Within these charges were exposures to financial institutions
held within Global Banking and Markets, which resulted in other credit risk
provisions. In Commercial Banking, the combination of an absence of significant
recoveries recorded in 2007 and weakness among certain exporters in Hong Kong,
who were affected by reduced demand from the US and other developed countries,
raised loan impairment charges. As local businesses responded to the economic
environment, unemployment rose in the second half of 2008. Credit policies
were consequently adjusted across certain products as delinquency and bankruptcy
increased in Hong Kong. Although property market declines reduced equity levels
for residential mortgage customers, the impact on loan impairment charges
was limited as this lending was well-secured and regulatory restrictions constrained
origination loan-to-value ratios to below 70 per cent.
Operating expenses
rose by 4 per cent. Staff costs declined by 3 per cent despite wage increases
and a rise in the number of customer-facing staff, largely due to lower performance-related
costs in Global Banking and Markets. Staff numbers were higher than in 2007
notwithstanding reductions within the branch network for lower business volumes
in the latter part of 2008. IT costs rose as investment in systems continued.
Marketing costs were lower following active management of costs while property
rental costs increased due to higher market rental rates. Overall, cost growth
was curtailed in response to the more difficult economic climate.
2007 compared with 2006
Economic briefing
Hong Kongs
economy remained robust during 2007, with the annual rate of growth of 6.3
per cent. Domestic consumption was the major contributor to economic expansion,
supported by the strong labour market. The unemployment rate fell to 3.4 per
cent, a nine year low, as the supply of labour remained very tight. Global
increases in food and oil prices affected Hong Kong, but the territory also
experienced wage inflation, rising import prices and growth in property rental
costs. Inflation increased as a result, exceeding 3 per cent in the final
quarter of the year.
In response to interest
rate cuts in the US and capital inflows into the local market, Hong Kongs
101
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H S B C H O L D I
N G S P L C |
|
Report of the Directors: Operating and Financial Review (continued) |
|
|
|
|
Geographical regions > Hong Kong > 2007 |
main interest rate was cut on three separate occasions
during the final months of 2007, with the prime rate ending the year at 6.75
per cent, down by one per cent from its high for the year. Local asset markets
benefited accordingly. The previously very strong levels of export growth
slowed in the second half of 2007, as demand from the US moderated and
the reduction in mainland Chinas export tax
rebate in July temporarily affected Hong Kongs re-exports. Despite relatively
modest trade growth, external demand for Hong Kongs services remained
strong due to the buoyant tourism sector and increasing cross-border business
activities, especially within the financial sector.
Reconciliation of reported and underlying profit
before tax
|
2007 compared with
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
|
2006 |
|
acquisitions, |
|
|
|
|
|
|
|
|
|
|
2006 |
|
acquisitions |
|
|
|
at 2007 |
|
disposals |
|
Under- |
|
2007 |
|
Re- |
|
Under- |
|
|
as |
|
and |
|
Currency |
|
exchange |
|
& dilution |
|
lying |
|
as |
|
ported |
|
lying |
|
|
reported |
|
disposals |
1 |
translation |
2 |
rates |
6 |
gains |
1 |
change |
|
reported |
|
change |
|
change |
|
Hong Kong |
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
% |
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
4,685 |
|
|
|
(15 |
) |
4,670 |
|
|
|
813 |
|
5,483 |
|
17 |
|
17 |
|
Net fee income |
2,056 |
|
|
|
(6 |
) |
2,050 |
|
|
|
1,312 |
|
3,362 |
|
64 |
|
64 |
|
Other income4 |
1,863 |
|
|
|
(6 |
) |
1,857 |
|
|
|
620 |
|
2,477 |
|
33 |
|
33 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income5 |
8,604 |
|
|
|
(27 |
) |
8,577 |
|
|
|
2,745 |
|
11,322 |
|
32 |
|
32 |
|
Loan impairment charges and other credit risk provisions |
(172 |
) |
|
|
1 |
|
(171 |
) |
|
|
(60 |
) |
(231 |
) |
(34 |
) |
(35 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income |
8,432 |
|
|
|
(26 |
) |
8,406 |
|
|
|
2,685 |
|
11,091 |
|
32 |
|
32 |
|
Operating expenses |
(3,269 |
) |
|
|
9 |
|
(3,260 |
) |
|
|
(520 |
) |
(3,780 |
) |
(16 |
) |
(16 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit |
5,163 |
|
|
|
(17 |
) |
5,146 |
|
|
|
2,165 |
|
7,311 |
|
42 |
|
42 |
|
Income from associates |
19 |
|
|
|
|
|
19 |
|
|
|
9 |
|
28 |
|
47 |
|
47 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit before tax |
5,182 |
|
|
|
(17 |
) |
5,165 |
|
|
|
2,174 |
|
7,339 |
|
42 |
|
42 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For footnotes, see page 143.
|
|
|
Review of business performance
HSBCs operations in Hong Kong reported a record pre-tax profit of US$7.3 billion, an increase of 42 per cent compared with US$5.2 billion in 2006. The underlying change was in line with the reported change.
Net operating income increased by 32 per cent, double the rate of growth in operating expenses.
In Personal Financial Services, record results reflected increased fee income, particularly from retail brokerage and investment products, as well as growth in net interest income from higher
deposit balances and lending. In Commercial Banking, results were driven by balance sheet growth from customer acquisition, increased trade flows and the expansion of supporting businesses into mainland China. In Global Banking and Markets, income
growth reflected improved performance in balance sheet management and strong results from the trading businesses and securities services in the buoyant economic environment. Higher demand for structured products and mutual funds drove the increase
in Private Banking profits. Cost efficiency ratios improved in all customer groups.
Net interest income rose by 17 per cent, driven by growth in asset and liability products in the personal, commercial and corporate businesses. Net
interest income from Global Banking and Markets increased by 79 per cent as balance sheet management revenues recovered and deposits grew strongly with higher spreads. A rise in liabilities to fund trading activities reduced net interest income,
with a corresponding rise in trading income. Personal Financial Services net interest income grew by 16 per cent as wider spreads were recorded on higher deposit balances, with the relaunch of HSBC Premier contributing to the growth in deposit
balances. Card balances were also higher following a number of promotional programmes during the year. In Commercial Banking, strong economic growth helped generate demand for savings products and this, combined with strong customer acquisition,
resulted in higher net interest from the investment of deposits.
Buoyant stock market activity drove an increase in fee income. Broking and global custody income rose as larger trading
volumes were registered on higher stock exchange daily turnover. This was
102
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enhanced by the launch of new investment schemes, awareness campaigns and the adoption of a new portfolio wealth management sales tool in the branch network. An increase in IPO activity in Hong Kong, mainly derived from
mainland China, had a positive effect on underwriting fees. Life insurance commission income increased, boosted by new product offerings. Credit card fee income also rose, driven by increased cards in circulation and a rise in cardholder balances.
Trading income growth was achieved throughout the Global Markets business and particularly in foreign exchange, assisted by investments made in recent
years to extend the product range and customer base. Structured equity growth continued, driven by the banks product offering linked to the Hong Kong Stock Exchange, which rose significantly. HSBC had only very limited exposure to asset-based
securities and structured credit products in Hong Kong.
Net earned insurance premiums increased by 7 per cent to US$2.8 billion, as the life assurance business expanded with the launch of new products.
Other operating income was largely in line with 2006, notwithstanding the non-recurrence of income on the sale of the former head office building of Hang
Seng Bank and the transfer of the credit card
acquiring business into a joint venture with Global Payments Inc.
Net insurance claims incurred and movement in liabilities to policyholders increased by 19 per cent to US$3.2 billion. The increase was more significant than premium growth because many of the liabilities were related to life policies. Policyholders
participate in the investment performance of assets supporting these liabilities and the investment return on these assets is shown in Net income from financial instruments designated at fair value.
Loan impairment charges continued at a low level and in line with 2006 at US$231 million, despite strong balance sheet growth. This reflected good
credit quality and robust economic conditions.
Operating expenses
increased by 16 per cent. Staff costs rose by 23 per cent on wage inflation
and the recruitment of additional staff, mainly in Commercial Banking and
Global Banking and Markets. Performance-related bonuses grew in response to
revenue growth. Higher marketing and IT costs reflected business growth and
the launch of new initiatives. As commercial rents rose in Hong Kongs
dynamic economy, property rental costs increased, the effect magnified by
the sale and leaseback agreement on Hang Seng Banks head office in 2006.
103
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H S B C H O L D I
N G S P L C |
|
Report of the Directors: Operating and Financial Review (continued) |
|
|
|
|
Geographical regions > Hong Kong > Profit/(loss) before tax by customer group |
Analysis by customer group and global business
Profit/(loss) before tax
|
2008 |
|
|
|
|
|
|
Personal |
|
|
|
|
|
Global |
|
|
|
|
|
|
|
|
Inter- |
|
|
|
|
|
|
Financial |
|
|
Commercial |
|
|
Banking & |
|
|
Private |
|
|
|
|
|
segment |
|
|
|
|
|
|
Services |
|
|
Banking |
|
|
Markets |
|
|
Banking |
|
|
Other |
|
|
elimination |
21 |
|
Total |
|
|
Hong Kong |
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income/(expense) |
3,381
|
|
|
1,498
|
|
|
1,524
|
|
|
214
|
|
|
(669
|
) |
|
(250
|
) |
|
5,698
|
|
|
Net fee income |
1,441 |
|
|
548 |
|
|
414 |
|
|
163 |
|
|
14 |
|
|
|
|
|
2,580 |
|
|
Trading income
excluding net interest income |
143
|
|
|
79
|
|
|
483
|
|
|
120
|
|
|
30
|
|
|
|
|
|
855
|
|
|
Net interest/(expense) income on
trading activities |
11
|
|
|
1
|
|
|
244
|
|
|
|
|
|
(168
|
) |
|
250
|
|
|
338
|
|
|
Net trading income/(expense)16 |
154
|
|
|
80
|
|
|
727
|
|
|
120
|
|
|
(138
|
) |
|
250
|
|
|
1,193
|
|
|
Changes in fair value of long- term debt issued and related derivatives |
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
3
|
|
|
Net income/(expense) from other financial instruments designated at fair
value |
(1,291
|
) |
|
(10
|
) |
|
39
|
|
|
|
|
|
68
|
|
|
|
|
|
(1,194
|
) |
|
Net income/(expense) from financial instruments designated at fair value |
(1,291 |
) |
|
(10 |
) |
|
39 |
|
|
|
|
|
71 |
|
|
|
|
|
(1,191 |
) |
|
Gains less losses
from financial investments |
156
|
|
|
32
|
|
|
(109
|
) |
|
|
|
|
(388
|
) |
|
|
|
|
(309
|
) |
|
Dividend income |
3 |
|
|
2 |
|
|
17 |
|
|
|
|
|
19 |
|
|
|
|
|
41 |
|
|
Net earned insurance
premiums |
3,047
|
|
|
181
|
|
|
17
|
|
|
|
|
|
2
|
|
|
|
|
|
3,247
|
|
|
Other operating income |
132 |
|
|
38 |
|
|
101 |
|
|
8 |
|
|
906 |
|
|
(368 |
) |
|
817 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating
income |
7,023
|
|
|
2,369
|
|
|
2,730
|
|
|
505
|
|
|
(183
|
) |
|
(368
|
) |
|
12,076
|
|
|
Net insurance claims17
|
(1,773 |
) |
|
(136 |
) |
|
(11 |
) |
|
|
|
|
(2 |
) |
|
|
|
|
(1,922 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating
income5 |
5,250
|
|
|
2,233
|
|
|
2,719
|
|
|
505
|
|
|
(185
|
) |
|
(368
|
) |
|
10,154
|
|
|
Loan impairment (charges)/recoveries and other credit risk provisions |
(134 |
) |
|
(335 |
) |
|
(284 |
) |
|
(13 |
) |
|
1 |
|
|
|
|
|
(765 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating
income/(expense) |
5,116
|
|
|
1,898
|
|
|
2,435
|
|
|
492
|
|
|
(184
|
) |
|
(368
|
) |
|
9,389
|
|
|
Total operating expenses |
(1,691 |
) |
|
(584 |
) |
|
(1,000 |
) |
|
(255 |
) |
|
(781 |
) |
|
368 |
|
|
(3,943 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit/(loss) |
3,425
|
|
|
1,314
|
|
|
1,435
|
|
|
237
|
|
|
(965
|
) |
|
|
|
|
5,446
|
|
|
Share of profit in associates and
joint ventures |
3 |
|
|
1 |
|
|
1 |
|
|
|
|
|
10 |
|
|
|
|
|
15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit/(loss)
before tax |
3,428
|
|
|
1,315
|
|
|
1,436
|
|
|
237
|
|
|
(955
|
) |
|
|
|
|
5,461
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% |
|
|
% |
|
|
% |
|
|
% |
|
|
% |
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share of HSBCs
profit before tax |
36.9
|
|
|
14.1
|
|
|
15.4
|
|
|
2.6
|
|
|
(10.3
|
) |
|
|
|
|
58.7
|
|
|
Cost efficiency ratio |
32.2 |
|
|
26.2 |
|
|
36.8 |
|
|
50.5 |
|
|
(422.2 |
) |
|
|
|
|
38.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance sheet data15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
|
|
|
US$m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans and advances
to customers (net) |
41,447
|
|
|
30,331
|
|
|
23,042
|
|
|
3,605
|
|
|
1,795
|
|
|
|
|
|
100,220
|
|
|
Total assets |
75,419 |
|
|
36,428 |
|
|
225,853 |
|
|
28,800 |
|
|
66,192 |
|
|
(25,541 |
) |
|
407,151 |
|
|
Customer accounts |
145,002
|
|
|
54,869
|
|
|
30,866
|
|
|
19,416
|
|
|
364
|
|
|
|
|
|
250,517
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For footnotes,
see page 143. |
104
Back to Contents
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personal |
|
|
|
|
|
Global |
|
|
|
|
|
|
|
|
Inter- |
|
|
|
|
|
|
Financial |
|
|
Commercial |
|
|
Banking & |
|
|
Private |
|
|
|
|
|
segment |
|
|
|
|
|
|
Services |
|
|
Banking |
|
|
Markets |
|
|
Banking |
|
|
Other |
|
|
elimination |
21 |
|
Total |
|
|
Hong Kong |
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income/(expense) |
3,342
|
|
|
1,540
|
|
|
986
|
|
|
70
|
|
|
(767
|
) |
|
312
|
|
|
5,483
|
|
|
Net fee income |
1,973 |
|
|
526 |
|
|
682 |
|
|
179 |
|
|
2 |
|
|
|
|
|
3,362 |
|
|
Trading
income excluding net interest income |
188 |
|
|
63 |
|
|
553 |
|
|
280 |
|
|
186 |
|
|
|
|
|
1,270
|
|
|
Net
interest income on trading activities |
5 |
|
|
|
|
|
241 |
|
|
|
|
|
38 |
|
|
(312 |
) |
|
(28 |
) |
|
Net trading
income16 |
193 |
|
|
63 |
|
|
794 |
|
|
280 |
|
|
224 |
|
|
(312 |
) |
|
1,242
|
|
|
Changes
in fair value of long-term debt issued and related derivatives |
|
|
|
|
|
|
|
|
|
|
|
|
2 |
|
|
|
|
|
2 |
|
|
Net
income/(expense) from other financial instruments designated at fair value |
820 |
|
|
(13 |
) |
|
7 |
|
|
|
|
|
(140 |
) |
|
|
|
|
674 |
|
|
Net
income/(expense) from financial instruments designated
at fair value |
820 |
|
|
(13 |
) |
|
7 |
|
|
|
|
|
(138 |
) |
|
|
|
|
676 |
|
|
Gains
less losses from financial investments |
|
|
|
|
|
|
38 |
|
|
1 |
|
|
55 |
|
|
|
|
|
94 |
|
|
Dividend income |
2 |
|
|
1 |
|
|
6 |
|
|
|
|
|
22 |
|
|
|
|
|
31 |
|
|
Net earned insurance premiums |
2,654 |
|
|
130 |
|
|
13 |
|
|
|
|
|
|
|
|
|
|
|
2,797 |
|
|
Other operating income |
153 |
|
|
28 |
|
|
114 |
|
|
6 |
|
|
881 |
|
|
(337 |
) |
|
845 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income |
9,137 |
|
|
2,275 |
|
|
2,640 |
|
|
536 |
|
|
279 |
|
|
(337 |
) |
|
14,530 |
|
|
Net insurance claims17
|
(3,116 |
) |
|
(82 |
) |
|
(10 |
) |
|
|
|
|
|
|
|
|
|
|
(3,208 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income5
|
6,021 |
|
|
2,193 |
|
|
2,630 |
|
|
536 |
|
|
279 |
|
|
(337 |
) |
|
11,322 |
|
|
Loan
impairment charges and other credit risk provisions |
(175 |
) |
|
(28 |
) |
|
(28 |
) |
|
|
|
|
|
|
|
|
|
|
(231 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income |
5,846 |
|
|
2,165 |
|
|
2,602 |
|
|
536 |
|
|
279 |
|
|
(337 |
) |
|
11,091 |
|
|
Total operating expenses |
(1,639 |
) |
|
(547 |
) |
|
(1,025 |
) |
|
(231 |
) |
|
(675 |
) |
|
337 |
|
|
(3,780 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit/(loss) |
4,207 |
|
|
1,618 |
|
|
1,577 |
|
|
305 |
|
|
(396 |
) |
|
|
|
|
7,311 |
|
|
Share
of profit in associates and joint ventures |
5 |
|
|
1 |
|
|
1 |
|
|
|
|
|
21 |
|
|
|
|
|
28 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit/(loss) before tax |
4,212 |
|
|
1,619 |
|
|
1,578 |
|
|
305 |
|
|
(375 |
) |
|
|
|
|
7,339 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% |
|
|
% |
|
|
% |
|
|
% |
|
|
% |
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share
of HSBCs profit before tax |
17.4 |
|
|
6.7 |
|
|
6.5 |
|
|
1.3 |
|
|
(1.6 |
) |
|
|
|
|
30.3 |
|
|
Cost efficiency ratio |
27.2 |
|
|
24.9 |
|
|
39.0 |
|
|
43.1 |
|
|
241.9 |
|
|
|
|
|
33.4 |
|
|
|
Balance sheet data15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
|
|
|
US$m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
and advances to customers (net) |
38,197 |
|
|
25,890 |
|
|
19,171 |
|
|
4,329 |
|
|
2,051 |
|
|
|
|
|
89,638 |
|
|
Total assets |
66,002 |
|
|
32,059 |
|
|
215,801 |
|
|
17,484 |
|
|
53,227 |
|
|
(27,679 |
) |
|
356,894 |
|
|
Customer accounts |
129,159 |
|
|
51,562 |
|
|
37,364 |
|
|
15,649 |
|
|
754 |
|
|
|
|
|
234,488 |
|
|
|
For footnotes,
see page 143. |
105
Back to Contents
H S B C H O L
D I N G S P L C |
|
Report
of the Directors: Operating and Financial Review (continued) |
|
|
|
|
Geographical regions > Hong
Kong > Profit/(loss) before tax by customer group // Rest of Asia-Pacific |
Analysis by customer
group and global business (continued)
|
|
Profit/(loss) before
tax |
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personal |
|
|
|
|
|
Global |
|
|
|
|
|
|
|
|
Inter- |
|
|
|
|
|
|
Financial |
|
|
Commercial |
|
|
Banking & |
|
|
Private |
|
|
|
|
|
segment |
|
|
|
|
|
|
Services |
|
|
Banking |
|
|
Markets |
|
|
Banking |
|
|
Other |
|
|
elimination |
21 |
|
Total |
|
|
Hong Kong |
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
|
Net interest income/(expense) |
2,882 |
|
|
1,344 |
|
|
553 |
|
|
76 |
|
|
(646 |
) |
|
476 |
|
|
4,685 |
|
|
Net fee income/(expense) |
977 |
|
|
454 |
|
|
534 |
|
|
123 |
|
|
(32 |
) |
|
|
|
|
2,056 |
|
|
Trading
income excluding net interest income |
84 |
|
|
57 |
|
|
573 |
|
|
176 |
|
|
34 |
|
|
|
|
|
924 |
|
|
Net
interest income on trading activities |
4 |
|
|
|
|
|
88 |
|
|
|
|
|
77 |
|
|
(476 |
) |
|
(307 |
) |
|
Net trading income16
|
88 |
|
|
57 |
|
|
661 |
|
|
176 |
|
|
111 |
|
|
(476 |
) |
|
617 |
|
|
Changes
in fair value of long-term debt issued and related
derivatives |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income/(expense) from other financial instruments
designated at fair value |
373 |
|
|
(53 |
) |
|
5 |
|
|
1 |
|
|
(66 |
) |
|
|
|
|
260 |
|
|
Net
income/(expense) from financial
instruments designated at fair value |
373 |
|
|
(53 |
) |
|
5 |
|
|
1 |
|
|
(66 |
) |
|
|
|
|
260 |
|
|
Gains
less losses from financial investments |
14 |
|
|
|
|
|
(1 |
) |
|
9 |
|
|
140 |
|
|
|
|
|
162 |
|
|
Dividend income |
1 |
|
|
1 |
|
|
2 |
|
|
|
|
|
57 |
|
|
|
|
|
61 |
|
|
Net earned insurance
premiums |
2,519 |
|
|
95 |
|
|
14 |
|
|
|
|
|
|
|
|
|
|
|
2,628 |
|
|
Other operating income |
202 |
|
|
33 |
|
|
81 |
|
|
13 |
|
|
781 |
|
|
(276 |
) |
|
834 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income |
7,056 |
|
|
1,931 |
|
|
1,849 |
|
|
398 |
|
|
345 |
|
|
(276 |
) |
|
11,303 |
|
|
Net insurance claims17
|
(2,638 |
) |
|
(50 |
) |
|
(11 |
) |
|
|
|
|
|
|
|
|
|
|
(2,699 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income5
|
4,418 |
|
|
1,881 |
|
|
1,838 |
|
|
398 |
|
|
345 |
|
|
(276 |
) |
|
8,604 |
|
|
Loan
impairment (charges)/recoveries and other credit
risk provisions |
(119 |
) |
|
(69 |
) |
|
27 |
|
|
|
|
|
(11 |
) |
|
|
|
|
(172 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income |
4,299 |
|
|
1,812 |
|
|
1,865 |
|
|
398 |
|
|
334 |
|
|
(276 |
) |
|
8,432 |
|
|
Total operating expenses |
(1,422 |
) |
|
(491 |
) |
|
(911 |
) |
|
(197 |
) |
|
(524 |
) |
|
276 |
|
|
(3,269 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit/(loss) |
2,877 |
|
|
1,321 |
|
|
954 |
|
|
201 |
|
|
(190 |
) |
|
|
|
|
5,163 |
|
|
Share
of profit in associates and joint ventures |
3 |
|
|
|
|
|
1 |
|
|
|
|
|
15 |
|
|
|
|
|
19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit/(loss) before tax |
2,880 |
|
|
1,321 |
|
|
955 |
|
|
201 |
|
|
(175 |
) |
|
|
|
|
5,182 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% |
|
|
% |
|
|
% |
|
|
% |
|
|
% |
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share of HSBCs profit
before tax |
13.0 |
|
|
6.0 |
|
|
4.3 |
|
|
0.9 |
|
|
(0.7 |
) |
|
|
|
|
23.5 |
|
|
Cost efficiency ratio |
32.2 |
|
|
26.1 |
|
|
49.6 |
|
|
49.5 |
|
|
151.9 |
|
|
|
|
|
38.0 |
|
|
|
Balance sheet data15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
|
|
|
US$m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans and advances
to customers (net) |
35,445 |
|
|
23,520 |
|
|
20,270 |
|
|
3,081 |
|
|
1,966 |
|
|
|
|
|
84,282 |
|
|
Total assets |
57,977 |
|
|
30,137 |
|
|
182,540 |
|
|
22,492 |
|
|
49,866 |
|
|
(24,155 |
) |
|
318,857 |
|
|
Customer accounts |
118,201 |
|
|
41,493 |
|
|
24,530 |
|
|
11,991 |
|
|
476 |
|
|
|
|
|
196,691 |
|
|
|
For footnotes,
see page 143. |
106
Back to Contents
Rest
of Asia-Pacific (including the Middle East) |
|
Profit/(loss) before
tax by country within customer groups and global businesses |
|
|
|
Personal |
|
|
|
|
|
Global |
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial |
|
|
Commercial |
|
|
Banking & |
|
|
Private |
|
|
|
|
|
|
|
|
|
|
Services |
|
|
Banking |
|
|
Markets |
|
|
Banking |
|
|
Other |
|
|
Total |
|
|
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Australia |
19 |
|
|
68 |
|
|
102 |
|
|
|
|
|
(13 |
) |
|
176 |
|
|
India |
(155 |
) |
|
118 |
|
|
578 |
|
|
2 |
|
|
123 |
|
|
666 |
|
|
Indonesia |
(22 |
) |
|
17 |
|
|
126 |
|
|
|
|
|
|
|
|
121 |
|
|
Japan |
(88 |
) |
|
(1 |
) |
|
88 |
|
|
1 |
|
|
4 |
|
|
4 |
|
|
Mainland China |
284 |
|
|
622 |
|
|
688 |
|
|
(5 |
) |
|
16 |
|
|
1,605 |
|
|
|
Associates |
393
|
|
|
558
|
|
|
335 |
|
|
|
|
|
|
|
|
1,286 |
|
|
|
Other mainland China |
(109
|
) |
|
64
|
|
|
353 |
|
|
(5
|
) |
|
16
|
|
|
319 |
|
|
Malaysia |
94 |
|
|
96 |
|
|
171 |
|
|
|
|
|
8 |
|
|
369 |
|
|
Middle East |
289 |
|
|
558 |
|
|
816 |
|
|
4 |
|
|
79 |
|
|
1,746 |
|
|
|
Egypt |
16
|
|
|
68
|
|
|
90 |
|
|
|
|
|
49
|
|
|
223 |
|
|
|
United Arab Emirates |
133
|
|
|
330
|
|
|
388 |
|
|
4
|
|
|
6
|
|
|
861 |
|
|
|
Other Middle East |
80
|
|
|
125
|
|
|
161 |
|
|
|
|
|
1
|
|
|
367 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Middle East (excluding Saudi Arabia) |
229
|
|
|
523
|
|
|
639 |
|
|
4
|
|
|
56
|
|
|
1,451 |
|
|
|
Saudi Arabia |
60
|
|
|
35
|
|
|
177 |
|
|
|
|
|
23
|
|
|
295 |
|
|
Singapore |
104 |
|
|
83 |
|
|
337 |
|
|
110 |
|
|
(37 |
) |
|
597 |
|
|
South Korea |
(16 |
) |
|
(13 |
) |
|
304 |
|
|
|
|
|
38 |
|
|
313 |
|
|
Taiwan |
(41 |
) |
|
45 |
|
|
179 |
|
|
|
|
|
(8 |
) |
|
175 |
|
|
Other |
32 |
|
|
200 |
|
|
397 |
|
|
1 |
|
|
66 |
|
|
696 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
500 |
|
|
1,793 |
|
|
3,786 |
|
|
113 |
|
|
276 |
|
|
6,468 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Australia |
41 |
|
|
37 |
|
|
42 |
|
|
|
|
|
4 |
|
|
124 |
|
|
India |
(70 |
) |
|
88 |
|
|
429 |
|
|
(1 |
) |
|
83 |
|
|
529 |
|
|
Indonesia |
(7 |
) |
|
29 |
|
|
86 |
|
|
|
|
|
(4 |
) |
|
104 |
|
|
Japan |
(34 |
) |
|
(3 |
) |
|
75 |
|
|
|
|
|
5 |
|
|
43 |
|
|
Mainland China |
494 |
|
|
397 |
|
|
369 |
|
|
|
|
|
1,101 |
|
|
2,361 |
|
|
|
Associates |
516 |
|
|
351 |
|
|
220 |
|
|
|
|
|
1,093
|
|
|
2,180 |
|
|
|
Other mainland China |
(22 |
) |
|
46 |
|
|
149 |
|
|
|
|
|
8 |
|
|
181 |
|
|
Malaysia |
81 |
|
|
90 |
|
|
146 |
|
|
|
|
|
13 |
|
|
330 |
|
|
Middle East |
245 |
|
|
482 |
|
|
495 |
|
|
3 |
|
|
82 |
|
|
1,307 |
|
|
|
Egypt |
10 |
|
|
46 |
|
|
65 |
|
|
|
|
|
32 |
|
|
153 |
|
|
|
United Arab Emirates |
108 |
|
|
262 |
|
|
242 |
|
|
3 |
|
|
2 |
|
|
617 |
|
|
|
Other Middle East |
83 |
|
|
101 |
|
|
116 |
|
|
|
|
|
|
|
|
300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Middle East (excluding Saudi Arabia) |
201 |
|
|
409 |
|
|
423 |
|
|
3 |
|
|
34 |
|
|
1,070 |
|
|
|
Saudi Arabia |
44 |
|
|
73 |
|
|
72 |
|
|
|
|
|
48 |
|
|
237 |
|
|
Singapore |
101 |
|
|
112 |
|
|
240 |
|
|
90 |
|
|
7 |
|
|
550 |
|
|
South Korea |
(44 |
) |
|
(20 |
) |
|
159 |
|
|
|
|
|
28 |
|
|
123 |
|
|
Taiwan |
(52 |
) |
|
27 |
|
|
144 |
|
|
|
|
|
4 |
|
|
123 |
|
|
Other |
5 |
|
|
111 |
|
|
279 |
|
|
|
|
|
20 |
|
|
415 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
760 |
|
|
1,350 |
|
|
2,464 |
|
|
92 |
|
|
1,343 |
|
|
6,009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
107
Back to Contents
H S B C H O L D I
N G S P L C |
|
Report of the Directors: Operating
and Financial Review (continued) |
|
|
|
|
Geographical regions > Rest
of Asia-Pacific > 2008 |
Profit/(loss) before tax by country within customer
groups and global businesses (continued)
|
Personal
|
|
|
|
|
|
Global |
|
|
|
|
|
|
|
|
|
|
|
|
Financial
|
|
|
Commercial
|
|
|
Banking & |
|
|
Private
|
|
|
|
|
|
|
|
|
|
Services
|
|
|
Banking
|
|
|
Markets |
|
|
Banking
|
|
|
Other
|
|
|
Total
|
|
|
|
US$m
|
|
|
US$m
|
|
|
US$m |
|
|
US$m
|
|
|
US$m
|
|
|
US$m
|
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Australia |
76
|
|
|
32
|
|
|
46 |
|
|
|
|
|
|
|
|
154
|
|
|
India |
(24
|
) |
|
46
|
|
|
277 |
|
|
2
|
|
|
92
|
|
|
393
|
|
|
Indonesia |
(22 |
) |
|
46 |
|
|
69 |
|
|
|
|
|
(22 |
) |
|
71 |
|
|
Japan |
(3
|
) |
|
(2
|
) |
|
49 |
|
|
(1
|
) |
|
80
|
|
|
123
|
|
|
Mainland China |
276 |
|
|
241 |
|
|
167 |
|
|
|
|
|
24 |
|
|
708 |
|
|
Associates |
274
|
|
|
210
|
|
|
86 |
|
|
|
|
|
5
|
|
|
575
|
|
|
Other
mainland China |
2
|
|
|
31
|
|
|
81 |
|
|
|
|
|
19
|
|
|
133
|
|
|
Malaysia |
77
|
|
|
87
|
|
|
99 |
|
|
(1
|
) |
|
12
|
|
|
274
|
|
|
Middle East |
235 |
|
|
356 |
|
|
396 |
|
|
2 |
|
|
46 |
|
|
1,035
|
|
|
Egypt |
9
|
|
|
41
|
|
|
41 |
|
|
|
|
|
20
|
|
|
111
|
|
|
United
Arab Emirates |
70
|
|
|
209
|
|
|
145 |
|
|
3
|
|
|
(2
|
) |
|
425
|
|
|
Other Middle East |
59
|
|
|
67
|
|
|
70 |
|
|
(1
|
) |
|
(1
|
) |
|
194
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Middle
East (excluding Saudi Arabia) |
138
|
|
|
317
|
|
|
256 |
|
|
2
|
|
|
17
|
|
|
730
|
|
|
Saudi Arabia |
97
|
|
|
39
|
|
|
140 |
|
|
|
|
|
29
|
|
|
305
|
|
|
Singapore |
73 |
|
|
90 |
|
|
145 |
|
|
68 |
|
|
(11 |
) |
|
365 |
|
|
South Korea |
(55
|
) |
|
(20
|
) |
|
115 |
|
|
|
|
|
19
|
|
|
59
|
|
|
Taiwan |
(179 |
) |
|
37 |
|
|
118 |
|
|
|
|
|
1 |
|
|
(23 |
) |
|
Other |
23
|
|
|
121
|
|
|
168 |
|
|
10
|
|
|
46
|
|
|
368
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
477 |
|
|
1,034
|
|
|
1,649 |
|
|
80 |
|
|
287 |
|
|
3,527
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans and advances to customers (net) by country
|
At 31 December |
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
|
|
|
|
|
|
|
|
|
|
Australia |
9,321 |
|
|
11,339 |
|
|
8,775 |
|
|
India |
6,244 |
|
|
7,220 |
|
|
4,915 |
|
|
Indonesia |
1,904 |
|
|
1,642 |
|
|
1,337 |
|
|
Japan |
5,839 |
|
|
4,258 |
|
|
3,391 |
|
|
Mainland China |
11,440 |
|
|
11,647 |
|
|
6,065 |
|
|
Malaysia |
9,404 |
|
|
8,856 |
|
|
7,747 |
|
|
Middle East (excluding Saudi Arabia) |
27,295 |
|
|
21,607 |
|
|
15,622 |
|
|
Egypt |
2,473 |
|
|
1,853 |
|
|
965 |
|
|
United Arab
Emirates |
17,537 |
|
|
14,103 |
|
|
10,148 |
|
|
Other Middle
East |
7,285 |
|
|
5,651 |
|
|
4,509 |
|
|
Singapore |
13,441 |
|
|
11,505 |
|
|
9,610 |
|
|
South Korea |
5,336 |
|
|
7,124 |
|
|
6,260 |
|
|
Taiwan |
4,329 |
|
|
3,658 |
|
|
3,974 |
|
|
Other |
13,403 |
|
|
12,996 |
|
|
9,878 |
|
|
|
|
|
|
|
|
|
|
|
|
|
107,956 |
|
|
101,852 |
|
|
77,574 |
|
|
|
|
|
|
|
|
|
|
|
|
108
Back to Contents
Customer accounts by country
|
At 31 December |
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
|
|
|
|
|
|
|
|
|
|
Australia |
9,201 |
|
|
11,418 |
|
|
8,491 |
|
|
India |
9,767 |
|
|
12,021 |
|
|
7,936 |
|
|
Indonesia |
2,896 |
|
|
2,574 |
|
|
2,082 |
|
|
Japan |
6,204 |
|
|
4,657 |
|
|
4,186 |
|
|
Mainland China |
19,171 |
|
|
14,537 |
|
|
6,941 |
|
|
Malaysia |
11,963 |
|
|
11,701 |
|
|
9,640 |
|
|
Middle East (excluding Saudi Arabia) |
35,166 |
|
|
30,937 |
|
|
21,196 |
|
|
Egypt |
5,363 |
|
|
4,056 |
|
|
2,703 |
|
|
United Arab
Emirates |
19,808 |
|
|
18,455 |
|
|
11,166 |
|
|
Other Middle
East |
9,995 |
|
|
8,426 |
|
|
7,327 |
|
|
Singapore |
32,748 |
|
|
28,962 |
|
|
23,517 |
|
|
South Korea |
4,383 |
|
|
5,760 |
|
|
3,890 |
|
|
Taiwan |
9,689 |
|
|
9,426 |
|
|
7,675 |
|
|
Other |
18,171 |
|
|
18,240 |
|
|
13,441 |
|
|
|
|
|
|
|
|
|
|
|
|
|
159,359 |
|
|
150,233 |
|
|
108,995 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 compared with 2007
Economic briefing
Growth in mainland China was steady during 2008, although lower than in previous years. Overall GDP growth totalled 9 per cent in 2008, down from 13
per cent in 2007, as weakness in key export markets led to a slowdown in industrial activity during the final months of the year. The tightening of monetary conditions in 2007 and early 2008 also contributed to the slowdown, although interest rates
and reserve requirements were both reduced significantly during the final months of the year and a significant fiscal stimulus package was also announced. Consumer spending continued to advance at a strong pace with retail spending increasing by
21.6 per cent over the course of 2008. After accelerating to an eleven year high of 8.7 per cent in February 2008, consumer price inflation slowed to 1.2 per cent by the year-end, largely reflecting the movements in food and energy prices. The
renminbi appreciated by more than 6 per cent against the US dollar during 2008, although the exchange rate was little changed during the second half of the year.
Japans economy slowed sharply during the course of 2008, with industrial activity declining rapidly during the final quarter of the year in
response to much weaker external demand. Contractions were registered in both second and third quarter GDP data, confirming a technical recession, while the unemployment rate rose from 3.8 per cent in January 2008 to 4.4 per cent by the year-end.
Inflationary pressures increased during the first half before subsiding during the final months of 2008, while measures of business confidence also fell sharply.
The economies of the Middle East performed strongly for much of 2008, although inflationary concerns were a feature for
much of the year, driven by the surge in oil prices to record levels and private and public investment expenditure. High oil revenues continued to boost fiscal and current account surpluses throughout the region during 2008, although the impact of
the decline in oil prices during the final months of the year, together with the OPEC-mandated production cuts, are expected to lead to slower growth in 2009.
Elsewhere in Asia, most economies followed an uneven pattern of growth during 2008. Policymakers focused on the rise in inflation during the first half of the year, but the sharp slowdown in
growth during the final months of 2008 came to dominate, with a series of monetary and fiscal policy measures being introduced across the region to stimulate activity. The sustained rise in inflation prompted the Reserve Bank of India to tighten policy by raising both interest rates and reserve requirements during the first half of 2008, before then cutting the cash reserve ratio by 350 basis points and the repo rate
by 250 basis points during the final quarter of the year. A recession was confirmed in Singapore after GDP contracted for three consecutive quarters in 2008, as an economic
slowdown initially focused on specific industries turned more pervasive. After rising to a 26-year high of 7.5 per cent in June 2008, the annual rate of inflation slowed to 4.3 per cent by the year-end.
Inflation also proved the predominant concern in Vietnam during the first half of 2008 as the annual rate of consumer
price inflation more than doubled to 28.3 per cent, prompting the State Bank of Vietnam to sanction substantial interest rate
109
Back to Contents
H S B C H O L D I
N G S P L C |
|
Report of the Directors: Operating
and Financial Review (continued) |
|
|
|
|
Geographical regions > Rest
of Asia-Pacific > 2008 |
Profit before tax
|
2008
|
|
|
2007 |
|
|
2006 |
|
|
Rest of Asia-Pacific (including
the Middle East) |
US$m
|
|
|
US$m |
|
|
US$m |
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
5,493
|
|
|
4,143
|
|
|
3,047
|
|
|
Net fee income |
2,558
|
|
|
2,246 |
|
|
1,622 |
|
|
Net trading income |
2,444
|
|
|
1,643
|
|
|
1,181
|
|
|
Changes in fair value of long-term
debt issued and related derivatives |
1
|
|
|
1 |
|
|
|
|
|
Net income/(expense)
from other financial instruments designated at fair
value |
(172
|
) |
|
110 |
|
|
79 |
|
|
Net income/(expense) from financial
instruments designated at fair value |
(171
|
) |
|
111 |
|
|
79 |
|
|
Gains less losses
from financial investments |
32
|
|
|
38 |
|
|
41 |
|
|
Gains arising from dilution of interests
in associates |
|
|
|
1,081 |
|
|
|
|
|
Dividend income |
4
|
|
|
8 |
|
|
5 |
|
|
Net earned insurance premiums |
197
|
|
|
226 |
|
|
174 |
|
|
Other operating
income |
1,064
|
|
|
798 |
|
|
765 |
|
|
|
|
|
|
|
|
|
|
|
|
Total operating
income |
11,621
|
|
|
10,294
|
|
|
6,914
|
|
|
Net insurance claims incurred and
movement in liabilities to policyholders |
28
|
|
|
(253 |
) |
|
(192 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net operating
income before loan impairment charges and other credit
risk provisions |
11,649
|
|
|
10,041
|
|
|
6,722
|
|
|
Loan impairment charges and other
credit risk provisions |
(1,131
|
) |
|
(616 |
) |
|
(512 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net operating
income |
10,518
|
|
|
9,425
|
|
|
6,210
|
|
|
Total operating expenses |
(5,663
|
) |
|
(4,764 |
) |
|
(3,548 |
) |
|
|
|
|
|
|
|
|
|
|
|
Operating profit |
4,855
|
|
|
4,661
|
|
|
2,662
|
|
|
Share of profit in associates and
joint ventures |
1,613
|
|
|
1,348 |
|
|
865 |
|
|
|
|
|
|
|
|
|
|
|
|
Profit before
tax |
6,468
|
|
|
6,009
|
|
|
3,527
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
%
|
|
|
% |
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
Share of HSBCs
profit before tax |
69.5
|
|
|
24.8 |
|
|
16.0 |
|
|
Cost efficiency ratio |
48.6
|
|
|
47.4 |
|
|
52.8 |
|
|
Year-end staff
numbers (full-time equivalent) |
98,159
|
|
|
88,573
|
|
|
72,265
|
|
|
Balance sheet data15
|
At 31 December |
|
|
|
|
|
2008 |
|
2007 |
|
2006 |
|
|
US$m |
|
US$m |
|
US$m |
|
|
|
|
|
|
|
|
Loans and advances to customers
(net) |
107,956 |
|
101,852 |
|
77,574 |
|
Loans and advances to banks (net) |
36,141 |
|
39,861 |
|
27,517 |
|
Trading assets, financial assets
designated at fair value, and financial
investments |
61,223 |
|
64,381 |
|
41,585 |
|
Total assets |
262,305 |
|
243,205 |
|
175,010 |
|
Deposits by banks |
13,689 |
|
17,560 |
|
10,323 |
|
Customer accounts |
159,359 |
|
150,233 |
|
108,995 |
|
For footnote, see page 143.
All commentaries on Rest of Asia-Pacific are on an underlying basis unless stated otherwise.
increases, before these measures were rapidly reversed during the final months of the year. Interest rate increases were also forthcoming in Indonesia
between May and October 2008, although with growth levels maintaining a relatively robust level during much of the year, a tentative easing cycle was only initiated during the final weeks of 2008. Bank Negara Malaysia proved the exception by refraining
from interest rate increases during the year, even as consumer price inflation accelerated to 8.5 per cent in July 2008, before cutting the policy rate to 3.25 per cent in November. The outlook for the South Korean economy was affected by the open nature of the economy and the relatively high levels of household and corporate sector indebtedness. Full year GDP rose by 2.5 per cent in 2008,
down from
110
Back to Contents
5.0 per cent in 2007 and the weakest performance for ten years, while fourth quarter GDP fell by 3.4 per cent on a year-on-year basis. Rising food prices proved particularly problematic for the Philippines during the first half of the year as inflation moved
well above the central banks targeted range, although the earlier tightening of monetary policy was partially reversed at the end of 2008. Growth slowed sharply in Taiwan during the course of the year, driven by deteriorating conditions overseas.
Reconciliation of reported and underlying profit before tax
|
2008 compared with 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
acquisitions,
|
|
|
|
2007
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
disposals
|
|
|
|
at 2008 |
|
acquisitions |
|
|
|
|
|
|
|
|
|
Rest of Asia-Pacific |
2007 as
|
|
& dilution
|
|
Currency |
|
exchange |
|
and
|
|
Underlying
|
|
2008 as
|
|
Reported
|
|
Underlying
|
|
(including the |
reported
|
|
gains |
1 |
translation |
2
|
rates |
3 |
disposals |
1
|
change
|
|
reported
|
|
change
|
|
change
|
|
Middle East) |
US$m
|
|
US$m
|
|
US$m
|
|
US$m
|
|
US$m
|
|
US$m
|
|
US$m
|
|
%
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
4,143
|
|
|
|
43
|
|
4,186
|
|
31
|
|
1,276
|
|
5,493
|
|
33
|
|
30
|
|
Net fee income |
2,246
|
|
|
|
24
|
|
2,270
|
|
3
|
|
285
|
|
2,558
|
|
14
|
|
13
|
|
Other income4
|
3,652
|
|
(1,081
|
) |
18
|
|
2,589
|
|
70
|
|
939
|
|
3,598
|
|
(1
|
) |
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income5
|
10,041
|
|
(1,081
|
) |
85
|
|
9,045
|
|
104
|
|
2,500
|
|
11,649
|
|
16
|
|
28
|
|
Loan
impairment charges and other credit risk provisions |
(616
|
) |
|
|
14
|
|
(602
|
) |
|
|
(529
|
) |
(1,131
|
) |
(84
|
) |
(88
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income |
9,425
|
|
(1,081
|
) |
99
|
|
8,443
|
|
104
|
|
1,971
|
|
10,518
|
|
12
|
|
23
|
|
Operating expenses |
(4,764
|
) |
|
|
(17
|
) |
(4,781
|
) |
(110
|
) |
(772
|
) |
(5,663
|
) |
(19
|
) |
(16
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit |
4,661
|
|
(1,081
|
) |
82
|
|
3,662
|
|
(6
|
) |
1,199
|
|
4,855
|
|
4
|
|
33
|
|
Income from associates |
1,348
|
|
|
|
93
|
|
1,441
|
|
|
|
172
|
|
1,613
|
|
20
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit before tax |
6,009
|
|
(1,081
|
) |
175
|
|
5,103
|
|
(6
|
) |
1,371
|
|
6,468
|
|
8
|
|
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For footnotes, see page 143.
Review of business performance
HSBCs operations in Rest of Asia-Pacific performed strongly, reporting a pre-tax profit of US$6.5 billion compared with US$6.0 billion in 2007, an increase of 8 per cent. HSBC continued to increase its
presence in key markets, augmenting organic growth with the integration of the operations of The Chinese Bank in Taiwan and the purchase of IL&FS Investsmart Ltd in India, which was completed in September. On an underlying basis, excluding the
dilution gains on Chinese associates of US$1.1 billion recorded in 2007 and the acquisitions noted above, profit before tax increased by 27 per cent, with notable growth in the Middle East, South Korea, mainland China, India, and an increased
contribution from associates in the region. Branches were added in mainland China, Indonesia, Japan, Malaysia and Bangladesh.
Net interest income increased by 30 per cent, with growth across most major countries and all customer groups. Deposit acquisition and related asset
deployment across the region drove net interest income, though this volume growth was partly offset by deposit spread compression in the second half of the year due to declining interest rates, compounded by strong competition to acquire
deposits.
In the Middle East, net interest income increased by 42 per cent, with deposit growth, notably in Personal Financial Services. This supported a strong rise in corporate lending balances aligned
to trade and infrastructure investments, as well as increased personal lending, in particular credit cards. Asset spreads benefited from declines in local base rates following US dollar interest rate cuts, which resulted in a lower cost of funds.
In India, net interest income increased by 44 per cent as deposit balances in Personal Financial Services and Commercial Banking rose due to customer acquisition, notably among small businesses
following the launch of the HSBC Direct for Business product. These deposits were deployed in increasing lending, where spreads improved on the corporate lending and credit card portfolios and mortgage spreads widened following a re-pricing in the
second half of the year.
In mainland China, net
interest income also rose due to deposit growth, as investors increasingly preferred
deposits over market-led investments
111
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H S B C H O L D I
N G S P L C |
|
Report of the Directors: Operating and
Financial Review (continued) |
|
|
|
|
Geographical regions > Rest
of Asia-Pacific > 2008 / 2007 |
as market sentiment deteriorated. This facilitated
an increase in personal lending balances following branch network expansion
and successful re-pricing initiatives on corporate and commercial loans.
There was strong growth in net interest income from Balance Sheet Management within Global Banking and Markets, due to lower funding costs and steeper yield curves, notably in Singapore,
mainland China, India, Japan and the Middle East.
Net fee income rose by 13 per cent, driven by a growth in fees from personal credit cards and trade and supply chain services. Credit card fees rose,
particularly in the Middle East and India, driven by increases in interchange fees from higher cardholder spending and late payment and over-limit fees from higher delinquencies (see below). Trade and supply chain services contributed strongly to
fee income growth with an increase of 34 per cent in the Middle East, in part reflecting the significant rise in commodity prices in the first half of the year, demonstrably in the construction and infrastructure industries in the UAE. There were
lower fees from investment products and broking across the region, driven by a decline in equity markets and weakened investor sentiment.
Fee income from credit facilities rose, notably in the Middle East, India, Australia and Singapore, reflecting increases in the number of customers.
Net trading income rose by 51 per cent, predominantly due to strong Rates and foreign exchange trading across the region as volatile market conditions
continued, encouraging increased corporate hedging activity.
Growth was particularly strong in South Korea, mainland China and Australia due to strategic positioning of HSBCs balance sheet to benefit from the interest rate cuts and foreign exchange
volatility in 2008, and increased activity in these local markets. In the Middle East, market uncertainty regarding possible currency revaluations drove volatility and, together with robust client demand, led to growth in foreign exchange income. In
India, foreign exchange and, to a lesser extent, Rates revenues rose, driven mainly by increased customer activity and high levels of market volatility.
A net loss from financial instruments designated at fair value of US$171 million was recorded compared with income
of US$111 million in 2007. Declines in equity markets affected unit-linked insurance products, particularly in Singapore. This was largely offset by a corresponding decrease in
liabilities to policyholders reflected in net insurance claims incurred and movement in liabilities to policyholders.
Net earned insurance premiums decreased by 17 per cent to US$197 million, mainly in Singapore and Malaysia due to lower sales of single premium
unit-linked products. This was partly offset by an increase in the sale of general insurance products.
Loan impairment charges rose sharply, increasing by 88 per cent to US$1.1 billion, following a marked deterioration in credit quality across the
region in the final quarter of the year. These charges rose most significantly in India, the Middle East and, to a lesser extent, in Australia.
In India, the rise was attributable to increased delinquency across personal lending portfolios, in response to which HSBC took action to restrict mortgage and personal lending. However, HSBC
continued to extend credit to selected cards customers, which resulted in volume growth and also contributed to higher loan impairment charges.
In the Middle East, higher loan impairment charges were the result of volume growth and increased delinquency rates on personal lending. In Australia, higher delinquencies arose from the
maturing of the cards portfolio and, to a lesser extent, volume growth, in addition to a credit risk provision related to an exposure to an Icelandic Bank. Partly offsetting this, loan impairment charges declined by 41 per cent in Taiwan due to an
improvement in asset quality. Similarly, in Thailand, loan impairment charges were 69 per cent lower due to the non-recurrence of charges attributable to the down-grading of certain corporate customers.
Operating expenses increased by 16 per cent to US$5.7 billion. Significant investment in the region continued, notably in mainland China where 29 new
outlets were opened and staff numbers increased. Related premises and equipment costs rose accordingly. Expansion was also pursued in Indonesia with the addition of new branches, and in Japan with the rollout of seven HSBC Premier centres. In the
Middle East, operating expenses were 22 per cent higher in line with substantially increased levels of operating volumes and related headcount growth. In India, the rise in operating expenses was driven mainly by investment in IT, premises costs and
an increase in collection activities as default rates rose. Business growth contributed to higher operating expenses in Australia. Litigation costs in the region rose.
112
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Growth in operating expenses at the Group Service and Software Development Centres was driven by increased volumes of activity as HSBC continued to implement a global resourcing strategy to
minimise costs throughout the Group. All related costs are recharged to other Group entities and the income is reported within Other operating income.
Profit from associates and joint ventures in the region increased by 12 per cent, notwithstanding a significant impairment recorded in Ping An Insurance
in respect of its stake in Fortis Bank. Growth was strong across HSBCs other principal associates, the Bank of Communications, Industrial Bank, and the Saudi British Bank.
2007 compared with 2006
Economic briefing
Mainland Chinas economy continued to grow strongly, with GDP rising by 11.4 per cent in 2007, the fifth consecutive year of double-digit growth; this was despite a combination
of measures aimed at curbing investment, such as increases in interest rates and reserve ratios required for banks. Economic performance remained primarily dependent on investment and exports. Bank loan growth also remained very strong. Export
growth slowed from very high levels as the year progressed, reflecting the mild downturn in global trade. Consumer spending grew steadily in 2007, with retail sales rising by about 16 per cent. Inflationary pressures increased, with consumer price
inflation exceeding 6 per cent towards the end of the year, mainly due to higher food prices. Mainland Chinas foreign exchange reserves rose further, to more than US$1.5 trillion, while the renminbi appreciated by over 5 per cent against
the US dollar in 2007.
Japans economy, the largest in the region, expanded modestly in 2007. Private capital investment decelerated after five years of firm growth but a
rise in exports, especially to Asia, drove overall growth. Private consumption also made a positive contribution, helped by a gradual increase in employees income. Core consumer price inflation remained around zero throughout the course of the
year.
In the Middle East, economies continued to grow, although growth rates slowed slightly on those recorded in 2006,
largely as a result of OPEC-mandated cuts in oil production. Underlying
economic performance was robust, however, led by continued non-oil sector growth. The catalyst for expansion was a fifth consecutive year of rising oil prices, which facilitated continued growth in public and private
investment. Consumption rose as employment levels increased and low interest rates supported an ongoing expansion in credit. Strong population growth, accelerated in parts of the region by high levels of immigration, also boosted demand for credit.
High oil revenues resulted in a further year of fiscal and current account surpluses throughout the Middle East, boosting reserves and holdings of overseas assets. Rapid economic growth, low interest rates and currency weakness increased inflation,
however, fuelling demands in some quarters for adjustments to the long-standing dollar pegs. Regional equity markets recovered from their 2005-06 downturns to perform strongly in 2007.
Elsewhere in the region, the Indian economy expanded by 8.7 per cent in 2007, although there was evidence that recent interest rate rises and the strength of the rupee were slowing some areas
of the economy, and inflationary pressures eased in 2007. The economies of Vietnam and Singapore recorded strong performances too, expanding by 8.5 per cent and 7.7 per cent, respectively in 2007. Growth was approximately 6 per cent in Indonesia and
Malaysia. Domestic demand in all these countries has become an increasingly important source of GDP growth with investment, particularly in the construction sector, expanding rapidly. Inflationary pressures intensified in 2007, largely as a result
of higher oil and food prices, but remained under control. The South Korean economy accelerated in 2007 as exports continued to flourish and household spending recovered from levels recorded in 2006. Concerns over liquidity growth prompted the
central bank to increase interest rates by 50 basis points to 5 per cent during the year. A gradual cooling of demand and concerns over rapid exchange rate appreciation are expected to limit the scope for further interest rate rises in 2008. Buoyant
exports supported economic growth in Taiwan, while domestic demand remained lacklustre due to a lack of government initiatives which is expected to continue beyond the presidential and parliamentary elections scheduled for 2008. Generally robust
economic performances in the Philippines, Thailand, and Pakistan in 2007 were overshadowed to varying degrees by political risks.
113
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H S B C H O L D I
N G S P L C |
|
Report of the Directors: Operating and
Financial Review (continued)
|
|
|
|
|
Geographical regions > Rest
of Asia-Pacific > 2007 |
Reconciliation of reported and underlying profit
before tax
|
2007
compared with 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
|
2006 |
|
acquisitions, |
|
|
|
|
|
|
|
|
|
|
2006 |
|
acquisitions |
|
|
|
at 2007 |
|
disposals |
|
|
|
2007 |
|
|
|
|
|
|
as |
|
and |
|
Currency |
|
exchange |
|
& dilution |
|
Under-lying |
|
as |
|
Reported |
|
Underlying |
|
Rest of Asia-Pacific |
reported |
|
disposals |
1 |
translation |
2 |
rates |
6 |
gains |
1 |
change |
|
reported |
|
change |
|
change |
|
(including
the Middle East) |
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
% |
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
3,047
|
|
|
|
140
|
|
3,187
|
|
|
|
956
|
|
4,143
|
|
36
|
|
30
|
|
Net fee income |
1,622 |
|
|
|
58 |
|
1,680 |
|
|
|
566 |
|
2,246 |
|
38 |
|
34 |
|
Other income4 |
2,053
|
|
|
|
108 |
|
2,161
|
|
1,081 |
|
410 |
|
3,652
|
|
78 |
|
19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating
income5 |
6,722
|
|
|
|
306 |
|
7,028
|
|
1,081 |
|
1,932
|
|
10,041
|
|
49 |
|
27 |
|
Loan impairment charges and
other credit risk provisions |
(512 |
) |
|
|
(13 |
) |
(525 |
) |
|
|
(91 |
) |
(616 |
) |
(20 |
) |
(17 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income |
6,210 |
|
|
|
293 |
|
6,503 |
|
1,081 |
|
1,841 |
|
9,425 |
|
52 |
|
28 |
|
Operating expenses |
(3,548 |
) |
|
|
(179 |
) |
(3,727 |
) |
|
|
(1,037 |
) |
(4,764 |
) |
(34 |
) |
(28 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit |
2,662 |
|
|
|
114 |
|
2,776 |
|
1,081 |
|
804 |
|
4,661 |
|
75 |
|
29 |
|
Income from associates |
865 |
|
|
|
25 |
|
890 |
|
|
|
458 |
|
1,348 |
|
56 |
|
51 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit before tax |
3,527 |
|
|
|
139 |
|
3,666 |
|
1,081 |
|
1,262 |
|
6,009 |
|
70 |
|
34 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For footnotes, see page 143.
Review of business performance
HSBCs operations in Rest of Asia-Pacific reported a pre-tax profit of US$6.0 billion compared with US$3.5 billion in 2006, an increase of 70 per cent. On an underlying basis, excluding dilution gains of
US$1.1 billion, profit before tax increased by 34 per cent, bolstered by sustained growth and business expansion across the region.
In Global Banking and Markets, profit before tax increased significantly, driven by an enhanced product offering combined with buoyant local markets. Commercial Banking revenue benefited from
increased customer volumes as a result of new and enhanced banking services. In Personal Financial Services, profit before tax rose as a result of strong balance sheet growth and increased contributions from associates. Private Banking delivered a
solid performance, underpinned by robust stock markets and increasing wealth in the region.
HSBCs three associates in mainland China, Ping An Insurance, Bank of Communications and Industrial Bank, all raised new capital in 2007 in the A share market in Shanghai in
which HSBC, as a foreign investor, was unable to participate. The dilution of the Groups interests was considerably less than its share of the new monies, resulting in gains of US$1.1 billion which should be regarded as exceptional.
Net interest income rose by 30 per cent. Continued expansion of the branch network, particularly in the populous markets of mainland
China, Indonesia and India, together with increased marketing expenditure and greater brand awareness, accelerated customer acquisition and growth in loans and deposits.
In the Middle East, the significant increase in net interest income was driven by balance sheet growth across all customer groups and augmented by improved spreads. The growth was underpinned
by strong local economies, higher oil prices and demand for credit for infrastructure investment and trade.
In Global Banking and Markets, the rise in net interest income was driven by the recovery in Balance Sheet Management revenues and, as trade and investment flows increased, by higher
transactional balances in the payments and cash management businesses.
In Personal Financial Services, net interest income rose by 23 per cent, driven by higher personal lending, credit cards and deposit balances. Growth was broad-based across the region.
Commercial Banking net interest income grew by 29 per cent due to volume growth in both loans and deposits following an increase in customer numbers.
Fee income increased by 34 per cent. Buoyant stock markets stimulated customer appetite for unit trusts and other investment products. Strong investment
sales were recorded in India, Philippines, South Korea, Singapore and mainland China. Security services increased, driven by a sustained level of transaction volumes and investment flows. In the Middle East, increases were registered in cards,
114
Back to Contents
global custody, credit facilities and insurance. Increased trade services income in the region reflected higher intra-regional trade flows, which were driven by the favourable economic conditions.
Strong trading income growth was delivered, led by foreign exchange trading, where higher volumes were driven by
increased volatility which, in turn, increased customer demand for risk management products.
Net earned insurance premiums rose by 24 per cent to US$226 million. This growth was mainly generated in Malaysia by the HSBC Amanah Takaful business
which was launched in late 2006, offering shariah-compliant insurance products.
Other operating income
decreased by 2 per cent, partly because gains on disposals of certain businesses in Australia were recorded in 2006. Similarly, profits from the disposal of assets held for sale decreased due to the non-recurrence of profits on sale of properties in
Japan and India.
Net insurance claims incurred and movement in liabilities to policyholders rose by 25 per cent to US$253 million, in line with the increase in
premiums, mainly in Malaysia.
Loan impairment charges rose by 17 per cent to US$616 million as corporate loan impairment charges increased in several countries. In addition, loan
impairment charges in India rose due to balance sheet growth and higher loss rates on credit cards. Partly offsetting these factors, loan impairment charges were significantly lower in Taiwan due to the non-recurrence of impairment charges in 2006
which resulted from regulatory intervention in the card market and the imposition of a government debt negotiation scheme. In Indonesia, performance improved on 2006 when loan impairment charges
were affected by the introduction of minimum repayment terms.
Operating expenses increased by 28 per cent in line with the rise in net operating income before loan impairment charges. Business expansion continued
throughout the region. Staff costs in India, mainland China and the Middle East rose on increases in volume-driven headcount and performance-related bonuses, the latter due to higher revenue generation. Business expansion initiatives were taken in
mainland China, where an additional 27 new branches or sub-branches were opened. In India, the branch network and the consumer finance and credit card businesses were all expanded. Marketing, technology and infrastructure costs were incurred in
support of business expansion.
Share of profit in associates and joint ventures in the region rose by 51 per cent, mainly due to increased contributions from HSBCs strategic
investments in mainland China, Bank of Communications, Ping An Insurance and Industrial Bank. HSBCs share of profit from Ping An Insurance rose by 101 per cent to US$518 million as a result of robust growth, notably from life insurance
products, and the realisation of synergistic gains across Ping An Insurances other business offerings. Profit from the Bank of Communications rose by 64 per cent to US$445 million as a result of improved performance across the
associates various product offerings. Increased income from credit and treasury products and significant growth in fee income contributed to the rise in profits. HSBCs share of profits from the Saudi British Bank decreased by 22 per cent
to US$216 million. This was largely due to the effects of a significant correction to the local stock market in the second half of 2006.
115
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H S B C H O L D I
N G S P L C |
|
Report of the Directors: Operating and
Financial Review (continued) |
|
|
|
|
Geographical regions > Rest
of Asia-Pacific > Profit before tax by customer group |
Analysis by customer group and global business
Profit before tax
|
2008
|
|
|
|
|
|
|
Personal
|
|
|
|
|
|
Global
|
|
|
|
|
|
|
|
|
Inter-
|
|
|
|
|
|
|
Financial
|
|
|
Commercial
|
|
|
Banking & |
|
|
Private
|
|
|
|
|
|
segment
|
|
|
|
|
|
|
Services
|
|
|
Banking
|
|
|
Markets
|
|
|
Banking
|
|
|
Other
|
|
|
elimination |
21 |
|
Total
|
|
|
Rest
of Asia-Pacific (including the Middle East) |
US$m
|
|
|
US$m
|
|
|
US$m
|
|
|
US$m
|
|
|
US$m
|
|
|
US$m
|
|
|
US$m
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income |
2,360
|
|
|
1,444
|
|
|
1,886
|
|
|
106
|
|
|
185
|
|
|
(488
|
) |
|
5,493
|
|
|
Net fee income |
819
|
|
|
597
|
|
|
1,048
|
|
|
77
|
|
|
17
|
|
|
|
|
|
2,558
|
|
|
Trading income/(expense) excluding net interest
income |
112
|
|
|
187
|
|
|
1,477
|
|
|
77
|
|
|
(30
|
) |
|
|
|
|
1,823
|
|
|
Net interest income/(expense)on
trading activities |
(5
|
) |
|
|
|
|
143
|
|
|
|
|
|
(5
|
) |
|
488
|
|
|
621
|
|
|
Net
trading income/(expense)16
|
107
|
|
|
187
|
|
|
1,620
|
|
|
77
|
|
|
(35
|
) |
|
488
|
|
|
2,444
|
|
|
Changes in fair value of long-term
debt issued and related derivatives |
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
1
|
|
|
Net income/(expense) from
other financial instruments designated
at fair value |
(172
|
) |
|
|
|
|
(4
|
) |
|
|
|
|
4
|
|
|
|
|
|
(172
|
) |
|
Net income/(expense) from
financial instruments designated
at fair value |
(172
|
) |
|
|
|
|
(4
|
) |
|
|
|
|
5
|
|
|
|
|
|
(171
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains
less losses from financial investments |
29
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32
|
|
|
Dividend income |
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
Net
earned insurance premiums |
172
|
|
|
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
197
|
|
|
Other operating
income |
79
|
|
|
84
|
|
|
90
|
|
|
2
|
|
|
1,096
|
|
|
(287
|
) |
|
1,064
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
operating income |
3,394
|
|
|
2,340
|
|
|
4,644
|
|
|
262
|
|
|
1,268
|
|
|
(287
|
) |
|
11,621
|
|
|
Net insurance claims17
|
42
|
|
|
(14
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
operating income5
|
3,436
|
|
|
2,326
|
|
|
4,644
|
|
|
262
|
|
|
1,268
|
|
|
(287
|
) |
|
11,649
|
|
|
Loan impairment charges and other
credit risk provisions |
(863
|
) |
|
(182
|
) |
|
(85
|
) |
|
(1
|
) |
|
|
|
|
|
|
|
(1,131
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
operating income |
2,573
|
|
|
2,144
|
|
|
4,559
|
|
|
261
|
|
|
1,268
|
|
|
(287
|
) |
|
10,518
|
|
|
Total operating
expenses |
(2,527
|
) |
|
(953
|
) |
|
(1,298
|
) |
|
(148
|
) |
|
(1,024
|
) |
|
287
|
|
|
(5,663
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
profit |
46
|
|
|
1,191
|
|
|
3,261
|
|
|
113
|
|
|
244
|
|
|
|
|
|
4,855
|
|
|
Share
of profit in associates and joint ventures |
454
|
|
|
602
|
|
|
525
|
|
|
|
|
|
32
|
|
|
|
|
|
1,613
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit
before tax |
500
|
|
|
1,793
|
|
|
3,786
|
|
|
113
|
|
|
276
|
|
|
|
|
|
6,468
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
%
|
|
|
%
|
|
|
%
|
|
|
%
|
|
|
%
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share
of HSBCs profit before tax |
5.4
|
|
|
19.3
|
|
|
40.7
|
|
|
1.2
|
|
|
2.9
|
|
|
|
|
|
69.5
|
|
|
Cost efficiency
ratio |
73.5
|
|
|
41.0
|
|
|
28.0
|
|
|
56.5
|
|
|
80.8
|
|
|
|
|
|
48.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance sheet data15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US$m
|
|
|
US$m
|
|
|
US$m
|
|
|
US$m
|
|
|
US$m
|
|
|
|
|
|
US$m
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
and advances to customers (net) |
34,860
|
|
|
35,188
|
|
|
34,590
|
|
|
2,989
|
|
|
329
|
|
|
|
|
|
107,956
|
|
|
Total assets |
44,478
|
|
|
43,702
|
|
|
172,049
|
|
|
12,486
|
|
|
702
|
|
|
(11,112
|
) |
|
262,305
|
|
|
Customer
accounts |
56,531
|
|
|
36,350
|
|
|
50,605
|
|
|
14,475
|
|
|
1,398
|
|
|
|
|
|
159,359
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
footnotes, see page 143. |
116
Back to Contents
|
2007 |
|
|
|
|
|
|
|
Personal |
|
|
|
|
|
Global |
|
|
|
|
|
|
|
|
Inter- |
|
|
|
|
|
|
Financial |
|
|
Commercial |
|
|
Banking & |
|
|
Private |
|
|
|
|
|
segment |
|
|
|
|
|
|
Services |
|
|
Banking |
|
|
Markets |
|
|
Banking |
|
|
Other |
|
|
elimination |
21 |
|
Total |
|
|
Rest of Asia-Pacific (including
the Middle East) |
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
Net interest income |
1,965
|
|
|
1,131
|
|
|
1,295
|
|
|
60
|
|
|
153
|
|
|
(461
|
) |
|
4,143
|
|
|
Net fee income |
766 |
|
|
429 |
|
|
952 |
|
|
85 |
|
|
14 |
|
|
|
|
|
2,246 |
|
|
Trading
income/(expense) excluding net interest
income |
72 |
|
|
129 |
|
|
1,000
|
|
|
71 |
|
|
(70 |
) |
|
|
|
|
1,202
|
|
|
Net interest income/(expense)
on trading activities |
(2 |
) |
|
|
|
|
(22 |
) |
|
|
|
|
4 |
|
|
461 |
|
|
441 |
|
|
Net trading
income/(expense)16 |
70 |
|
|
129 |
|
|
978 |
|
|
71 |
|
|
(66 |
) |
|
461 |
|
|
1,643
|
|
|
Changes
in fair value of long-term debt issued
and related derivatives |
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
|
|
1 |
|
|
Net
income/(expense) from other financial
instruments designated at fair value |
73 |
|
|
4 |
|
|
(3 |
) |
|
(1 |
) |
|
37 |
|
|
|
|
|
110 |
|
|
Net
income/(expense) from financial instruments
designated at fair value |
73 |
|
|
4 |
|
|
(3 |
) |
|
(1 |
) |
|
38 |
|
|
|
|
|
111 |
|
|
Gains less losses
from financial investments |
5 |
|
|
4 |
|
|
28 |
|
|
|
|
|
1 |
|
|
|
|
|
38 |
|
|
Gains arising from dilution of
interests in associates |
|
|
|
|
|
|
|
|
|
|
|
|
1,081 |
|
|
|
|
|
1,081 |
|
|
Dividend income |
|
|
|
|
|
|
2 |
|
|
|
|
|
6 |
|
|
|
|
|
8 |
|
|
Net earned insurance premiums |
209 |
|
|
16 |
|
|
|
|
|
|
|
|
1 |
|
|
|
|
|
226 |
|
|
Other operating
income |
40 |
|
|
15 |
|
|
53 |
|
|
2 |
|
|
849 |
|
|
(161 |
) |
|
798 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating
income |
3,128
|
|
|
1,728
|
|
|
3,305
|
|
|
217 |
|
|
2,077
|
|
|
(161 |
) |
|
10,294
|
|
|
Net insurance claims17
|
(246 |
) |
|
(7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(253 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating
income5 |
2,882
|
|
|
1,721
|
|
|
3,305
|
|
|
217 |
|
|
2,077
|
|
|
(161 |
) |
|
10,041
|
|
|
Loan
impairment charges and other credit risk provisions |
(552 |
) |
|
(61 |
) |
|
(3 |
) |
|
|
|
|
|
|
|
|
|
|
(616 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating
income |
2,330
|
|
|
1,660
|
|
|
3,302
|
|
|
217 |
|
|
2,077
|
|
|
(161 |
) |
|
9,425
|
|
|
Total operating expenses |
(2,131 |
) |
|
(739 |
) |
|
(1,140 |
) |
|
(125 |
) |
|
(790 |
) |
|
161 |
|
|
(4,764 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit |
199 |
|
|
921 |
|
|
2,162
|
|
|
92 |
|
|
1,287
|
|
|
|
|
|
4,661
|
|
|
Share
of profit in associates and joint ventures |
561 |
|
|
429 |
|
|
302 |
|
|
|
|
|
56 |
|
|
|
|
|
1,348 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit before
tax |
760 |
|
|
1,350
|
|
|
2,464
|
|
|
92 |
|
|
1,343
|
|
|
|
|
|
6,009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% |
|
|
% |
|
|
% |
|
|
% |
|
|
% |
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share
of HSBCs profit before tax |
3.1 |
|
|
5.6 |
|
|
10.2 |
|
|
0.4 |
|
|
5.5 |
|
|
|
|
|
24.8 |
|
|
Cost efficiency ratio |
73.9 |
|
|
42.9 |
|
|
34.5 |
|
|
57.6 |
|
|
38.0 |
|
|
|
|
|
47.4 |
|
|
|
Balance sheet data15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
|
|
|
US$m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
and advances to customers (net) |
34,486
|
|
|
32,159
|
|
|
32,106
|
|
|
2,955
|
|
|
146 |
|
|
|
|
|
101,852
|
|
|
Total assets |
42,337 |
|
|
39,743 |
|
|
155,106 |
|
|
9,294 |
|
|
4,756 |
|
|
(8,031 |
) |
|
243,205 |
|
|
Customer accounts |
49,703
|
|
|
34,891
|
|
|
54,120
|
|
|
11,116
|
|
|
403 |
|
|
|
|
|
150,233
|
|
|
|
For footnotes, see page
143. |
117
Back to Contents
H S B C H O L
D I N G S P L C |
|
Report
of the Directors: Operating and Financial Review (continued) |
|
|
|
|
Geographical regions > Rest
of Asia-Pacific > Profit before tax by customer group // North America > 2008 |
Analysis by customer group and global business (continued)
Profit before tax
|
2006
|
|
|
|
|
|
|
|
Personal |
|
|
|
|
|
Global |
|
|
|
|
|
|
|
|
Inter- |
|
|
|
|
|
|
Financial |
|
|
Commercial |
|
|
Banking & |
|
|
Private |
|
|
|
|
|
segment |
|
|
|
|
|
|
Services |
|
|
Banking |
|
|
Markets |
|
|
Banking |
|
|
Other |
|
|
elimination |
21 |
|
Total |
|
|
Rest of Asia-Pacific (including
the Middle East) |
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
|
Net interest income |
1,520
|
|
|
848
|
|
|
802
|
|
|
35
|
|
|
61
|
|
|
(219
|
) |
|
3,047
|
|
|
Net fee income |
524 |
|
|
330 |
|
|
688 |
|
|
68 |
|
|
12 |
|
|
|
|
|
1,622 |
|
|
Trading
income/(expense) excluding net interest income |
61 |
|
|
86 |
|
|
717 |
|
|
74 |
|
|
(3 |
) |
|
|
|
|
935 |
|
|
Net interest income on trading
activities |
|
|
|
|
|
|
|
|
|
|
|
|
27 |
|
|
219 |
|
|
246 |
|
|
Net trading
income16 |
61 |
|
|
86 |
|
|
717 |
|
|
74 |
|
|
24 |
|
|
219 |
|
|
1,181
|
|
|
Changes
in fair value of long-term debt issued
and related derivatives |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income from other financial instruments
designated at fair value |
59 |
|
|
4 |
|
|
4 |
|
|
|
|
|
12 |
|
|
|
|
|
79 |
|
|
Net
income from financial instruments designated
at fair value |
59 |
|
|
4 |
|
|
4 |
|
|
|
|
|
12 |
|
|
|
|
|
79 |
|
|
Gains less losses
from financial investments |
2 |
|
|
2 |
|
|
38 |
|
|
(1 |
) |
|
|
|
|
|
|
|
41 |
|
|
Dividend income |
|
|
|
|
|
|
1 |
|
|
|
|
|
4 |
|
|
|
|
|
5 |
|
|
Net earned insurance
premiums |
148 |
|
|
26 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
174 |
|
|
Other operating income |
108 |
|
|
20 |
|
|
61 |
|
|
|
|
|
667 |
|
|
(91 |
) |
|
765 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating
income |
2,422
|
|
|
1,316
|
|
|
2,311
|
|
|
176 |
|
|
780 |
|
|
(91 |
) |
|
6,914
|
|
|
Net insurance claims17
|
(180 |
) |
|
(11 |
) |
|
|
|
|
|
|
|
(1 |
) |
|
|
|
|
(192 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating
income5 |
2,242
|
|
|
1,305
|
|
|
2,311
|
|
|
176 |
|
|
779 |
|
|
(91 |
) |
|
6,722
|
|
|
Loan
impairment (charges)/recoveries and
other credit risk provisions |
(545 |
) |
|
29 |
|
|
5 |
|
|
|
|
|
(1 |
) |
|
|
|
|
(512 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating
income |
1,697
|
|
|
1,334
|
|
|
2,316
|
|
|
176 |
|
|
778 |
|
|
(91 |
) |
|
6,210
|
|
|
Total operating expenses |
(1,593 |
) |
|
(554 |
) |
|
(869 |
) |
|
(96 |
) |
|
(527 |
) |
|
91 |
|
|
(3,548 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit |
104 |
|
|
780 |
|
|
1,447
|
|
|
80 |
|
|
251 |
|
|
|
|
|
2,662
|
|
|
Share of profit in
associates and joint ventures |
373 |
|
|
254 |
|
|
202 |
|
|
|
|
|
36 |
|
|
|
|
|
865 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit before
tax |
477 |
|
|
1,034
|
|
|
1,649
|
|
|
80 |
|
|
287 |
|
|
|
|
|
3,527
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% |
|
|
% |
|
|
% |
|
|
% |
|
|
% |
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share
of HSBCs profit before tax |
2.2 |
|
|
4.7 |
|
|
7.5 |
|
|
0.4 |
|
|
1.2 |
|
|
|
|
|
16.0 |
|
|
Cost efficiency ratio |
71.1 |
|
|
42.5 |
|
|
37.6 |
|
|
54.5 |
|
|
67.7 |
|
|
|
|
|
52.8 |
|
|
|
Balance sheet data15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
|
|
|
US$m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans and advances
to customers (net) |
28,911
|
|
|
21,912
|
|
|
24,311
|
|
|
2,313
|
|
|
127 |
|
|
|
|
|
77,574
|
|
|
Total assets |
35,794 |
|
|
26,757 |
|
|
109,535 |
|
|
7,882 |
|
|
|
|
|
(4,958 |
) |
|
175,010 |
|
|
Customer accounts |
38,557
|
|
|
24,228
|
|
|
36,623
|
|
|
8,929
|
|
|
658 |
|
|
|
|
|
108,995
|
|
|
|
For footnotes,
see page 143. |
118
Back to Contents
North America
Profit/(loss) before tax by country within customer
groups and global businesses
|
Personal |
|
|
|
Global |
|
|
|
|
|
|
|
|
Financial |
|
Commercial |
|
Banking & |
|
Private |
|
|
|
|
|
|
Services |
|
Banking |
|
Markets |
|
Banking |
|
Other |
|
Total |
|
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
United States23
|
(17,364
|
) |
226 |
|
(2,899 |
) |
67 |
|
3,427 |
|
(16,543
|
) |
Canada |
106 |
|
380 |
|
252 |
|
5 |
|
96 |
|
839 |
|
Bermuda |
31 |
|
51 |
|
72 |
|
11 |
|
9 |
|
174 |
|
Other |
(1 |
) |
1 |
|
|
|
|
|
2 |
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(17,228 |
) |
658 |
|
(2,575 |
) |
83 |
|
3,534 |
|
(15,528 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
United States |
(1,824 |
) |
377 |
|
(1,243 |
) |
156 |
|
1,468 |
|
(1,066 |
) |
Canada |
265 |
|
466 |
|
239 |
|
8 |
|
5 |
|
983 |
|
Bermuda |
13 |
|
77 |
|
39 |
|
10 |
|
34 |
|
173 |
|
Other |
|
|
|
|
|
|
|
|
1 |
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,546 |
) |
920 |
|
(965 |
) |
174 |
|
1,508 |
|
91 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
United States |
3,128 |
|
442 |
|
199 |
|
107 |
|
(264 |
) |
3,612 |
|
Canada |
253 |
|
437 |
|
189 |
|
|
|
17 |
|
896 |
|
Bermuda |
10 |
|
78 |
|
31 |
|
7 |
|
29 |
|
155 |
|
Other |
|
|
|
|
4 |
|
|
|
1 |
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,391 |
|
957 |
|
423 |
|
114 |
|
(217 |
) |
4,668 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For footnote, see page 143. |
Loans and advances to customers (net) by country
|
At 31 December
|
|
|
|
|
|
|
|
|
|
2008 |
|
2007 |
|
2006 |
|
|
US$m |
|
US$m |
|
US$m |
|
|
|
|
|
|
|
|
United States |
208,834 |
|
233,706 |
|
236,188 |
|
Canada |
44,866 |
|
53,891 |
|
39,584 |
|
Bermuda |
2,514 |
|
2,263 |
|
2,215 |
|
|
|
|
|
|
|
|
|
256,214 |
|
289,860 |
|
277,987 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer accounts by country |
|
|
|
|
|
|
|
|
At 31 December
|
|
|
|
|
|
|
|
|
|
2008 |
|
2007 |
|
2006 |
|
|
US$m |
|
US$m |
|
US$m |
|
|
|
|
|
|
|
|
United States |
101,963 |
|
100,034 |
|
84,560 |
|
Canada |
33,905 |
|
37,061 |
|
28,668 |
|
Bermuda |
7,664 |
|
8,078 |
|
7,694 |
|
|
|
|
|
|
|
|
|
143,532 |
|
145,173 |
|
120,922 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 compared with 2007
Economic briefing
Economic conditions proved very difficult in the US during 2008 as the economy entered a period of recession. Overall GDP growth slowed to just 1.1
per cent for the year, down from 2 per cent in 2007. In common with many other economies, much of this weakness was concentrated in the final months of 2008 as fourth quarter GDP registered the largest quarterly decline for 26 years. Economic
weakness proved broad-based across most areas of the economy, with the notable exception of net exports. Housing sales and residential construction activity both declined from already depressed levels, with house prices
continuing to fall in most regions and mortgage delinquencies continuing to rise. Labour market conditions weakened throughout the course of the year as the unemployment rate rose from 4.9 per cent in January to a 15-year high of 7.2 per cent in
December 2008. The annual rate of
119
Back to Contents
H S B C H O L D
I N G S P L C |
|
Report of
the Directors: Operating and Financial Review
(continued) |
|
|
|
|
Geographical regions > North
America > 2008 |
Profit/(loss) before
tax |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
North America |
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
15,218 |
|
|
14,847 |
|
|
14,268 |
|
Net fee income |
|
5,227 |
|
|
5,810 |
|
|
4,766 |
|
Net trading income/(expense) |
|
(3,135 |
) |
|
(542 |
) |
|
1,358 |
|
Changes
in fair value of long-term debt issued and related derivatives |
|
3,736 |
|
|
1,750 |
|
|
(63 |
) |
Net income from other financial instruments
designated at fair value |
|
1 |
|
|
|
|
|
|
|
Net
income/(expense) from financial instruments designated at fair value |
|
3,737 |
|
|
1,750 |
|
|
(63 |
) |
Gains less losses from financial investments |
|
(120 |
) |
|
245 |
|
|
58 |
|
Dividend income |
|
77 |
|
|
105 |
|
|
85 |
|
Net earned insurance
premiums |
|
390 |
|
|
449 |
|
|
492 |
|
Other operating income |
|
23 |
|
|
360 |
|
|
922 |
|
|
|
|
|
|
|
|
|
|
|
Total operating
income |
|
21,417 |
|
|
23,024 |
|
|
21,886 |
|
Net
insurance claims incurred and movement in liabilities to policyholders |
|
(238 |
) |
|
(241 |
) |
|
(259 |
) |
|
|
|
|
|
|
|
|
|
|
Net operating income before loan impairment
charges and other credit risk provisions |
|
21,179 |
|
|
22,783 |
|
|
21,627 |
|
Loan
impairment charges and other credit risk provisions |
|
(16,795 |
) |
|
(12,156 |
) |
|
(6,796 |
) |
|
|
|
|
|
|
|
|
|
|
Net operating
income |
|
4,384 |
|
|
10,627 |
|
|
14,831 |
|
Operating
expenses (excluding goodwill impairment) |
|
(9,359 |
) |
|
(10,556 |
) |
|
(10,193 |
) |
Goodwill impairment |
|
(10,564 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit/(loss) |
|
(15,539 |
) |
|
71 |
|
|
4,638 |
|
Share
of profit in associates and joint ventures |
|
11 |
|
|
20 |
|
|
30 |
|
|
|
|
|
|
|
|
|
|
|
Profit/(loss)
before tax |
|
(15,528 |
) |
|
91 |
|
|
4,668 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% |
|
|
% |
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
Share of HSBCs
profit before tax |
|
(166.8 |
) |
|
0.4 |
|
|
21.1 |
|
Cost efficiency ratio |
|
94.1 |
|
|
46.3 |
|
|
47.1 |
|
Year-end staff numbers (full-time equivalent) |
|
44,725 |
|
|
52,722 |
|
|
55,642 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance sheet data15
|
|
|
|
|
|
|
|
|
|
At 31 December |
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
2007 |
|
2006 |
|
|
|
US$m |
|
US$m |
|
US$m |
|
|
|
|
|
|
|
|
|
Loans and advances
to customers (net) |
|
256,214 |
|
289,860 |
|
277,987 |
|
Loans and advances to banks (net) |
|
11,458 |
|
16,566 |
|
17,865 |
|
Trading
assets, financial assets designated at fair value, and financial investments20 |
|
119,634 |
|
133,998 |
|
145,700 |
|
Total assets |
|
552,612 |
|
549,285 |
|
505,638 |
|
Deposits by banks |
|
18,181 |
|
16,618 |
|
11,484 |
|
Customer accounts |
|
143,532 |
|
145,173 |
|
120,922 |
|
|
|
|
|
|
|
|
|
For footnotes, see
page 143. |
All commentaries
on North America are on an underlying basis unless stated otherwise. |
consumer price inflation reached a 17-year high of 5.6 per cent in July 2008 before moderating sharply to stand at just 0.1 per cent by the year-end. A combination of falling asset values and weak employment conditions
undermined consumer confidence and household spending growth turned negative during the second half of 2008. The Standard & Poors S&P 500 stock market index fell by 38 per cent during the year. Faced with this deterioration in economic
activity and financial
conditions, the Federal Reserve lowered short-term interest rates by 425 basis points during the course of 2008, leaving the Funds target rate within a narrow range of between zero and 25 basis points, while a number
of liquidity initiatives were also introduced.
Canadian GDP increased by 0.4 per cent during the first eleven months of 2008 compared with the equivalent period of 2007, with growth slowing markedly
during the second half of the year, due predominantly to weaker external demand. Labour
120
Back to Contents
market conditions deteriorated as the unemployment rate rose from a historical low of 5.8 per cent in January 2008 to finish the year at 6.6 per cent. After rising to a level of 3.5 per cent in August 2008, the headline
rate of consumer price inflation slowed to 1.2 per cent by the year-end. The core rate of
inflation remained below 2.0 per cent throughout the year. Responding to the deteriorating economic outlook, the Bank of Canada cut its overnight interest rate from 4.25 per cent at the end of 2007 to 1.5 per cent in
December 2008.
Reconciliation of
reported and underlying profit/(loss) before tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 compared with
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
acquisitions, |
|
|
|
2007 |
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
disposals |
|
|
|
at 2008 |
|
acquisitions |
|
Under- |
|
2008 |
|
Re- |
|
Under- |
|
|
|
as |
|
& dilution |
|
Currency |
|
exchange |
|
and |
|
lying |
|
as |
|
ported |
|
lying |
|
|
|
reported |
|
gains |
1 |
translation |
2 |
rates |
3 |
disposals |
1 |
change |
|
reported |
|
change |
|
change |
|
North America |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
% |
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
14,847 |
|
1 |
|
7 |
|
14,855 |
|
|
|
363 |
|
15,218 |
|
2 |
|
2 |
|
Net fee income |
|
5,810 |
|
(105 |
) |
1 |
|
5,706 |
|
|
|
(479 |
) |
5,227 |
|
(10 |
) |
(8 |
) |
Other income4
|
|
2,126 |
|
(18 |
) |
(1 |
) |
2,107 |
|
|
|
(1,373 |
) |
734 |
|
(65 |
) |
(65 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income5
|
|
22,783 |
|
(122 |
) |
7 |
|
22,668 |
|
|
|
(1,489 |
) |
21,179 |
|
(7 |
) |
(7 |
) |
Loan
impairment charges and other credit risk provisions |
|
(12,156 |
) |
|
|
12 |
|
(12,144 |
) |
|
|
(4,651 |
) |
(16,795 |
) |
(38 |
) |
(38 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income |
|
10,627 |
|
(122 |
) |
19 |
|
10,524 |
|
|
|
(6,140 |
) |
4,384 |
|
(59 |
) |
(58 |
) |
Operating
expenses (excluding goodwill impairment) |
|
(10,556 |
) |
98 |
|
(6 |
) |
(10,464 |
) |
|
|
1,105 |
|
(9,359 |
) |
11 |
|
11 |
|
Goodwill impairment |
|
|
|
|
|
|
|
|
|
|
|
(10,564 |
) |
(10,564 |
) |
n/a |
|
n/a |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit/(loss) |
|
71 |
|
(24 |
) |
13 |
|
60 |
|
|
|
(15,599 |
) |
(15,539 |
) |
(21,986 |
) |
(25,998 |
) |
Income from associates |
|
20 |
|
|
|
|
|
20 |
|
|
|
(9 |
) |
11 |
|
(45 |
) |
(45 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit/(loss) before tax |
|
91 |
|
(24 |
) |
13 |
|
80 |
|
|
|
(15,608 |
) |
(15,528 |
) |
(17,164 |
) |
(19,510 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For footnotes, see page 143. |
|
|
Review of business performance
HSBCs operations in North America reported a pre-tax loss of US$15.5 billion in 2008, compared with a pre-tax profit of US$91 million in 2007.
Net interest income in North America increased by 2 per cent to US$15.2 billion, driven by Balance Sheet Management activities in Global Banking and
Markets which more than offset the decline in Personal Financial Services as lending reduced.
The significant increase in net interest income in the Balance Sheet Management business resulted from correct positioning in anticipation of lower interest rates. Net interest income was also
boosted by higher balances within certain loan portfolios in Global Banking and Markets.
Net interest income fell in Personal Financial Services as asset balances declined and deposit spreads narrowed. Deposit spread compression was driven by the competitive environment for retail
deposits in which HSBC refrained from passing on the full effects of interest rate cuts to customers.
Asset spreads widened, particularly in vehicle finance and credit cards and, to a lesser extent, the real estate secured portfolios as yields declined by less than funding costs in the lower interest rate environment, and
the credit card portfolio benefited from APR floors. This was partly offset by a rise in non-performing loans, lower loan prepayments, increased volumes of loan modifications, and lower fees from reduced loan origination volumes. Funding costs
declined as a result of lower base rates during the year.
Lending balances declined as the mortgage services portfolio continued to run-off, originations ceased during the year within the dealer and direct-to-consumer channels in vehicle finance, and
tighter underwriting criteria in consumer lending constrained customer eligibility for finance. In addition, US$8.2 billion of mortgages were sold from the US real estate secured portfolios during the year. These factors were partly offset by a
change in mix towards higher-yielding credit card loans and reduced levels of prepayments that resulted in loans remaining on the balance sheet longer. At the end of
121
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H S B C H O L D
I N G S P L C |
|
Report of
the Directors: Operating and Financial Review
(continued) |
|
|
|
|
Geographical regions > North
America > 2008 / 2007 |
February 2009, HSBC authorised the discontinuation as soon as practicable of all new receivable originations of all products by the branch-based consumer lending business of HSBC Finance in North America (see page 70).
Net fee income declined by 8 per cent, driven by reductions in US credit card fees following changes in fee practices implemented since the fourth
quarter of 2007 and lower cash advance and interchange fees as a result of reduced volumes. Partly offsetting the decline were increased income from enhancement services due to higher customer acceptance rates of Account Secure Plus and Identity
Protection Plan, a rise in syndication, credit and service fees in Commercial Banking and increased fees from asset management.
Trading losses
were dominated by write-downs in Global Banking and Markets on legacy exposures
as continuing turmoil in credit markets adversely affected valuations of credit
and structured credit trading positions, monoline exposures and leveraged and
acquisition finance loans. Continued deterioration in the fair value of the
run-off portfolio of sub-prime residential mortgage loans held for sale also
contributed to the loss. US$3.6 billion in leveraged loans, high yield notes
and securities held for balance sheet management were reclassified in 2008 under
revised IFRS rules from trading assets to loans and receivables and available
for sale, preventing any further mark-to-market trading losses on these assets.
If these reclassifications had not been made, the loss before tax would have
been US$0.9 billion higher.
The losses on legacy
assets were partly offset by strong performances in other trading areas as foreign
exchange trading benefited from pronounced market volatility, Rates trading
correctly anticipated central bank rate cuts and gains were generated on credit
default swaps in Global Banking. Revenues from emerging markets trading and
precious metals trading also rose as a result of ongoing market volatility and
increased transaction volumes as prices of gold and platinum rose during 2008.
Losses on non-qualifying hedge positions in interest rate swaps generated further
trading losses. In 2007, the Decision One business, which was closed that year,
recorded trading losses of US$263 million.
Net income from financial instruments designated at fair value rose by US$2.0 billion to US$3.7 billion, primarily on HSBCs fixed-rate
long-term debt as credit spreads widened significantly in the second half of 2008 in the ongoing market turmoil. These gains, together with
those booked in previous years, will fully reverse over the life of the debt.
Gains less losses from financial investments declined, mainly due to losses on US government agency securities in 2008 and the non-recurrence of the sale
of MasterCard shares, partly offset by gains from the Visa IPO in 2008.
Net earned insurance premiums decreased by 13 per cent to US$390 million, driven by lower credit related premiums in HSBC Finance due to declining
loan volumes.
Other operating income declined due to losses on sale of the Canadian vehicle finance businesses and other loan portfolios in 2008, in addition to the
non-recurrence of gains on disposal of fixed assets and a small portfolio of private equity investments in 2007.
Net insurance claims incurred and movement in liabilities to policyholders were broadly in line with 2007 at US$238 million.
Loan impairment charges and other credit risk provisions rose sharply, by 38 per
cent to US$16.8 billion, reflecting substantially higher impairment charges in HSBC Finance across all portfolios and, in HSBC USA, the deterioration of credit quality in prime residential mortgages, second lien portfolios and private label
cards. The main factors driving this deterioration were the continued weakening of the US economy, which led to rising levels of unemployment and personal bankruptcy filings: higher early-stage delinquency and increased roll rates in consumer
lending: the ageing of portfolios: and further declines in house prices which increased loss severity and reduced customers ability to refinance and access equity in their homes. Partly offsetting these factors was a reduction in overall
lending as HSBC continued to actively reduce its balance sheet and lower its risk profile in the US.
In the Mortgage Services
business, loan impairment charges rose by 14 per cent to US$3.5 billion
as the 2005 and 2006 vintages continued to season and experience rising delinquency.
Run-off of the portfolio slowed in light of continued house price depreciation
which, along with the constrained credit environment, restricted refinancing
options for personal customers. In consumer lending, loan impairment charges
rose by 39 per cent to US$5.7 billion. In the second half of 2008, delinquency
rates began to accelerate particularly in the first lien portfolios in the parts
of the country most affected by house price depreciation and rising unemployment
rates. In
122
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HSBC USA, loan impairment charges rose by 76 per cent to US$2.6 billion driven by credit quality deterioration across the Home Equity line of credit, Home Equity loan, prime first lien residential mortgage and private
label card portfolios.
Loan impairment charges in US card and retail services rose, driven by portfolio seasoning and rising unemployment, particularly in the second half of 2008, higher levels of personal bankruptcy
filings and lower recovery rates. As with mortgages, this was most notable in parts of the country most affected by house price falls and unemployment. Vehicle finance loan impairment charges rose as delinquencies rose and lower prices resulted in
lower recoveries when repossessed vehicles were sold at auction.
Loan impairment charges in Commercial Banking grew to US$449 million from a low base, primarily driven by higher impairment losses due to deterioration across the middle market, commercial
real estate and corporate banking portfolios in the US and among firms in the manufacturing, export and commercial real estate sectors in Canada. Higher loan impairment charges and other credit risk provisions in Global Banking and Markets reflected
weaker credit fundamentals in the US in 2008.
Operating expenses increased by 90 per cent, driven by US$10.6 billion of impairment charge recognised in respect of North America Personal Financial Services in 2008 to fully write off goodwill. Excluding the goodwill impairment charge, expenses were US$1.1 billion or 11 per cent lower. Staff costs declined,
primarily in HSBC Finance, following decisions taken in 2007 to close the acquisition channels for new business in Mortgage Services and a number of consumer lending branches, and integrate the operations of the card businesses. HSBC USA made the
decision to close its wholesale and third-party correspondent mortgage business in November 2008, while HSBC Finance took the decision to cease originations in the dealer and direct-to-consumer channels in the vehicle finance business in July 2008.
Staff costs in Global Banking and Markets also fell as performance-related compensation and staff numbers both declined.
Other administrative costs decreased as origination activity declined, marketing costs in card and retail services reduced and branch costs in consumer lending fell as tightened underwriting
criteria curtailed business and led to branch closures. This was partly offset by higher marketing and occupancy costs in the retail bank reflecting a continued expansion of the branch network,
increased community investment activities and higher deposit insurance, collection, payments and cash management and asset management costs in support of business growth.
2007 compared with 2006
Economic briefing
In the US,
GDP growth in 2007 was 2.2 per cent, 0.7 percentage points less than that recorded
in 2006 as the housing-led downturn gathered pace. Consumer
spending in 2007 grew by 2.9 per cent, the weakest annual expansion since 2003.
Housing activity continued to weaken in 2007, with residential investment falling
by 17 per cent during the year. Both new and existing home sales also declined
to new lows in 2007. The unemployment rate averaged 4.6 per cent in 2007, with
the average in the second half of the year slightly higher at 4.8 per cent. The
trade deficit narrowed in 2007 as export growth
strengthened. Consumer price inflation averaged around 4 per cent in the final
quarter of 2007. This was largely due to higher energy prices; excluding food
and energy, consumer price inflation averaged 2.3 per cent in the fourth quarter.
The Federal Reserve lowered short-term interest rates by 100 basis points in
the second half of 2007, from 5.25 per cent to 4.25 per cent, as policymakers
attempted to mitigate the worst effects of the sub-prime related credit squeeze
upon economic
activity. 10-year note yields reached a high of 5.3 per cent in June 2007, before
falling to 4 per cent by the year-end. Declines in the final months of 2007 left
the S&P 500 stock market index practically unchanged compared with the end
of
2006.
Canadian
GDP increased by 2.4 per cent during the first eleven months of 2007 compared
with the equivalent period of 2006. Domestic demand remained strong despite
tighter credit conditions in the latter part of the year, supported by the
robust labour market. The unemployment rate averaged 6 per cent for the year,
reaching a historical low of 5.8 per cent in October. After hitting a high
of 2.5 per cent in April, core consumer price inflation slowed to 1.5 per
cent by the end of 2007. The Canadian dollar appreciated during the year,
particularly in the second half. In July, the Bank of Canada raised its overnight
interest rate from 4.25 per cent to 4.5 per cent before reversing this move
in the final weeks of 2007.
Review of business performance
HSBCs operations in North America experienced a significant fall in pre-tax profits of 98 per cent in 2007, on both reported and underlying bases.
123
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H S B C H O L D
I N G S P L C |
|
Report of
the Directors: Operating and Financial Review (continued) |
|
|
|
|
Geographical regions > North
America > 2007 |
Reconciliation of
reported and underlying profit before tax |
|
|
2007 compared with
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
|
2006 |
|
acquisitions, |
|
|
|
|
|
|
|
|
|
|
2006 |
|
acquisitions |
|
|
|
at 2007 |
|
disposals |
|
Under- |
|
2007 |
|
Re- |
|
Under- |
|
|
as |
|
and |
|
Currency |
|
exchange |
|
& dilution |
|
lying |
|
as |
|
ported |
|
lying |
|
|
reported |
|
disposals |
1 |
translation |
2 |
rates |
6 |
gains |
1 |
change |
|
reported |
|
change |
|
change |
|
North America |
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
% |
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
14,268 |
|
|
|
65 |
|
14,333 |
|
|
|
514 |
|
14,847 |
|
4 |
|
4 |
|
Net fee income |
4,766 |
|
|
|
26 |
|
4,792 |
|
|
|
1,018 |
|
5,810 |
|
22 |
|
21 |
|
Other income4
|
2,593 |
|
|
|
10 |
|
2,603 |
|
20 |
|
(497 |
) |
2,126 |
|
(18 |
) |
(19 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income5
|
21,627 |
|
|
|
101 |
|
21,728 |
|
20 |
|
1,035 |
|
22,783 |
|
5 |
|
5 |
|
Loan impairment charges and other credit risk
provisions |
(6,796 |
) |
|
|
(3 |
) |
(6,799 |
) |
|
|
(5,357 |
) |
(12,156 |
) |
(79 |
) |
(79 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income |
14,831 |
|
|
|
98 |
|
14,929 |
|
20 |
|
(4,322 |
) |
10,627 |
|
(28 |
) |
(29 |
) |
Operating expenses |
(10,193 |
) |
|
|
(47 |
) |
(10,240 |
) |
(26 |
) |
(290 |
) |
(10,556 |
) |
(4 |
) |
(3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit |
4,638 |
|
|
|
51 |
|
4,689 |
|
(6 |
) |
(4,612 |
) |
71 |
|
(98 |
) |
(98 |
) |
|
Income from associates |
30 |
|
|
|
1 |
|
31 |
|
|
|
(11 |
) |
20 |
|
(33 |
) |
(35 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit before tax |
4,668 |
|
|
|
52 |
|
4,720 |
|
(6 |
) |
(4,623 |
) |
91 |
|
(98 |
) |
(98 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For footnotes, see page 143. |
The US economy began to slow in the fourth quarter of 2007 and, increasingly, evidence suggested that some parts of the country were already in recession. As the housing market slump affected
the real economy, the deterioration in credit quality that began in the mortgage services business extended to include other consumer finance businesses in the US. In HSBC, this was reflected in a 79 per cent rise in loan impairment charges and a
loss before tax of US$1.5 billion in Personal Financial Services. In response to this, management took actions to manage exposure and realign the business, including stopping new mortgage purchases in mortgage services, tightening underwriting
criteria, restricting the product range in consumer lending, decreasing credit lines and reducing the volume of balance transfers in credit cards, and restructuring the consumer lending branch network by closing some 400 branches of HSBC Finance to
reflect expected lower demand. A loss of US$965 million in Global Banking and Markets arose from credit-related and liquidity event write-downs as asset-backed securities markets became illiquid and credit spreads widened markedly.
Net interest income rose by 4 per cent, as higher revenues from payments and cash management, commercial lending and cards were offset by lower mortgage
balances, spread compression and higher non-performing balances.
Overall, average lending balances were 5 per cent higher, as growth in credit and private label cards and vehicle finance offset lower mortgage
balances. The benefits of higher volumes were largely offset as asset spreads narrowed due to higher funding costs. Also, although deposit balances rose, spreads reduced as the product mix shifted to higher yielding
products. Business expansion and higher customer volumes drove growth in loans and deposits in Commercial Banking. A 43 per cent increase in revenue from payments and cash management was due to higher customer balances.
Net fee income rose as a result of higher personal card balances attracting late and over-limit fees. Fees from card services also rose, due to
enhancement services on cards such as debt protection and identity protection. The Intellicheck service, which allows customers to pay their credit card balances over the telephone for a fee, proved popular with customers. Payments and cash
management fees also increased on higher volumes generated. In the fourth quarter of 2007, HSBC changed fee practices on credit cards to ensure they fully reflected HSBCs brand principles. This reduced income by US$55 million in 2007.
HSBC incurred a trading loss following write-downs in credit and structured derivatives, including US$282 million
relating to monoline exposures, and in leveraged and acquisition finance, driven by deterioration in the credit market in the second half of the year. The write-downs were compounded by trading losses on purchased loans in the mortgage
services wholesale business, in response to which HSBC closed the Decision One business. By
124
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contrast, foreign exchange trading performance was strong, supported by activity generated by a weakening dollar and volatile markets.
Net income from financial instruments designated at fair value rose to US$1.8 billion, driven by significant fair value movements on HSBCs own debt as a result of the widening of credit spreads and related derivatives in the second half of the year.
Gains less losses from financial investments of US$245 million were primarily attributable to the sale of shares in MasterCard.
Net earned insurance premiums decreased by 9 per cent to US$449 million, as the decline in loan volumes led to a fall in credit insurance sales and
HSBC stopped reinsuring credit insurance for other lenders.
Other operating income decreased significantly, as higher losses were recorded on foreclosed properties due to the combined effect of an increase in the
stock of such properties and a reduction in their value due to falling prices. In addition, there were lower gains on the sale of investments, mainly due to a significant one-off gain in the latter part of 2006.
Net insurance claims incurred and movement in liabilities to policyholders decreased by 7 per cent to US$241 million, in line with the change in net
earned insurance premiums.
Loan impairment charges posted a steep rise, increasing by 79 per cent to US$12.2 billion, reflecting substantially higher charges in the US consumer
finance loan book, primarily in mortgage lending but also in the credit cards portfolio in the final part of the year. The main factor driving this deterioration was the effect of the weaker housing market on both economic activity and the ability
of borrowers to extend or refinance debt. In addition, seasoning and mix change within the credit cards portfolio and increases in bankruptcy filings after the exceptionally low levels seen in 2006, following changes in legislation, added to loan
impairment charges.
The real estate secured portfolios experienced continuing deterioration in credit quality as a lack of demand for securitised sub-prime mortgages and falls in house prices severely restricted
refinancing options for many customers. Loan impairment charges rose by 41 per cent to US$3.1 billion and by 139 per cent to US$4.1 billion in the mortgage services business and consumer lending,
respectively. Delinquency rates exceeded recent historical trends, particularly for those loans originated in 2005 and 2006. Performance was weakest in housing markets which had previously experienced the steepest home
price appreciation, second lien products and stated income products.
US card services experienced a rise in loan impairment charges from a combination of factors, primarily a growth in balances, higher losses in the final part of the year as the economy slowed,
a rise in bankruptcy rates to levels approaching those seen historically, and a shift in portfolio mix towards non-prime loans.
Loan impairment charges in Commercial Banking rose by 151 per cent to US$191 million, reflecting growth in the loan book, the increasing probability of default among commercial real estate
loans in the US and a change in methodology for determining loan impairment allowances on a portfolio of revolving loans to small businesses. In addition, in Canada, loan impairment charges increased due to exposure to certain sectors affected by
the strength of the Canadian dollar and an impairment charge for non-bank asset-backed commercial paper was also taken.
Operating expenses increased by 3 per cent, compared with growth in net operating income before loan impairment charges of 5 per cent. The retail bank
branch network was extended both within and beyond the Groups traditional spheres of operation to support the expansion of the Personal Financial Services and Commercial Banking businesses in the US and Canada. Premises and equipment expenses
rose as a consequence. The consumer finance business incurred restructuring charges from the discontinuation of the wholesale and correspondent channels in mortgage services and the closing of branch offices in consumer lending. There were
corresponding benefits in origination costs. The Canadian consumer finance business was also restructured in a similar fashion to the US. The business incurred US$70 million of one-off costs arising from the indemnification agreement with Visa
ahead of Visas planned IPO. In the cards and consumer lending businesses, communication expenses increased due to higher mailing volumes on cards and consumer lending as credit collection policies were tightened. In the third quarter, however,
expenditure on card marketing declined in line with a decision to slow lending growth.
Share of profit in associates and joint ventures declined to US$20 million.
125
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H S B C H O L D I
N G S P L C |
|
Report of the Directors: Operating and
Financial Review (continued) |
|
|
|
|
Geographical regions > North
America > Profit/loss before tax by customer group |
Analysis by customer group and global business
Profit/(loss) before tax
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personal |
|
|
|
|
|
Global |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial |
|
|
Commercial |
|
|
Banking & |
|
|
Private |
|
|
|
|
|
Intersegment |
|
|
|
|
|
Services |
|
|
Banking |
|
|
Markets |
|
|
Banking |
|
|
Other |
|
|
elimination |
21
|
|
Total |
|
North America |
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
12,632
|
|
|
1,480
|
|
|
1,064
|
|
|
224
|
|
|
22
|
|
|
(204
|
) |
|
15,218
|
|
Net fee income/(expense) |
3,896 |
|
|
391 |
|
|
818 |
|
|
181 |
|
|
(59 |
) |
|
|
|
|
5,227 |
|
Trading
income/(expense) excluding net interest income |
(250
|
) |
|
5
|
|
|
(3,516
|
) |
|
10
|
|
|
(128
|
) |
|
|
|
|
(3,879
|
) |
Net
interest income/(expense) on trading activities |
66
|
|
|
|
|
|
584
|
|
|
|
|
|
(110
|
) |
|
204
|
|
|
744
|
|
Net trading
income/(expense)16 |
(184
|
) |
|
5
|
|
|
(2,932
|
) |
|
10
|
|
|
(238
|
) |
|
204
|
|
|
(3,135
|
) |
Changes
in fair value of long-term debt issued and related
derivatives |
|
|
|
|
|
|
|
|
|
|
|
|
3,736
|
|
|
|
|
|
3,736
|
|
Net
income/(expense) from other financial instruments
designated at fair value |
(2
|
) |
|
|
|
|
(1
|
) |
|
|
|
|
4
|
|
|
|
|
|
1
|
|
Net income/(expense) from financial instruments
designated at fair value |
(2 |
) |
|
|
|
|
(1 |
) |
|
|
|
|
3,740 |
|
|
|
|
|
3,737 |
|
Gains
less losses from financial investments |
65
|
|
|
5
|
|
|
(209
|
) |
|
|
|
|
19
|
|
|
|
|
|
(120
|
) |
Dividend income |
36 |
|
|
11 |
|
|
27 |
|
|
3 |
|
|
|
|
|
|
|
|
77 |
|
Net earned insurance
premiums |
390
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
390
|
|
Other operating income/
(expense) |
(426 |
) |
|
140 |
|
|
240 |
|
|
20 |
|
|
1,419 |
|
|
(1,370 |
) |
|
23 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
operating income/(expense) |
16,407
|
|
|
2,032
|
|
|
(993
|
) |
|
438
|
|
|
4,903
|
|
|
(1,370
|
) |
|
21,417
|
|
Net insurance claims17
|
(238 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(238 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
operating income/ (expense)5
|
16,169
|
|
|
2,032
|
|
|
(993
|
) |
|
438
|
|
|
4,903
|
|
|
(1,370
|
) |
|
21,179
|
|
Loan
impairment charges and other credit risk provisions |
(16,132 |
) |
|
(449 |
) |
|
(198 |
) |
|
(16 |
) |
|
|
|
|
|
|
|
(16,795 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
operating income/ (expense) |
37
|
|
|
1,583
|
|
|
(1,191
|
) |
|
422
|
|
|
4,903
|
|
|
(1,370
|
) |
|
4,384
|
|
Operating expenses
(excluding goodwill impairment) |
(6,701 |
) |
|
(937 |
) |
|
(1,384 |
) |
|
(339 |
) |
|
(1,368 |
) |
|
1,370 |
|
|
(9,359 |
) |
Goodwill impairment |
(10,564
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,564
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit/(loss) |
(17,228
|
) |
|
646
|
|
|
(2,575
|
) |
|
83
|
|
|
3,535
|
|
|
|
|
|
(15,539
|
) |
Share of profit/(loss)
in associates and joint ventures |
|
|
|
12 |
|
|
|
|
|
|
|
|
(1 |
) |
|
|
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit/(loss)
before tax |
(17,228
|
) |
|
658
|
|
|
(2,575
|
) |
|
83
|
|
|
3,534
|
|
|
|
|
|
(15,528
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% |
|
|
% |
|
|
% |
|
|
% |
|
|
% |
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share
of HSBCs profit before tax |
(185.1
|
) |
|
7.1
|
|
|
(27.7
|
) |
|
0.9
|
|
|
38.0
|
|
|
|
|
|
(166.8
|
) |
Cost efficiency ratio |
106.8 |
|
|
46.1 |
|
|
(139.4 |
) |
|
77.4 |
|
|
27.9 |
|
|
|
|
|
94.1 |
|
Balance sheet data15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
|
|
|
US$m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
and advances to customers (net) |
179,663
|
|
|
35,725
|
|
|
35,583
|
|
|
5,243
|
|
|
|
|
|
|
|
|
256,214
|
|
Total assets |
192,240 |
|
|
42,211 |
|
|
318,139 |
|
|
7,054 |
|
|
3,323 |
|
|
(10,355 |
) |
|
552,612 |
|
Customer accounts |
65,830
|
|
|
39,105
|
|
|
23,844
|
|
|
14,657
|
|
|
96
|
|
|
|
|
|
143,532
|
|
For footnotes, see page 143.
126
Back to Contents
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personal |
|
|
|
|
|
Global |
|
|
|
|
|
|
|
|
Inter- |
|
|
|
|
|
Financial |
|
|
Commercial |
|
|
Banking & |
|
|
Private |
|
|
|
|
|
segment |
|
|
|
|
|
Services |
|
|
Banking |
|
|
Markets |
|
|
Banking |
|
|
Other |
|
|
elimination |
21 |
|
Total |
|
North America |
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income/(expense) |
13,175
|
|
|
1,558
|
|
|
378
|
|
|
273
|
|
|
(17
|
) |
|
(520
|
) |
|
14,847
|
|
Net fee income/(expense) |
4,571 |
|
|
338 |
|
|
701 |
|
|
279 |
|
|
(79 |
) |
|
|
|
|
5,810 |
|
Trading
income/(expense) excluding net interest income |
(349 |
) |
|
(2 |
) |
|
(871 |
) |
|
11 |
|
|
(78 |
) |
|
|
|
|
(1,289
|
) |
Net
interest income/(expense) on trading activities |
134 |
|
|
|
|
|
137 |
|
|
|
|
|
(44 |
) |
|
520 |
|
|
747 |
|
Net trading
income/(expense)16 |
(215 |
) |
|
(2 |
) |
|
(734 |
) |
|
11 |
|
|
(122 |
) |
|
520 |
|
|
(542 |
) |
Changes
in fair value of long-term debt issued and related
derivatives |
|
|
|
|
|
|
|
|
|
|
|
|
1,750
|
|
|
|
|
|
1,750
|
|
Net
income/(expense) from other financial instruments designated
at fair value |
|
|
|
|
|
|
11 |
|
|
|
|
|
(11 |
) |
|
|
|
|
|
|
Net
income from financial instruments designated
at fair value |
|
|
|
|
|
|
11 |
|
|
|
|
|
1,739 |
|
|
|
|
|
1,750 |
|
Gains
less losses from financial investments |
176 |
|
|
(1 |
) |
|
65 |
|
|
2 |
|
|
3 |
|
|
|
|
|
245 |
|
Dividend income |
47 |
|
|
1 |
|
|
57 |
|
|
|
|
|
|
|
|
|
|
|
105 |
|
Net earned insurance
premiums |
449 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
449 |
|
Other operating income/(expense) |
(5 |
) |
|
88 |
|
|
167 |
|
|
34 |
|
|
1,480 |
|
|
(1,404 |
) |
|
360 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating
income |
18,198
|
|
|
1,982
|
|
|
645 |
|
|
599 |
|
|
3,004
|
|
|
(1,404
|
) |
|
23,024
|
|
Net insurance claims17
|
(241 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(241 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating
income5 |
17,957
|
|
|
1,982
|
|
|
645 |
|
|
599 |
|
|
3,004
|
|
|
(1,404
|
) |
|
22,783
|
|
Loan
impairment charges and other credit risk provisions |
(11,909 |
) |
|
(191 |
) |
|
(46 |
) |
|
(10 |
) |
|
|
|
|
|
|
|
(12,156 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating
income |
6,048
|
|
|
1,791
|
|
|
599 |
|
|
589 |
|
|
3,004
|
|
|
(1,404
|
) |
|
10,627
|
|
Total operating expenses |
(7,594 |
) |
|
(893 |
) |
|
(1,562 |
) |
|
(415 |
) |
|
(1,496 |
) |
|
1,404 |
|
|
(10,556 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit/(loss) |
(1,546
|
) |
|
898 |
|
|
(963 |
) |
|
174 |
|
|
1,508
|
|
|
|
|
|
71 |
|
Share
of profit/(loss) in associates and joint ventures |
|
|
|
22 |
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit/(loss)
before tax |
(1,546
|
) |
|
920 |
|
|
(965 |
) |
|
174 |
|
|
1,508
|
|
|
|
|
|
91 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% |
|
|
% |
|
|
% |
|
|
% |
|
|
% |
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share
of HSBCs profit before tax |
(6.4 |
) |
|
3.8 |
|
|
(4.0 |
) |
|
0.7 |
|
|
6.3 |
|
|
|
|
|
0.4 |
|
Cost efficiency ratio |
42.3 |
|
|
45.1 |
|
|
242.2 |
|
|
69.3 |
|
|
49.8 |
|
|
|
|
|
46.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance sheet data15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
|
|
|
US$m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
and advances to customers (net) |
218,676
|
|
|
38,930
|
|
|
26,186
|
|
|
6,068
|
|
|
|
|
|
|
|
|
289,860
|
|
Total assets |
237,475 |
|
|
46,247 |
|
|
252,804 |
|
|
20,073 |
|
|
1,095 |
|
|
(8,409 |
) |
|
549,285 |
|
Customer accounts |
61,824
|
|
|
36,306
|
|
|
30,732
|
|
|
16,187
|
|
|
124 |
|
|
|
|
|
145,173
|
|
For footnotes, see page 143.
127
Back to Contents
H S B C H O L D I
N G S P L C |
|
Report of the Directors: Operating and
Financial Review (continued) |
|
|
|
|
Geographical regions > North
America > Profit/loss before tax by customer group // Latin America |
Analysis by customer group and global business (continued)
Profit/(loss) before tax
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personal |
|
|
|
|
|
Global |
|
|
|
|
|
|
|
|
Inter- |
|
|
|
|
|
Financial |
|
|
Commercial |
|
|
Banking & |
|
|
Private |
|
|
|
|
|
segment |
|
|
|
|
|
Services |
|
|
Banking |
|
|
Markets |
|
|
Banking |
|
|
Other |
|
|
elimination |
21
|
|
Total |
|
North America |
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income/(expense) |
12,964
|
|
|
1,362
|
|
|
266
|
|
|
212
|
|
|
(52
|
) |
|
(484
|
) |
|
14,268
|
|
Net fee income/(expense) |
3,675 |
|
|
329 |
|
|
656 |
|
|
240 |
|
|
(134 |
) |
|
|
|
|
4,766 |
|
Trading
income/(expense) excluding net interest income |
66 |
|
|
13 |
|
|
746 |
|
|
12 |
|
|
(220 |
) |
|
|
|
|
617 |
|
Net
interest income/(expense) on trading activities |
208 |
|
|
|
|
|
72 |
|
|
|
|
|
(23 |
) |
|
484 |
|
|
741 |
|
Net trading
income/(expense)16 |
274 |
|
|
13 |
|
|
818 |
|
|
12 |
|
|
(243 |
) |
|
484 |
|
|
1,358
|
|
Changes
in fair value of long-term debt issued and related
derivatives |
|
|
|
|
|
|
|
|
|
|
|
|
(63 |
) |
|
|
|
|
(63 |
) |
Net
income/(expense) from other financial instruments designated
at fair value |
|
|
|
|
|
|
(11 |
) |
|
|
|
|
11 |
|
|
|
|
|
|
|
Net expense from financial instruments
designated at fair value |
|
|
|
|
|
|
(11 |
) |
|
|
|
|
(52 |
) |
|
|
|
|
(63 |
) |
Gains
less losses from financial investments |
14 |
|
|
19 |
|
|
12 |
|
|
9 |
|
|
4 |
|
|
|
|
|
58 |
|
Dividend income |
23 |
|
|
1 |
|
|
61 |
|
|
|
|
|
|
|
|
|
|
|
85 |
|
Net earned insurance
premiums |
492 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
492 |
|
Other operating income |
270 |
|
|
87 |
|
|
269 |
|
|
31 |
|
|
1,536 |
|
|
(1,271 |
) |
|
922 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating
income |
17,712
|
|
|
1,811
|
|
|
2,071
|
|
|
504 |
|
|
1,059
|
|
|
(1,271
|
) |
|
21,886
|
|
Net insurance claims17
|
(259 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(259 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating
income5 |
17,453
|
|
|
1,811
|
|
|
2,071
|
|
|
504 |
|
|
1,059
|
|
|
(1,271
|
) |
|
21,627
|
|
Loan
impairment charges and other credit risk provisions |
(6,683 |
) |
|
(74 |
) |
|
(3 |
) |
|
(35 |
) |
|
(1 |
) |
|
|
|
|
(6,796 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating
income |
10,770
|
|
|
1,737
|
|
|
2,068
|
|
|
469 |
|
|
1,058
|
|
|
(1,271
|
) |
|
14,831
|
|
Total operating expenses |
(7,379 |
) |
|
(814 |
) |
|
(1,641 |
) |
|
(355 |
) |
|
(1,275 |
) |
|
1,271 |
|
|
(10,193 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit/(loss) |
3,391
|
|
|
923 |
|
|
427 |
|
|
114 |
|
|
(217 |
) |
|
|
|
|
4,638
|
|
Share
of profit/(loss) in associates and joint ventures |
|
|
|
34 |
|
|
(4 |
) |
|
|
|
|
|
|
|
|
|
|
30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit/(loss)
before tax |
3,391
|
|
|
957 |
|
|
423 |
|
|
114 |
|
|
(217 |
) |
|
|
|
|
4,668
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% |
|
|
% |
|
|
% |
|
|
% |
|
|
% |
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share
of HSBCs profit before tax |
15.4 |
|
|
4.3 |
|
|
1.9 |
|
|
0.5 |
|
|
(1.0 |
) |
|
|
|
|
21.1 |
|
Cost efficiency ratio |
42.3 |
|
|
44.9 |
|
|
79.2 |
|
|
70.4 |
|
|
120.4 |
|
|
|
|
|
47.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance sheet data15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
|
|
|
US$m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
and advances to customers (net) |
220,517
|
|
|
34,651
|
|
|
17,215
|
|
|
5,604
|
|
|
|
|
|
|
|
|
277,987
|
|
Total assets |
252,725 |
|
|
43,665 |
|
|
203,639 |
|
|
7,334 |
|
|
1,898 |
|
|
(3,623 |
) |
|
505,638 |
|
Customer accounts |
54,099
|
|
|
31,066
|
|
|
23,711
|
|
|
11,938
|
|
|
108 |
|
|
|
|
|
120,922
|
|
For footnotes, see page 143.
128
Back to Contents
Latin America
Profit/(loss) before tax by country within customer
groups and global businesses
|
Personal |
|
|
|
Global |
|
|
|
|
|
|
|
|
Financial |
|
Commercial |
|
Banking & |
|
Private
|
|
|
|
|
|
|
Services |
|
Banking |
|
Markets |
|
Banking
|
|
Other
|
|
Total |
|
|
US$m |
|
US$m |
|
US$m |
|
US$m
|
|
US$m
|
|
US$m |
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
Argentina |
|
|
111 |
|
113 |
|
|
|
|
|
224 |
|
Brazil |
250 |
|
348 |
|
298 |
|
8
|
|
6
|
|
910 |
|
Mexico |
360 |
|
157 |
|
190 |
|
7
|
|
|
|
714 |
|
Panama |
51 |
|
37 |
|
33 |
|
|
|
|
|
121 |
|
Other |
7 |
|
53 |
|
7 |
|
1
|
|
|
|
68 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
668 |
|
706 |
|
641 |
|
16
|
|
6
|
|
2,037 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
Argentina |
36 |
|
75 |
|
90 |
|
|
|
|
|
201 |
|
Brazil |
293 |
|
286 |
|
297 |
|
9
|
|
(6
|
) |
879 |
|
Mexico |
514 |
|
333 |
|
113 |
|
11
|
|
9
|
|
980 |
|
Panama |
45 |
|
18 |
|
16 |
|
7
|
|
|
|
86 |
|
Other |
5 |
|
28 |
|
1 |
|
(2
|
) |
|
|
32 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
893 |
|
740 |
|
517 |
|
25
|
|
3
|
|
2,178 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
Argentina |
35 |
|
51 |
|
68 |
|
|
|
3
|
|
157 |
|
Brazil |
121 |
|
185 |
|
218 |
|
6
|
|
(4
|
) |
526 |
|
Mexico |
628 |
|
197 |
|
177 |
|
7
|
|
|
|
1,009 |
|
Panama |
16 |
|
13 |
|
10 |
|
|
|
|
|
39 |
|
Other |
|
|
5 |
|
2 |
|
1
|
|
(4
|
) |
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
800 |
|
451 |
|
475 |
|
14
|
|
(5
|
) |
1,735 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans and advances to customers (net) by country
|
At 31 December |
|
|
|
|
|
2008 |
|
2007 |
|
2006 |
|
|
US$m |
|
US$m |
|
US$m |
|
|
|
|
|
|
|
|
Argentina |
2,356 |
|
2,485 |
|
1,912 |
|
Brazil |
18,255 |
|
18,491 |
|
11,469 |
|
Mexico |
12,211 |
|
18,059 |
|
14,294 |
|
Panama |
4,538 |
|
4,158 |
|
4,178 |
|
Other |
4,927 |
|
4,730 |
|
3,938 |
|
|
|
|
|
|
|
|
|
42,287 |
|
47,923 |
|
35,791 |
|
|
|
|
|
|
|
|
|
Customer accounts by country |
|
|
|
|
|
|
|
At 31 December |
|
|
|
|
|
2008 |
|
2007 |
|
2006 |
|
|
US$m |
|
US$m |
|
US$m |
|
|
|
|
|
|
|
|
Argentina |
2,988 |
|
2,779 |
|
2,470 |
|
Brazil |
27,857 |
|
26,231 |
|
19,946 |
|
Mexico |
17,652 |
|
22,307 |
|
19,775 |
|
Panama |
5,185 |
|
5,062 |
|
5,031 |
|
Other |
5,761 |
|
4,913 |
|
3,639 |
|
|
|
|
|
|
|
|
|
59,443 |
|
61,292 |
|
50,861 |
|
|
|
|
|
|
|
|
129
Back to Contents
H S B C H O L D I
N G S P L C |
|
Report of the Directors: Operating
and Financial Review (continued) |
|
|
|
|
Geographical regions > Latin
America > 2008 |
Profit before tax
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
Latin America |
US$m |
|
|
US$m |
|
|
US$m |
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
6,458
|
|
|
5,576
|
|
|
4,197
|
|
|
Net fee income |
2,167 |
|
|
2,153 |
|
|
1,630 |
|
|
Net trading income |
701
|
|
|
548 |
|
|
537 |
|
|
Changes in fair value of long-term
debt issued and related derivatives |
|
|
|
|
|
|
|
|
|
Net income from
other financial instruments designated at fair value |
364
|
|
|
320 |
|
|
237 |
|
|
Net income from financial instruments
designated at fair value |
364 |
|
|
320 |
|
|
237 |
|
|
Gains less losses
from financial investments |
176
|
|
|
253 |
|
|
84 |
|
|
Gains arising from dilution of interests
in associates |
|
|
|
11 |
|
|
|
|
|
Dividend income |
20
|
|
|
9 |
|
|
6 |
|
|
Net earned insurance premiums |
1,717 |
|
|
1,594 |
|
|
1,076 |
|
|
Other operating
income |
300
|
|
|
228 |
|
|
91 |
|
|
|
|
|
|
|
|
|
|
|
|
Total operating
income |
11,903
|
|
|
10,692
|
|
|
7,858
|
|
|
Net insurance claims incurred and
movement in liabilities to policyholders |
(1,390 |
) |
|
(1,427 |
) |
|
(1,023 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net operating
income before loan impairment charges and other credit
risk provisions |
10,513
|
|
|
9,265
|
|
|
6,835
|
|
|
Loan impairment charges and other
credit risk provisions |
(2,492 |
) |
|
(1,697 |
) |
|
(938 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net operating
income |
8,021
|
|
|
7,568
|
|
|
5,897
|
|
|
Total operating expenses |
(5,990 |
) |
|
(5,402 |
) |
|
(4,166 |
) |
|
|
|
|
|
|
|
|
|
|
|
Operating profit |
2,031
|
|
|
2,166
|
|
|
1,731
|
|
|
Share of profit in associates and
joint ventures |
6 |
|
|
12 |
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
Profit before
tax |
2,037
|
|
|
2,178
|
|
|
1,735
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% |
|
|
% |
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
Share of HSBCs
profit before tax |
21.9
|
|
|
9.0 |
|
|
7.9 |
|
|
Cost efficiency ratio |
57.0 |
|
|
58.3 |
|
|
61.0 |
|
|
Year-end staff
numbers (full-time equivalent) |
58,559
|
|
|
64,404
|
|
|
64,900
|
|
|
Balance sheet data15
|
At 31 December |
|
|
|
|
|
2008 |
|
2007 |
|
2006 |
|
|
US$m |
|
US$m |
|
US$m |
|
|
|
|
|
|
|
|
Loans and advances
to customers (net) |
42,287 |
|
47,923 |
|
35,791 |
|
Loans and advances to banks (net) |
14,572 |
|
12,675 |
|
12,634 |
|
Trading assets,
financial assets designated at fair value, and financial
investments |
18,753 |
|
24,715 |
|
20,497 |
|
Total assets |
97,944 |
|
101,088 |
|
82,169 |
|
Deposits by banks |
5,598 |
|
4,092 |
|
5,267 |
|
Customer accounts |
59,443 |
|
61,292 |
|
50,861 |
|
For footnote, see page 143.
All commentaries on Latin America are on an
underlying basis unless stated otherwise.
2008 compared with 2007
Economic briefing
Inflationary pressures developed in Mexico during the course of 2008, mostly due to rising commodity prices, as consumer price inflation accelerated
from 3.7 per cent in January to 6.5 per cent by the year-end. In response, the Bank of Mexico raised its overnight interest rate by 75 basis points to 8.25 per cent by the end of the year, although a variety of
economic indicators pointed to a sharp loss of momentum during the final quarter as global growth slowed.
The Brazilian economy performed strongly during the first half of 2008, driven by domestic demand, with the annual rate
of consumer price inflation rising from 4.6 per cent in January to 6.4 per cent in July, towards the upper limit of the central banks tolerance range. Conditions within the labour market improved, with the rate of
130
Back to Contents
unemployment well below levels observed a year earlier. In line with many other economies within the region, however, conditions weakened markedly towards the end of 2008, with industrial production falling by close to 20
per cent during the fourth quarter.
In Argentina, economic activity held at a reasonably robust level for much of the year, although measures of industrial
production growth slowed noticeably during the final months of 2008.
Declines in commodity prices during the second half of 2008 and the reduced value of exports raised concerns over the level of capital outflow from the country, while domestic currency interest rates increased sharply. The
official headline rate of consumer price inflation rose during the first half of 2008, reaching 9.3 per cent in June 2008 before slowing to 7.2 per cent in December, although methodological changes make comparisons over year difficult.
Reconciliation of reported and underlying profit
before tax
|
2008 compared
with 2007 |
|
|
|
|
|
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
acquisitions, |
|
|
|
2007 |
|
2008 |
|
|
|
|
|
|
|
|
|
|
2007 |
|
disposals |
|
|
|
at 2008 |
|
acquisitions |
|
Under- |
|
2008 |
|
|
|
Under- |
|
|
as |
|
& dilution |
|
Currency |
|
exchange |
|
and |
|
lying |
|
as |
|
Reported |
|
lying |
|
|
reported |
|
gains |
1 |
translation |
2 |
rates |
3 |
disposals |
1 |
change |
|
reported |
|
change |
|
change |
|
Latin America |
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
% |
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
5,576
|
|
|
|
155
|
|
5,731
|
|
|
|
727
|
|
6,458
|
|
16
|
|
13
|
|
Net fee income |
2,153 |
|
|
|
58 |
|
2,211 |
|
|
|
(44 |
) |
2,167 |
|
1 |
|
(2 |
) |
Other income4 |
1,536
|
|
(11
|
) |
23
|
|
1,548
|
|
71 |
|
269
|
|
1,888
|
|
23
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
operating income5 |
9,265
|
|
(11
|
) |
236
|
|
9,490
|
|
71 |
|
952
|
|
10,513
|
|
13
|
|
10
|
|
Loan impairment charges and other credit risk provisions |
(1,697 |
) |
|
|
(64 |
) |
(1,761 |
) |
|
|
(731 |
) |
(2,492 |
) |
(47 |
) |
(42 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating
income |
7,568
|
|
(11
|
) |
172
|
|
7,729
|
|
71 |
|
221
|
|
8,021
|
|
6
|
|
3
|
|
Operating expenses |
(5,402 |
) |
|
|
(190 |
) |
(5,592 |
) |
|
|
(398 |
) |
(5,990 |
) |
(11 |
) |
(7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit |
2,166
|
|
(11
|
) |
(18
|
) |
2,137
|
|
71 |
|
(177
|
) |
2,031
|
|
(6
|
) |
(8
|
) |
Income from associates |
12 |
|
|
|
|
|
12 |
|
|
|
(6 |
) |
6 |
|
(50 |
) |
(50 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit before
tax |
2,178
|
|
(11
|
) |
(18
|
) |
2,149
|
|
71 |
|
(183
|
) |
2,037
|
|
(6
|
) |
(9
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For footnotes, see page 143.
Review of business performance
In Latin America, HSBC reported a pre-tax profit of US$2.0 billion compared with US$2.2 billion in 2007, a decrease of 6 per cent. On an underlying basis, pre-tax profits decreased by 9 per cent as increased
revenues were offset by higher loan impairment charges, largely in Mexico and Brazil, and increased operating costs across the region.
Net interest income increased by 13 per cent. Growth in average personal lending volumes was mainly driven by vehicle finance and payroll loans in
Brazil, and credit cards and personal loans in Mexico. Average credit card balances increased as a result of significant organic growth in 2007 which was not repeated in 2008. Commercial loan volume growth was driven by increased lending for working
capital and trade finance loans in Brazil, and medium-sized businesses and the real estate sector in Mexico. Increased income on customer liabilities, which was driven by volume growth, particularly in
time deposits, was largely offset by a contraction in deposit spreads, primarily on US dollar denominated accounts. Active repricing strategies were deployed to mitigate spread compression in the region and to better
reflect the credit risk on the loan portfolio. Lower overall spreads on lending products were partly offset by increases in cards in the region, small business loans in Mexico and overdrafts in Brazil. In Argentina, spreads on most products widened.
Net fee income
decreased by 2 per cent following a ruling by the Brazilian Central Bank reducing
or eliminating certain fees such as charges on early loan repayments and returned
cheques. Lower transaction volumes in Personal Financial Services in Brazil
also reduced fee income. These were partly offset by product repricing, the
introduction of new fees and volume growth, particularly in cards, personal
loans, packaged deposit products and payments and
cash management.
131
Back to Contents
H S B C H O L
D I N G S P L C |
|
Report
of the Directors: Operating and Financial Review (continued) |
|
|
|
|
Geographical regions > Latin
America > 2008 / 2007 |
Trading income
rose by 22 per cent largely reflecting favourable positioning against foreign
exchange movements and increased foreign exchange sales volumes. Trading losses
were registered on certain transactions where an offsetting benefit is reported
in net income from financial instruments
designated at fair value. Losses from
defaults on derivative contracts were registered, primarily in Mexico.
Gains less losses from financial investments declined by 24 per cent as gains on the redemption of VISA shares, following its global IPO, and the sale of
shares in both Brazil and Mexico were lower than the gains achieved on the sale of shares in a number of companies in Brazil in 2007.
Net earned insurance premiums rose, driven by higher prices and increased sales in the general insurance business, primarily in Argentina. Sales of life
assurance products remained strong.
Increased net insurance claims incurred and movements in liabilities to policyholders in Argentina were more than offset
by a decrease in liabilities to policyholders in Brazil following a decline in the equity market where the investment losses were passed on to unit-linked policyholders. This was compensated for by a similar decrease in net income from financial instruments designated at fair value.
Other operating income was broadly in line with 2007. A refinement of the income recognition methodology used in respect of long-term insurance contracts
in Brazil in 2008 was offset by a similar adjustment in Mexico in 2007.
Loan impairment charges and other credit risk provisions rose by 42 per cent,
mainly relating to credit cards, as organically grown portfolios in Mexico seasoned following market share growth and credit quality deteriorated in Mexico and Brazil. The personal unsecured, vehicle finance and small and medium-sized commercial
loan portfolios in Brazil also experienced increased levels of loan impairment. Specific focus was placed on improving the quality of new business, based on underwriting experience and relationship management, and steps were taken to improve
collection strategies.
Operating expenses increased by 7 per cent. An increase in staff costs was primarily driven by higher salaries following union-agreed pay rises and
redundancy payments following reductions in staff numbers, partly offset by cost savings from the reduced headcount. Administrative expenses rose
following an increase in the use of a credit card cashback promotional facility in Mexico which was terminated at the end of 2008. Costs also grew in support of improved operational processes in the region. HSBC benefited
in 2008 from the recognition of a tax credit following a court ruling in Brazil granting the right to recover excess taxes paid on insurance transactions and changes in transactional tax legislation. As economic conditions weakened towards the
second half of 2008, strategic cost saving measures were implemented throughout the region.
2007 compared with 2006
Economic briefing
In response to fluctuations in export demand from the US, economic growth in Mexico moderated during the course of 2007, with GDP rising an estimated
3.1 per cent during the year, compared with 4.8 per cent in 2006. Inflationary pressures remained significant throughout 2007, with consumer price inflation averaging 4 per cent, driven by increases in international prices of commodities, which
affected domestic food prices in the core index. As a result, the Bank of Mexico raised its overnight interest rate by a total of 50 basis points, and has maintained its restrictive monetary policy despite reductions in interest rates by the US
Federal Reserve.
The Brazilian economy expanded strongly in 2007, with GDP expected to have grown by 5.4 per cent compared with 3.7 per
cent in 2006. As in 2006, growth was driven by domestic demand, with private consumption rising considerably. As a consequence, the average unemployment rate fell to 9.3 per cent in 2007 from 10 per cent in 2006. After declining to 3.1 per cent at
the end of 2006, the annual rate of consumer price inflation climbed to 4.5 per cent by December 2007, mainly from higher food prices. The cycle of monetary easing which began in the third quarter of 2005 paused in October 2007 with the overnight
rate at 11.25 per cent, the lowest level in several decades. After nine years of steady expansion, the trade balance surplus fell slightly in 2007, and is expected to decrease further in 2008. Balance of payments fundamentals, however, remained
robust and, as a result, the Brazilian economy seemed less vulnerable to external shocks than in previous years.
The Argentine economy also performed strongly in 2007, with GDP expected to have risen by 8.7 per cent. This strength
was a consequence of several factors such as a competitive exchange rate, spare capacity in the economy and a generally
132
Back to Contents
favourable external environment, which helped Argentina
extend its fiscal and external surpluses into a fourth successive year. Less
encouraging was the fact that inflation accelerated to about 13 per cent, up
from 10 per cent in 2006. Although food inflation was part of the explanation,
rapid demand growth was also a factor. 2007 was an election year, and as a result
the rate of growth of fiscal spending doubled to 45 per cent on an annual basis.
As a consequence,
the primary surplus fell by around 1.2 per cent of GDP.
Throughout the region as a whole, GDP growth
roughly matched that of 2006. The slowdown in Mexico provided a contrast to better performances elsewhere in Central and Southern America. Central America grew by an estimated 6.3 per cent, up from
5.9 per cent in 2006 while, in South America, growth was an estimated 5.8 per cent, up from 5.3 per cent in 2006. The most dynamic economies in Central America were Panama (10.0 per cent growth in GDP) and the Dominican
Republic (8.0 per cent), followed by Costa Rica (6.2 per cent) and Honduras (6.2 per cent). In South America, the fastest growing countries after Argentina were Peru (7.2 per cent growth in GDP), Venezuela (7.0 per cent) and Colombia (6.5 per cent).
In general, inflation appears to be under control in Latin America, averaging around 5 per cent over the past three years. Only Venezuela and Argentina have experienced double-digit inflation, while the US dollar-based economies of Panama, Ecuador
and El Salvador have better inflationary records.
Reconciliation of
reported and underlying profit before tax |
|
|
2007 compared with 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
|
2006 |
|
acquisitions, |
|
|
|
|
|
|
|
|
|
|
2006 |
|
acquisitions |
|
|
|
at 2007 |
|
disposals |
|
Under- |
|
2007 |
|
Re- |
|
Under- |
|
|
as |
|
and |
|
Currency |
|
exchange |
|
& dilution |
|
lying |
|
as |
|
ported |
|
lying |
|
|
reported |
|
disposals
|
1 |
translation |
2 |
rates |
6 |
gains |
1 |
change |
|
reported |
|
change |
|
change |
|
Latin America |
US$m |
|
US$m
|
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
% |
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
4,197
|
|
|
|
261
|
|
4,458
|
|
375
|
|
743
|
|
5,576
|
|
33
|
|
17
|
|
Net fee income |
1,630 |
|
|
|
86 |
|
1,716 |
|
86 |
|
351 |
|
2,153 |
|
32 |
|
20 |
|
Other
income4 |
1,008
|
|
|
|
60 |
|
1,068
|
|
102 |
|
366 |
|
1,536
|
|
52 |
|
34 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating
income5 |
6,835
|
|
|
|
407 |
|
7,242
|
|
563 |
|
1,460
|
|
9,265
|
|
36 |
|
20 |
|
Loan
impairment charges and other credit risk provisions
|
(938 |
) |
|
|
(81 |
) |
(1,019 |
) |
(133 |
) |
(545 |
) |
(1,697 |
) |
(81 |
) |
(53 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating
income |
5,897
|
|
|
|
326 |
|
6,223
|
|
430 |
|
915 |
|
7,568
|
|
28 |
|
15 |
|
Operating expenses |
(4,166 |
) |
|
|
(258 |
) |
(4,424 |
) |
(320 |
) |
(658 |
) |
(5,402 |
) |
(30 |
) |
(15 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit |
1,731
|
|
|
|
68 |
|
1,799
|
|
110 |
|
257 |
|
2,166
|
|
25 |
|
14 |
|
Income from associates |
4 |
|
|
|
|
|
4 |
|
9 |
|
(1 |
) |
12 |
|
200 |
|
(25 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit before
tax |
1,735
|
|
|
|
68 |
|
1,803
|
|
119 |
|
256 |
|
2,178
|
|
26 |
|
14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For footnotes, see page 143.
|
Review of business performance
HSBCs operations in Latin America reported a pre-tax profit of US$2.2 billion compared with US$1.7 billion in 2006, representing an increase of 26 per cent. The Groups acquisitions of HSBC Bank Panama
and Banca Nazionale in 2006 strengthened the existing business platform and geographical representation. On an underlying basis, pre-tax profits rose by 14 per cent as increased revenues were partly offset by higher loan impairment charges, largely
from Mexico, and a rise in operating costs.
Notable contributions to Commercial Bankings pre-tax profits, which were 64 per cent higher than in 2006, arose in Brazil from small and mid-market
enterprises and in Mexico from larger corporates. In Personal Financial Services, profit before tax increased by 12 per cent as strong growth in revenues was partly offset by increased loan impairment charges in Mexico.
Profit before tax in Global Banking and Markets increased as strong growth in net fee and net interest income was partly offset by a decrease in trading income and higher costs related to business expansion.
Notwithstanding continuing investment and integration costs throughout the region, the cost efficiency ratio improved by 2.7 percentage points to 58.3 per cent.
133
Back to Contents
H S B C H O L
D I N G S P L C |
|
Report
of the Directors: Operating and Financial Review (continued) |
|
|
|
|
Geographical regions > Latin
America > 2007 / Profit/(loss) before tax by customer group |
Net interest income increased by 17 per cent. Growth was strong across the region, with net interest income rising by 22 per cent and 11 per cent in
Mexico and Brazil, respectively.
In Mexico, net interest income rose despite a fall in balance sheet management revenues due to growth in both assets and liabilities. In particular, credit card balances increased, driven by
marketing and portfolio management initiatives designed to improve customer retention and card usage. Volume growth was achieved in mortgages, commercial real estate lending, trade and factoring. Customer relationship management campaigns resulted
in new customer acquisitions and increased cross-selling. Net interest income in Brazil increased as the sound economic outlook and falling interest rates resulted in strong demand for credit.
Fee income rose by 20 per cent, primarily driven by robust business growth across the region. In Mexico, the use of debit and credit cards grew, in part
because of the growing ATM network and the number of cards in force, which drove commissions from ATM cash withdrawals and point of sale billing. Stricter guidelines on the imposition of late payment fees also led to higher income.
A strategy to migrate more transactions to internet-based services resulted in higher payment and cash management transactions as the number of active customers rose.
Current account income increased as a result of a re-pricing exercise and a rise in volumes. Fees from loans and funds under management also grew on higher volumes. Strong growth in customer
accounts delivered higher transactional fees and the continuing success of the Tu Cuenta product in Mexico led to increased take-up with higher product fees charged to customers.
Net income from trading activities decreased by 4 per cent, mainly due to reduced trading opportunities in Credit and Rates. This was partly offset by
income growth from foreign exchange trading, driven by continuing market volatility.
Net gains from financial investments rose significantly following a gain on sale of shares held
in a credit bureau, a stock exchange and a derivatives exchange in Brazil.
The continued growth of insurance operations in the region, achieved by increasing HSBCs product offerings and expanding its distribution channels, along with targeted sales initiatives,
led to higher net insurance claims incurred and movements in liabilities to policyholders.
A 97 per cent increase in other operating income reflected the recognition of the embedded value calculation on the PVIF
life assurance business in Mexico. The improvement on 2006 was also aided by the non-recurrence of a loss on sale of a portfolio of assets during that year and sundry gains on foreclosed assets in 2007.
Loan impairment charges rose sharply, by 53 per cent to US$1.7 billion, mainly driven by portfolio growth, normal seasoning and higher delinquency
rates on credit cards in Mexico, following a targeted expansion in market share. Loan impairment charges for small and medium-sized businesses lending and delinquencies on loans to the self-employed also increased in Mexico. Partly offsetting these
developments was an improvement in personal and commercial delinquency rates in Brazil.
Continuing investment and business expansion resulted in an increase in operating expenses of 15 per cent. This compared
favourably with growth in net operating income before loan impairment charges of 20 per cent. Staff costs rose, primarily on higher salaries and bonuses in the region, driven by the need to support business growth, union-agreed pay rises and one-off
costs incurred in Brazil to improve operational efficiencies. These were partially offset by a curtailment and settlement gain in Mexico from staff transferring from the Groups defined benefit healthcare scheme to a new defined contribution
scheme.
Increases in non-staff costs included higher marketing expenditure in support of growth in credit card operations, continued investment in infrastructure to support business growth and a rise
in telecommunication costs and transactional taxes. Four additional months of Banca Nazionale expenses also increased costs.
134
Back to Contents
Analysis by customer group and global business |
|
|
|
|
|
|
|
|
|
Profit/(loss) before tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personal
|
|
|
|
|
|
Global
|
|
|
|
|
|
|
|
|
Inter-
|
|
|
|
|
|
|
Financial
|
|
|
Commercial
|
|
|
Banking & |
|
|
Private
|
|
|
|
|
|
segment
|
|
|
|
|
|
|
Services
|
|
|
Banking
|
|
|
Markets
|
|
|
Banking
|
|
|
Other
|
|
|
elimination |
21 |
|
Total
|
|
|
Latin America |
US$m
|
|
|
US$m
|
|
|
US$m
|
|
|
US$m
|
|
|
US$m
|
|
|
US$m
|
|
|
US$m
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
4,582
|
|
|
1,637
|
|
|
579
|
|
|
22
|
|
|
(35
|
) |
|
(327
|
) |
|
6,458
|
|
|
Net fee income |
1,339
|
|
|
536
|
|
|
248
|
|
|
35
|
|
|
9
|
|
|
|
|
|
2,167
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading income excluding net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
interest income |
123
|
|
|
27
|
|
|
200
|
|
|
3
|
|
|
4
|
|
|
|
|
|
356
|
|
|
Net interest income/(expense) on
trading activities |
7
|
|
|
4
|
|
|
8
|
|
|
|
|
|
(2
|
) |
|
327
|
|
|
345
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net trading income16
|
130
|
|
|
31
|
|
|
208
|
|
|
3
|
|
|
2
|
|
|
327
|
|
|
701
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes
in fair value of long-term debt issued and related derivatives |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income from other financial instruments designated at fair value |
187
|
|
|
|
|
|
139
|
|
|
|
|
|
38
|
|
|
|
|
|
364
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from financial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
instruments designated at |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
fair value |
187
|
|
|
|
|
|
139
|
|
|
|
|
|
38
|
|
|
|
|
|
364
|
|
|
Gains less losses from financial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
investments |
132
|
|
|
21
|
|
|
21
|
|
|
2
|
|
|
|
|
|
|
|
|
176
|
|
|
Dividend income |
16
|
|
|
1
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
20
|
|
|
|
Net earned insurance premiums |
1,547
|
|
|
82
|
|
|
88
|
|
|
|
|
|
|
|
|
|
|
|
1,717
|
|
|
Other operating income |
244
|
|
|
57
|
|
|
39
|
|
|
3
|
|
|
8
|
|
|
(51
|
) |
|
300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income |
8,177
|
|
|
2,365
|
|
|
1,325
|
|
|
65
|
|
|
22
|
|
|
(51
|
) |
|
11,903
|
|
|
Net insurance claims17
|
(1,281
|
) |
|
(42
|
) |
|
(68
|
) |
|
|
|
|
1
|
|
|
|
|
|
(1,390
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income5
|
6,896
|
|
|
2,323
|
|
|
1,257
|
|
|
65
|
|
|
23
|
|
|
(51
|
) |
|
10,513
|
|
|
Loan impairment charges and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
other credit risk provisions |
(2,120
|
) |
|
(340
|
) |
|
(29
|
) |
|
|
|
|
(3
|
) |
|
|
|
|
(2,492
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income |
4,776
|
|
|
1,983
|
|
|
1,228
|
|
|
65
|
|
|
20
|
|
|
(51
|
) |
|
8,021
|
|
|
|
Total operating expenses |
(4,114
|
) |
|
(1,277
|
) |
|
(587
|
) |
|
(49
|
) |
|
(14
|
) |
|
51
|
|
|
(5,990
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit |
662
|
|
|
706
|
|
|
641
|
|
|
16
|
|
|
6
|
|
|
|
|
|
2,031
|
|
|
Share of profit in associates |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and joint ventures |
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit before tax |
668
|
|
|
706
|
|
|
641
|
|
|
16
|
|
|
6
|
|
|
|
|
|
2,037
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
%
|
|
|
%
|
|
|
%
|
|
|
%
|
|
|
%
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share of HSBCs profit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
before tax |
7.2
|
|
|
7.6
|
|
|
6.9
|
|
|
0.2
|
|
|
|
|
|
|
|
|
21.9
|
|
|
Cost efficiency ratio |
59.7
|
|
|
55.0
|
|
|
46.7
|
|
|
75.4
|
|
|
60.9
|
|
|
|
|
|
57.0
|
|
|
|
Balance sheet data15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US$m
|
|
|
US$m
|
|
|
US$m
|
|
|
US$m
|
|
|
US$m
|
|
|
|
|
|
US$m
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans and advances to |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
customers (net) |
18,523
|
|
|
15,460
|
|
|
8,273
|
|
|
31
|
|
|
|
|
|
|
|
|
42,287
|
|
|
Total assets |
30,320
|
|
|
19,382
|
|
|
48,868
|
|
|
391
|
|
|
361
|
|
|
(1,378
|
) |
|
97,944
|
|
|
Customer accounts |
27,564
|
|
|
14,367
|
|
|
15,384
|
|
|
2,128
|
|
|
|
|
|
|
|
|
59,443
|
|
|
|
For footnotes, see page
143. |
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135
Back to Contents
H S B C H O L
D I N G S P L C |
|
Report
of the Directors: Operating and Financial Review (continued) |
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|
Geographical regions > Latin
America > Profit/(loss) before tax by customer group |
Analysis by customer group and global business (continued)
Profit/(loss) before tax
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Personal |
|
|
|
|
|
Global |
|
|
|
|
|
|
|
|
Inter- |
|
|
|
|
|
|
Financial |
|
|
Commercial
|
|
|
Banking & |
|
|
Private |
|
|
|
|
|
segment |
|
|
|
|
|
|
Services |
|
|
Banking |
|
|
Markets |
|
|
Banking
|
|
|
Other |
|
|
elimination |
21 |
|
Total
|
|
|
Latin America |
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m
|
|
|
|
Net interest income |
3,983
|
|
|
1,407
|
|
|
410
|
|
|
20
|
|
|
3
|
|
|
(247
|
) |
|
5,576
|
|
|
Net fee income |
1,372
|
|
|
485
|
|
|
250
|
|
|
40
|
|
|
6
|
|
|
|
|
|
2,153
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading income excluding net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
interest income |
67
|
|
|
39
|
|
|
164
|
|
|
2
|
|
|
|
|
|
|
|
|
272
|
|
|
Net interest income on |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
trading activities |
10
|
|
|
1
|
|
|
18
|
|
|
|
|
|
|
|
|
247
|
|
|
276
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net trading income16
|
77
|
|
|
40
|
|
|
182
|
|
|
2
|
|
|
|
|
|
247
|
|
|
548
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in fair value of long- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
term debt issued and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
related derivatives |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from other financial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
instruments designated at fair |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
value |
314
|
|
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
320
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from financial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
instruments designated at |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
fair value |
314
|
|
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
320
|
|
|
Gains less losses from financial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
investments |
120
|
|
|
51
|
|
|
82
|
|
|
1
|
|
|
(1
|
) |
|
|
|
|
253
|
|
|
Gains arising from dilution of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
interests in associates |
|
|
|
|
|
|
|
|
|
|
|
|
11
|
|
|
|
|
|
11
|
|
|
Dividend income |
5
|
|
|
2
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
9
|
|
|
Net earned insurance premiums |
1,448
|
|
|
66
|
|
|
80
|
|
|
|
|
|
|
|
|
|
|
|
1,594
|
|
|
Other operating income |
145
|
|
|
69
|
|
|
31
|
|
|
8
|
|
|
12
|
|
|
(37
|
) |
|
228
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income |
7,464
|
|
|
2,120
|
|
|
1,043
|
|
|
71
|
|
|
31
|
|
|
(37
|
) |
|
10,692
|
|
|
Net insurance claims17
|
(1,330
|
) |
|
(37
|
) |
|
(60
|
) |
|
|
|
|
|
|
|
|
|
|
(1,427
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income5
|
6,134
|
|
|
2,083
|
|
|
983
|
|
|
71
|
|
|
31
|
|
|
(37
|
) |
|
9,265
|
|
|
|
Loan impairment (charges)/ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
recoveries and other credit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
risk provisions |
(1,492
|
) |
|
(212
|
) |
|
13
|
|
|
|
|
|
(6
|
) |
|
|
|
|
(1,697
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income |
4,642
|
|
|
1,871
|
|
|
996
|
|
|
71
|
|
|
25
|
|
|
(37
|
) |
|
7,568
|
|
|
|
Total operating expenses |
(3,758
|
) |
|
(1,132
|
) |
|
(481
|
) |
|
(46
|
) |
|
(22
|
) |
|
37
|
|
|
(5,402
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit |
884
|
|
|
739
|
|
|
515
|
|
|
25
|
|
|
3
|
|
|
|
|
|
2,166
|
|
|
Share of profit in associates |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and joint ventures |
9
|
|
|
1
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit before tax |
893
|
|
|
740
|
|
|
517
|
|
|
25
|
|
|
3
|
|
|
|
|
|
2,178
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% |
|
|
% |
|
|
%
|
|
|
%
|
|
|
%
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Share of HSBCs profit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
before tax |
3.7
|
|
|
3.1
|
|
|
2.1
|
|
|
0.1
|
|
|
|
|
|
|
|
|
9.0
|
|
|
Cost efficiency ratio |
61.3
|
|
|
54.3
|
|
|
48.9
|
|
|
64.8
|
|
|
71.0
|
|
|
|
|
|
58.3
|
|
|
|
Balance sheet data15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
|
|
|
US$m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans and advances to |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
customers (net) |
21,680
|
|
|
16,243
|
|
|
9,935
|
|
|
65
|
|
|
|
|
|
|
|
|
47,923
|
|
|
Total assets |
35,181
|
|
|
21,049
|
|
|
45,045
|
|
|
302
|
|
|
261
|
|
|
(750
|
) |
|
101,088
|
|
|
Customer accounts |
30,628
|
|
|
15,524
|
|
|
13,950
|
|
|
1,190
|
|
|
|
|
|
|
|
|
61,292
|
|
|
|
For footnotes, see page
143. |
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|
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|
136
Back to Contents
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personal
|
|
|
|
|
|
Global
|
|
|
|
|
|
|
|
|
Inter-
|
|
|
|
|
|
|
Financial
|
|
|
Commercial
|
|
|
Banking &
|
|
|
Private
|
|
|
|
|
|
segment
|
|
|
|
|
|
|
Services
|
|
|
Banking
|
|
|
Markets
|
|
|
Banking
|
|
|
Other
|
|
|
elimination |
21 |
|
Total
|
|
|
Latin America |
US$m
|
|
|
US$m
|
|
|
US$m
|
|
|
US$m
|
|
|
US$m
|
|
|
US$m
|
|
|
US$m
|
|
|
|
Net interest income/(expense) |
3,057
|
|
|
1,037
|
|
|
325
|
|
|
13
|
|
|
(2
|
) |
|
(233
|
) |
|
4,197
|
|
|
Net fee income |
1,053
|
|
|
387
|
|
|
167
|
|
|
23
|
|
|
|
|
|
|
|
|
1,630
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading income excluding net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
interest income |
61
|
|
|
21
|
|
|
218
|
|
|
1
|
|
|
|
|
|
|
|
|
301
|
|
|
Net interest income/(expense) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
on trading activities |
14
|
|
|
5
|
|
|
(16
|
) |
|
|
|
|
|
|
|
233
|
|
|
236
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net trading income16
|
75
|
|
|
26
|
|
|
202
|
|
|
1
|
|
|
|
|
|
233
|
|
|
537
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in fair value of long-term |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
debt issued and related |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
derivatives |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from other financial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
instruments designated at fair |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
value |
227
|
|
|
|
|
|
11
|
|
|
|
|
|
(1
|
) |
|
|
|
|
237
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income/(expense) from |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
financial instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
designated at fair value |
227
|
|
|
|
|
|
11
|
|
|
|
|
|
(1
|
) |
|
|
|
|
237
|
|
|
Gains less losses from financial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
investments |
11
|
|
|
1
|
|
|
72
|
|
|
|
|
|
|
|
|
|
|
|
84
|
|
|
Dividend income |
5
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6
|
|
|
Net earned insurance premiums |
992
|
|
|
27
|
|
|
59
|
|
|
|
|
|
(2
|
) |
|
|
|
|
1,076
|
|
|
Other operating income |
74
|
|
|
7
|
|
|
10
|
|
|
4
|
|
|
14
|
|
|
(18
|
) |
|
91
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income |
5,494
|
|
|
1,486
|
|
|
846
|
|
|
41
|
|
|
9
|
|
|
(18
|
) |
|
7,858
|
|
|
Net insurance claims17
|
(957
|
) |
|
(16
|
) |
|
(51
|
) |
|
|
|
|
1
|
|
|
|
|
|
(1,023
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income5
|
4,537
|
|
|
1,470
|
|
|
795
|
|
|
41
|
|
|
10
|
|
|
(18
|
) |
|
6,835
|
|
|
Loan impairment (charges)/ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
recoveries and other credit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
risk provisions |
(764
|
) |
|
(197
|
) |
|
26
|
|
|
|
|
|
(3
|
) |
|
|
|
|
(938
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income |
3,773
|
|
|
1,273
|
|
|
821
|
|
|
41
|
|
|
7
|
|
|
(18
|
) |
|
5,897
|
|
|
Total operating expenses |
(2,977
|
) |
|
(822
|
) |
|
(346
|
) |
|
(27
|
) |
|
(12
|
) |
|
18
|
|
|
(4,166
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit/(loss) |
796
|
|
|
451
|
|
|
475
|
|
|
14
|
|
|
(5
|
) |
|
|
|
|
1,731
|
|
|
Share of profit in associates |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and joint ventures |
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit/(loss) before tax |
800
|
|
|
451
|
|
|
475
|
|
|
14
|
|
|
(5
|
) |
|
|
|
|
1,735
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
%
|
|
|
%
|
|
|
%
|
|
|
%
|
|
|
%
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share of HSBCs profit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
before tax |
3.6
|
|
|
2.0
|
|
|
2.2
|
|
|
0.1
|
|
|
|
|
|
|
|
|
7.9
|
|
|
Cost efficiency ratio |
65.6
|
|
|
55.9
|
|
|
43.5
|
|
|
65.9
|
|
|
120.0
|
|
|
|
|
|
61.0
|
|
|
|
Balance sheet data15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US$m
|
|
|
US$m
|
|
|
US$m
|
|
|
US$m
|
|
|
US$m
|
|
|
|
|
|
US$m
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans and advances to |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
customers (net) |
16,165
|
|
|
11,463
|
|
|
8,147
|
|
|
16
|
|
|
|
|
|
|
|
|
35,791
|
|
|
Total assets |
28,237
|
|
|
16,599
|
|
|
37,564
|
|
|
90
|
|
|
344
|
|
|
(665
|
) |
|
82,169
|
|
|
Customer accounts |
25,200
|
|
|
13,754
|
|
|
11,685
|
|
|
222
|
|
|
|
|
|
|
|
|
50,861
|
|
|
|
For footnotes, see page
143. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
137
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H S B C H O L D I
N G S P L C |
|
Report of the Directors: Operating and
Financial Review (continued) |
|
|
|
|
Products and services |
Products
and services |
|
Personal Financial Services |
Personal Financial Services provides over 105
million individual and self-employed customers with financial services in
62 countries. The selection of products and services offered in each case
is determined by HSBCs participation strategy in the respective markets.
In markets where HSBC
already has scale or, in emerging markets where scale can be built over time,
HSBC offers a full range of personal financial products and services. Typically,
products provided include personal banking products (current and savings accounts,
mortgages and personal loans, credit cards, and local and international payment
services), together with consumer finance and wealth management services.
In other markets,
HSBC participates more selectively, targeting only those customer segments which
have strong international connectivity or where HSBCs global scale is
crucial.
HSBC Premier, the Groups premium banking service, provides personalised relationship management, a single online view of all international accounts, free international funds transfer
between HSBC accounts, 24-hour priority telephone access, global travel assistance and wealth management services. There are now over 2.6 million HSBC Premier customers, who can use more than 300 specially designated Premier branches and centres in
41 countries and territories.
Wealth management
(insurance and investment products and financial planning services) plays
an important part in meeting the needs of customers. Insurance products distributed
by HSBC through its direct channels and branch networks include loan protection,
life, property and health insurance and pensions. HSBC also makes available
a wide range of investment products. A choice of third-party and proprietary
funds provides customers with the ability to diversify their investments across
a range of best-in-class fund managers chosen after a rigorous and objective
selection process. Comprehensive financial planning services covering customers
investment, retirement, personal and asset protection needs are offered through
qualified financial planning managers.
Personal customers prefer to conduct their financial business at times convenient to them, using the sales and service channels of their choice. This demand for flexibility is met through the
increased provision of direct channels such as the internet and self-service terminals, in addition to traditional and
automated branches and service centres accessed by telephone.
HSBC is a major global credit card issuer with over 100 million credit cards in force in 49 countries. In addition to HSBC branded cards, HSBC Finance in the US offers Household Bank and
Orchard Bank branded cards and affiliation programmes such as the GM card and the AFL-CIO Union Plus card. HSBC is also a provider of third-party private label credit cards (or store cards) through merchant relationships.
HSBC Finances operations in the US, the UK and Canada also make credit available to customers not well catered for by traditional banking operations and facilitate point-of-sale credit in
support of retail purchases. At the end of February 2009, HSBC authorised the discontinuation as soon as practicable of all new receivable originations of all products by the branch-based consumer lending business of HSBC Finance in North America
(see page 70).
High net worth individuals and their families who choose the differentiated services offered within Private Banking are not included in this customer group.
Commercial Banking
HSBC is one of the worlds leading and most international banks, with over 2.9 million Commercial Banking customers in 63 countries, including sole proprietors, partnerships, clubs and associations, incorporated
businesses and publicly quoted companies. At 31 December 2008, HSBC had total commercial customer account balances of US$236 billion and total commercial customer loans and advances, net of loan impairment allowances, of US$204 billion.
HSBC segments its Commercial Banking business into corporate, mid-market, small and micro businesses, allowing the development of tailored customer propositions while adopting a broader view of
the entire Commercial Banking sector, from sole traders to top-end mid-market corporations. This allows HSBC to provide continuous support to companies as they grow in size both domestically and internationally, and ensures a clear focus on the
small and micro business sectors, which are typically the key to innovation and growth in market economies.
HSBC places particular emphasis on geographical collaboration to meet its business customers needs and aims to be recognised as the leading international business bank and the best
bank
138
Back to Contents
for small business in target markets. The range of products and services includes:
Financing: HSBC provides a range of short and longer-term financing
options for Commercial Banking customers, both domestically and cross-border, including overdrafts, receivables finance, term loans and property finance. The Group offers forms of asset finance in selected sites and has established specialised
divisions providing leasing and instalment finance for vehicles, plant and equipment.
Payments and cash management: HSBC is a leading provider of domestic and cross-border payments, collections, liquidity management and account services
worldwide. The Groups extensive network of offices and direct access to numerous local clearing systems enhances its customers ability to manage their cash efficiently on a global basis. Deposits are attracted through both current
accounts and savings products, in local and foreign currencies.
International trade: HSBC finances and facilitates significant volumes of international trade, under both open account terms and traditional trade
finance instruments. HSBC also provides international factoring, commodity and insured export finance, and forfaiting services. The Group utilises its extensive international network to build customer relationships at both ends of trade flows, and
maximises efficiency through expertise in documentary checking and processing, and highly automated systems.
Treasury and capital markets: Commercial Banking customers are volume users of the Groups foreign exchange capabilities, including sophisticated
currency and interest rate options.
Commercial cards: HSBC offers commercial card services covering both issuing and acquiring. Commercial card issuing provides its customers with services
which enhance cash management, improve cost control and streamline purchasing processes. HSBC offers card acquiring services, either directly or as part of a joint venture, enabling merchants to accept credit and debit card payments either in
person/on the premises or when the cardholder is not present (eg over the internet or on the telephone).
Insurance: HSBC offers insurance services covering a full range of commercial insurance products designed to meet the needs of businesses and their
employees, including employee benefit, pension and healthcare programmes, and a variety of commercial risks such as buildings, marine, cargo, keyman and credit protection. These products are provided by HSBC either as an intermediary
(broker,
agent or consultant) or as a supplier of in-house or third-party offerings. HSBC also provides insurance due diligence reviews, and actuarial and employee benefit consultancy services.
Wealth management services: These include advice and products related to savings and investments provided to Commercial Banking customers and their
employees through HSBCs worldwide network, with clients being referred to Private Banking where appropriate.
Investment banking: A small number of Commercial Banking customers need corporate finance and advisory support. These requirements are serviced by the
Group on a client-specific basis.
Delivery channels: HSBC deploys a full range of delivery channels, including specific online and direct banking offerings such as HSBCnet and Business
Internet Banking.
Global Banking and Markets
Global Banking and Markets provides tailored financial solutions to major government, corporate and institutional clients worldwide. Managed as a global business, Global Banking and Markets operates a long-term relationship
management approach to build a full understanding of clients financial requirements. Sectoral client service teams comprising relationship managers and product specialists develop financial solutions to meet individual client needs. With
dedicated offices in over 66 countries and access to HSBCs worldwide presence and capabilities, this business serves subsidiaries and offices of its clients on a global basis.
Global Banking and Markets is managed as four principal business lines: Global Markets, Global Banking, Principal Investments and Global Asset Management. This structure allows HSBC to focus on
relationships and sectors that best fit the Groups footprint and facilitates seamless delivery of HSBCs products and services to clients.
Global Markets
HSBCs operations in Global Markets consist of treasury and capital markets services for supranationals, central banks, corporations, institutional and private investors, financial institutions and other market
participants. Products include:
• |
foreign exchange; |
|
|
• |
currency, interest rate, bond, credit, equity
and other derivatives; |
139
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H S B C H O L D I
N G S P L C |
|
Report of the Directors: Operating and
Financial Review (continued) |
|
|
|
|
Products and services / Other
information > FUM / Assets in custody / Property |
• |
government and non-government fixed income
and money market instruments; |
|
|
• |
precious metals and exchange traded futures; |
|
|
• |
equity services, including research, sales
and trading for institutional, corporate
and private clients and asset management
services; |
|
|
• |
distribution of capital markets instruments,
including debt, equity and structured products,
utilising HSBCs global network; and |
|
|
• |
securities services, where HSBC is one of the
worlds leading custodians providing custody
and clearing services and funds administration
to both domestic and cross-border investors. |
Global Banking
HSBCs operations in Global Banking consist of financing, advisory and transaction services for corporations, institutional and private investors, financial institutions, and governments and their agencies. Products
include:
• |
financing and capital markets, which comprises
capital raising, including debt and equity capital,
corporate finance and advisory services,
bilateral and syndicated lending, leveraged and acquisition
finance, structured and project finance,
lease finance, and non-retail deposit- taking; |
|
|
• |
international, regional and domestic payments
and cash management services; and |
|
|
• |
other transaction services, including trade
services, factoring and banknotes. |
|
|
Global Asset Management
HSBCs operations in asset management consist of products and services for institutional investors, intermediaries and individual investors and their advisers.
Principal Investments
This includes private equity, which comprises HSBCs captive private equity funds, strategic relationships with third-party private equity managers and other investments.
Private Banking
HSBCs presence in all the major wealth-creating regions has enabled it to build one of the worlds leading private banking groups, providing private banking and trustee services to high net worth individuals and
their families from over 90 locations
in 43 countries and territories, with client assets of US$352 billion at 31 December 2008.
HSBC Private Bank is the principal marketing name of the HSBC Groups international private banking business and utilising the most suitable products from the marketplace, HSBC Private
Bank works with its clients to offer both traditional and innovative ways to manage and preserve wealth while optimising returns. Products and services offered include:
Private Banking Services: These comprise multi-currency deposit accounts and fiduciary deposits, credit and specialist lending, treasury trading
services, cash management, securities custody and clearing. In addition, HSBC Private Bank works to ensure its clients have full access to other products and services available throughout HSBC, such as credit cards, internet banking, corporate
banking, and investment banking.
Private Wealth Management: These comprise both advisory and discretionary investment services. A wide range of investment vehicles is covered, including
bonds, equities, derivatives, options, futures, structured products, mutual funds and alternatives (hedge funds, private equity and real estate). By accessing regional expertise located within six major advisory centres in Hong Kong, Singapore,
Geneva, New York, Paris and London, Private Banking seeks to find the most suitable investments for clients needs and investment strategies. Corporate Finance Solutions helps provide clients with cross-border solutions for their companies
working with Global Banking & Markets.
Private Wealth Solutions: These comprise inheritance planning, trustee and other fiduciary services designed to protect existing wealth and create
tailored structures to preserve wealth for future generations. Areas of expertise include trusts, foundation and company administration, charitable trusts and foundations, insurance, family office advisory and philanthropy. These are tailored to
meet the individual needs of each family.
Other
information |
|
Funds under management |
|
2008 |
|
2007 |
|
|
US$bn |
|
US$bn |
|
Funds under management |
|
|
|
|
At 1 January |
844 |
|
695 |
|
Net new money |
(1 |
) |
36 |
|
Value change |
(159 |
) |
53 |
|
Exchange and other |
51 |
|
60 |
|
|
|
|
|
|
At 31 December |
735 |
|
844 |
|
|
|
|
|
|
140
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|
At 31 December |
|
|
|
|
|
|
|
2008 |
|
2007 |
|
|
US$bn |
|
US$bn |
|
Funds under management by
business |
|
|
|
|
Global Asset Management |
370 |
|
380 |
|
Private Banking |
219 |
|
275 |
|
Affiliates |
2 |
|
3 |
|
Other |
144 |
|
186 |
|
|
|
|
|
|
|
735 |
|
844 |
|
|
|
|
|
|
Funds under management at 31 December 2008 were
US$735 billion, a decrease of 13 per cent compared with 31 December 2007.
Both Global Asset Management and Private Banking funds decreased due to the
fall in equity markets.
Global Asset Management funds under management amounted to US$370 billion, a decrease of 3 per cent compared with 31 December 2007. Excluding an internal transfer of US$67 billion,
Global Asset Management funds decreased by 20 per cent to US$303 billion.
Net outflows were predominantly driven by clients redeeming long-term funds as a consequence of the downturn in the global economic environment, although this was reduced by net new money into
money market funds as clients sought to reduce risk. Additionally, the total value of funds under management was affected by a weaker investment performance resulting from turbulent markets and by foreign exchange movements.
Notwithstanding a decrease in emerging markets funds during the year, Global Asset Management remained one of the worlds largest emerging market asset managers, with US$52 billion of
funds under management.
Private Bankings funds under management decreased by 20 per cent to US$219 billion, driven by equity market performance. Net new money, while positive, amounted to only US$2
billion as positive flows in Europe, were offset by outflows of funds in other regions as clients reduced risk by transferring funds to cash deposits, many with HSBC in response to its perceived strength.
Other funds under management, of which the main element is a corporate trust business in Asia, decreased to US$144 billion.
Assets held in custody and under administration
Custody is the safekeeping and servicing of securities
and other financial assets on behalf of clients. At 31 December 2008, assets
held by HSBC as custodian amounted to US$3.6 trillion, 33 per cent lower
than the US$5.4 trillion held at 31 December 2007. This was mainly driven
by
adverse market movements affecting the value of assets held.
HSBCs assets under administration business, which includes the provision of various support function activities including the valuation of portfolios of securities and other financial
assets on behalf of clients, complements the custody business. At 31 December 2008, the value of assets held under administration by the Group amounted to US$3.3 trillion, in line with 31 December 2007.
Property
During 2008, HSBC recognised a gain of US$416
million in other operating income in respect of the purchase of the subsidiary
of Metrovacesa which owned the property and long leasehold land comprising 8
Canada Square, London. See Note 23 on the Financial Statements for further details.
At 31 December
2008, HSBC operated from some 9,870 operational properties worldwide, of
which approximately
2,770 were located in Europe, 1,090 in Hong Kong and Rest of Asia-Pacific,
1,640 in North America, 4,200 in Latin America and 170 in the Middle East.
These properties
had an area of approximately 73.6 million square feet (2007: 69.8
million square feet).
Freehold,
long leasehold and short leasehold land and buildings carried on the
balance sheet represented 35 per cent of HSBCs operational space. Of the
total net book value of HSBC properties, more than 72 per cent was for owned
properties or properties under long-term leases. In addition, properties with
a net book value of US$971 million were held for investment purposes.
HSBCs operational properties are stated at cost, being historical cost or fair value at the date of transition to IFRSs (their deemed cost) less any impairment losses, and are depreciated
on a basis calculated to write off the assets over their estimated useful lives. Properties owned as a consequence of an acquisition are recognised initially at fair value.
Valuation of freehold and leasehold land and buildings
HSBCs freehold and long leasehold properties, together with all leasehold properties in Hong Kong, were valued in 2008. The value of these properties was US$3.3 billion (2007: US$2.2 billion) in excess of
their carrying amount in the consolidated balance sheet.
Further details are included in Note 23 on the Financial Statements.
141
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H S B C H O L D I
N G S P L C |
|
Report of the Directors: Operating and Financial Review (continued) |
|
|
|
|
Other information / Legal proceedings / Footnotes |
Legal proceedings
On 27 July 2007, the UK Office of Fair Trading (OFT) issued High Court legal proceedings against a number of UK financial institutions, including HSBC Bank, to determine the legal status and enforceability of
certain of the charges applied to their personal customers in relation to unauthorised overdrafts (the charges). Pending the resolution of the proceedings, the Financial Services Authority (FSA) has granted firms (including
HSBC Bank) a waiver enabling them to place relevant complaints about the charges on hold and the County Courts have stayed all individual customer claims.
Certain preliminary issues in these proceedings have been heard in the Commercial Division of the High Court. This has confirmed that HSBC Banks current and historic charges are capable
of being tested for fairness but are not capable of being penalties. HSBC Bank (and all the other financial institutions involved in the legal proceedings) appealed the finding that the current charges are capable of being tested for fairness. The
Court of Appeal delivered its judgement on 26 February 2009, confirming the decision of the High Court that the charges of HSBC Bank (and all of the other financial institutions involved in the legal proceedings) are capable of being tested for
fairness. HSBC Bank is considering applying for leave to appeal to the House of Lords.
The proceedings remain at an early stage and may, allowing for appeals on the issues, take some time to conclude. A wide range of outcomes is possible, depending upon the outcome of any appeal
to the House of Lords and, to the extent applicable, upon the Courts assessment of the fairness of each charge across the period under review. Since July 2001, there have been a variety of charges applied by HSBC Bank across different charging
periods under the then existing contractual arrangements. HSBC Bank considers the charges to be and to have been valid and enforceable, and intends strongly to defend its position.
If, contrary to HSBC Banks current assessment, the Court should ultimately (after appeals) reach an adverse decision that results in a liability, a large number of different outcomes is
possible, each of which would have a different financial impact. Given that there is limited authority on how an assessment of fairness should be conducted, HSBC Banks estimate of the potential financial impact is that it could be in the order
of approximately £350 million (US$510 million), as published in the Interim Report 2008. To make an estimate of the potential financial impact at this stage with any
precision is extremely difficult, owing to (among other things) the complexity of the issues, the number of permutations of possible outcomes, and the early stage of the proceedings. In addition, the assumptions made by
HSBC Bank may prove to be incorrect.
On 11 December 2008 Bernard L Madoff (Madoff) was arrested and charged in the United States District Court for the Southern District of New York with one count of securities fraud.
That same day, the US Securities and Exchange Commission (SEC) filed securities fraud charges against Madoff and his firm Bernard L Madoff Investment Securities LLC (Madoff Securities), a broker dealer and investment advisor
registered with the SEC. The criminal complaint and SEC complaint each alleged that Madoff had informed senior Madoff Securities employees, in substance, that his investment advisory business was a fraud. On 15 December 2008, on the application of
the Securities Investor Protection Corporation, the United States District Court for the Southern District of New York appointed a trustee for the liquidation of the business of Madoff Securities, and removed the liquidation proceeding to the United
States Bankruptcy Court for the Southern District of New York. On 9 February 2009, on Madoffs consent, the United States District Court for the Southern District of New York entered a partial judgement in the SEC action, permanently enjoining
Madoff from violating certain antifraud provisions of the US securities laws, ordering Madoff to pay disgorgement, prejudgement interest and a civil penalty in amounts to be determined at a later time, and continuing certain other relief previously
imposed, including a freeze on Madoffs assets. The relevant US authorities are continuing their investigations into the alleged fraud. There remains significant uncertainty as to the facts of the alleged fraud and the extent of any assets of,
and remaining within, Madoff Securities.
Various non-US HSBC
group companies provide custodial, administration and similar services to a
number of funds incorporated outside the United States of America whose assets
were invested with Madoff Securities. Based on information provided by Madoff
Securities, as at 30 November 2008, the aggregate net asset value of these funds
(which would include principal amounts invested and unrealised gains) was US$8.4
billion.
Proceedings concerning Madoff and Madoff Securities
have already been issued in various jurisdictions against numerous defendants
and HSBC expects further proceedings to be brought, including by the Madoff
Securities trustee. Various
142
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HSBC group companies have been named as defendants in suits in the United States anticipated to seek class action status and cases in the Commercial List of the Irish courts. All of the cases where HSBC group companies are
named as a defendant are at a very early stage. HSBC considers that it has good defences to these claims and will continue to defend them vigorously. HSBC is unable reliably to estimate the liability, if any, that might arise as a result of such
claims.
Various HSBC group companies have also received requests for information from various regulatory authorities in connection with the alleged fraud by Madoff. HSBC group companies are
co-
operating with these requests for information.
These actions apart HSBC is party to legal actions
in a number of jurisdictions including the UK, Hong Kong and the US arising
out of its normal business operation. HSBC considers that none of the actions
is material, and none is expected to result in a significant adverse effect
on the financial position of HSBC, either individually or in the aggregate.
Management believes that adequate provisions have been made in respect of the
litigation arising out of its normal business operations. HSBC has not disclosed
any contingent liability associated with these legal actions because it is not
practical to do so.
Operating and Financial Review footnotes (see pages 12 to 143)
1 |
Columns headed Acquisitions, disposals
and dilution gains and Acquisitions and disposals comprise
the net increments or decrements in profits in the current year (compared
with the previous year) which are attributable to acquisitions or disposals
of subsidiaries made, or dilution gains, in the relevant years. Acquisitions
and disposals are determined on the basis of the review and analysis of
events in each year. |
2 |
Currency translation is the effect
of translating the results of subsidiaries and associates for the previous
year at the average rates of exchange applicable in the current year. |
3 |
Excluding 2007 acquisitions, disposals and
dilution gains. |
4 |
Other income in this context comprises
net trading income (see 15 below), net income from financial instruments
designated at fair value, gains less losses from financial investments,
gains arising from dilution of interests in associates, dividend income,
net earned insurance premiums and other operating income less net insurance
claims incurred and movement in liabilities to policyholders. |
5 |
Net operating income before loan impairment
charges and other credit risk provisions. |
6 |
Excluding 2006 acquisitions, disposals and
dilution gains. |
7 |
Interest income on trading assets is reported
as Net trading income in the consolidated income statement. |
8 |
Interest income on financial assets designated
at fair value is reported as Net income from financial instruments
designated at fair value in the consolidated income statement. |
9 |
Brazilian operations comprise HSBC Bank Brasil
S.A.-Banco Múltiplo and subsidiaries, plus HSBC Serviços e
Participações Limitada. |
10 |
This table analyses interest-bearing bank
deposits only. See page 59 for an analysis of all bank deposits. |
11 |
Interest expense on financial liabilities
designated at fair value is reported as Net income on financial instruments
designated at fair value in the consolidated income statement other
than interest on own debt. |
12 |
This table analyses interest-bearing customer
accounts only. See page 60 for an analysis of all customer accounts. |
13 |
Net interest margin is calculated as net
interest income divided by average interest earning assets. |
14 |
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 Groups gain on own debt is included in
Global Banking and Markets), and HSBCs holding company and financing
operations. The results also include 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, and costs
incurred by the Group Service Centres and Shared Service Organisations and
associated recoveries. At 31 December 2008, gains arising from the dilution
of interests in associates were nil (2007: US$1.1 billion and 2006:
nil) and fair value gains on HSBCs own debt designated at fair value
were US$6.7 billion (2007: US$2.8 billion income; 2006: US$35
million expense). |
15 |
Assets by geographical region and customer
group include intra-HSBC items. These items are eliminated, where appropriate,
under the heading Intra-HSBC items. |
16 |
In the analyses 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, together with related external and internal interest
income and interest expense, and dividends received; in the statutory presentation
internal interest income and expense are eliminated. |
17 |
Net insurance claims incurred and movement
in liabilities to policyholders. |
18 |
In 2008, Global Markets included a US$529
million gain on the widening of credit spreads on structured liabilities
(2007: US$34 million; 2006: nil). |
19 |
Other in Global Banking and Markets
includes net interest earned on free capital held in the global business
not assigned to products. |
20 |
Trading assets 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. |
21 |
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.
HSBCs 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. |
22 |
France primarily comprises the domestic operations
of HSBC France, HSBC Assurances and the Paris branch of HSBC Bank. |
23 |
United States includes the impairment of
goodwill in respect of Personal Financial Services - North America as described
in Note 22 on the Financial Statements. |
143
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H S B C H O L D I
N G S P L C |
|
Report of the Directors: Impact of Market Turmoil |
|
|
|
|
Background / Overview > Reclassification |
Background and disclosure policy |
|
(Audited) |
As a result of the widespread deterioration in the markets for securitised and structured financial assets, and consequent disruption to the global financial system since mid-2007, it has become increasingly difficult to
observe prices for structured credit risk, including prime tranches of such risk as the markets for these assets became illiquid. The resulting constraint on the ability of financial institutions to access wholesale markets to fund such assets added
additional downward pressure on all asset prices. As a consequence, many financial institutions have recorded considerable reductions in the fair values of their asset-backed securities (ABSs) and leveraged structured transactions, most
significantly in sub-prime mortgages but in other asset classes too.
In light of increasing illiquidity and the risk to capital from further write-downs, many financial institutions took steps during 2008 to reduce leveraged exposures, build liquidity and raise
additional capital. However, credit conditions suffered additional deterioration in the second half of the year, as the economic outlook worsened and unemployment rose, intensifying the pressure on the global financial system. Volatility in money
markets also increased during the second half of 2008, resulting in wider interest spreads, and markets for securitised and structured financial assets continued to be thoroughly constrained. This instability triggered a series of significant events
including the default of a number of major financial institutions, and the taking into public ownership of banks in a number of countries.
Deterioration in the measured fair value of assets supported by sub-prime mortgages continued in 2008 with the primary market for all but US government-sponsored issues remaining weak. Spreads
widened due to credit and liquidity concerns as delinquencies on the underlying mortgages continued to increase beyond the levels priced into securitisations issued in recent years. The impact widened beyond sub-prime related assets, with the
measured fair value of securities backed by Alt-A collateral, in particular, suffering significant deterioration.
During 2008, governments and central banks worldwide took unprecedented measures designed to stabilise and increase confidence in financial markets. These measures included providing vast
amounts of liquidity via emergency funding, extending guarantees of financial assets, and launching various forms of rescue plans.
This section contains disclosures about the effect of the recent market turmoil on HSBCs securitisation activities and other structured products. HSBCs principal exposures to the US
and the UK mortgage markets primarily take the form of credit risk from direct loans and advances to customers which were originated to be held to maturity or refinancing, details of which are provided on page 208.
Financial instruments which were most affected by the market turmoil include exposures to direct lending held at fair value through profit or loss and ABSs, including mortgage-backed securities
(MBSs) and collateralised debt obligations (CDOs), and exposures to and contingent claims on monoline insurers in respect of structured credit activities and leveraged finance transactions which were originated to be
distributed.
In accordance with HSBCs policy to provide meaningful disclosures that help investors and other stakeholders understand the financial position, performance and changes in the financial
position of the Group, the information provided in this section goes beyond the minimum levels required by accounting standards, statutory and regulatory requirements and listing rules. In the specific context of facilitating an understanding of the
recent market turmoil in markets for securitised and structured assets, HSBC has considered the recommendations relating to disclosure contained within the reports issued by the Financial Stability Forum on Enhancing Market and Institutional
Resilience (April and October 2008), the Committee of European Banking Supervisors on Banks Transparency on Activities and Products Affected by the Recent Market Turmoil (June and October 2008) and the International
Accounting Standards Board Expert Advisory Panel on Measuring and disclosing the fair value of financial instruments in markets that are no longer active (October 2008). In addition, HSBC has considered feedback from investors,
regulators and other stakeholders on the disclosures that investors would find most useful.
The specific topics covered in respect of HSBCs securitisation activities and exposure to structured products are as follows:
• |
overview of exposure; |
• |
business model; |
• |
risk management; |
• |
accounting policies; |
• |
nature and extent of HSBCs exposures; |
• |
fair values of financial instruments; and |
• |
special purpose entities. |
144
Back to Contents
Overview of exposure |
|
(Audited) |
At 31 December 2008, the aggregate carrying amount of HSBCs exposure to ABSs, trading loans
held for securitisation and exposure to leveraged finance transactions was US$91 billion (2007:US$131 billion), summarised as follows:
|
At 31 December 2008 |
|
|
At 31 December 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Including |
|
|
|
|
|
Including |
|
|
Carrying |
|
|
sub-prime |
|
|
Carrying |
|
|
sub-prime |
|
|
amount |
|
|
and Alt-A |
|
|
amount |
|
|
and Alt-A |
|
|
US$bn |
|
|
US$bn |
|
|
US$bn |
|
|
US$bn |
|
|
|
|
|
|
|
|
|
|
|
|
|
ABSs |
81 |
|
|
12 |
|
|
116 |
|
|
31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
fair value
through profit or loss |
14 |
|
|
1 |
|
|
33 |
|
|
7 |
|
available
for sale1
|
56 |
|
|
9 |
|
|
80 |
|
|
24 |
|
held to
maturity1
|
3 |
|
|
|
|
|
3 |
|
|
|
|
loans
and receivables |
8 |
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans at fair value through profit or loss |
4 |
|
|
3 |
|
|
6 |
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Leveraged finance loans |
6 |
|
|
|
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
fair value
through profit or loss2 |
|
|
|
|
|
|
8 |
|
|
|
|
loans
and receivables |
6 |
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
91 |
|
|
15 |
|
|
131 |
|
|
37 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
Total includes holdings of ABSs issued by Freddie Mac and Fannie Mae. |
2 |
Includes the carrying amount of funded loans plus the net exposure to unfunded leveraged finance commitments. |
|
|
The majority of these exposures arise in the Global Banking and Markets business segment.
Within the total carrying amount of ABSs on the balance sheet, ABS holdings of US$14.6 billion (2007: US$32.1 billion) are held through vehicles discussed on page 148, where significant
first loss protection is provided by external investors on a fully collateralised basis.
A reconciliation of the movement in the carrying amount of ABSs on the balance sheet of US$34.5 billion is set out below:
• |
the write-downs of ABSs taken to the income statement US$3.4 billion; |
|
|
• |
the movement in fair values on available-for-sale ABSs taken to equity US$16.5 billion; |
|
|
• |
principal amortisation US$11.4 billion; and, |
|
|
• |
exchange differences and other movements US$3.2 billion. |
Due to the market dislocation in respect of these securities, the impact of purchases and sales on the total carrying amount of ABSs was not significant in 2008.
At 31 December 2008, of the total carrying amount of ABSs and trading loans held for securitisation in respect of sub-prime and Alt-A residential mortgage exposure, US$3.5 billion (2007:
US$11.7 billion) was held through special purpose entities (SPEs).
Reclassification of financial assets
In October 2008, the IASB issued amendments to IAS 39 Financial Instruments: Recognition and Measurement and IFRS 7 Financial Instruments: Disclosures which permitted an entity to reclassify
non-derivative financial assets out of the held-for-trading category as described in the accounting policies on Note 2 (e) on the Financial Statements. This was done to better align IFRSs with US GAAP and was restricted to situations where the
transferring entity had the intention and ability to hold the transferred position for the foreseeable future or until maturity.
During the second half of 2008, HSBC reclassified financial assets from the held-for-trading category as tabulated below. The amount reclassified was the fair value of the financial assets at
the date of reclassification, subject to the transition rules noted below. In October 2008, HSBC reclassified US$12.5 billion and US$0.4 billion of held-for-trading financial assets as loans and receivables and available for sale,
respectively. During November and December 2008, HSBC reclassified a further US$2.8 billion and US$2.2 billion of held-for-trading financial assets as loans and receivables and available for sale, respectively. The financial consequence of
the reclassification is that the reclassified assets are no longer marked-to-market through the income statement. Amounts reclassified as loans and receivables are accounted as such from the date of reclassification and tested thereafter for
145
Back to Contents
H S B C H O L D I
N G S P L C |
|
Report of the
Directors: Impact of Market Turmoil (continued) |
|
|
|
|
Overview > Reclassification
/ Financial effect / Global Banking and Markets ABSs |
|
On reclassification |
|
At 31 December 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimate of |
|
|
|
|
|
|
|
|
Amount |
|
future |
|
Effective |
|
Carrying |
|
|
|
|
reclassified
|
1
|
cash flows
|
2
|
interest rate |
|
amount |
|
Fair value |
|
|
US$m |
|
US$m |
|
% |
|
US$m |
|
US$m |
|
Reclassification to loans and receivables |
|
|
|
|
|
|
|
|
|
|
ABSs |
8,194 |
|
11,642 |
|
8 |
|
7,991 |
|
6,139 |
|
Trading loans commercial mortgage loans |
650 |
|
741 |
|
5 |
|
587 |
|
557 |
|
Leveraged finance loans |
6,458 |
|
8,481 |
|
7 |
|
5,670 |
|
4,239 |
|
|
|
|
|
|
|
|
|
|
|
|
|
15,302 |
|
20,864 |
|
|
|
14,248 |
|
10,935 |
|
Reclassification to available for sale |
|
|
|
|
|
|
|
|
|
|
Corporate debt and other securities |
2,549 |
|
3,626 |
|
5 |
|
2,401 |
|
2,401 |
|
|
|
|
|
|
|
|
|
|
|
|
|
17,851 |
|
24,490 |
|
|
|
16,649 |
|
13,336 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
Amounts reclassified that are denominated in foreign currencies have been translated using the rate of exchange at the date of reclassification; all other amounts denominated in foreign currencies have been translated
into the functional currency at the rate of exchange ruling at the balance sheet date. |
2 |
The estimate of future cash flows represents the cash flows expected to be recovered at the date of reclassification. |
|
|
impairment. Amounts reclassified as available for sale are held at fair value with changes in the fair value recognised in equity, and tested for impairment. In line with the transition rules, for reclassifications made
during October 2008, the reclassified financial assets were treated as having been so reclassified as at 1 July 2008. The impact of back-dating these retrospective reclassifications was that fair value movements between 1 July 2008 and October 2008
of US$835 million were not recorded in the income statement.
The reclassifications resulted from significant reductions in market liquidity for these assets and a change in HSBCs intention to hold them for the foreseeable future or to maturity.
These circumstances arose in the wider context of market turmoil. As a result, the Group decided to reclassify financial assets that would have met the definition of loans and receivables at initial recognition, as permitted by the IAS 39
amendments. In addition, as permitted by the IAS 39 amendments in rare
circumstances, the Group reclassified securities, that did not meet the definition of loans and receivables on initial recognition, as the conditions of market turmoil prevailing in the second half of 2008 were considered
rare.
If these reclassifications had not been made, the Groups pre-tax profit would have been reduced by US$3.5 billion from US$9.3 billion to US$5.8 billion. The reduction would
have been US$0.9 billion in the North America and US$2.6 billion in the Europe segments. There was no significant impairment identified on the loans transferred even though the fair value continued to fall as a consequence of illiquidity and
market sentiment.
The following table shows the fair value gains and losses, income and expense recognised in the income statement both before and after the date of reclassification:
|
|
|
|
|
|
|
|
Effect on income statement
|
|
|
|
|
|
|
|
|
|
Prior to reclassification
|
|
After |
|
Assuming no |
|
Net effect of |
|
|
|
|
|
|
reclassification |
1 |
reclassification |
2 |
reclassification |
|
|
2008
|
|
2007
|
|
2008 |
|
2008
|
|
2008 |
|
|
US$m
|
|
US$m
|
|
US$m |
|
US$m
|
|
US$m |
|
Reclassifications to loans and receivables |
|
|
|
|
|
|
|
|
|
|
ABSs |
(1,020
|
) |
(357
|
) |
303 |
|
(1,549
|
) |
1,852 |
|
Trading loans commercial mortgage loans |
(16
|
) |
|
|
17 |
|
(13
|
) |
30 |
|
Leveraged finance loans |
(253
|
) |
(158
|
) |
192 |
|
(1,239
|
) |
1,431 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,289
|
) |
(515
|
) |
512 |
|
(2,801
|
) |
3,313 |
|
Reclassifications to available for sale |
|
|
|
|
|
|
|
|
|
|
Corporate debt and other securities |
(82
|
) |
(2
|
) |
22 |
|
(202
|
) |
224 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,371
|
) |
(517
|
) |
534 |
|
(3,003
|
) |
3,537 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
Income and expense recorded in the income statement after
reclassification represents the accrual of the effective interest rate and also
includes US$26 million in respect of impairment of leveraged finance loans.
The group recorded no impairment charges on other financial assets reclassified
during the second half of 2008. |
2 |
Effect on the income statement which would have arisen from the date of reclassification, had the reclassification not occurred. |
146
Back to Contents
Financial effect of market turmoil
As described in the background to market turmoil on page 144, the dislocation of financial markets which developed in the second half of 2007 continued throughout 2008. For the three half-year periods
affected to date, the write-downs incurred by the Group on ABSs, trading loans held for securitisation, leveraged finance transactions and the movement in fair values on available-for-sale ABSs taken to equity, plus
impairment losses on specific exposures to banks, are summarised in the following table:
|
|
|
|
|
|
|
|
|
|
Half-year to |
|
|
|
|
|
|
|
|
|
|
|
31 December |
|
30 June |
|
31 December |
|
|
|
2008 |
|
2008 |
|
2007 |
|
|
|
US$bn |
|
US$bn |
|
US$bn |
|
|
|
|
|
|
|
|
|
Write-downs taken to income statement |
|
(2.3 |
) |
(4.0 |
) |
(2.3 |
) |
Fair
value movement taken to available-for-sale reserve on ABSs in the
period |
|
(10.4 |
) |
(6.1 |
) |
(2.2 |
) |
Closing balance of available-for-sale reserve
relating to ABSs |
|
(18.7 |
) |
(8.3 |
) |
(2.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Virtually all of these effects were recorded in Global Banking and Markets. Included in write-downs taken to the income statement is US$209 million in respect of impairment losses on the
collapse of financial institutions, of which US$126 million was incurred on the collapse of Icelandic banks. The group took no material write-
downs to the income statement in respect of exposures to Lehman Brothers.
Further analysis of the write-downs taken to the income statement by Global Banking and Markets, and the net carrying amounts of the positions that have generated these write-downs, are shown
in the following table:
Global Banking and Markets write-downs taken to the income statement and carrying amounts
|
|
Write-downs during half-year
to |
|
Carrying amount at |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31 December |
|
30 June |
|
31 December |
|
31 December |
|
30 June |
|
31 December |
|
|
|
2008 |
|
2008 |
|
2007 |
|
2008 |
|
2008 |
|
2007 |
|
|
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
Sub-prime mortgage-related assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
loan
securitisation |
|
292 |
|
301 |
|
529 |
|
1,213 |
|
1,565 |
|
1,965 |
|
credit
trading |
|
150 |
|
665 |
|
463 |
|
428 |
|
1,377 |
|
1,700 |
|
Other ABSs |
|
486 |
|
1,327 |
|
459 |
|
2,201 |
|
8,923 |
|
9,830 |
|
Derivative transactions with monolines |
|
|
|
|
|
|
|
|
|
|
|
|
|
investment
grade counterparts |
|
130 |
|
598 |
|
133 |
|
2,089 |
|
1,206 |
|
1,209 |
|
non-investment
grade counterparts |
|
370 |
|
608 |
|
214 |
|
352 |
|
78 |
|
|
|
Leveraged finance loans1 |
|
26 |
|
278 |
|
195 |
|
271 |
|
7,375 |
|
7,772 |
|
Other credit related items |
|
95 |
|
99 |
|
142 |
|
186 |
|
321 |
|
446 |
|
Available-for-sale
impairments and other non-trading related items |
|
655 |
|
55 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,204 |
|
3,931 |
|
2,135 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
The carrying amount includes funded loans
plus the net exposure to unfunded leveraged finance commitments, held within
fair value through the profit or loss. |
|
Global Banking and Markets asset-backed securities classified as available for sale
HSBCs principal holdings of ABSs are in the Global Banking and Markets business through special purpose entities (SPEs) which have the benefit of external investor first loss protection
support, positions held directly and by Solitaire Funding Limited (Solitaire) where HSBC has first loss risk.
The table below summarises these Global Banking and Markets exposures to ABSs which are held on an available-for-sale basis.
147
Back to Contents
H S B C H O L D
I N G S P L C |
|
Report of
the Directors: Impact of Market Turmoil (continued) |
|
|
|
|
Overview > Global Banking
and Markets ABSs / Stress analysis // Business model > SPEs |
Global Banking and
Markets available-for-sale ABSs exposure |
|
|
|
|
|
|
|
|
At 31 December
2008 |
|
At 31 December 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Directly |
|
|
|
|
|
Directly |
|
|
|
|
|
|
|
held |
1 |
SPEs |
|
Total |
|
held
|
1 |
SPEs |
|
Total |
|
|
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
carrying amount of net principal exposure |
|
35,736 |
|
14,610 |
|
50,346 |
|
43,826 |
|
32,105 |
|
75,931 |
|
which includes sub-prime/Alt-A exposure |
|
5,155 |
|
3,516 |
|
8,671 |
|
11,801 |
|
11,664 |
|
23,465 |
|
Available-for-sale
reserves relating to sub-prime/Alt-A exposure |
|
(5,920 |
) |
(3,573 |
) |
(9,493 |
) |
(1,122 |
) |
|
|
(1,122 |
) |
|
|
Half year to |
|
Half year to |
|
Half year to |
|
|
|
31 December 2008 |
|
30 June 2008 |
|
31 December 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Directly |
|
|
|
|
|
Directly |
|
|
|
|
|
Directly |
|
|
|
|
|
|
|
held |
1 |
SPEs |
|
Total |
|
held |
1 |
SPEs |
|
Total |
|
held |
1 |
SPEs |
|
Total |
|
|
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
Impairment charge: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
borne by HSBC |
|
224 |
|
|
|
224 |
|
55 |
|
|
|
55 |
|
|
|
|
|
|
|
allocated to capital note holders |
|
|
|
159 |
|
159 |
|
|
|
134 |
|
134 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total impairment charge |
|
224 |
|
159 |
|
383 |
|
55 |
|
134 |
|
189 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
Directly held includes both
assets held by Solitaire where HSBC provides first loss protection and
those assets held directly by the Group. |
|
Structured investment vehicles and securities investment conduits (special purpose entities)
In the table above, the total carrying amount of ABSs on the balance sheet in respect of SPEs represent holdings in which significant first loss protection is provided through the capital notes issued by the structured
investment conduits (SICs), excluding Solitaire. The economic first loss protection remaining at 31 December 2008 amounted to US$2.2 billion (2007: US$2.3 billion). As set out on page 174, on an IFRS accounting basis the
impairment charge of US$293 million was allocated to the capital note holders at 31 December 2008 (2007: n/a).
At each balance sheet date, an assessment is made as to whether there is any objective evidence of impairment in the value of available-for-sale ABSs. Impairment charges incurred on assets held
by these SPEs are offset by a credit to the impairment line for the amount of the loss allocated to capital note holders.
Impairments recognised at 31 December 2008 from assets held directly or within Solitaire in recognition of the first loss protection of US$1.2 billion provided by HSBC through credit
enhancement were US$279 million (2007: nil), based on a notional principal value of securities which were impaired of US$570 million (2007: nil). The low level of impairment recognised in comparison with the deficit in the available-for-sale
reserve is a reflection of the credit quality and seniority of the assets held.
Sub-prime and Alt-A residential mortgage-backed securities
Managements current assessment of the holdings of available-for-sale ABSs with the most sensitivity to possible future impairment is focused on sub-prime and Alt-A residential mortgage-backed securities
(MBSs).
Excluding holdings in the SPEs discussed above, available-for-sale holdings in these categories within Global Banking and Markets amounted to US$5.2 billion at 31 December 2008 (2007:
US$11.8 billion). During the year ended 31 December 2008, the movement in fair values of these securities taken to equity was a reduction of US$4.8 billion. The deficit in the available-for-sale fair value reserve as at 31 December 2008 in
relation to these securities was US$5.9 billion (2007: US$1.1 billion). The main factors in the reduction in fair value of these securities over the period were the effects of reduced market liquidity and negative market sentiment. The level
of actual credit losses experienced was low in 2008, notwithstanding the deterioration in the performance of the underlying mortgages in the period as US house prices fell and defaults increased. The absence of material credit losses is judged to be
attributable to the seniority of the tranches held by HSBC as well as the priority for cash flow held by these tranches.
148
Back to Contents
During
February 2009, the credit ratings on a proportion of ABSs held directly by HSBC,
Solitaire and the SICs were downgraded. In particular, Moodys Investor Services downgraded the ratings on substantially all the Groups
holdings of US Alt-A residential MBSs issued during 2006 and 2007.
As discussed on page
170, when assessing available-for-sale ABSs for objective evidence of impairment
at the balance sheet date HSBC considers all available evidence including the
performance of the underlying collateral. A downgrade of a securitys credit
rating is not, of itself, evidence of impairment. Consequently, Moodys
action has no direct impact on the measurement of impairment losses.
The impairment losses recognised on these securities at 31 December 2008 is
set out on page 148.
Stress analysis
(Unaudited)
HSBCs regular impairment assessment uses an industry standard model with inputs which are corroborated using observable market data where available. At 31 December 2008, management performed a stress test on the
available-for-sale ABS positions, based on the fair value of the positions at that date. The outcome of the stress test was particularly sensitive to expected loss and prepayment rates for Alt-A securities and the loss of credit protection from
certain monoline insurers on US Home Equity Lines of Credit (HELoCs). The results of the stress test showed that, by applying different inputs to those currently observed, a further potential impairment charge to the income statement of
some US$2 billion to US$2.5 billion could arise over the next three years. These different inputs were calculated by increasing the net impact of expected loss and prepayment rates for Alt-A securities by between a third and a half depending
on loan vintage and by removing all credit protection from monoline insurers rated below AAA by S&P on the HELoC positions. However, management believes that the loss which would be realised in cash terms would be considerably lower than the
impairment charge above and potentially cost some US$0.6 billion to US$0.8 billion over the next four years.
Asset-backed securities and leveraged finance
HSBC is or has been involved in the following activities
in these areas:
• |
the purchase of US mortgage loans with the
intention of structuring and placing securitisations
into the market; |
• |
trading in ABSs, including MBSs, in secondary
markets; |
|
|
• |
the holding of MBSs and other ABSs in balance
sheet management activities, with the intention
of earning net interest income over the life of
the securities; |
|
|
• |
the holding of MBSs and other ABSs as part
of investment portfolios, including the
SIVs, SICs and money market funds described
under Special purpose entities below, with the intention
of earning net interest income and management
fees; |
|
|
• |
MBSs or other ABSs held in the trading
portfolio hedged through credit derivative
protection, typically purchased from monoline
insurers, with the intention of earning the spread differential
over the life of the instruments; and |
|
|
• |
leveraged finance: originating loans for the
purposes of syndicating or selling them down in
order to generate a trading profit and holding
them in order to earn interest margin over their lives.
|
Historically, these activities have not been a significant
part of Global Banking and Markets business, and Global Banking and Markets
is not reliant on them for any material aspect of its business operations or
profitability.
The purchase and securitisation of US mortgage loans and the secondary trading of US MBSs was conducted in HSBCs US MBSs business. This business was discontinued in 2007.
Special purpose entities
HSBC enters into certain transactions with customers in the ordinary course of business which involve the establishment of SPEs to facilitate customer transactions. SPEs are used in HSBCs business in order to provide
structured investment opportunities for customers, facilitate the raising of funding for customers business activities, or diversify HSBCs sources of funding and/or improve capital efficiency.
The use of SPEs is not a significant part of HSBCs activities and HSBC is not reliant on the use of SPEs for any material part of its business operations or profitability. Detailed
disclosures of HSBCs sponsored SPEs are provided on page 173.
149
Back to Contents
H S B C H O L D
I N G S P L C |
|
Report of
the Directors: Impact of Market Turmoil
(continued) |
|
|
|
Risk management / Accounting
policies / Nature and extent of exposures |
Risk
management |
|
(Audited) |
The effect of the recent market turmoil on HSBCs risk exposures, the way in which HSBC has managed risk exposures in this context, and any changes made in HSBCs risk management polices and procedures in response
to the market conditions are set out in the following sections:
• |
Liquidity risk The impact of market
turmoil on the Groups liquidity risk
position (see page 239). |
|
|
• |
Market risk The impact of market
turmoil on market risk (see page
242). |
|
|
• |
Credit Risk Credit exposure
(see page 197). |
|
|
Accounting
policies |
|
(Audited) |
HSBCs accounting policies regarding the classification
and valuation of financial instruments are in accordance with the requirements
of IAS 32 Financial Instruments: Presentation and IAS 39 Financial
Instruments: Recognition and Measurement, as described in Note 2 on the
Financial Statements, and the use of assumptions and estimation in respect of
valuation of financial instruments as described on page 63.
Nature
and extent of HSBCs exposures |
|
(Audited) |
This section contains information on HSBCs
exposures to the following:
• |
direct lending held at fair value through profit
or loss; |
|
|
• |
ABSs including MBSs and CDOs; |
|
|
• |
monoline insurers; |
|
|
• |
credit derivative product companies (CDPCs);
and |
|
|
• |
leveraged finance transactions. |
MBSs are securities that represent interests in a group of mortgages. Investors in these securities have the right to cash received from future mortgage payments (interest and/or principal).
Where an MBS references mortgages with different risk profiles, the MBS is classified according to the highest risk class. Consequently, an MBS with both sub-prime and Alt-A exposures is classified as sub-prime.
CDOs are securities in which ABSs and/or certain other related assets have been purchased and securitised by a third-party, or securities which pay a
return which is referenced to those assets.
CDOs may feature exposure to sub-prime mortgage assets through the underlying assets. As there is often uncertainty surrounding the nature of the underlying collateral supporting CDOs, all CDOs supported by residential
mortgage-related assets, irrespective of the level of sub-prime assets, are classified as sub-prime.
HSBCs holdings of ABSs and CDOs, and its direct lending positions, include the following categories of collateral and lending activity:
• |
sub-prime:
loans to customers who have limited credit
histories, modest incomes, high debt-to-income
ratios or have experienced credit problems
caused by occasional delinquencies, prior
charge-offs, bankruptcy or other credit-related
actions. For US mortgages, US credit scores
are primarily used to determine whether a loan
is sub-prime. US home equity lines of credit
are classified as sub-prime. For non-US mortgages,
management judgement is used to identify
loans of similar risk characteristics to sub-prime,
for example, UK non-conforming mortgages
(see below); |
|
|
• |
US home equity lines of credit (HELoCs):
a form of revolving credit facility provided
to customers, which is supported by a first
or second lien charge over residential
property. Global Banking and Markets
holdings of HELoCs are classified as US
sub-prime residential mortgage assets; |
|
|
• |
US Alt-A:
loans classified as Alt-A are regarded as
lower risk than sub-prime, but they share higher
risk characteristics than lending under normal
criteria. US credit scores, as well as the level
of mortgage documentation held (such as proof
of income), are considered when determining
whether an Alt-A classification is appropriate.
Non-agency mortgages in the US are classified
as Alt-A if they do not meet the criteria
for classification as sub-prime. These are mortgages
not eligible to be sold to the major US
Government agency, Ginnie Mae (Government
National Mortgage Association), and government
sponsored enterprises in the mortgage market,
Fannie Mae (the Federal National Mortgage Association) and Freddie Mac
(the Federal Home Loan Mortgage Corporation); |
|
|
• |
US government agency mortgage-related
assets:
securities that are guaranteed by US Government
agencies, such as Ginnie Mae; |
150
Back to Contents
• |
US Government sponsored enterprises
mortgage-related assets:
securities that are guaranteed by US Government
sponsored entities, including Fannie Mae
and Freddie Mac; |
|
|
• |
UK non-conforming mortgage-related assets: UK
mortgages that do not meet normal lending
criteria. This includes instances where the
normal level of documentation has not been
provided (for example, in the case of self- certification
of income), or where increased risk factors,
such as poor credit history, result in lending at a rate that is higher than the normal lending
rate. UK non-conforming mortgages are treated
as sub-prime exposures; and |
|
|
• |
other mortgage-related assets:
residential mortgage-related assets that
do not meet any of the classifications
described above. Prime |
residential mortgage-related assets are included in this category.
HSBCs exposure to non-residential mortgage-related ABSs and direct lending includes:
• |
commercial property mortgage-related
assets:
MBSs with collateral other than residential
mortgage-related assets; |
|
|
• |
leveraged finance-related assets:
securities with collateral relating to
leveraged finance loans; |
|
|
• |
student loan-related assets:
securities with collateral relating to
student loans; and |
|
|
• |
other assets:
securities with other receivable-related
collateral. |
Carrying amount
of HSBCs consolidated holdings of ABSs, and direct lending held
at fair value through profit or loss |
|
|
|
|
At
31 December 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Designated |
|
|
|
|
|
|
|
|
Of which |
|
|
|
|
|
|
|
|
|
|
|
|
|
at fair value
|
|
|
|
|
|
|
|
|
held through |
|
|
|
|
Trading |
|
|
Available
for sale |
|
|
Held to
maturity |
|
|
through
profit or loss |
|
|
Loans and
receivables |
|
|
Total |
|
|
consolidated
SPEs |
|
|
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
Sub-prime residential |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
mortgage-related
assets |
|
3,372 |
|
|
3,741 |
|
|
|
|
|
1 |
|
|
453 |
|
|
7,567 |
|
|
4,230 |
|
|
Direct lending |
|
2,789 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,789 |
|
|
1,300 |
|
|
MBSs
and MBS CDOs1 |
|
583 |
|
|
3,741 |
|
|
|
|
|
1 |
|
|
453 |
|
|
4,778 |
|
|
2,930 |
|
|
US Alt-A residential |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
mortgage-related
assets |
|
618 |
|
|
5,829 |
|
|
185 |
|
|
|
|
|
1,056 |
|
|
7,688 |
|
|
3,831 |
|
|
Direct
lending |
|
246 |
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
246 |
|
|
|
|
|
MBSs1
|
|
372 |
|
|
5,829 |
|
|
185 |
|
|
|
|
|
1,056 |
|
|
7,442 |
|
|
3,831 |
|
|
US government agency |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
mortgage-related assets MBSs1 |
|
640 |
|
|
7,418 |
|
|
494 |
|
|
|
|
|
|
|
|
8,552 |
|
|
441 |
|
|
US government-sponsored |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
enterprises
mortgage-related assets MBSs1 |
|
487 |
|
|
12,894 |
|
|
1,918 |
|
|
51 |
|
|
|
|
|
15,350 |
|
|
|
|
|
Other residential mortgage- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
related
assets |
|
1,633 |
|
|
4,272 |
|
|
|
|
|
31 |
|
|
2,135 |
|
|
8,071 |
|
|
2,822 |
|
|
Direct lending |
|
677 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
677 |
|
|
|
|
|
MBSs1
|
|
956 |
|
|
4,272 |
|
|
|
|
|
31 |
|
|
2,135 |
|
|
7,394 |
|
|
2,822 |
|
|
Commercial property mortgage- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
related
assets MBSs and MBS CDOs1 |
|
589 |
|
|
6,802 |
|
|
|
|
|
86 |
|
|
1,402 |
|
|
8,879 |
|
|
4,985 |
|
|
Leveraged finance-related assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ABSs
and ABS CDOs1 |
|
784 |
|
|
4,489 |
|
|
|
|
|
|
|
|
204 |
|
|
5,477 |
|
|
3,667 |
|
|
Student loan-related assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ABSs and ABS
CDOs1 |
|
214 |
|
|
4,809 |
|
|
|
|
|
3 |
|
|
81 |
|
|
5,107 |
|
|
4,028 |
|
|
Other assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ABSs and ABS CDOs1
|
|
3,068 |
|
|
5,957 |
|
|
|
|
|
6,371 |
|
|
2,660 |
|
|
18,056 |
|
|
3,941 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,405 |
|
|
56,211 |
|
|
2,597 |
|
|
6,543 |
|
|
7,991 |
|
|
84,747 |
|
|
27,945 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For footnotes, see page 162. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The above table
excludes leveraged finance transactions, which are shown separately
on page 160. |
|
|
|
|
|
|
|
|
151
Back to Contents
H S B C H O L D
I N G S P L C |
|
Report of
the Directors: Impact of Market Turmoil
(continued) |
|
|
|
Nature and extent of exposures |
Carrying amount of HSBCs consolidated holdings
of ABSs, and direct lending held at fair value through profit or loss (continued)
|
|
At
31 December 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Designated |
|
|
|
|
|
Of which |
|
|
|
|
|
|
|
|
|
|
|
|
|
at fair value |
|
|
|
|
|
held through |
|
|
|
|
|
|
|
Available |
|
|
Held to |
|
|
through |
|
|
|
|
|
consolidated |
|
|
|
|
Trading |
|
|
for sale |
|
|
maturity |
|
|
profit or loss |
|
|
Total |
|
|
SPEs |
|
|
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub-prime residential mortgage-related
assets |
|
9,431 |
|
|
9,311 |
|
|
|
|
|
2 |
|
|
18,744 |
|
|
11,504 |
|
|
Direct lending |
|
5,825 |
|
|
|
|
|
|
|
|
|
|
|
5,825 |
|
|
3,596 |
|
|
MBSs and MBS
CDOs1 |
|
3,606 |
|
|
9,311 |
|
|
|
|
|
2 |
|
|
12,919 |
|
|
7,908 |
|
|
US Alt-A residential mortgage-related
assets |
|
3,288 |
|
|
14,760 |
|
|
173 |
|
|
|
|
|
18,221 |
|
|
11,193 |
|
|
Direct lending |
|
342 |
|
|
|
|
|
|
|
|
|
|
|
342 |
|
|
|
|
|
MBSs1
|
|
2,946 |
|
|
14,760 |
|
|
173 |
|
|
|
|
|
17,879 |
|
|
11,193 |
|
|
US government agency mortgage-related
assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MBSs1
|
|
204 |
|
|
5,239 |
|
|
552 |
|
|
|
|
|
5,995 |
|
|
|
|
|
US government-sponsored enterprises |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
mortgage-related
assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MBSs1
|
|
2,583 |
|
|
11,414 |
|
|
1,881 |
|
|
26 |
|
|
15,904 |
|
|
|
|
|
Other residential mortgage-related
assets |
|
5,243 |
|
|
5,701 |
|
|
|
|
|
289 |
|
|
11,233 |
|
|
4,441 |
|
|
Direct lending |
|
416 |
|
|
|
|
|
|
|
|
|
|
|
416 |
|
|
|
|
|
MBSs1
|
|
4,827 |
|
|
5,701 |
|
|
|
|
|
289 |
|
|
10,817 |
|
|
4,441 |
|
|
Commercial property mortgage-related
assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MBSs and MBS
CDO1 |
|
3,467 |
|
|
10,505 |
|
|
|
|
|
105 |
|
|
14,077 |
|
|
8,600 |
|
|
Leveraged finance-related assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ABSs and ABS
CDOs1 |
|
263 |
|
|
5,820 |
|
|
|
|
|
|
|
|
6,083 |
|
|
5,126 |
|
|
Student loan-related assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ABSs and ABS
CDOs1 |
|
144 |
|
|
7,052 |
|
|
|
|
|
|
|
|
7,196 |
|
|
6,308 |
|
|
Other assets |
|
6,252 |
|
|
10,683 |
|
|
|
|
|
7,736 |
|
|
24,671 |
|
|
9,495 |
|
|
Direct lending |
|
3 |
|
|
|
|
|
|
|
|
|
|
|
3 |
|
|
|
|
|
ABSs and ABS
CDOs1 |
|
6,249 |
|
|
10,683 |
|
|
|
|
|
7,736 |
|
|
24,668 |
|
|
9,495 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,875 |
|
|
80,485 |
|
|
2,606 |
|
|
8,158 |
|
|
122,124 |
|
|
56,667 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For footnotes, see page 162.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The above table excludes
leveraged finance transactions, which are shown separately on page 160.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in the above table are ABSs which are held through SPEs that are consolidated by HSBC. Although HSBC includes these assets in full on its balance sheet, the risks arising from the
assets are mitigated to the extent of third-party investment in notes issued by those SPEs. For a description of HSBCs holdings of and arrangements with SPEs, see page 173.
The exposure detailed above includes long positions where risk is mitigated by specific credit derivatives with monoline insurers (monolines) and other financial institutions. These
positions comprise:
• |
residential MBSs with a carrying amount of
US$0.9 billion (2007: US$2.1 billion); |
|
|
• |
residential MBS CDOs with a carrying amount
of US$39 million (2007: US$349 million);
and |
• |
ABSs other than residential MBSs and MBS
CDOs with a carrying amount of US$9.8
billion (2007: US$10.8 billion). |
|
|
|
In
the tables which follow, carrying amounts and gains and losses are given
for securities except those where risk is mitigated through specific credit
derivatives with monolines. The counterparty credit risk arising from the
derivative transactions undertaken with
monolines is covered in the monoline exposure analysis on page 159. |
US government-sponsored enterprises mortgage-related assets shown in the table above include holdings of securities issued by Freddie Mac of US$8.0 billion (2007: US$6.8 billion) and by
Fannie Mae of US$6.6 billion (2007: US$8.5 billion).
152
Back to Contents
HSBCs consolidated holdings of US ABSs, and direct lending held at fair value through profit or loss
|
2008 |
|
|
At 31 December 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealised |
|
|
Realised |
|
|
movements |
|
|
|
|
|
|
|
|
CDS |
|
|
Net |
|
|
|
|
|
gains and |
|
|
gains and |
|
|
through |
|
|
Impair- |
|
|
Gross |
|
|
gross |
|
|
principal |
|
|
Carrying |
|
|
(losses) |
3 |
|
(losses) |
4 |
|
equity |
5 |
|
ment |
6 |
|
principal |
7 |
|
protection |
8 |
|
exposure |
9 |
|
amount |
10 |
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
US sub-prime residential |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
mortgage-related
assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct lending |
(494
|
) |
|
7
|
|
|
|
|
|
|
|
|
3,653 |
|
|
|
|
|
3,653 |
|
|
2,789 |
|
MBSs1
|
(784
|
) |
|
1
|
|
|
(1,578
|
) |
|
|
|
|
6,845 |
|
|
794 |
|
|
6,051 |
|
|
3,044 |
|
high grade2
|
(243
|
) |
|
6
|
|
|
(290
|
) |
|
|
|
|
2,903 |
|
|
507 |
|
|
2,396 |
|
|
1,634 |
|
rated
C to A |
(444
|
) |
|
(4
|
) |
|
(1,288
|
) |
|
|
|
|
3,913 |
|
|
287 |
|
|
3,626 |
|
|
1,399 |
|
not publicly
rated |
(97
|
) |
|
(1
|
) |
|
|
|
|
|
|
|
29 |
|
|
|
|
|
29 |
|
|
11 |
|
MBS CDOs1
|
(110
|
) |
|
|
|
|
(55
|
) |
|
(50
|
) |
|
1,042 |
|
|
234 |
|
|
808 |
|
|
61 |
|
high grade2
|
|
|
|
|
|
|
(78
|
) |
|
|
|
|
172 |
|
|
27 |
|
|
145 |
|
|
45 |
|
rated
C to A |
(110
|
) |
|
|
|
|
23
|
|
|
(50
|
) |
|
870 |
|
|
207 |
|
|
663 |
|
|
16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,388
|
) |
|
8
|
|
|
(1,633
|
) |
|
(50
|
) |
|
11,540 |
|
|
1,028 |
|
|
10,512 |
|
|
5,894 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US Alt-A residential |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
mortgage-related
assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct lending |
(11
|
) |
|
|
|
|
|
|
|
|
|
|
264 |
|
|
|
|
|
264 |
|
|
246 |
|
MBSs1
|
(737
|
) |
|
9
|
|
|
(6,416
|
) |
|
(510
|
) |
|
16,860 |
|
|
436 |
|
|
16,424 |
|
|
7,174 |
|
high grade2
|
(446
|
) |
|
17
|
|
|
(3,012
|
) |
|
(82
|
) |
|
9,804 |
|
|
317 |
|
|
9,487 |
|
|
4,869 |
|
rated
C to A |
(292
|
) |
|
(7
|
) |
|
(3,404
|
) |
|
(428
|
) |
|
7,041 |
|
|
119 |
|
|
6,922 |
|
|
2,293 |
|
not publicly
rated |
1
|
|
|
(1
|
) |
|
|
|
|
|
|
|
15 |
|
|
|
|
|
15 |
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(748
|
) |
|
9
|
|
|
(6,416
|
) |
|
(510
|
) |
|
17,124 |
|
|
436 |
|
|
16,688 |
|
|
7,420 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US government agency |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
mortgage-related
assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MBSs1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
high grade2
|
3
|
|
|
9
|
|
|
122
|
|
|
|
|
|
8,448 |
|
|
|
|
|
8,448 |
|
|
8,551 |
|
US government-sponsored |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
enterprises mortgage-related assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MBSs1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
high grade2
|
(54
|
) |
|
31
|
|
|
270
|
|
|
|
|
|
15,022 |
|
|
|
|
|
15,022 |
|
|
15,349 |
|
Other US residential |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
mortgage-related
assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct lending |
23
|
|
|
(9
|
) |
|
|
|
|
|
|
|
691 |
|
|
|
|
|
691 |
|
|
677 |
|
MBSs1
|
(65
|
) |
|
(37
|
) |
|
33
|
|
|
|
|
|
1,039 |
|
|
284 |
|
|
755 |
|
|
614 |
|
high grade2
|
(63
|
) |
|
(37
|
) |
|
33
|
|
|
|
|
|
959 |
|
|
262 |
|
|
697 |
|
|
574 |
|
rated
C to A |
(2
|
) |
|
|
|
|
|
|
|
|
|
|
80 |
|
|
22 |
|
|
58 |
|
|
40 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(42
|
) |
|
(46
|
) |
|
33
|
|
|
|
|
|
1,730 |
|
|
284 |
|
|
1,446 |
|
|
1,291 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial property |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
mortgage-related
assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MBS and MBS CDOs1
|
(57
|
) |
|
(19
|
) |
|
(1,709
|
) |
|
|
|
|
5,797 |
|
|
553 |
|
|
5,244 |
|
|
3,182 |
|
high grade2
|
(57
|
) |
|
(18
|
) |
|
(1,696
|
) |
|
|
|
|
5,658 |
|
|
553 |
|
|
5,105 |
|
|
3,059 |
|
rated
C to A |
|
|
|
(1
|
) |
|
(13
|
) |
|
|
|
|
108 |
|
|
|
|
|
108 |
|
|
94 |
|
not publicly
rated |
|
|
|
|
|
|
|
|
|
|
|
|
31 |
|
|
|
|
|
31 |
|
|
29 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance carried forward |
(2,286
|
) |
|
(8
|
) |
|
(9,333
|
) |
|
(560
|
) |
|
59,661 |
|
|
2,301 |
|
|
57,360 |
|
|
41,687 |
|
153
Back to Contents
H S B C H O L
D I N G S P L C |
|
Report of the Directors:
Impact of Market Turmoil (continued) |
|
|
|
|
Nature and extent of exposures
|
HSBCs consolidated holdings of US ABSs, and direct lending held at fair value through profit or loss (continued)
|
2008 |
|
At
31 December 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealised |
|
|
Realised |
|
|
movements |
|
|
|
|
|
|
|
|
CDS |
|
|
Net |
|
|
|
|
|
gains and
|
|
|
gains and
|
|
|
through
|
|
|
Impair-
|
|
|
Gross |
|
|
gross |
|
|
principal |
|
|
Carrying |
|
|
(losses) |
3 |
|
(losses) |
4 |
|
equity |
5 |
|
ment |
6 |
|
principal |
7 |
|
protection |
8 |
|
exposure |
9 |
|
amount |
10 |
|
US$m
|
|
|
US$m
|
|
|
US$m
|
|
|
US$m
|
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance brought forward |
(2,286
|
) |
|
(8
|
) |
|
(9,333
|
) |
|
(560
|
) |
|
59,661 |
|
|
2,301 |
|
|
57,360 |
|
|
41,687 |
|
Leveraged finance-related assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ABSs and ABS CDOs1
|
(15
|
) |
|
|
|
|
(1,000
|
) |
|
|
|
|
5,212 |
|
|
551 |
|
|
4,661 |
|
|
3,390 |
|
high
grade2
|
(15
|
) |
|
|
|
|
(996
|
) |
|
|
|
|
5,193 |
|
|
551 |
|
|
4,642 |
|
|
3,375 |
|
rated
C to A |
|
|
|
|
|
|
(4
|
) |
|
|
|
|
19 |
|
|
|
|
|
19 |
|
|
15 |
|
Student loan-related assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ABSs and ABS CDOs1
|
(63
|
) |
|
(4
|
) |
|
(1,959
|
) |
|
|
|
|
7,610 |
|
|
279 |
|
|
7,331 |
|
|
4,908 |
|
high
grade2
|
(47
|
) |
|
(4
|
) |
|
(1,649
|
) |
|
|
|
|
6,888 |
|
|
279 |
|
|
6,609 |
|
|
4,523 |
|
rated
C to A |
(16
|
) |
|
|
|
|
(310
|
) |
|
|
|
|
722 |
|
|
|
|
|
722 |
|
|
385 |
|
Other assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ABS and ABS CDOs1
|
(247
|
) |
|
(90
|
) |
|
(807
|
) |
|
(33
|
) |
|
7,885 |
|
|
1,539 |
|
|
6,346 |
|
|
4,277 |
|
high
grade2
|
(153
|
) |
|
(71
|
) |
|
(589
|
) |
|
|
|
|
5,216 |
|
|
1,370 |
|
|
3,846 |
|
|
2,725 |
|
rated
C to A |
(94
|
) |
|
(19
|
) |
|
(218
|
) |
|
(13
|
) |
|
1,916 |
|
|
169 |
|
|
1,747 |
|
|
805 |
|
not
publicly rated |
|
|
|
|
|
|
|
|
|
(20
|
) |
|
753 |
|
|
|
|
|
753 |
|
|
747 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
(2,611
|
) |
|
(102
|
) |
|
(13,099
|
) |
|
(593
|
) |
|
80,368 |
|
|
4,670 |
|
|
75,698 |
|
|
54,262 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
At 31 December 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealised |
|
|
Realised |
|
|
movements |
|
|
|
|
|
|
|
|
CDS |
|
|
Net |
|
|
|
|
|
gains and
|
|
|
gains and
|
|
|
through
|
|
|
Impair-
|
|
|
Gross |
|
|
gross |
|
|
principal |
|
|
Carrying |
|
|
(losses) |
3 |
|
(losses) |
4 |
|
equity |
5 |
|
ment |
6 |
|
principal |
7 |
|
protection |
8 |
|
exposure |
9 |
|
amount |
10 |
|
US$m
|
|
|
US$m
|
|
|
US$m
|
|
|
US$m
|
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US sub-prime residential mortgage-related
assets11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct lending |
(385
|
) |
|
(251
|
) |
|
|
|
|
|
|
|
6,288 |
|
|
|
|
|
6,288 |
|
|
5,825 |
|
MBSs1
|
(564
|
) |
|
(69
|
) |
|
(290
|
) |
|
|
|
|
9,576 |
|
|
657 |
|
|
8,919 |
|
|
7,981 |
|
high
grade2
|
(121
|
) |
|
(10
|
) |
|
(289
|
) |
|
|
|
|
9,079 |
|
|
647 |
|
|
8,432 |
|
|
7,807 |
|
rated
C to A |
(275
|
) |
|
(36
|
) |
|
(1
|
) |
|
|
|
|
462 |
|
|
10 |
|
|
452 |
|
|
153 |
|
not
publicly rated |
(168
|
) |
|
(23
|
) |
|
|
|
|
|
|
|
35 |
|
|
|
|
|
35 |
|
|
21 |
|
MBS CDOs1
|
(21
|
) |
|
|
|
|
(45
|
) |
|
|
|
|
1,157 |
|
|
652 |
|
|
505 |
|
|
440 |
|
high
grade2
|
(19
|
) |
|
|
|
|
(40
|
) |
|
|
|
|
923 |
|
|
454 |
|
|
469 |
|
|
411 |
|
rated
C to A |
(2
|
) |
|
|
|
|
(5
|
) |
|
|
|
|
234 |
|
|
198 |
|
|
36 |
|
|
29 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(970
|
) |
|
(320
|
) |
|
(335
|
) |
|
|
|
|
17,021 |
|
|
1,309 |
|
|
15,712 |
|
|
14,246 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US Alt-A residential mortgage-related
assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct lending |
|
|
|
|
|
|
|
|
|
|
|
|
341 |
|
|
|
|
|
341 |
|
|
342 |
|
MBSs1
|
(128
|
) |
|
(36
|
) |
|
(802
|
) |
|
|
|
|
19,175 |
|
|
205 |
|
|
18,970 |
|
|
17,708 |
|
high
grade2
|
(122
|
) |
|
(6
|
) |
|
(802
|
) |
|
|
|
|
19,099 |
|
|
205 |
|
|
18,894 |
|
|
17,640 |
|
rated
C to A |
(6
|
) |
|
(30
|
) |
|
|
|
|
|
|
|
64 |
|
|
|
|
|
64 |
|
|
56 |
|
not
publicly rated |
|
|
|
|
|
|
|
|
|
|
|
|
12 |
|
|
|
|
|
12 |
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(128
|
) |
|
(36
|
) |
|
(802
|
) |
|
|
|
|
19,516 |
|
|
205 |
|
|
19,311 |
|
|
18,050 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US government agency mortgage-related
assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MBSs1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
high
grade2
|
2
|
|
|
3
|
|
|
49
|
|
|
|
|
|
5,996 |
|
|
|
|
|
5,996 |
|
|
5,995 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance carried forward |
(1,096
|
) |
|
(353
|
) |
|
(1,088
|
) |
|
|
|
|
42,533 |
|
|
1,514 |
|
|
41,019 |
|
|
38,291 |
|
154
Back to Contents
|
2007 |
|
At 31 December 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealised |
|
|
Realised |
|
|
movements |
|
|
|
|
|
|
|
|
CDS |
|
|
Net |
|
|
|
|
|
gains and
|
|
|
gains and
|
|
|
through
|
|
|
Impair- |
|
|
Gross |
|
|
gross |
|
|
principal |
|
|
Carrying |
|
|
(losses) |
3 |
|
(losses) |
4 |
|
equity |
5 |
|
ment |
6 |
|
principal |
7 |
|
protection |
8 |
|
exposure |
9 |
|
amount |
10 |
|
US$m
|
|
|
US$m
|
|
|
US$m
|
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance brought forward |
(1,096
|
) |
|
(353
|
) |
|
(1,088
|
) |
|
|
|
|
42,533 |
|
|
1,514 |
|
|
41,019 |
|
|
38,291 |
|
US government-sponsored enterprises
mortgage-related assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MBSs1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
high grade2
|
12
|
|
|
(39
|
) |
|
3
|
|
|
|
|
|
16,125 |
|
|
|
|
|
16,125 |
|
|
15,904 |
|
Other US residential mortgage-related
assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct lending |
(10
|
) |
|
(29
|
) |
|
|
|
|
|
|
|
424 |
|
|
|
|
|
424 |
|
|
416 |
|
MBSs1
|
(34
|
) |
|
|
|
|
(1
|
) |
|
|
|
|
1,587 |
|
|
821 |
|
|
766 |
|
|
756 |
|
high grade2
|
(30
|
) |
|
|
|
|
(1
|
) |
|
|
|
|
1,565 |
|
|
799 |
|
|
766 |
|
|
756 |
|
rated
C to A |
(4
|
) |
|
|
|
|
|
|
|
|
|
|
22 |
|
|
22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(44
|
) |
|
(29
|
) |
|
(1
|
) |
|
|
|
|
2,011 |
|
|
821 |
|
|
1,190 |
|
|
1,172 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial property mortgage-related
assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MBS and MBS CDOs1
|
(30
|
) |
|
|
|
|
(141
|
) |
|
|
|
|
5,981 |
|
|
685 |
|
|
5,296 |
|
|
5,196 |
|
high grade2
|
(30
|
) |
|
|
|
|
(141
|
) |
|
|
|
|
5,760 |
|
|
685 |
|
|
5,075 |
|
|
4,983 |
|
not publicly
rated |
|
|
|
|
|
|
|
|
|
|
|
|
221 |
|
|
|
|
|
221 |
|
|
213 |
|
Leveraged finance-related assets ABSs
and ABS CDOs1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
high grade2
|
(6
|
) |
|
|
|
|
(89
|
) |
|
|
|
|
4,930 |
|
|
322 |
|
|
4,608 |
|
|
4,432 |
|
Student loan-related assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ABSs and ABS CDOs1
|
5
|
|
|
|
|
|
(338
|
) |
|
|
|
|
7,352 |
|
|
|
|
|
7,352 |
|
|
7,196 |
|
high grade2
|
7
|
|
|
|
|
|
(338
|
) |
|
|
|
|
7,312 |
|
|
|
|
|
7,312 |
|
|
7,159 |
|
rated
C to A |
(2
|
) |
|
|
|
|
|
|
|
|
|
|
40 |
|
|
|
|
|
40 |
|
|
37 |
|
Other assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ABS and ABS CDOs1
|
(100
|
) |
|
(3
|
) |
|
(134
|
) |
|
|
|
|
8,943 |
|
|
2,735 |
|
|
6,208 |
|
|
6,204 |
|
high grade2
|
(99
|
) |
|
(3
|
) |
|
(134
|
) |
|
|
|
|
8,233 |
|
|
2,707 |
|
|
5,526 |
|
|
5,557 |
|
rated
C to A |
(1
|
) |
|
|
|
|
|
|
|
|
|
|
595 |
|
|
28 |
|
|
567 |
|
|
550 |
|
not publicly
rated |
|
|
|
|
|
|
|
|
|
|
|
|
115 |
|
|
|
|
|
115 |
|
|
97 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
(1,259
|
) |
|
(424
|
) |
|
(1,788
|
) |
|
|
|
|
87,875 |
|
|
6,077 |
|
|
81,798 |
|
|
78,395 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For footnotes, see page 162. |
HSBCs consolidated holdings of UK ABSs, and direct lending held at fair value through profit or loss
|
2008 |
|
|
At 31 December 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealised |
|
|
Realised |
|
|
movements |
|
|
|
|
|
|
|
|
CDS |
|
|
Net |
|
|
|
|
|
gains and
|
|
|
gains and
|
|
|
through
|
|
|
Impair- |
|
|
Gross |
|
|
gross |
|
|
principal |
|
|
Carrying |
|
|
(losses) |
3 |
|
(losses) |
4 |
|
equity |
5 |
|
ment |
6 |
|
principal |
7 |
|
protection |
8 |
|
exposure |
9 |
|
amount |
10 |
|
US$m
|
|
|
US$m
|
|
|
US$m
|
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
UK non-conforming residential mortgage-related
assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MBSs1
|
(3
|
) |
|
|
|
|
(294
|
) |
|
|
|
|
1,425 |
|
|
|
|
|
1,425 |
|
|
1,100 |
|
high
grade2
|
(1
|
) |
|
|
|
|
(268
|
) |
|
|
|
|
1,349 |
|
|
|
|
|
1,349 |
|
|
1,051 |
|
rated
C to A |
(2
|
) |
|
|
|
|
(26
|
) |
|
|
|
|
76 |
|
|
|
|
|
76 |
|
|
49 |
|
Other UK residential mortgage-related
assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MBSs1
|
(47
|
) |
|
(8
|
) |
|
(709
|
) |
|
|
|
|
5,781 |
|
|
|
|
|
5,781 |
|
|
4,568 |
|
high
grade2
|
(27
|
) |
|
(10
|
) |
|
(694
|
) |
|
|
|
|
5,289 |
|
|
|
|
|
5,289 |
|
|
4,185 |
|
rated
C to A |
(20
|
) |
|
2
|
|
|
(15
|
) |
|
|
|
|
488 |
|
|
|
|
|
488 |
|
|
382 |
|
not publicly rated |
|
|
|
|
|
|
|
|
|
|
|
|
4 |
|
|
|
|
|
4 |
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance carried forward |
(50
|
) |
|
(8
|
) |
|
(1,003
|
) |
|
|
|
|
7,206 |
|
|
|
|
|
7,206 |
|
|
5,668 |
|
155
Back to Contents
H S B C H O L D
I N G S P L C |
|
Report of the Directors: Impact of Market
Turmoil (continued) |
|
|
|
|
Nature and extent of exposures |
HSBCs consolidated holdings of UK ABSs,
and direct lending held at fair value through profit or loss (continued)
|
2008 |
|
|
At 31 December
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealised |
|
|
Realised |
|
|
movements |
|
|
|
|
|
|
|
|
CDS |
|
|
Net |
|
|
|
|
|
gains and |
|
|
gains and |
|
|
through |
|
|
Impair- |
|
|
Gross |
|
|
gross |
|
|
principal |
|
|
Carrying |
|
|
(losses) |
3
|
|
(losses) |
4
|
|
equity |
5
|
|
ment
|
6 |
|
principal |
7 |
|
protection |
8 |
|
exposure |
9 |
|
amount |
10 |
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance brought
forward |
(50
|
) |
|
(8
|
) |
|
(1,003
|
) |
|
|
|
|
7,206 |
|
|
|
|
|
7,206 |
|
|
5,668 |
|
Commercial
property mortgage-related assets
MBS and MBS CDOs1 |
(112 |
) |
|
(6 |
) |
|
(571 |
) |
|
|
|
|
3,836 |
|
|
|
|
|
3,836 |
|
|
3,017 |
|
high grade2 |
(83
|
) |
|
(6
|
) |
|
(560
|
) |
|
|
|
|
3,665 |
|
|
|
|
|
3,665 |
|
|
2,910 |
|
rated C to A |
(29
|
) |
|
|
|
|
(11
|
) |
|
|
|
|
156 |
|
|
|
|
|
156 |
|
|
101 |
|
not publicly rated |
|
|
|
|
|
|
|
|
|
|
|
|
15 |
|
|
|
|
|
15 |
|
|
6 |
|
Leveraged finance-related assets
ABSs and ABS CDOs1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
high
grade2
|
|
|
|
|
|
|
(77 |
) |
|
|
|
|
761 |
|
|
384 |
|
|
377 |
|
|
293 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Student loan-related assets
ABSs
and ABS CDOs1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
high grade2 |
|
|
|
|
|
|
|
|
|
|
|
|
98 |
|
|
|
|
|
98 |
|
|
55 |
|
Other assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ABS and ABS CDOs1
|
(10 |
) |
|
(4 |
) |
|
(413 |
) |
|
|
|
|
7,623 |
|
|
5,102 |
|
|
2,521 |
|
|
1,997 |
|
high grade2 |
(8
|
) |
|
(4
|
) |
|
(52
|
) |
|
|
|
|
1,751 |
|
|
|
|
|
1,751 |
|
|
1,607 |
|
rated C to A |
(2
|
) |
|
|
|
|
(361
|
) |
|
|
|
|
770 |
|
|
|
|
|
770 |
|
|
390 |
|
not publicly rated |
|
|
|
|
|
|
|
|
|
|
|
|
5,102 |
|
|
5,102 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
(172
|
) |
|
(18
|
) |
|
(2,064
|
) |
|
|
|
|
19,524 |
|
|
5,486 |
|
|
14,038 |
|
|
11,030 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
At 31 December 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealised |
|
|
Realised |
|
|
movements |
|
|
|
|
|
|
|
|
CDS |
|
|
Net |
|
|
|
|
|
gains and |
|
|
gains and |
|
|
through |
|
|
|
|
|
Gross |
|
|
gross |
|
|
principal |
|
|
Carrying |
|
|
(losses) |
3 |
|
(losses) |
4 |
|
equity
|
5 |
|
Impairment
|
6 |
|
principal |
7 |
|
protection |
8 |
|
exposure |
9 |
|
amount |
10 |
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UK non-conforming residential mortgage-related
assets
MBSs1
|
(5 |
) |
|
|
|
|
(15 |
) |
|
|
|
|
3,355 |
|
|
|
|
|
3,355 |
|
|
3,211 |
|
high grade2 |
(3 |
) |
|
|
|
|
(15 |
) |
|
|
|
|
3,321 |
|
|
|
|
|
3,321 |
|
|
3,183 |
|
rated C to A |
(2 |
) |
|
|
|
|
|
|
|
|
|
|
28 |
|
|
|
|
|
28 |
|
|
24 |
|
not publicly rated |
|
|
|
|
|
|
|
|
|
|
|
|
6 |
|
|
|
|
|
6 |
|
|
4 |
|
Other
UK residential mortgage-related
assets
MBSs1 |
(53 |
) |
|
(14 |
) |
|
(121 |
) |
|
|
|
|
5,943 |
|
|
|
|
|
5,943 |
|
|
5,640 |
|
high grade2 |
(22 |
) |
|
(14 |
) |
|
(118 |
) |
|
|
|
|
5,411 |
|
|
|
|
|
5,411 |
|
|
5,156 |
|
rated C to A |
(31 |
) |
|
|
|
|
(3 |
) |
|
|
|
|
520 |
|
|
|
|
|
520 |
|
|
472 |
|
not publicly rated |
|
|
|
|
|
|
|
|
|
|
|
|
12 |
|
|
|
|
|
12 |
|
|
12 |
|
Commercial
property mortgage-related assets
MBS and MBS CDOs1 |
(64 |
) |
|
(2 |
) |
|
(40 |
) |
|
|
|
|
5,330 |
|
|
|
|
|
5,330 |
|
|
4,902 |
|
high grade2 |
(54 |
) |
|
(2 |
) |
|
(39 |
) |
|
|
|
|
4,437 |
|
|
|
|
|
4,437 |
|
|
4,095 |
|
rated C to A |
(10 |
) |
|
|
|
|
(1 |
) |
|
|
|
|
173 |
|
|
|
|
|
173 |
|
|
113 |
|
not publicly rated |
|
|
|
|
|
|
|
|
|
|
|
|
720 |
|
|
|
|
|
720 |
|
|
694 |
|
Leveraged
finance-related assets
ABSs and
ABS CDOs1 |
|
|
|
|
|
|
(8 |
) |
|
|
|
|
675 |
|
|
330 |
|
|
345 |
|
|
336 |
|
high grade2 |
|
|
|
|
|
|
(8 |
) |
|
|
|
|
366 |
|
|
21 |
|
|
345 |
|
|
336 |
|
not publicly rated |
|
|
|
|
|
|
|
|
|
|
|
|
309 |
|
|
309 |
|
|
|
|
|
|
|
Other assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ABS and ABS CDOs1
|
(13 |
) |
|
|
|
|
(38 |
) |
|
|
|
|
9,385 |
|
|
6,802 |
|
|
2,583 |
|
|
2,511 |
|
high grade2 |
(8 |
) |
|
|
|
|
(38 |
) |
|
|
|
|
2,225 |
|
|
|
|
|
2,225 |
|
|
2,170 |
|
rated C to A |
(5 |
) |
|
|
|
|
|
|
|
|
|
|
26 |
|
|
|
|
|
26 |
|
|
29 |
|
not publicly rated |
|
|
|
|
|
|
|
|
|
|
|
|
7,134 |
|
|
6,802 |
|
|
332 |
|
|
312 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
(135 |
) |
|
(16 |
) |
|
(222 |
) |
|
|
|
|
24,688 |
|
|
7,132 |
|
|
17,556 |
|
|
16,600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For footnotes, see page 162.
156
Back to Contents
HSBCs consolidated holdings
of ABSs, and direct lending held at fair value through profit or loss, other
than those supported by US and UK-originated assets
|
2008 |
|
|
At 31 December
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealised |
|
|
Realised |
|
|
movements |
|
|
|
|
|
|
|
|
CDS |
|
|
Net |
|
|
|
|
|
gains and |
|
|
gains and |
|
|
through |
|
|
|
|
|
Gross |
|
|
gross |
|
|
principal |
|
|
Carrying |
|
|
(losses)
|
3 |
|
(losses)
|
4 |
|
equity
|
5 |
|
Impairment |
6 |
|
principal |
7 |
|
protection |
8 |
|
exposure |
9 |
|
amount |
10 |
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
Non-US
and non-UK non-sub-prime residential mortgage-related assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MBSs1
|
|
|
|
|
|
|
|
|
|
(8 |
) |
|
47 |
|
|
|
|
|
47 |
|
|
39 |
|
high grade2 |
|
|
|
|
|
|
|
|
|
(8 |
) |
|
46 |
|
|
|
|
|
46 |
|
|
38 |
|
rated C to A |
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
|
|
1 |
|
|
1 |
|
MBS CDOs1
|
(15 |
) |
|
|
|
|
(3 |
) |
|
|
|
|
53 |
|
|
|
|
|
53 |
|
|
26 |
|
high grade2 |
(14 |
) |
|
|
|
|
(3 |
) |
|
|
|
|
40 |
|
|
|
|
|
40 |
|
|
23 |
|
rated C to A |
(1 |
) |
|
|
|
|
|
|
|
|
|
|
11 |
|
|
|
|
|
11 |
|
|
1 |
|
not publicly rated |
|
|
|
|
|
|
|
|
|
|
|
|
2 |
|
|
|
|
|
2 |
|
|
2 |
|
Other non-US and non-UK residential
mortgage-related assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MBSs1
|
(66 |
) |
|
(27 |
) |
|
(62 |
) |
|
|
|
|
2,411 |
|
|
|
|
|
2,411 |
|
|
2,051 |
|
high grade2 |
(59 |
) |
|
(28 |
) |
|
(62 |
) |
|
|
|
|
2,184 |
|
|
|
|
|
2,184 |
|
|
1,878 |
|
rated C to A |
(6 |
) |
|
|
|
|
|
|
|
|
|
|
149 |
|
|
|
|
|
149 |
|
|
127 |
|
not publicly rated |
(1 |
) |
|
1 |
|
|
|
|
|
|
|
|
78 |
|
|
|
|
|
78 |
|
|
46 |
|
Commercial
property mortgage-related
assets
MBS and MBS CDOs1 |
(123 |
) |
|
(2 |
) |
|
(463 |
) |
|
|
|
|
3,051 |
|
|
|
|
|
3,051 |
|
|
2,311 |
|
high grade2 |
(91 |
) |
|
(14 |
) |
|
(453 |
) |
|
|
|
|
2,928 |
|
|
|
|
|
2,928 |
|
|
2,234 |
|
rated C to A |
(32 |
) |
|
12 |
|
|
(7 |
) |
|
|
|
|
112 |
|
|
|
|
|
112 |
|
|
69 |
|
not publicly rated |
|
|
|
|
|
|
(3 |
) |
|
|
|
|
11 |
|
|
|
|
|
11 |
|
|
8 |
|
Leveraged
finance-related assets
ABSs and
ABS CDOs1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
high grade2 |
(4 |
) |
|
1 |
|
|
(229 |
) |
|
|
|
|
1,419 |
|
|
1 |
|
|
1,418 |
|
|
1,098 |
|
Other
assets
ABS and ABS CDOs1
|
(209 |
) |
|
(13 |
) |
|
(241 |
) |
|
(51 |
) |
|
5,604 |
|
|
1,853 |
|
|
3,751 |
|
|
3,188 |
|
high grade2 |
(168 |
) |
|
(6 |
) |
|
(92 |
) |
|
|
|
|
4,379 |
|
|
1,679 |
|
|
2,700 |
|
|
2,199 |
|
rated C to A |
(41 |
) |
|
(7 |
) |
|
(149 |
) |
|
|
|
|
906 |
|
|
174 |
|
|
732 |
|
|
707 |
|
not publicly rated |
|
|
|
|
|
|
|
|
|
(51 |
) |
|
319 |
|
|
|
|
|
319 |
|
|
282 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
(417 |
) |
|
(41 |
) |
|
(998 |
) |
|
(59 |
) |
|
12,585 |
|
|
1,854 |
|
|
10,731 |
|
|
8,713 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
At 31 December 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealised |
|
|
Realised
|
|
|
movements |
|
|
|
|
|
|
|
|
CDS |
|
|
Net |
|
|
|
|
|
gains and |
|
|
gains and |
|
|
through |
|
|
|
|
|
Gross |
|
|
gross |
|
|
principal |
|
|
Carrying |
|
|
(losses) |
3 |
|
(losses) |
4 |
|
equity |
5 |
|
Impairment |
6 |
|
principal |
7 |
|
protection |
8 |
|
exposure |
9 |
|
amount |
10 |
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
Non-US and non-UK non- sub-prime
residential mortgage-related assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MBSs1
|
|
|
|
|
|
|
|
|
|
|
|
|
624 |
|
|
|
|
|
624 |
|
|
385 |
|
high grade2 |
|
|
|
|
|
|
|
|
|
|
|
|
447 |
|
|
|
|
|
447 |
|
|
279 |
|
rated C to A |
|
|
|
|
|
|
|
|
|
|
|
|
104 |
|
|
|
|
|
104 |
|
|
38 |
|
not publicly rated |
|
|
|
|
|
|
|
|
|
|
|
|
73 |
|
|
|
|
|
73 |
|
|
68 |
|
Other non-US
and non-UK residential mortgage-related assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MBSs1
|
(20 |
) |
|
(10 |
) |
|
(6 |
) |
|
|
|
|
4,001 |
|
|
814 |
|
|
3,187 |
|
|
3,055 |
|
high grade2 |
(16 |
) |
|
(8 |
) |
|
(6 |
) |
|
|
|
|
3,703 |
|
|
710 |
|
|
2,993 |
|
|
2,869 |
|
rated C to A |
(6 |
) |
|
|
|
|
|
|
|
|
|
|
130 |
|
|
90 |
|
|
40 |
|
|
36 |
|
not publicly rated |
2 |
|
|
(2 |
) |
|
|
|
|
|
|
|
168 |
|
|
14 |
|
|
154 |
|
|
150 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance carried forward |
(20 |
) |
|
(10 |
) |
|
(6 |
) |
|
|
|
|
4,625 |
|
|
814 |
|
|
3,811 |
|
|
3,440 |
|
157
Back to Contents
H S B C H O L D
I N G S P L C |
|
Report of the Directors: Impact of Market
Turmoil (continued) |
|
|
|
|
Nature and extent of exposures > Monolines |
HSBCs consolidated holdings of ABSs, and
direct lending held at fair value through profit or loss, other than those
supported by US and UK-originated assets (continued)
|
2007 |
|
|
At 31 December 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealised |
|
|
Realised |
|
|
movements |
|
|
|
|
|
|
|
|
CDS |
|
|
Net |
|
|
|
|
|
gains and |
|
|
gains and |
|
|
through |
|
|
Impair- |
|
|
Gross |
|
|
gross |
|
|
principal |
|
|
Carrying |
|
|
(losses)
|
3 |
|
(losses)
|
4 |
|
equity
|
5 |
|
ment
|
6 |
|
principal |
7 |
|
protection |
8 |
|
exposure |
9 |
|
amount
|
10 |
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance brought forward |
(20 |
) |
|
(10 |
) |
|
(6 |
) |
|
|
|
|
4,625 |
|
|
814 |
|
|
3,811 |
|
|
3,440 |
|
Commercial property mortgage-related
assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MBS
and MBS CDOs1 |
(9 |
) |
|
|
|
|
(20 |
) |
|
|
|
|
3,576 |
|
|
238 |
|
|
3,338 |
|
|
3,051 |
|
high grade2 |
(6 |
) |
|
|
|
|
(20 |
) |
|
|
|
|
3,212 |
|
|
102 |
|
|
3,110 |
|
|
2,827 |
|
rated C to A |
(3 |
) |
|
|
|
|
|
|
|
|
|
|
185 |
|
|
136 |
|
|
49 |
|
|
49 |
|
not publicly rated |
|
|
|
|
|
|
|
|
|
|
|
|
179 |
|
|
|
|
|
179 |
|
|
175 |
|
Leveraged finance-related
assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ABSs
and ABS CDOs1 |
(3 |
) |
|
|
|
|
(20 |
) |
|
|
|
|
1,356 |
|
|
3 |
|
|
1,353 |
|
|
1,315 |
|
high grade2 |
(3 |
) |
|
|
|
|
(20 |
) |
|
|
|
|
1,281 |
|
|
2 |
|
|
1,279 |
|
|
1,244 |
|
not publicly rated |
|
|
|
|
|
|
|
|
|
|
|
|
75 |
|
|
1 |
|
|
74 |
|
|
71 |
|
Other assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct
lending |
|
|
|
|
|
|
|
|
|
|
|
|
3 |
|
|
|
|
|
3 |
|
|
3 |
|
ABS
and ABS CDOs1 |
(2 |
) |
|
6 |
|
|
(18 |
) |
|
(36 |
) |
|
7,929 |
|
|
1,702 |
|
|
6,227 |
|
|
6,113 |
|
high grade2 |
(5 |
) |
|
(2 |
) |
|
(18 |
) |
|
(36 |
) |
|
7,310 |
|
|
1,443 |
|
|
5,867 |
|
|
5,550 |
|
rated C to A |
|
|
|
5 |
|
|
|
|
|
|
|
|
547 |
|
|
259 |
|
|
288 |
|
|
522 |
|
not publicly rated |
3 |
|
|
3 |
|
|
|
|
|
|
|
|
72 |
|
|
|
|
|
72 |
|
|
41 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2 |
) |
|
6 |
|
|
(18 |
) |
|
(36 |
) |
|
7,932 |
|
|
1,702 |
|
|
6,230 |
|
|
6,116 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
(34 |
) |
|
(4 |
) |
|
(64 |
) |
|
(36 |
) |
|
17,489 |
|
|
2,757 |
|
|
14,732 |
|
|
13,922 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For footnotes, see page 162.
|
|
|
The following table shows
the vintages of the collateral assets supporting HSBCs holdings
of US sub-prime and Alt-A MBSs. Market prices for these instruments generally
incorporate higher
discounts |
|
for later vintages. The majority
of HSBCs holdings of US sub-prime MBSs are originated pre-2007;
holdings of US Alt-A MBSs are more evenly distributed between pre- and
post-2007 vintages. |
|
|
|
Vintages of US sub-prime and Alt-A mortgage-backed
securities
|
Gross principal7
of US sub-prime |
|
Gross principal7
of US Alt-A |
|
|
mortgage-backed
securities |
|
mortgage-backed
securities |
|
|
at 31 December |
|
at 31 December |
|
|
|
|
|
|
|
2008 |
|
2007 |
|
2008 |
|
2007 |
|
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
Mortgage vintage |
|
|
|
|
|
|
|
|
Pre-2006 |
2,012 |
|
3,170 |
|
2,695 |
|
2,870 |
|
2006 |
4,287 |
|
5,186 |
|
7,712 |
|
7,777 |
|
2007 |
1,588 |
|
2,377 |
|
6,453 |
|
8,528 |
|
|
|
|
|
|
|
|
|
|
|
7,887 |
|
10,733 |
|
16,860 |
|
19,175 |
|
|
|
|
|
|
|
|
|
|
For footnotes, see page 162.
Transactions with monoline insurers
HSBCs exposure to derivative transactions entered into directly with monoline insurers
HSBCs principal exposure to monolines is through a number of over-the-counter (OTC) derivative transactions, mainly credit default swaps (CDSs). HSBC entered into these CDSs primarily to
purchase credit protection against securities held within the trading portfolio.
During 2008, the notional value of contracts with monolines decreased as certain transactions were commuted and others matured. Nevertheless, HSBCs overall credit exposure to monolines
increased as the fair value of the underlying securities declined, causing the value of the CDS protection purchased to increase. The table below sets out the fair value, essentially the replacement cost, of the derivative transactions at 31
December 2008, and hence the amount at risk if the CDS
158
Back to Contents
protection purchased were to be wholly ineffective because, for example, the monoline insurer was subdivided between those monolines that were rated by S&P at BBB or above at 31 December 2008, and those that
were below BBB (BBB is the S&P cut-off for an investment grade classification). As certain monolines were downgraded during 2008, exposure to monolines rated below BBB at 31 December 2008 increased from the
position as at 31 December 2007. The Credit risk adjustment
unable to meet its obligations. In order to illustrate
that risk, the value of protection purchased is shown column indicates the
valuation adjustment (the provision) taken against the net exposures, and
reflects the assessed loss of value on purchased protection arising from the
deterioration in creditworthiness of the monolines. These valuation adjustments,
which reflect a measure of the irrecoverability of the protection purchased,
have been charged to the income statement.
HSBCs exposure to derivative transactions
entered into directly with monoline insurers
|
|
|
Net exposure |
|
|
|
Net exposure |
|
|
Notional |
|
before credit |
|
Credit risk |
|
after credit |
|
|
amount |
|
risk adjustment |
12 |
adjustment |
13 |
risk adjustment |
|
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
At 31 December 2008 |
|
|
|
|
|
|
|
|
Derivative transactions with monoline
counterparties |
|
|
|
|
|
|
|
|
Monoline BBB
or above |
9,627 |
|
2,829 |
|
(740 |
) |
2,089 |
|
Monoline below
BBB |
2,731 |
|
1,104 |
|
(752 |
) |
352 |
|
|
|
|
|
|
|
|
|
|
|
12,358 |
|
3,933 |
|
(1,492 |
) |
2,441 |
|
|
|
|
|
|
|
|
|
|
At 31 December 2007 |
|
|
|
|
|
|
|
|
Derivative transactions with monoline
counterparties |
|
|
|
|
|
|
|
|
Monoline BBB
or above |
14,314 |
|
1,342 |
|
(133 |
) |
1,209 |
|
Monoline below
BBB |
1,120 |
|
214 |
|
(214 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
15,434 |
|
1,556 |
|
(347 |
) |
1,209 |
|
|
|
|
|
|
|
|
|
|
For footnotes, see page 162. |
|
|
|
|
|
|
|
|
The above table can
be analysed as follows. HSBC has derivative transactions referenced to underlying
securities with a nominal value of US$12.4 billion, whose value at 31 December
2008 indicated a potential claim against the protection purchased from the monolines
of some US$3.9 billion. On the basis of a credit assessment of the standing
of the monolines, a provision of US$1.5 billion has been taken, leaving
US$2.4 billion exposed, of which US$2.1 billion is recoverable from
monolines rated investment grade at 31 December 2008. The provisions taken imply
in aggregate that 74 cents in the dollar will be recoverable from investment
grade monolines and 32 cents in the dollar from non-investment grade monolines.
HSBCs exposure to direct lending and irrevocable commitments to lend to monoline insurers
HSBC has outstanding liquidity facilities totalling US$47 million to monoline insurers, of which US$2 million was drawn at 31 December 2008 (2007:
US$158 million, none drawn).
HSBCs exposure to debt securities which
benefit from guarantees provided by monoline insurers
Within both the trading and available-for-sale portfolios,
HSBC holds bonds that are wrapped with a credit enhancement from
a monoline insurer. As the bonds are traded explicitly with the benefit of this
enhancement, any deterioration in the credit profile of the monoline insurer
is reflected in market prices and, therefore, in the carrying amount of these
securities on HSBCs balance sheet at 31 December
2008. For wrapped bonds held in the trading
portfolio, the mark-to-market movement has been reflected through the income
statement. For wrapped bonds held in the available-for-sale portfolio, the mark-to-market
movement is reflected in equity unless there is objective evidence of impairment,
in which case the impairment loss is reflected in the income statement. No wrapped
bonds were included in the reclassification of financial assets described on
page 145.
159
Back to Contents
H S B C H O L D
I N G S P L C |
|
Report of
the Directors: Impact of Market Turmoil (continued) |
|
|
|
|
Nature and extent of exposures > Monolines
/ Leveraged finance |
HSBCs exposure to Credit Derivative Product
Companies
CDPCs are independent companies that specialise in selling credit default protection on corporate exposures. As corporate credit spreads widened during the second half of 2008, increasing the potential value of claims
against the CDPCs, the creditworthiness of CDPCs became a focus. At 31 December 2008, HSBC had purchased credit protection from CDPCs with a notional value of US$6.4 billion (2007: US$5.7 billion) which had a fair value (essentially,
replacement cost) of US$1.2 billion (2007: US$218 million), against which a credit risk adjustment (a provision) of US$228 million (2007: nil) was held. All of the fair value exposures at 31 December 2008 and 2007 represented exposure to
CDPCs with investment grade ratings.
Leveraged finance transactions
Leveraged finance transactions include sub-investment
grade acquisition or event-driven financing. During the second half of 2008,
HSBC reclassified US$6.5 billion of leveraged finance loans from the held-for-trading
category to loans and receivables as detailed on page 146 as its intention
now is to hold these assets for the foreseeable future or until maturity.
Impairment on these reclassified assets is now recognised on an incurred loss
basis. The following tables show HSBCs gross commitments and exposure
to leveraged finance transactions arising from primary transactions and the
movement in that leveraged finance exposure in the year. HSBCs additional
exposure to leveraged finance loans through holdings of ABSs from its trading
and investment activities is shown in the tables on pages 151 and 152.
HSBCs gross commitments to leveraged finance transactions by geographical segment
|
Funded |
|
Unfunded |
|
Total |
|
|
commitments |
|
commitments |
|
commitments |
|
|
US$m |
|
US$m |
|
US$m |
|
At 31 December 2008 |
|
|
|
|
|
|
Europe |
3,818 |
|
543 |
|
4,361 |
|
Rest of Asia-Pacific |
25 |
|
12 |
|
37 |
|
North America |
1,987 |
|
268 |
|
2,255 |
|
|
|
|
|
|
|
|
|
5,830 |
|
823 |
|
6,653 |
|
|
|
|
|
|
|
|
|
Funded |
|
Unfunded |
|
Total |
|
|
commitments |
|
commitments |
|
commitments |
|
|
US$m |
|
US$m |
|
US$m |
|
At 31 December 2007 |
|
|
|
|
|
|
Europe |
4,004 |
|
1,822 |
|
5,826 |
|
Hong Kong |
|
|
160 |
|
160 |
|
Rest of Asia-Pacific |
45 |
|
182 |
|
227 |
|
North America |
1,991 |
|
733 |
|
2,724 |
|
|
|
|
|
|
|
|
|
6,040 |
|
2,897 |
|
8,937 |
|
|
|
|
|
|
|
|
HSBCs exposure to leveraged finance transactions
|
At 31 December |
|
|
|
|
|
|
|
|
|
Funded |
|
Unfunded |
|
Total |
|
|
exposures |
14 |
exposures |
15 |
exposures |
|
|
US$m |
|
US$m |
|
US$m |
|
2008 |
|
|
|
|
|
|
Europe |
3,554 |
|
480 |
|
4,034 |
|
Rest of Asia-Pacific |
25 |
|
12 |
|
37 |
|
North America |
1,825 |
|
258 |
|
2,083 |
|
|
|
|
|
|
|
|
|
5,404 |
|
750 |
|
6,154 |
|
|
|
|
|
|
|
|
Held within: |
|
|
|
|
|
|
loans and receivables |
5,401 |
|
482 |
|
5,883 |
|
fair value through the
profit or loss |
3 |
|
268 |
|
271 |
|
160
Back to Contents
|
At 31 December
|
|
|
|
|
|
|
|
|
|
Funded |
|
Unfunded |
|
Total |
|
|
exposures |
14 |
exposures |
15 |
exposures |
|
|
US$m |
|
US$m |
|
US$m |
|
2007 |
|
|
|
|
|
|
Europe |
3,903 |
|
1,813 |
|
5,716 |
|
Hong Kong |
|
|
160 |
|
160 |
|
Rest of Asia-Pacific |
45 |
|
182 |
|
227 |
|
North America |
1,917 |
|
722 |
|
2,639 |
|
|
|
|
|
|
|
|
|
5,865 |
|
2,877 |
|
8,742 |
|
|
|
|
|
|
|
|
Held within: |
|
|
|
|
|
|
loans and
receivables |
424 |
|
546 |
|
970 |
|
fair value through the profit or loss |
5,441 |
|
2,331 |
|
7,772 |
|
|
|
|
|
|
|
|
For footnotes, see page
162. |
|
|
|
|
|
|
Movement in leveraged finance
exposures |
|
|
|
|
|
|
|
Funded |
|
Unfunded |
|
Total |
|
|
exposures |
14 |
exposures |
15 |
exposures |
|
|
US$m |
|
US$m |
|
US$m |
|
|
|
|
|
|
|
|
At 31 December 2007 |
5,865 |
|
2,877 |
|
8,742 |
|
Additions |
128 |
|
647 |
|
775 |
|
Fundings |
834 |
|
(834 |
) |
|
|
Sales, repayments and other movements |
(1,184 |
) |
(1,875 |
) |
(3,059 |
) |
Write-downs |
(239 |
) |
(65 |
) |
(304 |
) |
|
|
|
|
|
|
|
At 31 December 2008 |
5,404 |
|
750 |
|
6,154 |
|
|
|
|
|
|
|
|
For footnotes, see page 162. |
|
|
|
|
|
|
The fall in unfunded exposures during 2008 primarily relates to the depreciation in sterling against the US dollar.
As described in the background to market turmoil on page 144, the dislocation of financial
markets developed in the second half of 2007 and
continued throughout 2008. Consequently, income statement write-downs on leveraged
finance transactions are presented for the three half-year periods affected
to date.
|
Half-year to
|
|
|
|
|
|
|
|
|
|
31 December |
|
30 June |
|
31 December |
|
|
2008 |
|
2008 |
|
2007 |
|
|
US$m |
|
US$m |
|
US$m |
|
|
|
|
|
|
|
|
Write-downs taken to income statement |
|
|
278 |
|
195 |
|
Impairment of leveraged finance
loans taken to the income statement |
26 |
|
|
|
|
|
For footnotes, see page 162. |
|
|
|
|
|
|
|
|
|
|
|
|
|
As a result of the
reclassification of certain leveraged finance loans from held-for-trading
to loans and receivables, write-downs of US$1.2 billion were not taken
to the income statement for the half year to 31 December 2008.
At 31 December 2008, HSBCs principal exposures were to companies in two sectors:
US$3.6 billion to data processing (2007: US$3.8
billion) and US$1.7 billion to communications and infrastructure (2007:
US$2.7 billion). During the year, 99 per cent of the total write-downs
were against exposures in these two sectors.
161
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H S B C H O L
D I N G S P L C |
|
Report
of the Directors: Impact of Market Turmoil (continued) |
|
|
|
|
Footnotes / Fair values of
financial instruments / Carried at fair value |
Footnotes to Nature and extent of HSBCs
exposures
1 |
Mortgage-backed securities (MBSs),
asset-backed securities (ABSs) and collateralised debt obligations
(CDOs). |
2 |
High grade assets rated AA or AAA.
|
3 |
Unrealised gains and losses on the net principal
exposure (see footnote 9) recognised in the income statement as a result
of changes in the fair value of the asset, adjusted for the cumulative amount
of transfers to realised gains and losses as a result of the disposal of
assets. |
4 |
Realised gains and losses on the net principal
exposure (see footnote 9) recognised in the income statement as a result
of the disposal of assets. |
5 |
Fair value gains and losses on the net principal
exposure (see footnote 9) recognised in equity as a result of the changes
in the fair value of available-for-sale assets, adjusted for transfers from
the available-for-sale reserve to the income statement as a result of impairment,
and adjusted for transfers to realised gains and losses following the disposal
of assets. |
6 |
Impairment losses recognised in the income
statement in respect of the net principal exposure (see footnote 9) of available-for-sale
and held-to-maturity assets. |
7 |
The gross principal is the redemption amount
on maturity or, in the case of an amortising instrument, the sum of the
future redemption amounts through the residual life of the security.
|
8 |
A CDS is a credit default swap. CDS gross
protection is the gross principal of the underlying instrument that is protected
by CDSs. |
9 |
Net principal exposure is the gross principal
amount of assets that are not protected by CDSs. It includes assets that
benefit from monoline protection, except where this protection is purchased
with a CDS. |
10 |
Carrying amount of the net principal exposure.
|
11 |
During 2008, the Group reclassified holdings
of HELoCs to US sub-prime residential mortgage-related assets from Other
US residential mortgage-related assets, and restated the amounts of certain
direct lending exposures presented in the ABS tables to show the gross carrying
amount of assets on the consolidated balance sheet rather than the net exposure,
consistent with other direct lending exposures. 2007 amounts have been restated
accordingly, resulting in an increase of US$6.3 billion in the reported
balance of US sub-prime mortgage-related assets as at 31 December 2007.
|
12 |
Net exposure after legal netting and any
other relevant credit mitigation prior to deduction of the credit risk adjustment. |
13 |
Cumulative fair value adjustment recorded
against OTC derivative counterparty exposures to reflect the creditworthiness
of the counterparty. |
14 |
Funded exposure represents the loan amount
advanced to the customer, less any fair value write-downs, net of fees held
on deposit. |
15 |
Unfunded exposures represent the contractually
committed loan facility amount not yet drawn down by the customer, less
any fair value write-downs, net of fees held on deposit. |
Fair values of financial instruments |
|
(Audited) |
The classification of financial instruments is determined in accordance with the accounting policies set out in Note 2 on the Financial Statements, and the use of assumptions and estimation in respect of valuation of
financial instruments as described on page 63. The following is a description of HSBCs methods of determining fair value and its related control framework, and a quantification of its exposure to financial instruments measured at fair value.
Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arms length transaction.
Financial instruments measured at fair value on an ongoing basis include trading assets and liabilities, instruments designated at fair value, derivatives and financial investments classified
as available for sale (including treasury and other eligible bills, debt securities, and equity securities).
Fair values of financial instruments carried at fair value
Control framework
Fair values are subject to a control framework designed to ensure that they are either determined or validated by a function independent of the risk-taker.
To this end, ultimate responsibility for the determination of fair values lies with Finance, which reports functionally to the Group Finance Director. Finance establishes the accounting policies and procedures governing
valuation, and is responsible for ensuring that they comply with all relevant accounting standards.
For all financial instruments where fair values are determined by reference to externally quoted prices or observable pricing inputs to models, independent price determination or validation is
utilised. In inactive markets, direct observation of a traded price may not be possible. In these circumstances, HSBC will source alternative market information to validate the financial instruments fair value, with greater weight given to
information that is considered to be more relevant and reliable. The factors that are considered in this regard are, inter alia:
• |
the extent to which prices may be expected to represent genuine traded or tradeable prices; |
|
|
• |
the degree of similarity between financial instruments; |
|
|
• |
the degree of consistency between different sources; |
|
|
• |
the process followed by the pricing provider to derive the data; |
162
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• |
the elapsed time between the date to which the market data relates and the balance sheet date; and |
|
|
• |
the manner in which the data was sourced. |
Models provide a logical framework for the capture
and processing of necessary valuation inputs. For fair values determined using
a valuation model, the control framework may include, as applicable, independent
development or validation of (i) the logic within valuation models; (ii) the
inputs to those models; (iii) any adjustments required outside the valuation
models; and, (iv) where possible, model outputs. Valuation models are subject
to a process of due diligence and calibration before becoming
operational and are calibrated against external market data on an ongoing basis.
The results of the independent validation process are reported to, and considered by, Valuation Committees. Valuation Committees are composed of valuation experts from several independent
support functions (Product Control, Market Risk Management, Derivative Model Review Group and Finance) in addition to senior management. The members of each Valuation Committee consider the appropriateness and adequacy of the fair value adjustments
and the effectiveness of valuation models. If necessary, they may require changes to model calibration or calibration procedures. The Valuation Committees are overseen by the Valuation Committee Review Group, which consists of Heads of Global
Banking and Markets Finance and Risk Functions. All subjective valuation items with a potential impact in excess of US$5 million are reported to the Valuation Committee Review Group.
Determination of fair value
Fair values are determined according to the following hierarchy:
• |
Quoted market price: financial instruments with quoted prices for identical instruments in active markets. |
|
|
• |
Valuation technique using observable inputs: financial instruments with quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in inactive markets and financial instruments valued using models where all significant inputs are observable. |
|
|
• |
Valuation technique with significant unobservable inputs: financial instruments valued using valuation
techniques where one or more significant inputs are unobservable. |
The best evidence of fair value is a quoted price in an actively traded market. In the event that the market for a financial instrument is not active, a valuation technique is used.
The judgement as to whether a market is active may include, but is not restricted to, the consideration of factors such as the magnitude and frequency of trading activity, the availability of
prices and the size of bid/offer spreads. In inactive markets, obtaining assurance that the transaction price provides evidence of fair value or determining the adjustments to transaction prices that are necessary to measure the fair value of the
instrument requires additional work during the valuation process.
The majority of valuation techniques employ only observable market data, and so the reliability of the fair value measurement is high. However, certain financial instruments are valued on the
basis of valuation techniques that feature one or more significant market inputs that are unobservable, and for them, the derivation of fair value is more judgemental. An instrument in its entirety is classified as valued using significant
unobservable inputs if, in the opinion of management, a significant proportion of the instruments balance sheet value and/or inception profit (day 1 gain or loss) is driven by unobservable inputs. Unobservable in this
context means that there is little or no current market data available from which to determine the price at which an arms length transaction would be likely to occur. It generally does not mean that there is no market data available at all
upon which to base a determination of fair value (consensus pricing data may, for example, be used). Furthermore, in some cases the majority of the fair value derived from a valuation technique with significant unobservable inputs may be
attributable to observable inputs. Consequently, the effect of uncertainty in determining unobservable inputs will generally be restricted to uncertainty about the overall fair value of the financial instrument being measured. To help in
understanding the extent and the range of this uncertainty, additional information is provided in the section headed Effect of changes in significant unobservable assumptions to reasonably possible alternatives below.
In certain circumstances, primarily where debt is hedged with interest rate derivatives or structured notes issued, HSBC records its own debt in issue at fair value, based on quoted prices in
an active market for the specific instrument concerned, if available. When quoted market prices are unavailable, the own debt in issue is valued using valuation techniques, the inputs for which are either based upon quoted
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H S B C H O L
D I N G S P L C |
|
Report
of the Directors: Impact of Market Turmoil (continued) |
|
|
|
|
Fair values of financial instruments > Carried
at fair value |
prices in an inactive market for the instrument, or are estimated by comparison with quoted prices in an active market for similar instruments. In both cases, the fair value includes the effect of applying the credit spread
which is appropriate to HSBCs liabilities. For all issued debt securities, discounted cash flow modelling is used to separate the change in fair value that may be attributed to HSBCs credit spread movements from movements in other market
factors such as benchmark interest rates or foreign exchange rates. Specifically, the change in fair value of issued debt securities attributable to the Groups own credit spread is computed as follows: for each security at each reporting date,
an externally verifiable price is obtained or a price is derived using credit spreads for similar securities for the same issuer. Then, using discounted cash flow, each security is valued using a risk-free discount curve. The difference in the
valuations is attributable to the Groups own credit spread. This methodology is applied consistently across all securities.
Structured notes issued and certain other hybrid instrument liabilities are included within trading liabilities and are measured at fair value. The credit spread applied to these instruments is
derived from the spreads at which HSBC issues structured notes. These market spreads are significantly smaller than credit spreads observed for plain vanilla debt or in the credit default swap markets.
Gains and losses arising from changes in the credit spread of liabilities issued by HSBC reverse over the contractual life of the debt, provided that the debt is not repaid early.
All net positions in non-derivative financial instruments, and all derivative portfolios, are valued at bid or offer prices as appropriate. Long positions are marked at bid prices; short
positions are marked at offer prices.
The fair value of a portfolio of financial instruments quoted in an active market is calculated as the product of the number of units and its quoted price and no block discounts are
made.
The valuation techniques used when quoted market prices are not available incorporate certain assumptions that HSBC believes would be made by a market participant to establish fair value. When
HSBC considers that there are additional considerations not included within the valuation model, appropriate adjustments may be made. Examples of such adjustments are:
• |
Credit risk adjustment: an
adjustment to reflect the creditworthiness
of OTC derivative counterparties. |
• |
Market data/model uncertainty: an adjustment to reflect uncertainties in fair values based on unobservable market
data inputs (for example, as a result of illiquidity), or in areas where the choice of valuation model is particularly subjective. |
|
|
• |
Inception profit (day 1 gain or loss): for financial
instruments valued at inception on the basis
of one
or more significant unobservable inputs, the
difference between transaction price and model
value, as adjusted, at inception (the day 1
gain or loss)
is not recognised in the consolidated income
statement, but is deferred. An analysis of the
movement in the deferred day 1 gain or loss
is provided on page 400. |
Transaction costs are not included in the fair value
calculation, nor are the future costs of administering the OTC derivative portfolio.
These, along with trade origination costs such as brokerage fees and post-trade
costs, are included either in fee expense or in
operating expenses.
A detailed description of the valuation techniques applied to instruments of particular interest follows:
• |
Private equity |
|
|
|
HSBCs private equity positions are generally classified as available for sale and are not traded in active markets. In the absence of an active
market, an investments fair value is estimated on the basis of an analysis of the investees financial position and results, risk profile,
prospects and other factors, as well as by reference to market valuations for similar entities quoted in an active market, or the price at which similar companies have changed ownership. The exercise of judgement is required because of uncertainties inherent in estimating
fair value for private equity investments. |
|
|
• |
Debt securities, treasury and other eligible
bills, and equities |
|
|
|
The fair value of these instruments is based on quoted market prices from an exchange, dealer, broker, industry group or pricing service, when available. When they are unavailable, the fair value is determined by reference to quoted market prices for similar instruments, adjusted as appropriate for the specific circumstances of the instruments. |
|
|
|
Illiquidity and a lack of transparency
in the market for debt securities backed by US sub-prime mortgages has
resulted in less observable |
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|
data being available. While quoted market prices
are generally used to determine the fair value of these securities, valuation
models are used to substantiate the reliability of the limited market
data available and to identify whether any adjustments to quoted market
prices are required. |
|
|
|
In the absence
of quoted market prices, fair value is determined using valuation techniques
based on the calculation of the present value of expected future cash
flows of the assets. The inputs to these valuation techniques are derived
from observable market data and, where relevant, assumptions in respect
of unobservable inputs. In respect of ABSs and mortgages, the assumptions
may include prepayment speeds, default rates and loss severity based
on collateral type, and performance as appropriate. The output from the
valuation techniques is benchmarked for consistency against observable
data. |
|
|
• |
Derivatives |
|
OTC (i.e. non-exchange traded) derivatives
are valued using valuation models. Valuation models
calculate the present value of expected future cash flows, based upon no-arbitrage principles.
For many vanilla derivative products, such
as interest rate swaps and European options, the modelling approaches used are standard
across the industry. For more complex derivative
products, there may be some differences in market practice. Inputs to valuation
models are determined from observable
market data wherever possible, including
prices
available from exchanges, dealers, brokers or
providers of consensus pricing. Certain inputs
may not be observable in the market directly,
but can be
determined from observable prices via model
calibration |
|
procedures. Finally, some inputs are not observable,
but can generally be estimated from historical data or other sources. Examples of inputs that are generally observable include foreign exchange spot and forward rates, benchmark interest rate curves and volatility surfaces for commonly traded option products. Examples of inputs that may be unobservable include
volatility surfaces, in whole or in part, for less commonly traded option products, and correlations
between market factors. |
|
|
• |
Loans including leveraged loans and loans
held for securitisation |
|
Loans held at fair value are valued from broker quotes
and/or market data consensus providers when
available. In the absence of an observable market, the fair value is determined using valuation
techniques including discounted cash flow
models, which incorporate assumptions regarding an appropriate credit spread for the loan
derived from other market instruments issued
by the same or comparable entities. |
|
|
• |
Structured notes |
|
The fair value of structured notes valued using a
valuation technique is derived from the fair value
of the underlying debt security as described above, and the fair value of the embedded
derivative is determined as described in
the paragraph above on derivatives. |
|
|
Fair value valuation bases |
|
|
The following table provides an
analysis of the various bases described above which have been deployed
for valuing financial assets and financial liabilities measured at fair
value in the consolidated financial statements: |
Bases of valuing financial assets and liabilities
measured at fair value
|
|
|
Valuation techniques |
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted |
|
Using |
|
With significant |
|
|
|
|
market |
|
observable |
|
unobservable |
|
|
|
|
price |
|
inputs |
|
inputs |
|
Total |
|
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
At 31 December 2008 |
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
Trading assets |
234,399 |
|
185,369 |
|
7,561 |
|
427,329 |
|
Financial assets designated at fair value |
14,590 |
|
13,483 |
|
460 |
|
28,533 |
|
Derivatives |
8,495 |
|
476,498 |
|
9,883 |
|
494,876 |
|
Financial investments: available for sale |
103,949 |
|
173,157 |
|
9,116 |
|
286,222 |
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
Trading liabilities |
105,584 |
|
135,559 |
|
6,509 |
|
247,652 |
|
Financial liabilities designated at fair value |
23,311 |
|
51,276 |
|
|
|
74,587 |
|
Derivatives |
9,896 |
|
473,359 |
|
3,805 |
|
487,060 |
|
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H S B C H O L D I
N G S P L C |
|
Report of the
Directors: Impact of Market Turmoil (continued) |
|
|
|
|
Fair values of financial instruments > Carried
at fair value |
Bases of valuing financial assets and liabilities
measured at fair value (continued)
|
|
|
Valuation techniques |
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted |
|
Using |
|
With significant |
|
|
|
|
market |
|
observable |
|
unobservable |
|
|
|
|
price |
|
inputs |
|
inputs |
|
Total |
|
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
At 31 December 2007 |
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
Trading
assets |
209,339 |
|
222,678 |
|
13,951 |
|
445,968 |
|
Financial assets
designated at fair value |
28,565 |
|
12,694 |
|
305 |
|
41,564 |
|
Derivatives |
8,132 |
|
175,493 |
|
4,229 |
|
187,854 |
|
Financial investments:
available for sale |
77,045 |
|
187,677 |
|
8,510 |
|
273,232 |
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
Trading
liabilities |
140,629 |
|
167,967 |
|
5,984 |
|
314,580 |
|
Financial liabilities
designated at fair value |
37,709 |
|
52,230 |
|
|
|
89,939 |
|
Derivatives |
8,879 |
|
171,444 |
|
3,070 |
|
183,393 |
|
|
|
|
|
|
|
|
|
|
The main drivers of the movement in the balances of assets and liabilities measured at fair value with significant unobservable inputs were an increase in the fair value of derivative assets
and liabilities due to market conditions, and a reduction in the level of ABSs and loans held at fair value due
either to disposal, repayment or reclassification. At 31 December 2008, financial instruments measured at fair value using a valuation technique with significant unobservable inputs represented 2 per cent of total assets
and liabilities measured at fair value (31 December 2007: 2 per cent).
Financial instruments measured at fair value using a valuation technique with significant unobservable inputs
|
Assets |
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Designated |
|
|
|
|
|
Designated |
|
|
|
|
|
|
|
|
at fair value |
|
|
|
|
|
at fair value |
|
|
|
|
Available |
|
Held for |
|
through |
|
|
|
Held for |
|
through |
|
|
|
|
for sale |
|
trading |
|
profit or loss |
|
Derivatives |
|
trading |
|
profit or loss |
|
Derivatives |
|
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
At 31 December 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private equity investments |
2,689 |
|
54 |
|
225 |
|
|
|
|
|
|
|
|
|
Asset-backed securities |
4,264 |
|
882 |
|
|
|
95 |
|
|
|
|
|
565 |
|
Leveraged finance |
|
|
266 |
|
|
|
|
|
|
|
|
|
33 |
|
Loans held for securitisation |
|
|
2,133 |
|
|
|
|
|
|
|
|
|
|
|
Structured notes |
|
|
87 |
|
|
|
|
|
5,294 |
|
|
|
|
|
Derivatives with monolines |
|
|
|
|
|
|
2,441 |
|
|
|
|
|
|
|
Other derivatives |
|
|
|
|
|
|
7,347 |
|
|
|
|
|
3,207 |
|
Other portfolios |
2,163 |
|
4,139 |
|
235 |
|
|
|
1,215 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,116 |
|
7,561 |
|
460 |
|
9,883 |
|
6,509 |
|
|
|
3,805 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 31 December 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private equity investments |
3,037 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset-backed securities |
4,223 |
|
2,073 |
|
|
|
|
|
|
|
|
|
|
|
Leveraged finance |
|
|
3,349 |
|
|
|
|
|
|
|
|
|
|
|
Loans held for securitisation |
|
|
5,100 |
|
|
|
|
|
|
|
|
|
|
|
Structured notes |
|
|
|
|
|
|
|
|
5,396 |
|
|
|
|
|
Derivatives with monolines |
|
|
|
|
|
|
1,010 |
|
|
|
|
|
|
|
Other derivatives |
|
|
|
|
|
|
3,219 |
|
|
|
|
|
3,070 |
|
Other portfolios |
1,250 |
|
3,429 |
|
305 |
|
|
|
588 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,510 |
|
13,951 |
|
305 |
|
4,229 |
|
5,984 |
|
|
|
3,070 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 31 December 2008, available-for-sale assets valued using a valuation technique with significant unobservable inputs principally comprised various ABSs, private equity investments and other
portfolios, similar to the position at 31 December 2007.
Trading assets valued using a valuation technique with significant unobservable inputs
principally comprised loans held for securitisation and other portfolios. Other portfolios included holdings in various bonds, preference shares and corporate and mortgage loans. The decrease during the year largely
reflected leveraged finance and ABS positions no longer held on a fair value basis following their reclassification to loans and receivables as a result of the amendment to IAS 39
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and a reduction in the level of loans held for securitisation.
Derivative products valued using valuation techniques with significant unobservable inputs included certain types of correlation products, such as foreign exchange basket options, foreign
exchange-interest rate hybrid transactions and long-dated option transactions. Examples of the latter are equity options, interest rate and foreign exchange options and certain credit derivatives. Credit derivatives included tranched CDS
transactions. The increase in derivative assets during the year was mainly due to (i) the transfer of certain leveraged credit derivative transactions into this category because widening credit spreads increased the significance of unobservable
credit spread volatilities, and (ii) a general increase in the fair value of derivative assets during 2008.
Trading liabilities valued using a valuation technique with significant unobservable inputs principally comprised equity-linked structured note
transactions. These notes, which HSBC issues to investors, provide the counterparty with a return that is linked to the performance of certain equity securities.
The increase in derivative liabilities valued using a valuation technique with significant unobservable inputs was due to the general increase in the fair value of derivative liabilities during
2008.
Effect of changes in significant unobservable assumptions to reasonably possible alternatives
As discussed above, the fair value of financial instruments are, in certain circumstances, measured using valuation techniques that incorporate assumptions that are not evidenced by prices from observable current market
transactions in the same instrument and are not based on observable market data. The following table shows the sensitivity of these fair values to reasonably possible alternative assumptions:
|
|
|
|
|
|
Reflected in profit or loss
|
|
Reflected in equity
|
|
|
|
|
|
|
|
|
|
|
|
Favourable |
|
Unfavourable
|
|
Favourable |
|
Unfavourable
|
|
|
changes |
|
changes
|
|
changes |
|
changes
|
|
|
US$m |
|
US$m
|
|
US$m |
|
US$m
|
|
At 31 December 2008 |
|
|
|
|
|
|
|
|
Derivatives, trading assets and trading liabilities1
|
1,266 |
|
(703
|
) |
|
|
|
|
Financial assets and liabilities designated at fair value |
30 |
|
(30
|
) |
|
|
|
|
Financial investments: available for sale |
|
|
|
|
984 |
|
(1,005
|
) |
|
|
|
|
|
|
|
|
|
At 31 December 2007 |
|
|
|
|
|
|
|
|
Derivatives, trading assets and trading liabilities1
|
602 |
|
(415
|
) |
|
|
|
|
Financial assets and liabilities designated at fair value |
30 |
|
(30
|
) |
|
|
|
|
Financial investments: available for sale |
|
|
|
|
529 |
|
(591
|
) |
|
|
1 |
Derivatives, trading assets and trading liabilities
are presented as one category to reflect the manner in which these financial
instruments are risk-managed. |
|
|
The increase in the effect of changes in significant unobservable inputs in relation to derivatives, trading assets and trading liabilities
during the year primarily reflected increased sensitivity of instruments to unobservable parameters across asset and liability classes.
Principal assumptions used in the valuation of financial instruments with significant unobservable inputs
|
Reflected in profit or loss
|
|
Reflected in equity
|
|
|
|
|
|
|
|
|
|
|
|
Favourable |
|
Unfavourable
|
|
Favourable |
|
Unfavourable
|
|
|
changes |
|
changes
|
|
changes |
|
changes
|
|
|
US$m |
|
US$m
|
|
US$m |
|
US$m
|
|
At 31 December 2008 |
|
|
|
|
|
|
|
|
Private equity investments |
28 |
|
(28
|
) |
234 |
|
(261
|
) |
Asset-backed securities |
90 |
|
(91
|
) |
667 |
|
(660
|
) |
Leveraged finance |
2 |
|
(2
|
) |
|
|
|
|
Loans held for securitisation |
41 |
|
(41
|
) |
|
|
|
|
Structured notes |
8 |
|
(8
|
) |
|
|
|
|
Derivatives with monolines |
341 |
|
(250
|
) |
|
|
|
|
Other derivatives |
652 |
|
(224
|
) |
|
|
|
|
Other portfolios |
134 |
|
(89
|
) |
83 |
|
(84
|
) |
167
Back to Contents
H S B C H O L
D I N G S P L C |
|
Report
of the Directors: Impact of Market Turmoil (continued) |
|
|
|
Fair values of financial instruments > Carried
at fair value |
Principal assumptions used in the valuation of financial instruments with significant unobservable inputs (continued)
|
Reflected in profit or loss
|
|
Reflected in equity
|
|
|
|
|
|
|
|
Favourable |
|
Unfavourable
|
|
Favourable |
|
Unfavourable
|
|
|
changes |
|
changes
|
|
changes |
|
changes
|
|
|
US$m |
|
US$m
|
|
US$m |
|
US$m
|
|
At 31 December 2007 |
|
|
|
|
|
|
|
|
Private equity investments |
|
|
|
|
228 |
|
(228
|
) |
Asset-backed securities |
226 |
|
(178
|
) |
101 |
|
(163
|
) |
Leveraged finance |
49 |
|
(49
|
) |
|
|
|
|
Loans held for securitisation |
40 |
|
(40
|
) |
|
|
|
|
Structured notes |
17 |
|
(17
|
) |
|
|
|
|
Derivatives with monolines |
88 |
|
(109
|
) |
|
|
|
|
Other derivatives |
132 |
|
(6
|
) |
|
|
|
|
Other portfolios |
80 |
|
(46
|
) |
200 |
|
(200
|
) |
|
|
|
|
|
|
|
|
|
Favourable and unfavourable changes are determined on the basis of changes in the value of the instrument as a result of varying the levels of the unobservable parameter using statistical
techniques. When parameters are not amenable to statistical analysis, quantification of uncertainty is judgemental.
When the fair value of a financial instrument is affected by more than one unobservable assumption, the above table reflects the most favourable or most unfavourable change from varying the
assumptions individually.
In respect of private equity investments, the valuations are assessed on an asset by asset basis using a valuation methodology appropriate to the specific investment, in line with industry
guidelines. In many of the methodologies, the principal assumption is the valuation multiple to be applied to the main financial indicators including, for example, multiples for comparable listed companies and discounts for marketability.
For ABSs whose prices are unobservable, models are used to generate the expected value of the asset, incorporating benchmark information on factors such as prepayment speeds, default rates,
loss severities and the historical performance of the underlying assets. The models used are calibrated by using securities for which external market information is available.
For leveraged finance, loans held for securitisation and derivatives with monolines the principal assumption concerns the appropriate value to be attributed to the counterparty credit risk.
This requires exposure at default, probability of default and recovery in the event of default to be estimated. For loan transactions, assessment of exposure at default is straight-forward. For derivative transactions, a future exposure profile is
generated based on current market data. Probabilities of default and recovery levels are estimated using market evidence, which may include financial information,
historical experience, CDS spreads and consensus recovery levels.
In the absence of such evidence, managements best estimate is used.
For structured notes and other derivatives, principal assumptions concern the future volatility of asset values and the future correlation between asset values. For such unobservable
assumptions, estimates are based on available market data, which may include the use of a proxy method to derive a volatility or a correlation from comparable assets for which market data is more readily available, and/or an examination of
historical levels.
Changes in fair value recorded in the income statement
The following table quantifies the changes in fair values recognised in profit or loss during the year in respect of exposures whose fair values are estimated using valuation techniques that incorporate significant
assumptions that are not evidenced by prices from observable current market transactions in the same instrument, and are not based on observable market data:
• |
the table details the total change in fair value of these instruments; it does not isolate the component of the change that is attributable to the unobservable component; |
|
|
• |
instruments valued with significant unobservable inputs are frequently dynamically managed with instruments valued using observable inputs; the table does not include any changes in fair value of these latter instruments; and |
|
|
• |
the table reflects the full change in fair value during 2008 of assets and liabilities valued using significant unobservable inputs at 31 December
2008 which were observable at 31 December 2007. |
168
Back to Contents
|
2008 |
|
2007 |
|
|
US$m |
|
US$m |
|
Recorded profit/(loss) on: |
|
|
|
|
Derivatives,
trading assets and trading liabilities
|
779 |
|
491 |
|
Financial
assets and liabilities designated at fair value
|
109 |
|
9 |
|
The profit during the year primarily reflects changes in the fair value of credit derivatives which were transferred from using a valuation technique with significant observable inputs to a
valuation technique with significant unobservable inputs. The change in valuation technique was due to widening
credit spreads which have increased the significance of unobservable credit spread volatilities. These movements are offset by reductions occurring due to write-downs of MBSs, mortgage loans acquired for the purpose of
securitisation and credit derivative transactions executed against monoline insurers.
HSBC Holdings
The following table provides an analysis of the basis for valuing financial assets and financial liabilities measured at fair value in the financial statements:
Bases of valuing HSBC Holdings financial assets and liabilities measured at fair value
|
Valuation techniques |
|
|
|
|
|
Quoted |
|
Using |
|
With significant |
|
|
|
|
market |
|
observable |
|
unobservable |
|
|
|
|
price |
|
inputs |
|
inputs |
|
Total |
|
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
At 31 December 2008 |
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
Derivatives |
|
|
3,682 |
|
|
|
3,682 |
|
Financial investments: available for sale |
|
|
|
|
2,629 |
|
2,629 |
|
Liabilities |
|
|
|
|
|
|
|
|
Financial liabilities designated at fair value |
16,389 |
|
|
|
|
|
16,389 |
|
Derivatives |
|
|
1,324 |
|
|
|
1,324 |
|
At 31 December 2007 |
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
Derivatives |
|
|
2,660 |
|
|
|
2,660 |
|
Financial investments: available for sale |
346 |
|
|
|
2,676 |
|
3,022 |
|
Liabilities |
|
|
|
|
|
|
|
|
Financial liabilities designated at fair value |
18,683 |
|
|
|
|
|
18,683 |
|
Derivatives |
|
|
44 |
|
|
|
44 |
|
Financial investments measured using a valuation technique with significant unobservable inputs comprise fixed-rate trust-preferred securities and senior notes purchased from HSBC undertakings.
The unobservable elements of the valuation technique include the use of implied credit spreads and simplified bond pricing assumptions.
Effect of changes in significant unobservable assumptions to reasonably possible alternatives
As discussed above, the fair value of financial instruments are in certain circumstances measured using valuation models that incorporate assumptions that are not supported by prices from observable current market
transactions in the same instrument and are not based on observable market data. The following table shows the sensitivity of non-derivative financial instruments to reasonably possible alternative assumptions.
|
Reflected
in equity |
|
|
|
|
|
Favourable |
|
Unfavourable |
|
|
changes |
|
changes |
|
|
US$m |
|
US$m |
|
Financial investments |
|
|
|
|
available for
sale |
|
|
|
|
At 31 December 2008 |
113 |
|
(97 |
) |
At 31 December 2007 |
53 |
|
(52 |
) |
Assessing available-for-sale assets for impairment
HSBCs policy on impairment of available-for-sale assets is described on page 350. The following is a description of HSBCs application of that policy.
A systematic impairment review is carried out periodically of all available-for-sale assets, and all available indicators are considered to determine whether there is any objective evidence
that an impairment may have occurred, whether as the result of a single loss event or as the combined effect of several events.
169
Back to Contents
H S B C H O L D
I N G S P L C |
|
Report of the Directors: Impact
of Market Turmoil (continued) |
|
|
|
Fair values of financial
instruments > Carried at fair value / Not carried at fair value |
Debt securities
When assessing available-for-sale debt securities for objective evidence of impairment at the balance sheet date, HSBC considers all available evidence, including observable data or information about events specifically
relating to the securities which may result in a shortfall in recovery of future cash flows. These events may include a significant financial difficulty of the issuer, a breach of contract such as a default, bankruptcy or other financial
reorganisation, or the disappearance of an active market for the debt security because of financial difficulties relating to the issuer.
These types of specific event and other factors such as information about the issuers liquidity, business and financial risk exposures, levels of and trends in default for similar
financial assets, national and local economic trends and conditions, and the fair value of collateral and guarantees may be considered individually, or in combination, to determine if there is objective evidence of impairment of a debt security.
In addition, when assessing available-for-sale ABSs for objective evidence of impairment, HSBC considers the performance of underlying collateral, the extent and depth of market price declines
and changes in credit ratings. The primary indicators of potential impairment are considered to be adverse fair value movements, and the disappearance of an active market for the securities.
At 31 December 2008, the population of available-for-sale ABSs identified as being most at risk of impairment included residential MBSs backed by sub-prime and Alt-A mortgages originated in the
US, and CDOs with significant exposure to this sector. The estimated future cash flows of these securities are assessed to determine whether any of their cash flows are unlikely to be recovered as a result of events occurring on or before the
balance sheet date.
In particular, for residential MBSs the estimated future cash flows are assessed by determining the future projected cash flows arising on the underlying collateral taking into consideration
the delinquency status of underlying loans, the probability of delinquent loans progressing to default and the proportion of the advances subsequently recoverable. HSBC uses a modelling approach which incorporates historically observed progression
rates to default, to determine if the decline in aggregate projected cash flows from the underlying collateral will lead to a shortfall in contractual cash flows. In such cases the security is considered to be impaired.
In respect of CDOs, in order to determine whether impairment has occurred, the expected future cash flows of the CDOs are compared with the total of the underlying collateral on the
non-defaulted assets and the recovery value of the defaulted assets. In the event of a shortfall, the CDO is considered to be impaired.
When a security benefits from a contract provided by a monoline insurer that insures payments of principal and interest, the expected recovery on the contract is assessed in determining the
total expected credit support available to the ABS.
Equity securities
Objective evidence of impairment for available-for-sale equity securities may include specific information about the issuer as detailed above, but may also include information about significant changes in technology,
markets, economics or the law that provides evidence that the cost of the equity securities may not be recovered.
A significant or prolonged decline in the fair value of the asset below its cost is also objective evidence of impairment. In assessing whether it is significant, the decline in fair value is
evaluated against the original cost of the asset at initial recognition. In assessing whether it is prolonged, the decline is evaluated against the period in which the fair value of the asset has been below its original cost at initial recognition.
For impairment losses on available-for-sale debt and equity securities, see pages 34 and 30, respectively. Any impairment losses recognised in the income statement relating to ABSs are recorded
in the Loan impairment charges and other credit risk provisions line. Impairment losses incurred on assets held by consolidated securities investment conduits (excluding Solitaire) are offset by a credit to the impairment line for the
amount of the loss borne by capital note holders.
Fair values of financial instruments not carried
at fair value
Financial instruments that are not measured at fair value
on the balance sheet include loans and advances to banks and customers, deposits
by banks, customer accounts, debt securities in issue and subordinated liabilities.
Their fair values are, however, provided for information by way of note disclosure
and are calculated as described below.
The calculation of fair value incorporates HSBCs estimate of the amount at which financial
170
Back to Contents
assets could be exchanged, or financial liabilities settled, between knowledgeable,
willing parties in an arms length transaction. It does not reflect the
economic benefits and costs that HSBC expects to flow from the
instruments cash flows over their expected future lives. Other reporting
entities may use different valuation methodologies and assumptions in determining
fair values for which no observable market prices are available, so comparisons
of fair values between entities may not be meaningful and users are advised to
exercise caution when using this data.
Since August
2007, the unstable market conditions in the US mortgage lending industry
have resulted in a significant reduction in the secondary market demand
for US consumer lending assets. Uncertainty over the extent and timing
of future credit losses, together with an absence of liquidity for non-prime
ABSs, continued to be reflected in a lack of bid prices at 31 December
2008. It is not possible to distinguish from the indicative
market prices that are available, between the relative discount to nominal value
within the fair value measurement that reflects cash flow impairment due
to expected losses to maturity, and the discount that the market is demanding
for holding an illiquid and out of favour asset. Under impairment accounting
for loans and advances, there is no need nor requirement to adjust carrying
amounts to reflect illiquidity as HSBCs intention is to fund assets until the earlier of prepayment,
charge-off or repayment on maturity. Market fair values, on the other hand, reflect both incurred loss and loss expected through the life of the asset, a discount for illiquidity and a credit spread which reflects the markets
current risk preferences. This usually differs from the credit spread applicable
in the market at the time the loan was underwritten and funded.
The estimated
fair values at 31 December 2008 and 31 December 2007 of loans and advances
to customers in North America reflect the combined effect of these conditions.
As a result, the fair values are substantially lower than the carrying
amount of customer loans held on-balance sheet and lower than would otherwise
be reported under more normal market conditions. Accordingly, the fair
values reported do not reflect HSBCs estimate
of the underlying long-term value of the assets.
Fair values at the
balance sheet date of the assets and liabilities set out below are estimated
for the purpose of disclosure as follows:
• |
Loans and advances to banks and customers |
|
|
|
The fair value of loans and advances is based
on observable market transactions, where
available. In the absence of observable market
transactions, fair value is estimated using discounted
cash flow models. Performing loans are
grouped, as far as possible, into homogeneous pools segregated by maturity and coupon
rates. In general, contractual cash flows are
discounted using HSBCs estimate of the discount rate that a market participant would use in
valuing instruments with similar maturity, repricing
and credit risk characteristics. |
|
|
|
The
fair value of a loan portfolio reflects both loan impairments at
the balance sheet
date and estimates of market participants expectations of credit
losses over the life of the loans. |
|
|
|
For impaired
loans, fair value is estimated by discounting the future cash flows over
the time period they are expected to be recovered. |
|
|
• |
Financial investments |
|
|
|
The fair values of listed financial investments
are determined using bid market prices. The
fair values of unlisted financial investments
are determined using valuation techniques that take into
consideration the prices and future earnings streams
of equivalent quoted securities. |
|
|
• |
Deposits by banks and customer accounts |
|
|
|
For the purposes of estimating fair value,
deposits by banks and customer accounts are
grouped by residual maturity. Fair values are
estimated using discounted cash flows, applying current
rates offered for deposits of similar remaining
maturities. The fair value of a deposit repayable on demand is assumed to be the amount
payable on demand at the balance sheet date. |
|
|
• |
Debt securities in issue and subordinated
liabilities |
|
|
|
Fair values are determined using quoted market
prices at the balance sheet date where available,
or by reference to quoted market prices for
similar instruments. |
The fair values in this note are stated at a specific date and may be significantly different from the amounts which will actually be paid on the maturity or settlement dates of the
instruments. In many cases, it would not be possible to realise immediately the estimated fair values given the size
171
Back to Contents
H S B C H O L D
I N G S P L C |
|
Report of
the Directors: Impact of Market Turmoil (continued) |
|
|
|
|
Fair values of financial
instruments > Not carried at fair value / HSBC Holdings // SPEs > HSBC-sponsored
SPEs |
of the portfolios measured. Accordingly, these
fair values do not represent the value of these financial instruments to HSBC
as a going concern.
For all classes of financial instruments, fair value represents the product of the value of a single instrument, multiplied by the number of instruments held. No block discount or premium
adjustments are made. The fair values of intangible assets related to the businesses which originate and hold the financial instruments subject to fair value measurement, such as values placed on portfolios of core deposits, credit card and customer
relationships, are not included above because they are not classified as financial instruments. Accordingly, an aggregation of fair value measurements does not approximate to the value of the organisation as a going concern.
The following table lists financial instruments whose carrying amount is a reasonable approximation of fair value because, for example, they are short-term in nature or reprice to current
market rates frequently:
Assets
Cash and balances at central banks
Items in the course of collection from other banks
Hong Kong Government certificates of indebtedness
Endorsements and acceptances
Short-term receivables within Other assets
Accrued income
Liabilities
Hong Kong currency notes in circulation
Items in the course of transmission to other
banks
Investment contracts with discretionary participation
features within Liabilities under insurance contracts
Endorsements and acceptances
Short-term payables within Other liabilities
Accruals
Fair values of financial instruments which are not carried at fair value on
the balance sheet
|
|
At 31 December
2008 |
|
At 31 December 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying |
|
Fair |
|
Carrying |
|
Fair |
|
|
|
amount |
|
value |
|
amount |
|
value |
|
|
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
Assets |
|
|
|
|
|
|
|
|
|
Loans and advances to banks |
|
153,766 |
|
153,363 |
|
237,366 |
|
237,374 |
|
Loans and advances to customers |
|
932,868 |
|
876,239 |
|
981,548 |
|
951,850 |
|
Financial investments: debt securities |
|
14,013 |
|
15,057 |
|
9,768 |
|
10,154 |
|
Liabilities |
|
|
|
|
|
|
|
|
|
Deposits by banks |
|
130,084 |
|
130,129 |
|
132,181 |
|
132,165 |
|
Customer accounts |
|
1,115,327 |
|
1,115,291 |
|
1,096,140 |
|
1,095,727 |
|
Debt securities
in issue |
|
179,693 |
|
170,599 |
|
246,579 |
|
243,802 |
|
Subordinated liabilities |
|
29,433 |
|
28,381 |
|
24,819 |
|
23,853 |
|
Fair values of financial investments
classified as held for sale which are not carried at fair value on the
balance sheet
|
|
At 31 December
2008 |
|
At 31 December 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying |
|
Fair |
|
Carrying |
|
Fair |
|
|
|
amount |
|
value |
|
amount |
|
value |
|
|
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
Assets classified as held
for sale |
|
|
|
|
|
|
|
|
|
Loans and advances
to banks and customers |
|
11 |
|
11 |
|
14 |
|
14 |
|
Financial investments: debt securities |
|
37 |
|
37 |
|
27 |
|
27 |
|
Analysis of loans and advances to customers
by geographical segment
|
|
At 31 December
2008 |
|
At 31 December 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying |
|
Fair |
|
Carrying |
|
Fair |
|
|
|
amount |
|
Value |
|
amount |
|
value |
|
|
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
Loans and advances to customers |
|
|
|
|
|
|
|
|
|
Europe |
|
426,191 |
|
417,256 |
|
452,275 |
|
450,010 |
|
Hong Kong |
|
100,220 |
|
100,490 |
|
89,638 |
|
89,908 |
|
Rest of Asia-Pacific |
|
107,956 |
|
104,687 |
|
101,852 |
|
101,860 |
|
North America1 |
|
256,214 |
|
211,346 |
|
289,860 |
|
262,123 |
|
Latin America |
|
42,287 |
|
42,460 |
|
47,923 |
|
47,949 |
|
|
|
|
|
|
|
|
|
|
|
|
|
932,868 |
|
876,239 |
|
981,548 |
|
951,850 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
The reasons for the significant difference
between carrying amount and fair value of loans and advances to customers
in North America are discussed on page 170. |
172
Back to Contents
HSBC
Holdings
The methods used by HSBC Holdings to determine fair
values of financial instruments for the purpose of measurement and disclosure
are described above.
The following table provides an analysis of the fair value of financial instruments not carried at fair value on the balance sheet:
Fair values of HSBC Holdings financial instruments not carried at fair
value on the balance sheet
|
|
2008 |
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying |
|
Fair |
|
Carrying |
|
Fair |
|
|
|
amount |
|
value |
|
amount |
|
value |
|
|
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
Assets |
|
|
|
|
|
|
|
|
|
Loans and advances to HSBC undertakings |
|
11,804 |
|
12,670 |
|
17,242 |
|
17,356 |
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
Amounts owed to HSBC undertakings |
|
4,042 |
|
4,218 |
|
2,969 |
|
2,992 |
|
Subordinated liabilities |
|
14,017 |
|
13,940 |
|
8,544 |
|
8,609 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Special purpose entities |
|
(Audited) |
This section contains disclosures about HSBC-sponsored
SPEs that are included in HSBCs consolidated balance sheet, with a
particular focus on SPEs containing exposures affected by recent turmoil
in credit markets,
and those that are not consolidated by HSBC under IFRSs. In addition to the
disclosures about SPEs, information on other off-balance sheet arrangements
has been included in this section.
HSBC enters into certain transactions with customers in the ordinary course of business which involve the establishment of SPEs to facilitate or secure customer transactions.
HSBC structures
that utilise SPEs are authorised centrally when they are established to
ensure appropriate purpose and governance. The activities of SPEs administered
by HSBC are closely
monitored by senior management. HSBCs involvement with SPE transactions
is described below.
HSBC-sponsored SPEs
HSBC sponsors the formation of entities which are designed to accomplish certain
narrow and well-defined objectives, such as securitising financial assets or
affecting a lease, and this requires a form of legal structure that restricts
the assets and liabilities within the structure to the single purpose for which
it was established. HSBC consolidates these SPEs when the substance of the relationship
indicates that HSBC controls them. In assessing control, all relevant factors
are considered, including qualitative and quantitative aspects. For example:
Qualitative factors in substance:
• |
the activities of the SPE are being conducted
on behalf of HSBC according to HSBCs specific business needs so
that it obtains benefit from the SPEs operation. This might be evidenced,
for example, by HSBC providing a significant level of support to the SPE;
and |
|
|
• |
HSBC has the decision-making powers
to obtain the majority of the benefits of the activities
of the SPE. |
Quantitative factors hereinafter referred to as the majority of risks and rewards of ownership.
In substance:
• |
HSBC has rights to obtain the majority
of the benefits of the SPE and therefore may be
exposed to risks incidental to the activities of the
SPE; and |
|
|
• |
HSBC retains the majority of the residual
or ownership risks related to the SPE or its assets
in order to obtain benefits from its activities. |
In a number
of cases, these SPEs are accounted for off-balance sheet under IFRSs where
HSBC does not have the majority of the risks
and rewards of ownership of the SPE. However in certain circumstances, after
careful consideration of the facts, HSBC consolidates an SPE when, although
it does not obtain the majority of risks and rewards of ownership, the
qualitative
features of HSBCs involvement indicate that, in substance, the activities
of the SPE are being conducted on behalf of HSBC.
HSBC reassesses
the required consolidation accounting tests whenever there is a change
in the substance of the relationship between HSBC and an SPE, for example,
when the nature of HSBCs
involvement or the governing rules, contractual
173
Back to Contents
H S B C H O L D
I N G S P L C |
|
Report of
the Directors: Impact of Market Turmoil (continued) |
|
|
|
SPEs > SIVs and conduits |
arrangements or capital structure of the SPE change. The most significant
categories of SPEs are discussed in more detail below.
Structured investment vehicles and conduits
Structured investment vehicles
Structured investment vehicles (SIVs) are SPEs which invest in diversified portfolios of interest-earning assets, generally funded through issues of commercial paper (CP), medium-term notes
(MTNs) and other senior debt to take advantage of the spread differentials between the assets in the SIV and the funding cost. Prior to the implementation of Basel II, it was capital efficient to many bank investors to invest in
highly-rated investment securities in this way. HSBC sponsored the establishment of two SIVs, Cullinan Finance Limited (Cullinan) and Asscher Finance Limited (Asscher) in 2005 and 2007, respectively, and in November 2007 HSBC
consolidated Cullinan and Asscher.
As market illiquidity intensified, there were two main challenges for the SIV sector which could force asset sales: an inability to fund in the CP markets and the sensitivity of the continuing
operation of SIVs to changes in the market value of their underlying assets.
In order to remove the risk of having to make forced asset sales, HSBC established three new securities investment conduits (defined below) to take on the assets held in Cullinan and Asscher.
Mazarin Funding Limited (Mazarin), an asset backed CP conduit, and Barion Funding Limited (Barion), a term-funding vehicle, were set up in respect of Cullinan; and Malachite Funding Limited (Malachite), a
term-funding vehicle, was set up in respect of Asscher. During 2008, the investors in the capital notes issued by Cullinan and Asscher had the option of exchanging their existing capital notes for the capital notes of the respective new conduits. In
addition, the new conduits agreed to purchase the assets in Cullinan and Asscher. As a result of this agreement the legal title of all Cullinan and Asschers assets were transferred to the new conduits. By 31 December 2008, all the original
assets in Cullinan and Asscher were transferred to the new conduits.
During 2008, 91.3
per cent of the remaining capital note holders in Asscher and all of the capital
note holders in Cullinan elected to exchange their existing holdings for capital
notes in the new conduits. In January 2009, the remaining 8.7 per cent of
Asschers capital notes were redeemed. At
31
December 2007, the holders of the capital
notes bore the risk of any actual losses
arising in the new conduits up to US$2.3 billion, being the par value
of their respective holdings. Prior to the exchanges of assets against capital
note extinguishments, the par value of the capital notes was US$2.6 billion.
At 31 December 2008, the economic first loss protection from capital note
holders amounted to US$2.2 billion (2007: US$2.3 billion). The reduction
in economic first loss protection is attributable to the recognition of a
US$92 million realised loss at 31 December 2008 (2007: n/a). On an IFRS
accounting basis, the capital notes were initially recognised at fair value
on consolidation, which amounted to US$1.3 billion at 31 December 2007.
At 31 December 2008, on an IFRS accounting basis, an impairment charge of
US$293 million (2007: n/a) was recognised in addition to the realised
loss of US$92 million, therefore reducing the carrying amount of these
capital notes to US$0.9 billion.
Conduits
HSBC sponsors and manages two types of conduits which issue CP; multi-seller securities and securities investment conduits (SICs). HSBC has consolidated these conduits from inception because it is exposed to the
majority of risks and rewards of ownership.
Securities investment conduits
Solitaire, HSBCs principal securities investment conduit, purchases highly rated ABSs to facilitate tailored investment opportunities. HSBCs other SICs, Mazarin, Barion and Malachite, evolved from the
restructuring of HSBCs sponsored SIVs as discussed above.
Multi-seller conduits
These vehicles were established for the purpose of providing access to flexible market-based sources of finance for HSBCs clients, for example, to finance discrete pools of third-party originated trade and vehicle
finance loan receivables. HSBCs principal multi-seller conduits are Regency Assets Limited (Regency), Bryant Park Funding Limited LLC (Bryant Park), Abington Square Funding LLC (Abington Square) and
Performance Trust.
The multi-seller
conduits purchase or fund interests in diversified pools of third-party assets
financed by issuing CP or drawing advances from HSBC. The cash flows received
by the conduits from the third-party assets are used to service the funding
and provide a commercial rate of return for
174
Back to Contents
HSBC for structuring, for various other administrative
services, and for the liquidity and credit support it gives to the conduits.
The asset pools acquired by the conduits are structured so that the credit
enhancement the conduits receive, which equates to senior investment grade
ratings, and the benefit of liquidity facilities typically provided by HSBC
mean that the CP issued by the multi-seller conduits is itself highly rated.
During 2008, the finance provided by HSBC to Abington Square Funding LLC at the end of 2007 was repaid using the proceeds received from refinancing the assets within the conduit. The conduit
did not enter into any new securitisation transactions during the period.
An analysis of the assets held by HSBCs SIVs and conduits is set out below:
Ratings analysis of assets
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
Other |
|
Total |
|
multi-seller |
|
Total |
|
|
Solitaire |
|
SICs |
|
SICs |
|
conduits |
|
SIVs |
|
|
US$bn |
|
US$bn |
|
US$bn |
|
US$bn |
|
US$bn |
|
S&P ratings at 31 December 2008 |
|
|
|
|
|
|
|
|
|
|
AAA |
8.1 |
|
12.0 |
|
20.1 |
|
6.1 |
|
0.3 |
|
AA |
0.7 |
|
1.4 |
|
2.1 |
|
1.8 |
|
|
|
A |
1.0 |
|
4.7 |
|
5.7 |
|
1.6 |
|
|
|
BBB |
0.8 |
|
1.0 |
|
1.8 |
|
1.2 |
|
|
|
BB |
0.3 |
|
0.4 |
|
0.7 |
|
0.2 |
|
|
|
B |
0.1 |
|
0.2 |
|
0.3 |
|
0.5 |
|
|
|
CCC |
0.2 |
|
0.2 |
|
0.4 |
|
1.8 |
|
|
|
D |
|
|
|
|
|
|
0.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments |
11.2 |
|
19.9 |
|
31.1 |
|
13.5 |
|
0.3 |
|
Cash and other investments |
0.9 |
|
0.3 |
|
1.2 |
|
0.4 |
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
12.1 |
|
20.2 |
|
32.3 |
|
13.9 |
|
0.4 |
|
|
|
|
|
|
|
|
|
|
|
|
S&P ratings at 31 December 2007 |
|
|
|
|
|
|
|
|
|
|
AAA |
20.8 |
|
|
|
20.8 |
|
9.7 |
|
28.3 |
|
AA |
|
|
|
|
|
|
1.6 |
|
3.3 |
|
A |
|
|
|
|
|
|
3.9 |
|
3.4 |
|
BBB |
|
|
|
|
|
|
0.1 |
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
|
Total investments |
20.8 |
|
|
|
20.8 |
|
15.3 |
|
35.1 |
|
Cash and other investments |
0.8 |
|
|
|
0.8 |
|
0.5 |
|
5.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
21.6 |
|
|
|
21.6 |
|
15.8 |
|
40.7 |
|
|
|
|
|
|
|
|
|
|
|
|
Composition of asset portfolio
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
Other |
|
Total |
|
multi-seller |
|
Total |
|
|
Solitaire |
|
SICs |
|
SICs |
|
conduits |
1 |
SIVs |
|
|
US$bn |
|
US$bn |
|
US$bn |
|
US$bn |
|
US$bn |
|
Asset class at 31 December 2008 |
|
|
|
|
|
|
|
|
|
|
Structured finance |
|
|
|
|
|
|
|
|
|
|
Vehicle loans and equipment leases |
|
|
|
|
|
|
3.9 |
|
|
|
Consumer receivables |
|
|
|
|
|
|
0.7 |
|
|
|
Credit card receivables |
0.2 |
|
|
|
0.2 |
|
1.4 |
|
|
|
Residential MBSs |
4.4 |
|
5.7 |
|
10.1 |
|
0.6 |
|
|
|
Commercial MBSs |
2.1 |
|
3.1 |
|
5.2 |
|
0.2 |
|
|
|
Auto floor plan |
|
|
|
|
|
|
2.2 |
|
|
|
Trade receivables |
|
|
|
|
|
|
2.7 |
|
|
|
Student loan securities |
2.2 |
|
2.0 |
|
4.2 |
|
|
|
|
|
Vehicle finance loan securities |
|
|
0.3 |
|
0.3 |
|
|
|
|
|
Leverage loan securities |
1.5 |
|
2.2 |
|
3.7 |
|
|
|
|
|
Other ABSs |
0.8 |
|
1.3 |
|
2.1 |
|
1.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11.2 |
|
14.6 |
|
25.8 |
|
13.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
175
Back to Contents
H S B C H O L D
I N G S P L C |
|
Report
of the Directors: Impact of Market Turmoil
(continued) |
|
|
|
SPEs > SIVs and conduits
|
Composition of asset portfolio (continued)
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
Other |
|
Total |
|
multi-seller |
|
Total |
|
|
|
Solitaire |
|
SICs |
|
SICs |
|
conduits |
1 |
SIVs |
|
|
|
US$bn |
|
US$bn |
|
US$bn |
|
US$bn |
|
US$bn |
|
Finance |
|
|
|
|
|
|
|
|
|
|
|
Commercial bank securities and deposits |
|
|
|
4.4 |
|
4.4 |
|
0.4 |
|
|
|
Investment bank debt securities |
|
|
|
0.5 |
|
0.5 |
|
|
|
|
|
Investment bank securities |
|
|
|
|
|
|
|
|
|
|
|
Finance company debt securities |
|
|
|
0.4 |
|
0.4 |
|
|
|
0.3 |
|
Other assets |
|
0.9 |
|
0.3 |
|
1.2 |
|
0.1 |
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.9 |
|
5.6 |
|
6.5 |
|
0.5 |
|
0.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12.1 |
|
20.2 |
|
32.3 |
|
13.9 |
|
0.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
US sub-prime mortgages |
|
0.6 |
|
0.7 |
|
1.3 |
|
|
|
|
|
US Alt-A |
|
2.3 |
|
2.2 |
|
4.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.9 |
|
2.9 |
|
5.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset class at 31 December 2007 |
|
|
|
|
|
|
|
|
|
|
|
Structured finance |
|
|
|
|
|
|
|
|
|
|
|
Vehicle loans and equipment leases |
|
|
|
|
|
|
|
3.6 |
|
|
|
Consumer receivables |
|
|
|
|
|
|
|
0.8 |
|
|
|
Credit card receivables |
|
|
|
|
|
|
|
1.5 |
|
|
|
Residential MBSs |
|
9.3 |
|
|
|
9.3 |
|
2.0 |
|
14.5 |
|
Commercial MBSs |
|
3.7 |
|
|
|
3.7 |
|
0.1 |
|
5.0 |
|
Auto floor plan |
|
|
|
|
|
|
|
2.0 |
|
|
|
Trade receivables |
|
|
|
|
|
|
|
3.1 |
|
|
|
Student loan securities |
|
3.5 |
|
|
|
3.5 |
|
|
|
2.6 |
|
Vehicle finance loan securities |
|
0.1 |
|
|
|
0.1 |
|
|
|
0.3 |
|
Leverage loan securities |
|
2.2 |
|
|
|
2.2 |
|
|
|
2.8 |
|
Other ABSs |
|
2.2 |
|
|
|
2.2 |
|
2.3 |
|
6.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21.0 |
|
|
|
21.0 |
|
15.4 |
|
32.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance |
|
|
|
|
|
|
|
|
|
|
|
Commercial bank securities and deposits |
|
0.6 |
|
|
|
0.6 |
|
|
|
7.3 |
|
Investment bank debt securities |
|
|
|
|
|
|
|
|
|
0.8 |
|
Investment bank securities |
|
|
|
|
|
|
|
0.4 |
|
|
|
Finance company debt securities |
|
|
|
|
|
|
|
|
|
0.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.6 |
|
|
|
0.6 |
|
0.4 |
|
8.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21.6 |
|
|
|
21.6 |
|
15.8 |
|
40.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
US sub-prime mortgages |
|
1.9 |
|
|
|
1.9 |
|
0.1 |
|
3.5 |
|
US Alt-A |
|
5.3 |
|
|
|
5.3 |
|
|
|
5.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.2 |
|
|
|
7.2 |
|
0.1 |
|
9.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
Assets within multi-seller conduits are classified
as collateralised loans. Under IFRSs, the conduits cannot recognise the
underlying assets. |
During 2008, the
credit ratings of various securities held by the SICs, many with exposures
to US sub-prime and Alt-A mortgages, were downgraded by rating agencies. At
31 December
2008, 44.7 per cent of the SICs exposures to
US
sub-prime and Alt-A mortgages remained AAA
rated (2007: 100 per cent), while 81.4 per cent
remained investment grade.
It should be noted that securities purchased by
SICs typically benefit from substantial transaction-
specific credit enhancements such as subordinated
tranches and/or excess spread, which absorb any
credit losses before they would fall on the tranche held
by the SPE.
As noted above, by 31 December 2008, all the original
assets held by the SIVs were transferred to the new SICs. However, during
the second half of 2008, the SIVs purchased CP issued by certain SICs set
up by HSBC and, at 31 December 2008, the SIVs holdings amounted to
US$0.3 billion.
The cash flows of the CP issued by the new SICs are referenced to bonds which
include those backed by US sub-prime and US Alt-A MBSs. In early 2009, the
CP matured, and the cash received by the SIVs has been transferred to the respective
SICs.
176
Back to Contents
Asset analysis by geographical origination for multi-seller conduits1
|
|
|
|
|
|
|
At 31 December |
|
|
|
|
|
|
|
2008 |
|
2007 |
|
|
US$bn |
|
US$bn |
|
|
|
|
|
|
Europe |
7.5 |
|
7.4 |
|
Rest of Asia-Pacific |
0.9 |
|
1.0 |
|
North America |
5.5 |
|
6.3 |
|
Latin America |
|
|
1.1 |
|
|
|
|
|
|
|
13.9 |
|
15.8 |
|
|
|
|
|
|
1 |
For details on the geographical origin of
the mortgage loans held at fair value and ABSs, including those represented
by MBSs and CDOs held in consolidated SIVs and securities investment conduits,
see Nature and extent of HSBCs exposures on page 150. |
|
Total assets by balance sheet classification
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
Other |
|
Total |
|
multi-seller |
|
Total |
|
|
Solitaire |
|
SICs |
|
SICs |
|
conduits |
|
SIVs |
|
|
US$bn |
|
US$bn |
|
US$bn |
|
US$bn |
|
US$bn |
|
At 31 December 2008 |
|
|
|
|
|
|
|
|
|
|
Financial instruments designated at fair value |
0.1 |
|
|
|
0.1 |
|
|
|
|
|
Derivative assets |
|
|
0.2 |
|
0.2 |
|
0.1 |
|
|
|
Loans and advances to banks |
|
|
0.1 |
|
0.1 |
|
|
|
0.1 |
|
Loans and advances to customers |
|
|
|
|
|
|
13.4 |
|
|
|
Financial investments |
11.1 |
|
19.9 |
|
31.0 |
|
|
|
0.3 |
|
Other assets |
0.9 |
|
|
|
0.9 |
|
0.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12.1 |
|
20.2 |
|
32.3 |
|
13.9 |
|
0.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
At 31 December 2007 |
|
|
|
|
|
|
|
|
|
|
Financial instruments designated at fair value |
0.1 |
|
|
|
0.1 |
|
|
|
|
|
Derivative assets |
0.1 |
|
|
|
0.1 |
|
|
|
0.3 |
|
Loans and advances to banks |
0.2 |
|
|
|
0.2 |
|
|
|
3.1 |
|
Loans and advances to customers |
|
|
|
|
|
|
14.9 |
|
|
|
Financial investments |
20.6 |
|
|
|
20.6 |
|
0.5 |
|
37.1 |
|
Other assets |
0.6 |
|
|
|
0.6 |
|
0.4 |
|
0.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
21.6 |
|
|
|
21.6 |
|
15.8 |
|
40.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average maturity of assets and life of portfolios
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
Other |
|
|
Total |
|
|
multi-seller |
|
|
Total |
|
|
|
|
Solitaire |
|
|
SICs |
|
|
SICs |
|
|
conduits |
|
|
SIVs |
|
|
|
|
US$bn |
|
|
US$bn |
|
|
US$bn |
|
|
US$bn |
|
|
US$bn |
|
|
At 31 December 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0-6 months |
1.0 |
|
|
1.3 |
|
|
2.3 |
|
|
5.7 |
|
|
0.4 |
|
|
6-12 months |
0.2 |
|
|
1.4 |
|
|
1.6 |
|
|
0.5 |
|
|
|
|
|
Over 12 months |
10.9 |
|
|
17.5 |
|
|
28.4 |
|
|
7.7 |
|
|
|
|
|
|
1-3 years |
1.8 |
|
|
5.6 |
|
|
7.4 |
|
|
6.2 |
|
|
|
|
|
|
3-5 years |
3.6 |
|
|
6.6 |
|
|
10.2 |
|
|
1.5 |
|
|
|
|
|
|
5+ years |
5.5 |
|
|
5.3 |
|
|
10.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12.1 |
|
|
20.2 |
|
|
32.3 |
|
|
13.9 |
|
|
0.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average life (years) |
5.8 |
|
|
3.9 |
|
|
4.6 |
|
|
1.6 |
|
|
|
|
|
|
At 31 December 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0-6 months |
0.3 |
|
|
|
|
|
0.3 |
|
|
5.6 |
|
|
6.9 |
|
|
6-12 months |
0.3 |
|
|
|
|
|
0.3 |
|
|
2.5 |
|
|
2.2 |
|
|
Over 12 months |
21.0 |
|
|
|
|
|
21.0 |
|
|
7.7 |
|
|
31.6 |
|
|
|
1-3 years |
2.5 |
|
|
|
|
|
2.5 |
|
|
4.8 |
|
|
7.6 |
|
|
|
3-5 years |
8.3 |
|
|
|
|
|
8.3 |
|
|
2.2 |
|
|
13.4 |
|
|
|
5+ years |
10.2 |
|
|
|
|
|
10.2 |
|
|
0.7 |
|
|
10.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21.6 |
|
|
|
|
|
21.6 |
|
|
15.8 |
|
|
40.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average life (years) |
5.3 |
|
|
|
|
|
5.3 |
|
|
1.6 |
|
|
4.0 |
|
|
177
Back to Contents
H S B C H O L
D I N G S P L C |
|
Report
of the Directors: Impact of Market
Turmoil (continued) |
|
|
|
|
SPEs > SIVs and conduits |
The revolving credit facilities of multi-seller conduits will predominantly have expected average
lives with maturities of less than 12 months, but typically have a range of 1 to 60 months.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funding structure
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total multi-seller |
|
|
|
|
|
|
Solitaire |
|
Other SICs |
|
Total SICs |
|
conduits |
|
Total SIVs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provided |
|
|
|
Provided |
|
|
|
Provided |
|
|
|
Provided |
|
|
|
Provided |
|
|
Total |
|
by HSBC |
|
Total |
|
by HSBC |
|
Total |
|
by HSBC |
|
Total |
|
by HSBC |
|
Total |
|
by HSBC |
|
|
US$bn |
|
US$bn |
|
US$bn |
|
US$bn |
|
US$bn |
|
US$bn |
|
US$bn |
|
US$bn |
|
US$bn |
|
US$bn |
|
At 31 December 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital notes |
|
|
|
|
0.9 |
|
|
|
0.9 |
|
|
|
|
|
|
|
|
|
|
|
Drawn liquidity facility |
2.4 |
|
2.4 |
|
|
|
|
|
2.4 |
|
2.4 |
|
|
|
|
|
|
|
|
|
Commercial paper |
17.2 |
|
8.3 |
|
10.5 |
|
10.4 |
|
27.7 |
|
18.7 |
|
12.9 |
|
2.1 |
|
|
|
|
|
Medium-term notes |
|
|
|
|
3.4 |
|
3.4 |
|
3.4 |
|
3.4 |
|
|
|
|
|
0.1 |
|
|
|
Term repos executed |
0.8 |
|
0.8 |
|
13.3 |
|
13.3 |
|
14.1 |
|
14.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20.4 |
|
11.5 |
|
28.1 |
|
27.1 |
|
48.5 |
|
38.6 |
|
12.9 |
|
2.1 |
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 31 December 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital notes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.3 |
|
|
|
Commercial paper |
23.0 |
|
7.8 |
|
|
|
|
|
23.0 |
|
7.8 |
|
14.8 |
|
8.6 |
|
7.3 |
|
2.4 |
|
Medium-term notes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23.2 |
|
5.3 |
|
Term repos executed |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8.7 |
|
8.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23.0 |
|
7.8 |
|
|
|
|
|
23.0 |
|
7.8 |
|
14.8 |
|
8.6 |
|
40.5 |
|
15.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average life of the funding liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
Other |
|
Total |
|
multi-seller |
|
Total |
|
|
Solitaire |
|
SICs |
|
SICs |
|
conduits |
|
SIVs |
|
|
Years |
|
Years |
|
Years |
|
Years |
|
Years |
|
At 31 December 2008 |
|
|
|
|
|
|
|
|
|
|
CP funding |
0.1 |
|
0.2 |
|
0.1 |
|
0.1 |
|
n/a |
|
MTN funding |
n/a |
|
7.3 |
|
7.3 |
|
n/a |
|
0.1 |
|
|
At 31 December 2007 |
|
|
|
|
|
|
|
|
|
|
CP funding |
0.4 |
|
|
|
|
|
0.1 |
|
0.5 |
|
MTN funding |
|
|
|
|
|
|
|
|
1.1 |
|
The majority CP and MTN funding issued by the SIVs was repaid in full during 2008 using the proceeds from the asset sales to the new SICs. The MTNs matured in early 2009.
HSBCs maximum exposure
Conduits |
|
|
Mazarin |
|
|
• |
HSBC is exposed to the par value of Mazarins
assets through the provision of a liquidity
facility equal to the lesser of the amortised
cost of issued senior debt and the amortised
cost of non-defaulted assets. At 31 December
2008, HSBC's exposure amounted to US$15.5
billion (2007: n/a). First loss protection is provided through
the capital notes issued by Mazarin, which
are substantially all held by third parties. |
|
|
• |
In addition, at 31 December 2008, HSBC held
1.3 per cent of Mazarins capital notes,
which |
have a par value of US$17million (2007: n/a),
and a carrying amount of US$0.6 million (2007: n/a).
Barion and Malachite |
|
|
• |
These SICs are term funded by HSBC,
consequently HSBCs primary exposure to
them is represented by the amortised
cost of the debt required to support the non-cash assets of the vehicles.
At 31 December 2008 this amounted to
US$11.7 billion (2007: n/a). |
|
|
• |
First loss protection is provided through
the capital notes issued by these vehicles,
which are substantially all held by third
parties. |
|
|
• |
In addition, at 31 December 2008, HSBC held
3.53 per cent (2007: n/a) of the capital notes
issued by these vehicles which have a par value
of US$35 million (2007: n/a), and a carrying amount
of US$1.3 million (2007: n/a). |
178
Back to Contents
Solitaire |
|
|
• |
CP issued by Solitaire benefits from a 100 per cent liquidity facility provided by HSBC. First loss credit protection, after any
transaction-specific credit enhancement (as described on page 148) and retained reserves, is provided by HSBC in the form of letters of credit with a combined notional value of US$1.2 billion at 31 December 2008 (2007: US$1.2 billion). |
|
|
• |
HSBCs maximum exposure to Solitaire is limited to the amortised cost of non-cash equivalent assets, which represents the risk that HSBC may be required to fund the vehicle in the event the debt is redeemed without reinvestment from third parties. |
|
|
• |
HSBCs maximum exposure at 31 December 2008 amounted to US$20.4 billion (2007: US$25.7 billion). |
|
Multi-seller conduits |
|
|
• |
HSBC provides transaction-specific liquidity facilities to each of its multi-seller conduits, designed to be drawn in order to ensure the repayment of the CP issued. At 31 December 2008, the committed liquidity facilities amounted to US$17.1 billion (2007: US$21.2
billion). |
|
|
• |
First loss protection is provided through transaction-specific
credit enhancements, for example, over-collateralisation
and excess spread. These credit enhancements are provided by
the originator of the assets and not by HSBC. In
addition, a layer of secondary loss protection is
provided by HSBC in the form of programme-wide
enhancement facilities, and at 31 December 2008 this amounted to US$0.6
billion (2007: US$0.7 billion). HSBCs maximum
exposure is equal to the transaction-specific liquidity facilities offered to the multi-seller
conduits, as described above. |
|
|
• |
The liquidity facilities are set to support total commitments and therefore exceed the funded assets as at 31 December 2008. |
|
|
• |
In consideration of the significant first loss protection afforded by the structure, the credit enhancements and a range of indemnities provided by the various obligors, HSBC carries only a minimal risk of loss from the programme. |
|
Structured investment vehicles |
|
|
• |
At 31 December 2008, Cullinan held Mazarin CP amounting to US$0.3 billion. HSBC retains |
|
no marginal exposure through Cullinan to Mazarins
activities over the maximum exposure
value stated for Mazarin. |
|
|
• |
Asscher retains only cash and equivalent assets held
within the HSBC Group. Consequently, HSBC
retains no exposure to the vehicle. |
Money market funds
HSBC has established and manages a number of money market funds which provide customers with tailored investment opportunities with a set of narrow and well-defined objectives. In most cases, they are not consolidated in
HSBC because the Groups holdings in them are not of sufficient size to represent the majority of the risks and rewards of ownership.
Investors in money market funds generally have no recourse other than to the assets in the funds, so asset holdings are designed to meet expected fund liabilities. Usually, money market funds
are constrained in their operations should the value of their assets and their ratings fall below predetermined thresholds. The risks to HSBC are, therefore, contingent, arising from the reputational damage which could occur if an HSBC-sponsored
money market fund was thought to be unable to meet withdrawal requests on a timely basis or in full.
In aggregate, HSBC has established money market funds with total assets of US$102.7 billion at 31 December 2008 (2007: US$91.3 billion).
The main sub-categories of money market funds are:
• |
US$72.0 billion (2007: US$56.8 billion) in Constant Net Asset Value (CNAV) funds, which invest in shorter-dated and highly-rated
money market securities with the objective of providing investors with a highly liquid and secure investment; |
|
|
• |
US$2.7 billion (2007: US$11.9 billion) in French domiciled dynamique (dynamic) funds and Irish enhanced funds, together Enhanced Variable Net Asset Value (Enhanced VNAV) funds, which invest in longer-dated money market securities to provide investors with a higher return than traditional money market funds; and |
|
|
• |
US$28.0 billion (2007: US$22.6 billion) in various other money market Variable Net Asset Value (VNAV) funds, including funds domiciled in Brazil, France, India, Mexico and other countries. |
179
Back to Contents
H S B C H O L D I
N G S P L C |
|
Report of the Directors: Impact
of Market Turmoil (continued) |
|
|
|
|
SPEs > SIVs and conduits |
These money market
funds invest in diverse portfolios of highly-rated debt instruments, including
limited holdings in instruments issued by SIVs. At 31 December 2008, the
exposure of these
funds to SIVs was US$0.5 billion (2007: US$3.9 billion).
Constant Net Asset Value funds
CNAV funds price their assets on an amortised cost basis, subject to the amortised book value of the portfolio remaining within 50 basis points of its market value. This feature enables CNAV funds to create and liquidate
shares in the funds at a constant price. If the amortised value of an asset portfolio were to vary by more than 50 basis points from its market value, the CNAV fund would be required to price its assets at market value, and consequently would no
longer be able to create or liquidate shares at a constant price. This is commonly known as breaking the buck.
Investments made by the CNAV funds in senior notes issued by SIVs continued to deteriorate in valuation terms during 2008. The market values of the underlying assets of those SIVs were affected
by market nervousness over possible default levels, exacerbated by severe illiquidity. This reduced the ability of SIVs to sell assets in order to fund maturing liabilities, or issue new senior notes in order to raise cash. As a consequence, the
CNAV funds recorded unrealised losses on their SIV holdings.
During 2008, the following actions were taken by HSBC in respect of the CNAV funds to maintain their AAA rating and mitigate any forced sale of liquid assets to meet potential redemptions:
• |
the provision of additional letters of limited indemnity (LOI) to the directors of the CNAV funds that held investments in SIVs, as well as amendments to existing letters of limited indemnity. The total assets
under management (AUM) of the funds in respect of which indemnities were provided amounted to US$43.8 billion at 31 December 2008 (2007: US$27.1 billion); and |
|
• |
in early October 2008, HSBC: |
|
|
(i) |
purchased all the SIV assets that were in enforcement from the CNAV funds, which amounted to US$687 million. Enforcement is the process by which winding down of independent SIVs and repaying secured |
|
|
creditors begins. The purchased SIV assets are included within HSBCs consolidated holdings of ABSs on page 151; |
|
|
(ii) |
made a payment of US$43 million under the letters of limited indemnity as a consequence of HSBC purchasing all the SIV assets that were in enforcement from the CNAV funds; and |
|
|
(iii) |
made capital contributions amounting to US$53 million. |
The following table provides a breakdown of the losses incurred and capital contributions made as a result of the actions taken by HSBC.
|
2008 |
|
|
US$m |
|
|
|
|
Payment under LOI |
43 |
|
Capital contribution |
53 |
|
Fair value write down1
|
18 |
|
|
|
|
Total |
114 |
|
|
|
|
1 |
When HSBC purchased the enforced
SIV assets from a fund at their amortised cost, an immediate loss was
recognised by HSBC on initial recognition. |
As stated on page 173, a reassessment of the required consolidation accounting tests is performed whenever there is a change in the substance of the relationship between HSBC and an SPE. As a
result of the events described above, a reassessment of the consolidation tests was, therefore, performed.
When considered together, the actions taken by HSBC demonstrated the Groups support, within limited parameters, of the CNAV funds in the prevailing market conditions. This support was
based on a commercial decision to support the funds at that time, but did not constitute any commitment to undertake further action and the future operations of the funds in question continue to be governed by their respective prospectuses. HSBC
concluded that this substantively changed the relationship HSBC had with these CNAV funds, and therefore HSBC consolidated them from 30 September 2008. Although the actions taken by HSBC described above occurred in early October 2008,
managements intention had been agreed prior to this date.
The effect of consolidating the CNAV funds on HSBCs balance sheet was to include US$43.8 billion of assets and US$43.1 billion of liabilities. HSBCs exposure to the funds is
described below.
180
Back to Contents
Composition of CNAV asset portfolio
|
2008 |
|
|
US$bn |
|
|
|
|
ABSs |
0.8 |
|
Certificates of deposit |
13.0 |
|
CP |
18.1 |
|
Floating rate notes |
5.2 |
|
Government agency bonds |
1.9 |
|
Other assets |
4.8 |
|
|
|
|
Total |
43.8 |
|
|
|
|
HSBCs maximum exposure
HSBCs maximum exposure to consolidated and unconsolidated CNAV funds is represented by HSBCs investment in the units of each CNAV fund, and by the maximum limit of the letters of limited indemnity provided to
the CNAV funds. HSBCs exposure at 31 December 2008 amounted to US$0.7 billion (2007: US$1.3 billion) and US$58 million (2007: US$41 million) for investment in units within the CNAV funds and letters of limited indemnity,
respectively.
Enhanced Variable Net Asset Value funds
Enhanced VNAV funds price their assets on a fair value basis and, consequently, prices may change from one day to the next. These funds pursue an enhanced investment strategy, as part of which investors accept
greater credit and duration risk in the expectation of higher returns.
As part of action taken in respect of these funds in the second half of 2007, HSBC acquired some of the underlying assets and shares in two of its French dynamic money market funds. HSBCs
aggregate holding in these funds at 31 December 2008 amounted to 0.5 billion (US$0.6 billion) (2007: 0.9 billion; US$1.4 billion). As a result of continued redemptions by unitholders during 2008, HSBCs holding in the two
funds increased to a level at which it obtained the majority of the risks and rewards of ownership, and it therefore consolidated these funds.
HSBCs maximum exposure
HSBCs maximum exposure to consolidated and unconsolidated Enhanced VNAV and consolidated and unconsolidated VNAV funds is represented by HSBCs investment in the units of each fund. HSBCs maximum exposure
at 31 December 2008 amounted to US$0.6 billion (2007:
US$5.9 billion) and US$1.6 billion (2007: US$0.3 billion), for Enhanced VNAV and VNAV funds, respectively.
Total assets of HSBCs money market funds which are on-balance sheet by balance sheet classification
|
At 31 December |
|
|
|
|
|
2008 |
|
2007 |
|
|
US$bn |
|
US$bn |
|
|
|
|
|
|
Cash |
0.3 |
|
|
|
Trading assets |
43.3 |
|
0.7 |
|
Financial instruments designated
at fair value |
|
|
5.0 |
|
Other assets |
2.3 |
|
|
|
|
|
|
|
|
|
45.9 |
|
5.7 |
|
|
|
|
|
|
Non-money market investment funds
HSBC, through its fund management business, has established a large number of non-money market funds to enable customers to invest in a range of assets, typically equities and debt securities. At the launch of a fund HSBC,
as fund manager, usually provides a limited amount of initial capital known as seed capital to enable the fund to start purchasing assets. These holdings are normally redeemed over time. The majority of these funds are off-balance sheet
for HSBC because the Groups limited economic interest means it does not have the majority of the risks and rewards of ownership. As the non-money market funds explicitly provide investors with tailored risk, the risk to HSBC is restricted to
HSBCs own investments in the funds.
In aggregate, HSBC has
established non-money market funds with total assets of US$200.3 billion
at 31 December 2008 (2007: US$288.8 billion).
The main sub-categories of non-money
market
funds are:
• |
US$83.1 billion (2007: US$132.0 billion) in specialist funds, which comprise fundamental active specialists and active quantitative specialists; |
|
|
• |
US$96.2 billion (2007: US$126.4 billion) in local investment management funds, which invest in domestic products, primarily for retail and private clients; and |
|
|
• |
US$21.0 billion (2007: US$30.4 billion) in multi-manager funds, which offer fund of funds and manager of manager products across a diversified portfolio of assets. |
181
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H S B C H O L D I
N G S P L C |
|
Report of the Directors: Impact
of Market Turmoil (continued) |
|
|
|
|
SPEs > SIVs and conduits > Maximum
exposures |
Total assets of HSBCs non-money market
funds which are on-balance sheet by balance sheet classification
|
At 31 December |
|
|
|
|
|
2008 |
|
2007 |
|
|
US$bn |
|
US$bn |
|
|
|
|
|
|
Cash |
0.4 |
|
0.4 |
|
Trading assets |
0.2 |
|
0.5 |
|
Financial instruments designated at fair value |
2.3 |
|
3.0 |
|
Financial investments |
0.8 |
|
0.2 |
|
|
|
|
|
|
|
3.7 |
|
4.1 |
|
|
|
|
|
|
HSBCs maximum exposure
HSBCs maximum exposure to consolidated and unconsolidated non-money market funds is represented by HSBCs investment in the units of each respective fund. HSBCs exposure at 31 December 2008 amounted to
US$4.4 billion (2007: US$6.0 billion).
Securitisations
HSBC uses SPEs to securitise customer loans and advances that it has originated, mainly in order to diversify its sources of funding for asset origination and for capital efficiency purposes. In such cases, the loans and
advances are transferred by HSBC to the SPEs for cash, and the SPEs issue debt securities to investors to fund the cash purchases. Credit enhancements to the underlying assets may be used to obtain investment grade ratings on the senior debt issued
by the SPEs. Except in one instance, these securitisations are all consolidated by HSBC. HSBC has also established securitisation programmes in the US and Germany where loans originated by third parties are securitised. Most of these vehicles are
not consolidated by HSBC as it is not exposed to the majority of risks and rewards of ownership in the SPEs. In 2008, demand for the securitised products remained low.
In addition, HSBC uses SPEs to mitigate the capital absorbed by some of the customer loans and advances it has originated. Credit derivatives are used to transfer the credit risk associated
with such customer loans and advances to an SPE, using securitisations commonly known as synthetic securitisations. These SPEs are consolidated when HSBC is exposed to the majority of risks and rewards of ownership.
Total assets of HSBCs securitisations which are on-balance sheet, by balance sheet classification
|
At 31 December |
|
|
|
|
|
2008 |
|
2007 |
|
|
US$bn |
|
US$bn |
|
|
|
|
|
|
Trading assets |
1.3 |
|
3.6 |
|
Loans and advances to customers |
50.8 |
|
69.6 |
|
Financial investments |
|
|
0.1 |
|
Other assets |
1.1 |
|
1.3 |
|
Derivatives |
1.4 |
|
0.1 |
|
|
|
|
|
|
|
54.6 |
|
74.7 |
|
|
|
|
|
|
These assets include US$1.3 billion (2007: US$3.6 billion) of exposure to US sub-prime mortgages.
Total assets of HSBCs securitisations which are off-balance sheet
|
2008 |
|
2007 |
|
|
US$bn |
|
US$bn |
|
|
|
|
|
|
HSBC originated assets |
0.6 |
|
0.9 |
|
Non-HSBC originated
assets term securitisation programmes |
13.5 |
|
16.0 |
|
|
|
|
|
|
|
14.1 |
|
16.9 |
|
|
|
|
|
|
HSBCs financial investments in off-balance sheet securitisations at 31 December 2008 amounted to US$0.2 billion (2007: US$0.4 billion). These assets include assets which are
classified as available-for-sale securities and measured at fair value, and have been securitised by HSBC under arrangements by which HSBC retains a continuing involvement in them. Further details are provided in Note 20 on the Financial
Statements.
HSBCs maximum exposure
The maximum exposure is the aggregate of any holdings of notes issued by these vehicles and the reserve account positions intended to provide credit support under certain pre-defined circumstances to senior note holders.
HSBC is not obligated to provide further funding. At 31 December 2008, HSBCs maximum exposure to consolidated and unconsolidated securitisations amounted to US$27.2 billion (2007: US$31 billion).
Other
HSBC also establishes SPEs in the normal course of business for a number of purposes, for example, structured credit transactions for customers to provide finance to public and private sector infrastructure projects, and
for asset and structured finance (ASF) transactions.
182
Back to Contents
Structured credit transactions
HSBC provides structured credit transactions to third-party professional and institutional investors who wish to obtain exposure, sometimes on a leveraged basis, to a reference portfolio of debt instruments. In such
structures, the investor receives returns referenced to the underlying portfolio by purchasing notes issued by the SPEs. HSBC enters into contracts with the SPEs, generally in the form of derivatives, in order to pass the required risks and rewards
of the reference portfolios to the SPEs. HSBCs risk in relation to the derivative contracts with the SPEs is managed within HSBCs trading market risk framework (see Market Risk on page 241). In certain transactions HSBC is exposed to
risk often referred to as gap risk. Gap risk typically arises in transactions where the aggregate potential claims against the SPE by HSBC pursuant to one or more derivatives could be greater than the value of the collateral held by the SPE and
securing such derivatives. HSBC often mitigates such gap risk by incorporating in the SPE transaction features which allow for deleveraging, a managed liquidation of the portfolio, or other mechanisms. Following the inclusion of such risk reduction
mechanisms, HSBC has, in certain circumstances, retained all or a portion of the underlying exposure in the transaction. When this retained exposure represents ABSs, it has been included in Nature and extent of HSBCs exposures on
page 150.
Often, transactions are facilitated through SPEs to enable the notes issued to the investors to be rated. The SPEs are not consolidated by HSBC because the investors bear substantially all the
risks and rewards of ownership through the notes.
The total fair value of liabilities (notes issued and derivatives) in structured credit transaction SPEs was US$21.2 billion at 31 December 2008 (2007: US$23.6 billion). These amounts
included US$0.3 billion (2007: US$0.1 billion) in SPEs that were consolidated by HSBC.
Other uses of SPEs
HSBC participates in Public-Private Partnerships to provide financial support for infrastructure projects initiated by government authorities. The funding structure is commonly achieved through the use of SPEs. HSBC
consolidates these SPEs when it is exposed to the majority of risks and rewards of the vehicles.
HSBCs ASF business specialises in leasing and arranging finance for aircraft and other physical assets, which it is customary to ring-fence through the use of SPEs, and in structured
loans and deposits, where SPEs introduce cost efficiencies. HSBC consolidates these SPEs when the substance of the relationship indicates that HSBC controls the SPE.
HSBCs risks and rewards of ownership in these SPEs are in respect of its on-balance sheet assets and liabilities.
HSBCs maximum exposures to SPEs
The following tables show the total assets of the various types of SPEs, and the amount and types of funding provided by HSBC to these SPEs. The tables also show HSBCs maximum exposure to the SPEs and, within that
exposure, the types of liquidity and credit enhancements provided by HSBC. The maximum exposures to SPEs represent HSBCs maximum possible risk exposure that could occur as a result of the Groups arrangements and commitments to SPEs. The
maximum amounts are contingent in nature, and may arise as a result of drawdowns under liquidity facilities, where these have been provided, and any other funding commitments, or as a result of any loss protection provided by HSBC to the SPEs. The
conditions under which such exposure might arise differ depending on the nature of each SPE and HSBCs involvement with it. The aggregation of such maximum exposures across the different forms of SPEs results in a theoretical total maximum
exposure number. The elements of the maximum exposure to an SPE are not necessarily additive and a detailed explanation of how maximum exposures are determined is provided under each category of SPE.
183
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H S B C H O L D I
N G S P L C |
|
Report of the
Directors: Impact of Market Turmoil (continued) |
|
|
|
|
SPEs > SIVs and conduits > Maximum
exposures |
HSBCs maximum exposure to consolidated
SPEs affected by the recent market turmoil
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-money market funds |
|
|
|
|
|
|
|
|
|
|
Securities |
|
|
|
|
|
Enhanced |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
investment |
|
Multi-seller |
|
CNAV |
|
VNAV |
|
VNAV |
|
Specialist |
|
Local |
|
Securit- |
|
|
|
|
|
|
SIVs |
|
conduits |
1 |
conduits |
|
funds |
|
funds |
|
funds |
|
funds |
|
funds |
2 |
isations |
3 |
Other |
|
Total |
|
|
US$bn |
|
US$bn |
|
US$bn |
|
US$bn |
|
US$bn |
|
US$bn |
|
US$bn |
|
US$bn |
|
US$bn |
|
US$bn |
|
US$bn |
|
At 31 December 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
0.4 |
|
32.3 |
|
13.9 |
|
43.8 |
|
0.7 |
|
1.4 |
|
0.6 |
|
3.1 |
|
54.6 |
|
0.3 |
|
151.1 |
|
Direct lending4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.3 |
|
|
|
1.3 |
|
ABSs4 |
|
|
25.8 |
|
|
|
0.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
26.6 |
|
Other |
0.4 |
|
6.5 |
|
13.9 |
|
43.0 |
|
0.7 |
|
1.4 |
|
0.6 |
|
3.1 |
|
53.3 |
|
0.3 |
|
123.2 |
|
Funding provided by HSBC |
|
|
38.6 |
|
2.1 |
|
0.7 |
|
0.6 |
|
1.3 |
|
0.2 |
|
3.2 |
|
0.7 |
|
0.2 |
|
47.6 |
|
CP |
|
|
18.7 |
|
2.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20.8 |
|
MTNs |
|
|
3.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
0.4 |
|
0.2 |
|
4.0 |
|
Junior notes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.3 |
|
|
|
0.3 |
|
Term repos executed |
|
|
14.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14.1 |
|
Investments in funds |
|
|
|
|
|
|
0.7 |
|
0.6 |
|
1.3 |
|
0.2 |
|
3.2 |
|
|
|
|
|
6.0 |
|
Drawn liquidity facility |
|
|
2.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.4 |
|
Capital notes5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total maximum exposure to consolidated SPEs |
|
|
47.6 |
|
17.1 |
|
0.8 |
|
0.6 |
|
1.3 |
|
0.2 |
|
3.2 |
|
27.0 |
|
0.2 |
|
98.0 |
|
Liquidity and credit enhancements |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deal-specific liquidity facilities |
|
|
|
|
17.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17.1 |
|
Indemnities |
|
|
|
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
0.1 |
|
Programme-wide liquidity facilities |
|
|
34.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34.8 |
|
Programme-wide limited credit enhancements |
|
|
1.2 |
|
0.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.8 |
|
Other liquidity and credit enhancements |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.1 |
|
|
|
0.1 |
|
184
Back to Contents
|
|
|
|
|
|
|
|
|
Non-money market funds |
|
|
|
|
|
|
|
|
|
|
Securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
investment |
|
Multi-seller |
|
Enhanced |
|
Specialist |
|
Local |
|
Securit- |
|
|
|
|
|
|
SIVs |
|
conduits
|
1 |
conduits |
|
VNAV funds |
|
funds |
|
funds |
2,6 |
isations |
3 |
Other |
|
Total |
|
|
US$bn |
|
US$bn |
|
US$bn |
|
US$bn |
|
US$bn |
|
US$bn |
|
US$bn |
|
US$bn |
|
US$bn |
|
At 31 December 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
40.7 |
|
21.6 |
|
15.8 |
|
5.7 |
|
1.0 |
|
3.1 |
|
74.7 |
|
0.1 |
|
162.7 |
|
Direct lending4 |
|
|
|
|
|
|
|
|
|
|
|
|
3.6 |
|
|
|
3.6 |
|
ABSs4 |
32.1 |
|
21.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
53.1 |
|
Other |
8.6 |
|
0.6 |
|
15.8 |
|
5.7 |
|
1.0 |
|
3.1 |
|
71.1 |
|
0.1 |
|
106.0 |
|
Funding provided by HSBC |
15.9 |
|
7.8 |
|
8.6 |
|
4.6 |
|
0.4 |
|
2.8 |
|
1.0 |
|
|
|
41.1 |
|
CP |
2.4 |
|
7.8 |
|
8.6 |
|
|
|
|
|
|
|
|
|
|
|
18.8 |
|
MTNs |
5.3 |
|
|
|
|
|
|
|
|
|
|
|
0.3 |
|
|
|
5.6 |
|
Junior notes |
|
|
|
|
|
|
|
|
|
|
|
|
0.7 |
|
|
|
0.7 |
|
Term repos executed |
8.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8.2 |
|
Investments in funds |
|
|
|
|
|
|
4.6 |
|
0.4 |
|
2.8 |
|
|
|
|
|
7.8 |
|
Total
maximum exposure to consolidated SPEs |
40.0 |
|
25.7 |
|
21.2 |
|
4.6 |
|
0.4 |
|
2.8 |
|
30.6 |
|
0.1 |
|
125.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liquidity and credit enhancements |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deal-specific liquidity facilities |
|
|
|
|
21.2 |
|
|
|
|
|
|
|
|
|
|
|
21.2 |
|
Programme-wide liquidity facilities |
0.8 |
|
25.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
26.5 |
|
Programme-wide limited credit enhancements |
|
|
0.2 |
|
0.7 |
|
|
|
|
|
|
|
|
|
|
|
0.9 |
|
Other liquidity and credit enhancements |
|
|
|
|
|
|
|
|
|
|
|
|
0.2 |
|
|
|
0.2 |
|
|
|
1 |
The securities investment conduits include
Mazarin, Barion, Malachite and Solitaire. |
2 |
Local investment management funds. |
3 |
Also includes consolidated SPEs that hold
mortgage loans held at fair value. |
4 |
These assets only include those measured
at fair value. For details on the geographical origin of the mortgage loans
held at fair value and ABSs, including those represented by MBSs and CDOs
held in consolidated SIVs and securities investment conduits, see Nature
and extent of HSBCs exposures on page 150. The geographical
origin of the loans and receivables held by the multi-seller conduits is
disclosed on page 177. |
5 |
The carrying amount of HSBCs holding
of capital notes in the securities investment conduits amounted to US$1.9
million (2007: n/a) with a par value of US$52 million (2007: n/a). |
6 |
Total assets for 2007 have been restated
as a result of reclassifying assets amounting to US$17 billion from
VNAV to local funds. |
185
Back to Contents
H S B C H O L
D I N G S P L C |
|
Report
of the Directors: Impact of Market Turmoil (continued) |
|
|
|
SPEs > SIVs and conduits >Maximum
exposures / 3rd party SPEs //
Other off-balance sheet
arrangements |
HSBCs maximum exposure to unconsolidated
SPEs
|
Securitisations1
|
|
|
Money market funds1
|
|
|
Non-money market funds1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HSBC |
|
|
Non-HSBC |
|
|
|
|
|
Enhanced |
|
|
|
|
|
|
|
|
|
|
|
Multi- |
|
|
|
|
|
|
|
|
|
originated |
|
|
originated |
|
|
CNAV |
|
|
VNAV |
|
|
VNAV
|
4 |
|
Specialist |
|
|
Local |
|
|
manager |
|
|
|
|
|
|
|
|
|
assets |
|
|
assets
|
2 |
|
funds |
|
|
funds |
|
|
funds |
|
|
funds |
|
|
funds |
3,4 |
|
funds |
|
|
Other |
|
|
Total |
|
|
|
US$bn |
|
|
US$bn |
|
|
US$bn |
|
|
US$bn |
|
|
US$bn |
|
|
US$bn |
|
|
US$bn |
|
|
US$bn |
|
|
US$bn |
|
|
US$bn |
|
|
At 31 December 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
0.6 |
|
|
13.5 |
|
|
28.2 |
|
|
2.0 |
|
|
26.6 |
|
|
82.5 |
|
|
93.1 |
|
|
21.0 |
|
|
20.9 |
|
|
288.4 |
|
|
Funding provided by HSBC |
|
|
|
0.2 |
|
|
|
|
|
|
|
|
0.3 |
|
|
|
|
|
1.0 |
|
|
|
|
|
8.3 |
|
|
9.8 |
|
|
MTNs |
|
|
|
0.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8.3 |
|
|
8.5 |
|
|
Investments in funds |
|
|
|
|
|
|
|
|
|
|
|
|
0.3 |
|
|
|
|
|
1.0 |
|
|
|
|
|
|
|
|
1.3 |
|
|
Total maximum exposure to unconsolidated SPEs |
|
|
|
0.2 |
|
|
|
|
|
|
|
|
0.3 |
|
|
|
|
|
1.0 |
|
|
|
|
|
4.1 |
|
|
5.6 |
|
|
At 31 December 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
0.9 |
|
|
16.0 |
|
|
56.8 |
|
|
6.2 |
|
|
22.6 |
|
|
131.0 |
|
|
123.3 |
|
|
30.4 |
|
|
23.5 |
|
|
410.7 |
|
|
Funding provided by HSBC |
|
|
|
0.4 |
|
|
1.3 |
|
|
1.3 |
|
|
0.3 |
|
|
0.1 |
|
|
2.6 |
|
|
0.1 |
|
|
7.2 |
|
|
13.3 |
|
|
MTNs |
|
|
|
0.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.2 |
|
|
7.5 |
|
|
Mezzanine notes |
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.1 |
|
|
Investments in funds |
|
|
|
|
|
|
1.3 |
|
|
1.3 |
|
|
0.3 |
|
|
0.1 |
|
|
2.6 |
|
|
0.1 |
|
|
|
|
|
5.7 |
|
|
Total maximum exposure to unconsolidated SPEs |
|
|
|
0.4 |
|
|
1.3 |
|
|
1.3 |
|
|
0.3 |
|
|
0.1 |
|
|
2.6 |
|
|
0.1 |
|
|
4.5 |
|
|
10.6 |
|
|
1 |
HSBCs financial investments in off-balance
sheet money market funds and non-money market funds have been classified
as available-for-sale securities, and measured at fair value. HSBCs
financial investments in off-balance sheet securitisations have been classified
as trading assets and available-for-sale securities, and measured at fair
value. |
2 |
In the US, HSBC has established securitisation
programmes where term-funded SPEs are used to securitise third-party originated
mortgages, mainly sub-prime and Alt-A residential mortgages. The majority
of these SPEs are not consolidated by HSBC as it is not exposed to the majority
of the risk and rewards of ownership in the SPEs. No liquidity facility
has been provided by HSBC. |
3 |
Local investment management funds. |
4 |
Total assets for 2007 have been restated
as a result of reclassifying assets amounting to US$17 billion from
VNAV funds to local funds. |
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Third-party sponsored SPEs
Through standby liquidity facility commitments, HSBC has exposure to third-party sponsored SIVs, conduits and securitisations under normal banking arrangements on standard market terms. These exposures are quantified below.
HSBCs commitments under liquidity facilities to third-party SIVs, conduits and securitisations
|
Commit- |
|
|
|
|
ments |
|
Drawn |
|
|
US$bn |
|
US$bn |
|
At 31 December 2008 |
|
|
|
|
Third-party SIVs |
|
|
|
|
Third-party conduits |
1.1 |
|
0.1 |
|
Third-party securitisations |
0.6 |
|
0.1 |
|
|
|
|
|
|
|
1.7 |
|
0.2 |
|
|
|
|
|
|
At 31 December 2007 |
|
|
|
|
Third-party SIVs |
0.3 |
|
|
|
Third-party conduits |
4.4 |
|
0.4 |
|
Third-party securitisations |
0.5 |
|
|
|
|
|
|
|
|
|
5.2 |
|
0.4 |
|
|
|
|
|
|
Other exposures to third-party SIVs, conduits and securitisations where a liquidity facility has been provided
|
At 31 December |
|
|
|
|
|
2008 |
|
2007 |
|
|
US$bn |
|
US$bn |
|
|
|
|
|
|
Derivative assets |
|
|
0.2 |
|
|
|
|
|
|
Other
off-balance sheet arrangements and commitments |
|
Financial guarantees, letters of credit and similar undertakings
Note 40 on the Financial Statements describes various types of guarantees and discloses the maximum potential future payments under such arrangements. Credit risk associated with all forms of guarantees is assessed in the
same manner as for on-balance sheet credit advances and, where necessary, provisions for assessed impairment are included in Other provisions.
Commitments to lend
Undrawn credit lines are disclosed in Note 40 on the Financial Statements. The majority by value of undrawn credit lines arise from open to buy lines on personal credit cards, advised overdraft limits and other
pre-approved loan products, and mortgage offers awaiting customer acceptance. HSBC generally has the right to change or terminate any conditions of a personal customers overdraft, credit card or other credit line upon notification to the
customer. In respect of corporate commitments to lend, in most cases HSBCs position will be protected through restrictions on access to funding in the event of material adverse change.
Leveraged finance transactions
Loan commitments in respect of leveraged finance transactions are accounted for as derivatives where it is HSBCs intention to sell the loan after origination. Further information is provided on page 160.
187
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H S B C H O L
D I N G S P L C |
|
Report of the Directors: Risk |
|
|
|
Regulation and supervision |
1 |
Unaudited.
|
2 |
Audited.
|
3 |
Audited where indicated. |
Regulation and supervision |
|
(Unaudited) |
With listings of its ordinary shares in London,
Hong Kong, New York, Paris and Bermuda, HSBC Holdings complies with the
relevant requirements for listing and trading on each of these exchanges.
In the UK,
these are the Listing Rules of the Financial Services Authority (FSA);
in Hong Kong, The Rules Governing the Listing of Securities on The Stock
Exchange of Hong Kong Limited (HKSE); in the US, where the shares
are traded in the form of ADSs, HSBC Holdings shares are registered
with the US Securities and Exchange Commission (SEC). As a consequence
of its US listing, HSBC Holdings is also subject to the reporting and other
requirements of the US Securities Act of 1933, as amended, the Securities
Exchange Act of 1934, as amended, and the New York Stock Exchanges
(NYSE) Listed Company Manual, in each case as applied to foreign
private issuers. In France and Bermuda, HSBC Holdings is subject to the
listing rules of Euronext, Paris and the Bermuda Stock Exchange respectively,
applicable
to companies with secondary listings.
A statement of HSBCs
compliance with the code provisions of the Combined Code on Corporate Governance
issued by the Financial Reporting Council and with the Code on Corporate
Governance Practices in Appendix 14 to the Rules Governing the Listing of
Securities on The Stock Exchange of Hong Kong Limited is set out in the Report
of the Directors: Governance on page 281.
HSBCs operations
throughout the world are regulated and supervised by approximately 540 different
central banks and regulatory authorities in those jurisdictions in which
HSBC has offices, branches or subsidiaries. These authorities impose a variety
of requirements and controls designed to improve financial stability and
the transparency of financial markets and their contribution to economic
growth. These regulations and controls cover, inter
alia, capital adequacy, depositor protection,
market liquidity, governance standards, customer protection (for example,
fair lending practices, product design, and marketing and documentation standards),
and social responsibility obligations (for example, anti-money laundering
and anti-terrorist financing measures). In addition, a number of countries
in which HSBC operates impose rules that affect, or place limitations on,
foreign or foreign-owned or controlled banks and financial institutions.
The rules include restrictions on the opening of local offices, branches
or subsidiaries and the types of banking and non-banking activities that
may be conducted by those local offices, branches or subsidiaries;
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restrictions on the acquisition of local banks or regulations requiring a specified percentage of local ownership; and restrictions on investment and other financial flows entering or leaving the country. The supervisory
and regulatory regimes of the countries where HSBC operates will determine to some degree HSBCs ability to expand into new markets, the services and products that HSBC will be able to offer in those markets and how HSBC structures specific
operations. As a result of the recent government interventions in response to recent global economic
conditions it is widely anticipated that there will be a substantial increase in government regulation and supervision of the financial services industry, including the imposition of higher capital requirements, heightened disclosure
standards and restrictions on certain types of transaction structures.
In June 2006, the Basel Committee on Banking Supervision introduced a new capital adequacy framework to replace the 1988 Basel Capital Accord in the form of a new Accord (commonly known as
Basel II). Details of the way in which Basel II has been implemented by the FSA, the timing of the change and the impact on HSBC are set out on page 275.
The FSA supervises HSBC on a consolidated basis. In addition, each operating bank, finance company or insurance operation within HSBC is regulated by local supervisors. The primary regulatory
authorities are those in the UK, Hong Kong and the US, the Groups principal areas of operation.
UK regulation and supervision
UK banking and financial services institutions are subject to multiple regulations. The primary UK statute is the Financial Services and Markets Act 2000 (FSMA). Additionally, data privacy is regulated by the
Data Protection Act 1998. Other UK financial services legislation is derived from EU directives relating to banking, securities, insurance, investments and sales of personal financial services.
In addition to its role as HSBCs lead regulator, the FSA is responsible for authorising and supervising all HSBCs businesses in the UK which require authorisation under FSMA. These
include deposit-taking, retail banking, life and general insurance, pensions, investments, mortgages, custody and share dealing businesses, and treasury and capital markets activity. HSBC Bank plc is HSBCs principal authorised institution in
the UK.
FSA rules establish the minimum criteria for authorisation for banks and financial services
businesses in the UK. They also set out reporting
(and, as applicable, consent) requirements with regard to large individual
exposures and large exposures to related borrowers. In its capacity as supervisor
of HSBC on a consolidated basis, the FSA receives information on the capital
adequacy of, and sets requirements for, HSBC as a whole. Further details
on capital measurement are included in Capital management and allocation on
pages 274 to 280. The
FSAs approach to capital requirements for UK insurers is to require minimum
capital to be calculated on two bases. First, firms must calculate their liabilities
on a prudent basis and add a statutory solvency margin (pillar 1).
Secondly, firms must calculate their liabilities on a realistic basis then add
to this their own calculation of risk-based capital. The sum of realistic reserves
and risk-based capital (pillar 2) is agreed with the FSA. Insurers
are required to maintain capital equal to the higher of pillars 1 and 2. The
FSA has the right to object, on prudential grounds, to persons who hold, or intend
to hold, 10 per cent or more of the voting power of a financial institution.
The regulatory framework
of the UK financial services system has traditionally been based on co-operation
between the FSA and authorised institutions. The FSA monitors authorised
institutions through ongoing supervision and the review of routine and ad
hoc reports relating to financial and
prudential matters. The FSA may periodically obtain independent reports,
usually from the auditors of the authorised institution, as to the adequacy
of internal control procedures and systems as well as procedures and systems
governing records and accounting. The FSA meets regularly with HSBCs
senior executives to discuss HSBCs adherence to the FSAs prudential
guidelines. They also regularly discuss fundamental matters relating to HSBCs
business in the UK and internationally, including areas such as strategic
and operating plans, risk control, loan portfolio composition and organisational
changes, including succession planning. In light of current conditions, HSBC
has experienced an increased level of ongoing interaction with the FSA.
Hong Kong regulation and supervision
Banking in Hong Kong is subject to the provisions
of the Banking Ordinance and to the powers, functions and duties ascribed
by the Banking Ordinance to the Hong Kong Monetary Authority (the HKMA).
The principal function of the HKMA is to promote the general stability and
effective working of the banking system in Hong Kong. The HKMA is responsible
for supervising compliance
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H S B C H O L
D I N G S P L C |
|
Report
of the Directors: Risk (continued) |
|
|
|
|
Regulation and supervision
/ Risk management > Introduction / Governance and ownership |
with the provisions of the Banking Ordinance. The Banking Ordinance gives power to the Chief Executive of Hong Kong to give directions to the HKMA and the Financial Secretary with respect to the exercise of their respective
functions under the Banking Ordinance.
The HKMA has responsibility for authorising banks, and has discretion to attach conditions to its authorisation. The HKMA requires that banks or their holding companies file regular prudential
returns, and holds regular discussions with the management of the banks to review their operations. The HKMA may also conduct on-site examinations of banks and, in the case of banks incorporated in Hong Kong, of any local and overseas
branches and subsidiaries. The HKMA requires all authorised institutions to have adequate systems of internal control and requires the institutions external auditors, upon request, to report on those systems and other matters such as the
accuracy of information provided to the HKMA. In addition, the HKMA may from time to time conduct tripartite discussions with banks and their external auditors.
The HKMA has the power to divest controlling interests in a bank from persons if they are no longer deemed to be fit and proper, if they may otherwise threaten the interests of depositors or
potential depositors, or if they have contravened any conditions specified by the HKMA. The HKMA may revoke authorisation in the event of an institutions non-compliance with the provisions of the Banking Ordinance. These provisions require,
among other things, the furnishing of accurate reports.
The HKMA implemented Basel II with effect from 1 January 2007 for all Authorised Institutions incorporated in Hong Kong.
The marketing of, dealing in and provision of advice and asset management services in relation to securities in Hong Kong are subject to the provisions of the Securities and Futures Ordinance
of Hong Kong (Securities and Futures Ordinance). Entities engaging in activities regulated by the Securities and Futures Ordinance are required to be licensed. The HKMA is the primary regulator for banks involved in the securities
business, while the Securities and Futures Commission is the regulator for non-banking entities.
US regulation and supervision
HSBC is subject to extensive federal and state supervision and regulation in the US. Banking laws and regulations of the Board of Governors of the Federal Reserve System (the Federal Reserve Board), the Office
of the Comptroller of the
Currency (the OCC) and the Federal Deposit
Insurance Corporation (the FDIC) govern many aspects of HSBCs
US business.
HSBC and its US operations
are subject to supervision, regulation and examination by the Federal Reserve
Board because HSBC is a bank holding company under the US Bank
Holding Company Act of 1956 (BHCA), as a result of its control
of HSBC Bank USA, N.A., Mclean, Virginia (HBUS); HSBC Trust Company
(Delaware), N.A., Wilmington, Delaware (HTCD); and Wells Fargo
Trade Bank, N.A., San Francisco, California (WFTB). HSBC North
America Holdings Inc. (HNAH), formed to hold HSBCs US and
Canadian operations is also a bank holding company. Both HSBC
and HNAH are registered as financial holding companies (FHCs)
under the BHCA, and, accordingly, may affiliate with securities firms and
insurance companies and engage in other activities that are financial in
nature or incidental or complementary to activities that are financial in
nature. The ability of HSBC and HNAH to engage in expanded financial activities
as FHCs depends upon HSBC and HNAH continuing to meet certain criteria set
forth in the BHCA, including requirements that their US depository institution
subsidiaries be well capitalised and well managed,
and that such institutions have achieved at least a satisfactory record in
meeting community credit needs during their most recent examinations pursuant
to the Community Reinvestment Act.
In general, under
the BHCA, an FHC would be required, upon notice by the Federal Reserve Board,
to enter into an agreement with the Federal Reserve Board to correct any
failure to comply with the requirements to maintain FHC status. Until such
deficiencies are corrected, the Federal Reserve Board may impose limitations
on the US activities of an FHC and depository institutions under its control.
If such deficiencies are not corrected, the Federal Reserve Board may require
an FHC to divest its control of any subsidiary depository institution or
to desist from certain financial activities in the US.
The three US banks,
HBUS, HTCD, and WFTB are subject to regulation and examination primarily
by the OCC, secondarily by the FDIC, and by the Federal Reserve Board. Banking
laws and regulations restrict many aspects of their operations and administration,
including the establishment and maintenance of branch offices, capital and
reserve requirements, deposits and borrowings, investment and lending activities,
payment of dividends and numerous other matters.
In December 2007, US regulators published a
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final rule regarding Risk-Based Capital Standards:
Advanced Capital Adequacy Framework Basel II. This final rule represents the US adoption of the Basel II International Capital Accord (Basel II). The
final rule became effective on 1 April 2008, and requires large bank holding companies, including HNAH, to adopt its provisions no later than 1 April 2011. HNAH has established comprehensive Basel II implementation project teams comprised of risk
management specialists representing all risk disciplines. In addition, US banking authorities have adopted leverage capital
requirements that generally require US banks and bank holding companies to
maintain a minimum amount of capital in relation to their balance sheet assets
(measured on a non-risk-weighted basis).
HBUS and HTCD are subject to risk-based assessments from the FDIC, which insures deposits generally to a maximum of US$100,000 per domestic depositor. In October 2008, the FDIC raised the
maximum amount of insured deposits to US$250,000 per domestic depositor until 31 December 2009, after which the limit will return to US$100,000. The FDIC bases assessments on supervisory ratings, financial ratios and long-term debt issuer
ratings, with those banks in the highest rated categories paying lower assessments.
In October 2008, the FDIC announced its Temporary Liquidity Guarantee Programme (TLGP), under which the FDIC will guarantee (i) newly-issued senior unsecured debt issued by
eligible, participating institutions, and (ii) certain non-interest bearing transaction accounts. HNAH and its subsidiary banks and bank holding companies elected to participate in both components of the TLGP, as applicable.
HSBCs US consumer finance operations are subject to extensive state-by-state regulation in the US, and to laws relating to consumer protection (both in general, and in respect of
sub-prime lending operations, which have been subject to enhanced regulatory scrutiny); discrimination in extending credit; use of credit reports; privacy matters; disclosure of credit terms; and correction of billing errors. They also are subject
to regulations and legislation that limit operations in certain jurisdictions.
Risk
management |
|
(Unaudited) |
Introduction
All HSBCs activities involve, to varying degrees,
the analysis, evaluation, acceptance and management of risks or combinations
of risks. The most important
categories of risk that the Group is exposed to
are credit risk (including cross-border country risk), market risk, operational
risks in various forms, liquidity risk, insurance risk, pension risk, residual
value risk, reputational risk and sustainability (environmental and social)
risks. Market risk includes foreign exchange, interest rate and equity price
risks.
The management of
these various risk categories is discussed below. Insurance risk is managed
by the Groups insurance businesses together with their own credit,
liquidity and market risk functions, distinct from those covering the rest
of HSBC due to the different nature of their activities. They remain under
risk oversight at Group level.
The risk profiles
of HSBC Group and of individual operating entities change constantly under
the influence of a wide range of factors. The risk management framework established
by the Group fosters the continuous monitoring of the risk environment and
an integrated evaluation of risks and their interdependencies.
Risk governance and ownership
A well-established risk governance and ownership
structure ensures oversight of, and accountability for, the effective management
of risk at Group, regional, customer group and operating entity levels.
The Board approves
the Groups risk appetite framework, plans and performance targets for
the Group and its principal operating subsidiaries, the appointment of senior
officers, the delegation of authorities for credit and other risks and the
establishment of effective control procedures. Under authority delegated
by the Board, the Group Management Board (GMB) through its separately
convened Risk Management Meeting (RMM) formulates high-level
Group risk management policy, exercises delegated risk authorities and oversees
the implementation of risk appetite and controls. It monitors all categories
of risk, receives reports on actual performance and emerging issues, determines
action to be taken and reviews the efficacy of HSBCs risk management
framework.
Primary responsibility
for managing risk at operating entity level lies with the respective boards
and Chief Executive Officers, as custodians of their balance sheets. In their
oversight and stewardship of risk management at Group level, GMB and RMM are
supported by a dedicated Global Risk function headed by the Group Chief Risk
Officer (GCRO), who is a member of both bodies and reports to
the Group Finance Director within the integrated Finance and
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H S B C H O L D I
N G S P L C |
|
Report of the
Directors: Risk (continued) |
|
|
|
|
Regulation and supervision /
Risk management > Introduction / Governance and ownership |
Risk function, which the Group Finance Director represents
on the Board.
Global
Risk has functional responsibility for the principal financial risk types,
namely retail and wholesale credit, market, operational, security and fraud
risks. For these it establishes Group policy, exercises Group-wide oversight
and provides reporting and analysis of portfolio composition on a global and
a regional basis to senior management. Accountability and consistent control
across the Global Risk function is provided through the Global Risk Management
Board, chaired by the GCRO, the membership of which includes the Chief Risk
Officers of HSBCs regions and the heads of risk disciplines within GMO.
Global Risk also co-ordinates the continued development of the Groups
risk appetite, economic capital and stress testing frameworks. In addition,
the GCRO is a member of the Group Portfolio Oversight Committee, chaired by
the Group Treasurer, which governs the Groups portfolio management activities
for the wholesale business sector.
Risk appetite
HSBCs risk appetite framework describes
the quantum and types of risk that HSBC is prepared to take in executing its
strategy. It is central to an integrated approach to risk, capital and business
management and supports the Group in achieving its return on equity objectives,
as well as being a key element in meeting the Groups obligations
under pillar 2 of Basel II.
The formulation of risk appetite considers HSBCs risk capacity, its financial position, the strength of its core earnings and the resilience of its reputation and brand. It is expressed
both qualitatively, describing which risks are taken and why, and quantitatively. HSBC senior management attaches quantitative metrics to individual risk types to ensure that:
|
• |
underlying business activity may be guided and controlled, so that it continues to be aligned to the risk appetite framework; |
|
|
|
|
• |
key assumptions underpinning risk appetite can be monitored and, as necessary, adjusted through subsequent business planning cycles; and |
|
|
|
|
• |
business decisions anticipated to be necessary to mitigate risk are flagged and acted upon promptly. |
The risk appetite
framework, governed by the Board and overseen in its implementation on an
ongoing basis by GMB and RMM, is also
maintained at regional and customer group levels.
It operates through two key mechanisms:
|
• |
the framework itself defines the governance bodies,
processes, metrics and other features of how
HSBC addresses risk appetite as part of its ongoing business; |
|
|
|
|
• |
periodic risk appetite statements define,
at various levels in the business, the
desired level of risk commensurate with
return and growth targets and in line with the corporate strategy and
stakeholder objectives. |
The risk appetite
framework covers both the beneficial and adverse aspects of risk. Within
it, economic capital is the common currency through which risk is measured
and used as the basis for risk evaluation, capital allocation and performance
measurement across regions and customer groups. Risk appetite is executed
through the operational limits that control the levels of risk run by the
Group, regions and customer groups and is measured using risk-adjusted performance
metrics.
Risk control culture
HSBCs risk management policies are encapsulated
in the Group Standards Manual and cascaded in a hierarchy of policy manuals
throughout the Group and communicate standards, instructions and guidance
to employees. They support the formulation of risk appetite and establish
procedures for monitoring and controlling risks, with timely and reliable
reporting to management. HSBC regularly reviews and updates its risk management
policies, systems and methodologies to reflect changes in law, regulation,
markets, products and emerging best practice.
It is the responsibility
of all Group officers to identify, assess and manage risk within the scope
of their assigned responsibilities. Personal accountability, reinforced by
the Groups governance structure and instilled by training and experience,
helps to foster throughout the Group a disciplined and constructive culture
of risk management and control.
Credit risk |
|
Credit
risk management |
(Audited) |
Credit risk is the risk of financial loss if a
customer or counterparty fails to meet an obligation under a contract. It
arises principally from direct lending, trade finance and leasing business,
but also from certain off-balance sheet products such as guarantees and credit
derivatives, and from the Groups holdings of assets in the form of debt
securities. HSBC has standards, policies and procedures
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dedicated to monitoring and managing risk from
such activities.
The credit risk governance structures and control frameworks implemented by the Group are designed for all stages of economic and financial cycles, including the current economic environment.
No material changes were initiated to HSBCs risk management objectives, policies or procedures as a direct result of market turmoil. Certain measures already undertaken, however, are helping the Group to manage the effects of that turmoil.
Such measures, for example the reinforcement of central credit risk oversight and independent review activities, continue to be implemented within a common operating model for the responsibilities and interaction of GMO Risk, regionally integrated
risk functions and country-based management. In addition, certain operational processes have been invoked and applied in order to manage risks more intensively.
Credit Risk is part of the Global Risk function, and the heads of its Retail and Wholesale risk disciplines within GMO, as well as regional Chief Risk Officers, certain country Chief Credit
Officers and the Head of Risk Strategy, report to the GCRO. The regional governance bodies for key risk matters reflect those in place at the centre. Functional units at the entity and regional levels report to GMO Risk. GMO helps build the
Groups credit risk management capacity through staff selection, training, development, performance assessment and remuneration the GCRO is jointly responsible with business heads for setting the performance goals of senior Global Risk
officers.
Across the Group, Credit Risk fulfils the role of an independent credit control unit, while engaging in dialogue with business teams to set priorities, refine risk appetite, and monitor and
report higher-risk exposures. Credit risk and risk capital management policies and methodologies, including analytical model development/review and management information, are enhanced in the light of experience gained, for instance through the
roll-out of the Groups advanced internal ratings-based (IRB) approach to Basel II. See also Capital Management on page 274.
The Credit Risk function within GMO provides high-level oversight and management of credit risk for HSBC worldwide. Its responsibilities include:
|
• |
Formulating Group credit policy. Compliance, subject to approved dispensations, is mandatory for all HSBCs operating companies, which must develop and record in local instruction manuals their detailed credit policies and procedures, consistent with Group policy. |
|
• |
Guiding HSBCs operating companies on
the Groups appetite for credit
risk exposure to specified market sectors,
activities and banking products. GMO
Risk controls exposures to certain higher-risk
sectors and closely monitors exposure
to others, including real estate, the automotive sector, certain non-bank financial institutions,
structured products and leveraged finance
transactions. When necessary, restrictions are imposed on new business or exposures,
which may be capped at Group and/or entity
level. |
|
|
|
|
• |
Undertaking independent review and objective
assessment of risk. GMO Risk assesses all
commercial non-bank credit facilities and
exposures including those embedded in derivatives
that are originated or renewed by HSBCs
operating companies over designated limits, prior to the facilities being committed to customers
or transactions being undertaken. Operating
companies may not confirm credit approval
without this concurrence. |
|
|
|
|
• |
Monitoring the performance and management
of retail portfolios across the Group.
GMO Risk tracks emerging trends and conducts
in-depth portfolio reviews, overseeing the effective management
of any adverse characteristics. |
|
|
|
|
• |
Controlling centrally exposures to sovereign
entities, banks and other financial institutions.
HSBCs credit and settlement risk limits
to counterparties in these sectors are
approved and managed by GMO Risk to optimise
the use of credit availability and avoid excessive risk concentration. |
|
|
|
|
• |
Controlling exposure for all debt securities
held; where a security is not held solely
for the purpose of trading, a formal
issuer risk limit is established. |
|
|
|
|
• |
Establishing and maintaining HSBCs
policy on large credit exposures, ensuring
that concentrations of exposure by counterparty,
sector or geography do not become excessive in relation
to the Groups capital base and remain within
internal and regulatory limits. The approach is designed to be more conservative than
internationally accepted regulatory standards.
GMO Risk also monitors HSBCs intra-Group exposures to ensure they are maintained
within regulatory limits. Plans are being
developed to adopt the FSAs new Integrated Groups regime in accordance with the
published transition timetable. |
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H S B C H O L D I
N G S P L C |
|
Report of the
Directors: Risk (continued) |
|
|
|
|
Credit risk > Management >
Credit quality / Impairment assessment |
• |
Controlling cross-border exposures,
through the imposition of country limits with sub-limits by maturity and
type of business. Country limits are determined by taking into account
economic and political factors, and applying local business knowledge.
Transactions with countries deemed to be higher risk are considered on
a case by case basis. |
|
• |
Maintaining and developing HSBCs
risk rating framework and systems, to classify exposures meaningfully
and enable focused management of the risks involved. The GCRO chairs the
Credit Risk Analytics Oversight Committee, which reports to the RMM and
oversees risk rating model governance for both wholesale and retail business.
Rating methodologies, based upon a wide range of analytics and market
data- based tools, are core inputs to the assessment of customer risk.
For larger facilities, while full use is made of automated risk-rating
processes, the ultimate responsibility for setting risk ratings rests
with the final approving executive. |
|
• |
Assisting the Risk Strategy unit
in the development of stress-testing scenarios, economic capital measurement
and the refinement of key risk indicators and their reporting, the tools
for this being increasingly embedded within the Groups business
planning processes. |
|
• |
Reporting on aspects of the HSBC
credit risk portfolio to the RMM, the Group Audit Committee and the Board
of Directors of HSBC Holdings by way
of a variety of regular and ad hoc reports covering: |
|
|
|
risk concentrations; |
|
|
|
retail portfolio performance at Group entity,
regional and overall Group levels; |
|
|
|
specific higher-risk portfolio segments;
|
|
|
|
a Risk Map of the status of key risk topics,
with associated preventive and mitigating actions; |
|
|
|
individual large impaired accounts, and impairment
allowances/charges for all customer segments; |
|
|
|
country limits, cross-border exposures and
related impairment allowances; |
|
|
|
portfolio and analytical model performance
data; and |
|
|
|
stress-testing results and recommendations.
|
• |
Managing and directing credit risk management
systems initiatives. HSBC has constructed a
centralised database covering substantially
all the Groups direct lending exposures, to deliver an
increasingly granular level of management reporting.
A uniform credit application process for banks is operational throughout the Group and
a similar corporate credit application system covers
almost all Group corporate business by value. |
|
|
• |
Providing advice and guidance to HSBCs
operating companies, to promote best practice
throughout the Group on credit-related matters
such as sustainability risk, new products and training. |
|
|
• |
Acting on behalf of HSBC Holdings as the
primary interface, for credit-related issues,
with external parties including the Bank
of England, the FSA, rating agencies, corporate analysts, trade
associations and counterparts in the worlds
major banks and non-bank financial institutions. |
Each HSBC operating company is required to implement
credit policies, procedures and lending guidelines that meet local requirements
while conforming to Group standards.
Credit approval authorities are delegated by the Board of Directors of HSBC
Holdings to the most senior Chief Executive Officers, who receive commensurate
delegations from their own boards. In each major subsidiary, a Chief Risk
Officer or Chief Credit Officer reports to the local Chief Executive Officer
or Chief Operating Officer on credit-related issues, while maintaining a
direct functional reporting line to the GCRO.
Each operating company
is responsible for the quality and performance of its credit portfolios and
for monitoring and controlling all credit risks in them, including those
subject to central approval by Group Risk. This includes managing its own
risk concentrations by market sector, geography and product. Local systems
are in place throughout the Group to enable operating companies to control
and monitor exposures by customer and retail product segments.
Special attention
is paid to problem exposures, which are subject to more frequent and intensive
review and reporting, in order to accelerate remedial action. Where appropriate,
HSBCs local operating companies maintain or establish specialist units
to provide customers with support in order to help them avoid default wherever
possible.
Periodic risk-based
audits of operating companies credit processes and portfolios are
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undertaken by HSBCs Internal Audit function.
Audits include consideration of the adequacy and clarity of credit policy/procedure
manuals; an in-depth analysis of a representative sample of accounts; an
overview of homogeneous portfolios of similar assets to assess the quality
of the loan book and other exposures; consideration of any oversight or review
work performed by credit risk management functions and the adequacy of impairment
calculations; a review of analytical model governance and implementation;
a review of management objectives and a check that Group and local standards
and policies are adhered to in the approval and management of credit facilities.
Individually significant
accounts are reviewed on a sample basis to ensure that risk ratings are appropriate,
that credit and collection procedures have been properly followed and that,
when an account or portfolio evidences deterioration, impairment allowances
are raised in accordance with the Groups established procedures. Internal
Audit discusses with management any risk ratings it considers to be inappropriate;
after discussion, its final recommendations for revised ratings must then
be adopted.
Credit quality
(Audited)
HSBCs credit risk rating systems and processes
differentiate exposures in order to highlight those with greater risk factors
and higher potential severity of loss. In the case of individually significant
accounts, risk ratings are reviewed regularly and any amendments are implemented
promptly. Within the Groups retail businesses, risk is assessed and
managed using a wide range of risk and pricing models to generate portfolio
data.
HSBCs historical,
seven-grade risk rating system based on a judgemental assessment of the likelihood
and impact of delinquency was superseded in 2008 for financial reporting
purposes, as for those of all significant risk management decisions employing
credit risk ratings, by a more risk-sensitive and granular methodology. This
facilitates the IRB approach under Basel II adopted by the Group to support
calculation of its minimum credit regulatory capital requirement.
The integration of
this methodology into HSBCs risk processes and structures is well advanced
and supports reporting on the new basis to senior management in line with
the Groups IRB obligations. For further details, please see Credit
quality of financial instruments on page 217.
Impairment assessment
(Audited)
When impairment losses occur, HSBC reduces the
carrying amount of loans and advances through the use of an allowance account.
When impairment of available-for-sale financial assets and held-to-maturity
financial investments occurs, the carrying amount of the asset is reduced
directly. For further details on the accounting policy for impairment of
available-for-sale debt and equity securities, see Accounting policies on
page 350.
Impairment allowances
may be assessed and created either for individually significant accounts
or, on a collective basis, for groups of individually significant accounts
for which no evidence of impairment has been individually identified or for
high-volume groups of homogeneous loans that are not considered individually
significant.
It is HSBCs
policy that each operating company creates allowances for impaired loans
promptly and consistently.
Management regularly
evaluates the adequacy of the established allowances for impaired loans by
conducting a detailed review of the loan portfolio, comparing performance
and delinquency statistics with historical trends and assessing the impact
of current economic conditions.
Individually assessed impairment allowances
These are determined by evaluating exposure to
loss, case by case, on all individually significant accounts and all other
accounts that do not qualify for the collective assessment approach outlined
below. Loans are treated as impaired as soon as there is objective evidence
that an impairment loss has been incurred. The criteria used by HSBC to determine
that there is such objective evidence include:
• |
known cash flow difficulties experienced by
the borrower; |
|
|
• |
past due contractual payments of either principal or
interest; |
|
|
• |
breach of loan covenants or conditions; |
|
|
• |
the probability that the borrower will enter bankruptcy
or other financial realisation; and |
|
|
• |
a significant downgrading in credit rating
by an external credit rating agency. |
In determining the
level of allowances on such accounts, the following factors are typically
considered:
• |
HSBCs aggregate exposure to the customer; |
195
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H S B C H O L
D I N G S P L C |
|
Report
of the Directors: Risk (continued) |
|
|
|
|
Credit risk > Management > Impairment
assessment // Credit exposure > Maximum exposure |
• |
the viability of the customers business
model and their capacity to trade successfully
out of financial difficulties, generating
sufficient cash flow to service debt
obligations; |
|
|
• |
the ability of the borrower to obtain, and
make payments in, the currency of the
loan if not denominated in local currency; |
|
|
• |
the amount and timing of expected receipts
and recoveries; |
|
|
• |
the extent of other creditors commitments ranking
ahead of, or pari passu with,
HSBC and the likelihood of other creditors continuing to support
the company; |
|
|
• |
the complexity of determining the aggregate amount
and ranking of all creditor claims and the
extent to which legal and insurance uncertainties are evident; |
|
|
• |
the value of security and likelihood of successfully
realising it; |
|
|
• |
the existence of other credit mitigants and
the ability of the providers of such
credit mitigants to deliver as contractually
committed; and |
|
|
• |
when available, the secondary market price
of the debt. |
The level of impairment allowances on individually
significant accounts that are above defined materiality thresholds is reviewed
at least semi-annually, and more
regularly when circumstances require. This normally encompasses re-assessment
of the enforceability of any collateral held and of actual and anticipated
receipts. For significant commercial and corporate debts, specialised loan work-out teams
with experience in insolvency and specific market sectors are used to manage
the lending and assess likely losses.
Individually assessed
impairment allowances are only released when there is reasonable and objective
evidence of a reduction in the established loss estimate.
Collectively assessed impairment allowances
Impairment is assessed on a collective basis in
two circumstances:
• |
to cover losses that have been incurred but
have not yet been identified on loans
subject to individual assessment; and |
|
|
• |
for homogeneous groups of loans that are not considered
individually significant. |
Incurred but not yet identified impairment
Individually assessed loans for which no evidence
of impairment has been specifically identified on an individual basis are
grouped together according to their credit risk characteristics. A collective
impairment allowance is calculated to reflect impairment losses incurred
at the balance sheet date which will only be individually identified in the
future.
The collective impairment
allowance is determined having taken into account:
• |
historical loss experience in portfolios of
similar credit risk characteristics
(for example, by industry sector, risk
rating or product segment); |
|
|
• |
the estimated period between impairment occurring
and the loss being identified and evidenced
by the establishment of an appropriate allowance against the individual loan;
and |
|
|
• |
managements experienced judgement as
to whether current economic and credit
conditions are such that the actual
level of inherent losses is likely to
be greater or less than that suggested by historical
experience. |
The period between a loss occurring and its identification
is estimated by local management for each relevant portfolio. In general,
the periods used vary between four
and twelve months although, in exceptional cases, longer periods are warranted.
The basis on which
impairment allowances for incurred but not yet identified losses is established
in each reporting entity is documented and reviewed by senior Finance and
Credit Risk management to ensure conformity with Group policy.
Homogeneous groups of loans
Two methodologies are used to calculate impairment
allowances where large numbers of relatively low-value assets are managed
using a portfolio approach, typically:
• |
low-value, homogeneous small business accounts
in certain countries or territories; |
|
|
• |
residential mortgages that have not been individually
assessed; |
|
|
• |
credit cards and other unsecured consumer lending
products; and |
|
|
• |
motor vehicle financing. |
When appropriate
empirical information is available, the Group uses roll rate methodology.
This employs a statistical analysis of historical trends of
196
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default and the amount of consequential loss, based
on the delinquency of accounts within a portfolio of homogeneous accounts.
Other historical data and current economic conditions are also evaluated
when calculating the appropriate level of impairment allowance required to
cover inherent loss. In certain highly developed markets, models also take
into account behavioural and account management trends revealed in, for example,
bankruptcy and rescheduling statistics.
When the portfolio
size is small, or when information is insufficient or not reliable enough
to adopt a roll rate methodology, a formulaic approach is used that allocates
progressively higher percentage loss rates the longer a customers loan
is overdue. Loss rates reflect the discounted expected future cash flows
for a portfolio.
Generally, historical
experience is the most objective and relevant information from which to begin
to assess inherent loss within each portfolio. In circumstances where historical
loss experience provides less relevant information about the inherent loss
in a given portfolio at the balance sheet date for example, where
there have been changes in economic conditions or regulations management
considers the more recent trends in the portfolio risk factors which may
not be adequately reflected in its statistical models and, subject to guidance
from Group Finance and GMO Risk, adjusts impairment allowances accordingly.
Roll rates, loss
rates and the expected timing of future recoveries are regularly benchmarked
against actual outcomes to ensure they remain appropriate.
Write-off of loans and advances
Loans are normally written off, either partially
or in full, when there is no realistic prospect of further recovery. Where
loans are secured, this is generally after receipt of any proceeds from the
realisation of security. In the case of residential mortgages and second
lien loans in HSBC Finance, loan carrying amounts in excess of net realisable
value are written off at or before the time foreclosure is completed or when
settlement is reached with the borrower. If there is no reasonable expectation
of recovery, and foreclosure is pursued, unconstrained by delays required
by law or regulation, the loan is normally written off no later than the
end of the month in which the loan becomes 240 days contractually past due.
Unsecured personal
facilities, including credit cards, are generally written off at between
150 and 210 days past due, the standard period being the end of the month
in which the account becomes 180 days
contractually delinquent. This period may be extended,
generally to 300 days past due but in no event exceeding 360 days past due,
in the case of HSBC Finances unsecured personal facilities other than
credit cards.
Cases of write-off
periods exceeding 360 days past due are few but arise, for example, in a
few countries where local regulation or legislation constrain earlier write-off,
or where the realisation of collateral for secured real estate lending extends
beyond this time.
In the event of bankruptcy
or analogous proceedings, write-off may occur earlier than at the periods
stated above. Collections procedures may continue after write-off.
Cross-border exposures
Management assesses the vulnerability of countries
to foreign currency payment restrictions when considering impairment allowances
on cross-border exposures. This assessment includes an analysis of the economic
and political factors existing at the time. Economic factors include the
level of external indebtedness, the debt service burden and access to external
sources of funds to meet the debtor countrys financing requirements.
Political factors taken into account include the stability of the country
and its government, threats to security, and the quality and independence
of the legal system.
Impairment allowances
are assessed in respect of all qualifying exposures within these countries
unless these exposures and the inherent risks are:
• |
performing, trade-related and of less than
one years maturity; |
|
|
• |
mitigated by acceptable security cover which
is, other than in exceptional cases,
held outside the country concerned; |
|
|
• |
in the form of securities held for trading purposes
for which a liquid and active market exists,
and which are measured at fair value daily; |
|
|
• |
performing facilities with a principal (excluding security)
of US$1 million or below; or |
|
|
• |
performing facilities with maturity dates
shorter than three months. |
Credit exposure
Maximum exposure to credit risk
(Audited)
HSBCs exposure to credit risk is spread over
several asset classes, including derivatives, trading
197
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H S B C H O L
D I N G S P L C |
|
Report
of the Directors: Risk (continued) |
|
|
|
|
Credit risk > Credit exposure > Maximum
exposure / Collateral |
assets, loans and advances to customers, loans
and advances to banks, and financial investments. The balance of exposure
at 31 December
2008 represented
a change in risk profile compared with a year ago as HSBC repositioned its
balance sheet in the face of unprecedented turmoil in financial markets. The
following commentary is on a constant currency basis.
Derivative asset
balances rose significantly as the financial turmoil of 2008 led to heightened
levels of volatility in the underlying markets to which the derivatives are
referenced. The rise in asset balances was primarily driven by interest rate
derivatives as the global fall in interest reference rates created significant
gaps between the fixed and floating components of interest rate swaps, which
in turn led to substantial mark-to-market increases in the value of interest
rate swap positions. The widening credit spreads and significant volatility
in credit and foreign exchange markets created the environment in which credit
derivative positions and foreign exchange derivative assets increased.
HSBC reduced
exposure to banks as it tightened lending limits in response to declining
credit quality.
Much of this lending was instead placed into government issued or guaranteed
debt, which contributed to an increase in financial investments.
Loans
and advances to customers in the commercial sector grew while personal
lending declined, primarily due to the continued run-off of parts of the
portfolio
in North America. Amounts due from non-bank financial institutions increased
due to the expansion of reverse repo lending with the London Clearing
House in the UK and a reclassification of cash collateral in the US.
Within
trading
assets, debt securities and treasury and other bills increased, primarily
due to the consolidation on 30 September 2008 of five Constant Net
Asset Value
funds containing assets upon consolidation of around US$40 billion
held for
trading. For further details see pages 180 to 181.
As a consequence
of the significant increase in derivative balances, there was a decline in
the proportion of total assets represented by most other asset classes. On
a reported basis, the proportion of total assets represented by derivative
assets increased by 12 percentage points while that deployed in loans and
advances to customers declined by 5 percentage points and the proportion of
trading assets declined by 2 percentage points. Loans and advances to banks
as a proportion of total assets declined by 4 percentage points.
The most significant factor
affecting
HSBC’s exposure to credit risk during 2008 was the continuing
deterioration in credit conditions in the US mortgage market. HSBC
also experienced
deterioration in credit quality in the commercial real estate sector.
Loss experience
remained concentrated in the personal lending portfolios, primarily
in the US with
85 per cent of loan impairment charges and other credit risk provisions
arising in Personal Financial Services in 2008 compared with 94 per
cent in 2007.
In
2008, 9 per cent of loan impairment charges and other credit risk provisions
arose in Commercial Banking, compared with 6 per cent in 2007. In the
UK, despite significant declines in house prices and activity in the
housing
market as
a whole, the credit quality of HSBC’s mortgage business remained
materially stable in 2008.
The following table presents the maximum
exposure to credit
risk from balance sheet and off-balance sheet financial instruments,
before taking account of any collateral held or other credit
enhancements (unless
such credit enhancements meet offsetting requirements). For financial
assets recognised on the balance sheet, the maximum exposure
to credit risk equals
their carrying amount; for financial guarantees granted, it is
the maximum amount that HSBC would have to pay if the guarantees were called
upon.
For loan commitments and other credit-related commitments that
are
irrevocable over the life of the respective facilities, it is
the full amount of
the committed facilities.
198
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Maximum exposure to credit risk
(Audited)
|
|
At 31 December
2008 |
|
|
At 31 December
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net |
|
|
|
|
|
|
|
|
Net |
|
|
|
Maximum |
|
|
|
|
|
exposure to |
|
|
Maximum |
|
|
|
|
|
exposure to |
|
|
|
exposure |
|
|
Offset |
|
|
credit risk |
|
|
exposure |
|
|
Offset |
|
|
credit risk |
|
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Items
in the course of collection from other banks |
|
6,003 |
|
|
|
|
|
6,003 |
|
|
9,777 |
|
|
|
|
|
9,777 |
|
Trading assets |
|
405,451 |
|
|
(13,227 |
) |
|
392,224 |
|
|
394,492 |
|
|
(12,220 |
) |
|
382,272 |
|
treasury
and other eligible bills |
|
32,458 |
|
|
|
|
|
32,458 |
|
|
16,439 |
|
|
|
|
|
16,439 |
|
debt
securities |
|
199,619 |
|
|
|
|
|
199,619 |
|
|
178,834 |
|
|
(1,417 |
) |
|
177,417 |
|
loans
and advances to banks |
|
73,055 |
|
|
|
|
|
73,055 |
|
|
100,440 |
|
|
(994 |
) |
|
99,446 |
|
loans
and advances to customers |
|
100,319 |
|
|
(13,227 |
) |
|
87,092 |
|
|
98,779 |
|
|
(9,809 |
) |
|
88,970 |
|
Financial
assets designated at fair value |
|
17,540 |
|
|
|
|
|
17,540 |
|
|
21,517 |
|
|
|
|
|
21,517 |
|
treasury
and other eligible bills |
|
235 |
|
|
|
|
|
235 |
|
|
181 |
|
|
|
|
|
181 |
|
debt
securities |
|
16,349 |
|
|
|
|
|
16,349 |
|
|
21,150 |
|
|
|
|
|
21,150 |
|
loans
and advances to banks |
|
230 |
|
|
|
|
|
230 |
|
|
178 |
|
|
|
|
|
178 |
|
loans
and advances to customers |
|
726 |
|
|
|
|
|
726 |
|
|
8 |
|
|
|
|
|
8 |
|
Derivatives |
|
494,876 |
|
|
(383,308 |
) |
|
111,568 |
|
|
187,854 |
|
|
(121,709 |
) |
|
66,145 |
|
Loans
and advances held at amortised cost |
|
1,086,634 |
|
|
(83,398 |
) |
|
1,003,236 |
|
|
1,218,914 |
|
|
(66,983 |
) |
|
1,151,931 |
|
loans
and advances to banks |
|
153,766 |
|
|
(126 |
) |
|
153,640 |
|
|
237,366 |
|
|
(278 |
) |
|
237,088 |
|
loans
and advances to customers |
|
932,868 |
|
|
(83,272 |
) |
|
849,596 |
|
|
981,548 |
|
|
(66,705 |
) |
|
914,843 |
|
Financial investments |
|
292,984 |
|
|
|
|
|
292,984 |
|
|
270,406 |
|
|
|
|
|
270,406 |
|
treasury
and other similar bills |
|
41,027 |
|
|
|
|
|
41,027 |
|
|
30,104 |
|
|
|
|
|
30,104 |
|
debt
securities |
|
251,957 |
|
|
|
|
|
251,957 |
|
|
240,302 |
|
|
|
|
|
240,302 |
|
Other assets |
|
40,859 |
|
|
(5 |
) |
|
40,854 |
|
|
43,245 |
|
|
(226 |
) |
|
43,019 |
|
endorsements
and acceptances |
|
10,482 |
|
|
(5 |
) |
|
10,477 |
|
|
12,248 |
|
|
(226 |
) |
|
12,022 |
|
accrued
income and other |
|
30,377 |
|
|
|
|
|
30,377 |
|
|
30,997 |
|
|
|
|
|
30,997 |
|
Financial guarantees |
|
52,318 |
|
|
|
|
|
52,318 |
|
|
56,440 |
|
|
|
|
|
56,440 |
|
Loan
commitments and other credit-related commitments1 |
|
604,022 |
|
|
|
|
|
604,022 |
|
|
764,457 |
|
|
|
|
|
764,457 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,000,687 |
|
|
(479,938 |
) |
|
2,520,749 |
|
|
2,967,102 |
|
|
(201,138 |
) |
|
2,765,964 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
The amount of the loan commitments
reflects, where relevant, the expected level of take-up of pre-approved
loan offers made by mailshots to personal customers. In addition to
those amounts, there is a further maximum possible exposure to credit
risk of US$35,849 million (2007: US$317,834 million), reflecting
the full take-up of such irrevocable loan commitments. |
|
Collateral and other credit enhancements
(Audited)
Collateral held against financial instruments presented
in the Maximum exposure to credit risk table above is described
in more detail below.
Items in the course of collection from other
banks
Settlement risk arises in any situation where a
payment in cash, securities or equities is made in the expectation of a corresponding
receipt of cash, securities or equities. Daily settlement limits are established
for counterparties to cover the aggregate of HSBCs transactions with
each one on any single day. Settlement risk on many transactions, particularly
those involving securities and equities, is substantially mitigated by settling
through assured
payment systems or on a delivery-versus-payment
basis.
Treasury, other eligible bills and debt securities
Collateral held as security for financial assets
other than loans and advances is determined by the nature of the instrument.
Debt securities, treasury and other eligible bills are generally unsecured,
except for ABSs and similar instruments, which are secured by pools of financial
assets.
Derivatives
The ISDA Master Agreement is HSBCs preferred
agreement for documenting derivatives activity. It provides the contractual
framework within which dealing activity across a full range of over-the-
199
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H S B C H O L
D I N G S P L C |
|
Report
of the Directors: Risk (continued) |
|
|
|
|
Credit risk > Credit exposure > Concentration > 2008 |
counter products is conducted, and contractually
binds both parties to apply close-out netting across all outstanding transactions
covered by an agreement if either party defaults or other pre-agreed termination
events occur. It is common, and HSBCs preferred practice, for the parties
to execute a Credit Support Annex (CSA) in conjunction with the ISDA Master Agreement. Under a CSA, collateral
is passed between the parties to mitigate the market-contingent counterparty
risk inherent in the outstanding positions.
Loans and advances
It is HSBCs policy, when lending, to do so
on the basis of the customers capacity to repay, rather than rely primarily
on the value of security offered. Depending on the customers standing
and the type of product, facilities may be provided unsecured. Whenever available,
collateral can be an important mitigant of credit risk.
The guidelines applied
by operating companies in respect of the acceptability of specific classes
of collateral or credit risk mitigation, and the determination of valuation
parameters are subject to regular review to ensure that they are supported
by empirical evidence and continue to fulfil their intended purpose. The
principal collateral types employed by HSBC are as follows:
• |
in the personal sector, mortgages over residential
properties; |
|
|
• |
in the commercial and industrial sector, charges over
business assets such as premises, stock and debtors; |
|
|
• |
in the commercial real estate sector, charges over
the properties being financed; and |
|
|
• |
in the financial sector, charges over financial instruments
such as cash, debt securities and equities
in support of trading facilities. |
In addition, credit
derivatives, including credit default swaps and structured credit notes,
and securitisation structures are used to manage credit risk in the Groups
loan portfolio.
HSBC does not disclose
the fair value of collateral held as security or other credit enhancements
on loans and advances past due but not impaired, or on individually assessed
impaired loans and advances, as it is not practicable to do so.
Concentration of exposure
(Audited)
Concentrations of credit risk arise when a number
of counterparties or exposures have comparable
economic characteristics,
or such counterparties are engaged in similar activities or operate in
the same geographical areas or industry sectors, so that their collective
ability
to meet contractual obligations is uniformly affected by changes in economic,
political or other conditions.
Securities held for trading
(Unaudited)
Total securities held for trading within trading
assets were US$254 billion at 31 December 2008 (2007: US$247 billion).
The largest concentration of these assets was government and government agency
securities, which amounted to US$143 billion, or 56 per cent of overall
trading securities (2007: US$115 billion, 46 per cent). This included
US$32 billion (2007: US$16 billion) of treasury and other eligible
bills. Corporate debt and other securities were US$82 billion or 32 per
cent of overall trading securities, 8 percentage points higher than 2007s
level of 24 per cent at US$60 billion. Included within total securities
held for trading were US$50 billion (2007: US$70 billion) of debt
securities issued by banks and other financial institutions.
A more detailed analysis
of securities held for trading is set out in Note 16 on the Financial Statements
and an analysis of credit quality is provided on page 218.
Debt securities, treasury and other eligible
bills
(Unaudited)
At US$293 billion, total financial investments
excluding equity securities were 8 per cent higher at 31 December 2008 than
at the end of 2007. Debt securities, at US$252 billion, represented the
largest concentration of financial investments at 86 per cent of the total,
compared with US$240 billion (89 per cent) at 31 December 2007. HSBCs
holdings of corporate debt, ABSs and other securities were spread across
a wide range of issuers and geographical regions, with 48 per cent invested
in securities issued by banks and other financial institutions. In total,
holdings in ABSs decreased by US$24 billion due to a combination of movements
in fair values, principal amortisations and write-downs.
Investments in securities
of governments and government agencies of US$114 billion were 38 per
cent of overall financial investments, 5 percentage points higher than in
2007. US$41 billion of these investments comprised treasury and other
eligible bills.
A more detailed analysis
of financial investments is set out in Note 19 on the Financial
200
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Statements and an analysis by credit quality is
provided on page 218.
The insurance businesses
held diversified portfolios of debt and equity securities designated at fair
value (2008: US$20 billion; 2007: US$34 billion) and debt securities
classified as financial investments (2008: US$28 billion; 2007: US$23
billion). A more detailed analysis of securities held by the insurance businesses
is set out on page 262.
Derivatives
(Unaudited)
Derivative assets at 31 December 2008 were US$495
billion, a rise of 163 per cent from 31 December 2007, primarily foreign
exchange, interest rate and credit derivatives. The main drivers of growth
were mark-to-market movements across the entire portfolio arising from
volatility and movements in interest rates and credit spreads.
Loans and advances
(Unaudited)
Loans and advances were well diversified across
industry sectors and jurisdictions.
At constant exchange
rates, gross loans and advances to customers (excluding the financial sector
settlement accounts and reclassified ABSs) at 31 December 2008 rose by US$54
billion or 7 per cent from 31 December 2007.
Personal lending
represented 46 per cent of total loans and advances to customers including
the financial sector settlement accounts and reclassified ABSs. Residential
mortgages of US$243 billion represented 25 per cent of total advances
to customers, the Groups largest concentration in a single exposure
type.
Corporate, commercial
and financial lending, including settlement accounts, amounted to 53 per
cent of total loans and advances to customers at 31 December 2008. The largest
industry concentrations were in non-bank financial institutions and commercial
real estate lending at 10 per cent and 7 per cent, respectively, of total
gross lending to customers.
Exposure to
non-bank financial institutions principally comprised secured lending on
trading accounts, primarily through repo facilities. During 2008, HSBC reduced
unsecured exposure to hedge
fund trading accounts. HSBC had no material exposure
to hedge funds affected by the administration of Lehman Brothers International
(Europe).
HSBC managed its
exposure to insurance institutions closely within existing limits and experienced
no material loss during 2008.
Commercial, industrial
and international trade lending rose strongly during 2008, increasing its
proportion of total lending by 2 percentage points to 22 per cent of total
gross loans and advances to customers on a reported basis. Within this category,
the largest concentration of lending was to the service sector, which amounted
to 6 per cent of total gross lending to customers.
Loans and advances
to banks were widely distributed across major institutions.
Lending to banks
was managed downwards through 2008. HSBC reduced limits to this sector in
response to a deterioration in credit quality which was most visible in the
collapse of a number of US and Icelandic banks to which the Group had advanced
funds. The expansion of sovereign guarantees for some bank issuance increased
appetite for these counterparties.
2008 compared with 2007
(Unaudited)
The commentary below analyses, on a constant currency
basis, the changes in lending noted in the table below, compared with the
position at 31 December 2007. On this basis, loans and advances to personal,
corporate and commercial customers increased by 7 per cent, and total gross
loans and advances rose by 1 per cent.
Total lending to
personal customers was concentrated in North America (US$196 billion),
the UK (US$108 billion) and Hong Kong (US$46 billion). Collectively,
these regions accounted for 79 per cent of total personal lending, a decline
of 1 percentage point from the level reported at 31 December 2007. Total
lending to personal customers declined by 3 per cent to US$440 billion
at 31 December 2008.
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H S B C H O L D I
N G S P L C |
|
Report of the
Directors: Risk (continued) |
|
|
|
|
Credit risk > Credit exposure > Concentration > 2008 |
Gross loans and advances by industry sector
(Unaudited)
|
At |
|
|
Constant |
|
|
Movement on a |
|
|
At |
|
|
31 December |
|
|
currency |
|
|
constant |
|
|
31 December |
|
|
2007 |
|
|
effect |
|
|
currency basis |
|
|
2008 |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
Gross loans and advances
to customers |
|
|
|
|
|
|
|
|
|
|
|
Personal |
500,834 |
|
|
(47,831 |
) |
|
(12,776 |
) |
|
440,227 |
|
Residential
mortgages1 |
269,068 |
|
|
(30,164 |
) |
|
4,433 |
|
|
243,337 |
|
Other personal2 |
231,766 |
|
|
(17,667 |
) |
|
(17,209 |
) |
|
196,890 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate and commercial |
400,771 |
|
|
(59,671 |
) |
|
66,374 |
|
|
407,474 |
|
Commercial,
industrial and international trade |
202,038 |
|
|
(31,953 |
) |
|
39,755 |
|
|
209,840 |
|
Commercial
real estate |
72,345 |
|
|
(9,224 |
) |
|
7,848 |
|
|
70,969 |
|
Other property-related |
33,907 |
|
|
(4,188 |
) |
|
1,020 |
|
|
30,739 |
|
Government |
5,708 |
|
|
(650 |
) |
|
1,486 |
|
|
6,544 |
|
Other commercial3 |
86,773 |
|
|
(13,656 |
) |
|
16,265 |
|
|
89,382 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial |
99,148 |
|
|
(11,391 |
) |
|
13,328 |
|
|
101,085 |
|
Non-bank
financial institutions |
96,781 |
|
|
(11,146 |
) |
|
13,901 |
|
|
99,536 |
|
Settlement
accounts |
2,367 |
|
|
(245 |
) |
|
(573 |
) |
|
1,549 |
|
Asset-backed securities
reclassified |
|
|
|
|
|
|
7,991 |
|
|
7,991 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross loans and advances
to customers |
1,000,753 |
|
|
(118,893 |
) |
|
74,917 |
|
|
956,777 |
|
Gross loans and advances
to banks |
237,373 |
|
|
(20,125 |
) |
|
(63,419 |
) |
|
153,829 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,238,126 |
|
|
(139,018 |
) |
|
11,498 |
|
|
1,110,606 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
Including Hong Kong Government
Home Ownership Scheme loans of US$3,882 million at 31 December
2008 (2007: US$3,942 million). |
2 |
Other personal loans and advances
include second lien mortgages and other property-related lending. |
3 |
Other commercial loans and advances
include advances in respect of agriculture, transport, energy and utilities. |
|
|
Residential mortgages rose
slightly to US$243 billion at 31 December 2008, comprising 25 per cent
of total loans and advances to customers (including the financial sector
and settlement accounts). A significant increase in mortgage lending in the
UK, combined with more modest increases in Hong Kong, Rest of Asia-Pacific
and Latin America, more than offset a 15 per cent decrease in the value of
mortgage lending in North America.
In Europe, residential
mortgage lending rose by 22 per cent to US$87 billion. Mortgage lending
rose by 26 per cent in the UK, driven by the successful launch of the RateMatcher
campaign in April 2008, and a similarly successful campaign in First Direct.
This was partly offset by a decline in France due to the sale of the regional
banks in July 2008.
In Hong Kong, residential
mortgage lending rose by 11 per cent due to successful repricing initiatives
which allowed HSBC to become the market leader for new mortgage lending during
the year. In response to the weakening local economy and declining house
prices in the second half of 2008, HSBC tightened lending criteria and increased
pricing on new loans.
In Rest of Asia-Pacific,
mortgage lending rose by 11 per cent, driven by continued business
expansion in the Middle East. Balances in mainland
China grew strongly as the branch network expanded.
In North America,
mortgage lending declined by 15 per cent. In the US, total mortgage lending
amounted to US$81 billion at 31 December 2008, a decline of 18 per cent
since 31 December 2007. In the mortgage services business, balances declined
by 21 per cent as there were no new originations and the portfolio continued
to run-off. In consumer lending, balances declined by 7 per cent as a result
of management actions taken to reduce risk in the portfolio, including further
tightening underwriting criteria and increasing collateral requirements for
new originations. In HSBC USA, balances declined by 32 per cent, primarily
due to the sale of US$7.0 billion of mortgage portfolios during 2008
and the fact that the majority of loan originations continued to be sold
in the secondary markets. In line with HSBCs reduced risk appetite,
the wholesale and third-party correspondent prime mortgage business of HSBC
USA was closed in November 2008.
In Latin America,
residential mortgage lending increased, driven by continued growth in fixed
rate mortgage lending in Mexico.
Other personal
lending declined by 8 per cent to
US$197 billion at 31 December 2008, representing
202
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21 per cent of total loans and advances to customers
(including the financial sector and settlement accounts).
In Europe, other
personal lending declined by 11 per cent from the end of 2007 to US$54
billion. The decrease was primarily attributable to the UK as a stronger
focus on secured lending restricted originations in the unsecured portfolio.
The sale of certain non-core credit card portfolios in the first half of
2008 also contributed to the decrease in the UK. In France, balances declined
due to the sale of the regional banks in the second half of 2008. In Turkey,
continued expansion of the branch network during 2008 resulted in higher
balances, particularly in credit cards and overdrafts.
In Hong Kong, other
personal lending declined by 2 per cent to US$13 billion. HSBC remained
the market leader for credit cards in Hong Kong based on cards in circulation,
cardholder spending and balances.
In Rest of Asia-Pacific,
other personal lending rose by 12 per cent, primarily due to strong growth
in the Middle East. Elsewhere in the region, balances rose in Malaysia and
Indonesia.
In North America,
other personal lending balances declined by 12 per cent to US$97 billion.
In the US, consumer finance business and credit card lending fell due to
the combined effect of tighter underwriting criteria and lower marketing
expenditure. A reduction in non-credit card personal lending reflected the
decision to cease new business in guaranteed direct mail loans and personal
homeowner loans in the second half of 2007, and tighter underwriting criteria
applied to originations in the remainder of the portfolio. In the mortgage
services business, second lien balances declined due to the continued run-off
of the portfolio following the cessation of originations in 2007. Lower vehicle
finance lending at HSBC Finance reflected the discontinuation of certain
product offerings and the cessation of new vehicle loan originations from
the dealer and direct-to-consumer channels in July 2008. HSBC USA also discontinued
originations of indirect vehicle finance loans, but second lien loans increased
following a promotional campaign channelled through the branch network in
the first half of 2008. In Canada, lower balances were attributable to the
disposal of the vehicle finance businesses during the year.
In Latin America,
other personal lending rose by 9 per cent to US$15 billion. Lending growth
was primarily concentrated in Brazil and reflected strong demand for payroll
loans and vehicle lending. In Mexico, balances were broadly in line with
31 December 2007 and the mix was adjusted towards
customers of higher credit quality. Further growth was restricted as risk
appetite was adjusted by closing certain products to new originations and
tightening underwriting criteria on cards, leading to a sharp reduction in
the number of cards issued in 2008.
Loans and advances
to corporate and commercial customers rose
by 19 per cent to US$407 billion, with strong growth across all regions.
Lending was primarily concentrated in Europe, where it accounted for 54
per cent of advances to this sector, of which more than 40 per cent were
in the UK.
In Europe, corporate
and commercial advances rose by 24 per cent. In the UK, lending rose by 35
per cent, driven by growth in lending to large corporates. Balances declined
in France due to the sale of the regional banks in July 2008.
In Hong Kong, corporate
and commercial lending rose by 19 per cent, driven by higher lending in commercial,
industrial and international trade, commercial real estate and other property-related
sectors.
In Rest of Asia-Pacific,
strong corporate and commercial lending growth was experienced in the Middle
East and Singapore, which rose by 26 per cent and 50 per cent respectively
and, to a lesser extent, in Malaysia, India and Taiwan, the latter due to
the acquisition of the assets and liabilities of The Chinese Bank in March
2008. In the Middle East, the corporate and commercial loan book continued
to grow, owing to an expansion of lending in UAE, particularly for trade
and investment projects, in addition to general business growth. In Singapore,
higher lending was driven by strong demand from the international trade sector.
Lending in Japan declined due to the closure of inactive and unprofitable
accounts, and lending in mainland China fell as a result of tightened government
regulations and tighter lending criteria in response to the weakening local
economy. This partly offset the strong growth elsewhere in the region.
In North America,
corporate and commercial lending increased by 7 per cent, driven by growth
in HSBC USA and, to a lesser extent, in Canada. In HSBC USA, higher lending
to corporate and commercial clients reflected the targeted expansion of middle
market activities and the drawdown of existing credit facilities, partly
offset by a decline in commercial real estate activity as the bank managed
down its lending exposures in light of lower risk appetite and a deterioration
in market conditions. In Canada, corporate and commercial lending rose by
203
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H S B C H O L D I
N G S P L C |
|
Report of the Directors: Risk (continued) |
|
|
|
|
Credit risk > Credit exposure > Concentration |
9 per cent, particularly in Western Canada, as
demand remained strong for commercial loans.
In Latin America,
corporate and commercial lending rose by 20 per cent, driven by higher lending
in Brazil as a result of strong growth in the trade loans portfolio and working
capital products.
Loans and advances
to the financial sector rose by 15
per cent with strong growth in the UK and North America, largely in collateralised
lending. Lending balance were 46 per cent higher in the UK due to the increased
use of secured funding facilities through the London Clearing House in
the form of repos. In North America, higher lending was driven by HSBC
USA due to the reclassification from Other assets of cash collateral
held with other institutions.
Loans and advances
to banks fell by 29 per cent to US$154
billion due to a significant decline in placement activity in Hong Kong
and Europe. This was driven by a reduction in money market and inter-bank
placements in favour of treasury bills and bank securities. In the UK,
a higher proportion of assets were invested in government and government-guaranteed
debt. Elsewhere, growth in Latin America was primarily in Brazil, due to
higher reverse repo balances.
The following tables
analyse loans by industry sector and by the location of the principal operations
of the lending subsidiary or, in the case of the operations of The Hongkong
and Shanghai Banking Corporation Limited, HSBC Bank plc, HSBC Bank Middle
East Limited and HSBC Bank USA N.A., by the location of the lending branch.
Gross loans and advances to customers by industry
sector
(Audited: 2008 to 2005; Unaudited: 2004)
|
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personal |
440,227 |
|
|
500,834 |
|
|
476,146 |
|
|
420,476 |
|
|
387,852 |
|
|
Residential mortgages1 |
243,337 |
|
|
269,068 |
|
|
265,337 |
|
|
238,546 |
|
|
227,847 |
|
|
Other personal |
196,890 |
|
|
231,766 |
|
|
210,809 |
|
|
181,930 |
|
|
160,005 |
|
Corporate and commercial |
407,474 |
|
|
400,771 |
|
|
343,107 |
|
|
278,709 |
|
|
231,772 |
|
|
Commercial, industrial
and international trade |
209,840 |
|
|
202,038 |
|
|
162,109 |
|
|
130,802 |
|
|
101,876 |
|
|
Commercial real
estate |
70,969 |
|
|
72,345 |
|
|
60,366 |
|
|
51,815 |
|
|
43,469 |
|
|
Other property-related |
30,739 |
|
|
33,907 |
|
|
27,165 |
|
|
22,196 |
|
|
20,749 |
|
|
Government |
6,544 |
|
|
5,708 |
|
|
8,990 |
|
|
8,218 |
|
|
10,527 |
|
|
Other commercial2 |
89,382 |
|
|
86,773 |
|
|
84,477 |
|
|
65,678 |
|
|
55,151 |
|
Financial |
101,085 |
|
|
99,148 |
|
|
62,458 |
|
|
52,174 |
|
|
66,148 |
|
|
Non-bank financial
institutions |
99,536 |
|
|
96,781 |
|
|
59,204 |
|
|
50,032 |
|
|
52,329 |
|
|
Settlement accounts |
1,549 |
|
|
2,367 |
|
|
3,254 |
|
|
2,142 |
|
|
13,819 |
|
Asset-backed securities
reclassified |
7,991 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross loans
and advances to customers3 |
956,777 |
|
|
1,000,753 |
|
|
881,711 |
|
|
751,359 |
|
|
685,772 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans4,6 |
25,352 |
|
|
19,582 |
|
|
15,071 |
|
|
12,338 |
|
|
13,031 |
|
|
|
as a percentage
of gross loans and advances to customers4 |
2.6% |
|
|
2.0% |
|
|
1.7% |
|
|
1.6% |
|
|
1.9% |
|
Total impairment
allowances5 |
23,909 |
|
|
19,205 |
|
|
13,578 |
|
|
11,357 |
|
|
12,542 |
|
|
|
as a percentage of total gross
loans and advances |
2.5% |
|
|
1.9% |
|
|
1.5% |
|
|
1.5% |
|
|
1.8% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
Residential mortgages include
Hong Kong Government Home Ownership Scheme loans of US$3,882 million
(2007: US$3,942 million; 2006: US$4,078 million; 2005: US$4,680
million; 2004: US$5,383 million). |
2 |
Other commercial loans and advances
include advances in respect of agriculture, transport, energy and utilities. |
3 |
Included within this total is
credit card lending of US$75,266 million (2007: US$82,854 million;
2006: US$74,518 million; 2005: US$66,020 million; 2004: US$56,222
million). |
4 |
The figures for 2004 are net
of suspended interest. |
5 |
2004: Specific provisions on
impaired loans. |
6 |
Impaired loans for 2004-2007
have been restated as a result of the reclassification of an element
of a credit card portfolio as impaired. There has been no effect on
impairment allowances. |
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Loans and advances to customers by industry
sector and by geographical region
(Audited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
by industry |
|
|
|
|
|
|
|
|
|
|
Rest of |
|
|
|
|
|
|
|
|
loans and |
|
|
sector as a |
|
|
|
|
|
|
|
Hong |
|
|
Asia- |
|
|
North |
|
|
Latin |
|
|
advances to |
|
|
% of total |
|
|
|
|
Europe |
|
|
Kong |
|
|
Pacific |
|
|
America |
|
|
America |
|
|
customers |
|
|
gross loans |
|
|
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
% |
|
At 31 December 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personal |
141,532 |
|
|
46,087 |
|
|
37,411 |
|
|
195,534 |
|
|
19,663 |
|
|
440,227 |
|
|
46.0 |
|
|
Residential mortgages1 |
87,267 |
|
|
33,014 |
|
|
20,185 |
|
|
98,383 |
|
|
4,488 |
|
|
243,337 |
|
|
25.4 |
|
|
Other personal |
54,265 |
|
|
13,073 |
|
|
17,226 |
|
|
97,151 |
|
|
15,175 |
|
|
196,890 |
|
|
20.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate and commercial |
219,640 |
|
|
52,186 |
|
|
66,126 |
|
|
47,291 |
|
|
22,231 |
|
|
407,474 |
|
|
42.5 |
|
|
Commercial, industrial and international trade
|
121,047 |
|
|
20,186 |
|
|
40,147 |
|
|
15,178 |
|
|
13,282 |
|
|
209,840 |
|
|
21.9 |
|
|
Commercial real estate |
32,704 |
|
|
14,233 |
|
|
8,144 |
|
|
13,504 |
|
|
2,384 |
|
|
70,969 |
|
|
7.4 |
|
|
Other property-related |
7,666 |
|
|
10,296 |
|
|
5,128 |
|
|
7,234 |
|
|
415 |
|
|
30,739 |
|
|
3.2 |
|
|
Government |
1,864 |
|
|
951 |
|
|
1,760 |
|
|
352 |
|
|
1,617 |
|
|
6,544 |
|
|
0.7 |
|
|
Other commercial2 |
56,359 |
|
|
6,520 |
|
|
10,947 |
|
|
11,023 |
|
|
4,533 |
|
|
89,382 |
|
|
9.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial |
62,620 |
|
|
2,680 |
|
|
5,646 |
|
|
27,746 |
|
|
2,393 |
|
|
101,085 |
|
|
10.6 |
|
|
Non-bank financial institutions |
61,823 |
|
|
2,402 |
|
|
5,387 |
|
|
27,560 |
|
|
2,364 |
|
|
99,536 |
|
|
10.4 |
|
|
Settlement accounts |
797 |
|
|
278 |
|
|
259 |
|
|
186 |
|
|
29 |
|
|
1,549 |
|
|
0.2 |
|
Asset-backed securities
reclassified
|
6,258 |
|
|
|
|
|
|
|
|
1,733 |
|
|
|
|
|
7,991 |
|
|
0.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross loans and advances to customers3
|
430,050 |
|
|
100,953 |
|
|
109,183 |
|
|
272,304 |
|
|
44,287 |
|
|
956,777 |
|
|
100.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage
of loans and advances by geographical region
|
44.9 |
% |
|
10.6 |
% |
|
11.4 |
% |
|
28.5 |
% |
|
4.6 |
% |
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans |
6,774 |
|
|
852 |
|
|
1,114 |
|
|
14,285 |
|
|
2,327 |
|
|
25,352 |
|
|
|
|
|
|
as a
percentage of gross loans and
advances to customers |
1.6 |
% |
|
0.8 |
% |
|
1.0 |
% |
|
5.2 |
% |
|
5.3 |
% |
|
2.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total impairment allowances |
3,859 |
|
|
733 |
|
|
1,227 |
|
|
16,090 |
|
|
2,000 |
|
|
23,909 |
|
|
|
|
|
|
as a
percentage of total gross loans
and advances |
0.9 |
% |
|
0.7 |
% |
|
1.1 |
% |
|
5.9 |
% |
|
4.5 |
% |
|
2.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 31 December 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personal |
168,549 |
|
|
43,033 |
|
|
36,910 |
|
|
230,562 |
|
|
21,780 |
|
|
500,834 |
|
|
50.1 |
|
|
Residential mortgages1 |
95,665 |
|
|
29,689 |
|
|
20,397 |
|
|
118,993 |
|
|
4,324 |
|
|
269,068 |
|
|
26.9 |
|
|
Other personal |
72,884 |
|
|
13,344 |
|
|
16,513 |
|
|
111,569 |
|
|
17,456 |
|
|
231,766 |
|
|
23.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate and commercial |
225,282 |
|
|
43,716 |
|
|
60,442 |
|
|
48,898 |
|
|
22,433 |
|
|
400,771 |
|
|
40.0 |
|
|
Commercial,
industrial and international
trade
|
120,359 |
|
|
17,740 |
|
|
36,461 |
|
|
13,937 |
|
|
13,541 |
|
|
202,038 |
|
|
20.1 |
|
|
Commercial real estate |
36,672 |
|
|
12,301 |
|
|
7,592 |
|
|
14,561 |
|
|
1,219 |
|
|
72,345 |
|
|
7.2 |
|
|
Other property-related |
11,275 |
|
|
8,168 |
|
|
4,664 |
|
|
8,000 |
|
|
1,800 |
|
|
33,907 |
|
|
3.4 |
|
|
Government |
2,299 |
|
|
332 |
|
|
1,667 |
|
|
248 |
|
|
1,162 |
|
|
5,708 |
|
|
0.6 |
|
|
Other commercial2 |
54,677 |
|
|
5,175 |
|
|
10,058 |
|
|
12,152 |
|
|
4,711 |
|
|
86,773 |
|
|
8.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial |
62,375 |
|
|
3,265 |
|
|
5,426 |
|
|
22,380 |
|
|
5,702 |
|
|
99,148 |
|
|
9.9 |
|
|
Non-bank financial institutions |
61,216 |
|
|
2,483 |
|
|
5,191 |
|
|
22,252 |
|
|
5,639 |
|
|
96,781 |
|
|
9.7 |
|
|
Settlement accounts |
1,159 |
|
|
782 |
|
|
235 |
|
|
128 |
|
|
63 |
|
|
2,367 |
|
|
0.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
gross loans and advances to customers3
|
456,206 |
|
|
90,014 |
|
|
102,778 |
|
|
301,840 |
|
|
49,915 |
|
|
1,000,753 |
|
|
100 .0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage
of loans and advances by geographical region
|
45.6% |
|
|
9.0% |
|
|
10.2% |
|
|
30.2% |
|
|
5.0% |
|
|
100.0% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans4 |
6,254 |
|
|
433 |
|
|
1,088 |
|
|
9,662 |
|
|
2,145 |
|
|
19,582 |
|
|
|
|
|
|
as a
percentage of gross loans and
advances to customers |
1.4% |
|
|
0.5% |
|
|
1.1% |
|
|
3.2% |
|
|
4.3% |
|
|
2.0% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total impairment allowances |
3,931 |
|
|
376 |
|
|
926 |
|
|
11,980 |
|
|
1,992 |
|
|
19,205 |
|
|
|
|
|
|
as a
percentage of total gross loans
and advances |
0.9% |
|
|
0.4% |
|
|
0.9% |
|
|
4.0% |
|
|
4.0% |
|
|
1.9% |
|
|
|
|
|
|
1 |
Residential mortgages in Hong
Kong include Hong Kong Government Home Ownership Scheme loans of US$3,882
million (2007: US$3,942 million). |
205
Back to Contents
H S B C H O L D I
N G S P L C |
|
Report of the Directors: Risk (continued) |
|
|
|
|
Credit risk > Credit exposure > Concentration
/ Cross-border |
2 |
Other commercial loans and advances
include advances in respect of agriculture, transport, energy and utilities. |
3 |
Included within this total is
credit card lending of US$75,266 million (2007: US$82,854 million). |
4 |
The 2007 impaired loans for
North America have been restated as a result of the reclassification
of an element of a credit card portfolio as impaired. There has been
no effect on impairment allowances. |
Additional disclosure on gross loans and advances
to customers by principal country within Rest of Asia-Pacific and Latin
America
(Audited)
|
|
|
|
|
|
|
|
|
|
|
Commercial, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
international |
|
|
|
|
|
|
Residential |
|
|
Other |
|
|
Property- |
|
|
trade and |
|
|
|
|
|
|
mortgages |
|
|
personal |
|
|
related |
|
|
other |
|
|
Total |
|
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
At 31 December 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rest of Asia-Pacific |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Australia |
|
3,598 |
|
|
783 |
|
|
1,621 |
|
|
3,350 |
|
|
9,352 |
|
India |
|
1,112 |
|
|
1,482 |
|
|
493 |
|
|
3,332 |
|
|
6,419 |
|
Indonesia |
|
27 |
|
|
527 |
|
|
26 |
|
|
1,410 |
|
|
1,990 |
|
Japan |
|
57 |
|
|
160 |
|
|
808 |
|
|
4,818 |
|
|
5,843 |
|
Mainland China |
|
1,303 |
|
|
12 |
|
|
2,784 |
|
|
7,423 |
|
|
11,522 |
|
Malaysia |
|
2,699 |
|
|
1,624 |
|
|
941 |
|
|
4,263 |
|
|
9,527 |
|
Middle East (excluding
Saudi Arabia) |
|
1,941 |
|
|
5,583 |
|
|
3,018 |
|
|
17,167 |
|
|
27,709 |
|
Egypt |
|
|
|
|
275 |
|
|
125 |
|
|
2,106 |
|
|
2,506 |
|
United Arab
Emirates |
|
1,693 |
|
|
3,748 |
|
|
2,118 |
|
|
10,214 |
|
|
17,773 |
|
Other Middle
East |
|
248 |
|
|
1,560 |
|
|
775 |
|
|
4,847 |
|
|
7,430 |
|
Singapore |
|
4,209 |
|
|
3,301 |
|
|
2,448 |
|
|
3,521 |
|
|
13,479 |
|
South Korea |
|
2,153 |
|
|
682 |
|
|
34 |
|
|
2,497 |
|
|
5,366 |
|
Taiwan |
|
2,217 |
|
|
705 |
|
|
14 |
|
|
1,497 |
|
|
4,433 |
|
Other |
|
869 |
|
|
2,367 |
|
|
1,085 |
|
|
9,222 |
|
|
13,543 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,185 |
|
|
17,226 |
|
|
13,272 |
|
|
58,500 |
|
|
109,183 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Latin America |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Argentina |
|
41 |
|
|
707 |
|
|
60 |
|
|
1,648 |
|
|
2,456 |
|
Brazil |
|
376 |
|
|
8,585 |
|
|
694 |
|
|
9,578 |
|
|
19,233 |
|
Mexico |
|
2,150 |
|
|
3,665 |
|
|
1,024 |
|
|
6,094 |
|
|
12,933 |
|
Panama |
|
1,105 |
|
|
1,076 |
|
|
569 |
|
|
1,877 |
|
|
4,627 |
|
Other |
|
816 |
|
|
1,142 |
|
|
452 |
|
|
2,628 |
|
|
5,038 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,488 |
|
|
15,175 |
|
|
2,799 |
|
|
21,825 |
|
|
44,287 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 31 December 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rest of Asia-Pacific |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Australia |
|
4,376 |
|
|
922 |
|
|
2,065 |
|
|
3,998 |
|
|
11,361 |
|
India |
|
1,545 |
|
|
1,721 |
|
|
339 |
|
|
3,723 |
|
|
7,328 |
|
Indonesia |
|
24 |
|
|
497 |
|
|
12 |
|
|
1,171 |
|
|
1,704 |
|
Japan |
|
29 |
|
|
126 |
|
|
566 |
|
|
3,541 |
|
|
4,262 |
|
Mainland China |
|
500 |
|
|
6 |
|
|
1,746 |
|
|
9,443 |
|
|
11,695 |
|
Malaysia |
|
2,632 |
|
|
1,508 |
|
|
787 |
|
|
4,024 |
|
|
8,951 |
|
Middle East (excluding
Saudi Arabia) |
|
1,036 |
|
|
4,441 |
|
|
2,870 |
|
|
13,536 |
|
|
21,883 |
|
Egypt |
|
|
|
|
196 |
|
|
126 |
|
|
1,575 |
|
|
1,897 |
|
United Arab
Emirates |
|
895 |
|
|
2,936 |
|
|
2,159 |
|
|
8,222 |
|
|
14,212 |
|
Other Middle
East |
|
141 |
|
|
1,309 |
|
|
585 |
|
|
3,739 |
|
|
5,774 |
|
Singapore |
|
3,946 |
|
|
3,403 |
|
|
1,712 |
|
|
2,471 |
|
|
11,532 |
|
South Korea |
|
2,596 |
|
|
880 |
|
|
61 |
|
|
3,608 |
|
|
7,145 |
|
Taiwan |
|
2,061 |
|
|
648 |
|
|
|
|
|
1,072 |
|
|
3,781 |
|
Other |
|
1,652 |
|
|
2,361 |
|
|
2,098 |
|
|
7,025 |
|
|
13,136 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,397 |
|
|
16,513 |
|
|
12,256 |
|
|
53,612 |
|
|
102,778 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Latin America |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Argentina |
|
47 |
|
|
611 |
|
|
75 |
|
|
1,841 |
|
|
2,574 |
|
Brazil |
|
329 |
|
|
10,110 |
|
|
426 |
|
|
8,601 |
|
|
19,466 |
|
Mexico |
|
2,208 |
|
|
4,696 |
|
|
1,434 |
|
|
10,476 |
|
|
18,814 |
|
Panama |
|
1,098 |
|
|
963 |
|
|
593 |
|
|
1,585 |
|
|
4,239 |
|
Other |
|
642 |
|
|
1,076 |
|
|
491 |
|
|
2,613 |
|
|
4,822 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,324 |
|
|
17,456 |
|
|
3,019 |
|
|
25,116 |
|
|
49,915 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
206
Back to Contents
Loans and advances to banks by geographical
region
(Audited: 2008 to 2005;
Unaudited: 2004)
|
|
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
|
|
|
Rest of |
|
|
|
|
|
loans and |
|
|
|
|
|
|
|
Hong |
|
Asia- |
|
North |
|
Latin |
|
advances |
|
Impairment |
|
|
|
Europe |
|
Kong |
|
Pacific |
|
America |
|
America |
|
to banks |
|
allowances |
1 |
|
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 31 December 2008 |
|
62,012 |
|
29,646 |
|
36,141 |
|
11,458 |
|
14,572 |
|
153,829 |
|
(63 |
) |
At 31 December 2007 |
|
104,534 |
|
63,737 |
|
39,861 |
|
16,566 |
|
12,675 |
|
237,373 |
|
(7 |
) |
At 31 December 2006 |
|
76,837 |
|
50,359 |
|
27,517 |
|
17,865 |
|
12,634 |
|
185,212 |
|
(7 |
) |
At 31 December 2005 |
|
44,369 |
|
42,751 |
|
19,559 |
|
10,331 |
|
8,964 |
|
125,974 |
|
(9 |
) |
At 31 December 2004 |
|
56,063 |
|
45,710 |
|
14,890 |
|
20,911 |
|
5,892 |
|
143,466 |
|
(17 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
2004:
provisions for bad and doubtful debts. |
|
|
|
|
Country distribution of outstandings and cross-border
exposures
(Unaudited)
HSBC controls the risk associated with cross-border
lending, essentially that foreign currency will not be made available to
local residents to make payments, through a centralised structure of internal
country limits which are determined by taking into account relevant economic
and political factors. Exposures to individual countries and cross-border
exposure in aggregate are kept under continual review.
The following table
summarises the aggregate of in-country foreign currency and cross-border
outstandings by type of borrower to countries which
individually represent in excess of 1 per cent
of HSBCs total assets. The classification is based on the country of
residence of the borrower but also recognises the transfer of country risk
in respect of third-party guarantees, eligible collateral held and residence
of the head office when the borrower is a branch. In accordance with the
Bank of England Country Exposure Report (Form CE) guidelines, outstandings
comprise loans and advances (excluding settlement accounts), amounts receivable
under finance leases, acceptances, commercial bills, CDs and debt and equity
securities (net of short positions), and exclude accrued interest and intra-HSBC
exposures.
In-country foreign
currency and cross-border
amounts outstanding
(Unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government |
|
|
|
|
|
|
|
|
|
and official |
|
|
|
|
|
|
|
Banks |
|
institutions |
|
Other |
|
Total |
|
|
|
US$bn |
|
US$bn |
|
US$bn |
|
US$bn |
|
At 31 December 2008 |
|
|
|
|
|
|
|
|
|
UK |
|
38.4 |
|
7.1 |
|
33.8 |
|
79.3 |
|
US |
|
13.6 |
|
26.4 |
|
34.1 |
|
74.1 |
|
Germany |
|
19.9 |
|
12.1 |
|
7.9 |
|
39.9 |
|
France |
|
18.9 |
|
8.0 |
|
6.7 |
|
33.6 |
|
The Netherlands |
|
14.1 |
|
1.9 |
|
10.3 |
|
26.3 |
|
|
|
|
|
|
|
|
|
|
|
At 31 December 2007 |
|
|
|
|
|
|
|
|
|
UK |
|
32.3 |
|
2.2 |
|
47.5 |
|
82.0 |
|
US |
|
14.0 |
|
11.4 |
|
29.5 |
|
54.9 |
|
France |
|
38.8 |
|
1.7 |
|
1.9 |
|
42.4 |
|
Germany |
|
30.3 |
|
5.9 |
|
5.6 |
|
41.8 |
|
The Netherlands |
|
21.4 |
|
0.2 |
|
4.2 |
|
25.8 |
|
|
|
|
|
|
|
|
|
|
|
At 31 December 2006 |
|
|
|
|
|
|
|
|
|
UK |
|
24.8 |
|
|
|
33.5 |
|
58.3 |
|
Germany |
|
23.7 |
|
18.9 |
|
2.0 |
|
44.6 |
|
US |
|
9.5 |
|
12.7 |
|
16.2 |
|
38.4 |
|
France |
|
22.1 |
|
2.4 |
|
6.1 |
|
30.6 |
|
The Netherlands |
|
14.4 |
|
2.1 |
|
3.9 |
|
20.4 |
|
Italy |
|
4.7 |
|
12.5 |
|
1.4 |
|
18.6 |
|
207
Back to Contents
H S B C H O L D I
N G S P L C |
|
Report of the
Directors: Risk (continued) |
|
|
|
|
Credit risk > Exposure |
At 31 December 2008, HSBC had in-country foreign
currency and cross-border amounts outstanding to counterparties in Japan
of between 0.75 per cent and 1.0 per cent of total assets; in aggregate,
US$24.4 billion.
At 31 December 2007, HSBC had in-country foreign
currency and cross-border amounts outstanding to counterparties in Hong Kong,
Belgium and Ireland of between 0.75 per cent and 1.0 per cent of total assets.
The aggregate in-country foreign currency and cross-border amounts outstanding
were Hong Kong, US$19.7 billion, Belgium, US$19.3 billion and Ireland,
US$19.3 billion.
At 31 December 2006, HSBC had in-country foreign
currency and cross-border amounts outstanding to counterparties in Australia
and Hong Kong of between 0.75 per cent and 1 per cent of total assets. The
aggregate in-country foreign currency and cross-border amounts outstanding
were Australia, US$17.1 billion, Hong Kong, US$13.9 billion.
Areas of special interest
Personal lending
(Unaudited)
HSBC provides a broad range of secured and unsecured
personal lending products to meet customer needs. Given the diverse nature
of the markets in which HSBC operates, the range is not standardised across
all countries but is tailored to meet the demands of individual markets while
using appropriate distribution channels and, wherever possible, common global
IT platforms.
Personal lending
includes advances to customers for asset purchase, such as residential property
and motor vehicles, where the loans are typically secured on the assets being
acquired. HSBC also offers loans secured on existing assets, such as first
and second liens on residential property; unsecured lending products such
as overdrafts, credit cards and payroll loans; and debt consolidation loans
which may be secured or unsecured. At the end of February 2009, HSBC authorised
the discontinuation as soon as
practicable of all new receivable originations
of all products by the branch-based consumer lending business of HSBC Finance
in North America (see page 70).
Various underwriting
controls are applied before a loan is issued, and delinquency is managed
through collection and customer management procedures. The expected occurrence
and degree of delinquency varies according to the type of loan and the customer
segment. Delinquency levels tend to increase in the normal course of portfolio
ageing. As a result, loan impairment charges usually relate to lending originated
in earlier accounting periods.
As discussed in ‘Challenges
and uncertainties’ on page 12, rising unemployment has been the
major factor
in the deterioration in credit quality of personal lending portfolios in
2008. Further weakening in consumers confidence and capacity to service
financial commitments may result in deteriorating payment patterns and increased
delinquencies and default rates and, as a consequence, higher loan impairment
allowances and write-offs. HSBC monitors the effect of these factors on its
personal lending portfolios and keeps under review a range of measures designed
to limit the Groups exposure and mitigate the effect on customers.
Loan impairment allowances
are sensitive to changes in the level of unemployment, particularly at the
current time in North America, which affects customers future ability
to repay their loans. For example, had there been an additional 1 per cent
increase in unemployment in North America, loan impairment allowances could
have been higher by between US$0.7 billion and US$1.5 billion as
at 31 December 2008. The relationship between changes in unemployment and
loan impairment charges cannot be predicted with any degree of certainty.
For example, sharp increases in unemployment may not have a linear impact
on the level of increase in loan impairment charges.
Please refer to page
205 for further analysis of gross loans and advances by region and pages
34 and 229 for discussion of loan impairment charges and other credit risk
provisions.
208
Back to Contents
Total personal lending
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
Hong Kong, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rest of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rest of |
|
|
Asia-Pacific |
|
|
|
|
|
|
|
|
Rest of |
|
|
|
|
|
North |
|
|
and Latin |
|
|
|
|
|
UK |
|
|
Europe |
|
|
US |
1 |
|
America |
|
|
America |
|
|
Total |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
At 31 December 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total personal lending |
107,620 |
|
|
33,912 |
|
|
170,508 |
|
|
25,026 |
|
|
103,161 |
|
|
440,227 |
|
Residential mortgages |
78,346 |
|
|
8,921 |
|
|
80,946 |
|
|
17,437 |
|
|
57,687 |
|
|
243,337 |
|
Other personal lending |
29,274 |
|
|
24,991 |
|
|
89,562 |
|
|
7,589 |
|
|
45,474 |
|
|
196,890 |
|
motor
vehicle finance |
|
|
|
99 |
|
|
10,864 |
|
|
137 |
|
|
6,201 |
|
|
17,301 |
|
credit
cards |
11,215 |
|
|
1,695 |
|
|
46,972 |
|
|
1,469 |
|
|
13,426 |
|
|
74,777 |
|
second
lien mortgages |
1,160 |
|
|
2 |
|
|
14,614 |
|
|
803 |
|
|
503 |
|
|
17,082 |
|
other |
16,899 |
|
|
23,195 |
|
|
17,112 |
|
|
5,180 |
|
|
25,344 |
|
|
87,730 |
|
At 31 December 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total personal lending |
128,400 |
|
|
40,149 |
|
|
199,336 |
|
|
31,226 |
|
|
101,723 |
|
|
500,834 |
|
Residential mortgages |
85,356 |
|
|
10,309 |
|
|
98,928 |
|
|
20,065 |
|
|
54,410 |
|
|
269,068 |
|
Other personal lending |
43,044 |
|
|
29,840 |
|
|
100,408 |
|
|
11,161 |
|
|
47,313 |
|
|
231,766 |
|
motor
vehicle finance |
71 |
|
|
156 |
|
|
13,266 |
|
|
1,865 |
|
|
7,563 |
|
|
22,921 |
|
credit
cards |
15,018 |
|
|
2,009 |
|
|
49,634 |
|
|
1,728 |
|
|
13,574 |
|
|
81,963 |
|
second
lien mortgages |
1,930 |
|
|
|
|
|
17,590 |
|
|
1,256 |
|
|
748 |
|
|
21,524 |
|
other |
26,025 |
|
|
27,675 |
|
|
19,918 |
|
|
6,312 |
|
|
25,428 |
|
|
105,358 |
|
|
|
1 |
Includes residential mortgages of HSBC Bank USA and HSBC Finance. |
The commentary that follows is on a constant currency basis.
At 31 December
2008, total personal lending was US$440 billion, a decline of 3 per cent from the balance at 31 December 2007. In 2008, personal lending
accounted for 85 per cent of the Groups loan impairment charges and other credit risk provisions. Within personal lending, total loan impairment charges and other credit risk provisions of US$21.2 billion were concentrated in North America
(US$16.1 billion) and, to a lesser extent, in Latin America (US$2.1 billion) and Europe (US$2.0 billion). These loan impairment charges represented, respectively, 39 per cent, 5 per cent and 5 per cent of each regions total
Personal Financial Services net operating income before loan impairment
charges and other credit risk provisions.
Total US personal
lending at 31 December 2008 was 15 per cent less than at the end of 2007,
at US$171 billion, as HSBCs strategy to run off its
existing portfolio and improve credit quality on new originations took effect. Residential mortgage balances fell by 18 per cent to US$81
billion, driven by decisions taken in 2007 to end new correspondent channel originations
in Mortgage Services and limit new originations in the consumer lending business
through tighter underwriting standards. Portfolio run-off, charge-off of impaired
loans and the sale of
US$8.2 billion of loans during 2008
from the US real estate secured portfolios
contributed to these lower balances.
Other personal
lending in the US fell by 11 per cent to US$90 billion as a result of actions taken by HSBC since 2007 to reduce risk in the portfolio,
including the elimination of guaranteed direct mail loans to new customers, the discontinuance of personal homeowner loans and a general tightening of underwriting criteria. Card balances declined by 5 per cent to US$47 billion as HSBC reduced
credit lines, closed dormant accounts and curtailed marketing expenditure, which together lowered originations in line with HSBCs
reduced appetite for risk in this segment at this time.
Motor vehicle
finance loans in the US fell by 18 per cent to US$11 billion, again
reflecting reduced risk appetite and lower origination. In July, the decision
was taken to discontinue all new motor vehicle loan originations from the
dealer and direct-to-consumer channels within the North America vehicle
finance business of HSBC Finance as management determined that the business
was sub-scale and
did not have sufficient market strength to provide an acceptable level of risk-adjusted
returns.
In the UK, gross
loans and advances to personal customers rose by 14 per cent to US$108
billion, due to strong growth in residential
mortgage lending following successful campaigns during 2008 at HSBC Bank and
First Direct. Other personal lending
209
Back to Contents
H S B C H O L
D I N G S P L C |
|
Report of the Directors: Risk (continued) |
|
|
|
|
Credit
risk > Areas of special interest > Mortgage lending |
declined by 11 per cent to US$29 billion, driven by lower originations, reduced
marketing activities and lower customer appetite for unsecured borrowing. Credit
quality in the
unsecured portfolios of M&S Money, HSBC Bank and Partnership Cards in
the UK showed a slight deterioration in 2008, particularly in the second
half of
the year, due to the weakening UK economy.
In Latin America,
in response to rising impairment charges and the weaker economic conditions,
HSBC moderated loan growth from that achieved in the previous year, with
gross loans and advances to personal customers rising by 11 per cent to
US$20 billion compared with 31 per cent in 2007. Loan impairment charges were 20 per cent higher in Brazil but 57 per cent higher in Mexico following strong
growth in recent years in lending portfolio seasoning and credit deterioration. As a consequence of this experience, in Mexico, HSBCs other personal lending balances at 31 December 2008 were US$3.7
billion, 1 per cent lower than at 31 December 2007 as management realigned the
business towards customers of higher credit quality.
Mortgage lending products
(Unaudited)
The Group offers a wide range of mortgage products designed to meet customer
needs, including capital repayment mortgages subject to fixed or variable interest
rates and products designed to meet demand for housing loans with more flexible
payment structures. HSBC underwrites both first lien residential mortgages and
loans secured by second lien mortgages.
Interest-only mortgages are those for which customers make regular payments of interest during the life of the loan and repay the principal from the sale of
their home or alternative sources of funds. Introductory interest-only mortgages are typically where the interest-only element is for a fixed term at the start of the loan, after which principal repayments commence.
Affordability
mortgages include all products where the customers monthly payments are set at a low initial rate, either variable or fixed, before
resetting to a higher rate once the introductory period is over. These include adjustable-rate mortgages (ARMs),
loans on which the interest rate is periodically changed based on a reference
price. HSBC Finance no longer originates or
acquires interest-only loans or ARMs.
Affordability mortgages are primarily
offered in the US and the UK. Under the HFC and Beneficial brands, HSBC Finance
and HFC Bank Ltd (HFC UK)
offer a range of products predominantly designed for the needs of customers with
nonstandard or less favourable credit profiles. Offset mortgages are products
linked to a current or savings account, where the interest earned is used to
repay mortgage debt.
US mortgage lending
US mortgage lending, comprising residential mortgage
and second lien lending,
made up 22 per cent of the Groups gross loans and advances to personal
customers at 31 December 2008.
Balances declined by 18 per cent from 31 December 2007, as the Mortgage Services portfolio continued to run-off and tighter underwriting standards were
applied to originations for the consumer lending portfolio. As the bulk of the mortgage lending products sold in the US consumer lending branch network are for refinancing and debt consolidation, rather than for house purchase, the limited
availability of home equity severely restricts the number of eligible customers. As a consequence, HSBC began the process of repositioning its consumer lending business in 2008, reducing exposure to lower tiers of sub-prime credit and expanding its
range of lending for real estate loans to include both government-sponsored entity and conforming loan products. At the end of February 2009, HSBC authorised the discontinuation as soon as practicable of all new receivable originations of all
products by the branch-based consumer lending business of HSBC Finance in North America (see page 70).
Mortgage lending
in HSBC USA also declined, following a series of management actions to
reduce risk in the portfolio. These included closing the prime wholesale
and third-party correspondent mortgage business in November 2008, selling
US$7.0 billion in loans during 2008, and continuing to sell newly originated
residential mortgages to the US government-sponsored mortgage agencies.
Affordability
mortgage balances in HSBC Finance declined from US$19 billion at 31
December 2007 to US$14 billion at 31 December 2008. These mortgages
continued to experience the heightened levels of delinquency that began
to emerge in late 2006. They are no longer originated through the consumer
lending branch network. In aggregate, HSBC Finances mortgage balances
declined to US$74
billion at 31 December 2008 (31 December 2007: US$87 billion) as set out
in the table on page 211. Within this, the portfolio
of real estate secured business originated through the branch network was US$46
billion at 31 December
210
Back to Contents
2008, of which
approximately 95 per cent were fixed rate loans and 87 per cent were first lien.
At 31 December 2008, the
mortgage services business had approximately
250,000 accounts and
US$28 billion in balances
outstanding. Approximately 59 per cent were
fixed rate loans and 84 per cent were first lien.
Further discussion
of credit trends in the US mortgage lending portfolio and management
actions taken to mitigate
risk is provided in US personal
lending credit quality on page 212.
HSBC
Finance US mortgage lending1
(Unaudited)
|
At 31 December
2008 |
|
|
At 31 December 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
Mortgage |
|
|
Consumer |
|
|
mortgage |
|
|
|
|
|
Mortgage |
|
|
Consumer |
|
|
mortgage |
|
|
|
|
|
services |
|
|
lending |
|
|
lending |
|
|
Total |
|
|
services |
|
|
lending |
|
|
lending |
2
|
|
Total |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed-rate |
16,288 |
|
|
43,873 |
|
|
91 |
|
|
60,252 |
|
|
20,146 |
|
|
47,254 |
|
|
106 |
|
|
67,506 |
|
Other |
11,339 |
|
|
2,324 |
|
|
35 |
|
|
13,698 |
|
|
16,070 |
|
|
2,970 |
|
|
39 |
|
|
19,079 |
|
Adjustable-rate |
9,530 |
|
|
2,324 |
|
|
33 |
|
|
11,887 |
|
|
12,361 |
|
|
2,970 |
|
|
37 |
|
|
15,368 |
|
Interest-only |
1,809 |
|
|
|
|
|
2 |
|
|
1,811 |
|
|
3,709 |
|
|
|
|
|
2 |
|
|
3,711 |
|
|
27,627 |
|
|
46,197 |
|
|
126 |
|
|
73,950 |
|
|
36,216 |
|
|
50,224 |
|
|
145 |
|
|
86,585 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First lien |
23,188 |
|
|
40,334 |
|
|
93 |
|
|
63,615 |
|
|
29,475 |
|
|
43,366 |
|
|
108 |
|
|
72,949 |
|
Second lien |
4,439 |
|
|
5,863 |
|
|
33 |
|
|
10,335 |
|
|
6,741 |
|
|
6,858 |
|
|
37 |
|
|
13,636 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,627 |
|
|
46,197 |
|
|
126 |
|
|
73,950 |
|
|
36,216 |
|
|
50,224 |
|
|
145 |
|
|
86,585 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stated income3 |
5,667 |
|
|
|
|
|
|
|
|
5,667 |
|
|
8,292 |
|
|
|
|
|
|
|
|
8,292 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
HSBC Finance mortgage lending is shown on a management basis and includes
loans transferred to HSBC USA Inc. which are managed by HSBC Finance. |
2 |
Restated to show HSBC Finance management basis, consistent with the current
year, and US balances only. |
3 |
Stated income lending forms a subset of total mortgage services lending
across all categories. |
UK mortgage lending
Mortgage lending in the UK rose significantly
in 2008 and overall credit quality was maintained despite a significant deterioration
in the housing market. The
withdrawal of many competitors from the market and the consequent repricing of
mortgage products allowed HSBC Bank to expand its share of the new lending market
while staying within its targeted customer segments. In December 2008, HSBC announced
that it will make
available up to US$22 billion of new UK residential mortgages in 2009.
Total mortgage
lending in the UK rose from US$64 billion at 31 December 2007 to US$80
billion at 31 December 2008. This was driven by the success of the RateMatcher
mortgage campaign in the first half of 2008 in generating new business,
and an increase at First Direct due to growth in offset mortgage lending
following a similarly successful campaign.
The maintenance
of good credit quality in difficult market conditions is attributable to
the business model pursued by HSBC in the UK. HSBC Bank originates virtually
all new business through its own salesforce and does not rely on business
introduced through third parties. Also, HSBC does
not allow customer self-certification
of income. The majority of lending
is
to existing customers holding a current or savings account relationship with
the bank. At 31 December 2008, less than 2 per cent of the
banks book consisted of lending to purchase property for rent to third
parties, for which the bank
applies higher collateral requirements.
In the UK, affordability mortgages have experienced relatively low levels of delinquency, reflecting the different credit profiles of the customers, compared
with those in the US, and the tighter underwriting criteria.
Interest-only
mortgage balances rose from US$22 billion at 31 December 2007 to US$32
billion at 31 December 2008, driven by an increase in balances at First
Direct. The majority of these mortgages were offset mortgages linked to
a current account and are classified as interest-only.
Second lien
balances, which were all held by HFC UK, declined by US$770 million to US$1.2
billion at 31 December 2008 due to run-off and severely tighter underwriting
criteria. In the first half of 2008, HFC UK ceased originating loans through
brokers.
The credit
quality of the UK mortgage portfolio remained broadly stable as a consequence
of the business model and underwriting criteria
described
211
Back to Contents
H S B C H O L
D I N G S P L C |
|
Report of the Directors: Risk (continued) |
|
|
|
|
Credit
risk > Areas of special interest > Mortgage lending / US personal
lending |
above. Additionally, HSBC Bank is now benefiting
from having intentionally reduced its market share in 2006 and 2007 as
property prices continued
to rise. The portion of mortgages with a loan to value ratio greater than
90 per cent declined as virtually no new loans were originated at this
level. The average loan to value ratio for new business in 2008 was 58.7
per cent, the lowest for 5 years.
At HSBC Bank, 30 days or more
delinquency rates were unchanged from 31 December 2007 to 31 December 2008
at 1.8 per cent.
The following
table shows the levels of mortgage lending products in the various portfolios
in the US
and the UK, together
with the rest of the HSBC Group.
Mortgage lending products
(Unaudited)
|
|
|
|
|
|
|
|
|
Hong Kong, |
|
|
|
|
|
|
|
|
|
|
|
|
Rest of |
|
|
|
|
|
|
|
|
|
|
Rest of |
|
Asia-Pacific |
|
|
|
|
|
|
Rest of |
|
|
|
North |
|
and Latin |
|
|
|
|
UK |
|
Europe |
|
US |
|
America |
|
America |
|
Total |
|
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
At 31 December 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgages |
78,346 |
|
8,921 |
|
80,946 |
|
17,437 |
|
57,687 |
|
243,337 |
|
Second lien mortgages |
1,160 |
|
2 |
|
14,614 |
|
803 |
|
503 |
|
17,082 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage lending |
79,506 |
|
8,923 |
|
95,560 |
|
18,240 |
|
58,190 |
|
260,419 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second lien as a percentage of
total mortgage lending |
1.5% |
|
0.0% |
|
15.3% |
|
4.4% |
|
0.9% |
|
6.6% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-only (including endowment)
mortgages |
33,782 |
|
553 |
|
|
|
1,427 |
|
993 |
|
36,755 |
|
Affordability mortgages, including
ARMs |
4,740 |
|
824 |
|
28,571 |
|
311 |
|
4,166 |
|
38,612 |
|
Other |
153 |
|
|
|
|
|
|
|
82 |
|
235 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-only and affordability
mortgages |
38,675 |
|
1,377 |
|
28,571 |
|
1,738 |
|
5,241 |
|
75,602 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
as a percentage
of total mortgage lending |
48.6% |
|
15.4% |
|
29.9% |
|
9.5% |
|
9.0% |
|
29.0% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Negative equity mortgages1 |
367 |
|
|
|
7,655 |
|
86 |
|
1,635 |
|
9,743 |
|
Other loan to value ratios greater
than 90 per cent2 |
6,178 |
|
107 |
|
35,296 |
|
1,737 |
|
2,122 |
|
45,440 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,545 |
|
107 |
|
42,951 |
|
1,823 |
|
3,757 |
|
55,183 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
as a percentage
of total mortgage lending |
8.2% |
|
1.2% |
|
44.9% |
|
10.0% |
|
6.5% |
|
21.2% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 31 December 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgages |
85,356 |
|
10,309 |
|
98,928 |
|
20,065 |
|
54,410 |
|
269,068 |
|
Second lien mortgages |
1,930 |
|
|
|
17,590 |
|
1,256 |
|
748 |
|
21,524 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage lending |
87,286 |
|
10,309 |
|
116,518 |
|
21,321 |
|
55,158 |
|
290,592 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second lien as a percentage of
total mortgage lending |
2.2% |
|
|
|
15.1% |
|
5.9% |
|
1.4 % |
|
7.4% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-only (including endowment)
mortgages |
32,314 |
|
602 |
|
|
|
174 |
|
1,335 |
|
34,425 |
|
Affordability mortgages, including
ARMs |
8,695 |
|
685 |
|
40,201 |
|
219 |
|
4,993 |
|
54,793 |
|
Other3 |
241 |
|
27 |
|
|
|
274 |
|
621 |
|
1,163 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-only and affordability
mortgages |
41,250 |
|
1,314 |
|
40,201 |
|
667 |
|
6,949 |
|
90,381 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
as a percentage
of total mortgage lending |
47.3% |
|
12.7% |
|
34.5 % |
|
3.1% |
|
12.6% |
|
31.1% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Negative equity mortgages1 |
646 |
|
|
|
11,079 |
|
107 |
|
525 |
|
12,357 |
|
Other loan to value ratios greater
than 90 per cent2 |
10,969 |
|
211 |
|
42,246 |
|
679 |
|
1,333 |
|
55,438 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,615 |
|
211 |
|
53,325 |
|
786 |
|
1,858 |
|
67,795 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
as a percentage
of total mortgage lending |
13.3% |
|
2.0 % |
|
45.8% |
|
3.7% |
|
3.4% |
|
23.3% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
Negative equity arises when the value of the loan exceeds the value of
available equity, generally based on values at origination date. |
2 |
Loan to value ratios are generally based on values at origination date. |
3 |
Balances at 31 December 2007 have been restated to exclude mortgages in
the UK that are fixed for a period of time before reverting to a standard
variable rate. |
US personal lending credit quality
(Unaudited)
The deterioration in credit quality which began in the sub-prime mortgage portfolio
in 2006 accelerated in
2008 and spread across the remainder of the US personal lending portfolio as
the economy weakened, levels of unemployment and personal bankruptcy filings
rose, and house price depreciation became more pronounced
(the
S&P/Case-Shiller 10-City Composite Index of house prices showed a
212
Back to Contents
decline
of 19 per cent in 2008). These factors restricted the ability of many customers
to refinance and access equity retained in their homes.
Two months or more delinquencies
in mortgages originated through the HSBC Finance
branch network rose most rapidly in those states most severely affected by
continued house price depreciation and rising unemployment, particularly in
California, Florida, New York, Virginia, Maryland, New Jersey, Illinois, Pennsylvania,
Massachusetts and Ohio.
HSBC Finance: geographical concentration
of US lending1, 2
(Unaudited)
|
Mortgage lending as a |
|
Other personal lending as a |
|
|
|
|
percentage of: |
|
percentage of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
total |
|
|
|
total other |
|
Percentage |
|
|
total |
|
mortgage |
|
total |
|
personal |
|
of total |
|
|
lending |
|
lending |
|
lending |
|
lending |
|
lending |
|
|
% |
|
% |
|
% |
|
% |
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
California |
6 |
|
11 |
|
6 |
|
12 |
|
12 |
|
Florida |
4 |
|
7 |
|
3 |
|
7 |
|
7 |
|
New York |
3 |
|
6 |
|
3 |
|
6 |
|
6 |
|
Texas |
2 |
|
3 |
|
4 |
|
8 |
|
6 |
|
Ohio |
3 |
|
5 |
|
2 |
|
5 |
|
5 |
|
Pennsylvania |
3 |
|
5 |
|
2 |
|
5 |
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
1 |
By states which individually account for 5 per cent or more of HSBC Finances
US customer loan portfolio. |
2 |
HSBC Finance lending is shown on a management basis and includes loans
transferred to HSBC USA Inc, which are managed by HSBC Finance. |
|
|
In the US real
estate secured portfolios, two months and over contractual delinquency
ratios at the end of 2008 were higher across the portfolio than during
2007 and the first half of 2008, for the reasons described above. There
was also a significant effect on delinquency ratios from declining balances.
As the portfolios aged, outstanding balances fell as new lending in certain
portfolios ceased, risk
mitigation efforts and changes to product offerings which began in 2007 and continued
in 2008 resulted in lower originations and US$8.2 billion in mortgage
portfolios were sold during the year.
Both dollar and percentage two months and over contractual delinquency in the real estate secured portfolios of HSBC Finance and HSBC USA increased following
a voluntary one month suspension of final court proceedings in foreclosure cases relating to owner-occupied properties, implemented in December 2008, which was in addition to actions taken by a number of states to slow foreclosure proceedings.
Within these portfolios, dollar delinquencies rose sharply in 2008 as credit quality in the consumer lending portfolio, most notably for first lien products, and in mortgage services, continued to deteriorate, particularly in the second half of the
year. In mortgage services, the rise in the fourth quarter of 2008 was despite lower balances following portfolio run-off and the sale of portfolios during the year, and was partly caused by the above-mentioned action on foreclosure.
Residential mortgages
The unprecedented turmoil in the mortgage lending market continued in 2008. Investors
remained unwilling to purchase securitised credit, and this resulted in a sharp
contraction in the supply of liquidity to the mortgage market. Progressively
fewer refinancing options were available for customers as house prices fell and
housing equity declined, a number of market participants exited the sub-prime
mortgage industry, and the
remaining providers tightened their underwriting criteria.
Equity withdrawal
had been the principal source of credit available to sub-prime borrowers
dealing with unforeseen financial needs. With this source of funds heavily
restricted, consumers faced increasing difficulty in maintaining their
contractual payment schedules as they confronted the challenges of rising
unemployment and increases in the costs of living, particularly in the
first half of the year. Compounding the situation, mortgage interest rates
remained high for much of 2008 as credit spreads on interbank lending widened
due to the turmoil in the
global financial system.
The increase in delinquency rates was accompanied by a rise in loss severities as falling house prices led to a reduction in the amounts recoverable from
foreclosure and repossession. These factors were partly offset by a decline in lending balances as HSBC continued to manage down exposure in the US.
213
Back to Contents
H S B C H O L
D I N G S P L C |
|
Report of the Directors: Risk (continued) |
|
|
|
|
Credit risk > Areas of
special interest > US personal lending / Loan
delinquency in US |
Second lien loans have a risk profile characterised by higher loan-to-value ratios because, in many cases, the second lien loan was taken out to complete the
refinancing or purchase of the property. For HSBC Finance second lien mortgages, the proportion of customers two months or more behind on contractual payments rose from 11.2 per cent at 31 December 2007 to 15.9 per cent at 31 December 2008. Loss on
default of second lien loans typically approaches 100 per cent of the amount owed as any equity in the property is applied initially to the first lien loan, particularly during periods of house price depreciation when its value is eroded to the
point where there is no surplus available to support the repayment of second liens.
Stated-income
mortgages, which represented a small part of the HSBC Finance loan book,
also continued to decline. These mortgages are of higher than average risk
as they are underwritten on the basis of borrowers representations of annual income and are not verified by receipt of supporting documentation. These loan balances declined from US$8.3 billion at 31 December 2007 to US$5.7
billion at 31 December 2008. Two months or more delinquency rates on stated-income
loans rose from 19.0 per cent at 31 December 2007 to 27.7 per cent at 31
December 2008. The percentage rise was primarily attributable to lower
balances and portfolio
ageing as the portfolio continued to run off.
In the mortgage
services business, credit quality continued to deteriorate as 2005 and
2006 vintages continued to season and move into later stages of delinquency
as economic conditions worsened. Amounts of two months or more delinquency
in mortgage services rose by 9 per cent during the year to US$4.7 billion
at 31 December 2008. These represented an increased proportion of a reducing
portfolio, rising from 11.9 per cent to 17.0 per cent. An increase in foreclosures
in process during the fourth quarter, arising from a voluntary one month
suspension of final court proceedings in foreclosure cases relating to
owner occupied
properties, implemented in December 2008 and the actions taken by a number of
states to slow foreclosure proceedings, affected total lending in mortgage
services at 31 December 2008.
HSBC undertook several actions during 2008 to reposition HSBC Finance, including closure of more than 200 consumer lending branches, reducing the network to
approximately 800 branches, and tightening credit criteria for originations. These actions followed the decisions taken in 2007 to cease purchasing mortgages from third-party correspondents and to close the wholesale business, Decision One, in
September 2007, thereby ending new originations for the mortgage services business.
The branch-based
consumer lending business continued to experience rising delinquency levels,
particularly on first lien loans in the states most exposed to falling
house prices and rising unemployment; 63 per cent of the increase in amounts
of two months or more contractual delinquency was concentrated in the ten
states noted above. Delinquencies rose across all vintages, with the most
pronounced
increase for first lien loans extended in 2006 and 2007. This trend was experienced
across the rest of the industry in the US. Two months or more delinquencies
rose from 4.2 per cent of loans and advances at 31 December 2007 to 12.1
per cent at 31
December 2008 and delinquent balances increased to US$5.6 billion. In this
environment, HSBC took additional measures to tighten underwriting standards,
including reducing the loan to value ratio for residential mortgages, ceasing
to underwrite certain products and raising the credit requirements for certain
risk factors. As a result, originations declined to 38 per cent of the levels
recorded in 2007.
At HSBC USA,
delinquencies rose as credit quality deterioration was experienced across
the real estate secured portfolio, driven by house price depreciation and
the US economic weakness. Delinquency rates of prime first lien mortgages
were also affected by the sale of US$7.0 billion of mortgage portfolios during the year. Originations declined as HSBCs risk appetite in the US reduced. Two
months or more delinquencies in prime first lien mortgages rose from 1.1 per cent at 31 December 2007 to 3.4 per cent at 31 December 2008, and in second lien mortgages from 1.8 per cent to 3.5 per cent over the same period, on a management basis.
The rise in delinquency was appreciably worse in third-party originations and, in response, HSBC USA closed its wholesale and third-party correspondent mortgage business in November 2008, curtailed certain stated-income mortgage products, tightened
underwriting criteria and sold US$7.0 billion of mortgage portfolios during 2008. As a result, stated-income mortgage balances declined from US$2.4 billion at 31 December 2007 to US$2.2
billion at 31 December 2008.
HSBC has been proactive in approaching customers
to provide financial assistance in restructuring their debts to avoid foreclosure
and, as a result, HSBC has restructured and modified loans that it believes
could be serviced on revised terms. For further details, see US loan
modifications on page 216.
The aggregate balances of loans which reached their first interest rate reset continued to decline in 2008. As interest rates fall, the effect of the reset
on affordability becomes less pronounced.
214
Back to Contents
Credit cards
US credit card portfolio two or more months delinquencies rose from 5.7 per
cent at 31 December 2007 to 6.6 per cent at 31 December 2008. In the private
label cards portfolio, two or more months delinquencies rose from 3.4 per cent
at 31 December 2007 to 4.3 per cent at 31 December 2008. Higher delinquency
rates in both portfolios were driven by continued deterioration in the US economy,
significantly higher unemployment rates, portfolio seasoning and higher levels
of personal bankruptcy filings.
Motor vehicle finance
Two months or more delinquencies in vehicle finance rose from 3.7 per cent
at 31 December 2007 to 5.0 per cent at 31 December 2008, in part due to portfolio
ageing following the decision in July 2008 to cease new originations in HSBC
Finance
from the dealer and direct-to-consumer channels, having earlier terminated a
number of dealer relationships, particularly in the Northeast of the US.
Other personal lending
Higher delinquency rates were experienced in the HSBC Finance unsecured lending
portfolio, excluding credit cards. The increase was driven by a deterioration
in credit quality due to the weakness in the US economy, combined with portfolio
seasoning as the lending book aged. Balances declined due to tightened credit
criteria which resulted in lower originations. Management actions were taken
in 2007 and continued in 2008 to reduce risk in the portfolio including the
tightening of underwriting criteria.
The following tables provide a
detailed analysis of loan delinquency in the US.
Two months and over contractual delinquency1
(Unaudited)
|
Quarter ended |
|
|
|
|
|
31 |
|
|
30 |
|
|
30 |
|
|
31 |
|
|
31 |
|
|
30 |
|
|
30 |
|
|
31 |
|
|
December |
|
|
September |
|
|
June |
|
|
March |
|
|
December |
|
|
September |
|
|
June |
|
|
March |
|
|
2008 |
|
|
2008 |
|
|
2008 |
|
|
2008 |
|
|
2007 |
|
|
2007 |
|
|
2007 |
|
|
2007 |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In Personal Financial Services in the US |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgages |
9,236 |
|
|
7,061 |
|
|
5,984 |
2
|
|
5,757 |
2
|
|
5,167 |
2
|
|
4,077 |
|
|
3,183 |
|
|
2,871 |
|
Second lien mortgage lending
|
1,790 |
|
|
1,616 |
|
|
1,585 |
|
|
1,638 |
|
|
1,602 |
|
|
1,249 |
|
|
945 |
|
|
872 |
|
Vehicle finance |
541 |
|
|
512 |
|
|
445 |
|
|
370 |
|
|
488 |
|
|
451 |
|
|
384 |
|
|
302 |
|
Credit card |
2,029 |
|
|
1,871 |
|
|
1,700 |
|
|
1,782 |
|
|
1,830 |
|
|
1,581 |
|
|
1,314 |
|
|
1,274 |
|
Private label |
701 |
|
|
624 |
|
|
590 |
|
|
591 |
|
|
598 |
|
|
536 |
|
|
434 |
|
|
429 |
|
Personal non-credit card |
2,998 |
|
|
2,745 |
|
|
2,606 |
|
|
2,650 |
|
|
2,634 |
|
|
2,238 |
|
|
2,000 |
|
|
1,881 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
17,295 |
|
|
14,429 |
|
|
12,910 |
|
|
12,788 |
|
|
12,319 |
|
|
10,132 |
|
|
8,260 |
|
|
7,629 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
%
|
3
|
|
%
|
3
|
|
%
|
3
|
|
%
|
3
|
|
%
|
3
|
|
%
|
3
|
|
%
|
3
|
|
%
|
3 |
Residential mortgages |
11.42 |
|
|
8.23 |
|
|
6.65 |
2 |
|
5.96 |
2 |
|
5.23 |
2 |
|
4.04 |
|
|
3.10 |
|
|
2.70 |
|
Second lien mortgage lending
|
12.26 |
|
|
10.59 |
|
|
9.83 |
|
|
9.76 |
|
|
9.10 |
|
|
6.86 |
|
|
5.07 |
|
|
4.44 |
|
Vehicle finance |
4.98 |
|
|
4.27 |
|
|
3.48 |
|
|
2.83 |
|
|
3.68 |
|
|
3.40 |
|
|
2.91 |
|
|
2.30 |
|
Credit card |
6.64 |
|
|
6.07 |
|
|
5.57 |
|
|
5.81 |
|
|
5.68 |
|
|
5.09 |
|
|
4.32 |
|
|
4.43 |
|
Private label |
4.26 |
|
|
3.97 |
|
|
3.65 |
|
|
3.66 |
|
|
3.43 |
|
|
3.28 |
|
|
2.72 |
|
|
2.65 |
|
Personal non-credit card |
17.70 |
|
|
15.31 |
|
|
14.00 |
|
|
13.71 |
|
|
13.16 |
|
|
10.88 |
|
|
9.69 |
|
|
9.33 |
|
Total |
10.16 |
|
|
8.13 |
|
|
7.01 |
|
|
6.64 |
|
|
6.18 |
|
|
5.05 |
|
|
4.10 |
|
|
3.74 |
|
215
Back to Contents
H S B C H O L
D I N G S P L C |
|
Report of the Directors: Risk (continued) |
|
|
|
|
Credit
risk > Areas of special interest > Renegotiated loans // Credit
quality |
Two months and over contractual delinquency1 (continued)
(Unaudited)
|
Quarter ended |
|
|
|
|
|
31 |
|
|
30 |
|
|
30 |
|
|
31 |
|
|
31 |
|
|
30 |
|
|
30 |
|
|
31 |
|
|
December |
|
|
September |
|
|
June |
|
|
March |
|
|
December |
|
|
September |
|
|
June |
|
|
March |
|
|
2008 |
|
|
2008 |
|
|
2008 |
|
|
2008 |
|
|
2007 |
|
|
2007 |
|
|
2007 |
|
|
2007 |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In
mortgage services and consumer lending |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage services: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
first lien |
3,912 |
|
|
3,420 |
|
|
3,363 |
|
|
3,456 |
|
|
3,248 |
|
|
2,554 |
|
|
2,099 |
|
|
1,863 |
|
second
lien |
787 |
|
|
807 |
|
|
897 |
|
|
1,028 |
|
|
1,050 |
|
|
841 |
|
|
663 |
|
|
613 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage services |
4,699 |
|
|
4,227 |
|
|
4,260 |
|
|
4,484 |
|
|
4,298 |
|
|
3,395 |
|
|
2,762 |
|
|
2,476 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer lending: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
first
lien |
4,724 |
|
|
3,176 |
|
|
2,194 |
|
|
1,954 |
|
|
1,622 |
|
|
1,259 |
|
|
907 |
|
|
832 |
|
second
lien |
853 |
|
|
690 |
|
|
583 |
|
|
530 |
|
|
478 |
|
|
346 |
|
|
236 |
|
|
220 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consumer lending |
5,577 |
|
|
3,866 |
|
|
2,777 |
|
|
2,484 |
|
|
2,100 |
|
|
1,605 |
|
|
1,143 |
|
|
1,052 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
%
|
3
|
|
%
|
3
|
|
%
|
3
|
|
%
|
3
|
|
%
|
3
|
|
%
|
3
|
|
%
|
3
|
|
%
|
3 |
Mortgage services: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
first
lien |
16.87 |
|
|
14.16 |
|
|
12.91 |
|
|
12.41 |
|
|
11.02 |
|
|
8.13 |
|
|
6.33 |
|
|
4.98 |
|
second
lien |
17.72 |
|
|
16.62 |
|
|
16.63 |
|
|
16.99 |
|
|
15.57 |
|
|
11.28 |
|
|
7.91 |
|
|
6.59 |
|
Total mortgage services |
17.01 |
|
|
14.57 |
|
|
13.55 |
|
|
13.22 |
|
|
11.87 |
|
|
8.73 |
|
|
6.65 |
|
|
5.30 |
|
Consumer lending: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
first
lien |
11.71 |
|
|
7.72 |
|
|
5.15 |
|
|
4.52 |
|
|
3.74 |
|
|
2.92 |
|
|
2.15 |
|
|
2.03 |
|
second
lien |
14.54 |
|
|
11.27 |
|
|
9.04 |
|
|
7.96 |
|
|
6.97 |
|
|
5.03 |
|
|
3.60 |
|
|
3.34 |
|
Total consumer lending |
12.07 |
|
|
8.18 |
|
|
5.66 |
|
|
4.98 |
|
|
4.18 |
|
|
3.21 |
|
|
2.34 |
|
|
2.21 |
|
|
|
1 |
Delinquency data for the period from 31 March 2007 to 30 June 2008 has
been restated to include certain delinquent mortgage loans that were previously
excluded due to system coding within the mortgage services loan servicing
platform which had the effect of excluding certain delinquent mortgage loans
from the calculation of delinquency ratios. This change affected mortgage
services first and second lien delinquency percentages above. The effect
on previously reported amounts was not material. |
2 |
Delinquency data for the periods ending 31 December 2007 to 30 June 2008
has been restated to exclude certain delinquency balances of HSBC USA which
related to residential
mortgages classified as held for sale. |
3 |
Expressed as a percentage of the relevant balance. |
|
|
Renegotiated loans
(Audited)
Restructuring activity is designed to manage customer relationships, maximise
collection opportunities and, if possible, avoid foreclosure or repossession.
Such activities include extended payment arrangements, approved external debt
management plans, deferring foreclosure, modification, loan rewrites and/or deferral
of payments pending a change in circumstances. Following restructuring, an overdue
consumer account is normally reset from delinquent to current status. Restructuring
policies and practices are based on indicators or criteria which, in the judgement
of local management, indicate that repayment will probably continue. These policies
are required to be kept under continual review and their application varies according
to the nature of the market, the product, and the availability of empirical data.
Criteria vary between products, but typically include receipt of one or more
or, in the case of HSBC Finance, two or more, qualifying payments within a certain
period, a minimum lapse of time from origination before restructuring may occur,
and restrictions on the number and/or frequency of
successive restructurings. When empirical evidence indicates an increased propensity
to default on restructured accounts, the use of roll rate methodology ensures
this factor is taken
into account when calculating impairment allowances.
Renegotiated
loans that would otherwise be past due or impaired totalled US$35 billion at 31 December 2008 (2007: US$28 billion). Restructuring is
most commonly applied to consumer finance portfolios. The largest concentration was in the US and amounted to US$31 billion (2007: US$24 billion) or 89 per cent (2007: 86 per cent) of the Groups
total renegotiated loans. The increase was due to a significant deterioration
in credit quality in the US, where most restructurings related to loans secured
on real estate.
US loan modifications
(Unaudited)
In 2008, HSBC Finance continued to refine and expand its customer account management
policies and practices. Through its ARM Reset Modification Programme, established
in October 2006,
HSBC Finance proactively contacts customers who have
216
Back to Contents
ARM loans nearing their first reset that HSBC
Finance expects will be the most affected by a rate adjustment. By a variety
of means, HSBC
Finance assesses
the customers ability to make the adjusted payment and, as appropriate
and in accordance with defined policies, HSBC Finance modifies the loans, allowing
time for the customer to seek alternative financing or improve their individual
situation. These loan modifications primarily provide for temporary interest
rate relief for up to 12 months by either maintaining the current interest
rate for that period or resetting the interest rate to one lower than that
originally required at the reset date. At the end of the relief period, the
interest rate on the loan will reset in accordance with the original loan terms,
unless the borrower qualifies for, and is granted, a further modification.
These loans are not included in the renegotiated loans figures quoted above,
because they were not contractually delinquent at the
time of the modification.
HSBC Finance also significantly
expanded its Foreclosure Avoidance and Account Modification Programmes designed
to provide relief to qualifying home owners by either loan restructuring
or modification. Following a strategic review, in the first quarter of 2008
these programmes were expanded in the consumer lending business, to help
those customers who did not qualify for assistance under previous programmes,
and to help customers who required greater assistance than that available
under previous programmes. Innovations included
lowering the interest rate for qualifying customers on fixed rate loans as
well as ARMs,
and implementing
longer term modifications, providing assistance generally for two to five years.
Under these expanded programmes, HSBC Finance modified over 92,000 loans in
2008 with an aggregate balance of US$13.5 billion. The ARM Reset Modification
Programme covered some 13,000 loans,
with an aggregate value of US$2.1 billion.
HSBC Finance also supports a variety
of national and local efforts in home ownership preservation and foreclosure
avoidance.
Credit quality of financial instruments
(Audited)
The four credit quality classifications set out
and defined below describe the credit quality of HSBCs lending, debt
securities portfolios and derivatives. These classifications each encompass
a range
of more granular, internal credit
rating grades assigned to wholesale and retail lending business, as well as
the external ratings attributed by external agencies to debt securities.
There is no direct correlation
between the internal and external ratings at granular level, except to the
extent each falls within a single quality
classification.
Credit
quality of HSBCs lending, debt securities and other bills |
|
|
|
|
|
|
Wholesale |
|
|
|
Debt |
|
lending and |
|
Retail |
|
securities |
|
derivatives |
|
lending
|
1
|
/other |
Quality classification |
|
|
|
|
|
Strong |
CRR1 to CRR2 |
|
EL1 to EL2 |
|
A- and above |
Medium |
CRR3 to CRR5 |
|
EL3 to EL5 |
|
B+ to BBB+, |
|
|
|
|
|
and unrated |
Sub-standard |
CRR6 to CRR8 |
|
EL6 to EL8 |
|
B and below |
Impaired |
CRR9 to CRR10 |
|
EL9 to EL10 |
|
Impaired |
1 |
HSBC observes the disclosure convention that, in addition to those classified
as EL9 to EL10, retail accounts classified EL1 to EL8 that are delinquent
by 90 days or more are considered impaired, unless individually they have
been assessed as not impaired (see page 219, Past due but not impaired
financial instruments. |
|
Quality classification definitions
• |
Strong: exposures demonstrate
a strong capacity to meet financial commitments, with negligible or low
probability of default and/or low levels of expected loss. Retail accounts
operate within product parameters and only exceptionally show any period
of delinquency. |
|
|
• |
Medium: exposures
require closer monitoring, with
low to moderate default risk. Retail accounts
typically show only short periods of delinquency,
with any losses expected to be |
|
minimal following the adoption
of recovery processes. |
|
|
• |
Sub-standard: exposures
require varying degrees of special attention and
default risk is of greater concern. Retail portfolio
segments show longer delinquency periods of generally
up to 90 days past due and/or expected losses are higher
due to a reduced ability to mitigate these through
security realisation or other recovery processes. |
217
Back to Contents
H S B C H O L
D I N G S P L C |
|
Report
of the Directors: Risk (continued) |
|
|
|
|
Credit
risk > Credit quality > Risk ratings / Past due
but not impaired |
• |
Impaired: exposures have been assessed, individually or collectively, as impaired. |
Risk rating scales
Compared with previous years, the basis of reporting
has been changed to replace the former uniform seven-grade portfolio quality
scale,
in order both to extend
the range of financial instruments covered in the presentation of portfolio quality
and to reflect the more risk-sensitive rating systems introduced under
the Groups Basel II programme.
The Customer
Risk Rating (CRR) 10-grade scale above summarises a more granular underlying 22-grade scale of obligor probability of default
(PD). All distinct customers Group-wide are rated using one of these
two PD scales, depending on the degree of sophistication of the Basel II approach
adopted for the exposure.
The Expected
Loss (EL) 10-grade scale for retail business summarises a more
granular underlying EL scale for these customer segments; this combines
obligor and facility/product risk factors in a composite measure.
For debt securities
and certain other financial instruments, external ratings have been aligned
to the four quality classifications. The ratings of Standard
and Poors are cited, with those of other agencies being treated equivalently.
Debt securities with short-term issue ratings are reported against the long-term
rating of the issuer of those securities. If major rating agencies have different
ratings for the same debt securities, a prudent rating selection is made in line
with regulatory requirements.
Additional
credit quality information in respect of HSBCs consolidated holdings
of ABSs and assets held in consolidated SIVs and conduits is provided on
pages 153 to 158 and 175 to 176, respectively.
For the purpose of the following disclosure, retail loans which are past due up to 89 days and are not otherwise classified as EL9 or EL10, are separately
classified as past due but not impaired.
The following
tables set out the Groups distribution of financial instruments by
measures of credit quality:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distribution of financial instruments by credit quality |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Audited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Neither past due nor impaired |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Past due |
|
|
|
|
|
Impair- |
|
|
|
|
|
|
|
|
|
|
|
|
Sub- |
|
|
but not |
|
|
|
|
|
ment |
|
|
|
|
|
|
Strong |
|
|
Medium |
|
|
standard |
|
|
impaired |
4 |
|
Impaired |
4 |
|
allowances |
3 |
|
Total |
|
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
At 31 December 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Items in the course
of collection from other banks |
4,541 |
|
|
1,396 |
|
|
|
|
|
66 |
|
|
|
|
|
|
|
|
6,003 |
|
|
Trading assets |
303,307 |
|
|
98,977 |
|
|
3,167 |
|
|
|
|
|
|
|
|
|
|
|
405,451 |
|
|
treasury
and other eligible bills1 |
32,314 |
|
|
92 |
|
|
52 |
|
|
|
|
|
|
|
|
|
|
|
32,458 |
|
|
debt
securities1 |
175,681 |
|
|
22,841 |
|
|
1,097 |
|
|
|
|
|
|
|
|
|
|
|
199,619 |
|
|
loans
and advances to banks |
60,400 |
|
|
12,514 |
|
|
141 |
|
|
|
|
|
|
|
|
|
|
|
73,055 |
|
|
loans
and advances to customers |
34,912 |
|
|
63,530 |
|
|
1,877 |
|
|
|
|
|
|
|
|
|
|
|
100,319 |
|
|
Financial assets designated at fair value |
5,288 |
|
|
11,434 |
|
|
818 |
|
|
|
|
|
|
|
|
|
|
|
17,540 |
|
|
treasury
and other eligible bills1 |
204 |
|
|
31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
235 |
|
|
debt
securities1 |
4,129 |
|
|
11,402 |
|
|
818 |
|
|
|
|
|
|
|
|
|
|
|
16,349 |
|
|
loans
and advances to banks |
230 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
230 |
|
|
loans
and advances to customers |
725 |
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
726 |
|
|
Derivatives |
383,393 |
|
|
106,348 |
|
|
5,135 |
|
|
|
|
|
|
|
|
|
|
|
494,876 |
|
|
Loans and advances held at amortised cost |
565,542 |
|
|
427,788 |
|
|
43,432 |
|
|
48,422 |
|
|
25,422 |
|
|
(23,972
|
) |
|
1,086,634 |
|
|
loans
and advances to banks |
118,684 |
|
|
33,766 |
|
|
1,268 |
|
|
41 |
|
|
70 |
|
|
(63
|
) |
|
153,766 |
|
|
loans
and advances to customers2 |
446,858 |
|
|
394,022 |
|
|
42,164 |
|
|
48,381 |
|
|
25,352 |
|
|
(23,909
|
) |
|
932,868 |
|
|
Financial investments |
257,435 |
|
|
32,889 |
|
|
1,382 |
|
|
32 |
|
|
1,246 |
|
|
|
|
|
292,984 |
|
|
treasury
and other similar bills |
37,932 |
|
|
2,927 |
|
|
168 |
|
|
|
|
|
|
|
|
|
|
|
41,027 |
|
|
debt
securities |
219,503 |
|
|
29,962 |
|
|
1,214 |
|
|
32 |
|
|
1,246 |
|
|
|
|
|
251,957 |
|
|
Other assets |
11,959 |
|
|
26,517 |
|
|
1,747 |
|
|
219 |
|
|
417 |
|
|
|
|
|
40,859 |
|
|
endorsements
and acceptances |
1,851 |
|
|
7,793 |
|
|
805 |
|
|
30 |
|
|
3 |
|
|
|
|
|
10,482 |
|
|
accrued
income and other |
10,108 |
|
|
18,724 |
|
|
942 |
|
|
189 |
|
|
414 |
|
|
|
|
|
30,377 |
|
|
218
Back
to Contents
|
Neither past due nor
impaired |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Past due |
|
|
|
|
|
Impair- |
|
|
|
|
|
|
|
|
|
|
|
|
Sub- |
|
|
but not |
|
|
|
|
|
ment |
|
|
|
|
|
|
Strong |
|
|
Medium |
|
|
standard |
|
|
impaired |
4 |
|
Impaired |
4 |
|
allowances |
3 |
|
Total |
|
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
At 31 December 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Items
in the course of collection from other banks |
7,599 |
|
|
2,178 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,777 |
|
|
Trading assets |
277,437 |
|
|
115,091 |
|
|
1,964 |
|
|
|
|
|
|
|
|
|
|
|
394,492 |
|
|
treasury
and other eligible bills1 |
15,766 |
|
|
670 |
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
16,439 |
|
|
debt securities1 |
150,893 |
|
|
27,636 |
|
|
305 |
|
|
|
|
|
|
|
|
|
|
|
178,834 |
|
|
loans
and advances to banks |
82,678 |
|
|
17,757 |
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
100,440 |
|
|
loans
and advances to customers |
28,100 |
|
|
69,028 |
|
|
1,651 |
|
|
|
|
|
|
|
|
|
|
|
98,779 |
|
|
Financial assets designated at fair value |
5,266 |
|
|
16,126 |
|
|
125 |
|
|
|
|
|
|
|
|
|
|
|
21,517 |
|
|
treasury
and other eligible bills1 |
36 |
|
|
145 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
181 |
|
|
debt
securities1 |
5,052 |
|
|
15,973 |
|
|
125 |
|
|
|
|
|
|
|
|
|
|
|
21,150 |
|
|
loans
and advances to banks |
178 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
178 |
|
|
loans
and advances to customers |
|
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8 |
|
|
Derivatives |
150,141 |
|
|
36,745 |
|
|
968 |
|
|
|
|
|
|
|
|
|
|
|
187,854 |
|
|
Loans and advances held at amortised cost |
662,415 |
|
|
476,554 |
|
|
30,242 |
|
|
49,321 |
|
|
19,594 |
|
|
(19,212 |
) |
|
1,218,914 |
|
|
loans and
advances to banks |
189,446 |
|
|
45,358 |
|
|
2,535 |
|
|
22 |
|
|
12 |
|
|
(7 |
) |
|
237,366 |
|
|
loans
and advances to customers |
472,969 |
|
|
431,196 |
|
|
27,707 |
|
|
49,299 |
|
|
19,582 |
|
|
(19,205 |
) |
|
981,548 |
|
|
Financial investments |
236,901 |
|
|
33,117 |
|
|
388 |
|
|
|
|
|
|
|
|
|
|
|
270,406 |
|
|
treasury
and other similar bills |
26,776 |
|
|
3,188 |
|
|
140 |
|
|
|
|
|
|
|
|
|
|
|
30,104 |
|
|
debt securities |
210,125 |
|
|
29,929 |
|
|
248 |
|
|
|
|
|
|
|
|
|
|
|
240,302 |
|
|
Other assets |
10,775 |
|
|
31,097 |
|
|
1,144 |
|
|
92 |
|
|
137 |
|
|
|
|
|
43,245 |
|
|
endorsements
and acceptances |
2,612 |
|
|
9,122 |
|
|
477 |
|
|
27 |
|
|
10 |
|
|
|
|
|
12,248 |
|
|
accrued
income and other |
8,163 |
|
|
21,975 |
|
|
667 |
|
|
65 |
|
|
127 |
|
|
|
|
|
30,997 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
Impairment is not measured for assets
held in trading portfolios or designated at fair value as assets in
such
portfolios are managed according to movements in fair value, and the
fair
value movement is taken directly to the income statement. Consequently,
all such balances are reported under neither past due nor impaired.
|
2 |
Includes asset-backed securities that
have been externally rated as strong (US$7,991 million), medium
(nil) and sub-standard (nil). |
3 |
Impairment allowances are not reported
for financial instruments whereby the carrying amount is reduced directly
for impairment and not through the use of an allowance account. |
4 |
The amounts for loans and advances for
2007 have been restated, as a result of a reclassification from Past
due but not impaired to Impaired of an element of a credit
card portfolio. There has been no effect on impairment allowances. |
|
|
Past due but not impaired gross financial instruments
(Audited)
Examples of exposures past due but not impaired
include overdue loans fully secured by cash collateral; mortgages that are
individually assessed for impairment, and that are in arrears more than 90
days, but where the value of collateral is sufficient
to repay both the principal debt and all potential interest for at least one
year; and short-term trade facilities past due more than 90 days for technical
reasons such as delays in documentation, but where there is no concern over
the creditworthiness of the counterparty.
Past due but not impaired loans and advances to customers and banks by geographical
region
|
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
|
|
|
|
|
|
loans and |
|
|
|
|
|
|
Rest of |
|
|
|
|
|
advances |
|
|
|
|
Hong |
|
Asia- |
|
North |
|
Latin |
|
past due not |
|
|
Europe |
|
Kong |
|
Pacific |
|
America |
|
America |
|
impaired |
1 |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 31 December
2008 |
3,800 |
|
1,805 |
|
4,320 |
|
35,247 |
|
3,250 |
|
48,422 |
|
At 31 December 2007 |
3,143 |
|
2,031 |
|
4,951 |
|
36,604 |
|
2,592 |
|
49,321 |
|
|
|
1 |
Restated for 2007 as a result of a reclassification
of an element of a credit card portfolio as impaired. There has been no
effect on impairment allowances. |
219
Back to Contents
H S B C H O L D
I N G S P L C |
|
Report of
the Directors: Risk (continued) |
|
|
|
|
Credit risk > Credit quality
> Past due but not impaired // Impaired loans and advances > 2008 |
Past due but not impaired loans and advances to customers and banks by industry
sector
|
At 31 December |
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
|
|
US$m |
|
|
US$m |
|
|
|
|
|
|
|
|
|
Banks |
41 |
|
|
22 |
|
|
Customers |
48,381 |
|
|
49,299 |
|
|
Personal1 |
39,592 |
|
|
42,091 |
|
|
Corporate and commercial |
8,603 |
|
|
6,938 |
|
|
Financial |
186 |
|
|
270 |
|
|
|
|
|
|
|
|
|
|
48,422 |
|
|
49,321 |
|
|
|
|
|
|
|
|
|
|
|
1 |
Restated for 2007 as a result of a reclassification
of an element of a credit card portfolio as impaired. There has been no
effect on impairment allowances. |
|
|
|
|
|
|
|
|
|
|
|
|
Ageing analysis
of days past due but not impaired gross financial instruments |
(Audited) |
|
Up to 29 |
|
|
30-59 |
|
|
60-89 |
|
|
90-180 |
|
|
Over 180 |
|
|
|
|
|
|
days |
|
|
days |
|
|
days |
|
|
days |
|
|
days |
|
|
Total |
|
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
At 31 December 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Items in the course of collection from other banks |
66 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66 |
|
|
Loans and advances held at amortised cost |
31,034 |
|
|
10,814 |
|
|
5,493 |
|
|
621 |
|
|
460 |
|
|
48,422 |
|
|
loans and
advances to banks |
41 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41 |
|
|
loans
and advances to customers |
30,993 |
|
|
10,814 |
|
|
5,493 |
|
|
621 |
|
|
460 |
|
|
48,381 |
|
|
Financial investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
debt securities |
32 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32 |
|
|
Other assets |
45 |
|
|
22 |
|
|
118 |
|
|
7 |
|
|
27 |
|
|
219 |
|
|
endorsements
and acceptances |
21 |
|
|
6 |
|
|
1 |
|
|
2 |
|
|
|
|
|
30 |
|
|
other |
24 |
|
|
16 |
|
|
117 |
|
|
5 |
|
|
27 |
|
|
189 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,177 |
|
|
10,836 |
|
|
5,611 |
|
|
628 |
|
|
487 |
|
|
48,739 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 31 December 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans and advances held at amortised cost |
33,931 |
|
|
10,546 |
|
|
3,992 |
|
|
489 |
|
|
363 |
|
|
49,321 |
|
|
loans
and advances to banks |
22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22 |
|
|
loans
and advances to customers1 |
33,909 |
|
|
10,546 |
|
|
3,992 |
|
|
489 |
|
|
363 |
|
|
49,299 |
|
|
Other assets |
57 |
|
|
16 |
|
|
8 |
|
|
6 |
|
|
5 |
|
|
92 |
|
|
endorsements
and acceptances |
21 |
|
|
3 |
|
|
|
|
|
2 |
|
|
1 |
|
|
27 |
|
|
other |
36 |
|
|
13 |
|
|
8 |
|
|
4 |
|
|
4 |
|
|
65 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,988 |
|
|
10,562 |
|
|
4,000 |
|
|
495 |
|
|
368 |
|
|
49,413 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
Restated for 2007 as a result of a reclassification
of an element of a credit card portfolio as impaired. There has been no
effect on impairment allowances. |
|
|
|
|
|
|
|
|
|
|
|
|
Impaired
loans and advances |
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans and
advances to customers and banks by industry sector |
(Audited) |
|
Impaired loans and
advances at |
|
|
Impaired loans and
advances at |
|
|
|
31 December 2008 |
|
|
31 December 20071 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually |
|
|
Collectively |
|
|
|
|
|
Individually |
|
|
Collectively |
|
|
|
|
|
|
assessed |
|
|
assessed |
|
|
Total |
|
|
assessed |
|
|
assessed |
|
|
Total |
|
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Banks |
70 |
|
|
|
|
|
70 |
|
|
12 |
|
|
|
|
|
12 |
|
|
Customers |
6,922 |
|
|
18,430 |
|
|
25,352 |
|
|
6,477 |
|
|
13,105 |
|
|
19,582 |
|
|
Personal |
538 |
|
|
18,071 |
|
|
18,609 |
|
|
1,548 |
|
|
12,850 |
|
|
14,398 |
|
|
Corporate and commercial |
6,086 |
|
|
357 |
|
|
6,443 |
|
|
4,799 |
|
|
254 |
|
|
5,053 |
|
|
Financial |
298 |
|
|
2 |
|
|
300 |
|
|
130 |
|
|
1 |
|
|
131 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,992 |
|
|
18,430 |
|
|
25,422 |
|
|
6,489 |
|
|
13,105 |
|
|
19,594 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
Impaired loans for 2007 have been restated
as a result of the reclassification of an element of a credit card portfolio
as impaired. There has been no effect on impairment allowances. |
220
Back to Contents
2008 compared with 2007
(Unaudited)
Total impaired loans to customers were US$25.4
billion at 31 December 2008, an increase of 29 per cent since the end of 2007
(42 per cent at constant currency). Impaired loans were 3 per cent
of gross customer loans and advances, a rise from 2 per cent at 31 December
2007.
The commentary that follows compares
balances at 31 December 2008 with those at 31 December 2007, at constant
exchange rates.
In Europe,
impaired loans at US$6.8 billion were 32 per cent higher than at
the end of 2007. The increase was driven by the UK where credit quality
in the UK commercial
portfolio
deteriorated sharply in the final quarter of the year. A small number of
exposures in the commercial real estate sector were particularly affected
by a sharp deterioration in market conditions in the fourth quarter. UK
mortgage impairments remained broadly stable despite the substantial increase
in balances
in the second half of the year and delinquency levels increased modestly
from a low base. Unsecured personal lending in the UK also saw a slight
increase in the levels of impaired loans, particularly in the second half
of the year,
as the economy weakened. A single financial sector loan in Europe also
affected results. Impairment levels in France remained low in the personal
sector.
However, Commercial Banking experienced a rising number of small impairments
during the second half of the year and a small number of larger impairments
in the last quarter. In Turkey, impaired loans rose by 81 per cent due
to increased delinquency in the personal lending portfolio and, particularly,
in credit cards.
In Hong Kong,
impaired loans increased from a previously low level to US$852 million. The deterioration
was concentrated in the commercial lending portfolio and was attributable
to a number of factors including exporters in Hong Kong being affected by
reduced demand from the US and other developed countries. The sharp fall
in the value of currencies and commodities left some customers balance
sheets weakened, coupled with rising fraud encountered with certain counterparties.
In the Rest of Asia-Pacific impaired
loans increased by 8 per cent to US$1.1 billion, primarily due to the
deterioration in the commercial lending portfolio. In the last quarter
of 2008 the number of export orders suffered a sharp fall and, together
with
a deterioration in credit quality around the region, caused a rise in impaired
loans. Noticeable increases were recognised in Taiwan, Indonesia and India.
In Taiwan the commercial loan portfolio started to deteriorate in the second
half of the year as the fall in exports started to affect local businesses.
In Indonesia and India, the increase in impaired loans was a result of
the downgrade of a few individual customers as economic conditions worsened.
Impaired personal loans rose as increased unemployment and bankruptcy rates
affected the ability of customers to repay. India continued to show significant
impaired loans as the economic conditions deteriorated and credit quality
weakened. Active measures are being taken to reduce exposure in India and
manage the personal lending portfolio.
In North America, impaired
loans rose significantly, increasing by 49 per cent to US$14.3 billion
at 31 December 2008. The US consumer finance business experienced a broad
based deterioration in credit quality due to higher unemployment as the economy
slowed. A full discussion of these developments and their effect on credit
quality is provided in the Areas of special interest commentary
on page 208. In Canada, impaired loans rose from a low base as credit conditions
weakened, with the loss concentrated in a single exposure in the commercial
real estate portfolio. In the US, commercial and corporate credit quality
declined due
to downgrades as the economic environment deteriorated.
In Latin America,
impaired loans increased by 37 per cent to US$2.3 billion. Impaired
loans in Mexico rose by 32 per cent, largely in credit cards driven by
portfolio
growth in
personal lending, seasoning and higher delinquency rates. In Brazil, impaired
loans rose by 34 per cent due to growth in personal lending due to deterioration
in payroll and vehicle finance loan portfolios, and weakness in a number
of real estate portfolios and corporates exposed to the sharp rise in the
value of the US dollar in the second half of the year.
221
Back to Contents
H S B C H O L D
I N G S P L C |
|
Report of the Directors:
Risk (continued) |
|
|
|
Credit risk > Impaired loans
and advances > Collateral // Impairment allowances |
Collateral and other credit enhancements obtained
(Audited)
HSBC obtained assets by taking possession of collateral held as security, or
calling upon other credit enhancements, as follows:
(Audited) |
|
Carrying amount obtained in: |
|
|
|
|
|
2008 |
|
2007 |
|
|
US$m |
|
US$m |
|
Nature of assets |
|
|
|
|
Residential property |
2,562 |
|
2,509 |
|
Commercial and industrial property |
21 |
|
18 |
|
Other |
382 |
|
373 |
|
|
|
|
|
|
|
2,965 |
|
2,900 |
|
|
|
|
|
|
Repossessed properties are made
available for sale in an orderly fashion, with the proceeds used to reduce
or repay the outstanding indebtedness. If excess funds arise after the debt
has been repaid, they are made available either to repay other secured lenders
with lower priority or are returned to the customer. HSBC does not generally
occupy
repossessed properties for its business use. The majority of repossessed properties
arose in HSBC Finance in the US, which, compared with 2007 experienced higher
levels of foreclosure and higher losses on sale due to declining house prices.
The average time taken to sell a repossessed property during 2008 was 177 days
and the average loss upon sale of foreclosed properties was 13 per cent. The
December 2008 balance of repossessed property was lower than otherwise would
have been the case due to several factors that occurred during the month: HSBC
Finance implemented a voluntary one month suspension of final court proceedings
in foreclosure cases relating to owner occupied properties in December 2008,
some states suspended foreclosure activity, and there was a backlog in moving
foreclosure proceedings through the courts. HSBC expects, subject to further
state actions, that repossessed property levels will increase in the first
quarter of 2009 as foreclosure proceedings normalise. A quarterly breakdown
of foreclosure data is provided below:
HSBC Finance foreclosed properties in the US
(Unaudited)
|
|
|
Quarter ended |
|
|
|
|
|
|
|
|
|
31 December |
|
30 September |
|
30 June |
|
31 March |
|
|
2008 |
|
2008 |
|
2008 |
|
2008 |
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
Number
of foreclosed properties at end of period |
9,589
|
|
9,589
|
|
11,182
|
|
10,870
|
|
10,203
|
|
Number
of properties added to foreclosed inventory in the year/quarter |
20,051
|
|
3,398
|
|
5,562
|
|
5,773
|
|
5,318
|
|
Average
loss on sale of foreclosed properties1 |
13% |
|
13% |
|
10% |
|
11% |
|
16% |
|
Average
total loss on foreclosed properties2 |
42% |
|
47% |
|
42% |
|
40% |
|
39% |
|
Average
time to sell foreclosed properties (days) |
177
|
|
180
|
|
174
|
|
171
|
|
181
|
|
1 |
The average loss on sale of foreclosed
properties is calculated as cash proceeds after deducting selling costs
and commissions, minus the book value of the property when it was moved
to Real estate owned, divided by the book value of the property
when it was moved to Real estate owned. |
2 |
The average total loss on foreclosed
properties sold during each quarter includes both the loss on sale
and the cumulative
write-downs recognised on the loans up to and upon classification as Real
estate owned. This average total loss on foreclosed properties is
expressed as a percentage of the book value of the property prior to its
transfer to Real estate owners. |
222
Back to Contents
Impairment allowances and charges on loans and advances to customers and banks
(Audited)
The tables below analyse by geographical region the impairment allowances recognised
for impaired
loans and advances that are either individually assessed or collectively assessed,
and collective impairment allowances on loans and advances classified as not
impaired.
Impairment allowances on loans and advances
to customers by geographical region
(Audited)
|
|
|
|
Hong |
|
|
Rest of |
|
|
North |
|
|
Latin |
|
|
|
|
|
|
Europe |
|
|
Kong |
|
|
Asia-Pacific |
|
|
America |
|
|
America |
|
|
Total |
|
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
At 31 December 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross loans and advances |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually assessed impaired
loans1 |
3,817 |
|
|
813 |
|
|
865 |
|
|
832 |
|
|
595 |
|
|
6,922 |
|
|
Collectively assessed2 |
426,233 |
|
|
100,140 |
|
|
108,318 |
|
|
271,472 |
|
|
43,692 |
|
|
949,855 |
|
|
Impaired loans1 |
2,957 |
|
|
39 |
|
|
249 |
|
|
13,453 |
|
|
1,732 |
|
|
18,430 |
|
|
Non-impaired loans3 |
423,276 |
|
|
100,101 |
|
|
108,069 |
|
|
258,019 |
|
|
41,960 |
|
|
931,425 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross loans and advances |
430,050 |
|
|
100,953 |
|
|
109,183 |
|
|
272,304 |
|
|
44,287 |
|
|
956,777 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment allowances |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually assessed |
2,005 |
|
|
411 |
|
|
448 |
|
|
192 |
|
|
228 |
|
|
3,284 |
|
|
Collectively assessed |
1,854 |
|
|
322 |
|
|
779 |
|
|
15,898 |
|
|
1,772 |
|
|
20,625 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total impairment allowances |
3,859 |
|
|
733 |
|
|
1,227 |
|
|
16,090 |
|
|
2,000 |
|
|
23,909 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% |
|
|
% |
|
|
% |
|
|
% |
|
|
% |
|
|
% |
|
|
Individually assessed allowances
as a percentage |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of individually
assessed loans and advances |
52.5 |
|
|
50.6 |
|
|
51.8 |
|
|
23.1 |
|
|
38.3 |
|
|
47.4 |
|
|
Collectively assessed allowances
as a percentage |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of collectively
assessed loans and advances |
0.4 |
|
|
0.3 |
|
|
0.7 |
|
|
5.9 |
|
|
4.1 |
|
|
2.2 |
|
|
Total allowances as a percentage
of total loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and advances |
0.9 |
|
|
0.7 |
|
|
1.1 |
|
|
5.9 |
|
|
4.5 |
|
|
2.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
At 31 December 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross loans and advances |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually assessed impaired
loans1 |
4,558 |
|
|
378 |
|
|
678 |
|
|
421 |
|
|
442 |
|
|
6,477 |
|
|
Collectively assessed2 |
451,648 |
|
|
89,636 |
|
|
102,100 |
|
|
301,419 |
|
|
49,473 |
|
|
994,276 |
|
|
Impaired loans1,4 |
1,696 |
|
|
55 |
|
|
410 |
|
|
9,241 |
|
|
1,703 |
|
|
13,105 |
|
|
Non-impaired loans3,4 |
449,952 |
|
|
89,581 |
|
|
101,690 |
|
|
292,178 |
|
|
47,770 |
|
|
981,171 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross loans and advances |
456,206 |
|
|
90,014 |
|
|
102,778 |
|
|
301,840 |
|
|
49,915 |
|
|
1,000,753 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment allowances |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually assessed |
1,846 |
|
|
132 |
|
|
349 |
|
|
119 |
|
|
253 |
|
|
2,699 |
|
|
Collectively assessed |
2,085 |
|
|
244 |
|
|
577 |
|
|
11,861 |
|
|
1,739 |
|
|
16,506 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total impairment allowances |
3,931 |
|
|
376 |
|
|
926 |
|
|
11,980 |
|
|
1,992 |
|
|
19,205 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% |
|
|
% |
|
|
% |
|
|
% |
|
|
% |
|
|
% |
|
|
Individually assessed allowances
as a percentage |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of individually
assessed loans and advances |
40.5 |
|
|
34.9 |
|
|
51.5 |
|
|
28.3 |
|
|
57.2 |
|
|
41.7 |
|
|
Collectively assessed allowances
as a percentage |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of collectively
assessed loans and advances |
0.5 |
|
|
0.3 |
|
|
0.6 |
|
|
3.9 |
|
|
3.5 |
|
|
1.7 |
|
|
Total allowances as a percentage
of total loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and advances |
0.9 |
|
|
0.4 |
|
|
0.9 |
|
|
4.0 |
|
|
4.0 |
|
|
1.9 |
|
|
1 |
Impaired loans and advances are those
classified as CRR 9, CRR 10, EL 9 or EL 10 and all retail loans 90 days
or more past due. |
2 |
Collectively assessed loans and advances
comprise homogeneous groups of loans that are not considered individually
significant, and loans subject to individual assessment where no impairment
has been identified on an individual basis, but on which a collective impairment
allowance has been calculated to reflect losses which have been incurred
but not yet identified. |
3 |
Collectively assessed loans and advances
not impaired are those classified as CRR1 to CRR8 and EL1 to EL8 but excluding
retail loans 90 days past due. |
4 |
The 2007 collectively assessed impaired
loans and advances for North America have been increased from US$7,963
million to US$9,241 million as a result of the reclassification of
an element of a credit card portfolio as impaired. There has been no effect
on impairment allowances. |
223
Back
to Contents
H S B C H O L D I
N G S P L C |
|
Report of the
Directors: Risk (continued) |
|
|
|
|
Credit risk > Impairment
allowances > Movements |
Impairment allowances on loans and advances to customers and banks by industry sector
(Audited)
|
At 31 December 2008 |
|
|
At 31 December 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually |
|
|
Collectively |
|
|
|
|
|
Individually |
|
|
Collectively |
|
|
|
|
|
assessed |
|
|
assessed |
|
|
Total |
|
|
assessed |
|
|
assessed |
|
|
Total |
|
|
allowances |
|
|
allowances |
|
|
allowances |
|
|
allowances |
|
|
allowances |
|
|
allowances |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Banks1 |
63 |
|
|
|
|
|
63 |
|
|
7 |
|
|
|
|
|
7 |
|
Customers |
3,284 |
|
|
20,625 |
|
|
23,909 |
|
|
2,699 |
|
|
16,506 |
|
|
19,205 |
|
Personal |
312 |
|
|
18,657 |
|
|
18,969 |
|
|
379 |
|
|
14,983 |
|
|
15,362 |
|
Corporate and commercial |
2,845 |
|
|
1,795 |
|
|
4,640 |
|
|
2,275 |
|
|
1,472 |
|
|
3,747 |
|
Financial |
127 |
|
|
173 |
|
|
300 |
|
|
45 |
|
|
51 |
|
|
96 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,347 |
|
|
20,625 |
|
|
23,972 |
|
|
2,706 |
|
|
16,506 |
|
|
19,212 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
The impairment allowances on loans and
advances to banks relates to the geographical region, Europe. |
Impairment allowances as a percentage
of loans and advances1
(Unaudited)
|
At 31 December |
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
|
% |
|
|
% |
|
Banks |
|
|
|
|
|
Individually assessed
impairment allowances2 |
0.06 |
|
|
0.0 |
|
|
|
|
|
|
|
Customers3 |
2.63 |
|
|
2.01 |
|
Individually assessed
impairment allowances3 |
0.36 |
|
|
0.28 |
|
Collectively assessed
impairment allowances3 |
2.27 |
|
|
1.73 |
|
|
|
1 |
Net of reverse repo transactions, settlement
accounts and stock borrowings. |
2 |
As a percentage of loans and advances
to banks. |
3 |
As a percentage of loans and advances
to customers. |
|
Movement in impairment allowances
The tables below describe details of the movements
in HSBCs
loan impairment
allowances (i) for loans
and advances, (ii) by industry segment for each of the past 5 years and (iii)
by industry segment and geographical region for 2008 and 2007.
Movement in impairment allowances on loans and advances
(Audited)
|
|
|
Customers |
|
|
|
|
Banks |
|
|
|
|
|
|
|
|
individually |
|
Individually
|
|
Collectively
|
|
|
|
|
assessed |
|
assessed
|
|
assessed
|
|
Total
|
|
|
US$m |
|
US$m
|
|
US$m
|
|
US$m
|
|
|
|
|
|
|
|
|
|
|
At 1 January 2008 |
7 |
|
2,699
|
|
16,506
|
|
19,212
|
|
Amounts written off |
|
|
(824
|
) |
(17,131
|
) |
(17,955
|
) |
Recoveries
of loans and advances written off in previous years |
|
|
113
|
|
721
|
|
834
|
|
Charge to income statement |
54 |
|
2,010
|
|
22,067
|
|
24,131
|
|
Exchange and other movements |
2 |
|
(714
|
) |
(1,538
|
) |
(2,250
|
) |
|
|
|
|
|
|
|
|
|
At 31 December 2008 |
63 |
|
3,284
|
|
20,625
|
|
23,972
|
|
|
|
|
|
|
|
|
|
|
At 1 January 2007 |
7 |
|
2,565
|
|
11,013
|
|
13,585
|
|
Amounts written off |
|
|
(897
|
) |
(11,947
|
) |
(12,844
|
) |
Recoveries
of loans and advances written off in previous years |
|
|
129
|
|
876
|
|
1,005
|
|
Charge to income statement |
|
|
796
|
|
16,381
|
|
17,177
|
|
Exchange and other movements |
|
|
106
|
|
183
|
|
289
|
|
|
|
|
|
|
|
|
|
|
At 31 December 2007 |
7 |
|
2,699
|
|
16,506
|
|
19,212
|
|
|
|
|
|
|
|
|
|
|
224
Back
to Contents
Movement in impairment allowances by industry sector |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Audited: 2008 to 2005; Unaudited: 2004) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
US$m
|
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment allowances at 1 January |
19,212
|
|
|
13,585
|
|
|
11,366
|
|
|
12,559
|
|
|
13,715
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IFRS transition adjustment at 1 January 2004 |
|
|
|
|
|
|
|
|
|
|
|
|
(58
|
) |
Amounts written off |
(17,955
|
) |
|
(12,844
|
) |
|
(9,473
|
) |
|
(9,043
|
) |
|
(8,844
|
) |
Personal |
(16,625
|
) |
|
(11,670
|
) |
|
(8,281
|
) |
|
(8,046
|
) |
|
(7,597
|
) |
residential
mortgages |
(2,110
|
) |
|
(930
|
) |
|
(628
|
) |
|
(508
|
) |
|
(561
|
) |
other
personal |
(14,515
|
) |
|
(10,740
|
) |
|
(7,653
|
) |
|
(7,538
|
) |
|
(7,036
|
) |
Corporate
and commercial |
(1,294
|
) |
|
(1,163
|
) |
|
(1,153
|
) |
|
(984
|
) |
|
(1,227
|
) |
commercial,
industrial and international trade |
(789
|
) |
|
(897
|
) |
|
(782
|
) |
|
(673
|
) |
|
(623
|
) |
commercial
real estate and other property-related |
(115
|
) |
|
(98
|
) |
|
(111
|
) |
|
(117
|
) |
|
(106
|
) |
other
commercial |
(390
|
) |
|
(168
|
) |
|
(260
|
) |
|
(194
|
) |
|
(498
|
) |
Financial4 |
(36
|
) |
|
(11
|
) |
|
(39
|
) |
|
(13
|
) |
|
(20
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recoveries of amounts written off in previous years |
834
|
|
|
1,005
|
|
|
779
|
|
|
494
|
|
|
913
|
|
Personal |
686
|
|
|
837
|
|
|
605
|
|
|
320
|
|
|
690
|
|
residential
mortgages |
19
|
|
|
19
|
|
|
19
|
|
|
18
|
|
|
31
|
|
other
personal |
667
|
|
|
818
|
|
|
586
|
|
|
302
|
|
|
659
|
|
Corporate and commercial |
142
|
|
|
157
|
|
|
163
|
|
|
174
|
|
|
220
|
|
commercial,
industrial and international trade |
76
|
|
|
74
|
|
|
88
|
|
|
76
|
|
|
118
|
|
commercial
real estate and other property-related |
6
|
|
|
29
|
|
|
21
|
|
|
9
|
|
|
17
|
|
other
commercial |
60
|
|
|
54
|
|
|
54
|
|
|
89
|
|
|
85
|
|
Financial4 |
6
|
|
|
11
|
|
|
11
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge to income statement1,2 |
24,131
|
|
|
17,177
|
|
|
10,547
|
|
|
7,860
|
|
|
6,195
|
|
Personal |
20,950
|
|
|
15,968
|
|
|
9,929
|
|
|
7,249
|
|
|
6,698
|
|
residential
mortgages |
5,000
|
|
|
1,840
|
|
|
1,096
|
|
|
605
|
|
|
482
|
|
other
personal |
15,950
|
|
|
14,128
|
|
|
8,833
|
|
|
6,644
|
|
|
6,216
|
|
Corporate
and commercial |
2,879
|
|
|
1,176
|
|
|
664
|
|
|
618
|
|
|
(11
|
) |
commercial,
industrial and international trade |
1,573
|
|
|
897
|
|
|
503
|
|
|
588
|
|
|
179
|
|
commercial
real estate and other property-related |
755
|
|
|
152
|
|
|
75
|
|
|
56
|
|
|
(22
|
) |
other
commercial |
551
|
|
|
127
|
|
|
86
|
|
|
(26
|
) |
|
(168
|
) |
Financial4 |
302
|
|
|
36
|
|
|
(9
|
) |
|
(13
|
) |
|
5
|
|
Governments |
|
|
|
(3
|
) |
|
(37
|
) |
|
6
|
|
|
1
|
|
General
provisions |
|
|
|
|
|
|
|
|
|
|
|
|
(498
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange and other movements |
(2,250
|
) |
|
289
|
|
|
366
|
|
|
(504
|
) |
|
638
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment allowances at 31 December2 |
23,972
|
|
|
19,212
|
|
|
13,585
|
|
|
11,366
|
|
|
12,559
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment allowances against banks2: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
individually
assessed2 |
63
|
|
|
7
|
|
|
7
|
|
|
9
|
|
|
17
|
|
Impairment allowances against customers2: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
individually
assessed2 |
3,284
|
|
|
2,699
|
|
|
2,565
|
|
|
2,683
|
|
|
10,017
|
|
collectively
assessed2,3 |
20,625
|
|
|
16,506
|
|
|
11,013
|
|
|
8,674
|
|
|
2,525
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment allowances at 31 December2 |
23,972
|
|
|
19,212
|
|
|
13,585
|
|
|
11,366
|
|
|
12,559
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
%
|
|
|
%
|
|
|
%
|
|
|
%
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment
allowances against customers as a percentage of loans and advances
to customers2: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
individually
assessed2 |
0.34
|
|
|
0.27
|
|
|
0.29
|
|
|
0.36
|
|
|
1.46
|
|
collectively
assessed2 |
2.16
|
|
|
1.65
|
|
|
1.25
|
|
|
1.16
|
|
|
0.37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 31 December |
2.50
|
|
|
1.92
|
|
|
1.54
|
|
|
1.52
|
|
|
1.83
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For footnotes, see page 227. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
225
Back to Contents
H S B C H O L D I
N G S P L C |
|
Report of the
Directors: Risk (continued) |
|
|
|
|
Credit risk > Impairment
allowances > Movements |
Movement in impairment allowances by industry sector and by geographical region
(Audited)
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rest of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hong
|
|
|
Asia-
|
|
|
North
|
|
|
Latin
|
|
|
|
|
|
Europe
|
|
|
Kong
|
|
|
Pacific
|
|
|
America
|
|
|
America
|
|
|
Total
|
|
|
US$m
|
|
|
US$m
|
|
|
US$m
|
|
|
US$m
|
|
|
US$m
|
|
|
US$m
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment allowances at 1 January |
3,938
|
|
|
376
|
|
|
926
|
|
|
11,980
|
|
|
1,992
|
|
|
19,212
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts written off |
(2,483
|
) |
|
(219
|
) |
|
(838
|
) |
|
(12,215
|
) |
|
(2,200
|
) |
|
(17,955
|
) |
Personal |
(1,947
|
) |
|
(179
|
) |
|
(799
|
) |
|
(11,989
|
) |
|
(1,711
|
) |
|
(16,625
|
) |
residential
mortgages |
(3
|
) |
|
(1
|
) |
|
(6
|
) |
|
(2,030
|
) |
|
(70
|
) |
|
(2,110
|
) |
other
personal |
(1,944
|
) |
|
(178
|
) |
|
(793
|
) |
|
(9,959
|
) |
|
(1,641
|
) |
|
(14,515
|
) |
Corporate and commercial |
(515
|
) |
|
(38
|
) |
|
(39
|
) |
|
(214
|
) |
|
(488
|
) |
|
(1,294
|
) |
commercial,
industrial and international trade |
(367
|
) |
|
(33
|
) |
|
(22
|
) |
|
(153
|
) |
|
(214
|
) |
|
(789
|
) |
commercial
real estate and other property-related |
(77
|
) |
|
(2
|
) |
|
(4
|
) |
|
(12
|
) |
|
(20
|
) |
|
(115
|
) |
other
commercial |
(71
|
) |
|
(3
|
) |
|
(13
|
) |
|
(49
|
) |
|
(254
|
) |
|
(390
|
) |
Financial4 |
(21
|
) |
|
(2
|
) |
|
|
|
|
(12
|
) |
|
(1
|
) |
|
(36
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recoveries of amounts written off in previous years |
294
|
|
|
39
|
|
|
137
|
|
|
100
|
|
|
264
|
|
|
834
|
|
Personal |
275
|
|
|
36
|
|
|
124
|
|
|
54
|
|
|
197
|
|
|
686
|
|
residential
mortgages |
|
|
|
7
|
|
|
1
|
|
|
|
|
|
11
|
|
|
19
|
|
other
personal |
275
|
|
|
29
|
|
|
123
|
|
|
54
|
|
|
186
|
|
|
667
|
|
Corporate
and commercial |
19
|
|
|
3
|
|
|
8
|
|
|
45
|
|
|
67
|
|
|
142
|
|
commercial,
industrial and international trade |
19
|
|
|
1
|
|
|
6
|
|
|
27
|
|
|
23
|
|
|
76
|
|
commercial
real estate and other property-related |
|
|
|
|
|
|
1
|
|
|
5
|
|
|
|
|
|
6
|
|
other
commercial |
|
|
|
2
|
|
|
1
|
|
|
13
|
|
|
44
|
|
|
60
|
|
Financial4 |
|
|
|
|
|
|
5
|
|
|
1
|
|
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge to income statement1 |
3,411
|
|
|
556
|
|
|
1,089
|
|
|
16,589
|
|
|
2,486
|
|
|
24,131
|
|
Personal |
1,961
|
|
|
160
|
|
|
860
|
|
|
16,006
|
|
|
1,963
|
|
|
20,950
|
|
residential
mortgages |
18
|
|
|
|
|
|
29
|
|
|
4,943
|
|
|
10
|
|
|
5,000
|
|
other
personal |
1,943
|
|
|
160
|
|
|
831
|
|
|
11,063
|
|
|
1,953
|
|
|
15,950
|
|
Corporate and commercial |
1,304
|
|
|
363
|
|
|
220
|
|
|
472
|
|
|
520
|
|
|
2,879
|
|
commercial,
industrial and international trade |
537
|
|
|
316
|
|
|
171
|
|
|
213
|
|
|
336
|
|
|
1,573
|
|
commercial
real estate and other property-related |
540
|
|
|
28
|
|
|
21
|
|
|
132
|
|
|
34
|
|
|
755
|
|
other
commercial |
227
|
|
|
19
|
|
|
28
|
|
|
127
|
|
|
150
|
|
|
551
|
|
Financial4 |
146
|
|
|
33
|
|
|
9
|
|
|
111
|
|
|
3
|
|
|
302
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange and other movements |
(1,238
|
) |
|
(19
|
) |
|
(87
|
) |
|
(364
|
) |
|
(542
|
) |
|
(2,250
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment allowances at 31 December |
3,922
|
|
|
733
|
|
|
1,227
|
|
|
16,090
|
|
|
2,000
|
|
|
23,972
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment allowances against banks: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
individually
assessed |
63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63
|
|
Impairment allowances against customers: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
individually
assessed |
2,005
|
|
|
411
|
|
|
448
|
|
|
192
|
|
|
228
|
|
|
3,284
|
|
collectively
assessed3 |
1,854
|
|
|
322
|
|
|
779
|
|
|
15,898
|
|
|
1,772
|
|
|
20,625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment allowances at 31 December |
3,922
|
|
|
733
|
|
|
1,227
|
|
|
16,090
|
|
|
2,000
|
|
|
23,972
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
%
|
|
|
%
|
|
|
%
|
|
|
%
|
|
|
%
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment
allowances against customers as a percentage of loans and advances to customers: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
individually
assessed |
0.47
|
|
|
0.41
|
|
|
0.41
|
|
|
0.07
|
|
|
0.51
|
|
|
0.34
|
|
collectively
assessed |
0.43
|
|
|
0.32
|
|
|
0.71
|
|
|
5.84
|
|
|
4.00
|
|
|
2.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 31 December |
0.90
|
|
|
0.73
|
|
|
1.12
|
|
|
5.91
|
|
|
4.51
|
|
|
2.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
226
Back
to Contents
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rest of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hong
|
|
|
Asia-
|
|
|
North
|
|
|
Latin
|
|
|
|
|
|
|
Europe
|
|
|
Kong
|
|
|
Pacific
|
|
|
America
|
|
|
America
|
|
|
Total
|
|
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment allowances at 1 January |
|
3,683
|
|
|
365
|
|
|
901
|
|
|
7,247
|
|
|
1,389
|
|
|
13,585
|
|
Amounts written off |
|
(2,940
|
) |
|
(251
|
) |
|
(724
|
) |
|
(7,444
|
) |
|
(1,485
|
) |
|
(12,844
|
) |
Personal |
|
(2,402
|
) |
|
(180
|
) |
|
(615
|
) |
|
(7,273
|
) |
|
(1,200
|
) |
|
(11,670
|
) |
residential
mortgages |
|
(7
|
) |
|
(8
|
) |
|
(16
|
) |
|
(878
|
) |
|
(21
|
) |
|
(930
|
) |
other
personal |
|
(2,395
|
) |
|
(172
|
) |
|
(599
|
) |
|
(6,395
|
) |
|
(1,179
|
) |
|
(10,740
|
) |
Corporate and commercial |
|
(533
|
) |
|
(71
|
) |
|
(109
|
) |
|
(166
|
) |
|
(284
|
) |
|
(1,163
|
) |
commercial,
industrial and international trade |
|
(371
|
) |
|
(57
|
) |
|
(94
|
) |
|
(122
|
) |
|
(253
|
) |
|
(897
|
) |
commercial
real estate and other property-related |
|
(72
|
) |
|
(4
|
) |
|
(5
|
) |
|
(14
|
) |
|
(3
|
) |
|
(98
|
) |
other
commercial |
|
(90
|
) |
|
(10
|
) |
|
(10
|
) |
|
(30
|
) |
|
(28
|
) |
|
(168
|
) |
Financial4 |
|
(5
|
) |
|
|
|
|
|
|
|
(5
|
) |
|
(1
|
) |
|
(11
|
) |
Recoveries of amounts written off in previous years |
|
542
|
|
|
43
|
|
|
124
|
|
|
62
|
|
|
234
|
|
|
1,005
|
|
Personal |
|
468
|
|
|
36
|
|
|
100
|
|
|
29
|
|
|
204
|
|
|
837
|
|
residential
mortgages |
|
|
|
|
6
|
|
|
3
|
|
|
1
|
|
|
9
|
|
|
19
|
|
other
personal |
|
468
|
|
|
30
|
|
|
97
|
|
|
28
|
|
|
195
|
|
|
818
|
|
Corporate and commercial |
|
66
|
|
|
7
|
|
|
23
|
|
|
31
|
|
|
30
|
|
|
157
|
|
commercial,
industrial and international trade |
|
14
|
|
|
5
|
|
|
10
|
|
|
21
|
|
|
24
|
|
|
74
|
|
commercial
real estate and other property-related |
|
19
|
|
|
1
|
|
|
7
|
|
|
1
|
|
|
1
|
|
|
29
|
|
other
commercial |
|
33
|
|
|
1
|
|
|
6
|
|
|
9
|
|
|
5
|
|
|
54
|
|
Financial4 |
|
8
|
|
|
|
|
|
1
|
|
|
2
|
|
|
|
|
|
11
|
|
Charge to income statement1 |
|
2,543
|
|
|
212
|
|
|
614
|
|
|
12,111
|
|
|
1,697
|
|
|
17,177
|
|
Personal |
|
2,035
|
|
|
157
|
|
|
550
|
|
|
11,854
|
|
|
1,372
|
|
|
15,968
|
|
residential
mortgages |
|
7
|
|
|
(14
|
) |
|
16
|
|
|
1,784
|
|
|
47
|
|
|
1,840
|
|
other
personal |
|
2,028
|
|
|
171
|
|
|
534
|
|
|
10,070
|
|
|
1,325
|
|
|
14,128
|
|
Corporate and commercial |
|
499
|
|
|
53
|
|
|
63
|
|
|
236
|
|
|
325
|
|
|
1,176
|
|
commercial,
industrial and international trade |
|
353
|
|
|
57
|
|
|
82
|
|
|
125
|
|
|
280
|
|
|
897
|
|
commercial
real estate and other property-related |
|
119
|
|
|
(4
|
) |
|
(21
|
) |
|
52
|
|
|
6
|
|
|
152
|
|
other
commercial |
|
27
|
|
|
|
|
|
2
|
|
|
59
|
|
|
39
|
|
|
127
|
|
Financial4 |
|
12
|
|
|
2
|
|
|
1
|
|
|
21
|
|
|
|
|
|
36
|
|
Governments |
|
(3
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(3
|
) |
Exchange and other movements |
|
110
|
|
|
7
|
|
|
11
|
|
|
4
|
|
|
157
|
|
|
289
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment
allowances at 31 December |
|
3,938
|
|
|
376
|
|
|
926
|
|
|
11,980
|
|
|
1,992
|
|
|
19,212
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment
allowances against banks: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
individually
assessed |
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7
|
|
Impairment
allowances against customers: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
individually
assessed |
|
1,846
|
|
|
132
|
|
|
349
|
|
|
119
|
|
|
253
|
|
|
2,699
|
|
collectively
assessed3 |
|
2,085
|
|
|
244
|
|
|
577
|
|
|
11,861
|
|
|
1,739
|
|
|
16,506
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment
allowances at 31 December |
|
3,938
|
|
|
376
|
|
|
926
|
|
|
11,980
|
|
|
1,992
|
|
|
19,212
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
%
|
|
|
%
|
|
|
%
|
|
|
%
|
|
|
%
|
|
|
%
|
|
Impairment
allowances against customers as a percentage of loans and advances to
customers: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
individually
assessed |
|
0.40
|
|
|
0.15
|
|
|
0.34
|
|
|
0.04
|
|
|
0.51
|
|
|
0.27
|
|
collectively
assessed |
|
0.46
|
|
|
0.27
|
|
|
0.56
|
|
|
3.93
|
|
|
3.48
|
|
|
1.65
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 31 December |
|
0.86
|
|
|
0.42
|
|
|
0.90
|
|
|
3.97
|
|
|
3.99
|
|
|
1.92
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
See table below Net loan impairment
charge to the income statement by geographical region. |
2 |
In 2004, Charge to income statement
was Net charge to profit and loss account; Impairment
allowances were Provisions; Individually assessed
impairment allowances were Specific provisions; and Collectively
assessed impairment allowances were General provisions. |
3 |
Collectively assessed impairment allowances
(2004: General provisions) are allocated to geographical
segments based on the location of the office booking the allowances
or provisions.
Consequently, the collectively assessed impairment allowances booked in
Hong Kong may cover assets booked in branches located outside Hong Kong,
principally in Rest of Asia-Pacific, as well as those booked in Hong Kong. |
4 |
Includes movement in impairment allowances
against banks. |
227
Back to Contents
H S B C H O L D I
N G S P L C |
|
Report of the
Directors: Risk (continued) |
|
|
|
|
Credit risk > Impairment
allowances > Charge / 2008 |
Individually and collectively assessed charge to impairment allowances by
industry segment
(Unaudited)
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually |
|
|
Collectively |
|
|
|
|
|
Individually |
|
|
Collectively |
|
|
|
|
|
|
assessed |
|
|
assessed |
|
|
Total |
|
|
assessed |
|
|
assessed |
|
|
Total |
|
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Banks |
|
54 |
|
|
|
|
|
54 |
|
|
|
|
|
|
|
|
|
|
Personal |
|
110 |
|
|
20,840 |
|
|
20,950 |
|
|
54 |
|
|
15,914 |
|
|
15,968 |
|
Residential mortgages |
|
26 |
|
|
4,974 |
|
|
5,000 |
|
|
13 |
|
|
1,827 |
|
|
1,840 |
|
Other personal |
|
84 |
|
|
15,866 |
|
|
15,950 |
|
|
41 |
|
|
14,087 |
|
|
14,128 |
|
Corporate and commercial |
|
1,782 |
|
|
1,097 |
|
|
2,879 |
|
|
722 |
|
|
451 |
|
|
1,173 |
|
Commercial,
industrial and international trade |
|
912 |
|
|
661 |
|
|
1,573 |
|
|
584 |
|
|
313 |
|
|
897 |
|
Commercial
real estate and other property-related |
|
613 |
|
|
142 |
|
|
755 |
|
|
84 |
|
|
67 |
|
|
151 |
|
Other commercial |
|
257 |
|
|
294 |
|
|
551 |
|
|
54 |
|
|
71 |
|
|
125 |
|
Financial |
|
118 |
|
|
130 |
|
|
248 |
|
|
20 |
|
|
16 |
|
|
36 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
charge to income statement |
|
2,064 |
|
|
22,067 |
|
|
24,131 |
|
|
796 |
|
|
16,381 |
|
|
17,177 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge for impairment losses
The following tables analysing the net loan impairment charge to the income statement
are
followed by a discussion of the material movements in loan impairment charges
by region.
|
|
Net loan impairment charge to the income statement
(Unaudited) |
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
US$m
|
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
Individually assessed impairment allowances1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New allowances |
|
2,742
|
|
|
1,533
|
|
|
1,297
|
|
|
1,715
|
|
|
8,872
|
|
Release of allowances
no longer required |
|
(565
|
) |
|
(608
|
) |
|
(711
|
) |
|
(998
|
) |
|
(1,266
|
) |
Recoveries of
amounts previously written off |
|
(113
|
) |
|
(129
|
) |
|
(128
|
) |
|
(199
|
) |
|
(913
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,064
|
|
|
796
|
|
|
458
|
|
|
518
|
|
|
6,693
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collectively assessed impairment allowances1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New allowances
net of allowance releases |
|
22,788
|
|
|
17,257
|
|
|
10,740
|
|
|
8,425
|
|
|
|
|
Release of allowances
no longer required |
|
|
|
|
|
|
|
|
|
|
(788
|
) |
|
|
|
Recoveries of
amounts previously written off |
|
(721
|
) |
|
(876
|
) |
|
(651
|
) |
|
(295
|
) |
|
|
|
General provisions |
|
|
|
|
|
|
|
|
|
|
|
|
|
(498
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,067
|
|
|
16,381
|
|
|
10,089
|
|
|
7,342
|
|
|
(498
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total charge for impairment losses1 |
|
24,131
|
|
|
17,177
|
|
|
10,547
|
|
|
7,860
|
|
|
6,195
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Banks |
|
54
|
|
|
|
|
|
(3
|
) |
|
(7
|
) |
|
(10
|
) |
Customers |
|
24,077
|
|
|
17,177
|
|
|
10,550
|
|
|
7,867
|
|
|
6,205
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
%
|
|
|
%
|
|
|
%
|
|
|
%
|
|
|
%
|
|
Charge
for impairment losses as a percentage of closing gross loans and advances1 |
|
2.17
|
|
|
1.39
|
|
|
0.99
|
|
|
0.90
|
|
|
0.91
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US$m
|
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
At 31 December |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans1,2 |
|
25,422
|
|
|
19,594
|
|
|
15,086
|
|
|
12,360
|
|
|
13,057
|
|
Impairment allowances1 |
|
23,972
|
|
|
19,212
|
|
|
13,585
|
|
|
11,366
|
|
|
12,542
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
In 2004, Individually assessed impairment
allowances were Specific provisions; Collectively
assessed impairment allowances were General provisions;
Total charge for impairment losses was Bad and doubtful
debt charge; Impaired loans were Non- performing
loans and Impairment allowances were Provisions.
|
2 |
Impaired loans for 2007 have been restated
as a result of the reclassification of an element of a credit card portfolio
as impaired. There has been no effect on impairment allowances. |
228
Back
to Contents
Net loan impairment charge to the income statement
by geographical region
(Unaudited) |
|
|
|
|
|
|
|
Rest of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hong
|
|
|
Asia-
|
|
|
North
|
|
|
Latin
|
|
|
|
|
|
Europe
|
|
|
Kong
|
|
|
Pacific
|
|
|
America
|
|
|
America
|
|
|
Total
|
|
|
US$m
|
|
|
US$m
|
|
|
US$m
|
|
|
US$m
|
|
|
US$m
|
|
|
US$m
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually
assessed impairment allowances |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New
allowances |
1,567
|
|
|
365
|
|
|
253
|
|
|
397
|
|
|
160
|
|
|
2,742
|
|
Release
of allowances no longer required |
(340
|
) |
|
(25
|
) |
|
(89
|
) |
|
(80
|
) |
|
(31
|
) |
|
(565
|
) |
Recoveries
of amounts previously written off |
(38
|
) |
|
(10
|
) |
|
(20
|
) |
|
(40
|
) |
|
(5
|
) |
|
(113
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,189
|
|
|
330
|
|
|
144
|
|
|
277
|
|
|
124
|
|
|
2,064
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collectively
assessed impairment allowances |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New
allowances net of allowance releases |
2,478
|
|
|
255
|
|
|
1,062
|
|
|
16,372
|
|
|
2,621
|
|
|
22,788
|
|
Recoveries
of amounts previously written off |
(256
|
) |
|
(29
|
) |
|
(117
|
) |
|
(60
|
) |
|
(259
|
) |
|
(721
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,222
|
|
|
226
|
|
|
945
|
|
|
16,312
|
|
|
2,362
|
|
|
22,067
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
charge for impairment losses |
3,411
|
|
|
556
|
|
|
1,089
|
|
|
16,589
|
|
|
2,486
|
|
|
24,131
|
|
Banks |
54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
54
|
|
Customers |
3,357
|
|
|
556
|
|
|
1,089
|
|
|
16,589
|
|
|
2,486
|
|
|
24,077
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
%
|
|
|
%
|
|
|
%
|
|
|
%
|
|
|
%
|
|
|
%
|
|
Charge
for impairment losses as a percentage of closing gross loans and advances |
0.68
|
|
|
0.43
|
|
|
0.75
|
|
|
5.85
|
|
|
4.22
|
|
|
2.17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US$m
|
|
|
US$m
|
|
|
US$m
|
|
|
US$m
|
|
|
US$m
|
|
|
US$m
|
|
At 31 December 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans |
6,844
|
|
|
852
|
|
|
1,114
|
|
|
14,285
|
|
|
2,327
|
|
|
25,422
|
|
Impairment allowances |
3,922
|
|
|
733
|
|
|
1,227
|
|
|
16,090
|
|
|
2,000
|
|
|
23,972
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually
assessed impairment allowances |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New
allowances |
781 |
|
|
103 |
|
|
211 |
|
|
228 |
|
|
210 |
|
|
1,533 |
|
Release
of allowances no longer required |
(388 |
) |
|
(32 |
) |
|
(96 |
) |
|
(54 |
) |
|
(38 |
) |
|
(608 |
) |
Recoveries
of amounts previously written off |
(38 |
) |
|
(14 |
) |
|
(32 |
) |
|
(26 |
) |
|
(19 |
) |
|
(129 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
355 |
|
|
57 |
|
|
83 |
|
|
148 |
|
|
153 |
|
|
796 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collectively
assessed impairment allowances |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New
allowances net of allowance releases |
2,692 |
|
|
184 |
|
|
623 |
|
|
11,999 |
|
|
1,759 |
|
|
17,257 |
|
Recoveries
of amounts previously written off |
(504 |
) |
|
(29 |
) |
|
(92 |
) |
|
(36 |
) |
|
(215 |
) |
|
(876 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,188 |
|
|
155 |
|
|
531 |
|
|
11,963 |
|
|
1,544 |
|
|
16,381 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
charge for impairment losses |
2,543 |
|
|
212 |
|
|
614 |
|
|
12,111 |
|
|
1,697 |
|
|
17,177 |
|
Customers |
2,543 |
|
|
212 |
|
|
614 |
|
|
12,111 |
|
|
1,697 |
|
|
17,177 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% |
|
|
% |
|
|
% |
|
|
% |
|
|
% |
|
|
% |
|
Charge
for impairment losses as a percentage of closing gross loans and advances |
0.45 |
|
|
0.14 |
|
|
0.43 |
|
|
3.80 |
|
|
2.71 |
|
|
1.39 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
At 31 December 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans1 |
6,266 |
|
|
433 |
|
|
1,088 |
|
|
9,662 |
|
|
2,145 |
|
|
19,594 |
|
Impairment allowances |
3,938 |
|
|
376 |
|
|
926 |
|
|
11,980 |
|
|
1,992 |
|
|
19,212 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
The 2007 impaired loans for North America have been restated as a result
of the reclassification of an element of a credit card portfolio as impaired.
There has been no effect
on impairment allowances. |
|
2008 compared
with 2007
(Unaudited)
Loan impairment charges increased by 40 per cent
to US$24.1 billion from
US$17.2 billion in 2007. The commentary that follows is on a constant currency
basis.
New allowances for loan impairment charges rose by 37 per cent compared with 2007. Releases
and recoveries of allowances declined by 10 per
cent to US$1.4
billion.
In Europe,
new loan impairment
charges were US$4.0 billion, a rise of 24 per cent compared with 2007. This
primarily reflected higher impairment charges in Global Banking and Markets following
a significant charge against a single European commercial real estate corporate
customer.
229
Back to Contents
H S B C H O L
D I N G S P L C |
|
Report
of the Directors: Risk (continued) |
|
|
|
|
Credit risk > Impairment
allowances > Charge > 2008 / 2007 |
Impairment charges against banks rose in the UK
due to exposures to the Icelandic banks in 2008. New loan impairment charges
rose in Turkey
as delinquency rates rose across credit cards, personal loans and corporate
lending in light of the deteriorating economic environment. Elsewhere, impairment
charges on the commercial portfolio rose in the UK, particularly in the final
quarter of 2008 as the weakening property market led to
higher impairment charges against construction companies and businesses dependent
upon the real estate sector. In France, the impact of declining commercial
credit quality more than offset lower balances. Impairment allowances against
firms in the financial sector rose due to exposure to a single asset management
firm in the UK. Credit quality in the UK personal lending portfolio remained
broadly stable, reflecting the strength of HSBCs loan book in a period of significant economic
uncertainty. Mortgage lending in the UK remained well secured as risk mitigation actions taken since 2006 reduced risk exposure to some of the problems now being uncovered in the UK residential property market. Credit quality in the unsecured
portfolios of M&S Money, HSBC Bank and Partnership Cards deteriorated slightly
in 2008, particularly in the second half of the year, due to the weakening UK
economy.
Releases and recoveries in Europe declined by 27 per cent, driven by the deterioration in economic conditions.
In Hong Kong, new loan impairment charges more than doubled from a low base, driven by deterioration in credit quality in the commercial portfolio in the second half of the year as the economy and trade flows weakened. Residential mortgage
lending continued to be well-secured, as regulatory restrictions constrained origination loan-to-value ratios to below 70 per cent.
In Rest of Asia-Pacific,
new
loan impairment charges rose by 59 per cent to US$1.3 billion, primarily
in India and the Middle East. Higher impairment charges in India were driven
by a combination of rising delinquency rates in consumer lending, as credit conditions
deteriorated, and increased lending. Increased charges in the Middle East were
due to rising delinquencies as growth rates declined and the property market
retreated as economic conditions deteriorated on the back of lower oil and
gas prices.
New loan impairment charges in North America rose
by 37 per cent to US$16.8 billion, driven by the continued deterioration
in credit quality in the HSBC Finance loan portfolio and, to a lesser extent,
in HSBC USA.
US credit quality showed significant deterioration across the portfolio, driven by the continued weakness of the US economy. The reasons behind the
deterioration in US credit quality, the effects on the US personal lending portfolio and actions taken as a result are discussed in more detail on page 210. Partly offsetting the effect of the deterioration was a reduction in overall lending as HSBC
continued to reduce its exposure in the US.
In US card and retail services, impairment charges rose, driven by portfolio seasoning, higher levels of personal bankruptcy filings and continued weakness
in the US economy. Delinquency increased in the geographical regions most affected by house price falls and rising unemployment.
In Commercial Banking, impairment charges rose from a low base driven by deterioration in the commercial real estate loan book in the US, and higher
impairment charges against firms in the manufacturing, export and commercial real estate sectors in Canada. Higher impairment charges in Global Banking and Markets reflected weaker credit fundamentals in the US in 2008. Impairment allowances against
firms in the financial sector rose due to rising delinquencies, despite government intervention.
Releases and
recoveries in North America
rose by 55 per cent to US$180 million.
In Latin America,
new loan
impairment charges rose by 37 per cent to US$2.8 billion. The most significant
increase was in Mexico, reflecting higher impairment charges in the credit card
portfolio due to a combination of higher average balances from organic expansion
and growing delinquency rates driven by a deterioration in credit quality as
the 2006 and 2007 vintages continued to season and move into later stages of
delinquency. Management action to improve the quality of new
business included tightened underwriting, enhanced collection strategies and
better managed customer acquisition channels. The commercial portfolio in Mexico
also experienced higher impairment charges due to credit quality deterioration
among small and medium sized enterprises as the economy weakened. In Brazil,
higher impairment charges were driven by a combination of balance growth and
credit quality deterioration in the vehicle finance and payroll loan portfolios.
2007 compared with 2006
(Unaudited)
Loan impairment charges rose by 63 per cent to
US$17.2 billion from US$10.5
billion in 2006. The
230
Back to Contents
commentary that follows is on a constant currency basis:
New allowances for loan impairment charges rose
by 52 per cent, compared with 2006. Releases and recoveries of allowances
increased by 1 per cent to US$1.6 billion.
In Europe, new loan impairment charges
were US$3.5 billion, a rise of 8 per cent compared with 2006. This partly
reflected growth in commercial lending, where charges remained low compared
with historical amounts but rose from the exceptionally low levels experienced
in 2005 and 2006. Increased charges also reflected growth in credit card
lending in Turkey. In the UK, refinements to the methodology used to calculate
roll rate percentages resulted in a higher charge in the consumer finance
operations in the first half of the year. Excluding this, loan impairment
charges were marginally lower than in 2006.
Releases and recoveries in Europe were broadly in line with 2006.
In Hong Kong, new
loan impairment
charges of US$287 million were recorded, an increase of 19 per cent, due
to the growth in credit card balances and new corporate loan charges.
Releases and
recoveries in Hong Kong
decreased to US$75 million, primarily in the corporate sector. This reflected
the low level of allowances added in
recent years.
In Rest of Asia-Pacific,
new
loan impairment charges rose by 10 per cent to US$834 million, with higher
loan impairment charges arising in the commercial loan books in Thailand and
Malaysia. This was offset by a decline in loan impairment charges for personal
lending, particularly in Taiwan and Indonesia, where charges returned to more
regular levels after an upsurge in 2006 due to regulatory changes which affected
collection activity and minimum payments.
With corporate
and commercial loan impairment charges low in recent years, releases and
recoveries decreased by
6 per cent to US$220 million.
New loan impairment charges in North America rose
by 76 per cent to US$12.2 billion, driven by the continued deterioration
in credit quality in the US consumer finance loan portfolio.
US credit quality deteriorated as mortgage delinquencies rose, house prices declined, refinancing credit became less available in the market and the
macroeconomic outlook worsened.
Other factors affecting the rise in US loan impairment charges included normal seasoning of the portfolio, a higher proportion of unsecured personal lending
and a return to historical norms from the unusually low levels of bankruptcy filings experienced in 2006, following changes enacted to US bankruptcy law in 2005.
Delinquency rates rose across all parts of the HSBC Finance personal lending portfolio, with mortgage services and consumer lending experiencing significant
rises in delinquency which flowed through subsequent stages through to foreclosure. As the housing downturn began to have more effect on the broader economy, delinquency rates in credit cards and vehicle finance rose in the final quarter of 2007. A
change in product mix in the cards portfolio towards higher yielding products also contributed to higher impairment charges as this segment of the portfolio seasoned.
Releases and
recoveries in North America
decreased to US$116 million. In the US consumer finance business, collection
staff increased in all lending portfolios as part of the response to the deteriorating
credit environment.
In Latin America,
new loan
impairment charges rose by 63 per cent to US$2.0 billion. The most significant
increase was registered in Mexico, reflecting strong growth in balances, normal
portfolio seasoning and a rise in delinquency rates in credit cards. Charges
for commercial lending in Mexico fell as increased delinquency rates in the small
and medium-sized business portfolios were offset by impairment allowance releases.
Products with high credit losses were discontinued or
restructured. Loan impairment charges in Brazil rose marginally, due to growth
in store loans and credit cards.
Releases and
recoveries in Latin America
increased to US$272 million. In Brazil, credit models were changed during
2007 to align with credit behaviour in
underlying portfolios.
231
Back to Contents
H S B C H O L
D I N G S P L C |
|
Report
of the Directors: Risk (continued) |
|
|
|
|
Credit risk > Impairment
allowances > Charge // HSBC Holdings / Risk element |
Charge for impairment losses as a percentage
of average gross
loans and advances to customers
(Unaudited)
|
2008
|
|
2007
|
|
2006
|
|
2005
|
|
2004
|
|
|
%
|
|
%
|
|
%
|
|
%
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
New allowances net of allowance releases1
|
2.54
|
|
2.09
|
|
1.49
|
|
1.25
|
|
1.41
|
|
Recoveries1
|
(0.09
|
) |
(0.12
|
) |
(0.10
|
) |
(0.09
|
) |
(0.35
|
) |
|
|
|
|
|
|
|
|
|
|
|
Total charge for impairment losses1
|
2.45
|
|
1.97
|
|
1.39
|
|
1.16
|
|
1.06
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount written off net of recoveries |
1.75
|
|
1.36
|
|
1.15
|
|
1.26
|
|
1.26
|
|
|
|
1 |
In 2004, New allowances were New provisions; Recoveries were Releases
and recoveries; and Total charge for impairment
losses was Total provisions charged. |
Charge for impairment losses as a percentage of average gross loans and advances
to customers by geographical region
(Unaudited)
|
|
|
|
|
Rest of
|
|
|
|
|
|
|
|
|
|
|
Hong
|
|
Asia-
|
|
North
|
|
Latin
|
|
|
|
|
Europe
|
|
Kong
|
|
Pacific
|
|
America
|
|
America
|
|
Total
|
|
|
%
|
|
%
|
|
%
|
|
%
|
|
%
|
|
%
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
New allowances net of allowance releases |
0.86
|
|
0.63
|
|
1.06
|
|
5.73
|
|
5.32
|
|
2.54
|
|
Recoveries |
(0.07
|
) |
(0.04
|
) |
(0.12
|
) |
(0.03
|
) |
(0.51
|
) |
(0.09
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total charge for impairment losses |
0.79
|
|
0.59
|
|
0.94
|
|
5.70
|
|
4.81
|
|
2.45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount written off net of recoveries |
0.52
|
|
0.19
|
|
0.61
|
|
4.16
|
|
3.73
|
|
1.75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
New allowances net of allowance releases |
0.86
|
|
0.29
|
|
0.83
|
|
4.20
|
|
4.55
|
|
2.09
|
|
Recoveries |
(0.15
|
) |
(0.05
|
) |
(0.14
|
) |
(0.02
|
) |
(0.55
|
) |
(0.12
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total charge for impairment losses |
0.71
|
|
0.24
|
|
0.69
|
|
4.18
|
|
4.00
|
|
1.97
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount written off net of recoveries |
0.67
|
|
0.23
|
|
0.67
|
|
2.55
|
|
2.95
|
|
1.36
|
|
HSBC Holdings
(Audited)
Credit risk arises in HSBC Holdings primarily from transactions with Group
subsidiaries and from guarantees issued in support of obligations assumed by
certain Group operations in the
normal conduct of their business.
These risks are reviewed and managed within regulatory and internal limits for exposures by the HSBC Global Risk function, which provides high-
level, centralised oversight and management of
HSBCs
credit risks world-wide.
No collateral or other credit enhancements were held by HSBC Holdings in respect of its transactions with subsidiary undertakings.
HSBC Holdings maximum exposure to credit risk at 31 December 2008 is shown below. HSBC Holdings financial
assets principally represent claims on Group subsidiaries in Europe and North
America.
HSBC Holdings maximum exposure to credit risk |
|
|
|
|
|
Maximum exposure |
|
|
|
|
|
|
|
2008 |
|
2007 |
|
|
US$m |
|
US$m |
|
|
|
|
|
|
Derivatives |
3,682 |
|
2,660 |
|
Loans and advances to HSBC undertakings |
11,804 |
|
17,242 |
|
Financial investments |
2,629 |
|
3,022 |
|
Financial guarantees |
47,341 |
|
38,457 |
|
Loan commitments and other credit-related commitments |
3,241 |
|
3,638 |
|
|
|
|
|
|
|
68,697 |
|
65,019 |
|
|
|
|
|
|
232
Back to Contents
All of the derivative
transactions are with HSBC undertakings which are banking counterparties
(2007: 100 per
cent).
The credit quality
of loans and advances to HSBC undertakings is assessed as satisfactory risk,
with
100 per cent of the exposure being neither past due nor impaired (2007: 100
per cent).
The long-term
debt ratings of HSBC Group issuers of financial investments are within
the Standard & Poors ratings range of AA to AA+ (2007:
AA to AA+).
Risk elements in the loan portfolio
(Unaudited)
The disclosure of credit risk elements under the following headings reflects
US accounting practice and classifications for publicly traded bank holding companies:
• |
loans accounted for on a non-accrual basis; |
|
|
• |
accruing loans contractually past due 90 days or more as to interest or principal;
and |
|
|
• |
troubled debt restructurings not included in the above. |
Interest forgone on impaired loans
(Audited)
Interest income that would have been recognised
under the original terms of impaired and restructured loans amounted to approximately
US$1.9 billion in 2008 (2007:
US$1.1
billion). Interest income from such loans of approximately US$702 million
(2007: US$374
million) was recorded in 2008.
Troubled debt restructurings
The SEC requires separate disclosure of any loans
whose terms have been modified because of problems with the borrower to grant
concessions
other than are warranted
by market conditions.
These are classified as troubled debt restructurings (TDRs). The
definition of TDRs differs from the Renegotiated loans that would otherwise
be past due or impaired quantified on page 216 insofar as for TDRs the
delinquency status of the loan following restructuring may continue to be past
due not impaired or, where appropriate, impaired. In addition, the classification
of a loan as a TDR may be discontinued after the first year if the debt performs
in accordance with
the new terms.
Troubled debt restructurings
increased by 47 per cent in 2008, reflecting measures taken to mitigate risk
in the US consumer finance business in response to the deterioration in mortgage
loans.
Unimpaired loans past due 90 days or more
Unimpaired loans contractually past due 90 days or more increased. Figures for
2004 to 2007 have been restated due to the reclassification of an element of
the North America credit card portfolio as impaired. There has been no effect
on impairment allowances.
Impaired loans
In accordance with IFRSs, HSBC recognises interest income on assets after they
have been written down as a result of an impairment loss. In the following tables,
HSBC represents information on its impaired loans and advances in accordance
with the disclosure convention described on page 217.
Potential problem loans
Credit risk elements also cover potential problem
loans. These are loans where information on possible credit problems among
borrowers causes
management to
seriously doubt their ability to comply with the loan repayment terms. There
are no potential problem loans other than those identified in the table of risk
elements set out below, and as discussed in Areas of special interest on
page 210. Areas of special
interest includes further disclosure about certain homogeneous groups of
loans which are collectively assessed for impairment, and represent the Groups
most significant exposures to potential problem loans, including ARMs and stated-income
products. Collectively assessed loans and advances, as set out on page 223, although
not classified as impaired until more than 90 days, are assessed collectively
for losses that have been incurred but have not yet been individually identified.
This policy is further described on page 196.
Risk elements
The following table provides an analysis of risk elements in the loan portfolios
at 31 December for the past five years.
233
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H S B C H O L
D I N G S P L C |
|
Report of the Directors: Risk (continued) |
|
|
|
Credit risk > Risk
elements / Liquidity and funding > Policies / Primary sources of
funding |
Analysis of risk elements
(Unaudited)
|
At 31 December |
|
|
|
|
|
2008 |
|
2007 |
|
2006 |
|
2005 |
|
2004 |
|
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
Impaired loans |
|
|
|
|
|
|
|
|
|
|
Europe |
6,844 |
|
6,266 |
|
5,858 |
|
5,081 |
|
6,053 |
|
Hong Kong |
852 |
|
433 |
|
454 |
|
506 |
|
696 |
|
Rest of Asia-Pacific |
1,114 |
|
1,088 |
|
1,188 |
|
945 |
|
1,172 |
|
North America1 |
14,285 |
|
9,662 |
|
6,108 |
|
4,602 |
|
4,204 |
|
Latin America |
2,327 |
|
2,145 |
|
1,478 |
|
1,226 |
|
932 |
|
|
|
|
|
|
|
|
|
|
|
|
|
25,422 |
|
19,594 |
|
15,086 |
|
12,360 |
|
13,057 |
|
|
|
|
|
|
|
|
|
|
|
|
Troubled debt restructurings |
|
|
|
|
|
|
|
|
|
|
Europe |
366 |
|
648 |
|
360 |
|
239 |
|
213 |
|
Hong Kong |
165 |
|
146 |
|
189 |
|
198 |
|
436 |
|
Rest of Asia-Pacific |
119 |
|
34 |
|
73 |
|
121 |
|
56 |
|
North America |
5,618 |
|
3,322 |
|
1,712 |
|
1,417 |
|
1,600 |
|
Latin America |
1,067 |
|
848 |
|
915 |
|
878 |
|
830 |
|
|
|
|
|
|
|
|
|
|
|
|
|
7,335 |
|
4,998 |
|
3,249 |
|
2,853 |
|
3,135 |
|
|
|
|
|
|
|
|
|
|
|
|
Unimpaired loans
contractually past due 90 days
or more as to principal or interest |
|
|
|
|
|
|
|
|
|
|
Europe |
635 |
|
202 |
|
237 |
|
592 |
|
68 |
|
Hong Kong |
43 |
|
49 |
|
79 |
|
74 |
|
67 |
|
Rest of Asia-Pacific |
274 |
|
156 |
|
78 |
|
40 |
|
56 |
|
North America1 |
108 |
|
24 |
|
78 |
|
32 |
|
567 |
|
Latin America |
21 |
|
421 |
|
165 |
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,081 |
|
852 |
|
637 |
|
742 |
|
758 |
|
|
|
|
|
|
|
|
|
|
|
|
Trading loans classified as in default2 |
|
|
|
|
|
|
|
|
|
|
North America |
561 |
|
675 |
|
127 |
|
11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk elements on loans |
|
|
|
|
|
|
|
|
|
|
Europe |
7,845 |
|
7,116 |
|
6,455 |
|
5,912 |
|
6,334 |
|
Hong Kong |
1,060 |
|
628 |
|
722 |
|
778 |
|
1,199 |
|
Rest of Asia-Pacific |
1,507 |
|
1,278 |
|
1,339 |
|
1,106 |
|
1,284 |
|
North America |
20,572 |
|
13,683 |
|
8,025 |
|
6,062 |
|
6,371 |
|
Latin America |
3,415 |
|
3,414 |
|
2,558 |
|
2,108 |
|
1,762 |
|
|
|
|
|
|
|
|
|
|
|
|
|
34,399 |
|
26,119 |
|
19,099 |
|
15,966 |
|
16,950 |
|
|
|
|
|
|
|
|
|
|
|
|
Assets held for resale |
|
|
|
|
|
|
|
|
|
|
Europe |
81 |
|
59 |
|
30 |
|
205 |
|
27 |
|
Hong Kong |
26 |
|
29 |
|
42 |
|
49 |
|
75 |
|
Rest of Asia-Pacific |
13 |
|
7 |
|
17 |
|
31 |
|
21 |
|
North America |
1,758 |
|
1,172 |
|
999 |
|
582 |
|
664 |
|
Latin America |
113 |
|
101 |
|
91 |
|
103 |
|
44 |
|
|
|
|
|
|
|
|
|
|
|
|
|
1,991 |
|
1,368 |
|
1,179 |
|
970 |
|
831 |
|
|
|
|
|
|
|
|
|
|
|
|
Total risk elements |
|
|
|
|
|
|
|
|
|
|
Europe |
7,926 |
|
7,175 |
|
6,485 |
|
6,117 |
|
6,361 |
|
Hong Kong |
1,086 |
|
657 |
|
764 |
|
827 |
|
1,274 |
|
Rest of Asia-Pacific |
1,520 |
|
1,285 |
|
1,356 |
|
1,137 |
|
1,305 |
|
North America |
22,330 |
|
14,855 |
|
9,024 |
|
6,644 |
|
7,035 |
|
Latin America |
3,528 |
|
3,515 |
|
2,649 |
|
2,211 |
|
1,806 |
|
|
|
|
|
|
|
|
|
|
|
|
|
36,390 |
|
27,487 |
|
20,278 |
|
16,936 |
|
17,781 |
|
|
|
|
|
|
|
|
|
|
|
|
|
% |
|
% |
|
% |
|
% |
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
Loan impairment allowances
as a percentage of risk
elements on loans3 |
70.8 |
|
75.5 |
|
71.6 |
|
71.2 |
|
74.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
Restated for 2004 to 2007 as a result of a reclassification from Unimpaired
loans contractually past due 90 days or more as to principal or interest to Impaired,
in respect of an element of a credit card portfolio. |
2 |
Classified as grades 6 and 7 in 2004 to 2007. |
3 |
Ratio excludes trading loans classified as in default. |
234
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Liquidity and funding |
|
(Audited) |
Liquidity risk is the risk that HSBC does not have sufficient financial resources
to meet its obligations as they fall due, or will have to do so at an excessive
cost. This risk arises from mismatches in the timing of cash flows. Funding
risk (a form of liquidity risk) arises when the liquidity needed to fund illiquid
asset positions cannot be obtained at the expected terms and when required.
The objective of HSBCs
liquidity and funding management framework is to ensure that all foreseeable
funding
commitments can be met when due, and that access to the wholesale markets
is co-ordinated and cost-effective. To this end, HSBC maintains a diversified
funding base comprising core retail and corporate customer deposits and institutional
balances. This is augmented with wholesale funding and portfolios of highly
liquid assets diversified by currency and maturity which are held to enable
HSBC to respond quickly and smoothly to unforeseen
liquidity requirements.
HSBC requires its
operating entities to maintain strong liquidity positions and to manage the
liquidity
profiles
of their assets, liabilities and commitments with the objective of ensuring
that their cash flows are balanced appropriately and that all their anticipated
obligations can be met when due.
HSBC adapts its liquidity and
funding risk management framework in response to changes in the mix of business
that it undertakes, and to changes in the nature of the markets in which
it operates. HSBC has continuously monitored the impact of recent market
events on the Groups liquidity positions and has changed behavioural
assumptions where justified. The impact of these recent market events is
discussed more fully below. The liquidity and funding risk management framework
will continue to evolve as the Group assimilates knowledge from the recent
market events.
Policies and procedures
(Audited)
The management of liquidity and funding is primarily
undertaken locally in HSBCs operating entities in compliance with practices and limits set
by the Risk Management Meeting (RMM). These limits vary according
to the depth and liquidity of the market in which the entities operate. It
is HSBCs general policy that each banking entity should be self-sufficient
when funding its own operations. Exceptions are permitted for certain short-term
treasury requirements and start-up operations or branches which do not have
access
to local deposit
markets. These entities are funded from HSBCs
largest banking operations and within clearly defined internal and regulatory
guidelines and limits. These
limits place formal restrictions on the transfer of resources between HSBC
entities and reflect the broad range of currencies, markets and time zones
within which HSBC operates.
HSBCs liquidity
and funding
management process includes:
• |
projecting cash flows by major currency under various stress scenarios and considering
the level of liquid assets necessary in relation thereto; |
|
|
• |
monitoring balance sheet liquidity and advances to deposits ratios against internal
and regulatory requirements; |
|
|
• |
maintaining a diverse range of funding sources with back-up facilities; |
|
|
• |
managing the concentration and profile of debt maturities; |
|
|
• |
managing contingent liquidity commitment exposures within pre-determined caps; |
|
|
• |
maintaining debt financing plans; |
|
|
• |
monitoring depositor concentration in order to avoid undue reliance on large
individual depositors and ensure a satisfactory overall funding mix; and |
|
|
• |
maintaining liquidity and funding contingency plans. These plans identify early
indicators of stress conditions and describe actions to be taken in the event
of difficulties arising from systemic or other crises, while minimising adverse
long-term implications for the business. |
Primary sources of funding
(Audited)
Current accounts and savings deposits payable
on demand or at short notice form
a significant part of HSBCs funding, and the Group places considerable
importance on maintaining their stability. For deposits, stability depends upon
preserving depositor confidence in HSBCs capital strength and liquidity,
and on competitive and transparent pricing.
HSBC also accesses
professional markets in order to provide funding for non-banking subsidiaries
that do not accept deposits, to maintain a presence in local money markets
and to optimise the funding of asset maturities not naturally matched by
core deposit funding. In aggregate, HSBCs banking entities are liquidity
providers to the interbank market, placing significantly more funds with
other
banks than they themselves borrow.
235
Back to Contents
H S B C H O L D I
N G S P L C |
|
Report of the Directors:
Risk (continued) |
|
|
|
|
Liquidity
and funding > Primary sources of funding |
The main operating
subsidiary that does not accept deposits is HSBC Finance, which has historically
funded
itself principally by taking term funding in the professional markets and
by securitising assets. At 31 December 2008,
US$111 billion (2007: US$142 billion) of HSBC Finances
liabilities were drawn from professional markets, utilising a range of products,
maturities
and currencies.
Cash flows payable by HSBC under financial
liabilities by
remaining contractual maturities
(Audited)
|
|
|
|
|
Due |
|
Due |
|
|
|
|
|
|
Due |
|
between |
|
between |
|
Due |
|
|
On |
|
within 3 |
|
3 and 12 |
|
1 and 5 |
|
after 5 |
|
|
demand |
|
months |
|
months |
|
years |
|
years |
|
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
At 31 December 2008 |
|
|
|
|
|
|
|
|
|
|
Deposits by banks |
45,884 |
|
82,514 |
|
8,734 |
|
4,875 |
|
2,356 |
|
Customer accounts |
698,187 |
|
332,207 |
|
69,721 |
|
34,537 |
|
5,798 |
|
Trading liabilities |
247,652 |
|
|
|
|
|
|
|
|
|
Financial liabilities designated at fair value |
5,365 |
|
2,713 |
|
6,969 |
|
34,855 |
|
64,853 |
|
Derivatives |
482,039 |
|
373 |
|
1,479 |
|
2,634 |
|
1,003 |
|
Debt securities in issue |
481 |
|
56,590 |
|
53,174 |
|
68,169 |
|
22,920 |
|
Subordinated liabilities |
92 |
|
686 |
|
1,646 |
|
9,718 |
|
41,701 |
|
Other financial liabilities |
19,474 |
|
26,180 |
|
5,473 |
|
1,472 |
|
1,022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
1,499,174 |
|
501,263 |
|
147,196 |
|
156,260 |
|
139,653 |
|
Loan commitments |
239,753 |
|
105,952 |
|
153,774 |
|
72,111 |
|
32,432 |
|
|
|
|
|
|
|
|
|
|
|
|
|
1,738,927 |
|
607,215 |
|
300,970 |
|
228,371 |
|
172,085 |
|
|
|
|
|
|
|
|
|
|
|
|
At 31 December 2007 |
|
|
|
|
|
|
|
|
|
|
Deposits by banks |
42,793 |
|
78,429 |
|
11,445 |
|
4,208 |
|
5,199 |
|
Customer accounts |
629,227 |
|
391,659 |
|
56,294 |
|
29,445 |
|
6,614 |
|
Trading liabilities |
314,580 |
|
|
|
|
|
|
|
|
|
Financial liabilities designated at fair value |
11,730 |
|
2,083 |
|
8,286 |
|
43,147 |
|
68,726 |
|
Derivatives |
181,009 |
|
113 |
|
873 |
|
1,663 |
|
613 |
|
Debt securities in issue |
635 |
|
90,718 |
|
59,626 |
|
109,054 |
|
38,782 |
|
Subordinated liabilities |
3 |
|
277 |
|
1,951 |
|
10,181 |
|
34,841 |
|
Other financial liabilities |
20,516 |
|
29,812 |
|
5,177 |
|
977 |
|
1,273 |
|
|
|
|
|
|
|
|
|
|
|
|
|
1,200,493 |
|
593,091 |
|
143,652 |
|
198,675 |
|
156,048 |
|
Loan commitments |
312,146 |
|
155,142 |
|
155,565 |
|
113,072 |
|
28,532 |
|
|
|
|
|
|
|
|
|
|
|
|
|
1,512,639 |
|
748,233 |
|
299,217 |
|
311,747 |
|
184,580 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The balances
in the above table will not agree directly with the balances in the consolidated
balance sheet
as the table incorporates, on an undiscounted basis, all cash flows relating
to principal and all future coupon payments (except for trading liabilities
and trading derivatives). Also, loan commitments are generally not recognised
on the balance sheet. Trading liabilities and trading derivatives have been
included in the On demand time bucket, and not by contractual
maturity, because trading liabilities are typically held for short periods
of time. The undiscounted cash flows payable under hedging derivative liabilities
are classified according to their contractual maturity.
Cash flows payable in respect
of customer accounts are primarily contractually repayable on demand or at
short notice. However, in practice, short-term deposit balances remain stable
as inflows and outflows broadly match and a significant portion of loan commitments
expire without being drawn upon.
Advances to deposits ratio
(Audited)
HSBC emphasises the importance of core current
accounts and savings accounts as a source of funds to finance lending to
customers, and
discourages reliance
on short-term professional funding. This is achieved by placing limits on Group
banking entities which restrict their ability to increase loans and advances
to customers without corresponding growth in current accounts and savings accounts.
This measure is referred to as the advances to deposits ratio.
Advances to deposits ratio limits
are set by the RMM and monitored by Group Finance. The ratio describes loans
and advances to customers as a percentage of the total of core customer current
and savings accounts and term funding with a remaining term to maturity in
excess of one year. Loans and advances to customers which are part of reverse
repurchase arrangements, and where HSBC receives
236
Back to Contents
securities which are deemed to be liquid, are
excluded from the advances to deposits ratio, as are current accounts and
savings accounts
from customers
deemed to be non-core. The definition of a non-core deposit includes
a consideration of the size of the customers total deposit balances.
Due to the distinction between core and non-core depositors, the Groups
measure of advances to deposits will be more restrictive than that which could
be inferred from the published financial statements.
The three banking
entities listed in the table below represented 70 per cent of HSBCs total core deposits
at 31 December 2008 (2007: 71 per cent). The table demonstrates that loans
and advances to customers in HSBCs principal banking entities are broadly
financed by reliable and stable sources of funding. HSBC would meet any unexpected
net cash outflows by selling securities and accessing additional funding
sources such as interbank or collateralised lending markets. The Group also
uses measures other than the advances to deposits ratio to manage liquidity
risk, including the ratio of net liquid assets to customer liabilities and
projected cash flow scenario analyses.
Ratio of net liquid assets to customer liabilities
(Audited)
Net liquid assets are liquid assets less all
funds maturing in the next 30 days from wholesale market sources and from
customers who
are deemed to be
professional. For this purpose, HSBC defines liquid assets as cash balances,
short-term interbank deposits and highly-rated debt securities available for
immediate sale and for which a deep and liquid market exists. Contingent liquidity
risk associated with committed loan facilities is not reflected in the ratios.
The Groups framework for monitoring this risk is outlined under Contingent
liquidity risk below.
Limits for the ratio of net liquid
assets to customer liabilities are set for each bank operating entity, except
for HSBC Finance. As HSBC Finance does not accept customer deposits, it is
not appropriate to manage its liquidity using standard liquidity ratios.
The liquidity and funding risk management framework of HSBC Finance is discussed
below.
Ratios of net liquid assets to
customer liabilities are provided in the following table, along with the
US dollar equivalents of net liquid assets.
HSBCs principal banking entities the
management
of liquidity risk
(Audited)
|
|
|
|
|
|
|
|
Ratio of net liquid assets |
|
|
|
|
|
|
|
|
|
Advances to deposits ratios |
|
|
to customer liabilities |
|
|
Net liquid assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
|
|
% |
|
|
% |
|
|
% |
|
|
% |
|
|
US$bn |
|
|
US$bn |
|
HSBC Bank (UK operations) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year-end |
106.0 |
|
|
97.5 |
|
|
7.1 |
|
|
12.1 |
|
|
21.3 |
|
|
44.2 |
|
|
Maximum |
106.7 |
|
|
101.7 |
|
|
14.1 |
|
|
21.5 |
|
|
52.5 |
|
|
80.6 |
|
|
Minimum |
97.5 |
|
|
92.6 |
|
|
6.9 |
|
|
12.1 |
|
|
21.3 |
|
|
39.9 |
|
|
Average |
101.5 |
|
|
97.1 |
|
|
10.0 |
|
|
15.6 |
|
|
35.8 |
|
|
52.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Hongkong and Shanghai Banking Corporation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year-end |
77.4 |
|
|
76.7 |
|
|
25.0 |
|
|
21.8 |
|
|
64.6 |
|
|
53.9 |
|
|
Maximum |
82.9 |
|
|
82.2 |
|
|
25.0 |
|
|
24.1 |
|
|
64.6 |
|
|
56.9 |
|
|
Minimum |
76.7 |
|
|
72.4 |
|
|
19.9 |
|
|
16.1 |
|
|
51.1 |
|
|
35.3 |
|
|
Average |
80.6 |
|
|
76.4 |
|
|
21.9 |
|
|
20.8 |
|
|
56.5 |
|
|
48.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HSBC Bank USA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year-end |
103.7 |
|
|
114.9 |
|
|
31.5 |
|
|
15.8 |
|
|
27.4 |
|
|
17.1 |
|
|
Maximum |
117.3 |
|
|
116.8 |
|
|
31.5 |
|
|
25.7 |
|
|
27.4 |
|
|
26.1 |
|
|
Minimum |
103.7 |
|
|
107.0 |
|
|
15.8 |
|
|
15.8 |
|
|
17.1 |
|
|
17.1 |
|
|
Average |
111.8 |
|
|
112.7 |
|
|
22.6 |
|
|
21.3 |
|
|
21.5 |
|
|
22.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
of HSBCs other principal
banking entities1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year-end |
85.2 |
|
|
88.4 |
|
|
26.5 |
|
|
21.0 |
|
|
83.5 |
|
|
66.1 |
|
|
Maximum |
92.3 |
|
|
89.3 |
|
|
26.5 |
|
|
26.1 |
|
|
83.5 |
|
|
72.7 |
|
|
Minimum |
82.7 |
|
|
86.2 |
|
|
19.4 |
|
|
21.0 |
|
|
66.1 |
|
|
58.8 |
|
|
Average |
88.1 |
|
|
87.7 |
|
|
22.5 |
|
|
24.0 |
|
|
73.9 |
|
|
65.3 |
|
|
|
1 |
This comprises the Groups other main banking subsidiaries and, as
such, includes businesses spread across a range of locations, in many of
which HSBC may require a higher ratio of net liquid assets to customer liabilities
to reflect local market conditions. |
237
Back to Contents
H S B C H O L D I
N G S P L C |
|
Report of the Directors:
Risk (continued) |
|
|
|
|
Liquidity
and funding > Primary sources of funding / Contingent liquidity
risk / Impact of market turmoil |
Projected cash flow scenario analysis
(Audited)
The Group uses a number of standard projected
cash flow scenarios designed to model both Group-specific and market-wide
liquidity crises, in
which the
rate and timing of deposit withdrawals and drawdowns on committed lending facilities
are varied, and the ability to access interbank funding and term debt markets
and to generate funds from asset portfolios is restricted. The scenarios are
modelled by all Group banking entities and by HSBC Finance. The appropriateness
of the assumptions under each scenario is regularly reviewed. In addition to
the Groups standard projected cash flow scenarios, individual entities
are required to design their own scenarios tailored to reflect specific local
market conditions, products
and funding bases.
Limits for cumulative net cash
flows under stress scenarios are set for each banking entity and for HSBC
Finance. Both ratio and cash flow limits reflect the local market place,
the diversity of funding sources available and the concentration risk from
large depositors. Compliance with entity level limits is monitored centrally
by Group Finance and reported regularly to the RMM.
HSBC Finance
As HSBC Finance does not accept customer deposits, it takes funding from the
professional markets. HSBC Finance uses a range of measures to monitor funding
risk, including projected cash flow scenario analysis and caps placed on the
amount of unsecured term funding that can mature in any rolling three-month
and rolling 12-month periods.
HSBC Finance also maintains access to committed
sources of secured funding and has in place committed backstop lines for
short-term
refinancing CP programmes.
At 31 December 2008, the maximum amounts of unsecured term funding maturing
in any rolling three-month and rolling 12-month periods were US$6.0 billion
and US$17.4 billion, respectively (2007: US$6.2 billion and US$17.7
billion). At 31 December 2008, HSBC Finance also had in place unused committed
sources of secured funding for which eligible assets were held, of US$2.4
billion (2007: US$6.2 billion) and committed backstop lines from non-Group
entities in support of CP programmes totalling
US$7.3 billion (2007: US$9.3 billion).
Contingent liquidity risk
(Audited)
In the normal course of business, Group entities
provide customers with committed facilities, including committed backstop
lines to conduit
vehicles sponsored
by the Group and standby facilities to corporate customers. These facilities
increase the funding requirements of the Group when customers choose to raise
drawdown levels over and above their normal utilisation rates. The liquidity
risk consequences of increased levels of drawdown are analysed in the form
of projected cash flows under different stress scenarios. The RMM also sets
limits for non-cancellable contingent funding commitments by Group entity after
due consideration of each entitys ability to fund them. The limits are
split according to the borrower, the liquidity of the underlying assets and
the size of the committed line.
The Groups contractual exposures at
31 December monitored
under the contingent liquidity risk limit structure
(Audited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Hongkong and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shanghai Banking |
|
|
|
|
HSBC Bank |
|
HSBC Bank USA |
|
HSBC Bank Canada |
|
Corporation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
2007 |
|
2008 |
|
2007 |
|
2008 |
|
2007 |
|
2008 |
|
2007 |
|
|
|
|
US$bn |
|
US$bn |
|
US$bn |
|
US$bn |
|
US$bn |
|
US$bn |
|
US$bn |
|
US$bn |
|
Conduits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Client-originated assets1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
total
lines |
5.6 |
|
11.0 |
|
11.2 |
|
9.5 |
|
0.3 |
|
0.7 |
|
|
|
|
|
|
|
largest
individual lines |
1.0 |
|
1.6 |
|
0.4 |
|
0.9 |
|
0.2 |
|
0.4 |
|
|
|
|
|
HSBC-managed assets2 |
34.8 |
|
25.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other conduits3 |
|
|
|
|
1.1 |
|
2.6 |
|
|
|
1.8 |
|
|
|
|
|
Single-issuer liquidity facilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
five
largest4 |
6.0 |
|
10.0 |
|
5.0 |
|
5.9 |
|
1.5 |
|
1.1 |
|
1.0 |
|
1.3 |
|
|
|
largest
market sector5 |
7.3 |
|
11.7 |
|
3.5 |
|
4.2 |
|
2.4 |
|
1.5 |
|
1.7 |
|
2.3 |
|
|
|
1 |
These exposures relate to consolidated multi-seller conduits (see page
184). These vehicles provide funding to Group customers by issuing
debt secured by a diversified
pool of customer-originated assets. |
2 |
These exposures relate to consolidated securities investment conduits,
primarily Solitaire and Mazarin (see page 184). These vehicles
issue debt secured by ABSs which are managed by HSBC. Of the total contingent
liquidity risk under this category, US$25.3 billion was already funded
on-balance sheet at 31 December 2008 leaving a net contingent exposure of
US$9.5 billion. |
3 |
These exposures relate to third-party sponsored conduits (see page 187). |
4 |
These figures represent the five largest committed liquidity facilities
provided to customers other than those facilities to conduits. |
5 |
These figures represent the total of all committed liquidity facilities
provided to the largest market sector, other than those facilities to conduits. |
238
Back to Contents
In times of market stress, the
Group may choose to provide non-contractual liquidity support to certain
HSBC-sponsored vehicles or HSBC-promoted products. This support would only
be provided after careful consideration of the potential funding requirement
and the impact on the entitys overall liquidity.
The impact of market turmoil on the Groups
liquidity risk
position
(Audited)
A significant aspect of the market turmoil continues to be its adverse effects
on the liquidity and funding risk profile of the banking system.
At a systemic level,
these may
be characterised as follows:
• |
interbank funding costs increased as banks became reluctant to lend to each other
beyond the very short-term; |
|
|
• |
many asset classes previously considered to be liquid became illiquid; |
|
|
• |
the ability of many market participants to issue either unsecured or secured
debt has been restricted, although this has been partly mitigated following
the introduction by some governments and central banks of term debt guarantee
schemes; and |
|
|
• |
special purpose entities with investments linked to US sub-prime mortgages, or
to ABSs where the underlying credit exposures were not fully transparent,
found it increasingly difficult to raise wholesale funding.
|
In general terms, the strains arising from the
credit crisis were concentrated in the wholesale market. The retail market,
the
market from which HSBC derives its core current
and savings accounts, (the importance
of which as a source
of funding for the Group is discussed under Advances to deposits ratio above)
was relatively unaffected. The Groups limited dependence on wholesale markets
for funding has been a significant competitive advantage to HSBC through the
recent period of dislocation in the financial markets.
HSBCs customer deposit base has grown between 30 June 2007, the reporting date closest to the onset of the market turmoil, and 31 December 2008 by
US$134 billion. This growth in US dollar equivalent terms has been diluted
by the significant strengthening of US dollar against other major currencies
between these two reporting dates, and therefore under represents the growth
in customer deposits on an underlying currency basis. As a net provider of funds
to the interbank market, the Group
has not been significantly affected by the scarcity of interbank funding.
A number of
central banks and governments have taken action to alleviate the effects
of the market turmoil, these actions have included making available government
guaranteed term funding facilities. In the US, bank issuance under such
programmes became normal market practice during 2008. To date, only HSBCs US based operations have participated in government guaranteed term debt issuance
schemes. At 31 December 2008, US$2.65 billion had been issued by HSBC USA,
Inc. under the Federal Deposit Insurance Corporation Temporary Liquidity Guarantee
Programme.
The deterioration
of the US sub-prime credit market has reduced the availability of term
financing to entities with exposures to the US sub-prime market. However,
HSBC Finance, by virtue of its position within the Group, continued to
enjoy committed financing facilities, albeit at a lower level, and access
to commercial paper markets at interest rates below interbank rates. Through
planned balance
sheet reductions, the issuance of cost effective retail debt, capital infusions
from the HSBC Group, and the utilisation of alternative sources of funding,
including funding from other members of the HSBC Group, HSBC Finance was
able to eliminate the need to issue institutional term debt in 2008. Funding
plans are in place to enable HSBC Finance to deal with continued stress
in the credit markets. As part of these plans, asset portfolios totalling
US$15.3 billion were transferred from
HSBC Finance to HSBC Bank USA in January 2009, resulting in US$8.0 billion
of net funding benefit to HSBC Finance.
HSBC Finance
is eligible to participate in the US Federal Reserves Commercial Paper Funding Facility (CPFF), a new scheme aimed at providing support to
US issuers in the commercial paper market. At 31 December 2008, HSBC Finance had issued US$520 million under the CPFF and is eligible to issue a maximum of US$12.0
billion prior to 30 October 2009, the current expiry date for the scheme.
The effect
of the market turmoil on liquidity and funding elsewhere in HSBC was largely
restricted to the Groups activities that historically depended
upon the asset-backed commercial paper markets for funding, specifically SIVs
and conduits, and certain money market funds. This is discussed in detail
on page 174.
239
Back to Contents
H S B C H O L
D I N G S P L C |
|
Report
of the Directors: Risk (continued) |
|
|
|
Liquidity and funding > HSBC
Holdings // Market risk > Sensitivity / VAR |
HSBC Holdings
(Audited)
HSBC Holdings primary sources of cash are
interest and capital receipts from its subsidiaries, which it deploys in
short-term bank deposits.
HSBC Holdings primary uses of cash are
investments in subsidiaries, interest payments to debt holders and dividend payments
to shareholders. On an ongoing
basis, HSBC Holdings replenishes its liquid resources through the receipt of
interest on, and repayment of, intra-group loans, from dividends paid by subsidiaries
and from interest earned on its own liquid funds.
HSBC Holdings is also subject
to contingent liquidity risk by virtue of loan commitments and guarantees
given. Such commitments are only provided after due consideration of HSBC
Holdings ability to finance these commitments and the likelihood of
the need arising.
HSBC Holdings actively manages
the cash flows from its subsidiaries to optimise the amount of cash held
at the holding company level, and expects to continue doing so in the future.
The ability of its subsidiaries to pay dividends or advance monies to HSBC
Holdings depends on, among other things, their respective regulatory capital
requirements, statutory reserves, and financial and operating performance.
The wide range of HSBCs activities means that HSBC Holdings is not
dependent on a single source of profits to fund its dividend payments to
shareholders. HSBC Holdings believes that, with its accumulated liquid assets,
planned dividends and interest from subsidiaries it will be able to meet
anticipated cash obligations. Also, during 2008 HSBC Holdings continued to
have full access to capital markets at market rates and issued US$8.8
billion of capital instruments
(2007: US$4.4 billion).
Cash flows payable by HSBC Holdings
under financial liabilities by remaining contractual maturities
(Audited)
|
|
|
|
|
Due |
|
Due |
|
|
|
|
|
|
Due |
|
between |
|
between |
|
Due |
|
|
On |
|
within 3 |
|
3 and 12 |
|
1 and 5 |
|
after 5 |
|
|
demand |
|
months |
|
months |
|
years |
|
years |
|
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
At 31 December 2008 |
|
|
|
|
|
|
|
|
|
|
Amounts owed to HSBC undertakings |
|
|
133 |
|
539 |
|
3,590 |
|
|
|
Financial liabilities designated at fair value |
|
|
587 |
|
1,762 |
|
5,977 |
|
25,571 |
|
Derivatives |
1,324 |
|
|
|
|
|
|
|
|
|
Subordinated liabilities |
|
|
235 |
|
706 |
|
3,764 |
|
32,214 |
|
Other financial liabilities |
|
|
1,805 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,324 |
|
2,760 |
|
3,007 |
|
13,331 |
|
57,785 |
|
Loan commitments |
3,241 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,565 |
|
2,760 |
|
3,007 |
|
13,331 |
|
57,785 |
|
|
|
|
|
|
|
|
|
|
|
|
At 31 December 2007 |
|
|
|
|
|
|
|
|
|
|
Amounts owed to HSBC undertakings |
|
|
109 |
|
1,801 |
|
1,192 |
|
|
|
Financial liabilities designated at fair value |
|
|
258 |
|
776 |
|
8,152 |
|
28,639 |
|
Derivatives |
44 |
|
|
|
|
|
|
|
|
|
Subordinated liabilities |
|
|
160 |
|
482 |
|
2,568 |
|
23,069 |
|
Other financial liabilities |
|
|
1,398 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44 |
|
1,925 |
|
3,059 |
|
11,912 |
|
51,708 |
|
Loan commitments |
3,638 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,682 |
|
1,925 |
|
3,059 |
|
11,912 |
|
51,708 |
|
|
|
|
|
|
|
|
|
|
|
|
The balances
in the above table will not agree directly with the balances in the balance
sheet of
HSBC Holdings
as the table incorporates, on an undiscounted basis, all cash flows relating
to principal and all future coupon payments (except for trading derivatives).
Also, loan commitments
are generally not recognised on the balance sheet. Trading derivatives
are included in the On demand time
bucket, and not by contractual maturity, because trading derivatives are
typically held for short periods
of time. The undiscounted cash flows on hedging derivative liabilities are
classified according to their contractual maturity.
240
Back to Contents
The objective of HSBCs market risk management is to manage and control
market risk exposures in order to optimise return on risk while maintaining
a market profile consistent with the Groups status as one of the worlds
largest banking and
financial services organisations.
Market risk is the risk that movements
in market risk factors, including foreign exchange rates and commodity prices,
interest rates, credit spreads and equity prices will reduce HSBCs
income or the value of its portfolios.
HSBC separates
exposures to market risk into trading and non-trading portfolios. Trading
portfolios include
those positions arising from market-making, proprietary position-taking and
other marked-to-market positions so designated.
Non-trading portfolios include
positions that arise from the interest rate management of HSBCs retail
and commercial banking assets and liabilities, financial investments designated
as available for sale and held to maturity, and exposures arising from HSBCs
insurance operations.
Market risk arising in HSBCs
insurance businesses is discussed in Risk management of insurance operations on
pages 255 to 274.
The management of market risk
is principally undertaken in Global Markets using risk limits approved by
the GMB. Limits are set for portfolios, products and risk types, with market
liquidity being a principal factor in determining the level of limits set.
Traded Credit and Market Risk, an independent unit within Group Management
Office, develops the Groups market risk management policies and measurement
techniques. Each major operating entity has an independent market risk management
and control function which is responsible for measuring market risk exposures
in accordance with the policies defined by Traded Credit and Market Risk,
and monitoring and reporting these exposures against the prescribed limits
on a daily basis.
Each operating entity is required
to assess the market risks which arise on each product in its business and
to transfer these risks to either its local Global Markets unit for management,
or to separate books managed under the supervision of the local Asset and
Liability Management Committee (ALCO). The aim is to ensure that
all market risks are consolidated within operations which have the necessary
skills, tools, management and governance to manage such risks professionally.
In certain cases where the market risks cannot be adequately
captured by the transfer process, simulation modelling is used to identify the
impact of varying scenarios on valuations and net interest income.
HSBC uses a range of tools to
monitor and limit market risk exposures. These include sensitivity analysis,
value at risk (VAR) and stress
testing.
Sensitivity analysis
Sensitivity measures are used to monitor the market risk positions within each
risk type, for example, present value of a basis point movement in interest
rates, for interest rate risk. Sensitivity limits are set for portfolios, products
and risk types, with the depth of the market being one of the principal factors
in determining the level of limits set.
Value at risk
(Audited)
VAR is a technique that estimates the potential losses that could occur on
risk positions as a result of movements in market rates and prices over a specified
time horizon and to a given
level of confidence.
The VAR models
used by HSBC are based predominantly on historical simulation. These models
derive plausible
future scenarios from past series of recorded market rates and prices, taking
account of inter-relationships between different markets and rates such as
interest rates and foreign exchange rates. The models also incorporate the
effect of option features on the underlying exposures.
The historical
simulation models
used by HSBC incorporate the following features:
• |
potential market movements are calculated with reference to data from the past
two years; |
|
|
• |
historical market rates and prices are calculated with reference to foreign exchange
rates and commodity prices, interest rates, equity prices and the associated
volatilities; and |
|
|
• |
VAR is calculated to a 99 per cent confidence level and for a one-day holding
period.
|
HSBC routinely validates the accuracy of its VAR models by back-testing the actual
daily profit and loss results, adjusted to remove non-modelled items such
as fees and commissions, against the corresponding
VAR numbers. Statistically, HSBC would expect to see losses in excess of VAR
only 1 per cent of the time over a one-year period. The actual number of excesses
over this period can therefore be used to gauge how well the models are performing.
241
Back to Contents
H S B C H O L
D I N G S P L C |
|
Report
of the Directors: Risk (continued) |
|
|
|
|
Market
risk > Impact of
market turmoil > VAR |
Although a valuable
guide to risk, VAR should always be viewed in the context of its limitations.
For example:
• |
the use of historical data as a proxy
for estimating future events may not encompass
all potential events, particularly those which
are extreme in nature; |
|
|
• |
the use of a one-day holding period
assumes that all positions can be liquidated
or the risk offset in one day. This may not fully reflect the market risk
arising at times of severe illiquidity, when a one-day
holding period may be insufficient to liquidate
or hedge all positions fully; |
|
|
• |
the use of a 99 per cent confidence
level, by definition, does not take into account
losses that might occur beyond this level of
confidence; |
|
|
• |
VAR is calculated on the basis of exposures outstanding
at the close of business and therefore does not
necessarily reflect intra-day exposures; and |
|
|
• |
VAR is unlikely to reflect loss potential
on exposures that only arise under significant market
moves. |
Stress testing
In recognition of the limitations of VAR, HSBC augments it with stress testing
to evaluate the potential impact on portfolio values of more extreme, although
plausible, events or
movements in a set of financial variables.
Stress testing is performed at a portfolio level, as well as on the consolidated positions of the Group, and covers the following scenarios:
• |
sensitivity scenarios, which consider
the impact of market moves to any single risk factor
or a set of factors. For example the impact resulting from
a break of a currency peg that is unlikely to be
captured within the VAR models; |
|
|
• |
technical scenarios, which consider
the largest move in each risk factor, without consideration of
any underlying market correlation; |
|
|
• |
hypothetical scenarios, which consider
potential macro economic events; and |
|
|
• |
historical scenarios, which incorporate
historical observations of market moves during
previous periods of stress which would not be captured within
VAR. |
Stress
testing is governed by the Stress Testing Review Group forum
that coordinates the Group stress testing scenarios in conjunction with
the
regional risk managers. Consideration is given to the actual market risk exposures,
along with market events in determining the stress scenarios.
Stress testing results are reported to senior management and provide them with an assessment of the financial impact such events would have on the profit of
HSBC. The daily losses experienced during 2008 were within the stress loss scenarios reported to senior management.
The following table provides an overview of the reporting of risks within this section:
|
Portfolio |
|
|
|
|
|
Trading |
|
Non-trading |
|
Risk type |
|
|
|
|
Foreign exchange |
VAR |
|
VAR |
1 |
Interest rate |
VAR |
|
VAR |
2 |
Commodity |
VAR |
|
N/A |
|
Equity |
VAR |
|
Sensitivity |
|
Credit spread |
Sensitivity |
|
Sensitivity |
3 |
|
|
1 |
The structural foreign exchange risk is monitored using sensitivity analysis.
See page 429. |
2 |
The interest rate risk on the fixed-rate securities issued by HSBC Holdings
is not included in the Group VAR. The management of this risk is described
on page
249. |
3 |
Credit spread VAR is reported for the credit derivatives transacted by
Global Banking. See page 244. |
The impact of market turmoil on market risk
(Audited)
The years preceding the current market turmoil were characterised by historically
low levels of volatility, with ample market liquidity. This period was associated
with falling levels of VAR as the level of observed market volatility is a key
determinant in the VAR calculation. As a consequence HSBC reduced the overall
VAR limit to reflect the lower level of volatility, and associated VAR.
The tightening of both credit and liquidity within the wholesale markets observed during the latter half of 2007 led to an increase in market volatility,
most noticeably in the credit spreads of financial institutions and ABSs/MBSs.
Credit spread volatility continued to increase during the first half of 2008, and as the effect of the market turmoil on the wider economy became more
apparent, there was a larger increase in the volatility in other risk types, such as interest rates. Coupled with positions taken in anticipation of rate reductions, the increase in volatility led to an increase in the total VAR in early 2008.
Volatility across all asset classes continued to increase in the second half of 2008, as central banks coordinated a series of rate cuts, in an attempt to
stimulate demand within the global economy. Although the increase in volatility led to a further
242
Back to Contents
increase in total VAR during the second half
of 2008, the overall impact was limited as a result of managing down the
market risk exposures
during this
period (see Value at risk of
the trading and non-trading portfolios below).
Although the overall VAR limit
for the Group was increased towards the end of 2008, as a result of the increased
market volatility, the limit remained within
the level set in early 2007.
Value at risk of the trading and non-trading portfolios
The VAR, both trading and non-trading, for the Group was as follows:
Value at risk
(Audited) |
|
|
|
|
|
2008 |
|
2007 |
|
|
US$m |
|
US$m |
|
|
|
|
|
|
At 31 December |
191.2 |
|
70.1 |
|
Average |
158.9 |
|
65.3 |
|
Minimum |
59.8 |
|
43.8 |
|
Maximum |
287.1 |
|
98.1 |
|
As a result
of improvements in the Group VAR data collection process during 2008, all
entities within the
Group are now aggregated on a historical simulation basis, reflecting the
full diversification effects across the Groups VAR. The 2007 VAR has
been adjusted, reducing the total VAR by US$25.2 million as at 31 December
2007. The maximum, minimum and average VARs have also been adjusted on a
comparable basis in order to fairly present
the trend.
The daily VAR, both trading and
non-trading, for the Group was as follows:
Daily VAR (trading and non-trading) (US$m)
(Unaudited) |
|
The major contributor to the trading
and non-trading VAR for the Group was Global Markets.
The histogram
to the right illustrates the frequency of daily revenue arising from Global
Markets trading,
balance sheet management and other trading activities.
The average
daily revenue earned in 2008 was US$21.7 million, compared with US$18.7 million in 2007.
The standard deviation of these daily revenues was US$53.4 million compared
with US$25.3 million in 2007. The standard deviation measures the variation
of daily revenues about the mean value of
those revenues.
An analysis
of the frequency distribution of daily revenue shows that there were 66
days with negative revenue during
2008 compared with 35 days in 2007. The most frequent result was a daily
revenue of between US$40 million and US$50 million with 28 occurrences,
compared with between US$20 million and US$30 million with 71 occurrences
in 2007.
Daily distribution of Global Markets trading,
balance sheet management and other trading revenues1
(Unaudited) |
|
2008 |
|
|
2007 |
|
|
|
1 |
The effect of any month-end adjustments, not attributable to a specific
daily market move, is spread evenly over the days in the month in question. |
For a description
of HSBCs fair value and price verification controls, see page 163.
243
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H S B C H O L
D I N G S P L C |
|
Report
of the Directors: Risk (continued) |
|
|
|
|
Market risk > Trading portfolios
/ Non-trading
portfolios |
Trading portfolios
(Audited)
HSBCs control of market risk is based on
a policy of restricting individual operations to trading within a list of
permissible
instruments authorised for
each site by Traded Credit and Market Risk, of enforcing rigorous new product
approval procedures, and of restricting trading in the more complex derivative
products only to offices with appropriate levels of product expertise and robust
control systems.
Market making
and proprietary position taking is undertaken within Global Markets. The
VAR for such trading
activity at 31 December 2008 was US$72.5
million (2007: US$30.2 million). This is analysed below by risk type:
|
|
|
|
|
|
|
|
|
VAR by risk type
for the trading activities (excluding Credit
Spread VAR)
(Audited) |
|
|
Foreign |
|
|
|
|
|
|
|
|
exchange and |
|
Interest |
|
|
|
|
|
|
commodity |
|
rate |
|
Equity |
|
Total |
1 |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
|
|
|
|
|
|
|
|
|
At 31 December 2008 |
29.8 |
|
63.4 |
|
13.9 |
|
72.5 |
|
At 31 December 20072 |
10.7 |
|
25.4 |
|
10.2 |
|
30.2 |
|
Average |
|
|
|
|
|
|
|
|
2008 |
19.0 |
|
50.7 |
|
15.2 |
|
53.1 |
|
20072 |
9.5 |
|
22.9 |
|
7.9 |
|
23.7 |
|
Minimum |
|
|
|
|
|
|
|
|
2008 |
8.7 |
|
21.4 |
|
8.2 |
|
22.6 |
|
20072 |
4.0 |
|
14.9 |
|
3.4 |
|
14.3 |
|
Maximum |
|
|
|
|
|
|
|
|
2008 |
54.9 |
|
147.4 |
|
39.0 |
|
104.4 |
|
20072 |
23.0 |
|
36.1 |
|
15.1 |
|
38.8 |
|
|
|
1 |
The total VAR is non-additive across risk types due to diversification
effects. |
2 |
The VAR for 2007 has been adjusted on the same basis as Group VAR on page 243. |
|
Credit spread risk
The risk associated with movements in credit spreads is primarily managed through
sensitivity limits, stress testing, and VAR for those portfolios where VAR is
calculated.
The Group is
introducing credit spread as a separate risk type within the VAR models.
At 31 December 2008, credit spread VAR was calculated for the London trading
and New York credit derivatives portfolios. At that date, the total VAR
for the trading activities, including credit spread VAR for the above portfolios,
was US$106.4 million (2007: US$43.8 million) compared with a total VAR of
US$72.5 million reported within the VAR by risk type for the trading activities (see
above), which excludes the credit spread VAR for these two portfolios.
The sensitivity
of trading income to the effect of movements in credit spreads on the total
trading activities of the Group was US$590.9 million at 31
December 2008 (2007: US$95.4 million). This sensitivity captures the credit
spread exposure arising from positions taken throughout the Group, in addition
to the London trading and New York credit derivative portfolios captured within
credit spread VAR (see above). The sensitivity was calculated using simplified
assumptions based on one-day movements in average market credit spreads
over a two-year period at a confidence level of 99 per cent, and assumes a simultaneous
movement in credit spreads across issuers. It should be noted that diversification
effects within the portfolio and with other risk types is likely to lead to a
reduced impact on trading income.
The significant increase in the sensitivity at 31 December 2008, compared with 31 December 2007, was due to the effect of much higher volatility in credit
spreads observed during 2008. The actual positions within the trading portfolios exposed to credit spread risk were lower on 31 December 2008 than on 31 December 2007.
In addition to the above measure certain portfolios are also managed using default risk measures where appropriate.
The measurement of the credit spread impact on trading income as at 31 December 2008 excludes those positions that were reclassified as non-trading during
the second half of 2008 following the amendment to IFRS. These positions are included within the 31 December 2007 comparative, as the reclassification took effect from 1 July 2008.
Credit spread risk also arises on credit derivative transactions entered into by Global Banking in order to manage the risk concentrations within the
corporate loan portfolio and so enhance capital
244
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efficiency. The mark-to-market of these transactions is taken through the income
statement.
At 31 December
2008, the credit spread VAR on the credit derivatives transactions entered
into by Global
Banking was US$23.0 million (2007: US$19.7 million). The VAR shows
the effect on trading income from a one-day movement in credit spreads over
a two-year period, calculated to a 99 per cent confidence level.
Gap risk
Certain transactions are structured such that the risk to HSBC is negligible
under a wide range of market conditions or events, but in which there exists
a remote probability that a significant gap event could lead to loss. A gap
event could be seen as a change in market price from one level to another with
no trading opportunity in between, and where the price change breaches the
threshold beyond which the risk profile changes from having no open risk to
having full exposure to the underlying structure. Such movements may occur,
for example, when there are adverse news announcements and the market for a
specific investment becomes illiquid, making hedging impossible.
Given the characteristics of these
transactions, they will make little or no contribution to VAR or to traditional
market risk sensitivity measures. HSBC captures the risks for such transactions
within its stress testing scenarios. Gap risk arising is monitored on an
ongoing basis, and HSBC incurred no gap losses arising from movements in
the underlying market price on such transactions in 2008.
ABSs/MBSs positions
The ABSs/MBSs exposures within the trading portfolios are managed within sensitivity
and VAR limits, as described on page 241, and are included within the stress
testing scenarios as
described on page 242.
Non-trading portfolios
(Audited)
The principal objective of market risk management of non-trading portfolios is
to optimise net interest income.
Interest rate risk in non-trading
portfolios arises principally from mismatches between the future yield on
assets and their funding cost, as a result of interest rate changes. Analysis
of this risk is complicated by having to make assumptions on embedded optionality
within certain product areas such as the incidence of mortgage prepayments,
and from behavioural assumptions regarding the
economic duration of liabilities which are contractually repayable on demand
such as current accounts. The prospective change in future net interest income
from non-trading portfolios will be reflected in the current realisable value
of these positions, should they be sold or closed prior to maturity. In order
to manage this risk optimally, market risk in non-trading portfolios is transferred
to Global Markets or to separate books managed under the supervision of the
local ALCO.
The transfer of market risk to
books managed by Global Markets or supervised by ALCO is usually achieved
by a series of internal deals between the business units and these books.
When the behavioural characteristics of a product differ from its contractual
characteristics, the behavioural characteristics are assessed to determine
the true underlying interest rate risk. Local ALCOs are required to regularly
monitor all such behavioural assumptions and interest rate risk positions
to ensure they comply with interest rate risk limits established by GMB.
In certain cases, the non-linear
characteristics of products cannot be adequately captured by the risk transfer
process. For example, both the flow from customer deposit accounts to alternative
investment products and the precise prepayment speeds of mortgages will vary
at different interest rate levels, and where expectations about future moves
in interest rates change. In such circumstances, simulation modelling is
used to identify the impact of varying scenarios on valuations and net interest
income.
Once market
risk has been consolidated in Global Markets or ALCO-managed books, the
net exposure is typically managed
through the use of interest rate swaps within agreed limits. The VAR for
these portfolios is included within the Group VAR (see Value at risk
of the trading and non-trading portfolios above).
Credit spread risk
At 31 December 2008, the sensitivity of equity
to the effect of movements in credit spreads on the Groups available-for-sale debt securities was US$1,092
million (2007: US$206 million). The sensitivity was calculated on the same
basis as applied to the trading portfolio. Including the gross exposure for
the SICs consolidated within HSBCs balance sheet at 31 December 2008,
the sensitivity increased to US$1,145 million. This sensitivity is struck,
however, before taking account of any losses which would be absorbed by the
capital note holders. At 31 December
2008, the capital note holders
245
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H S B C H O L
D I N G S P L C |
|
Report of the Directors: Risk (continued) |
|
|
|
|
Market
risk > Non-trading portfolios / DBS / Sensitivity
of NII |
would have absorbed the first US$2.2 billion (2007: US$2.3
billion) of any losses incurred by the SICs prior to HSBC incurring any
equity losses.
The notable increase in this sensitivity
at 31 December 2008, compared with 31 December 2007, was again due to the
effect of higher volatility in credit spreads observed during 2008. The overall
credit spread positions within the available-for-sale portfolios were lower
on 31 December 2008 compared with 31 December 2007.
Equity securities classified as available for sale
(Audited)
Market risk arises on equity securities held
as available for sale. The fair value of these securities at 31 December
2008 was US$6.8 billion (2007:
US$12.6 billion) and included private equity holdings of US$2.5 billion
(2007: US$3.2 billion). Investments in private equity are primarily made
through managed funds that are subject to limits on the amount of investment.
Potential new commitments are subject to risk appraisal to ensure that industry
and geographical concentrations remain within acceptable levels for the portfolio
as a whole. Regular reviews are performed to substantiate the valuation of
the investments within the portfolio. Funds typically invested for short-term
cash management represented US$0.9 billion (2007: US$3.1 billion).
Investments held to facilitate ongoing business, such as holdings in government-sponsored
enterprises and local stock exchanges, represented US$1.0 billion (2007:
US$1.7 billion). Other strategic investments represented US$2.4 billion
(2007: US$4.6 billion). The fair value of the constituents of equity securities
classified as available for sale can fluctuate considerably. A 10 per cent
reduction in the value of the available-for-sale equities at 31 December 2008
would have reduced equity by US$0.7 billion (2007: US$1.3 billion).
For details of the impairment incurred on available-for-sale equity securities
see Accounting policies on page 350.
US$1.0
billion of the reduction in the AFS Equities relates to funds that were
consolidated within the Groups
balance sheet as at 31 December 2008.
Defined benefit pension schemes
(Audited)
Market risk also arises within HSBCs defined
benefit pension schemes to the extent that the obligations of the schemes
are not
fully matched by
assets with determinable cash flows. Pension scheme obligations fluctuate with
changes in long-term interest rates, inflation, salary increases and the
longevity of scheme members. Pension scheme assets
will include equities and debt securities, the cash flows of which change
as equity prices
and interest
rates vary. There are risks that market movements in equity prices and interest
rates could result in asset valuations which, taken together with regular ongoing
contributions, are insufficient over time to cover the level of projected obligations
and these, in turn, could increase with a rise in inflation and members living
longer. Management, together with the trustees who act on behalf of the pension
scheme beneficiaries, assess these risks using reports prepared by independent
external actuaries and take action and, where appropriate, adjust investment
strategies and contribution levels accordingly. For example, in order to mitigate
the risk of adverse movements in investments, interest rates and inflation,
the Trustee of the HSBC Bank (UK) Pension Scheme has continued to implement
a programme of initiatives proposed by HSBC, including reducing the equity
content of the investment strategy, increasing the diversification of the schemes
assets, and entering into long-term
interest rate and inflation swaps.
The present
value of HSBCs
defined benefit pension plans obligations was US$24.0 billion at
31 December 2008, compared with US$32.4 billion at 31 December 2007.
Assets of the defined benefit schemes at 31 December 2008 comprised equity
investments, 20 per cent (2007: 26 per cent); debt securities, 68 per cent
(2007: 62 per cent); and other (including property), 12 per cent (2007: 12
per cent) (see Note 8 on the Financial Statements).
Increased corporate
bond yields in the UK in 2008 have resulted in an increase of 110 basis
points in the
real discount rate (net of the increase in expected inflation) used to value
the accrued benefits payable under the HSBC Bank (UK) Pension Scheme, the
Groups largest plan. The resulting decrease in the liabilities of the
scheme has been largely offset by a reduction in the fair values of the plan
assets of the scheme. As a consequence, the deficit on the HSBC Bank (UK)
Pension Scheme has decreased to US$392 million from US$808
million.
Sensitivity of net interest income
(Unaudited)
A principal part of HSBCs management of
market risk in non-trading portfolios is to monitor the sensitivity of projected
net
interest income under varying
interest rate scenarios (simulation modelling). HSBC aims, through its management
of market risk in non-trading portfolios, to mitigate the
246
Back to Contents
effect of prospective
interest rate movements which could reduce future net interest income, while
balancing the cost of such hedging activities on the current net revenue
stream.
For simulation
modelling, businesses use a combination of scenarios relevant to local
businesses and local markets
and standard scenarios which are required throughout HSBC. The standard scenarios
are consolidated to illustrate the combined pro forma effect on HSBCs
consolidated portfolio valuations and net interest income.
The table below sets out the effect
on future net interest income of an incremental 25 basis points parallel
fall or rise in all yield curves worldwide at the beginning of each quarter
during the 12 months
from 1 January 2009. Assuming no management actions,
a series of such rises would decrease planned net interest income for 2009
by US$463 million (2008:
US$503 million), while a series of such falls would decrease planned net
interest income by US$284 million (2008: increase US$525 million).
These figures incorporate the effect of any option features in the underlying
exposures.
Instead of assuming that all interest
rates move together, HSBC groups its interest rate exposures into currency
blocs whose rates are considered likely to move together. The sensitivity
of projected net interest income, on this basis, is as follows:
Sensitivity of projected net interest income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rest of
|
|
Hong Kong
|
|
Rest of
|
|
|
|
|
|
|
|
|
US dollar
|
|
Americas
|
|
dollar
|
|
Asia
|
|
Sterling
|
|
Euro
|
|
|
|
|
bloc
|
|
bloc
|
|
bloc
|
|
bloc
|
|
bloc
|
|
bloc
|
|
Total
|
|
|
US$m
|
|
US$m
|
|
US$m
|
|
US$m
|
|
US$m
|
|
US$m
|
|
US$m
|
|
Change
in 2009 projected net interest income arising from a
shift in yield curves of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
+25 basis points
at the beginning of each quarter |
(243
|
) |
42
|
|
(45
|
) |
100
|
|
28
|
|
(345
|
) |
(463
|
) |
25
basis points at the beginning of each quarter |
41
|
|
(42
|
) |
(285
|
) |
(114
|
) |
(235
|
) |
351
|
|
(284
|
) |
Change
in 2008 projected net interest income arising from a shift in yield
curves of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
+25 basis
points at the beginning of each quarter |
(275
|
) |
96
|
|
9
|
|
77
|
|
(140
|
) |
(270
|
) |
(503
|
) |
25 basis
points at the beginning of each quarter |
272
|
|
(95
|
) |
11
|
|
(65
|
) |
142
|
|
260
|
|
525
|
|
The interest rate sensitivities
set out in the table above are illustrative only and are based on simplified
scenarios.
The figures
represent the effect of the pro forma movements in net interest income
based on the projected
yield curve scenarios and the Groups current interest rate risk profile.
This effect, however, does not incorporate actions that would be taken by
Global Markets or in the business units to mitigate the impact of this interest
rate risk. In reality, Global Markets seeks proactively to change the interest
rate risk profile to minimise losses and optimise net revenues. The projections
above also assume that interest rates of all maturities move by the same
amount and, therefore, do not reflect the potential impact on net interest
income of some rates changing while others remain unchanged. The projections
take account of the effect on net interest income of anticipated differences
in changes
between interbank interest rates and interest rates linked to other bases (such
as Central Bank rates or product rates over which the entity has discretion
in terms of the timing and extent of rate changes). The projections make other
simplifying assumptions too, including that all positions run to maturity.
HSBCs
exposure to the effect of movements in interest rates on its net interest
income arises in two main
areas: core deposit franchises and Global Markets.
• |
Core deposit franchises: these are exposed to changes in the cost of deposits
raised and spreads on wholesale funds. In a low interest rate environment,
the net interest income benefit of core deposits increases as interest rates
rise and decreases as interest rates fall. This risk is asymmetrical in a very
low interest rate environment, however, as there is limited room |
247
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H S B C H O L
D I N G S P L C |
|
Report
of the Directors: Risk (continued) |
|
|
|
Market risk > Sensitivity
of NII / Structural FX exposures / HSBC Holdings |
|
to
lower deposit pricing in the event of interest rate
reductions. |
|
|
• |
Residual interest rate risk is managed within
Global
Markets, under the Groups policy of transferring interest rate risk to
Global Markets to be managed within defined limits and with flexibility as to
the instruments used. |
The main drivers
of the year on year movements in the sensitivity of the Groups net
interest income to the changes in interest rates tabulated above
were:
• |
decreases in interest rates, particularly in
US dollar, Hong Kong dollar and Sterling which have
restricted the Groups ability to pass on to depositors further rate reductions
thereby increasing exposures to further rate falls; and |
|
|
• |
Global Markets increased net trading asset positions,
particularly in euro. The funding of net trading assets is generally sourced
from floating
rate retail
deposits and recorded in Net |
interest income whereas
the income from such assets is recorded in Net trading income.
Projecting
the movement in net interest income from prospective changes in interest
rates is a complex interaction of structural and managed exposures.
HSBC monitors
the sensitivity of reported reserves to interest rate movements on a monthly
basis by assessing the expected reduction in valuation of available-for-sale
portfolios and cash flow hedges due to parallel movements of plus or minus
100 basis points in all yield curves. The table below describes the sensitivity
of HSBCs reported reserves to these movements at the end of 2008
and
2007 and the maximum and minimum month-end figures during these years:
Sensitivity of reported reserves to interest rate movements
(Unaudited)
|
|
|
Maximum |
|
Minimum |
|
|
|
|
impact |
|
impact |
|
|
US$m |
|
US$m |
|
US$m |
|
At 31 December 2008 |
|
|
|
|
|
|
+ 100 basis point parallel move
in all yield curves |
(2,740 |
) |
(2,740 |
) |
(1,737 |
) |
As a percentage of total shareholders equity |
(2.9% |
) |
(2.9% |
) |
(1.9% |
) |
100 basis point parallel
move in all yield curves |
2,477 |
|
2,609 |
|
1,944 |
|
As a percentage of total shareholders equity |
2.6% |
|
2.8% |
|
2.1% |
|
At 31 December 2007 |
|
|
|
|
|
|
+ 100 basis point parallel move
in all yield curves |
(1,737 |
) |
(1,738 |
) |
(1,519 |
) |
As a percentage of total shareholders equity |
(1.4% |
) |
(1.4% |
) |
(1.2% |
) |
100 basis point parallel
move in all yield curves |
1,977 |
|
2,048 |
|
1,430 |
|
As a percentage of total shareholders equity |
1.5% |
|
1.6% |
|
1.1% |
|
The sensitivities are illustrative
only and are based on simplified scenarios. The table shows the potential
sensitivity of reserves to valuation changes in available-for-sale portfolios
and from cash flow hedges following the pro forma movements in interest rates.
These particular exposures form only a part of the Groups overall interest
rate exposures. The accounting treatment under IFRSs of the Groups
remaining interest rate exposures, while economically largely offsetting
the exposures shown in the above table, does not require revaluation movements
to go to reserves.
Structural foreign exchange exposures
(Unaudited)
Structural foreign exchange exposures represent net investments in subsidiaries,
branches or associates, the functional currencies of which are currencies other
than the US dollar.
Exchange differences
on structural exposures
are recorded in the consolidated statement
of recognised income and expense. The main operating (or functional) currencies
in which HSBCs business
is transacted are the US dollar, the Hong Kong dollar, pound sterling, the
euro, the Mexican peso, the Brazilian real and the Chinese renminbi. As the
US dollar and currencies linked to it form the dominant currency bloc in which
HSBCs operations transact business, HSBC Holdings prepares its consolidated
financial statements in US dollars. HSBCs consolidated balance sheet
is, therefore, affected by exchange differences between the US dollar and
all the non-US dollar functional currencies of
underlying subsidiaries.
HSBC hedges structural foreign
exchange exposures only in limited circumstances. HSBCs structural
foreign exchange exposures are managed
248
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with the primary objective of ensuring, where
practical, that HSBCs consolidated
capital ratios and the capital ratios of individual banking subsidiaries
are largely protected from the effect of changes in exchange rates. This
is usually
achieved by ensuring that, for each subsidiary bank, the ratio of structural
exposures in a given currency to risk-weighted assets denominated in that
currency is broadly equal to the capital
ratio of the subsidiary in question.
The Groups capital ratios
were affected by the strengthening US dollar in the latter part of 2008.
The effect on the Groups consolidated tier 1 and total ratios is
estimated to have been a reduction of approximately 40 basis points and
approximately
50 basis points respectively. These movements were within approved tolerance
levels.
HSBC may also
transact hedges where a currency in which it has structural exposures is
considered to
be significantly overvalued and it is possible in practice to transact
a hedge.
Selective hedges were in place during 2007 and 2008. Hedging is undertaken
using forward foreign exchange contracts which are accounted for under
IFRSs as hedges of a net investment in a foreign operation, or by financing
with
borrowings in the same currencies as the functional currencies involved.
There was no ineffectiveness arising from these hedges in the year ended
31 December 2008.
HSBC Holdings
(Audited)
As a financial services holding company, HSBC
Holdings has limited market risk activity. Its activities predominantly
involve maintaining sufficient capital
resources to support the Groups diverse activities; allocating these
capital resources across the Groups businesses; earning dividend and
interest income on its investments in the Groups businesses; providing
dividend payments to HSBC Holdings equity shareholders and interest
payments to providers of debt capital; and maintaining a supply of short-term
cash resources.
It does not take proprietary
trading positions.
The main market risks to which
HSBC Holdings is exposed are interest rate risk and foreign currency risk.
Exposure to these risks arises from short-term cash balances, funding positions
held, loans to subsidiaries, investments in long-term financial assets and
financial liabilities including debt capital issued. The objective of HSBC
Holdings market risk management strategy is to reduce exposure to
these risks and minimise volatility in reported income, cash flows and
distributable
reserves. Market risk for HSBC
Holdings is monitored by its Structural Positions Review Group.
A number of cross currency interest
rate swaps entered into as part of HSBC Holdings management of interest
rate risk arising on certain long-term debt capital issues do not qualify
for hedge accounting treatment. Changes in the market values of these swaps
are taken directly to the income statement. HSBC Holdings expects that
these swaps will be held to final maturity with the accumulated changes
in market
value consequently trending to zero.
Certain loans
to subsidiaries of a capital nature that are not denominated in the functional
currency
of either the provider or the recipient are accounted for as financial
assets.
Changes in the carrying amount of these assets due to exchange differences
are taken directly to the income statement. These loans, and the associated
foreign exchange exposures, are eliminated on a Group consolidated basis.
The principal tools used in the
management of market risk are the projected sensitivity of HSBC Holdings net
interest income to future changes in yield curves and interest rate gap
re-pricing tables for interest rate risk, and VAR for foreign exchange
rate risk.
Net interest income sensitivity
HSBC Holdings monitors net interest income
sensitivity over a 5-year time horizon reflecting the longer-term perspective
on interest
rate risk management appropriate
to a financial services holding company. The table below sets out the effect
on HSBC Holdings future net interest income over a 5-year time horizon
of an incremental 25 basis point parallel fall or rise in all yield curves
worldwide at the beginning of each quarter during the 12 months from 1 January
2009.
Assuming no management action,
a series of such rises would decrease HSBC Holdings planned net interest
income for 2009 by US$60 million (2008: decrease of US$23 million)
and decrease cumulative net interest income by US$554 million over a
5-year period from 1 January 2009 (2008: decrease of US$104 million),
while a series of such falls would increase planned net interest income by
US$60 million (2008: increase of US$23 million) and increase cumulative
net interest income by US$554 million over a 5-year period from 1 January
2009 (2008: increase of US$104 million). These figures incorporate
the impact of any option features in
the underlying exposures.
249
Back to Contents
H S B C H O L
D I N G S P L C |
|
Report
of the Directors: Risk (continued) |
|
|
|
Market
risk > HSBC Holdings > Interest repricing gap
/ VAR |
Instead of assuming
that all interest rates move together, HSBC groups its interest rate exposures
into currency
blocs whose interest rates are
considered likely to move together. The sensitivity of projected net interest
income, on this basis, is described as follows:
Sensitivity of HSBC Holdings net
interest income to interest rate movements
(Unaudited)
|
|
|
US dollar
|
|
Sterling
|
|
Euro
|
|
|
|
|
|
|
bloc
|
|
bloc
|
|
bloc
|
|
Total
|
|
|
|
|
US$m
|
|
US$m
|
|
US$m
|
|
US$m
|
|
Change in 2009 projected net interest income arising |
|
|
|
|
|
|
|
|
|
from a shift in yield curves of: |
|
|
|
|
|
|
|
|
|
|
+ 25 basis points at the beginning of each quarter in 2009 |
|
|
|
|
|
|
|
|
|
|
0-1 year |
|
(81
|
) |
10
|
|
11
|
|
(60
|
) |
|
2-3 years |
|
(351
|
) |
20
|
|
77
|
|
(254
|
) |
|
4-5 years |
|
(358
|
) |
54
|
|
64
|
|
(240
|
) |
|
25 basis
points at the beginning of each quarter in 2009 |
|
|
|
|
|
|
|
|
|
|
0-1 year |
|
81
|
|
(10
|
) |
(11
|
) |
60
|
|
|
2-3 years |
|
351
|
|
(20
|
) |
(77
|
) |
254
|
|
|
4-5 years |
|
358
|
|
(54
|
) |
(64
|
) |
240
|
|
Change in 2008 projected net interest income arising from a shift
in yield curves of: |
|
|
|
|
|
|
|
|
|
|
+ 25 basis
points at the beginning of each quarter in 2008 |
|
|
|
|
|
|
|
|
|
|
0-1 year |
|
(51
|
) |
16
|
|
12
|
|
(23
|
) |
|
2-3 years |
|
(180
|
) |
69
|
|
83
|
|
(28
|
) |
|
4-5 years |
|
(200
|
) |
69
|
|
78
|
|
(53
|
) |
|
25
basis points at the beginning of each quarter in 2008 |
|
|
|
|
|
|
|
|
|
|
0-1 year |
|
51
|
|
(16
|
) |
(12
|
) |
23
|
|
|
2-3 years |
|
180
|
|
(69
|
) |
(83
|
) |
28
|
|
|
4-5 years |
|
200
|
|
(69
|
) |
(78
|
) |
53
|
|
HSBC Holdings principal
exposure to changes in its net interest income from movements in interest
rates arises on short-term cash balances, floating rate loans advanced
to subsidiaries and fixed rate debt capital securities in issue which have
been
swapped to floating rate.
The interest rate sensitivities
tabulated above are illustrative only and are based on simplified scenarios.
The figures represent the effect of pro forma movements in net interest income
based on the projected yield curve scenarios, HSBC Holdings current
interest rate risk profile and assumed changes to that profile during the
next five years. Changes to assumptions concerning the risk profile over
the next five years can have a significant impact on the net interest income
sensitivity for that period. The figures do not take into account the effect
of actions that could be taken to mitigate this interest rate risk, however.
The projected increase in HSBC
Holdings sensitivity to moves in interest rates is mainly due to
new interest-bearing capital issues, the funds from which have been largely
invested
in non-interest bearing equity investments in subsidiaries.
Interest repricing gap table
The interest rate repricing gap table below
analyses the full term structure of interest rate mismatches within HSBC
Holdings balance
sheet. The year on year increase in the negative net interest rate gap
in the up to 1 year
time bucket is due to an increase in non-interest bearing equity investments
in subsidiaries which has been funded by new issues of interest bearing liabilities
and by the capitalisation of interest
bearing loans to subsidiaries.
250
Back to Contents
Repricing gap analysis of HSBC Holdings
(Audited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
Up to
|
|
|
|
|
|
|
|
|
More than
|
|
|
interest
|
|
|
|
Total
|
|
|
1 year
|
|
|
1-5 years
|
|
|
5-10 years
|
|
|
10 years
|
|
|
bearing
|
|
|
|
US$m
|
|
|
US$m
|
|
|
US$m
|
|
|
US$m
|
|
|
US$m
|
|
|
US$m
|
|
At 31 December 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash at bank and in hand: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
balances
with HSBC undertakings |
|
443
|
|
|
443
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives |
|
3,682
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,682
|
|
Loans
and advances to HSBC undertakings |
|
11,804
|
|
|
8,995
|
|
|
511
|
|
|
|
|
|
1,222
|
|
|
1,076
|
|
Financial investments |
|
2,629
|
|
|
|
|
|
|
|
|
300
|
|
|
1,885
|
|
|
444
|
|
Investments in subsidiaries |
|
81,993
|
|
|
1,459
|
|
|
1,094
|
|
|
|
|
|
875
|
|
|
78,565
|
|
Other assets |
|
131
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
131
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
100,682
|
|
|
10,897
|
|
|
1,605
|
|
|
300
|
|
|
3,982
|
|
|
83,898
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts
owed to HSBC undertakings |
|
(4,042
|
) |
|
(3,389
|
) |
|
|
|
|
|
|
|
|
|
|
(653
|
) |
Financial
liabilities designated at fair values |
|
(16,389
|
) |
|
(4,210
|
) |
|
(4,410
|
) |
|
(5,290
|
) |
|
(3,448
|
) |
|
969
|
|
Derivatives |
|
(1,324
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,324
|
) |
Other liabilities |
|
(1,816
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,816
|
) |
Subordinated liabilities |
|
(14,017
|
) |
|
(1,500
|
) |
|
(2,187
|
) |
|
(2,962
|
) |
|
(7,152
|
) |
|
(216
|
) |
Total equity |
|
(62,587
|
) |
|
|
|
|
|
|
|
|
|
|
(3,650
|
) |
|
(58,937
|
) |
Other
non-interest bearing liabilities |
|
(507
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(507
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity |
|
(100,682
|
) |
|
(9,099
|
) |
|
(6,597
|
) |
|
(8,252
|
) |
|
(14,250
|
) |
|
(62,484
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Off-balance
sheet items attracting interest rate sensitivity |
|
|
|
|
(12,353
|
) |
|
4,410
|
|
|
5,046
|
|
|
3,760
|
|
|
(863
|
) |
Net interest rate risk gap |
|
|
|
|
(10,555
|
) |
|
(582
|
) |
|
(2,906
|
) |
|
(6,508
|
) |
|
20,551
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative interest rate gap |
|
|
|
|
(10,555
|
) |
|
(11,137
|
) |
|
(14,043
|
) |
|
(20,551
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 31 December 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
92,948
|
|
|
19,136
|
|
|
|
|
|
|
|
|
2,774
|
|
|
71,038
|
|
Total liabilities |
|
(92,948
|
) |
|
(6,597
|
) |
|
(6,546
|
) |
|
(8,755
|
) |
|
(8,864
|
) |
|
(62,186
|
) |
Off-balance
sheet items attracting interest rate sensitivity |
|
|
|
|
(13,619
|
) |
|
4,313
|
|
|
7,752
|
|
|
3,804
|
|
|
(2,250
|
) |
Net interest rate risk gap |
|
|
|
|
(1,080
|
) |
|
(2,233
|
) |
|
(1,003
|
) |
|
(2,286
|
) |
|
6,602
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative interest rate gap |
|
|
|
|
(1,080
|
) |
|
(3,313
|
) |
|
(4,316
|
) |
|
(6,602
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As part of
the continuous enhancement and development of HSBCs management tools,
the net interest income sensitivity projection over a 5-year horizon and
the interest rate repricing
table shown above have replaced the VAR analysis disclosed in the 2007 Annual
Report and Accounts as the principal measures used to monitor interest rate
risk for HSBC Holdings. These enhanced reports are considered to be more
suitable risk management measures for the longer term profile of a bank holding
company balance sheet.
Value at risk
Total foreign exchange VAR arising within HSBC Holdings in 2008 and 2007 was
as follows:
HSBC Holdings
value at risk
(Audited) |
|
|
Foreign exchange |
|
|
|
|
|
|
|
|
|
2008 |
|
2007 |
|
|
|
US$m |
|
US$m |
|
|
|
|
|
|
|
At 31 December |
|
55.2 |
|
29.1 |
|
Average |
|
40.3 |
|
29.4 |
|
Minimum |
|
29.2 |
|
27.6 |
|
Maximum |
|
56.1 |
|
30.9 |
|
The foreign exchange risk largely arises from
loans to subsidiaries of a capital nature that are not denominated in the functional
currency of either the provider or the recipient and which are accounted for
as financial assets. Changes in the carrying amount of these loans due to foreign
exchange rate differences are taken directly to the income statement. These
loans, and the associated foreign exchange exposures, are eliminated on a Group
consolidated basis.
251
Back to Contents
H S B C H O L D I
N G S P L C |
|
Report of the Directors: Risk (continued) |
|
|
|
|
Residual value risk > Operational
risk > Legal risk / Security and fraud risk // Pension risk |
Residual value risk |
|
(Unaudited) |
A significant part of a lessors return from operating leases is dependent
upon its management of residual value risk. This arises from operating lease
transactions to the extent that the values recovered from disposing of leased
assets or re-letting them at the end of the lease terms (the residual
values) differ from those projected at the inception of the leases.
The business regularly monitors residual value exposure by reviewing the
recoverability
of the residual value projected at lease inception. This entails considering
the potential of re-letting of operating lease assets and their projected
disposal proceeds at the end of their lease terms. Provision is made to
the extent that
the carrying values of leased assets are impaired through residual values
not being fully recoverable.
The net book value of equipment
leased to customers on operating leases by the Group includes projected residual
values at the end of current lease terms, to be recovered through re-letting
or disposal in the following periods:
Residual values
(Unaudited)
|
|
2008 |
|
2007 |
|
|
|
US$m |
|
US$m |
|
|
|
|
|
|
|
Within 1 year |
|
108 |
|
155 |
|
Between 1-2 years |
|
59 |
|
243 |
|
Between 2-5
years |
|
530 |
|
713 |
|
More than 5 years |
|
1,549 |
|
1,892 |
|
|
|
|
|
|
|
Total exposure |
|
2,246 |
|
3,003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operational risk |
|
(Unaudited) |
Operational risk is the risk of loss arising
through fraud, unauthorised activities, error, omission, inefficiency, systems
failure or
from external events. It
is inherent to every business organisation and covers a wide spectrum of issues.
The terms error, omission and inefficiency include
process failures, systems/machine failures and human error.
The objective of HSBCs operational
risk management is to manage and control operational risk in a cost effective
manner within targeted levels of operational risk consistent with the Groups
risk appetite, as defined
by the Group Management Board.
A formal governance structure
provides oversight over the management of operational risk. A Global Operational
Risk and Control Committee, which reports to the Risk Management Meeting,
meets quarterly to discuss key risk issues and review
the effective implementation of the Groups
operational risk management
framework.
In each of HSBCs subsidiaries,
business managers are responsible for maintaining an acceptable level of
internal control, commensurate with the scale and nature of operations. They
are responsible for identifying and assessing risks, designing controls and
monitoring the effectiveness of these controls. The operational risk management
framework helps managers to fulfil these responsibilities by defining a standard
risk assessment methodology and providing a tool for the systematic reporting
of operational loss data.
A centralised database is used
to record the results of the operational risk management process. Operational
risk self-assessments are input and maintained by the business unit. To ensure
that operational risk losses are consistently reported and monitored at Group
level, all Group companies are required to report individual losses when
the net loss is expected to exceed US$10,000.
Further details of the HSBC approach
to Operational Risk Management can be found in the Capital and Risk Management
Interim Pillar 3 Disclosures 2008.
Legal risk
(Unaudited)
Each operating company is required to implement procedures to manage legal
risk that conform to HSBC standards. Legal risk falls within the definition
of operational risk and includes contractual risk, dispute risk, legislative
risk and non-contractual rights risk.
• |
Contractual risk is the risk that the rights
and/or obligations of an HSBC company within a contractual relationship
are defective. |
|
|
• |
Dispute risk is the risk that an HSBC company
is subject to when it is involved in or managing a potential or actual
dispute. |
|
|
• |
Legislative risk is the risk that an HSBC company
fails to adhere to the laws of the jurisdictions in which it operates. |
|
|
• |
Non-contractual rights risk is the risk that
an HSBC companys assets are not properly owned or are infringed
by others, or an HSBC company infringes another partys rights. |
HSBC has a global legal function
to assist management in controlling legal risk. The function provides legal
advice and support in managing claims against HSBC companies, as well as
in respect of non-routine debt recoveries or other
252
Back to Contents
litigation against third parties.
The GMO legal department oversees
the global legal function and is headed by a Group General Manager who reports
to the Group Chairman. There are legal departments in 54 of the countries
in which HSBC operates. There are also regional legal functions in each of
Europe, North America, Latin America, the Middle East, and Asia-Pacific.
Operating companies must notify
the appropriate legal department immediately any litigation is either threatened
or commenced against HSBC or an employee. The appropriate regional legal
department must be immediately advised (and must in turn immediately advise
the GMO legal department) of any action by a regulatory authority, where
the proceedings are criminal, or where the claim might materially affect
the Groups reputation. Further, any claims which exceed US$1.5
million or equivalent must also be advised to the appropriate regional legal
department and the regional legal department must immediately advise the
GMO legal department if any such claim exceeds US$5 million. All such
matters are then reported to the Risk Management Meeting of the Group Management
Board
in a monthly paper.
An exception report must be made
to the local compliance function and escalated to the Head of Group Compliance
in respect of any breach which has given rise to a fine and/or costs levied
by a court of law or regulatory body where the amount is US$1,500 or
more, and material or significant issues are reported to the Risk Management
Meeting of GMB and/or the Group Audit Committee.
In addition, operating companies are
required to submit quarterly returns detailing outstanding claims where the
claim (or group of similar claims) exceeds US$10 million, where the action
is by a regulatory authority, where the proceedings are criminal, where the
claim might materially affect the Groups reputation, or, where the
GMO legal department has requested returns be completed for a particular
claim. These returns are used for reporting to the Group Audit Committee
and the Board of HSBC Holdings, and disclosure in the Interim Report and Annual
Report and Accounts, if appropriate.
Global security and fraud risk
(Unaudited)
Security and fraud risk issues are managed at Group level by Global Security
and Fraud Risk. This unit, which has responsibility for physical, fraud, information
and contingency risk, and security and business intelligence, is fully integrated
within the central GMO Risk function. This facilitates
synergies between it and other risk functions, such as with Global Retail Risk
Management in the selection, design and implementation of systems and processes
to protect the Group against fraud by deterring fraudulent activity, detecting
it where it does occur and mitigating its effects.
HSBC operates a number of pension plans throughout the world, as described
in Note 8 on the Financial Statements. Some of these pension plans are defined
benefit plans, of which the
largest is the HSBC Bank (UK) Pension Scheme.
In order to fund these benefits,
sponsoring group companies (and in some instances, employees) make regular
contributions in accordance with advice from actuaries and in consultation
with the schemes Trustees (where relevant). The defined benefit plans
invest these contributions in a range of investments designed to meet their
long-term liabilities.
The level of these contributions
has a direct impact on the cash flow of the Group and would normally be set
to ensure that there are sufficient funds to meet the cost of the accruing
benefits for the future service of active members. However, higher contributions
will be required when plan assets are considered insufficient to cover the
existing pension liabilities as a deficit exists. Contribution rates are
typically revised annually or triennially, depending on the plan. The agreed
contributions to the HSBC Bank (UK) Pension Scheme are revised triennially.
A deficit in a defined benefit
plan may arise from a number of factors, including:
• |
investments delivering a return below that required to provide the projected plan benefits. This could arise, for example, when there is a fall in the market value of equities, or when increases in long-term interest rates cause a fall in the value of fixed income securities held; |
|
|
• |
the prevailing economic environment leading to corporate failures, thus triggering write-downs in asset (both equity and debt) values; |
|
|
• |
a change in either interest rates or inflation which causes an increase in the value of the scheme liabilities; and |
|
|
• |
scheme members living longer than expected (known as longevity risk). |
The plans investment strategy
is determined in the light of the market risk inherent in the investments
and the consequential impact on potential
future contributions.
253
Back to Contents
H S B C H O L D I
N G S P L C |
|
Report of the Directors: Risk (continued) |
|
|
|
|
Pension risk / Reputational
risk / Sustainability risk / Insurance operations > Life business |
Ultimate responsibility
for investment strategy rests with either the Trustees or, in certain circumstances,
a Management
Committee. The degree of independence of the Trustees from HSBC differs in
different jurisdictions. For example, the HSBC Bank (UK) Pension Scheme,
which accounts for approximately 63 per cent of the obligations of the Groups
defined benefit pension plans, is overseen by a corporate Trustee. This schemes
Trustee regularly monitors
the market risks inherent in the scheme.
Reputational risk |
|
(Unaudited) |
The safeguarding of HSBCs reputation is of paramount importance to its
continued prosperity and is the responsibility of every member of staff. HSBC
regularly reviews its policies and procedures for safeguarding against reputational
and operational risks. This is an evolutionary process which takes account of
relevant developments and industry guidance such as The Association of British
Insurers guidance on best practice when responding to environmental, social
and governance (ESG)
risks.
HSBC has always aspired to the
highest standards of conduct and, as a matter of routine, takes account of
reputational risks to its business. Reputational risks can arise from a wide
variety of causes, including ESG issues and operational risk events. As a
banking group, HSBCs good reputation depends upon the way in which
it conducts its business, but it can also be affected by the way in which
clients, to whom it provides financial services, conduct themselves. The
training of Directors on appointment includes reputational
matters.
A Group Reputational Risk Committee
(GRRC) has been established at which relevant Group functions
with responsibility for activities and functions which attract reputational
risk are represented. The primary role of the GRRC is to consider areas and
activities presenting significant reputational risk and, where appropriate,
to make recommendations to the Risk Management Meeting and GMB for policy
or procedural changes to mitigate such risk.
Standards on all major aspects
of business are set for HSBC and for individual subsidiaries, businesses
and functions. Reputational risks, including ESG matters, are considered
and assessed by the Board, GMB, the Risk Management Meeting, subsidiary company
boards, board committees and senior management during the formulation of
policy and the establishment of HSBC standards. These
policies, which form an
integral part of the internal control system (see page 299), are communicated
through manuals and statements of
policy and are promulgated
through internal communications and training. The policies cover ESG issues and
set out operational procedures in all areas of reputational risk, including money
laundering deterrence, counter-terrorist financing environmental impact, anti-corruption
measures and employee relations. The policy manuals address risk issues in detail
and co-operation between GMO departments and businesses is required to ensure
a strong adherence
to HSBCs risk management system and its sustainability practices.
Sustainability risk |
|
(Unaudited) |
Sustainability risks arise from the provision of financial services to companies
or projects which run counter to the needs of sustainable development; in effect
this risk arises when the environmental and social effects outweigh economic
benefits. Within Group Management Office, a separate function, Group Corporate
Sustainability, is mandated to manage these risks globally working through local
offices as appropriate. Its risk
management responsibilities include:
• |
formulating sustainability risk policies. This
includes
oversight of HSBCs sustainability risk standards, management of the Equator
Principles for project finance lending, and sector-based sustainability policies
covering those sectors with high environmental, ethical or social impacts (forestry,
freshwater infrastructure, chemicals, energy, mining and metals, and defence-related
lending); undertaking an independent review of transactions where sustainability
risks are assessed to be high, and supporting HSBCs operating companies
to assess similar risks of
a lower magnitude; |
|
|
• |
building and implementing systems-based processes
to ensure consistent application of policies, reduce the costs of sustainability
risk
reviews and capture
management information to measure
and report on the effect of HSBCs lending and investment activities on
sustainable development; and |
|
|
• |
providing training and capacity building within
HSBCs
operating companies to ensure sustainability risks are identified and mitigated
on
a consistent basis and to either HSBCs own standards, or international
standards or local regulations, whichever is the higher. |
254
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Risk management of insurance operations |
|
(Audited) |
HSBC operates a bancassurance model which provides insurance products for customers
with whom the Group has a banking relationship. Insurance products are sold
to all customer groups, mainly utilising retail branches, the internet and
phone centres. Personal Financial Services customers attract the majority of
sales and comprise the majority of policyholders. HSBC offers its customers
a wide range of insurance and investment products, many of which complement
other bank and consumer finance products.
Many of these
insurance products are manufactured by HSBC subsidiaries. The Group underwrites
the insurance
risk and retains the risks and rewards associated with writing insurance
contracts, retaining both the underwriting profit and the commission paid
by the manufacturer to the bank distribution channel within the Group. HSBCs
exposure to risks associated with manufacturing insurance contracts in its
subsidiaries and its management of these risks are discussed below.
Where the Group
considers it operationally more effective, third parties are engaged to
manufacture insurance products
for sale through HSBCs banking network. The Group works with a limited
number of market-leading partners to provide the products. These arrangements
earn HSBC a commission.
HSBCs bancassurance business
operates in all five of the Groups geographical regions with over 30
legal entities, the majority of which are subsidiaries of banking legal entities,
manufacturing insurance products. Management of these insurance manufacturers
set their own control procedures in addition to complying with guidelines
issued by the Group Insurance Head Office. This is headed by HSBCs
Managing Director of Insurance, supported by a Chief Operating Officer, Chief
Financial Officer and Chief Risk Officer, the latter appointed in 2008. The
role of Group Insurance Head Office includes setting the control framework
for monitoring and measuring insurance risk in line with Group practices,
and drawing up insurance-specific policies and guidelines for inclusion in
the Group Instruction Manuals. The control framework for monitoring risk
includes the Group Insurance Risk Committee, which oversees the status of
the significant risk categories
in the insurance
operations. Four sub-committees report to the Committee, focusing on market
and liquidity risk, credit risk, operational and insurance risk. The processes
and controls employed to monitor each risk are described under their respective
headings below.
The
main contracts manufactured
by HSBC are as follows:
Life insurance business
(Audited)
Life insurance contracts with discretionary participation
features (DPF) allow policyholders
to participate in the profits generated from such business, which may take
the form of annual bonuses and a final bonus, in addition to providing
cover on death. Certain minimum return levels are also guaranteed. The
largest portfolio is in Hong Kong.
Credit life insurance business
is written to underpin banking and finance products. The policy pays a claim
if the holder of the loan is unable to make repayments due to early death
or unemployment.
Annuities are
contracts providing regular payments of income from capital investment for
either a fixed period or during the annuitants lifetime. Payments to
the annuitant either begin on inception of the policy (immediate annuities)
or at a designated future date (deferred annuities).
Term assurance and critical
illness policies provide cover in the event of
death (term assurance) and serious illness.
Linked life insurance contracts pay
benefits to policyholders which are typically determined by reference to
the value of the investments supporting the policies.
Investment contracts with DPF allow
policyholders to participate in the profits generated by such business. The
largest portfolio is written in France. Policyholders are guaranteed to receive
a return on their investment plus any discretionary bonuses. In addition,
certain minimum return levels are guaranteed.
Unit-linked investment contracts are
those where the principal benefit
payable is the value of assigned assets.
Other investment contracts include
pension contracts written in Hong Kong.
255
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H S B C H O L D I
N G S P L C |
|
Report of the Directors: Risk (continued) |
|
|
|
|
Insurance operations >
Non-life business / Insurance risk |
Non-life insurance business
(Audited)
Non-life insurance contracts include motor, fire and other damage to property,
accident and health, repayment protection and commercial insurances.
Motor
insurance business covers vehicle damage and liability for personal injury.
For fire
and other damage
to property, the main focus in most markets is providing individuals with
home and contents insurance, with cover for selected commercial customers
largely written in Asia and Latin America.
A
very limited portfolio of liability business is written, other than that
included in the
motor book.
Credit non-life
insurance is concentrated in North America and Europe, and is originated
in conjunction with the provision
of loans. Payment protection insurance (PPI) products were suspended
in the UK pending a final report from the Competition Commission on their
provision by the financial services industry. The report was issued in early
2009. The business is in the process of assessing the impact of the reported
findings on credit protection products in the UK.
Given the nature
of the contracts written by the Group, the risks to which HSBCs insurance operations
are exposed fall into two principal categories: insurance risk and financial
risk. The following section describes the nature and extent of these risks
and HSBCs approach to managing them. The majority of the risk in the
insurance
business derives from manufacturing activities.
Insurance risk
(Audited)
Insurance risk is a risk, other than financial risk, transferred from the holder
of a contract to the issuer, in this case HSBC. The principal insurance risk
faced by HSBC is that, over time, the combined cost of claims, administration
and acquisition of the contract may exceed the aggregate amount of premiums
received and investment income. The cost of a claim can be influenced by many
factors, including mortality and morbidity experience, lapse and surrender
rates and, if the policy has a savings element, the performance of the assets
held to support the liabilities. Performance of the underlying assets is affected
by changes in both interest rates and equity prices (see
page 263).
HSBCs
insurance risk appetite is proposed by local businesses and authorised
centrally. The Group manages
its exposure to insurance risk by applying formal underwriting, reinsurance
and claims-
handling procedures designed to ensure compliance with regulations. This is supplemented
with stress testing.
Insurance contracts
sold by HSBC relate, in the main, to core underlying banking activities,
such as savings
and investment products, and credit life products. The Groups manufacturing
focuses on personal lines, i.e. contracts written for individuals, which
tend to be of higher volume and lower individual value than commercial lines.
They thus contribute to diversifying insurance risk.
Life
and non-life business insurance risks are controlled by high-level policies
and procedures
set centrally,
supplemented as appropriate with measures which take account of specific
local market conditions and regulatory requirements. For example, manufacturing
entities are required to obtain authorisation from Group Insurance Head Office
to write certain classes of business, with restrictions applying to commercial
and liability non-life insurance, in particular.
Local
ALCOs and Risk Management Committees are required to monitor certain risk
exposures,
mainly for life
business where the focus is on reviewing the risks associated with the duration
and cash flow matching of insurance assets and liabilities.
Reinsurance
is also used as a means of mitigating exposure, in particular to aggregations
of catastrophe
risk. Specific examples are as follows:
• |
Accident and health insurance. Potential exposure to concentrations of
claims arising from isolated events, such as earthquakes or a pandemic, are mitigated
by the purchase of catastrophe reinsurance. |
|
|
• |
Motor insurance. Reinsurance protection is arranged to avoid excessive
exposure to larger losses, particularly from personal injury claims. |
|
|
• |
Fire and other damage to property. Portfolios at risk from catastrophic
losses are protected by reinsurance in accordance with information obtained from
professional risk-modelling organisations. |
Although
reinsurance provides a means of managing insurance risk, such contracts expose
the Group
to counterparty risk, the risk of default by the reinsurer
(see page 267).
The following
tables provide an analysis of HSBCs insurance risk exposures by geographical
region and by type of business. By definition, HSBC is not exposed to insurance
risk on investment
256
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contracts, so they are not included in the insurance risk management analysis.
Life business tends to be longer-term
in nature than non-life business and frequently involves an element of savings
and investment in the contract. Accordingly, separate tables are provided
for life and non-life businesses, reflecting their distinctive risk characteristics.
The life insurance risk table provides an analysis of insurance liabilities
as the best
Analysis of life insurance risk liabilities
to policyholders
(Audited)
available overall measure of insurance exposure, because provisions for life
contracts are typically set by reference to expected future cash outflows relating
to the underlying policies. The table for non life business uses written premiums
as the best available measure of risk exposure because policies are typically
priced by reference to the risk being underwritten.
|
|
|
|
|
Rest of |
|
|
|
|
|
|
|
|
|
|
Hong |
|
Asia- |
|
North |
|
Latin |
|
|
|
|
Europe |
|
Kong |
|
Pacific |
|
America |
|
America |
|
Total |
|
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
At 31 December 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
Life (non-linked) |
|
|
|
|
|
|
|
|
|
|
|
|
Insurance contracts
with DPF1 |
1,015 |
|
11,213 |
|
216 |
|
|
|
|
|
12,444 |
|
Credit life |
252 |
|
|
|
|
|
65 |
|
|
|
317 |
|
Annuities |
379 |
|
|
|
28 |
|
805 |
|
1,363 |
|
2,575 |
|
Term
assurance and other long-term contracts |
1,316 |
|
107 |
|
99 |
|
136 |
|
376 |
|
2,034 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total life (non-linked) |
2,962 |
|
11,320 |
|
343 |
|
1,006 |
|
1,739 |
|
17,370 |
|
Life (linked) |
1,548 |
|
2,276 |
|
310 |
|
|
|
1,933 |
|
6,067 |
|
Investment contracts with DPF1,2 |
17,732 |
|
|
|
34 |
|
|
|
|
|
17,766 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance liabilities to policyholders |
22,242 |
|
13,596 |
|
687 |
|
1,006 |
|
3,672 |
|
41,203 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 31 December 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
Life (non-linked) |
|
|
|
|
|
|
|
|
|
|
|
|
Insurance contracts with DPF1 |
940 |
|
8,489 |
|
231 |
|
|
|
|
|
9,660 |
|
Credit life |
235 |
|
|
|
|
|
82 |
|
|
|
317 |
|
Annuities |
413 |
|
|
|
28 |
|
1,154 |
|
1,532 |
|
3,127 |
|
Term
assurance and other long-term contracts |
675 |
|
74 |
|
85 |
|
125 |
|
307 |
|
1,266 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total life (non-linked) |
2,263 |
|
8,563 |
|
344 |
|
1,361 |
|
1,839 |
|
14,370 |
|
Life (linked) |
1,720 |
|
2,019 |
|
467 |
|
|
|
2,193 |
|
6,399 |
|
Investment contracts with DPF1,2 |
18,954 |
|
|
|
29 |
|
|
|
|
|
18,983 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance liabilities to policyholders |
22,937 |
|
10,582 |
|
840 |
|
1,361 |
|
4,032 |
|
39,752 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
Insurance contracts and investment contracts with discretionary participation
features (DPF) can give policyholders the contractual right to
receive, as a supplement to their guaranteed benefits, additional benefits
that may be a significant portion of the total contractual benefits, but
whose amount and timing is determined by HSBC. These additional benefits
are contractually based on the performance of a specified pool of contracts
or assets, or the profit of the company issuing the contracts. |
2 |
Although investment contracts with DPF are financial investments, HSBC
continues to account for them as insurance contracts as permitted by IFRS
4. |
(Audited)
The above table of liabilities
to life insurance policyholders highlights that the most significant products
are investment contracts with DPF issued in France, insurance contracts with
DPF issued in Hong Kong and unit-linked contracts issued in Hong Kong, Latin
America and Europe.
The liabilities for long-term
contracts are set by reference to a range of assumptions which include lapse
and surrender rates, mortality and expense levels. These assumptions typically
reflect each
entitys own experience. Economic assumptions, such as investment returns
and interest rates, are usually based on market observable data. Changes in underlying
assumptions affect
the liabilities. The sensitivity of profit after tax and shareholders equity
to changes in both economic and non-economic assumptions are considered below.
Insurance risk arising from life
insurance depends on the type of business, and varies considerably. The principal
risks are mortality, morbidity, lapse,
surrender and expense levels.
257
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H S B C H O L
D I N G S P L C |
|
Report of the Directors: Risk (continued) |
|
|
|
|
Insurance operations > Insurance
risk |
The main contracts which generate
exposure to mortality and morbidity risks are term assurance contracts and
annuities. These risks are monitored on a regular basis, and are primarily
mitigated by medical underwriting and by retaining the ability in certain
cases to amend premiums in the light of experience. The risk associated with
lapses and surrenders is generally mitigated by the application
of surrender charges, though other management actions, such as managing the
level of bonus payments to policyholders, may be taken. Expense risk is generally
managed through pricing. The level of expenses in the contract will be one
of the factors considered when setting premiums rates.
Analysis of non-life insurance risk net written insurance
premiums1
|
|
|
|
|
|
|
|
|
|
(Audited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rest of
|
|
|
|
|
|
|
|
|
|
|
Hong
|
|
Asia-
|
|
North
|
|
Latin
|
|
|
|
|
Europe
|
|
Kong
|
|
Pacific
|
|
America
|
|
America
|
|
Total
|
|
|
US$m
|
|
US$m
|
|
US$m
|
|
US$m
|
|
US$m
|
|
US$m
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
Accident and health |
14
|
|
155
|
|
5
|
|
3
|
|
27
|
|
204
|
|
Motor |
350
|
|
15
|
|
14
|
|
|
|
273
|
|
652
|
|
Fire and other damage |
150
|
|
26
|
|
3
|
|
4
|
|
22
|
|
205
|
|
Liability |
|
|
14
|
|
4
|
|
|
|
34
|
|
52
|
|
Credit (non-life) |
99
|
|
|
|
|
|
144
|
|
|
|
243
|
|
Marine, aviation and transport |
|
|
11
|
|
4
|
|
|
|
24
|
|
39
|
|
Other non-life insurance contracts |
49
|
|
28
|
|
|
|
15
|
|
29
|
|
121
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net written insurance premiums |
662
|
|
249
|
|
30
|
|
166
|
|
409
|
|
1,516
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
insurance claims incurred and movement in liabilities to policyholders
|
(553
|
) |
(121
|
) |
(13
|
) |
(98
|
) |
(176
|
) |
(961
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
Accident and health |
27
|
|
132
|
|
5
|
|
|
|
25
|
|
189
|
|
Motor |
369
|
|
15
|
|
10
|
|
|
|
224
|
|
618
|
|
Fire and other damage |
178
|
|
23
|
|
7
|
|
2
|
|
19
|
|
229
|
|
Liability |
|
|
12
|
|
3
|
|
8
|
|
34
|
|
57
|
|
Credit (non-life) |
76
|
|
|
|
|
|
157
|
|
|
|
233
|
|
Marine, aviation and transport |
|
|
12
|
|
4
|
|
|
|
18
|
|
34
|
|
Other non-life insurance contracts |
30
|
|
24
|
|
|
|
30
|
|
24
|
|
108
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net written insurance premiums |
680
|
|
218
|
|
29
|
|
197
|
|
344
|
|
1,468
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
insurance claims incurred and movement in liabilities to policyholders
|
(598
|
) |
(90
|
) |
(10
|
) |
(79
|
) |
(151
|
) |
(928
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
Accident and health |
26
|
|
97
|
|
5
|
|
|
|
10
|
|
138
|
|
Motor |
185
|
|
15
|
|
13
|
|
|
|
157
|
|
370
|
|
Fire and other damage |
221
|
|
22
|
|
5
|
|
2
|
|
9
|
|
259
|
|
Liability |
1
|
|
13
|
|
2
|
|
8
|
|
24
|
|
48
|
|
Credit (non-life) |
264
|
|
|
|
|
|
173
|
|
|
|
437
|
|
Marine, aviation and transport |
1
|
|
11
|
|
3
|
|
|
|
12
|
|
27
|
|
Other non-life insurance contracts |
13
|
|
24
|
|
|
|
37
|
|
20
|
|
94
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net written insurance premiums |
711
|
|
182
|
|
28
|
|
220
|
|
232
|
|
1,373
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net insurance claims incurred and movement in liabilities to policyholders |
(451
|
) |
(76
|
) |
(11
|
) |
(79
|
) |
(111
|
) |
(728
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
Net written insurance premiums represent gross written premiums less gross
written premiums ceded to reinsurers. |
|
|
(Audited)
The above table of non-life net written insurance premiums provides an overall summary of the non-life insurance activity of the Group. Motor business is
written predominantly in Europe and Latin America and represented the largest class of non-life business in 2008. Fire and other damage to property business is written in all major markets, most significantly in Europe. Credit non-life insurance,
which is originated in conjunction with
the provision of loans, is concentrated in the US and Europe.
The main risks associated with non-life business are underwriting risk and claims experience risk. Underwriting risk is the risk that HSBC does not charge
premiums appropriate to the cover provided and claims experience risk is the risk that portfolio experience is worse than expected. HSBC manages these risks through pricing (for example, imposing
258
Back to Contents
restrictions and deductibles in the policy terms and conditions), product design,
risk selection, claims handling, investment strategy and reinsurance policy.
The majority of non-life insurance contracts are renewable annually and the
underwriters have the right to refuse renewal or to change the terms and conditions
of the contract at that time.
Balance sheet of insurance manufacturing
subsidiaries by type of contract
(Audited)
A principal tool used by HSBC to manage its exposure to insurance risk, in
particular for life insurance contracts, is asset and liability matching. Models
are used to assess the effect of a range of future scenarios on the values
of financial assets and associated liabilities, and ALCOs employ the outcomes
in determining how the assets and liabilities should be matched. The scenarios
include stresses applied to factors which affect insurance risk such as mortality
and lapse rates. Of particular importance is the need to match the expected
pattern of cash inflows with the benefits payable on the underlying contracts,
which can extend for many years. The table below shows the composition of assets
and liabilities and demonstrates that there
were sufficient assets to cover the liabilities
to policyholders at the end of 2008. It may not always be possible to achieve
a complete matching of asset and liability durations, partly because there
is uncertainty over policyholder behaviour, which introduces uncertainty
over
the receipt of all future premiums and the timing of claims, and partly because
the duration of liabilities may exceed the duration of the longest available
dated fixed interest investments. In an environment where interest rates
and
yield curves are falling, insurance operations are exposed to re-investment
risk as higher yielding assets held in the portfolio mature and are replaced
with lower yielding assets. Given the objective to hold rather than trade
investments, the current portfolio of assets includes debt securities issued
at a time when coupon rates were higher than those observed in the current
market. As a result, the current yield of the debt securities exceeds that
which may be obtained on current issues. Management
action has been taken in relation to certain participating contracts to reduce
short-term bonus rates paid to policyholders to manage the immediate strain
on the business. Should interest rates and yield curves stay low for prolonged
periods, further management actions may be needed.
|
Insurance contracts |
|
Investment contracts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contracts |
|
|
|
|
|
Term |
|
|
|
Contracts |
|
|
|
|
|
|
|
|
|
|
with |
|
Unit- |
|
Annu- |
|
assur- |
|
|
|
with |
|
Unit- |
|
|
|
Other |
|
|
|
|
DPF |
|
linked |
|
ities |
|
ance |
1 |
Non-life |
|
DPF |
2 |
linked |
|
Other |
|
assets |
3 |
Total |
|
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
At 31 December
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
trading
assets |
|
|
|
|
|
|
|
|
35 |
|
|
|
|
|
|
|
4 |
|
39 |
|
financial
assets designated at fair value |
959 |
|
4,738 |
|
457 |
|
496 |
|
52 |
|
4,597 |
|
5,525 |
|
1,481 |
|
1,970 |
|
20,275 |
|
derivatives |
27 |
|
3 |
|
|
|
26 |
|
|
|
60 |
|
170 |
|
91 |
|
24 |
|
401 |
|
financial
investments |
9,383 |
|
|
|
1,282 |
|
399 |
|
860 |
|
12,482 |
|
|
|
1,482 |
|
2,576 |
|
28,464 |
|
other
financial assets |
1,967 |
|
400 |
|
639 |
|
1,288 |
|
1,106 |
|
173 |
|
443 |
|
685 |
|
2,110 |
|
8,811 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial
assets |
12,336 |
|
5,141 |
|
2,378 |
|
2,209 |
|
2,053 |
|
17,312 |
|
6,138 |
|
3,739 |
|
6,684 |
|
57,990 |
|
Reinsurance assets |
6 |
|
956 |
|
311 |
|
320 |
|
430 |
|
|
|
|
|
|
|
60 |
|
2,083 |
|
PVIF4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,033 |
|
2,033 |
|
Other assets and investment properties |
121 |
|
3 |
|
32 |
|
71 |
|
257 |
|
459 |
|
55 |
|
54 |
|
935 |
|
1,987 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
12,463 |
|
6,100 |
|
2,721 |
|
2,600 |
|
2,740 |
|
17,771 |
|
6,193 |
|
3,793 |
|
9,712 |
|
64,093 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
under investment contracts designated at fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
6,012 |
|
3,271 |
|
|
|
9,283 |
|
Liabilities
under investment contracts carried at amortised cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
284 |
|
|
|
284 |
|
Liabilities
under insurance contracts |
12,444 |
|
6,067 |
|
2,575 |
|
2,351 |
|
2,480 |
|
17,766 |
|
|
|
|
|
|
|
43,683 |
|
Deferred tax |
8 |
|
7 |
|
22 |
|
30 |
|
1 |
|
1 |
|
|
|
3 |
|
515 |
|
587 |
|
Other liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,679 |
|
2,679 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
12,452 |
|
6,074 |
|
2,597 |
|
2,381 |
|
2,481 |
|
17,767 |
|
6,012 |
|
3,558 |
|
3,194 |
|
56,516 |
|
Total equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,577 |
|
7,577 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity
and liabilities5 |
12,452 |
|
6,074 |
|
2,597 |
|
2,381 |
|
2,481 |
|
17,767 |
|
6,012 |
|
3,558 |
|
10,771 |
|
64,093 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
259
Back to Contents
H S B C H O L
D I N G S P L C |
|
Report of the Directors: Risk (continued) |
|
|
|
|
Insurance operations > Insurance
risk |
Balance sheet of insurance manufacturing subsidiaries by
type of contract (continued)
(Audited)
|
Insurance contracts |
|
Investment
contracts |
|
|
|
|
|
|
|
Contracts |
|
|
|
|
|
|
|
|
|
Contracts |
|
|
|
|
|
|
|
|
|
|
with |
|
Unit- |
|
Annu- |
|
Term |
|
|
|
with |
|
Unit- |
|
|
|
Other |
|
|
|
|
DPF |
|
linked |
|
ities |
|
assurance |
1 |
Non-life |
|
DPF |
2 |
linked |
|
Other |
|
assets |
3 |
Total |
|
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
At 31 December 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
trading
assets |
|
|
|
|
37 |
|
|
|
22 |
|
|
|
|
|
|
|
35 |
|
94 |
|
financial
assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
designated
at fair value |
3,424 |
|
5,799 |
|
610 |
|
559 |
|
130 |
|
6,210 |
|
12,379 |
|
1,610 |
|
2,992 |
|
33,713 |
|
derivatives |
2 |
|
52 |
|
|
|
|
|
1 |
|
78 |
|
250 |
|
3 |
|
30 |
|
416 |
|
financial
investments |
4,518 |
|
|
|
1,265 |
|
328 |
|
1,071 |
|
12,305 |
|
|
|
1,526 |
|
2,939 |
|
23,952 |
|
other
financial assets |
1,896 |
|
520 |
|
1,047 |
|
716 |
|
1,175 |
|
3 |
|
762 |
|
714 |
|
1,483 |
|
8,316 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial assets |
9,840 |
|
6,371 |
|
2,959 |
|
1,603 |
|
2,399 |
|
18,596 |
|
13,391 |
|
3,853 |
|
7,479 |
|
66,491 |
|
Reinsurance assets |
4 |
|
57 |
|
337 |
|
264 |
|
653 |
|
|
|
|
|
|
|
54 |
|
1,369 |
|
PVIF4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,965 |
|
1,965 |
|
Other
assets and investment properties |
65 |
|
2 |
|
30 |
|
104 |
|
193 |
|
399 |
|
46 |
|
52 |
|
1,196 |
|
2,087 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
9,909 |
|
6,430 |
|
3,326 |
|
1,971 |
|
3,245 |
|
18,995 |
|
13,437 |
|
3,905 |
|
10,694 |
|
71,912 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
under investment contracts designated at fair value |
|
|
|
|
|
|
|
|
|
|
|
|
12,725 |
|
3,328 |
|
|
|
16,053 |
|
Liabilities
under investment contracts carried at amortised cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
312 |
|
|
|
312 |
|
Liabilities
under insurance contracts |
9,660 |
|
6,399 |
|
3,127 |
|
1,583 |
|
2,854 |
|
18,983 |
|
|
|
|
|
|
|
42,606 |
|
Deferred tax |
|
|
7 |
|
3 |
|
22 |
|
3 |
|
|
|
6 |
|
|
|
582 |
|
623 |
|
Other liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,888 |
|
3,888 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
9,660 |
|
6,406 |
|
3,130 |
|
1,605 |
|
2,857 |
|
18,983 |
|
12,731 |
|
3,640 |
|
4,470 |
|
63,482 |
|
Total equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,430 |
|
8,430 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity and liabilities6 |
9,660 |
|
6,406 |
|
3,130 |
|
1,605 |
|
2,857 |
|
18,983 |
|
12,731 |
|
3,640 |
|
12,900 |
|
71,912 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
Term assurance includes credit life insurance. |
2 |
Although investment contracts with DPF
are financial investments, HSBC continues to account for them as insurance
contracts as permitted by IFRS 4. |
3 |
Other assets comprise shareholder assets. |
4 |
Present value of in-force long-term insurance
contracts and investment contracts with DPF. |
5 |
Does not include assets, liabilities and
shareholders funds of associated insurance company, Ping An Insurance,
or joint venture insurance companies, Hana Life and Canara HSBC Oriental
Bank of Commerce Life Insurance Company Limited. |
6 |
Does not include assets, liabilities and
shareholders funds of associated insurance company, Ping An Insurance. |
260
Back to Contents
The table below
shows the composition of assets and liabilities by region and demonstrates
that there
were sufficient assets to cover the liabilities
to policyholders for each region
at the end of 2008.
Balance sheet of insurance manufacturing subsidiaries by
geographical region
(Audited)
|
|
|
|
|
Rest of |
|
|
|
|
|
|
|
|
|
|
Hong |
|
Asia- |
|
North |
|
Latin |
|
|
|
|
Europe |
|
Kong |
|
Pacific |
|
America |
|
America |
|
Total |
|
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
At 31 December 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
trading
assets |
|
|
|
|
|
|
|
|
39 |
|
39 |
|
financial
assets designated at fair value |
12,605 |
|
4,153 |
|
581 |
|
|
|
2,936 |
|
20,275 |
|
derivatives |
258 |
|
117 |
|
|
|
|
|
26 |
|
401 |
|
financial
investments |
14,240 |
|
10,689 |
|
91 |
|
2,040 |
|
1,404 |
|
28,464 |
|
other
financial assets |
4,143 |
|
2,906 |
|
289 |
|
585 |
|
888 |
|
8,811 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial
assets |
31,246 |
|
17,865 |
|
961 |
|
2,625 |
|
5,293 |
|
57,990 |
|
Reinsurance assets |
920 |
|
1,004 |
|
20 |
|
13 |
|
126 |
|
2,083 |
|
PVIF1 |
845 |
|
905 |
|
81 |
|
|
|
202 |
|
2,033 |
|
Other assets and investment properties |
933 |
|
400 |
|
9 |
|
354 |
|
291 |
|
1,987 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
33,944 |
|
20,174 |
|
1,071 |
|
2,992 |
|
5,912 |
|
64,093 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
under investment contracts designated at fair value |
5,310 |
|
3,895 |
|
78 |
|
|
|
|
|
9,283 |
|
Liabilities under investment contracts carried at amortised cost |
|
|
|
|
|
|
|
|
284 |
|
284 |
|
Liabilities under insurance contracts |
23,752 |
|
13,873 |
|
745 |
|
1,237 |
|
4,076 |
|
43,683 |
|
Deferred tax |
304 |
|
161 |
|
19 |
|
|
|
103 |
|
587 |
|
Other liabilities |
2,184 |
|
190 |
|
42 |
|
11 |
|
252 |
|
2,679 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
31,550 |
|
18,119 |
|
884 |
|
1,248 |
|
4,715 |
|
56,516 |
|
Total equity |
2,394 |
|
2,055 |
|
187 |
|
1,744 |
|
1,197 |
|
7,577 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity
and liabilities2 |
33,944 |
|
20,174 |
|
1,071 |
|
2,992 |
|
5,912 |
|
64,093 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 31 December 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
trading assets |
|
|
|
|
|
|
|
|
94 |
|
94 |
|
financial
assets designated at fair value |
22,824 |
|
6,733 |
|
796 |
|
|
|
3,360 |
|
33,713 |
|
derivatives |
410 |
|
5 |
|
|
|
1 |
|
|
|
416 |
|
financial
investments |
13,805 |
|
6,251 |
|
78 |
|
2,425 |
|
1,393 |
|
23,952 |
|
other financial assets |
3,345 |
|
3,259 |
|
197 |
|
653 |
|
862 |
|
8,316 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial
assets |
40,384 |
|
16,248 |
|
1,071 |
|
3,079 |
|
5,709 |
|
66,491 |
|
Reinsurance assets |
1,095 |
|
48 |
|
28 |
|
83 |
|
115 |
|
1,369 |
|
PVIF1 |
892 |
|
810 |
|
65 |
|
|
|
198 |
|
1,965 |
|
Other assets and investment properties |
787 |
|
926 |
|
7 |
|
52 |
|
315 |
|
2,087 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
43,158 |
|
18,032 |
|
1,171 |
|
3,214 |
|
6,337 |
|
71,912 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
under investment contracts designated at fair value |
11,720 |
|
4,285 |
|
48 |
|
|
|
|
|
16,053 |
|
Liabilities
under investment contracts carried at amortised cost |
|
|
|
|
|
|
|
|
312 |
|
312 |
|
Liabilities under insurance contracts |
24,788 |
|
10,843 |
|
903 |
|
1,652 |
|
4,420 |
|
42,606 |
|
Deferred tax |
371 |
|
143 |
|
12 |
|
|
|
97 |
|
623 |
|
Other liabilities |
3,392 |
|
193 |
|
28 |
|
18 |
|
257 |
|
3,888 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
40,271 |
|
15,464 |
|
991 |
|
1,670 |
|
5,086 |
|
63,482 |
|
Total equity |
2,887 |
|
2,568 |
|
180 |
|
1,544 |
|
1,251 |
|
8,430 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity
and liabilities3 |
43,158 |
|
18,032 |
|
1,171 |
|
3,214 |
|
6,337 |
|
71,912 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
Present value of in-force long-term insurance
contracts and investment contracts with DPF. |
2 |
Does not include assets, liabilities and
shareholders funds of associated insurance company, Ping An Insurance,
or joint venture insurance companies, Hana Life and Canara HSBC Oriental
Bank of Commerce Life Insurance Company Limited. |
3 |
Does not include assets, liabilities and
shareholders funds of associated insurance company, Ping An Insurance. |
261
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H S B C H O L D
I N G S P L C |
|
Report of the Directors: Risk (continued) |
|
|
|
|
Insurance operations >
Financial risks > Market risk |
Financial risks
(Audited)
HSBCs insurance businesses are exposed
to a range of financial risks, including market risk, credit risk and liquidity
risk. Market
risk includes
interest rate risk, equity risk and foreign exchange risk. The nature and management
of these risks is described below.
Manufacturing subsidiaries
are exposed to financial risks, for example, when the proceeds from financial
assets are not sufficient to fund the obligations arising from non-linked
insurance and investment contracts. Certain insurance-related activities
undertaken by HSBC subsidiaries such as insurance broking, insurance management
(including captive management) and the administration and intermediation
of insurance, pensions and annuities are exposed to financial risks, but
not to a significant extent.
Risk management procedures which
reflect local market conditions and regulatory requirements may be implemented
by HSBCs insurance manufacturing subsidiaries in addition to policies
provided for Group-wide application through the Group Instruction Manuals.
In many jurisdictions, local regulatory requirements prescribe the type,
quality and concentration of assets that these subsidiaries must maintain
to meet insurance liabilities. Within each subsidiary, ALCOs are responsible
for ensuring that exposures to financial risks remain within local requirements
and risk mandates (as agreed with Group Insurance Head Office), and ensure
compliance with the control framework established centrally through the Group
Instruction Manuals.
The following table analyses the
assets held in HSBCs insurance manufacturing subsidiaries at 31 December
2008 by type of contract, and provides a view of the exposure to financial
risk:
Financial assets held by insurance manufacturing
subsidiaries
(Audited)
|
At 31 December
2008 |
|
|
|
|
|
Life linked |
|
Life non-linked |
|
Non-life |
|
Other |
|
|
|
|
contracts |
1 |
contracts |
2 |
insurance |
3 |
assets |
4 |
Total |
5 |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
Trading assets |
|
|
|
|
|
|
|
|
|
|
Debt
securities |
|
|
|
|
35 |
|
4 |
|
39 |
|
|
|
|
|
|
|
|
|
|
|
|
Financial assets designated
at fair value |
|
|
|
|
|
|
|
|
|
|
Treasury
bills |
31 |
|
197 |
|
|
|
8 |
|
236 |
|
Debt securities |
4,091 |
|
3,109 |
|
52 |
|
1,625 |
|
8,877 |
|
Equity
securities |
6,141 |
|
4,684 |
|
|
|
337 |
|
11,162 |
|
|
|
|
|
|
|
|
|
|
|
|
|
10,263 |
|
7,990 |
|
52 |
|
1,970 |
|
20,275 |
|
|
|
|
|
|
|
|
|
|
|
|
Financial investments |
|
|
|
|
|
|
|
|
|
|
Held-to-maturity: |
|
|
|
|
|
|
|
|
|
|
Debt
securities |
|
|
10,411 |
|
170 |
|
510 |
|
11,091 |
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale: |
|
|
|
|
|
|
|
|
|
|
Treasury bills |
|
|
4 |
|
130 |
|
128 |
|
262 |
|
Other
eligible bills |
|
|
|
|
272 |
|
126 |
|
398 |
|
Debt securities |
|
|
14,602 |
|
254 |
|
1,596 |
|
16,452 |
|
Equity
securities |
|
|
11 |
|
34 |
|
216 |
|
261 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,617 |
|
690 |
|
2,066 |
|
17,373 |
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives |
173 |
|
204 |
|
|
|
24 |
|
401 |
|
Other financial assets6 |
843 |
|
4,752 |
|
1,106 |
|
2,110 |
|
8,811 |
|
|
|
|
|
|
|
|
|
|
|
|
|
11,279 |
|
37,974 |
|
2,053 |
|
6,684 |
|
57,990 |
|
|
|
|
|
|
|
|
|
|
|
|
262
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|
At 31 December 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Life linked |
|
Life non-linked |
|
Non-life |
|
Other |
|
|
|
|
contracts |
1 |
contracts |
2 |
insurance |
3 |
assets |
4 |
Total |
7 |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
Trading assets |
|
|
|
|
|
|
|
|
|
|
Debt
securities |
|
|
37 |
|
22 |
|
35 |
|
94 |
|
|
|
|
|
|
|
|
|
|
|
|
Financial assets designated at fair value |
|
|
|
|
|
|
|
|
|
|
Treasury
bills |
51 |
|
|
|
96 |
|
34 |
|
181 |
|
Debt
securities |
7,741 |
|
3,591 |
|
28 |
|
2,272 |
|
13,632 |
|
Equity
securities |
10,386 |
|
8,822 |
|
6 |
|
686 |
|
19,900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
18,178 |
|
12,413 |
|
130 |
|
2,992 |
|
33,713 |
|
|
|
|
|
|
|
|
|
|
|
|
Financial investments |
|
|
|
|
|
|
|
|
|
|
Held-to-maturity: |
|
|
|
|
|
|
|
|
|
|
Treasury
bills |
|
|
|
|
|
|
|
|
|
|
Debt
securities |
|
|
6,253 |
|
144 |
|
408 |
|
6,805 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,253 |
|
144 |
|
408 |
|
6,805 |
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale: |
|
|
|
|
|
|
|
|
|
|
Treasury
bills |
|
|
2 |
|
126 |
|
130 |
|
258 |
|
Other
eligible bills |
|
|
|
|
176 |
|
172 |
|
348 |
|
Debt
securities |
|
|
13,677 |
|
563 |
|
2,065 |
|
16,305 |
|
Equity
securities |
|
|
10 |
|
62 |
|
164 |
|
236 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,689 |
|
927 |
|
2,531 |
|
17,147 |
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives |
302 |
|
83 |
|
1 |
|
30 |
|
416 |
|
Other financial assets6 |
1,282 |
|
4,376 |
|
1,175 |
|
1,483 |
|
8,316 |
|
|
|
|
|
|
|
|
|
|
|
|
|
19,762 |
|
36,851 |
|
2,399 |
|
7,479 |
|
66,491 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
Comprise life linked insurance contracts
and linked long-term investment contracts. |
2 |
Comprise life non-linked insurance contracts
and non-linked long-term investment contracts. |
3 |
Comprises non-life insurance contracts. |
4 |
Comprise shareholder assets. |
5 |
Does not include financial assets of associated
insurance company, Ping An Insurance. |
6 |
Comprise mainly loans and advances to
banks, cash and intercompany balances with other non-insurance legal entities. |
7 |
Does not include financial assets of insurance
manufacturing associate, Ping An Insurance. |
|
|
The table demonstrates that for
linked contracts, HSBC typically designates assets at fair value. For non-linked
contracts, the classification of the assets is driven by the nature of the
underlying contract.
The table also shows that approximately
62.9 per cent of financial assets was invested in debt securities at 31 December
2008 (2007: 55.4 per cent) with 19.7 per cent (2007: 30.3 per cent) invested
in equity securities.
In life linked insurance, premium
income less charges levied is invested in a portfolio of assets. HSBC manages
the financial risks of this product on behalf of the policyholders by holding
appropriate assets in segregated funds or portfolios to which the liabilities
are linked. Typically, HSBC retains some exposure to market risk as the market
value of the linked assets influences the fees charged by HSBC and thereby
affects the recoverability of expenses incurred by the Group in managing
the product. The assets held to support life linked liabilities represented
19.4 per cent of the total financial assets of HSBCs insurance manufacturing
subsidiaries at the end of 2008 (2007: 29.7 per
cent).
Market risk
(Audited)
Insurance and investment
products manufactured by HSBCs insurance manufacturing
subsidiaries typically comprise features or combinations of features which may
not be easily or exactly replicated by investments. Market risk arises when mismatches
occur between product liabilities and the investment assets which back them;
for example, mismatches between asset and liability yields and maturities give
rise to interest rate
risk.
Description of market risk
(Audited)
The main features of products
manufactured by HSBCs insurance manufacturing
subsidiaries which generate market risk, and the market risk to which these features
expose the
subsidiaries, are discussed below.
Long-term insurance or investment
products may incorporate either one investment return guarantee or a combination
thereof, divided into the following
categories:
263
Back to Contents
H S B C H O L
D I N G S P L C |
|
Report
of the Directors: Risk (continued) |
|
|
|
|
Insurance
operations > Financial
risks > Market
risk |
• |
annuities in payment; |
|
|
• |
deferred annuities: these consist of
two phases the savings and investing phase
and the retirement income phase; |
|
|
• |
annual return: the annual return is
guaranteed to be no lower than a specified rate. This
may be the return credited to the policyholder every
year, or the average annual return credited to the
policyholder over the life of the policy, which may
occur on the maturity date or the surrender date of
the contract; |
|
|
• |
capital: policyholders are guaranteed
to receive no less than the premiums paid plus declared
bonuses less expenses; and |
|
|
• |
market performance: policyholders receive
an investment return which is guaranteed to be |
|
within a prescribed range of average investment
returns earned by predetermined market participants on the specified
product. |
Subsidiaries manufacturing products
with guarantees are usually exposed to falls in market interest rates as
they result in lower yields on the assets supporting guaranteed investment
returns payable to policyholders. In the current market environment, in which
interest rates are falling, managing this risk is of increasing importance.
The table below shows, in respect
of each category of guarantee, the total liabilities to policyholders established
for guaranteed products, the range of investment returns (net of operating
costs) implied by the guarantees, and the range of current yields of the
investment portfolios supporting the guarantees.
|
|
Liabilities to policyholders1
(Audited) |
|
|
2008 |
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
|
|
|
|
|
|
Investment
|
|
|
|
|
|
|
returns
|
|
|
|
|
|
returns
|
|
|
|
|
Amount of |
|
implied by
|
|
Current
|
|
Amount of |
|
implied by
|
|
Current
|
|
|
reserve |
|
guarantee |
2 |
yields
|
|
reserve |
|
guarantee |
3 |
yields
|
|
|
US$m |
|
%
|
|
%
|
|
US$m |
|
%
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annuities in payment |
744 |
|
0.0 11.5
|
|
6.5 28.0
|
|
716 |
|
0.0 8.5 |
|
5.1 18.1 |
|
Deferred annuities |
120 |
|
0.0 6.0 |
|
3.9 7.4 |
|
116 |
|
0.0 6.0 |
|
3.8 8.6 |
|
Deferred annuities |
576 |
|
6.0 9.0 |
|
5.4 5.4 |
|
609 |
|
6.0 9.0 |
|
5.7
|
|
Annual return |
13,717 |
|
0.0 4.5 |
|
2.2 4.9
|
|
12,875 |
|
0.0 4.5 |
|
3.2 8.7 |
|
Annual return |
302 |
|
4.5 6.0 |
|
3.4 7.3
|
|
352 |
|
4.5 6.0 |
|
3.2 8.5 |
|
Capital |
13,346 |
|
0.0
|
|
2.0 4.3 |
|
11,311 |
|
0.0
|
|
3.8 4.8 |
|
Market performance4 |
n/a |
|
n/a
|
|
n/a
|
|
3,605 |
|
n/a
|
|
n/a
|
|
|
|
1 |
The table excludes contracts where the
market risk is 100 per cent reinsured. |
2 |
Excluding guarantees from associated insurance
company, Ping An Insurance, or joint venture insurance companies, Hana Life
and Canara HSBC Oriental Bank of Commerce Life Insurance Company Limited. |
3 |
Excluding guarantees from associate insurance
company, Ping An Insurance. |
4 |
There is no specific investment return
implied by market performance guarantees because the guarantees are expressed
as lying within prescribed ranges of average market returns. |
|
A certain number of these products
have been discontinued, including the US$576 million deferred annuity
portfolio in HSBC Finance where, as highlighted in the above table, the current
portfolio yield is less than the guarantee. On acquisition of this block
of business by HSBC Finance, a provision was established to mitigate the
shortfall in yields. There has been no further deterioration in the shortfall
since acquisition. There are a limited number of additional contracts where
the current portfolio yield is less than the guarantee implied by
the contract.
The proceeds from insurance and
investment products with DPF are primarily invested in bonds with a proportion
allocated to equity securities in order to provide customers with the potential
for enhanced returns. Subsidiaries with portfolios of
such products are exposed to the risk of falls in the market price of equity
securities when they cannot be fully reflected in the discretionary bonuses.
An increase in market volatility could also result in an increase in the value
of the guarantee to the policyholder.
Long-term insurance and investment
products typically permit the policyholder to surrender the policy or let
it lapse at any time. When the surrender value is not linked to the value
realised from the sale of the associated supporting assets, the subsidiary
is exposed to market risk. In particular, when customers seek to surrender
their policies when asset values are falling, assets may have to be sold
at a loss to fund redemptions.
A subsidiary holding a portfolio
of long-term insurance and investment products, especially with
264
Back to Contents
DPF, may attempt to reduce
exposure to its local market by investing in assets in countries other than
that in which it is based. These assets may be denominated
in currencies other than the subsidiarys local currency. It is often
not cost effective for the subsidiary to hedge the foreign exchange exposure
associated with these assets, and this exposes it to the risk that its local
currency will strengthen against the currency of the related
assets.
For unit-linked contracts, market
risk is substantially borne by the policyholder, but HSBC typically remains
exposed to market risk as the market value of the linked assets influences
the fees HSBC earns for managing them.
How the risks are managed
(Audited)
HSBCs insurance
manufacturing subsidiaries manage market risk by using some or all of the
following techniques, depending on the nature of the contracts
they write:
• |
for products with DPF, adjusting bonus
rates to manage the liabilities to policyholders.
Bonus rates are managed by regularly evaluating their
sustainability. The effect is that a portion of the
market risk is borne by the policyholder; |
|
|
• |
as far as possible, matching assets
to liabilities. For example, for products with annual
return or capital guarantees, HSBC invests in bonds which produce
returns at least equal to the investment returns implied
by the guarantees; |
|
|
• |
using derivatives in a limited number
of instances; |
|
|
• |
when designing new products with investment
guarantees, evaluating the cost of the guarantee and
considering this cost when determining the level of
premiums or the price structure; |
|
|
• |
periodically reviewing products identified
as higher risk, which contain guarantees and
embedded optionality features linked to savings and
investment products. The scope of the review would
include pricing, risk management and profitability
(a control introduced during 2008). Guaranteed products
which expose the Group to risk beyond the levels deemed
acceptable in any of these categories are either altered
or are no longer offered to customers; |
|
|
• |
including features designed to mitigate
market risk in new products, such as charging surrender
penalties to recoup losses incurred when policyholders
surrender their policies; and |
• |
exiting, to the extent possible, investment
portfolios whose risk is considered unacceptable for
example, by implementing asset reallocation strategies
in order to manage risk exposures. |
During 2008, the credit, market
and liquidity risk functions in Group Insurance Head
Office were strengthened by the creation of two new positions, Chief Credit
Officer and Chief Market and Liquidity Risk Officer, both reporting to the
Chief Risk Officer. Also, due diligence procedures were enhanced during the
current lower yield environment to more critically assess embedded risk in
respect of new products, for example, those including options and guarantees
within the contract. When such product features are identified, the product
proposal is reviewed by Group Insurance Head Office to ensure that the key
risks are identified and that the related risk management procedures are
adequate. The frequency with which management reviews certain exposures is
increased in markets demonstrating increasing volatility to ensure that any
matters
arising are dealt with in a timely fashion.
Each insurance manufacturing subsidiary
is required to have a market risk mandate which specifies the investment
instruments in which it is permitted to invest and the maximum quantum of
market risk which it is permitted to retain. It is the responsibility of
the subsidiarys ALCO and the Market and Liquidity Risk Committee (subcommittee
to the Group Insurance Risk Committee) to ensure that each mandate is consistent
with local regulations. All mandates are reviewed and agreed annually by
Group Insurance Head Office, and aggregate limits are approved by the Risk
Management Meeting of GMB. During 2008, market risk mandates were enhanced
in some of the major insurance subsidiaries by introducing stop loss limits
and
management action limits designed to control risk in certain portfolios.
How the exposures to risks are measured
(Audited)
HSBCs insurance
manufacturing subsidiaries monitor exposures against mandated limits regularly
and report these quarterly to Group Insurance Head Office. Exposures
are aggregated and reported to senior risk management forums in the Group, including
the Group Insurance Market and Liquidity Risk Committee, Group Insurance Risk
Committee and the Group Stress Test Review Group.
The standard measures used to
quantify the market risks are as follows:
265
Back to Contents
H S B C H O L D
I N G S P L C |
|
Report of
the Directors: Risk (continued) |
|
|
|
Insurance operations >
Financial risks > Market risk / Credit risk |
• |
for interest rate risk, the sensitivities
of the net present values of asset and expected liability cash flows,
in total and by currency, to a one basis point parallel upward shift in
the discount curves used to calculate the net present values; |
|
|
• |
for equity price risk, the total market
value of equity holdings and the market value of equity holdings by region
and country; and |
|
|
• |
for foreign exchange risk, the total net
short foreign exchange position and the net foreign exchange positions
by currency. |
Although these
measures are relatively straightforward to calculate and aggregate, there
are limitations with them. The most significant limitation is that a parallel
shift in yield curves of one basis point does not capture the non-linear
relationships between the values of certain assets and liabilities and interest
rates. Non-linearity arises, for example, from investment return guarantees
and certain
product features such as the ability of policyholders to surrender their policies.
If the yields on investments held to support contracts with guarantees are
less than the investment returns implied by the guarantees, shortfalls will
be to the
account of HSBC.
HSBC recognises
these limitations and augments its standard measures with stress tests which
examine the effect of a range of market rate scenarios on the aggregate annual
profits and total equity of the insurance manufacturing subsidiaries.
HSBCs insurance manufacturing subsidiaries
report the results of their stress tests every quarter to Group Insurance
Head Office, where the reports
are consolidated and reviewed by the Group Insurance Market and Liquidity Risk
Meeting and the Group Stress Test Review Group.
HSBCs
insurance manufacturing subsidiaries identify the assets and liabilities
in their financial statements whose values are sensitive to each category
of market risk and revalue them at various market rates. The outcome of
the exercise is expressed in terms of the effect on profit for the year
and total equity under the stress-tested assumptions, after taking into
consideration tax and
accounting treatments where material and relevant.
The following table
illustrates the effect on the aggregated profit for the year and total equity
under various interest rate, equity price, foreign exchange rate and credit
spread scenarios. Where appropriate, the impact of the stress on the PVIF
is included in the results of the stress tests. The relationship between
the values of certain assets and liabilities and the risk factors may be
non-linear
and, therefore, the results disclosed cannot be extrapolated to measure sensitivities
to different levels of stress. The sensitivities are stated before allowance
for the effect of management actions which may mitigate changes in market
rates, and for any factors such as policyholder behaviour that may change
in response to changes in market risk.
Sensitivity of HSBCs insurance subsidiaries
to risk factors
(Audited)
|
2008 |
|
2007 |
|
|
|
|
|
|
|
Effect on |
|
Effect on |
|
Effect on |
|
Effect on |
|
|
profit for |
|
total |
|
profit for |
|
total |
|
|
the year |
|
equity |
|
the year |
|
equity |
|
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
|
|
|
|
|
|
|
|
|
+ 100 basis
points parallel shift in yield curves |
94
|
|
(13
|
) |
67
|
|
(29
|
) |
100 basis points parallel
shift in yield curves |
(82 |
) |
24 |
|
(71 |
) |
49 |
|
10 per cent
increase in equity prices |
10 |
|
10 |
|
147 |
|
151 |
|
10 per cent decrease in equity
prices |
(12 |
) |
(12 |
) |
(145 |
) |
(149 |
) |
10 per cent increase in US dollar exchange rate compared to all currencies |
28 |
|
29 |
|
12 |
|
12 |
|
10 per cent decrease in US dollar exchange rate compared to all currencies |
(28 |
) |
(29 |
) |
(12 |
) |
(12 |
) |
Sensitivity to credit spread increases |
(73
|
) |
(134
|
) |
(15 |
) |
(30 |
) |
266
Back to Contents
The sensitivity of the net
profit after tax of HSBCs insurance subsidiaries to the effects of
increases in credit spreads is a fall of US$73 million (2007: US$15
million fall). The sensitivity is consistent with the other sensitivities
noted above, and is calculated using simplified assumptions based on a
one-day movement in credit spreads over a two-year period. A confidence
level of 99 per cent, consistent with the Groups VAR, has been applied.
The effect of movements in credit spreads became more significant in 2008
due to increased volatility in credit spreads.
Credit risk
(Audited)
Credit risk can give rise to losses through
default and can lead to volatility in income statement and balance sheet
figures through movements in credit spreads, principally on the US$33.2
billion (2007: US$29.8 billion) non-linked bond portfolio. The exposure
of the income statement to the effect of changes in credit spreads is small
(see the table on page 266). 49 per cent of the financial assets held by
insurance subsidiaries are classified as either held to maturity or available
for sale, and consequently any changes in the fair value of these financial
investments, absent impairment, would have no impact on the profit after
tax.
HSBC sells certain
unit-linked life insurance contracts which are reinsured with a third-party.
These insurance contracts include market return guarantees which are underwritten
by the third-party. HSBC is exposed to credit risk to the extent that the
third-party (the counterparty) is unable to meet the terms of the guarantees.
As highlighted in Market Risk above, the cost to the Group of
market return guarantees increases when interest rates fall, equity markets
fall or market volatility increases. In addition, when determined by reference
to a discounted cash flow model in which the discount rate is based on current
interest rates, guarantee costs increase in a falling interest rate environment.
As a consequence of the rise in these costs, the Groups counterparty
exposure to the guarantees under the reinsurance agreement at 31 December
2008 was greater than at 31 December 2007. During 2008, sales of these contracts
ceased, reflecting the adjusted risk appetite of the business.
The exposure to credit risk
products and the management of the risks associated with credit protection
products are included in the description of life and non-life insurance
risk on pages 257 to 258. HSBCs insurance manufacturing subsidiaries
are responsible for the credit risk, quality and performance of their investment
portfolios. Investment credit mandates
and limits are set by the subsidiaries and approved by their local insurance
ALCOs and Credit Risk functions before being submitted to Group Credit
Risk for concurrence. The form and content of the mandates must accord
with centrally set investment credit risk guidance regarding credit quality,
industry sector concentration and liquidity restrictions, but allow for
the inclusion of local regulatory and country-specific conditions. The
assessment of the creditworthiness of issuers and counterparties is based
primarily upon internationally recognised credit ratings and other publicly
available information.
Investment credit
exposures are monitored against limits by the local insurance manufacturing
subsidiaries,
and are aggregated and reported to Group Credit Risk, the Group Insurance
Credit Risk Meeting and the Group Insurance Risk Committee. Stress testing
is performed by Group Insurance Head Office on the investment credit exposures
using credit spread sensitivities and default probabilities. The stresses
are reported to the Group Insurance Risk Committee.
As noted above,
under certain circumstances, the Group is able to dilute the effect of
investment losses
by sharing them with policyholders. However, when, for example, a contract
includes a guarantee, losses which would result in a breach of the guaranteed
benefits due to the policyholder are borne by the Group.
In response to
adverse credit market conditions, various initiatives were introduced during
2008 to better
manage and report credit risk, including an Early Warning Report which
is produced on a weekly basis to identify investments which may be at risk
of future impairment. This report is circulated to senior management in
Group Insurance Head Office and the Regional Chief Risk Officers, and risk
reduction strategies are implemented when considered appropriate. Similarly,
a watch list of investments with current credit concerns is circulated
weekly.
267
Back to Contents
H S B C H O L D
I N G S P L C |
|
Report of
the Directors: Risk (continued) |
|
|
|
Insurance operations > Financial
risks > Credit risk |
Credit quality
(Audited)
The following table presents an analysis of treasury
bills, other eligible bills and debt securities within HSBCs insurance
business by measures of credit quality. The definitions of the four credit
quality classifications
are included on page 217. Only assets
supporting non-linked liabilities are included
in the table as financial risk on assets supporting linked liabilities is
predominantly borne by the policyholder.
93.7 per cent (2007: 88.7 per cent) of the assets included in the table are
invested in investments rated as Strong.
Treasury bills, other eligible bills and debt
securities
in HSBCs insurance subsidiaries
(Audited)
|
Neither past due
nor impaired |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub- |
|
|
|
|
|
|
|
|
|
Strong |
|
|
Medium |
|
|
standard |
|
|
Impaired |
1 |
|
Total |
|
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
At 31 December 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supporting liabilities under non-linked insurance and investment contracts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading assets debt
securities |
27 |
|
|
8 |
|
|
|
|
|
|
|
|
35 |
|
|
Financial assets designated at fair value |
2,704 |
|
|
654 |
|
|
|
|
|
|
|
|
3,358 |
|
|
treasury
and other eligible bills |
197 |
|
|
|
|
|
|
|
|
|
|
|
197 |
|
|
debt
securities |
2,507 |
|
|
654 |
|
|
|
|
|
|
|
|
3,161 |
|
|
Financial investments |
24,881 |
|
|
913 |
|
|
45 |
|
|
4 |
|
|
25,843 |
|
|
treasury
and other similar bills |
404 |
|
|
2 |
|
|
|
|
|
|
|
|
406 |
|
|
debt
securities |
24,477 |
|
|
911 |
|
|
45 |
|
|
4 |
|
|
25,437 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,612 |
|
|
1,575 |
|
|
45 |
|
|
4 |
|
|
29,236 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supporting shareholders funds2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading assets debt
securities |
4 |
|
|
|
|
|
|
|
|
|
|
|
4 |
|
|
Financial assets designated at fair value |
1,502 |
|
|
131 |
|
|
|
|
|
|
|
|
1,633 |
|
|
treasury
and other eligible bills |
8 |
|
|
|
|
|
|
|
|
|
|
|
8 |
|
|
debt
securities |
1,494 |
|
|
131 |
|
|
|
|
|
|
|
|
1,625 |
|
|
Financial investments |
2,033 |
|
|
228 |
|
|
99 |
|
|
|
|
|
2,360 |
|
|
treasury
and other similar bills |
245 |
|
|
7 |
|
|
2 |
|
|
|
|
|
254 |
|
|
debt
securities |
1,788 |
|
|
221 |
|
|
97 |
|
|
|
|
|
2,106 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,539 |
|
|
359 |
|
|
99 |
|
|
|
|
|
3,997 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading assets debt
securities |
31 |
|
|
8 |
|
|
|
|
|
|
|
|
39 |
|
|
Financial assets designated at fair value |
4,206 |
|
|
785 |
|
|
|
|
|
|
|
|
4,991 |
|
|
treasury
and other eligible bills |
205 |
|
|
|
|
|
|
|
|
|
|
|
205 |
|
|
debt
securities |
4,001 |
|
|
785 |
|
|
|
|
|
|
|
|
4,786 |
|
|
Financial investments |
26,914 |
|
|
1,141 |
|
|
144 |
|
|
4 |
|
|
28,203 |
|
|
treasury
and other similar bills |
649 |
|
|
9 |
|
|
2 |
|
|
|
|
|
660 |
|
|
debt
securities |
26,265 |
|
|
1,132 |
|
|
142 |
|
|
4 |
|
|
27,543 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,151 |
|
|
1,934 |
|
|
144 |
|
|
4 |
|
|
33,233 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
268
Back to Contents
|
Neither past due nor impaired |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub- |
|
|
|
|
|
|
Strong |
|
|
Medium |
|
|
standard |
|
|
Total |
|
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
At 31 December 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
Supporting liabilities under non-linked
insurance and investment contracts |
|
|
|
|
|
|
|
|
|
|
|
|
Trading assets debt
securities |
|
|
|
59 |
|
|
|
|
|
59 |
|
|
Financial assets designated at fair value |
2,748 |
|
|
967 |
|
|
|
|
|
3,715 |
|
|
treasury
and other eligible bills |
|
|
|
96 |
|
|
|
|
|
96 |
|
|
debt
securities |
2,748 |
|
|
871 |
|
|
|
|
|
3,619 |
|
|
Financial investments |
19,352 |
|
|
1,575 |
|
|
14 |
|
|
20,941 |
|
|
treasury
and other similar bills |
290 |
|
|
14 |
|
|
|
|
|
304 |
|
|
debt
securities |
19,062 |
|
|
1,561 |
|
|
14 |
|
|
20,637 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,100 |
|
|
2,601 |
|
|
14 |
|
|
24,715 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supporting shareholders funds2 |
|
|
|
|
|
|
|
|
|
|
|
|
Trading assets debt
securities |
|
|
|
35 |
|
|
|
|
|
35 |
|
|
Financial assets designated at fair value |
1,833 |
|
|
473 |
|
|
|
|
|
2,306 |
|
|
treasury
and other eligible bills |
|
|
|
34 |
|
|
|
|
|
34 |
|
|
debt
securities |
1,833 |
|
|
439 |
|
|
|
|
|
2,272 |
|
|
Financial investments |
2,537 |
|
|
233 |
|
|
5 |
|
|
2,775 |
|
|
treasury
and other similar bills |
290 |
|
|
7 |
|
|
5 |
|
|
302 |
|
|
debt
securities |
2,247 |
|
|
226 |
|
|
|
|
|
2,473 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,370 |
|
|
741 |
|
|
5 |
|
|
5,116 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total4 |
|
|
|
|
|
|
|
|
|
|
|
|
Trading assets debt
securities |
|
|
|
94 |
|
|
|
|
|
94 |
|
|
Financial assets designated at fair value |
4,581 |
|
|
1,440 |
|
|
|
|
|
6,021 |
|
|
treasury
and other eligible bills |
|
|
|
130 |
|
|
|
|
|
130 |
|
|
debt
securities |
4,581 |
|
|
1,310 |
|
|
|
|
|
5,891 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial investments |
21,889 |
|
|
1,808 |
|
|
19 |
|
|
23,716 |
|
|
treasury
and other similar bills |
580 |
|
|
21 |
|
|
5 |
|
|
606 |
|
|
debt
securities |
21,309 |
|
|
1,787 |
|
|
14 |
|
|
23,110 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,470 |
|
|
3,342 |
|
|
19 |
|
|
29,831 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
Impairment is not measured for debt securities
held in trading portfolios or designated at fair value, as assets in such
portfolios are managed according to movements in fair value, and the fair
value movement is taken directly through the income statement. Consequently,
all such balances are reported under neither past due nor impaired. |
2 |
Shareholders funds comprise solvency
and unencumbered assets. |
3 |
Does not include treasury bills, other
eligible bills and debt securities held by associated insurance company,
Ping An Insurance, or joint venture insurance companies, Hana Life and Canara
HSBC Oriental Bank of Commerce Life Insurance Company Limited. |
4 |
Does not include treasury bills, other eligible bills and debt securities
held by insurance manufacturing associate, Ping An Insurance. |
269
Back to Contents
H S B C H O L D
I N G S P L C |
|
Report of the
Directors: Risk (continued) |
|
|
|
Insurance operations > Credit
risk / Liquidity risk |
Issuers of treasury bills, other eligible bills
and debt
securities in HSBCs insurance subsidiaries
(Audited)
|
Treasury |
|
Other eligible |
|
Debt |
|
|
|
|
bills |
|
bills |
|
securities |
|
Total |
|
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
At 31 December 2008 |
|
|
|
|
|
|
|
|
Governments |
467 |
|
24 |
|
6,109 |
|
6,600 |
|
Local authorities |
|
|
|
|
525 |
|
525 |
|
Asset-backed securities |
|
|
|
|
14 |
|
14 |
|
Corporates and other |
|
|
374 |
|
25,720 |
|
26,094 |
|
|
|
|
|
|
|
|
|
|
|
467 |
|
398 |
|
32,368 |
|
33,233 |
|
|
|
|
|
|
|
|
|
|
At 31 December 2007 |
|
|
|
|
|
|
|
|
Governments |
388 |
|
|
|
7,140 |
|
7,528 |
|
Local authorities |
|
|
|
|
175 |
|
175 |
|
Asset-backed securities |
|
|
|
|
201 |
|
201 |
|
Corporates and other |
|
|
348 |
|
21,579 |
|
21,927 |
|
|
|
|
|
|
|
|
|
|
|
388 |
|
348 |
|
29,095 |
|
29,831 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Audited)
Credit risk also
arises when part of the insurance risk incurred by HSBC is assumed by reinsurers.
The
credit
risk exposure to reinsurers is monitored by Group Insurance Head Office and
is reported quarterly to the Group Insurance Risk Committee and the Group
Insurance Credit Risk Meeting.
The split of liabilities ceded
to reinsurers and outstanding reinsurance recoveries, analysed by Standard & Poors
reinsurance credit rating data or their equivalent, is shown below. The Groups
exposure to third parties under the reinsurance agreement described in the
Credit Risk section above
is included in this table.
Reinsurers share of liabilities
under insurance contracts
(Audited)
|
|
|
|
|
|
|
|
Neither past due nor impaired
|
|
Past due
|
|
|
|
|
|
|
but not |
|
|
|
|
Strong |
|
Medium
|
|
impaired |
|
Total |
|
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
At 31 December 2008 |
|
|
|
|
|
|
|
|
Linked insurance contracts |
9 |
|
947 |
|
|
|
956 |
|
Non-linked insurance contracts |
1,001 |
|
62 |
|
4 |
|
1,067 |
|
|
|
|
|
|
|
|
|
|
Total1 |
1,010 |
|
1,009 |
|
4 |
|
2,023 |
|
|
|
|
|
|
|
|
|
|
Reinsurance debtors |
30 |
|
20 |
|
10 |
|
60 |
|
|
|
|
|
|
|
|
|
|
At 31 December 2007 |
|
|
|
|
|
|
|
|
Linked insurance contracts |
35 |
|
22 |
|
|
|
57 |
|
Non-linked insurance contracts |
998 |
|
257 |
|
3 |
|
1,258 |
|
|
|
|
|
|
|
|
|
|
Total2 |
1,033 |
|
279 |
|
3 |
|
1,315 |
|
|
|
|
|
|
|
|
|
|
Reinsurance debtors |
37 |
|
9 |
|
8 |
|
54 |
|
1 |
Does not include reinsurers
share of liabilities under insurance contracts and reinsurance debtors of
associated insurance company, Ping An Insurance, or joint venture insurance
companies, Hana Life and Canara HSBC Oriental Bank of Commerce Life Insurance
Company Limited. |
2 |
Does not include reinsurers share
of liabilities under insurance contracts and reinsurance debtors of insurance
manufacturing associate, Ping An Insurance. |
270
Back to Contents
Liquidity risk
(Audited)
It is an inherent characteristic of almost all insurance contracts that there
is uncertainty over the amount of claims liabilities that may arise, and the
timing of their settlement and
this leads to liquidity risk.
To fund the cash outflows arising
from claims liabilities, HSBCs insurance manufacturing subsidiaries
primarily utilise liquidity from the following
sources:
• |
cash inflows arising from premiums from
new business, policy renewals and recurring premium products; |
|
|
• |
cash inflows arising from interest and
dividends on investments and principal repayments of maturing debt investments; |
|
|
• |
cash resources; and |
|
|
• |
cash inflows from the sale of investments. |
HSBCs
insurance manufacturing subsidiaries manage liquidity risk by utilising
some or all of the following techniques:
• |
matching cash inflows with expected cash
outflows using specific cash flow projections or more general asset and
liability matching techniques such as duration matching; |
|
|
• |
maintaining sufficient cash resources; |
|
|
• |
investing in good credit-quality investments
with deep and liquid markets to the degree to which they exist; |
|
|
• |
monitoring investment concentrations and
restricting them where appropriate, for example, by debt issues or issuers;
and |
• |
establishing committed contingency borrowing facilities. |
Every quarter,
HSBCs insurance manufacturing subsidiaries are required to complete
and submit liquidity risk reports to Group Insurance Head Office for collation
and review by the Group Insurance Market and Liquidity Risk Meeting. Liquidity
risk is assessed in these reports by measuring changes in expected cumulative
net cash flows under a series of stress scenarios designed to determine
the effect
of reducing expected available liquidity and accelerating cash outflows. This
is achieved by, for example, assuming new business or renewals are lower,
and surrenders or lapses are greater, than expected.
The following
tables show the expected undiscounted cash flows for insurance contract
liabilities and the remaining contractual maturity of investment contract
liabilities at 31 December 2008. As indicated in the analyses of life and
non-life insurance risks on pages 257 to 258, a significant proportion
of the Groups non-life insurance business is viewed as short term,
with the settlement of liabilities expected to occur within one year of
the period of risk. There is a greater spread of expected maturities for
the life business where, in a large proportion of cases, the liquidity
risk is borne in conjunction with policyholders (wholly
in the case of unit-linked business).
The profile of
the expected maturity of the insurance contracts as at 31 December 2008 remained
comparable with 2007.
Expected maturity of insurance contract liabilities
(Audited)
|
Expected cash flows (undiscounted) |
|
|
|
|
|
Within 1 year |
|
1-5 years |
|
5-15 years |
|
Over 15 years |
|
Total |
|
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
At 31 December 2008 |
|
|
|
|
|
|
|
|
|
|
Non-life insurance |
1,178 |
|
1,186 |
|
115 |
|
1
|
|
2,480
|
|
Life insurance (non-linked) |
2,527 |
|
7,789 |
|
16,695 |
|
14,432 |
|
41,443 |
|
Life insurance (linked) |
1,295 |
|
1,251 |
|
3,269 |
|
5,390 |
|
11,205 |
|
|
|
|
|
|
|
|
|
|
|
|
Total1 |
5,000 |
|
10,226 |
|
20,079 |
|
19,823 |
|
55,128 |
|
|
|
|
|
|
|
|
|
|
|
|
At 31 December 2007 |
|
|
|
|
|
|
|
|
|
|
Non-life insurance |
1,337 |
|
1,352 |
|
164 |
|
1 |
|
2,854 |
|
Life insurance (non-linked) |
1,887 |
|
5,310 |
|
15,986 |
|
13,269 |
|
36,452 |
|
Life insurance (linked) |
507 |
|
1,894 |
|
3,644 |
|
5,014 |
|
11,059 |
|
|
|
|
|
|
|
|
|
|
|
|
Total2 |
3,731 |
|
8,556 |
|
19,794 |
|
18,284 |
|
50,365 |
|
|
|
|
|
|
|
|
|
|
|
|
1 |
Does not include insurance contracts issued
by associated insurance company, Ping An Insurance, or joint venture insurance
companies, Hana Life and Canara HSBC Oriental Bank of Commerce Life Insurance
Company Limited. |
2 |
Does not include insurance contracts issued
by insurance manufacturing associate, Ping An Insurance. |
271
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H S B C H O L D I
N G S P L C |
|
Report of the Directors: Risk (continued) |
|
|
|
|
Insurance operations >
Financial risks > Liquidity risk // PVIF |
Remaining contractual maturity of investment
contract liabilities
(Audited)
|
|
Liabilities under
investment contracts by |
|
|
|
insurance underwriting
subsidiaries |
|
|
|
|
|
|
|
|
|
|
|
Linked |
|
Other |
|
Investment |
|
|
|
|
|
investment |
|
investment |
|
contracts |
|
|
|
|
|
contracts |
|
contracts |
|
with DPF |
|
Total |
|
|
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
At 31 December 2008 |
|
|
|
|
|
|
|
|
|
Remaining contractual maturity: |
|
|
|
|
|
|
|
|
|
due within
1 year |
|
178 |
|
314 |
|
|
|
492 |
|
due between
1 and 5 years |
|
610 |
|
21 |
|
34 |
|
665 |
|
due between
5 and 10 years |
|
482 |
|
31 |
|
|
|
513 |
|
due after
10 years |
|
1,649 |
|
42 |
|
|
|
1,691 |
|
undated1 |
|
3,093 |
|
3,147 |
|
17,732 |
|
23,972 |
|
|
|
|
|
|
|
|
|
|
|
Total2 |
|
6,012 |
|
3,555 |
|
17,766 |
|
27,333 |
|
|
|
|
|
|
|
|
|
|
|
At 31 December 2007 |
|
|
|
|
|
|
|
|
|
Remaining contractual maturity: |
|
|
|
|
|
|
|
|
|
due within
1 year |
|
286 |
|
331 |
|
1 |
|
618 |
|
due between
1 and 5 years |
|
1,234 |
|
48 |
|
28 |
|
1,310 |
|
due between
5 and 10 years |
|
950 |
|
|
|
|
|
950 |
|
due after
10 years |
|
3,386 |
|
44 |
|
|
|
3,430 |
|
undated1 |
|
6,869 |
|
3,217 |
|
18,954 |
|
29,040 |
|
|
|
|
|
|
|
|
|
|
|
Total3 |
|
12,725 |
|
3,640 |
|
18,983 |
|
35,348 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
In most cases, policyholders have the
option to terminate their contracts at any time and receive the surrender
values of their policies. These may be significantly lower than the amounts
shown above. |
2 |
Does not include investment contracts
issued by associated insurance company, Ping An Insurance, or joint venture
insurance companies, Hana Life and Canara HSBC Oriental Bank of Commerce
Life Insurance Company Limited. |
3 |
Does not include investment contracts
issued by insurance manufacturing associate, Ping An Insurance. |
|
|
Present value of in-force long-term insurance
business
(Audited)
The HSBC life insurance business is accounted for using the embedded value approach
which, inter alia, provides a comprehensive framework for the evaluation
of insurance and related
risks. The present value of the in-force long-term (PVIF) asset at
31 December 2008 was US$2.0 billion (2007: US$2.0 billion). The present
value of the shareholders interest in the profits expected to emerge from
the book of in-force policies at 31 December can be stress-tested to assess the
ability of the life business book to withstand adverse developments. A key feature
of the life insurance business is the importance of managing the assets, liabilities
and risks in a coordinated fashion rather than individually. This reflects the
greater interdependence of these three elements for life insurance than is generally
the case for non-life insurance.
The following table shows the
effect on the PVIF of reasonably possible changes in the main economic assumptions,
namely the risk-free and risk discount
rates, across all insurance manufacturing subsidiaries.
Sensitivity of PVIF to changes in economic
assumptions
(Audited)
|
|
PVIF at 31 December |
|
|
|
|
|
|
|
|
|
2008 |
|
2007 |
|
|
|
US$m |
|
US$m |
|
|
|
|
|
|
|
+
100 basis point shift in risk-free rate
|
|
179 |
|
195 |
|
100
basis point shift in risk-free rate
|
|
(100 |
) |
(232 |
) |
+
100 basis point shift in risk discount
rate
|
|
(109 |
) |
(95 |
) |
100
basis point shift in risk discount rate
|
|
122 |
|
106 |
|
Due to certain characteristics
of the contracts, the relationships may be non-linear and the results of
the stress-testing disclosed above should not be extrapolated to higher levels
of stress. In calculating the various scenarios, all assumptions are held
stable except when testing the effect of the shift in the risk-free rate,
when consequential changes to investment returns, risk discount rates and
bonus rates are also incorporated. The sensitivities shown are before actions
that could be taken by management to mitigate effects and before consequential
changes in policyholder behaviour.
The following table shows the
movements recorded during the year in respect of total equity and PVIF of
insurance operations:
272
Back to Contents
Movements in total equity and PVIF of insurance operations
(Audited)
|
|
2008 |
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Of which |
|
|
|
Of which |
|
|
|
Total |
|
includes: |
|
Total |
|
includes: |
|
|
|
equity |
|
PVIF |
|
equity |
|
PVIF |
|
|
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
|
|
|
|
|
|
|
|
|
|
At 1 January |
|
8,430 |
|
1,965 |
|
5,949 |
|
1,549 |
|
Value of new business written
during the year1 |
|
452 |
|
452 |
|
380 |
|
380 |
|
Acquisitions of subsidiaries/portfolios |
|
|
|
|
|
652 |
|
390 |
|
Movements arising from in-force
business: |
|
|
|
|
|
|
|
|
|
expected
return |
|
(186 |
) |
(186 |
) |
(175 |
) |
(175 |
) |
experience
variances2 |
|
(36 |
) |
(36 |
) |
53 |
|
53 |
|
change
in operating assumptions |
|
(7 |
) |
(7 |
) |
(86 |
) |
(86 |
) |
Investment return variances |
|
(94 |
) |
(94 |
) |
|
|
|
|
Changes in investment assumptions |
|
12 |
|
12 |
|
4 |
|
4 |
|
Return on net assets |
|
(310 |
) |
|
|
1,235 |
|
|
|
Disposals of subsidiaries/portfolios |
|
|
|
|
|
(250 |
) |
|
|
Exchange differences and other |
|
(93 |
) |
(73 |
) |
(91 |
) |
(150 |
) |
Capital transactions |
|
(591 |
) |
|
|
759 |
|
|
|
|
|
|
|
|
|
|
|
|
|
At 31 December |
|
7,577 |
|
2,033 |
|
8,430 |
|
1,965 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
Value of net new business during the year
is the present value of the projected stream of profits from the business.
|
2 |
Experience variances include the effect
of the difference between demographic, expense and persistency assumptions
used in the previous PVIF calculation and actual experience observed during
the year. |
|
|
|
|
Non-economic assumptions
(Audited)
The policyholder liabilities and PVIF are determined
by reference to non-economic assumptions which include, for non-life manufacturers,
claims costs and expense rates and, for life manufacturers, mortality and/or
morbidity, lapse rates and expense rates. The table below shows the sensitivity
of profit for the year to, and total equity at, 31 December 2008 to reasonably
possible changes in these non-economic assumptions at that date across all insurance
manufacturing subsidiaries, with comparatives for 2007.
The cost of claims is a risk associated
with non-life insurance business. An increase in claims costs would have
a negative effect on profit. The main exposures to this scenario are in the
UK, Hong Kong and Latin America.
Mortality and morbidity risk is
typically associated with life insurance contracts. The effect of an increase
in mortality or morbidity on profit depends on the type of business being
written. For a portfolio of term assurance contracts, an increase in mortality
usually has a negative effect on profit as the number of claims increases.
For a portfolio of annuity contracts, an increase in mortality rates typically
has a positive effect on profit as the period
over which the benefit is being paid to the policyholder
is shortened. However, when an annuity contract includes life cover, the positive
effect on profit of the increase in mortality may be offset by the benefits
payable under the life insurance. The largest exposures to mortality and morbidity
risk exist in France, Hong Kong and the UK.
Sensitivity to lapse rates is
dependent on the type of contracts being written. For insurance contracts,
the cost of claims is funded by premiums received and income earned on the
investment portfolio supporting the liabilities. For a portfolio of term
assurance, an increase in lapse rates typically has a negative effect on
profit due to the loss of future premium income on the lapsed policies. For
a portfolio of annuity contracts, an increase in lapse rates has a positive
effect on profit as the obligation to pay future benefits on the lapsed contracts
is extinguished. France, Hong Kong and the UK are the sites which are most
sensitive to a change in lapse rates.
Expense rate risk is the exposure
to a change in expense rates. To the extent that increased expenses cannot
be passed on to policyholders, an increase in expense rates will have a negative
impact on profits.
273
Back to Contents
Sensitivity analysis
(Audited)
|
Effect
on profit for the year |
|
Effect
on total equity |
|
|
to 31 December |
|
at 31 December |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life |
|
Non-life |
|
Total |
|
Life |
|
Non-life |
|
Total |
|
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
20% increase in claims
costs |
|
|
(122 |
) |
(122 |
) |
|
|
(122 |
) |
(122 |
) |
20% decrease in claims
costs |
|
|
121 |
|
121 |
|
|
|
121 |
|
121 |
|
10% increase in mortality and/or
morbidity rates |
(28 |
) |
|
|
(28 |
) |
(28 |
) |
|
|
(28 |
) |
10% decrease in mortality and/or
morbidity rates |
30 |
|
|
|
30 |
|
30 |
|
|
|
30 |
|
50% increase in lapse
rates |
(96 |
) |
|
|
(96 |
) |
(96 |
) |
|
|
(96 |
) |
50% decrease in lapse
rates |
194 |
|
|
|
194 |
|
194 |
|
|
|
194 |
|
10% increase in expense
rates |
(42 |
) |
(9 |
) |
(51 |
) |
(42 |
) |
(9 |
) |
(51 |
) |
10% decrease in expense
rates |
41 |
|
9 |
|
50 |
|
41 |
|
9 |
|
50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
20% increase in claims
costs |
|
|
(138 |
) |
(138 |
) |
|
|
(138 |
) |
(138 |
) |
20% decrease in claims
costs |
|
|
138 |
|
138 |
|
|
|
138 |
|
138 |
|
10% increase in mortality and/or
morbidity rates |
(21 |
) |
|
|
(21 |
) |
(21 |
) |
|
|
(21 |
) |
10% decrease in mortality and/or
morbidity rates |
9 |
|
|
|
9 |
|
9 |
|
|
|
9 |
|
50% increase in lapse
rates |
(16 |
) |
|
|
(16 |
) |
(16 |
) |
|
|
(16 |
) |
50% decrease in lapse
rates |
61 |
|
|
|
61 |
|
61 |
|
|
|
61 |
|
10% increase in expense
rates |
(23 |
) |
(6 |
) |
(29 |
) |
(23 |
) |
(6 |
) |
(29 |
) |
10% decrease in expense
rates |
23 |
|
6 |
|
29 |
|
23 |
|
6 |
|
29 |
|
Capital
management and allocation |
|
Capital management
(Audited) |
HSBCs capital management approach is driven
by its strategy and organisational requirements, taking into account the
regulatory, economic and commercial environment in which it operates. The
Groups strategy underpins HSBCs Capital Management Framework
which has been approved by the Group Management Board. It is HSBCs
policy to maintain a strong capital base to support the development of its
business and to meet regulatory capital requirements at all times. Through
its structured internal governance processes, HSBC also maintains discipline
over its investment decisions and where it allocates its capital, seeking
to ensure that returns on investment are appropriate after taking account
of capital costs. In addition, the level of capital held by HSBC Holdings
and certain subsidiaries, particularly HSBC Finance, is determined by rating
targets.
HSBCs strategy is to allocate
capital to businesses based on their economic profit generation and, within
this process, regulatory and economic capital requirements and the cost of
capital are key factors. The responsibility for global capital allocation
principles and decisions rests with the Group Management Board. Stress testing
is used as
an important mechanism in understanding the sensitivities
of the core assumptions in the capital plans to the adverse impact of extreme,
but plausible, events. Stress testing allows senior management to formulate
management action in advance of conditions starting to reflect the stress
scenarios identified. The actual market stresses which occurred throughout
the financial system in 2008 have been used to inform capital planning and
further develop the stress scenarios employed by the Group. The Group has
identified the following as being the material risks faced and managed through
the Capital Management Framework; credit, market, operational, interest rate
risk in the banking book, pension fund, residual and insurance risks. All
of these risks pose a significantly greater challenge in severe downturn
economic conditions and the management response to these risks has, correspondingly,
been intensified.
During 2008, with the Group now
operating under Basel II, it targeted a tier 1 ratio within the range 7.5
to 9.0 per cent for the purposes of its long-term capital planning. In 2007,
under the Basel I approach, HSBC managed its capital against a tier 1 ratio
of 8.25 per cent. For 2009 onwards, in light of revised market expectations
on capital strength and higher volatility of capital requirements resulting
from procyclicality embedded within the Basel II rules, the upper end of
the target tier 1 range is being
274
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H S B C H O L D I
N G S P L C |
|
Report of the Directors:
Risk (continued) |
|
|
|
|
Capital management and allocation > BaselII |
extended to 10 per cent.
HSBCs capital management
process continues to stress the advantages and flexibility afforded by a
strong capital position and, through its policies, seeks to maintain a conservative
stance with regard to equity leverage.
The Capital Management Framework
covers the different capital measures within which HSBC manages its capital
in a consistent and aligned manner. These include market capitalisation,
invested capital, economic capital and regulatory capital. HSBC defines invested
capital as the equity capital invested in HSBC by its shareholders. Economic
capital is the capital requirement calculated internally by HSBC deemed necessary
to support the risks to which it is exposed, and is set at a confidence level
consistent with a target credit rating of AA. Regulatory capital is the capital
which HSBC is required to hold as determined by the rules established by
the FSA for the consolidated Group and by HSBCs local regulators for
individual Group companies.
An annual Group capital plan is
prepared and approved by the Board with the objective of maintaining both
the optimal amount of capital and the mix between the different components
of capital. The Groups policy is to hold capital in a range of different
forms and from diverse sources and all capital raising is agreed with major
subsidiaries as part of their individual and the Groups capital management
processes. HSBC Holdings and its major subsidiaries raise non-equity tier
1 capital and subordinated debt in accordance with the Groups guidelines
on market and investor concentration, cost, market conditions, timing, effect
on composition and maturity profile.
Each subsidiary manages its own
capital required to support planned business growth and meet local regulatory
requirements within the context of the approved annual Group capital plan.
As part of HSBCs Capital Management Framework, capital generated in
excess of planned requirements is returned to HSBC Holdings, normally by
way of dividends.
HSBC Holdings is primarily the
provider of equity capital to its subsidiaries. These investments are substantially
funded by HSBC Holdings own capital issuance and profit retentions.
HSBC Holdings seeks to maintain a prudent balance between the composition
of its capital and that of its investment in subsidiaries.
Capital measurement and allocation
(Audited)
In June 2006, the Basel
Committee on Banking Supervision published International Convergence of Capital Measurement
and Capital Standards, known as Basel II. Basel II is structured around
three pillars: minimum capital requirements, supervisory review
process and market discipline. The Capital Requirements Directive (CRD)
implements Basel II in the EU and the FSA then gives effect to the CRD by
including the requirements of the CRD in its own rulebooks.
The FSA supervises HSBC on a consolidated
basis and therefore receives information on the capital adequacy of, and
sets capital requirements for, HSBC as a whole. Individual banking subsidiaries
are directly regulated by their local banking supervisors, who set and monitor
their capital adequacy requirements. Although HSBC calculates capital at
a Group level using the Basel II framework, local regulators are at different
stages of implementation and local rules may still be on a Basel I basis,
notably in the US. In most jurisdictions, non-banking financial subsidiaries
are also subject to the supervision and capital requirements of local regulatory
authorities.
|
HSBCs capital is divided into two tiers: |
• |
Tier 1 capital comprises core equity
tier 1 capital, non-innovative preference shares and
innovative tier 1 securities. Core equity tier 1 capital
comprises shareholders funds and minority interests
in tier 1 capital, after adjusting for items reflected
in shareholders funds which are treated differently
for the purposes of capital adequacy. The book values
of goodwill and intangible assets are deducted in
arriving at core equity tier 1 capital. |
|
|
• |
Tier 2 capital comprises qualifying subordinated
loan capital, allowable collective impairment allowances,
minority and other interests in tier 2 capital and
unrealised gains arising on the fair valuation of
equity instruments held as available-for-sale. Tier
2 capital also includes reserves arising from the
revaluation of properties. |
Various limits are applied to
elements of the capital base. The amount of innovative
tier 1 securities cannot exceed 15 per cent of overall tier 1 capital, qualifying
tier 2 capital cannot exceed tier 1 capital, and qualifying term subordinated
loan capital cannot exceed 50 per cent of tier 1 capital.
275
Back to Contents
There are also limitations on the amount of collective
impairment allowances which may be included as part of tier 2 capital. For
regulatory purposes, banking associates are proportionally consolidated,
rather than being recognised using
the equity method used for financial reporting.
The carrying
amounts of investments in the capital of banks that exceed certain limits
and the excess of expected losses over impairment allowances are deducted
50 per cent from each of tier 1 and tier 2 capital in the published disclosures.
This also applies to deductions of investments in insurance subsidiaries
and associates, but the FSA has granted a transitional provision, until
31 December 2012, under which those insurance investments that were acquired
before 20 July 2006 may be deducted from the total of tier 1 and tier 2
capital instead. HSBC has elected to apply this transitional provision.
The
basis of calculating capital changed with effect from 1 January 2008 and
the effect
on both tier 1 capital and total capital is shown in the table below, Capital
Structure. The Groups capital base is reduced compared with
Basel I by the extent to which expected losses exceed the total of individual
and collective impairment allowances on IRB portfolios. These collective
impairment allowances are no longer eligible for inclusion in tier 2 capital.
For disclosure
purposes, this excess of expected losses over total impairment allowances
in IRB portfolios is deducted 50 per cent from core equity tier 1 and 50
per cent from tier 2 capital. In addition, a tax credit adjustment is made
to tier 1 capital to reflect the tax consequences insofar as they affect
the availability of tier 1 capital to cover risks or losses.
Expected losses
derived under Basel II rules represent losses that would be expected in
the scenario of a severe downturn over a 12-month period. This definition
differs from loan impairment allowances, which only address losses incurred
within lending portfolios at the balance sheet date and are not permitted
to recognise the additional level of conservatism that the regulatory measure
requires by the adoption of through-the-cycle, downturn and stressed conditions
that may not exist at the balance sheet date.
The effect
of deducting the difference between expected losses and total impairment
allowances is to equate the total effect on capital with the regulatory
definition of expected losses. As expected losses are based on long-term
estimates and incorporate through-the-cycle considerations, they are expected
to be less volatile than actual loss experience. The impact of this deduction,
however,
may vary from time to time as the accounting
measure of impairment moves closer to or further away from the regulatory
measure of expected losses.
The
FSAs
rules permit the inclusion of profits in tier 1 capital to the extent that
they have been verified in accordance with the FSAs General Prudential
Sourcebook by the external auditor. Verification procedures covering profits
for the year to 31 December 2008 were completed by the external auditor
on 2 March 2009 and therefore these profits have been included in the Groups
tier 1 capital. Technically, from 1 January 2008, the FSAs regulatory
reporting forms defer the recognition of these profits in tier 1 capital
until the conclusion of the external auditors procedures.
Basel
II provides three approaches of increasing sophistication to the calculation
of pillar
1 credit risk capital requirements. The most basic, the standardised approach,
requires banks to use external credit ratings to determine the risk weightings
applied to rated counterparties, and groups other counterparties into broad
categories and applies standardised risk weightings to these categories.
The next level, the internal ratings-based (IRB) foundation
approach, allows banks to calculate their credit risk capital requirements
on the basis of their internal assessment of the probability that a counterparty
will default (PD), but with quantification of exposure at default
(EAD) and loss given default (LGD) estimates being
subject to standard supervisory parameters. Finally, the IRB advanced approach
allows banks to use their own internal assessment of not only PD but also
the quantification of EAD and LGD. The regulatory measure of expected losses
is calculated by multiplying PD by EAD and LGD. The capital resources requirement
under the IRB approaches is intended to cover unexpected losses and is
derived from a formula specified in the regulatory rules, which incorporates
these factors and other variables such as maturity and correlation.
For
credit risk, with FSA approval, HSBC has adopted the IRB advanced approach
for
the majority of its business with effect from 1 January 2008, with the
remainder on either IRB foundation or standardised approaches. For consolidated
group reporting, the FSAs rules permit the use of other regulators standardised
approaches where they are considered equivalent. The use of other regulators IRB
approaches is subject to the agreement of the FSA. A rollout plan, over
the next few years, is in place to extend coverage of the advanced approaches,
for both local and consolidated Group
276
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H S B C H O L D
I N G S P L C |
|
Report of the Directors: Risk
(continued) |
|
|
|
|
Capital management and allocation |
reporting, leaving a small residue of exposures
on the standardised approach.
Market risk
is derived from fluctuations on trading book assets arising from changes
in values, income, interest and foreign exchange rates and is measured
using VAR models with FSA permission or the standard rules prescribed
by the FSA. Counterparty credit risk in the trading book and the non-trading
book is the risk that the counterparty to a transaction may default before
completing the satisfactory settlement of the transaction. Three counterparty
credit risk calculation approaches are defined by Basel II to determine
exposure values, being the standardised, mark to market and the internal
model method. These exposure values are then used to determine capital
requirements using one of the credit risk approaches, standardised, IRB
foundation and IRB advanced. Across the Group, HSBC uses both VAR and
standard rules approaches for market risk and the mark to market and
internal model method approaches for counterparty credit risk. It is
the longer-term aim of HSBC to migrate more positions from standard rules
to VAR for market risk and from mark to market to internal model method
for counterparty credit risk.
Basel II
also introduces capital requirements for operational risk and, again,
contains three levels of sophistication. The capital required under the
basic indicator approach is a simple percentage of gross revenues, whereas
under the standardised approach it is one of three different percentages
of gross revenues allocated to each of eight defined business lines.
Both these approaches use an average of the last three financial years revenues.
Finally, the advanced measurement approach uses banks own statistical
analysis and modelling of operational risk data to determine capital
requirements. HSBC has adopted the standardised approach to the determination
of Group operational risk capital requirements.
The second
pillar of Basel II (Supervisory Review and Evaluation Process SREP)
involves both firms and regulators taking a view on whether a firm should
hold additional capital against risks not covered in pillar 1. Part of
the pillar 2 process is the Internal Capital Adequacy Assessment Process
(ICAAP) which is the firms self assessment of the levels
of capital that it needs to hold. The pillar 2 process culminates in
the FSA providing firms with Individual Capital Guidance (ICG).
The ICG replaces the trigger ratio and is set as a capital resources
requirement higher than that required under pillar 1.
Pillar 3
of Basel II is related to market discipline and aims to make firms more
transparent by requiring them to publish specific, prescribed details
of their risks, capital and risk management under the Basel II framework.
On 10 November 2008, HSBC published summary qualitative pillar 3 disclosures
(Interim
Pillar 3 Disclosures 2008) for 30 June 2008 on the investor
relations section of its website, www.hsbc.com. HSBC expects to publish
the first full set of pillar 3 disclosures for 31 December 2008, including
quantitative tables, during the first half of 2009.
During 2007,
HSBC was supervised under Basel I. Under Basel I, banking operations
are categorised as either trading book or banking book and risk-weighted
assets are determined accordingly. Banking book risk-weighted assets
are measured by means of a hierarchy of risk weightings classified according
to the nature of each asset and counterparty, taking into account any
eligible collateral or guarantees. Banking book off-balance sheet items
giving rise to credit, foreign exchange or interest rate risk are assigned
weights appropriate to the category of the counterparty, taking into
account any eligible collateral or guarantees. Trading book risk-weighted
assets are determined by taking into account market-related risks such
as foreign exchange, interest rate and equity position risks, and counterparty
risk.
277
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Capital structure at 31 December |
|
|
|
|
|
|
|
2008 |
|
2007 |
|
2007 |
|
|
Basel II |
|
Basel II |
|
Basel I |
|
|
Actual |
|
Pro forma |
1 |
Actual |
|
|
US$m |
|
US$m |
|
US$m |
|
|
(Audited) |
|
(Unaudited) |
|
(Audited) |
|
Composition of regulatory
capital |
|
|
|
|
|
|
Tier 1 capital |
|
|
|
|
|
|
Shareholders equity2 |
93,591 |
|
128,160 |
|
128,160 |
|
Minority interests |
6,638 |
|
7,256 |
|
7,256 |
|
Less: |
|
|
|
|
|
|
Preference
share premium |
(1,405 |
) |
(1,405 |
) |
(1,405 |
) |
Preference
share minority interests |
(2,110 |
) |
(2,181 |
) |
(2,181 |
) |
Goodwill
capitalised and intangible assets |
(26,861 |
) |
(38,855 |
) |
(38,855 |
) |
Unrealised
losses on available-for-sale debt securities3 |
21,439 |
|
2,445 |
|
2,445 |
|
Other
regulatory adjustments4, 5 |
(8,222 |
) |
(3,325 |
) |
(4,551 |
) |
50%
of excess of expected losses over impairment allowances |
(2,660 |
) |
(4,508 |
) |
|
|
|
|
|
|
|
|
|
Core equity tier
1 capital |
80,410 |
|
87,587 |
|
90,869 |
|
Preference share
premium |
1,405 |
|
1,405 |
|
1,405 |
|
Preference share
minority interests |
2,110 |
|
2,181 |
|
2,181 |
|
Innovative tier
1 securities |
11,411 |
|
10,512 |
|
10,512 |
|
|
|
|
|
|
|
|
Tier 1 capital |
95,336 |
|
101,685 |
|
104,967 |
|
|
|
|
|
|
|
|
Tier 2 capital |
|
|
|
|
|
|
Reserves
arising from revaluation of property and unrealised
gains
on available-for-sale equities |
1,726 |
|
4,393 |
|
4,393 |
|
Collective impairment
allowances6 |
3,168 |
|
2,176 |
|
14,047 |
|
Perpetual subordinated
debt |
2,996 |
|
3,114 |
|
3,114 |
|
Term subordinated
debt |
41,204 |
|
37,658 |
|
37,658 |
|
Minority and other
interests in tier 2 capital |
300 |
|
300 |
|
300 |
|
|
|
|
|
|
|
|
Total qualifying
tier 2 capital before deductions |
49,394 |
|
47,641 |
|
59,512 |
|
|
|
|
|
|
|
|
Unconsolidated investments7 |
(9,613 |
) |
(11,092 |
) |
(11,092 |
) |
50% of excess of
expected losses over impairment allowances |
(2,660 |
) |
(4,508 |
) |
|
|
Other
deductions |
(997 |
) |
(747 |
) |
(747 |
) |
|
|
|
|
|
|
|
Total deductions
other than from tier 1 capital |
(13,270 |
) |
(16,347 |
) |
(11,839 |
) |
|
|
|
|
|
|
|
Total regulatory
capital |
131,460 |
|
132,979 |
|
152,640 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk-weighted assets |
|
|
|
|
|
|
(Unaudited) |
|
|
|
|
|
|
Credit and counterparty risk |
956,596 |
|
1,011,343 |
|
|
|
Market risk |
70,264 |
|
45,840 |
|
|
|
Operational risk |
121,114 |
|
107,466 |
|
|
|
Banking book |
|
|
|
|
1,020,747 |
|
Trading book |
|
|
|
|
103,035 |
|
|
|
|
|
|
|
|
Total |
1,147,974 |
|
1,164,649 |
|
1,123,782 |
|
|
|
|
|
|
|
|
Capital ratios |
% |
|
% |
|
% |
|
(Unaudited) |
|
|
|
|
|
|
Core equity tier
1 ratio |
7.0 |
|
7.5 |
|
8.1 |
|
Tier 1 ratio |
8.3 |
|
8.7 |
|
9.3 |
|
Total
capital ratio |
11.4 |
|
11.4 |
|
13.6 |
|
|
|
1 |
As Basel II rules were implemented
across the Group, adjustments to the previously published 31 December
2007 pro forma risk- weighted assets were identified, amounting to
US$35,198 million. The pro forma position at 31 December 2007 has
been adjusted accordingly. |
2 |
Includes externally verified
profits for the year to 31 December 2008. |
3 |
Under FSA rules, unrealised
gains/losses on debt securities net of deferred tax must be excluded
from capital resources. |
4 |
Includes removal of the fair
value gains and losses, net of deferred tax, arising from the credit
spreads on debt issued by HSBC Holdings and its subsidiaries and designated
at fair value. |
5 |
Includes a tax credit adjustment
in respect of the excess of expected losses over impairment allowances. |
6 |
Under Basel II, only collective
impairment allowances on loan portfolios on the standardised approach
are included in tier 2 capital. |
7 |
Mainly comprise investments
in insurance entities. |
278
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H S B C H O L
D I N G S P L C |
|
Report
of the Directors: Risk (continued) |
|
|
|
|
Capital
management and allocation > Capital
structure / Movement in tier 1 / RWAs |
Source and application
of tier 1 capital |
|
|
|
|
(Audited) |
|
|
|
|
|
2008 |
|
2007 |
|
|
Basel II |
|
Basel I |
|
|
US$m |
|
US$m |
|
|
|
|
|
|
Movement in tier
1 capital
(Audited) |
|
|
|
|
At 1 January |
104,967 |
|
87,842 |
|
Changes to tier 1 capital
arising from transition to pro forma Basel II basis2 |
(3,282 |
) |
|
|
|
|
|
|
|
Opening pro-forma tier
1 capital under Basel II rules2 |
101,685 |
|
|
|
Consolidated profits
attributable to shareholders of the parent company |
5,728 |
|
19,133 |
|
Dividends to shareholders |
(11,301 |
) |
(10,241 |
) |
Add
back: shares issued in lieu of dividends |
3,593 |
|
4,351 |
|
Decrease/(increase)
in goodwill and intangible assets deducted |
11,994 |
|
(2,366 |
) |
Removal of own credit
spread |
(4,610 |
) |
(2,205 |
) |
Ordinary shares issued |
470 |
|
477 |
|
Innovative tier 1 securities
issued |
2,133 |
|
|
|
Other (including exchange
differences) 2 |
(14,356 |
) |
7,976 |
|
|
|
|
|
|
At 31 December |
95,336 |
|
104,967 |
|
|
|
|
|
|
Movement in risk-weighted
assets
(Unaudited) |
|
|
|
|
At 1 January |
1,123,782 |
|
938,678 |
|
Changes arising to
risk-weighted assets from transition to pro forma Basel II basis1 |
40,867 |
|
|
|
|
|
|
|
|
Opening Basel II pro
forma risk-weighted assets |
1,164,649 |
|
|
|
Movements |
(16,675 |
) |
185,104 |
|
|
|
|
|
|
At 31 December |
1,147,974 |
|
1,123,782 |
|
|
|
|
|
|
|
|
1 |
As Basel II rules were implemented across
the Group, adjustments to the previously published 31 December 2007 pro
forma risk- weighted assets were identified, amounting to US$35,198
million. The pro forma position at 31 December 2007 has been adjusted accordingly. |
2 |
Pro forma capital items as at 1 January
2008 are unaudited. |
|
Movement in tier 1 capital
(Audited)
HSBC complied with the
FSAs capital adequacy
requirements throughout 2008 and 2007. Opening tier 1 capital at 1 January
2008 was reduced by US$3.3 billion arising from the transition to Basel
II. Profits attributable to shareholders of the parent company of US$5.7
billion included goodwill write-offs of US$10.6 billion and profits from
own credit spread, net of deferred tax, of US$4.7 billion, neither of
which impact regulatory capital. The resulting contribution to tier 1 capital
was therefore US$11.6 billion. Dividends to shareholders of US$11.3
billion were partly offset by shares issued, including those issued in lieu
of dividends, of US$4.1 billion and innovative tier 1 securities issued
of US$2.1 billion. The strengthening US dollar caused foreign currency
translation differences, mainly on the investment in non-US dollar subsidiaries,
which reduced tier 1 capital by US$11.8 billion.
Movement in risk-weighted assets
(Unaudited)
Total RWAs increased by
US$24 billion. The
transition to Basel II at 1 January 2008 increased RWAs by US$41 billion,
meaning that RWAs on a Basel II basis fell by US$17 billion during the
year. Foreign exchange translation effects are estimated to have reduced
RWAs by US$80 billion, again a result of the strengthening US dollar,
particularly against sterling, resulting in an estimated underlying increase
of US$63 billion. Of this underlying increase, US$26 billion was
due to credit and counterparty risk RWAs, reflecting decreases in North America
being more than offset by increases in both Europe and Asia. Market risk
RWAs increased by US$24 billion primarily due to the impact of market
volatility. Operational risk RWAs increased by US$13 billion because
the three year averaging of gross revenues used in the calculation now includes
revenues for 2008 in place of 2005.
279
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Risk-weighted assets by principal subsidiary
(Unaudited)
In order to give an indication
of how HSBCs
capital is deployed, the table below analyses the disposition
of risk-weighted assets by principal subsidiary.
The risk-weighted assets are calculated using FSA rules and exclude intra-HSBC
items.
Risk-weighted assets by principal subsidiary
(Unaudited)
|
2008 |
|
|
2007 |
|
|
Basel II |
|
|
Basel I |
|
|
US$m |
|
|
US$m |
|
|
|
|
|
|
|
The Hongkong and Shanghai
Banking Corporation |
247,626 |
|
|
256,761 |
|
Hang
Seng Bank |
44,211 |
|
|
55,043 |
|
The
Hongkong and Shanghai Banking Corporation and other subsidiaries |
203,415 |
|
|
201,718 |
|
|
|
|
|
|
|
HSBC Bank |
379,695 |
|
|
423,941 |
|
HSBC
Private Banking Holdings (Suisse) |
20,422 |
|
|
32,942 |
|
HSBC
France |
65,557 |
|
|
76,188 |
|
HSBC
Bank and other subsidiaries |
293,716 |
|
|
314,811 |
|
|
|
|
|
|
|
HSBC North America |
373,955 |
|
|
336,998 |
|
HSBC
Finance |
187,660 |
|
|
135,757 |
|
HSBC
Bank Canada |
35,336 |
|
|
50,659 |
|
HSBC
Bank USA and other subsidiaries |
150,959 |
|
|
150,582 |
|
|
|
|
|
|
|
HSBC Mexico |
21,037 |
|
|
18,513 |
|
HSBC Bank Middle East |
35,217 |
|
|
25,226 |
|
HSBC Bank Malaysia |
11,182 |
|
|
8,601 |
|
HSBC Brazil |
30,851 |
|
|
27,365 |
|
HSBC Bank Panama |
9,498 |
|
|
7,824 |
|
Bank of Bermuda |
4,759 |
|
|
4,133 |
|
Other |
34,154 |
|
|
14,420 |
|
|
|
|
|
|
|
|
1,147,974 |
|
|
1,123,782 |
|
|
|
|
|
|
|
280
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H S B C H O L D I
N G S P L C |
|
Report of the
Directors: Governance |
|
|
|
|
Biographies > Directors |
|
Corporate Governance Report |
|
The information set out on pages 281 to
329 and information incorporated by reference constitutes the Corporate
Governance Report of HSBC Holdings. |
|
Directors |
|
|
|
S K Green,
Group Chairman |
|
|
|
Age 60. An executive
Director since 1998; Group Chief Executive from 2003 to 2006. Joined
HSBC in 1982. Chairman
of HSBC Bank plc and HSBC Private Banking Holdings (Suisse) SA. A Director
of HSBC France, HSBC North America Holdings Inc. and The Hongkong and
Shanghai Banking Corporation Limited. Executive Director, Corporate,
Investment Banking and Markets from 1998 to 2003. Chairman of The British
Bankers Association. |
|
|
|
Mr Green is
a career banker having joined The Hongkong and Shanghai Banking Corporation
Limited in 1982 with responsibility for corporate planning activities.
In 1992 he became Group Treasurer of HSBC Holdings plc, with responsibility
for the HSBC
Groups treasury and capital markets businesses globally. He has worked
in Hong Kong, New York, the Middle East and London and has immense international
experience and knowledge
of the HSBC Group. |
|
|
|
M F Geoghegan,
CBE, Group Chief Executive |
|
|
|
Age 55. An executive
Director since 2004. Joined HSBC in 1973. Chairman of the Group Management
Board. Chairman
of HSBC Bank USA, N.A., HSBC Bank Canada, HSBC Latin America Holdings
(UK) Limited and HSBC USA Inc. Deputy Chairman of HSBC Bank plc. A Director
of The Hongkong and Shanghai Banking Corporation Limited, and HSBC North
America Holdings Inc. Chief Executive of HSBC Bank plc from 2004 to 2006.
Responsible for all of HSBCs business throughout South America
from 2000 to 2003. President of HSBC Bank Brasil S.A. Banco Múltiplo
from 1997 to 2003. |
|
|
|
Mr Geoghegan
is a career banker with over 35 years international experience with
HSBC. He has worked in the Americas, Asia, the Middle East and Europe.
He established the Groups operations in Brazil in 1997 following
the creation of Banco HSBC Bamerindus S.A and in 2003 he was honoured
with a CBE in recognition of his contribution to British business interests
in Brazil. |
|
|
|
S A Catz |
|
|
|
Age 47. President
and Chief Financial Officer of Oracle Corporation. A non-executive Director
since 1 May 2008. Managing Director
of Donaldson, Lufkin & Jenrette from 1997 to 1999. Joined Oracle
in 1999 and appointed
to the Board of Directors in 2001. |
|
|
|
Ms
Catz brings to the Board a background in international business leadership,
having helped |
281
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H S B C H O L D I
N G S P L C |
|
Report of the Directors: Governance (continued) |
|
|
|
|
Biographies > Directors |
|
|
transform Oracle into
the second biggest producer of management software and the worlds
leading supplier of software for information management. |
|
|
|
|
|
M K T Cheung,
GBS, OBE |
|
|
|
|
|
Age 61. A non-executive Director since 1 February
2009. A non-executive Director of Hang Seng Bank Limited, HKR International
Limited, Hong Kong Exchanges and Clearing Limited and Sun Hung Kai Properties
Limited. A non-official member of the Executive Council of the Hong Kong
Special Administrative Region, Chairman
of the Airport Authority Hong Kong, Chairman of the Council
of the Hong Kong University of Science and Technology
and a Council Member of the Open University of Hong Kong.
A Director of The Association of Former Council Members
of The Stock Exchange of Hong Kong Limited and The Hong
Kong International Film Festival Society Limited. Chairman
and Chief Executive Officer of KPMG Hong Kong from 1996
to 2003. Awarded the Gold Bauhinia Star by the Hong Kong
Government in 2008. |
|
|
|
|
|
Dr
Cheung brings to the Board a wealth of experience in international business
and financial accounting,
particularly in Greater China and the wider Asian economy. He retired from
KPMG Hong Kong in 2003 after more than 30 years distinguished service with
the firm. He is a Chartered Accountant and a Fellow of the Institute of
Chartered Accountants in England and Wales. |
|
|
|
|
|
V H C Cheng,
GBS, OBE |
|
|
|
|
|
Age 60. Chairman of
The Hongkong and Shanghai Banking Corporation Limited. An executive Director
since 1 February 2008. Joined HSBC in 1978.
Appointed a Group General Manager in 1995 and a Group Managing Director
in 2005. Chairman of HSBC Bank (China) Company Limited and HSBC Global
Asset Management (Hong Kong) Limited and a non-executive Director of HSBC
Bank Australia Limited and HSBC Bank (Vietnam) Limited. A Director of Great
Eagle Holdings Limited and a Member of the Exchange Fund Advisory Committee
of the Hong Kong Monetary Authority. Vice Chairman of the China Banking
Association. Appointed a member of the National Committee of the 11th Chinese
Peoples Political Consultative Conference (CPPCC), and
a senior adviser to the 11th Beijing Municipal Committee of the CPPCC.
A Director of Swire Pacific Limited from 2005 to January 2008. Awarded
the Gold Bauhinia Star by the Hong Kong Government in 2005. |
|
Mr Cheng is
a career banker with extensive international business experience particularly in Asia. Mr Cheng was Chairman of the Process Review Panel for the Securities and Futures Commission and is Chairman of the Standing Committee on Directorate Salaries and Conditions of Service of the Hong Kong Government. He is also Vice President of the Hong Kong Institute of Bankers. From 1989 to 1991, he was seconded to the Hong Kong Governments
Central Policy Unit and served as an adviser to the Governor of Hong Kong. |
|
|
|
J D Coombe |
|
|
|
Age 63. Non-executive Chairman of Hogg
Robinson Group plc. A non-executive Director since
2005. A member of the Group Audit Committee and
of the Remuneration Committee. A non-executive
Director of Home Retail Group plc. A trustee of
the Royal Academy Trust. Former appointments include: executive
Director and Chief Financial Officer of GlaxoSmithKline
plc; member of the Supervisory Board of Siemens
AG; Chairman of The Hundred Group of Finance Directors
and a member of the Accounting Standards Board. |
|
|
|
Mr
Coombe brings to the Board a wealth of experience in international business, financial accounting
and the pharmaceutical industry. As Chief Financial
Officer of GlaxoSmithKline he had responsibility
for the Groups financial operations globally.
He is a Chartered Accountant and is a Fellow of
the Institute of Chartered Accountants in England
and Wales. |
|
|
|
J L Durán |
|
|
|
Age 44. A non-executive Director of France Telecom.
A non-executive Director since 1 January 2008.
Chief Executive of Carrefour SA until 31 December
2008. Former appointments at Carrefour SA include:
Chairman of its Management Board of Directors;
Chief Financial Officer and Managing Director,
Organisation and Systems. |
|
|
|
Mr Durán
brings to the Board a background in international finance, retail and
consulting in developed and emerging markets. He joined Carrefour
SA in 1991 and held a number of positions within
Carrefours businesses in Spain, southern Europe
and the Americas. |
|
|
|
R A Fairhead |
|
|
|
Age 47. Chairman, Chief Executive Officer
and Director of Financial Times Group Limited.
A non- executive Director since 2004. Chairman
of the Group Audit Committee and a member of the Nomination
Committee. A Director of Pearson plc |
282
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|
and Chairman of Interactive
Data Corporation. A non-executive Director of The Economist Newspaper
Limited. Former appointments include: Executive Vice President, Strategy
and Group Control of Imperial Chemical Industries plc; and Finance Director
of Pearson plc. |
|
|
|
Mrs
Fairhead brings to the Board a wealth of experience in international industry,
publishing, finance and general management. As the former Finance Director
of Pearson plc she oversaw the day to day running of the finance function
and was directly responsible for global financial reporting and control,
tax and treasury. She has a Masters in Business Administration from the
Harvard Business School. |
|
|
|
D J Flint,
CBE, Group Finance Director |
|
|
|
Age 53. Joined HSBC as an executive
Director in 1995. Chairman of HSBC Finance Corporation and a Director
of HSBC North America Holdings Inc. A non-executive Director of BP p.l.c.
and a member of the Consultative Committee of the Large Business Advisory
Board of HM Revenue & Customs and the Business Government Forum on
Tax and Globalisation. Co-Chairman of the Counterparty Risk Management
Policy Group III. Chaired the Financial Reporting Councils review
of the Turnbull Guidance on Internal Control. Served on the Accounting
Standards Board and the Standards Advisory Council of the International
Accounting Standards Board from 2001 to 2004. A former partner in KPMG.
|
|
|
|
Mr
Flint has extensive financial experience particularly in banking, multinational
financial reporting, treasury and securities trading operations. In 2006
he was honoured with a CBE in recognition of his services to the finance
industry. He is a member of the Institute of Chartered Accountants of
Scotland and the Association of Corporate Treasurers and he is a Fellow
of The Chartered Institute of Management Accountants. |
|
|
|
A A Flockhart,
CBE |
|
|
|
Age
57. Chief Executive Officer of The Hongkong and Shanghai Banking Corporation
Limited and Global Head of Commercial Banking. An executive Director since
1 May 2008. Joined HSBC in 1974. Appointed a Group Managing Director in
2006. Appointed Vice Chairman and a Director of HSBC Bank (Vietnam) Limited
on 24 November 2008. A Director of Hang Seng Bank Limited, HSBC Bank Australia
Limited, HSBC Bank (China) Company Limited and Chairman of HSBC Bank Malaysia
Berhad. President and Group Managing Director |
|
Latin America and the Caribbean
from 2006 to July 2007. Chief Executive Officer, Mexico from 2002 to 2006.
Senior Executive Vice-President, Commercial Banking, HSBC Bank USA, N.A.
from 1999 to 2002. Managing Director of The Saudi British Bank from 1997
to 1999. |
|
|
|
Mr
Flockhart is a career banker, being an emerging markets specialist
with over 30 years experience with HSBC across Latin America,
the Middle East and Asia. In 2007 he was honoured with a CBE in recognition
of his services to British business and charitable services and institutions
in Mexico. |
|
|
* |
W K L Fung,
SBS, OBE |
|
|
|
Age 60. Group Managing Director
of Li & Fung Limited. A non-executive Director since 1998. Chairman
of the Corporate Sustainability Committee. Non-executive Deputy Chairman
of The Hongkong and Shanghai Banking Corporation Limited. A non-executive
Director of Integrated Distribution Services Group Limited, Convenience
Retail Asia Limited and an independent non-executive Director of Shui
On Land Limited and VTech Holdings Limited. Former appointments include:
non-executive Director of Bank of Communications; Chairman of the Hong
Kong General Chamber of Commerce; the Hong Kong Exporters Association;
and the Hong Kong Committee for the Pacific Economic Cooperation Council.
Awarded the Silver Bauhinia Star by the Hong Kong Government in 2008.
|
|
|
|
Mr
Fung brings to the Board 30 years experience in running a major
international conglomerate specialising in supply chain management
through the borderless manufacturing of global consumer products. During
his leadership the family business of Li & Fung has become one
of the largest trading companies in Hong Kong with over 80 offices
worldwide. |
|
|
|
S T Gulliver |
|
|
|
Age
49. Chief Executive of Global Banking and Markets and HSBC Global Asset
Management. An executive Director
since 1 May 2008. Joined HSBC in 1980. Appointed a Group Managing Director
in 2004. Chairman of HSBC France. A Director of HSBC Bank plc, HSBC
North
America Holdings Inc., HSBC Private Banking Holdings (Suisse) SA and
The Hongkong and Shanghai Banking Corporation Limited. Deputy Chairman
and
member of the Supervisory Board of HSBC Trinkaus & Burkhardt AG.
Co-Head of Global Banking and Markets from 2003 to 2006. Head of Global
Markets |
283
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H S B C H O L D I
N G S P L C |
|
Report of the
Directors: Governance (continued) |
|
|
|
|
Biographies > Directors |
|
from 2002 to 2003. Head of Treasury
and Capital Markets in Asia-Pacific
from 1996 to 2002. |
|
|
|
Mr
Gulliver is a career banker with over 28 years international
experience with HSBC. He has held a number of key
roles in the Groups
operations worldwide, including in London, Hong Kong,
Tokyo, Kuala Lumpur and the United Arab Emirates.
Global Banking and Markets is the wholesale banking
division of the Group with operations in more than
60 countries and territories. |
|
|
|
J W J Hughes-Hallett,
SBS |
|
|
|
Age 59. Chairman of
John Swire & Sons Limited. A non-executive Director since 2005.
A member of the Group Audit Committee and of the Nomination Committee.
A non-executive Director of The Hongkong and Shanghai
Banking Corporation Limited from 1999 to 2004. A non-executive
Director and former Chairman of Cathay Pacific Airways
Limited and Swire Pacific Limited. A director of China
Festival 2008. A trustee of the Dulwich Picture Gallery
and the Esmée Fairbairn Foundation. A member
of The Hong Kong Association, the Governing Body of
the School of Oriental and African Studies, University
of London and of the Governing Board of the Courtauld
Institute of Art. Awarded the Silver Bauhinia Star
by the Hong Kong Government in 2008. |
|
|
|
Mr Hughes-Hallett brings to the Board
a background in financial accounting and the
management of a broad range of businesses in a number
of international industries, including aviation, property,
manufacturing and trading, in the United Kingdom,
Far East and Australia. He is a Fellow of the Institute
of Chartered Accountants in England and Wales. |
|
|
|
W S H Laidlaw |
|
|
|
Age 53. Chief Executive Officer of Centrica
plc. A non-executive Director since 1 January 2008.
A member of the Remuneration Committee. Former
appointments include: Executive Vice President of
Chevron Corporation; independent non-executive Director
of Hanson PLC; Chief Executive Officer of Enterprise
Oil plc; and President and Chief Operating Officer
of Amerada Hess Corporation. |
|
|
|
Mr
Laidlaw brings to the Board significant international
experience, particularly in the energy sector, having
had responsibility for businesses in four continents. |
|
J R Lomax |
|
|
|
Age 63. Former Deputy Governor, Monetary
Stability, at the Bank of England and member of the Monetary Policy Committee.
A non-executive Director since 1 December 2008. A member of the Group
Audit Committee since 1 March 2009. A non-executive director of The
Scottish American Investment Company
PLC. Former appointments include: Director of the Bank of England from
2003 to 30 June 2008; Serving as Permanent Secretary at the UK Government
Departments for Transport and Work and Pensions and at the Welsh Office;
and Vice President and Chief of Staff to the President of the World
Bank
from 1995 to 1996. |
|
|
|
Ms
Lomax brings to the Board business experience in both the public and
private sectors and
a deep knowledge of the operation
of the UK government and the financial system. |
|
|
|
Sir Mark Moody-Stuart,
KCMG |
|
|
|
Age 68. Chairman of Anglo American plc.
A non- executive Director since 2001. Chairman of the Remuneration Committee
and a member of the Corporate Sustainability Committee. A non-executive
Director of Accenture Limited and Saudi Aramco. Chairman of the Global
Business Coalition on HIV/AIDS and the Global Compact Foundation. Former
appointments include: Director and Chairman of The Shell Transport
and Trading Company, plc; Chairman of the Committee of Managing Directors
of the Royal Dutch/Shell Group of Companies; and a Governor of Nuffield
Hospitals. |
|
|
|
Sir Mark brings to the Board many years
experience of leading global organisations and of having worked during
his career in nine countries. He works with many non-governmental organisations
to improve companies commitment to socially responsible activities.
He is a member of the steering committee responsible for driving the
global
governance initiative of the World Economic Forum, an independent foundation
committed to developing a world-class corporate governance system. |
|
|
|
G Morgan |
|
|
|
Age 63. Non-executive chairman of SNC-Lavalin
Group Inc. A non-executive Director since 2006. A member of the Remuneration
Committee. A member of the Board of Trustees of The Fraser Institute and
the Manning Centre for Building Democracy. A non-executive Director of
HSBC Bank Canada from 1996 to 2006. Former appointments include: Founding
President, Chief Executive Officer and Vice Chairman of EnCana Corporation;
Director of Alcan Inc. and Lafarge North America, Inc. |
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|
Mr
Morgan brings to the Board a background in technical, operational, financial and management
positions and has led large international companies
in the energy and engineering sectors. He has been
recognised as Canadas most respected Chief Executive
Officer in a national poll of Chief Executives. He
is currently a business columnist for Canadas
largest national newspaper. |
|
|
|
N R N Murthy,
CBE |
|
|
|
Age 62. Chairman and Chief Mentor and
former Chief Executive Officer of Infosys Technologies
Limited. A non-executive Director since 1 May 2008.
A member of the Corporate Sustainability Committee.
An independent non-executive Director of Unilever
plc and New Delhi Television Limited and a Director
of the United Nations Foundation. A former independent
non-executive Director of DBS Group Holdings Limited
and DBS Bank Limited. |
|
|
|
Mr
Murthy brings to the Board experience in information technology, corporate governance and
education, particularly in India. He founded Infosys
Technologies Limited in India in 1981 and was its
Chief Executive Officer for 21 years. Under his leadership,
Infosys established a global footprint and was listed
on NASDAQ in 1999. During his career he has worked
in France and India. |
|
|
|
S M Robertson,
senior independent non-executive Director |
|
|
|
Age 67. Non-executive Chairman of Rolls-Royce
Group plc and the founder member of Simon Robertson
Associates LLP. A non-executive Director since 2006
and senior independent non- executive Director since May 2007. A member of the
Nomination Committee. A non-executive Director of
Berry Bros. & Rudd Limited, The Economist Newspaper
Limited and Royal Opera House, Covent Garden Limited.
A trustee of the Eden Project Trust and of the Royal
Opera House Endowment Fund. Former appointments include:
Managing Director of Goldman Sachs International;
and Chairman of Dresdner Kleinwort Benson. |
|
|
|
Mr
Robertson brings to the Board a background in
international corporate advisory with a wealth of experience
in mergers and acquisitions, merchant banking, investment
banking and financial markets. During his career
he has worked in France, Germany, the UK and the
USA.
|
|
J L Thornton |
|
|
|
Age 55. A non-executive Director since 1
December 2008. Non-executive Chairman and Director of HSBC North America
Holdings Inc since 1 December
2008. Professor and Director of the Global Leadership Program at the
Tsinghua University School of Economics and Management. Chairman of
the Brookings
Institution Board of Trustees. Director of Ford Motor Company, Intel
Corporation, Inc., News Corporation, Inc., National Committee on United
States-China
Relations and China Unicom (Hong Kong) Limited. Trustee of Asia Society,
China Institute and The China Foreign Affairs University. Member of
the
Council on Foreign Relations, the China Securities Regulatory Commission
International Advisory Committee and China Reform Forum International
Advisory Committee. Former appointments include: Director of Industrial
and Commercial Bank of China Limited from 2005 until 20 November 2008;
and President Co-Chief Operating Officer of the Goldman Sachs Group,
Inc.
from 1999 until 2003. |
|
|
|
Mr
Thornton brings to the Board experience that bridges developed and
developing economies
and the public and private
sectors. He has a deep knowledge of financial services and education
systems, particularly in Asia. During his 23 year career with Goldman
Sachs, he
played a key role in the firm's global development and was Chairman of
Goldman Sachs Asia. |
|
|
|
Sir Brian Williamson,
CBE |
|
|
|
Age 64. Chairman of Electra Private Equity
plc. A non-executive Director since 2002. Chairman of the Nomination Committee.
A Director of NYSE Euronext and Climate Exchange plc. A senior adviser
to Fleming Family and Partners. Former appointments include: Chairman
of London International Financial Futures and Options Exchange; Gerrard
Group plc; Resolution Life Group Limited; and non-executive Director of
Resolution plc, the Financial Services Authority and the Court of The
Bank of Ireland. |
|
|
|
Sir Brian
brings to the Board extensive experience in futures, options and commodities
trading internationally.
He established the London International Financial Futures and Options
Exchange in the 1980s and led the Exchanges development of its
electronic trading platform in the mid-1990s. He is a member of the Guild
for International
Bankers. |
|
|
* |
Non-executive Director |
|
Independent non-executive Director |
285
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H S B C H O L
D I N G S P L C |
|
Report
of the Directors: Governance (continued) |
|
|
|
|
Biographies > Senior
management |
Age 58. Group Company Secretary. Appointed a
Group General Manager in 2006. Joined HSBC in 1980. Company Secretary of
HSBC Holdings plc since 1990. Chairman of the Disclosure Committee. A member
of the Listing Authority Advisory Committee of the Financial Services Authority
and of the Primary Markets Group of the London Stock Exchange. Corporation
Secretary of The Hongkong and Shanghai Banking Corporation Limited from 1986
to 1992 and Company Secretary of HSBC Bank plc from 1994 to 1996.
Adviser to the
Board |
|
D J Shaw |
Age 62. An Adviser to the Board since 1998. Solicitor.
A former partner in Norton Rose. A Director of The Bank of Bermuda Limited
and HSBC Private Banking Holdings (Suisse) SA. A non-executive Director of
Kowloon Development Company Limited and Shui On Land Limited.
Group Managing
Directors |
|
A Almeida |
Age 52. Group Head of Human Resources. A Group
Managing Director since 25 February 2008. Joined HSBC in 1992. Appointed
a Group General Manager in June 2007. Global Head of Human Resources for
Global Banking and Markets, Private Banking, Global Transaction Banking and
HSBC Amanah from 1996 to June 2007.
E Alonso
Age 53. Group Managing
Director and Head of HSBC Latin America and the Caribbean. A Group Managing
Director since 1 May 2008.
Joined HSBC in 1997. Appointed a Group General Manager in 2006. Chairman
Grupo Financiero HSBC, S.A. de C.V. and HSBC México, S.A., Institución
de Banca Múltiple, Grupo Financiero HSBC. Deputy Chief Executive of
HSBC Investment Bank Brasil S.A. Banco de Investimento. Director of
HSBC Argentina Holdings S.A. and HSBC Bank Brasil S.A. Banco Múltiplo.
Managing Director of HSBC (Brasil) Administradora de Consorcio Ltda. and
HSBC Serviços e Participaçoes Ltda. President of the Board
of Directors of HSBC Bank (Panamá) S.A.
C C R Bannister
Age 50. Group Managing Director, Insurance. A
Group Managing Director since 2006. Joined HSBC in 1994. Chairman of HSBC
Insurance Holdings Limited and Director of HSBC Insurance Brokers Limited
since 16 January 2009. Chief Executive Officer, HSBC Group Private Banking
from 1998 to 2006. Deputy Chief Executive Officer, HSBC Securities (USA)
Inc. from 1996 to 1997.
K M Harvey
Age 48. Group Chief Technology and Services Officer.
A Group Managing Director since 1 October 2008. Joined HSBC Finance in 1989.
Group Chief Information Officer from 2004 to 30 September 2008. President
of HSBC Technology and Services (USA) Inc. from 2003 to 2004. Group Executive
for HSBC North America from 1993 to 2002. Managing Director of Data Processing,
HFC Bank Limited from 1992 to 1993. Director of Banking Systems, HSBC North
America from 1990 to 1992.
A C Hungate
Age 42. Global Head of Personal Financial Services
and Marketing. Joined HSBC as a Group Managing Director in September 2007.
Chairman of HSBC Bank A.S. since 6 January 2009. Formerly Managing Director,
Asia Pacific at Reuters. Worldwide Chief Marketing Officer of Reuters between
2002 and 2005.
D D J John
Age 58. Deputy Chairman and Chief Executive,
HSBC Bank plc. A Group Managing Director since 2006. Joined HSBC Bank plc
in 1971. Deputy Chief Executive of HSBC Bank plc from 2005 to 2006 and Chief
Operating Officer from 2003 to 2005. Deputy Chairman and Chief Executive
Officer, HSBC Bank Malaysia Berhad from 1999 to 2002.
B P McDonagh
Age 50. Chief Executive Officer, HSBC North America
Holdings Inc. A Group Managing Director since 21 February 2008. Joined HSBC
in 1979. A Director of HSBC Bank Canada, HSBC Finance Corporation, HSBC Latin
America Holdings (UK) Limited and HSBC North America Holdings Inc. Chief
Executive Officer, HSBC Finance Corporation and Chief Operating Officer of
HSBC North America Holdings Inc. from February 2007 to 21 February 2008.
Chief Operating Officer, HSBC Bank USA, N.A. from 2004 to 2006.
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Y A Nasr
Age 54. Group Managing
Director, Strategic Investments. Chairman and Chief Executive of HSBC Bank
Middle East Limited. A Group Managing
Director since 2004. Joined HSBC in 1976. Deputy Chairman of HSBC Bank Egypt
S.A.E. and a Director of HSBC Private Banking Holdings (Suisse) SA. Deputy
Chairman of HSBC Bank Middle East Limited from May 2007 to 1 December 2008.
President, HSBC Bank Brasil S.A. Banco Múltiplo from 2003 to
2006. President and Chief Executive Officer of HSBC USA Inc. and HSBC Bank
USA, N.A. from 1999 to 2003. President and Chief Executive Officer of HSBC
Bank Canada from 1997 to 1999.
B Robertson
Age 54. Group Chief Risk Officer. A Group Managing
Director since 25 February 2008. Joined HSBC in 1975. Appointed a Group General
Manager in 2003. Group General Manager, Group Credit and Risk from 2005 to
September 2007. Head of Global Banking and Markets for North America from
2003 to 2005.
P A Thurston
Age 55. Managing Director,
UK Banking. A Group Managing Director since 1 May 2008. Joined HSBC in 1975.
Appointed a Group
General Manager in 2003. A Director of HSBC Bank plc since 1 June 2008. Former
Chairman of Grupo Financiero HSBC, S.A. de C.V. and former Chief Executive
Officer of HSBC México, S.A., Institución de Banca Múltiple,
Grupo Financiero HSBC.
Group General Managers |
|
P Y Antika |
Age 48. Chief Executive Officer, HSBC Turkey.
Joined HSBC in 1990. Appointed a Group General Manager in 2005.
S Assaf
Age 48. Head of Global Markets. Joined HSBC in
1994. Appointed a Group General Manager on 29 May 2008.
R S Beck
Age 42. Group General Manager, Communications
Director. Joined HSBC in 1989. Appointed a Group General Manager on 29 May
2008.
R E T Bennett
Age 57. Group General Manager, Legal and Compliance.
Joined HSBC in 1979. Appointed a Group General Manager in 1998.
N S K Booker
Age 50. Chief Executive Officer, HSBC Finance
Corporation and Deputy Chief Executive Officer, HSBC North America Holdings
Inc. Joined HSBC in 1981. Appointed a Group General Manager in 2004.
P W Boyles
Age 53. Chief Executive Officer, HSBC France.
Joined HSBC in 1975. Appointed a Group General Manager in 2006.
D C Budd
Age 55. Chairman of HFC Bank Limited and a Director
of HSBC Bank plc. Joined HSBC in 1972. Appointed a Group General Manager
in 2005.
Z J Cama
Age 61. Group General Manager International.
Joined HSBC in 1968. Appointed a Group General Manager in 2001.
R P Contractor
Age 51. Group General Manager, Service Delivery.
Joined HSBC in 1987. Appointed a Group General Manager on 27 October 2008.
S N Cooper
Age 41. President and Chief Executive Officer,
HSBC Korea. Joined HSBC in 1989. Appointed a Group General Manager on 29
May 2008.
287
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H S B C H O L
D I N G S P L C |
|
Report
of the Directors: Governance (continued) |
|
|
|
|
Biographies > Senior
management |
J E Coverdale
Age 52. Managing Director, The Saudi British
Bank. Joined HSBC in 1977. Appointed a Group General Manager on 29 May 2008.
T M Detelich
Age 52. President, Consumer and Mortgage Lending,
HSBC Finance Corporation. Joined HSBC Finance Corporation in 1976. Appointed
a Group General Manager in 2006.
I M Dorner
Age 54. Deputy Chairman and Chief Executive Officer,
HSBC Bank Malaysia Berhad. Joined HSBC in 1986. Appointed a Group General
Manager in 2007.
A S El Anwar
Age 62. Chairman and Chief Executive Officer,
HSBC Bank Egypt S.A.E. Joined HSBC in 1991. Appointed a Group General Manager
on 29 May 2008.
C Engel
Age 51. Regional Director Personal Financial
Services, HSBC Asia Pacific. Joined HSBC in 2003. Appointed a Group General
Manager on 29 May 2008.
D L Fried
Age 47. Regional Head of Insurance, HSBC Asia
Pacific. Joined HSBC in 1984. Appointed a Group General Manager on 29 May
2008.
A Y M Fung
Age 48. Head of Global Markets and Treasurer,
HSBC Asia Pacific. Joined HSBC in 1996. Appointed a Group General Manager
on 29 May 2008.
J D Garner
Age 39. Group General Manager, Personal Financial
Services and Direct Businesses, HSBC Bank plc. Joined HSBC in 2004. Appointed
a Group General Manager in 2006.
J L Gordon
Age 56. President and Chief Executive Officer,
HSBC Bank Canada. Joined HSBC in 1987. Appointed a Group General Manager
in 2005.
M Hussain
Age 48. Chief Executive Officer, Global HSBC
Amanah and Global Banking and Markets, Middle East and North Africa. Joined
HSBC in 1993. Appointed a Group General Manager on 29 May 2008.
A M Keir
Age 50. Group General Manager, Commercial Banking,
HSBC Europe and Global Co-Head Commercial Banking. Joined HSBC in 1981. Appointed
a Group General Manager in 2006.
N L Kidwai
Age 51. Chief Executive Officer, HSBC India.
Joined HSBC in 2002. Appointed a Group General Manager in 2006.
M J W King
Age 52. Group General Manager, Internal Audit.
Joined HSBC in 1986. Appointed a Group General Manager in 2002.
P J Lawrence
Age 47. Head of Global Banking and Markets, HSBC
USA. President and Chief Executive Officer, HSBC Bank USA, N.A. and HSBC
USA Inc. Director of HSBC North America Holdings Inc. Joined HSBC in 1982.
Appointed a Group General Manager in 2005.
M Leung
Age 56. Global Co-Head Commercial Banking. Joined
HSBC in 1978. Appointed a Group General Manager in 2005.
A Long
Age 53. Head of Global Transaction Banking. Joined
HSBC in 1977. Appointed a Group General Manager on 29 May 2008.
A M Losada
Age 54. President and Chief Executive Officer,
HSBC Argentina. Joined HSBC in 1973. Appointed a Group General Manager on
29 May 2008
A M Mahoney
Age 46. Group General Manager and Head of International,
HSBC Bank plc. Joined HSBC in 1983. Appointed a Group General Manager in
2006.
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C M Meares
Age 51. Chief Executive Officer, Global Private
Banking. Joined HSBC in 1980. Appointed a Group General Manager in 2006.
W G Menezes
Age 63. Group General Manager and Head of Group
Cards. Joined HSBC Finance Corporation in 1996. Appointed a Group General
Manager in 2006.
M S McCombe
Age 42. Global Chief Executive Officer, HSBC
Global Asset Management. Joined HSBC in 1987. Appointed a Group General Manager
on 29 May 2008.
K Newman
Age 51. Director of One HSBC. Joined HSBC in
1989. Appointed a Group General Manager in 2006.
R C F Or
Age 59. Vice-Chairman and Chief Executive, Hang
Seng Bank Limited. A Director of The Hongkong and Shanghai Banking Corporation
Limited. Joined HSBC in 1972. Appointed a Group General Manager in 2000.
K Patel
Age 60. Group General Manager, Chief Executive
Officer, HSBC Africa. Joined HSBC in 1984.
Appointed a Group General Manager in 2000. Chairman,
Emerging Europe and Africa from 2003 to 2006. Chairman, Global Investment
Bank from 2000 to 2003.
L J Peña-Kegel
Age 49. Chief Executive, HSBC Mexico S.A. Joined
HSBC on 15 May 2008. Appointed a Group General Manager on 29 May 2008.
R C Picot
Age 51. Group Chief Accounting Officer. Joined
HSBC in 1993. Appointed a Group General Manager in 2003.
C D Spooner
Age 58. Head of Group Financial Planning & Tax.
Joined HSBC in 1994. Appointed a Group General Manager in 2007.
P T S Wong
Age 57. Executive Director, Hong Kong and Mainland
China, The Hongkong and Shanghai Banking Corporation Limited. Joined HSBC
in 2005. Appointed a Group General Manager in 2005.
R J L Yorke
Age 41. President and Chief Executive Officer,
HSBC China. Joined HSBC in 1989. Appointed a Group General Manager on 29
May 2008.
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H S B C H O L
D I N G S P L C |
|
Report of the Directors: Governance (continued)
|
|
|
|
|
Board of Directors > The
Board > Group Chairman and
Group Chief Executive |
Board of Directors |
|
The Board |
The objective of the management structures within HSBC, headed by the Board
of Directors of HSBC Holdings and led by the Group Chairman, is to deliver
sustainable value to shareholders. Implementation of the strategy set by the
Board is delegated to the Group Management Board under the leadership of the
Group Chief Executive.
HSBC Holdings has a unitary Board of Directors. The authority of each Director is exercised in Board Meetings where the Board acts collectively as a unit. At
2 March 2009, the Board comprises the Group Chairman, Group Chief Executive, four other executive Directors and 15 non-executive Directors. The names and brief biographical particulars of the Directors are listed on pages 281 to 285. The Group
Chairman, Group Chief Executive and four other executive Directors are employees who carry out executive functions in HSBC in addition to their duties as Directors. Non-executive Directors are not HSBC employees and do not participate in the daily
business management of HSBC. Non-executive Directors bring an external perspective, constructively challenge and help develop proposals on strategy, scrutinise the performance of management in meeting agreed goals and objectives and monitor the
reporting of performance. The non-executive Directors have a wealth of experience across a number of industries and business sectors, including the leadership of large, complex multinational enterprises. The roles of non-executive Directors as
members of Board committees are described on pages 290 to 291. It is estimated that non-executive Directors devote 24 days per annum to HSBC business after an induction phase, with Committee members devoting significant additional time.
The Board is responsible for managing the business of HSBC Holdings and, in doing so, may exercise all of the powers of HSBC Holdings, subject to any
relevant laws and regulations and to the Memorandum and Articles of Association. In particular, the Board may exercise all the powers of the Company to borrow money and to mortgage or charge all or any part of the undertaking, property or assets
(present and future) of HSBC Holdings and may also exercise any of the powers conferred on it by the Companies Act 1985 and Companies Act 2006 (as appropriate) and/or by shareholders. The Board is able to delegate and confer on certain Directors
holding executive office any of its powers, authorities and discretions (including the power to sub-delegate) for such time and on such terms as it
thinks fit. In addition, the Board may establish
any local or divisional boards or agencies for managing the business of HSBC
Holdings in any specified locality and delegate and confer on any local or
divisional board, manager or agent so appointed any of its powers, authorities
and discretions (including the power to sub-delegate) for such time and on
such terms as it thinks fit. The Board may also, by power of attorney or
otherwise, appoint any person or persons to be the agent of HSBC Holdings
and may delegate to any such person or persons any of its powers, authorities
and discretions (including the power to sub-delegate) for such time and on
such terms as it
thinks fit.
The Board sets
the strategy for the Group and approves the operating plans presented
by management for the
achievement of the strategic objectives. The operating plans ensure the
efficient disposition of HSBCs resources for the achievement of
these objectives. The Board delegates the management and day-to-day running
of
HSBC to the
Group Management Board but retains to itself approval of certain matters
including operating plans and performance targets, procedures for monitoring
and control of operations, the authority or the delegation of authority
to approve credit, market risk limits, acquisitions, disposals, investments,
capital
expenditure or realisation or creation of a new venture, specified senior
appointments,
and any substantial change in balance sheet management policy.
The Directors
who served during the year were, Lord Butler, S A Catz, V H C Cheng,
J D Coombe, Baroness Dunn,
J L Durán, R A Fairhead, D J Flint, A A
Flockhart, W K L Fung, M F Geoghegan, S K Green, S T Gulliver, J W J Hughes-Hallett,
W S H Laidlaw, J R Lomax, Sir Brian Moffat, Sir Mark Moody-Stuart, G
Morgan, N R N Murthy, S W Newton, S M Robertson, J L Thornton and Sir
Brian Williamson.
The Board of
Directors meets regularly and Directors receive information between meetings
about the activities of
committees and developments in HSBCs
business.
Eight Board
meetings were held during 2008. The table that follows gives details
of each Directors
attendance at meetings of the Board, Group Audit Committee, Nomination
Committee and Remuneration Committee held whilst he or she was a Director
or member
during 2008.
During
2008, the non-executive Directors and the Group Chairman met twice without the
other executive Directors. In addition, the non-executive
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Directors met once without the Group Chairman
to appraise the Group Chairmans performance.
In addition to the
meetings of the principal Committees referred to in the following pages,
12 other meetings of Committees of the Board (not shown in the table below) were held during the year to discharge business delegated by the Board.
All those who were Directors at the time attended the 2008 Annual General Meeting.
Attendance record |
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|
Group Audit |
|
Nomination |
|
Remuneration |
|
|
Board |
|
Committee |
|
Committee |
|
Committee |
|
|
meetings (8) |
|
meetings (8) |
|
meetings (5) |
|
meetings (7) |
|
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|
|
|
|
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Attended |
|
Attended |
|
Attended |
|
Attended |
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|
|
|
|
|
Lord Butler1 |
4 |
|
|
|
|
|
|
|
S A Catz2 |
4 |
|
2 |
3 |
|
|
|
|
V H C Cheng4 |
7 |
|
|
|
|
|
|
|
J D Coombe |
8 |
|
8 |
|
|
|
7 |
|
Baroness Dunn5 |
4 |
|
|
|
2 |
|
|
|
J L Durán |
7 |
|
|
|
|
|
|
|
R A Fairhead |
6 |
|
8 |
|
2 |
6 |
|
|
D J Flint |
8 |
|
8 |
3 |
|
|
|
|
A A Flockhart2 |
4 |
|
1 |
3 |
|
|
|
|
W K L Fung |
8 |
|
|
|
|
|
|
|
M F Geoghegan |
8 |
|
4 |
3 |
|
|
1 |
3 |
S K Green |
8 |
|
1 |
3 |
5 |
|
1 |
3 |
S T Gulliver2 |
4 |
|
2
|
3 |
|
|
|
|
J W J Hughes-Hallett |
7 |
|
6 |
|
4 |
|
|
|
W S H Laidlaw |
7 |
|
2 |
3 |
|
|
3 |
7 |
J R Lomax8 |
|
|
|
|
|
|
|
|
Sir Brian Moffat5 |
5 |
|
1 |
3 |
2 |
|
|
|
Sir Mark Moody-Stuart |
8 |
|
2
|
3 |
|
|
7 |
|
G Morgan |
8 |
|
1 |
3 |
|
|
7 |
|
N R N Murthy2 |
4 |
|
1 |
3 |
|
|
|
|
S W Newton9 |
7 |
|
6 |
|
|
|
|
|
S M Robertson |
7 |
|
1 |
3 |
4 |
|
|
|
J L Thornton8 |
|
|
|
|
|
|
|
|
Sir Brian Williamson |
8 |
|
1 |
3 |
5 |
|
|
|
|
|
1 |
Retired 30 May 2008 eligible to
attend 5 Board meetings. |
2 |
Appointed 1 May 2008 eligible
to attend 4 Board meetings. |
3 |
Attended by invitation, for all or part
of meeting. |
4 |
Appointed 1 February 2008 eligible
to attend 7 Board meetings. |
5 |
Retired 30 May 2008 eligible
to attend 5 Board meetings and 2 Committee meetings. |
6 |
Appointed a member on 30 May 2008 eligible
to attend 3 Committee meetings. |
7 |
Appointed a member on 30 May 2008 eligible
to attend 3 Committee meetings. |
8 |
Appointed 1 December 2008 not
eligible to attend any Board meetings. |
9 |
Retired 10 October 2008 eligible
to attend 7 Board meetings and 6 Committee meetings. |
|
|
Group Chairman and Group Chief Executive
The roles of Group Chairman and Group Chief Executive are separated and held
by experienced full-time Directors.
There is a
clear division of responsibilities at the head of the Company between the
running of the Board and the executive responsibility for running
HSBCs business. The Group Chairmans responsibilities include the long-term strategic development of HSBC, the development of relationships with governments and other significant external parties and performance management of the Group
Chief Executive. The Group Chairman also monitors the performance of the Group Finance Director and, subject to the Group Chief Executives
recommendation, approves risk, capital allocation and capital investment decisions
within authorities delegated by the Board. The Group Chief Executive has responsibility
for developing
business plans and delivering performance against these.
S K Green became Group Chairman at the conclusion of the Annual General Meeting in 2006 and M F Geoghegan succeeded S K Green as Group Chief Executive. The
appointments were made after consulting with representatives of major institutional investors and explaining the succession planning and independent external search process undertaken. S K Green and M F Geoghegan stood for re-election at the 2006
Annual General Meeting and were both
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H S B C H O L D I
N G S P L C |
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Report of the Directors: Governance
(continued) |
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|
|
Board of Directors > Balance
and independence / Development / Performance / Appointment / Shareholder
relations |
re-elected ahead of taking up their new roles
from the conclusion of that Meeting.
Board balance and independence of Directors
The Board includes a strong presence of both
executive and non-executive Directors such that no individual or small
group can dominate
the Boards decision making. Following the 2009 Annual General Meeting,
the Board will comprise 21 Directors, 14 of whom are independent non-executive
Directors. The size of the Board is appropriate given the complexity and geographical
spread of HSBCs business and the significant time demands placed on
the non-executive Directors, particularly those who serve as members of Board
committees.
The Board has
appointed S M Robertson as the senior independent non-executive Director.
The principal role of the senior independent non-executive Director is
to support the Group Chairman in his role, to lead the non-executive Directors
in the oversight of the Group Chairman and to ensure there is a clear division
of responsibility between the Group Chairman and Group Chief Executive.
The senior independent non-executive Director is also available to shareholders
to express concerns which the normal channels have failed to resolve or
would be inappropriate.
The Board considers
all of the non-executive Directors to be independent in character and judgement.
W K L Fung has served on the Board for more than nine years, however, and
in that respect only, does not meet the usual criteria for independence
set out in the UK Combined Code on corporate governance. The Board has
therefore determined S A Catz, M K T Cheung (appointed a Director with
effect from 1 February 2009), J D Coombe, J L Durán, R A Fairhead,
J W J Hughes-Hallett, W S H Laidlaw, J R Lomax, Sir Mark Moody-Stuart,
G Morgan, N R N Murthy, S M Robertson, J L Thornton and Sir Brian Williamson
to be independent. In reaching its determination of each non-executive
Directors independence the Board has concluded that there are no
relationships or circumstances which are likely to affect a Directors
judgement and any relationships or circumstances which could appear to
do so were considered not to be material.
When determining
independence the Board considers that calculation of the length of service
of a non-executive Director begins on the date of his or her first election
by shareholders as a Director of HSBC Holdings. Given the complexity and
geographical spread of HSBCs business, the
experience of previous service on a subsidiary
company Board can be a considerable benefit to HSBC and does not detract
from a Directors independence.
In accordance
with the Rules Governing the Listing of Securities on The Stock Exchange
of Hong Kong Limited, each non-executive Director determined by the Board
to be independent has provided an annual confirmation of his or her independence
to HSBC Holdings.
Information, induction and ongoing development
The Board regularly reviews reports on progress
against financial objectives, on business developments and on investor and
external relations and receives reports from the Chairmen of Board Committees
and from the Group Chief Executive. The Board receives regular reports and
presentations on strategy and developments in the customer groups and principal
geographical areas. Regular reports are also provided to the Board, the Group
Audit Committee and the Group Management Board on credit exposures and the
loan portfolio, asset, liability and risk management, liquidity, litigation
and compliance and reputational issues. The agenda and supporting papers are
distributed in advance of all Board and Committee meetings to allow time for
appropriate review and to facilitate full discussion at the meetings. All
Directors have full and timely access to all relevant information and may
take independent professional advice if necessary.
The Directors
have free and open contact with management at all levels. Group Managing
Directors and Group General Managers meet informally with Directors after
Board meetings. Board offsite visits are made each year to enable Directors
to see at first hand the operations of subsidiary companies in local environments
and to meet management, employees and customers. In 2008 the Board visited
Dubai.
Full, formal
and tailored induction programmes, with particular emphasis on internal
controls, are arranged for newly appointed Directors. The programmes consist
of a series of meetings with other Directors and senior executives to enable
new Directors to receive information and familiarise themselves with HSBCs
strategy, operations and internal controls. Prior to their appointment,
each Director receives comprehensive guidance on the duties and liabilities
of a Director of HSBC Holdings. Opportunities to update and develop skills
and knowledge, through externally run seminars and
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through briefings by senior executives, are provided
to all Directors.
Performance evaluation
In November 2008, ICSA Board Evaluation Limited
was commissioned to assist S K Green, Group Chairman, in conducting an evaluation
of the effectiveness of the Board. This followed ICSAs evaluation of the
Board in 2007. His evaluation investigated the performance of the Board as a
whole and, in that context, the main Board committees and individual Directors.
The evaluation examined whether eight key areas met the Boards needs
and expectations: Board role and responsibilities; oversight; Board meetings;
information
received; support for the Board; Board composition; working together; and outcome
and achievements. The report on the evaluation has been reviewed by the Board
and has been used by the non-executive Directors, led by the senior independent
non-executive Director, in their evaluation of the performance of the Group
Chairman. The review concluded that the Board and its committees were functioning
effectively. It is the intention of the Board of HSBC Holdings to continue
to
review its performance and that of its Directors annually.
Appointment, retirement and re-election of Directors
The Board may at any time appoint any person who
is willing to act as a Director, either to fill a vacancy or as an addition
to the existing Board, but the total number of Directors shall not exceed
twenty-five. Any Director so appointed by the Board shall retire at the Annual
General Meeting following his or her appointment and shall be eligible for
re-election but is not taken into account in determining the number of Directors
who are to retire by rotation at such meeting. The Board may appoint any Director
to hold any employment or executive office and may revoke or terminate any
such appointment. Shareholders may, by ordinary resolution, appoint a person
as a Director or remove any Director before the expiration of his period of
office. At each Annual General Meeting, one third of the Directors who are
subject to retirement by rotation are required to retire and may offer themselves
for re-election by shareholders. In addition to those required to retire by
rotation, any Director who was not elected or re-elected at either of the
preceding two Annual General Meetings and any non-executive Director who has
served in office for a continuous period of nine years or more at the date
of the Annual General Meeting is required to retire and may offer him or herself
for reelection by shareholders.
J L Durán
and W S H Laidlaw were appointed non-executive Directors on 1 January 2008.
V H C Cheng was appointed an executive Director
on 1 February 2008. On 1 May 2008 A A Flockhart and S T Gulliver were appointed
executive Directors and S A Catz and N R N Murthy were appointed non-executive
Directors. Lord Butler, Baroness Dunn and Sir Brian Moffat retired as Directors
at the conclusion of the Annual General Meeting held on 30 May 2008. S W Newton
retired as a Director on 10 October 2008. J R Lomax and J L Thornton were appointed
non-executive Directors on 1 December 2008. M K T Cheung was appointed a non-executive
Director on 1 February 2009.
All of the
Directors will retire at the forthcoming Annual General Meeting and offer
themselves
for re-election. None of the non-executive Directors seeking re-election
has a service
contract. All of the executive Directors seeking re-election are employed on
rolling contracts which require 12 months notice to be given by either
party.
Following the
performance evaluation of the Board, the Group Chairman has confirmed that all
of the non-executive Directors continue to perform effectively and to demonstrate
commitment to their roles.
Brief biographical
particulars of all Directors are given on pages 281 to 285.
Relations with shareholders
The Board ensures all Directors, including non-executive
Directors, develop an understanding of the views of major shareholders through
attendance at analyst presentations and other meetings with institutional investors
and their representative bodies. Directors also met with representatives of
institutional shareholders in 2008 to discuss corporate governance matters.
All executive
Directors and other senior executives hold regular meetings with institutional
investors and report to the Board on those meetings.
Institutional
shareholders were consulted on the framework of Directors remuneration
and the proposed changes to the HSBC Share Plan which were approved at the
2008
Annual General Meeting.
During 2008,
S M Robertson, senior independent non-executive Director, Sir Mark Moody-Stuart
and other non-executive Directors met and corresponded with institutional
investors
and their representatives to discuss strategy, remuneration policy and governance.
S
M Robertson, the senior independent non-executive Director is also available
to shareholders
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H S B C H O L D I
N G S P L C |
|
Report of the Directors: Governance
(continued) |
|
|
|
|
Board of Directors > Conflicts
of interest / Corporate governance / NYSE practices |
should they have concerns which contact through
the normal channels of Group Chairman, Group Chief Executive, Group Finance
Director or other executives has failed to resolve or for which such contact
would be inappropriate. Invitations to meet S M Robertson prior to his appointment
as senior independent non-executive Director were extended to the Groups
largest shareholders. The senior independent non-executive Director may be
contacted
through the Group Company Secretary at 8 Canada Square, London E14 5HQ.
Conflicts of interest, indemnification of Directors,
relevant audit information and contracts of significance
One of the amendments to HSBC Holdings Articles
of Association approved by shareholders at the 2008 Annual General Meeting
gave the Board authority, with effect from 1 October 2008, to approve Directors conflicts
and potential conflicts of interest. The Board has adopted a policy and procedures
for the approval of Directors conflicts or potential conflicts of interest.
The Boards powers to authorise conflicts are operating effectively
and the procedures are being followed. A review of situational conflicts
which have been authorised, including the terms of authorisation, will be
undertaken annually.
The Articles
of Association of HSBC Holdings provide that Directors are entitled to be indemnified
out of the assets of the Company against claims from third parties in respect
of certain liabilities arising in connection with the performance of their functions,
in accordance with the provisions of the UK Companies Act 2006. Such indemnity
provisions have been in place during the financial year but have not been utilised
by the Directors.
Each person
who is a Director at the date of approval of this report confirms that
so far
as the Director is aware, there is no relevant audit information of which
the
Companys auditor is unaware; and the Director has taken all the steps
that he or she ought to have taken as a Director in order to make himself or
herself aware of any relevant audit information and to establish that the Companys
auditor is aware of that information. This confirmation is given pursuant to
section 234ZA of the UK Companies Act 1985 and should be interpreted in accordance
therewith and subject to the provisions thereof.
None of the
Directors had, during the year or at the end of the year, a material interest,
directly or indirectly, in any contract of significance with HSBC Holdings or
any of its subsidiary undertakings.
Corporate governance codes
HSBC is committed to high standards of corporate
governance. HSBC Holdings has complied throughout the year with the applicable
code provisions of the Combined Code on Corporate Governance issued by the Financial
Reporting Council and the Code on Corporate Governance Practices in Appendix
14 to the Rules Governing the Listing of Securities on The Stock Exchange of
Hong Kong Limited.
The Board of
HSBC Holdings has adopted a code of conduct for transactions in HSBC Group
securities by Directors that complies with The Model Code in the Listing
Rules of the Financial
Services Authority and with The Model Code for Securities Transactions by Directors
of Listed Issuers (Hong Kong Model Code) set out in the Rules
Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited,
save that
The Stock Exchange of Hong Kong Limited has granted certain waivers from strict
compliance with the Hong Kong Model Code, primarily to take into account
accepted
practices in the UK, particularly in respect of employee share plans. Following
a specific enquiry, each Director has confirmed he or she has complied with
the code of conduct for transactions in HSBC Group securities throughout
the
year.
Differences in HSBC Holdings/New York Stock Exchange
corporate governance practices
Under the NYSEs corporate governance rules
for listed companies and the applicable rules of the SEC, as a NYSE-listed
foreign private issuer, HSBC Holdings must disclose any significant ways
in which its
corporate governance practices differ from those followed by US companies subject
to NYSE listing standards. HSBC Holdings believes the following to be the
significant
differences between its corporate governance practices and NYSE corporate governance
rules applicable to US companies.
US companies
listed on the NYSE are required to adopt and disclose corporate governance guidelines.
The Listing Rules of the UK Financial Services Authority require each listed
company incorporated in the UK to include in its Annual Report and Accounts
a narrative statement of how it has applied the principles of the Combined Code
and a statement as to whether or not it has complied with the code provisions
of the Combined Code throughout the accounting period covered by the Annual
Report and Accounts. A company that has not complied
with the Code provisions, or complied
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with only some of the Code provisions
or (in the case of provisions whose requirements are of a
continuing nature) complied for only part of an accounting period covered
by the report, must specify the Code provisions with which it has not complied,
and (where relevant) for what part of the reporting period such non-compliance
continued, and give reasons for any non-compliance. As stated above, HSBC
Holdings complied throughout 2008 with the applicable code provisions of
the Combined Code. The Combined Code does not require HSBC Holdings to disclose
the full range of corporate
governance guidelines with which it complies.
Under NYSE
standards, companies are required to have a nominating/corporate governance
committee, composed entirely of independent directors. In addition to identifying
individuals qualified to become Board members, this committee must develop
and recommend to the Board a set of corporate governance principles. HSBCs
Nomination Committee complies with the Combined Code, which requires a
majority of members to be independent. All four members of the Committee
are independent non-executive Directors. The Committees terms of
reference do not require the Committee to develop and recommend corporate
governance principles for HSBC Holdings. As stated above, HSBC Holdings
is subject to the corporate governance principles of the Combined Code.
Pursuant to
NYSE listing standards, non-management directors must meet on a regular
basis without management present and independent directors must meet separately
at least once per year. During 2008, HSBC Holdings non-executive
Directors met twice as a group with the Group Chairman, but without other
executive Directors present, and met once as a group without the Group
Chairman or other executive Directors present. HSBC Holdings practice,
in this regard, complies with the Combined Code.
In accordance
with the requirements of the Combined Code, HSBC Holdings discloses in
its annual report how the Board, its committees and the Directors are evaluated
(on page 293) and it provides extensive information regarding Directors compensation
in the Directors Remuneration Report (on pages 315 to 328). The terms
of reference of HSBC Holdings Audit, Nomination and Remuneration
Committees are available at www.hsbc.com/boardcommittees.
NYSE listing
standards require US companies to adopt a code of business conduct and
ethics for directors, officers and employees, and promptly disclose any
waivers of the code for directors or executive officers. In addition to
the Group Business
Principles and Values, which apply to the employees
of all HSBC companies, pursuant to the requirements of the Sarbanes-Oxley
Act the Board of HSBC Holdings has adopted a Code of Ethics applicable to
the Group Chairman and the Group Chief Executive, as the principal executive
officers, and to the Group Finance Director and Group Chief Accounting Officer.
HSBC Holdings Code of Ethics is available on www.hsbc.com/codeofethics
or from the Group Company Secretary at 8 Canada Square, London E14 5HQ. If
the Board amends or waives the provisions of the Code of Ethics, details
of the amendment or waiver will appear at the same website address. During
2008, HSBC Holdings made no amendments to its Code of Ethics and granted
no waivers from its provisions. The Group Business Principles and Values
are available on www.hsbc.com/businessprinciplesandvalues.
Under NYSE
listing rules applicable to US companies, independent directors must comprise
a majority of the Board of directors. Currently, two thirds of HSBC Holdings Directors
are independent.
Under the Combined
Code the HSBC Holdings Board determines whether a Director is independent
in character and judgement and whether there are relationships or circumstances
which are likely to affect, or could appear to affect, the Directors
judgement. Under the NYSE rules a director cannot qualify as independent
unless the board affirmatively determines that the director has no material
relationship with the listed company; in addition the NYSE rules prescribe
a list of circumstances in which a director cannot be independent. The
Combined Code requires a companys board to assess director independence
by affirmatively concluding that the director is independent of management
and free from any business or other relationship that could materially
interfere with the exercise of independent judgement.
Lastly, a chief
executive officer of a US company listed on the NYSE must annually certify
that he or she is not aware of any violation by the company of NYSE corporate
governance standards. In accordance with NYSE listing rules applicable
to foreign private issuers, HSBC Holdings Group Chief Executive is
not required to provide the NYSE with this annual compliance certification.
However, in accordance with rules applicable to both US companies and foreign
private issuers, the Group Chief Executive is required promptly to notify
the NYSE in writing after any executive officer becomes aware of any material
non-compliance with the NYSE corporate governance standards applicable
to HSBC Holdings.
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H S B C H O L D I
N G S P L C |
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Report of the Directors:
Governance (continued) |
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|
|
|
Board of Directors > Board
committees |
HSBC Holdings
is required to submit annual and interim written affirmations of compliance
with applicable NYSE corporate governance standards, similar to the affirmations
required of NYSE-listed
US companies.
Board committees
The Board has appointed a number of committees
consisting of certain Directors, Group Managing Directors and, in the case
of the Corporate Sustainability Committee, certain co-opted non-director
members. The following are the principal committees:
Group Management Board
The Group Management Board meets frequently and
operates as a general management committee under the direct authority of
the Board. The objective of the Group Management Board is to maintain a reporting
and control structure whereby all of the line operations of HSBC are accountable
to individual members of the Group Management Board who report to the Group
Chief Executive who in turn reports to the Group Chairman. The Board has
set objectives and measures for the Group Management Board. These will align
senior executives objectives and measures with the strategy and operating
plans throughout HSBC. The members of the Group Management Board are M F
Geoghegan (Chairman), V H C Cheng, D J Flint, A A Flockhart and S T Gulliver
who are executive Directors, and A Almeida, E Alonso, C C R Bannister, K
M Harvey, A C Hungate, D D J John, B P McDonagh, Y A Nasr, B Robertson and
P A Thurston, all of whom are Group Managing Directors.
The Group Management
Board exercises the powers, authorities and discretions of the Board in
so far as they concern the management and day-to-day running of HSBC Holdings
in accordance with such policies and directions as the Board may from time
to time determine. Matters reserved for approval by the Board are described
on page 290.
The Group Chief
Executive reports to each meeting of the Board on the activities of the
Group Management Board.
Group Audit Committee
The Group Audit Committee meets regularly with
HSBCs senior financial, credit and risk, internal audit, legal and
compliance management and the external auditor to consider HSBC Holdings financial
reporting, the nature and scope of audit reviews and the effectiveness of
the systems of
internal control, compliance and risk management.
The members of the Group Audit Committee throughout 2008 were, R A Fairhead
(Chairman), J D Coombe and J W J Hughes-Hallett. J R Lomax was appointed
a member of the Committee on 1 March 2009. S W Newton retired as a Director
of HSBC Holdings and ceased to be a member of the Committee on 10 October
2008. All members of the Committee are independent non-executive Directors.
The Board has
determined that R A Fairhead, J D Coombe and J W J Hughes-Hallett are independent
according to SEC criteria, may be regarded as audit committee financial
experts for the purposes of section 407 of the Sarbanes-Oxley Act and have
recent and relevant financial experience.
Appointments
to the Committee are made for periods of up to three years, extendable
by no more than two additional three-year periods, so long as members continue
to be independent.
Formal and
tailored induction programmes are held for newly-appointed Committee members
and appropriate training is provided on an ongoing and timely basis.
There were
eight meetings of the Group Audit Committee during 2008. The table on page
291 gives details of Directors attendance at these meetings. Following
each meeting the Committee reports to the Board on its activities.
At each meeting,
the Committee has the opportunity to meet with the external auditor, without
management present, to facilitate the discussion of any matter relating
to its remit and any issue arising from the audit. Similar arrangements
have been adopted for the Committee to meet with the internal auditor.
The Committee also has the opportunity to meet with the Group Chief Executive
at each of its meetings.
The terms of
reference of the Committee, which are reviewed annually, are available
at www.hsbc.com/boardcommittees. To ensure consistency of scope and approach
by subsidiary company audit committees, the Group Audit Committee has established
core terms of reference to guide subsidiary company Boards when adopting
terms of reference for their audit committees. Subsidiary company audit
committees are required to provide bi-annual certificates to the Committee
or to an intermediate subsidiary company audit committee, relating to the
financial statements and internal control procedures of the relevant subsidiary
company.
The Group Audit
Committee is accountable to the Board and assists it in meeting its responsibilities
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for maintaining an effective system of internal
control and compliance and for meeting its external financial reporting
obligations. The Committee undertakes an annual review of the effectiveness
of HSBCs
system of internal control, which is described on page 299, and reviews the
Companys financial statements
before they are considered by the Board.
Regular reports
are received on the risks involved in HSBCs business and how they are controlled and
monitored by management which enable the Committee to review the effectiveness
of HSBCs risk management framework. Each year the Committee agrees
a schedule of presentations to be made to it by management during the ensuing
year on the operation of the risk control framework within the Group. The
presentations specifically address risk indicators and performance measures
such as indicators of credit, liquidity and interest rate risk. During
2008 the Committee received frequent presentations on global market risk
and liquidity
and reports on the US mortgage services business, credit performance in
the US and the impact of the tightening of liquidity in the money markets.
Comprehensive
reports are received at each regular meeting from the Group Chief Risk
Officer, the Head of Group Compliance, the Group General Manager, Legal
and Compliance
and the Group General Manager Internal Audit. Periodic presentations are
made by other function heads and line management.
The reports
from the Group General Manager Internal Audit include information on
frauds and special investigations
and weakness in internal controls identified through internal audit reports
or reviews of regulatory reports and external auditors reports. The
Committee monitors and reviews the effectiveness of the internal audit function
and receives summaries of periodic peer reviews of HSBCs principal
internal audit functions. HSBC has adopted the Principles of the International
Institute of Internal Auditors, which include a periodic external quality
assurance review of the internal audit function. The first such review,
undertaken by Independent Audit Limited, was presented to the Committee
in 2008.
The Committee receives regular
updates on changes in law, regulations and accounting standards and practices
and the preparations being made to respond to those requirements. During
2008, the Committee received regular updates on the review of internal financial
reporting controls required by section 404 of the Sarbanes-Oxley Act and
the implementation of the Basel II capital adequacy requirements.
The Committee has approved procedures
for the receipt, retention and handling of complaints regarding accounting,
internal accounting controls and auditing matters. The Committee receives
regular reports regarding the nature, investigation and resolution of material
complaints and concerns from the Head of Group Compliance.
The Committee
is directly responsible on behalf of the Board for the selection, oversight
and remuneration of
the external auditor. The Committee reviews and monitors the external auditors
independence and objectivity and the effectiveness of the audit process,
taking into consideration relevant professional and regulatory requirements.
The Committee
reviews the strategy and approves the terms for the engagement of the
external auditor for the
audit of the Annual Report and Accounts. Regular reports on the progress
of the audit facilitate the Committees assessment of the effectiveness
of the audit.
The Committee receives reports
from the external auditor on its own policies and procedures regarding independence
and quality control and oversees the appropriate rotation of audit partners
within the external auditor. The external auditor provides the Committee
with an annual confirmation of its independence in accordance with industry
standards.
On the recommendation
of the Committee the Board has approved a policy for the employment by
HSBC of
former employees
of the external auditor or its affiliates. The Committee monitors this
policy through the receipt of an annual report of those former employees
of the
external auditor employed by HSBC and the number of former employees of
the external auditor currently employed in senior positions in HSBC. The
reports
enable the Committee to consider whether there has been any impairment,
or appearance of impairment, of the auditors judgement or independence
in respect of the audit.
The Group
Audit Committee has established policies for the pre-approval of specific
services that may
be provided by the principal auditor, KPMG Audit Plc and its affiliates
(KPMG).
These policies are kept under review and amended as necessary to meet the
dual objectives of ensuring that HSBC benefits in a cost effective manner
from the cumulative knowledge and experience of its auditor, while also
ensuring that the auditor maintains the necessary degree of independence
and objectivity.
These pre-approval policies apply to all services where HSBC Holdings or
any of its subsidiaries pays for the service, or is a beneficiary or addressee
of the
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H S B C H O L D I
N G S P L C |
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Report of the
Directors: Governance (continued) |
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|
|
|
Board of Directors > Board
committees / Internal control |
service and has selected or
influenced the choice of KPMG. All services entered into with KPMG
during 2008 were pre-approved by the Committee or were entered into
under pre-approval policies established by the Committee. A quarterly
update on non-audit services provided by KPMG is presented to the Committee
by management. |
|
|
The
pre-approved services relate to regulatory reviews, agreed-upon procedures
reports, other types of attestation reports, the provision of advice
and other non-audit services allowed under SEC independence rules.
They fall into the categories of audit services, audit-related services,
tax services and other services. |
|
|
An
analysis of the remuneration paid in respect of audit and non-audit
services provided by KPMG for each of the last three years is disclosed
in Note 9 on the Financial Statements. |
|
|
The
Committee has recommended to the Board that KPMG Audit Plc be reappointed
auditor at the forthcoming Annual General Meeting. |
|
|
Remuneration Committee |
|
|
The role of the Remuneration
Committee and its membership are set out in the Directors Remuneration
Report on page 315. |
|
|
Nomination Committee |
|
|
The Nomination Committee is
responsible for leading the process for Board appointments and for identifying
and nominating, for approval by the Board, candidates for appointment
to the Board. Before recommending an appointment to the Board, the Committee
evaluates the balance of skills, knowledge and experience on the Board
and, in the light of this, identifies the role and capabilities required
for a particular appointment. Candidates are considered on merit against
these criteria. Care is taken to ensure that appointees have enough time
to devote to HSBC. Prospective Directors are asked to identify any significant
other commitments and confirm they have sufficient time to discharge what
is expected of them. In accordance with the Articles of Association all
Directors are subject to election by shareholders at the Annual General
Meeting following their appointment by the Board and to re-election at
least every three years. The members of the Nomination Committee throughout
2008 were Sir Brian Williamson (Chairman), S M Robertson and J W J Hughes-Hallett.
R A Fairhead was appointed a member of the Committee on 30 May 2008. Baroness
Dunn and Sir Brian Moffat retired as Directors of HSBC Holdings and ceased
to be members of the Committee on 30 May 2008. All |
current members of the Committee are independent
non-executive Directors. |
|
|
|
There were
five meetings of the Nomination Committee during 2008. The table on
page 291 gives details of Directors attendance at these meetings. |
|
|
|
Following
each meeting the Committee reports to the Board on its activities. |
|
|
|
The terms
of reference of the Committee are available at www.hsbc.com/boardcommittees. |
|
|
|
The appointments
of S A Catz, M K T Cheung, J R Lomax, N R N Murthy and J L Thornton
as non-executive Directors and V H C Cheng, A A Flockhart and S T Gulliver
as executive Directors were made on the advice and recommendation of
the Nomination Committee. An external consultancy was used in connection
with the appointments of S A Catz, M K T Cheung, J R Lomax, N R N Murthy
and J L Thornton. |
|
|
|
The terms
and conditions of appointment of non-executive Directors are available
for inspection at 8 Canada Square, London E14 5HQ and will be made
available for 15 minutes before the Annual General Meeting and during
the Meeting itself. |
|
|
|
The Committee
makes recommendations to the Board concerning: plans for succession
for both executive and non-executive Directors; the appointment of
any Director to executive or other office; suitable candidates for
the role of senior independent non-executive Director; the re-election
by shareholders of Directors retiring by rotation; the renewal of the
terms of office of non-executive Directors; membership of Board Committees,
in consultation with the Group Chairman and the chairman of such committees
as appropriate; any matters relating to the continuation in office
of any Director at any time; and appointments and reappointments to
the boards of directors of major subsidiary companies as appropriate. |
|
|
|
The Committee
regularly reviews the structure, size and composition (including the
skills, knowledge and experience required) of the Board and makes recommendations
to the Board as appropriate. It keeps under review the leadership needs
of HSBC, with a view to ensuring the continued ability of HSBC to compete
effectively in the marketplace. The Board has satisfied itself that
the Nomination Committee has in place appropriate plans for orderly
succession to the Board and senior management positions as well as
procedures to ensure an appropriate balance of skills and experience
within HSBC and on the Board. |
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Corporate Sustainability Committee |
|
|
The role of the Corporate Sustainability
Committee and its membership are set out on page 312. |
|
|
Internal
control |
|
|
The Directors are responsible
for internal control in HSBC and for reviewing its effectiveness. Procedures
have been designed for safeguarding assets against unauthorised use
or disposition; for maintaining proper accounting records; and for
the reliability of financial information used within the business or
for publication. Such procedures are designed to manage rather than
eliminate the risk of failure to achieve business objectives and can
only provide reasonable and not absolute assurance against material
misstatement, errors, losses or fraud. The procedures also enable HSBC
Holdings to discharge its obligations under the Handbook of Rules and
Guidance issued by the Financial Services Authority, HSBCs lead
regulator. |
|
|
The
key procedures that the Directors have established are designed to
provide effective internal control within HSBC and accord with the
Internal Control: Revised Guidance for Directors on the Combined Code
issued by the Financial Reporting Council. Such procedures for the
ongoing identification, evaluation and management of the significant
risks faced by HSBC have been in place throughout the year and up to
2 March 2009, the date of approval of the Annual Report and Accounts
2008. In the case of companies acquired during the year, the internal
controls in place are being reviewed against HSBCs benchmarks
and integrated into HSBCs processes. |
|
|
HSBCs
key internal control procedures include the following:
|
|
|
• |
Authority to operate the various subsidiaries
and responsibilities for financial performance
against plans and for capital expenditure are delegated
to their respective chief executive officers within
limits set by the Board of Directors of HSBC Holdings.
Delegation of authority from the Board to individuals
requires those individuals to maintain a clear and
appropriate apportionment of significant responsibilities
and to oversee the establishment and maintenance of
systems of control appropriate to the business. The
appointment of executives to the most senior positions
within HSBC requires the approval of the Board of
Directors of HSBC Holdings. |
|
|
• |
Functional, operating, financial reporting
and certain management reporting standards
are |
|
established by Group Management Office
management committees, for application across the
whole of HSBC. These are supplemented by operating
standards set by functional and local management
as required for the type of business and geographical
location of each subsidiary. |
|
|
• |
Systems and procedures are in place
in HSBC to identify, control and report on the major
risks including credit, changes in the market prices
of financial instruments, liquidity, operational
error, breaches of law or regulations, unauthorised
activities, information risk, security and fraud.
Exposure to these risks is monitored by risk management
committees, asset and liability committees and executive
committees in subsidiaries and, for HSBC as a whole,
by the Group Management Board. A risk management
meeting of the Group Management Board, chaired by
the Group Finance Director, is held monthly to address
asset, liability and risk management issues, its
minutes are submitted to the Group Audit Committee
and to the Board of Directors. The Group Operational
Risk and Control Committee reviews the implementation
of HSBCs management framework for operational
risk and internal control. |
|
|
• |
A Disclosure Committee has been established
to review material disclosures made by HSBC
Holdings for any errors, misstatements or omissions.
The membership of the Disclosure Committee, which
is chaired by the Group Company Secretary, includes
the heads of the Finance, Legal, Risk, Compliance,
Corporate Communications, Investor Relations and
Internal Audit functions and representatives from
the principal regions, customer groups and global
businesses. |
|
|
• |
Processes are in place to identify
new risks from changes in market conditions and
practices or customer behaviours which could expose
HSBC to heightened risk of loss or reputational
damage. During 2008, attention was directed towards
managing the impact on the Group of market volatilities
and illiquidity; continued deterioration in the
US personal financial services markets; Group exposure
to various parts of the financial sector e.g. asset
backed securities including mortgage-backed securities
and collateralised debt obligations, monoline insurers,
leveraged finance and money market funds; and the
impact of government interventions to address the
under-capitalisation and funding difficulties of
certain financial institutions. |
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H S B C H O L D I
N G S P L C |
|
Report of the
Directors: Governance (continued) |
|
|
|
|
Board of Directors >
Internal control / Directors interests
|
• |
Periodic strategic plans are prepared
for key customer groups, global product groups, support
functions and certain geographies within the framework
of the Group Strategic Roadmap. Rolling operating
plans, informed by detailed analysis of risk appetite,
are prepared and adopted by all major HSBC operating
companies and set out the key business initiatives
and the likely financial effects of those initiatives. |
|
|
• |
Governance and oversight arrangements
are in place to ensure that risk analytical models are
fit for purpose, used accordingly and complemented
by a variety of model-specific and enterprise-wide stress
tests that evaluate the impact of severe yet plausible
events and other unusual circumstances not fully captured
by quantitative models. |
|
|
• |
Centralised functional control is exercised
over all computer system developments and operations.
Common systems are employed for similar business processes
wherever practicable. Credit and market risks are measured and
reported on in subsidiaries and aggregated for review
of risk concentrations on a Group-wide basis. |
|
|
• |
Functional management in Group Management
Office is responsible for setting policies, procedures
and standards in the following areas of risk: credit;
market; liquidity; operational; IT; fraud; business
continuity; security; information; insurance; accounting;
tax; legal and regulatory compliance; fiduciary; human
resources; reputational; sustainability and purchasing.
Authorities to enter into credit and market risk exposures
are delegated with limits to line management of Group
companies. The concurrence of Group Management Office
is required, however, to credit proposals with
specified high risk characteristics. |
|
|
• |
Policies to guide subsidiary companies
and management at all levels in the conduct of
business to safeguard the Groups reputation are
established by the Board of HSBC Holdings and the
Group Management Board, subsidiary company boards, board
committees or senior management. Reputational risks
can arise from environmental, social or governance issues,
or as a consequence of operational risk events. As a
banking group, HSBCs good reputation depends
upon the way in which it conducts its business but it
can also be affected by the way in which clients, to
which it provides financial services, conduct their
business. |
• |
The establishment and maintenance of
appropriate systems of internal control is primarily
the responsibility of business management. The internal
audit function, which is centrally controlled, monitors
the effectiveness of internal control structures
across the whole of HSBC focussing on the areas
of greatest risk to HSBC as determined using a risk-based
approach. The head of this function reports to the
Group Chairman and the Group Audit Committee. |
|
|
|
• |
Management is responsible for ensuring
that recommendations made by the internal audit
function are implemented within an appropriate and
agreed timetable. Confirmation to this effect must
be provided to internal audit. Management must also
confirm annually to internal audit that offices under
their control have taken or are in the process of
taking the appropriate actions to deal with all significant
recommendations made by external auditors in management
letters or by regulators following regulatory inspections. |
|
|
The
Group Audit Committee has kept under review the effectiveness of this
system of internal control and has reported regularly to the Board
of Directors. The key processes used by the Committee in carrying out
its reviews include: regular business and operational risk assessments;
regular reports from the heads of key risk functions including Internal
Audit and Compliance; the production annually of reviews of the internal
control framework applied at Group Management Office and major operating
subsidiary level measured against HSBC benchmarks, which cover all
internal controls, both financial and non-financial; semi-annual confirmations
from chief executives of principal subsidiary companies as to whether
there have been any material losses, contingencies or uncertainties
caused by weaknesses in internal controls; internal audit reports;
external audit reports; prudential reviews; and regulatory reports.
The Group Audit Committee has reviewed a Risk Map of the
status of key risk areas which impact the Group and has considered
the mitigating actions put in place. In addition, where unexpected
losses have arisen or where incidents have occurred which indicate
gaps in the control framework or in adherence to Group policies, the
Group Audit Committee has reviewed special reports, prepared at the
instigation of management, which analyse the cause of the issue, the
lessons learned and the actions proposed by management to address the
issue. |
|
|
The
Directors, through the Group Audit Committee, have conducted an annual
review of the effectiveness of HSBCs system of internal control |
300
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covering all material controls, including financial,
operational and compliance controls and risk management systems. The Group
Audit Committee has received confirmation that management has taken or is
taking the necessary action to remedy any failings or weaknesses identified
through the operation
of HSBCs framework of controls.
Directors interests
Pursuant to the requirements of the UK Listing
Rules and according to the register of Directors interests maintained
by HSBC Holdings pursuant to section 352 of the Securities and Futures Ordinance
of Hong Kong, the Directors of HSBC Holdings at 31 December 2008 had the
following interests, all beneficial unless otherwise stated, in the shares
and loan capital of HSBC and its associated corporations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Directors interests
HSBC
Holdings ordinary shares of US$0.50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 31
December 2008 |
|
|
|
|
|
|
|
At |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 January |
|
|
|
|
|
|
|
Jointly |
|
|
|
|
|
|
2008 or date |
|
|
|
Child |
|
|
|
with |
|
|
|
|
|
|
appointed if |
|
Beneficial |
|
under 18 |
|
Controlled |
|
another |
|
|
|
Total |
|
|
later |
|
owner |
|
or spouse |
|
corporation |
|
person |
|
Trustee |
|
interests |
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
V H C Cheng |
241,469 |
2 |
177,630 |
|
123,160 |
|
|
|
|
|
|
|
300,790 |
|
J D Coombe |
46,327 |
|
13,250 |
|
|
|
|
|
|
|
|
|
13,250 |
|
D J Flint |
112,781 |
|
88,456 |
|
|
|
|
|
|
|
31,000 |
3 |
119,456 |
|
A A Flockhart |
164,930 |
2 |
172,583 |
|
|
|
|
|
|
|
|
|
172,583 |
|
W K L Fung |
328,000 |
|
208,000 |
|
|
|
120,000 |
|
|
|
|
|
328,000 |
|
M F Geoghegan |
385,189 |
|
477,434 |
|
|
|
|
|
|
|
|
|
477,434 |
|
S K Green |
536,652 |
|
622,066 |
|
|
|
|
|
45,355 |
|
|
|
667,421 |
|
S T Gulliver |
2,235,431 |
2 |
2,194,407 |
|
85,454 |
|
|
|
|
|
|
|
2,279,861 |
|
J W J Hughes-Hallett |
554,435 |
|
|
|
|
|
|
|
|
|
376,427 |
4 |
376,427 |
|
W S H Laidlaw |
24,500 |
|
20,693 |
|
|
|
|
|
|
|
1,000 |
4 |
21,693 |
|
Sir Mark Moody-Stuart |
10,840 |
|
5,000 |
|
840 |
|
|
|
|
|
5,000 |
4 |
10,840 |
|
G Morgan |
50,000 |
|
52,873 |
|
|
|
|
|
|
|
|
|
52,873 |
|
S M Robertson |
98,317 |
|
5,620 |
|
|
|
|
|
|
|
93,000 |
4 |
98,620 |
|
Sir Brian Williamson |
23,164 |
|
24,496 |
|
|
|
|
|
|
|
|
|
24,496 |
|
|
|
1 |
Details of executive
Directors other interests in HSBC Holdings ordinary shares of
US$0.50 arising from the HSBC Holdings savings-related share option
plans, and the HSBC Share Plan are set out in the Directors Remuneration
Report on pages 314 to 328. At 31 December 2008, the aggregate
interests under the Securities and Futures Ordinance of Hong Kong of
V H C Cheng, D J Flint, A A Flockhart, M F
Geoghegan, S K Green and S T Gulliver in HSBC Holdings ordinary shares
of US$0.50, including interests arising through employee share
plans were: V H C Cheng 791,228; D J Flint 955,242; A
A Flockhart 558,559; M F Geoghegan - 2,211,264; S
K Green 2,456,279 and S T Gulliver 3,536,102. Each Directors
total interests represents less than 0.033
per cent of the shares in issue. |
2 |
V H C Cheng was
appointed a Director on 1 February 2008 and A A Flockhart and S T Gulliver
were appointed Directors on 1 May 2008. |
3 |
Non-beneficial interest
in 10,334 HSBC Holdings ordinary shares of US$0.50. |
4 |
Non-beneficial. |
|
M F Geoghegan
has an interest as beneficial owner in 280,000 ordinary shares of HK$5.00
each in Hang Seng Bank (representing less than 0.02 per cent of the shares
in issue), which he held throughout the year.
S K Green has
an interest as beneficial owner in 75,000 of HSBC Holdings plc 5½ per
cent Subordinated Notes 2009, which he held throughout the year.
As Directors
of HSBC France, S K Green and S T Gulliver each have an interest as beneficial
owner in one share of 5 in that company (representing less than 0.01
per cent of the shares in issue). S K Green has held this interest throughout
the year. S T Gulliver has held this interest
since 1 January 2009. The Directors have waived their rights to receive dividends
on these shares and have undertaken to transfer these shares to HSBC on ceasing
to be Directors of HSBC France.
As Directors
of HSBC Private Banking Holdings (Suisse), S K Green and S T Gulliver each
have an interest as beneficial owner in one share of CHF1,000 in that company
(representing less than 0.01 per cent of the shares in issue), which they
held throughout the year. The Directors have waived their rights to receive
dividends on these shares and have undertaken to transfer these shares
to HSBC on ceasing to be Directors of HSBC Private Banking Holdings (Suisse).
301
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H S B C H O L
D I N G S P L C |
|
Report
of the Directors: Governance (continued) |
|
|
|
|
Board of Directors > Directors interests
// Employees > Involvement / Disabled / Remuneration policy |
No Directors held
any short position as defined in the Securities and Futures Ordinance of
Hong Kong in the shares
and loan
capital of HSBC and its associated corporations. Save as stated above, none
of the Directors had an interest in any shares or debentures of HSBC or any
associated corporation at the beginning or at the end of the year, and none
of
the Directors or members of their immediate
families were awarded or exercised any right to subscribe for any shares or
debentures in any HSBC corporation during the year. Since the end of the year,
the interests of each of the following Directors have increased by the number
of HSBC Holdings ordinary shares shown against their name:
|
|
Increase in Directors interests
since 31 December 2008
HSBC Holdings ordinary shares of US$0.50 |
|
|
Beneficial
|
|
Child under |
|
Controlled |
|
|
|
Beneficiary |
|
|
owner |
|
18 or spouse |
|
corporation |
|
Trustee |
|
of a trust |
1 |
|
|
|
|
|
|
|
|
|
|
|
V H C Cheng |
3,274 |
2 |
2,270 |
2 |
|
|
|
|
9,041 |
|
J D Coombe |
245 |
2 |
|
|
|
|
|
|
|
|
D J Flint |
1,696 |
3 |
|
|
|
|
571 |
2 |
15,367 |
|
A A Flockhart |
3,180 |
2 |
|
|
|
|
|
|
7,092 |
|
M F Geoghegan |
4,410 |
2 |
|
|
|
|
|
|
31,966 |
|
S K Green |
11,147 |
4 |
|
|
|
|
|
|
32,981 |
|
S T Gulliver |
|
|
8 |
2 |
|
|
|
|
23,161 |
|
G Morgan |
974 |
2 |
|
|
|
|
|
|
|
|
S M Robertson |
103 |
2 |
|
|
|
|
|
|
|
|
Sir Brian Williamson |
453 |
2 |
|
|
|
|
|
|
|
|
|
|
1 |
Scrip dividend on awards held
under the HSBC Share Plan. |
2 |
Scrip dividend. |
3 |
Comprises scrip dividend on
shares held as beneficial owner (1,502 shares), the automatic reinvestment
of dividend income by an Individual Savings Account or Personal Equity
Plan manager (114 shares), the acquisition of shares in the HSBC Holdings
UK Share Ownership Plan through regular monthly contributions (49 shares)
and the automatic reinvestment of dividend income on shares held in
the plan (31 shares). |
4 |
Comprises scrip dividend on
shares held as beneficial owner (11,067 shares), the acquisition of
shares in the HSBC Holdings UK Share Ownership Plan through regular
monthly contributions (49 shares) and the automatic reinvestment of
dividend income on shares held in the plan (31 shares). |
|
Since the end
of the year, the non-beneficial interests of J W J Hughes-Hallett as Trustee
of two Trusts have decreased by 102,948 HSBC Holdings ordinary shares.
There have
been no other changes in the share and loan capital interests of the Directors
from 31 December to the date of this Report. Any subsequent changes up
to the last practicable date before the publication of the Notice of
Annual General Meeting will be set out in the notes to that Notice.
At 31 December
2008, Directors and Senior Management held, in aggregate, beneficial interests
in 16,469,373 HSBC Holdings ordinary shares (0.14
per cent of the issued ordinary shares).
At 31 December 2008,
executive Directors and Senior Management held, in aggregate, options to
subscribe for 937,862
HSBC Holdings ordinary shares under the HSBC Holdings Executive Share Option
Scheme, HSBC Holdings savings-related share option plans, HSBC Holdings
Group Share Option Plan and HSBC Finance: 1996 Long-Term Executive Incentive
Compensation
Plan. These options are exercisable between 2009 and 2015 at prices ranging
from £5.3496 to £7.8710 and US$10.66 to US$21.37 per
share.
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At 31 December 2008, HSBC employed 325,000 full
and part-time employees worldwide, compared with 330,000 at 31 December 2007
and 312,000 at 31 December 2006. The main centres of employment are the UK
with approximately 58,000 employees; the US 38,000, India 37,000, Hong Kong
30,000, Brazil 25,000, Mexico 20,000, mainland China 15,000 and France 11,000.
HSBC negotiates with recognised unions. The five highest concentrations of
union membership are in Argentina, Brazil, mainland China, Malta and Mexico.
It is HSBCs policy to maintain well-developed communications and consultation
programmes with unions and there have been no material disruptions to its
operations from labour disputes during the past five years.
The first Group
People Strategy was in place for 2008. This prioritised leadership and
people capability in general, robust performance management complementing
a market competitive reward strategy, and improving employee engagement.
Particular emphasis was given in 2008 to increasing international mobility
to broaden the internationalism and diversity of employee experience, and
training was focused on risk awareness, change management, customer orientation
and performance. There was significant improvement in employee engagement
(see non-financial KPIs in page 19) and a key component of performance
management was aligned objectives which were cascaded down from the Group
Management Board level for the first time.
HSBC continues
to be committed to creating a diverse and inclusive work environment reflective
of its customer base, international workforce, and communities in which
it operates. It has a Group-wide strategy, with Group oversight, that aims
to improve gender, ethnicity and age diversity to ensure the long-term
sustainability of the organisation, taking into account strategic global
demographic changes. There is a particular focus on increasing gender and
ethnic diversity at senior management levels. Diversity initiatives are
implemented at a country level taking local and national laws into account.
Employee network groups and mentoring programmes are promoted and established,
where possible, to facilitate open discussion of workplace issues for employees
belonging to minority groups, and to foster an environment that celebrates
diversity.
Employee involvement
HSBC continues to value open communication with
its employees. Employees are encouraged to discuss
operational and strategic issues, and ways of
improving performance with their line manager. Open communication throughout
the organisation is encouraged and opportunities to share individual perspectives
are created through networking events, management blogs, international assignments
and learning and development programmes. Information is regularly given to
employees about employment matters and the financial and economic factors
affecting HSBCs performance. This is communicated via management channels,
internal seminars, training programmes, in-house magazines and an intranet
site accessible to the majority of HSBCs employees worldwide. The Groups
Global People Survey in turn annually assesses employee engagement with HSBC.
Employment of disabled persons
HSBC believes in providing equal opportunities
to all employees. The employment of disabled persons is included in this
commitment and the recruitment, training, career development and promotion
of disabled persons is based on the aptitudes and abilities of the individual.
Should employees become disabled during employment, every effort is made
to continue their employment and, if necessary, appropriate training is provided.
Remuneration policy
As the quality and commitment of its human capital
is deemed fundamental to HSBCs success, the Boards stated strategy
is to attract, retain and motivate the very best people; this strategy is
referenced to the overall business strategy and the commercial environment.
In a business
that is based on trust and relationships, HSBCs broad policy is to
recruit those who are committed to making a long-term career with the organisation
since trust and relationships are built over time.
Remuneration
is an important component in peoples decisions on which company to
join and to stay with, but it is not the overriding one. It is HSBCs
experience that people are attracted to an organisation with strong and
sound values, one which is meritocratic and competitive, and which offers
challenging career development; it is also this type of people that HSBC
seeks to attract.
In line with
the overall principles applied to executive Directors by the Remuneration
Committee as described on page 315 in the Directors Remuneration
Report:
• |
employees salaries are reviewed annually
in the |
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H S B C H O L
D I N G S P L C |
|
Report of the Directors: Governance (continued) |
|
|
|
|
Employees > Share
plans |
|
context of business performance, market
practice and internal relativities. Allowances and benefits
are largely determined by local market practice; |
|
|
• |
employees participate in various variable
pay arrangements. Discretionary variable pay is dependent
on the achievement of objectives which derive from
those determined at the Group level. Since 2008,
these objectives typically cover four categories Financial, Customer,
Process and People. Targets which measure these
objectives generally include profitability, expense
control, customer recommendation, employee engagement, adherence
to HSBCs ethical standards, lending guidelines,
internal controls and procedures, with an emphasis
on risk management to maintain a strong and secure
operating platform.
Actual levels of pay will depend on the performance
of the Group, that of constituent businesses, and of
the individual, taking into account competitive market
practice. |
|
|
• |
to ensure that the interests of HSBC
and its employees are aligned with those of its shareholders,
and that HSBCs approach to risk management
supports the interests of all stakeholders, a proportion
of variable pay awards above certain thresholds
is required to be deferred into HSBC Restricted
Shares. In addition, employees are encouraged to participate
in HSBC Holdings savings-related share option plans
and local share ownership arrangements. |
Employee share plans
To help align the interests of employees with
those of shareholders, share options are granted under all-employee share
plans and discretionary awards of Performance Shares and Restricted Shares
are made under the HSBC Share Plan. There have been no awards of discretionary
share options since 30 September 2005.
Set out on
pages 304 to 311 are particulars of outstanding employee share options,
including those held by employees working under employment contracts that
are regarded as continuous contracts for the purposes of the
Hong Kong Employment Ordinance. The options were granted at nil consideration.
No options have been granted to substantial shareholders, suppliers of
goods or services, or in excess of the individual limit for each share
plan. No options were cancelled by HSBC during the year.
Employee share plans are subject to the
following limits on the number of HSBC Holdings
ordinary shares that may be subscribed for. In any 10-year period not more
than 10 per cent of the HSBC Holdings ordinary shares in issue from time
to time (approximately 1,214 million HSBC Holdings ordinary shares at 2 March
2009) may in aggregate become issuable pursuant to the grant of options or
be issued other than pursuant to options under all-employee share plans.
In any 10-year period not more than 5 per cent of the HSBC Holdings ordinary
shares in issue from time to time (approximately 607 million HSBC Holdings
ordinary shares on 2 March 2009) may in aggregate be put under option under
the HSBC Share Plan or be issuable pursuant to the HSBC Holdings Group Share
Option Plan, the HSBC Executive Share Option Scheme, the HSBC Holdings Restricted
Share Plan 2000 or the HSBC Share Plan. The number of HSBC Holdings ordinary
shares that may be issued on exercise of all options granted on or after
27 May 2005 under the HSBC Share Plan and any other plans must not exceed
1,119,000,000 HSBC Holdings ordinary shares. Under the HSBC Holdings savings-related
share option plans, the HSBC Share Plan, HSBC Holdings Group Share Option
Plan and the HSBC Holdings Executive Share Option Scheme there were options
outstanding over 231,257,004 HSBC Holdings ordinary shares at 31 December
2008. Particulars of options over HSBC Holdings shares held by Directors
of HSBC Holdings are set out on page 326 of the Directors Remuneration
Report.
The effect
on earnings per share of granting share options and share awards is shown
in diluted earnings per share on the face of the consolidated income statement,
with further details disclosed in the Earnings per share Note 13 on the
Financial Statements. The effect on basic earnings per share of dilutive
share options and share awards would be to dilute it by 1.2 per cent.
All-employee share option plans
The HSBC Holdings Savings-Related Share Option
Plan and the HSBC Holdings Savings-Related Share Option Plan: International
are all-employee share plans under which eligible HSBC employees (those employed
within the Group on the first working day of the year of grant) may be granted
options to acquire HSBC Holdings ordinary shares. Employees may make contributions
of up to £250 (or equivalent) each month over a period of one, three
or five years which may be used on the first, third or fifth anniversary
of the commencement of the relevant savings contract, at the employees
election, to exercise the options. Alternatively, the employee
304
Back to Contents
may elect to have the savings, plus (where applicable) any interest or bonus,
repaid in cash. Options granted over a one-year period will be exercisable
within three months following the first anniversary of the commencement of
the savings contract. Options granted over three or five-year periods will
be exercisable within six months following the third or fifth anniversary of
the commencement of the relevant savings contract. In the case of redundancy,
retirement on grounds of injury or ill health, retirement at or after normal
retirement age, the transfer of the employing business to another party, or
a change of control of the employing company, options may be exercised before
completion of the relevant savings contract.
Under the HSBC Holdings Savings-Related
Share Option Plan and the HSBC Holdings Savings-Related Share Option Plan:
International the option exercise price is determined by reference to the
average market value of the ordinary shares on the five business days immediately
preceding the invitation date, then applying a discount of 20 per cent (except
for the one-year options awarded under the US sub-plan where a 15 per cent
discount is applied). The exercise period of the options awarded under all-employee
share plans may be advanced to an earlier date in certain circumstances,
for example on retirement, and may be extended
in certain circumstances, for example on the death of a participant, the
executors may
exercise the option
up to six months beyond the normal exercise period. The closing price per HSBC
Holdings ordinary share on 29 April 2008, the day before options were awarded
in 2008 under the HSBC Holdings Savings-Related Share Option Plan and the HSBC
Holdings Savings-Related Share Option Plan: International, was £8.71.
The all-employee share option plans will terminate on 27 May 2015 unless the
Directors resolve to terminate the plans
at an earlier date.
To encourage greater participation
in the HSBC Holdings Savings-Related Share Option Plan: International, two
amendments were approved at the 2005 Annual General Meeting. The first was
the introduction of the facility to save and have option prices expressed
in US dollars, Hong Kong dollars and euros as well as in pounds sterling.
Where applicable, the US dollars, Hong Kong dollars and euro exercise prices
are converted from the sterling exercise price at the applicable exchange
rate on the working day preceding the relevant invitation date. The second
amendment was to provide the choice of options over one year in addition
to three and five
year terms.
HSBC Holdings Savings-Related Share Option Plan
HSBC
Holdings ordinary shares of US$0.50
|
|
|
|
|
|
|
Options at |
|
Options |
|
Options |
|
Options |
|
Options at |
|
Date of |
Exercise |
|
Exercisable |
|
Exercisable |
|
1 January |
|
awarded |
|
exercised |
|
lapsed |
|
31 December |
|
award |
price (£) |
|
from |
|
until |
|
2008 |
|
during year |
|
during year |
1 |
during year |
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2 May 2002 |
6.3224 |
|
1 Aug 2007 |
|
31 Jan 2008 |
|
86,920 |
|
|
|
63,438 |
|
23,482 |
|
|
|
23 Apr 2003 |
5.3496 |
|
1 Aug 2008 |
|
31 Jan 2009 |
|
10,402,796 |
|
|
|
9,900,129 |
|
131,349 |
|
371,318 |
|
21 Apr 2004 |
6.4720 |
|
1 Aug 2007 |
|
31 Jan 2008 |
|
132,967 |
|
|
|
90,953 |
|
42,014 |
|
|
|
21 Apr 2004 |
6.4720 |
|
1 Aug 2009 |
|
31 Jan 2010 |
|
4,941,092 |
|
|
|
65,740 |
|
227,458 |
|
4,647,894 |
|
24 May 2005 |
6.6792 |
|
1 Aug 2008 |
|
31 Jan 2009 |
|
3,522,870 |
|
|
|
3,190,140 |
|
132,372 |
|
200,358 |
|
24 May 2005 |
6.6792 |
|
1 Aug 2010 |
|
31 Jan 2011 |
|
4,938,431 |
|
|
|
49,280 |
|
338,748 |
|
4,550,403 |
|
26 Apr 2006 |
7.6736 |
|
1 Aug 2009 |
|
31 Jan 2010 |
|
3,817,398 |
|
|
|
30,546 |
|
627,424 |
|
3,159,428 |
|
26 Apr 2006 |
7.6736 |
|
1 Aug 2011 |
|
31 Jan 2012 |
|
3,062,172 |
|
|
|
14,045 |
|
411,234 |
|
2,636,893 |
|
25 Apr 2007 |
7.0872 |
|
1 Aug 2010 |
|
31 Jan 2011 |
|
5,767,372 |
|
|
|
20,411 |
|
1,041,305 |
|
4,705,656 |
|
25 Apr 2007 |
7.0872 |
|
1 Aug 2012 |
|
31 Jan 2013 |
|
4,075,471 |
|
|
|
6,641 |
|
513,887 |
|
3,554,943 |
|
30 Apr 2008 |
6.8160 |
|
1 Aug 2011 |
|
31 Jan 2012 |
|
|
|
7,169,605 |
|
843 |
|
435,469 |
|
6,733,293 |
|
30 Apr 2008 |
6.8160 |
|
1 Aug 2013 |
|
31 Jan 2014 |
|
|
|
6,142,429 |
|
277 |
|
194,292 |
|
5,947,860 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
The weighted average closing price of the shares immediately before the
dates on which options were exercised was £8.38. |
305
Back to Contents
H S B C H O L
D I N G S P L C |
|
Report of the Directors:
Governance (continued) |
|
|
|
|
Employees > Share plans |
HSBC Holdings Savings-Related Share Option Plan: International
|
|
|
|
|
|
|
|
HSBC Holdings ordinary
shares of US$0.50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options at |
|
Options |
|
Options |
|
Options |
|
Options at |
|
Date of |
|
Exercise |
|
Exercisable |
|
Exercisable |
|
1 January |
|
awarded |
|
exercised |
|
lapsed |
|
31 December |
|
award |
|
price |
|
from |
|
until |
|
2008 |
|
during year |
|
during
year |
1 |
during year |
|
2008 |
|
|
|
(£) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2 May 2002 |
|
6.3224 |
|
1 Aug 2007 |
|
31 Jan 2008 |
|
39,172 |
|
|
|
11,080 |
|
28,092 |
|
|
|
23 Apr 2003 |
|
5.3496 |
|
1 Aug 2008 |
|
31 Jan 2009 |
|
10,488 |
|
|
|
2,622 |
|
7,866 |
|
|
|
8 May 2003 |
|
5.3496 |
|
1 Aug 2008 |
|
31 Jan 2009 |
|
5,068,502 |
|
|
|
4,450,550 |
|
237,932 |
|
380,020 |
|
21 Apr 2004 |
|
6.4720 |
|
1 Aug 2007 |
|
31 Jan 2008 |
|
31,145 |
|
|
|
|
|
31,145 |
|
|
|
21 Apr 2004 |
|
6.4720 |
|
1 Aug 2009 |
|
31 Jan 2010 |
|
12,365 |
|
|
|
|
|
4,909 |
|
7,456 |
|
10 May 2004 |
|
6.4720 |
|
1 Aug 2007 |
|
31 Jan 2008 |
|
250,528 |
|
|
|
115,753 |
|
134,775 |
|
|
|
10 May 2004 |
|
6.4720 |
|
1 Aug 2009 |
|
31 Jan 2010 |
|
2,554,187 |
|
|
|
55,289 |
|
217,035 |
|
2,281,863 |
|
24 May 2005 |
|
6.6792 |
|
1 Aug 2008 |
|
31 Jan 2009 |
|
9,435,222 |
|
|
|
8,155,187 |
|
658,711 |
|
621,324 |
|
24 May 2005 |
|
6.6792 |
|
1 Aug 2010 |
|
31 Jan 2011 |
|
3,403,578 |
|
|
|
45,044 |
|
554,261 |
|
2,804,273 |
|
26 Apr 2006 |
|
7.6736 |
|
1 Aug 2007 |
|
31 Oct 2007 |
|
31,658 |
|
|
|
|
|
31,658 |
|
|
|
26 Apr 2006 |
|
7.6736 |
|
1 Aug 2009 |
|
31 Jan 2010 |
|
1,804,327 |
|
|
|
4,016 |
|
274,736 |
|
1,525,575 |
|
26 Apr 2006 |
|
7.6736 |
|
1 Aug 2011 |
|
31 Jan 2012 |
|
406,743 |
|
|
|
423 |
|
82,646 |
|
323,674 |
|
25 Apr 2007 |
|
7.0872 |
|
1 Aug 2008 |
|
31 Oct 2008 |
|
1,543,966 |
|
|
|
1,214,997 |
|
328,705 |
|
264 |
|
25 Apr 2007 |
|
7.0872 |
|
1 Aug 2010 |
|
31 Jan 2011 |
|
3,436,093 |
|
|
|
2,620 |
|
616,589 |
|
2,816,884 |
|
25 Apr 2007 |
|
7.0872 |
|
1 Aug 2012 |
|
31 Jan 2013 |
|
975,763 |
|
|
|
885 |
|
201,033 |
|
773,845 |
|
30 Apr 2008 |
|
6.8160 |
|
1 Aug 2009 |
|
31 Oct 2009 |
|
|
|
1,988,482 |
|
267 |
|
148,344 |
|
1,839,871 |
|
30 Apr 2008 |
|
6.8160 |
|
1 Aug 2011 |
|
31 Jan 2012 |
|
|
|
3,467,432 |
|
|
|
175,661 |
|
3,291,771 |
|
30 Apr 2008 |
|
6.8160 |
|
1 Aug 2013 |
|
31 Jan 2014 |
|
|
|
1,253,627 |
|
|
|
58,051 |
|
1,195,576 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(US$) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26 Apr 2006 |
|
13.3290 |
|
1 Aug 2007 |
|
31 Oct 2007 |
|
5,273 |
|
|
|
|
|
5,273 |
|
|
|
26 Apr 2006 |
|
13.3290 |
|
1 Aug 2009 |
|
31 Jan 2010 |
|
1,475,871 |
|
|
|
24,208 |
|
303,234 |
|
1,148,429 |
|
26 Apr 2006 |
|
13.3290 |
|
1 Aug 2011 |
|
31 Jan 2012 |
|
385,965 |
|
|
|
4,700 |
|
75,912 |
|
305,353 |
|
25 Apr 2007 |
|
14.7478 |
2
|
1 Aug 2008 |
|
31 Oct 2008 |
|
671,449 |
|
|
|
513,054 |
|
158,395 |
|
|
|
25 Apr 2007 |
|
13.8803 |
|
1 Aug 2008 |
|
31 Oct 2008 |
|
337,780 |
|
|
|
251,207 |
|
86,573 |
|
|
|
25 Apr 2007 |
|
13.8803 |
|
1 Aug 2010 |
|
31 Jan 2011 |
|
2,687,923 |
|
|
|
10,926 |
|
632,354 |
|
2,044,643 |
|
25 Apr 2007 |
|
13.8803 |
|
1 Aug 2012 |
|
31 Jan 2013 |
|
760,659 |
|
|
|
1,496 |
|
168,994 |
|
590,169 |
|
30 Apr 2008 |
|
14.48762 |
|
1 Aug 2009 |
|
31 Oct 2009 |
|
|
|
615,822 |
|
|
|
66,288 |
|
549,534 |
|
30 Apr 2008 |
|
13.6354 |
|
1 Aug 2009 |
|
31 Oct 2009 |
|
|
|
425,697 |
|
|
|
26,231 |
|
399,466 |
|
30 Apr 2008 |
|
13.6354 |
|
1 Aug 2011 |
|
31 Jan 2012 |
|
|
|
1,979,660 |
|
294 |
|
142,021 |
|
1,837,345 |
|
30 Apr 2008 |
|
13.6354 |
|
1 Aug 2013 |
|
31 Jan 2014 |
|
|
|
537,563 |
|
|
|
30,357 |
|
507,206 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
() |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26 Apr 2006 |
|
11.0062 |
|
1 Aug 2007 |
|
31 Oct 2007 |
|
847 |
|
|
|
|
|
847 |
|
|
|
26 Apr 2006 |
|
11.0062 |
|
1 Aug 2009 |
|
31 Jan 2010 |
|
176,800 |
|
|
|
|
|
52,429 |
|
124,371 |
|
26 Apr 2006 |
|
11.0062 |
|
1 Aug 2011 |
|
31 Jan 2012 |
|
35,495 |
|
|
|
|
|
13,664 |
|
21,831 |
|
25 Apr 2007 |
|
10.4217 |
|
1 Aug 2008 |
|
31 Oct 2008 |
|
122,632 |
|
|
|
46,698 |
|
75,934 |
|
|
|
25 Apr 2007 |
|
10.4217 |
|
1 Aug 2010 |
|
31 Jan 2011 |
|
361,842 |
|
|
|
|
|
107,360 |
|
254,482 |
|
25 Apr 2007 |
|
10.4217 |
|
1 Aug 2012 |
|
31 Jan 2013 |
|
125,856 |
|
|
|
|
|
51,047 |
|
74,809 |
|
30 Apr 2008 |
|
8.6720 |
|
1 Aug 2009 |
|
31 Oct 2009 |
|
|
|
163,223 |
|
|
|
13,900 |
|
149,323 |
|
30 Apr 2008 |
|
8.6720 |
|
1 Aug 2011 |
|
31 Jan 2012 |
|
|
|
501,343 |
|
|
|
18,873 |
|
482,470 |
|
30 Apr 2008 |
|
8.6720 |
|
1 Aug 2013 |
|
31 Jan 2014 |
|
|
|
209,331 |
|
|
|
12,498 |
|
196,833 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(HK$) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26 Apr 2006 |
|
103.4401 |
|
1 Aug 2007 |
|
31 Oct 2007 |
|
1,961 |
|
|
|
|
|
1,961 |
|
|
|
26 Apr 2006 |
|
103.4401 |
|
1 Aug 2009 |
|
31 Jan 2010 |
|
3,891,154 |
|
|
|
10,582 |
|
1,569,459 |
|
2,311,113 |
|
26 Apr 2006 |
|
103.4401 |
|
1 Aug 2011 |
|
31 Jan 2012 |
|
1,024,842 |
|
|
|
7,221 |
|
443,256 |
|
574,365 |
|
25 Apr 2007 |
|
108.4483 |
|
1 Aug 2008 |
|
31 Oct 2008 |
|
2,108,126 |
|
|
|
1,747,467 |
|
360,659 |
|
|
|
25 Apr 2007 |
|
108.4483 |
|
1 Aug 2010 |
|
31 Jan 2011 |
|
4,481,255 |
|
|
|
12,548 |
|
2,100,755 |
|
2,367,952 |
|
25 Apr 2007 |
|
108.4483 |
|
1 Aug 2012 |
|
31 Jan 2013 |
|
1,332,074 |
|
|
|
4,137 |
|
651,814 |
|
676,123 |
|
30 Apr 2008 |
|
106.2478 |
|
1 Aug 2009 |
|
31 Oct 2009 |
|
|
|
2,941,862 |
|
|
|
1,243,237 |
|
1,698,625 |
|
30 Apr 2008 |
|
106.2478 |
|
1 Aug 2011 |
|
31 Jan 2012 |
|
|
|
4,174,635 |
|
412 |
|
1,417,928 |
|
2,756,295 |
|
30 Apr 2008 |
|
106.2478 |
|
1 Aug 2013 |
|
31 Jan 2014 |
|
|
|
1,380,594 |
|
|
|
420,900 |
|
959,694 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
The weighted average closing price of the shares immediately before the
dates on which options were exercised was £8.32. |
2 |
Exercisable at a 15 per cent discount to the average market value of the
ordinary shares on the five business days immediately preceding the invitation
date. |
306
Back to Contents
Discretionary Share Plans
Note 10 on the Financial Statements gives detail
on share-based payments, including awards of Performance Shares and Restricted
Shares made in 2008.
The HSBC Share
Plan was approved at the 2005 Annual General Meeting. Awards of Performance
Shares are made under this Plan to executive Directors and other senior
executives. The performance conditions for awards of Performance Shares
are described under Long-term incentive plan on page 318.
Awards of Performance
Shares are directed to those senior executives who can influence corporate
performance such as members of the Group Management Board.
Awards of Restricted
Shares are typically made to other employees based on individual performance,
business performance and competitive market practice.
Restricted
Share awards define the number of shares to which the employee will become
entitled, generally between one and three years from the date of the award,
and normally subject to the individual remaining in employment. To date,
all awards of Performance Shares and Restricted Shares have been satisfied
by the transfer of existing shares.
Since September
2005, no awards of share options under the HSBC Share Plan have been granted.
There may be particular circumstances in the future where option grants
could be appropriate. No options were awarded under the HSBC Share Plan
in 2008.
Prior to 2005,
discretionary awards of share options, with vesting subject to the attainment
of a predetermined TSR performance condition, were made to employees at
all levels of HSBC.
The vesting
of these options was subject to the attainment of pre-determined relative
TSR performance criteria, except in HSBC France (which was acquired in
2000) where performance criteria were phased in. Under the HSBC Holdings
Group Share Option Plan, the maximum grant of options which could be granted
to an employee in any one year (together with the Performance Share awards
under the HSBC Holdings Restricted Share Plan
2000) was 150 per cent (or in exceptional circumstances 225 per cent) of
the employees annual salary at the date of grant plus any bonus paid
in the previous year.
Under the HSBC
Holdings Executive Share Option Scheme the maximum value of options which
could be granted to an employee in any one year was four times the employees
relevant earnings.
Subject to
the attainment of the relative TSR performance condition where applicable,
options are generally exercisable between the third and the tenth anniversary
of the date of grant. Employees of a subsidiary that is sold or transferred
out of HSBC may exercise options awarded under the HSBC Holdings Group
Share Option Plan or the HSBC Holdings Executive Share Option Scheme within
six or twelve months respectively of the sale or transfer, regardless of
whether the performance condition is met.
The maximum
value of options that may be granted to an employee in any one year under
the HSBC Plan (when taken together with any Performance Share award made
under the HSBC Share Plan) is 700 per cent of the employees annual
salary at the date of grant.
The exercise
price of options granted under the HSBC Share Plan, and previously under
the HSBC Holdings Group Share Option Plan, is the higher of the average
market value of the ordinary shares on the five business days prior to
the grant of the option or the market value of the ordinary shares on the
date of grant of the option. The exercise price of options granted under
the HSBC Holdings Executive Share Option Scheme was the market value of
the ordinary shares on the business day prior to the grant of the option.
The HSBC Share Plan will terminate on 27 May 2015 unless the Directors
resolve to terminate the Plan at an earlier date.
The exercise
period of the options awarded under discretionary share incentive plans
may be advanced to an earlier date in certain circumstances, for example
on the sale of a business, or may be extended in certain circumstances,
for example on the death of a participant the executors may exercise the
option beyond the normal exercise period.
307
Back to Contents
H S B C H O L D I
N G S P L C |
|
Report of the Directors:
Governance (continued) |
|
|
|
|
Employees > Share plans
/ Subsidiary share plans |
HSBC Holdings Executive Share Option Scheme1
HSBC
Holdings ordinary shares of US$0.50
|
|
|
|
|
|
|
|
|
Options |
|
Options |
|
|
|
|
|
|
|
|
|
|
Options at |
|
exercised |
|
lapsed |
|
Options at |
|
Date of |
Exercise |
|
Exercisable |
|
Exercisable |
|
1 January |
|
during |
|
during |
|
31 December |
|
award |
price (£) |
|
from |
|
until |
|
2008 |
|
year |
2 |
year |
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16 Mar 1998 |
6.2767 |
|
16 Mar 2001 |
|
16 Mar 2008 |
|
427,641 |
|
414,141 |
|
13,500 |
|
|
|
29 Mar 1999 |
6.3754 |
|
3 Apr 2002 |
|
29 Mar 2009 |
|
9,794,913 |
|
2,872,548 |
|
64,352 |
|
6,858,013 |
|
10 Aug 1999 |
7.4210 |
|
10 Aug 2002 |
|
10 Aug 2009 |
|
91,058 |
|
19,958 |
|
|
|
71,100 |
|
31 Aug 1999 |
7.8710 |
|
31 Aug 2002 |
|
31 Aug 2009 |
|
4,000 |
|
|
|
|
|
4,000 |
|
3 Apr 2000 |
7.4600 |
|
3 Apr 2003 |
|
3 Apr 2010 |
|
7,920,930 |
|
743,938 |
|
146,099 |
|
7,030,893 |
|
|
|
1 |
The HSBC Holdings Executive
Share Option Scheme expired on 26 May 2000. No options have been granted
under the Scheme since that date. |
2 |
The weighted average closing
price of the shares immediately before the dates on which options were
exercised was £8.47. |
HSBC Holdings Group Share Option Plan1
HSBC Holdings ordinary shares of US$0.50
|
|
|
|
|
|
|
|
|
Options |
|
Options |
|
|
|
|
|
|
|
|
|
|
Options at |
|
exercised |
|
lapsed |
|
Options at |
|
Date of |
Exercise |
|
Exercisable |
|
Exercisable |
|
1 January |
|
during |
|
during |
|
31 December |
|
award |
price (£) |
|
from |
|
until |
|
2008 |
|
year |
2 |
year |
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4 Oct 2000 |
9.6420 |
|
4 Oct 2003 |
|
4 Oct 2010 |
|
306,641 |
|
|
|
7,625 |
|
299,016 |
|
23 Apr 2001 |
8.7120 |
|
23 Apr 2004 |
|
23 Apr 2011 |
|
27,166,097 |
|
245,744 |
|
772,167 |
|
26,148,186 |
|
30 Aug 2001 |
8.2280 |
|
30 Aug 2004 |
|
30 Aug 2011 |
|
153,518 |
|
5,750 |
|
|
|
147,768 |
|
7 May 2002 |
8.4050 |
|
7 May 2005 |
|
7 May 2012 |
|
29,562,689 |
|
512,200 |
|
680,556 |
|
28,369,933 |
|
30 Aug 2002 |
7.4550 |
|
30 Aug 2005 |
|
30 Aug 2012 |
|
354,600 |
|
3,450 |
|
210,500 |
|
140,650 |
|
2 May 2003 |
6.9100 |
|
2 May 2006 |
|
2 May 2013 |
|
28,957,295 |
|
2,548,099 |
|
548,952 |
|
25,860,244 |
|
29 Aug 2003 |
8.1300 |
|
29 Aug 2006 |
|
29 Aug 2013 |
|
394,784 |
|
13,010 |
|
14,130 |
|
367,644 |
|
3 Nov 2003 |
9.1350 |
|
3 Nov 2006 |
|
3 Nov 2013 |
|
4,069,800 |
|
|
|
458,000 |
|
3,611,800 |
|
30 Apr 2004 |
8.2830 |
|
30 Apr 2007 |
|
30 Apr 2014 |
|
53,842,886 |
|
375,872 |
|
2,779,812 |
|
50,687,202 |
|
27 Aug 2004 |
8.6500 |
|
27 Aug 2007 |
|
27 Aug 2014 |
|
312,000 |
|
|
|
12,800 |
|
299,200 |
|
20 Apr 2005 |
8.3620 |
|
30 Apr 2008 |
|
20 Apr 2015 |
|
7,095,295 |
|
30,000 |
|
404,525 |
|
6,660,770 |
|
|
|
1 |
The HSBC Holdings Group Share
Option Plan expired on 26 May 2005. No options have been granted under
the Plan since that date. |
2 |
The weighted average closing
price of the shares immediately before the dates on which options were
exercised was £8.59. |
HSBC Share Plan
HSBC Holdings ordinary shares of US$0.50
|
|
|
|
|
|
|
|
|
Options |
|
Options |
|
|
|
|
|
|
|
|
|
|
Options at |
|
exercised |
|
lapsed |
|
Options at |
|
Date of |
Exercise |
|
Exercisable |
|
Exercisable |
|
1 January |
|
during |
|
during |
|
31 December |
|
award |
price (£) |
|
from |
|
until |
|
2008 |
|
year |
|
year |
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21 Jun 2005 |
8.794 |
|
21 Jun 2008 |
|
21 Jun 2009 |
|
449,455 |
|
|
|
224,728 |
|
224,727 |
|
30 Sep 2005 |
9.170 |
|
30 Sep 2008 |
|
30 Sep 2015 |
|
74,985 |
|
|
|
|
|
74,985 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary company share plans
HSBC France and subsidiary company
When it was acquired in 2000, HSBC France and
one of its subsidiary companies, HSBC Private Bank France, operated employee
share option plans under
which options could be granted over their respective
shares. No further options will be granted under either of these companies plans.
The following are details of outstanding options to acquire shares in HSBC
France and HSBC Private Bank France.
308
Back to Contents
HSBC France
Shares
of 5
|
|
|
|
|
|
|
Options at |
|
Options |
|
Options |
|
Options at |
|
Date of |
Exercise |
|
Exercisable |
|
Exercisable |
|
1 January |
|
exercised |
|
lapsed |
|
31 December |
|
award |
price () |
|
from |
|
until |
|
2008 |
|
during year |
1 |
during year |
|
2008 |
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29 Apr 1998 |
73.48 |
|
7 Jun 2000 |
|
29 Apr 2008 |
|
100,379 |
|
100,379 |
|
|
|
|
|
7 Apr 1999 |
81.71 |
|
7 Jun 2000 |
|
7 Apr 2009 |
|
304,402 |
|
120,775 |
|
|
|
183,627 |
|
12 Apr 2000 |
142.50 |
|
1 Jan 2002 |
|
12 Apr 2010 |
|
604,250 |
|
|
|
|
|
604,250 |
|
|
|
1 |
Following exercise of the options, the
HSBC France shares will be exchanged for HSBC Holdings ordinary shares
in the same ratio as for the acquisition of HSBC France (13 HSBC Holdings
ordinary shares for each HSBC France share). At 31 December 2008, The
HSBC Holdings Employee Benefit Trust 2001 (No. 1) held 8,790,276 HSBC
Holdings ordinary shares which may be exchanged for HSBC France shares
arising from the exercise of these options. |
HSBC Private Bank France
Shares
of 2
|
|
|
|
|
|
|
Options at |
|
Options |
|
Options |
|
Options at |
|
Date of |
Exercise |
|
Exercisable |
|
Exercisable |
|
1 January |
|
exercised |
|
lapsed |
|
31 December |
|
award |
price () |
|
from |
|
until |
|
2008 |
|
during year |
1 |
during year |
|
2008 |
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21 Dec 1999 |
10.84 |
|
21 Dec 2000 |
|
21 Dec 2009 |
|
33,250 |
|
7,000 |
|
|
|
26,250 |
|
10 Mar 2000 |
12.44 |
|
27 Jun 2004 |
|
31 Dec 2010 |
|
20,626 |
|
|
|
|
|
20,626 |
|
15 May 2001 |
20.80 |
|
15 May 2002 |
|
15 May 2011 |
|
141,525 |
|
|
|
|
|
141,525 |
|
1 Oct 2002 |
22.22 |
|
2 Oct 2005 |
|
1 Oct 2012 |
|
145,575 |
|
|
|
|
|
145,575 |
|
|
|
1 |
Following exercise of the options, the
HSBC Private Bank France shares will be exchanged for HSBC Holdings
ordinary shares in the ratio of 1.83 HSBC Holdings ordinary shares
for each HSBC Private Bank France share. At 31 December 2008, The CCF
Employee Benefit Trust 2001 held 943,142 HSBC Holdings ordinary shares
which may be exchanged for HSBC Private Bank France shares arising
from the exercise of these options. |
|
|
HSBC Finance and its subsidiaries
Following the acquisition of HSBC Finance in
2003, all outstanding options and equity-based awards over HSBC Finance common
shares were converted into rights to receive HSBC Holdings ordinary shares
in the same ratio as the share exchange offer for the acquisition of HSBC
Finance (2.675 HSBC Holdings ordinary shares for each HSBC Finance common
share) and the exercise prices per share were adjusted accordingly. No further
options will be granted under any of these plans.
All outstanding
options and other equity-based awards over HSBC Finance common shares granted
before 14 November 2002, being the date the
transaction was announced, vested on completion
of the acquisition. Options and equity-based awards granted on or after 14
November 2002 are exercisable on their original terms, save that they have
been adjusted to reflect the exchange ratio.
The following
are details of options and equity-based awards to acquire shares in HSBC
Holdings.
At 31 December
2008, the HSBC (Household) Employee Benefit Trust 2003 held 1,687,279 HSBC
Holdings ordinary shares and 196,455 American Depositary Shares, each of
which represents five HSBC Holdings ordinary shares, which may be used
to satisfy the exercise of employee share options.
HSBC Finance: 1996 Long-Term Executive Incentive
Compensation Plan
HSBC
Holdings ordinary shares of US$0.50
|
|
|
|
|
|
|
Options at |
|
Options |
|
Options |
|
Options at |
|
Date of |
Exercise |
|
Exercisable |
|
Exercisable |
|
1 January |
|
exercised |
|
lapsed |
|
31 December |
|
award |
price (US$) |
|
from |
|
until |
|
2008 |
|
during year |
1 |
during year |
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 Jul 1998 |
19.21 |
|
1 Jul 1999 |
|
1 Jul 2008 |
|
80,250 |
|
|
|
80,250 |
|
|
|
9 Nov 1998 |
13.71 |
|
9 Nov 1999 |
|
9 Nov 2008 |
|
841,566 |
|
245,375 |
|
596,191 |
|
|
|
17 May 1999 |
16.99 |
|
17 May 2000 |
|
17 May 2009 |
|
334,375 |
|
|
|
|
|
334,375 |
|
31 Aug 1999 |
13.96 |
|
31 Aug 2000 |
|
31 Aug 2009 |
|
300,938 |
|
|
|
|
|
300,938 |
|
8 Nov 1999 |
16.96 |
|
8 Nov 2000 |
|
8 Nov 2009 |
|
4,250,577 |
|
|
|
|
|
4,250,577 |
|
30 Jun 2000 |
15.70 |
|
30 Jun 2001 |
|
30 Jun 2010 |
|
26,846 |
|
|
|
|
|
26,846 |
|
8 Feb 2000 |
13.26 |
|
8 Feb 2001 |
|
8 Feb 2010 |
|
66,875 |
|
|
|
|
|
66,875 |
|
13 Nov 2000 |
18.40 |
|
13 Nov 2001 |
|
13 Nov 2010 |
|
5,728,514 |
|
|
|
|
|
5,728,514 |
|
12 Nov 2001 |
21.37 |
|
12 Nov 2002 |
|
12 Nov 2011 |
|
7,571,322 |
|
|
|
|
|
7,571,322 |
|
20 Nov 2002 |
10.66 |
|
20 Nov 2003 |
|
20 Nov 2012 |
|
2,454,298 |
|
12,038 |
|
40,125 |
|
2,402,135 |
|
|
|
1 |
The weighted average closing price of
the shares immediately before the dates on which options were exercised
was £8.34. |
309
Back to Contents
H S B C H O L D I
N G S P L C |
|
Report of the Directors: Governance
(continued) |
|
|
|
|
Employees > Subsidiary
share plans / Compensation |
HSBC Finance: 1996 Long-Term Executive Incentive
Compensation Plan1
HSBC Holdings ordinary shares of US$0.50
|
|
|
|
|
|
Rights at |
|
Rights |
|
Rights |
|
Rights at |
|
Date of |
|
Vesting |
|
Vesting |
|
1 January |
|
vested |
|
lapsed |
|
31 December |
|
award |
|
from |
|
until |
|
2008 |
|
during year |
2 |
during year |
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2 Dec 2002 |
|
2 Dec 2005 |
|
2 Dec 2007 |
|
1,784 |
|
1,784 |
|
|
|
|
|
2 Jan 2003 |
|
2 Jan 2006 |
|
2 Jan 2008 |
|
447 |
|
447 |
|
|
|
|
|
15 Jan 2003 |
|
15 Jan 2006 |
|
15 Jan 2008 |
|
10,480 |
|
10,480 |
|
|
|
|
|
3 Feb 2003 |
|
3 Feb 2006 |
|
3 Feb 2008 |
|
2,906 |
|
2,906 |
|
|
|
|
|
14 Feb 2003 |
|
14 Feb 2006 |
|
14 Feb 2008 |
|
49,134 |
|
49,134 |
|
|
|
|
|
3 Mar 2003 |
|
3 Mar 2006 |
|
3 Mar 2008 |
|
447 |
|
447 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
Awards of Restricted Stock Rights which
represent a right to receive shares for nil consideration if the employee
remains in the employment of HSBC Finance at the date of vesting. |
2 |
The weighted average closing price of
the shares immediately before the dates on which rights vested was £8.56. |
Renaissance Holdings, Inc: Amended and
Restated 1997 Incentive Plan
HSBC Holdings ordinary shares of US$0.50
|
|
|
|
|
|
|
|
Options at |
|
Options |
|
Options |
|
Options at |
|
Date of |
|
Exercise |
|
Exercisable |
|
Exercisable |
|
1 January |
|
exercised |
|
lapsed |
|
31 December |
|
award |
|
price (US$) |
|
from |
|
until |
|
2008 |
|
during year |
1 |
during year |
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 Jan 1998 |
|
1.25 |
|
1 Jan 1999 |
|
1 Jan 2008 |
|
1,424 |
|
|
|
1,424 |
|
|
|
1 Oct 1998 |
|
1.74 |
|
1 Oct 1999 |
|
1 Oct 2008 |
|
803 |
|
|
|
803 |
|
|
|
1 Jan 1999 |
|
2.24 |
|
1 Jan 2000 |
|
1 Jan 2009 |
|
5,024 |
|
5,024 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
The weighted average closing price of
the shares immediately before the dates on which options were exercised
was £6.25. |
|
|
Bank of Bermuda
Following the acquisition of Bank of Bermuda
in 2004, all outstanding options over Bank of Bermuda shares were converted
into rights to receive HSBC Holdings ordinary shares based on the consideration
of US$40 for each Bank of Bermuda share and the average closing price
of HSBC Holdings ordinary shares, derived from the London Stock Exchange
Daily
Official List, for the five business days preceding the closing date of the
acquisition. No
further options will be granted under any of these
plans.
All outstanding
options over Bank of Bermuda shares vested on completion of the acquisition.
The following are details of options to acquire shares in HSBC Holdings. At
31 December 2008, the HSBC (Bank of Bermuda) Employee Benefit Trust 2004 held
1,877,056 HSBC Holdings ordinary shares which may be used to satisfy the exercise
of these options.
Bank of Bermuda: Executive Share Option
Plan 1997
HSBC Holdings ordinary shares of US$0.50
|
|
|
|
|
|
|
|
Options at |
|
Options |
|
Options |
|
Options at |
|
Date of |
|
Exercise |
|
Exercisable |
|
Exercisable |
|
1 January |
|
exercised |
|
lapsed |
|
31 December |
|
award |
|
price (US$) |
|
from |
|
until |
|
2008 |
|
during year |
|
during year |
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 Jul 1998 |
|
9.61 |
|
1 Jul 1999 |
|
1 Jul 2008 |
|
67,813 |
|
|
|
67,813 |
|
|
|
23 Feb 1999 |
|
7.40 |
|
23 Feb 2000 |
|
23 Feb 2009 |
|
4,904 |
|
|
|
|
|
4,904 |
|
3 Aug 1999 |
|
7.10 |
|
3 Aug 2000 |
|
3 Aug 2009 |
|
7,634 |
|
|
|
|
|
7,634 |
|
4 Feb 2000 |
|
7.21 |
|
4 Feb 2001 |
|
4 Feb 2010 |
|
31,678 |
|
|
|
|
|
31,678 |
|
1 Jun 2000 |
|
7.04 |
|
1 Jun 2001 |
|
1 Jun 2010 |
|
61,649 |
|
|
|
|
|
61,649 |
|
31 Jul 2000 |
|
10.11 |
|
31 Jul 2001 |
|
31 Jul 2010 |
|
27,744 |
|
|
|
|
|
27,744 |
|
11 Jan 2001 |
|
14.27 |
|
11 Jan 2002 |
|
11 Jan 2011 |
|
53,943 |
|
|
|
|
|
53,943 |
|
310
Back to Contents
Bank of Bermuda: Share Option Plan 2000
HSBC Holdings ordinary shares of US$0.50
|
|
|
|
|
|
|
|
Options at |
|
Options |
|
Options |
|
Options at |
|
Date of |
|
Exercise |
|
Exercisable |
|
Exercisable |
|
1 January |
|
exercised |
|
lapsed |
|
31 December |
|
award |
|
price (US$) |
|
from |
|
until |
|
2008 |
|
during year |
1 |
during year |
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11 Jan 2001 |
|
14.27 |
|
11 Jan 2002 |
|
11 Jan 2011 |
|
134,857 |
|
|
|
|
|
134,857 |
|
6 Feb 2001 |
|
16.41 |
|
6 Feb 2002 |
|
6 Feb 2011 |
|
573,191 |
|
1,466 |
|
15,372 |
|
556,353 |
|
29 Mar 2001 |
|
15.39 |
|
29 Mar 2002 |
|
29 Mar 2011 |
|
270 |
|
|
|
|
|
270 |
|
16 Apr 2001 |
|
15.57 |
|
16 Apr 2002 |
|
16 Apr 2011 |
|
539 |
|
|
|
|
|
539 |
|
6 Jun 2001 |
|
18.35 |
|
6 Jun 2002 |
|
6 Jun 2011 |
|
8,091 |
|
|
|
|
|
8,091 |
|
16 Jul 2001 |
|
16.87 |
|
16 Jul 2002 |
|
16 Jul 2011 |
|
14,930 |
|
|
|
|
|
14,930 |
|
28 Aug 2001 |
|
15.39 |
|
28 Aug 2002 |
|
28 Aug 2011 |
|
13,486 |
|
|
|
|
|
13,486 |
|
26 Sep 2001 |
|
12.79 |
|
26 Sep 2002 |
|
26 Sep 2011 |
|
353,891 |
|
3,695 |
|
|
|
350,196 |
|
30 Jan 2002 |
|
15.60 |
|
30 Jan 2003 |
|
30 Jan 2012 |
|
1,226 |
|
|
|
|
|
1,226 |
|
5 Feb 2002 |
|
16.09 |
|
5 Feb 2003 |
|
5 Feb 2012 |
|
756,739 |
|
3,548 |
|
12,730 |
|
740,461 |
|
10 Jul 2002 |
|
15.84 |
|
10 Jul 2003 |
|
10 Jul 2012 |
|
12,260 |
|
|
|
|
|
12,260 |
|
4 Feb 2003 |
|
10.69 |
|
4 Feb 2004 |
|
4 Feb 2013 |
|
133,042 |
|
4,138 |
|
|
|
128,904 |
|
21 Apr 2003 |
|
11.85 |
|
21 Apr 2004 |
|
21 Apr 2013 |
|
6,833 |
|
|
|
|
|
6,833 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
The weighted average closing price of
the shares immediately before the dates on which options were exercised
was £8.15. |
|
Bank of Bermuda:
Directors Share Option Plan
HSBC Holdings ordinary shares of
US$0.50 |
|
|
|
|
|
|
|
|
Options at |
|
Options |
|
Options |
|
Options at |
|
Date of |
|
Exercise |
|
Exercisable |
|
Exercisable |
|
1 January |
|
exercised |
|
lapsed |
|
31 December |
|
award |
|
price (US$) |
|
from |
|
until |
|
2008 |
|
during year |
|
during year |
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22 Sep 1999 |
|
8.02 |
|
22 Sep 2000 |
|
22 Sep 2009 |
|
3,082 |
|
|
|
|
|
3,082 |
|
20 Sep 2000 |
|
11.31 |
|
20 Sep 2001 |
|
20 Sep 2010 |
|
4,046 |
|
|
|
|
|
4,046 |
|
28 Mar 2001 |
|
15.76 |
|
28 Mar 2002 |
|
28 Mar 2011 |
|
12,811 |
|
|
|
|
|
12,811 |
|
3 Apr 2002 |
|
16.01 |
|
3 Apr 2003 |
|
3 Apr 2012 |
|
24,520 |
|
|
|
|
|
24,520 |
|
30 Apr 2003 |
|
12.23 |
|
30 Apr 2004 |
|
30 Apr 2013 |
|
4,904 |
|
|
|
|
|
4,904 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee compensation and benefits
Note 8 on the Financial Statements gives details
about employee compensation and benefits including pension plans.
Set out below
is information in respect of the five individuals whose emoluments were the
highest in HSBC for the year ended 31 December 2008.
Emoluments of 5 highest paid employees
|
|
£000 |
|
|
|
|
|
Basic salaries, allowances and
benefits in kind |
|
1,059 |
|
Pension contributions |
|
74 |
|
Bonuses paid or receivable |
|
16,386 |
|
Inducements to join paid or receivable |
|
16,050 |
|
|
|
|
|
Total |
|
33,569 |
|
|
|
|
|
Total (US$000) |
|
61,567 |
|
|
|
|
|
Their emoluments
were within the following bands:
|
|
Number of |
|
|
|
Employees |
|
|
|
|
|
£2,600,001 – £2,700,000 |
|
1 |
|
£2,800,001 – £2,900,000 |
|
1 |
|
£3,200,001 – £3,300,000 |
|
1 |
|
£11,000,001 – £11,100,000 |
|
1 |
|
£13,700,001 – £13,800,000 |
|
1 |
|
The aggregate
remuneration of Directors and Senior Management for the year ended 31 December
2008 was US$49,835,745.
The aggregate
amount set aside or accrued to provide pension, retirement or similar benefits
for Directors and Senior Management for the year ended 31 December 2008 was
US$1,916,120.
Executive Directors
and members of Senior Management are generally subject to notice periods of
up to 12 months and a normal retirement age of 65.
311
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H S B C H O L D I
N G S P L C |
|
Report of the Directors: Governance
(continued) |
|
|
|
|
Corporate sustainability /
Dividends, shareholders and meetings |
Sustainability at HSBC is about the Groups
long-term approach to managing economic, social and environmental issues
that
are within its influence. First and foremost, this is about achieving sustainable
profit growth so that HSBC can continue to reward shareholders and employees,
build long-lasting relationships with customers and suppliers, and invest
in
the business and in the communities where the Group operates, for future growth.
This is central
to the Groups strategy and acknowledges that HSBCs continuing
financial success depends, in part, on its ability to identify and address
non-financial
considerations which are material to the business, and to mitigate the risks
and maximise the opportunities arising from them.
Corporate Sustainability Committee
Sustainability at HSBC is embedded into the business
and is overseen by the Corporate Sustainability Committee of the HSBC Holdings
Board.
The Corporate
Sustainability Committee is responsible for advising the HSBC board, committees
of the board and executive management on corporate sustainability policies,
including environmental, social and ethical issues. At an operational level,
these issues are managed on a day-to-day basis primarily by Group Human Resources,
Group Risk and Group Corporate Sustainability.
The terms of
reference of the Committee are available at www.hsbc.com/boardcommittees. The
members of the Committee throughout 2008 were W K L Fung (appointed Chairman
on 30 May 2008) and Sir Mark Moody-Stuart, each of whom is a non-executive Director,
G V I Davis and Lord May, who are non-director members of the Committee. Lord
Butler retired as a Director of HSBC Holdings and ceased to be a member of the
Committee on 30 May 2008. N R N Murthy was appointed a member of the Committee
on 21 November 2008.
There were four
meetings of the Corporate Sustainability Committee during 2008. Following each
meeting, the Committee reports to the Board on its activities.
Sustainability at HSBC
HSBC understands the business imperative of investing
in its employees, the communities it serves and the environment it relies
on.
The Groups priorities are the long-term development and engagement
of its employees, increasing its understanding of risk arising from environmental,
social or reputational issues and investing in
education and entrepreneurship to allow communities to build capacity and individuals
to thrive.
HSBC focuses
its environmental initiatives primarily on addressing and responding to
issues
associated with climate change including energy, water management and biodiversity.
Social initiatives are centred on helping to support education and on enabling
access to financial services to the worlds poor.
Climate change
has the potential to have a material impact on HSBCs customers and therefore
on HSBCs long-term success. In 2008, HSBC built on its understanding
and expertise on responding to climate change and Lord Stern continued to advise
the Group Chairman on economic development and climate change. HSBC was one
of the first financial institutions to adopt the Climate Principles, a voluntary
framework for action on climate change that covers all areas of financial services.
HSBC also participates
in the Prince of Wales Accounting for Sustainability project which
seeks to develop systems to help public and private sector organisations
account
more
accurately for the wider social and environmental costs of their activities.
Sustainability risk
HSBCs approach to managing sustainability
risk is detailed on page 254.
Social and community investment
HSBC focuses its community investment activity
on education and the environment because HSBC believes these are fundamental
to building and developing communities and are prerequisites for economic
growth.
In 2008, HSBC made charitable donations totalling US$102 million (2007:
US$101 million). Around half of the annual donation is channelled to education
programmes and 25 per cent to environmental projects. The remainder is spent
on country specific projects, disaster relief and matching staff contributions.
No political donations were made during the year.
HSBCs
global education programme focuses on three major themes financial literacy,
disadvantaged children and environmental education. The global environmental
programme is the HSBC Climate Partnership, a five year US$100 million commitment
to working with The Climate Group, Earthwatch, Smithsonian Tropical Research
Institute and WWF on tackling climate change.
312
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HSBC
reports on its sustainability strategy and progress annually in the HSBC
Sustainability Report which is verified
by an external auditor and prepared using the Global Reporting Initiative.
PricewaterhouseCoopers has been appointed for the 2008 reporting period
and will verify the Group
sustainability
strategy and governance structure, the content of the report, carbon neutrality
status and adherence to the Equator Principles. The HSBC Sustainability Report
2008 will be issued on 22 May 2009 and will be available at www.hsbc.com/sustainability
Health and safety
The maintenance of appropriate health and safety
standards throughout HSBC remains a key responsibility of all managers and
HSBC is committed to proactively managing all health and safety risks associated
with its business. HSBCs objectives are to identify, remove, reduce
or control material risks of fires and of accidents or injuries to employees
and
visitors.
Group standards,
instructions and related policies and procedures are set by Group Corporate
Real Estate and implemented by Health, Safety and Fire Co-ordinators (HSFCs)
based in each country in which HSBC operates. The HSFC may call upon regional
and Group resource by way of support at any time.
Despite the
considerable international pressure on terrorist networks over the past
few years, the global threat from terrorism persists. HSBC remains committed
to maintaining its preparedness and to ensuring the highest standards of
health and safety wherever in the world it operates.
Group Security
provides regular risk assessments in areas of increased risk to assist
management in judging the level of terrorist threat. In addition, Regional
Security functions conduct regular security reviews to ensure measures
to protect HSBC staff, buildings, assets and information are appropriate
for the level of threat.
Supplier payment policy
The Company does not currently subscribe to any
code or standard on payment practice. It is the Companys policy, however,
to settle terms of payment with those suppliers when agreeing the terms of
each
transaction, to ensure that those suppliers are made aware of the terms of
payment, and to abide by the terms of payment.
It is HSBC
Holdings practice to organise payment to its suppliers through a
central accounts
payable function operated by its subsidiary,
HSBC Bank. Included in the balance with HSBC Bank is the amount due to trade
creditors
which, at 31 December 2008, represented 22 days average daily purchases
of goods and services received from such creditors, calculated in accordance
with the Companies Act 1985, as amended by Statutory Instrument 2007/3495.
Dividends, shareholders and meetings |
|
Dividends for 2008 |
First, second and third interim dividends for
2008, each of US$0.18 per ordinary share, were paid on 9 July 2008, 8 October
2008 and 14 January 2009 respectively. Note 12 on the Financial Statements gives
more information on the dividends declared in 2008. On 2 March 2009, the Directors
declared a fourth interim dividend for 2008 of US$0.10 per ordinary share
in lieu of a final dividend, which will be payable on 6 May 2009 in cash in
US dollars, or in sterling or Hong Kong dollars at exchange rates to be determined
on 27 April 2009, with a scrip dividend alternative. As the fourth interim dividend
for 2008 was declared after the balance sheet date it has not been included
as a creditor at 31 December 2008. The reserves available for distribution at
31 December 2008 are US$18,838 million.
A quarterly
dividend of US$15.50 per 6.20 per cent non-cumulative US dollar preference
share, Series A (Series A dollar preference share), equivalent
to a dividend of US$0.3875 per Series A American Depositary Share,
each of which represents one-fortieth of a Series A dollar preference share,
was paid on 17 March, 16 June, 15 September and 15 December 2008.
Dividends for 2009
The proposed timetable for interim dividends
in respect of 2009 on the ordinary shares of US$0.50 is set out in the
Shareholder Information section on page 448.
A quarterly
dividend of US$15.50 per Series A dollar preference share (equivalent
to a dividend of US$0.3875 per Series A American Depositary Share,
each of which represents one-fortieth of a Series A dollar preference share)
was declared on 11 February 2009 for payment on 16 March 2009.
Communication with shareholders
Communication with shareholders is given high
priority. Extensive information about HSBCs activities is provided
in the Annual Report and
313
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H S B C H O L D I
N G S P L C |
|
Report of the Directors: Governance
(continued) |
|
|
|
|
Dividends, shareholders and
meetings // Directors Remuneration Report > Remuneration Committee
/ Overall principles |
Accounts, Annual Review
and the Interim Report
which are sent to shareholders and are available on www.hsbc.com. There is regular dialogue with institutional investors and enquiries from individuals on matters relating to their shareholdings and the business of HSBC are welcomed and are dealt
with in an informative and timely manner. All shareholders are encouraged to attend the Annual General Meeting or the informal meeting of shareholders held in Hong Kong to discuss the progress of HSBC.
Notifiable interests in share capital
As at 2 March 2009, the following disclosures of major holdings of voting rights
have been made (and have not been amended or withdrawn) to the Company pursuant
to the requirements of the Financial Services Authority Disclosure and Transparency
Rule 5:
• |
Barclays PLC gave notice on 17 April 2007
that it had an indirect interest on 16 April 2007 in 518,233,657 HSBC Holdings
ordinary shares, representing 4.47 per cent of the ordinary shares in issue
at that date. |
|
|
• |
Legal & General Group Plc gave notice
on 18 April 2008 that it had a direct interest on 16 April 2008 in 593,425,216
HSBC Holdings ordinary shares, representing 5.00 per cent of the ordinary
shares in issue at that date and gave notice on 21 April 2008 that on
18
April 2008 its holding of HSBC ordinary shares fell below 5.00 per cent
of the ordinary shares in issue at that date. |
As at 31 December
2008, according to the register maintained by HSBC Holdings pursuant to section
336 of the
Securities and Futures
Ordinance of Hong Kong, The Royal Bank of Scotland Group plc had given notice
that on 2 December 2008 it had a long position of 606,742,842 HSBC Holdings
ordinary shares, representing 5.01 per cent of the ordinary shares in issue,
a short position of 532,705,395 HSBC Holdings ordinary shares, representing
4.40 per cent of the ordinary shares in issue and a lending pool of 11,562,000
HSBC Holdings ordinary shares, representing 0.10 per cent in ordinary shares
in issue. Since 31 December 2008, The Royal Bank of Scotland Group plc has
given
notice that on 9 January 2009 it had a long position of 552,481,458 HSBC Holdings
ordinary shares, representing 4.56 per cent of the ordinary shares in issue,
a short position of 507,430,390 HSBC Holdings ordinary shares, representing
4.19 per cent of the ordinary shares in issue and a lending pool of 15,919,328,
representing 0.13 per cent in ordinary
shares in issue.
In compliance with the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited at least 25 per cent of the total issued share
capital of HSBC Holdings has been held by the public at all times during 2008 and up to the date of this Report.
Dealings in HSBC Holdings shares
Except for dealings as intermediaries by HSBC Bank, HSBC Financial Products (France)
and The Hongkong and Shanghai Banking Corporation, which are members of a European
Economic Area exchange, neither HSBC Holdings nor any subsidiary has bought,
sold or redeemed any securities of HSBC Holdings during the year ended 31 December
2008.
Annual General Meeting
The Annual General Meeting of HSBC Holdings will be held at the Barbican Hall,
Barbican Centre, London EC2 on 22 May 2009 at 11.00am.
An informal
meeting of shareholders will be held at Level 28, 1 Queens Road Central,
Hong Kong on Tuesday 19 May 2009 at 4.30pm.
Resolutions to receive the Annual Report and Accounts,
approve the Directors Remuneration Report, re-elect Directors and reappoint KPMG Audit Plc as Auditor will be submitted to the Annual General Meeting. KPMG Audit Plc has expressed its
willingness to continue in office and the Group Audit Committee and the Board have recommended that KPMG Audit Plc be reappointed. Resolutions will also be submitted to the Annual General Meeting to renew the authorities for the allotment of shares,
the disapplication of pre-emption rights and the purchase of ordinary shares. In addition, resolutions will be proposed to seek approval for changes to the Articles of Association and to continue to be able to call general meetings (other than
Annual General Meetings) on 14 days notice.
A live webcast of the Annual General Meeting will be available on www.hsbc.com. From shortly after the conclusion of the Meeting until 30 June 2009 a
recording of the proceedings will be available on www.hsbc.com.
On behalf of the Board |
|
S K Green, Group Chairman |
2 March 2009 |
314
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H S B C H O L
D I N G S P L C |
|
Directors Remuneration
Report |
|
|
|
The Remuneration Committee meets regularly to
consider human resource issues, particularly terms and conditions of employment,
remuneration and retirement benefits. Within the authority delegated by the
Board, the Committee is responsible for approving the remuneration policy
of HSBC including the terms of bonus plans, share plans and other long-term
incentive plans and for agreeing the individual remuneration packages of
executive Directors and other senior Group employees taking into account
the pay and conditions across the Group. No Directors are involved in deciding
their own remuneration.
Following
each meeting the Committee reports to the Board on its activities. The terms
of reference of the Committee
are available at
www.hsbc.com/boardcommittees.
The
members of the Remuneration Committee throughout 2008 were Sir Mark Moody-Stuart
(Chairman), J D Coombe
and G Morgan. At the conclusion of the Annual General Meeting on 30 May 2008
W S H Laidlaw became a member of the Committee.
There were
seven meetings of the Remuneration Committee during 2008. The table on
page 291 gives details of Directors attendance at these
meetings.
The
Committee appointed Deloitte LLP and Mercer Limited to provide independent
advice on
executive remuneration issues during the year. Towers Perrin has been appointed
by the Committee to provide remuneration data. As global firms, these firms also
provided other consulting services to various parts of HSBC. Other consultants
are used from time to time to advise on specific issues. During the year the
Group Chief Executive provided regular briefings to the Committee. The Committee
received advice from the Group Managing Director, Human Resources, A Almeida
and the Head of Group Performance and Reward, J Beadle.
A global reward strategy for the Group was approved
by the Remuneration Committee in 2007. This strategy provided a framework
for the Remuneration Committee in carrying out its responsibilities during
the year and includes the following key elements:
• |
An assessment of
reward with reference to clear and relevant objectives set within a balanced
scorecard framework. This framework facilitates a rounded
approach to objective setting. Under this framework, objectives are set
under four categories Financial,
Process (including risk mitigation), Customer and People. Whilst the achievement
of financial objectives is very important, the other objectives relating
to efficiency and risk mitigation, customer development and the productivity
of the Groups human capital are also key to financial performance
and the development and sustainability of the Group over the short and
medium
term; |
|
|
• |
A focus on total compensation (salary, bonus and the value of long term incentives)
with variable pay (namely bonus and the value of long term incentives)
differentiated by performance; |
|
|
• |
The use of considered discretion to assess the extent to which performance
has been achieved rather than applying a formulaic approach which, by
its nature, may encourage inappropriate risk taking and cannot cover
all scenarios; |
|
|
• |
A significant proportion of variable pay being deferred into HSBC Holdings
Restricted Shares to tie recipients to the future performance of the
Group and to retain key talent; and |
|
|
• |
A total remuneration package (salary, bonus, long-term incentive awards and
other benefits) which is competitive in relation to comparable organisations
in each of the markets in which HSBC operates. |
315
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H S B C H O L
D I N G S P L C |
|
Directors Remuneration
Report (continued) |
|
|
|
Application
/ HSBC performance and market context / Executive
Directors remuneration > Salary / Annual bonus |
The Committee also takes
into account environmental, social and governance aspects when determining
executive Directors remuneration and oversees
senior management incentive structures to ensure that such structures take
account of possible inadvertent consequences from these aspects.
Application to executive Directors |
|
A number of specific changes
to remuneration policy for executive Directors and other senior executives
were made in 2007 and communicated
to shareholders in the 2008 Directors
Remuneration Report. These changes, which are described in this report, were made to ensure closer alignment with HSBCs business strategy. They take into account competitive market practice and follow through the Groups
global reward strategy for this senior executive population.
In order to ensure that
executive Directors remuneration packages are competitive, having regard
to the market in which the Company competes for executive talent, the Remuneration
Committee determined to consider market data from a defined remuneration
comparator group. This initial group comprised nine global financial services
companies, namely Banco Santander, Bank of America, Barclays,
BNP Paribas, Citigroup, Deutsche Bank, Royal Bank of Scotland, Standard Chartered
and UBS. These companies were selected on the basis of their broadly similar
business coverage, size and international scope, and are subject to annual
review for continuing relevance.
Executive
Director salaries are targeted at the median of the remuneration comparator
group, with an
opportunity for top quartile total compensation through variable pay for
higher levels of performance. The actual positioning of total compensation
will depend on the performance of the Group and individual performance assessed
against a combination of financial and non-financial objectives within an
annual balanced scorecard.
The
performance-related aspects of the remuneration package consist of a bonus
of up to 400 per cent of salary
and Performance Share awards with a face value of up to 700 per cent of salary.
Taking into account the expected value of awards, the performance-related
elements of pay make up around 80 per cent of the total remuneration package.
Annual bonus payments and Performance Share awards are not
pensionable.
A
significant proportion of total compensation will be delivered in HSBC Holdings
shares. Share ownership
guidelines were increased for executive
Directors and other senior executives to achieve further alignment with shareholder
interests.
The
above approach applies to all executive Directors with the exception of the
Group Chairman, S K Green,
whose variable compensation since 2007 has, at his request, been delivered
exclusively through awards of Performance Shares and is thus no longer eligible
to receive annual bonus payments; and S T Gulliver, whose variable compensation
arrangements take into account wholesale banking market practice.
The
approach will be carefully and regularly reviewed during 2009 to take account
of the volatile and challenging
market conditions (see following section on HSBC Performance and Market Context)
and, where appropriate, shareholders will be consulted on any proposed changes
in policy. Any changes will also
be described in future Directors Remuneration Reports.
The application of this
policy to each component of executive Directors remuneration for 2008
is outlined in more detail below.
HSBC performance and market context |
|
The last year was one of unprecedented volatility and turbulence in the global financial
services sector which has continued into 2009. In determining remuneration levels for 2008 and considering approaches to remuneration for 2009, the Committee was mindful of this global market context. In this volatile market environment it is
difficult to appropriately apply measures such as total shareholder return and earnings per share, and it is particularly important to take account of risk from a short and medium term perspective.
Within this
market context, HSBCs overall financial and non-financial performance
was relatively strong in comparison to its peers.
The
key achievements of the Group during 2008, with reference to its objectives
set under the relevant
balanced scorecard categories, are summarised below.
The financial
objectives included a cost efficiency target ratio which, excluding the
writing off of goodwill in the US, was met and improved on compared to
2007. Profit growth, as measured by earnings per share (EPS), and return on capital, as measured by return on average total shareholder equity (ROE), did not meet the targets set and were lower than the prior year, although
the Groups performance in these aspects relative to its peers remained
strong.
316
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Process objectives focused on efficiency and qualitative measures which, in themselves, impact financial performance and mitigate risk. Although the Group
did not meet its target to reduce operational losses as a percentage of revenue, the overall management of risk mitigation was judged to be strong, taking into account sound relationships with global regulatory bodies and the global investment
community.
The
Group improved its customer development score compared to the prior year,
as measured by customer recommendation
and brand health in its Personal Financial Services businesses and met its
overall 2008 target relating to brand health. Both were assisted by a significant
increase in intra-group referrals.
Regarding
the Groups human capital, HSBC exceeded its 2008 employee engagement target as measured in a global staff survey. All regions and businesses
improved their engagement scores compared to 2007 and the Groups 2008
score also exceeded the sector and global norms despite the challenging market
environment.
Some 316,000 (93 per cent) of staff worldwide participated in the 2008 survey, a 5 per cent increase on the prior year. This high and improving level of participation evidences
alignment of employees to the Group.
Management of risk
Since 2008 the Groups Risk function has been involved in the approval
of relevant incentive plans. Within the Groups wholesale businesses,
where appropriate, specific conditionality will be applied to the release of
HSBC Restricted Shares issued by way of deferred bonuses. From 2009, the concept
of imputing the cost of capital in the determination of bonus funding will
be expanded progressively across the Group, starting with the Groups
wholesale businesses. Further information relating to the Groups approach
to risk management is set out on pages 191 to 192.
Executive Director remuneration |
|
Salary
The Committee reviews salary levels for executive Directors each year.
Given
the relative positioning of current salaries against the remuneration comparator
group, no increases
in salaries were made in 2008 other than to
reflect promotions to the Board.
For
2009, there will be no increase to salaries for executive Directors. A similar
approach has been
adopted for other executives across the Group other than in exceptional circumstances.
The
table below shows salaries in 2008 and with effect from 1 March 2009.
|
Salary |
|
|
|
|
|
2009 |
|
2008 |
|
|
£000 |
|
£000 |
|
|
|
|
|
|
D J Flint |
700 |
|
700 |
|
M F Geoghegan |
1,070 |
|
1,070 |
|
S K Green |
1,250 |
|
1,250 |
|
S T Gulliver1 |
800 |
|
800 |
|
|
|
|
|
|
|
HK $ 000 |
|
HK $000 |
|
|
|
|
|
|
V H C Cheng1 |
9,300 |
|
9,300 |
|
A A Flockhart1 |
8,000 |
|
8,000 |
|
|
|
|
|
|
1 |
V H C Cheng joined the Board on 1 February 2008 and A A Flockhart and
S T Gulliver on 1 May 2008. The salaries shown above represent the full year
equivalent salary for these
individuals. |
Annual bonus
In determining annual
bonus awards, the Committee took into account the extent
to which the Groups annual objectives had been met under the balanced scorecard
approach, the
Groups absolute and relative performance compared to its peers, and competitive
market practice where discernable. The consequence of this is a material fall
in bonus awards across the Group in 2008.
Within
the policy parameters described above in the section Application to
executive Directors, the Committee has determined that no cash bonuses will be paid to executive Directors for 2008. Instead, any bonuses will be in the form of HSBC Holdings
Restricted Shares with vesting deferred for three years.
As
noted above the Group Chairman, S K Green, is, at his request, no longer
eligible to receive an annual bonus
payment. In line with this, no bonus award is being made to him in respect
of 2008. In view of general conditions in the financial markets, the Group
Chief Executive, M F Geoghegan, the Group Finance Director, D J Flint, and
the Chief Executive of Global Banking and Markets and HSBC Global
Asset Management, S T Gulliver, have requested that they not be considered for
a bonus in respect of 2008. The Remuneration Committee has therefore decided,
in spite of the performance of HSBC and the wholesale businesses in relation
to its
comparators, not to award these individuals a deferred bonus.
Other
executive Directors have been awarded bonuses in deferred form in line with
performance under the
balanced scorecard framework and the
317
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H S B C H O L
D I N G S P L C |
|
Directors Remuneration
Report (continued) |
|
|
|
|
Executive
Directors remuneration > Annual
bonus / Long-term incentive plan |
overall performance of the Group, as set out above, as well as their own part
of the business.
For executive Directors with responsibility for Asia, performance against financial objectives was mixed. Whilst the target for return on equity was met,
overall 2008 profitability did not meet its target. Performance against Process, Customer and People objectives was stronger and this included high customer recommendation and employee engagement scores.
For Global Banking and Markets, although the financial targets for 2008 were not met, the business remained profitable and relative performance against its
peers was strong. Performance against Process, Customer and People objectives was strong and included high employee engagement scores and improved positions within global markets league tables.
The bonus awards, which are shown in the table below, have been fully deferred into HSBC Holdings Restricted Shares, issued under the HSBC Share Plan, with a
vesting date three years from the date of the award. Bonus awards made in 2008, in respect of performance in 2007 are shown for reference.
|
Cash bonus |
|
|
|
|
|
|
|
2009 |
|
2008 |
|
|
£000 |
|
£000 |
|
|
|
|
|
|
D J Flint1 |
|
|
800 |
|
M F Geoghegan1 |
|
|
2,140 |
|
S K Green2 |
|
|
1,750 |
|
S T Gulliver1 |
|
|
5,592 |
|
|
|
|
|
|
|
HK$000 |
|
HK$000 |
|
V H C Cheng |
|
|
23,864 |
|
|
|
|
|
|
|
US$000 |
|
US$000 |
|
A A Flockhart |
|
|
2,598 |
|
|
Restricted Share Awards |
|
|
|
|
|
|
|
2009 |
|
2008 |
|
|
£000 |
|
£000 |
|
|
|
|
|
|
D J Flint1 |
|
|
|
|
M F Geoghegan1 |
|
|
|
|
S K Green2 |
|
|
|
|
S T Gulliver1 |
|
|
3,600 |
|
|
|
|
|
|
|
HK$000 |
|
HK$000 |
|
V H C Cheng |
18,533 |
|
9,832 |
|
A A Flockhart3 |
18,705 |
|
|
|
|
|
|
|
|
|
US$000 |
|
US$000 |
|
A A Flockhart3 |
|
|
1,184 |
|
|
|
1 |
M F Geoghegan, D J Flint and S T Gulliver requested that they not be considered for a bonus in respect of 2008. |
2 |
At the Chairmans request, he is no longer eligible
to receive an annual bonus payment. |
3 |
The change in currency for A A Flockhart reflects a change of expatriate
terms. The 2008 figure is on a gross equivalent basis. |
Long-term incentive plan
Under the HSBC Share Plan, executive Directors, as with other participants
in the Plan, are eligible to receive awards of Performance Shares with a face
value at grant of up to a maximum of seven times salary. The performance conditions
associated with these awards are detailed in the next section, Arrangements
from 2008.
No awards of Performance Shares have been made to date in 2009. Awards may be granted later in 2009, taking into account performance and the market context
at the time.
The face and expected values of individual awards made in 2008, in respect of the prior 2007 performance year, are shown for reference.
|
2008 |
|
|
|
|
|
|
|
Face value |
|
Expected value |
1 |
|
£000 |
|
£000 |
|
|
|
|
|
|
D J Flint |
3,182 |
|
1,305 |
|
M F Geoghegan |
7,477 |
|
3,066 |
|
S K Green |
8,750 |
|
3,587 |
|
S T Gulliver |
473 |
|
194 |
|
|
|
|
|
|
|
HK$000 |
|
HK$000 |
|
V H C Cheng |
17,231 |
|
7,065 |
|
|
|
|
|
|
|
US$000 |
|
US$000 |
|
A A Flockhart |
2,172 |
|
890 |
|
|
|
1 |
41 per cent of the face value for the 2008 award. |
Arrangements from 2008
The performance measures for the long-term incentive awards of Performance
Shares under the HSBC Share Plan were amended last year following approval
by shareholders at the 2008 Annual
General Meeting.
From
2008, the vesting of awards is based on three independent performance measures
and an overriding sustained improvement judgement by the
Committee. The three Group measures are relative total shareholder return (40 per cent of the award); economic profit (40 per cent of the award); and growth in earnings per share (EPS)
(20 per cent of the award).
These
measures provide a basis on
which to measure HSBCs absolute and relative performance over the long-term
taking into account an external measure of value creation, a measure of the extent
to which the return on capital invested in HSBC is in excess of a benchmark return
and a direct measure of the profits generated for shareholders.
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Awards
will not vest unless the Remuneration Committee is satisfied that HSBC
Holdings financial performance has shown
a sustained improvement in the period since the award date. In determining whether
HSBC Holdings has achieved such sustained improvement the Remuneration Committee
will take account of all relevant factors, in particular, comparisons against
the TSR comparator group in areas such
as revenue growth and mix, cost efficiency, credit performance, cash return on
cash invested, dividend performance and TSR.
The performance conditions are measured over a three year performance period and awards forfeited to the extent that they have not been met.
The
performance measures and the targets described below apply for awards made
in 2008. The Remuneration Committee will
review annually whether the performance targets remain appropriate and challenging,
or should be recalibrated, for awards made thereafter, taking into account factors
such as economic expectations, the industrys outlook and shareholders interests.
The Committee will consult in accordance with institutional shareholder guidelines
on any further changes proposed to the nature of the performance measures and
their percentage split referred to above.
TSR award
TSR is measured against a comparator group comprising the largest
global banks in the world as well as other banks against which HSBC competes
for business on a regional and/or local level. These companies are:
Banco Bradesco |
|
HBOS |
Banco Itau |
|
ICBC |
Banco Santander |
|
JP Morgan Chase |
Bank of America |
|
Lloyds Banking Group |
Bank of China |
|
National Australia Bank |
Barclays |
|
Royal Bank of Canada |
BBVA |
|
Royal Bank of Scotland |
BNP Paribas |
|
Société Générale |
Citigroup |
|
Standard Chartered |
Credit Suisse Group |
|
UBS |
DBS Group |
|
UniCredito Italiano |
Deutsche Bank |
|
Wells Fargo |
Fortis |
|
Wachovia |
During 2008, HBOS and Wachovia merged with other banks in the comparator group. The Committee determined that the comparator group will remain large enough
to be statistically valid and as such it was not necessary to introduce any replacement banks.
To reflect the fact that the range of market capitalisations within the comparator group is very
wide, a free float market capitalisation (FFMC) weighted method
is used to calculate TSR performance. Under this approach, HSBCs outperformance
of the comparator group will be calculated by dividing the total FFMC of all
of the companies that HSBC has outperformed in terms of TSR by the total FFMC
of all of the companies in the comparator group.
The extent to which the TSR award will vest will be determined as follows:
If HSBCs TSR outperforms
|
|
Proportion of TSR Award |
companies comprising
|
|
vesting1 |
75 per cent of the total FFMC |
|
100%
|
50 per cent of the total FFMC |
|
20%
|
< 50 per cent of the total
FFMC |
|
nil
|
|
|
1 |
Vesting will occur in a straight line
between 20 per cent and 100 per cent where HSBCs performance falls
between these incremental steps. |
In
line with the commitment made to shareholders in 2008, the Remuneration
Committee reviewed the methodology and
concluded that it continues to be appropriate. The Committee then wrote to HSBC
Holdings sixty largest shareholders advising them of this conclusion and
offering them the opportunity to comment.
Economic profit award
Economic Profit (EP) is calculated as the average annual difference
between return on invested capital and the Groups benchmark cost of
capital and is expressed as a percentage. EP is a key measure of shareholder
value creation as it rewards management progressively to the extent that
the return on the capital invested in HSBC by its shareholders is in excess
of a threshold return, which itself exceeds the Groups benchmark cost
of capital.
For the awards made in 2008 the
benchmark cost of capital is 10 per cent. Return on invested capital is based
on the profit attributable to shareholders as defined in the Annual Report
and Accounts.
The extent to which the EP award
will vest will be determined as follows:
Average annual EP over |
|
Proportion of EP Award
|
three years |
|
vesting1 |
8 per cent or above |
|
100% |
< 3 per cent |
|
nil
|
|
|
1 |
Vesting will occur in a straight line
between 0 per cent and 100 per cent where HSBCs performance falls
between these incremental steps. |
319
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to Contents
H S B C H O L
D I N G S P L C |
|
Directors Remuneration
Report (continued) |
|
|
|
|
Executive
Directors remuneration > Long-term
incentive plan / Funding |
Earnings per share award
Growth in Earnings per Share (EPS) is measured on a point to point basis, by
comparing EPS in the third financial year of the performance period with EPS
in the financial year preceding that in which the award is made. This approach
is aimed at simplifying the use of EPS as a performance measure and takes into
account feedback received during consultation with institutional shareholders.
EPS growth in Year 3 over |
|
Proportion of EPS
|
|
the base EPS |
|
award vesting1 |
|
28 per cent or above |
|
100% |
|
16 per cent |
|
20% |
|
< 16 per cent |
|
nil
|
|
|
|
1 |
Vesting will occur in a straight line between 20% and 100% where
HSBCs performance falls between these incremental steps. |
If events occur which cause the Remuneration Committee to consider that a performance condition has become unfair or impractical in either direction, the
right is reserved to the Remuneration Committee, if it considers it appropriate to do so, to amend, relax or waive the condition.
Awards will vest in full, immediately in cases of death. In the event of redundancy, retirement on grounds of injury or ill health and where a participant
ceases to be employed by HSBC due to a company ceasing to be part of HSBC, awards will normally vest at the end of the vesting period on a time-apportioned basis to the extent that the performance conditions have been satisfied. In the event of a
change of control, awards will normally vest immediately and on a time-apportioned basis to the extent that the performance conditions have been satisfied. Awards will normally be forfeited if the participant is dismissed for cause or resigns from
HSBC. In all circumstances the Committee retains discretion to ensure fair and reasonable treatment.
Arrangements from 2005 to 2007
Vesting of the awards of Performance Shares made under the HSBC Share Plan
from 2005 to 2007 is based on two independent measures, relative TSR and growth
in EPS. The performance conditions are measured over a three-year performance
period and awards forfeited to the extent that they have not been met. The
vesting of 50 per cent of the awards is based on TSR and the remaining 50 per
cent on growth in EPS.
TSR award
The comparator group of 28 banks for the TSR award comprises the largest banks
in the world,
on the basis of their market capitalisation, their geographic spread and the
nature of their activities:
ABN AMRO1 |
|
Mitsubishi UFJ Financial Group2 |
Banco Santander |
|
Mizuho Financial Group |
Bank of America |
|
Morgan Stanley |
Bank of New York |
|
National Australia Bank |
Barclays |
|
Royal Bank of Canada |
BBVA |
|
Royal Bank of Scotland |
BNP Paribas |
|
Société Générale |
Citigroup |
|
Standard Chartered |
Crédit Agricole |
|
UBS |
Credit Suisse Group |
|
UniCredito Italiano |
Deutsche Bank |
|
US Bancorp |
HBOS1 |
|
Wachovia1 |
JP Morgan Chase |
|
Wells Fargo |
Lloyds Banking Group |
|
Westpac Banking Corporation |
|
|
1 |
ABN AMRO, HBOS and Wachovia have delisted
since the start of the performance period for the 2006 and 2007 awards.
These comparators have been replaced from the point of delisting by Fortis,
Commonwealth Bank of Australia and Toronto Dominion Bank respectively. |
2 |
Mitsubishi UFJ Financial Group, Inc
was previously known as Mitsubishi Tokyo Financial Group prior to the
acquisition of UFJ Holdings on 1 October 2005. |
The
extent to which the TSR award will vest will be determined on a sliding
scale based on HSBCs relative
TSR ranking, measured over the three years, against the comparator group as shown
below:
If HSBCs performance |
|
Proportion of TSR Award
|
matches |
|
vesting1
|
|
|
|
Banks ranking 1st to
7th |
|
100% |
Bank ranking 8th |
|
90% |
Bank ranking 9th |
|
80% |
Bank ranking 10th |
|
70% |
Bank ranking 11th |
|
60% |
Bank ranking 12th |
|
50% |
Bank ranking 13th |
|
40% |
Bank ranking 14th |
|
30% |
Banks ranking below 14th |
|
nil |
|
|
1 |
Vesting will occur in a straight line
where HSBCs performance falls between these incremental steps. |
Earnings per share award
The method for calculating EPS growth is described below. This is in line with
the approach described in the 2005, 2006 and 2007 Directors Remuneration
Reports, as well as in the circular containing the Notice of Annual General
Meeting for 2005.
The
percentage of the conditional award vesting will depend upon the absolute
growth in EPS achieved over the three
years (the performance
period). 30 per cent of the conditional shares will vest if the incremental EPS over the performance period is 24 per cent or more of EPS in the base year. The percentage of shares vesting will rise on a straight line proportionate basis to
100 per cent if HSBCs incremental EPS over the performance period is 52
per cent or more of EPS in the base year.
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In the interests of clarity, this has been set out in graphical form in the
chart below.
For the EPS element of the
award, the base measure shall be EPS for the financial year preceding that
in which the award is made (the base year).
Absolute growth in EPS will then be compared with the base year over three
consecutive financial years commencing with the year in which the award is
made. Incremental EPS will be calculated by expressing as a percentage of
the EPS of the base year the difference each year of the three-year performance
period between the EPS of that year and the EPS of the base year. These percentages
will then be aggregated to arrive at the total incremental EPS for the performance
period. As illustrated in
the table below, an incremental EPS of 51 per cent over three years would equate
to a compound annual growth rate of 8 per cent.
Illustration of incremental EPS of 51 per cent over three years.
Percentage
difference between: |
|
Total |
|
|
incremental |
Year 1 EPS |
|
Year 2 EPS |
|
Year 3 EPS |
|
EPS for the |
and Base Year |
|
and Base Year |
|
and Base year |
|
performance |
EPS |
+ |
EPS |
+ |
EPS |
= |
period |
|
|
|
|
|
|
|
8% |
|
17% |
|
26% |
|
51% |
If
EPS in any of the Years 1, 2 or 3 is below the base year, then the percentage
difference between that particular year and the base year is
negative.
For
this purpose, EPS means the profit attributable to the Shareholders (expressed
in US dollars), excluding
goodwill amortisation, divided by the weighted average number of Ordinary
Shares in issue and held outside the Group during the year in question. In
the event that the published EPS for the base year is restated during the
performance period to adjust for changes in accounting standards, that
restated EPS will be used for the purposes of the EPS performance condition.
In addition,
awards will not vest unless the Remuneration Committee is satisfied that
HSBC Holdings financial performance has shown a sustained
improvement in the period since the award
date. In determining whether HSBC Holdings has achieved a sustained improvement
in performance the Remuneration Committee will take account of all relevant factors
but in particular comparisons against the comparator group in areas such as revenue
growth and mix, cost efficiency, credit performance, cash return on cash invested,
dividend performance and TSR.
If
events occur which cause the Remuneration Committee to consider that a performance
condition has become
unfair or impractical in either direction, the right is reserved to the Remuneration
Committee, if it considers it appropriate to do so, to amend, relax or waive
the condition.
Awards
will vest in full immediately in cases of death. In the event of redundancy,
retirement on grounds of injury
or ill health, early retirement by agreement, normal retirement and where
a participant ceases to be employed by HSBC due to a company ceasing to be
part of HSBC, awards will normally vest at the end of the vesting period
on a time-apportioned basis to the extent that the performance
conditions have been satisfied. In the event of a change of control, awards will
normally vest immediately and on a time-apportioned basis to the extent that
the performance conditions have been satisfied. Awards will normally be forfeited
if the participant is dismissed for cause or resigns from HSBC. In all circumstances
the Committee retains discretion to ensure fair and reasonable treatment.
Arrangements from 2002 to 2004
Between 2002 and 2004,
awards of Performance Shares were made under the HSBC Holdings Restricted
Share Plan 2000. Vesting was based on
HSBCs relative
TSR performance over a three-year period from the date of the award, with full
vesting of awards and transfer of shares to participants being no earlier than
the fifth anniversary of the date of award.
Only
one set of awards (the 2003 award) was outstanding at the start of 2008.
At the second and final
re-test of this award the performance targets were not met and therefore
the award lapsed.
Funding
The dilution limits set out in the HSBC
share plans comply with the Association of British Insurers guidelines.
The Companys policy to date is to fund long-term incentive awards of
Performance Shares and Restricted Shares under the HSBC Share Plan through
employee benefit trusts which undertake market purchases of HSBC Holdings shares.
321
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H S B C H O L
D I N G S P L C |
|
Directors Remuneration
Report (continued) |
|
|
|
Executive
Directors remuneration > TSR
/ Pensions / Guidelines / Service contracts / Other directorships //
Non-executive Directors > Fees |
Total shareholder return
Pursuant to the Directors Remuneration Report Regulations 2002, the graph below shows HSBCs
TSR performance against the FTSE 100 Index, for the five-year period ended
31 December 2008. The FTSE 100 Index has been chosen as this is a recognised
broad equity market index of which HSBC Holdings is a member.
HSBC TSR and FTSE 100 Index
Source: IDC
Pensions
The normal retirement age for executive Directors
is 65 with the exception of V H C Cheng, where no retirement age is specified
in keeping with local legislation. The pension entitlements of the executive
Directors for 2008 are set out on page 324.
Share ownership guidelines
To ensure appropriate alignment with shareholders HSBC operates a formal share
ownership policy, expressed as a number of shares, for executive Directors and
the Group Managing Directors. The Committee considers that material share ownership
by executives creates a community of interest between the leadership and shareholders.
To
demonstrate further alignment with shareholders the share ownership guidelines
were significantly increased
from 2008.
Under the
guidelines, the shareholding is expected to be achieved within five years
of the executives appointment or three years from the date of
approval of amendments to the HSBC Share Plan on 30 May 2008, whichever is the
later.
The
executive Directors and Group Managing Directors are now required to build
and retain the following
shareholdings.
|
Number
of shares1 |
|
|
|
|
|
|
held at 31 |
|
|
|
|
December |
|
|
to be held |
|
2008 |
|
|
V H C Cheng |
200,000 |
|
386,948 |
|
D J Flint |
200,000 |
|
109,122 |
|
A A Flockhart |
200,000 |
|
238,639 |
|
M F Geoghegan |
600,000 |
|
477,434 |
|
S K Green |
600,000 |
|
667,421 |
|
S T Gulliver |
200,000 |
|
3,230,453 |
|
Group Managing Directors |
125,000 |
|
|
2 |
|
|
|
|
|
1 |
For the purposes of the guidelines,
unvested awards of Restricted Shares held in employee benefit trusts are
included. Unvested Performance Share awards are excluded. |
2 |
A majority of the Group Managing Directors
exceed the expected holdings; where the holdings are below, the executives
are within five years of their appointment and working towards the expected
level. |
The
Remuneration Committee will monitor compliance annually. The Committee will
have full
discretion in determining any penalties in cases of non-compliance, which
could include a reduction of future awards of long-term incentives and/or
an increase in the proportion of the annual bonus that is deferred into
shares.
Service contracts
HSBCs policy is
to employ executive Directors on one-year rolling contracts although longer
initial terms may be approved by the Remuneration
Committee
if considered appropriate. The Remuneration Committee will, consistent with
the best interests of the Group, seek to minimise termination payments.
S
K Green, M F Geoghegan, V H C Cheng, D J Flint, A A Flockhart and S T Gulliver
have rolling service
contracts with a notice period of 12 months for either
party.
In
the event of early termination of employment other than for cause, of S K
Green, M F Geoghegan, V H C Cheng,
D J Flint, A A Flockhart or S T Gulliver, HSBC is entitled to make a payment
in lieu of notice equal to base salary, pension entitlements and other benefits.
D
J Flint, AA Flockhart and S T Gulliver will be eligible to be considered
for a bonus
on termination of employment by HSBC other than for cause.
S T Gulliver will also be eligible to be considered for a bonus upon termination
of employment by either party within 12 months following a change of control.
On
termination of employment by HSBC, other than for cause (or termination by
either party within 12 months
following a change of control), S K Green and M F
Geoghegan will be eligible for a bonus calculated as not less than the average of the
322
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previous two years of bonus payments received, pro-rated for any part year
worked to termination.
Dates of service contracts executive Directors
|
Contract date |
|
|
V H C Cheng |
29 August 2008 |
|
D J Flint |
14 October 2008 |
|
A A Flockhart |
2 December 2008 |
|
M F Geoghegan |
29 February 2008 |
|
S K Green |
28 February 2008 |
|
S T Gulliver |
5 September 2008 |
|
Other directorships
Executive Directors, if
so authorised by either the Nomination Committee or the Board, may accept
appointments as non-executive directors
of suitable companies which are not part of HSBC. Approval will not be given
for executive Directors to accept a non-executive directorship of more than
one FTSE 100 company nor the chairmanship of such a company. When considering
a non-executive appointment, the Nomination Committee or Board will
take into account the expected time commitment of such appointment. The time
commitment for executive Directors external appointments will be reviewed
as part of the annual Board review. Any remuneration receivable in respect
of an external appointment is normally paid to HSBC, unless otherwise approved
by the Remuneration Committee. D J Flint has elected to donate his fees as
a non-executive Director of BP p.l.c. to charity.
Non-executive Directors
are appointed for fixed terms not exceeding three years, subject to their
re-election by shareholders at Annual General
Meetings.
Non-executive directors have no service contract and are not eligible to
participate in HSBCs share plans. Current non-executive Directors terms
of appointment will expire as follows:
• |
in 2010, R A Fairhead, W K L Fung, Sir Mark
Moody-Stuart and G Morgan; |
|
|
• |
in 2011, S A Catz,
J D Coombe, J L Dúran, J W
J Hughes-Hallett, W S H Laidlaw and N R N
Murthy; and |
|
|
• |
in 2012, S M Robertson and Sir Brian Williamson. |
J R Lomax and
J L Thornton were appointed non-executive
Directors with effect from
1 December 2008 and M K T Cheung was appointed a non-executive Director with
effect from 1 February 2009. Subject to their re-election by shareholders at
the Annual General Meeting in 2009, their terms of appointment will expire in
2012.
Fees
Non-executive
Directors fees are regularly reviewed and compared with other large international companies. The current fee, which was approved by shareholders in 2006, is
£65,000 per annum.
A fee of £30,000
per annum is payable to the senior independent non-executive Director. In
addition,
non-executive Directors receive the following fees for service on Board Committees:
Fees non-executive Directors
|
|
|
|
|
|
Chairman, Audit Committee |
£50,000
p.a. |
|
Member, Audit Committee |
£20,000
p.a. |
|
|
During 2008, 8 meetings of the Group Audit Committee were held.
|
|
|
|
Chairman, Remuneration Committee |
£40,000
p.a. |
|
Member, Remuneration Committee |
£20,000
p.a. |
|
|
During 2008, 7 meetings of the Remuneration Committee were held.
|
|
|
|
Chairman, Nomination Committee |
£30,000
p.a. |
|
Member, Nomination Committee |
£20,000
p.a. |
|
|
During 2008, 5 meetings of the Nomination Committee were held.
|
|
|
|
Chairman, Corporate Sustainability Committee |
£30,000
p.a. |
|
Member, Corporate Sustainability Committee |
£20,000
p.a. |
|
|
During 2008, 4 meetings of the Corporate Sustainability
|
Committee were held.
|
323
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H S B C H O L
D I N G S P L C |
|
Directors Remuneration
Report (continued) |
|
|
|
Directors emoluments / Pensions |
The emoluments of the Directors of HSBC Holdings for 2008 were as follows:
|
|
|
|
|
|
|
Benefits |
|
|
|
Total |
|
Total |
|
|
Fees |
|
Salary |
|
Allowance
|
1
|
in kind
|
2 |
Bonuses
|
3
|
2008 |
|
2007 |
|
|
£000 |
|
£000 |
|
£000 |
|
£000 |
|
£000 |
|
£000 |
|
£000 |
|
Executive Directors |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
V H C Cheng4 |
|
|
534 |
|
67 |
|
545 |
|
|
|
1,146 |
|
|
|
D J Flint |
|
|
700 |
|
385 |
|
22 |
|
|
|
1,107 |
|
1,878 |
|
A A Flockhart5 |
|
|
229 |
|
|
|
355 |
|
|
|
584 |
|
|
|
M F Geoghegan |
|
|
1,070 |
|
535 |
|
62 |
|
|
|
1,667 |
|
3,536 |
|
S K Green |
|
|
1,250 |
|
|
|
15 |
|
|
|
1,265 |
|
3,012 |
|
S T Gulliver5 |
|
|
533 |
|
|
|
14 |
|
|
|
547 |
|
|
|
Non-executive Directors |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lord Butler6 |
40 |
|
|
|
|
|
|
|
|
|
40 |
|
103 |
|
S A Catz5 |
43 |
|
|
|
|
|
|
|
|
|
43 |
|
|
|
J D Coombe |
105 |
|
|
|
|
|
|
|
|
|
105 |
|
105 |
|
Baroness Dunn6 |
35 |
|
|
|
|
|
|
|
|
|
35 |
|
85 |
|
J L Durán7 |
65 |
|
|
|
|
|
|
|
|
|
65 |
|
|
|
R A Fairhead |
127 |
|
|
|
|
|
|
|
|
|
127 |
|
103 |
|
W K L Fung8 |
122 |
|
|
|
|
|
|
|
|
|
122 |
|
122 |
|
J W J Hughes-Hallett |
105 |
|
|
|
|
|
|
|
|
|
105 |
|
97 |
|
W S H Laidlaw7 |
77 |
|
|
|
|
|
|
|
|
|
77 |
|
|
|
J R Lomax9 |
5 |
|
|
|
|
|
|
|
|
|
5 |
|
|
|
Sir Brian Moffat6 |
35 |
|
|
|
|
|
|
|
|
|
35 |
|
110 |
|
Sir Mark Moody-Stuart |
125 |
|
|
|
|
|
|
|
|
|
125 |
|
125 |
|
G Morgan |
85 |
|
|
|
|
|
|
|
|
|
85 |
|
77 |
|
N R N Murthy5 |
45 |
|
|
|
|
|
|
|
|
|
45 |
|
|
|
S W Newton10 |
66 |
|
|
|
|
|
|
|
|
|
66 |
|
77 |
|
S M Robertson |
115 |
|
|
|
|
|
|
|
|
|
115 |
|
94 |
|
J L Thornton9,11 |
89 |
|
|
|
|
|
|
|
|
|
89 |
|
|
|
Sir Brian Williamson |
95 |
|
|
|
|
|
|
|
|
|
95 |
|
91 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total12 |
1,379 |
|
4,316 |
|
987 |
|
1,013 |
|
|
|
7,695 |
|
9,738 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total (US$000)12 |
2,529 |
|
7,916 |
|
1,810 |
|
1,858 |
|
|
|
14,113 |
|
19,493 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
Executive allowance paid to fund personal
pension arrangements. |
2 |
Benefits in kind for executive Directors
include provision of company car, medical insurance, other insurance cover,
accountancy advice and travel assistance. V H C Cheng and A A Flockhart
receive housing and other benefits in kind that are normal within the location
in which they are employed. |
3 |
These discretionary bonuses are in respect
of 2008. See page 318 for comparison with 2007. |
4 |
Appointed a Director on 1 February 2008. |
5 |
Appointed a Director on 1 May 2008. |
6 |
Retired as a Director on 30 May 2008. |
7 |
Appointed a Director on 1 January 2008. |
8 |
Includes fees as a non-executive Director
of The Hongkong and Shanghai Banking Corporation. |
9 |
Appointed a Director on 1 December 2008. |
10 |
Retired as a Director on 10 October 2008. |
11 |
Includes fees as non-executive Chairman
of HSBC North America Holdings Inc. |
12 |
Total emoluments for 2007 include the
emoluments of Directors who retired in that year. |
|
|
V H C Cheng ceased membership of, and accrual of benefits under, the HSBC Group
Hong Kong Local Staff Retirement Benefit Scheme Defined Benefit Section
on 31 July 2008. The rules of the Scheme provide for a lump sum payment of
benefit (rather than an annual pension) and Mr Cheng received a cash retirement
benefit payment of HKD46,614,583 on 3 September 2008 in respect of reaching
the age of 60, the normal retirement age
under the Scheme. Mr Chengs accrued benefit and its transfer value
under the Scheme at 31 December 2007 was HKD32,906,250 and the increase of
the accrued benefit and transfer value during 2008 (less personal contributions)
was HKD13,708,333. As Mr Cheng has ceased membership of the Scheme, no accrued
benefit or transfer value remained in the Scheme at 31 December 2008. The employer
contribution to Mr Chengs retirement benefits Scheme for the period 1
January 2008 to 31 July 2008 was HKD626,250.
With
effect from 1 August 2008 Mr Cheng has been a member of the Hong Kong Special
Administrative Region
Mandatory Provident Fund
324
Back to Contents
(MPF) and receives an executive allowance of 25 per cent of annual
basic salary, less the mandatory contributions to the MPF by both the employer
and employee, to fund personal pension arrangements. The mandatory employer
contribution to the MPF in respect of Mr Cheng for the period 1 August 2008
to 31 December 2008 was HKD5,000.
D J Flint receives
an executive allowance of 55 per cent of annual basic salary to fund personal
pension
arrangements.
A A Flockhart left
the International Staff Retirement Benefits Scheme on 30 November 2008. With
effect from 2
December 2008 employer contributions equivalent to 40 per cent of annual
basic salary are now made to a personal pension plan in respect of Mr Flockhart.
During 2008, employer contributions of HKD258,000 were paid into this plan.
Mr Geoghegan
receives an executive allowance of 50 per cent of annual basic salary to
fund personal pension arrangements. In 2008, an employer
contribution was made to the HSBC Asia Holdings Pension Plan of £225,000
from a bonus sacrifice in respect of 2007 (in 2007, an employer contribution
of £215,000 was made arising entirely from a bonus sacrifice in respect
of 2006). There
were no other employer contributions made to this plan.
S K Green ceased
membership of the HSBC Bank (UK) Pension Scheme on 5 April 2006. Since 6
April 2006,
Mr Green has been entitled to receive benefits from an Employer Funded Retirement
Benefits Scheme which together with entitlements from the HSBC Bank (UK)
Pension Scheme will provide benefits to Mr Green that would be broadly comparable
to an accrual rate of one-thirtieth of pensionable salary for each
year of pensionable service.
S T Gulliver
left the International Staff Retirement Benefits Scheme on 31 March 2006.
Employer contributions equivalent to 30 per cent of annual basic salary
are now made to a personal pension plan in respect of Mr Gulliver. During
2008, employer contributions of £225,000 were paid into this plan.
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfer value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(less personal |
|
|
|
|
|
|
Increase in |
|
|
|
|
|
Increase of |
|
contributions) at |
|
|
|
|
|
|
accrued |
|
Transfer |
|
Transfer |
|
transfer value |
|
31 December 2008 |
|
|
Accrued |
|
Increase in |
|
pension |
|
value |
|
value |
|
of accrued |
|
relating to increase |
|
|
annual |
|
accrued |
|
during 2008, |
|
of accrued |
|
of accrued |
|
pension (less |
|
in accrued pensions |
|
|
pension at |
|
pension |
|
excluding |
|
pension at |
|
pension at |
|
personal |
|
during 2008, |
|
|
31 December |
|
during |
|
any increase |
|
31 December |
|
31 December |
|
contributions) |
|
excluding any |
|
|
2008 |
|
2008 |
|
for inflation |
|
2007 |
1
|
2008 |
1
|
in 2008 |
1 |
increase for inflation |
1 |
|
£000 |
|
£000 |
|
£000 |
|
£000 |
|
£000 |
|
£000 |
|
£000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A A Flockhart2
|
254 |
|
25 |
|
15 |
|
4,467 |
|
4,644 |
|
161 |
|
238 |
|
S K Green |
669 |
|
42 |
|
10 |
|
12,780 |
|
17,716
|
3
|
4,936
|
3
|
272 |
|
S T Gulliver4
|
138 |
|
11 |
|
5 |
|
2,716 |
|
2,749 |
|
33 |
|
95 |
|
|
|
1 |
The transfer value represents a liability
of HSBCs pension funds and not a sum paid or due to the individual;
it cannot therefore meaningfully be added to annual remuneration. |
2 |
A A Flockhart left the International Staff
Retirement Benefits Scheme (ISRBS) on 30 November 2008. The
ISRBS retains a liability for a contingent spouses pension equal to
£126,000 per annum as at 31 December 2008. Mr Flockhart made personal
contributions to the ISRBS amounting to £16,000 during the year. |
3 |
During 2008, the Trustee of the HSBC Bank
(UK) Pension Scheme decided to change the basis used to calculate transfer
values from the Scheme for all Scheme members, in order to allow for lower
expectations of future investment returns and improved longevity. The impact
of this is reflected in the increase in the transfer value of accrued pension.
If the Trustee had not changed the transfer value basis, the change in transfer
value during 2008 would have been £2.48 million (£1.698 million
during 2007). |
4 |
S T Gulliver left the ISRBS on 31 March
2006. The ISRBS retains a liability for a contingent spouses pension
equal to £61,000 per annum as at 31 December 2008. |
|
|
The unfunded pension
payments tabulated below, in respect of which provision has been made, were
made during
2008 to five former Directors of HSBC
Holdings.
The payments in
respect of R Delbridge and Sir Brian Pearse were made by HSBC Bank plc as
former Directors
of that bank. The payment in respect of C F W de Croisset was made by HSBC
France as a former Director of that bank.
|
2008 |
|
2007 |
|
|
£ |
|
£ |
|
|
|
|
|
|
B H Asher |
97,752 |
|
93,812 |
|
C F W de Croisset |
221,100 |
|
194,077 |
|
R Delbridge |
140,601 |
|
134,934 |
|
Sir Brian Pearse |
58,632 |
|
56,269 |
|
Sir William Purves |
103,481 |
|
99,310 |
|
|
|
|
|
|
|
621,566 |
|
578,402 |
|
|
|
|
|
|
325
Back to Contents
H S B C H O L
D I N G S P L C |
|
Directors Remuneration
Report (continued) |
|
|
|
Share plans |
At 31 December 2008, the undernamed Directors
held Performance Share awards, Restricted Share
awards and options to acquire the number
of HSBC Holdings ordinary shares set against
their respective names.
HSBC Holdings savings-related share option
plans
HSBC Holdings ordinary shares of
US$0.50
|
|
|
|
|
|
|
|
|
Options held |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
at 1 January |
|
|
|
|
|
Options |
|
|
|
|
|
|
|
|
|
|
2008 or date |
|
Options |
|
Options |
|
held at |
|
|
Date of |
|
Exercise |
|
Exercisable |
|
Exercisable |
|
appointed if |
|
awarded |
|
exercised |
|
31 December |
|
|
award |
|
price (£) |
|
from |
1
|
until |
|
later |
|
during year |
|
during year |
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
V H C Cheng2
|
23 Apr 2003 |
|
5.3496 |
|
1 Aug 2008 |
|
31 Jan 2009 |
|
3,070
|
3
|
|
|
3,070
|
3
|
|
|
D J Flint |
25 Apr 2007 |
|
7.0872 |
|
1 Aug 2012 |
|
31 Jan 2013 |
|
2,310 |
|
|
|
|
|
2,310 |
|
A A Flockhart4
|
25 Apr 2007 |
|
7.0872 |
|
1 Aug 2010 |
|
31 Jan 2011 |
|
1,332 |
|
|
|
|
|
1,332 |
|
S K Green |
23 Apr 2003 |
|
5.3496 |
|
1 Aug 2008 |
|
31 Jan 2009 |
|
3,070 |
|
|
|
3,070
|
5
|
|
|
The HSBC Holdings savings-related share option plans are all-employee share
plans under which eligible HSBC employees may be granted options to acquire HSBC
Holdings ordinary shares. Employees may make contributions of
up to £250 (or equivalent) each month over a period of one, three or five
years which may be used on the first, third or fifth anniversary of the commencement
of the relevant savings contract, at the
employees election, to exercise the options. The plans help align the interests
of employees with the creation of shareholder value and, as such, exercise of
the options is not subject to any performance conditions. The options were awarded
for nil consideration and are exercisable at a 20 per cent discount to the average
market value of the ordinary shares on the five business days immediately preceding
the invitation date. No options lapsed during the year. There are no performance
criteria conditional upon which the outstanding options are exercisable and there
have been no variations to the terms and conditions since the awards were made.
The market value of the ordinary shares at 31 December 2008 was £6.62. The
highest
and lowest market values during the year were £9.2775 and £6.1225.
Market value is the mid-market price derived from the London Stock Exchange Daily
Official List on the relevant date. Under the Securities and Futures Ordinance
of Hong Kong, the options are categorised as unlisted physically settled equity
derivatives.
1 |
May be advanced to an earlier date in
certain circumstances, e.g. retirement. |
2 |
Appointed a Director on 1 February 2008. |
3 |
At the date of exercise, 8 August 2008,
the market value per share was £8.5850. |
4 |
Appointed a Director on 1 May 2008. |
5 |
At the date of exercise, 22 December 2008,
the market value per share was £6.1225. |
Awards of Performance Shares
HSBC Holdings Restricted Share Plan
2000
HSBC Holdings ordinary shares of US$0.50
|
|
|
|
|
Awards held |
|
|
|
|
|
|
Year in |
|
at 1 January |
|
Awards |
|
|
|
|
which |
|
2008 or date |
|
held at |
|
|
Date of |
|
awards |
|
appointed if |
|
31 December |
|
|
award |
|
may vest |
|
later |
|
2008 |
1 |
|
|
|
|
|
|
|
|
|
V H C Cheng2
|
5 Mar 2003 |
|
2008 |
|
55,028 |
|
|
|
D J Flint |
5 Mar 2003 |
|
2008 |
|
136,192 |
|
|
|
M F Geoghegan |
5 Mar 2003 |
|
2008 |
|
63,558 |
|
|
|
S K Green |
5 Mar 2003 |
|
2008 |
|
136,192 |
|
|
|
Vesting of these awards was subject to the achievement of corporate performance conditions. Under the Securities and Futures Ordinance of Hong Kong, interests held through the HSBC Holdings Restricted Share Plan 2000 were categorised as the
interests of a beneficiary of a trust.
|
1 |
The corporate performance conditions were
not met and, under the rules of the Plan, the awards (including additional
shares arising from scrip dividends) held by: V H C Cheng, 55,028 shares;
D J Flint, 137,568 shares; M F Geoghegan, 64,200 shares; and S K Green,
137,568 shares, were forfeited on 4 April 2008. The awards held by A A Flockhart,
27,514 shares; and S T Gulliver, 55,028 shares, who were appointed as Directors
on 1 May 2008, were also forfeited on 4 April 2008. As a consequence, the
fourth interim dividend for 2007 did not accrue on these forfeited share
awards. |
|
2 |
Appointed a Director on 1 February 2008. |
326
Back to Contents
Awards of Performance Shares
HSBC Share Plan
HSBC
Holdings ordinary shares of US$0.50 |
|
|
|
|
|
|
|
Awards made during |
|
Awards vested during |
|
|
|
|
|
|
|
|
Awards |
|
year or since date |
|
year or since date |
|
|
|
|
|
|
|
|
held at |
|
appointed
if later1
|
|
appointed if later2
|
|
|
|
|
|
|
Year in |
|
1 January |
|
|
|
|
|
|
|
|
|
Awards |
|
|
|
|
which |
|
2008 or date |
|
|
|
|
|
|
|
|
|
held at 31 |
|
|
Date of |
|
awards |
|
appointed |
|
|
|
Monetary |
|
|
|
Monetary |
|
December |
|
|
award |
|
may vest |
|
if later |
|
Number |
|
value |
|
Number |
|
value |
|
2008
|
3 |
|
|
|
|
|
|
|
|
|
£000 |
|
|
|
£000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
V H C Cheng4 |
27 May 2005 |
|
2008 |
|
91,824 |
|
|
|
|
|
47,002 |
|
405 |
|
|
5 |
|
6 Mar 2006 |
|
2009 |
|
88,534 |
|
|
|
|
|
|
|
|
|
92,689 |
|
|
5 Mar 2007 |
|
2010 |
|
172,636 |
|
|
|
|
|
|
|
|
|
180,739 |
|
|
3 Jun 2008 |
|
2011 |
|
|
|
129,325 |
|
1,103 |
|
|
|
|
|
130,852 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
D J Flint |
27 May 2005 |
|
2008 |
|
194,796 |
|
|
|
|
|
100,721 |
|
868 |
|
|
5 |
|
6 Mar 2006 |
|
2009 |
|
175,296 |
|
|
|
|
|
|
|
|
|
185,378 |
|
|
5 Mar 2007 |
|
2010 |
|
256,029 |
|
|
|
|
|
|
|
|
|
270,755 |
|
|
3 Jun 2008 |
|
2011 |
|
|
|
372,940 |
|
3,182 |
|
|
|
|
|
377,343 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A A Flockhart6 |
27 May 2005 |
|
2008 |
|
779 |
|
|
|
|
|
779 |
|
7 |
|
|
5 |
|
6 Mar 2006 |
|
2009 |
|
66,401 |
|
|
|
|
|
|
|
|
|
69,518 |
|
|
5 Mar 2007 |
|
2010 |
|
114,998 |
|
|
|
|
|
|
|
|
|
120,395 |
|
|
3 Jun 2008 |
|
2011 |
|
|
|
127,174 |
|
1,085 |
|
|
|
|
|
128,675 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
M F Geoghegan |
27 May 2005 |
|
2008 |
|
259,728 |
|
|
|
|
|
134,295 |
|
1,157 |
|
|
5 |
|
6 Mar 2006 |
|
2009 |
|
219,121 |
|
|
|
|
|
|
|
|
|
231,724 |
|
|
5 Mar 2007 |
|
2010 |
|
581,884 |
|
|
|
|
|
|
|
|
|
615,351 |
|
|
3 Jun 2008 |
|
2011 |
|
|
|
876,408 |
|
7,477 |
|
|
|
|
|
886,755 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S K Green |
27 May 2005 |
|
2008 |
|
324,659 |
|
|
|
|
|
167,868 |
|
1,446 |
|
|
5 |
|
6 Mar 2006 |
|
2009 |
|
273,900 |
|
|
|
|
|
|
|
|
|
289,653 |
|
|
5 Mar 2007 |
|
2010 |
|
436,413 |
|
|
|
|
|
|
|
|
|
461,513 |
|
|
3 Jun 2008 |
|
2011 |
|
|
|
1,025,584 |
|
8,750 |
|
|
|
|
|
1,037,692 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S T Gulliver6 |
27 May 2005 |
|
2008 |
|
1,559 |
|
|
|
|
|
1,559 |
|
14 |
|
|
5 |
|
6 Mar 2006 |
|
2009 |
|
110,667 |
|
|
|
|
|
|
|
|
|
115,861 |
|
|
5 Mar 2007 |
|
2010 |
|
127,730 |
|
|
|
|
|
|
|
|
|
133,725 |
|
|
3 Jun 2008 |
|
2011 |
|
|
|
55,409 |
|
473 |
|
|
|
|
|
56,063 |
|
Vesting of these Performance Share awards is subject to the achievement of
the corporate performance conditions set out on pages 318 to 319. Under the Securities
and Futures Ordinance of Hong Kong, interests held through the HSBC Share Plan
are categorised as the interests of a beneficiary of a trust.
1 |
At the date of the award, 3
June 2008, the market value per share was £8.56. The shares acquired
by the Trustee of the Plan were purchased at an average price of £8.53173. |
2 |
The Earnings Per Share element
of the performance conditions was met and that element of the Performance
Share Awards vested on 1 April 2008, when the market value per share was
£8.61, as follows: V H C Cheng, 45,911 shares; D J Flint, 98,382 shares,
M F Geoghegan, 131,176 shares; and S K Green, 163,970 shares. The awards
held by A A Flockhart (32,794) shares, and S T Gulliver (65,587) shares,
who were appointed as Directors on 1 May 2008, also vested on 1 April 2008.
Awards representing the fourth interim dividend for 2007 vested on 7 May
2008, when the market value per share was £8.875, as follows: V H C
Cheng, 1,091 shares; D J Flint, 2,339 shares; A A Flockhart, 779 shares;
M F Geoghegan, 3,119 shares; S K Green, 3,898 shares; and S T Gulliver,
1,559 shares. The market value per share on the date of the award, 27 May
2005, was £8.68. |
3 |
Includes additional shares arising
from scrip dividends. |
4 |
Appointed a Director on 1 February
2008. |
5 |
The Total Shareholder Return
element of the performance conditions was not met and, under the terms of
the Plan, that element of the Performance Share awards held by: V H C Cheng,
45,913 shares; D J Flint, 98,383 shares; M F Geoghegan, 131,177 shares;
and S K Green, 163,971 shares was forfeited on 2 April 2008. The awards
held by A A Flockhart, 32,795 shares; and S T Gulliver, 65,589 shares, who
were appointed as Directors on 1 May 2008, were also forfeited on 2 April
2008. As a consequence, the fourth interim dividend for 2007 did not accrue
on the forfeited shares. |
6 |
Appointed a Director on 1 May
2008. |
327
Back to Contents
H S B C H O L D I
N G S P L C |
|
Directors Remuneration Report (continued) |
|
|
|
|
Share plans // Statement of
Directors Responsibilities |
Awards of Restricted Shares
HSBC Share Plan
HSBC
Holdings ordinary shares of US$0.50 |
|
|
|
|
|
|
|
Awards made during |
|
Awards vested during |
|
|
|
|
|
|
|
|
|
|
year or since date |
|
year or since date |
|
|
|
|
|
|
Year in |
|
Awards |
|
appointed if later |
|
appointed if later |
|
Awards |
|
|
|
|
which |
|
held |
|
|
|
|
|
|
|
|
|
held at 31 |
|
|
Date of |
|
awards |
|
on date |
|
|
|
Monetary |
|
|
|
Monetary |
|
December |
|
|
award |
|
may vest |
|
appointed |
|
Number |
|
value |
|
Number |
|
value |
|
2008
|
2 |
|
|
|
|
|
|
|
|
|
£000 |
|
|
|
£000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
V H C Cheng3 |
3 Mar 2008 |
|
2011 |
|
|
|
82,295
|
1 |
646 |
|
|
|
|
|
86,158 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A A Flockhart4 |
31 Oct 2007 |
|
2010 |
|
51,167 |
|
|
|
|
|
|
|
|
|
53,568 |
|
|
3 Mar 2008 |
|
2011 |
|
11,929 |
|
|
|
|
|
|
|
|
|
12,488 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S T Gulliver4 |
6 Mar 2006 |
|
2009 |
5
|
143,677 |
|
|
|
|
|
|
|
|
|
150,421 |
|
|
5 Mar 2007 |
|
2009-2010
|
5 |
305,591 |
|
|
|
|
|
|
|
|
|
319,934 |
|
|
3 Mar 2008 |
|
2009-2011
|
5 |
458,708 |
|
|
|
|
|
|
|
|
|
480,237 |
|
Vesting of Restricted Share awards is normally subject to the Director remaining
an employee on the vesting date. The vesting date may be advanced to an earlier
date in certain circumstances, e.g. death or retirement. Under the Securities
and Futures Ordinance of Hong Kong, interests held through the HSBC Share Plan
are categorised as the interests of a beneficiary of a trust.
1 |
At the date of the award, 3 March 2008,
the market value per share was £7.90. The shares acquired by the Trustee
of the Plan were purchased at an average price of £7.848143. |
2 |
Includes additional shares arising from
scrip dividends. |
3 |
Appointed a Director on 1 February 2008. |
4 |
Appointed a Director on 1 May 2008. |
5 |
33 per cent of the award vests on each
of the first and second anniversaries of the date of the award, with the
balance vesting on the third anniversary of the date of the award. |
On behalf of the Board |
2 March 2009 |
|
|
Sir Mark Moody-Stuart, Chairman of Remuneration Committee |
|
328
Back to Contents
H S B C H O L D I
N G S P L C |
|
Statement of Directors Responsibilities
in respect of the Annual
Report and Accounts 2008 and the
Financial Statements |
|
|
|
|
The following statement, which should be read in
conjunction with the Auditors statement of their responsibilities set
out in their report on pages 330 and 331, is made with a view to distinguishing
for shareholders
the respective responsibilities of the Directors and of the Auditor in relation
to the financial statements.
The Directors
are responsible for preparing the Annual Report, the consolidated financial
statements of HSBC
Holdings and its subsidiaries (the Group) and holding company financial statements for HSBC Holdings (the parent company)
in accordance with applicable law and regulations.
Company law requires the Directors to prepare Group and parent company financial statements for each financial year. The Directors are required to prepare
the Group financial statements in accordance with IFRSs as adopted by the EU and have elected to prepare the parent company financial statements on the same basis. The Directors are also required to present additional information for US
Shareholders. Accordingly these financial statements are framed to meet both UK and US requirements to give a consistent view to all shareholders.
The Group and
parent company financial statements are required by law and IFRSs as adopted
by the EU to present
fairly the financial position of the Group and the parent company and the
performance for that period; the Companies Act 1985 provides in relation
to such financial statements that references in the relevant part of that
Act to financial statements giving a true and fair view are references
to their achieving a fair presentation. In addition, in order to meet certain
US requirements, we are required to present our financial statements in accordance
with IFRSs as adopted by the International Accounting Standards Board
(IASB). Currently, there are no differences in application to HSBC
between IFRS endorsed by the EU and IFRS issued by the IASB.
In preparing each of the Group and parent company financial statements, the Directors
are required to:
• |
select suitable accounting policies and then apply them consistently; |
|
|
• |
make judgements and estimates that are reasonable and prudent; and |
|
|
• |
state whether they have been prepared in accordance with IFRSs as adopted
by the EU. |
The Directors are required to prepare the financial statements on the going concern basis unless it is not appropriate. Since the Directors are satisfied that the Group and parent company have the resources to continue in business for the foreseeable future, the financial statements continue
to be prepared on the going concern basis.
The Directors have responsibility for ensuring that sufficient accounting records are kept that disclose with reasonable accuracy at any time the financial
position of the parent company and enable them to ensure that its financial statements comply with the Companies Act 1985.
The Directors
have general responsibility for taking such steps as are reasonably open
to them to safeguard the assets
of the Group and to prevent and detect fraud and other irregularities. Under
applicable law and regulations, the Directors also have responsibility for
preparing a Directors Report, Directors Remuneration Report and
the Corporate Governance statement on pages 281 to 314 that comply with that
law and those regulations.
The Directors
have responsibility for the maintenance and integrity of the Annual Report
and Accounts as they
appear on the companys website.
Legislation in the UK governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions.
The Directors, the names of whom are set out in the Report of Directors: Governance section on page 281 of this Annual Report, confirm to the best of their
knowledge:
• |
the consolidated financial statements, which have been prepared in accordance with IFRSs as issued by the IASB and in
accordance with rule 4.1.12(3)(a) of the Disclosure and Transparency Rules, have been prepared in accordance with the applicable set of accounting standards and give a true and
fair view of the assets, liabilities, financial position and profit or loss of the Group and the undertakings included in the consolidation taken as a whole; and |
|
|
• |
the Management Report represented by the Directors Report
has been prepared in accordance with rule 4.1.12(3)(b)
of the Disclosure and Transparency Rules, and includes a fair review of the development and performance of the business and the position of the Group and the undertakings included
in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that the Group faces. |
On behalf of the Board, S K Green Group
Chairman |
2 March 2009 |
329
Back to Contents
H S B C H O L
D I N G S P L C |
|
Report of Independent Registered Public
Accounting Firm to the Board of Directors and shareholders of HSBC
Holdings plc |
|
|
|
|
|
|
We have audited the accompanying consolidated financial
statements of HSBC Holdings plc and its subsidiary undertakings (together
HSBC) on pages 333 to 447 which comprise the consolidated balance sheets
as of 31 December 2008 and 2007, and the related consolidated income statements,
consolidated cash flow statements and consolidated statements of recognised
income and expense, for each of the years in the three-year period ended
31
December 2008, including the disclosures marked audited within the critical accounting policies on pages 61 to 66, Report of the Directors: Impact of Market Turmoil section on pages 144 to 187 and the Report of the
Directors: Risk section on pages 188 to 280. We have also audited HSBCs internal control over financial reporting as of 31 December 2008, based on the framework for Directors internal
control evaluation contained within the Combined Code (The Revised Turnbull Guidance),
and the criteria established in Internal
ControlIntegrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
HSBCs management is responsible for these consolidated financial statements, for maintaining effective internal control over
financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Managements
Assessment of Internal Controls. Our responsibility is to express an opinion
on these consolidated financial statements and an opinion on the effectiveness
of HSBC's internal control over financial reporting based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement and whether effective
internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
Our audit of internal control over financial reporting included obtaining an
understanding of internal control over financial reporting, assessing the risk
that a material weakness exists, and testing and evaluating the design and
operating effectiveness of internal control based on assessed risk. Our audits
also included performing other such procedures as we considered necessary in
the circumstances. We believe that our audits provide a reasonable basis for
our
opinions.
A company's internal control over financial reporting is a process designed
to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control
over financial reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorisations of management and directors
of the company; and (3) provide reasonable assurance regarding prevention or
timely detection of unauthorised acquisition, use, or disposition of the company's
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of HSBC as of 31 December
2008 and 2007, and the results of their operations and their cash flows for
each of the years in the three-year period ended 31 December 2008, in conformity
with International Financial Reporting Standards (IFRSs) as adopted
by the European Union
(EU) and IFRSs as issued by the International Accounting Standards
Board (IASB). Also, in our opinion, HSBC maintained, in all material
respects, effective internal control over financial reporting as of 31 December
2008,
based on the framework for Directors internal control evaluation contained
within the Combined Code (The Revised Turnbull Guidance) and the criteria established
in Internal ControlIntegrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO).
330
Back to Contents
As discussed in Note 1 to the consolidated financial statements,
HSBC has changed its method of accounting for certain financial assets in
the year ended 31 December 2008 following the
adoption of Reclassification of Financial Assets (Amendments to IAS 39
Financial Instruments: Recognition and Measurement and IFRS 7 Financial Instruments:
Disclosures).
KPMG Audit Plc
London, England
2 March 2009
331
Back to Contents
H S B C H O L D I
N G S P L C |
|
Financial Statements |
|
|
|
|
Contents / Consolidated income
statement |
332
Back to Contents
Consolidated income statement for the year ended 31
December 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Notes
|
|
US$m
|
|
|
US$m
|
|
|
US$m
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
91,301
|
|
|
92,359
|
|
|
75,879
|
|
Interest expense |
|
|
(48,738
|
) |
|
(54,564
|
) |
|
(41,393
|
) |
Net interest income |
|
|
42,563
|
|
|
37,795
|
|
|
34,486
|
|
Fee income |
|
|
24,764
|
|
|
26,337
|
|
|
21,080
|
|
Fee expense |
|
|
(4,740
|
) |
|
(4,335
|
) |
|
(3,898
|
) |
Net fee income |
|
|
20,024
|
|
|
22,002
|
|
|
17,182
|
|
Trading income excluding net interest income |
|
|
847
|
|
|
4,458
|
|
|
5,619
|
|
Net interest income on trading activities |
|
|
5,713
|
|
|
5,376
|
|
|
2,603
|
|
Net trading income |
|
|
6,560
|
|
|
9,834
|
|
|
8,222
|
|
Changes
in fair value of long-term debt issued and related
derivatives |
|
|
6,679
|
|
|
2,812
|
|
|
(35
|
) |
Net
income/(expense) from other financial instruments designated at
fair value |
|
|
(2,827
|
) |
|
1,271
|
|
|
692
|
|
Net income from financial instruments designated at fair value |
3
|
|
3,852
|
|
|
4,083
|
|
|
657
|
|
Gains less losses from financial investments |
|
|
197
|
|
|
1,956
|
|
|
969
|
|
Gains arising from dilution of interests in associates |
4
|
|
|
|
|
1,092
|
|
|
|
|
Dividend income |
|
|
272
|
|
|
324
|
|
|
340
|
|
Net earned insurance premiums |
5
|
|
10,850
|
|
|
9,076
|
|
|
5,668
|
|
Gains on disposal of French regional banks |
|
|
2,445
|
|
|
|
|
|
|
|
Other operating income |
|
|
1,808
|
|
|
1,439
|
|
|
2,546
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income |
|
|
88,571
|
|
|
87,601
|
|
|
70,070
|
|
Net insurance
claims incurred and movement in liabilities to policyholders |
6
|
|
(6,889
|
) |
|
(8,608
|
) |
|
(4,704
|
) |
|
|
|
|
|
|
|
|
|
|
|
Net
operating income before loan impairment charges
and other
credit risk provisions |
|
|
81,682
|
|
|
78,993
|
|
|
65,366
|
|
Loan impairment charges and other credit risk provisions |
7
|
|
(24,937
|
) |
|
(17,242
|
) |
|
(10,573
|
) |
|
|
|
|
|
|
|
|
|
|
|
Net operating income |
7
|
|
56,745
|
|
|
61,751
|
|
|
54,793
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee compensation and benefits |
8
|
|
(20,792
|
) |
|
(21,334
|
) |
|
(18,500
|
) |
General and administrative expenses |
|
|
(15,260
|
) |
|
(15,294
|
) |
|
(12,823
|
) |
Depreciation and impairment of property, plant and equipment |
23
|
|
(1,750
|
) |
|
(1,714
|
) |
|
(1,514
|
) |
Goodwill impairment |
22
|
|
(10,564
|
) |
|
|
|
|
|
|
Amortisation and impairment of intangible assets |
22
|
|
(733
|
) |
|
(700
|
) |
|
(716
|
) |
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
(49,099
|
) |
|
(39,042
|
) |
|
(33,553
|
) |
|
|
|
|
|
|
|
|
|
|
|
Operating profit |
|
|
7,646
|
|
|
22,709
|
|
|
21,240
|
|
Share of profit in associates and joint ventures |
21
|
|
1,661
|
|
|
1,503
|
|
|
846
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit before tax |
|
|
9,307
|
|
|
24,212
|
|
|
22,086
|
|
Tax expense |
11
|
|
(2,809
|
) |
|
(3,757
|
) |
|
(5,215
|
) |
|
|
|
|
|
|
|
|
|
|
|
Profit for the year |
|
|
6,498
|
|
|
20,455
|
|
|
16,871
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit attributable to shareholders of the parent company |
|
|
5,728
|
|
|
19,133
|
|
|
15,789
|
|
Profit attributable to minority interests |
|
|
770
|
|
|
1,322
|
|
|
1,082
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US$
|
|
|
US$
|
|
|
US$
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per ordinary share |
13
|
|
0.47
|
|
|
1.65
|
|
|
1.40
|
|
Diluted earnings per ordinary share |
13
|
|
0.47
|
|
|
1.63
|
|
|
1.39
|
|
Dividends per ordinary share |
12
|
|
0.93
|
|
|
0.87
|
|
|
0.76
|
|
|
The accompanying
notes on pages 340 to
447, the audited sections of the Report of the Directors: Risk on
pages 188 to 280, Critical accounting policies on pages
61 to 66 and Impact of Market Turmoil on pages 144 to 187
form an
integral part of these financial statements. |
333
Back to Contents
H S B C H O L D I
N G S P L C |
|
Financial Statements (continued) |
|
|
|
|
Consolidated balance sheet
/ Statement of recognised income and expense |
Consolidated balance sheet at 31 December 2008 |
|
|
|
|
|
|
|
|
|
2008
|
|
2007 |
|
|
Notes |
|
US$m
|
|
US$m |
|
ASSETS |
|
|
|
|
|
|
Cash and balances at central banks |
|
|
52,396
|
|
21,765 |
|
Items in the course of collection from other banks |
|
|
6,003
|
|
9,777 |
|
Hong Kong Government certificates of indebtedness |
|
|
15,358
|
|
13,893 |
|
Trading assets |
16
|
|
427,329
|
|
445,968 |
|
Financial assets designated at fair value |
17
|
|
28,533
|
|
41,564 |
|
Derivatives |
18
|
|
494,876
|
|
187,854 |
|
Loans and advances to banks |
|
|
153,766
|
|
237,366 |
|
Loans and advances to customers |
|
|
932,868
|
|
981,548 |
|
Financial investments |
19
|
|
300,235
|
|
283,000 |
|
Interests in associates and joint ventures |
21
|
|
11,537
|
|
10,384 |
|
Goodwill and intangible assets |
22
|
|
27,357
|
|
39,689 |
|
Property, plant and equipment |
23
|
|
14,025
|
|
15,694 |
|
Other assets |
25
|
|
37,822
|
|
39,493 |
|
Current tax assets |
|
|
2,552
|
|
896 |
|
Deferred tax assets |
11
|
|
7,011
|
|
5,284 |
|
Prepayments and accrued income |
|
|
15,797
|
|
20,091 |
|
|
|
|
|
|
|
|
Total assets |
|
|
2,527,465
|
|
2,354,266 |
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY |
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
Hong Kong currency notes in circulation |
|
|
15,358
|
|
13,893 |
|
Deposits by banks |
|
|
130,084
|
|
132,181 |
|
Customer accounts |
|
|
1,115,327
|
|
1,096,140 |
|
Items in the course of transmission to other banks |
|
|
7,232
|
|
8,672 |
|
Trading liabilities |
26
|
|
247,652
|
|
314,580 |
|
Financial liabilities designated at fair value |
27
|
|
74,587
|
|
89,939 |
|
Derivatives |
18
|
|
487,060
|
|
183,393 |
|
Debt securities in issue |
28
|
|
179,693
|
|
246,579 |
|
Retirement benefit liabilities |
8
|
|
3,888
|
|
2,893 |
|
Other liabilities |
29
|
|
72,384
|
|
35,013 |
|
Current tax liabilities |
|
|
1,822
|
|
2,559 |
|
Liabilities under insurance contracts |
30
|
|
43,683
|
|
42,606 |
|
Accruals and deferred income |
|
|
15,448
|
|
21,766 |
|
Provisions |
31
|
|
1,730
|
|
1,958 |
|
Deferred tax liabilities |
11
|
|
1,855
|
|
1,859 |
|
Subordinated liabilities |
32
|
|
29,433
|
|
24,819 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
2,427,236
|
|
2,218,850 |
|
|
|
|
|
|
|
|
Equity |
|
|
|
|
|
|
Called up share capital |
37
|
|
6,053
|
|
5,915 |
|
Share premium account |
38
|
|
8,463
|
|
8,134 |
|
Other equity instruments |
38
|
|
2,133
|
|
|
|
Other reserves |
38
|
|
(3,747
|
) |
33,014 |
|
Retained earnings |
38
|
|
80,689
|
|
81,097 |
|
|
|
|
|
|
|
|
Total shareholders equity |
|
|
93,591
|
|
128,160 |
|
Minority interests |
36
|
|
6,638
|
|
7,256 |
|
|
|
|
|
|
|
|
Total equity |
|
|
100,229
|
|
135,416 |
|
|
|
|
|
|
|
|
Total equity and liabilities |
|
|
2,527,465
|
|
2,354,266 |
|
|
|
|
|
|
|
|
|
The accompanying notes on pages
340 to 447, the audited sections of the Report of the Directors:
Risk on pages 188 to 280, Critical accounting policies on
pages 61 to 66 and Impact of Market Turmoil on pages 144
to 187 form an integral part of these financial statements. |
|
|
|
|
|
|
S K Green, Group
Chairman
|
|
334
Back to Contents
Consolidated statement of
recognised income and expense for the year ended 31 December 2008
|
|
2008 |
|
2007 |
|
2006 |
|
|
|
US$m |
|
US$m |
|
US$m |
|
Available-for-sale investments: |
|
|
|
|
|
|
|
fair value gains/(losses) taken to equity |
(23,722 |
) |
756 |
|
1,582 |
|
|
fair
value gains transferred to the income statement on disposal |
(1,316 |
) |
(1,826 |
) |
(665 |
) |
|
amounts
transferred to the income statement in respect of impairment losses |
1,779 |
|
86 |
|
21 |
|
Cash flow hedges: |
|
|
|
|
|
|
|
fair value gains/(losses) taken to equity |
(1,720 |
) |
625 |
|
1,554 |
|
|
fair value (gains)/losses transferred to income
statement |
1,754 |
|
(1,886 |
) |
(2,198 |
) |
Share
of changes in equity of associates and joint ventures |
(559 |
) |
372 |
|
20 |
|
Exchange differences |
(12,205 |
) |
5,946 |
|
4,675 |
|
Actuarial
gains/(losses) on defined benefit plans |
(1,609 |
) |
2,167 |
|
(78 |
) |
|
|
|
|
|
|
|
|
|
(37,598 |
) |
6,240 |
|
4,911 |
|
Tax
on items taken directly to equity |
1,879 |
|
(226 |
) |
(44 |
) |
|
|
|
|
|
|
|
Total
income and expense taken to equity during the year |
(35,719 |
) |
6,014 |
|
4,867 |
|
Profit
for the year |
6,498 |
|
20,455 |
|
16,871 |
|
|
|
|
|
|
|
|
Total recognised income and expense for the
year |
(29,221 |
) |
26,469 |
|
21,738 |
|
|
|
|
|
|
|
|
Total
recognised income and expense for the year attributable to: |
|
|
|
|
|
|
|
shareholders of the parent
company |
(29,225 |
) |
24,801 |
|
20,527 |
|
|
minority interests |
4 |
|
1,668 |
|
1,211 |
|
|
|
|
|
|
|
|
|
|
|
(29,221 |
) |
26,469 |
|
21,738 |
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes on
pages 340 to 447, the audited sections of the Report of the Directors:
Risk on pages 188 to 280, Critical accounting policies
on pages 61 to 66 and Impact of Market Turmoil on pages 144
to 187 form an integral part of these financial statements. |
335
Back to Contents
H S B C H O L D I
N G S P L C |
|
Financial Statements (continued) |
|
|
|
|
Consolidated cash flow statement
/ HSBC Holdings balance sheet |
Consolidated
cash flow statement for the year ended 31 December 2008 |
|
|
2008 |
|
2007 |
|
2006 |
|
|
Notes |
US$m |
|
US$m |
|
US$m |
|
Cash flows from operating activities |
|
|
|
|
|
|
|
Profit before
tax |
|
9,307 |
|
24,212 |
|
22,086 |
|
Adjustments for: |
|
|
|
|
|
|
|
non-cash items included in profit before tax |
39 |
41,305 |
|
21,701 |
|
14,956 |
|
change in
operating assets |
39 |
18,123 |
|
(176,538 |
) |
(175,317 |
) |
change in operating liabilities |
39 |
(63,413 |
) |
250,095 |
|
237,378 |
|
elimination
of exchange differences1 |
|
36,132 |
|
(18,602 |
) |
(12,114 |
) |
net gain from investing activities |
|
(4,195 |
) |
(2,209 |
) |
(2,014 |
) |
share of profits
in associates and joint ventures |
|
(1,661 |
) |
(1,503 |
) |
(846 |
) |
dividends received from associates |
|
655 |
|
363 |
|
97 |
|
contribution
paid to defined benefit plans |
|
(719 |
) |
(1,393 |
) |
(547 |
) |
tax paid |
|
(5,114 |
) |
(5,088 |
) |
(4,946 |
) |
|
|
|
|
|
|
|
|
Net cash generated from operating activities |
|
30,420 |
|
91,038 |
|
78,733 |
|
|
|
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
|
|
Purchase of
financial investments |
|
(277,023 |
) |
(260,980 |
) |
(286,316 |
) |
Proceeds from the sale and maturity of financial investments |
|
223,138 |
|
238,647 |
|
273,774 |
|
Purchase of
property, plant and equipment |
|
(2,985 |
) |
(2,720 |
) |
(2,400 |
) |
Proceeds from the sale of property, plant and equipment |
|
2,467 |
|
3,178 |
|
2,504 |
|
Proceeds from
the sale of loan portfolios |
|
9,941 |
|
1,665 |
|
2,048 |
|
Net purchase of intangible assets |
|
(1,169 |
) |
(950 |
) |
(852 |
) |
Net
cash inflow/(outflow) from acquisition of an increase in stake of subsidiaries |
|
1,313 |
|
(623 |
) |
(1,185 |
) |
Net cash inflow from disposal
of subsidiaries |
|
2,979 |
|
187 |
|
62 |
|
Net
cash outflow from acquisition of an increase in stake of associates |
|
(355 |
) |
(351 |
) |
(585 |
) |
Net cash inflow from the consolidation
of funds |
|
16,500 |
|
1,600 |
|
|
|
Proceeds from
disposal of associates |
|
101 |
|
69 |
|
874 |
|
|
|
|
|
|
|
|
|
Net cash (used
in) investing activities |
|
(25,093 |
) |
(20,278 |
) |
(12,076 |
) |
|
|
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
|
|
|
Issue of ordinary
share capital |
|
467 |
|
474 |
|
1,010 |
|
Issue of preference shares |
|
|
|
|
|
374 |
|
Issue of other
equity instruments |
|
2,133 |
|
|
|
|
|
Net
purchases and sales of own shares for market-making and investment purposes |
|
(194 |
) |
126 |
|
46 |
|
Purchases
of own shares to meet share awards and share option awards |
|
(808 |
) |
(636 |
) |
(575 |
) |
On exercise of share options |
|
27 |
|
104 |
|
173 |
|
Subordinated
loan capital issued |
|
7,094 |
|
5,705 |
|
5,948 |
|
Subordinated loan capital repaid |
|
(350 |
) |
(689 |
) |
(903 |
) |
Dividends paid to shareholders of the parent company |
|
(7,211 |
) |
(6,003 |
) |
(5,927 |
) |
Dividends paid to minority interests |
|
(714 |
) |
(718 |
) |
(710 |
) |
Dividends paid to holders of other equity instruments |
|
(92 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Net cash generated from/(used in) in financing activities |
|
352 |
|
(1,637 |
) |
(564 |
) |
|
|
|
|
|
|
|
|
Net increase in cash and cash
equivalents |
|
5,679 |
|
69,123 |
|
66,093 |
|
Cash and cash equivalents at 1
January |
|
297,009 |
|
215,486 |
|
141,307 |
|
Exchange differences in respect of cash and cash equivalents |
|
(23,816 |
) |
12,400 |
|
8,086 |
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents at 31 December |
39 |
278,872 |
|
297,009 |
|
215,486 |
|
|
|
|
|
|
|
|
|
|
|
1 |
Adjustment to bring changes between opening
and closing balance sheet amounts to average rates. This is not done on
a line-by-line basis, as details cannot be determined without unreasonable
expense. |
|
The accompanying notes on pages
340 to 447, the audited sections of the Report of the Directors:
Risk
on pages 188 to 280, Critical accounting policies on pages
61 to 66 and Impact of Market Turmoil on pages 144 to 187
form an integral part of these financial statements. |
336
Back to Contents
HSBC
Holdings balance sheet at 31 December 2008 |
|
|
2008 |
|
2007 |
|
|
Notes |
US$m |
|
US$m |
|
ASSETS |
|
|
|
|
|
Cash at bank and in hand: |
|
|
|
|
|
balances
with HSBC undertakings |
|
443 |
|
360 |
|
Derivatives |
18 |
3,682 |
|
2,660 |
|
Loans and advances to HSBC undertakings |
|
11,804 |
|
17,242 |
|
Financial investments |
|
2,629 |
|
3,022 |
|
Investments in subsidiaries |
24 |
81,993 |
|
69,411 |
|
Property, plant and equipment |
|
6 |
|
1 |
|
Other assets |
|
25 |
|
21 |
|
Deferred tax assets |
11 |
42 |
|
7 |
|
Prepayments and accrued income |
|
58 |
|
224 |
|
|
|
|
|
|
|
Total assets |
|
100,682 |
|
92,948 |
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY |
|
|
|
|
|
Liabilities |
|
|
|
|
|
Amounts owed
to HSBC undertakings |
|
4,042 |
|
2,969 |
|
Financial liabilities designated
at fair value |
27 |
16,389 |
|
18,683 |
|
Derivatives |
18 |
1,324 |
|
44 |
|
Other liabilities |
29 |
1,816 |
|
1,405 |
|
Current tax
liabilities |
|
219 |
|
322 |
|
Accruals and deferred income |
|
288 |
|
150 |
|
Subordinated
liabilities |
32 |
14,017 |
|
8,544 |
|
|
|
|
|
|
|
Total liabilities |
|
38,095 |
|
32,117 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity |
|
|
|
|
|
Called up share
capital |
37 |
6,053 |
|
5,915 |
|
Share premium account |
38 |
8,463 |
|
8,134 |
|
Other equity
instruments |
37 |
2,133 |
|
|
|
Merger reserve and other reserves |
|
25,341 |
|
28,942 |
|
Other reserves |
|
3,503 |
|
3,631 |
|
Retained earnings |
|
17,094 |
|
14,209 |
|
|
|
|
|
|
|
Total equity |
|
62,587 |
|
60,831 |
|
|
|
|
|
|
|
Total equity
and liabilities |
|
100,682 |
|
92,948 |
|
|
|
|
|
|
|
The accompanying notes on pages 340 to 447,
the audited sections of the Report of the Directors: Risk on pages
188 to 280, Critical accounting policies on pages 61 to 66 and Impact
of Market Turmoil on pages 144 to 187 form an integral part of these financial
statements.
|
|
|
|
|
|
S K Green, Group Chairman |
|
337
Back to Contents
H S B C H O L D I
N G S P L C |
|
Financial Statements (continued) |
|
|
|
|
HSBC Holdings > Changes
in equity / Cash flow statement |
HSBC
Holdings statement of changes in total equity for the year ended 31 December
2008 |
|
2008 |
|
2007 |
|
|
US$m |
|
US$m |
|
Called up share capital |
|
|
|
|
At
1 January |
5,915 |
|
5,786
|
|
Shares issued under
employee share plans |
20 |
|
17 |
|
Shares
issued in lieu of dividends |
118 |
|
112 |
|
|
|
|
|
|
At
31 December |
6,053 |
|
5,915 |
|
|
|
|
|
|
Share premium account |
|
|
|
|
At
1 January |
8,134 |
|
7,789 |
|
Shares issued under
employee share plans |
450 |
|
460 |
|
Shares
issued in lieu of dividends and amounts arising thereon |
(121 |
) |
(115 |
) |
|
|
|
|
|
At
31 December |
8,463 |
|
8,134 |
|
|
|
|
|
|
Other equity instruments |
|
|
|
|
At
1 January |
|
|
|
|
Capital securities
issued1 |
2,133 |
|
|
|
|
|
|
|
|
At
31 December |
2,133 |
|
|
|
|
|
|
|
|
Merger reserve and other reserves |
|
|
|
|
At
1 January |
28,942 |
|
28,942 |
|
Realisation of merger
reserve2 |
(3,601 |
) |
|
|
|
|
|
|
|
At
31 December |
25,341 |
|
28,942 |
|
|
|
|
|
|
Other reserves |
|
|
|
|
Available-for-sale fair value
reserve |
|
|
|
|
At
1 January |
482 |
|
246 |
|
Fair value changes
taken to equity3 |
(356 |
) |
246 |
|
Tax
on items taken directly to equity3 |
64 |
|
(10 |
) |
|
|
|
|
|
At
31 December |
190 |
|
482 |
|
|
|
|
|
|
Share-based payment reserve |
|
|
|
|
At
1 January |
1,968 |
|
2,111 |
|
Exercise and lapse
of share options and vesting of share awards |
(75 |
) |
(751 |
) |
Cost of share-based
payment arrangements |
14 |
|
29 |
|
Equity investments
granted to employees of subsidiaries under employee share plans |
87 |
|
818 |
|
Other movements |
1 |
|
(239 |
) |
|
|
|
|
|
At
31 December |
1,995 |
|
1,968 |
|
|
|
|
|
|
Other paid-in capital |
|
|
|
|
At
1 January |
1,181 |
|
936 |
|
Exercise and lapse
of share options |
137 |
|
245 |
|
|
|
|
|
|
At
31 December |
1,318 |
|
1,181 |
|
|
|
|
|
|
Total other
reserves at 31 December |
3,503 |
|
3,631 |
|
|
|
|
|
|
Retained earnings |
|
|
|
|
At
1 January |
14,209 |
|
10,588 |
|
Profit for the year
attributable to shareholders |
7,644 |
|
9,499 |
|
Dividends
to shareholders of the parent company |
(11,301 |
) |
(10,241 |
) |
Shares issued in
lieu of dividends and amounts arising thereon |
3,596 |
|
4,354 |
|
Transfer
from merger reserve |
3,601 |
|
|
|
Own shares adjustments |
(647 |
) |
16 |
|
Tax
on share based payments3 |
(2 |
) |
(7 |
) |
Exchange differences
and other movements3 |
(6 |
) |
|
|
|
|
|
|
|
At
31 December4 |
17,094 |
|
14,209 |
|
|
|
|
|
|
|
|
1 |
See footnote 5 of Note 38. |
2 |
See footnote 4 of Note 38. |
3 |
The total expense taken directly to equity
during the year was US$300 million (2007: net income US$229 million).
|
4 |
Retained earnings include 36,995,330 (US$562
million) of own shares held to fund employee share plans (2007: 30,706,713,
US$554 million). |
The accompanying notes on pages 340 to 447,
the audited sections of the Report of the Directors: Risk on pages
188 to 280, Critical accounting policies on pages 61 to 66 and Impact
of Market Turmoil on pages 144 to 187 form an integral part of these financial
statements.
338
Back to Contents
HSBC
Holdings cash flow statement for the year ended 31 December 2008 |
|
|
|
2008 |
|
2007 |
|
|
|
Notes |
US$m |
|
US$m |
|
Cash flows from operating
activities |
|
|
|
|
|
Profit before tax |
|
7,931 |
|
9,598 |
|
|
|
|
|
|
|
Adjustments for: |
|
|
|
|
|
|
non-cash items included in profit
before tax |
39 |
3,619 |
|
10 |
|
|
change in operating assets |
39 |
3,263 |
|
(4,059 |
) |
|
change in operating liabilities |
39 |
(2,035 |
) |
179 |
|
|
elimination of exchange differences1 |
|
|
|
(26 |
) |
|
net gain from investing activities |
|
|
|
(12 |
) |
|
tax (paid)/received |
|
(370 |
) |
268 |
) |
|
|
|
|
|
|
Net
cash generated from operating activities |
|
12,408 |
|
5,958 |
|
|
|
|
|
|
|
Cash flows from
investing activities |
|
|
|
|
|
Purchase
of financial investments |
|
(300 |
) |
|
|
Proceeds from sale of
financial investments |
|
349 |
|
|
|
Purchase
of property, plant and equipment |
|
(5 |
) |
|
|
Net cash outflow from
acquisition of or increase in stake of subsidiaries |
|
(14,320 |
) |
(5,133 |
) |
|
|
|
|
|
|
Net
cash used in investing activities |
|
(14,276 |
) |
(5,133 |
) |
|
|
|
|
|
|
Cash flows from
financing activities |
|
|
|
|
|
Issue
of ordinary share capital |
|
467 |
|
474 |
|
Issue of other equity
instruments |
|
2,133 |
|
|
|
Purchases
of own shares to meet share awards and share option awards |
|
(54 |
) |
(96 |
) |
On exercise of share
options |
|
3 |
|
72 |
|
Subordinated
loan capital issued |
|
6,705 |
|
4,359 |
|
Dividends paid |
|
(7,211 |
) |
(6,003 |
) |
Dividends
paid to holders of other equity instruments |
|
(92 |
) |
|
|
|
|
|
|
|
|
Net
cash generated from/(used in) financing activities |
|
1,951 |
|
(1,194 |
) |
|
|
|
|
|
|
Net
increase/(decrease) in cash and cash equivalents |
|
83 |
|
(369 |
) |
Cash and cash equivalents
at 1 January |
|
360 |
|
729 |
|
|
|
|
|
|
|
Cash
and cash equivalents at 31 December |
39 |
443 |
|
360 |
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
Adjustment to
bring changes between opening and closing balance sheet amounts to average
rates. This is not done on a line-by-line basis, as details cannot be determined
without unreasonable expense. |
|
|
The accompanying notes on pages
340 to 447, the audited sections of the Report of the Directors: Risk
on pages 188 to 280, Critical accounting policies on pages 61
to 66 and Impact of Market Turmoil on pages 144 to 187 form
an integral part of these financial statements. |
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H S B C H O L D I
N G S P L C |
|
Notes on the Financial Statements |
|
|
|
|
Note 1 |
1 |
Basis of preparation |
|
|
(a) |
Compliance with International Financial
Reporting Standards |
|
|
|
|
|
|
The consolidated financial statements
of HSBC and the separate financial statements of HSBC Holdings have been
prepared in accordance with International Financial Reporting Standards
(IFRSs) as issued by the International Accounting Standards
Board (IASB) and as endorsed by the EU. EU-endorsed IFRSs may
differ from IFRSs as issued by the IASB if, at any point in time, new or
amended IFRSs have not been endorsed by the EU. At 31 December 2008, there
were no unendorsed standards effective for the year ended 31 December 2008
affecting these consolidated and separate financial statements, and there
was no difference between IFRSs endorsed by the EU and IFRSs issued by the
IASB in terms of their application to HSBC. Accordingly, HSBCs financial
statements for the year ended 31 December 2008 are prepared in accordance
with IFRSs as issued by the IASB. |
|
|
|
|
|
|
IFRSs comprise accounting standards
issued by the IASB and its predecessor body as well as interpretations issued
by the International Financial Reporting Interpretations Committee (IFRIC)
and its predecessor body. |
|
|
|
|
|
|
During 2008, HSBC adopted the following
amendments to standards and interpretations: |
|
|
|
|
|
|
• |
IFRIC 14 IAS 19 The Limit on a
Defined Benefit Asset, Minimum Funding Requirements and their Interaction
had no significant effect on the consolidated financial statements of HSBC
or the separate financial statements of HSBC Holdings; and |
|
|
|
|
|
|
• |
an amendment to IAS 39 Financial Instruments:
Recognition and Measurement (IAS 39) and to IFRS 7 Financial
Instruments: Disclosures (IFRS 7) Reclassification
of Financial Assets (Reclassification Amendment). On adoption
of the Reclassification Amendment, HSBC reclassified US$18.7 billion
of trading assets in accordance with the Reclassification Amendment. If
this reclassification had not been made, the Groups pre-tax profits
would have been lower by US$3.5 billion. The adoption of the Reclassification
Amendment had no effect on the separate financial statements of HSBC Holdings.
Pages 144 to 187 of the Report of the Directors:
Impact of market turmoil provides detailed disclosures as required
by the Reclassification Amendment. |
|
|
|
|
|
(b) |
Differences between IFRSs and Hong
Kong Financial Reporting Standards |
|
|
|
|
|
|
There are no significant differences
between IFRSs and Hong Kong Financial Reporting Standards in terms of their
application to HSBC and consequently there would be no significant differences
had the financial statements been prepared in accordance with Hong Kong
Financial Reporting Standards. The Notes on the Financial Statements, taken
together with the Report of the Directors, include the aggregate of all
disclosures necessary to satisfy IFRSs and Hong Kong reporting requirements. |
|
|
|
|
(c) |
Presentation of information |
|
|
|
|
|
Disclosures under IFRS 4 and IFRS
7 relating to the nature and extent of risks have been included in the audited
sections of the Report of the Directors: Risk on pages 188 to
280. |
|
|
|
|
|
Capital disclosures under IAS 1
Presentation of Financial Statements (IAS 1) have
been included in the audited sections of Capital management and allocation
on pages 274 to 280. |
|
|
|
|
|
Disclosures relating to the effect
of the recent market turmoil on HSBCs securitisation activities and
structured products and disclosures under IFRS 7 relating to the fair value
of financial instruments have been included in the audited section of Report
of the Directors: Impact of market turmoil on pages 144 to 187. |
|
|
|
|
|
In publishing the parent company
financial statements here together with the Group financial statements,
HSBC Holdings has taken advantage of the exemption in section 230 of the
Companies Act 1985 not to present its individual income statement and related
notes that form a part of these financial statements. |
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|
|
|
|
HSBC has taken advantage of the
exemption under Regulation 7 of the Partnerships and Unlimited Companies
(Accounts) Regulations 1993 from certain partnerships that are consolidated
by HSBC presenting their own individual financial statements under IFRSs. |
|
|
|
|
|
The functional currency of HSBC
Holdings plc is the US dollar, which is also the presentational currency
of the consolidated financial statements of HSBC. |
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|
(d) |
Comparative information |
|
|
|
|
|
As required by US public company
reporting requirements, these consolidated financial statements include
two years of comparative information for the consolidated income statement,
consolidated cash flow statement, consolidated statement of recognised income
and expense and related notes on the financial statements. |
|
|
|
|
(e) |
Use of estimates and assumptions |
|
|
|
|
|
The preparation of financial information
requires the use of estimates and assumptions about future conditions. The
use of available information and the application of judgement are inherent
in the formation of estimates; actual results in the future may differ from
those reported. Management believes that HSBCs critical accounting
policies where judgement is necessarily applied are those which relate to
impairment of loans and advances, goodwill impairment, the valuation of
financial instruments, the impairment of available-for-sale financial assets
and deferred tax assets (see Critical Accounting Policies on
pages 61 to 66, which form an integral part of these financial statements). |
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|
|
Further information about key assumptions
concerning the future, and other key sources of estimation uncertainty,
are set out in these notes on the financial statements. |
|
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|
|
(f) |
Consolidation |
|
|
|
|
|
The consolidated financial statements
of HSBC comprise the financial statements of HSBC Holdings and its subsidiaries
made up to 31 December, with the exception of the banking and insurance
subsidiaries of HSBC Bank Argentina, whose financial statements are made
up to 30 June annually to comply with local regulations. Accordingly, HSBC
uses their audited interim financial statements, drawn up to 31 December
annually. Subsidiaries are consolidated from the date that HSBC gains control.
The purchase method of accounting is used to account for the acquisition
of subsidiaries by HSBC. The cost of an acquisition is measured at the fair
value of the consideration given at the date of exchange, together with
costs directly attributable to that acquisition. The acquired identifiable
assets, liabilities and contingent liabilities are measured at their fair
values at the date of acquisition. Any excess of the cost of acquisition
over the fair value of HSBCs share of the identifiable assets, liabilities
and contingent liabilities acquired is recorded as goodwill. If the cost
of acquisition is less than the fair value of HSBCs share of the identifiable
assets, liabilities and contingent liabilities of the business acquired,
the difference is recognised immediately in the income statement. |
|
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|
|
|
Entities that are controlled by
HSBC are consolidated until the date that control ceases. |
|
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|
|
In the context of Special Purpose
Entities (SPEs), the following circumstances may indicate a
relationship in which, in substance, HSBC controls and consequently consolidates
an SPE: |
|
|
|
|
|
• |
the activities of the SPE are being conducted
on behalf of HSBC according to its specific business needs so that HSBC
obtains benefits from the SPEs operation; |
|
|
|
|
|
|
• |
HSBC has the decision-making powers to obtain
the majority of the benefits of the activities of the SPE or, by setting
up an autopilot mechanism, HSBC has delegated these decision-making
powers; |
|
|
|
|
|
|
• |
HSBC has rights to obtain the majority of the
benefits of the SPE and therefore may be exposed to risks incident to the
activities of the SPE; or |
|
|
|
|
|
|
• |
HSBC retains the majority of the residual or
ownership risks related to the SPE or its assets in order to obtain benefits
from its activities. |
|
|
|
|
|
|
|
HSBC performs a re-assessment of consolidation
whenever there is a change in the substance of the relationship between
HSBC and an SPE. |
|
|
|
|
|
|
|
All intra-HSBC transactions are eliminated on
consolidation. |
|
|
|
|
|
The consolidated financial statements
of HSBC also include the attributable share of the results and reserves
of joint ventures and associates. These are based on financial statements
made up to 31 December, with the exception of the Bank of Communications,
Ping An Insurance and Industrial Bank which are included on the basis of
financial statements made up for the twelve months to 30 September. These
are equity accounted three months in arrears in order to meet the requirements
of the Groups reporting timetable. HSBC has taken into account changes
in the period from 1 October to 31 December that would have materially affected
its results. |
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H S B C H O L D
I N G S P L C |
|
Notes on the
Financial Statements (continued) |
|
|
|
Note 1 |
|
(g) |
Future accounting developments
|
|
|
|
Standards and Interpretations
issued by the IASB and endorsed by the EU |
|
|
|
IFRS 8 Operating Segments
(IFRS 8), which replaces IAS 14 Segment Reporting
(IAS 14), was issued on 30 November 2006 and is effective for
annual periods beginning on or after 1 January 2009. This standard specifies
how an entity should disclose information about its segments which enables
users to evaluate the nature and financial effects of its business activities
and the economic environments in which it operates. HSBC will adopt IFRS
8 with effect from 1 January 2009, and will accordingly present financial
information for segments whose operating activities are regularly reviewed
by the chief operating decision maker in order to make decisions about allocating
resources and assessing performance. HSBC currently presents two sets of
segment data in accordance with IAS 14, one geographical and one based on
customer groups. Under IFRS 8, HSBC expects that its operating segments
will be presented by geographic region. In addition, HSBC will continue
to provide information on financial performance by customer group and global
businesses alongside the geographical operating segment information in the
Operating and financial review. |
|
|
|
|
|
|
A revised IAS 1, which is applicable
for annual periods beginning on or after 1 January 2009, was issued on 6
September 2007. The revised standard aims to improve users ability
to analyse and compare information given in financial statements. The adoption
of the revised standard will have no effect on the results reported in HSBCs
consolidated financial statements or the separate financial statements of
HSBC Holdings. It will, however, result in certain presentational changes
in the primary financial statements of HSBC and HSBC Holdings. |
|
|
|
|
|
|
The IASB issued an amendment to
IFRS 2 Share-based Payment Vesting Conditions and
Cancellations on 17 January 2008. The amendment, which is applicable
for annual periods beginning on or after 1 January 2009, clarifies that
vesting conditions comprise only service conditions and performance conditions.
It also specifies the accounting treatment for a failure to meet a non-vesting
condition. HSBC does not expect adoption of the amendment to have a significant
effect on HSBCs consolidated financial statements or the separate
financial statements of HSBC Holdings. |
|
|
|
|
|
|
The IASB issued a revised IAS 23
Borrowing Costs on 29 March 2007, which is applicable for annual
periods beginning on or after 1 January 2009. The revised standard eliminates
the option of recognising borrowing costs immediately as an expense, to
the extent that they are directly attributable to the acquisition, construction
or production of a qualifying asset. HSBC does not expect adoption of the
revised standard to have a significant effect on the consolidated financial
statements or the separate financial statements of HSBC Holdings. |
|
|
|
|
|
|
IFRIC 13 Customer Loyalty
Programmes (IFRIC 13) was issued on 28 June 2007 and is
effective for annual periods beginning on or after 1 July 2008. IFRIC 13
addresses how companies that grant their customers loyalty award credits
(often called points) when buying goods or services should account
for their obligation to provide free or discounted goods and services, if
and when the customers redeem the points. IFRIC 13 requires companies to
allocate some of the proceeds of the initial sale to the award credits and
recognise these proceeds as revenue when they have fulfilled their obligations
to provide goods or services. HSBC does not expect the adoption of this
interpretation to have a significant effect on the consolidated financial
statements. This interpretation will have no effect on the separate financial
statements of HSBC Holdings. |
|
|
|
|
|
|
Standards and Interpretations
issued by the IASB but not endorsed by the EU |
|
|
|
|
|
|
At 31 December 2008, the following
amendments to standards and interpretations, effective for these consolidated
financial statements, were issued by the IASB but not endorsed by the EU:
|
|
|
|
|
|
|
• |
an amendment to IAS
39 and to IFRS 7 Reclassification of Financial Assets
Effective Date and Transition was issued on 27 November 2008.
The amendment, which clarifies the effective date of the Reclassification
Amendment, will have no effect on the consolidated financial statements
of HSBC or the separate financial statements of HSBC Holdings; and |
|
|
|
|
|
|
• |
IFRIC 12 Service
Concession Arrangements was issued on 30 November 2006 and is effective
for annual periods beginning on or after 1 January 2008. The adoption
of this interpretation is not expected to have a significant effect on the
consolidated financial statements of HSBC or the separate financial statements
of HSBC Holdings. |
342
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|
|
A revised IFRS 3 Business
Combinations and an amended IAS 27 Consolidated and Separate
Financial Statements, were issued on 10 January 2008. The revisions
to the standards apply prospectively to business combinations for which
the acquisition date is on or after the beginning of the first annual financial
reporting period beginning on or after 1 July 2009. The main changes under
the standards are that: |
|
|
|
|
|
|
• |
acquisition-related costs are
recognised as expenses in the income statement in the period they are incurred; |
|
|
|
|
|
|
• |
equity interests held prior
to control being obtained are remeasured to fair value at the time control
is obtained, and any gain or loss is recognised in the income statement; |
|
|
|
|
|
|
• |
changes in a parents ownership
interest in a subsidiary that do not result in a change of control are treated
as transactions between equity holders and reported in equity; and |
|
|
|
|
|
|
• |
an option is available, on a
transaction-by-transaction basis, to measure any non-controlling (previously
referred to as minority) interests in the entity acquired either at fair
value, or at the non-controlling interests proportionate share of
the net identifiable assets of the entity acquired. |
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|
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|
|
The effect that the changes will
have on the consolidated financial statements of HSBC and the separate financial
statements of HSBC Holdings will depend on the incidence and timing of business
combinations occurring on or after 1 January 2010. |
|
|
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|
|
|
The IASB issued amendments to
IAS 32 Financial Instruments: Presentation and IAS 1
Puttable Financial Instruments and Obligations Arising on Liquidation,
on 14 February 2008. The amendments are applicable for annual periods beginning
on or after 1 January 2009. HSBC does not expect the adoption of this amendment
to have a significant effect on the consolidated financial statements or
the separate financial statements of HSBC Holdings. |
|
|
|
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|
|
The IASB issued Improvements
to IFRSs on 22 May 2008, which comprises a collection of necessary,
but not urgent, amendments to IFRSs. The amendments are primarily effective
for annual periods beginning on or after 1 January 2009, with earlier application
permitted. HSBC does not expect adoption of the amendments to have a significant
effect on the consolidated financial statements or the separate financial
statements of HSBC Holdings. |
|
|
|
|
|
|
The IASB issued amendments to
IFRS 1 First-time Adoption of International Financial Reporting Standards
and IAS 27 Determining the cost of an Investment in the Separate
Financial Statements, on 22 May 2008. The amendment is effective for
annual periods beginning on or after 1 January 2009. These amendments are
not expected to have a significant effect on the separate financial statements
of HSBC Holdings and will have no effect on the consolidated financial statements.
|
|
|
|
|
|
|
The IASB issued an amendment
to IAS 39 Eligible Hedged Items on 31 July 2008, which
is applicable for annual periods beginning on or after 1 July 2009. The
amendment clarifies how the existing principles underlying hedge accounting
should be applied. This amendment will have no effect on the consolidated
financial statements or the separate financial statements of HSBC Holdings.
|
|
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|
|
IFRIC 15 Agreements for
the Construction of Real Estate (IFRIC 15) was issued
on 3 July 2008 and is effective for annual periods beginning on or after
1 January 2009. IFRIC 15 provides guidance on the recognition of revenue
among real estate developers for sales of units. HSBC does not expect adoption
of IFRIC 15 to have a significant effect on HSBCs consolidated financial
statements. This interpretation will have no effect on the separate financial
statements of HSBC Holdings. |
|
|
|
|
|
|
IFRIC 16 Hedges of a Net
Investment in a Foreign Operation (IFRIC 16) was issued
on 3 July 2008 and is effective for annual periods beginning on or after
1 October 2008. IFRIC 16 provides guidance on accounting for the hedge of
a net investment in a foreign operation in an entitys consolidated
financial statements. The main change introduced by IFRIC 16 is to eliminate
the possibility of an entity applying hedge accounting for a hedge of foreign
exchange differences between the functional currency of a foreign operation
and the presentation currency of the parents consolidated financial
statements. The adoption of IFRIC 16 will have no effect on HSBCs
consolidated financial statements. |
|
|
|
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|
|
IFRIC 17 Distributions
of Non-cash Assets to Owners (IFRIC 17) was issued on
27 November 2008 and is effective for annual periods beginning on or after
1 July 2009. IFRIC 17 provides guidance on how distributions of assets other
than cash as dividends to shareholders should be accounted for. HSBC does
not expect adoption |
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H S B C H O L D
I N G S P L C |
|
Notes on the
Financial Statements (continued) |
|
|
|
Notes 1 and 2 |
|
|
of IFRIC 17 to have a significant
effect on HSBCs consolidated financial statements or the separate
financial statements of HSBC Holdings. |
|
|
|
|
|
|
IFRIC 18 Transfers of Assets
from Customers (IFRIC 18) was issued on 29 January 2009
and is required to be applied prospectively to transfers of assets from
customers received on or after 1 July 2009. IFRIC 18 clarifies the requirements
of IFRSs for agreements in which an entity receives from a customer an item
of property, plant, and equipment that the entity must then use either to
connect the customer to a network or to provide the customer with ongoing
access to a supply of goods or services (such as a supply of electricity,
gas or water). HSBC does not expect adoption of IFRIC 18 to have an effect
on HSBCs consolidated financial statements or the separate financial
statements of HSBC Holdings. |
|
|
|
|
2 |
Summary of significant accounting
policies |
|
|
(a) |
Interest income and expense |
|
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|
|
Interest income and expense for
all financial instruments except for those classified as held for trading
or designated at fair value (other than debt securities issued by HSBC and
derivatives managed in conjunction with such debt securities issued) are
recognised in Interest income and Interest expense
in the income statement using the effective interest method. The effective
interest method is a way of calculating the amortised cost of a financial
asset or a financial liability (or groups of financial assets or financial
liabilities) and of allocating the interest income or interest expense over
the relevant period. |
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|
|
The effective interest rate is
the rate that exactly discounts estimated future cash receipts or payments
through the expected life of the financial instrument or, where appropriate,
a shorter period, to the net carrying amount of the financial asset or financial
liability. When calculating the effective interest rate, HSBC estimates
cash flows considering all contractual terms of the financial instrument
but not future credit losses. The calculation includes all amounts paid
or received by HSBC that are an integral part of the effective interest
rate of a financial instrument, including transaction costs and all other
premiums or discounts. |
|
|
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|
|
Interest on impaired financial
assets is recognised using the rate of interest used to discount the future
cash flows for the purpose of measuring the impairment loss. |
|
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|
|
|
(b) |
Non-interest income |
|
|
|
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|
|
Fee income is earned from
a diverse range of services provided by HSBC to its customers. Fee income
is accounted for as follows: |
|
|
|
|
|
|
– |
income earned on
the execution of a significant act is recognised as revenue when the act
is completed (for example, fees arising from negotiating, or participating
in the negotiation of, a transaction for a third-party, such as the arrangement
for the acquisition of shares or other securities); |
|
|
|
|
|
|
– |
income earned from
the provision of services is recognised as revenue as the services are provided
(for example, asset management, portfolio and other management advisory
and service fees); and |
|
|
|
|
|
|
– |
income which forms
an integral part of the effective interest rate of a financial instrument
is recognised as an adjustment to the effective interest rate (for example,
certain loan commitment fees) and recorded in Interest income
(Note 2a). |
|
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|
|
Net trading income comprises
all gains and losses from changes in the fair value of financial assets
and financial liabilities held for trading, together with related interest
income, expense and dividends. |
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|
|
Net income from financial
instruments designated at fair value includes all gains and losses from
changes in the fair value of financial assets and financial liabilities
designated at fair value through profit or loss. Interest income and expense
and dividend income arising on these financial instruments are also included
in Net income from financial instruments designated at fair value,
except for interest arising from debt securities issued, and derivatives
managed in conjunction with those debt securities, which is recognised in
Interest expense. |
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|
|
Dividend income is recognised
when the right to receive payment is established. This is the ex-dividend
date for equity securities. |
344
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|
(c) |
Segment reporting |
|
|
|
|
|
HSBCs segments are organised into five
geographical regions, Europe, Hong Kong, Rest of Asia-Pacific, North America
and Latin America, and four customer groups: Personal Financial Services;
Commercial Banking; Global Banking and Markets; and Private Banking. The
main items reported in the Other segment are certain property
activities, unallocated investment activities, centrally held investment
companies and
HSBCs holding company and financing operations. The Other segment
also includes gains and losses on the disposal of certain significant subsidiaries
or business units. Segment income and expenses include transfers between geographical
regions and transfers between customer groups. These transfers are conducted
on arms
length terms and conditions. |
|
|
|
|
|
In HSBCs segmental analysis of the income
statement by 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, together
with third-party and intra-segment interest income and interest expense,
and dividends received; in the consolidated income statement, intra-segment
interest income
and expense are eliminated. |
|
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|
|
(d) |
Determination of fair value |
|
|
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|
|
All financial instruments are recognised initially
at fair value. In the normal course of business, the fair value of a financial
instrument on initial recognition is the transaction price (that is, the
fair value of the consideration given or received). In certain circumstances,
however, the fair value will be based on other observable current market
transactions in the same instrument, without modification or repackaging,
or on a valuation technique whose variables include only data from observable
markets, such as interest rate yield curves, option volatilities and currency
rates. When such evidence exists, HSBC recognises a trading gain or loss
on inception of the financial instrument. When unobservable market data
have a significant impact on the valuation of financial instruments, the
entire initial difference in fair value indicated by the valuation model
from the transaction price is not recognised immediately in the income
statement but is recognised over the life of the transaction on an appropriate
basis, or when the inputs become observable, or the transaction matures
or is closed out, or when HSBC enters into an offsetting
transaction. |
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|
|
Subsequent to initial recognition, the fair
values of financial instruments measured at fair value that are quoted
in active markets are based on bid prices for assets held and offer prices
for liabilities issued. When independent prices are not available, fair
values are determined by using valuation techniques which refer to observable
market data. These include comparison with similar instruments where market
observable prices exist, discounted cash flow analysis, option pricing
models and other valuation techniques commonly used by market participants.
Fair values of financial instruments may be determined in whole or in part
using valuation techniques based on assumptions that are not supported
by prices from current market transactions or observable market data, where
current prices or observable market data are not available. |
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|
|
Factors such as bid-offer spread, credit profile
and model uncertainty are taken into account, as appropriate, when fair
values are calculated using valuation techniques. Valuation techniques
incorporate assumptions that other market participants would use in their
valuations, including assumptions about interest rate yield curves, exchange
rates, volatilities, and prepayment and default rates. Where a portfolio
of financial instruments has quoted prices in an active market, the fair
value of the instruments are calculated as the product of the number of
units and quoted price and no block discounts are made. |
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|
|
If the fair value of a financial asset measured
at fair value becomes negative, it is recorded as a financial liability
until its fair value becomes positive, at which time it is recorded as a
financial asset. |
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|
|
The fair values of financial liabilities are
measured using quoted market prices where available, or using valuation
techniques. These fair values include market participants assessments
of the appropriate credit spread to apply to HSBCs liabilities. The
amount of change during the period, and cumulatively, in the fair value
of designated financial liabilities and loans and advances that is attributable
to changes in their credit spread is determined as the amount of change
in the fair value that is not attributable to changes in market conditions
that give
rise to market risk. |
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H S B C H O L
D I N G S P L C |
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Notes on the
Financial Statements (continued) |
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Note 2 |
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(e) |
Reclassification of
financial assets |
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Non-derivative financial
assets (other than those designated at fair value through profit or loss
upon initial recognition) may be reclassified out of the fair value through
profit or
loss category in particular circumstances: |
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• |
financial assets that would have met the definition
of loans and receivables at initial recognition (if the financial asset
had not been required to be classified as held for trading) may be reclassified
out of the fair value through profit or loss category if there is the intention
and ability to hold the financial asset for the foreseeable future or until
maturity; and |
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• |
financial assets (except financial assets
that would have met the definition of loans and receivables) may be reclassified
out of the fair value through profit or loss category and into another
category in rare circumstances. |
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When a financial asset
is reclassified as described in the above circumstances, the financial
asset is reclassified at its fair value on the date of reclassification.
Any gain or loss already recognised in the income statement is not reversed.
The fair value of the financial asset on the date of reclassification becomes
its new cost or amortised cost, as applicable. |
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(f) |
Loans and advances
to banks and customers |
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Loans and advances
to banks and customers include loans and advances originated by HSBC which
are not classified either as held for trading or designated at fair value.
Loans and advances are recognised when cash is advanced to borrowers. They
are derecognised when either borrowers repay their obligations, or the
loans are sold or written off, or substantially all the risks and rewards
of ownership are transferred. They are initially recorded at fair value
plus any directly attributable transaction costs and are subsequently measured
at amortised cost using the effective interest method, less impairment
losses. Where loans and advances are hedged by derivatives designated and
qualifying as fair value hedges, the carrying value of the loans and advances
so hedged includes a fair value adjustment for the hedged risk only. |
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For certain leveraged
finance and syndicated lending activities, HSBC may commit to underwrite
loans on fixed contractual terms for specified periods of time, where the
drawdown of the loan is contingent upon certain future events outside the
control of HSBC. Where the loan arising from the lending commitment is
expected to be held for trading, the commitment to lend is recorded as
a trading derivative and measured at fair value through profit or loss.
On drawdown, the loan is classified as held for trading and measured at
fair value through profit or loss. Where it is not HSBCs intention
to trade the loan, a provision on the loan commitment is only recorded
where it is probable that HSBC will incur a loss. This may occur, for example,
where a loss of principal is probable or the interest rate charged on the
loan is lower than the cost of funding. On inception of the loan, the hold
portion is recorded at its fair value and subsequently measured at amortised
cost using the effective interest method. However, where the initial fair
value is lower than the cash amount advanced (for example, due to the rate
of interest charged on the loan being below the market rate of interest),
the write-down is charged to the income statement. The write-down will
be recovered over the life of the loan, through the recognition of interest
income using the effective interest method, unless the loan becomes
impaired. The write-down is recorded as a reduction to other operating
income. |
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Financial assets which
have been reclassified out of the fair value through profit or loss category
into the loans and receivables category are initially recorded at the fair
value at the date of reclassification. The reclassified assets are subsequently
measured at amortised cost, using the effective interest rate determined
at the date of reclassification. |
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(g) |
Impairment of loans
and advances |
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Losses for impaired loans
are recognised promptly when there is objective evidence that impairment
of a loan or portfolio of loans has occurred. Impairment allowances are
calculated on individual loans and on groups of loans assessed collectively.
Impairment losses are recorded as charges to the income statement. The carrying
amount of impaired loans on the balance sheet is reduced through the use
of impairment allowance accounts. Losses expected from future events are
not recognised. |
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Individually assessed loans
and advances |
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For all loans that are considered
individually significant, HSBC assesses on a case-by-case basis at each
balance sheet date whether there is any objective evidence that a loan
is impaired. For those loans where objective evidence of impairment exists,
impairment losses are determined considering the following factors: |
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HSBCs aggregate exposure to the customer; |
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the viability of the customers business
model and their capacity to trade successfully out of financial difficulties
and generate
sufficient cash flow to service debt obligations; |
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the amount and timing of expected receipts and recoveries; |
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the likely dividend available on liquidation or bankruptcy; |
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the extent of other creditors commitments
ranking ahead of, or pari passu with, HSBC and the likelihood of other creditors
continuing to support the company; |
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the complexity of determining the aggregate amount and ranking of all creditor
claims and the extent to which legal and insurance uncertainties are
evident; |
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the realisable value of security (or other credit mitigants) and likelihood
of successful repossession; |
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the likely deduction of any costs involved in recovery of amounts outstanding; |
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the ability of the borrower to obtain, and make payments in, the currency
of the loan if not denominated in local
currency; and |
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when available, the secondary market price of the debt. |
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Impairment losses are calculated
by discounting the expected future cash flows of a loan at its original
effective interest rate, and comparing the resultant present value with
the
loans current carrying amount. |
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Collectively assessed loans
and advances |
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Impairment is assessed on a
collective basis in two circumstances: |
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to cover losses which have been incurred
but have not yet been identified on loans subject to individual assessment;
and |
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for homogeneous groups of loans that are
not considered individually significant. |
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Incurred but not yet identified
impairment |
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Individually assessed loans
for which no evidence of loss has been specifically identified on an
individual basis are grouped together according to their credit risk
characteristics for the purpose of calculating an estimated collective
loss. This reflects impairment losses that HSBC has incurred as a result
of events occurring before the balance sheet date, which HSBC is not
able to identify on an individual loan basis, and that can be reliably
estimated. These losses will only be individually identified in the future.
As soon as information becomes available which identifies losses on individual
loans within the group, those loans are removed from the group and assessed
on
an individual basis for impairment. |
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The collective impairment allowance
is determined after taking into account: |
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historical loss experience in portfolios
of similar credit risk characteristics (for example, by industry sector,
loan grade or product); |
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the estimated period between impairment
occurring and the loss being identified and evidenced by the establishment
of
an appropriate allowance against the individual loan; and |
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managements experienced judgement
as to whether current economic and credit conditions are such that
the actual level of inherent losses at the balance sheet date is likely
to be greater or less than that suggested by
historical experience. |
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The period between a loss occurring
and its identification is estimated by local management for each identified
portfolio. |
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H S B C H O L D I
N G S P L C |
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Notes on the Financial Statements (continued) |
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Note 2 |
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Homogeneous groups of loans
and advances |
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Statistical methods are used
to determine impairment losses on a collective basis for homogeneous
groups of loans that are not considered individually significant, because
individual loan assessment is impracticable. Losses in these groups of
loans are recorded on an individual basis when individual loans are written
off, at which point they are removed from the group. Two alternative
methods are used to calculate allowances on a
collective basis: |
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When appropriate empirical information is
available, HSBC utilises roll rate methodology. This methodology
employs statistical analyses of historical data and experience of delinquency
and default to estimate the amount of
loans that will eventually be written off as a result of the events occurring
before the balance sheet date which
HSBC is not able to identify on an individual loan basis, and that can
be reliably estimated. Under this methodology,
loans are grouped into ranges according to the number of days past due, and
statistical analysis is used to estimate the likelihood that loans in
each range will progress through the various
stages of delinquency and ultimately prove irrecoverable. The estimated
loss is the difference between the present value of expected future cash flows,
discounted at the original effective interest rate of the
portfolio, and the carrying amount of the portfolio. Current economic
conditions are also evaluated when calculating
the appropriate level of allowance required to cover inherent loss. In
certain highly developed markets, sophisticated
models also take into account behavioural and account management trends
as revealed in, for example, bankruptcy
and rescheduling statistics. |
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In other cases, when the portfolio size is
small or when information is insufficient or not reliable enough to adopt
a roll rate methodology, HSBC adopts a formulaic approach which allocates
progressively higher percentage loss
rates the longer a customers loan is overdue. Loss rates are based
on historical experience. |
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In normal circumstances, historical
experience provides the most objective and relevant information from
which to assess inherent loss within each portfolio. In certain circumstances,
historical loss experience provides less relevant information about the
inherent loss in a given portfolio at the balance sheet date, for example,
where there have been changes in economic, regulatory or behavioural
conditions, such that the most recent trends in the portfolio risk factors
are not fully reflected in the statistical models. |
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These additional portfolio risk
factors may include recent loan portfolio growth and product mix, unemployment
rates, bankruptcy trends, geographic concentrations, loan product features
(such as the ability of borrowers to repay adjustable-rate loans where
reset interest rates give rise to increases in interest charges), economic
conditions such as national and local trends in housing markets and interest
rates, portfolio seasoning, account management policies and practices,
current levels of write-offs, changes in laws and regulations and other
items which can affect customer payment patterns on outstanding loans,
such as natural disasters. These risk factors, where relevant, are taken
into account when calculating the appropriate level of impairment allowances
by adjusting the impairment allowances derived solely from historical
loss experience. |
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Roll rates, loss rates and the
expected timing of future recoveries are regularly benchmarked against
actual outcomes to ensure they remain appropriate. |
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Write-off of loans and advances |
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A loan (and the related impairment
allowance account) is normally written off, either partially or in full,
when there is no realistic prospect of recovery of the principal amount
and, for a collateralised loan, when the proceeds from realising the
security have been received. |
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Reversals of impairment |
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If the amount of an impairment
loss decreases in a subsequent period, and the decrease can be related
objectively to an event occurring after the impairment was recognised,
the excess is written back by reducing the loan impairment allowance
account accordingly. The write-back is recognised in the income statement. |
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Reclassified loans and advances |
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Where financial assets have
been reclassified out of the fair value through profit or loss category
to the loans and receivables category, the effective interest rate determined
at the
date of reclassification is used to calculate any impairment losses. |
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Following reclassification, where there is a subsequent increase in the estimates
of future cash receipts as a result of increased recoverability of those
cash receipts, the effect of that increase is recognised as an adjustment
to the effective interest rate from the date of change in the estimate rather
than as an adjustment to the carrying amount of the asset at the date of
change in the estimate. |
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Assets acquired in exchange for loans |
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| Non-financial assets
acquired in exchange for loans as part of an orderly realisation are recorded
as assets held for sale and reported in Other
assets. The asset acquired is recorded at the lower of its fair value
(less costs to sell) and the carrying amount of the loan (net of impairment
allowance) at the date of exchange. No depreciation is charged in respect
of assets held for sale. Any subsequent write-down of the acquired asset
to fair value less costs to sell is recognised in the income statement, in Other
operating income. Any subsequent increase in the fair value less costs
to sell, to the extent this does not exceed the cumulative write-down, is
also recognised in Other operating income, together with any
realised
gains or losses on disposal. |
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Renegotiated loans |
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Loans subject to collective impairment assessment whose terms have been renegotiated
are no longer considered past due, but are treated as new loans for measurement
purposes once the minimum number of payments required under the new arrangements
have been received. Loans subject to individual impairment assessment, whose
terms have been renegotiated, are subject to ongoing review to determine
whether they remain impaired or should be considered past due. The carrying
amount of loans that have been classified as renegotiated retain this classification
until maturity or derecognition. |
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(h) |
Trading assets and trading liabilities |
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| Treasury bills,
debt securities, equity shares, loans, deposits, debt securities in issue,
and short positions in securities are classified as held for trading
if they have been acquired principally for the purpose of selling or repurchasing
in the near term, or they form part of a portfolio of identified financial
instruments that are managed together and for which there is evidence of
a recent pattern of short-term profit-taking. These financial assets or financial
liabilities are recognised on trade date, when HSBC enters into contractual
arrangements with counterparties to purchase or sell the financial instruments,
and are normally derecognised when either sold (assets) or extinguished (liabilities).
Measurement is initially at fair value, with transaction costs taken to the
income statement. Subsequently, their fair values are remeasured, and all
gains and losses from changes therein are recognised in the income statement
in Net trading income as they arise. |
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(i) |
Financial instruments designated at fair value |
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Financial instruments, other than those held for trading, are classified
in this category if they meet one or more of the criteria set out below,
and are so designated by management. HSBC may designate financial instruments
at fair value when the designation: |
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eliminates or significantly reduces measurement or recognition inconsistencies
that would otherwise arise from measuring financial assets or financial liabilities,
or recognising gains and losses on them, on different bases. Under this criterion,
the main classes of financial instruments designated by HSBC are: |
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Long-term debt issues. The interest
payable on certain fixed rate long-term debt securities issued has been matched
with
the interest on receive fixed/pay variable interest rate swaps as
part of a documented interest rate risk management strategy. An accounting mismatch
would arise if the debt securities issued were accounted for at amortised cost,
because the related derivatives are measured at fair value with changes in the
fair value recognised in the income statement. By designating the long-term debt
at fair value, the movement in the fair value of the long-term debt will
also be recognised in the income statement. |
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Financial assets and financial liabilities under investment contracts. Liabilities to customers under
linked contracts are determined based on the fair value of the assets held in the linked funds, with changes recognised in the income statement. If no designation was made for the assets relating to the customer liabilities they would be classified
as available-for-sale and the changes in fair value would be recorded directly in equity. These financial instruments are managed on a fair value basis and management information is also prepared on this basis. Designation at fair value of the
financial assets and liabilities |
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H S B C H O L D I
N G S P L C |
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Notes on the Financial Statements (continued) |
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Note 2 |
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under investment contracts allows the changes
in fair values to be recorded in the income statement and presented in
the same line. |
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applies to groups of financial assets, financial liabilities or combinations thereof that are managed, and their performance evaluated, on a fair value basis in accordance with a documented risk management or investment strategy, and where information about the groups of
financial instruments is reported to management on that basis. Under this criterion, certain financial assets held to meet liabilities under insurance contracts are the main class of financial instrument so designated. HSBC has documented risk management and investment
strategies designed to manage such assets at fair value, taking into consideration the relationship of assets to liabilities in a way that mitigates market risks. Reports
are provided to management on the fair value of the assets. Fair value measurement is also consistent with the regulatory reporting requirements under the appropriate regulations for these insurance operations. |
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relates to financial instruments containing one or more embedded derivatives that significantly modify the cash flows
resulting from those financial instruments, including certain debt issues and debt securities held. |
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The fair value designation,
once made, is irrevocable. Designated financial assets and financial
liabilities are recognised when HSBC enters into the contractual provisions
of the arrangements with counterparties, which is generally on trade
date, and are normally derecognised when sold (assets) or extinguished
(liabilities). Measurement is initially at fair value, with
transaction costs taken directly to the income statement. Subsequently,
the fair values are remeasured, and gains and losses from changes therein
are recognised in Net income from financial instruments designated
at fair value. |
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(j) |
Financial investments |
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Treasury bills, debt securities
and equity shares intended to be held on a continuing basis, other than
those designated at fair value are classified as available-for-sale or
held-to-maturity. Financial investments are recognised on trade date
when HSBC enters into contractual arrangements with counterparties to
purchase securities, and are normally derecognised when either the securities
are sold or the borrowers repay
their obligations. |
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(i) |
Available-for-sale financial assets are
initially measured at fair value plus direct and incremental transaction
costs. They are subsequently remeasured at fair value, and changes therein
are recognised in equity in the Available-for-sale fair value reserve until
the financial assets are either sold or become impaired. When available-for-sale
financial assets are sold, cumulative gains or losses previously recognised
in
equity are recognised in the income statement as Gains less losses from
financial investments. |
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Interest income is recognised on available-for-sale
debt securities using the effective interest rate, calculated over the
assets expected life. Premiums and/or discounts arising on the
purchase of dated investment securities are included in the calculation
of their effective interest rates. Dividends are recognised in the income
statement when the right to receive payment has been established. |
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At each balance sheet date an assessment
is made of whether there is any objective evidence of impairment in the
value of a financial asset. Impairment losses are recognised if, and
only if, there is objective evidence of impairment as a result of one
or more events that occurred after the initial recognition of the financial
asset (a loss event) and that loss event (or events) has
an impact on the estimated future cash flows of the financial asset that
can be reliably estimated. |
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If the available-for-sale financial asset
is impaired, the difference between the financial assets acquisition
cost (net of any principal repayments and amortisation) and the current
fair value, less any previous impairment loss recognised in the income
statement, is removed from equity and recognised in the income statement. |
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Impairment losses for available-for-sale
debt securities are recognised within Loan impairment charges and
other credit risk provisions in the income statement and impairment
losses for available-for-sale equity securities are recognised within Gains
less losses from financial investments in the income statement. |
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Once an impairment loss has been recognised
on an available-for-sale financial asset, the subsequent accounting treatment
for changes in the fair value of that asset differs depending on the
nature of the available-for-sale financial asset concerned: |
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For an available-for-sale debt security, a subsequent decline in the fair
value of the instrument is recognised in the income statement when there
is further objective evidence of impairment as a result of further decreases
in the estimated future cash flows of the financial asset. Where there
is no further objective evidence of impairment, the decline in the fair
value of the financial asset is recognised directly in equity. If the fair
value of a debt security increases in a subsequent period, and the increase
can be objectively related to an event occurring after the impairment loss
was recognised in the income statement, the impairment loss is reversed
through the
income statement to the extent of the increase in fair value; |
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For an available-for-sale equity security, all subsequent increases in
the fair value of the instrument are treated as a revaluation and are recognised
directly in equity. Impairment losses recognised on the equity security
are not reversed through the income statement. Subsequent decreases in
the fair value of the available-for-sale equity security are recognised
in the income statement, to the extent that further cumulative impairment
losses have been incurred in relation to the acquisition cost of the equity
security. |
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(ii) |
Held-to-maturity
investments are non-derivative financial assets with fixed or determinable
payments and fixed maturities that HSBC positively intends, and is able,
to hold until maturity. Held-to-maturity investments are initially recorded
at fair value plus any directly attributable transaction costs, and are
subsequently measured at amortised cost using the effective interest
rate method, less any impairment losses. |
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(k) |
Sale and
repurchase agreements (including stock lending and borrowing) |
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When securities
are sold subject to a commitment to repurchase them at a predetermined
price (repos), they remain on the balance sheet and a liability
is recorded in respect of the consideration received. Securities purchased
under commitments to sell (reverse repos) are not recognised
on the balance sheet and the consideration paid is recorded in Loans
and advances to banks or Loans and
advances to customers as appropriate. The difference between the sale and
repurchase price is treated as interest and recognised over the life of the agreement. |
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Securities
lending and borrowing transactions are generally secured, with collateral
taking the form of securities or cash advanced or received. The transfer
of securities to counterparties under these agreements is not normally
reflected on the balance sheet. Cash collateral advanced or received is
recorded as an asset or a liability respectively. |
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Securities
borrowed are not recognised on the balance sheet. If they are sold on to
third parties, an obligation to return the securities is recorded as a
trading liability and measured at fair value, and any gains or losses are
included in Net trading income. |
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(l) |
Derivatives
and hedge accounting |
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Derivatives
are recognised initially, and are subsequently remeasured, at fair value.
Fair values of exchange- traded derivatives are obtained from quoted market
prices. Fair values of over-the-counter derivatives are obtained using
valuation techniques, including discounted cash flow models and option
pricing models. |
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Derivatives
may be embedded in other financial instruments, for example, a convertible
bond with an embedded conversion option. Embedded derivatives are treated
as separate derivatives when their economic characteristics and risks are
not clearly and closely related to those of the host contract; the terms
of the embedded derivative would meet the definition of a stand-alone derivative
if they were contained in a separate contract; and the combined contract
is not held for trading or designated at fair value. These embedded derivatives
are measured at fair value with changes therein recognised in the income
statement. |
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Derivatives
are classified as assets when their fair value is positive, or as liabilities
when their fair value is negative. Derivative assets and liabilities arising
from different transactions are only offset if the transactions are with
the same counterparty, a legal right of offset exists, and the parties
intend to settle the cash flows on a net basis. |
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The method
of recognising fair value gains and losses depends on whether derivatives
are held for trading or are designated as hedging instruments, and if the
latter, the nature of the risks being hedged. All gains and losses from
changes in the fair value of derivatives held for trading are recognised
in the income statement. When derivatives are designated as hedges, HSBC
classifies them as either: (i) hedges of the change in
fair value of |
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H S B C H O L D
I N G S P L C |
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Notes on the
Financial Statements (continued) |
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Note 2 |
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recognised assets or liabilities or firm
commitments (fair value hedges); (ii) hedges of the variability
in highly probable future cash flows attributable to a recognised asset
or liability, or a forecast transaction (cash flow hedges);
or (iii) a hedge of a net investment in a foreign operation (net investment
hedges). Hedge accounting is applied to derivatives designated as
hedging instruments in a fair value, cash flow or net investment hedge
provided
certain criteria are met. |
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Hedge accounting |
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At the inception of a hedging relationship,
HSBC documents the relationship between the hedging instruments and the
hedged items, its risk management objective and its strategy for undertaking
the hedge. HSBC also requires a documented assessment, both at hedge
inception
and on an ongoing basis, of whether or not the hedging instruments, primarily
derivatives, that are used in hedging transactions are highly effective
in offsetting the changes attributable to the hedged risks in the fair
values
or cash flows of the hedged items. Interest on designated qualifying hedges
is included in Net interest income. |
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Fair value hedge |
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Changes in the fair value of derivatives
that are designated and qualify as fair value hedging instruments are recorded
in the income statement, along with changes in the fair value of the hedged
assets, liabilities or group thereof that are attributable to the hedged
risk. |
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If a hedging relationship no longer meets
the criteria for hedge accounting, the cumulative adjustment to the carrying
amount of the hedged item is amortised to the income statement based on
a recalculated effective interest rate over the residual period to maturity,
unless the hedged item has been derecognised, in which case, it is released
to the income statement immediately. |
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Cash flow hedge |
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The effective portion of changes in the
fair value of derivatives that are designated and qualify as cash flow
hedges is recognised in equity within the Cash flow hedging reserve.
Any gain or loss in fair value relating to an ineffective portion is
recognised immediately in the income statement. |
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Amounts accumulated in equity are recycled
to the income statement in the periods in which the hedged item will affect
profit or loss. However, when the forecast transaction that is hedged results
in the recognition of a non-financial asset or a non-financial liability,
the gains and losses previously deferred in equity are transferred from
equity and included in the initial measurement of the cost of the asset
or liability. |
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When a hedging instrument expires or is sold,
or when a hedge no longer meets the criteria for hedge accounting, any cumulative
gain or loss existing in equity at that time remains in equity until the
forecast transaction is eventually recognised in the income statement. When
a forecast transaction is no longer expected to occur, the cumulative gain
or loss that was reported in equity is immediately transferred to the income
statement. |
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Net investment hedge |
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Hedges of net investments in foreign operations
are accounted for in a similar way to cash flow hedges. A gain or loss on
the effective portion of the hedging instrument is recognised in equity;
a gain or loss on the ineffective portion is recognised immediately in the
income statement. Gains and losses accumulated in equity are included in
the income statement on the disposal of the foreign operation. |
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Hedge effectiveness testing |
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To qualify for hedge accounting, HSBC requires
that at the inception of the hedge and throughout its life, each hedge must
be expected to be highly effective (prospective effectiveness), and demonstrate
actual effectiveness (retrospective effectiveness) on an ongoing basis. |
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The documentation of each hedging relationship
sets out how the effectiveness of the hedge is assessed. The method an HSBC
entity adopts for assessing hedge effectiveness will depend on its risk
management strategy. |
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For prospective effectiveness, the hedging
instrument must be expected to be highly effective in offsetting changes
in fair value or cash flows attributable to the hedged risk during the period
for which the hedge is |
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designated. For actual effectiveness
to be achieved, the changes in fair value or cash flows must offset each
other in the range of 80 per cent to 125 per cent. |
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Hedge ineffectiveness is recognised
in the income statement in Net trading income. |
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Derivatives that do not qualify
for hedge accounting |
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All gains and losses from changes
in the fair values of derivatives that do not qualify for hedge accounting
are recognised immediately in the income statement. These gains and losses
are reported in Net trading income, except where derivatives
are managed in conjunction with financial instruments designated at fair
value (other than derivatives managed in conjunction with debt securities
issued by the Group), in which case gains and losses are reported in Net
income from financial instruments designated at fair value. The interest
on derivatives managed in conjunction with debt securities issued by the
Group which are designated at fair value is recognised in Interest
expense. All other gains and losses on these derivatives are reported
in Net income from financial instruments designated at fair value. |
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(m) |
Derecognition
of financial assets and liabilities |
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Financial assets are derecognised
when the contractual right to receive cash flows from the assets has expired;
or when HSBC has transferred its contractual right to receive the cash flows
of the financial assets, and either: |
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– |
substantially all the risks and
rewards of ownership have been transferred; or |
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– |
HSBC has neither retained nor
transferred substantially all the risks and rewards, but has not retained
control. |
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Financial liabilities are derecognised
when they are extinguished, that is when the obligation is discharged, cancelled
or expires. |
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(n) |
Offsetting financial
assets and financial liabilities |
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Financial assets and financial
liabilities are offset and the net amount reported in the balance sheet
when there is a legally enforceable right to offset the recognised amounts
and there is an intention to settle on a net basis, or realise the asset
and settle the liability simultaneously. |
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(o) |
Subsidiaries,
associates and joint ventures |
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HSBC classifies investments in
entities which it controls as subsidiaries. Where HSBC is a party to a contractual
arrangement whereby, together with one or more parties, it undertakes an
economic activity that is subject to joint control, HSBC classifies its
interest in the venture as a joint venture. HSBC classifies investments
in entities over which it has significant influence, and that are neither
subsidiaries nor joint ventures, as associates. For the purpose of determining
this classification, control is considered to be the power to govern the
financial and operating policies of an entity so as to obtain benefits from
its activities. |
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HSBC Holdings investments
in subsidiaries are stated at cost less any impairment losses. Reversals
of impairment losses are recognised in the income statement if there
has
been a change in the estimates used to determine the recoverable amount
of the investment. |
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Investments in associates and
interests in joint ventures are recognised using the equity method. Under
this method, such investments are initially stated at cost, including
attributable
goodwill, and are adjusted thereafter for the post-acquisition change in
HSBCs share of net assets. |
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Profits on transactions between
HSBC and its associates and joint ventures are eliminated to the extent
of HSBCs interest in the respective associates or joint ventures.
Losses are also eliminated to the extent of HSBCs interest in the
associates or joint ventures unless the transaction provides evidence of
an impairment of the asset transferred. |
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(p) |
Goodwill and intangible
assets |
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(i) |
Goodwill arises
on business combinations, including the acquisition of subsidiaries,
and
on the acquisition of interests in joint ventures and associates, when
the
cost of acquisition exceeds the fair value of HSBCs share of the identifiable
assets, liabilities and contingent liabilities acquired. If HSBCs
interest in the fair |
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H S B C H O L D I
N G S P L C |
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Notes on the Financial Statements (continued) |
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Note 2 |
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value of the identifiable assets, liabilities
and contingent liabilities of an acquired business is greater than the
cost of acquisition, the excess is recognised immediately in the income
statement. |
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Intangible assets are recognised separately
from goodwill when they are separable or arise from contractual or other
legal rights, and their fair value can be measured reliably. |
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Goodwill is allocated to cash-generating
units for the purpose of impairment testing, which is undertaken at the
lowest level at which goodwill is monitored for internal management purposes.
Impairment testing is performed at least annually, and whenever there
is an indication that the cash-generating unit may be impaired, by comparing
the recoverable amount from a cash-generating unit with the carrying
amount of its net assets, including attributable goodwill. The recoverable
amount of an asset is the higher of its fair value less cost to sell,
and its value in use. Value in use is the present value of the expected
future cash flows from a cash-generating unit. If the recoverable amount
is less than the carrying value, an impairment loss is charged to the
income statement. Goodwill is stated at cost less accumulated impairment
losses. |
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Goodwill on acquisitions of interests in
joint ventures and associates is included in Interests in associates
and joint ventures. |
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At the date of disposal of a business, attributable
goodwill is included in HSBCs share of net assets in the calculation
of the gain or loss on disposal. |
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(ii) |
Intangible assets include the present value of in-force long-term insurance
business, computer software, trade names, mortgage servicing rights, customer
lists, core deposit relationships, credit card customer relationships and
merchant or other loan relationships. Intangible assets are subject to
impairment review if there are events or changes in circumstances that
indicate that the carrying amount may not be
recoverable. |
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| – |
Intangible assets that have an indefinite useful life, or are not yet ready
for use, are tested for impairment annually. This impairment test may be
performed at any time during the year, provided it is performed at the
same time every year. An intangible asset recognised during the current
period is tested before the end of the current year. |
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– |
Intangible assets that have a finite useful life, except for
the present value of in-force long-term insurance business, are stated
at cost less amortisation and accumulated impairment losses and are amortised
over their estimated useful lives. Estimated useful life is the lower of
legal duration and expected useful life. The
amortisation of mortgage servicing rights is included within Net fee income. |
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For the accounting policy governing the present value of in-force long-term
insurance business (see Note 2y). |
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(iii) |
Intangible assets with finite useful lives are amortised, generally on a
straight-line basis, over their useful lives as follows: |
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Trade names |
10 years |
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Mortgage servicing rights |
generally between 5 and 12 years |
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Internally generated software |
between 3 and 5 years |
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Purchased software |
between 3 and 5 years |
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Customer/merchant relationships |
between 3 and 10 years |
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Other |
generally 10 years |
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(q) |
Property, plant and equipment |
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| Land and buildings
are stated at historical cost, or fair value at the date of transition to
IFRSs (deemed cost), less any impairment losses
and depreciation calculated to write-off the assets over their estimated useful
lives as follows: |
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– |
freehold land is not depreciated; |
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| – |
freehold buildings are depreciated at the greater of two per cent per annum
on a straight-line basis or over their remaining useful lives; and |
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| – |
leasehold buildings are depreciated over the unexpired terms of the leases,
or over their remaining useful lives. |
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Equipment, fixtures and fittings (including equipment on operating leases where
HSBC is the lessor) are stated at cost less any impairment losses and depreciation
calculated on a straight-line basis to write-off the assets over their useful
lives, which run to a maximum of 35 years but are generally between 5 years
and 20 years. |
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Property, plant and equipment is subject to an impairment review if there are
events or changes in circumstances which indicate that the carrying amount
may not be
recoverable. |
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HSBC holds certain properties as investments to earn rentals or for capital
appreciation, or both. Investment properties are included in the balance sheet
at fair value with changes therein recognised in the income statement in the
period of change. Fair values are determined by independent professional valuers
who apply recognised valuation techniques. |
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(r) |
Finance and operating leases |
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Agreements which transfer to counterparties substantially all the risks and
rewards incidental to the ownership of assets, but not necessarily legal title,
are classified as finance leases. When HSBC is a lessor under finance leases
the amounts due under the leases, after deduction of unearned charges, are
included in Loans and advances to banks or Loans and advances
to customers as appropriate. The finance income receivable is recognised
in Net interest income over the periods of the leases so as to
give a constant rate of return on the net
investment in the leases. |
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When HSBC is a lessee under finance leases, the leased assets are capitalised
and included in Property, plant and equipment and the corresponding
liability to the lessor is
included in Other liabilities. A finance lease and its corresponding
liability are recognised initially at the fair value of the asset or, if lower,
the present value of the minimum lease payments. Finance charges payable are
recognised
in Net interest income over the period of the lease based on the
interest rate implicit in the lease so as to give a constant rate of interest
on the remaining balance of the liability. |
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All other leases are classified as operating leases. When acting as lessor,
HSBC includes the assets subject to operating leases in Property, plant
and equipment and accounts for them accordingly. Impairment losses are
recognised to the extent that residual values are not fully recoverable and
the carrying value of the assets is thereby impaired. When HSBC is the lessee,
leased assets are not recognised on the balance sheet. Rentals payable and
receivable under operating leases are accounted for on a straight-line basis
over the periods of the leases and are included in General and administrative
expenses and Other operating income,
respectively. |
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(s) |
Income tax |
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Income tax comprises current tax and deferred tax. Income tax is recognised
in the income statement except to the extent that it relates to items recognised
directly in equity, in which case it is recognised
in equity. |
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Current tax is the tax expected to be payable
on the taxable profit for the year, calculated using tax rates enacted
or substantively enacted by the balance sheet date, and any adjustment
to tax payable in respect of previous years. Current tax assets and liabilities
are offset when HSBC intends to settle on a net basis and the legal right
to offset exists. |
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Deferred tax is recognised on temporary differences between the carrying amounts
of assets and liabilities in the balance sheet and the amounts attributed to
such assets and liabilities for tax purposes. Deferred tax liabilities are
generally recognised for all taxable temporary differences and deferred tax
assets are recognised to the extent that it is probable that future taxable
profits will be available against which deductible temporary differences can
be utilised. |
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Deferred tax is calculated using the tax rates expected to apply in the periods
in which the assets will be realised or the liabilities settled, based on tax
rates and laws enacted, or substantively enacted, by the balance sheet date.
Deferred tax assets and liabilities are offset when they arise in the same
tax reporting group and relate to income taxes levied by the same taxation
authority, and when HSBC has a legal right to
offset. |
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Deferred tax relating to actuarial gains and losses on post-employment benefits
is recognised directly in equity. Deferred tax relating to fair value remeasurement
of available-for-sale investments and cash flow hedging instruments which are
charged or credited directly to equity, is also credited or charged directly
to equity and is subsequently recognised in the income statement when the deferred
fair value gain or loss is
recognised in the income statement. |
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H S B C H O L D I
N G S P L C |
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Notes on the Financial Statements (continued) |
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Note 2 |
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(t) |
Pension and other post-employment benefits |
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HSBC operates a number of pension and other post-employment benefit plans throughout
the world. These plans include both defined benefit and defined contribution
plans and various other
post-employment benefits such as post-employment healthcare. |
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Payments to defined contribution plans and state-managed retirement benefit
plans, where HSBCs obligations under the plans are equivalent to a defined
contribution plan, are
charged
as an expense as they fall due. |
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The defined benefit pension costs and the present
value of defined benefit obligations are calculated at the reporting date
by the schemes actuaries using the Projected Unit Credit Method.
The net charge to the income statement mainly comprises the current service
cost, plus the unwinding of the discount rate on plan liabilities, less
the expected return on plan assets, and is presented in operating expenses.
Past service costs are charged immediately to the income statement to the
extent that the benefits have vested, and are otherwise recognised on a
straight-line basis over the average period until the benefits vest. Actuarial
gains and losses comprise experience adjustments (the effects of differences
between the previous actuarial assumptions and what has actually occurred),
as well as the effects of changes in actuarial assumptions. Actuarial gains
and losses are recognised in Equity and presented in the Statement
of
Recognised Income and Expense in the period in which they arise. |
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The defined benefit liability recognised in the balance sheet represents the
present value of defined benefit obligations adjusted for unrecognised past
service costs and reduced by the fair value of plan assets. Any net defined
benefit surplus is limited to unrecognised past service costs plus the present
value of available refunds and reductions in future contributions to the plan. |
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The costs of obligations arising from other defined post-employment benefit
plans, such as defined benefit health-care plans, are accounted for on the
same basis as defined benefit
pension plans. |
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(u) |
Share-based payments |
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The cost of share-based payment arrangements with employees is measured by
reference to the fair value of equity instruments on the date they are granted,
and recognised as an expense on a straight-line basis over the vesting period,
with a corresponding credit to the Share-based payment reserve.
The fair value of equity instruments that are made available immediately, with
no vesting period attached to the award, are
expensed immediately. |
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Fair value is determined by using appropriate valuation models, taking into
account the terms and conditions upon which the equity instruments were granted.
Market performance conditions are taken into account when estimating the fair
value of equity instruments at the date of grant, so that an award is treated
as vesting irrespective of whether the market performance condition is satisfied,
provided all other conditions are
satisfied. |
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Vesting conditions, other than market performance
conditions, are not taken into account in the initial estimate of the fair
value at the grant date. They are taken into account by adjusting the number
of equity instruments included in the measurement of the transaction, so
that the amount recognised for services received as consideration for the
equity instruments granted shall be based on the number of equity instruments
that eventually vest. On a cumulative basis, no expense is recognised for
equity instruments that do not vest because of a failure to satisfy non-market
performance or service conditions. |
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Where an award has been modified, as a minimum, the expense of the original
award continues to be recognised as if it had not been modified. Where the
effect of a modification is to increase the fair value of an award or increase
the number of equity instruments, the incremental fair value of the award or
incremental fair value of the extra equity instruments is recognised in addition
to the expense of the original grant, measured at the date of modification,
over the modified vesting period. |
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A cancellation that occurs during the vesting period is treated as an acceleration
of vesting, and recognised immediately for the amount that would otherwise
have been recognised for
services over the vesting period. |
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Where HSBC Holdings enters into share-based payment arrangements involving
employees of subsidiaries, the cost is recognised in Investment in subsidiaries and
credited to the Share-based payment reserve over the vesting period.
Where the cost is recharged to the subsidiary, it is recognised as an inter-company
debtor, not as an investment in subsidiary. Where a subsidiary has funded the
share-based payment
arrangement, Investment in subsidiaries is reduced by the fair value
of equity instruments. |
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(v) |
Foreign currencies |
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Items included in the financial statements of each of HSBCs entities
are measured using the currency of the primary economic environment in which
the entity operates (the
functional currency). The consolidated financial statements of HSBC are
presented in US dollars, which is the Groups
presentation currency. |
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Transactions in foreign currencies are recorded
in the functional currency at the rate of exchange prevailing on the date
of the transaction. Monetary assets and liabilities denominated in foreign
currencies are translated into the functional currency at the rate of exchange
ruling at the balance sheet date. Any resulting exchange differences are
included in the income statement. Non-monetary assets and liabilities that
are measured at historical cost in a foreign currency are translated into
the functional currency using the rate of exchange at the date of the initial
transaction. Non-monetary assets and liabilities measured at fair value
in a foreign currency are translated into the functional currency using
the rate of exchange at the date the fair value was determined. Any exchange
component of a gain or loss on a non-monetary item is recognised directly
in equity if the gain or loss on the non-monetary item is recognised directly
in equity. Any exchange component of a gain or loss on a non- monetary
item is recognised directly in the income statement if the gain or loss
on the non-monetary item is recognised in the income statement. |
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In the consolidated financial statements, the assets, including related goodwill
where applicable, and liabilities of branches, subsidiaries, joint ventures
and associates whose functional currency is not US dollars, are translated
into the Groups presentation currency at the rate of exchange ruling
at the balance sheet date. The results of branches, subsidiaries, joint ventures
and associates whose functional currency is not US dollars are translated
into US dollars at the average rates of exchange for the reporting period.
Exchange differences arising from the retranslation of opening foreign currency
net investments, and exchange differences arising from retranslation of the
result for the reporting period from the average rate to the exchange rate
prevailing at the period end, are recognised in equity in the Foreign
exchange reserve. Exchange differences on a monetary item that is part
of a net investment in a foreign operation are recognised in the income statement
of the separate financial statements. In consolidated financial statements
these exchange differences are recognised in the Foreign exchange reserve in
shareholders equity. On disposal of a foreign operation, exchange differences
relating thereto and previously recognised in reserves are recognised in
the
income statement. |
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(w) |
Provisions |
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Provisions are recognised when it is probable that an outflow of economic
benefits will be required to settle a current legal or constructive obligation,
which has arisen as a result of past events, and for which a reliable estimate
can be made of the amount of the obligation. |
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Contingent liabilities, which include certain guarantees and letters of credit
pledged as collateral security, are possible obligations that arise from
past events whose existence will be confirmed only by the occurrence, or
non-occurrence, of one or more uncertain future events not wholly within
the control of HSBC; or are present obligations that have arisen from past
events but are not recognised because it is not probable that settlement
will require the outflow of economic benefits, or because the amount of the
obligations cannot be reliably measured. Contingent liabilities are not recognised
in the financial statements but are disclosed unless the probability of settlement
is remote. |
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(x) |
Financial guarantee contracts |
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Liabilities under financial guarantee contracts which are not classified
as insurance contracts are recorded initially at their fair value, which
is generally the fee received or receivable. Subsequently, financial guarantee
liabilities are measured at the higher of the initial fair value, less cumulative
amortisation, and the best estimate of the expenditure required to settle
the obligations. |
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HSBC Holdings has issued financial guarantees to other Group entities. Where
it has previously asserted explicitly that it regards such contracts as insurance
contracts and has used accounting applicable to insurance contracts, HSBC
may elect to account for guarantees as an insurance contract. This election
is made on a contract by contract basis, but the election for each contract
is irrevocable. Where these guarantees have been classified as insurance
contracts, they are measured and recognised as insurance liabilities. |
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H S B C H O L D I
N G S P L C |
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Notes on the
Financial Statements (continued) |
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|
Note 2 |
|
(y) |
Insurance contracts |
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Through its insurance subsidiaries, HSBC issues contracts to customers that
contain insurance risk, financial risk or a combination thereof. A contract
under which HSBC accepts significant insurance risk from another party by agreeing
to compensate that party on the occurrence of a specified uncertain future
event, is classified as an insurance contract. An insurance contract may also
transfer financial risk, but is accounted for as an insurance contract if the
insurance risk is significant. |
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While investment contracts with discretionary participation features are financial
instruments, they continue to be treated as insurance contracts as permitted
by IFRS 4. |
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Insurance contracts are accounted for as follows: |
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Premiums |
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|
Gross insurance premiums for non-life insurance business are reported as income
over the term of the insurance contracts based on the proportion of risks borne
during the accounting period. The unearned premium (the proportion of the business
underwritten in the accounting year relating to the period of risk after the
balance sheet date) is calculated on a daily or monthly pro rata basis. |
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Premiums for life insurance contracts are accounted for when receivable, except
in unit-linked insurance contracts where premiums are accounted for when liabilities
are
established. |
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Reinsurance premiums are accounted for in the same accounting period as the
premiums for the direct insurance contracts to which they relate. |
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Claims and reinsurance recoveries |
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Gross insurance claims for non-life insurance contracts include paid claims
and movements in outstanding claims liabilities. |
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Gross insurance claims for life insurance contracts reflect the total cost
of claims arising during the year, including claim handling costs and any policyholder
bonuses allocated in anticipation of a bonus declaration. Claims arising during
the year include maturities, surrenders and death claims. |
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Maturity claims are recognised when due for payment. Surrenders are recognised
when paid or at an earlier date on which, following notification, the policy
ceases to be included within the calculation of the related insurance liabilities.
Death claims are recognised when notified. |
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Reinsurance recoveries are accounted for in the same period as the related
claim. |
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Liabilities under insurance contracts |
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Outstanding claims liabilities for non-life insurance contracts are based on
the estimated ultimate cost of all claims incurred but not settled at the balance
sheet date, whether reported or not, together with related claim- handling
costs and a reduction for the expected value of salvage and other recoveries.
Liabilities for claims incurred but not reported are made on an estimated basis,
using appropriate statistical
techniques. |
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Liabilities under non-linked life insurance contracts are calculated by each
life insurance operation based on local actuarial principles. |
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Liabilities under unit-linked life insurance contracts are at least equivalent
to the surrender or transfer value which is calculated by reference to the
value of the relevant underlying
funds or indices. |
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A liability adequacy test is carried out on insurance liabilities to ensure
that the carrying amount of the liabilities is sufficient in the light of current
estimates of future cash flows. When performing the liability adequacy test,
all contractual cash flows are discounted and compared with the carrying value
of the liability. When a shortfall is identified it is charged immediately
to the income statement. |
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Present value of in-force long-term insurance business |
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The value placed on insurance contracts that are classified as long-term insurance
business and are in force at the balance sheet date is recognised as an asset. |
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The present value of in-force (PVIF) long-term insurance business
is determined by discounting future cash flows expected to emerge from business
currently in force using appropriate assumptions in assessing factors such
as future mortality, lapse rates and levels of expenses and a risk discount
rate that reflects the risk premium attributable to the respective long-term
insurance business. Movements in the PVIF long-term insurance business are
included in Other operating income on
a gross of tax basis. |
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Future profit participation |
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|
Where contracts provide discretionary profit participation benefits to policyholders,
insurance liabilities include the net unrealised gains recognised in connection
with the assets backing the contracts to the extent that policyholders will
benefit from such gains. This benefit may arise from the contractual terms,
regulation, or past distribution policy. The corresponding movement in liability
is recognised in equity or in the income statement in the same proportion to
the net unrealised gains on the assets. In the case of net unrealised losses,
a deferred participating asset is recognised only to the extent that its recoverability
is highly probable. |
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Investment contracts |
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Customer liabilities under linked and certain non-linked investment contracts
and the corresponding financial assets are designated at fair value. Movements
in fair value are recognised
in Net income from financial investments designated at fair value.
Premiums receivable and amounts withdrawn are accounted for as increases or decreases
in the liability recorded in respect of investment contracts. |
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Liabilities under linked investment contracts are at least equivalent to the
surrender or transfer value which is calculated by reference to the value of
the relevant underlying funds or
indices. |
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Investment management fees receivable are recognised in the income statement
over the period of the provision of the investment management services, in Net
fee
income. |
|
|
|
The incremental costs directly related to the acquisition of new investment
contracts or renewing existing investment contracts are deferred and amortised
over the period during which the
investment management services are provided. |
|
|
(z) |
Debt securities issued and deposits by customers and banks |
|
|
|
Financial liabilities are recognised when HSBC enters into the contractual
provisions of the arrangements with counterparties, which is generally on trade
date, and initially measured at fair value, which is normally the consideration
received net of directly attributable transaction costs incurred. Subsequent
measurement of financial liabilities, other than those measured at fair value
through profit or loss and financial guarantees, is at amortised cost, using
the effective interest method to amortise the difference between proceeds net
of directly attributable transaction costs and the redemption amount over the
expected life of the debt. |
|
|
(aa) |
Share capital |
|
|
|
Shares are classified as equity when there is no contractual obligation to
transfer cash or other financial assets. Incremental costs directly attributable
to the issue of equity instruments are shown in equity as a deduction from
the proceeds, net of tax. |
|
|
|
HSBC Holdings plc shares held by HSBC are recognised in Total shareholders equity as
a deduction from retained earnings until they are cancelled. When such shares
are subsequently sold, reissued or otherwise disposed of, any consideration
received is included in Total shareholders equity, net of
any directly attributable incremental transaction costs and related income
tax effects. |
|
|
|
|
(ab) |
Cash and cash equivalents |
|
|
|
|
|
For the purpose of the cash flow statement,
cash and cash equivalents include highly liquid investments that are readily
convertible to known amounts of cash and which are subject to an insignificant
risk of change in value. Such investments are normally those with less
than three months maturity from the date of acquisition, and include
cash and balances at central banks, treasury bills and other eligible bills,
loans and advances to banks, items in the course of collection from or
in transmission to other banks, and certificates of deposit. |
359
Back to Contents
H S B C H O L D I
N G S P L C |
|
Notes on the
Financial Statements (continued) |
|
|
|
|
Notes 3, 4 and 5 |
3 |
Net income from financial instruments designated at fair value |
|
|
Net income from financial instruments designated at fair value includes: |
| • |
all gains and losses from changes in the fair value of financial assets and
liabilities designated at fair value, including liabilities under investment
contracts; |
|
| • |
all gains and losses from changes in the fair value of derivatives that are
managed in conjunction with financial assets and liabilities designated at
fair value; and |
|
| • |
interest income, interest expense and dividend income in respect of: |
|
|
| |
financial assets and liabilities designated at fair value; and |
|
| | |
derivatives managed in conjunction with the above, |
|
| |
except for interest arising from HSBCs issued debt securities and derivatives
managed in conjunction with those debt securities, which is recognised in Interest
expense. |
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
US$m
|
|
|
US$m |
|
|
US$m |
|
|
|
Net income/(expense) arising on: |
|
|
|
|
|
|
|
|
|
|
financial
assets held to meet liabilities under insurance and investment contracts |
(5,064
|
) |
|
2,056
|
|
|
1,552
|
|
|
|
other financial
assets designated at fair value |
1,738
|
|
|
581
|
|
|
217
|
|
|
|
derivatives
managed in conjunction with financial assets designated
at fair value |
77
|
|
|
(18
|
) |
|
57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,249
|
) |
|
2,619
|
|
|
1,826
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
liabilities
to customers under investment contracts |
1,751
|
|
|
(940
|
) |
|
(1,008
|
) |
|
|
HSBCs
long-term debt issued and related derivatives |
6,679
|
|
|
2,812
|
|
|
(35
|
) |
|
|
|
changes
in own credit spread on long-term debt |
6,570
|
|
|
3,055
|
|
|
(388
|
) |
|
|
|
derivatives managed in conjunction with
HSBCs issued debt securities |
4,413
|
|
|
2,476
|
|
|
242
|
|
|
|
|
other changes
in fair value |
(4,304
|
) |
|
(2,719
|
) |
|
111
|
|
|
|
other financial
liabilities designated at fair value |
(1,368
|
) |
|
(395
|
) |
|
(125
|
) |
|
|
derivatives
managed in conjunction with other financial liabilities designated at fair
value |
39
|
|
|
(13
|
) |
|
(1
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,101
|
|
|
1,464
|
|
|
(1,169
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from financial instruments designated at fair value |
3,852
|
|
|
4,083
|
|
|
657
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4 |
Gains arising from dilution of interests in associates |
|
|
|
|
Gains arising |
|
HSBCs |
|
HSBCs |
|
|
|
from dilution |
|
interests after |
|
interests before |
|
|
|
of HSBCs |
|
issue of |
|
issue of |
|
|
|
interests |
|
new shares |
|
new shares |
|
|
|
US$m |
|
% |
|
% |
|
|
2007 |
|
|
|
|
|
|
|
Industrial Bank1
|
187 |
|
12.78 |
|
15.98 |
|
|
Ping An Insurance |
485 |
|
16.78 |
|
19.90 |
|
|
Bank of Communications2
|
404 |
|
18.60 |
|
19.90 |
|
|
Financiera Independencia S.A. de C.V. |
11 |
|
18.68 |
|
19.90 |
|
|
Vietnam Technological and Commercial Joint Stock Bank |
5 |
|
14.44 |
|
15.00 |
|
|
|
|
|
|
|
|
|
|
Gains arising from dilution of interests in associates |
1,092 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
Investment held through Hang Seng Bank, a 62.14 per cent owned subsidiary
of HSBC. The dilution gains therefore include a minority interest of US$71
million. |
|
2 |
Subsequent to the dilution of its interests in Bank of Communications,
HSBC increased its holding from 18.60 per cent to 19.01 per cent at 31 December
2007 (Note
21). |
|
|
|
|
In 2007, certain HSBC
associates issued new shares. HSBC did not subscribe and, as a result,
its interests in the associates equity decreased. The assets of each
associate substantially increased as a result of the new share issue and,
as a consequence, HSBCs share of the associates underlying
net assets increased notwithstanding the reduction in the Groups
proportionate ownership interests. This increase is a gain arising from
the dilution of the Groups interests in the associates, and is presented
in the income statement. |
360
Back to Contents
5 |
Net earned insurance premiums |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life
|
|
Life
|
|
Investment |
|
|
|
|
|
Non-life
|
|
insurance
|
|
insurance
|
|
contracts with |
|
|
|
|
|
insurance
|
|
(non-linked)
|
|
(linked)
|
|
DPF
|
1 |
Total
|
|
|
|
US$m
|
|
US$m
|
|
US$m
|
|
US$m |
|
US$m
|
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
Gross written premiums |
1,776
|
|
6,257
|
|
1,825
|
|
2,802 |
|
12,660
|
|
|
Movement in unearned premiums |
58
|
|
(171
|
) |
|
|
|
|
(113
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross earned premiums |
1,834
|
|
6,086
|
|
1,825
|
|
2,802 |
|
12,547
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross written
premiums ceded to reinsurers |
(260
|
) |
(878
|
) |
(564
|
) |
|
|
(1,702
|
) |
|
Reinsurers share of movement
in unearned premiums |
(3
|
) |
27
|
|
(19
|
) |
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reinsurers share
of gross earned premiums |
(263
|
) |
(851
|
) |
(583
|
) |
|
|
(1,697
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earned insurance premiums |
1,571
|
|
5,235
|
|
1,242
|
|
2,802 |
|
10,850
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
Gross written premiums |
1,853
|
|
4,892
|
|
2,350
|
|
1,890 |
|
10,985
|
|
|
Movement in unearned premiums |
2
|
|
14
|
|
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross earned premiums |
1,855
|
|
4,906
|
|
2,350
|
|
1,890 |
|
11,001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross written
premiums ceded to reinsurers |
(385
|
) |
(357
|
) |
(1,166
|
) |
|
|
(1,908
|
) |
|
Reinsurers share
of movement in unearned premiums |
(22
|
) |
|
|
5
|
|
|
|
(17
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Reinsurers share
of gross earned premiums |
(407
|
) |
(357
|
) |
(1,161
|
) |
|
|
(1,925
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earned insurance premiums |
1,448
|
|
4,549
|
|
1,189
|
|
1,890 |
|
9,076
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
Gross written premiums |
1,824
|
|
3,640
|
|
848
|
|
8 |
|
6,320
|
|
|
Movement in unearned premiums |
122
|
|
14
|
|
(1
|
) |
|
|
135
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross earned premiums |
1,946
|
|
3,654
|
|
847
|
|
8 |
|
6,455
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross written
premiums ceded to reinsurers |
(451
|
) |
(274
|
) |
(14
|
) |
|
|
(739
|
) |
|
Reinsurers share
of movement in unearned premiums |
(48
|
) |
|
|
|
|
|
|
(48
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Reinsurers share
of gross earned premiums |
(499
|
) |
(274
|
) |
(14
|
) |
|
|
(787
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earned insurance premiums |
1,447
|
|
3,380
|
|
833
|
|
8 |
|
5,668
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
Discretionary participation
features. |
361
Back to Contents
H S B C H O L D I
N G S P L C |
|
Notes on the
Financial Statements (continued) |
|
|
|
|
Notes 6, 7 and 8 |
6 |
Net insurance claims incurred and movement in liabilities to policyholders |
|
|
|
|
|
|
|
Life
|
|
|
Life
|
|
|
Investment
|
|
|
|
|
|
|
|
Non-life
|
|
|
insurance
|
|
|
insurance
|
|
|
contracts with
|
|
|
|
|
|
|
|
insurance
|
|
|
(non-linked)
|
|
|
(linked)
|
|
|
DPF1
|
|
|
Total
|
|
|
|
|
US$m
|
|
|
US$m
|
|
|
US$m
|
|
|
US$m
|
|
|
US$m
|
|
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Claims, benefits and surrenders paid |
1,044
|
|
|
1,491
|
|
|
481
|
|
|
1,911
|
|
|
4,927
|
|
|
|
Movement in liabilities |
|
|
|
3,989
|
|
|
458
|
|
|
(168
|
) |
|
4,279
|
|
|
|
Gross claims
incurred and movement in liabilities |
1,044
|
|
|
5,480
|
|
|
939
|
|
|
1,743
|
|
|
9,206
|
|
|
|
Reinsurers share
of claims, benefits and surrenders paid |
(158
|
) |
|
(172
|
) |
|
(44
|
) |
|
|
|
|
(374
|
) |
|
|
Reinsurers share
of movement in liabilities |
75
|
|
|
(620
|
) |
|
(1,398
|
) |
|
|
|
|
(1,943
|
) |
|
|
Reinsurers share
of claims incurred and movement in liabilities |
(83
|
) |
|
(792
|
) |
|
(1,442
|
) |
|
|
|
|
(2,317
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net insurance
claims incurred and movement in liabilities
to policyholders |
961
|
|
|
4,688
|
|
|
(503
|
) |
|
1,743
|
|
|
6,889
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Claims, benefits and surrenders paid |
1,017
|
|
|
940
|
|
|
790
|
|
|
1,080
|
|
|
3,827
|
|
|
|
Movement in liabilities |
82
|
|
|
2,437
|
|
|
2,096
|
|
|
1,108
|
|
|
5,723
|
|
|
|
Gross claims incurred
and movement in liabilities |
1,099
|
|
|
3,377
|
|
|
2,886
|
|
|
2,188
|
|
|
9,550
|
|
|
|
Reinsurers share
of claims, benefits and surrenders paid |
(207
|
) |
|
(169
|
) |
|
(45
|
) |
|
|
|
|
(421
|
) |
|
|
Reinsurers share
of movement in liabilities |
36
|
|
|
518
|
|
|
(1,075
|
) |
|
|
|
|
(521
|
) |
|
|
Reinsurers share
of claims incurred and movement in liabilities |
(171
|
) |
|
349
|
|
|
(1,120
|
) |
|
|
|
|
(942
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net insurance
claims incurred and movement in liabilities
to policyholders |
928
|
|
|
3,726
|
|
|
1,766
|
|
|
2,188
|
|
|
8,608
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Claims, benefits and surrenders paid |
889
|
|
|
814
|
|
|
495
|
|
|
|
|
|
2,198
|
|
|
|
Movement in liabilities |
10
|
|
|
2,207
|
|
|
651
|
|
|
6
|
|
|
2,874
|
|
|
|
Gross
claims incurred and movement in liabilities |
899
|
|
|
3,021
|
|
|
1,146
|
|
|
6
|
|
|
5,072
|
|
|
|
Reinsurers share
of claims, benefits and surrenders paid |
(228
|
) |
|
(154
|
) |
|
(9
|
) |
|
|
|
|
(391
|
) |
|
|
Reinsurers share
of movement in liabilities |
57
|
|
|
(54
|
) |
|
20
|
|
|
|
|
|
23
|
|
|
|
Reinsurers share
of claims incurred and movement in liabilities |
(171
|
) |
|
(208
|
) |
|
11
|
|
|
|
|
|
(368
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net insurance
claims incurred and movement in liabilities
to policyholders |
728
|
|
|
2,813
|
|
|
1,157
|
|
|
6
|
|
|
4,704
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
Discretionary participation features. |
362
Back to Contents
7 |
Net operating income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income
is stated after the following items of income, expense, gains and losses: |
|
|
|
|
|
|
|
|
|
2008 |
|
2007 |
|
2006 |
|
|
|
|
US$m |
|
US$m |
|
US$m |
|
|
Income |
|
|
|
|
|
|
|
Interest
recognised on impaired financial assets |
1,040 |
|
404 |
|
284 |
|
|
Fees
earned on financial assets or liabilities not held for trading nor
designated
at fair value, other than fees included in effective interest rate calculations
on these types of assets and liabilities |
14,511 |
|
15,140 |
|
11,182 |
|
|
Fees earned on trust and other fiduciary activities where HSBC holds or
invests assets on behalf of its customers |
3,314 |
|
3,695 |
|
2,909 |
|
|
Income from listed
investments |
11,425 |
|
10,944 |
|
7,304 |
|
|
Income
from unlisted investments |
11,359 |
|
10,429 |
|
9,192 |
|
|
Losses from the alleged
fraud at Bernard L Madoff Investment Securities LLC (charged against trading
income) |
(984 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Expense |
|
|
|
|
|
|
|
Interest on financial instruments, excluding interest on financial liabilities
held for trading or designated at fair value |
(45,525 |
) |
(50,876 |
) |
(38,158 |
) |
|
Fees payable on financial assets or liabilities not held for trading nor
designated at fair value, other than fees included in effective interest
rate calculations on these types of assets and liabilities |
(1,866 |
) |
(1,923 |
) |
(1,826 |
) |
|
Fees payable relating to trust and other fiduciary activities where HSBC
holds or invests assets on behalf of its customers |
(159 |
) |
(163 |
) |
(103 |
) |
|
|
|
|
|
|
|
|
|
Gains/(losses) |
|
|
|
|
|
|
|
Gain on disposal or
settlement of loans and advances |
94 |
|
64 |
|
24 |
|
|
Impairment of available-for-sale equity securities |
(1,042 |
) |
(42 |
) |
|
|
|
Gains on disposal
of property, plant and equipment, intangible assets and non-financial investments |
465 |
|
213 |
|
781 |
|
|
Gain on repurchase of 8 Canada Square |
416 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan impairment
charges and other credit risk provisions |
(24,937 |
) |
(17,242 |
) |
(10,573 |
) |
|
|
Net impairment
charge on loans and advances |
(24,131 |
) |
(17,177 |
) |
(10,547 |
) |
|
|
Impairment of available-for-sale
debt securities |
(737 |
) |
(44 |
) |
(21 |
) |
|
|
Impairment in
respect of other credit risk provisions |
(69 |
) |
(21 |
) |
(5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8 |
Employee compensation
and benefits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
2007 |
|
2006 |
|
|
|
|
US$m |
|
US$m |
|
US$m |
|
|
|
|
|
|
|
|
|
|
Wages
and salaries |
18,169 |
|
18,535 |
|
16,186 |
|
|
Social security costs |
1,625 |
|
1,587 |
|
1,194 |
|
|
Post-employment
benefits |
998 |
|
1,212 |
|
1,120 |
|
|
|
|
|
|
|
|
|
|
|
|
|
20,792 |
|
21,334 |
|
18,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The average number
of persons employed by HSBC during the year was as follows: |
|
|
|
|
|
|
|
|
|
2008 |
|
2007 |
|
2006 |
|
|
|
|
|
|
|
|
|
|
Europe |
87,864 |
|
86,918 |
|
84,170 |
|
|
Hong Kong |
30,030 |
|
27,702 |
|
27,328 |
|
|
Rest
of Asia-Pacific |
96,155 |
|
83,103 |
|
68,182 |
|
|
North America |
53,090 |
|
58,117 |
|
57,654 |
|
|
Latin
America |
64,319 |
|
66,442 |
|
58,863 |
|
|
|
|
|
|
|
|
|
|
|
Total |
331,458 |
|
322,282 |
|
296,197 |
|
|
|
|
|
|
|
|
|
|
363
Back to Contents
H S B C H O L D I
N G S P L C |
|
Notes on the Financial Statements (continued) |
|
|
|
|
Note 8 |
|
Post-employment benefit
plans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income statement
charge |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
|
|
|
|
|
|
|
|
|
|
Defined
benefit pension plans |
477 |
|
|
694 |
|
|
602 |
|
|
|
HSBC Bank (UK) Pension Scheme |
255 |
|
|
490 |
|
|
342 |
|
|
|
Other plans |
222 |
|
|
204 |
|
|
260 |
|
|
Defined contribution
plans |
508 |
|
|
485 |
|
|
456 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
985 |
|
|
1,179 |
|
|
1,058 |
|
|
Defined benefit healthcare
plans |
13 |
|
|
33 |
|
|
62 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
998 |
|
|
1,212 |
|
|
1,120 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net liabilities recognised
on balance sheet in respect of defined benefit plans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
US$m |
|
|
US$m |
|
|
|
|
|
|
|
|
|
|
|
|
Defined benefit
pension plans |
|
|
|
3,154 |
|
|
1,968 |
|
|
|
HSBC Bank
(UK) Pension Scheme |
|
|
|
392 |
|
|
808 |
|
|
|
Other
plans |
|
|
|
2,762 |
|
|
1,160 |
|
|
Defined benefit healthcare plan |
|
|
|
734 |
|
|
925 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,888 |
|
|
2,893 |
|
|
|
|
|
|
|
|
|
|
|
|
|
HSBC pension plans |
|
|
|
|
HSBC operates some 205 pension
plans throughout the world, covering 86 per cent of HSBCs employees,
with a total pension cost of US$985 million (2007: US$1,179 million;
2006: US$1,058 million), of which US$678 million (2007: US$626
million; 2006: US$668 million) relates to plans outside the UK. |
|
|
|
|
Progressively, HSBC has been
moving to defined contribution plans for all new employees. The pension
cost for defined contribution plans, which cover 50 per cent of HSBCs
employees, was US$508 million (2007: US$485 million; 2006: US$456
million). |
|
|
|
|
Both HSBCs and, where
relevant and appropriate, the trustees long-term investment objectives
for defined benefit plans are: |
|
|
|
|
• |
to limit the risk of the assets failing
to meet the liabilities of the plans over the long-term; and |
|
|
|
|
• |
to maximise returns consistent with an acceptable
level of risk so as to control the long-term costs of the defined
benefit plans. |
|
|
|
|
Both HSBC and, where relevant
and appropriate, the trustees, consider that the investment policy should
be consistent with meeting their mutual overall long-term investment
objectives. In pursuit of these long-term objectives, a benchmark is
established for the allocation of the defined benefit plan assets between
asset classes. In addition, each permitted asset class has its own benchmarks,
such as stock market or property valuation indices and desired levels
of out-performance where relevant. This is intended to be reviewed at
least triennially within 18 months of the date at which the actuarial
valuation is made, or more frequently if circumstances or local legislation
so require. The process generally involves an extensive asset and liability
review. |
|
|
|
|
Most of the Groups defined
benefit plans, which cover 36 per cent of HSBCs employees, are
funded plans with assets which, in the case of most of the larger plans,
are held in trust or similar funds separate from HSBC. The plans are
reviewed at least annually or in accordance with local practice and regulations
by qualified actuaries. The actuarial assumptions used to calculate the
defined benefit obligations and related current service costs vary according
to the economic conditions of the countries in which they are situated. |
|
|
|
|
The largest plan exists in the
UK, where the HSBC Bank (UK) Pension Scheme covers employees of HSBC
Bank plc and certain other employees of HSBC. This plan comprises a funded
defined benefit plan (the principal plan) which is closed
to new entrants, and a defined contribution plan which was established
on 1 July 1996 for new employees. |
|
|
|
The principal plan holds a diversified
portfolio of investments to meet future cash flow liabilities arising from
accrued benefits as they fall due to be paid. The Trustee of the principal
plan is required to produce a written |
364
Back to Contents
|
Statement of Investment Principles (SIP).
The SIP sets out the principles governing how decisions about investments
are made. |
|
|
|
In 2006, HSBC and the Trustee of the principal
plan agreed to change the investment strategy in order to reduce the investment
risk. This involved switching from a largely equity-based strategy to a
strategy largely based on holding bonds together with a more diverse range
of investments. The principal plan committed to undertake a programme including
entering into swap arrangements whereby the principal plan is committed
to making LIBOR-related interest payments in exchange for cash flows paid
into the plan, based on a projection of the future benefit payments from
the principal plan. The asset allocation for this strategy is: |
|
|
|
% |
|
|
|
|
|
|
|
Equities |
15.0 |
|
|
Bonds |
50.0 |
|
|
Alternative
assets1 |
10.0 |
|
|
Property |
10.0 |
|
|
Cash |
15.0 |
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
|
|
|
|
|
|
|
|
|
1 |
Alternative assets
include emerging market bonds, loans, and infrastructure assets. |
|
|
|
|
|
|
At 31 December 2008,
this strategy was substantially in place and details of the swap arrangements
are included in Note 43. |
|
|
|
|
|
|
The latest actuarial
investigation of the principal plan was made at 31 December 2005. At
that date, the market value of the HSBC Bank (UK) Pension Schemes
assets was US$18,072 million (including assets relating to the defined
benefit plan, the defined contribution plan, and additional voluntary
contributions). The market value of the plan assets represented 89 per
cent of the amount expected to be required, on the basis of the assumptions
adopted, to provide the benefits accrued to members after allowing for
expected future increases in earnings, and the resulting deficit amounted
to US$2,065 million. The method adopted for this investigation was
the projected unit method. |
|
|
|
|
|
|
The expected cash flows
from the plan were projected by reference to the Retail Price Index (RPI)
swap break-even curve at 31 December 2005. Salary increases were assumed
to be 1 per cent per annum above RPI and inflationary pension increases,
subject to a minimum of zero per cent and a maximum of 5 per cent, were
assumed to be in line with RPI. The projected cash flows were discounted
at the LIBOR swap curve at 31 December 2005 plus a margin for the expected
return on the investment strategy of 110 basis points per annum. The mortality
experience of the plans pensioners over the three year period since
the previous valuation was analysed and the mortality assumption set on
the basis of this with allowances for medium cohort improvements on the
PA92 series of tables from the valuation date. |
|
|
|
|
|
|
In anticipation of
the results of the 2005 investigation, on 22 December 2005 HSBC Bank
plc made an additional contribution of US$1,746 million to the principal
plan in order to reduce the deficit of the plan. Following receipt of
the valuation results, HSBC agreed with the Trustee to meet a schedule
of additional future funding payments, as set out below: |
|
|
|
US$m |
1 |
£m |
|
|
|
|
|
|
|
|
2007 |
587 |
|
300 |
|
|
2012 |
678 |
|
465 |
|
|
2013 |
678 |
|
465 |
|
|
2014 |
678 |
|
465 |
|
|
|
|
|
|
|
|
|
1 |
The
payment schedule has been agreed with the Trustee in pounds sterling
and the equivalent US dollar amounts are shown at the exchange rate
effective as at 31 December 2008. The amount for 2007 was paid in March
2007, and is shown above at the exchange rate at that time. |
|
|
|
|
|
|
|
|
HSBC
considers that the contributions set out above are sufficient to meet
the deficit as at 31 December 2005 over the agreed period. |
|
|
|
|
|
|
|
|
HSBC
Bank plc also decided to make ongoing contributions to the principal
plan in respect of the accrual of benefits of defined benefit section
members at the rate of 36 per cent of pensionable salaries from 1 January
2007, until the completion of the next actuarial valuation, due as at
31 December 2008. During 2006 HSBC paid contributions at the rate of
20 per cent of pensionable salaries. A further 2 per cent of pensionable
salaries is being paid over the period 1 January 2007 to 31 December
2014 to make good the difference in contributions during 2006. |
365
Back to Contents
H S B C H
O L D I N G S P L C |
|
Notes on the Financial Statements (continued) |
|
|
|
|
Note 8 |
|
The Trustee and the
bank will monitor progress towards closing the deficit and reassess the
deficit in the light of the triennial
valuation that is currently being performed as at 31 December 2008. This
valuation process is currently underway and is due to be completed no later
than 31 March 2010. Future funding commitments will be determined on conclusion
of the actuarial valuation. |
|
|
|
As part of the 31 December 2005 valuation,
calculations were also carried out as to the amount of assets that might
be needed to meet the liabilities if the plan was discontinued and the
members benefits bought out with an insurance company (although
in practice this may not be possible for a plan of this size) or the
Trustee continued to run the plan without the support of HSBC. The amount
required under this approach was estimated at 31 December 2005 to be
US$26,700 million. In estimating the solvency position for this purpose,
a more prudent assumption about future mortality was made than for the
assessment of the ongoing position and it was assumed that the Trustee
would alter the investment strategy to be an appropriately matched portfolio
of cash and interest and inflation swaps. An explicit allowance for expenses
was also included. |
|
|
|
The benefits payable from the defined benefit
plan are expected to be as shown in the chart below: |
|
|
|
Benefit payments (US$m) |
|
|
|
|
|
|
|
In Hong Kong, the HSBC Group Hong Kong Local
Staff Retirement Benefit Scheme covers employees of The Hongkong and
Shanghai Banking Corporation and certain other employees of HSBC Group.
The scheme comprises a funded defined benefit scheme (which provides
a lump sum on retirement but is now closed to new members) and a defined
contribution scheme. The latter was established on 1 January 1999 for
new employees. The latest valuation of the defined benefit scheme was
made at 31 December 2007. At that valuation date, the market value of
the defined benefit schemes assets was US$1,183 million. On
an ongoing basis, the actuarial value of the schemes assets represented
119 per cent of the actuarial present value of the benefits accrued to
members, after allowing for expected future increases in salaries, and
the resulting surplus amounted to US$192 million. On a wind-up basis,
the schemes assets represents 125 per cent of the members vested
benefits, based on current salaries, and the resulting surplus amounted
to US$237 million. The attained age method has been adopted for the
valuation and the major assumptions used in this valuation were a discount
rate of 6 per cent per annum and long-term salary increases of 5 per
cent per annum. |
|
|
|
The HSBC North America (U.S.) Retirement
Income Plan covers employees of HSBC Bank USA, HSBC Finance, and certain
other employees of HSBC USA. It comprises a final average pay plan (now
closed to new participants) and a cash balance plan. All new employees
participate in the cash balance plan. The most recent actuarial valuation
of the plan was made at 1 January 2008. At that date, the actuarial value
of the plan's assets was equal to market value of US$2,616 million.
The assets represented 105 per cent of the benefits accrued to members
as valued under the provisions of the Pension Protection Act of 2006
that was effective for the plan year beginning 1 January 2008.The resulting
surplus amounted to US$122 million. The method employed for this
valuation was the projected unit method and the discount rate was determined
using a full yield curve method, which resulted in an effective interest
rate of 6.4 per cent per annum. |
|
|
|
The HSBC Bank (UK) Pension Scheme, The HSBC
Group Hong Kong Local Staff Retirement Benefit Scheme, and the HSBC
North
America (U.S.) Retirement Income Plan cover 35 per cent of HSBCs
employees. |
366
Back to Contents
|
HSBC healthcare benefits plans |
|
|
|
HSBC also provides post-employment healthcare
benefits under plans in the UK, the US, Canada, Mexico, France and Brazil,
the majority of which are unfunded. Post-employment healthcare benefits
plans are accounted for in the same manner as defined benefit pension
plans. The plans are reviewed at least annually or in accordance with
local practice and regulations by qualified actuaries. The actuarial
assumptions used to calculate the defined benefit obligation and related
current service cost vary according to the economic conditions of the
countries in which they are situated. Total healthcare cost was US$13
million (2007: US$33 million; 2006: US$62
million). |
|
|
|
Post-employment defined benefit plans principal
actuarial financial assumptions |
|
|
|
The principal actuarial financial assumptions
used to calculate the Groups obligations under its defined benefit
pension and post-employment healthcare plans at 31 December 2008, were
as follows. These assumptions will also form the basis for measuring
periodic costs under the plans in 2009: |
|
|
|
|
|
|
|
|
|
|
|
|
Healthcare cost trend |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rate of |
|
Rate |
|
|
|
|
|
Year of |
|
|
|
Discount |
|
Inflation |
|
increase for |
|
of pay |
|
Initial |
|
Ultimate |
|
ultimate |
|
|
|
rate |
|
rate |
|
pensions
|
1
|
increase |
|
rate |
|
rate |
|
rate |
|
|
|
% |
|
% |
|
% |
|
% |
|
% |
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UK2
|
6.50 |
|
2.90 |
|
3.00 |
|
3.40 |
|
6.90 |
|
6.90 |
|
n/a |
|
|
Hong Kong |
1.19 |
|
n/a |
|
n/a |
|
5.00 |
|
n/a |
|
n/a |
|
n/a |
|
|
US |
6.05 |
|
2.50 |
|
n/a |
|
3.50 |
|
8.90 |
|
5.00 |
|
2018 |
|
|
Jersey |
6.50 |
|
2.90 |
|
2.90 |
|
4.65 |
|
n/a |
|
n/a |
|
n/a |
|
|
Mexico |
8.10 |
|
3.50 |
|
2.00 |
|
4.50 |
|
6.75 |
|
6.75 |
|
n/a |
|
|
Brazil |
10.75 |
|
4.50 |
|
4.50 |
|
5.50 |
|
10.00 |
|
5.50 |
|
2018 |
|
|
France |
5.75 |
|
2.00 |
|
2.00 |
|
3.00 |
|
n/a |
|
n/a |
|
n/a |
|
|
Canada |
7.19 |
|
2.50 |
|
n/a |
|
3.85 |
|
8.20 |
|
4.90 |
|
2012 |
|
|
Switzerland |
2.60 |
|
1.50 |
|
n/a |
|
2.39 |
|
n/a |
|
n/a |
|
n/a |
|
|
Germany |
5.75 |
|
2.00 |
|
2.00 |
|
3.00 |
|
n/a |
|
n/a |
|
n/a |
|
|
|
|
|
1 |
Rate of increase for pensions in payment and deferred pension. |
|
2 |
Rate of increase for pensions in the UK is currently for pensions in payment
only. Pensions not yet in payment are assumed to increase at 2.80 per cent
per
annum. |
|
|
|
The principal actuarial financial assumptions
used to calculate the Groups obligations under its defined benefit
pension and post-employment healthcare plans at 31 December 2007, were
as follows. These assumptions also formed the basis for measuring periodic
costs under the plans in 2008: |
|
|
|
|
|
|
|
|
|
|
|
|
Healthcare cost trend |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rate of |
|
Rate |
|
|
|
|
|
Year of |
|
|
|
Discount |
|
Inflation |
|
increase for |
|
of pay |
|
Initial |
|
Ultimate |
|
ultimate |
|
|
|
rate |
|
rate |
|
pensions
|
1
|
increase |
|
rate |
|
rate |
|
rate |
|
|
|
% |
|
% |
|
% |
|
% |
|
% |
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UK |
5.80 |
|
3.30 |
|
3.30 |
|
4.30 |
|
7.30 |
|
7.30 |
|
n/a |
|
|
Hong Kong |
3.45 |
|
n/a |
|
n/a |
|
5.02 |
|
n/a |
|
n/a |
|
n/a |
|
|
US |
6.55 |
|
2.50 |
|
n/a |
|
3.75 |
|
9.60 |
|
5.00 |
|
2014 |
|
|
Jersey |
5.80 |
|
3.30 |
|
3.30 |
|
5.05 |
|
n/a |
|
n/a |
|
n/a |
|
|
Mexico |
7.88 |
|
3.50 |
|
2.00 |
|
4.50 |
|
6.00 |
|
6.00 |
|
n/a |
|
|
Brazil |
10.75 |
|
4.50 |
|
4.50 |
|
4.50 |
|
10.50 |
|
5.50 |
|
2017 |
|
|
France |
5.50 |
|
2.00 |
|
2.00 |
|
3.00 |
|
6.00 |
|
6.00 |
|
n/a |
|
|
Canada |
5.43 |
|
2.50 |
|
n/a |
|
3.86 |
|
9.00 |
|
4.90 |
|
2012 |
|
|
Switzerland |
3.30 |
|
1.50 |
|
n/a |
|
2.38 |
|
n/a |
|
n/a |
|
n/a |
|
|
Germany |
5.50 |
|
2.00 |
|
2.00 |
|
3.00 |
|
n/a |
|
n/a |
|
n/a |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
Rate of increase
for pensions in payment and deferred pension. |
367
Back to Contents
H S B C H
O L D I N G S P L C |
|
Notes on the Financial Statements (continued) |
|
|
|
|
Note 8 |
|
The principal actuarial financial assumptions
used to calculate the Groups obligations under its defined benefit
pension and post-employment healthcare plans at 31 December 2006, were
as follows. These assumptions also formed the basis for measuring periodic
costs under the plans in 2007: |
|
|
|
|
|
|
|
|
|
|
|
|
Healthcare cost trend
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rate of |
|
Rate |
|
|
|
|
|
Year of |
|
|
|
Discount |
|
Inflation |
|
increase for |
|
of pay |
|
Initial |
|
Ultimate |
|
ultimate |
|
|
|
rate |
|
rate |
|
pensions
|
1
|
increase |
|
rate |
|
rate |
|
rate |
|
|
|
% |
|
% |
|
% |
|
% |
|
% |
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UK |
5.10 |
|
3.00 |
|
3.00 |
|
4.00 |
|
7.00 |
|
7.00 |
|
n/a |
|
|
Hong Kong |
3.75 |
|
n/a |
|
n/a |
|
3.00 |
|
n/a |
|
n/a |
|
n/a |
|
|
US |
5.90 |
|
2.50 |
|
n/a |
|
3.75 |
|
10.50 |
|
5.00 |
|
2014 |
|
|
Jersey |
5.10 |
|
3.00 |
|
3.00 |
|
4.75 |
|
n/a |
|
n/a |
|
n/a |
|
|
Mexico |
8.00 |
|
3.50 |
|
2.00 |
|
4.00 |
|
6.75 |
|
6.75 |
|
n/a |
|
|
Brazil |
10.75 |
|
4.50 |
|
4.50 |
|
4.50 |
|
11.00 |
|
5.50 |
|
2016 |
|
|
France |
4.50 |
|
2.00 |
|
2.00 |
|
3.00 |
|
6.00 |
|
6.00 |
|
n/a |
|
|
Canada |
5.19 |
|
2.50 |
|
n/a |
|
3.47 |
|
9.90 |
|
4.90 |
|
2012 |
|
|
Switzerland |
2.25 |
|
1.50 |
|
n/a |
|
2.25 |
|
n/a |
|
n/a |
|
n/a |
|
|
Germany |
4.50 |
|
2.00 |
|
2.00 |
|
3.00 |
|
n/a |
|
n/a |
|
n/a |
|
|
|
|
|
1 |
Rate of increase
for pensions in payment and deferred pension. |
|
|
|
HSBC determines the discount rates to be applied
to its obligations in consultation with the plans local actuaries,
on the basis of current average yields of high quality (AA rated or equivalent)
debt instruments, with maturities consistent with those of the defined
benefit obligations. In countries where there is no deep market in corporate
bonds, government bond yields have been used. The yield curve has been
extrapolated where the term of the liabilities is longer than the duration
of available bonds and the discount rate used then takes into account
the term of the liabilities and the shape of the yield curve. |
|
|
|
When determining the discount rate with
reference to a bond index, an appropriate index for the specific region
has been used. The expected return on plan assets represents the best
estimate of long-term future asset returns, which takes into account
historical market returns plus additional factors such as the current
rate of inflation and interest rates. |
|
|
|
Mortality assumptions are increasingly significant
in measuring the Groups obligations under its defined benefit pension
and post-employment healthcare plans, particularly given the maturity
of the plans. The mortality tables and average life expectancy at 65
used at 31 December 2008 were as follows: |
|
|
|
|
|
|
Life expectancy at |
|
Life expectancy at |
|
|
|
|
|
age 65 for a male |
|
age 65 for a female |
|
|
|
Mortality table |
|
member currently: |
|
member currently: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aged 65 |
|
Aged 45 |
|
Aged 65 |
|
Aged 45 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UK |
PA921
|
|
20.8 |
|
22.8 |
|
24.1 |
|
26.2 |
|
|
Hong Kong |
n/a |
|
n/a |
|
n/a |
|
n/a |
|
n/a |
|
|
US
|
RP 2000 fully generational |
|
19.1 |
|
20.6 |
|
21.1 |
|
22.0 |
|
|
Jersey |
90% of PNA002
|
|
23.0 |
|
25.0 |
|
25.4 |
|
27.3 |
|
|
Mexico
|
EMSSA-97,
AA generational
scale from RP 2000 series |
|
18.3 |
|
19.8 |
|
21.0 |
|
21.9 |
|
|
Brazil
|
RP 2000 fully generational |
|
19.1 |
|
20.6 |
|
21.1 |
|
22.0 |
|
|
France |
TG 05 |
|
23.1 |
|
25.9 |
|
26.6 |
|
29.4 |
|
|
Canada pension plans |
Between UP94 C2015 |
|
18.5 |
|
18.5 |
|
21.1 |
|
21.1 |
|
|
|
and UP94 C2027 |
|
and 19.4 |
|
and 19.4 |
|
and 21.6 |
|
and 21.6 |
|
|
Canada healthcare plan |
UP94 C2025 |
|
19.3 |
|
19.3 |
|
21.5 |
|
21.5 |
|
|
Switzerland |
BVG 20053
|
|
17.9 |
|
17.9 |
|
21.0 |
|
21.0 |
|
|
Germany |
Heubeck 2005 G |
|
18.0 |
|
20.7 |
|
22.1 |
|
24.7 |
|
|
|
|
|
1 |
PA92 with standard improvements to 2005 and medium cohort with 1 per cent
minimum improvement thereafter. |
|
2 |
PNA00 year of birth and medium cohort with 1 per cent improvement thereafter. |
|
3 |
3.5 per cent load, additional 5.0 per cent load for future mortality improvements. |
368
Back to Contents
|
The mortality tables and average life expectancy
at 65 used at 31 December 2007 were as follows: |
|
|
|
|
|
|
Life
expectancy at |
|
Life
expectancy at |
|
|
|
|
|
age
65 for a male |
|
age
65 for a female |
|
|
|
Mortality table |
|
member
currently: |
|
member
currently: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Aged 65 |
|
Aged 45 |
|
Aged 65 |
|
Aged 45 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UK |
PA921 |
|
20.4 |
|
21.7 |
|
23.4 |
|
24.6 |
|
|
Hong Kong |
n/a |
|
n/a |
|
n/a |
|
n/a |
|
n/a |
|
|
US |
RP 2000 fully |
|
|
|
|
|
|
|
|
|
|
|
generational |
|
19.1 |
|
20.6 |
|
21.1 |
|
22.0 |
|
|
Jersey |
PA922 |
|
21.9 |
|
23.0 |
|
24.8 |
|
25.8 |
|
|
Mexico |
EMSSA-97 |
|
16.5 |
|
16.5 |
|
19.9 |
|
19.9 |
|
|
Brazil |
RP 2000 fully |
|
|
|
|
|
|
|
|
|
|
|
generational |
|
19.1 |
|
20.6 |
|
21.1 |
|
22.0 |
|
|
France |
TG 05 |
|
22.9 |
|
25.7 |
|
26.4 |
|
29.3 |
|
|
Canada pension plans |
Between UP94 C2015 |
|
19.0 |
|
19.0 |
|
21.6 |
|
21.6 |
|
|
|
and UP94 C2027 |
|
and 20.0 |
|
and 20.0 |
|
and 22.1 |
|
and 22.1 |
|
|
Canada healthcare
plan |
UP94 C2025 |
|
19.8 |
|
19.8 |
|
22.0 |
|
22.0 |
|
|
Switzerland |
BVG 2005 (3% load) |
|
17.9 |
|
17.9 |
|
21.0 |
|
21.0 |
|
|
Germany |
Heubeck 2005
G |
|
18.1 |
|
20.8 |
|
22.2 |
|
24.9 |
|
|
|
|
|
1 |
PA92 with standard improvements to 2005 and medium cohort improvements
thereafter. |
|
2 |
PA92 year of birth with medium cohort improvements. |
|
|
|
|
Actuarial assumption sensitivities |
|
|
|
The discount rate is sensitive to changes
in market conditions arising during the reporting period. The mortality
rates used are sensitive to experience from the plan member profile.
The following table shows the effect of changes in these and the other
key assumptions on the principal plan: |
|
|
|
|
HSBC Bank (UK) Pension
Scheme |
|
|
|
|
|
|
|
2008 |
|
2007 |
|
|
|
US$m |
|
US$m |
|
|
Discount rate |
|
|
|
|
|
Change in pension
obligation at year end from a 25bps increase |
(559
|
) |
(989
|
) |
|
Change in pension obligation at
year end from a 25bps decrease |
595 |
|
1,063 |
|
|
Change in 2009
pension cost from a 25bps increase |
(9 |
) |
(20 |
) |
|
Change in 2009 pension cost from
a 25bps decrease |
10 |
|
20 |
|
|
|
Rate of inflation |
|
|
|
|
|
Change in pension
obligation at year end from a 25bps increase |
525
|
|
1,063 |
|
|
Change in pension obligation at
year end from a 25bps decrease |
(493 |
) |
(989 |
) |
|
Change in 2009
pension cost from a 25bps increase |
45 |
|
82 |
|
|
Change in 2009 pension cost from
a 25bps decrease |
(41 |
) |
(76 |
) |
|
|
Rate of increase for pensions
in payment and deferred pensions |
|
|
|
|
|
Change in pension
obligation at year end from a 25bps increase |
349
|
|
823 |
|
|
Change in pension obligation at
year end from a 25bps decrease |
(328 |
) |
(758 |
) |
|
Change in 2009
pension cost from a 25bps increase |
29 |
|
60 |
|
|
Change in 2009 pension cost from
a 25bps decrease |
(23 |
) |
(56 |
) |
|
|
Rate of pay increase |
|
|
|
|
|
Change in pension
obligation at year end from a 25bps increase |
172
|
|
240 |
|
|
Change in pension obligation at
year end from a 25bps decrease |
(168 |
) |
(231 |
) |
|
Change in 2009
pension cost from a 25bps increase |
16 |
|
22 |
|
|
Change in 2009 pension cost from
a 25bps decrease |
(15 |
) |
(20 |
) |
|
|
Investment return |
|
|
|
|
|
Change in 2009
pension cost from a 25bps increase |
36 |
|
56 |
|
|
Change in 2009 pension cost from
a 25bps decrease |
(36 |
) |
(56 |
) |
|
|
Mortality |
|
|
|
|
|
Change in pension
obligation from each additional year of longevity assumed |
365
|
|
683 |
|
369
Back to Contents
H S B C H O L D I
N G S P L C |
|
Notes on the
Financial Statements (continued) |
|
|
|
|
Note 8 |
|
The following table shows the effect of changes
in the discount rate and in mortality rates on plans other than the principal
plan: |
|
|
|
|
Other
plans
|
|
|
|
|
|
|
|
|
|
2008 |
|
2007 |
|
|
|
US$m |
|
US$m |
|
|
|
|
|
|
|
|
Change in defined
benefit obligation at year end from a 25bps increase in discount rate |
(255
|
) |
(312
|
) |
|
Change in 2009 defined benefit
charge from a 25bps increase in discount rate |
(4 |
) |
(8 |
) |
|
Increase in
defined benefit obligation from each additional year of longevity assumed |
91 |
|
137 |
|
|
|
|
Defined benefit pension plans |
|
|
|
The calculation of the net liability under
the Groups defined benefit pension plans is set out below together
with the expected rates of return and plan assets used to measure the
net defined benefit pension costs in each subsequent year. |
|
|
|
|
HSBC Bank (UK) Pension Scheme |
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected |
|
|
|
|
Expected |
|
|
|
|
|
rates of |
|
|
|
|
rates of |
|
|
|
|
|
return |
|
Value |
|
|
return |
|
Value |
|
|
|
% |
|
US$m |
|
|
% |
|
US$m |
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of
plan assets |
|
|
14,865
|
|
|
|
|
22,704
|
|
|
Equities |
8.1 |
|
2,242
|
|
|
8.3 |
|
4,580 |
|
|
Bonds |
5.7 |
|
10,999
|
|
|
6.1 |
|
15,341 |
|
|
Property |
6.9 |
|
1,184
|
|
|
7.3 |
|
1,878 |
|
|
Other |
4.2 |
|
440
|
|
|
5.1 |
|
905 |
|
|
Defined benefit obligation |
|
|
(15,257 |
) |
|
|
|
(23,512 |
) |
|
Present
value of funded obligations |
|
|
(15,257
|
) |
|
|
|
(23,512 |
) |
|
Present value of
unfunded obligations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
liability |
|
|
(392
|
) |
|
|
|
(808 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other plans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected |
|
|
|
|
Expected |
|
|
|
|
|
rates of |
|
|
|
|
rates of |
|
|
|
|
|
return |
1
|
Value |
|
|
return |
1
|
Value |
|
|
|
% |
|
US$m |
|
|
% |
|
US$m |
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of
plan assets |
|
|
6,024
|
|
|
|
|
7,768
|
|
|
Equities |
8.3 |
|
1,856
|
|
|
8.3 |
|
3,439 |
|
|
Bonds |
5.0 |
|
3,261
|
|
|
5.4 |
|
3,452 |
|
|
Property |
6.3 |
|
87 |
|
|
7.3 |
|
111 |
|
|
Other |
3.8 |
|
820
|
|
|
5.7 |
|
766 |
|
|
Defined benefit obligation |
|
|
(8,787 |
) |
|
|
|
(8,873 |
) |
|
Present
value of funded obligations |
|
|
(8,271
|
) |
|
|
|
(8,453 |
) |
|
Present value of
unfunded obligations |
|
|
(516
|
) |
|
|
|
(420 |
) |
|
Effect of limit
on plan surpluses |
|
|
(9 |
) |
|
|
|
(55 |
) |
|
Unrecognised past service cost |
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net liability |
|
|
(2,762
|
) |
|
|
|
(1,160 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
1 |
The expected rates of return are weighted
on the basis of the fair value of the plan assets. |
|
|
|
|
Plan assets include US$52
million (2007: US$86 million) of equities issued by HSBC and US$2,206
million (2007: US$572 million) of other assets issued by HSBC. The
fair value of plan assets includes derivatives entered into with the
HSBC Bank (UK) Pension Scheme with a positive fair value of US$1,779
million at 31 December 2008 (2007: US$248 million positive fair value)
and US$388 million positive fair
value (2007: US$63 million positive fair value) in respect of the HSBC International
Staff Retirement Benefits Scheme. Further details of these swap arrangements
are included
in Note 43. |
370
Back to Contents
|
Changes in the present value of defined
benefit
obligations |
|
|
|
|
HSBC
Bank (UK) Pension Scheme |
|
Other
plans |
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
2007 |
|
2008 |
|
2007 |
|
|
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
|
|
|
|
|
|
|
|
|
|
|
At 1 January |
23,512
|
|
24,332
|
|
8,873
|
|
7,916
|
|
|
Current service cost |
387 |
|
454 |
|
357 |
|
347 |
|
|
Interest cost |
1,227
|
|
1,247 |
|
466
|
|
398 |
|
|
Contributions by employees |
2 |
|
|
|
40 |
|
37 |
|
|
Actuarial (gains)/losses |
(3,032
|
) |
(2,395 |
) |
358
|
|
475 |
|
|
Benefits paid |
(873 |
) |
(632 |
) |
(596 |
) |
(529 |
) |
|
Past service
cost vested immediately |
|
|
|
|
9 |
|
6 |
|
|
Past service cost unvested
benefits |
|
|
|
|
10 |
|
|
|
|
Disposals |
|
|
|
|
(44
|
) |
|
|
|
Reduction in liabilities resulting
from curtailments |
|
|
|
|
(20 |
) |
(63 |
) |
|
Liabilities
extinguished on settlements |
|
|
|
|
(81
|
) |
(16 |
) |
|
Exchange differences |
(5,966 |
) |
506 |
|
(585 |
) |
302 |
|
|
|
|
|
|
|
|
|
|
|
|
At 31 December |
15,257
|
|
23,512 |
|
8,787
|
|
8,873 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in the
fair value of plan assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
HSBC
Bank (UK) Pension Scheme |
|
|
Other
plans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
1 January |
22,704 |
|
|
20,587 |
|
|
7,768 |
|
|
7,116 |
|
|
Expected return
on plan assets |
1,359 |
|
|
1,211 |
|
|
549 |
|
|
486 |
|
|
Contributions
by HSBC |
462
|
|
|
1,058 |
|
|
238
|
|
|
211 |
|
|
normal |
462
|
|
|
471 |
|
|
223
|
|
|
199 |
|
|
special |
|
|
|
587 |
|
|
15 |
|
|
12 |
|
|
Contributions
by employees |
2 |
|
|
|
|
|
40 |
|
|
37 |
|
|
Experience
gains/(losses) |
(2,861
|
) |
|
29 |
|
|
(1,452
|
) |
|
157 |
|
|
Benefits paid |
(873 |
) |
|
(632 |
) |
|
(576 |
) |
|
(467 |
) |
|
Assets
distributed on settlements |
|
|
|
|
|
|
(40
|
) |
|
(17 |
) |
|
Exchange differences |
(5,928 |
) |
|
451 |
|
|
(503 |
) |
|
245 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
31 December |
14,865
|
|
|
22,704 |
|
|
6,024
|
|
|
7,768 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The actual return on plan assets for the year
ended 31 December 2008 was a negative return of US$2,405 million
(2007: positive US$1,883 million). HSBC expects to make US$588
million of contributions to defined benefit pension plans during 2009.
Benefits expected to be paid from the plans to retirees over each of
the next five years, and in aggregate for the five years thereafter,
are: |
|
|
|
|
2009 |
|
2010 |
|
2011 |
|
2012 |
|
2013 |
|
2014-2018 |
|
|
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HSBC Bank (UK)
Pension Scheme |
729 |
|
766 |
|
804 |
|
845 |
|
887 |
|
5,149 |
|
|
Other significant plans |
435 |
|
423 |
|
455 |
|
489 |
|
522 |
|
3,093 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expense recognised in the income
statement in Employee compensation and benefits |
|
|
|
|
HSBC
Bank (UK) Pension Scheme |
|
|
Other plans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current service
cost |
387
|
|
|
454
|
|
|
456
|
|
|
357
|
|
|
347
|
|
|
304
|
|
|
Interest cost |
1,227 |
|
|
1,247 |
|
|
1,055 |
|
|
466 |
|
|
398 |
|
|
366 |
|
|
Expected return
on plan assets |
(1,359
|
) |
|
(1,211 |
) |
|
(1,169 |
) |
|
(549
|
) |
|
(486 |
) |
|
(421 |
) |
|
Past service cost |
|
|
|
|
|
|
|
|
|
9 |
|
|
7 |
|
|
11 |
|
|
Gains on curtailments |
|
|
|
|
|
|
|
|
|
(20
|
) |
|
(63 |
) |
|
|
|
|
(Gains)/losses on settlements |
|
|
|
|
|
|
|
|
|
(41 |
) |
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expense |
255
|
|
|
490 |
|
|
342 |
|
|
222
|
|
|
204 |
|
|
260 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
371
Back to Contents
H S B C H O L D I
N G S P L C |
|
Notes on the Financial Statements (continued) |
|
|
|
|
Note 8 |
|
Summary |
|
|
|
|
|
|
|
|
|
|
|
|
HSBC Bank (UK) Pension Scheme |
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
2007 |
|
2006 |
|
2005 |
|
2004 |
|
|
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined benefit
obligation |
(15,257
|
) |
(23,512
|
) |
(24,332
|
) |
(20,587
|
) |
(19,998
|
) |
|
Fair value of plan assets |
14,865 |
|
22,704 |
|
20,587 |
|
17,396 |
|
15,105 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deficit |
(392
|
) |
(808 |
) |
(3,745 |
) |
(3,191 |
) |
(4,883 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Experience gains/(losses)
on plan liabilities |
(49
|
) |
(64 |
) |
540 |
|
70 |
|
401 |
|
|
Experience gains/(losses) on plan
assets |
(2,861 |
) |
29 |
|
|
|
1,623 |
|
506 |
|
|
Gains/(losses)
from changes in actuarial assumptions |
3,081
|
|
2,459 |
|
(570 |
) |
(2,038 |
) |
(1,357 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net actuarial
gains/(losses) |
171
|
|
2,424 |
|
(30 |
) |
(345 |
) |
(450 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
2007 |
|
2006 |
|
2005 |
|
2004 |
|
|
|
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined benefit
obligation |
(8,787 |
) |
(8,873 |
) |
(7,916 |
) |
(7,102 |
) |
(6,501 |
) |
|
|
Fair value of plan assets |
6,024 |
|
7,768 |
|
7,116 |
|
6,356 |
|
5,823 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deficit |
(2,763
|
) |
(1,105 |
) |
(800 |
) |
(746 |
) |
(678 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Experience losses
on plan liabilities |
(52
|
) |
(354 |
) |
(167 |
) |
(113 |
) |
(42 |
) |
|
|
Experience gains on plan assets |
(1,452 |
) |
157 |
|
203 |
|
78 |
|
3 |
|
|
|
Losses from
changes in actuarial assumptions |
(306
|
) |
(121 |
) |
(44 |
) |
(393 |
) |
(243 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net actuarial
gains/(losses) |
(1,810
|
) |
(318 |
) |
(8 |
) |
(428 |
) |
(282 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial gains and losses represent experience
adjustments on plan assets and liabilities as well as adjustments arising
from changes in actuarial assumptions. Total cumulative actuarial losses
recognised in equity at 31 December 2008 were US$1,076 million (2007:
gains of US$563 million). |
|
|
|
The total effect of the limit on plan surpluses
recognised within actuarial losses in equity during 2008 was a US$41
million gain excluding exchange differences of US$5 million (2007:
US$42 million loss excluding exchange differences of US$4 million). |
|
|
|
|
|
|
|
|
|
|
|
|
Defined benefit healthcare plans |
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected |
|
|
|
|
Expected |
|
|
|
|
|
rates of |
|
|
|
|
rates of |
|
|
|
|
|
return |
1 |
Value |
|
|
return |
1 |
Value |
|
|
|
% |
|
US$m |
|
|
% |
|
US$m |
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of
plan assets |
|
|
128
|
|
|
|
|
146 |
|
|
Equities |
11.6 |
|
39 |
|
|
13.0 |
|
44 |
|
|
Bonds |
8.0 |
|
89 |
|
|
7.9 |
|
102 |
|
|
Defined benefit obligation |
|
|
(839 |
) |
|
|
|
(1,038 |
) |
|
Present
value of funded obligations |
|
|
(172
|
) |
|
|
|
(191 |
) |
|
Present value of
unfunded obligations |
|
|
(667
|
) |
|
|
|
(847 |
) |
|
Unrecognised
past service cost |
|
|
(23
|
) |
|
|
|
(33 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Net liability |
|
|
(734
|
) |
|
|
|
(925 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
The expected rates of return are weighted
on the basis of the fair value of the plan assets. |
372
Back to Contents
|
Changes in the present value
of defined benefit obligations |
|
|
|
|
|
|
|
2008 |
|
2007 |
|
|
|
US$m |
|
US$m |
|
|
|
|
|
|
|
|
At 1 January |
1,038
|
|
1,106 |
|
|
Current service cost |
19 |
|
25 |
|
|
Interest cost |
65 |
|
67 |
|
|
Contributions by employees |
2 |
|
2 |
|
|
Actuarial (gains)/losses |
2 |
|
(109 |
) |
|
Benefits paid |
(76 |
) |
(54 |
) |
|
Past service
cost: |
|
|
|
|
|
vested
immediately |
|
|
(2 |
) |
|
unvested benefits |
|
|
(2 |
) |
|
Reduction in liabilities resulting
from curtailments |
(31 |
) |
(42 |
) |
|
Liabilities
extinguished on settlements |
(38
|
) |
(2 |
) |
|
Exchange differences |
(142 |
) |
49 |
|
|
|
|
|
|
|
|
At 31 December |
839
|
|
1,038 |
|
|
|
|
|
|
|
|
Changes in the fair value of plan assets |
|
|
|
|
|
|
2008
|
|
2007
|
|
|
|
US$m
|
|
US$m
|
|
|
|
At 1 January |
146
|
|
133
|
|
|
Expected return on plan assets |
12
|
|
13
|
|
|
Contributions by HSBC |
19
|
|
19
|
|
|
Experience losses |
(14
|
) |
(6
|
) |
|
Benefits paid |
(9
|
) |
(11
|
) |
|
Assets distributed on settlements |
(12
|
) |
(2
|
) |
|
Exchange differences |
(14
|
) |
|
|
|
|
|
|
|
|
|
At 31 December |
128
|
|
146
|
|
|
|
|
|
|
|
|
|
|
The actual return on plan assets for the
year ended 31 December 2008 was a negative return of US$2 million
(2007: positive US$7 million). |
|
|
|
HSBC expects to make US$4 million (2007:
US$18 million) of contributions to post-employment healthcare benefit
plans during 2009. Benefits expected to be paid from the plans to retirees
over each of the next five years, and in aggregate for the five years
thereafter, are: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
2010 |
|
2011 |
|
2012 |
|
2013 |
|
2014-2018 |
|
|
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Significant
plans |
44 |
|
48 |
|
50 |
|
52 |
|
54 |
|
294 |
|
|
|
|
Total expense recognised in the income
statement in Employee compensation and benefits |
|
|
|
|
2008 |
|
2007 |
|
2006 |
|
|
|
US$m |
|
US$m |
|
US$m |
|
|
|
|
|
|
|
|
|
|
Current service
cost |
19
|
|
25
|
|
19
|
|
|
Interest cost |
65 |
|
67 |
|
64 |
|
|
Expected return
on plan assets |
(12
|
) |
(13 |
) |
(11 |
) |
|
Past service cost |
(2 |
) |
(4 |
) |
(1 |
) |
|
Losses on curtailments |
(31
|
) |
(42 |
) |
(8 |
) |
|
Losses on settlements |
(26 |
) |
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
Total expense |
13 |
|
33 |
|
62 |
|
|
|
|
|
|
|
|
|
373
Back to Contents
H S B C H O L D I
N G S P L C |
|
Notes on the Financial Statements(continued) |
|
|
|
|
Notes 8 and 9 |
|
Summary |
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
2007 |
|
2006 |
|
2005 |
|
2004 |
|
|
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined benefit obligation |
(839 |
) |
(1,038 |
) |
(1,106 |
) |
(1,004 |
) |
(982 |
) |
|
Fair value of plan assets |
128 |
|
146 |
|
133 |
|
107 |
|
79 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deficit |
(711 |
) |
(892 |
) |
(973 |
) |
(897 |
) |
(903 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Experience gains/(losses)
on plan liabilities |
(34 |
) |
15 |
|
(12 |
) |
19 |
|
(15 |
) |
|
Experience gains/(losses)
on plan assets |
(14 |
) |
(6 |
) |
(1 |
) |
1 |
|
|
|
|
Gains/(losses) from changes
in actuarial assumptions |
32 |
|
94 |
|
(25 |
) |
(63 |
) |
20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net actuarial gains/(losses) |
(16 |
) |
103 |
|
(38 |
) |
(43 |
) |
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial gains and losses represent
experience adjustments on plan assets and liabilities as well as adjustments
arising from changes in actuarial assumptions. Total cumulative net actuarial
gains recognised in equity at 31 December 2008 were US$11 million
(2007: gains of US$27 million). |
|
|
|
The actuarial assumptions of
the healthcare cost trend rates have a significant effect on the amounts
recognised. A one percentage point change in assumed healthcare cost
trend rates would have the following effects on amounts recognised in
2008: |
|
|
2008 |
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
1% increase |
|
1% decrease |
|
1% increase |
|
1% decrease |
|
|
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
|
|
|
|
|
|
|
|
|
|
|
Increase/(decrease)
of the aggregate of the current service cost and interest cost |
9 |
|
(7 |
) |
14 |
|
(10 |
) |
|
Increase/(decrease) of
defined benefit obligation |
77 |
|
(62 |
) |
110 |
|
(100 |
) |
|
|
|
|
|
|
|
|
|
|
|
HSBC Holdings |
|
|
|
Employee compensation
and benefit expense in respect of HSBC Holdings employees in 2008
amounted to US$218 million (2007: US$257 million). The average
number of persons employed by HSBC Holdings during 2008 was 730 (2007:
595). |
|
|
|
|
|
|
|
|
|
|
|
Employees of HSBC Holdings
who are members of defined benefit pension plans are principally members
of either the HSBC Bank (UK) Pension Scheme or the HSBC International
Staff Retirement Benefits Scheme. HSBC Holdings pays contributions to
plans in accordance with schedules determined by the Trustees following
consultation with qualified actuaries. |
|
|
|
Directors emoluments |
|
|
|
The aggregate emoluments
of the Directors of HSBC Holdings, computed in accordance with Part I
of Schedule 6 of the Companies Act 1985, were: |
|
|
2008 |
|
2007 |
|
2006 |
|
|
|
US$000 |
|
US$000 |
|
US$000 |
|
|
|
|
|
|
|
|
|
|
Fees |
2,529 |
|
2,626 |
|
2,660 |
|
|
Salaries and other emoluments |
11,584 |
|
7,929 |
|
7,774 |
|
|
Bonuses |
|
|
8,938 |
|
10,705 |
|
|
|
|
|
|
|
|
|
|
|
14,113 |
|
19,493 |
|
21,139 |
|
|
|
|
|
|
|
|
|
|
Gains on the exercise
of share options |
23 |
|
13 |
|
3 |
|
|
Vesting of Long-Term
Incentive awards |
7,147 |
|
4,563 |
|
18,975 |
|
|
|
|
In addition, there were payments under retirement
benefit agreements with former Directors of US$1,139,968 (2007: US$1,183,960).
The provision at 31 December 2008 in respect of unfunded pension obligations
to former Directors amounted to US$15,164,791 (2007: US$18,491,117). |
|
|
|
During the year, aggregate contributions to
pension schemes in respect of Directors were US$664,174 (2007: US$545,854
which included US$460,564 arising from a Directors waiver of
bonus). |
374
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|
Discretionary bonuses for Directors are based
on a combination of individual and corporate performance and are determined
by the Remuneration Committee. Details of Directors remuneration,
share options and conditional awards
under the Restricted Share Plan 2000 and the HSBC Share Plan are included
in the Directors Remuneration Report on pages 315 to
328. |
|
|
9 |
Auditors remuneration |
|
|
|
Auditors remuneration in relation to
the statutory audit amounted to US$54.9 million (2007: US$52.3
million; 2006: US$44.7 million). The following fees were payable
by
HSBC to the Groups principal auditor, KPMG Audit Plc and its associates
(together KPMG): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007 |
|
|
2006 |
|
|
|
|
|
|
US$m
|
|
|
US$m |
|
|
US$m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Audit
fees for HSBC Holdings statutory audit1 |
2.1
|
|
|
3.0 |
|
|
2.7 |
|
|
|
|
|
fees relating to current year |
2.5
|
|
|
3.0 |
|
|
2.7 |
|
|
|
|
|
fees relating to prior year |
(0.4
|
) |
|
|
|
|
|
|
|
|
Fees payable to KPMG for other services
provided to HSBC |
88.3
|
|
|
79.1 |
|
|
64.1 |
|
|
|
|
Audit-related services: |
|
|
|
|
|
|
|
|
|
|
|
|
audit of HSBCs subsidiaries,
pursuant to legislation2 |
48.6
|
|
|
45.2 |
|
|
40.4 |
|
|
|
|
|
other services pursuant to legislation3 |
26.5
|
|
|
19.4 |
|
|
15.4 |
|
|
|
Tax services4 |
3.1
|
|
|
2.9 |
|
|
2.0 |
|
|
|
Other services: |
|
|
|
|
|
|
|
|
|
|
|
|
services relating to information technology5 |
0.6
|
|
|
0.4 |
|
|
0.6 |
|
|
|
|
|
services related to corporate
finance transactions6 |
1.4
|
|
|
1.8 |
|
|
1.6 |
|
|
|
|
|
all other services7 |
8.1
|
|
|
9.4 |
|
|
4.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fees payable |
90.4
|
|
|
82.1 |
|
|
66.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
Fees payable to KPMG Audit Plc for the statutory audit of the consolidated
financial statements of HSBC and the separate financial statements of HSBC
Holdings. They exclude amounts payable for the statutory audit of HSBC
Holdings subsidiaries which have been included in Fees payable to
KPMG for other services provided to HSBC. |
|
2 |
Including fees payable to KPMG for the statutory audit of HSBCs
subsidiaries. |
|
3 |
Including services for assurance and other services that relate to statutory
and regulatory filings, including comfort letters and interim reviews. Other
services pursuant to legislation included no fees paid to KPMG in respect
of work relating to preparation for reporting under section 404 of the Sarbanes-Oxley
Act (2007: US$1.6 million; 2006: US$2.2 million). Other accounting
firms were paid a total of
US$1.2 million (2007: US$2.5 million; 2006: US$8.3 million) for work
on this project. |
|
4 |
Including tax compliance services and tax advisory services. |
|
5 |
Including advice on IT security and business continuity and performing
agreed-upon IT testing procedures. |
|
6 |
Including fees payable to KPMG for transaction-related work, including
US debt issuances. |
|
7 |
Including other assurance and advisory services such as translation services,
ad-hoc accounting advice and review of financial models. |
|
|
|
|
No fees were payable by HSBC to
KPMG for the following types of services: internal audit services, valuation
and actuarial services, services related to litigation, and services related
to recruitment and remuneration. The following fees were payable by HSBCs
associated pension schemes to KPMG: |
|
|
2008 |
|
2007 |
|
2006 |
|
|
|
US$000 |
|
US$000 |
|
US$000 |
|
|
|
|
|
|
|
|
|
|
Audit fees |
720 |
|
612 |
|
581 |
|
|
Tax services |
73 |
|
14 |
|
23 |
|
|
All other services |
|
|
36 |
|
23 |
|
|
|
|
|
|
|
|
|
|
Total fees payable |
793 |
|
662 |
|
627 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
No fees were payable by HSBCs associated
pension schemes to KPMG for the following types of services: other services
pursuant to legislation, services relating to information technology,
internal audit services, valuation and actuarial services, services related
to litigation, services related to recruitment and remuneration, and
services related to corporate finance transactions. |
|
|
|
In addition to the above, KPMG estimate they
have been paid fees of US$4.8 million (2007: US$3.4 million;
2006: US$2.1 million) by parties other than HSBC but where HSBC is
connected with the contracting party and therefore may be involved in
appointing KPMG. These fees arise from services such as auditing mutual
funds managed by HSBC and reviewing the financial position of corporate
concerns which borrow from HSBC. |
375
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H S B C H O L D I
N G S P L C |
|
Notes on the Financial
Statements (continued) |
|
|
|
|
Note 10 |
|
Fees payable to KPMG for non-audit services
for HSBC Holdings are not disclosed separately because such fees are
disclosed on a consolidated basis for HSBC Group. |
|
|
10 |
Share-based payments |
|
|
|
During 2008, US$819 million was charged
to the income statement in respect of share-based payment transactions
settled in equity (2007: US$870 million; 2006: US$854 million).
This expense, which was computed from the fair values of the share-based
payment transactions when contracted, arose under employee share awards
made in accordance with HSBCs reward structures. |
|
|
|
Calculation of fair values |
|
|
|
Fair values of share options/awards, measured
at the date of grant of the option/award, are calculated using a binomial
lattice model methodology that is based on the underlying assumptions
of the Black-Scholes model. When modelling options/awards with vesting
dependent on HSBCs Total Shareholder Return (TSR) over
a period, the TSR performance targets are incorporated into the model
using Monte Carlo simulation. The expected life of options depends on
the behaviour of option holders, which is incorporated into the option
model on the basis of historic observable data. The fair values calculated
are inherently subjective and uncertain due to the assumptions made and
the limitations of the model used. |
|
|
|
The significant weighted average assumptions
used to estimate the fair value of the options granted were as follows: |
|
|
1-year |
|
3-year |
|
5-year |
|
|
|
Savings- |
|
Savings- |
|
Savings- |
|
|
|
Related |
|
Related |
|
Related |
|
|
|
Share Option |
|
Share Option |
|
Share Option |
|
|
|
Plan |
|
Plans |
|
Plans |
|
|
2008 |
|
|
|
|
|
|
|
Risk-free interest rate1 (%) |
4.5 |
|
4.5 |
|
4.5 |
|
|
Expected life2 (years) |
1 |
|
3 |
|
5 |
|
|
Expected volatility3 (%) |
25 |
|
25 |
|
25 |
|
|
Share price at grant date (£) |
8.80 |
|
8.80 |
|
8.80 |
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
|
|
|
|
|
Risk-free interest rate1 (%) |
5.6 |
|
5.5 |
|
5.4 |
|
|
Expected life2 (years) |
1 |
|
3 |
|
5 |
|
|
Expected volatility3 (%) |
17 |
|
17 |
|
17 |
|
|
Share price at grant date (£) |
9.24 |
|
9.24 |
|
9.24 |
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
|
|
|
|
|
Risk-free interest rate1 (%) |
4.7 |
|
4.8 |
|
4.7 |
|
|
Expected life2 (years) |
1 |
|
3 |
|
5 |
|
|
Expected volatility3 (%) |
17 |
|
17 |
|
17 |
|
|
Share price at grant date (£) |
9.54 |
|
9.54 |
|
9.54 |
|
|
|
|
|
1 |
The risk-free rate was determined from the UK gilts yield curve for the UK Savings-Related Share Option Plans. A similar yield curve was used for the International
Savings-Related Share Option Plans. |
|
2 |
Expected life is not a single input parameter but a function of various
behavioural assumptions. |
|
3 |
Expected volatility is estimated by considering both historic average
share price volatility and implied volatility derived from traded options
over HSBC shares of similar
maturity to those of the employee options. |
|
|
|
Expected dividends are incorporated into the
valuation model for share options and awards, where applicable. The expected
US dollar denominated dividend growth was determined to be 7 per cent
for the first year (2007: 10 per cent for first 3 years) and 8 per cent
thereafter (2007: 8 per cent), in line with consensus analyst forecasts. |
|
|
|
The HSBC Share Plan |
|
|
|
The HSBC Share Plan was adopted by HSBC Holdings
in 2005. Under this plan, Performance Share awards, restricted share
awards and share option awards may be made. The aim of the HSBC Share
Plan is to align the interests of executives with the creation of shareholder
value and recognise individual performance and potential. Awards are
also made under this plan for recruitment and retention purposes. |
376
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|
Performance Share awards |
|
|
|
Performance Shares are awarded to executive
Directors and other senior executives after taking into account individual
performance in the previous year. For awards made prior to 2008, each
award
is divided into two equal parts for testing attainment against pre-determined
benchmarks. One half of the award is subject to a TSR measure, based
on
HSBCs ranking against a comparator group of 28 major banks; the other
half is subject to an earnings per share target. For each element of the
award, shares are released to the employee on a sliding scale from 30 to
100 per cent of the award, depending on the scale of achievement against
the benchmarks, providing that the minimum criteria for each performance
measure has been met. |
|
|
|
For awards made during 2008 and prospectively,
each award is divided into three parts for testing attainment against
pre-determined benchmarks. 40 per cent of the award is subject to a TSR
measure, based on HSBCs ranking against a comparator group of 26
major banks; 40 per cent is subject to an economic profit measure, calculated
as the average annual difference between return on invested capital and
HSBCs benchmark cost of capital; and 20 per cent is subject to
an earnings per share target. For the TSR and EPS elements of the awards,
shares are released to the employee on a sliding scale from 20 to 100
per cent of the award, depending on the scale of achievement against
the benchmarks. For the economic profit element of the awards, shares
are released to the employee on a sliding scale from zero to 100 per
cent, depending on the scale of achievement against the benchmark. In
all cases, shares are only released when the minimum criteria for each
performance measure has been met. |
|
|
|
In determining whether HSBC Holdings has
achieved such sustained improvement the Remuneration Committee will take
account of all relevant factors, in particular, comparisons against the
TSR comparator group in areas such as revenue growth and mix, cost efficiency,
credit performance, cash return on cash invested, dividend performance
and TSR. |
|
|
|
|
|
2008 |
|
2007 |
|
|
|
|
Number |
|
Number |
|
|
|
|
(000s) |
|
(000s) |
|
|
|
|
|
|
|
|
|
Outstanding
at 1 January |
|
12,318
|
|
10,367
|
|
|
Additions during the year |
|
5,664 |
|
3,263 |
|
|
Released in
the year |
|
(2,246
|
) |
|
|
|
Forfeited in the year |
|
(4,117 |
) |
(1,312 |
) |
|
|
|
|
|
|
|
|
Outstanding
at 31 December |
|
11,619
|
|
12,318
|
|
|
|
|
|
|
|
|
|
|
|
The weighted average fair value
of shares awarded by HSBC for performance share awards in 2008 was US$13.61
(2007: US$13.24). |
|
|
|
Restricted share awards
|
|
|
|
Restricted shares are awarded
to other employees on the basis of their performance, potential and retention
requirements, to aid recruitment or as a part-deferral of annual bonuses.
Shares are awarded without corporate performance conditions and generally
vest between one and three years from the date of award, providing the
employees have remained continually employed by HSBC for this period. |
|
|
|
|
|
2008 |
|
2007 |
|
|
|
|
Number |
|
Number |
|
|
|
|
(000s) |
|
(000s) |
|
|
|
|
|
|
|
|
|
Outstanding
at 1 January |
|
79,256
|
|
43,420
|
|
|
Additions during the year |
|
72,120 |
|
52,790 |
|
|
Released in
the year |
|
(17,092
|
) |
(8,781
|
) |
|
Forfeited in the year |
|
(12,078 |
) |
(8,173 |
) |
|
|
|
|
|
|
|
|
Outstanding
at 31 December |
|
122,206
|
|
79,256
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted average fair value
of shares awarded by HSBC for restricted share awards in 2008 was US$14.64
(2007: US$17.92). |
|
|
|
Share options |
|
|
|
Share options were granted in
2005 under the HSBC Share Plan to employees in France on the basis of
their performance in the previous year. The share options are subject
to the corporate performance conditions, which consist of an absolute
earnings per share measure and a TSR measure based on HSBC Holdings ranking
against a comparator group of 28 major banks. The options may vest after
three years and are exercisable up to the tenth anniversary of the date
of grant, after which they will lapse. |
377
Back to Contents
H S B C H O L D I
N G S P L C |
|
Notes on the Financial
Statements (continued) |
|
|
|
|
Note 10 |
|
|
|
2008 |
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
Weighted |
|
|
|
|
|
|
average |
|
|
|
average |
|
|
|
|
|
|
exercise |
|
|
|
exercise |
|
|
|
|
Number |
|
price |
|
Number |
|
price |
|
|
|
|
(000s) |
|
£ |
|
(000s) |
|
£ |
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at 1 January |
|
524
|
|
8.85 |
|
628
|
|
8.84 |
|
|
Forfeited and expired in the
year |
|
(224 |
) |
8.79 |
|
(104 |
) |
8.79 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at 31 December |
|
300
|
|
8.89 |
|
524 |
|
8.85 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
No options were granted in
2008 (2007: nil). The weighted average remaining contractual life of
options outstanding at the balance sheet date was 2.1 years (2007: 2.4
years). The exercise price range of options outstanding at the balance
sheet date was £8.79 -£9.17. All of the options were exercisable.
The options exercisable at the balance sheet date were 300 (2007: nil). |
|
|
|
Savings-related share option plans
|
|
|
|
Savings-related share option
plans invite eligible employees to enter into savings contracts to save
up to £250 per month (or its equivalent in US dollars, Hong Kong
dollars or euros), with the option to use the savings to acquire shares.
The aim of the plans is to align the interests of all employees with
the creation of shareholder value. The options are exercisable within
three months following the first anniversary of the commencement of a
one-year savings contract or within six months following either the third
or the fifth anniversaries of the commencement of three-year or five-year
savings contracts, respectively. The exercise price is set at a 20 per
cent (2007: 20 per cent) discount to the market value immediately preceding
the date of invitation (except for the one-year options granted under
the US sub-plan where a 15 per cent discount is applied). |
|
|
|
|
|
2008 |
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
Weighted |
|
|
|
|
|
|
average |
|
|
|
average |
|
|
|
|
|
|
exercise |
|
|
|
exercise |
|
|
|
|
Number |
|
price |
|
Number |
|
price |
|
|
|
|
(000s) |
|
£ |
|
(000s) |
|
£ |
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at 1 January |
|
89,739
|
|
6.83 |
|
87,837
|
|
6.58 |
|
|
Granted in the year |
|
32,951 |
|
6.82 |
|
30,105 |
|
7.43 |
|
|
Exercised in
the year |
|
(30,126
|
) |
6.10 |
|
(17,951
|
) |
6.58 |
|
|
Forfeited and expired in the
year |
|
(18,163 |
) |
7.04 |
|
(10,252 |
) |
6.58 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at 31 December |
|
74,401
|
|
6.97 |
|
89,739
|
|
6.83 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted average fair value
of options granted during the year was US$3.89 (2007: US$4.24). The weighted average share price at the date the share options were
exercised was US$15.48 (2007: US$17.93). The exercise price
range and weighted average remaining contractual life for options outstanding
at the balance sheet date were as follows: |
|
|
|
|
|
2008 |
|
2007 |
|
|
|
|
|
|
|
|
|
Exercise price
range (£) |
|
5.35-7.67 |
|
5.35-7.93 |
|
|
Weighted average remaining contractual
life (years) |
|
1.87 |
|
1.67 |
|
|
Of which exercisable: |
|
|
|
|
|
|
Number
(000s) |
|
1,751 |
|
541 |
|
|
Weighted average
exercise price (£) |
|
6.03 |
|
6.44 |
|
|
|
|
HSBC Holdings Restricted
Share Plan 2000 |
|
|
|
Performance Share
awards made under the HSBC Holdings Restricted Share Plan 2000 (the Restricted
Share Plan) |
|
|
|
Performance share
awards under the Restricted Share Plan were granted to senior executives
from 2000 to 2004. The aim of the plan was to align the interests of
executives with the creation of shareholder value. This was achieved
by setting certain TSR targets against a peer group of major banks which
would normally have to be attained in order for the awards to vest. In
addition to these performance conditions, none of the outstanding awards
will vest unless the Remuneration Committee is satisfied that, during
the performance period, HSBC has achieved sustained growth. Following
adoption of the HSBC Share Plan in 2005, no further awards will be made
under this Plan other than from reinvested scrip dividends. |
378
Back to Contents
|
|
|
|
2008 |
|
2007 |
|
|
|
|
|
Number |
|
Number |
|
|
|
|
|
(000s) |
|
(000s) |
|
|
|
|
|
|
|
|
|
|
Outstanding
at 1 January |
|
4,811
|
|
12,328
|
|
|
Additions during the year1 |
|
159 |
|
301 |
|
|
Released in
the year |
|
(11
|
) |
(2,332
|
) |
|
Forfeited in the year |
|
(4,959 |
) |
(5,486 |
) |
|
|
|
|
|
|
|
|
Outstanding
at 31 December |
|
|
|
4,811
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
Additions
during the year comprised reinvested scrip dividends. |
|
|
|
|
|
|
|
|
There was no weighted
average remaining vesting period at 31 December 2008 (2007: 0.2 years).
|
|
|
|
Restricted share
awards made under the Restricted Share Plan |
|
|
|
Restricted share awards
under the Restricted Share Plan were granted to eligible employees from
2000 to 2005, after taking into account the employees performance
in the previous year, their potential and retention requirements. Restricted
shares were also awarded as part-deferral of annual bonuses or for recruitment
purposes. Shares were awarded without corporate performance conditions
and generally vest between one and three years from the date of award,
providing the employees have remained continuously employed by HSBC for
the period. |
|
|
|
|
|
2008 |
|
2007 |
|
|
|
|
Number |
|
Number |
|
|
|
|
(000s) |
|
(000s) |
|
|
|
|
|
|
|
|
|
Outstanding
at 1 January |
|
19,299
|
|
38,670
|
|
|
Additions during the year1 |
|
934 |
|
199 |
|
|
Released in
the year |
|
(16,405
|
) |
(17,156
|
) |
|
Forfeited in the year |
|
(1,111 |
) |
(2,414 |
) |
|
|
|
|
|
|
|
|
Outstanding
at 31 December |
|
2,717
|
|
19,299
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
Additions
during the year comprised reinvested scrip dividends and reinstatement
of awards. |
|
|
|
|
The weighted average
remaining vesting period as at 31 December 2008 was 0.5 years (2007:
0.3 years).
|
|
|
|
|
HSBC Holdings Group Share
Option Plan |
|
|
|
|
The HSBC Holdings Group
Share Option Plan was a long-term incentive plan under which certain
HSBC employees between 2000 and 2005 were awarded share options. The
aim of the plan was to align the interests of those higher performing
employees with the creation of shareholder value. This was achieved by
setting certain TSR targets which would normally have to be attained
in order for the awards to vest. Options were granted at market value
and are normally exercisable between the third and tenth anniversaries
of the date of grant, subject to vesting conditions. Options granted
after May 2005 are made under the HSBC Share Plan. |
|
|
|
|
|
|
2008 |
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
Weighted |
|
|
|
|
|
|
average |
|
|
|
average |
|
|
|
|
|
|
exercise |
|
|
|
exercise |
|
|
|
|
Number |
|
price |
|
Number |
|
price |
|
|
|
|
(000s) |
|
£ |
|
(000s) |
|
£ |
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at 1 January |
|
152,216
|
|
8.15 |
|
168,786
|
|
8.09 |
|
|
Exercised in the year |
|
(3,734 |
) |
7.38 |
|
(8,351 |
) |
7.64 |
|
|
Forfeited and
expired in the year |
|
(5,889
|
) |
8.28 |
|
(8,219
|
) |
8.02 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at 31 December |
|
142,593
|
|
8.16 |
|
152,216
|
|
8.15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted average share price
at the date the share options were exercised was US$14.65 (2007: US$18.08).
The number of options, weighted average exercise price, and weighted average
remaining contractual life of options outstanding at the balance sheet date,
analysed by exercise price range, were as follows: |
379
Back to Contents
H S B C H O L D I
N G S P L C |
|
Notes on the
Financial Statements (continued) |
|
|
|
|
Notes 10 and 11 |
|
|
|
2008 |
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise price range (£) |
6.00-8.00 |
|
8.01-10.00 |
|
6.00-8.00 |
|
8.01-10.00 |
|
|
Number (000s) |
25,947 |
|
116,646 |
|
29,312 |
|
122,904 |
|
|
Weighted average exercise price (£) |
6.91 |
|
8.44 |
|
6.92 |
|
8.44 |
|
|
Weighted average remaining
contractual life (years) |
4.33 |
|
4.34 |
|
5.33 |
|
5.34 |
|
|
Of which exercisable: |
|
|
|
|
|
|
|
|
|
|
Number (000s) |
25,947 |
|
116,646 |
|
29,312 |
|
61,650 |
|
|
|
Weighted average exercise price
(£) |
6.91 |
|
8.44 |
|
6.92 |
|
8.59 |
|
|
|
|
|
|
|
|
|
|
|
|
|
HSBC Holdings Executive Share Option Scheme |
|
|
|
The HSBC Holdings Executive Share Option
Scheme was a long-term incentive plan under which certain senior HSBC
employees were awarded share options before the adoption of the HSBC
Holdings Group Share Option Plan in 2000. The aim of the plan was to
align the interests of those higher performing senior employees with
the creation of shareholder value. This was achieved by setting certain
TSR targets to be attained in order for the awards to vest. Options were
granted at market value and were exercisable between the third and tenth
anniversaries of the date of grant, subject to vesting conditions. No
awards have been made under this plan since 2000 and the remaining unexercised
options are summarised below: |
|
|
|
|
2008 |
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
Weighted |
|
|
|
|
|
average |
|
|
|
average |
|
|
|
|
|
exercise |
|
|
|
exercise |
|
|
|
Number |
|
price |
|
Number |
|
price |
|
|
|
(000s) |
|
£ |
|
(000s) |
|
£ |
|
|
|
Outstanding
at 1 January |
18,239 |
|
6.85 |
|
22,037 |
|
6.82 |
|
|
Exercised in the year |
(4,051 |
) |
6.58 |
|
(3,377 |
) |
6.65 |
|
|
Expired in
the year |
(224 |
) |
7.70 |
|
(421 |
) |
6.84 |
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at 31 December |
13,964 |
|
6.92 |
|
18,239 |
|
6.85 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted average share price
at the date the share options were exercised was US$14.65 (2007:
US$18.08). |
|
|
|
The number of options, weighted
average exercise price and weighted average remaining contractual life
of options outstanding at the balance sheet date, analysed by exercise
price range, were as follows: |
|
|
|
|
|
|
|
|
|
|
2008 |
|
2007 |
|
|
|
Exercise
price range (£) |
6.01-7.87 |
|
6.01-7.87 |
|
|
Number (000s) |
13,964 |
|
18,239 |
|
|
Weighted
average exercise price (£) |
6.92 |
|
6.85 |
|
|
Weighted average
remaining contractual life (years) |
0.75 |
|
1.66 |
|
|
Of
which exercisable: |
|
|
|
|
|
|
Number (000s) |
13,964 |
|
18,239 |
|
|
|
Weighted average
exercise price (£) |
6.92 |
|
6.85 |
|
|
|
|
HSBC France and subsidiary company plans |
|
|
|
Before its acquisition by HSBC in 2000,
HSBC France and certain of its subsidiaries operated employee share plans
under which share options were granted over their respective shares. |
|
|
|
Options over HSBC France shares granted
between 1994 and 1999 vested upon announcement of HSBCs agreement
to acquire HSBC France and were therefore included in the valuation of
HSBC France. |
|
|
|
HSBC France granted 909,000 options in 2000
after the public announcement of the acquisition and these options did
not vest as a result of the change in control. The options were subject
to continued employment and vested on 1 January 2002. The HSBC France
shares obtained on exercise of the options are exchangeable for HSBCs
ordinary shares of US$0.50 each in the same ratio as the Exchange
Offer for HSBC France shares (13 ordinary shares of US$0.50 for each
HSBC France share). Options were granted at market value and are exercisable
within 10 years of the date of grant. |
380
Back to Contents
|
|
2008 |
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise |
|
|
|
Exercise |
|
|
|
Number
|
|
price |
|
Number
|
|
price |
|
|
|
(000s)
|
|
|
|
(000s)
|
|
|
|
|
|
Outstanding at 1 January |
604
|
|
142.5 |
|
648
|
|
142.5 |
|
|
Exercised in the year |
|
|
142.5 |
|
(42
|
) |
142.5 |
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding and exercisable at 31 December |
604
|
|
142.5 |
|
604
|
|
142.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted average share price at the date
the share options were exercised was nil (2007: US$18.08). The remaining
contractual life for options outstanding at the balance sheet date was 1.3
years (2007: 2.3 years). At
the date of its acquisition in 2000, certain of HSBC Frances subsidiary
companies also operated employee share option plans under which options
could be granted over their respective shares. On exercise of certain of
these options, the subsidiary shares are exchanged for HSBC ordinary shares.
The total number of HSBC ordinary shares exchanged under such arrangements
in 2008 was 12,810 (2007: 113,240). |
|
|
|
HSBC Finance |
|
|
|
Upon acquisition, HSBC Finance share options
previously granted were converted to share options over HSBC ordinary
shares of US$0.50 each at a rate of 2.675 HSBC share options (the
same ratio as the Exchange Offer for HSBC Finance) for each HSBC Finance
share option. Options granted under HSBC Finances own share option
schemes prior to the announcement of the acquisition by HSBC in November
2002 vested as options over HSBC shares upon acquisition by HSBC. Options
granted after the announcement of the acquisition in November 2002 but
prior to its completion on 28 March 2003 generally vest equally over
four years and expire ten years from the date of
grant. |
|
|
|
|
2008 |
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise |
|
|
|
Exercise |
|
|
|
Number
|
|
price |
|
Number
|
|
price |
|
|
|
(000s)
|
|
US$ |
|
(000s)
|
|
US$ |
|
|
|
Outstanding at 1 January |
2,455
|
|
10.66 |
|
3,126
|
|
10.66 |
|
|
Exercised in the year |
(12
|
) |
10.66 |
|
(671
|
) |
10.66 |
|
|
Expired in the year |
(41
|
) |
10.66 |
|
|
|
10.66 |
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding and exercisable at 31 December |
2,402
|
|
10.66 |
|
2,455
|
|
10.66 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted average share price
at the date the share options were exercised was US$14.65 (2007: US$18.08). The remaining contractual life for options outstanding at the balance
sheet date was 3.9 years (2007: 4.9 years). |
|
|
11 |
Tax expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
2007
|
|
2006
|
|
|
|
US$m
|
|
US$m
|
|
US$m
|
|
|
Current tax |
|
|
|
|
|
|
|
UK corporation tax charge on current year profit |
1,738
|
|
1,372
|
|
772
|
|
|
UK corporation tax charge adjustments in respect of prior years |
(67
|
) |
(46
|
) |
(122
|
) |
|
Overseas tax on current year profit |
1,732
|
|
3,976
|
|
4,600
|
|
|
Overseas tax adjustments in respect of prior years |
(29
|
) |
(97
|
) |
(48
|
) |
|
|
|
|
|
|
|
|
|
|
3,374
|
|
5,205
|
|
5,202
|
|
|
|
|
|
|
|
|
|
|
Deferred tax |
|
|
|
|
|
|
|
Origination and reversal of temporary differences |
(504
|
) |
(1,247
|
) |
(51
|
) |
|
Effect of changes in tax rates |
(89
|
) |
(35
|
) |
|
|
|
Adjustments in respect of prior years |
28
|
|
(166
|
) |
64
|
|
|
|
|
|
|
|
|
|
|
|
(565
|
) |
(1,448
|
) |
13
|
|
|
|
|
|
|
|
|
|
|
Tax expense |
2,809
|
|
3,757
|
|
5,215
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The UK corporation tax rate applying
to HSBC Holdings and its subsidiaries changed from 30 per cent to 28 per
cent with effect from 1 April 2008 (2007: 30 per cent; 2006: 30 per cent).
Overseas tax included Hong Kong profits tax of |
381
Back to Contents
H S B C H O L D I
N G S P L C |
|
Notes on the Financial
Statements (continued) |
|
|
|
|
Note 10 |
|
US$846 million (2007: US$1,137 million;
2006:
US$751 million). The Hong Kong tax rate applying to the profits of subsidiaries
assessable in Hong Kong changed from 17.5 per cent to 16.5 per cent with effect
from 1 January 2008 (2007: 17.5 per cent; 2006: 17.5 per cent). Other overseas
subsidiaries and overseas branches provided for taxation at the appropriate rates
in the countries in which they operate. |
|
|
|
The following table reconciles the tax expense
which would apply if all profits had been taxed at the UK corporation
tax rate: |
|
|
|
|
|
2008 |
|
2007 |
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US$m
|
|
%
|
|
US$m
|
|
%
|
|
US$m
|
|
%
|
|
|
|
Analysis of tax expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxation
at UK corporation tax rate of 28.5% (2007 and 2006: 30%)1 |
2,652
|
|
28.5
|
|
7,264
|
|
30.0
|
|
6,626
|
|
30.0
|
|
|
|
Goodwill impaired |
3,010
|
|
32.3
|
|
|
|
|
|
|
|
|
|
|
|
Effect
of taxing overseas profits in principal locations at different rates |
(1,339
|
) |
(14.4
|
) |
(1,460
|
) |
(6.0
|
) |
(568
|
) |
(2.6
|
) |
|
|
Tax-free gains |
(1,016
|
) |
(10.9
|
) |
(296
|
) |
(1.2
|
) |
(199
|
) |
(0.9
|
) |
|
|
Adjustments in
respect of prior period liabilities |
(67
|
) |
(0.7
|
) |
(309
|
) |
(1.3
|
) |
(106
|
) |
(0.5
|
) |
|
|
Low income housing tax credits2 |
(103
|
) |
(1.1
|
) |
(107
|
) |
(0.4
|
) |
(108
|
) |
(0.5
|
) |
|
|
Effect of profit
in associates and joint ventures |
(473
|
) |
(5.1
|
) |
(450
|
) |
(1.9
|
) |
(253
|
) |
(1.1
|
) |
|
|
Effect
of previously unrecognised temporary differences3 |
(98
|
) |
(1.1
|
) |
(485
|
) |
(2.0
|
) |
(122
|
) |
(0.6
|
) |
|
|
Release
of deferred tax consequent on restructuring of Group interests |
|
|
|
|
(359
|
) |
(1.5
|
) |
|
|
|
|
|
|
Impact
of gains arising from dilution of interests in associates4 |
|
|
|
|
(253
|
) |
(1.0
|
) |
|
|
|
|
|
|
Other items |
243
|
|
2.7
|
|
212
|
|
0.8
|
|
(55
|
) |
(0.2
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Overall tax expense |
2,809
|
|
30.2
|
|
3,757
|
|
15.5
|
|
5,215
|
|
23.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
The change in the UK corporation tax rate from 30 per cent to 28 per cent
with effect from 1 April 2008 gave rise to a blended tax rate for 2008 of
28.5 per
cent. |
|
2 |
Low income housing tax credits arise in the US and are designed to encourage
the provision of rental housing for low income households. |
|
3 |
The effect of previously unrecognised temporary differences principally
relates to the recognition of trading losses (2007 and 2006: capital losses). |
|
4 |
The gains arising from the dilution of HSBCs interests in associates
were not subject to tax and, as such, there is a reconciling item which reduces
the effective tax rate
for 2007 (see Note 4). |
|
|
|
|
In addition to the
amount charged to the income statement, the aggregate amount of current
and deferred tax, relating to items that are taken directly to total equity,
was a US$1,879 million increase in total equity (2007: US$226 million
reduction in total equity; 2006: US$44 million reduction in total equity). |
|
|
|
|
The 2007 Finance Act
reduction in the UK corporation tax rate from 30 per cent to 28 per cent,
enacted in 2007 but commencing in 2008, resulted in a one off re-measurement
of deferred tax assets and liabilities at 31 December 2007. It gave rise
to a credit to the Groups tax charge of US$28 million in 2007. |
|
|
|
|
Deferred taxation |
|
HSBC |
|
|
|
|
|
|
2008 |
|
2007
|
|
|
|
|
US$m |
|
US$m
|
|
|
|
At 1 January |
3,425 |
|
2,145
|
|
|
Income statement credit |
565 |
|
1,448
|
|
|
Equity: |
|
|
|
|
|
|
available-for-sale investments |
582 |
|
(8
|
) |
|
|
cash flow hedges |
92 |
|
470
|
|
|
|
share-based payments |
|
|
(65
|
) |
|
|
actuarial
gains and losses |
433 |
|
(642
|
) |
|
Foreign exchange and other adjustments |
59 |
|
77
|
|
|
|
|
|
|
|
|
|
At 31 December |
5,156 |
|
3,425 |
|
|
|
|
|
|
|
382
Back to Contents
|
The amount of deferred
taxation accounted for in the consolidated balance sheet, before offsetting
balances within countries, comprised the following deferred tax assets
and liabilities: |
|
|
|
|
|
|
|
|
2008 |
|
2007 |
|
|
|
US$m |
|
US$m |
|
|
Deferred tax assets |
|
|
|
|
|
Retirement
benefits |
927 |
|
822 |
|
|
Loan impairment allowances |
5,891 |
|
4,484 |
|
|
Unused tax
losses |
282 |
|
272 |
|
|
Accelerated capital allowances |
99 |
|
97 |
|
|
Available-for-sale
investments |
518 |
|
77 |
|
|
Cash flow hedges |
1,145 |
|
570 |
|
|
Share-based
payments |
245 |
|
326 |
|
|
Other short-term temporary differences |
457 |
|
900 |
|
|
|
|
|
|
|
|
|
9,564 |
|
7,548 |
|
|
|
|
|
|
|
|
Deferred tax liabilities |
|
|
|
|
|
Assets leased
to customers |
916 |
|
1,285 |
|
|
Revaluation of property |
374 |
|
507 |
|
|
Accelerated
capital allowances |
167 |
|
206 |
|
|
Other short-term temporary differences |
419 |
|
202 |
|
|
Provision for
tax on profit remitted from overseas |
78 |
|
102 |
|
|
Available-for-sale investments |
121 |
|
198 |
|
|
Cash flow hedges |
280 |
|
96 |
|
|
Fee income |
930 |
|
943 |
|
|
Other temporary
differences |
1,123 |
|
584 |
|
|
|
|
|
|
|
|
|
4,408 |
|
4,123 |
|
|
|
|
|
|
|
|
Net deferred
tax assets before offsetting balances within countries |
5,156 |
|
3,425 |
|
|
|
|
|
|
|
|
After offsetting
balances within countries, the balances as disclosed in the consolidated
balance sheet are as follows: |
|
|
2008 |
|
2007 |
|
|
|
US$m |
|
US$m |
|
|
|
|
|
|
|
|
Deferred tax
assets |
7,011 |
|
5,284 |
|
|
Deferred tax liabilities |
(1,855 |
) |
(1,859 |
) |
|
|
|
|
|
|
|
|
5,156 |
|
3,425 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amount of temporary differences, unused
tax losses and unused tax credits for which no deferred tax asset is
recognised in the balance sheet is US$878 million (2007: US$923
million). Of this amount, US$805 million (2007: US$750 million)
has no expiry date and US$73 million (2007: US$173 million) is
scheduled to expire within 10 years (2007: 10 years). |
|
|
|
Deferred tax is not recognised in respect
of the Groups investments in subsidiaries, branches, associates
and interests in joint ventures where remittance is not contemplated
or where no additional tax is expected to arise. The aggregate amount
of temporary differences associated with such investments is US$38,443
million (2007: US$29,947 million; 2006: US$22,424 million). |
|
|
|
Of the total net deferred tax assets of
US$7.0 billion at 31 December 2008 (2007: US$5.3 billion), US$5.0
billion (2007: US$3.7 billion) arises in respect of HSBCs US
operations where there has been a recent history of losses. The recognition
of the deferred tax assets in respect of HSBCs US operations is
dependent on the capacity to carry back up to US$1.9 billion of net
operating losses arising in 2009 (2007 capacity: US$7.3 billion)
but mainly relies on the projection of future taxable profits. Managements
forecasts support the assumption that it is probable that the results
of future operations will generate sufficient taxable income to utilise
the deferred tax assets. These forecasts rely on continued liquidity
and capital support to the US operations from HSBC, including tax planning
strategies implemented in relation to such support. |
383
Back to Contents
H S B C H O L D I
N G S P L C |
|
Notes on the
Financial Statements (continued) |
|
|
|
|
Notes 11, 12, 13 and 14 |
|
HSBC Holdings |
|
|
|
|
Deferred tax asset/(liability) |
|
|
|
|
|
|
|
2008 |
|
2007 |
|
|
|
US$m |
|
US$m |
|
|
Temporary differences: |
|
|
|
|
|
short-term
timing differences |
1 |
|
1 |
|
|
fair valued
assets and liabilities |
30 |
|
(14 |
) |
|
share-based
payments |
11 |
|
20 |
|
|
|
|
|
|
|
|
|
42 |
|
7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
12 |
Dividends |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends to shareholders of the parent
company were as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
2007 |
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Per |
|
|
|
Settled |
|
Per |
|
|
|
Settled |
|
Per |
|
|
|
Settled |
|
|
|
|
share |
|
Total |
|
in scrip |
|
share |
|
Total |
|
in scrip |
|
share |
|
Total |
|
in scrip |
|
|
|
|
US$ |
|
US$m |
|
US$m |
|
US$ |
|
US$m |
|
US$m |
|
US$ |
|
US$m |
|
US$m |
|
|
Dividends declared on ordinary shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In respect of previous year: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
fourth interim
dividend |
0.390 |
|
4,620 |
|
2,233 |
|
0.360 |
|
4,161 |
|
2,116 |
|
0.310 |
|
3,513 |
|
1,542 |
|
|
In respect of current year: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
first interim dividend |
0.180 |
|
2,158 |
|
256 |
|
0.170 |
|
1,986 |
|
712 |
|
0.150 |
|
1,712 |
|
248 |
|
|
|
second interim
dividend |
0.180 |
|
2,166 |
|
727 |
|
0.170 |
|
1,997 |
|
912 |
|
0.150 |
|
1,724 |
|
515 |
|
|
|
third interim dividend |
0.180
|
|
2,175 |
|
380 |
|
0.170
|
|
2,007
|
|
614 |
|
0.150
|
|
1,730 |
|
223 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.930
|
|
11,119 |
|
3,596 |
|
0.870
|
|
10,151
|
|
4,354 |
|
0.760
|
|
8,679 |
|
2,528 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarterly
dividends on preference shares classified as equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March dividend |
15.50 |
|
22 |
|
|
|
15.50 |
|
22 |
|
|
|
15.50 |
|
22 |
|
|
|
|
June dividend |
15.50 |
|
23 |
|
|
|
15.50 |
|
23 |
|
|
|
15.50 |
|
23 |
|
|
|
|
September dividend |
15.50 |
|
22 |
|
|
|
15.50 |
|
22 |
|
|
|
15.50 |
|
22 |
|
|
|
|
December dividend |
15.50
|
|
23 |
|
|
|
15.50
|
|
23 |
|
|
|
15.50
|
|
23 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62.00
|
|
90 |
|
|
|
62.00
|
|
90 |
|
|
|
62.00
|
|
90 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarterly
coupons on capital securities
classified as equity1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July coupon |
0.541 |
|
47 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October coupon |
0.508
|
|
45 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.049
|
|
92 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
During April 2008, HSBC Holdings issued
US$2,200 million of Perpetual Subordinated Capital Securities (Capital
Securities), which are classified as equity under
IFRSs. |
|
|
|
The Directors declared after the end of the year a fourth interim dividend
in respect of the financial year ended 31 December 2008 of US$0.10 per
ordinary share, a distribution of
US$1,214 million. The fourth interim dividend will be payable on 6 May 2009
to shareholders on the Register at the close of business on 20 March 2009. No
liability is recorded in the financial statements in respect of the fourth interim
dividend
for 2008. |
|
|
On 15 January 2009, HSBC paid a further coupon on the Capital Securities of
US$0.508 per security, a distribution of US$45 million. No liability
is recorded in the balance sheet at 31 December 2008 in respect of this coupon
payment. |
|
13 |
Earnings per share |
|
|
Basic earnings per ordinary share was calculated by dividing the profit attributable
to ordinary shareholders of the parent company of US$5,546 million (2007:
US$19,043 million;
2006: US$15,699 million) by the weighted average number of ordinary shares,
excluding own shares held, outstanding in 2008 of 11,812 million (2007: 11,545
million; 2006: 11,210 million). |
384
Back to Contents
|
|
2008 |
|
2007 |
|
2006 |
|
|
|
US$m |
|
US$m |
|
US$m |
|
|
|
Profit attributable
to shareholders of the parent company |
5,728 |
|
19,133 |
|
15,789 |
|
|
Dividend payable on preference
shares classified as equity |
(90 |
) |
(90 |
) |
(90 |
) |
|
Coupon payable
on capital securities classified as equity |
(92 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit attributable
to the ordinary shareholders of the parent company |
5,546 |
|
19,043 |
|
15,699 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per ordinary share
was calculated by dividing the basic earnings, which require no adjustment
for the effects of dilutive potential ordinary shares (including share
options outstanding not yet exercised), by the weighted average number
of ordinary shares outstanding, excluding own shares held, plus the weighted
average number of ordinary shares that would be issued on ordinary conversion
of dilutive potential ordinary shares in 2008 of 11,915 million (2007:
11,661 million; 2006: 11,320 million). The effect of dilutive potential
ordinary shares on the weighted average number of ordinary shares outstanding
was as follows: |
|
|
|
|
|
|
|
|
|
Number of shares (millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of ordinary shares outstanding |
11,812 |
|
|
11,545 |
|
|
11,210 |
|
|
|
Weighted average
number of dilutive potential ordinary shares |
103 |
|
|
116 |
|
|
110 |
|
|
|
|
Savings-related
Share Option Plan |
11 |
|
|
20 |
|
|
27 |
|
|
|
|
Executive Share Option
Scheme |
3 |
|
|
5 |
|
|
10 |
|
|
|
|
Group
Share Option Plan |
4 |
|
|
16 |
|
|
28 |
|
|
|
|
Restricted and performance
share awards |
83 |
|
|
67 |
|
|
32 |
|
|
|
|
HSBC
France share options |
1 |
|
|
5 |
|
|
8 |
|
|
|
|
HSBC Finance share options |
1 |
|
|
3 |
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of ordinary shares outstanding assuming dilution |
11,915 |
|
|
11,661 |
|
|
11,320 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted average number of
dilutive potential ordinary shares excludes 145 million employee share
options that were anti-dilutive (2007: 19 million; 2006: 20 million). |
|
|
|
|
14 |
Segmental analysis |
|
|
In the following segmental analysis, the benefit
of shareholders funds impacts the analysis only to the extent that
these funds are actually allocated to businesses in the segment by way
of intra-HSBC capital and funding structures. |
|
|
|
By geographical region |
|
|
|
Geographical information is classified by the
location of the principal operations of the subsidiary or, for The Hongkong
and Shanghai Banking Corporation, HSBC Bank, HSBC Bank Middle East, HSBC
Finance and HSBC Bank USA, by the location of the branch responsible
for reporting the results or advancing the funds. Due to the nature of
HSBCs structure, the analysis of profits shown below includes intra-HSBC
items between geographical regions with the elimination shown in a separate
column. The Rest of Asia-Pacific geographical segment includes the Middle
East, India and Australasia. Shared costs are included in segments on
the basis of the actual recharges made. |
|
|
|
By customer groups and global businesses |
|
|
|
HSBCs operations include a number of
shared support services and GMO functions. The costs of these functions
are allocated to customer groups and global businesses, where appropriate,
on a systematic and consistent basis. In addition, a number of income
and expense items include the effect of financial transactions entered
into in the ordinary course of business between customer groups co-operating
within the integrated HSBC Group. The analysis on pages 389 to 392 includes
inter-segment amounts within each customer group with the elimination
shown in a separate column. |
385
Back to Contents
H S B C H O L D I
N G S P L C |
|
Notes on the
Financial Statements (continued) |
|
|
|
|
Note 14 |
|
By geographical region |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit before tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended 31
December 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rest of |
|
|
|
|
|
|
|
|
Intra- |
|
|
|
|
|
|
|
|
|
|
Hong |
|
|
Asia- |
|
|
North |
|
|
Latin |
|
|
HSBC |
|
|
|
|
|
|
|
Europe |
|
|
Kong |
|
|
Pacific |
|
|
America |
|
|
America |
|
|
items |
|
|
Total |
|
|
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
35,117 |
|
|
9,530 |
|
|
11,517 |
|
|
25,897 |
|
|
11,632 |
|
|
(2,392 |
) |
|
91,301 |
|
|
|
Interest expense |
(25,421 |
) |
|
(3,832 |
) |
|
(6,024 |
) |
|
(10,679 |
) |
|
(5,174 |
) |
|
2,392 |
|
|
(48,738 |
) |
|
|
Net interest
income |
9,696 |
|
|
5,698 |
|
|
5,493 |
|
|
15,218 |
|
|
6,458 |
|
|
|
|
|
42,563 |
|
|
|
Fee income |
10,225 |
|
|
3,062 |
|
|
3,154 |
|
|
6,292 |
|
|
2,716 |
|
|
(685 |
) |
|
24,764 |
|
|
|
Fee expense |
(2,733 |
) |
|
(482 |
) |
|
(596 |
) |
|
(1,065 |
) |
|
(549 |
) |
|
685 |
|
|
(4,740 |
) |
|
|
Net fee income |
7,492 |
|
|
2,580 |
|
|
2,558 |
|
|
5,227 |
|
|
2,167 |
|
|
|
|
|
20,024 |
|
|
|
Trading
income/(expense) excluding
net interest income |
1,691 |
|
|
856 |
|
|
1,823 |
|
|
(3,879 |
) |
|
356 |
|
|
|
|
|
847 |
|
|
|
Net interest income on
trading activities |
3,666 |
|
|
337 |
|
|
621 |
|
|
744 |
|
|
345 |
|
|
|
|
|
5,713 |
|
|
|
Net trading
income |
5,357 |
|
|
1,193 |
|
|
2,444 |
|
|
(3,135 |
) |
|
701 |
|
|
|
|
|
6,560 |
|
|
|
Changes
in fair value of long-term debt
issued and related derivatives |
2,939 |
|
|
3 |
|
|
1 |
|
|
3,736 |
|
|
|
|
|
|
|
|
6,679 |
|
|
|
Net
income/(expense) from other financial
instruments designated
at fair value |
(1,826 |
) |
|
(1,194 |
) |
|
(172 |
) |
|
1 |
|
|
364 |
|
|
|
|
|
(2,827 |
) |
|
|
Net
income from financial instruments
designated at fair value |
1,113 |
|
|
(1,191 |
) |
|
(171 |
) |
|
3,737 |
|
|
364 |
|
|
|
|
|
3,852 |
|
|
|
Gains less
losses from financial investments |
418 |
|
|
(309 |
) |
|
32 |
|
|
(120 |
) |
|
176 |
|
|
|
|
|
197 |
|
|
|
Dividend income |
130 |
|
|
41 |
|
|
4 |
|
|
77 |
|
|
20 |
|
|
|
|
|
272 |
|
|
|
Net earned
insurance premiums |
5,299 |
|
|
3,247 |
|
|
197 |
|
|
390 |
|
|
1,717 |
|
|
|
|
|
10,850 |
|
|
|
Gains on disposal
of French regional
banks |
2,445 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,445 |
|
|
|
Other operating
income |
2,096 |
|
|
817 |
|
|
1,064 |
|
|
23 |
|
|
300 |
|
|
(2,492 |
) |
|
1,808 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating
income |
34,046 |
|
|
12,076 |
|
|
11,621 |
|
|
21,417 |
|
|
11,903 |
|
|
(2,492 |
) |
|
88,571 |
|
|
|
Net
insurance claims incurred and
movement in liabilities to policyholders |
(3,367 |
) |
|
(1,922 |
) |
|
28 |
|
|
(238 |
) |
|
(1,390 |
) |
|
|
|
|
(6,889 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
operating income before loan impairment charges and other credit
risk provisions |
30,679 |
|
|
10,154 |
|
|
11,649 |
|
|
21,179 |
|
|
10,513 |
|
|
(2,492 |
) |
|
81,682 |
|
|
|
Loan
impairment charges and other credit
risk provisions |
(3,754 |
) |
|
(765 |
) |
|
(1,131 |
) |
|
(16,795 |
) |
|
(2,492 |
) |
|
|
|
|
(24,937 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income1 |
26,925 |
|
|
9,389 |
|
|
10,518 |
|
|
4,384 |
|
|
8,021 |
|
|
(2,492 |
) |
|
56,745 |
|
|
|
Total
operating expenses (excluding depreciation,
amortisation and impairment) |
(14,979 |
) |
|
(3,631 |
) |
|
(5,440 |
) |
|
(8,891 |
) |
|
(5,603 |
) |
|
2,492 |
|
|
(36,052 |
) |
|
|
Depreciation
of property, plant and equipment |
(865 |
) |
|
(209 |
) |
|
(188 |
) |
|
(265 |
) |
|
(223 |
) |
|
|
|
|
(1,750 |
) |
|
|
Amortisation of
intangible assets |
(228 |
) |
|
(103 |
) |
|
(35 |
) |
|
(203 |
) |
|
(164 |
) |
|
|
|
|
(733 |
) |
|
|
Goodwill impairment |
|
|
|
|
|
|
|
|
|
(10,564 |
) |
|
|
|
|
|
|
|
(10,564 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating
expenses |
(16,072 |
) |
|
(3,943 |
) |
|
(5,663 |
) |
|
(19,923 |
) |
|
(5,990 |
) |
|
2,492 |
|
|
(49,099 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
profit/(loss) |
10,853 |
|
|
5,446 |
|
|
4,855 |
|
|
(15,539 |
) |
|
2,031 |
|
|
|
|
|
7,646 |
|
|
|
Share of profit
in associates and joint
ventures |
16 |
|
|
15 |
|
|
1,613 |
|
|
11 |
|
|
6 |
|
|
|
|
|
1,661 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit/(loss)
before tax |
10,869 |
|
|
5,461 |
|
|
6,468 |
|
|
(15,528 |
) |
|
2,037 |
|
|
|
|
|
9,307 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
386
Back to Contents
|
|
Year ended 31 December 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rest of
|
|
|
|
|
|
|
|
|
Intra-
|
|
|
|
|
|
|
|
|
|
|
Hong
|
|
|
Asia-
|
|
|
North
|
|
|
Latin
|
|
|
HSBC
|
|
|
|
|
|
|
|
Europe
|
|
|
Kong
|
|
|
Pacific
|
|
|
America
|
|
|
America
|
|
|
items
|
|
|
Total
|
|
|
|
|
US$m
|
|
|
US$m
|
|
|
US$m
|
|
|
US$m
|
|
|
US$m
|
|
|
US$m
|
|
|
US$m
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
33,144
|
|
|
12,580
|
|
|
10,158
|
|
|
30,183
|
|
|
9,471
|
|
|
(3,177
|
) |
|
92,359
|
|
|
|
Interest expense |
(25,398
|
) |
|
(7,097
|
) |
|
(6,015
|
) |
|
(15,336
|
) |
|
(3,895
|
) |
|
3,177
|
|
|
(54,564
|
) |
|
|
Net interest income |
7,746
|
|
|
5,483
|
|
|
4,143
|
|
|
14,847
|
|
|
5,576
|
|
|
|
|
|
37,795
|
|
|
|
Fee income |
10,973
|
|
|
3,860
|
|
|
2,709
|
|
|
6,733
|
|
|
2,647
|
|
|
(585
|
) |
|
26,337
|
|
|
|
Fee expense |
(2,542
|
) |
|
(498
|
) |
|
(463
|
) |
|
(923
|
) |
|
(494
|
) |
|
585
|
|
|
(4,335
|
) |
|
|
Net fee income |
8,431
|
|
|
3,362
|
|
|
2,246
|
|
|
5,810
|
|
|
2,153
|
|
|
|
|
|
22,002
|
|
|
|
Trading
income/(expense) excluding net interest income |
3,003
|
|
|
1,270
|
|
|
1,202
|
|
|
(1,289
|
) |
|
272
|
|
|
|
|
|
4,458
|
|
|
|
Net interest
income/(expense) on trading activities |
3,940
|
|
|
(28
|
) |
|
441
|
|
|
747
|
|
|
276
|
|
|
|
|
|
5,376
|
|
|
|
Net trading income/(expense) |
6,943
|
|
|
1,242
|
|
|
1,643
|
|
|
(542
|
) |
|
548
|
|
|
|
|
|
9,834
|
|
|
|
Changes
in fair value of long-term debt issued
and related derivatives |
1,059
|
|
|
2
|
|
|
1
|
|
|
1,750
|
|
|
|
|
|
|
|
|
2,812
|
|
|
|
Net
income from other financial instruments
designated at fair value |
167
|
|
|
674
|
|
|
110
|
|
|
|
|
|
320
|
|
|
|
|
|
1,271
|
|
|
|
Net
income from financial instruments designated
at fair value |
1,226
|
|
|
676
|
|
|
111
|
|
|
1,750
|
|
|
320
|
|
|
|
|
|
4,083
|
|
|
|
Gains
less losses from financial investments |
1,326
|
|
|
94
|
|
|
38
|
|
|
245
|
|
|
253
|
|
|
|
|
|
1,956
|
|
|
|
Gains
arising from dilution of interests in associates |
|
|
|
|
|
|
1,081
|
|
|
|
|
|
11
|
|
|
|
|
|
1,092
|
|
|
|
Dividend income |
171
|
|
|
31
|
|
|
8
|
|
|
105
|
|
|
9
|
|
|
|
|
|
324
|
|
|
|
Net earned insurance premiums |
4,010
|
|
|
2,797
|
|
|
226
|
|
|
449
|
|
|
1,594
|
|
|
|
|
|
9,076
|
|
|
|
Other operating income |
1,193
|
|
|
845
|
|
|
798
|
|
|
360
|
|
|
228
|
|
|
(1,985
|
) |
|
1,439
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income |
31,046
|
|
|
14,530
|
|
|
10,294
|
|
|
23,024
|
|
|
10,692
|
|
|
(1,985
|
) |
|
87,601
|
|
|
|
Net
insurance claims incurred and movement
in liabilities to policyholders |
(3,479
|
) |
|
(3,208
|
) |
|
(253
|
) |
|
(241
|
) |
|
(1,427
|
) |
|
|
|
|
(8,608
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
operating income before loan impairment charges and
other credit risk provisions |
27,567
|
|
|
11,322
|
|
|
10,041
|
|
|
22,783
|
|
|
9,265
|
|
|
(1,985
|
) |
|
78,993
|
|
|
|
Loan impairment
charges and other credit risk provisions |
(2,542
|
) |
|
(231
|
) |
|
(616
|
) |
|
(12,156
|
) |
|
(1,697
|
) |
|
|
|
|
(17,242
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income1 |
25,025
|
|
|
11,091
|
|
|
9,425
|
|
|
10,627
|
|
|
7,568
|
|
|
(1,985
|
) |
|
61,751
|
|
|
|
Total
operating expenses (excluding depreciation
and amortisation) |
(15,451
|
) |
|
(3,510
|
) |
|
(4,572
|
) |
|
(10,037
|
) |
|
(5,043
|
) |
|
1,985
|
|
|
(36,628
|
) |
|
|
Depreciation of property, plant and
equipment |
(848
|
) |
|
(180
|
) |
|
(159
|
) |
|
(317
|
) |
|
(210
|
) |
|
|
|
|
(1,714
|
) |
|
|
Amortisation of intangible assets |
(226
|
) |
|
(90
|
) |
|
(33
|
) |
|
(202
|
) |
|
(149
|
) |
|
|
|
|
(700
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
(16,525
|
) |
|
(3,780
|
) |
|
(4,764
|
) |
|
(10,556
|
) |
|
(5,402
|
) |
|
1,985
|
|
|
(39,042
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit |
8,500
|
|
|
7,311
|
|
|
4,661
|
|
|
71
|
|
|
2,166
|
|
|
|
|
|
22,709
|
|
|
|
Share of profit in associates and
joint ventures |
95
|
|
|
28
|
|
|
1,348
|
|
|
20
|
|
|
12
|
|
|
|
|
|
1,503
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit before tax |
8,595
|
|
|
7,339
|
|
|
6,009
|
|
|
91
|
|
|
2,178
|
|
|
|
|
|
24,212
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
387
Back to Contents
H S B C H O L D I
N G S P L C |
|
Notes on the Financial Statements (continued) |
|
|
|
|
Note 14 |
|
By geographical region (continued) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit before tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended 31 December
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rest of |
|
|
|
|
|
|
|
|
Intra- |
|
|
|
|
|
|
|
|
|
Hong |
|
|
Asia- |
|
|
North |
|
|
Latin |
|
|
HSBC |
|
|
|
|
|
|
Europe |
|
|
Kong |
|
|
Pacific |
|
|
America |
|
|
America |
|
|
items |
|
|
Total |
|
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
25,249
|
|
|
11,097
|
|
|
7,693
|
|
|
27,959
|
|
|
7,289
|
|
|
(3,408
|
) |
|
75,879
|
|
|
Interest expense |
(16,960
|
) |
|
(6,412
|
) |
|
(4,646
|
) |
|
(13,691
|
) |
|
(3,092
|
) |
|
3,408
|
|
|
(41,393
|
) |
|
Net interest
income |
8,289
|
|
|
4,685
|
|
|
3,047
|
|
|
14,268
|
|
|
4,197
|
|
|
|
|
|
34,486
|
|
|
Fee income |
9,583
|
|
|
2,448
|
|
|
1,912
|
|
|
5,611
|
|
|
1,975
|
|
|
(449 |
) |
|
21,080
|
|
|
Fee expense |
(2,475
|
) |
|
(392 |
) |
|
(290 |
) |
|
(845 |
) |
|
(345 |
) |
|
449 |
|
|
(3,898
|
) |
|
Net fee income |
7,108 |
|
|
2,056 |
|
|
1,622 |
|
|
4,766 |
|
|
1,630 |
|
|
|
|
|
17,182 |
|
|
Trading
income excluding net interest income |
2,842
|
|
|
924 |
|
|
935 |
|
|
617 |
|
|
301 |
|
|
|
|
|
5,619
|
|
|
Net
interest income/(expense) on trading activities |
1,687
|
|
|
(307 |
) |
|
246 |
|
|
741 |
|
|
236 |
|
|
|
|
|
2,603
|
|
|
Net trading
income |
4,529
|
|
|
617 |
|
|
1,181
|
|
|
1,358
|
|
|
537 |
|
|
|
|
|
8,222
|
|
|
Changes
in fair value of long-term debt issued
and related derivatives |
28 |
|
|
|
|
|
|
|
|
(63 |
) |
|
|
|
|
|
|
|
(35 |
) |
|
Net
income from other financial instruments
designated at fair value |
116 |
|
|
260 |
|
|
79 |
|
|
|
|
|
237 |
|
|
|
|
|
692 |
|
|
Net
income/(expense) from financial instruments
designated at fair value |
144 |
|
|
260 |
|
|
79 |
|
|
(63 |
) |
|
237 |
|
|
|
|
|
657 |
|
|
Gains less losses
from financial investments |
624 |
|
|
162 |
|
|
41 |
|
|
58 |
|
|
84 |
|
|
|
|
|
969 |
|
|
Dividend income |
183 |
|
|
61 |
|
|
5 |
|
|
85 |
|
|
6 |
|
|
|
|
|
340 |
|
|
Net earned
insurance premiums |
1,298
|
|
|
2,628
|
|
|
174 |
|
|
492 |
|
|
1,076
|
|
|
|
|
|
5,668
|
|
|
Other operating income |
1,428 |
|
|
834 |
|
|
765 |
|
|
922 |
|
|
91 |
|
|
(1,494 |
) |
|
2,546 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating
income |
23,603
|
|
|
11,303
|
|
|
6,914
|
|
|
21,886
|
|
|
7,858
|
|
|
(1,494
|
) |
|
70,070
|
|
|
Net
insurance claims incurred and movement
in liabilities to policyholders |
(531 |
) |
|
(2,699 |
) |
|
(192 |
) |
|
(259 |
) |
|
(1,023 |
) |
|
|
|
|
(4,704 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
operating income before loan impairment
charges and other credit risk
provisions |
23,072
|
|
|
8,604
|
|
|
6,722
|
|
|
21,627
|
|
|
6,835
|
|
|
(1,494
|
) |
|
65,366
|
|
|
Loan
impairment charges and other credit
risk provisions |
(2,155 |
) |
|
(172 |
) |
|
(512 |
) |
|
(6,796 |
) |
|
(938 |
) |
|
|
|
|
(10,573 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating
income1 |
20,917
|
|
|
8,432
|
|
|
6,210
|
|
|
14,831
|
|
|
5,897
|
|
|
(1,494
|
) |
|
54,793
|
|
|
Total
operating expenses (excluding depreciation
and amortisation) |
(12,811 |
) |
|
(3,002 |
) |
|
(3,412 |
) |
|
(9,669 |
) |
|
(3,923 |
) |
|
1,494 |
|
|
(31,323 |
) |
|
Depreciation of
property, plant and
equipment |
(762 |
) |
|
(171 |
) |
|
(124 |
) |
|
(284 |
) |
|
(173 |
) |
|
|
|
|
(1,514
|
) |
|
Amortisation of intangible
assets |
(298 |
) |
|
(96 |
) |
|
(12 |
) |
|
(240 |
) |
|
(70 |
) |
|
|
|
|
(716 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating
expenses |
(13,871
|
) |
|
(3,269
|
) |
|
(3,548
|
) |
|
(10,193
|
) |
|
(4,166
|
) |
|
1,494
|
|
|
(33,553
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit |
7,046
|
|
|
5,163
|
|
|
2,662
|
|
|
4,638
|
|
|
1,731
|
|
|
|
|
|
21,240
|
|
|
Share
of profit/(loss) in associates and
joint ventures |
(72 |
) |
|
19 |
|
|
865 |
|
|
30 |
|
|
4 |
|
|
|
|
|
846 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit before
tax |
6,974
|
|
|
5,182
|
|
|
3,527
|
|
|
4,668
|
|
|
1,735
|
|
|
|
|
|
22,086
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
388
Back to Contents
|
Total assets |
|
|
|
|
|
|
|
|
|
|
At
31 December 2008 |
|
At
31 December 2007 |
|
|
|
|
|
|
|
|
|
US$m
|
|
%
|
|
US$m
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
Europe |
1,343,011
|
|
53.1
|
|
1,236,633
|
|
52.5
|
|
|
Hong Kong |
407,151
|
|
16.1
|
|
356,894
|
|
15.2 |
|
|
Rest
of Asia-Pacific |
262,305
|
|
10.4
|
|
243,205
|
|
10.3
|
|
|
North America |
552,612
|
|
21.9
|
|
549,285
|
|
23.3 |
|
|
Latin
America |
97,944
|
|
3.9
|
|
101,088
|
|
4.3
|
|
|
Intra-HSBC items |
(135,558
|
) |
(5.4
|
) |
(132,839
|
) |
(5.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
2,527,465
|
|
100.0
|
|
2,354,266
|
|
100.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
|
|
|
|
|
|
|
|
At 31 December
2008 |
|
At 31 December 2007 |
|
|
|
|
|
|
|
|
|
US$m |
|
% |
|
US$m |
|
% |
|
|
|
Europe |
1,312,922
|
|
54.1
|
|
1,178,826
|
|
53.1
|
|
|
Hong Kong |
393,304 |
|
16.2 |
|
341,519 |
|
15.4 |
|
|
Rest of Asia-Pacific |
241,674
|
|
10.0
|
|
225,592
|
|
10.2 |
|
|
North America |
527,967 |
|
21.8 |
|
517,516 |
|
23.3 |
|
|
Latin America |
86,927
|
|
3.6
|
|
88,236
|
|
4.0 |
|
|
Intra-HSBC items |
(135,558 |
) |
(5.7 |
) |
(132,839 |
) |
(6.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
2,427,236
|
|
100.0
|
|
2,218,850
|
|
100.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other disclosures |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hong |
|
|
Rest of Asia- |
|
|
North |
|
|
Latin |
|
|
Intra-HSBC |
|
|
|
|
|
|
|
|
Europe |
|
|
Kong |
|
|
Pacific |
|
|
America |
|
|
America |
|
|
items |
|
|
Total |
|
|
|
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
|
Year ended 31
December 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
expenditure incurred2 |
2,078 |
|
|
440 |
|
|
511 |
|
|
726
|
|
|
617
|
|
|
|
|
|
4,372 |
|
|
|
Investment in associates
and joint ventures |
137 |
|
|
153 |
|
|
11,111 |
|
|
128 |
|
|
8 |
|
|
|
|
|
11,537 |
|
|
|
1 |
Net operating income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External |
25,887 |
|
|
8,205 |
|
|
9,396 |
|
|
5,236
|
|
|
8,021
|
|
|
|
|
|
56,745 |
|
|
|
|
Inter-segment |
1,038 |
|
|
1,184 |
|
|
1,122 |
|
|
(852
|
) |
|
|
|
|
(2,492
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended 31 December
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
expenditure incurred2 |
1,722 |
|
|
441 |
|
|
277 |
|
|
833 |
|
|
599 |
|
|
|
|
|
3,872 |
|
|
|
Investment in associates
and joint ventures |
158 |
|
|
155 |
|
|
9,867 |
|
|
127 |
|
|
77 |
|
|
|
|
|
10,384 |
|
|
|
1 |
Net operating income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External |
23,772 |
|
|
10,168 |
|
|
8,456 |
|
|
11,784
|
|
|
7,571
|
|
|
|
|
|
61,751 |
|
|
|
|
Inter-segment |
1,253 |
|
|
923 |
|
|
969 |
|
|
(1,157
|
) |
|
(3
|
) |
|
(1,985
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended 31 December
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
expenditure incurred2 |
1,508 |
|
|
324 |
|
|
235 |
|
|
899 |
|
|
2,017
|
|
|
|
|
|
4,983 |
|
|
|
Investment in associates
and joint ventures |
1,321 |
|
|
128 |
|
|
6,322 |
|
|
541 |
|
|
84 |
|
|
|
|
|
8,396 |
|
|
|
1 |
Net operating income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External |
19,664 |
|
|
7,970 |
|
|
5,592 |
|
|
15,694
|
|
|
5,873
|
|
|
|
|
|
54,793 |
|
|
|
|
Inter-segment |
1,253 |
|
|
462 |
|
|
618 |
|
|
(863
|
) |
|
24
|
|
|
(1,494
|
) |
|
|
|
|
|
2 |
Expenditure incurred
on property, plant and equipment and intangible assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By customer groups and global businesses |
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
|
|
|
|
|
At 31 December
2008
|
|
At 31 December 2007
|
|
|
|
|
|
|
|
|
|
US$m |
|
% |
|
US$m |
|
% |
|
|
|
Personal Financial
Services |
514,419
|
|
20.4
|
|
621,356
|
|
26.4
|
|
|
Commercial Banking |
249,218 |
|
9.9 |
|
307,944 |
|
13.1 |
|
|
Global Banking
and Markets |
1,896,630
|
|
75.0
|
|
1,561,468
|
|
66.3 |
|
|
Private Banking |
133,216 |
|
5.3 |
|
130,893 |
|
5.6 |
|
|
Other |
135,001
|
|
5.3
|
|
155,685
|
|
6.6 |
|
|
Intra-HSBC items |
(401,019 |
) |
(15.9 |
) |
(423,080 |
) |
(18.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total
assets |
2,527,465 |
|
100.0 |
|
2,354,266 |
|
100.0 |
|
|
|
|
|
|
|
|
|
|
|
389
Back to Contents
H S B C H O L D I
N G S P L C |
|
Notes on the Financial Statements
(continued) |
|
|
|
|
Note 14 |
|
Profit before
tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
31 December 2008 |
|
|
|
|
|
|
|
Personal |
|
|
|
|
|
Global |
|
|
|
|
|
|
|
|
Intra- |
|
|
|
|
|
|
Financial |
|
|
Commercial |
|
|
Banking |
|
|
Private |
|
|
|
|
|
HSBC |
|
|
|
|
|
|
Services |
|
|
Banking |
|
|
& Markets |
|
|
Banking |
|
|
Other |
|
|
items |
|
|
Total |
|
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
|
Net
interest income/(expense) |
29,419
|
|
|
9,494
|
|
|
8,541
|
|
|
1,612
|
|
|
(956
|
) |
|
(5,547
|
) |
|
42,563
|
|
|
Net fee income |
10,107 |
|
|
4,097 |
|
|
4,291 |
|
|
1,476 |
|
|
53 |
|
|
|
|
|
20,024 |
|
|
Trading
income/(expense) excluding net interest
income |
175
|
|
|
369
|
|
|
157
|
|
|
408
|
|
|
(262
|
) |
|
|
|
|
847
|
|
|
Net interest income/(expense)
on trading activities |
79
|
|
|
17
|
|
|
324
|
|
|
14
|
|
|
(268
|
) |
|
5,547
|
|
|
5,713
|
|
|
Net
trading income |
254
|
|
|
386
|
|
|
481
|
|
|
422
|
|
|
(530
|
) |
|
5,547
|
|
|
6,560
|
|
|
Changes
in fair value of long- term debt issued
and related derivatives |
|
|
|
|
|
|
|
|
|
|
|
|
6,679
|
|
|
|
|
|
6,679
|
|
|
Net
income/(expense) from other financial
instruments designated at fair value |
(2,912
|
) |
|
(224
|
) |
|
(438
|
) |
|
|
|
|
747
|
|
|
|
|
|
(2,827
|
) |
|
Net
income/(expense) from financial instruments designated
at fair value |
(2,912 |
) |
|
(224 |
) |
|
(438 |
) |
|
|
|
|
7,426 |
|
|
|
|
|
3,852 |
|
|
Gains
less losses from financial investments |
663
|
|
|
193
|
|
|
(327
|
) |
|
64
|
|
|
(396
|
) |
|
|
|
|
197
|
|
|
Dividend income |
90 |
|
|
88 |
|
|
76 |
|
|
8 |
|
|
10 |
|
|
|
|
|
272 |
|
|
Net
earned insurance premiums |
10,083
|
|
|
679
|
|
|
105
|
|
|
|
|
|
(17
|
) |
|
|
|
|
10,850
|
|
|
Gains on disposal of
French regional banks |
|
|
|
|
|
|
|
|
|
|
|
|
2,445 |
|
|
|
|
|
2,445 |
|
|
Other
operating income |
259
|
|
|
939
|
|
|
868
|
|
|
49
|
|
|
4,261
|
|
|
(4,568
|
) |
|
1,808
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
operating income |
47,963
|
|
|
15,652
|
|
|
13,597
|
|
|
3,631
|
|
|
12,296
|
|
|
(4,568
|
) |
|
88,571
|
|
|
Net
insurance claims incurred and movement
in liabilities to policyholders |
(6,474 |
) |
|
(335 |
) |
|
(79 |
) |
|
|
|
|
(1 |
) |
|
|
|
|
(6,889 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
operating income1 |
41,489
|
|
|
15,317
|
|
|
13,518
|
|
|
3,631
|
|
|
12,295
|
|
|
(4,568
|
) |
|
81,682
|
|
|
Loan
impairment charges and other credit
risk provisions |
(21,220 |
) |
|
(2,173 |
) |
|
(1,471 |
) |
|
(68 |
) |
|
(5 |
) |
|
|
|
|
(24,937 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
operating income2 |
20,269
|
|
|
13,144
|
|
|
12,047
|
|
|
3,563
|
|
|
12,290
|
|
|
(4,568
|
) |
|
56,745
|
|
|
Operating expenses (excluding
goodwill impairment) |
(21,140 |
) |
|
(6,581 |
) |
|
(9,092 |
) |
|
(2,116 |
) |
|
(4,174 |
) |
|
4,568 |
|
|
(38,535 |
) |
|
Goodwill
impairment |
(10,564
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,564
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
profit |
(11,435
|
) |
|
6,563
|
|
|
2,955
|
|
|
1,447
|
|
|
8,116
|
|
|
|
|
|
7,646
|
|
|
Share of profit in associates
and joint ventures |
461 |
|
|
631 |
|
|
528 |
|
|
|
|
|
41 |
|
|
|
|
|
1,661 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit
before tax |
(10,974
|
) |
|
7,194
|
|
|
3,483
|
|
|
1,447
|
|
|
8,157
|
|
|
|
|
|
9,307
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
expenditure incurred3 |
1,901
|
|
|
536
|
|
|
1,115
|
|
|
61
|
|
|
759
|
|
|
|
|
|
4,372
|
|
|
|
1 |
Net
operating income before loan impairment charges and other credit risk
provisions. |
|
2 |
Net operating income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External |
15,023
|
|
|
13,080
|
|
|
17,739
|
|
|
2,231
|
|
|
8,672
|
|
|
|
|
|
56,745
|
|
|
|
Inter-segment
|
5,246
|
|
|
64
|
|
|
(5,692
|
)
|
|
1,332
|
|
|
3,618
|
|
|
(4,568
|
)
|
|
|
|
|
3 |
Expenditure
incurred on property, plant and equipment and intangible assets. |
390
Back to Contents
|
|
Year ended 31 December
2007 |
|
|
|
|
|
|
|
Personal |
|
|
|
|
|
Global |
|
|
|
|
|
|
|
|
Intra- |
|
|
|
|
|
|
Financial |
|
|
Commercial |
|
|
Banking |
|
|
Private |
|
|
|
|
|
HSBC |
|
|
|
|
|
|
Services |
|
|
Banking |
|
|
& Markets |
|
|
Banking |
|
|
Other |
|
|
items |
|
|
Total |
|
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
|
Net interest
income/(expense) |
29,069 |
|
|
9,055 |
|
|
4,430 |
|
|
1,216 |
|
|
(542 |
) |
|
(5,433 |
) |
|
37,795 |
|
|
Net fee income/(expense) |
11,742 |
|
|
3,972 |
|
|
4,901 |
|
|
1,615 |
|
|
(228 |
) |
|
|
|
|
22,002 |
|
|
Trading income excluding
net interest
income |
38 |
|
|
265 |
|
|
3,503 |
|
|
525 |
|
|
127 |
|
|
|
|
|
4,458 |
|
|
Net interest income/(expense) on trading
activities |
140 |
|
|
31 |
|
|
(236 |
) |
|
9 |
|
|
(1 |
) |
|
5,433 |
|
|
5,376 |
|
|
Net trading
income |
178 |
|
|
296 |
|
|
3,267 |
|
|
534 |
|
|
126 |
|
|
5,433 |
|
|
9,834 |
|
|
Changes in fair value
of long-term debt
issued and related derivatives |
|
|
|
|
|
|
|
|
|
|
|
|
2,812 |
|
|
|
|
|
2,812 |
|
|
Net income/(expense)
from other financial
instruments designated
at fair value |
1,333 |
|
|
22 |
|
|
(164 |
) |
|
(1 |
) |
|
81 |
|
|
|
|
|
1,271 |
|
|
Net income/(expense)
from financial instruments designated
at fair value |
1,333 |
|
|
22 |
|
|
(164 |
) |
|
(1 |
) |
|
2,893 |
|
|
|
|
|
4,083 |
|
|
Gains less losses from
financial investments |
351 |
|
|
90 |
|
|
1,313 |
|
|
119 |
|
|
83 |
|
|
|
|
|
1,956 |
|
|
Gains arising from dilution
in interests
in associates |
|
|
|
|
|
|
|
|
|
|
|
|
1,092 |
|
|
|
|
|
1,092 |
|
|
Dividend income |
55 |
|
|
8 |
|
|
222 |
|
|
7 |
|
|
32 |
|
|
|
|
|
324 |
|
|
Net earned insurance premiums |
8,271 |
|
|
733 |
|
|
93 |
|
|
|
|
|
(21 |
) |
|
|
|
|
9,076 |
|
|
Other operating
income |
387 |
|
|
165 |
|
|
1,218 |
|
|
58 |
|
|
3,523 |
|
|
(3,912 |
) |
|
1,439 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating
income |
51,386 |
|
|
14,341 |
|
|
15,280 |
|
|
3,548 |
|
|
6,958 |
|
|
(3,912 |
) |
|
87,601 |
|
|
Net insurance claims
incurred and movement
in liabilities to policyholders |
(8,147 |
) |
|
(391 |
) |
|
(70 |
) |
|
|
|
|
|
|
|
|
|
|
(8,608 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income1 |
43,239 |
|
|
13,950 |
|
|
15,210 |
|
|
3,548 |
|
|
6,958 |
|
|
(3,912 |
) |
|
78,993 |
|
|
Loan impairment charges
and other credit risk
provisions |
(16,172 |
) |
|
(1,007 |
) |
|
(38 |
) |
|
(14 |
) |
|
(11 |
) |
|
|
|
|
(17,242 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income2 |
27,067 |
|
|
12,943 |
|
|
15,172 |
|
|
3,534 |
|
|
6,947 |
|
|
(3,912 |
) |
|
61,751 |
|
|
Operating expenses |
(21,757 |
) |
|
(6,252 |
) |
|
(9,358 |
) |
|
(2,025 |
) |
|
(3,562 |
) |
|
3,912 |
|
|
(39,042 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit |
5,310 |
|
|
6,691 |
|
|
5,814 |
|
|
1,509 |
|
|
3,385 |
|
|
|
|
|
22,709 |
|
|
Share of profit in associates and joint
ventures |
590 |
|
|
454 |
|
|
307 |
|
|
2 |
|
|
150 |
|
|
|
|
|
1,503 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit before
tax |
5,900 |
|
|
7,145 |
|
|
6,121 |
|
|
1,511 |
|
|
3,535 |
|
|
|
|
|
24,212 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditure incurred3 |
1,335 |
|
|
527 |
|
|
942 |
|
|
73 |
|
|
995 |
|
|
|
|
|
3,872 |
|
|
|
|
1 |
Net operating
income before loan impairment charges and other credit risk provisions. |
|
2 |
Net operating income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External |
21,059 |
|
|
11,442 |
|
|
23,595 |
|
|
2,144 |
|
|
3,511 |
|
|
|
|
|
61,751 |
|
|
|
Inter-segment |
6,008 |
|
|
1,501 |
|
|
(8,423 |
) |
|
1,390 |
|
|
3,436 |
|
|
(3,912 |
) |
|
|
|
|
3 |
Expenditure incurred on property,
plant and equipment and intangible assets. |
391
Back to Contents
H S B C H O L D I
N G S P L C |
|
Notes on the
Financial Statements (continued) |
|
|
|
|
Notes 14 and 15 |
|
Profit before tax (continued) |
|
|
|
Year ended 31 December 2006
|
|
|
|
|
|
|
|
Personal
|
|
|
|
|
|
Global
|
|
|
|
|
|
|
|
|
Intra-
|
|
|
|
|
|
|
Financial
|
|
|
Commercial
|
|
|
Banking
|
|
|
Private
|
|
|
|
|
|
HSBC
|
|
|
|
|
|
|
Services
|
|
|
Banking
|
|
|
& Markets
|
|
|
Banking
|
|
|
Other
|
|
|
items
|
|
|
Total
|
|
|
|
US$m
|
|
|
US$m
|
|
|
US$m
|
|
|
US$m
|
|
|
US$m
|
|
|
US$m
|
|
|
US$m
|
|
|
|
Net interest income/(expense) |
26,076
|
|
|
7,514
|
|
|
3,168
|
|
|
1,011
|
|
|
(625
|
) |
|
(2,658
|
) |
|
34,486
|
|
|
Net fee income |
8,762
|
|
|
3,207
|
|
|
3,718
|
|
|
1,323
|
|
|
172
|
|
|
|
|
|
17,182
|
|
|
Trading income/(expense) excluding net interest income |
391
|
|
|
204
|
|
|
4,890
|
|
|
362
|
|
|
(228
|
) |
|
|
|
|
5,619
|
|
|
Net interest income/(expense) on trading activities |
220
|
|
|
20
|
|
|
(379
|
) |
|
2
|
|
|
82
|
|
|
2,658
|
|
|
2,603
|
|
|
Net trading income/(expense) |
611
|
|
|
224
|
|
|
4,511
|
|
|
364
|
|
|
(146
|
) |
|
2,658
|
|
|
8,222
|
|
|
Changes in fair value of long-term debt issued and related derivatives |
|
|
|
|
|
|
|
|
|
|
|
|
(35
|
) |
|
|
|
|
(35
|
) |
|
Net income/(expense) from other financial instruments designated at fair value |
739
|
|
|
(22
|
) |
|
20
|
|
|
1
|
|
|
(46
|
) |
|
|
|
|
692
|
|
|
Net income/(expense) from financial instruments designated at fair value |
739
|
|
|
(22
|
) |
|
20
|
|
|
1
|
|
|
(81
|
) |
|
|
|
|
657
|
|
|
Gains less losses from financial investments |
78
|
|
|
44
|
|
|
534
|
|
|
166
|
|
|
147
|
|
|
|
|
|
969
|
|
|
Dividend income |
31
|
|
|
6
|
|
|
235
|
|
|
5
|
|
|
63
|
|
|
|
|
|
340
|
|
|
Net earned insurance premiums |
5,130
|
|
|
258
|
|
|
73
|
|
|
|
|
|
207
|
|
|
|
|
|
5,668
|
|
|
Other operating income |
782
|
|
|
250
|
|
|
1,378
|
|
|
61
|
|
|
3,254
|
|
|
(3,179
|
) |
|
2,546
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income |
42,209
|
|
|
11,481
|
|
|
13,637
|
|
|
2,931
|
|
|
2,991
|
|
|
(3,179
|
) |
|
70,070
|
|
|
Net insurance claims incurred and movement in liabilities to policyholders |
(4,365
|
) |
|
(96
|
) |
|
(62
|
) |
|
|
|
|
(181
|
) |
|
|
|
|
(4,704
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income1
|
37,844
|
|
|
11,385
|
|
|
13,575
|
|
|
2,931
|
|
|
2,810
|
|
|
(3,179
|
) |
|
65,366
|
|
|
Loan impairment (charges)/recoveries and other credit risk provisions |
(9,949
|
) |
|
(697
|
) |
|
119
|
|
|
(33
|
) |
|
(13
|
) |
|
|
|
|
(10,573
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income2
|
27,895
|
|
|
10,688
|
|
|
13,694
|
|
|
2,898
|
|
|
2,797
|
|
|
(3,179
|
) |
|
54,793
|
|
|
Operating expenses |
(18,818
|
) |
|
(4,979
|
) |
|
(7,991
|
) |
|
(1,685
|
) |
|
(3,259
|
) |
|
3,179
|
|
|
(33,553
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit/(loss) |
9,077
|
|
|
5,709
|
|
|
5,703
|
|
|
1,213
|
|
|
(462
|
) |
|
|
|
|
21,240
|
|
|
Share of profit in associates and joint ventures |
380
|
|
|
288
|
|
|
103
|
|
|
1
|
|
|
74
|
|
|
|
|
|
846
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit/(loss) before tax |
9,457
|
|
|
5,997
|
|
|
5,806
|
|
|
1,214
|
|
|
(388
|
) |
|
|
|
|
22,086
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditure incurred3 |
2,150
|
|
|
1,083
|
|
|
1,021
|
|
|
45
|
|
|
684
|
|
|
|
|
|
4,983
|
|
|
|
|
|
1 |
Net operating income
before loan impairment (charges)/recoveries and other credit risk provisions. |
|
2 |
Net operating income: |
|
|
External |
23,238 |
|
|
9,692 |
|
|
20,034
|
|
|
1,661 |
|
|
168 |
|
|
|
|
|
54,793 |
|
|
|
Inter-segment |
4,657 |
|
|
996 |
|
|
(6,340
|
) |
|
1,237 |
|
|
2,629 |
|
|
(3,179
|
) |
|
|
|
|
3
|
Expenditure incurred
on property, plant and equipment and intangible assets.
|
|
|
15 |
Analysis of financial
assets and liabilities by measurement basis |
|
|
|
|
|
Financial assets and financial liabilities
are measured on an ongoing basis either at fair value or at amortised
cost. The summary of significant accounting policies in Note 2 describes
how the classes of financial instruments are measured, and how income
and expenses, including fair value gains and losses, are recognised.
The following table analyses the carrying amounts of the financial assets
and liabilities by category as defined in IAS 39 and by balance sheet
heading. |
392
Back to Contents
|
HSBC |
|
|
|
|
At 31 December
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial |
|
Derivatives |
|
Derivatives |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
assets and |
|
designated |
|
designated |
|
|
|
|
|
|
|
|
|
Held-to- |
|
|
|
Available- |
|
liabilities at |
|
as fair value |
|
as cash flow |
|
|
|
|
|
Held for |
|
Designated |
|
maturity |
|
Loans and |
|
for-sale |
|
amortised |
|
hedging |
|
hedging |
|
|
|
|
|
trading |
|
at fair value |
|
securities |
|
receivables |
|
securities |
|
cost |
|
instruments |
|
instruments |
|
Total |
|
|
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
|
Financial assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and balances at central banks |
|
|
|
|
|
|
|
|
|
|
52,396 |
|
|
|
|
|
52,396 |
|
|
Items in the course of collection from other banks |
|
|
|
|
|
|
|
|
|
|
6,003 |
|
|
|
|
|
6,003 |
|
|
Hong Kong Government certificates of indebtedness |
|
|
|
|
|
|
15,358 |
|
|
|
|
|
|
|
|
|
15,358 |
|
|
Trading assets |
427,329 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
427,329 |
|
|
Financial assets designated at fair value |
|
|
28,533 |
|
|
|
|
|
|
|
|
|
|
|
|
|
28,533 |
|
|
Derivatives |
488,385 |
|
|
|
|
|
|
|
|
|
|
|
839 |
|
5,652 |
|
494,876 |
|
|
Loans and advances to banks |
|
|
|
|
|
|
153,766 |
|
|
|
|
|
|
|
|
|
153,766 |
|
|
Loans and advances to customers |
|
|
|
|
|
|
932,868 |
|
|
|
|
|
|
|
|
|
932,868 |
|
|
Financial investments |
|
|
|
|
14,013 |
|
|
|
286,222 |
|
|
|
|
|
|
|
300,235 |
|
|
Other assets |
|
|
|
|
|
|
11 |
|
1 |
|
27,093 |
|
|
|
|
|
27,105 |
|
|
Accrued income |
|
|
|
|
|
|
|
|
|
|
13,754 |
|
|
|
|
|
13,754 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial assets |
915,714 |
|
28,533 |
|
14,013 |
|
1,102,003 |
|
286,223 |
|
99,246 |
|
839 |
|
5,652 |
|
2,452,223 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hong Kong currency notes in circulation |
|
|
|
|
|
|
15,358 |
|
|
|
|
|
|
|
|
|
15,358 |
|
|
Deposits by banks |
|
|
|
|
|
|
|
|
|
|
130,084 |
|
|
|
|
|
130,084 |
|
|
Customer accounts |
|
|
|
|
|
|
|
|
|
|
1,115,327 |
|
|
|
|
|
1,115,327 |
|
|
Items in the course of transmission to other banks |
|
|
|
|
|
|
|
|
|
|
7,232 |
|
|
|
|
|
7,232 |
|
|
Trading liabilities |
247,652 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
247,652 |
|
|
Financial liabilities designated at fair value |
|
|
74,587 |
|
|
|
|
|
|
|
|
|
|
|
|
|
74,587 |
|
|
Derivatives |
481,799 |
|
|
|
|
|
|
|
|
|
|
|
1,267 |
|
3,994 |
|
487,060 |
|
|
Debt securities in issue |
|
|
|
|
|
|
|
|
|
|
179,693 |
|
|
|
|
|
179,693 |
|
|
Other liabilities |
|
|
|
|
|
|
|
|
|
|
70,003 |
|
|
|
|
|
70,003 |
|
|
Accruals |
|
|
|
|
|
|
|
|
|
|
14,072 |
|
|
|
|
|
14,072 |
|
|
Subordinated liabilities |
|
|
|
|
|
|
|
|
|
|
29,433 |
|
|
|
|
|
29,433 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial liabilities |
729,451 |
|
74,587 |
|
|
|
15,358 |
|
|
|
1,545,844 |
|
1,267 |
|
3,994 |
|
2,370,501 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
393
Back to Contents
H S B C H O L D I
N G S P L C |
|
Notes on the Financial
Statements (continued) |
|
|
|
|
Note 15 |
|
HSBC (continued) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 31 December 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial |
|
Derivatives |
|
Derivatives |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
assets and |
|
designated |
|
designated |
|
|
|
|
|
|
|
|
|
|
Held-to- |
|
|
|
Available- |
|
liabilities at |
|
as fair value |
|
as cash flow |
|
|
|
|
|
|
Held for |
|
Designated |
|
maturity |
|
Loans and |
|
for-sale |
|
amortised |
|
hedging |
|
hedging |
|
|
|
|
|
|
trading |
|
at fair value |
|
securities |
|
receivables |
|
securities |
|
cost |
|
instruments |
|
instruments |
|
Total |
|
|
|
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
|
Financial assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and balances
at central banks |
|
|
|
|
|
|
|
|
|
|
|
21,765 |
|
|
|
|
|
21,765 |
|
|
Items in the course of collection
from other banks |
|
|
|
|
|
|
|
|
|
|
|
9,777 |
|
|
|
|
|
9,777 |
|
|
Hong Kong Government certificates of indebtedness |
|
|
|
|
|
|
|
13,893 |
|
|
|
|
|
|
|
|
|
13,893 |
|
|
Trading assets |
|
445,968 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
445,968 |
|
|
Financial assets
designated at fair value |
|
|
|
41,564 |
|
|
|
|
|
|
|
|
|
|
|
|
|
41,564 |
|
|
Derivatives |
|
182,604 |
|
|
|
|
|
|
|
|
|
|
|
335 |
|
4,915 |
|
187,854 |
|
|
Loans and advances
to banks |
|
|
|
|
|
|
|
237,366 |
|
|
|
|
|
|
|
|
|
237,366 |
|
|
Loans and advances to customers |
|
|
|
|
|
|
|
981,548 |
|
|
|
|
|
|
|
|
|
981,548 |
|
|
Financial investments |
|
|
|
|
|
9,768 |
|
|
|
273,232 |
|
|
|
|
|
|
|
283,000 |
|
|
Other assets |
|
|
|
|
|
|
|
14 |
|
28 |
|
25,084 |
|
|
|
|
|
25,126 |
|
|
Accrued income |
|
|
|
|
|
|
|
|
|
|
|
18,119 |
|
|
|
|
|
18,119 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial
assets |
|
628,572 |
|
41,564 |
|
9,768 |
|
1,232,821 |
|
273,260 |
|
74,745 |
|
335 |
|
4,915 |
|
2,265,980 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hong Kong currency
notes in circulation |
|
|
|
|
|
|
|
13,893 |
|
|
|
|
|
|
|
|
|
13,893 |
|
|
Deposits by banks |
|
|
|
|
|
|
|
|
|
|
|
132,181 |
|
|
|
|
|
132,181 |
|
|
Customer accounts |
|
|
|
|
|
|
|
|
|
|
|
1,096,140 |
|
|
|
|
|
1,096,140 |
|
|
Items in the course of transmission
to other banks |
|
|
|
|
|
|
|
|
|
|
|
8,672 |
|
|
|
|
|
8,672 |
|
|
Trading liabilities |
|
314,580 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
314,580 |
|
|
Financial liabilities designated
at fair value |
|
|
|
89,939 |
|
|
|
|
|
|
|
|
|
|
|
|
|
89,939 |
|
|
Derivatives |
|
181,009 |
|
|
|
|
|
|
|
|
|
|
|
403 |
|
1,981 |
|
183,393 |
|
|
Debt securities in issue |
|
|
|
|
|
|
|
|
|
|
|
246,579 |
|
|
|
|
|
246,579 |
|
|
Other liabilities |
|
|
|
|
|
|
|
|
|
|
|
32,892 |
|
|
|
|
|
32,892 |
|
|
Accruals |
|
|
|
|
|
|
|
|
|
|
|
19,572 |
|
|
|
|
|
19,572 |
|
|
Subordinated
liabilities |
|
|
|
|
|
|
|
|
|
|
|
24,819 |
|
|
|
|
|
24,819 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial
liabilities |
|
495,589 |
|
89,939 |
|
|
|
13,893 |
|
|
|
1,560,855 |
|
403 |
|
1,981 |
|
2,162,660 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
394
Back to Contents
|
HSBC Holdings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 31 December 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial |
|
|
|
|
|
|
|
|
|
|
|
|
|
assets and |
|
|
|
|
|
|
|
|
|
|
|
Available- |
|
liabilities at |
|
|
|
|
|
Held for |
|
Designated |
|
Loans and |
|
for-sale |
|
amortised |
|
|
|
|
|
trading |
|
at fair value |
|
receivables |
|
securities |
|
cost |
|
Total |
|
|
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
|
Financial assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash at bank
and in hand |
|
|
|
|
|
|
|
|
443 |
|
443 |
|
|
Derivatives |
3,682 |
|
|
|
|
|
|
|
|
|
3,682 |
|
|
Loans and advances
to HSBC undertakings |
|
|
|
|
11,804 |
|
|
|
|
|
11,804 |
|
|
Financial investments |
|
|
|
|
|
|
2,629 |
|
|
|
2,629 |
|
|
Other assets |
|
|
|
|
|
|
|
|
25 |
|
25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial
assets |
3,682 |
|
|
|
11,804 |
|
2,629 |
|
468 |
|
18,583 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts owed
to HSBC undertakings |
|
|
|
|
|
|
|
|
4,042 |
|
4,042 |
|
|
Financial liabilities designated
at fair value |
|
|
16,389 |
|
|
|
|
|
|
|
16,389 |
|
|
Derivatives |
1,324 |
|
|
|
|
|
|
|
|
|
1,324 |
|
|
Subordinated liabilities |
|
|
|
|
|
|
|
|
14,017 |
|
14,017 |
|
|
Other liabilities |
|
|
|
|
|
|
|
|
10 |
|
10 |
|
|
Accruals |
|
|
|
|
|
|
|
|
288 |
|
288 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial
liabilities |
1,324 |
|
16,389 |
|
|
|
|
|
18,357 |
|
36,070 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 31 December 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial |
|
|
|
|
|
|
|
|
|
|
|
|
|
assets and |
|
|
|
|
|
|
|
|
|
|
|
Available- |
|
liabilities at |
|
|
|
|
|
Held for |
|
Designated |
|
Loans and |
|
for-sale |
|
amortised |
|
|
|
|
|
trading |
|
at fair value |
|
receivables |
|
securities |
|
cost |
|
Total |
|
|
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
|
Financial assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash at bank
and in hand |
|
|
|
|
|
|
|
|
360 |
|
360 |
|
|
Derivatives |
2,660 |
|
|
|
|
|
|
|
|
|
2,660 |
|
|
Loans and advances
to HSBC undertakings |
|
|
|
|
17,242 |
|
|
|
|
|
17,242 |
|
|
Financial investments |
|
|
|
|
|
|
3,022 |
|
|
|
3,022 |
|
|
Other assets |
|
|
|
|
|
|
|
|
21 |
|
21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial
assets |
2,660 |
|
|
|
17,242 |
|
3,022 |
|
381 |
|
23,305 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts owed
to HSBC undertakings |
|
|
|
|
|
|
|
|
2,969 |
|
2,969 |
|
|
Financial liabilities designated
at fair value |
|
|
18,683 |
|
|
|
|
|
|
|
18,683 |
|
|
Derivatives |
44 |
|
|
|
|
|
|
|
|
|
44 |
|
|
Subordinated liabilities |
|
|
|
|
|
|
|
|
8,544 |
|
8,544 |
|
|
Other liabilities |
|
|
|
|
|
|
|
|
5 |
|
5 |
|
|
Accruals |
|
|
|
|
|
|
|
|
150 |
|
150 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial
liabilities |
44 |
|
18,683 |
|
|
|
|
|
11,668 |
|
30,395 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
395
Back to Contents
H S B C H O L D I
N G S P L C |
|
Notes on the Financial Statements (continued) |
|
|
|
|
Notes 16 and 17 |
|
|
2008 |
|
2007 |
|
|
|
US$m |
|
US$m |
|
|
Trading assets: |
|
|
|
|
|
not
subject to repledge or resale by counterparties |
340,675 |
|
308,286 |
|
|
which may be repledged
or resold by counterparties |
86,654 |
|
137,682 |
|
|
|
|
|
|
|
|
|
427,329 |
|
445,968 |
|
|
|
|
|
|
|
|
Treasury and
other eligible bills |
32,458 |
|
16,439 |
|
|
Debt securities |
199,619 |
|
178,834 |
|
|
Equity securities |
21,878 |
|
51,476 |
|
|
|
|
|
|
|
|
|
253,955 |
|
246,749 |
|
|
Loans and advances to banks |
73,055 |
|
100,440 |
|
|
Loans and advances
to customers |
100,319 |
|
98,779 |
|
|
|
|
|
|
|
|
|
427,329 |
|
445,968 |
|
|
|
|
|
|
|
|
|
|
|
|
The following table provides an
analysis of trading securities: |
|
|
|
|
Fair value |
|
|
|
|
|
|
|
2008 |
|
2007 |
|
|
|
US$m |
|
US$m |
|
|
|
|
|
|
|
|
US Treasury
and US Government agencies1 |
26,621 |
|
17,335 |
|
|
UK Government |
10,586 |
|
11,607 |
|
|
Hong Kong Government |
6,648 |
|
5,517 |
|
|
Other government |
98,983 |
|
80,268 |
|
|
Asset-backed
securities2 |
6,566 |
|
21,502 |
|
|
Corporate debt and other securities |
82,673 |
|
59,044 |
|
|
Equity securities |
21,878 |
|
51,476 |
|
|
|
|
|
|
|
|
|
253,955 |
|
246,749 |
|
|
|
|
|
|
|
|
1 |
Includes securities
that are supported by an explicit guarantee issued by the US Government. |
|
2 |
Excludes asset-backed
securities included under US Treasury and US Government agencies. |
|
|
Included within the
above figures are debt securities issued by banks and other financial
institutions of US$49,997 million (2007: US$69,818 million),
of which US$3,449 million (2007: US$1,488 million) are guaranteed
by various governments. |
|
|
|
|
|
|
|
|
|
|
|
|
The following table
analyses trading securities between those listed on a recognised exchange
and those that are unlisted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury |
|
|
|
|
|
|
|
|
|
and other |
|
Debt |
|
Equity |
|
|
|
|
|
eligible bills |
|
securities |
|
securities |
|
Total |
|
|
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
|
Fair value at 31 December
2008 |
|
|
|
|
|
|
|
|
|
Listed on a
recognised exchange1 |
1 |
|
145,370 |
|
20,871 |
|
166,242 |
|
|
Unlisted |
32,457 |
|
54,249 |
|
1,007 |
|
87,713 |
|
|
|
|
|
|
|
|
|
|
|
|
|
32,458 |
|
199,619 |
|
21,878 |
|
253,955 |
|
|
|
|
|
|
|
|
|
|
|
|
Fair value at 31 December 2007 |
|
|
|
|
|
|
|
|
|
Listed on a
recognised exchange1 |
34 |
|
115,593 |
|
50,092 |
|
165,719 |
|
|
Unlisted |
16,405 |
|
63,241 |
|
1,384 |
|
81,030 |
|
|
|
|
|
|
|
|
|
|
|
|
|
16,439 |
|
178,834 |
|
51,476 |
|
246,749 |
|
|
|
|
|
|
|
|
|
|
|
|
1 |
Included within listed investments are
US$3,870 million (2007: US$6,977 million) of investments listed
in Hong Kong. |
396
Back to Contents
|
Loans and advances to banks held
for trading consist of: |
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
2007 |
|
|
|
US$m |
|
US$m |
|
|
|
|
|
|
|
|
Reverse repos |
48,188 |
|
80,476 |
|
|
Settlement accounts |
4,337 |
|
8,227 |
|
|
Stock borrowing |
1,888 |
|
8,259 |
|
|
Other |
18,642 |
|
3,478 |
|
|
|
|
|
|
|
|
|
73,055 |
|
100,440 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans and advances to customers held
for trading consist of: |
|
|
|
|
|
|
2008 |
|
2007 |
|
|
|
US$m |
|
US$m |
|
|
|
|
|
|
|
|
Reverse repos |
58,285 |
|
51,543 |
|
|
Stock borrowing |
13,740 |
|
24,254 |
|
|
Settlement
accounts |
10,116 |
|
6,216 |
|
|
Other |
18,178 |
|
16,766 |
|
|
|
|
|
|
|
|
|
100,319 |
|
98,779 |
|
|
|
|
|
|
|
|
|
|
|
|
|
17 |
Financial assets designated
at fair value |
|
|
|
|
2008 |
|
2007 |
|
|
|
US$m |
|
US$m |
|
|
|
|
|
|
|
|
Treasury and
other eligible bills |
235 |
|
181 |
|
|
Debt securities |
16,349 |
|
21,150 |
|
|
Equity securities |
10,993 |
|
20,047 |
|
|
|
|
|
|
|
|
Securities
designated at fair value |
27,577 |
|
41,378 |
|
|
Loans and advances to banks |
230 |
|
178 |
|
|
Loans and advances
to customers |
726 |
|
8 |
|
|
|
|
|
|
|
|
|
28,533 |
|
41,564 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities designated at fair
value |
|
|
|
|
Fair value
|
|
|
|
|
|
|
|
2008 |
|
2007 |
|
|
|
US$m |
|
US$m |
|
|
|
|
|
|
|
|
US Treasury
and US Government agencies1 |
93 |
|
252 |
|
|
UK Government |
992 |
|
788 |
|
|
Hong Kong Government |
284 |
|
314 |
|
|
Other government |
3,624 |
|
4,427 |
|
|
Asset-backed
securities2 |
6,492 |
|
8,132 |
|
|
Corporate debt and other securities |
5,099 |
|
7,418 |
|
|
Equities |
10,993 |
|
20,047 |
|
|
|
|
|
|
|
|
|
27,577 |
|
41,378 |
|
|
|
|
|
|
|
|
1 |
Includes securities that are supported
by an explicit guarantee issued by the US Government. |
|
2 |
Excludes asset-backed securities included
under US Treasury and US Government agencies. |
|
|
|
|
Included within the
above figures are debt securities issued by banks and other financial
institutions of US$10,351 million (2007: US$14,401 million),
of which US$14 million (2007: nil) are guaranteed by various governments. |
397
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H S B C H O L D
I N G S P L C |
|
Notes on the Financial
Statements (continued) |
|
|
|
|
Notes 17 and 18 |
|
|
|
Treasury |
|
|
|
|
|
|
|
|
|
and other |
|
Debt |
|
Equity |
|
|
|
|
|
eligible bills |
|
securities |
|
securities |
|
Total |
|
|
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
|
Fair value at 31 December
2008 |
|
|
|
|
|
|
|
|
|
Listed on a
recognised exchange1 |
80 |
|
3,490 |
|
8,140 |
|
11,710 |
|
|
Unlisted |
155 |
|
12,859 |
|
2,853 |
|
15,867 |
|
|
|
|
|
|
|
|
|
|
|
|
|
235 |
|
16,349 |
|
10,993 |
|
27,577 |
|
|
|
|
|
|
|
|
|
|
|
|
Fair value at 31 December 2007 |
|
|
|
|
|
|
|
|
|
Listed on a
recognised exchange1 |
50 |
|
8,659 |
|
15,449 |
|
24,158 |
|
|
Unlisted |
131 |
|
12,491 |
|
4,598 |
|
17,220 |
|
|
|
|
|
|
|
|
|
|
|
|
|
181 |
|
21,150 |
|
20,047 |
|
41,378 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
Included within listed investments
are US$576 million of investments listed in Hong Kong (2007: US$1,502
million). |
|
|
18 |
Derivatives |
|
|
|
|
|
Fair values of derivatives by product contract
type held by HSBC |
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
Liabilities |
|
|
|
|
|
|
|
|
|
Trading |
|
Hedging |
|
Total |
|
Trading |
|
Hedging |
|
Total |
|
|
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
|
At 31 December 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange |
115,803 |
|
2,010 |
|
117,813 |
|
115,311 |
|
826 |
|
116,137 |
|
|
Interest rate |
259,672 |
|
4,481 |
|
264,153 |
|
252,131 |
|
4,435 |
|
256,566 |
|
|
Equities |
18,660 |
|
|
|
18,660 |
|
21,913 |
|
|
|
21,913 |
|
|
Credit derivatives |
91,271 |
|
|
|
91,271 |
|
89,715 |
|
|
|
89,715 |
|
|
Commodity and
other |
2,979 |
|
|
|
2,979 |
|
2,729 |
|
|
|
2,729 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fair
values |
488,385 |
|
6,491 |
|
494,876 |
|
481,799 |
|
5,261 |
|
487,060 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 31 December 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange |
52,018 |
|
3,490 |
|
55,508 |
|
50,608 |
|
371 |
|
50,979 |
|
|
Interest rate |
83,982 |
|
1,759 |
|
85,741 |
|
83,374 |
|
2,013 |
|
85,387 |
|
|
Equities |
20,229 |
|
1 |
|
20,230 |
|
19,458 |
|
|
|
19,458 |
|
|
Credit derivatives |
25,268 |
|
|
|
25,268 |
|
26,247 |
|
|
|
26,247 |
|
|
Commodity and
other |
1,107 |
|
|
|
1,107 |
|
1,322 |
|
|
|
1,322 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fair
values |
182,604 |
|
5,250 |
|
187,854 |
|
181,009 |
|
2,384 |
|
183,393 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The 163 per cent increase in
the fair value of derivative assets during 2008 was driven by increased
volatility and movement in yield curves, foreign exchange rates and credit
spreads. The increase in the notional contract amounts of HSBCs
derivative assets in the year was only 8 per cent. However, IFRSs only
permit netting of assets and liabilities with the same counterparty in
very limited circumstances, even when there are contractually agreed
netting arrangements in place. |
|
|
|
|
|
|
|
|
|
Fair values of derivatives
by product contract type held by HSBC Holdings with subsidiaries |
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading |
|
Trading |
|
Trading |
|
Trading |
|
|
|
assets |
|
liabilities |
|
assets |
|
liabilities |
|
|
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange |
1,772 |
|
1,324 |
|
2,381 |
|
2 |
|
|
Interest rate |
1,910 |
|
|
|
279 |
|
42 |
|
|
|
|
|
|
|
|
|
|
|
|
Total fair
values |
3,682 |
|
1,324 |
|
2,660 |
|
44 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives are financial instruments
that derive their value from the price of underlying items such as equities,
bonds, interest rates, foreign exchange, credit spreads, commodities
and equity or other indices. Derivatives enable users to increase, reduce
or alter exposure to credit or market risks. HSBC makes markets in derivatives
for its customers and uses derivatives to manage its exposure to credit
and market risks. |
398
Back to Contents
|
Derivatives are carried at fair value and
shown in the balance sheet as separate totals of assets and liabilities.
A description of how the fair value of derivatives is derived is set
out on page 165. Derivative assets and liabilities on different transactions
are only set off if the transactions are with the same counterparty,
a legal right of set-off exists and the cash flows are intended to be
settled on a net basis. |
|
|
|
Use of derivatives |
|
|
|
HSBC transacts derivatives for three primary
purposes: to create risk management solutions for clients, for proprietary
trading purposes, and to manage and hedge HSBCs own risks. Derivatives
(except for derivatives which are designated as effective hedging instruments
as defined in IAS 39) are held for trading. The held for trading classification
includes two types of derivatives: those used in sales and trading activities,
and those used for risk management purposes but which for various reasons
do not meet the qualifying criteria for hedge accounting. The second
category includes derivatives managed in conjunction with financial instruments
designated at fair value. These activities are described more fully below. |
|
|
|
HSBCs derivative activities give rise
to significant open positions in portfolios of derivatives. These positions
are managed constantly to ensure that they remain within acceptable risk
levels, with matching deals being utilised to achieve this where necessary.
When entering into derivative transactions, HSBC employs the same credit
risk management procedures to assess and approve potential credit exposures
that are used for traditional lending. |
|
|
|
Trading derivatives |
|
|
|
Most of HSBCs derivative transactions
relate to sales and trading activities. Sales activities include the
structuring and marketing of derivative products to customers to enable
them to take, transfer, modify or reduce current or expected risks. Trading
activities in derivatives are entered into principally for the purpose
of generating profits from short-term fluctuations in price or margin.
Positions may be traded actively or be held over a period of time to
benefit from expected changes in exchange rates, interest rates, equity
prices or other market parameters. Trading includes market-making, positioning
and arbitrage activities. Market-making entails quoting bid and offer
prices to other market participants for the purpose of generating revenues
based on spread and volume; positioning means managing market risk positions
in the expectation of benefiting from favourable movements in prices,
rates or indices; arbitrage involves identifying and profiting from price
differentials between markets and products. |
|
|
|
As mentioned above, other derivatives classified
as held for trading include non-qualifying hedging derivatives, ineffective
hedging derivatives and the components of hedging derivatives that are
excluded from assessing hedge effectiveness. Non-qualifying hedging derivatives
are entered into for risk management purposes but do not meet the criteria
for hedge accounting. These include derivatives managed in conjunction
with financial instruments designated at fair value. |
|
|
|
Gains and losses from changes in the fair
value of derivatives, including the contractual interest, that do not
qualify for hedge accounting are reported in Net trading income,
except for derivatives managed in conjunction with financial instruments
designated at fair value, where gains and losses are reported in Net
income from financial instruments designated at fair value, together
with the gains and losses on the hedged items. Where the derivatives
are managed with debt securities in issue, the contractual interest is
shown in interest expense together with the interest payable
on the issued debt. Substantially all of HSBC Holdings derivatives
entered into with HSBC undertakings are managed in conjunction with financial
liabilities designated at fair value. |
|
|
|
Notional contract amounts of derivatives
held for trading purposes by product type |
|
|
|
The notional contract amounts of these instruments
indicate the nominal value of transactions outstanding at the balance
sheet date; they do not represent amounts at risk. |
|
|
|
|
HSBC
|
|
HSBC Holdings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
2007 |
|
2008 |
|
2007 |
|
|
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange |
3,045,017 |
|
3,243,738 |
|
14,312 |
|
12,790 |
|
|
Interest rate |
12,435,965 |
|
10,672,971 |
|
7,804 |
|
7,804 |
|
|
Equities |
221,053 |
|
286,927 |
|
|
|
|
|
|
Credit derivatives |
1,583,337 |
|
1,893,802 |
|
|
|
|
|
|
Commodity and
other |
63,103 |
|
33,188 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,348,475 |
|
16,130,626 |
|
22,116 |
|
20,594 |
|
|
|
|
|
|
|
|
|
|
|
399
Back to Contents
H S B C H O L D I
N G S P L C |
|
Notes on the
Financial Statements (continued) |
|
|
|
|
Note 18 |
|
Credit derivatives |
|
|
|
HSBC trades credit derivatives through its
principal dealing operations and acts as a principal counterparty to
a broad range of users, structuring deals to produce risk management
products for its customers, or making markets in certain products. Risk
is typically controlled through entering into offsetting credit derivative
contracts with other counterparties. |
|
|
|
HSBC manages the credit risk arising on
buying and selling credit derivative protection by including the related
credit exposures within its overall credit limit structure for the relevant
counterparty. Trading of credit derivatives is restricted to a small
number of offices within the major centres which have the control infrastructure
and market skills to manage effectively the credit risk inherent in the
products. |
|
|
|
Credit derivatives are also deployed to a limited
extent for the risk management of the Groups loan portfolios. The
notional contract amount of credit derivatives of
US$1,583,337 million (2007: US$1,893,802 million) consisted of protection
bought of US$777,556 million (2007: US$926,794 million) and protection
sold of US$805,781 million (2007: US$967,008
million). |
|
|
|
The difference between the notional amounts
bought and sold is attributable to HSBC selling protection on large,
diversified, predominantly investment grade portfolios (including the
most senior tranches) and then offsetting the risk on these positions
by buying protection on the more subordinated tranches of the same portfolios.
In addition, HSBC uses securities to mitigate risks on certain derivative
positions and credit derivative contracts to reduce counterparty exposures.
Consequently, while there is a mismatch in notional amounts of credit
derivatives bought and sold this should not be interpreted as representing
the open risk position. The credit derivative business operates within
the market risk management framework described on pages 241 to 251. |
|
|
|
Derivatives valued using models with
unobservable inputs |
|
|
|
The difference between the fair value at
initial recognition (the transaction price) and the value that would
have been derived had valuation techniques used for subsequent measurement
been applied at initial recognition, less subsequent releases, is as
follows: |
|
|
|
|
|
|
|
|
2008
|
|
2007 |
|
|
|
US$m
|
|
US$m |
|
|
|
|
|
|
|
|
Unamortised balance at 1 January |
306
|
|
214 |
|
|
Deferral on new transactions |
326
|
|
384 |
|
|
Recognised in the income statement during the period: |
|
|
|
|
|
amortisation |
(168
|
) |
(85 |
) |
|
subsequent
to unobservable inputs becoming observable |
(118
|
) |
(83 |
) |
|
maturity,
termination or offsetting derivative |
(99
|
) |
(121 |
) |
|
Exchange differences |
(38
|
) |
4 |
|
|
Risk hedged |
(5
|
) |
(7 |
) |
|
|
|
|
|
|
|
Unamortised balance at 31 December1 |
204
|
|
306 |
|
|
|
|
|
|
|
|
1 |
This amount is yet to be
recognised in the consolidated income statement. |
|
|
|
|
Hedging instruments |
|
|
|
HSBC uses derivatives (principally interest
rate swaps) for hedging purposes in the management of its own asset and
liability portfolios and structural positions. This enables HSBC to optimise
the overall cost to the Group of accessing debt capital markets, and
to mitigate the market risk which would otherwise arise from structural
imbalances in the maturity and other profiles of its assets and liabilities. |
|
|
|
The accounting treatment of hedge transactions
varies according to the nature of the instrument hedged and the type
of hedge transactions. Derivatives may qualify as hedges for accounting
purposes if they are fair value hedges, cash flow hedges, or hedges in
net investment of foreign operations. These are described under the relevant
headings below: |
400
Back to Contents
|
Notional contract amounts of
derivatives held for hedging purposes by product type |
|
|
|
|
|
|
The notional contract amounts of
these instruments indicate the nominal value of transactions outstanding
at the balance sheet date; they do not represent amounts at risk. |
|
|
|
|
|
|
|
|
At 31 December 2008 |
|
At 31 December 2007 |
|
|
|
|
|
|
|
|
Cash flow |
|
Fair value |
|
Cash flow |
|
Fair value |
|
|
|
hedge |
|
hedge |
|
hedge |
|
hedge |
|
|
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange |
14,931 |
|
2,602 |
|
21,641 |
|
3,116 |
|
|
Interest rate |
229,785 |
|
27,305 |
|
248,134 |
|
34,897 |
|
|
Equities |
|
|
|
|
|
|
24 |
|
|
|
|
|
|
|
|
|
|
|
|
|
244,716 |
|
29,907 |
|
269,775 |
|
38,037 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value hedges |
|
|
|
HSBCs fair value hedges principally
consist of interest rate swaps that are used to protect against changes
in the fair value of fixed-rate long-term financial instruments due to
movements in market interest rates. For qualifying fair value hedges,
all changes in the fair value of the derivative and in the fair value
of the item in relation to the risk being hedged are recognised in the
income statement. If the hedge relationship is terminated, the fair value
adjustment to the hedged item continues to be reported as part of the
basis of the item and is amortised to the income statement as a yield
adjustment over the remainder of the hedging period. |
|
|
|
Fair value of derivatives designated
as fair value hedges |
|
|
|
|
At 31 December 2008 |
|
At 31 December 2007 |
|
|
|
Fair value |
|
Fair value |
|
|
|
|
|
|
|
|
|
Assets |
|
Liabilities |
|
Assets |
|
Liabilities |
|
|
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange |
265 |
|
10 |
|
163 |
|
65 |
|
|
Interest rate |
574 |
|
1,257 |
|
171 |
|
338 |
|
|
Equities |
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
839 |
|
1,267 |
|
335 |
|
403 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains or losses arising from fair value hedges |
|
|
|
2008
|
|
2007 |
|
2006 |
|
|
|
US$m
|
|
US$m |
|
US$m |
|
|
Gains/(losses): |
|
|
|
|
|
|
|
on hedging instruments |
(296
|
) |
(186 |
) |
8 |
|
|
on the hedged items attributable to the hedged risk |
301
|
|
205 |
|
8 |
|
|
|
|
|
|
|
|
|
|
|
5
|
|
19 |
|
16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The gains and losses on ineffective portions
of fair value hedges are recognised immediately in Net trading
income. |
|
|
|
Cash flow hedges |
|
|
|
HSBCs cash flow hedges consist principally
of interest rate and cross-currency swaps that are used to protect against
exposures to variability in future interest cash flows on non-trading
assets and liabilities which bear interest at variable rates or which
are expected to be re-funded or reinvested in the future. The amounts
and timing of future cash flows, representing both principal and interest
flows, are projected for each portfolio of financial assets and liabilities
on the basis of their contractual terms and other relevant factors, including
estimates of prepayments and defaults. The aggregate principal balances
and interest cash flows across all portfolios over time form the basis
for identifying gains and losses on the effective portions of derivatives
designated as cash flow hedges of forecast transactions. Gains and losses
are initially recognised directly in equity, in the cash flow hedging
reserve, and are transferred to the income statement when the forecast
cash flows affect the income statement. |
401
Back to Contents
H S B C H O L D I
N G S P L C |
|
Notes on the
Financial Statements (continued) |
|
|
|
|
Notes 18 and 19 |
|
Fair value of derivatives
designated as cash flow hedges |
|
|
|
At 31 December 2008 |
|
At 31 December 2007 |
|
|
|
Fair value |
|
Fair value |
|
|
|
|
|
|
|
|
|
Assets |
|
Liabilities |
|
Assets |
|
Liabilities |
|
|
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange |
1,745 |
|
816 |
|
3,327 |
|
306 |
|
|
Interest rate |
3,907 |
|
3,178 |
|
1,588 |
|
1,675 |
|
|
|
|
|
|
|
|
|
|
|
|
|
5,652 |
|
3,994 |
|
4,915 |
|
1,981 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The schedule of forecast
principal balances on which interest cash flows are expected to arise as
at 31 December 2008 is as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
More than 3
|
|
5 years or less
|
|
|
|
|
|
3 months
|
|
months but less
|
|
but more than
|
|
More than
|
|
|
|
or less
|
|
than 1 year
|
|
1 year
|
|
5 years
|
|
|
|
US$m
|
|
US$m
|
|
US$m
|
|
US$m
|
|
|
At 31 December 2008 |
|
|
|
|
|
|
|
|
|
Assets |
99,426
|
|
71,491
|
|
52,988
|
|
2,081
|
|
|
Liabilities |
(83,019
|
) |
(77,656
|
) |
(62,633
|
) |
(7,817
|
) |
|
|
|
|
|
|
|
|
|
|
|
Net cash inflows/(outflows) exposure |
16,407
|
|
(6,165
|
) |
(9,645
|
) |
(5,736
|
) |
|
|
|
|
|
|
|
|
|
|
|
At 31 December 2007 |
|
|
|
|
|
|
|
|
|
Assets |
90,575 |
|
78,215 |
|
36,952 |
|
227 |
|
|
Liabilities |
(89,891 |
) |
(77,389 |
) |
(68,189 |
) |
(5,955 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net cash inflows/(outflows) exposure |
684 |
|
826 |
|
(31,237 |
) |
(5,728 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
This table reflects the interest
rate repricing profile of the underlying hedged items. |
|
|
|
The gains and losses on ineffective
portions of such derivatives are recognised immediately in Net trading
income. During the year to 31 December 2008, a loss of US$40
million (2007: loss of US$77 million; 2006: loss of US$122 million)
was recognised due to hedge ineffectiveness. |
|
|
|
Hedges of net investments in
foreign operations |
|
|
|
HSBCs consolidated balance
sheet is affected by exchange differences between the US dollar and all
the non-US dollar functional currencies of subsidiaries. HSBC hedges structural
foreign exchange exposures only in limited circumstances. Hedging is undertaken
using forward foreign exchange contracts which are accounted for as hedges
of a net investment in a foreign operation, or by financing with borrowings
in the same
currencies as the functional currencies involved. |
|
|
|
At 31 December 2008, the fair
values of outstanding financial instruments designated as hedges of net
investments in foreign operations were liabilities of US$52 million
(2007:
US$450 million) and notional contract values of US$161 million (2007:
US$1,204 million). |
|
|
|
The ineffectiveness recognised
in Net trading income in the year ended 31 December 2008 that
arose from hedges in foreign operations was nil (2007 and 2006: nil). |
402
Back to Contents
|
|
|
2008 |
|
2007 |
|
|
|
|
US$m |
|
US$m |
|
|
Financial investments: |
|
|
|
|
|
|
not subject to repledge or resale by counterparties |
287,479 |
|
271,126 |
|
|
|
which may be repledged or resold by counterparties |
12,756 |
|
11,874 |
|
|
|
|
|
|
|
|
|
|
|
300,235 |
|
283,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying |
|
|
Fair |
|
|
Carrying |
|
|
Fair |
|
|
|
|
|
amount |
|
|
value |
|
|
amount |
|
|
value |
|
|
|
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury
and other eligible bills |
41,027 |
|
|
41,027 |
|
|
30,104 |
|
|
30,104 |
|
|
|
|
available-for-sale |
41,027 |
|
|
41,027 |
|
|
30,104 |
|
|
30,104 |
|
|
|
Debt
securities |
251,957 |
|
|
253,001 |
|
|
240,302 |
|
|
240,688 |
|
|
|
|
available-for-sale |
237,944 |
|
|
237,944 |
|
|
230,534 |
|
|
230,534 |
|
|
|
|
held-to-maturity |
14,013 |
|
|
15,057 |
|
|
9,768 |
|
|
10,154 |
|
|
|
Equity securities |
7,251 |
|
|
7,251 |
|
|
12,594 |
|
|
12,594 |
|
|
|
|
available-for-sale |
7,251 |
|
|
7,251 |
|
|
12,594 |
|
|
12,594 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
financial investments |
300,235 |
|
|
301,279 |
|
|
283,000 |
|
|
283,386 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortised |
|
Fair |
|
|
|
cost |
|
value |
|
|
|
US$m |
|
US$m |
|
|
At 31 December 2008 |
|
|
|
|
|
US Treasury |
11,528 |
|
11,755 |
|
|
US Government agencies1
|
8,131 |
|
8,307 |
|
|
US Government sponsored entities1
|
15,109 |
|
15,240 |
|
|
UK Government |
16,077 |
|
16,217 |
|
|
Hong Kong Government |
966 |
|
989 |
|
|
Other government |
60,755 |
|
61,528 |
|
|
Asset-backed securities2
|
55,685 |
|
36,052 |
|
|
Corporate debt and other securities |
145,269 |
|
143,940 |
|
|
Equities |
5,901 |
|
7,251 |
|
|
|
|
|
|
|
|
|
319,421 |
|
301,279 |
|
|
|
|
|
|
|
|
|
At 31 December 2007 |
|
|
|
|
|
US Treasury |
6,799 |
|
6,831 |
|
|
US Government agencies1 |
5,709 |
|
5,732 |
|
|
US Government sponsored entities1 |
14,732 |
|
14,533 |
|
|
UK Government |
757 |
|
749 |
|
|
Hong Kong Government |
3,941 |
|
3,942 |
|
|
Other government |
60,109 |
|
60,320 |
|
|
Asset-backed securities2 |
64,186 |
|
63,976 |
|
|
Corporate debt and other securities |
114,955 |
|
114,709 |
|
|
Equities |
8,405 |
|
12,594 |
|
|
|
|
|
|
|
|
|
279,593 |
|
283,386 |
|
|
|
|
|
|
|
|
|
At 31 December 2006 |
|
|
|
|
|
US Treasury |
10,219 |
|
10,203 |
|
|
US Government agencies1 |
6,004 |
|
5,968 |
|
|
US Government sponsored entities1 |
14,010 |
|
13,799 |
|
|
UK Government |
7,515 |
|
7,502 |
|
|
Hong Kong Government |
1,085 |
|
1,080 |
|
|
Other government |
37,828 |
|
38,198 |
|
|
Asset-backed securities2 |
26,752 |
|
26,750 |
|
|
Corporate debt and other securities |
93,217 |
|
93,311 |
|
|
Equities |
6,295 |
|
8,297 |
|
|
|
|
|
|
|
|
|
202,925 |
|
205,108 |
|
|
|
|
|
|
|
|
1 |
Includes securities that are supported by an explicit guarantee issued
by the US Government. |
|
2 |
Excludes asset-backed securities
included under US Government agencies and sponsored entities. |
403
Back to Contents
H S B C H O L D I
N G S P L C |
|
Notes on the
Financial Statements (continued) |
|
|
|
|
Notes 19 and 20 |
|
Included within the above figures are debt
securities issued by banks and other financial institutions of US$140,878
million (2007: US$142,863 million; 2006: US$86,649 million),
of which US$39,213 million (2007: US$2,490 million; 2006: nil)
are guaranteed by various
governments. |
|
|
|
The fair value of the debt securities issued
by banks and other financial institutions was US$141,526 million
(2007: US$143,023 million; 2006: US$86,596 million). |
|
|
|
|
Treasury |
|
|
|
|
|
|
|
|
|
|
|
and other |
|
Debt |
|
Debt |
|
|
|
|
|
|
|
eligible bills |
|
securities |
|
securities |
|
|
|
|
|
|
|
available- |
|
available- |
|
held-to- |
|
Equity |
|
|
|
|
|
for-sale |
|
for-sale |
|
maturity |
|
securities |
|
Total |
|
|
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
|
Carrying amount at 31 December 2008 |
|
|
|
|
|
|
|
|
|
|
|
Listed on a recognised exchange |
3,539 |
|
108,972 |
|
2,332 |
|
471 |
|
115,314 |
|
|
Unlisted |
37,488 |
|
128,972 |
|
11,681 |
|
6,780 |
|
184,921 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41,027 |
|
237,944 |
|
14,013 |
|
7,251 |
|
300,235 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying amount at 31 December 2007 |
|
|
|
|
|
|
|
|
|
|
|
Listed on a recognised exchange |
1,062 |
|
107,059 |
|
3,399 |
|
3,301 |
|
114,821 |
|
|
Unlisted |
29,042 |
|
123,475 |
|
6,369 |
|
9,293 |
|
168,179 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,104 |
|
230,534 |
|
9,768 |
|
12,594 |
|
283,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The fair value of listed held-to-maturity
debt securities as at 31 December 2008 was US$4,926 million (2007:
US$3,469 million). Included within listed investments were
US$1,475 million (2007: US$2,066 million) of investments listed in Hong
Kong. |
|
|
|
The maturities of investment
in debt securities at their carrying amount are analysed as follows: |
|
|
|
|
|
|
|
At 31 December |
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
2007 |
|
|
|
|
US$m |
|
US$m |
|
|
Remaining contractual maturity of total debt securities: |
|
|
|
|
|
|
1 year or less |
72,551 |
|
80,979 |
|
|
|
5 years or less but over 1 year |
93,824 |
|
76,306 |
|
|
|
10 years or less
but over 5 years |
28,141 |
|
34,175 |
|
|
|
Over 10 years |
57,441 |
|
48,842 |
|
|
|
|
|
|
|
|
|
|
|
251,957 |
|
240,302 |
|
|
|
|
|
|
|
|
|
Remaining contractual maturity of debt securities available for sale: |
|
|
|
|
|
|
1 year or less |
71,967 |
|
80,498 |
|
|
|
5 years or less but over 1 year |
89,931 |
|
74,279 |
|
|
|
10 years or less
but over 5 years |
22,402 |
|
30,607 |
|
|
|
Over 10 years |
53,644 |
|
45,150 |
|
|
|
|
|
|
|
|
|
|
|
237,944 |
|
230,534 |
|
|
|
|
|
|
|
|
|
Remaining contractual maturity of debt securities held to maturity: |
|
|
|
|
|
|
1 year or less |
584 |
|
481 |
|
|
|
5 years or less but over 1 year |
3,893 |
|
2,027 |
|
|
|
10 years or less
but over 5 years |
5,739 |
|
3,568 |
|
|
|
Over 10 years |
3,797 |
|
3,692 |
|
|
|
|
|
|
|
|
|
|
|
14,013 |
|
9,768 |
|
|
|
|
|
|
|
|
404
Back to Contents
|
The following table
provides an analysis of contractual maturities and weighted average yields
of investment debt securities as at 31 December 2008: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After one year but |
|
After five years but |
|
|
|
|
|
|
|
Within one year |
|
within five years |
|
within ten years |
|
After ten years |
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount |
|
Yield |
|
Amount |
|
Yield |
|
Amount |
|
Yield |
|
Amount |
|
Yield |
|
|
|
US$m |
|
% |
|
US$m |
|
% |
|
US$m |
|
% |
|
US$m |
|
% |
|
|
Available-for-sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US Treasury |
41 |
|
2.44 |
|
1,049 |
|
1.14 |
|
225 |
|
1.89 |
|
985 |
|
4.52 |
|
|
US Government agencies |
|
|
|
|
15 |
|
6.67 |
|
298 |
|
5.03 |
|
7,324 |
|
3.74 |
|
|
US Government-sponsored agencies |
760 |
|
4.61 |
|
569 |
|
6.68 |
|
1,398 |
|
3.15 |
|
10,466 |
|
4.70 |
|
|
UK Government |
|
|
|
|
446 |
|
2.47 |
|
|
|
|
|
1,385 |
|
3.25 |
|
|
Hong Kong Government |
136 |
|
2.21 |
|
15 |
|
2.84 |
|
186 |
|
4.84 |
|
|
|
|
|
|
Other governments |
20,604 |
|
3.30 |
|
17,182 |
|
6.00 |
|
3,609 |
|
4.56 |
|
2,493 |
|
3.38 |
|
|
Asset-backed securities |
1,088 |
|
1.57 |
|
2,626 |
|
1.87 |
|
6,021 |
|
2.34 |
|
45,765 |
|
2.04 |
|
|
Corporate debt and other securities |
49,065 |
|
4.28 |
|
68,760 |
|
3.53 |
|
12,460 |
|
3.76 |
|
3,648 |
|
4.22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total amortised cost |
71,694 |
|
|
|
90,662 |
|
|
|
24,197 |
|
|
|
72,066 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total carrying value |
71,967 |
|
|
|
89,931 |
|
|
|
22,402 |
|
|
|
53,644 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-maturity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US Treasury |
|
|
|
|
30 |
|
3.45 |
|
42 |
|
4.76 |
|
44 |
|
4.55 |
|
|
US Government agencies |
|
|
|
|
|
|
|
|
6 |
|
8.81 |
|
487 |
|
6.37 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US Government-sponsored agencies |
|
|
|
|
44 |
|
4.76 |
|
38 |
|
7.89 |
|
1,845 |
|
5.88 |
|
|
Hong Kong Government |
19 |
|
5.26 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other governments |
148 |
|
4.73 |
|
149 |
|
4.70 |
|
301 |
|
4.32 |
|
532 |
|
6.58 |
|
|
Asset-backed securities |
|
|
|
|
|
|
|
|
|
|
|
|
185 |
|
5.95 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt and other securities |
417 |
|
3.84 |
|
3,670 |
|
4.28 |
|
5,352 |
|
4.58 |
|
704 |
|
4.83 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total amortised cost |
584 |
|
|
|
3,893 |
|
|
|
5,739 |
|
|
|
3,797 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total carrying value |
584 |
|
|
|
3,893 |
|
|
|
5,739 |
|
|
|
3,797 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The maturity distributions of asset-backed securities are presented in the
above table based upon contractual maturity dates. The weighted average yield
for each range of maturities in the above table is calculated by dividing the
annualised interest income for the year ended 31 December 2008 by the book
amount of available-for-sale debt securities at that date. The yields do not
include the effect of related
derivatives. |
|
20 |
Transfers of financial assets not qualifying for de-recognition |
|
|
HSBC enters into transactions in the normal course of business by which it
transfers recognised financial assets directly to third parties or to SPEs.
These transfers may give rise to the full or partial derecognition of the financial
assets concerned. |
|
| – |
Full derecognition occurs when HSBC transfers its contractual right to
receive cash flows from the financial assets, or retains the right but
assumes an obligation to pass on the cash flows from the asset, and transfers
substantially all the risks and rewards of ownership. The risks include
credit, interest rate, currency, prepayment and other price risks. |
|
| – |
Partial derecognition occurs when HSBC sells or otherwise transfers financial
assets in such a way that some but not substantially all of the risks and
rewards of ownership are transferred but control is retained. These financial
assets are recognised on the balance sheet to the extent of HSBCs
continuing involvement. |
|
|
The majority of financial assets that do not qualify for derecognition are
(i) debt securities held by counterparties as collateral under repurchase agreements
or (ii) equity securities lent under securities lending agreements. The following
table analyses the carrying amount of financial assets that did not qualify
for derecognition and their associated financial liabilities: |
405
Back to Contents
H S B C H O L D I
N G S P L C |
|
Notes on the Financial Statements (continued) |
|
|
|
|
Notes 20 and 21 |
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying |
|
Carrying |
|
Carrying |
|
Carrying |
|
|
|
amount of |
|
amount of |
|
amount of |
|
amount of |
|
|
|
transferred |
|
associated |
|
transferred |
|
associated |
|
|
|
assets |
|
liabilities |
|
assets |
|
liabilities |
|
|
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
|
Nature of transaction |
|
|
|
|
|
|
|
|
|
Repurchase agreements |
94,154 |
|
91,139 |
|
126,534 |
|
126,111 |
|
|
Securities lending agreements |
4,497 |
|
4,096 |
|
24,087 |
|
23,304 |
|
|
|
|
|
|
|
|
|
|
|
|
|
98,651 |
|
95,235 |
|
150,621 |
|
149,415 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A small proportion of financial assets that
do not qualify for derecognition relate to loans, credit cards, debt
securities and trade receivables that have been securitised under arrangements
by which HSBC retains a continuing involvement in such transferred assets.
Continuing involvement may entail retaining the rights to future cash
flows arising from the assets after investors have received their contractual
terms (for example, interest rate strips); providing subordinated interest;
liquidity support; continuing to service the underlying asset; or entering
into derivative transactions with the securitisation vehicles. As such,
HSBC continues to be exposed to risks
associated with these transactions. |
|
|
|
The rights and obligations that HSBC retains
from its continuing involvement in securitisations are initially recorded
as an allocation of the fair value of the financial asset between the
part that is derecognised and the part that continues to be recognised
on the date of transfer. The following analyses the carrying amount of
financial assets to the extent of HSBCs continuing involvement
that qualified for partial derecognition during the year, and their associated
liabilities: |
|
|
|
|
Securitisations at 31 December |
|
|
|
|
|
|
|
|
|
2008 |
|
2007 |
|
|
|
US$m |
|
US$m |
|
|
|
|
|
|
|
|
Carrying amount of assets (original) |
17,427 |
|
17,713 |
|
|
Carrying amount of assets (currently recognised) |
299 |
|
598 |
|
|
Carrying amount of associated liabilities (currently recognised) |
149 |
|
299 |
|
|
|
21 |
Interests in associates and joint ventures |
|
|
|
Principal associates of HSBC |
|
|
|
|
|
|
|
|
|
|
At 31 December 2008 |
|
At 31 December 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying |
|
Fair |
|
Carrying |
|
Fair |
|
|
|
amount |
|
value |
|
amount |
|
value |
|
|
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
|
Listed |
|
|
|
|
|
|
|
|
|
Bank of Communications Co., Limited |
4,612 |
|
6,717 |
|
3,957 |
|
12,992 |
|
|
Financiera Independencia S.A.B. de C.V.2
|
|
|
|
|
69 |
|
206 |
|
|
Industrial Bank Company Limited1
|
913 |
|
1,368 |
|
683 |
|
4,538 |
|
|
Ping An Insurance (Group) Company
of China, Limited |
3,727 |
|
5,965 |
|
3,790 |
|
13,232 |
|
|
SABB Takaful Company3
|
4 |
|
29 |
|
5 |
|
101 |
|
|
The Saudi British Bank |
1,214 |
|
3,453 |
|
1,082 |
|
5,719 |
|
|
|
|
|
|
|
|
|
|
|
|
|
10,470 |
|
17,532 |
|
9,586 |
|
36,788 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
Listed on the Shanghai Stock Exchange on 5 February 2007. |
|
2 |
Listed on the Mexican Stock Exchange on 31 October 2007. HSBC disposed
of its share in Financiera Independencia on 25 November 2008. |
|
3 |
Listed on the Saudi Stock Exchange on 16 June 2007. |
406
Back to Contents
|
|
At 31 December 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HSBCs
|
|
Issued
|
|
|
|
Country of |
|
interest in
|
|
equity
|
|
|
|
incorporation |
|
equity capital
|
|
capital
|
|
|
Listed |
|
|
|
|
|
|
|
Bank of Communications Co., Limited |
PRC1
|
|
19.01
|
% |
RMB48,994m
|
|
|
Industrial Bank Company Limited3 |
PRC1
|
|
12.78
|
% |
RMB5,000m
|
|
|
Ping An Insurance (Group) Company of China, Limited |
PRC1
|
|
16.78
|
% |
RMB7,345m
|
|
|
SABB Takaful Company |
Saudi Arabia |
|
32.50
|
% |
SR100m
|
|
|
The Saudi British Bank |
Saudi Arabia |
|
40.00
|
% |
SR6,000m
|
|
|
|
|
|
|
|
|
|
|
Unlisted |
|
|
|
|
|
|
|
Barrowgate Limited2,3 |
Hong Kong |
|
24.64
|
% |
|
|
|
British Arab Commercial Bank Limited |
England |
|
48.92
|
% |
£32m fully paid
|
|
|
|
|
|
|
|
£5m nil paid
|
|
|
Vietnam Technological and Commercial Joint Stock Bank3 |
Vietnam |
|
20.00
|
% |
VND3,642,015m
|
|
|
VocaLink |
England |
|
13.95
|
% |
£100m
|
|
|
Yantai City Commercial Bank3 |
PRC |
|
20.00
|
% |
RMB2,000m
|
|
|
Wells Fargo HSBC Trade Bank, N.A.4 |
United States |
|
20.00
|
% |
|
|
|
|
|
|
1 |
Peoples Republic of China. |
|
2 |
Issued equity capital is less than HK$1 million. |
|
3 |
Investment held through Hang Seng Bank Limited, a 62.14 per cent owned
subsidiary of HSBC. |
|
4 |
Issued equity capital is less than US$1 million. |
|
|
|
All the above investments in associates are
owned by subsidiaries of HSBC Holdings. |
|
|
|
Details of all HSBC associates and joint
ventures will be annexed to the next Annual Return of HSBC Holdings filed
with the UK Registrar of Companies. |
|
|
|
HSBC had US$8,339 million (2007: US$7,747
million) of investments in associates and joint ventures listed in Hong
Kong. |
|
|
|
For the year ended 31 December 2008, HSBCs
share of associates and joint ventures tax on profit was US$515
million (2007: US$469 million), which is included within share of
profit in associates and joint ventures in the income statement. |
|
|
|
|
|
|
|
Summarised aggregate financial information on associates |
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
2007 |
|
|
|
US$m |
|
US$m |
|
|
HSBCs share of: |
|
|
|
|
|
assets |
123,283 |
|
100,799 |
|
|
liabilities |
114,578 |
|
94,178 |
|
|
revenues |
5,939 |
|
5,568 |
|
|
profit
after tax |
1,600 |
|
1,466 |
|
|
|
|
HSBCs investment in Industrial Bank
Company Limited was equity accounted with effect from May 2004, reflecting
HSBCs significant influence over this associate. HSBCs significant
influence was established as a result of representation on the Board
of Directors, and in accordance with the Technical Support and Assistance
Agreements, HSBC is assisting in the development of financial and operating
policies. |
|
|
|
HSBCs investment in Ping An Insurance
(Group) Company of China, Limited was equity accounted with effect from
31 August 2005, reflecting HSBCs significant influence over this
associate. HSBCs significant influence was established as a result
of representation on the Board of Directors. |
|
|
|
HSBCs significant influence in Bank
of Communications Co., Limited was established as a result of representation
on the Board of Directors, and in accordance with the Technical Support
and Assistance Agreements, HSBC is assisting in the development of financial
and operating policies and a number of staff have been seconded to assist
in this process. |
|
|
|
The statutory accounting reference date
of Bank of Communications Co., Limited, Ping An Insurance (Group) Company
of China, Limited and Industrial Bank Company Limited is 31 December.
For the year ended 31 December 2008, these companies were included on
the basis of financial statements made up for the twelve months to |
407
Back to Contents
H S B C H O L D I
N G S P L C |
|
Notes on the Financial Statements (continued) |
|
|
|
|
Notes 21 and 22 |
|
30 September 2008, taking into account changes
in the subsequent period from 1 October 2008 to 31 December 2008 that
would have materially affected their results. |
|
|
|
HSBC also has a 100 per cent interest in
the issued preferred stock (less than US$1 million) of Wells Fargo
HSBC Trade Bank, N.A. HSBC has a 40 per cent economic interest in Wells
Fargo HSBC Trade Bank, N.A. by virtue of the joint agreement under which
HSBCs equity capital and preferred stock interests are being held. |
|
|
|
HSBCs investment in Financiera Independencia
S.A.B. de C.V. was equity accounted with effect from June 2006, reflecting
HSBCs significant influence over this associate.
HSBCs influence results from representation on the Board of Directors.
HSBC disposed of its equity interest in Financiera Independencia on 25 November
2008. |
|
|
|
HSBC acquired 15 per cent of Vietnam Technological & Commercial
Joint Stock Bank in October 2007. This investment was equity accounted
from that date
due to HSBCs representation on the Board of Directors and involvement in
the Technical Support and Assistance Agreement. In December 2007, as a result
of a rights issue in
which HSBC did not participate, HSBCs equity interest was diluted to 14.44
per cent. In September 2008, HSBC increased its equity interest to 20 per cent. |
|
|
|
HSBC acquired 13.95 per cent of VocaLink
in June 2007. This investment was equity accounted from that date, reflecting
HSBCs significant influence over that entity arising from representation
on the Board of Directors and transactions with the associate. |
|
|
|
During 2007, certain HSBC associates issued
new shares which HSBC did not subscribe for. As a result, its interests
in the associates equity decreased. The resulting gains from dilution
of the Groups interest in the associates are described in Note
4. |
|
|
|
Principal interests in joint ventures |
|
|
|
|
|
|
|
|
|
|
|
|
At 31 December 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HSBCs interest
|
|
Issued
|
|
|
|
Country of |
|
Principal |
|
in equity
|
|
equity
|
|
|
|
incorporation |
|
activity |
|
capital
|
|
capital
|
|
|
|
|
|
|
|
|
|
|
|
|
HSBC Saudi Arabia Limited |
Saudi Arabia |
|
Investment banking |
|
60.00
|
% |
SR50m
|
|
|
Vaultex UK Limited |
England |
|
Cash management |
|
50.00
|
% |
£10m
|
|
|
Hana HSBC Life Insurance Co., Ltd |
South Korea |
|
Insurance manufacturing |
|
49.99
|
% |
KRW120,402m
|
|
|
Canara HSBC Oriental Bank of Commerce
Life Insurance Company Limited |
India |
|
Insurance manufacturing |
|
26.00
|
% |
INR5,250m
|
|
|
|
|
Summarised aggregate financial information on joint ventures |
|
|
|
2008 |
|
2007 |
|
|
|
US$m |
|
US$m |
|
|
HSBCs share of: |
|
|
|
|
|
current
assets |
594 |
|
448 |
|
|
non-current
assets |
281 |
|
76 |
|
|
current
liabilities |
260 |
|
397 |
|
|
non-current
liabilities |
449 |
|
46 |
|
|
income |
301 |
|
339 |
|
|
expenses |
240 |
|
302 |
|
|
|
|
Goodwill included in carrying amount of associates and joint ventures |
|
|
|
2008
|
|
2007
|
|
|
|
US$m
|
|
US$m
|
|
|
Gross amount |
|
|
|
|
|
At 1 January 2008 |
1,308
|
|
1,172
|
|
|
Additions |
88
|
|
203
|
|
|
Disposals |
(46
|
) |
(29
|
) |
|
Exchange differences |
86
|
|
90
|
|
|
Other changes |
17
|
|
(128
|
) |
|
|
|
|
|
|
|
At 31 December 2008 |
1,453
|
|
1,308
|
|
|
|
|
|
|
|
|
|
|
Included in the above total, the carrying
amount of goodwill arising from joint ventures was US$39 million
(2007: nil). |
408
Back to Contents
22 |
Goodwill and intangible assets |
|
|
|
Goodwill and intangible assets includes
goodwill arising on business combinations, the PVIF long-term insurance
business, and other intangible assets. |
|
|
|
Goodwill |
|
|
|
Reconciliation of goodwill |
|
|
|
|
|
|
|
|
Rest of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asia-
|
|
North
|
|
Latin
|
|
|
|
|
|
Europe
|
|
Hong Kong
|
|
Pacific
|
|
America
|
|
America
|
|
Total
|
|
|
|
US$m
|
|
US$m
|
|
US$m
|
|
US$m
|
|
US$m
|
|
US$m
|
|
|
Gross amount |
|
|
|
|
|
|
|
|
|
|
|
|
|
At 1 January 2008 |
16,744
|
|
124
|
|
350
|
|
12,561
|
|
4,474
|
|
34,253
|
|
|
Additions |
12
|
|
|
|
142
|
|
|
|
1
|
|
155
|
|
|
Disposals |
(415
|
) |
|
|
|
|
(13
|
) |
|
|
(428
|
) |
|
Exchange differences |
(775
|
) |
(2
|
) |
(59
|
) |
(61
|
) |
(609
|
) |
(1,506
|
) |
|
Other changes |
(55
|
) |
|
|
|
|
|
|
|
|
(55
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 31 December 2008 |
15,511
|
|
122
|
|
433
|
|
12,487
|
|
3,866
|
|
32,419
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated impairment losses |
|
|
|
|
|
|
|
|
|
|
|
|
|
At 1 January 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment losses |
|
|
|
|
|
|
(10,564
|
) |
|
|
(10,564
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 31 December 2008 |
|
|
|
|
|
|
(10,564
|
) |
|
|
(10,564
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net carrying amount at 31 December
2008 |
15,511
|
|
122
|
|
433
|
|
1,923
|
|
3,866
|
|
21,855
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross amount |
|
|
|
|
|
|
|
|
|
|
|
|
|
At 1 January 2007 |
15,234
|
|
124
|
|
325
|
|
12,527
|
|
4,262
|
|
32,472
|
|
|
Additions |
42
|
|
|
|
6
|
|
|
|
143
|
|
191
|
|
|
Disposals |
(43
|
) |
|
|
|
|
(12
|
) |
|
|
(55
|
) |
|
Exchange differences |
1,516
|
|
|
|
19
|
|
46
|
|
120
|
|
1,701
|
|
|
Other changes |
(5
|
) |
|
|
|
|
|
|
(51
|
) |
(56
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 31 December 2007 |
16,744
|
|
124
|
|
350
|
|
12,561
|
|
4,474
|
|
34,253
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment charges recognised |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 31 December 2008, HSBC recognised
an impairment charge of US$10,564 million (2007: nil) in respect of
Personal Financial Services North America. This was a result of
the very significant deterioration in the economic and credit conditions
in North America and the resulting further restructuring in the Personal
Financial Services North America cash generating unit (CGU)
in the latter part of 2008. The reduction in the recoverable amount of
the main business lines was driven by higher losses than were expected
for 2008, including higher levels of impairment charges, contraction in
new business from lending activities and a delay in the expected return
to profitability of the business. The deterioration in the financial performance
was particularly severe in the fourth quarter of 2008. In addition, the
discount rate used increased as observed market discount rates increased
for US consumer finance and banking businesses. |
|
|
|
Impairment testing |
|
|
|
Timing of impairment testing |
|
|
|
HSBCs impairment test in
respect of goodwill allocated to each CGU is performed as at 1 July each
year. In line with the accounting policy set out in Note 2, goodwill is
also retested for impairment whenever there is an indication that goodwill
may be impaired. Given the extraordinary market events experienced globally
during 2008, HSBC performed an additional impairment test on all the CGUs
within the Group as at 31 December 2008. For the purpose of impairment
testing, the Groups CGUs are based on customer groups and global
business separated by geographical region. The CGUs represent the lowest
level at which goodwill is monitored by key management
personnel. |
409
Back to Contents
H S B C H O L D I
N G S P L C |
|
Notes on the Financial Statements (continued) |
|
|
|
|
Note 22 |
|
Basis of the recoverable amount
value in use or fair value less costs to sell |
|
|
|
The recoverable amount of all CGUs to which
goodwill has been allocated was equal to its value in use (VIU)
at each respective testing date for 2007 and 2008. |
|
|
|
For each significant CGU, the VIU is calculated
by discounting managements cash flow projections for each CGU. The
pre-tax discount rate used is based on the cost of capital HSBC allocates
to investments in the countries within which the CGU operates. The long-term
growth rate is used to extrapolate the cash flows in perpetuity because
of the long-term perspective within the Group of the business units making
up the CGUs. However, due to the economic downturn in Personal Financial
Services North America, a 10 year cash flow projection was used.
|
|
|
|
Key assumptions in VIU calculation and
managements approach to determining the values assigned to each key
assumption |
|
|
|
|
2008 |
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nominal |
|
|
|
|
|
Nominal |
|
|
|
|
|
|
|
growth rate |
|
|
|
|
|
growth rate |
|
|
|
|
|
|
|
beyond |
|
|
|
|
|
beyond |
|
|
|
Goodwill at |
|
|
|
initial |
|
Goodwill at |
|
|
|
initial |
|
|
|
31 December |
|
Discount |
|
cash flow |
|
1 July |
|
Discount |
|
cash flow |
|
|
Cash-generating unit |
2008 |
|
rate |
|
projections |
|
2007 |
|
rate |
|
projections |
|
|
|
US$m |
|
% |
|
% |
|
US$m |
|
% |
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personal Financial Services Europe |
4,422 |
|
10.0 |
|
3.5 |
|
4,197 |
|
10.3 |
|
5.2 |
|
|
Commercial Banking Europe |
3,427 |
|
10.0 |
|
3.5 |
|
3,045 |
|
10.1 |
|
4.6 |
|
|
Private Banking Europe |
4,470 |
|
9.0 |
|
3.5 |
|
4,694 |
|
10.0 |
|
3.8 |
|
|
Global Banking and Markets Europe |
3,451 |
|
11.0 |
|
3.5 |
|
3,894 |
|
10.1 |
|
4.4 |
|
|
Personal Financial Services North America |
|
|
13.6 |
|
3.9 |
|
10,564 |
|
12.3 |
|
4.0 |
|
|
Personal Financial Services Latin America |
2,189 |
|
16.8 |
|
8.8 |
|
2,781 |
|
16.4 |
|
7.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total goodwill in the CGUs listed above |
17,959 |
|
|
|
|
|
29,175 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 31 December 2008, aggregate goodwill of
US$3,896 million (1 July 2007: US$3,850 million) had been allocated
to CGUs that were not considered individually significant. These CGUs
do not carry on their balance sheets any significant intangible assets
with indefinite useful lives, other than goodwill. |
|
|
|
Nominal long-term growth rate:
external data that reflects the markets assessment of GDP and inflation
for the countries within which the CGU operates. The rates used for 2007
and 2008 are taken as an average of the last 10 years. |
|
|
|
Discount rate:
the discount rate used to discount the cash flows is based on the cost
of capital assigned to each CGU, which is derived using a Capital Asset
Pricing Model (CAPM). The CAPM depends on inputs reflecting
a number of financial and economic variables including the risk-free
rate in the country concerned and a premium to reflect the inherent risk
of the business being evaluated. These variables are based on the markets
assessment of the economic variables and managements judgement.
In addition, for the purposes of testing goodwill for impairment, management
supplements this process by comparing the discount rates derived using
the internally generated CAPM with cost of capital rates produced by
external sources. HSBC uses the externally-sourced cost of capital rates
where, in managements judgement, those rates reflect more accurately
the current market and economic conditions. At 31 December 2008, the
rates used in the impairment test for Personal Financial Services Latin
America was based on externally sourced rates. |
|
|
|
Managements judgement in estimating
the cash flows of a CGU: the cash
flow projections for each CGU are based on plans approved by the Group
Management Board. The key assumptions in addition to the discount rate
and nominal long-term growth rate for each significant CGU are discussed
below. |
|
|
|
Personal Financial Services Europe
and Commercial Banking Europe:
the assumptions included in the cash flow projections for Personal
Financial Services Europe and Commercial Banking Europe
reflect the economic environment and financial outlook of the European
countries within these two segments. Key assumptions include the level
of interest rates and the level and change in unemployment rates, particularly
in the UK. While current economic conditions and the economic outlook
in Europe remain challenging, managements cash flow projections
are based on these prevailing conditions. Despite the severity of the
conditions at the balance sheet date, management does not expect these
conditions to continue over the longer term. The downside risks to
this assessment include the |
410
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|
risk of a prolonged and severe economic
recession in the UK, accompanied by higher discount rates reflecting
increased investor perceptions of risk. Managements current assessment
is that the probability of this downside risk scenario is low. Accordingly,
based on the conditions at the balance sheet date, management determined
that a reasonably possible change in any of the key assumptions described
above would not cause an impairment to be recognised in respect of Personal
Financial Services Europe or Commercial Banking Europe. |
|
|
|
Private Banking Europe:
the revenues in Private Banking Europe are predominately generated
through HSBCs client relationships. For 2009, the forecast cash
flows reflect the downward pressure on brokerage and portfolio management
fees, with the latter being affected by the decline in equity market
values. Thereafter, the nominal long-term growth rates described in the
table above have been used. Based on the conditions at the balance sheet
date, management determined that a reasonably possible change in any
of the key assumptions described above would not cause an impairment
to be recognised in respect of Private Banking Europe. |
|
|
|
Global Banking and Markets Europe:
the cash flows generated by Global Banking and Markets Europe
are diversified and there is no one key assumption that drives the cash
flow projection of this CGU. |
|
|
|
The forecast cash flows in the 2009 plan
continue to reflect challenging global economic conditions. One of the
key factors which may impact the carrying value of this CGU is the level
of impairment charges which may emerge in the future, particularly in
respect of holdings of available-for-sale sub-prime and Alt-A Residential
MBSs. Based on managements current assessment of the credit quality
of these securities, which includes stressed scenarios for collateral
defaults and house prices, and the level of credit support available,
management determined that based on the conditions at the balance sheet
date a reasonably possible change in impairment of available-for-sale
sub-prime and Alt-A Residential MBSs would not cause an impairment to
be recognised in respect of Global Banking and Markets Europe. |
|
|
|
Personal Financial Services Latin
America: the assumptions included
in the cash flow projections
for Personal Financial Services Latin America reflect the economic environment
and financial outlook of the countries within this segment, with Brazil and Mexico
being two of the largest countries included within this segment. Key assumptions
include the growth in lending and deposit volumes, the credit quality of the
loan portfolios and operational efficiency improvements. Based on the conditions
at the balance sheet date, management determined that a reasonably possible change
in any of the key assumptions described above would not cause an impairment to
be recognised in respect of Personal Financial Services Latin America. |
|
|
|
The present value of in-force long-term
insurance business |
|
|
|
Movement on the PVIF |
|
|
|
|
2008
|
|
2007
|
|
|
|
US$m
|
|
US$m
|
|
|
|
|
|
|
|
|
At 1 January |
1,965
|
|
1,549
|
|
|
Value of new business written during the year |
452
|
|
380
|
|
|
Acquisition of subsidiaries or portfolios |
|
|
390
|
|
|
Movement from in-force business
(including investment
return variances and changes in investment assumptions) |
(311
|
) |
(204
|
) |
|
Exchange differences and other movements |
(73
|
) |
(150
|
) |
|
|
|
|
|
|
|
At 31 December |
2,033
|
|
1,965
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PVIF-specific assumptions |
|
|
|
|
|
|
|
|
|
|
|
The key assumptions used in the computation
of PVIF for HSBCs main life insurance operations were: |
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UK |
|
Hong Kong |
|
France |
|
UK |
|
Hong Kong |
|
France |
|
|
|
% |
|
% |
|
% |
|
% |
|
% |
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk free rate |
4.30 |
|
1.14 |
|
4.03 |
|
4.30 |
|
3.51 |
|
4.26 |
|
|
Risk discount rate |
8.00 |
|
11.00 |
|
8.00 |
|
8.00 |
|
11.00 |
|
8.00 |
|
|
Expenses inflation |
3.50 |
|
3.00 |
|
2.00 |
|
3.40 |
|
3.00 |
|
2.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The PVIF represents
the value of the shareholders interest in the in-force business of
the life insurance operations. The calculation of the PVIF is based upon
assumptions that take
into account risk and uncertainty. To project these |
411
Back to Contents
H S B C H O L D I
N G S P L C |
|
Notes on the Financial Statements (continued) |
|
|
|
|
Notes 22 and 23 |
|
cash flows, a variety of assumptions regarding
future experience is made by each insurance operation which reflects
local market conditions and managements judgement of local future
trends. Some of the Groups insurance operations incorporate risk
margins separately into the projection assumptions for each product,
while others incorporate risk margins into the overall discount rate.
This is reflected in the wide range of
risk discount rates applied. |
|
|
|
Other intangible assets |
|
|
|
The analysis of the movement of intangible
assets, excluding the PVIF, was as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer/
|
|
|
|
|
|
|
|
|
|
Mortgage
|
|
Internally
|
|
|
|
merchant
|
|
|
|
|
|
|
|
Trade
|
|
servicing
|
|
generated
|
|
Purchased
|
|
relation-
|
|
|
|
|
|
|
|
names
|
|
rights
|
|
software
|
|
software
|
|
ships
|
|
Other
|
|
Total
|
|
|
|
US$m
|
|
US$m
|
|
US$m
|
|
US$m
|
|
US$m
|
|
US$m
|
|
US$m
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 1 January 2008 |
63
|
|
1,202
|
|
3,473
|
|
760
|
|
1,866
|
|
165
|
|
7,529
|
|
|
Additions1 |
|
|
158
|
|
764
|
|
118
|
|
169
|
|
23
|
|
1,232
|
|
|
Acquisition of subsidiaries |
10
|
|
|
|
|
|
68
|
|
4
|
|
267
|
|
349
|
|
|
Disposals |
|
|
|
|
(43
|
) |
(26
|
) |
(25
|
) |
(3
|
) |
(97
|
) |
|
Exchange differences |
(8
|
) |
|
|
(561
|
) |
(59
|
) |
(264
|
) |
(24
|
) |
(916
|
) |
|
Other changes |
2
|
|
|
|
(204
|
) |
6
|
|
(1
|
) |
(7
|
) |
(204
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 31 December 2008 |
67
|
|
1,360
|
|
3,429
|
|
867
|
|
1,749
|
|
421
|
|
7,893
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated amortisation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 1 January 2008 |
(44
|
) |
(724
|
) |
(2,167
|
) |
(549
|
) |
(541
|
) |
(33
|
) |
(4,058
|
) |
|
Charge for the year2 |
(6 |
) |
(299
|
) |
(365
|
) |
(114
|
) |
(227
|
) |
(20
|
) |
(1,031
|
) |
|
Impairment |
|
|
|
|
|
|
(1
|
) |
|
|
|
|
(1
|
) |
|
Disposals |
|
|
|
|
18
|
|
6
|
|
10
|
|
|
|
34
|
|
|
Exchange differences |
5
|
|
|
|
311
|
|
36
|
|
80
|
|
1
|
|
433
|
|
|
Other changes |
|
|
|
|
211
|
|
(9
|
) |
(3
|
) |
|
|
199
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 31 December 2008 |
(45
|
) |
(1,023
|
) |
(1,992
|
) |
(631
|
) |
(681
|
) |
(52
|
) |
(4,424
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net carrying amount at 31
December 2008 |
22
|
|
337
|
|
1,437
|
|
236
|
|
1,068
|
|
369
|
|
3,469
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 1 January 2007 |
57
|
|
1,078
|
|
2,871
|
|
645
|
|
1,655
|
|
179
|
|
6,485
|
|
|
Additions1
|
|
|
124
|
|
587
|
|
104
|
|
140
|
|
6
|
|
961
|
|
|
Acquisition of subsidiaries |
|
|
|
|
|
|
|
|
4
|
|
|
|
4
|
|
|
Disposals |
|
|
|
|
(7
|
) |
(21
|
) |
(6
|
) |
(2
|
) |
(36
|
) |
|
Exchange differences |
6
|
|
|
|
81
|
|
38
|
|
83
|
|
1
|
|
209
|
|
|
Other changes |
|
|
|
|
(59
|
) |
(6
|
) |
(10
|
) |
(19
|
) |
(94
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 31 December 2007 |
63
|
|
1,202
|
|
3,473
|
|
760
|
|
1,866
|
|
165
|
|
7,529
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated amortisation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 1 January 2007 |
(21
|
) |
(619
|
) |
(1,772
|
) |
(426
|
) |
(320
|
) |
(13
|
) |
(3,171
|
) |
|
Charge for the year2
|
(20
|
) |
(108
|
) |
(327
|
) |
(120
|
) |
(209
|
) |
(21
|
) |
(805
|
) |
|
Impairment |
|
|
|
|
(3
|
) |
|
|
|
|
|
|
(3
|
) |
|
Disposals |
|
|
|
|
|
|
18
|
|
6
|
|
1
|
|
25
|
|
|
Exchange differences |
(3
|
) |
|
|
(51
|
) |
(25
|
) |
(17
|
) |
|
|
(96
|
) |
|
Other changes |
|
|
3
|
|
(14
|
) |
4
|
|
(1
|
) |
|
|
(8
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 31 December 2007 |
(44
|
) |
(724
|
) |
(2,167
|
) |
(549
|
) |
(541
|
) |
(33
|
) |
(4,058
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net carrying amount at 31
December 2007 |
19
|
|
478
|
|
1,306
|
|
211
|
|
1,325
|
|
132
|
|
3,471
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net carrying amount at 1
January 2007 |
36
|
|
459
|
|
1,099
|
|
219
|
|
1,335
|
|
166
|
|
3,314
|
|
|
|
|
|
1 |
At 31 December 2008, HSBC had US$2
million (2007: US$47 million) of contractual commitments to acquire
intangible assets. |
|
2 |
The amortisation charge for the year is
recognised within the income statement under Amortisation and impairment
of intangible assets, with the exception of the amortisation of mortgage
servicing rights that is charged to net fee income. |
412
Back to Contents
23 |
Property, plant and equipment |
|
|
|
HSBC |
|
|
|
Property, plant and equipment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long
|
|
Short
|
|
|
|
Equipment
|
|
|
|
|
|
Freehold
|
|
leasehold
|
|
leasehold
|
|
Equipment,
|
|
on
|
|
|
|
|
|
land and
|
|
land and
|
|
land and
|
|
fixtures
|
|
operating
|
|
|
|
|
|
buildings
|
|
buildings
|
|
buildings |
1 |
and fittings |
2 |
leases
|
|
Total |
3
|
|
|
US$m
|
|
US$m
|
|
US$m
|
|
US$m
|
|
US$m
|
|
US$m
|
|
|
Cost or fair value |
|
|
|
|
|
|
|
|
|
|
|
|
|
At 1 January 2008 |
4,701
|
|
1,438
|
|
2,856
|
|
10,957
|
|
6,054
|
|
26,006
|
|
|
Additions at cost4
|
466
|
|
26
|
|
327
|
|
1,813
|
|
353
|
|
2,985
|
|
|
Acquisition of subsidiaries |
29
|
|
|
|
|
|
16
|
|
|
|
45
|
|
|
Fair value adjustments |
(93
|
) |
4
|
|
(3
|
) |
|
|
|
|
(92
|
) |
|
Disposals |
(138
|
) |
(102
|
) |
(41
|
) |
(803
|
) |
(175
|
) |
(1,259
|
) |
|
Reclassified from/(to) held for sale |
16
|
|
469
|
|
(2
|
) |
98
|
|
|
|
581
|
|
|
Transfers |
|
|
3
|
|
(3
|
) |
|
|
|
|
|
|
|
Exchange differences |
(611
|
) |
(62
|
) |
(214
|
) |
(1,876
|
) |
(1,685
|
) |
(4,448
|
) |
|
Other changes |
(244
|
) |
(40
|
) |
4
|
|
115
|
|
|
|
(165
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 31 December 2008 |
4,126
|
|
1,736
|
|
2,924
|
|
10,320
|
|
4,547
|
|
23,653
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated depreciation and impairment |
|
|
|
|
|
|
|
|
|
|
|
|
|
At 1 January 2008 |
(344
|
) |
(175
|
) |
(826
|
) |
(7,003
|
) |
(1,964
|
) |
(10,312
|
) |
|
Depreciation charge for the year |
(82
|
) |
(53
|
) |
(184
|
) |
(1,201
|
) |
(187
|
) |
(1,707
|
) |
|
Disposals |
7
|
|
2
|
|
14
|
|
537
|
|
57
|
|
617
|
|
|
Reclassified (from)/to held for sale |
1
|
|
(18
|
) |
|
|
(30
|
) |
|
|
(47
|
) |
|
Transfers |
|
|
(3
|
) |
3
|
|
|
|
|
|
|
|
|
Impairment losses recognised |
(30
|
) |
(2
|
) |
|
|
(11
|
) |
|
|
(43
|
) |
|
Exchange differences |
73
|
|
9
|
|
107
|
|
1,257
|
|
561
|
|
2,007
|
|
|
Other changes |
7
|
|
12
|
|
|
|
(163
|
) |
1
|
|
(143
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 31 December 2008 |
(368
|
) |
(228
|
) |
(886
|
) |
(6,614
|
) |
(1,532
|
) |
(9,628
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net carrying amount at 31 December 2008 |
3,758
|
|
1,508
|
|
2,038
|
|
3,706
|
|
3,015
|
|
14,025
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost or fair value |
|
|
|
|
|
|
|
|
|
|
|
|
|
At 1 January 2007 |
5,331
|
|
1,936
|
|
2,574
|
|
9,702
|
|
5,923
|
|
25,466
|
|
|
Additions at cost4
|
684
|
|
78
|
|
397
|
|
1,429
|
|
132
|
|
2,720
|
|
|
Acquisition of subsidiaries |
93
|
|
|
|
|
|
|
|
|
|
93
|
|
|
Fair value adjustments |
25
|
|
21
|
|
106
|
|
|
|
|
|
152
|
|
|
Disposals |
(256
|
) |
(37
|
) |
(117
|
) |
(542
|
) |
(129
|
) |
(1,081
|
) |
|
Reclassified to held for sale |
(446
|
) |
(596
|
) |
(82
|
) |
(160
|
) |
|
|
(1,284
|
) |
|
Transfers |
|
|
(5
|
) |
5
|
|
|
|
|
|
|
|
|
Exchange differences |
237
|
|
1
|
|
49
|
|
450
|
|
128
|
|
865
|
|
|
Other changes |
(967
|
) |
40
|
|
(76
|
) |
78
|
|
|
|
(925
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 31 December 2007 |
4,701
|
|
1,438
|
|
2,856
|
|
10,957
|
|
6,054
|
|
26,006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated depreciation and impairment |
|
|
|
|
|
|
|
|
|
|
|
|
|
At 1 January 2007 |
(342
|
) |
(168
|
) |
(723
|
) |
(5,974
|
) |
(1,835
|
) |
(9,042
|
) |
|
Depreciation charge for the year |
(93
|
) |
(37
|
) |
(167
|
) |
(1,192
|
) |
(205
|
) |
(1,694
|
) |
|
Disposals |
41
|
|
7
|
|
95
|
|
469
|
|
115
|
|
727
|
|
|
Reclassified to held for sale |
73
|
|
23
|
|
3
|
|
67
|
|
|
|
166
|
|
|
Impairment losses recognised |
(26
|
) |
|
|
(5
|
) |
(3
|
) |
|
|
(34
|
) |
|
Impairment losses reversed |
14
|
|
|
|
|
|
|
|
|
|
14
|
|
|
Exchange differences |
(18
|
) |
(1
|
) |
(19
|
) |
(282
|
) |
(38
|
) |
(358
|
) |
|
Other changes |
7
|
|
1
|
|
(10
|
) |
(88
|
) |
(1
|
) |
(91
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 31 December 2007 |
(344
|
) |
(175
|
) |
(826
|
) |
(7,003
|
) |
(1,964
|
) |
(10,312
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net carrying amount at 31 December 2007 |
4,357
|
|
1,263
|
|
2,030
|
|
3,954
|
|
4,090
|
|
15,694
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net carrying amount at 1 January 2007 |
4,989
|
|
1,768
|
|
1,851
|
|
3,728
|
|
4,088
|
|
16,424
|
|
|
|
|
|
1 |
Including assets held on finance leases
with a net book value of US$13 million (2007: US$13 million). |
|
2 |
Including assets held on finance leases
with a net book value of US$315 million (2007: US$397 million). |
|
3 |
Including assets with a net book value
of US$28 million (2007: US$422 million) pledged as security for
liabilities. |
|
4 |
At 31 December 2008, HSBC had US$1,498
million (2007: US$1,011 million) of contractual commitments to acquire
property, plant and equipment. |
413
Back to Contents
H S B C H O L D I
N G S P L C |
|
Notes on the
Financial Statements (continued) |
|
|
|
|
Note 23 |
|
On 31 May 2007, HSBC entered into a contract
for the sale and leaseback of the property and long leasehold land comprising
8 Canada Square, London to Metrovacesa, S.A. (Metrovacesa)
for £1,090 million (US$2,154 million). In the normal course
of business, HSBC provided finance to Metrovacesa in respect of the debt
element of this transaction at arms length market rates in the
form of a bridging loan of £810 million (US$1,601 million) secured
by a charge on the property. The equity portion of £280 million
(US$553 million) was settled in cash by Metrovacesa on 31 May 2007.
At 31 December 2007, the sale was not recognised in the financial statements
because HSBC retained a significant interest by virtue of the loan provided
to part-finance the purchase of the building. The equity portion received
from Metrovacesa was presented in the balance sheet as deferred income
at 31 December 2007 with a value of US$562 million. |
|
|
|
On 4 December 2008, HSBC purchased Project
Maple II, B.V., the subsidiary of Metrovacesa which owned 8 Canada Square,
for £838 million (US$1,315 million). At this date the deferred
income recognised by HSBC was released to the income statement. The net
effect on the income statement for the year ended 31 December 2008 was £244
million (US$383 million), comprising a gain of £265 million
(US$416 million) included within Other
operating income and a charge of £21 million (US$33 million) included
within Depreciation and impairment of property, plant and equipment. |
|
|
|
At 31 December 2008, the property has been
reclassified to Property plant and equipment and Prepayments and accrued
income (representing the long leasehold on the land) because it no longer
meets the criteria for
recognition as a non-current asset held for sale. |
|
|
|
Leasehold land and buildings |
|
|
|
Leasehold land and buildings are considered
to be held under finance lease contracts where the value of the land
cannot reliably be separated from the value of the lease, and the respective
contracts do not meet the
criteria for classification as operating leases. |
|
|
|
Included within Short leasehold land
and buildings are the following amounts in respect of assets classed
as improvements to buildings, which are carried at depreciated historical
cost: |
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
Accumulated
|
|
|
|
Cost
|
|
depreciation
|
|
Cost
|
|
depreciation
|
|
|
|
US$m
|
|
US$m
|
|
US$m
|
|
US$m
|
|
|
|
|
|
|
|
|
|
|
|
|
At 1 January |
1,490
|
|
(671
|
) |
1,277
|
|
(351
|
) |
|
Additions |
314
|
|
|
|
294
|
|
|
|
|
Disposals |
(40
|
) |
12
|
|
(117
|
) |
94
|
|
|
Depreciation charge for the year |
|
|
(116
|
) |
|
|
(123
|
) |
|
Exchange differences |
(141
|
) |
100
|
|
43
|
|
(10
|
) |
|
Other changes |
(2
|
) |
|
|
(7
|
) |
(281
|
) |
|
|
|
|
|
|
|
|
|
|
|
At 31 December |
1,621
|
|
(675
|
) |
1,490
|
|
(671
|
) |
|
|
|
|
|
|
|
|
|
|
|
Net carrying amount at 31 December |
946
|
|
|
|
819
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment properties |
|
|
|
|
|
|
|
|
|
|
|
The composition of
the investment properties at fair value in the year was as follows: |
|
|
|
|
Long
|
|
Short
|
|
|
|
|
|
Freehold
|
|
leasehold
|
|
leasehold
|
|
|
|
|
|
land and
|
|
land and
|
|
land and
|
|
|
|
|
|
buildings
|
|
buildings
|
|
buildings
|
|
Total
|
|
|
|
US$m
|
|
US$m
|
|
US$m
|
|
US$m
|
|
|
Fair value |
|
|
|
|
|
|
|
|
|
At 1 January 2008 |
925
|
|
205
|
|
216
|
|
1,346
|
|
|
Additions at cost |
78
|
|
|
|
|
|
78
|
|
|
Fair value adjustments |
(93
|
) |
4
|
|
(3
|
) |
(92
|
) |
|
Disposals |
(2
|
) |
|
|
|
|
(2
|
) |
|
Transfers |
|
|
|
|
(1
|
) |
(1
|
) |
|
Exchange differences |
(196
|
) |
(15
|
) |
5
|
|
(206
|
) |
|
Other changes |
(146
|
) |
(6
|
) |
|
|
(152
|
) |
|
|
|
|
|
|
|
|
|
|
|
At 31 December 2008 |
566
|
|
188
|
|
217
|
|
971
|
|
|
|
|
|
|
|
|
|
|
|
414
Back to Contents
|
|
|
|
Long
|
|
Short
|
|
|
|
|
|
Freehold
|
|
leasehold
|
|
leasehold
|
|
|
|
|
|
land and
|
|
land and
|
|
land and
|
|
|
|
|
|
buildings
|
|
buildings
|
|
buildings
|
|
Total
|
|
|
|
US$m
|
|
US$m
|
|
US$m
|
|
US$m
|
|
|
Fair value |
|
|
|
|
|
|
|
|
|
At 1 January 2007 |
1,533
|
|
174
|
|
242
|
|
1,949
|
|
|
Acquisition of subsidiaries |
93
|
|
|
|
|
|
93
|
|
|
Additions at cost |
287
|
|
|
|
|
|
287
|
|
|
Fair value adjustments |
25
|
|
21
|
|
106
|
|
152
|
|
|
Disposals |
(3
|
) |
|
|
|
|
(3
|
) |
|
Reclassified as held for sale |
(61
|
) |
(5
|
) |
(48
|
) |
(114
|
) |
|
Transfers |
|
|
(2
|
) |
4
|
|
2
|
|
|
Exchange differences |
27
|
|
1
|
|
(1
|
) |
27
|
|
|
Other changes1
|
(976
|
) |
16
|
|
(87
|
) |
(1,047
|
) |
|
|
|
|
|
|
|
|
|
|
|
At 31 December 2007 |
925
|
|
205
|
|
216
|
|
1,346
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
Mainly relating to investment
properties of subsidiaries no longer qualifying for consolidation, because
HSBC does not have the majority of the risks and rewards of ownership. |
|
|
Investment properties are valued on an open
market value basis as at 31 December each year by independent professional
valuers who have recent experience in the location and type of properties.
Investment properties in Hong Kong, the Macau Special Administrative
Region and mainland China, which represent 25 per cent by value of HSBCs
investment properties subject to revaluation, were valued by an independent
valuer who is a member of the Hong Kong Institute of Surveyors and who
has recent experience in the locations and categories of the investment
properties. |
|
|
|
Included within Other operating income was
rental income of US$23 million (2007: US$42 million; 2006: US$153
million) earned by HSBC on its investment properties. Direct operating
expenses of
US$2 million (2007: US$3 million; 2006: US$61 million) incurred in
respect of the investment properties during the year were recognised in General
and administrative expenses. Direct operating expenses arising in respect
of investment properties that did not generate rental income during 2008 amounted
to nil (2007 and 2006: nil). |
|
|
|
HSBC recognised no contractual obligations
to purchase, construct, develop, maintain or enhance investment properties
(2007: US$22 million). |
|
|
|
HSBC Holdings had no investment properties
at 31 December 2008 or 2007. |
|
|
|
HSBC properties leased to customers |
|
|
|
HSBC properties leased to customers included
US$396 million at 31 December 2008 (2007: US$387 million) let
under operating leases, net of accumulated depreciation of US$9 million
(2007: US$18 million). None
was held by HSBC Holdings. |
415
Back to Contents
H S B C H O L D I
N G S P L C |
|
Notes on the Financial Statements (continued) |
|
|
|
|
Note 24 |
24 |
Investments in subsidiaries |
|
|
|
Principal subsidiaries of HSBC
Holdings |
|
|
At 31 December
2008 |
|
|
|
|
|
|
|
|
|
HSBCs |
|
|
|
|
|
|
|
Country of |
|
interest in |
|
Issued |
|
|
|
|
|
incorporation |
|
equity capital |
|
equity |
|
Share |
|
|
|
or registration |
|
% |
|
capital |
|
class |
|
|
Europe |
|
|
|
|
|
|
|
|
|
HFC Bank Limited |
England |
|
100 |
|
£109m |
|
Ordinary £1 |
|
|
|
|
|
|
|
|
|
Preference £1 |
|
|
HSBC Global Asset Management (UK)
Limited (formerly HSBC Investments (UK) Limited) |
England |
|
100 |
|
£37m |
|
Ordinary £0.25 |
|
|
|
|
|
|
|
|
|
RP1 £1 |
|
|
HSBC Asset
Finance (UK) Limited |
England |
|
100 |
|
£265m |
|
Ordinary £1 |
|
|
HSBC Bank A.S. |
Turkey |
|
100 |
|
TRL652m |
|
A-Common TRL1 |
|
|
|
|
|
|
|
|
|
B-Common TRL1 |
|
|
HSBC Bank
Malta p.l.c. |
Malta |
|
70.03 |
|
88m |
|
Ordinary 0.30 |
|
|
HSBC Bank plc |
England |
|
100 |
|
£797m |
|
Ordinary £1 |
|
|
|
|
|
|
|
|
|
Preferred Ordinary £1 |
|
|
|
|
|
|
|
|
|
Series 2 Third Dollar |
|
|
|
|
|
|
|
|
|
Preference US$0.01 |
|
|
|
|
|
|
|
|
|
Third Dollar |
|
|
|
|
|
|
|
|
|
Preference US$0.01 |
|
|
HSBC France |
France |
|
99.99 |
|
337m |
|
Shares 5.00 |
|
|
HSBC Bank International Limited |
Jersey |
|
100 |
|
£1m |
|
Ordinary £1 |
|
|
HSBC Life
(UK) Limited |
England |
|
100 |
|
£94m |
|
Ordinary £1 |
|
|
HSBC Private Banking Holdings (Suisse)
S.A. |
Switzerland |
|
100 |
|
CHF1m |
|
Ordinary CHF1,000 |
|
|
HSBC Trinkaus & Burkhardt
AG |
Germany |
|
78.60 |
|
70m |
|
Shares of
no par value |
|
|
Marks and Spencer Retail Financial
Services Holdings Limited |
England |
|
100 |
|
£67m |
|
Ordinary £1 |
|
|
|
|
|
|
|
|
|
|
|
|
Hong Kong |
|
|
|
|
|
|
|
|
|
Hang Seng
Bank Limited |
Hong Kong |
|
62.14 |
|
HK$9,559m |
|
Ordinary
HK$5.00 |
|
|
HSBC Insurance (Asia) Limited |
Hong Kong |
|
100 |
|
HK$125m |
|
Ordinary HK$1,000 |
|
|
HSBC Life
(International) Limited |
Bermuda |
|
100 |
|
HK$327m |
|
Ordinary
HK$1.00 |
|
|
The Hongkong and Shanghai Banking
Corporation Limited |
Hong Kong |
|
100 |
|
HK$22,494m |
|
Ordinary HK$2.50 |
|
|
|
|
|
|
|
|
|
CIP2 US$1.00 |
|
|
|
|
|
|
|
|
|
CRP3 US$1.00 |
|
|
|
|
|
|
|
|
|
NIP4 US$1.00 |
|
|
|
|
|
|
|
|
|
|
|
|
Rest of Asia-Pacific |
|
|
|
|
|
|
|
|
|
HSBC Bank
Australia Limited |
Australia |
|
100 |
|
A$811m |
|
Ordinary
A$1.00 |
|
|
|
|
|
|
|
|
|
Pref A$10,000 |
|
|
HSBC Bank (China) Company Limited |
PRC |
5 |
100 |
|
RMB8,000m |
|
Ordinary CNY1.00 |
|
|
HSBC Bank
Egypt S.A.E. |
Egypt |
|
94.53 |
|
E£1,073m |
|
Ordinary
EGP84.00 |
|
|
HSBC Bank Malaysia Berhad |
Malaysia |
|
100 |
|
RM$114m |
|
Ordinary RM0.50 |
|
|
HSBC Bank
Middle East Limited |
Jersey |
|
100 |
|
US$631m |
|
CRP3 US$1.00 |
|
|
|
|
|
|
|
|
|
Ordinary
US$1.00 |
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
|
|
|
|
|
|
|
|
The Bank of
Bermuda Limited |
Bermuda |
|
100 |
|
US$30m |
|
Common BMD1.00 |
|
|
HSBC Bank Canada |
Canada |
|
100 |
|
C$1,225m |
|
Class 1 Pref of NPV |
6 |
|
|
|
|
|
|
|
|
Class 2 Pref of NPV |
6 |
|
|
|
|
|
|
|
|
Common of NPV |
|
|
HSBC Bank
USA, N.A. |
United States |
|
100 |
|
US$2m |
|
Common US$100 |
|
|
HSBC Finance Corporation |
United States |
|
100 |
|
US$3,038m |
|
Common US$0.01 |
|
|
HSBC Securities
(USA) Inc. |
United States |
|
100 |
|
|
7 |
Common US$0.05 |
|
|
|
|
|
|
|
|
|
|
|
|
Latin America |
|
|
|
|
|
|
|
|
|
HSBC Bank
Argentina S.A. |
Argentina |
|
99.99 |
|
ARS1,244m |
|
Ordinary-A
ARS1.00 |
|
|
|
|
|
|
|
|
|
Ordinary-B
ARS1.00 |
|
|
HSBC Bank Brasil S.A. Banco
Múltiplo |
Brazil |
|
100 |
|
BRL2,289m |
|
Ordinary BRL1.14 |
|
|
|
|
|
|
|
|
|
Ordinary BRL1.89 |
|
|
|
|
|
|
|
|
|
Ordinary BRL1.17 |
|
|
HSBC Mexico
S.A. |
Mexico |
|
99.99 |
|
MXN2,471m |
|
Ordinary
MXN2.00 |
|
|
HSBC Bank (Panama) S.A. |
Panama |
|
100 |
|
US$315m |
|
Ordinary PAB 1.00 |
|
416
Back to Contents
|
1 |
Redeemable Preference shares. |
|
2 |
Cumulative Irredeemable Preference shares. |
|
3 |
Cumulative Redeemable Preference shares. |
|
4 |
Non-cumulative Irredeemable Preference
shares. |
|
5 |
Peoples Republic of China. |
|
6 |
Preference shares of nil par value. |
|
7 |
Issued equity capital is less than US$1
million. |
|
|
|
|
Details of the
debt, subordinated debt and preference shares issued by the principal subsidiaries
to parties external to the Group are included in the Notes 28 Debt
securities in issue, 32 Subordinated liabilities and 36
Minority interests, respectively. |
|
|
|
|
All the above subsidiaries
are included in the HSBC consolidated financial statements. |
|
|
|
|
Details of all HSBC
subsidiaries will be annexed to the next Annual Return of HSBC Holdings
filed with the UK Registrar of Companies. |
|
|
|
|
All the above make
their financial statements up to 31 December except for HSBC Bank Argentina
S.A., HSBC La Buenos Aires Seguros S.A. and Maxima S.A. AFJP, whose financial
statements are made up to 30 June annually. |
|
|
|
|
The principal countries
of operation are the same as the countries of incorporation except for HSBC
Bank Middle East Limited which operates mainly in the Middle East and HSBC
Life (International) Limited which operates mainly in Hong Kong. |
|
|
|
|
Subsidiaries which
experience significant restrictions on their ability to transfer funds to
HSBC in the form of cash dividends or to repay loans and advances |
|
|
|
|
During 2008 and 2007,
none of the Groups subsidiaries experienced significant restrictions
on paying dividends or repaying loans and advances. |
|
|
|
|
Subsidiaries excluding
SPEs where HSBC owns less than 50 per cent of the voting rights |
|
|
|
|
|
HSBCs |
|
|
|
|
interest in |
|
Description of relationship |
|
Subsidiary |
equity capital |
|
that gives HSBC control |
|
|
% |
|
|
|
2008 |
|
|
|
|
HSBC Private Equity Fund 3 |
38.8 |
|
HSBC has control under
IAS 27 because it is the investment |
|
|
|
|
adviser/manager of the fund and
has a significant equity interest. |
|
2007 |
|
|
|
|
HSBC Private Equity Fund 3 |
38.8 |
|
HSBC has control under IAS 27 because
it is the investment |
|
|
|
|
adviser/manager of the fund and
has a significant equity interest. |
|
|
|
|
|
|
SPEs consolidated
by HSBC where HSBC owns less than 50 per cent of the voting rights |
|
|
|
|
Carrying value of total |
|
|
|
|
|
consolidated assets |
|
Nature of SPE |
|
|
|
US$bn |
|
|
|
|
2008 |
|
|
|
|
|
Barion Funding
Limited |
4.5 |
|
Structured
investment conduit |
|
|
Bryant Park Funding LLC |
5.5 |
|
Conduit |
|
|
Cullinan Funding
Ltd |
0.4 |
|
Structured
investment vehicle |
|
|
HSBC Affinity Corporation I |
6.0 |
|
Securitisation |
|
|
HSBC Auto
Receivables Corporation |
3.5 |
|
Securitisation |
|
|
HSBC Corporate Money Fund (Euro) |
0.6 |
|
Money market fund |
|
|
HSBC Home
Equity Loan Corporation I |
3.5 |
|
Securitisation |
|
|
HSBC Investor Prime Money Market
Fund |
10.5 |
|
Money market fund |
|
|
HSBC Receivables
Funding, Inc I |
5.7 |
|
Securitisation |
|
|
HSBC Sterling Liquidity Fund |
7.7 |
|
Money market fund |
|
|
HSBC US Dollar
Liquidity Fund |
25.0 |
|
Money market
fund |
|
|
Malachite Funding Limited |
4.2 |
|
Structured investment conduit |
|
|
Mazarin Funding
Limited |
11.5 |
|
Structured
investment conduit |
|
|
Metris Receivables Inc |
3.6 |
|
Securitisation |
|
|
Metrix Funding
Ltd |
3.6 |
|
Securitisation |
|
|
Metrix Securities plc |
4.2 |
|
Securitisation |
|
|
Regency Assets
Limited |
8.1 |
|
Conduit |
|
|
Solitaire Funding Ltd |
12.1 |
|
Conduit |
|
|
Turquoise
Receivable Trustee Ltd |
2.3 |
|
Securitisation |
|
417
Back to Contents
H S B C H O L D I
N G S P L C |
|
Notes on the Financial Statements (continued) |
|
|
|
|
Notes 24, 25, 26 and 27 |
|
|
Carrying value of total |
|
|
|
|
|
consolidated assets |
|
Nature of SPE |
|
|
|
US$bn |
|
|
|
|
2007 |
|
|
|
|
|
Asscher Finance
Limited |
7.4 |
|
Structured
investment vehicle |
|
|
Bryant Park Funding LLC |
5.3 |
|
Conduit |
|
|
Cullinan Funding
Ltd |
33.3 |
|
Structured
investment vehicle |
|
|
Household Consumer Loan Corporation |
9.3 |
|
Securitisation |
|
|
HSBC Affinity
Corporation I |
5.8 |
|
Securitisation |
|
|
HSBC Auto Receivables Corporation |
5.2 |
|
Securitisation |
|
|
HSBC Home
Equity Loan Corporation I |
8.2 |
|
Securitisation |
|
|
HSBC Receivables Funding, Inc I |
6.0 |
|
Securitisation |
|
|
Metris Receivables
Inc |
5.5 |
|
Securitisation |
|
|
Metrix Securities plc |
4.0 |
|
Securitisation |
|
|
Metrix Funding
Ltd |
4.1 |
|
Securitisation |
|
|
Regency Assets Limited |
9.1 |
|
Conduit |
|
|
Solitaire
Funding Ltd |
21.6 |
|
Conduit |
|
|
Turquoise Receivable Trustee Ltd |
2.3 |
|
Securitisation |
|
|
In each of the above cases, HSBC has less than
50 per cent of the voting rights, but consolidates because it has the
majority
of risks and rewards of ownership of the SPE, or the substance of the
relationship
with the SPE is such that its activities are conducted on behalf of HSBC
according to its specific business needs so that HSBC obtains benefit
from
the SPEs operation. HSBC also consolidates a number of other individually
insignificant SPEs where it owns less than 50 per cent of the voting rights.
The consolidation of SPEs sponsored by HSBC is discussed on page 173. |
|
|
|
Acquisitions |
|
|
|
There were minor acquisitions and increases
in investment in subsidiaries which increased goodwill by US$155
million. This included the acquisition of the assets, liabilities and
operations of The Chinese Bank Co., Ltd in Taiwan, which was completed
on 29 March 2008. This resulted in HSBC receiving a cash payment of US$1.6
billion from the Taiwan Governments Central Deposit Insurance Corporation
to deliver an agreed net asset position. The cash and cash equivalents
held on the balance sheet of The Chinese Bank Co., Ltd at this date amounted
to US$36 million. |
|
|
|
Disposals |
|
|
|
On 2 July 2008, HSBC completed the sale
of seven French regional banks to Banque Fédérale des Banques
Populaires for 2.1 billion (US$3.2 billion). The French regional
banks generated net profits after tax of 62 million (US$95
million) for the period to 2 July 2008. The Groups pre-tax profit
on sale was US$2.4 billion. |
|
|
|
The following assets and liabilities were
attributable to the disposal of the French regional banks: |
|
|
US$m |
|
|
|
|
|
|
Cash |
413 |
|
|
Loans and advances to banks and
customers |
9,097 |
|
|
Other assets |
1,126 |
|
|
|
|
|
|
Total assets |
10,636 |
|
|
|
|
|
|
Deposits by
banks |
158 |
|
|
Customer accounts |
10,285 |
|
|
Other liabilities |
308 |
|
|
|
|
|
|
Total liabilities |
10,751 |
|
|
|
|
|
|
|
2008 |
|
2007 |
|
|
|
US$m |
|
US$m |
|
|
|
|
|
|
|
|
Bullion |
6,095 |
|
9,244 |
|
|
Assets held for sale |
2,075 |
|
2,804 |
|
|
Reinsurers share
of liabilities under insurance contracts (Note 30) |
2,023 |
|
1,315 |
|
|
Endorsements and acceptances |
10,482 |
|
12,248 |
|
|
Other accounts |
17,147 |
|
13,882 |
|
|
|
|
|
|
|
|
|
37,822 |
|
39,493 |
|
|
|
|
|
|
|
418
Back to Contents
|
Assets held for sale |
|
|
|
|
|
|
2008 |
|
2007 |
|
|
|
US$m |
|
US$m |
|
|
Non-current assets held for
sale |
|
|
|
|
|
Interests
in associates |
2 |
|
2 |
|
|
Property, plant and equipment |
2,007 |
|
2,502 |
|
|
Investment
properties |
2 |
|
111 |
|
|
Financial assets |
62 |
|
185 |
|
|
Other |
2 |
|
4 |
|
|
|
|
|
|
|
|
Total assets
classified as held for sale |
2,075 |
|
2,804 |
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment |
|
|
|
The property, plant and equipment classified
as held for sale is the result of repossession of property that had been
pledged as collateral by customers. These assets are disposed of within
12 months of acquisition. Neither a gain nor loss was recognised on reclassifying
these assets as held for sale. The majority arose within the geographical
segment North America. |
|
|
|
8 Canada Square has been reclassified out
of Assets held for sale, as described in Note 23. |
|
|
2008 |
|
2007 |
|
|
|
US$m |
|
US$m |
|
|
|
|
|
|
|
|
Deposits by banks |
36,537 |
|
58,940 |
|
|
Customer accounts |
113,053 |
|
102,710 |
|
|
Other debt securities in issue |
31,288 |
|
44,684 |
|
|
Other liabilities net
short positions |
66,774 |
|
108,246 |
|
|
|
|
|
|
|
|
|
247,652 |
|
314,580 |
|
|
|
|
|
|
|
|
|
|
At 31 December 2008, the cumulative
amount of change in fair value attributable to changes in credit risk
was a gain of US$563 million (2007: gain of US$34 million). |
|
|
27 |
Financial liabilities designated
at fair value |
|
|
|
HSBC |
|
|
2008 |
|
2007 |
|
|
|
US$m |
|
US$m |
|
|
|
|
|
|
|
|
Deposits by
banks and customer accounts |
6,618 |
|
7,724 |
|
|
Liabilities to customers under
investment contracts |
9,283 |
|
16,053 |
|
|
Debt securities
in issue (Note 28) |
34,969 |
|
38,587 |
|
|
Subordinated liabilities (Note
32) |
20,316 |
|
22,831 |
|
|
Preference
shares (Note 32) |
3,401 |
|
4,744 |
|
|
|
|
|
|
|
|
|
74,587 |
|
89,939 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The carrying amount
at 31 December 2008 of financial liabilities designated at fair value
was US$1,851 million less than the contractual amount at maturity
(2007: US$648 million less). At 31 December 2008, the cumulative
amount of the change in fair value attributable to changes in credit
risk was a gain of US$7,978 million (2007: gain of US$1,619 million). |
|
|
|
|
|
|
|
HSBC Holdings |
|
|
|
|
|
|
2008 |
|
2007 |
|
|
|
US$m |
|
US$m |
|
|
Subordinated liabilities (Note
32): |
|
|
|
|
|
owed
to third parties |
13,321 |
|
14,496 |
|
|
owed
to HSBC undertakings |
3,068 |
|
4,187 |
|
|
|
|
|
|
|
|
|
16,389 |
|
18,683 |
|
|
|
|
|
|
|
419
Back to Contents
H S B C H O L D I
N G S P L C |
|
Notes on the Financial Statements
(continued) |
|
|
|
|
Notes 28, 29, and 30 |
|
The carrying amount
at 31 December 2008 of financial liabilities designated at fair value
was US$969 million less than the contractual amount at maturity (2007:
US$130 million less). At 31 December 2008, the cumulative amount
of the change in fair value attributable to changes in credit risk was
a gain of US$2,638 million (2007: gain of US$548 million). |
|
|
|
|
|
|
28 |
Debt securities in issue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
2007 |
|
|
|
US$m |
|
US$m |
|
|
|
|
|
|
|
|
Bonds and
medium term notes |
160,927
|
|
221,767
|
|
|
Other debt securities in issue |
85,023 |
|
108,083 |
|
|
|
|
|
|
|
|
|
245,950
|
|
329,850
|
|
|
Of which debt securities in
issue reported as: |
|
|
|
|
|
trading
liabilities (Note 26) |
(31,288
|
) |
(44,684
|
) |
|
financial
liabilities designated at fair value (Note 27) |
(34,969 |
) |
(38,587 |
) |
|
|
|
|
|
|
|
|
179,693
|
|
246,579
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certain debt securities
in issue are managed on a fair value basis as part of HSBCs interest
rate risk management policies. The hedged portion of these debt securities
is presented within the balance sheet caption Financial liabilities
designated at fair value, with the remaining portion included within Trading
liabilities. The following table analyses the carrying amount of
bonds and medium-term notes in issue at 31 December with original maturities
greater than one year: |
|
|
|
|
|
|
|
|
2008 |
|
2007 |
|
|
|
US$m |
|
US$m |
|
|
Fixed rate |
|
|
|
|
|
Secured financing: |
|
|
|
|
|
1.14%
to 3.99%: due 2009 to 2013 |
767 |
|
115 |
|
|
4.00% to 4.99%:
due 2009 to 2016 |
1,590 |
|
1,409 |
|
|
5.00%
to 5.99%: due 2009 to 2017 |
2,754 |
|
13,002 |
|
|
6.00% to 6.99%:
due 2008 |
|
|
459 |
|
|
7.00%
to 8.99%: due 2009 to 2025 |
14 |
|
521 |
|
|
9.00% to 9.99%:
due 2009 to 2028 |
462 |
|
|
|
|
Other fixed rate senior debt: |
|
|
|
|
|
0.01%
to 3.99%: due 2009 to 2069 |
21,790 |
|
28,322 |
|
|
4.00% to 4.99%:
due 2009 to 2046 |
13,088 |
|
20,909 |
|
|
5.00%
to 5.99%: due 2009 to 2036 |
22,357 |
|
18,511 |
|
|
6.00% to 6.99%:
due 2009 to 2036 |
11,176 |
|
15,400 |
|
|
7.00%
to 7.99%: due 2009 to 2032 |
4,995 |
|
4,037 |
|
|
8.00% to 9.99%:
due 2009 to 2036 |
1,822 |
|
1,666 |
|
|
10.00%
or higher: due 2009 to 2017 |
884 |
|
867 |
|
|
|
|
|
|
|
|
|
81,699 |
|
105,218 |
|
|
|
|
|
|
|
|
Variable interest rate |
|
|
|
|
|
Secured financings 1.00%
to 9.99%: due 2009 to 2023 |
27,741 |
|
47,404 |
|
|
FHLB advances 5.00% to
5.99%: due 2009 to 2036 |
3,156 |
|
5,500 |
|
|
Other variable
interest rate senior debt 2.16% to 9.99%: due 2008 to 2057 |
43,849 |
|
56,244 |
|
|
|
|
|
|
|
|
|
74,746 |
|
109,148 |
|
|
|
|
|
|
|
|
Structured notes |
|
|
|
|
|
Interest rate
linked |
348 |
|
770 |
|
|
Equity, equity index or credit-linked |
4,134 |
|
6,631 |
|
|
|
|
|
|
|
|
|
4,482 |
|
7,401 |
|
|
|
|
|
|
|
|
Total bonds
and medium-term notes |
160,927 |
|
221,767 |
|
|
|
|
|
|
|
420
Back to Contents
|
|
HSBC |
|
HSBC Holdings |
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
2007 |
|
2008 |
|
2007 |
|
|
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
|
|
|
|
|
|
|
|
|
|
|
Amounts due
to investors in funds consolidated by HSBC |
44,539 |
|
3,548 |
|
|
|
|
|
|
Obligations under finance leases
(Note 42) |
563 |
|
703 |
|
|
|
|
|
|
Dividend declared
and payable by HSBC Holdings |
1,795 |
|
1,393 |
|
1,795 |
|
1,393 |
|
|
Endorsements and acceptances |
10,482 |
|
12,248 |
|
|
|
|
|
|
Other liabilities |
15,005 |
|
17,121 |
|
21 |
|
12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
72,384 |
|
35,013 |
|
1,816 |
|
1,405 |
|
|
|
|
|
|
|
|
|
|
|
|
|
30 |
Liabilities under insurance
contracts |
|
|
|
|
|
|
Reinsurers
|
|
|
|
|
|
Gross |
|
share |
|
Net |
|
|
|
US$m |
|
US$m |
|
US$m |
|
|
At 31 December 2008 |
|
|
|
|
|
|
|
Non-life insurance liabilities |
|
|
|
|
|
|
|
Unearned premium
provision |
1,136 |
|
(159
|
) |
977 |
|
|
Notified claims |
908 |
|
(230 |
) |
678 |
|
|
Claims incurred
but not reported |
368 |
|
(41
|
) |
327 |
|
|
Other |
68 |
|
|
|
68 |
|
|
|
|
|
|
|
|
|
|
|
2,480 |
|
(430
|
) |
2,050 |
|
|
|
|
|
|
|
|
|
|
Life insurance liabilities
to policyholders |
|
|
|
|
|
|
|
Life (non-linked) |
17,370 |
|
(637
|
) |
16,733 |
|
|
Investment contracts with discretionary
participation features1 |
17,766 |
|
|
|
17,766 |
|
|
Life (linked) |
6,067 |
|
(956
|
) |
5,111 |
|
|
|
|
|
|
|
|
|
|
|
41,203 |
|
(1,593
|
) |
39,610 |
|
|
|
|
|
|
|
|
|
|
Total liabilities
under insurance contracts |
43,683 |
|
(2,023
|
) |
41,660 |
|
|
|
|
|
|
|
|
|
|
At 31 December 2007 |
|
|
|
|
|
|
|
Non-life insurance liabilities |
|
|
|
|
|
|
|
Unearned premium
provision |
1,279 |
|
(181
|
) |
1,098 |
|
|
Notified claims |
1,063 |
|
(380 |
) |
683 |
|
|
Claims incurred
but not reported |
420 |
|
(49 |
) |
371 |
|
|
Other |
92 |
|
(43 |
) |
49 |
|
|
|
|
|
|
|
|
|
|
|
2,854 |
|
(653
|
) |
2,201 |
|
|
|
|
|
|
|
|
|
|
Life insurance liabilities to
policyholders |
|
|
|
|
|
|
|
Life (non-linked) |
14,370 |
|
(605
|
) |
13,765 |
|
|
Investment contracts with discretionary
participation features1 |
18,983 |
|
|
|
18,983 |
|
|
Life (linked) |
6,399 |
|
(57 |
) |
6,342 |
|
|
|
|
|
|
|
|
|
|
|
39,752 |
|
(662
|
) |
39,090 |
|
|
|
|
|
|
|
|
|
|
Total liabilities
under insurance contracts |
42,606 |
|
(1,315
|
) |
41,291 |
|
|
|
|
|
|
|
|
|
|
1 |
Though investment contracts with discretionary
participation features are financial instruments, HSBC continued to treat
them as insurance contracts as permitted by IFRS 4. |
421
Back to Contents
H S B C H O L D I N
G S P L C |
|
Notes on the Financial Statements (continued) |
|
|
|
|
Note 30 |
|
|
The movement of liabilities under
insurance contracts during the year was as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-life insurance liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
Reinsurers
|
|
|
|
|
|
|
Gross |
|
|
share |
|
|
Net |
|
|
|
US$m |
|
|
US$m |
|
|
US$m |
|
|
2008 |
|
|
|
|
|
|
|
|
|
Unearned premium
reserve (UPR) |
|
|
|
|
|
|
|
|
|
At 1 January |
1,279
|
|
|
(181
|
) |
|
1,098
|
|
|
Changes in UPR recognised as (income)/expense |
(58 |
) |
|
3 |
|
|
(55 |
) |
|
Gross
written premiums |
1,776
|
|
|
(260
|
) |
|
1,516
|
|
|
Gross
earned premiums |
(1,834
|
) |
|
263
|
|
|
(1,571
|
) |
|
|
|
|
|
|
|
|
|
|
|
Exchange differences
and other movements |
(85
|
) |
|
19
|
|
|
(66
|
) |
|
|
|
|
|
|
|
|
|
|
|
At 31 December |
1,136
|
|
|
(159
|
) |
|
977
|
|
|
|
|
|
|
|
|
|
|
|
|
Notified
and incurred but not reported claims |
|
|
|
|
|
|
|
|
|
At 1 January |
1,483
|
|
|
(429
|
) |
|
1,054
|
|
|
Notified
claims |
1,063
|
|
|
(380
|
) |
|
683
|
|
|
Claims
incurred but not reported |
420
|
|
|
(49
|
) |
|
371
|
|
|
|
|
|
|
|
|
|
|
|
|
Claims paid in
current year |
(1,044
|
) |
|
158
|
|
|
(886
|
) |
|
Claims incurred in respect of current
year |
975 |
|
|
(68 |
) |
|
907 |
|
|
Claims incurred
in respect of prior years |
69
|
|
|
(15
|
) |
|
54
|
|
|
Exchange differences and other
movements |
(207 |
) |
|
83 |
|
|
(124 |
) |
|
|
|
|
|
|
|
|
|
|
|
At 31 December |
1,276
|
|
|
(271
|
) |
|
1,005
|
|
|
Notified
claims |
908
|
|
|
(230
|
) |
|
678
|
|
|
Claims
incurred but not reported |
368
|
|
|
(41
|
) |
|
327
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
68
|
|
|
|
|
|
68
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-life
insurance liabilities |
2,480
|
|
|
(430
|
) |
|
2,050
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
|
|
|
|
|
|
|
Unearned premium reserve (UPR) |
|
|
|
|
|
|
|
|
|
At 1 January |
1,262 |
|
|
(176 |
) |
|
1,086 |
|
|
Changes in UPR recognised as (income)/expense |
(2 |
) |
|
22 |
|
|
20 |
|
|
Gross
written premiums |
1,853 |
|
|
(385 |
) |
|
1,468 |
|
|
Gross
earned premiums |
(1,855 |
) |
|
407 |
|
|
(1,448 |
) |
|
|
|
|
|
|
|
|
|
|
|
Exchange differences
and other movements |
19 |
|
|
(27 |
) |
|
(8 |
) |
|
|
|
|
|
|
|
|
|
|
|
At 31 December |
1,279 |
|
|
(181 |
) |
|
1,098 |
|
|
|
|
|
|
|
|
|
|
|
|
Notified and incurred but not reported
claims |
|
|
|
|
|
|
|
|
|
At 1 January |
1,409 |
|
|
(413 |
) |
|
996 |
|
|
Notified
claims |
949 |
|
|
(355 |
) |
|
594 |
|
|
Claims
incurred but not reported |
460 |
|
|
(58 |
) |
|
402 |
|
|
|
|
|
|
|
|
|
|
|
|
Claims paid in
current year |
(1,017 |
) |
|
207 |
|
|
(810 |
) |
|
Claims incurred in respect of current
year |
1,035 |
|
|
(189 |
) |
|
846 |
|
|
Claims incurred
in respect of prior years |
64 |
|
|
18 |
|
|
82 |
|
|
Exchange differences and other
movements |
(8 |
) |
|
(52 |
) |
|
(60 |
) |
|
|
|
|
|
|
|
|
|
|
|
At 31 December |
1,483 |
|
|
(429 |
) |
|
1,054 |
|
|
Notified
claims |
1,063 |
|
|
(380 |
) |
|
683 |
|
|
Claims
incurred but not reported |
420 |
|
|
(49 |
) |
|
371 |
|
|
|
|
|
|
|
|
|
|
|
|
Other |
92 |
|
|
(43 |
) |
|
49 |
|
|
|
|
|
|
|
|
|
|
|
|
Total non-life
insurance liabilities |
2,854 |
|
|
(653 |
) |
|
2,201 |
|
|
|
|
|
|
|
|
|
|
|
422
Back to Contents
|
Life insurance liabilities to policyholders |
|
|
|
|
|
|
|
|
|
|
Reinsurers
|
|
|
|
|
|
Gross |
|
share |
|
Net |
|
|
|
US$m |
|
US$m |
|
US$m |
|
|
2008 |
|
|
|
|
|
|
|
Life (non-linked) |
|
|
|
|
|
|
|
At 1 January |
14,370
|
|
(605
|
) |
13,765
|
|
|
Benefits paid |
(1,491 |
) |
172 |
|
(1,319 |
) |
|
Increase in liabilities
to policyholders |
5,480
|
|
(792
|
) |
4,688
|
|
|
Exchange differences and other
movements |
(989 |
) |
588 |
|
(401 |
) |
|
|
|
|
|
|
|
|
|
At 31 December |
17,370
|
|
(637
|
) |
16,733
|
|
|
|
|
|
|
|
|
|
|
Investment contracts with
discretionary participation features |
|
|
|
|
|
|
|
At 1 January |
18,983
|
|
|
|
18,983
|
|
|
Benefits paid |
(1,911 |
) |
|
|
(1,911 |
) |
|
Increase in liabilities
to policyholders |
1,743
|
|
|
|
1,743
|
|
|
Exchange differences and other
movements |
(1,049 |
) |
|
|
(1,049 |
) |
|
|
|
|
|
|
|
|
|
At 31 December |
17,766
|
|
|
|
17,766
|
|
|
|
|
|
|
|
|
|
|
Life (linked) |
|
|
|
|
|
|
|
At 1 January |
6,399
|
|
(57
|
) |
6,342
|
|
|
Benefits paid |
(481 |
) |
44 |
|
(437 |
) |
|
Increase in liabilities
to policyholders |
939
|
|
(1,442
|
) |
(503
|
) |
|
Exchange differences and other
movements1
|
(790 |
) |
499 |
|
(291 |
) |
|
|
|
|
|
|
|
|
|
At 31 December |
6,067
|
|
(956
|
) |
5,111
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
to policyholders |
41,203
|
|
(1,593
|
) |
39,610
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
|
|
|
|
|
Life (non-linked) |
|
|
|
|
|
|
|
At 1 January |
11,026 |
|
(1,046 |
) |
9,980 |
|
|
Benefits paid |
(940 |
) |
169 |
|
(771 |
) |
|
Increase in liabilities
to policyholders |
3,377 |
|
349 |
|
3,726 |
|
|
Acquisitions of subsidiaries |
702 |
|
|
|
702 |
|
|
Exchange differences
and other movements |
205 |
|
(77 |
) |
128 |
|
|
|
|
|
|
|
|
|
|
At 31 December |
14,370 |
|
(605 |
) |
13,765 |
|
|
|
|
|
|
|
|
|
|
Investment contracts with discretionary
participation features |
|
|
|
|
|
|
|
At 1 January |
20 |
|
|
|
20 |
|
|
Benefits paid |
(1,080 |
) |
|
|
(1,080 |
) |
|
Increase in liabilities
to policyholders |
2,188 |
|
|
|
2,188 |
|
|
Acquisitions of subsidiaries |
16,406 |
|
|
|
16,406 |
|
|
Exchange differences
and other movements |
1,449 |
|
|
|
1,449 |
|
|
|
|
|
|
|
|
|
|
At 31 December |
18,983 |
|
|
|
18,983 |
|
|
|
|
|
|
|
|
|
|
Life (linked) |
|
|
|
|
|
|
|
At 1 January |
3,685 |
|
(58 |
) |
3,627 |
|
|
Benefits paid |
(790 |
) |
(45 |
) |
(835 |
) |
|
Increase in liabilities
to policyholders |
2,886 |
|
(1,120 |
) |
1,766 |
|
|
Acquisitions of subsidiaries |
339 |
|
|
|
339 |
|
|
Exchange differences
and other movements1
|
279 |
|
1,166 |
|
1,445 |
|
|
|
|
|
|
|
|
|
|
At 31 December |
6,399 |
|
(57 |
) |
6,342 |
|
|
|
|
|
|
|
|
|
|
Total liabilities
to policyholders |
39,752 |
|
(662 |
) |
39,090 |
|
|
|
|
|
|
|
|
|
|
1 |
Includes amounts arising under reinsurance
agreements. |
|
|
The increase in liabilities to
policyholders represents the aggregate of all events giving rise to additional
liabilities to policyholders in the year. These include death claims, surrenders,
lapses, the setting up of liability to policyholders at the initial inception
of the policy, the declaration of bonuses and other amounts attributable
to policyholders. |
423
Back to Contents
H S B C H O L D I N
G S P L C |
|
Notes on the Financial Statements (continued) |
|
|
|
|
Notes 31 and 32 |
|
31 |
Provisions |
|
|
|
|
2008 |
|
2007 |
|
|
|
US$m |
|
US$m |
|
|
|
|
|
|
|
|
At 1 January |
1,958
|
|
1,763 |
|
|
Additional provisions/increase in
provisions1 |
738 |
|
1,307 |
|
|
Provisions utilised |
(624
|
) |
(986 |
) |
|
Amounts reversed |
(147 |
) |
(318 |
) |
|
Exchange differences
and other movements |
(195
|
) |
192 |
|
|
|
|
|
|
|
|
At 31 December |
1,730
|
|
1,958 |
|
|
|
|
|
|
|
|
1 |
The increase in provisions includes the
unwinding of discounts of US$3 million (2007: US$1 million) in relation
to vacant space provisions and US$21 million (2007: US$24 million)
in relation to Brazilian provisions for civil and fiscal labour claims. |
|
|
|
Included within provisions are: |
|
|
|
|
(i) |
Provisions for onerous property contracts
of US$85 million (2007: US$56 million), of which US$20 million
(2007: US$33 million) relates to discounted future costs associated
with leasehold properties that became vacant as a consequence of HSBCs
move to Canary Wharf in 2002. The provisions cover rent voids while finding
new tenants, shortfalls in expected rent receivable compared with rent
payable and the cost of refurbishing the buildings to attract tenants.
Uncertainties arise from movements in market rents, delays in finding
new tenants and the timing of rental reviews. |
|
|
|
|
(ii) |
Labour, civil and fiscal litigation
provisions in HSBCs Brazil operations of US$334 million (2007: US$391
million). These relate to labour and overtime litigation claims brought
by employees after leaving the bank. The provisions are based on the expected
number of departing employees, their individual salaries and historical
trends. The timing of the settlement of these claims is uncertain. |
|
|
|
|
(iii) |
Provisions of US$439 million (2007:
US$444 million) have been made in respect of costs arising from contingent
liabilities and contractual commitments (Note 40), including guarantees
of US$35 million (2007: US$29 million) and commitments of US$192
million (2007: US$125 million). |
|
|
|
32 |
Subordinated
liabilities |
|
|
|
HSBC |
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
|
|
US$m |
|
|
US$m |
|
|
Subordinated liabilities |
|
|
|
|
|
|
At
amortised cost |
29,433 |
|
|
24,819 |
|
|
subordinated
liabilities |
24,618 |
|
|
19,308 |
|
|
preferred
securities |
4,815 |
|
|
5,511 |
|
|
|
|
|
|
|
|
|
Designated
at fair value (Note 27) |
23,717 |
|
|
27,575 |
|
|
subordinated
liabilities |
20,316 |
|
|
22,831 |
|
|
preferred
securities |
3,401 |
|
|
4,744 |
|
|
|
|
|
|
|
|
|
|
53,150 |
|
|
52,394 |
|
|
|
|
|
|
|
|
|
Subordinated liabilities |
|
|
|
|
|
|
HSBC
Holdings |
23,544 |
|
|
18,931 |
|
|
Other HSBC |
29,606 |
|
|
33,463 |
|
|
|
|
|
|
|
|
|
|
53,150 |
|
|
52,394 |
|
|
|
|
|
|
|
|
424
Back to Contents
|
HSBCs subordinated liabilities |
|
|
|
|
|
2008 |
|
2007 |
|
|
|
|
US$m |
|
US$m |
|
|
|
Amounts owed to third parties
by HSBC Holdings (see below)
|
23,544 |
|
18,931 |
|
|
|
|
|
|
|
|
|
Other HSBC subordinated
liabilities |
|
|
|
|
|
1,400m |
5.3687% non-cumulative step-up perpetual preferred securities1 |
1,532 |
|
2,018 |
|
|
US$1,350m |
9.547% non-cumulative step-up perpetual preferred securities, Series 11 |
1,337 |
|
1,335 |
|
|
US$1,200m |
Undated floating rate primary capital notes |
1,214 |
|
1,207 |
|
|
800m |
Callable subordinated floating rate notes 20163 |
1,116 |
|
1,176 |
|
|
£700m |
5.844% non-cumulative step-up perpetual preferred securities2 |
1,021 |
|
1,404 |
|
|
US$1,000m |
4.625% subordinated notes 2014 |
1,001 |
|
1,001 |
|
|
US$1,000m |
5.911% trust preferred securities 20354 |
992 |
|
992 |
|
|
US$1,000m |
5.875% subordinated notes 2034 |
953 |
|
990 |
|
|
US$900m |
10.176% non-cumulative step-up perpetual preferred securities, Series 21 |
900 |
|
900 |
|
|
£600m |
4.75% subordinated notes 2046 |
863 |
|
1,186 |
|
|
600m |
8.03% non-cumulative step-up perpetual preferred securities1 |
834 |
|
878 |
|
|
600m |
4.25% callable subordinated notes 20166 |
831 |
|
881 |
|
|
750m |
5.13% non-cumulative step-up perpetual preferred securities1 |
790 |
|
1,039 |
|
|
US$750m |
Undated floating rate primary capital notes |
750 |
|
750 |
|
|
US$1,250m |
4.61% non-cumulative step-up perpetual preferred securities1 |
745 |
|
1,130 |
|
|
£500m |
8.208% non-cumulative step-up perpetual preferred securities1 |
724 |
|
996 |
|
|
US$750m |
5.625% subordinated notes 2035 |
715 |
|
653 |
|
|
US$700m |
7.00% subordinated notes 2039 |
694 |
|
|
|
|
£500m |
4.75% callable subordinated notes 20205 |
675 |
|
931 |
|
|
£500m |
5.375% subordinated notes 2033 |
659 |
|
931 |
|
|
500m |
Callable subordinated floating rate notes 20208 |
567 |
|
676 |
|
|
£350m |
Callable subordinated variable coupon notes 20177 |
518 |
|
712 |
|
|
US$500m |
Undated floating rate primary capital notes |
500 |
|
500 |
|
|
US$500m |
6.00% subordinated notes 2017 |
498 |
|
498 |
|
|
£350m |
5% callable subordinated notes 20239 |
481 |
|
672 |
|
|
£350m |
5.375% callable subordinated step-up notes 203010 |
461 |
|
652 |
|
|
US$450m |
Callable subordinated floating rate notes 20163 |
449 |
|
448 |
|
|
£300m |
6.5% subordinated notes 2023 |
436 |
|
598 |
|
|
US$300m |
7.65% subordinated notes 2025 |
384 |
|
359 |
|
|
£300m |
5.862% non-cumulative step-up perpetual preferred securities2 |
333 |
|
558 |
|
|
£225m |
6.25% subordinated notes 2041 |
325 |
|
447 |
|
|
US$300m |
6.95% subordinated notes 2011 |
324 |
|
325 |
|
|
US$300m |
Undated floating rate primary capital notes, Series 3 |
300 |
|
301 |
|
|
US$300m |
Callable subordinated floating rate notes 201711 |
299 |
|
299 |
|
|
CAD400m |
4.80% subordinated notes 2022 |
277 |
|
389 |
|
|
US$250m |
7.20% subordinated debentures 2097 |
218 |
|
218 |
|
|
BRL500m |
Subordinated certificate of deposit 2016 |
215 |
|
281 |
|
|
US$200m |
7.75% subordinated notes 2009 |
203 |
|
202 |
|
|
US$200m |
7.808% capital securities 2026 |
200 |
|
200 |
|
|
US$200m |
8.38% capital securities 2027 |
200 |
|
200 |
|
|
US$200m |
6.625% subordinated notes 2009 |
198 |
|
199 |
|
|
CAD200m |
4.94% subordinated debentures 2021 |
163 |
|
207 |
|
|
BRL608m |
Subordinated debentures 2008 |
|
|
341 |
|
|
US$250m |
5.875% subordinated notes 2008 |
|
|
248 |
|
|
|
Other subordinated liabilities each less than US$200m |
3,711 |
|
3,535 |
|
|
|
|
|
|
|
|
|
|
|
29,606 |
|
33,463 |
|
|
|
|
|
|
|
|
|
|
|
53,150 |
|
52,394 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated loan
capital is repayable at par on maturity, but some is repayable prior to
maturity at the option of the borrower, generally subject to prior notification
to the Financial Services Authority, and, where relevant, the consent of
the local banking regulator, and in certain cases at a premium over par.
Interest rates on the floating rate loan capital are related to interbank
offered rates. On the remaining subordinated loan capital, interest is
payable at fixed rates up to 10.176 per cent. |
|
|
|
|
|
|
|
|
1 |
See Step-up perpetual
preferred securities below, note (a) Guaranteed by HSBC Holdings. |
|
2 |
See Step-up perpetual
preferred securities below, note (b) Guaranteed by HSBC Bank. |
|
3 |
The interest margin on the
800m and US$450m callable subordinated floating rate notes 2016
increases by 0.5 per cent from March 2011 and July 2011, respectively. |
425
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H S B C H O L D I
N G S P L C |
|
Notes on the
Financial Statements (continued) |
|
|
|
|
Note 32 |
|
4 |
The distributions on the trust preferred
securities change in November 2015 to three-month dollar LIBOR plus 1.926
per cent. |
|
5 |
The interest rate on the 4.75 per cent
callable subordinated notes 2020 changes in September 2015 to three-month
sterling LIBOR plus 0.82 per cent. |
|
6 |
The interest rate on the 4.25 per cent
callable subordinated notes changes in March 2011 to three-month EURIBOR
plus 1.05 per cent. |
|
7 |
The interest rate on the callable subordinated
variable coupon notes 2017 is fixed at 5.75 per cent until June 2012. Thereafter,
the rate per annum is the sum of the gross redemption yield
of the then prevailing five-year UK gilt plus 1.70 per cent. |
|
8 |
The interest margin on the callable subordinated
floating rate notes 2020 increases by 0.5 per cent from September 2015. |
|
9 |
The interest rate on the 5 per cent callable
subordinated notes 2023 changes in March 2018 to become the rate per annum
which is the sum of the gross redemption yield of the prevailing
five-year UK gilt plus 1.80 per cent. |
|
10 |
The interest rate on the 5.375 per cent
callable subordinated step-up notes 2030 changes in November 2025 to three
month sterling LIBOR plus 1.50 per cent. |
|
11 |
The interest margin on the callable subordinated
floating rate notes 2017 increases by 0.5 per cent from July 2012. |
|
|
|
|
Footnotes 3 to
10 all relate to notes that are repayable at the option of the borrower
on the date of the change of the interest rate, and at subsequent
interest rate reset dates and interest payment dates in some cases, subject
to prior notification to the Financial Services Authority and, where
relevant, the consent of the local banking regulator. |
|
|
|
Step-up perpetual
preferred securities |
|
|
|
(a) |
Guaranteed by HSBC Holdings |
|
|
|
|
|
The seven issues of non-cumulative step-up
perpetual preferred securities (footnote 1) were made by Jersey limited
partnerships and are guaranteed, on a subordinated basis, by HSBC Holdings.
The proceeds of the issues were on-lent to HSBC Holdings by the limited
partnerships by issue of subordinated notes. The preferred securities
qualify as innovative tier 1 capital for HSBC. The preferred securities,
together with the guarantee, are intended to provide investors with rights
to income and capital distributions and distributions upon liquidation
of HSBC Holdings that are equivalent to the rights that they would have
had if they had purchased non-cumulative perpetual preference shares
of HSBC
Holdings. |
|
|
|
|
|
The preferred securities are perpetual,
but redeemable in 2014, 2010, 2030, 2012, 2016, 2013 and 2015, respectively,
at the option of the general partner of the limited partnerships. If
not redeemed, the distributions payable step-up and become floating rate
or, for the sterling issue, for each successive five-year period the
sum of the then five-year benchmark UK gilt plus a margin. There are
limitations on the payment of distributions if prohibited under UK banking
regulations or other requirements, if a payment would cause a breach
of HSBCs capital adequacy requirements, or if HSBC Holdings has
insufficient distributable reserves (as defined). |
|
|
|
|
|
HSBC Holdings has covenanted that if it
is prevented under certain circumstances from paying distributions on
the preferred securities in full, it will not pay dividends or other
distributions in respect of its ordinary shares, or effect repurchase
or redemption of its ordinary shares, until after a distribution has
been paid in full. |
|
|
|
|
|
If (i) HSBCs total capital ratio falls
below the regulatory minimum ratio required, or (ii) the Directors expect
that, in view of the deteriorating financial condition of HSBC Holdings,
the former will occur in the near term, then the preferred securities
will be substituted by preference shares of HSBC Holdings having economic
terms which are in all material respects equivalent to those of the preferred
securities and the guarantee taken
together. |
|
|
|
|
(b) |
Guaranteed by HSBC Bank |
|
|
|
|
|
The two issues of non-cumulative step-up
perpetual preferred securities (footnote 2) were made by Jersey limited
partnerships and are guaranteed, on a subordinated basis, by HSBC Bank.
The proceeds of the issues were on-lent to HSBC Bank by the limited partnerships
by issue of subordinated notes. The preferred securities qualify as innovative
tier 1 capital for HSBC and for HSBC Bank on a solo and consolidated basis
and, together with the guarantee, are intended to provide investors with
rights to income and capital distributions and distributions upon liquidation
of HSBC Bank that are equivalent to the rights they would have had if they
had purchased non-cumulative perpetual preference shares of HSBC Bank.
|
|
|
|
|
|
The two issues of preferred securities are
perpetual, but redeemable in 2031 and 2020, respectively, at the option
of the general partner of the limited partnerships. If not redeemed,
the distributions payable step-up and become floating rate. The same
limitations on the payment of distributions apply to HSBC Bank as to
HSBC Holdings, as described above. HSBC Bank has provided a similar covenant
to that provided by HSBC Holdings, also as described above. |
|
|
|
|
|
If (i) any of the two issues of preferred
securities are outstanding in November 2048 or April 2049, respectively,
or (ii) the total capital ratio of HSBC Bank on a solo and consolidated
basis falls below the regulatory minimum ratio required, or (iii) in
view of the deteriorating financial condition of HSBC Bank, the Directors
expect (ii) to |
426
Back to Contents
|
|
occur in the near term, then the preferred
securities will be substituted by preference shares of HSBC Bank having
economic terms which are in all material respects equivalent to those
of the preferred securities and the guarantee
taken together. |
|
|
|
|
HSBC Holdings |
|
|
|
|
|
|
2008 |
|
2007 |
|
|
|
|
US$m |
|
US$m |
|
|
Subordinated liabilities: |
|
|
|
|
|
|
At amortised cost |
14,017 |
|
8,544 |
|
|
|
Designated at fair value (Note 27) |
16,389 |
|
18,683 |
|
|
|
|
|
|
|
|
|
|
|
30,406 |
|
27,227 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HSBC Holdings subordinated
borrowings |
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
2007 |
|
|
|
|
US$m |
|
US$m |
|
|
Amounts owed to
third parties |
|
|
|
|
|
2,000m |
Callable subordinated floating rate notes 20141
|
2,805 |
|
2,905 |
|
|
US$2,500m |
6.5% subordinated notes 2037 |
2,669 |
|
2,495 |
|
|
1,600m |
6.25% subordinated notes 2018 |
2,231 |
|
|
|
|
US$2,000m |
6.5% subordinated notes 2036 |
2,052 |
|
2,058 |
|
|
US$1,500m |
6.8% subordinated notes 2038 |
1,484 |
|
|
|
|
US$1,400m |
5.25% subordinated notes 2012 |
1,455 |
|
1,413 |
|
|
1,000m |
5.375% subordinated notes 2012 |
1,403 |
|
1,488 |
|
|
£900m |
6.375% callable subordinated notes 20222
|
1,330 |
|
1,858 |
|
|
£750m |
7.0% subordinated notes 2038 |
1,140 |
|
|
|
|
US$1,000m |
7.5% subordinated notes 2009 |
1,068 |
|
1,077 |
|
|
£650m |
6.75% subordinated notes 2028 |
938 |
|
|
|
|
£650m |
5.75% subordinated notes 2027 |
878 |
|
1,262 |
|
|
700m |
3.625% callable subordinated notes 20203
|
840 |
|
922 |
|
|
US$750m |
Callable subordinated floating rate note 20161
|
750 |
|
750 |
|
|
US$750m |
Callable subordinated floating rate notes 20151
|
750 |
|
750 |
|
|
US$488m |
7.625% subordinated notes 2032 |
609 |
|
609 |
|
|
£250m |
9.875% subordinated bonds 20184
|
441 |
|
619 |
|
|
300m |
5.5% subordinated notes 2009 |
432 |
|
457 |
|
|
US$222m |
7.35% subordinated notes 2032 |
269 |
|
268 |
|
|
|
|
|
|
|
|
|
|
|
23,544 |
|
18,931 |
|
|
|
|
|
|
|
|
|
Amounts owed to HSBC
undertakings |
|
|
|
|
|
|
|
|
|
|
|
|
1,400m |
5.3687% fixed/floating subordinated
notes 2043 HSBC Capital Funding (Euro 2) LP |
1,532 |
|
2,018 |
|
|
US$1,350m |
9.547% subordinated step-up
cumulative notes 2040 HSBC Capital Funding (Dollar 1) LP |
1,337 |
|
1,335 |
|
|
US$900m |
10.176% subordinated step-up
cumulative notes 2040 HSBC Capital Funding (Dollar 1) LP |
900 |
|
900 |
|
|
600m |
8.03% subordinated step-up
cumulative notes 2040 HSBC Capital Funding (Euro 1) LP |
834 |
|
878 |
|
|
750m |
5.13% fixed/floating subordinated
notes 2044 HSBC Capital Funding (Euro 3) LP |
790 |
|
1,039 |
|
|
US$1,250m |
4.61% fixed/floating subordinated
notes 2043 HSBC Capital Funding (Dollar 2) LP |
745 |
|
1,130 |
|
|
£500m |
8.208% subordinated step-up
cumulative notes 2040 HSBC Capital Funding (Sterling 1) LP |
724 |
|
996 |
|
|
|
|
|
|
|
|
|
|
|
6,862 |
|
8,296 |
|
|
|
|
|
|
|
|
|
|
|
30,406 |
|
27,227 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
The interest margins on the callable subordinated
floating rate notes 2014, 2015 and 2016 increase by 0.5 per cent from September
2009, March 2010 and October 2011 respectively. The notes are repayable
from their step up date at the option of the borrower, subject to the prior
notification of the Financial Services Authority (FSA). |
|
2 |
The interest rate on the 6.375 per cent
callable subordinated notes 2022 changes in October 2017 to become three-month
sterling LIBOR plus 1.3 per cent. The notes may be redeemed at par from
October 2017 at the option of the borrower, subject to the prior notification
of the FSA. |
|
3 |
The interest rate on the 3.625 per cent
callable subordinated notes 2020 changes in June 2015 to become three-month
EURIBOR plus 0.93 per cent. The notes may be redeemed at par from June 2015
at the option of the borrower, subject to the prior notification of the
FSA. |
427
Back to Contents
H S B C H O L D I
N G S P L C |
|
Notes on the
Financial Statements (continued) |
|
|
|
|
Notes 33 and 34 |
|
4 |
The interest rate on the 9.875 per cent
subordinated bonds 2018 changes in April 2013 to become the higher of (i)
9.875 per cent or (ii) the sum of the yield on the relevant benchmark treasury
stock plus 2.5 per cent. The bonds may be redeemed in April 2013 at par
and redemption has also been allowed from April 1998, subject to the prior
notification of the FSA, for an amount based on the redemption yields of
the relevant benchmark treasury stocks. |
|
33 |
Maturity analysis of assets and liabilities |
|
|
|
|
|
The following is an analysis, by remaining contractual
maturities at the balance sheet date, of asset and liability line items
that represent amounts expected to be recovered or settled within one year,
and after more than one year. |
|
|
|
Trading assets and liabilities are excluded because
they are not held for collection or settlement over the period of contractual
maturity. |
|
|
|
HSBC |
|
|
|
|
|
|
|
|
At 31 December
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Due after |
|
|
|
|
|
Due within |
|
more than |
|
|
|
|
|
one year |
|
one year |
|
Total |
|
|
|
US$m |
|
US$m |
|
US$m |
|
|
Assets |
|
|
|
|
|
|
|
Financial assets designated at fair value |
4,735 |
|
23,798 |
|
28,533 |
|
|
Loans and advances to banks |
146,268 |
|
7,498 |
|
153,766 |
|
|
Loans and advances to customers |
407,582 |
|
525,286 |
|
932,868 |
|
|
Financial investments |
111,027 |
|
189,208 |
|
300,235 |
|
|
Other financial assets |
27,642 |
|
6,308 |
|
33,950 |
|
|
|
|
|
|
|
|
|
|
|
697,254 |
|
752,098 |
|
1,449,352 |
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
Deposits by banks |
123,835 |
|
6,249 |
|
130,084 |
|
|
Customer accounts |
1,083,426 |
|
31,901 |
|
1,115,327 |
|
|
Financial liabilities designated at fair value |
7,368 |
|
67,219 |
|
74,587 |
|
|
Debt securities in issue |
107,094 |
|
72,599 |
|
179,693 |
|
|
Other financial liabilities |
70,898 |
|
4,860 |
|
75,758 |
|
|
Subordinated liabilities |
745 |
|
28,688 |
|
29,433 |
|
|
|
|
|
|
|
|
|
|
|
1,393,366 |
|
211,516 |
|
1,604,882 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 31 December 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Due after |
|
|
|
|
|
Due within |
|
more than |
|
|
|
|
|
one year |
|
one year |
|
Total |
|
|
|
US$m |
|
US$m |
|
US$m |
|
|
Assets |
|
|
|
|
|
|
|
Financial assets designated at fair value |
5,752 |
|
35,812 |
|
41,564 |
|
|
Loans and advances to banks |
222,674 |
|
14,692 |
|
237,366 |
|
|
Loans and advances to customers |
438,246 |
|
543,302 |
|
981,548 |
|
|
Financial investments |
103,492 |
|
179,508 |
|
283,000 |
|
|
Other financial assets |
24,087 |
|
6,390 |
|
30,477 |
|
|
|
|
|
|
|
|
|
|
|
794,251 |
|
779,704 |
|
1,573,955 |
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
Deposits by banks |
124,475 |
|
7,706 |
|
132,181 |
|
|
Customer accounts |
1,066,148 |
|
29,992 |
|
1,096,140 |
|
|
Financial liabilities designated at fair value |
6,217 |
|
83,722 |
|
89,939 |
|
|
Debt securities in issue |
143,651 |
|
102,928 |
|
246,579 |
|
|
Other financial liabilities |
33,056 |
|
4,352 |
|
37,408 |
|
|
Subordinated liabilities |
341 |
|
24,478 |
|
24,819 |
|
|
|
|
|
|
|
|
|
|
|
1,373,888 |
|
253,178 |
|
1,627,066 |
|
|
|
|
|
|
|
|
|
428
Back to Contents
|
HSBC Holdings |
|
|
|
At 31 December
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Due after |
|
|
|
|
|
Due within |
|
more than |
|
|
|
|
|
one year |
|
one year |
|
Total |
|
|
|
US$m |
|
US$m |
|
US$m |
|
|
Assets |
|
|
|
|
|
|
|
Loans and advances to HSBC undertakings |
4,842 |
|
6,962 |
|
11,804 |
|
|
Financial investments |
|
|
2,629 |
|
2,629 |
|
|
Other financial assets |
25 |
|
|
|
25 |
|
|
|
|
|
|
|
|
|
|
|
4,867 |
|
9,591 |
|
14,458 |
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
Amounts owed to HSBC undertakings |
176 |
|
3,866 |
|
4,042 |
|
|
Financial liabilities designated at fair value |
1,500 |
|
14,889 |
|
16,389 |
|
|
Other financial liabilities |
1,805 |
|
11 |
|
1,816 |
|
|
Subordinated liabilities |
|
|
14,017 |
|
14,017 |
|
|
|
|
|
|
|
|
|
|
|
3,481 |
|
32,783 |
|
36,264 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 31 December 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Due after |
|
|
|
|
|
Due within |
|
more than |
|
|
|
|
|
one year |
|
one year |
|
Total |
|
|
|
US$m |
|
US$m |
|
US$m |
|
|
Assets |
|
|
|
|
|
|
|
Loans and advances to HSBC undertakings |
7,371 |
|
9,871 |
|
17,242 |
|
|
Financial investments |
346 |
|
2,676 |
|
3,022 |
|
|
Other financial assets |
21 |
|
|
|
21 |
|
|
|
|
|
|
|
|
|
|
|
7,738 |
|
12,547 |
|
20,285 |
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
Amounts owed to HSBC undertakings |
1,906 |
|
1,063 |
|
2,969 |
|
|
Financial liabilities designated at fair value |
|
|
18,683 |
|
18,683 |
|
|
Other financial liabilities |
1,397 |
|
8 |
|
1,405 |
|
|
Subordinated liabilities |
|
|
8,544 |
|
8,544 |
|
|
|
|
|
|
|
|
|
|
|
3,303 |
|
28,298 |
|
31,601 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34 |
Foreign exchange exposures |
|
|
|
Structural foreign exchange exposures |
|
|
|
HSBCs structural foreign
exchange exposures are represented by the net asset value of its foreign
exchange equity and subordinated debt investments in subsidiaries, branches,
joint ventures and associates. Gains or losses on structural foreign exchange
exposures are recognised directly in equity. HSBCs management of
its structural foreign exchange exposures is discussed in the Report
of the Directors: Risk on page 242. |
|
|
|
In its separate financial statements,
HSBC Holdings recognises its foreign exchange gains and losses on structural
foreign exchange exposures in the income statement. |
429
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H S B C H O L D I
N G S P L C |
|
Notes on the
Financial Statements (continued) |
|
|
|
|
Notes 34, 35, 36 and 37 |
|
Net structural foreign exchange
exposures |
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
2007 |
|
|
|
US$m |
|
US$m |
|
|
Currency of structural exposure |
|
|
|
|
|
Euro |
23,137 |
|
23,985 |
|
|
Pound sterling |
15,319 |
|
24,527 |
|
|
Chinese renminbi |
11,927 |
|
10,892 |
|
|
Mexican pesos |
4,127 |
|
5,247 |
|
|
Hong Kong dollars |
3,929 |
|
4,635 |
|
|
UAE dirhams |
3,472 |
|
2,182 |
|
|
Canadian dollars |
3,423 |
|
4,136 |
|
|
Brazilian reais |
3,381 |
|
4,007 |
|
|
Indian rupees |
3,252 |
|
2,699 |
|
|
Swiss francs |
2,192 |
|
2,657 |
|
|
Turkish lira |
1,505 |
|
1,796 |
|
|
Korean won |
1,243 |
|
1,282 |
|
|
Malaysian ringgit |
1,148 |
|
1,044 |
|
|
Australian dollars |
690 |
|
940 |
|
|
Singapore dollars |
534 |
|
432 |
|
|
Saudi riyals1
|
530 |
|
404 |
|
|
Egyptian pounds |
517 |
|
392 |
|
|
Argentine pesos |
510 |
|
370 |
|
|
Taiwanese dollars |
485 |
|
382 |
|
|
Vietnamese dong |
483 |
|
331 |
|
|
Philippine pesos |
445 |
|
459 |
|
|
Thai baht |
404 |
|
384 |
|
|
Costa Rican colon |
378 |
|
375 |
|
|
Honduran lempira |
341 |
|
325 |
|
|
Qatari rial |
272 |
|
197 |
|
|
Russian rouble |
268 |
|
114 |
|
|
Japanese yen |
263 |
|
300 |
|
|
Indonesian rupiah |
221 |
|
221 |
|
|
Omani rial |
210 |
|
140 |
|
|
Colombian peso |
185 |
|
202 |
|
|
Chilean pesos |
176 |
|
214 |
|
|
South African rand |
151 |
|
148 |
|
|
Jordanian dinar |
147 |
|
116 |
|
|
New Zealand dollars |
124 |
|
169 |
|
|
Bahraini dinar |
114 |
|
106 |
|
|
Others, each less than US$100 million |
732 |
|
686 |
|
|
Maltese lira |
|
|
270 |
|
|
|
|
|
|
|
|
Total |
86,235 |
|
96,766 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
After deducting sales of Saudi riyals amounting to nil (2007:
US$750 million) in order to manage the foreign exchange risk of the investments. |
|
|
|
|
All resulting exchange
differences on consolidation of foreign operations are recognised in a
separate component of equity. Shareholders equity would decrease
by US$1,830 million (2007: US$2,426 million) if euro and sterling
foreign currency exchange rates weakened by 5 per cent relative to the
US dollar. |
|
|
|
35 |
Assets charged as security for liabilities and collateral accepted as security for assets |
|
|
|
|
|
Financial assets pledged to secure liabilities
were as follows: |
|
|
Assets pledged at 31 December |
|
|
|
|
|
|
|
|
|
2008 |
|
2007 |
|
|
|
US$m |
|
US$m |
|
|
|
Treasury bills and other eligible securities |
3,434 |
|
7,200 |
|
|
Loans and advances to banks |
6,949 |
|
7,389 |
|
|
Loans and advances to customers |
70,209 |
|
78,755 |
|
|
Debt securities |
185,224 |
|
219,956 |
|
|
Equity shares |
4,326 |
|
19,257 |
|
|
Other |
439 |
|
3,933 |
|
|
|
|
|
|
|
|
|
270,581 |
|
336,490 |
|
|
|
|
|
|
|
430
Back to Contents
|
These transactions are conducted under terms
that are usual and customary to collateralised transactions, including,
where relevant, standard securities lending and repurchase agreements. |
|
|
|
Collateral accepted as security for assets |
|
|
|
The fair value of assets accepted as collateral
that HSBC is permitted to sell or repledge in the absence of default
is
US$225,748 million (2007: US$329,893 million). The fair value of
any such collateral that has been sold or repledged was US$159,256 million
(2007: US$212,956 million). HSBC is obliged to return equivalent securities. |
|
|
|
These transactions are conducted under terms
that are usual and customary to standard securities borrowing and reverse
repurchase agreements. |
|
|
2008 |
|
2007 |
|
|
|
US$m |
|
US$m |
|
|
|
Minority interests attributable
to holders of ordinary shares in subsidiaries |
4,227 |
|
4,775 |
|
|
Preference shares issued by subsidiaries |
2,411 |
|
2,481 |
|
|
|
|
|
|
|
|
|
6,638 |
|
7,256 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preference shares issued by subsidiaries |
|
|
|
|
|
|
|
2008 |
|
2007 |
|
|
|
|
US$m |
|
US$m |
|
|
|
US$575m |
6.36%
non-cumulative preferred stock, Series B1 |
559 |
|
559 |
|
|
US$518m |
Floating rate
non-cumulative preferred stock, Series F2 |
518 |
|
518 |
|
|
US$374m |
Floating
rate non-cumulative preferred stock, Series G3 |
374 |
|
374 |
|
|
US$374m |
6.50% non-cumulative
preferred stock, Series H3 |
374 |
|
374 |
|
|
CAD175m |
Non-cumulative
redeemable class 1 preferred shares, Series C4 |
143 |
|
178 |
|
|
CAD175m |
Non-cumulative
class 1 preferred shares, Series D4 |
143 |
|
178 |
|
|
US$150m |
Depositary
shares each representing 25% interest in a share of adjustable-rate
cumulative preferred stock, Series D5 |
150 |
|
150 |
|
|
US$150m |
Cumulative preferred
stock6 |
150 |
|
150 |
|
|
|
|
|
|
|
|
|
|
|
2,411 |
|
2,481 |
|
|
|
|
|
|
|
|
|
1 |
The Series B preferred stock is redeemable
at the option of HSBC Finance Corporation, in whole or in part, from
24 June 2010 at par. |
|
2 |
The Series F preferred stock is redeemable
at par at the option of HSBC USA Inc., in whole or in part, on any
dividend payment date on or after 7 April 2010. |
|
3 |
The Series G and Series H preferred stock
are redeemable at par at the option of HSBC USA Inc., in whole or in
part, at any time from 1 January 2011 and 1 July 2011, respectively. |
|
4 |
The Series C and Series D preferred stock
are redeemable at a declining premium above par at the option of HSBC
Bank Canada, in whole or in part, from 30 June 2010 and 31 December
2010, respectively. |
|
5 |
The preferred stock has been redeemable
at the option of HSBC USA Inc., in whole or in part, from 1 July 1999
at par. |
|
6 |
The preferred stock has been redeemable
at the option of HSBC USA Inc., in whole or in part, from 1 October
2007 at par. |
|
|
|
|
All redemptions are subject
to prior notification to the Financial Services Authority and, where
relevant, the local banking regulator. |
|
|
37 |
Called up share capital and
other equity instruments |
|
|
|
Authorised |
|
|
|
At 31 December 2008 and 2007, the
authorised ordinary share capital of HSBC Holdings was US$7,500 million
divided into 15,000 million ordinary shares of US$0.50 each. |
|
|
|
At 31 December 2008 and 2007, the
authorised preference share capital of HSBC Holdings was 10 million non-cumulative
preference shares of £0.01 each, 10 million non-cumulative preference
shares of US$0.01 each, and 10 million non-cumulative preference shares
of 0.01 each. |
|
|
|
At 31 December 2008 and 2007, the
authorised non-voting deferred share capital of HSBC Holdings was £301,500
divided into 301,500 non-voting deferred shares of £1 each. |
431
Back to Contents
H S B C H O L D I
N G S P L C |
|
Notes on the Financial Statements (continued) |
|
|
|
|
Note 37 |
|
Issued |
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
2007 |
|
|
|
US$m |
|
US$m |
|
|
|
|
|
|
|
|
HSBC
Holdings ordinary shares |
6,053 |
|
5,915 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number |
|
US$m |
|
|
HSBC Holdings
ordinary shares |
|
|
|
|
|
At
1 January 2008 |
11,829,052,317 |
|
5,915 |
|
|
Shares issued
under HSBC Finance share plans |
65,198 |
|
|
|
|
Shares
issued under HSBC employee share plans |
40,578,468 |
|
20 |
|
|
Shares issued
in lieu of dividends |
235,569,099 |
|
118 |
|
|
|
|
|
|
|
|
At
31 December 2008 |
12,105,265,082 |
|
6,053 |
|
|
|
|
|
|
|
|
At
1 January 2007 |
11,572,207,735 |
|
5,786 |
|
|
Shares issued
under HSBC Finance share plans |
685,005 |
|
|
|
|
Shares
issued under HSBC employee share plans |
32,620,922 |
|
17 |
|
|
Shares issued
in lieu of dividends |
223,538,655 |
|
112 |
|
|
|
|
|
|
|
|
At
31 December 2007 |
11,829,052,317 |
|
5,915 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All ordinary
shares in issue confer identical rights in respect of capital, dividends,
voting and otherwise. |
|
|
|
|
|
|
Number |
|
US$m |
|
|
HSBC Holdings
non-cumulative preference shares of US$0.01 each |
|
|
|
|
|
At
1 January 2008 and 31 December 2008 |
1,450,000 |
|
|
|
|
|
|
|
|
|
|
At
1 January 2007 and 31 December 2007 |
1,450,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
on the HSBC Holdings non-cumulative dollar preference shares in issue are
paid quarterly at the sole and absolute discretion of the Board of Directors.
The Board of Directors will not declare a dividend on the preference shares
in issue if payment of the dividend would cause HSBC Holdings not to meet
the applicable capital adequacy requirements of the FSA or the profit of
HSBC Holdings available for distribution as dividends is not sufficient
to enable HSBC Holdings to pay in full both dividends on the preference
shares in issue and dividends on any other shares that are scheduled to
be paid on the same date and that have an equal right to dividends. HSBC
Holdings may not declare or pay dividends on any class of its shares ranking
lower in the right to dividends than the preference shares in issue nor
redeem nor purchase in any manner any of its other shares ranking equal
with or lower than the preference shares in issue unless it has paid in
full, or set aside an amount to provide for payment in full, the dividends
on the preference shares in issue for the then-current dividend period.
The preference shares in issue carry no rights to conversion into ordinary
shares of HSBC Holdings. Holders of the preference shares in issue will
only be entitled to attend and vote at general meetings of shareholders
of HSBC Holdings if the dividend payable on the preference shares in issue
has not been paid in full for four consecutive dividend payment dates. In
such circumstances, holders of the preference shares in issue will be entitled
to vote on all matters put to general meetings until such time as HSBC Holdings
has paid a full dividend on the preference shares in issue. HSBC Holdings
may redeem the preference shares in issue in whole at any time on or after
16 December 2010, subject to prior notification to the FSA. |
|
|
|
|
|
|
|
HSBC Holdings
non-voting deferred shares |
|
|
|
|
|
|
|
|
|
|
|
The
301,500 non-voting deferred shares were in issue throughout 2007 and
2008 and are held by a subsidiary of HSBC Holdings. Holders of the non-voting
deferred shares are not entitled to receive dividends on these shares.
In addition, on winding-up or other return of capital, holders are entitled
to receive the amount paid up on their shares after distribution to ordinary
shareholders of £10 million in respect of each ordinary share held
by them. |
|
|
|
|
|
|
|
Other equity
instruments |
|
|
|
|
|
|
|
|
|
|
|
On
9 April 2008, HSBC Holdings issued, in bearer form, 88 million 8.125
per cent Perpetual Subordinated Capital Securities (Capital Securities),
each with a par value of US$25 and with an aggregate nominal value
of US$2,200 million. The securities were issued at par value, raising
US$2,133 million, net of issuance costs. The Capital Securities were
issued to support the development of and to strengthen further HSBCs
capital base. Coupon payments on the Capital Securities are paid quarterly
in arrears from 15 July 2008 and may be deferred at the discretion of
HSBC Holdings. The Capital Securities have no fixed maturity and are
redeemable at HSBC’s option on |
432
Back to Contents
|
or after 15 April 2013 at their principal amounts
together with any accrued, unpaid and deferred coupon payments. While
any
coupon payments are unpaid or deferred, HSBC Holdings will not declare,
pay dividends or make distributions or similar periodic payments in respect
of, or repurchase, redeem or otherwise acquire any securities of lower
or
equal rank. At the Companys discretion, and subject to certain conditions
being satisfied, the Capital Securities may be exchanged on any coupon
payment
date for non-cumulative preference shares to be issued by HSBC Holdings
and which would rank pari passu with the dollar preference shares
in issue at 2 March 2009. The preference shares will be issued at a nominal
value of US$0.01 per share and a
premium of US$24.99 per share, with both such amounts being subscribed
and fully paid. |
|
|
|
Shares under option |
|
|
|
Details of the options outstanding to subscribe
for HSBC Holdings ordinary shares under the HSBC Holdings Group Share
Option Plan, HSBC Holdings Executive Share Option Scheme, the HSBC Share
Plan and HSBC Holdings savings-related share option plans are given in
Note 10. In aggregate, options outstanding under these plans were as
follows: |
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
|
|
|
|
|
HSBC Holdings |
|
|
|
|
|
|
|
ordinary shares |
|
Period of exercise |
|
Exercise price |
|
|
|
|
|
|
|
|
|
|
31 December
2008 |
211,226,573 |
|
2009
to 2015 |
|
£5.3496 9.642 |
|
|
|
11,344,167 |
|
2009 to 2014 |
|
HK$103.4401 108.4483 |
|
|
|
1,304,119 |
|
2009 to
2014 |
|
8.6720 11.0062 |
|
|
|
7,382,145 |
|
2009 to 2014 |
|
US$13.3290 14.7478 |
|
|
|
31 December
2007 |
240,726,775 |
|
2008 to 2015 |
|
£5.3496 9.642 |
|
|
|
12,839,412 |
|
2008 to 2013 |
|
HK$103.4401 108.4483 |
|
|
|
823,472 |
|
2008 to 2013 |
|
10.4217 11.0062 |
|
|
|
6,324,920 |
|
2008 to 2013 |
|
US$13.3290 14.7478 |
|
|
|
31 December
2006 |
269,423,027 |
|
2007 to 2015 |
|
£5.0160 9.642 |
|
|
|
6,661,998 |
|
2007 to 2012 |
|
HK$103.4401 |
|
|
|
270,473 |
|
2007 to 2012 |
|
11.0062 |
|
|
|
2,932,100 |
|
2007 to 2012 |
|
US$13.3290 14.1621 |
|
|
|
|
|
|
|
|
|
|
HSBC France and subsidiary
company plans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Following the acquisition
of HSBC France in 2000, outstanding employee share options over HSBC
France shares vested. On exercise of the options, the HSBC France shares
are exchangeable for HSBC Holdings ordinary shares in the same ratio
as for the acquisition of HSBC France (13 HSBC Holdings ordinary shares
for each HSBC France share). |
|
|
|
|
|
|
|
|
|
During 2008, 221,154
(2007: 280,850) HSBC France shares were issued following the exercise
of employee share options and were exchanged for 2,875,002 HSBC Holdings
ordinary shares. These shares were delivered from the HSBC Holdings Employee
Benefit Trust 2001 (No. 1) (2007: 3,651,050 HSBC Holdings ordinary shares).
During 2008, no options over HSBC France shares lapsed (2007: nil). During
2007 and 2008 no HSBC France shares previously issued following the exercise
of employee share options were exchanged for HSBC Holdings ordinary shares.
At 31 December 2008, The HSBC Holdings Employee Benefit Trust 2001 (No.
1) held 8,790,276 (2007: 11,665,278) HSBC Holdings ordinary shares which
may be exchanged for HSBC France shares arising from the exercise of
options. |
|
|
|
|
|
|
|
|
|
HSBC France options
effectively outstanding over HSBC Holdings ordinary shares under this
arrangement were as follows: |
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
|
|
|
|
|
HSBC France |
|
|
|
|
|
|
|
shares exchangeable |
|
|
|
|
|
|
|
for HSBC Holdings
|
|
|
|
|
|
|
|
ordinary shares |
|
Period of exercise |
|
Exercise price |
|
|
|
|
|
|
|
|
|
|
31 December
2008 |
787,877 |
|
2009
to 2010 |
|
81.71 142.50 |
|
|
31 December 2007 |
1,009,031 |
|
2008 to 2010 |
|
73.48 142.50 |
|
|
31 December
2006 |
1,287,881 |
|
2007 to 2010 |
|
37.05 142.50 |
|
433
Back to Contents
H S B C H O L D I
N G S P L C |
|
Notes on the Financial Statements (continued) |
|
|
|
|
Note 37 |
|
HSBC Private Bank France plan |
|
|
|
There are also outstanding options over the
shares of HSBC Private Bank France, a subsidiary of HSBC France. |
|
|
|
On exercise of options over shares of HSBC
Private Bank France, the HSBC Private Bank France shares are exchangeable
for HSBC Holdings ordinary shares in the ratio of 1.83 HSBC Holdings
shares for each HSBC Private Bank France share. During 2008, 7,000 (2007:
61,880) HSBC Private Bank France shares were issued following the exercise
of employee share options and exchanged for 12,810 (2007: 113,234) HSBC
Holdings ordinary shares, such shares being delivered from The CCF Employee
Benefit Trust 2001 (Private Banking France). During 2008, no options
over HSBC Private Bank France shares lapsed (2007: nil). During 2008,
no (2007: 8,819) HSBC Private Bank France shares previously issued following
the exercise of employee share options were exchanged for HSBC Holdings
ordinary shares (2007: 16,137). There were 333,976 HSBC Private Bank
France employee share options exchangeable for HSBC Holdings ordinary
shares outstanding at 31 December 2008 (2007: 340,976). At 31 December
2008, The CCF Employee Benefit Trust 2001 (Private Banking France) held
943,142 (2007: 955,952) HSBC Holdings ordinary shares which may be exchanged
for HSBC Private Bank France shares arising
from the exercise of options. |
|
|
|
HSBC Private Bank France options effectively
outstanding over HSBC Holdings ordinary shares under this arrangement
were as follows: |
|
|
|
|
|
|
|
|
|
|
Number of HSBC |
|
|
|
|
|
|
|
Private Bank France |
|
|
|
|
|
|
|
shares exchangeable |
|
|
|
|
|
|
|
for HSBC Holdings |
|
|
|
|
|
|
|
ordinary shares |
|
Period of exercise |
|
Exercise price |
|
|
|
|
|
|
|
|
|
|
31 December 2008 |
333,976 |
|
2009 to 2012 |
|
10.84 22.22 |
|
|
31 December 2007 |
340,976 |
|
2008 to 2012 |
|
10.84 22.22 |
|
|
31 December 2006 |
411,675 |
|
2007 to 2012 |
|
10.84 22.22 |
|
|
|
|
HSBC Finance and subsidiary company plans |
|
|
|
Following the acquisition of HSBC Finance
in 2003, all outstanding options and equity-based awards over HSBC Finance
common shares were converted into rights to receive HSBC Holdings ordinary
shares in the same ratio as the share exchange offer for HSBC Finance
(2.675 HSBC Holdings ordinary shares for each HSBC Finance common share)
and the exercise prices per share adjusted accordingly. During 2008,
options and equity-based awards over 327,635 (2007: 5,370,104) HSBC Holdings
ordinary shares were exercised and 169,138 (2007: 4,602,172) HSBC Holdings
ordinary shares delivered from The HSBC (Household) Employee Benefit
Trust 2003 to satisfy the exercise of these options. During 2008, options
over 718,793 (2007: 399,823) HSBC Holdings ordinary shares lapsed. At
31 December 2008, The HSBC (Household) Employee Benefit Trust 2003 held
a total of 1,687,279 (2007: 1,856,417) HSBC Holdings ordinary shares
and 196,455 (2007: 196,455) ADSs, which may be used to satisfy the exercise
of these options and equity-based awards under the HSBC Finance share
plans. Each ADS represents five HSBC Holdings ordinary shares. |
|
|
|
Options (and, in 2007 and 2006, equity-based
awards) outstanding over HSBC Holdings ordinary shares under the HSBC
Finance share plans were as follows: |
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
|
|
|
|
|
HSBC Holdings |
|
|
|
|
|
|
|
ordinary shares |
|
Period of exercise |
|
Exercise price |
|
|
|
31 December 2008 |
20,681,582 |
|
2009 to 2012 |
|
US$10.66 US$21.37 |
|
|
31 December 2007 |
21,728,010 |
|
2008 to 2012 |
|
nil US$21.37 |
|
|
31 December 2006 |
27,497,937 |
|
2007 to 2012 |
|
nil US$21.37 |
|
|
|
|
Bank of Bermuda plan |
|
|
|
Following the acquisition of Bank of Bermuda
in 2004, all outstanding employee share options over Bank of Bermuda
shares were converted into rights to receive HSBC Holdings ordinary shares
based on the consideration of
US$40 for each Bank of Bermuda share and the average closing price of HSBC
Holdings ordinary shares, derived from the London Stock Exchange Daily Official
List, for the five business days preceding the closing date of the acquisition.
During 2008, options over 12,847 HSBC Holdings ordinary shares were exercised
(2007: 377,046) and delivered from the HSBC (Bank of Bermuda) Employee Benefit
Trust 2004 to satisfy the exercise of these options. During 2008, options over
95,915 (2007: 11,228) HSBC Holdings ordinary shares lapsed. At 31 December 2008,
the |
434
Back to Contents
H S B C H O L D I
N G S P L C |
|
Notes on the Financial Statements (continued) |
|
|
|
|
Note 37 |
|
HSBC (Bank of Bermuda) Employee Benefit
Trust 2004 held 1,877,056 (2007: 1,889,903) HSBC Holdings ordinary shares
which may be used to satisfy the exercise of options. |
|
|
|
Options outstanding over HSBC Holdings ordinary
shares under the Bank of Bermuda share plans were as follows: |
|
|
|
|
|
|
|
|
|
|
Number of HSBC |
|
|
|
|
|
|
|
Holdings |
|
|
|
|
|
|
|
ordinary shares |
|
Period of exercise |
|
Exercise price |
|
|
|
|
|
|
|
|
|
|
31 December 2008 |
2,205,321 |
|
2009 to 2013 |
|
US$7.04 18.35 |
|
|
31 December 2007 |
2,314,083 |
|
2008 to 2013 |
|
US$7.04 18.35 |
|
|
31 December 2006 |
2,710,368 |
|
2007 to 2013 |
|
US$7.04 18.35 |
|
|
|
|
Maximum obligation to deliver HSBC Holdings
ordinary shares |
|
|
|
At 31 December 2008, the maximum obligation
to deliver HSBC Holdings ordinary shares under all of the above option
arrangements, together with Performance Share and Restricted Share awards
under the HSBC Holdings Restricted Share Plan 2000 and the HSBC Share
Plan, was 400,887,713 (2007: 417,044,591). The total number of shares
at 31 December 2008 held by employee benefit trusts that may be used
to satisfy such obligations to deliver HSBC Holdings ordinary shares
was
164,985,811 (2007: 149,423,898). |
435
Back to Contents
H S B C H O L D I
N G S P L C |
|
Notes on the Financial Statements (continued) |
|
|
|
|
Note 38 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
reserves |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
Available- |
|
|
|
|
|
Share- |
|
|
|
Total |
|
|
|
|
|
|
|
Called up |
|
|
|
equity |
|
|
|
for-sale |
|
Cash flow |
|
Foreign |
|
based |
|
|
|
share- |
|
|
|
|
|
|
|
share |
|
Share |
|
instru- |
|
Retained |
|
fair value |
|
hedging |
|
exchange |
|
payment |
|
Merger |
|
holders |
|
Minority |
|
Total |
|
|
|
capital |
|
premium1
|
|
ments5 |
|
earnings2 |
|
reserve |
|
reserve3
|
|
reserve |
|
reserve |
|
reserve4
|
|
equity |
|
interests3
|
|
equity |
|
|
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 1 January |
5,915 |
|
8,134 |
|
|
|
81,097 |
|
850 |
|
(917 |
) |
10,055 |
|
1,968 |
|
21,058 |
|
128,160 |
|
7,256 |
|
135,416 |
|
|
Shares
issued under employee share plans |
20 |
|
450 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
470 |
|
|
|
470 |
|
|
Shares
issued in lieu of dividends and amounts arising
thereon1 |
118 |
|
(121 |
) |
|
|
3,596 |
|
|
|
|
|
|
|
|
|
|
|
3,593 |
|
|
|
3,593 |
|
|
Capital securities issued5
|
|
|
|
|
2,133 |
|
|
|
|
|
|
|
|
|
|
|
|
|
2,133 |
|
|
|
2,133 |
|
|
Profit for the year |
|
|
|
|
|
|
5,728 |
|
|
|
|
|
|
|
|
|
|
|
5,728 |
|
770 |
|
6,498 |
|
|
Dividends to shareholders |
|
|
|
|
|
|
(11,301 |
) |
|
|
|
|
|
|
|
|
|
|
(11,301 |
) |
(813 |
) |
(12,114 |
) |
|
Own shares adjustment |
|
|
|
|
|
|
(1,002 |
) |
|
|
|
|
|
|
|
|
|
|
(1,002 |
) |
|
|
(1,002 |
) |
|
Share
of changes recognised directly in the equity of associates or
joint ventures |
|
|
|
|
|
|
(559 |
) |
|
|
|
|
|
|
|
|
|
|
(559 |
) |
|
|
(559 |
) |
|
Actuarial
losses on defined benefit plans |
|
|
|
|
|
|
(1,457 |
) |
|
|
|
|
|
|
|
|
|
|
(1,457 |
) |
(152 |
) |
(1,609 |
) |
|
Exchange differences |
|
|
|
|
|
|
(14,070 |
) |
2,120 |
|
(30 |
) |
|
|
|
|
|
|
(11,980 |
) |
(225 |
) |
(12,205 |
) |
|
Fair
value losses taken to equity |
|
|
|
|
|
|
|
|
(23,206 |
) |
(1,762 |
) |
|
|
|
|
|
|
(24,968 |
) |
(474 |
) |
(25,442 |
) |
|
Amounts
transferred to the income statement3 |
|
|
|
|
|
|
|
|
(1,301 |
) |
1,772 |
|
|
|
|
|
|
|
471 |
|
(33 |
) |
438 |
|
|
Impairments
taken to the income statement |
|
|
|
|
|
|
|
|
1,701 |
|
|
|
|
|
|
|
|
|
1,701 |
|
78 |
|
1,779 |
|
|
Exercise
and lapse of share options and vesting of share awards |
|
|
|
|
|
|
827 |
|
|
|
|
|
|
|
(848 |
) |
|
|
(21 |
) |
|
|
(21 |
) |
|
Cost
of share-based payment arrangements |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
819 |
|
|
|
819 |
|
|
|
819 |
|
|
Other movements |
|
|
|
|
|
|
(252 |
) |
74 |
|
5 |
|
82 |
|
56 |
|
|
|
(35 |
) |
73 |
|
38 |
|
|
Tax
on items taken directly to or transferred from
equity |
|
|
|
|
|
|
411 |
|
1,332 |
|
96 |
|
|
|
|
|
|
|
1,839 |
|
40 |
|
1,879 |
|
|
Transfers |
|
|
|
|
|
|
17,671 |
|
(2,120 |
) |
30 |
|
(11,980 |
) |
|
|
(3,601 |
) |
|
|
|
|
|
|
|
Net
increase in minority interest arising on acquisitions, disposals
and capital issuance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
118 |
|
118 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 31 December |
6,053 |
|
8,463 |
|
2,133 |
|
80,689 |
|
(20,550 |
) |
(806 |
) |
(1,843 |
) |
1,995 |
|
17,457 |
|
93,591 |
|
6,638 |
|
100,229 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative goodwill amounting to US$5,138 million has been charged against reserves in respect of acquisitions of subsidiaries prior to 1 January 1998, including US$3,469
million charged against
the merger reserve arising on the acquisition of HSBC Bank
plc. The balance of US$1,669 million has been charged against retained earnings. |
436
Back to Contents
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other reserves |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-
|
|
|
|
|
|
Share-
|
|
|
|
Total
|
|
|
|
|
|
|
|
Called up |
|
|
|
|
|
for-sale
|
|
Cash flow
|
|
Foreign |
|
based
|
|
|
|
share-
|
|
|
|
|
|
|
|
share |
|
Share
|
|
Retained
|
|
fair value
|
|
hedging
|
|
exchange |
|
payment
|
|
Merger |
|
holders
|
|
Minority
|
|
Total
|
|
|
|
capital |
|
premium |
1 |
earnings
|
2 |
reserve
|
|
reserve
|
3 |
reserve |
|
reserve
|
|
reserve |
4
|
equity
|
|
interests
|
3
|
equity
|
|
|
|
US$m |
|
US$m
|
|
US$m
|
|
US$m
|
|
US$m
|
|
US$m |
|
US$m
|
|
US$m |
|
US$m
|
|
US$m
|
|
US$m
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 1 January |
5,786 |
|
7,789
|
|
65,397
|
|
2,005
|
|
(101
|
) |
4,307 |
|
2,111
|
|
21,058 |
|
108,352
|
|
6,576
|
|
114,928
|
|
|
Shares
issued under employee share plans |
17 |
|
460
|
|
|
|
|
|
|
|
|
|
|
|
|
|
477
|
|
|
|
477
|
|
|
Shares
issued in lieu of dividends and amountsarising thereon1 |
112 |
|
(115
|
) |
4,354
|
|
|
|
|
|
|
|
|
|
|
|
4,351
|
|
|
|
4,351
|
|
|
Profit for the year |
|
|
|
|
19,133
|
|
|
|
|
|
|
|
|
|
|
|
19,133
|
|
1,322
|
|
20,455
|
|
|
Dividends to shareholders |
|
|
|
|
(10,241
|
) |
|
|
|
|
|
|
|
|
|
|
(10,241
|
) |
(788
|
) |
(11,029
|
) |
|
Own shares adjustment |
|
|
|
|
(510
|
) |
|
|
|
|
|
|
|
|
|
|
(510
|
) |
|
|
(510
|
) |
|
Share
of changes recognised directly in the equity of associates
or joint ventures |
|
|
|
|
372
|
|
|
|
|
|
|
|
|
|
|
|
372
|
|
|
|
372
|
|
|
Actuarial
gains/(losses) on defined benefit plans |
|
|
|
|
2,234
|
|
|
|
|
|
|
|
|
|
|
|
2,234
|
|
(67
|
) |
2,167
|
|
|
Exchange differences |
|
|
|
|
5,459
|
|
291
|
|
(28
|
) |
26 |
|
|
|
|
|
5,748
|
|
198
|
|
5,946
|
|
|
Fair
value gains taken to equity |
|
|
|
|
|
|
526
|
|
616
|
|
|
|
|
|
|
|
1,142
|
|
239
|
|
1,381
|
|
|
Amounts
transferred to the income statement3 |
|
|
|
|
|
|
(1,799
|
) |
(1,899
|
) |
|
|
|
|
|
|
(3,698
|
) |
(14
|
) |
(3,712
|
) |
|
Impairments
taken to the income statement |
|
|
|
|
|
|
86
|
|
|
|
|
|
|
|
|
|
86
|
|
|
|
86
|
|
|
Exercise
and lapse of share options and vesting of share
awards |
|
|
|
|
758
|
|
|
|
|
|
|
|
(751
|
) |
|
|
7
|
|
|
|
7
|
|
|
Cost
of share-based payment arrangements |
|
|
|
|
|
|
|
|
|
|
|
|
870
|
|
|
|
870
|
|
|
|
870
|
|
|
Other movements |
|
|
|
|
320
|
|
1
|
|
(6
|
) |
|
|
(262
|
) |
|
|
53
|
|
(91
|
) |
(38
|
) |
|
Tax
on items taken directly to or transferred from equity |
|
|
|
|
(720
|
) |
31
|
|
473
|
|
|
|
|
|
|
|
(216
|
) |
(10
|
) |
(226
|
) |
|
Transfers |
|
|
|
|
(5,459
|
) |
(291
|
) |
28
|
|
5,722 |
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase in minority interest arising on acquisitions, disposals and
capital issuance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(109
|
) |
(109
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 31 December |
5,915 |
|
8,134
|
|
81,097
|
|
850
|
|
(917
|
) |
10,055 |
|
1,968
|
|
21,058 |
|
128,160
|
|
7,256
|
|
135,416
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative goodwill amounting to US$5,138 million has been charged against reserves in respect of acquisitions of subsidiaries prior to 1 January 1998, including US$3,469
million charged against
the merger reserve arising on the acquisition of HSBC Bank
plc. The balance of US$1,669 million has been charged against retained earnings. |
437
Back to Contents
H S B C H O L D I
N G S P L C |
|
Notes on the
Financial Statements (continued) |
|
|
|
|
Notes 38and 39 |
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other reserves |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-
|
|
|
|
|
|
Share-
|
|
|
|
Total
|
|
|
|
|
|
|
|
Called up |
|
|
|
|
|
for-sale
|
|
Cash flow
|
|
Foreign
|
|
based
|
|
|
|
share-
|
|
|
|
|
|
|
|
share |
|
Share
|
|
Retained
|
|
fair value
|
|
hedging
|
|
exchange
|
|
payment
|
|
Merger |
|
holders
|
|
Minority
|
|
Total
|
|
|
|
capital |
|
premium
|
1
|
earnings
|
2 |
reserve
|
|
reserve
|
3 |
reserve
|
|
reserve
|
|
reserve |
4
|
equity
|
|
interests
|
3
|
equity
|
|
|
|
US$m |
|
US$m
|
|
US$m
|
|
US$m
|
|
US$m
|
|
US$m
|
|
US$m
|
|
US$m |
|
US$m
|
|
US$m
|
|
US$m
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 1 January |
5,667 |
|
6,896
|
|
56,223
|
|
1,104
|
|
233
|
|
(284
|
) |
1,535
|
|
21,058 |
|
92,432
|
|
5,794
|
|
98,226
|
|
|
Shares
issued under employee share plans |
40 |
|
975
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,015
|
|
|
|
1,015
|
|
|
Shares
issued in lieu of dividends and amounts arising thereon1 |
79 |
|
(82
|
) |
2,528
|
|
|
|
|
|
|
|
|
|
|
|
2,525
|
|
|
|
2,525
|
|
|
Profit for the year |
|
|
|
|
15,789
|
|
|
|
|
|
|
|
|
|
|
|
15,789
|
|
1,082
|
|
16,871
|
|
|
Dividends to shareholders |
|
|
|
|
(8,769
|
) |
|
|
|
|
|
|
|
|
|
|
(8,769
|
) |
(785
|
) |
(9,554
|
) |
|
Own shares adjustment |
|
|
|
|
(529
|
) |
|
|
|
|
|
|
|
|
|
|
(529
|
) |
|
|
(529
|
) |
|
Share
of changes recognised directly in the equity of associates
or joint ventures |
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
20
|
|
|
|
20
|
|
|
Actuarial
gains/(losses) on defined benefit plans |
|
|
|
|
(92
|
) |
|
|
|
|
|
|
|
|
|
|
(92
|
) |
14
|
|
(78
|
) |
|
Exchange differences |
|
|
|
|
4,446
|
|
89
|
|
(8
|
) |
26
|
|
38
|
|
|
|
4,591
|
|
84
|
|
4,675
|
|
|
Fair value gains taken to equity |
|
|
|
|
|
|
1,514
|
|
1,560
|
|
|
|
|
|
|
|
3,074
|
|
62
|
|
3,136
|
|
|
Amounts
transferred to the income statement3 |
|
|
|
|
|
|
(622
|
) |
(2,219
|
) |
|
|
|
|
|
|
(2,841
|
) |
(22
|
) |
(2,863
|
) |
|
Impairments
taken to the income statement |
|
|
|
|
|
|
21
|
|
|
|
|
|
|
|
|
|
21
|
|
|
|
21
|
|
|
Exercise
and lapse of share options and vesting of share
awards |
|
|
|
|
684
|
|
|
|
|
|
|
|
(623
|
) |
|
|
61
|
|
|
|
61
|
|
|
Cost
of share-based payment arrangements |
|
|
|
|
|
|
|
|
|
|
|
|
854
|
|
|
|
854
|
|
|
|
854
|
|
|
Other movements |
|
|
|
|
(102
|
) |
(9
|
) |
2
|
|
|
|
345
|
|
|
|
236
|
|
(103
|
) |
133
|
|
|
Tax
on items taken directly to or transferred from equity |
|
|
|
|
(355
|
) |
(3
|
) |
323
|
|
|
|
|
|
|
|
(35
|
) |
(9
|
) |
(44
|
) |
|
Transfers |
|
|
|
|
(4,446
|
) |
(89
|
) |
8
|
|
4,565
|
|
(38
|
) |
|
|
|
|
|
|
|
|
|
Net
increase in minority interest arising on acquisitions, disposals and
capital issuance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
459
|
|
459
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 31 December |
5,786 |
|
7,789
|
|
65,397
|
|
2,005
|
|
(101
|
) |
4,307
|
|
2,111
|
|
21,058 |
|
108,352
|
|
6,576
|
|
114,928
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative goodwill amounting to US$5,138 million has been charged against reserves in respect of acquisitions of subsidiaries prior to 1 January 1998, including US$3,469
million charged against
the merger reserve arising on the acquisition of HSBC Bank
plc. The balance of US$1,669 million has been charged against retained earnings. |
|
|
|
|
1 |
Share premium includes
the deduction of US$3 million in respect of issuance costs incurred during the year (2007: US$3 million; 2006: US$3
million).
|
|
2 |
Retained earnings
include 194,751,829 (US$3,094 million) of own shares held within
HSBCs
insurance business, retirement funds for the benefit of policyholders
or beneficiaries
within employee trusts for the
settlement of shares expected to be delivered under employee share schemes or
bonus plans, and the market-making activities in Global Markets (2007: 158, 706,463
(US$2,649 million);
2006: 148,323,102 (US$2,305 million)).
2006 numbers have been restated to conform with the current years
presentation. |
|
3 |
Amounts transferred
to the income statement in respect of cash flow hedges include US$152
million (2007: US$57 million: 2006: US$479 million) taken to Net
interest
income and US$1,602 million (2007:
US$1,829 million; 2006: US$1,719 million) taken to Net trading
income. |
|
4 |
Statutory
share premium relief under Section 131 of the Companies Act 1985
was taken in respect of the acquisition of HSBC France in 2000 and
HSBC Finance in 2003 and the shares issued
were recorded at their nominal
value only. The fair value differences of US$8,290 million and US$12,768
million in respect of HSBC France and HSBC Finance, respectively, were recognised
as a
merger reserve. The merger reserve created on the acquisition
of HSBC Finance subsequently became attached to HSBC Overseas Holdings (UK) Limited
(HOHU), following
a number of
inter-group reorganisations. At 31 December 2008, an
amount of US$3,601 million was transferred from this reserve to retained
earnings as a result of impairment in HSBC Holdings' investment in
HOHU. |
|
5 |
During April 2008,
HSBC Holdings issued US$2,200 million of Perpetual Subordinated Capital Securities (Capital Securities), including US$67
million of issuance
costs, which are classified as equity under IFRSs. |
438
Back to Contents
39 |
Notes on the cash flow statement |
|
|
|
Non-cash items included in profit before tax |
|
|
HSBC |
|
HSBC Holdings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
2007
|
|
2006
|
|
2008 |
|
2007
|
|
|
|
US$m
|
|
US$m
|
|
US$m
|
|
US$m |
|
US$m
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation, amortisation and impairment |
13,367
|
|
2,522
|
|
2,528
|
|
3,601 |
|
(25
|
) |
|
Gains arising from dilution of interests in associates |
|
|
(1,092
|
) |
|
|
|
|
|
|
|
Revaluations on investment property |
92
|
|
(152
|
) |
(164
|
) |
|
|
|
|
|
Share-based payment expense |
819
|
|
870
|
|
854
|
|
14 |
|
29
|
|
|
Loan impairment losses gross of recoveries
and other credit risk provisions |
25,034
|
|
18,247
|
|
11,352
|
|
|
|
|
|
|
Provisions |
591
|
|
989
|
|
498
|
|
|
|
|
|
|
Impairment of financial investments |
1,779
|
|
39
|
|
|
|
|
|
|
|
|
Charge for defined benefit plans |
490
|
|
727
|
|
664
|
|
|
|
|
|
|
Accretion of discounts and amortisation
of premiums |
(867
|
) |
(449
|
) |
(776
|
) |
4 |
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41,305
|
|
21,701
|
|
14,956
|
|
3,619 |
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in operating assets |
|
|
|
|
|
|
|
|
|
|
|
|
HSBC |
|
HSBC Holdings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
2007
|
|
2006
|
|
2008
|
|
2007
|
|
|
|
US$m
|
|
US$m
|
|
US$m
|
|
US$m
|
|
US$m
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in loans to HSBC undertakings |
|
|
|
|
|
|
3,129
|
|
(2,786
|
) |
|
Change in prepayments and accrued income |
4,178
|
|
(5,069
|
) |
(2,478
|
) |
166
|
|
(183
|
) |
|
Change in net trading securities and net derivatives |
(23,293
|
) |
(4,972
|
) |
(13,620
|
) |
(16
|
) |
(1,094
|
) |
|
Change in loans and advances to banks |
22,596
|
|
(8,922
|
) |
(11,505
|
) |
|
|
|
|
|
Change in loans and advances to customers |
7,279
|
|
(131,886
|
) |
(132,987
|
) |
|
|
|
|
|
Change in financial assets designated at fair value |
12,757
|
|
(13,360
|
) |
(4,883
|
) |
(12
|
) |
|
|
|
Change in other assets |
(5,394
|
) |
(12,329
|
) |
(9,844
|
) |
(4
|
) |
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,123
|
|
(176,538
|
) |
(175,317
|
) |
3,263
|
|
(4,059
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in operating liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
HSBC |
|
HSBC Holdings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
2007
|
|
2006 |
|
2008
|
|
2007
|
|
|
|
US$m
|
|
US$m
|
|
US$m |
|
US$m
|
|
US$m
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in accruals and deferred income |
(6,169
|
) |
5,119
|
|
3,549 |
|
138
|
|
39
|
|
|
Change in deposits by banks |
(3,038
|
) |
32,594
|
|
28,378 |
|
|
|
|
|
|
Change in customer accounts |
32,372
|
|
199,806
|
|
149,849 |
|
|
|
|
|
|
Change in debt securities in issue |
(67,152
|
) |
(12,489
|
) |
42,253 |
|
|
|
|
|
|
Change in financial liabilities designated at fair value |
(15,352
|
) |
12,304
|
|
8,382 |
|
(2,299
|
) |
148
|
|
|
Change in other liabilities |
(4,074
|
) |
12,761
|
|
4,967 |
|
126
|
|
(8
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(63,413
|
) |
250,095
|
|
237,378 |
|
(2,035
|
) |
179
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
HSBC |
|
HSBC Holdings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
2007
|
|
2006
|
|
2008 |
|
2007 |
|
|
|
US$m
|
|
US$m
|
|
US$m
|
|
US$m |
|
US$m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash at bank with HSBC undertakings |
|
|
|
|
|
|
443 |
|
360 |
|
|
Cash and balances at central banks |
52,396
|
|
21,765
|
|
12,732
|
|
|
|
|
|
|
Items in the course of collection from other banks |
6,003
|
|
9,777
|
|
14,144
|
|
|
|
|
|
|
Loans and advances to banks of one month or less |
165,066
|
|
232,320
|
|
162,998
|
|
|
|
|
|
|
Treasury
bills, other bills and certificates of deposit less
than three months |
62,639
|
|
41,819
|
|
38,237
|
|
|
|
|
|
|
Less: items in the course of transmission
to other banks |
(7,232
|
) |
(8,672
|
) |
(12,625
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash and cash equivalents |
278,872
|
|
297,009
|
|
215,486
|
|
443 |
|
360 |
|
|
|
|
|
|
|
|
|
|
|
|
|
439
Back to Contents
H S B C H O L D I
N G S P L C |
|
Notes on the
Financial Statements (continued) |
|
|
|
|
Notes 39 and 40 |
|
Interest and dividends |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HSBC |
|
HSBC Holdings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
2007
|
|
2006
|
|
2008
|
|
2007
|
|
|
|
US$m
|
|
US$m
|
|
US$m
|
|
US$m
|
|
US$m
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid |
(60,342
|
) |
(63,626
|
) |
(47,794
|
) |
(2,525
|
) |
(2,397
|
) |
|
Interest received |
107,019
|
|
103,393
|
|
85,143
|
|
1,619
|
|
1,627
|
|
|
Dividends received |
1,876
|
|
1,833
|
|
1,525
|
|
10,779
|
|
9,187
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40 |
Contingent liabilities, contractual
commitments
and guarantees |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HSBC |
|
HSBC Holdings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
2007 |
|
2008 |
|
2007 |
|
|
|
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantees and contingent
liabilities |
|
|
|
|
|
|
|
|
|
|
Guarantees and irrevocable letters
of credit pledged as collateral security |
72,895 |
|
77,885 |
|
47,341 |
|
38,457 |
|
|
|
Other contingent liabilities |
259 |
|
334 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
73,154 |
|
78,219 |
|
47,341 |
|
38,457 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments |
|
|
|
|
|
|
|
|
|
|
Documentary
credits and short-term trade-related transactions |
9,789 |
|
13,510 |
|
|
|
|
|
|
|
Forward asset purchases
and forward forward deposits placed |
197 |
|
490 |
|
|
|
|
|
|
|
Undrawn note issuing and revolving underwriting
facilities |
|
|
109 |
|
|
|
|
|
|
|
Undrawn formal standby facilities,
credit lines and other commitments to
lend |
594,036 |
|
750,348 |
|
3,241 |
|
3,638 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
604,022 |
|
764,457 |
|
3,241 |
|
3,638 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The above table discloses the
nominal principal amounts of commitments excluding capital commitments,
which are separately disclosed below, guarantees and other contingent liabilities;
mainly credit-related instruments including both financial and non-financial
guarantees and commitments to extend credit. Contingent liabilities arising
from litigation against the Group are disclosed in Note 42. Nominal principal
amounts represent the amounts at risk should contracts be fully drawn upon
and clients default. The amount of the loan commitments shown above reflects,
where relevant, the expected level of take-up of pre-approved loan offers
made by mailshots to personal customers. As a significant portion of guarantees
and commitments is expected to expire without being drawn upon, the total
of the nominal principal amounts is not representative of future liquidity
requirements. |
|
|
|
|
|
Guarantees |
|
|
|
HSBC provides guarantees and similar undertakings
on behalf of both third-party customers and other entities within the
HSBC Group. These guarantees are generally provided in the normal course
of HSBCs banking business. The principal types of guarantees provided,
and the maximum potential amount of future payments which HSBC could
be required to make at 31 December 2008, were as follows: |
440
Back to Contents
|
|
At 31 December 2008 |
|
At 31 December 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantees |
|
|
|
Guarantees |
|
|
|
|
|
by HSBC |
|
|
|
by HSBC |
|
|
|
|
|
Holdings |
|
|
|
Holdings |
|
|
|
Guarantees in |
|
in favour of |
|
Guarantees |
|
in favour of |
|
|
|
favour of |
|
other HSBC |
|
in favour of |
|
other HSBC |
|
|
|
third parties |
|
Group entities |
|
third parties |
|
Group entities |
|
|
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
|
Guarantee type |
|
|
|
|
|
|
|
|
|
Financial guarantee contracts1 |
20,879 |
|
47,341 |
|
25,086 |
|
38,457 |
|
|
Standby letters of credit which are
financial guarantee contracts2 |
11,171 |
|
|
|
8,357 |
|
|
|
|
Other direct credit substitutes3 |
4,613 |
|
|
|
4,938 |
|
|
|
|
Performance bonds4 |
15,304 |
|
|
|
12,969 |
|
|
|
|
Bid bonds4 |
627 |
|
|
|
1,119 |
|
|
|
|
Standby letters of credit related to particular transactions4 |
4,791 |
|
|
|
8,235 |
|
|
|
|
Other transaction-related guarantees4 |
15,028 |
|
|
|
16,940 |
|
|
|
|
Other items |
482 |
|
|
|
241 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
72,895 |
|
47,341 |
|
77,885 |
|
38,457 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
Financial guarantees are contracts that require the issuer to make specified
payments to reimburse the holder for a loss incurred because a specified
debtor fails to make payment when due in accordance with the original or
modified terms of a debt instrument. The amounts in the above table are nominal
principal amounts. |
|
2 |
Standby letters of credit which are financial guarantee contracts are
irrevocable obligations on the part of HSBC to pay third parties when customers
fail to make payments when due. |
|
3 |
Other direct credit substitutes include re-insurance letters of credit
and trade-related letters of credit issued without provision for the issuing
entity to retain title to the underlying shipment. |
|
4 |
Performance bonds, bid bonds, standby letters of credit and other transaction-related
guarantees are undertakings by which the obligation on HSBC to make payment
depends on the outcome of a future event. |
|
|
|
The amounts disclosed in the above table reflect
HSBCs maximum exposure under a large number of individual guarantee
undertakings. The risks and exposures arising from guarantees are captured
and managed in accordance with HSBCs overall credit risk management
policies and procedures. Approximately half of the above guarantees have
a term of less than one year. Guarantees with terms of more than one
year are subject to HSBCs annual credit review process. |
|
|
|
Financial Services Compensation Scheme |
|
|
|
The UK Financial Services Compensation Scheme
(FSCS) has provided compensation to consumers following the
collapse of a number of deposit takers such as Bradford & Bingley
plc, Heritable Bank plc, Kaupthing
Singer & Friedlander Limited, Landsbanki Icesave and London Scottish
Bank plc. The compensation paid out to consumers is currently funded through
loans from the Bank of England and HM Treasury. HSBC Bank plc (the bank)
could be liable to pay a proportion of the outstanding borrowings that the FSCS
has borrowed from HM Treasury which at 16 December 2008 stood at £19.7 billion
(US$28.7 billion). The bank is also obligated to pay its share of forecast
management expenses based on the banks market share of deposits protected
under the FSCS. The bank has provided £86 million (US$125.4 million)
as at 31 December 2008 in respect of the share of forecast management expense,
including interest costs, for the 2008/9 and 2009/10 levy years. This accrual
is based on the banks estimated share of total market protected deposits
at 31 December 2007 and 2008, respectively. However, the ultimate FSCS levy to
the industry as a result of the 2008 collapses cannot currently be estimated
reliably as it is dependent on various uncertain factors including the potential
recoveries of assets by the FSCS and changes in the interest rate, the level
of protected deposits and the
population of FSCS members at the time. |
|
|
|
Commitments |
|
|
|
In addition to the commitments disclosed
on page 440, at 31 December 2008, HSBC had US$1,541 million (2007:
US$942 million) of capital commitments contracted but not provided
for and US$267 million (2007:
US$194 million) of capital commitments authorised but not contracted for. |
441
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H S B C H O L D I
N G S P L C |
|
Notes on the
Financial Statements (continued) |
|
|
|
|
Notes 40, 41 and 42 |
|
Agreement to acquire Bank Ekonomi |
|
|
|
In October 2008, HSBC entered into an agreement
to acquire 88.89 per cent of PT Bank Ekonomi Raharja Tbk (Bank Ekonomi),
in Indonesia, for cash consideration of US$608 million. Following
acquisition of this initial stake, HSBC would be required under Indonesian
law to make a mandatory tender offer for a further holding of up to 10.11
per cent, taking HSBCs share to 99 per cent. The transaction is
pending regulatory approval. |
|
|
|
Associates |
|
|
|
HSBCs share of associates contingent
liabilities amounted to US$17,943 million at 31 December 2008 (2007:
US$18,437 million). No matters arose where HSBC was severally liable. |
|
|
41 |
Lease commitments |
|
|
|
|
|
Finance lease commitments |
|
|
|
HSBC leases land and buildings (including
branches) and equipment from third parties under finance lease arrangements
to support its operations. |
|
|
|
|
|
2008 |
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Present |
|
|
|
|
|
Present |
|
|
|
|
Total future |
|
Future
|
|
value of |
|
Total future |
|
Future
|
|
value of |
|
|
|
|
minimum |
|
interest |
|
finance lease |
|
minimum |
|
interest
|
|
finance lease |
|
|
|
|
payments |
|
charges |
|
commitments |
|
payments |
|
charges
|
|
commitments |
|
|
|
|
US$m |
|
US$m
|
|
US$m |
|
US$m |
|
US$m
|
|
US$m |
|
|
Lease commitments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
no later than one year |
55 |
|
(28
|
) |
27 |
|
39 |
|
(24
|
) |
15 |
|
|
|
later than one year and no later than five years |
188 |
|
(130
|
) |
58 |
|
128 |
|
(101
|
) |
27 |
|
|
|
later than five years |
736 |
|
(258
|
) |
478 |
|
835 |
|
(174
|
) |
661 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
979 |
|
(416
|
) |
563 |
|
1,002 |
|
(299
|
) |
703 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 31 December 2008, future minimum sublease
payments of US$458 million (2007: US$465 million) are expected
to be received under non-cancellable subleases at the balance sheet date. |
|
|
|
Operating lease commitments |
|
|
|
At 31 December 2008, HSBC was obligated
under a number of non-cancellable operating leases for properties, plant
and equipment on which the future minimum lease payments extend over
a number of years. |
|
|
|
|
|
2008 |
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land and |
|
|
|
Land and |
|
|
|
|
|
|
buildings |
|
Equipment |
|
buildings |
|
Equipment |
|
|
|
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
|
Future minimum lease
payments under non-cancellable operating leases: |
|
|
|
|
|
|
|
|
|
|
no later than one year |
757 |
|
9 |
|
788 |
|
11 |
|
|
|
later than one year and no later than five years |
1,791 |
|
9 |
|
2,010 |
|
14 |
|
|
|
later than five years |
1,573 |
|
|
|
1,736 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,121 |
|
18 |
|
4,534 |
|
25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In 2008, US$861 million (2007: US$849
million; 2006: US$781 million) was charged to General and administrative
expenses in respect of lease and sublease agreements, of which
US$636 million (2007:
US$838 million; 2006: US$762 million) related to minimum lease payments,
US$22 million (2007: US$8 million; 2006: US$19 million) to contingent
rents, and US$204 million (2007: US$3 million; 2006: nil) to sublease
payments. |
|
|
|
The contingent rent represents escalation
payments made to landlords for operating, tax and other escalation expenses. |
|
|
|
Finance lease receivables |
|
|
|
HSBC leases a variety of assets to third
parties under finance leases, including transport assets (such as aircraft),
property and general plant and machinery. At the end of lease terms,
assets may be sold to third parties or leased for further terms. Lessees
may participate in any sales proceeds achieved. Lease rentals arising
during the lease terms will either be fixed in quantum or be varied to
reflect changes in, for example, tax or interest rates. Rentals are calculated
to recover the cost of assets less their residual value, and earn finance
income. |
442
Back to Contents
|
|
|
2008 |
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total future |
|
Unearned
|
|
|
|
Total future |
|
Unearned
|
|
|
|
|
|
|
minimum |
|
finance
|
|
Present |
|
minimum |
|
finance
|
|
Present |
|
|
|
|
payments |
|
income
|
|
value |
|
payments |
|
income
|
|
value |
|
|
|
|
US$m |
|
US$m
|
|
US$m |
|
US$m |
|
US$m
|
|
US$m |
|
|
Lease receivables: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
no later than one year |
3,013 |
|
(389
|
) |
2,624 |
|
2,958 |
|
(528
|
) |
2,430 |
|
|
|
later than one year and no later than five years |
8,783 |
|
(1,186
|
) |
7,597 |
|
8,741 |
|
(1,500
|
) |
7,241 |
|
|
|
later than five years |
8,114 |
|
(2,334
|
) |
5,780 |
|
9,194 |
|
(2,789
|
) |
6,405 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,910 |
|
(3,909
|
) |
16,001 |
|
20,893 |
|
(4,817
|
) |
16,076 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 31 December 2008, unguaranteed residual
values of US$197 million (2007: US$224 million) had been accrued,
and the accumulated allowance for uncollectible minimum lease payments
receivable amounted to US$21
million (2007: US$23 million). |
|
|
|
During the year, a total of US$10 million
(2007: US$44 million) was received as contingent rents and recognised
in the income statement. |
|
|
|
Operating lease receivables |
|
|
|
HSBC leases a variety of different assets
to third parties under operating lease arrangements, including transport
assets (such as rolling stock), property and general plant and machinery. |
|
|
|
|
|
2008 |
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land and |
|
|
|
Land and |
|
|
|
|
|
|
buildings |
|
Equipment |
|
buildings |
|
Equipment |
|
|
|
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
|
Future minimum lease
payments under non-cancellable operating leases: |
|
|
|
|
|
|
|
|
|
|
no later than one year |
37 |
|
678 |
|
50 |
|
838 |
|
|
|
later than one year and no later than five years |
31 |
|
625 |
|
14 |
|
1,363 |
|
|
|
later than five years |
21 |
|
110 |
|
10 |
|
400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
89 |
|
1,413 |
|
74 |
|
2,601 |
|
|
|
|
|
|
|
|
|
|
|
|
42 |
Litigation |
|
|
|
|
|
On 27 July 2007, the UK Office of Fair Trading
(OFT) issued High Court legal proceedings against a number
of UK financial institutions, including HSBC Bank, to determine the legal
status and enforceability of certain of the charges applied to their personal
customers in relation to unauthorised overdrafts (the charges).
Pending the resolution of the proceedings, the Financial Services Authority
(FSA) has granted firms (including HSBC Bank) a waiver enabling
them to place relevant complaints about the charges on hold and the County
Courts have stayed all individual customer claims. |
|
|
|
Certain preliminary issues in these proceedings
have been heard in the Commercial Division of the High Court. This has
confirmed that HSBC Banks current and historic charges are capable
of being tested for fairness but are not capable of being penalties. HSBC
Bank (and all the other financial institutions involved in the legal proceedings)
appealed the finding that the current charges are capable of being tested
for fairness. The Court of Appeal delivered its judgement on 26 February
2009, confirming the decision of the High Court that the charges of HSBC
Bank (and all of the other financial institutions involved in the legal
proceedings) are capable of being tested for fairness. HSBC Bank is considering
applying for leave to appeal to the House of Lords. |
|
|
|
The proceedings remain at an early stage and
may, allowing for appeals on the issues, take some time to conclude. A
wide range of outcomes is possible, depending upon the outcome of any appeal
to the House of Lords and, to
the extent applicable, upon the Courts assessment of the fairness of each
charge across the period under review. Since July 2001, there have been a variety
of charges applied by HSBC Bank across different charging periods under the then
existing contractual arrangements. HSBC Bank considers the charges to be and
to have been valid and enforceable, and intends strongly to defend its position. |
|
|
|
If, contrary to HSBC Banks current assessment,
the Court should ultimately (after appeals) reach an adverse decision that
results in a liability, a large number of different outcomes is possible,
each of which would have a different financial impact. Given that there
is limited authority on how an assessment of fairness should be conducted,
HSBC |
443
Back to Contents
H S B C H O L D I
N G S P L C |
|
Notes on the
Financial Statements (continued) |
|
|
|
|
Notes 42 and 43 |
|
Banks estimate of the potential financial
impact is that it could be in the order of approximately £350 million
(US$510 million), as published in the Interim Report 2008.
To make an estimate of the potential financial impact at this stage with
any precision is extremely difficult, owing to (among other things) the
complexity of the issues, the number of permutations of possible outcomes,
and the early stage of the proceedings. In addition, the assumptions
made by HSBC Bank may prove to be incorrect. |
|
|
|
On 11 December 2008 Bernard L Madoff (Madoff)
was arrested and charged in the United States District Court for the
Southern District of New York with one count of securities fraud. That
same day, the US
Securities and Exchange Commission (SEC) filed securities fraud charges
against Madoff and his firm Bernard L Madoff Investment Securities LLC (Madoff
Securities), a broker dealer and investment advisor registered with the
SEC. The criminal complaint and SEC complaint each alleged that Madoff had informed
senior Madoff Securities employees, in substance, that his investment advisory
business was a fraud. On 15 December 2008, on the application of the Securities
Investor Protection Corporation, the United States District Court for the Southern
District of New York appointed a trustee for the liquidation of the business
of Madoff Securities, and removed the liquidation proceeding to the United States
Bankruptcy Court for the Southern District of New York. On 9 February 2009, on
Madoffs consent, the United States District Court for the Southern District
of New York entered a partial judgement in the SEC action, permanently enjoining
Madoff from violating certain antifraud provisions of the US securities laws,
ordering Madoff to pay disgorgement, prejudgement interest and a civil penalty
in amounts to be determined at a later time, and continuing certain other relief
previously
imposed, including a freeze on Madoffs assets. The relevant US authorities
are continuing their investigations into the alleged fraud. There remains significant
uncertainty as to the facts of the alleged fraud and the extent of any assets
of,
and remaining within, Madoff Securities. |
|
|
|
Various non-US HSBC group companies provide
custodial, administration and similar services to a number of funds incorporated
outside the United States of America whose assets were invested with
Madoff Securities. Based on information provided by Madoff Securities,
as at 30 November 2008, the aggregate net asset value of these funds
(which would include principal amounts invested and unrealised gains)
was US$8.4 billion. |
|
|
|
Proceedings concerning Madoff and Madoff
Securities have already been issued in various jurisdictions against
numerous defendants and HSBC expects further proceedings to be brought,
including by the Madoff Securities trustee. Various HSBC group companies
have been named as defendants in suits in the United States anticipated
to seek class action status and cases in the Commercial List of the Irish
courts. All of the cases where HSBC group companies are named as a defendant
are at a very early stage. HSBC considers that it has good defences to
these claims and will continue to defend them vigorously. HSBC is unable
reliably to estimate the liability, if any, that might arise as a result
of such claims. |
|
|
|
Various HSBC group companies have also received
requests for information from various regulatory authorities in connection
with the alleged fraud by Madoff. HSBC group companies are co-operating
with these requests for
information. |
|
|
|
These actions apart HSBC is party to legal
actions in a number of jurisdictions including the UK, Hong Kong and
the US arising out of its normal business operation. HSBC considers that
none of the actions is material, and none is expected to result in a
significant adverse effect on the financial position of HSBC, either
individually or in the aggregate. Management believes that adequate provisions
have been made in respect of the litigation arising out of its normal
business operations. HSBC has not disclosed any contingent liability
associated with these legal actions because it is not practical to do
so. |
|
|
43 |
Related party transactions |
|
|
|
Related parties of the Group and HSBC Holdings
include subsidiaries, associates, joint ventures and post-employment
benefit plans for HSBC employees, Key Management Personnel, close family
members of Key Management Personnel and entities which are controlled,
jointly controlled or significantly influenced, or for which significant
voting power is held, by Key Management Personnel or their close family
members. |
|
|
|
Key Management Personnel are defined as
those persons having authority and responsibility for planning, directing
and controlling the activities of HSBC Holdings, being the Directors
and Group Managing Directors of HSBC
Holdings. |
444
Back to Contents
|
Compensation of Directors and
other Key Management Personnel |
|
|
|
|
|
|
|
|
HSBC |
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
2007 |
|
2006 |
|
|
|
US$m |
|
US$m |
|
U$m |
|
|
|
|
|
|
|
|
|
|
Short-term employee benefits |
31 |
|
62 |
|
76 |
|
|
Post-employment benefits |
5 |
|
4 |
|
3 |
|
|
Termination benefits |
|
|
9 |
|
|
|
|
Share-based payments |
16 |
|
40 |
|
61 |
|
|
|
|
|
|
|
|
|
|
|
52 |
|
115 |
|
140 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transactions, arrangements
and agreements involving related parties |
|
|
|
Particulars of transactions, arrangements
and agreements entered into by subsidiaries of HSBC Holdings with Directors,
disclosed pursuant to section 232 of the Companies Act 1985, are shown
below: |
|
|
2008 |
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
Balance at |
|
Number of |
|
Balance at |
|
|
|
persons |
|
31 December |
|
persons1 |
|
31 December1 |
|
|
|
|
|
US$000 |
|
|
|
US$000 |
|
|
|
|
|
|
|
|
|
|
|
|
Directors |
19 |
|
|
|
14 |
|
|
|
|
Loans |
|
|
1,758 |
|
|
|
649 |
|
|
Credit cards |
|
|
293 |
|
|
|
204 |
|
|
Guarantees |
|
|
|
|
|
|
|
|
|
|
|
|
1 |
Comparative figures have been restated to show Directors, excluding their
connected persons following a change to section 232 and Part 2 of Schedule
6 of the Companies Act. |
|
|
|
|
Particulars of transactions
with related parties, disclosed pursuant to the requirements of IAS 24,
are shown below. The disclosure of the year-end balance and the highest
amounts outstanding during the year in the table below is considered to
be the most meaningful information to represent the amount of the transactions
and the amount of outstanding balances during the year. |
|
|
|
`
|
2008 |
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Highest |
|
|
|
Highest |
|
|
|
|
|
amounts |
|
|
|
amounts |
|
|
|
Balance at |
|
outstanding |
|
Balance at |
|
outstanding |
|
|
|
31 December |
|
during year |
|
31 December |
|
during year |
|
|
|
US$000 |
|
US$000 |
|
US$000 |
|
US$000 |
|
|
Key Management Personnel and their related parties |
|
|
|
|
|
|
|
|
|
Loans |
216,983 |
|
474,115 |
|
325,648 |
|
804,845 |
|
|
Credit cards |
400 |
|
933 |
|
323 |
|
1,077 |
|
|
Guarantees |
25,249 |
|
42,178 |
|
27,044 |
|
30,317 |
|
|
|
|
|
|
|
|
|
|
|
|
Some of the transactions
were connected transactions, as defined by the Rules Governing The Listing
of Securities on The Stock Exchange of Hong Kong Limited but were exempt
from any disclosure requirements under the
provisions of those Rules. |
|
|
|
The above transactions
were made in the ordinary course of business and on substantially the same
terms, including interest rates and security, as for comparable transactions
with persons of a similar standing or, where applicable, with other employees.
The transactions did not involve more than the normal risk of repayment
or present other unfavourable features. |
|
|
|
Shareholdings, options and
other securities of Directors and other Key Management Personnel |
|
|
|
|
|
|
|
At 31 December |
|
|
|
|
|
|
|
|
|
2008
|
|
2007 |
|
|
|
(000
|
s) |
(000 |
s) |
|
|
|
|
|
|
|
Number of options
held over HSBC Holdings ordinary shares made under employee share plans |
943
|
|
36 |
|
|
Number of HSBC Holdings ordinary
shares held beneficially and non-beneficially |
16,733
|
|
12,358 |
|
|
Number of
HSBC Holdings preference shares held beneficially and non-beneficially |
8
|
|
8 |
|
|
Number of HSBC Holdings 8.125%
Perpetual Subordinated Capital Securities held beneficially and non-beneficially |
21
|
|
|
|
|
|
|
|
|
|
|
|
17,705 |
|
12,402 |
|
|
|
|
|
|
|
445
Back to Contents
H S B C H O L D I
N G S P L C |
|
Notes on the Financial Statements
(continued) |
|
|
|
|
Notes 43 and 44 |
|
Transactions with other
related parties of HSBC |
|
|
|
|
|
|
|
|
Associates and
joint ventures |
|
|
|
|
|
|
|
|
The Group provides
certain banking and financial services to associates and joint ventures,
including loans, overdrafts, interest and non-interest bearing deposits
and current accounts. Details of the interests in associates and joint
ventures are given in Note 21. Transactions and balances during the year
with associates and joint ventures were as follows: |
|
|
|
|
|
|
|
|
|
2008 |
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Highest |
|
|
|
Highest |
|
|
|
|
|
balance during |
|
Balance at |
|
balance during |
|
Balance at |
|
|
|
the year |
1 |
31 December |
1 |
the year |
1 |
31 December |
1 |
|
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
|
Amounts due from joint ventures: |
|
|
|
|
|
|
|
|
|
unsubordinated |
424 |
|
343 |
|
632 |
|
603 |
|
|
Amounts due from associates: |
|
|
|
|
|
|
|
|
|
subordinated |
59 |
|
59 |
|
15 |
|
15 |
|
|
unsubordinated |
1,060 |
|
280 |
|
7,310 |
|
823 |
|
|
|
|
|
|
|
|
|
|
|
|
|
1,543 |
|
682 |
|
7,957 |
|
1,441 |
|
|
|
|
|
|
|
|
|
|
|
|
Amounts due
to joint ventures |
66 |
|
64 |
|
71 |
|
27 |
|
|
Amounts due to associates |
735 |
|
293 |
|
5,243 |
|
327 |
|
|
|
|
|
|
|
|
|
|
|
|
|
801 |
|
357 |
|
5,314 |
|
354 |
|
|
|
|
|
|
|
|
|
|
|
|
1 |
The disclosure of the year-end balance and the highest balance during
the year is considered the most meaningful information to represent transactions
during the year. |
|
|
The above outstanding balances arose from the
ordinary course of business and on substantially the same terms, including
interest rates and security, as for comparable transactions with third-party
counterparties. |
|
|
|
Post-employment benefit plans |
|
|
|
At 31 December 2008, US$3.5 billion
(2007: US$4.1 billion) of HSBC post-employment benefit plan assets
were under management by HSBC companies. Fees of US$26 million (2007:
US$42 million) were earned by HSBC companies for these management
services provided to its post-employment benefit plans. HSBCs post-employment
benefit plans had placed deposits of US$430 million (2007: US$506
million) with its banking subsidiaries, on which interest payable to
the schemes amounted to US$55 million (2007: US$40 million).
The above outstanding balances arose from the ordinary course of business
and on substantially the same terms, including interest rates and security,
as for comparable
transactions with third-party counterparties. |
|
|
|
HSBC Bank (UK) Pension Scheme entered into
swap transactions with HSBC as part of the management of the inflation
and interest rate sensitivity of its liabilities. At 31 December 2008,
the gross notional value of the swaps
was US$17.7 billion (2007: US$21.2 billion), the swaps had a positive
fair value of US$1.8 billion (2007: positive fair value of US$248 million)
to the scheme and HSBC had delivered collateral of US$2.4 billion (2007:
US$759 million) to the scheme in respect of these swaps, on which HSBC earned
interest amounting to US$59 million (2007: US$15 million). All swaps
were executed at prevailing market rates and within standard market bid/offer
spreads. |
|
|
|
In order to satisfy diversification requirements,
there are special collateral provisions for the swap transactions between
HSBC and the scheme. The collateral agreement stipulates that the scheme
never posts collateral to HSBC. Collateral is posted to the scheme by
HSBC at an amount that provides the Trustee with a high level of confidence
that would be sufficient to replace the swaps in the event of default
by HSBC Bank plc. With the exception of the special collateral arrangements
detailed above, all other aspects of the swap transactions between HSBC
and the scheme are on substantially the same terms as comparable transactions
with third-party counterparties. |
|
|
|
HSBC International Staff Retirements Benefits
Scheme entered into swap transactions with HSBC to manage the inflation
and interest rate sensitivity of the liabilities and selected assets.
At 31 December 2008, the gross
notional value of the swaps was US$1.5 billion (2007: US$1.7 billion),
and the swaps had a net positive fair value of US$388 million to the scheme
(2007: US$63 million). |
446
Back to Contents
|
HSBC Holdings |
|
|
|
|
|
|
|
|
Details of HSBC Holdings principal
subsidiaries are shown in Note 24. Transactions and balances during the
year with subsidiaries were as follows: |
|
|
|
|
|
|
|
|
|
2008 |
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Highest |
|
|
|
Highest |
|
|
|
|
|
balance during |
|
Balance at |
|
balance during |
|
Balance at |
|
|
|
the year |
1 |
31 December |
1 |
the year |
1 |
31 December |
1 |
|
Subsidiaries |
US$m |
|
US$m |
|
US$m |
|
US$m |
|
|
Assets |
|
|
|
|
|
|
|
|
|
Cash at bank |
443 |
|
443 |
|
729 |
|
360 |
|
|
Derivatives |
3,682 |
|
3,682 |
|
2,660 |
|
2,660 |
|
|
Loans and advances |
17,242 |
|
11,804 |
|
17,242 |
|
17,242 |
|
|
Financial investments |
2,844 |
|
2,629 |
|
3,389 |
|
2,676 |
|
|
Investments in subsidiaries |
86,233 |
|
81,993 |
|
69,411 |
|
69,411 |
|
|
|
|
|
|
|
|
|
|
|
|
Total related party assets |
110,444 |
|
100,551 |
|
93,431 |
|
92,349 |
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
Amounts owed to HSBC undertakings |
4,042 |
|
4,042 |
|
3,191 |
|
2,969 |
|
|
Derivatives |
1,324 |
|
1,324 |
|
290 |
|
44 |
|
|
Subordinated liabilities: |
|
|
|
|
|
|
|
|
|
cost |
4,168 |
|
3,795 |
|
4,109 |
|
4,109 |
|
|
fair
value |
4,186 |
|
3,067 |
|
4,231 |
|
4,187 |
|
|
|
|
|
|
|
|
|
|
|
|
Total related party liabilities |
13,720 |
|
12,228 |
|
11,821 |
|
11,309 |
|
|
|
|
|
|
|
|
|
|
|
|
Guarantees |
56,733 |
|
47,341 |
|
38,457 |
|
38,457 |
|
|
Commitments |
3,638 |
|
3,241 |
|
3,985 |
|
3,638 |
|
|
|
|
|
|
|
|
|
|
|
|
1 |
The disclosure of the year-end balance and the highest balance during
the year is considered the most meaningful information to represent transactions
during the year. The above outstanding balances arose in the ordinary course
of business and are on substantially the same terms, including interest rates
and security, as for comparable transactions with third-party counterparties,
with the exception of US$476 million (2007: US$654 million) in respect
of loans from HSBC subsidiaries to HSBC Holdings made at an agreed zero per
cent
interest rate. |
|
|
Some employees of HSBC Holdings
are members of the HSBC Bank (UK) Pension Scheme, which is sponsored by
a separate Group company. HSBC Holdings incurs a charge for these employees
equal to the contributions paid into the scheme on their behalf. Disclosure
in relation to the scheme is made in Note 8 to the accounts. |
|
|
44 |
Events after the balance sheet date |
|
|
|
A fourth interim dividend for 2008 of US$0.10
per ordinary share (US$1,214 million) (2007: US$0.39 per ordinary
share, US$4,628 million) was declared by the Directors after 31 December
2008. |
|
|
|
In late February 2009, it was decided to
discontinue all originations by the branch-based consumer lending business
of HSBC Finance. HSBC Finance will continue to service and collect the
existing portfolio as it runs off.
Closure costs of approximately US$265 million are expected to be incurred,
mainly relating to one-off termination and other employee benefit costs, and
charges for impairment of fixed assets associated with the consumer lending branch
network, a substantial portion of which will be recorded in the first half of
2009. |
|
|
|
On 2 March 2009, HSBC Holdings plc announced
its proposal to raise £12.5 billion (US$17.7 billion) (net of
expenses) by way of a fully underwritten rights issue of 5,060 million
new ordinary shares at a price of 254 pence per share on the basis of
5 new ordinary shares for every 12 existing ordinary shares. The proposal
is subject to authorisation by the shareholders at a general meeting
on 19 March 2009. |
|
|
|
These accounts were approved by the Board
of Directors on 2 March 2009 and authorised for issue. |
|
|
45 |
Non-statutory accounts |
|
|
|
The information set out in these accounts
does not constitute the companys statutory accounts for the years
ended 31 December 2008, 2007 or 2006. Those accounts have been reported
on by the companys auditors: their reports were unqualified and did
not contain a statement under section 237(2) or (3) of the Companies Act
1985.
The accounts for 2007 and 2006 have been delivered to the Registrar of
Companies and those for 2008 will be delivered in due course. |
447
Back to Contents
H S B C H O L D I
N G S P L C |
|
Shareholder Information |
|
|
|
|
Enforceability of judgements
/ Exchange controls / Dividends / Nature of trading market |
|
|
|
Information about
the enforceability of judgements made in the US |
|
|
|
HSBC Holdings is a public limited company
incorporated in England and Wales. Most of HSBC Holdings Directors
and executive officers live outside the US. As a result, it may not be
possible to serve process on such
persons or HSBC Holdings in |
|
the US or to enforce judgements
obtained in US courts against them or HSBC Holdings based on civil liability
provisions of the securities laws of the US. There is doubt as to whether
English courts would enforce: |
|
• |
certain civil liabilities under US securities laws in original actions; or |
|
|
|
|
• |
judgements of US courts based upon these civil liability provisions. |
In addition, awards of punitive damages in actions brought in the US or elsewhere may be unenforceable in the UK. The enforceability of any judgement in the UK will depend on the particular
facts of the case as well as the laws and treaties in effect at the time.
Exchange
controls and other limitations affecting equity security holders |
|
|
There are currently no UK laws,
decrees or regulations which would prevent the import or export of capital
or remittance of distributable profits by way of dividends and other payments
to holders of HSBC Holdings equity securities who are not residents
of the UK. There are also no restrictions under the laws of the UK or the
terms of the Memorandum and Articles of Association of HSBC Holdings concerning
the right of non-resident or foreign owners to hold
HSBC Holdings equity securities or, when entitled to vote, to do so. |
|
|
|
|
Fourth
interim dividend for 2008 |
|
|
|
|
The Directors have
declared a fourth interim dividend for 2008 of US$0.10 per ordinary
share. Information on the scrip dividend scheme and currencies in which
shareholders may elect to have the cash dividend paid will be sent to shareholders
on or about 31 March 2009. The timetable for the dividend is: |
|
|
|
|
|
|
|
2009
|
|
|
|
|
|
|
Shares quoted ex-dividend in London, Hong Kong, Paris and Bermuda |
18 March
|
|
|
ADSs quoted ex-dividend in New York |
18 March
|
|
|
Record date for dividend and closure of Hong Kong Overseas Branch Register
of shareholders for one day |
20 March
|
|
|
Mailing
of Annual Report and Accounts 2008 and/or Annual Review 2008,
Notice of Annual General Meeting and dividend
documentation |
31 March
|
|
|
Final
date for receipt by registrars of forms of election, Investor Centre electronic
instructions and revocations of standing instructions for scrip dividends |
23 April
|
|
|
Exchange rate determined for payment of dividends in sterling and Hong Kong
dollars |
27 April
|
|
|
Payment
date: dividend warrants, new share certificates or transaction advices
and notional tax vouchers mailed and shares credited to stock accounts
in CREST |
6 May
|
|
448
Back to Contents
|
Interim
dividends for 2009 |
|
|
|
|
The Board has adopted
a policy of paying quarterly interim dividends on the ordinary shares.
Under this policy it is intended to have a pattern of three equal interim
dividends with a variable fourth interim dividend. It is envisaged that
the first interim dividend in respect of 2009 will be US$0.08 per ordinary
share. The proposed timetables for the dividends in respect of 2009 are: |
|
|
|
|
|
|
Interim dividends for 2009 |
|
|
|
|
|
|
|
First |
|
Second |
|
Third |
|
Fourth |
|
|
|
|
|
|
|
|
|
|
|
|
Announcement |
5 May 2009 |
|
3 August 2009 |
|
2 November 2009 |
|
1 March 2010 |
|
|
ADSs quoted ex-dividend in New York |
20 May 2009 |
|
19 August 2009 |
|
18 November 2009 |
|
17 March 2010 |
|
|
Shares
quoted ex-dividend in London, Hong Kong, Paris and Bermuda |
20 May 2009 |
|
19 August 2009 |
|
18 November 2009 |
|
17 March 2010 |
|
|
Record date in Hong Kong |
22 May 2009 |
|
21 August 2009 |
|
19 November 2009 |
|
18 March 2010 |
|
|
Record date in London, Paris and Bermuda |
22 May 2009 |
|
21 August 2009 |
|
20 November 2009 |
1 |
19 March 2010 |
1 |
|
Closure of the Overseas Branch Register
of shareholders in Hong Kong
for one day |
22 May 2009 |
|
21 August 2009 |
|
|
|
|
|
|
Payment date |
8 July 2009 |
|
7 October 2009 |
|
13 January 2010 |
|
5 May 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
1 |
Removals to and from the Overseas Branch Register of shareholders in Hong
Kong will not be permitted on these dates. |
|
|
Dividends
on the ordinary shares of HSBC Holdings |
|
|
|
|
HSBC Holdings has
paid dividends on its ordinary shares every year without interruption since
it became the HSBC Group holding company by a scheme of arrangement in
1991. The dividends declared, per ordinary share, for each of the last
five years were: |
|
|
|
|
|
First |
|
Second |
|
Third |
|
Fourth |
|
|
|
|
|
|
interim |
|
interim |
|
interim |
|
interim |
1 |
Total |
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
US$ |
0.180 |
|
0.180 |
|
0.180 |
|
0.100 |
|
0.640 |
|
|
|
£ |
0.090 |
|
0.100 |
|
0.124 |
|
0.069 |
|
0.383 |
|
|
|
HK$ |
1.403 |
|
1.398 |
|
1.395 |
|
0.775 |
|
4.971 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
US$ |
0.170 |
|
0.170 |
|
0.170 |
|
0.390 |
|
0.900 |
|
|
|
£ |
0.085 |
|
0.084 |
|
0.086 |
|
0.194 |
|
0.449 |
|
|
|
HK$ |
1.328 |
|
1.322 |
|
1.325 |
|
3.041 |
|
7.016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
US$ |
0.150 |
|
0.150 |
|
0.150 |
|
0.360 |
|
0.810 |
|
|
|
£ |
0.082 |
|
0.079 |
|
0.078 |
|
0.183 |
|
0.422 |
|
|
|
HK$ |
1.164 |
|
1.167 |
|
1.168 |
|
2.799 |
|
6.298 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 |
US$ |
0.140 |
|
0.140 |
|
0.140 |
|
0.310 |
|
0.730 |
|
|
|
£ |
0.077 |
|
0.079 |
|
0.079 |
|
0.169 |
|
0.404 |
|
|
|
HK$ |
1.088 |
|
1.086 |
|
1.085 |
|
2.403 |
|
5.662 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 |
US$ |
0.130 |
|
0.130 |
|
0.130 |
|
0.270 |
|
0.660 |
|
|
|
£ |
0.071 |
|
0.072 |
|
0.069 |
|
0.141 |
|
0.353 |
|
|
|
HK$ |
1.013 |
|
1.014 |
|
1.013 |
|
2.104 |
|
5.144 |
|
|
|
|
|
1 |
The fourth interim dividend for 2008 of US$0.10 per share has been
translated into pounds sterling and Hong Kong dollars at the closing rate
on 31 December 2008. The dividend will be paid on 6 May
2009. |
|
2 |
The above dividends declared are accounted for as disclosed in Note 12
on the Financial Statements. |
|
|
|
|
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
Boards 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. |
|
|
|
|
Nature
of trading market |
|
|
|
HSBC Holdings ordinary
shares are listed or admitted to trading on the London Stock Exchange,
the Hong Kong Stock Exchange (HKSE), Euronext Paris, the New
York Stock Exchange (NYSE) and the Bermuda Stock Exchange.
HSBC Holdings maintains its principal share register in England and overseas
branch share registers in Hong Kong and Bermuda (collectively, the share
register). |
|
|
|
|
As at 31 December 2008, there were a total of
217,633 holders of record of HSBC Holdings ordinary shares. |
449
Back to Contents
H S B C H O L D I
N G S P L C |
|
Shareholder Information (continued) |
|
|
|
|
Nature of trading market
/ Shareholder profile / Memorandum and Articles |
|
As
at 31 December 2008, a total of 14,601,549 of the HSBC Holdings ordinary
shares were registered in the HSBC Holdings share register in the
name of 13,196 holders of record with addresses in the US. These shares
represented 0.12 per cent of the total HSBC Holdings ordinary shares in
issue. |
|
|
|
As
at 31 December 2008, there were 10,041 holders of record of ADSs holding
approximately 114 million ADSs, representing approximately 569 million
HSBC Holdings ordinary shares. 9,845 of these holders had addresses in
the US, holding approximately 113.7 million ADSs, representing 568.6 million
HSBC Holdings ordinary shares. As at 31 December 2008, approximately 4.7
per cent of the HSBC Holdings ordinary shares were represented by ADSs
held by holders of record with addresses in the US. |
|
|
|
The
following table shows, for the years, calendar quarters and months indicated,
the highest and lowest prices for the HSBC Holdings ordinary shares and
ADSs. These are based on mid-market prices at close of business on the
London Stock Exchange, HKSE, Euronext Paris, NYSE and the Bermuda Stock
Exchange. |
|
|
|
Past share price performance
should not be regarded as a guide to future performance. |
|
|
|
High and low mid-market
closing prices |
|
|
|
|
London |
|
Hong Kong |
|
New York |
|
Paris |
|
Bermuda |
|
|
|
US$0.50 shares |
|
US$0.50 shares |
|
ADSs1 |
|
US$0.50 shares |
|
US$0.50 shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High |
|
Low |
|
High |
|
Low |
|
High |
|
Low |
|
High |
|
Low |
|
High |
|
Low |
|
|
|
pence |
|
pence |
|
HK$ |
|
HK$ |
|
US$ |
|
US$ |
|
euro |
|
euro |
|
US$ |
|
US$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
928 |
|
612 |
|
136.3 |
|
73.3 |
|
87.7 |
|
45.6 |
|
11.9 |
|
6.4 |
|
17.7 |
|
9.0 |
|
|
2007 |
964 |
|
803 |
|
152.8 |
|
129.6 |
|
99.5 |
|
82.5 |
|
14.4 |
|
11.2 |
|
19.6 |
|
16.5 |
|
|
2006 |
1028 |
|
914 |
|
151.2 |
|
124.5 |
|
98.4 |
|
80.5 |
|
15.4 |
|
13.3 |
|
19.6 |
|
16.4 |
|
|
2005 |
950 |
|
825 |
|
133.5 |
|
120.1 |
|
85.8 |
|
77.5 |
|
13.9 |
|
12.0 |
|
17.1 |
|
15.7 |
|
|
2004 |
954 |
|
784 |
|
136.5 |
|
109.5 |
|
87.8 |
|
70.0 |
|
13.6 |
|
11.8 |
|
17.3 |
|
14.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4th Quarter |
928 |
|
612 |
|
123.6 |
|
73.3 |
|
82.5 |
|
45.6 |
|
11.9 |
|
6.4 |
|
16.0 |
|
9.0 |
|
|
3rd Quarter |
920 |
|
716 |
|
129.6 |
|
112.8 |
|
84.0 |
|
71.9 |
|
11.8 |
|
9.0 |
|
16.6 |
|
14.3 |
|
|
2nd Quarter |
897 |
|
776 |
|
136.3 |
|
120.9 |
|
87.7 |
|
76.6 |
|
11.4 |
|
9.8 |
|
17.7 |
|
15.8 |
|
|
1st Quarter |
842 |
|
712 |
|
131.7 |
|
104.4 |
|
83.7 |
|
69.9 |
|
11.4 |
|
9.5 |
|
16.8 |
|
14.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4th Quarter |
964 |
|
803 |
|
152.8 |
|
129.6 |
|
99.5 |
|
82.5 |
|
13.9 |
|
11.2 |
|
19.6 |
|
16.5 |
|
|
3rd Quarter |
917 |
|
861 |
|
145.8 |
|
135.8 |
|
93.8 |
|
87.2 |
|
13.7 |
|
12.8 |
|
18.8 |
|
17.1 |
|
|
2nd Quarter |
955 |
|
886 |
|
147.1 |
|
136.3 |
|
95.2 |
|
88.0 |
|
14.0 |
|
13.2 |
|
18.7 |
|
17.7 |
|
|
1st Quarter |
953 |
|
880 |
|
145.4 |
|
133.0 |
|
93.1 |
|
85.8 |
|
14.4 |
|
12.8 |
|
18.8 |
|
17.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January |
682 |
|
485 |
|
77.5 |
|
55.0 |
|
49.6 |
|
33.8 |
|
7.3 |
|
5.2 |
|
9.9 |
|
7.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December |
763 |
|
612 |
|
87.7 |
|
73.3 |
|
56.7 |
|
45.6 |
|
8.7 |
|
6.4 |
|
10.5 |
|
9.0 |
|
|
November |
790 |
|
626 |
|
95.0 |
|
74.8 |
|
63.0 |
|
45.8 |
|
9.7 |
|
7.2 |
|
12.1 |
|
9.6 |
|
|
October |
928 |
|
663 |
|
123.6 |
|
75.0 |
|
82.5 |
|
52.0 |
|
11.9 |
|
8.4 |
|
16.0 |
|
11.4 |
|
|
September |
920 |
|
796 |
|
126.0 |
|
114.9 |
|
81.8 |
|
72.9 |
|
11.8 |
|
10.1 |
|
16.1 |
|
14.8 |
|
|
August |
869 |
|
806 |
|
129.4 |
|
117.8 |
|
84.0 |
|
76.2 |
|
11.0 |
|
10.2 |
|
16.3 |
|
15.2 |
|
|
July |
847 |
|
716 |
|
129.6 |
|
112.8 |
|
84.0 |
|
71.9 |
|
10.8 |
|
9.0 |
|
16.6 |
|
14.3 |
|
|
|
|
|
1 |
In New York each ADS represents 5 underlying ordinary shares. |
|
|
|
|
Stock symbols |
|
|
|
|
HSBC Holdings ordinary shares trade under the following stock symbols: |
|
|
|
|
London Stock Exchange |
HSBA |
|
Hong Kong Stock Exchange |
5 |
|
New York Stock Exchange (ADS) |
HBC |
|
Euronext Paris |
HSB |
|
Bermuda Stock Exchange |
HSBC |
450
Back to Contents
|
Shareholder profile |
|
|
|
At 31 December 2008 the register of members
recorded the following details: |
|
|
Number of |
|
Total |
|
|
Ordinary shares held |
shareholders |
|
shares held |
|
|
|
|
|
|
|
|
1-100 |
34,307 |
|
1,096,309 |
|
|
101-400 |
36,669 |
|
9,352,754 |
|
|
401-500 |
10,430 |
|
4,718,343 |
|
|
501-1,000 |
33,322 |
|
25,102,571 |
|
|
1,001-5,000 |
68,515 |
|
158,400,107 |
|
|
5,001-10,000 |
16,039 |
|
113,367,551 |
|
|
10,001-20,000 |
8,723 |
|
121,509,773 |
|
|
20,001-50,000 |
5,319 |
|
163,350,441 |
|
|
50,001-200,000 |
2,659 |
|
250,022,876 |
|
|
200,001-500,000 |
679 |
|
214,879,617 |
|
|
500,001 and above |
971 |
|
11,043,464,740
|
|
|
|
|
|
|
|
|
Total |
217,633 |
|
12,105,265,082
|
|
|
|
|
|
|
|
|
Memorandum and Articles
of Association |
|
|
|
The disclosure under the caption Memorandum
and Articles of Association contained in HSBC Holdings Annual
Reports on Form 20-F for the years ended 31 December 2000 and 2001 is
incorporated by reference
herein, together with the disclosure below. |
|
|
|
|
Interested directors |
|
|
|
|
Subject to the provisions of
the Companies Act 2006 and provided that the Articles are complied with,
a Director, notwithstanding his office: |
|
|
|
|
• |
may enter into or otherwise be interested in any contract, arrangement, transaction or proposal with HSBC Holdings or in which HSBC Holdings is otherwise interested; |
|
|
|
|
• |
may hold any other office or place of profit under HSBC Holdings (except that of auditor or auditor of a subsidiary of HSBC Holdings) in conjunction with the office of Director and may act
by himself or through his firm in a professional capacity for HSBC Holdings, and in any such case on such terms as to remuneration and otherwise as the Board may arrange; |
|
|
|
|
• |
may be a director or other officer, or employed by, or a party to any transaction or arrangement with or otherwise interested in, any company promoted by HSBC Holdings or in which HSBC
Holdings is otherwise interested or as regards which HSBC Holdings has any powers of appointment; and |
|
|
|
|
• |
shall not be liable to account to HSBC Holdings for any profit, remuneration or other benefit realised by any such office, employment, contract, arrangement, transaction or proposal or from
any interest in any body corporate and no such contract, arrangement, transaction, proposal or interest shall be avoided on the grounds of any such interest or benefit nor shall the
receipt of any such profit, remuneration or any other benefit constitute a breach of his duty under the Companies Act 2006 not to accept benefits from third parties. |
|
|
|
|
Since
1 October 2008, the Board may authorise any matter proposed to it which
would, if not so authorised, involve a breach by a Director of his duty
to avoid conflicts of interest under the Companies Act 2006, including,
without limitation, any matter which relates to a situation in which
a Director has, or can have, an interest which conflicts, or possibly
may conflict, with the interest of HSBC Holdings (including the exploitation
of any property, information or opportunity, whether or not HSBC Holdings
could take advantage of it, but excluding any situation which cannot
reasonably be regarded as likely to give rise to a conflict of interest).
Any such authorisation will be
effective only if: |
|
|
|
|
• |
any requirement as to quorum at the meeting at which the matter is considered is met without counting the Director in question or any other interested Director; and |
|
|
|
|
• |
the matter was agreed to without their voting or would have been agreed to
if their votes had not been counted. |
451
Back to Contents
H S B C H O L D I
N G S P L C |
|
Shareholder Information (continued) |
|
|
|
|
Annual General Meeting /
Interim Management Statements / Enquiries |
|
The Board may
(whether at the time of the giving of the authorisation or subsequently)
make any such authorisation subject to any limits or conditions it expressly
imposes but such authorisation is otherwise given to the fullest extent
permitted. The Board may vary or terminate any such authorisation at
any time. |
|
|
|
A Director shall
be under no duty to HSBC Holdings with respect to any information which
he obtains or has obtained otherwise than as a Director of HSBC Holdings
and in respect of which he has
a duty of confidentiality to another person. |
|
|
|
Annual General Meeting |
|
|
|
The 2009 Annual General Meeting will be
held at the Barbican Hall, Barbican Centre, London EC2 on Friday 22 May
2009 at 11 am. |
|
|
|
An informal
meeting of shareholders will be held at Level 28, 1 Queens Road
Central, Hong Kong on Tuesday, 19 May 2009 at 4.30 pm. |
|
|
|
All resolutions
considered at the 2008 Annual General Meeting were passed on a poll as
follows: |
|
|
|
|
|
|
Total votes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Resolution |
For |
1 |
Against |
|
Vote withheld
|
2 |
|
|
|
|
|
|
|
|
|
|
|
1 |
To receive the Report and Accounts for 2007 |
4,378,043,313 |
|
10,278,857 |
|
2,300,035 |
|
|
2 |
To approve the Directors Remuneration Report for 2007 |
3,564,669,072 |
|
467,114,424 |
|
328,531,356 |
|
|
3 |
To re-elect the following as Directors: |
|
|
|
|
|
|
|
|
(a) |
S A Catz |
4,375,443,604 |
|
15,493,924 |
|
4,853,194 |
|
|
|
(b) |
V H C Cheng |
4,374,705,038 |
|
16,651,751 |
|
4,560,793 |
|
|
|
(c) |
J D Coombe |
4,349,432,760 |
|
41,839,567 |
|
4,614,758 |
|
|
|
(d) |
J L Durán |
4,375,677,125 |
|
15,302,707 |
|
4,915,245 |
|
|
|
(e) |
D J Flint |
4,374,609,502 |
|
16,771,975 |
|
4,536,647 |
|
|
|
(f) |
A A Flockhart |
4,373,920,231 |
|
17,415,825 |
|
4,580,796 |
|
|
|
(g) |
W K L Fung |
4,259,101,744 |
|
76,102,878 |
|
60,005,424 |
|
|
|
(h) |
S T Gulliver |
4,372,071,648 |
|
17,464,424 |
|
6,374,625 |
|
|
|
(i) |
J W J Hughes-Hallett |
4,372,359,698 |
|
18,870,339 |
|
4,659,213 |
|
|
|
(j) |
W S H Laidlaw |
4,375,327,024 |
|
15,801,272 |
|
4,735,846 |
|
|
|
(k) |
N R N Murthy |
4,375,645,536 |
|
15,587,234 |
|
4,671,202 |
|
|
|
(l) |
S W Newton |
4,374,735,344 |
|
16,524,200 |
|
4,612,269 |
|
|
4
|
To reappoint
the Auditor at remuneration to be determined by the Group
Audit Committee |
4,304,372,153 |
|
12,720,218 |
|
72,285,220 |
|
|
5 |
To authorise the Directors to allot shares |
4,356,107,796 |
|
29,620,845 |
|
4,880,817 |
|
|
6 |
To disapply pre-emption rights (Special Resolution) |
4,332,361,701 |
|
47,782,336 |
|
10,450,441 |
|
|
7 |
To authorise the Company to purchase its own Ordinary Shares |
4,305,412,056 |
|
12,665,996 |
|
71,358,559 |
|
|
8 |
To alter the Articles of Association (Special Resolution) |
4,327,487,122 |
|
53,604,562 |
|
9,091,619 |
|
|
9
|
To alter the Articles
of Association with effect from 1 October 2008 (Special
Resolution) |
4,360,324,406 |
|
21,054,665 |
|
8,805,451 |
|
|
10 |
To amend the rules of the HSBC Share Plan |
3,684,549,040 |
|
399,610,155 |
|
290,185,238 |
|
|
|
|
|
1 |
Includes discretionary votes. |
|
2 |
A Vote withheld is not a vote in law and is not
counted in the calculation of the votes For and Against the
resolution. |
|
|
|
Interim Management Statements and Interim results |
|
|
|
Interim Management Statements are expected
to be issued on 11 May 2009 and 6 November 2009, respectively. The interim
results for the six months to 30 June 2009 are expected to be issued on
3 August 2009. |
452
Back to Contents
|
Shareholder enquiries and
communications |
|
|
|
|
|
Enquiries |
|
|
|
Any enquiries relating to your shareholding,
for example transfers of shares, change of name or address, lost share
certificates or dividend cheques, should be sent to the Registrars: |
|
|
|
Principal Register
|
|
Hong Kong Overseas Branch Register:
|
|
Bermuda Overseas Branch Register:
|
|
|
|
|
|
|
|
Computershare Investor Services PLC |
|
Computershare Hong Kong Investor |
|
Corporate Shareholder Services |
|
PO Box 1064 |
|
Services Limited |
|
The Bank of Bermuda Limited |
|
The Pavilions |
|
Hopewell Centre |
|
6 Front Street |
|
Bridgwater Road |
|
Rooms 1806-1807 |
|
Hamilton HM 11 |
|
Bristol BS99 3FA |
|
18th Floor |
|
Bermuda |
|
United Kingdom |
|
183 Queens Road East |
|
|
|
|
|
Hong Kong |
|
|
|
Telephone: 44 (0) 870 702 0137 |
|
Telephone: 852 2862 8555 |
|
Telephone: 1 441 299 6737 |
|
Email: web.queries@computershare.co.uk |
|
Email: hsbc.ecom@computershare.com.hk |
|
Email: bob.bda.shareholder.services@ |
|
|
|
|
|
bob.hsbc.com |
|
Investor Centre: |
|
Investor Centre: |
|
Investor Centre: |
|
www.computershare.com/investor/uk |
|
www.computershare.com/hk/investors |
|
www.computershare.com/investor/bm |
|
|
|
Any enquiries relating to ADSs should be sent
to the depositary: |
|
|
|
BNY Mellon Shareowner Services
PO Box 358516
Pittsburgh, PA 15252-8516
USA
Telephone (US): 1 887 283 5786
Telephone (International): 1 201 680 6825
Email: shrrelations@bnymellon.com
Website: www.bnymellon.com/shareowner |
|
|
|
Any enquiries relating to shares held through
Euroclear France, the settlement and central depositary system for Euronext
Paris, should be sent to the paying agent: |
|
HSBC France |
|
103, avenue
des Champs Elysées |
|
75419 Paris Cedex 08 |
|
France |
|
Telephone: 33 1 40 70 22
56 |
|
|
|
If you have been nominated to receive general
shareholder communications directly from HSBC Holdings it is important
to remember that your main contact in terms of your investment remains
as it was (so the registered shareholder, or perhaps custodian or broker,
who administers the investment on your behalf). Therefore any changes
or queries relating to your personal details and holding (including any
administration thereof) must continue to be directed to your existing
contact at your investment manager or custodian. HSBC Holdings cannot
guarantee dealing with matters directed to it in error. |
|
|
|
Further copies of this Annual Report
and Accounts 2008 may be obtained by writing to the following departments: |
|
|
|
For those in Europe, the Middle East and
Africa: |
|
For those in Asia-Pacific:
|
|
For those in the Americas:
|
|
|
|
|
|
|
|
Group Communications |
|
Group Communications (Asia) |
|
Internal Communications |
|
HSBC Holdings plc |
|
The Hongkong and Shanghai Banking |
|
HSBCNorth America |
|
8 Canada Square |
|
Corporation Limited |
|
26525 N Riverwoods Boulevard |
|
London E14 5HQ |
|
1 Queens Road Central |
|
Mettawa |
|
UK |
|
Hong Kong |
|
Illinois 60045 |
|
|
|
|
|
USA |
453
Back to Contents
H S B C H O L D I
N G S P L C |
|
Shareholder Information (continued) |
|
|
|
|
Enquiries / Investor relations
/ Where more information is available / Taxation of shares and dividends |
|
Electronic communications |
|
|
|
Shareholders may at any time choose to receive
corporate communications in printed form or to receive a notification
of its availability on HSBCs website. To receive future notifications
of the availability of a
corporate communication on HSBCs website by email, or revoke or amend an
instruction to receive such notifications by email, go to www.hsbc.com/ecomms.
If you provide an email address to receive electronic communications from HSBC
we will also send notifications of your dividend entitlements by email. If you
received a notification of the availability of this document on HSBCs website
and would like to receive a printed copy of it, or if you would like to receive
future corporate communications in printed form, please write or send an email
to the appropriate Registrars at the address given above. Printed copies will
be provided without charge. |
|
|
|
Chinese translation |
|
|
|
A Chinese translation of this Annual
Report and Accounts 2008 is available upon request after 31 March
2009 from the Registrars: |
|
|
|
Computershare Hong Kong Investor Services Limited |
|
Hopewell Centre, Rooms 1806-07, 18th Floor |
|
183 Queens Road East |
|
Hong Kong |
|
|
|
Computershare Investor Services PLC |
|
PO Box 1064, The Pavilions |
|
Bridgwater Road |
|
Bristol BS99 3FA |
|
UK |
|
|
|
Please also contact the Registrars if you
wish to receive Chinese translations of future documents or if you have
received a Chinese translation of this document and do not wish to receive
such translations in future. |
|
|
|
Investor relations |
|
|
|
|
|
|
|
Enquiries relating to
HSBCs strategy or operations may be directed to: |
|
|
|
|
|
|
|
Manager Investor Relations |
|
Investor Relations Officer |
|
Head of Investor Relations (Asia) |
|
HSBC Holdings plc |
|
HSBC North America Holdings Inc. |
|
The Hongkong and Shanghai Banking |
|
8 Canada Square |
|
26525 N. Riverwoods Boulevard |
|
Corporation Limited |
|
London E14 5HQ |
|
Mettawa, Illinois 60045 |
|
1 Queens Road Central |
|
UK |
|
USA |
|
Hong Kong |
|
Telephone: 44 (0)20 7991 8041 |
|
1 224 544 4400 |
|
852 2822 4929 |
|
Facsimile: 44 (0)20
7991 4663 |
|
1 224 552 4400 |
|
852 2845 0113 |
|
Email:
investorrelations@hsbc.com |
|
investor.relations.usa@us.hsbc.com |
|
investorrelations@hsbc.com.hk |
|
|
|
|
|
|
Where more information about HSBC is
available |
|
This Annual Report and Accounts 2008,
and other information on HSBC, may be viewed on HSBCs website: www.hsbc.com. |
Reports, statements or information that HSBC Holdings files with the Securities
and Exchange Commission are available at www.sec.gov. Investors can also request
hard copies of these documents
upon payment of a duplicating fee, by writing to the SEC at the Office of Investor
Education and Advocacy, 100 F Street N.E. Washington, DC 20549-0123 or by emailing
PublicInfo@sec.gov. Investors should call the Commission at (202) 551 8090
if they require further assistance. Investors may also obtain the reports and
other information that HSBC Holdings files at the offices of the New York Stock
Exchange, Inc., 11 Wall Street, New York, NY 10005.
454
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Taxation of shares and dividends |
|
Taxation UK residents |
The following is a summary, under current law,
of the principal UK tax considerations that are likely to be material to the
ownership and disposition of shares. The summary does not purport to be a
comprehensive description of all the tax considerations that may be relevant
to a holder of shares. In particular, the summary deals principally with shareholders
who are resident in the UK for UK tax purposes and only with holders who hold
the shares as investments and who are the beneficial owners of the shares,
and does not address the tax treatment of certain classes of holders such
as dealers in securities. Holders and prospective purchasers should consult
their own advisers regarding the tax consequences of an investment in shares
in light of their particular circumstances, including the effect of any national,
state or local laws.
Taxation of dividends
Currently no tax is withheld from dividends paid by HSBC Holdings. However,
dividends are paid with an associated tax credit which is available for set-off
by certain shareholders against any liability they may have to UK income tax.
Currently, the associated tax credit is equivalent to 10 per cent of the combined
cash dividend and tax credit, i.e. one-ninth of the cash dividend.
For individual shareholders who are resident in the UK for taxation purposes and liable to UK income tax at the basic rate, no further UK income tax liability arises on the receipt of a
dividend from HSBC Holdings. Individual shareholders who are liable to UK income tax at the higher rate on UK dividend income (currently 32.5 per cent) are taxed on the combined amount of the dividend and the tax credit. The tax credit is available
for set-off against the higher rate liability, leaving net higher rate tax to pay equal to 25 per cent of the cash dividend. Individual UK resident shareholders are not entitled to any tax credit repayment.
Although non-UK resident shareholders are generally not entitled to any repayment of the tax credit in respect of any UK dividend received, some such shareholders may be so entitled under the
provisions of a double taxation agreement between their country of residence and the UK. However, in most cases no amount of the tax credit is, in practice, repayable.
Information on the taxation consequences of the HSBC Holdings scrip dividends offered in lieu of the
2007 fourth interim dividend and the first, second and third interim dividends
for 2008 was set out in the Secretarys letters to shareholders of 3 April,
3 June, 3 September and 3 December 2008. In each case, the difference between
the cash dividend foregone and the market value of the scrip dividend did not
equal or exceed 15 per cent of the market value and accordingly, the price
of HSBC Holdings US$0.50 ordinary shares (the shares) for UK
tax purposes for the dividends was the cash dividend foregone.
Taxation of capital gains
The computation of the capital gains tax liability arising on disposals of
shares in HSBC Holdings by shareholders subject to UK capital gains tax can
be complex, partly depending on whether, for example, the shares were purchased
since April 1991, acquired in 1991 in exchange for shares in The Hongkong and
Shanghai Banking Corporation Limited, or acquired subsequent to 1991 in exchange
for shares in other companies.
For capital gains tax purposes, the acquisition cost for ordinary shares is adjusted to take account of subsequent rights and capitalisation issues. Further adjustments apply where an
individual shareholder has chosen to receive shares instead of cash dividends, subject to scrip issues made since 6 April 1998 being treated for tax as separate holdings. Any capital gain arising on a disposal may also be adjusted to take account of
indexation allowance and, in the case of individuals, taper relief. Except for gains made by a company chargeable to UK corporation tax, any such indexation allowance is calculated up to 5 April 1998 only.
Changes to capital gains tax were made that apply to disposals of shares with effect from 6 April 2008. The changes included:
• |
shares will no longer be treated as separate
holdings but pooled, the consequence of which
is the tax basis of disposals will be calculated
on the average cost of the shares held; |
|
|
• |
indexation allowance was withdrawn; |
|
|
• |
Taper Relief was withdrawn; and |
|
|
• |
a single tax rate of 18 per cent applies to
all gains. |
If in doubt, shareholders are recommended to consult their professional advisers.
Inheritance tax
Shares or ADSs held by an individual whose domicile is determined to be the
US for the purposes
455
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H S B C H O L D I
N G S P L C |
|
Shareholder Information (continued) |
|
|
|
|
Taxation of shares and dividends
/ History and development |
of the United States-United Kingdom Double Taxation Convention relating to
estate and gift taxes (the Estate Tax Treaty) and who is not for
such purposes a national of the UK will not, provided any US Federal estate
or gift tax chargeable has been paid, be subject to UK inheritance tax on the
individuals death or on a lifetime transfer of shares or ADSs except
in certain cases where the shares or ADSs (i) are comprised in a settlement
(unless, at the time of the settlement, the settlor was domiciled in the US
and was not a national of the UK), (ii) is part of the business property of
a UK permanent establishment of an enterprise, or (iii) pertains to a UK fixed
base of an individual used for the performance of independent personal services.
In such cases, the Estate Tax Treaty generally provides a credit against US
Federal tax liability for the amount of any tax paid in the UK in a case where
the shares or ADSs are subject to both UK inheritance tax and to US Federal
estate or gift tax.
Stamp duty and stamp duty reserve tax
Transfers of shares by a written instrument of transfer generally will be subject
to UK stamp duty at the rate of 0.5 per cent of the consideration paid for
the transfer, and such stamp duty is generally payable by the
transferee.
An agreement to transfer shares, or any interest therein, normally will give rise to a charge to stamp duty reserve tax at the rate of 0.5 per cent of the consideration. However, provided an
instrument of transfer of the shares is executed pursuant to the agreement and duly stamped before the date on which the stamp duty reserve tax becomes payable, under the current practice of UK HM Revenue and Customs it will not be necessary to pay
the stamp duty reserve tax, nor to apply for such tax to be cancelled. Stamp duty reserve tax is generally payable by the transferee.
Paperless transfers
of shares within
CREST, the UKs paperless share transfer system, are liable to stamp duty
reserve tax at the rate of 0.5 per cent of the consideration. In CREST transactions,
the tax is calculated and payment made automatically. Deposits of shares into
CREST generally will not be subject to stamp duty reserve tax, unless the transfer
into CREST is itself for consideration.
Taxation US residents
The following is a summary, under current law, of the principal UK tax and
US federal income tax considerations that are likely to be material to the
ownership and disposition of shares or ADSs by a holder that is a resident
of the US for the purposes of
the income tax convention between the US and the UK (the Treaty),
and is fully eligible for benefits under the Treaty (an eligible US holder).
The summary does not purport to be a comprehensive description of all of the
tax considerations that may be relevant to a holder of shares or ADSs. In particular,
the summary deals only with eligible US holders that hold shares or ADSs as
capital assets, and does not address the tax treatment of holders that are
subject to special tax rules, such as banks, tax-exempt entities, insurance
companies, dealers in securities or currencies, persons that hold shares or
ADSs as part of an integrated investment (including a straddle)
comprised of a share or ADS and one or more other positions, and persons that
own, directly or indirectly, 10 per cent or more of the voting stock of HSBC
Holdings. This discussion is based on laws, treaties, judicial decisions and
regulatory interpretations in effect on the date hereof, all of which are subject
to change. Under the current income tax treaty between the UK and the US, eligible
US holders are no longer entitled to claim a special foreign tax credit in
respect of
dividends.
Holders and prospective purchasers should consult their own advisers regarding the tax consequences of an investment in shares or ADSs in light of their particular circumstances, including the
effect of any national, state or local laws.
In general, the beneficial owner of a share or ADS will be entitled to benefits under the Treaty (and, therefore, will be an eligible US holder) if it is (i) an individual resident of the US, a
US corporation meeting ownership criteria specified in the Treaty or other entity meeting criteria specified in the Treaty; and (ii) not also resident in the UK for UK tax purposes. Special rules, including a limitation of benefits provision, may
apply. The Treaty benefits discussed below generally are not available to US holders that hold shares or ADSs in connection with the conduct of a business through a permanent establishment, or the performance of personal services through a fixed
base, in the UK.
Taxation of dividends
An eligible US holder must include cash dividends paid on the shares or ADSs
in ordinary income on the date that such holder or the ADS depositary receives
them, translating dividends paid in UK pounds sterling into US dollars using
the exchange rate in effect on the date of receipt. Subject to certain exceptions
for positions that are held for less than 61 days or are hedged, and subject
to a foreign corporation being considered a qualified foreign
corporation (which includes not being classified for US federal income
tax purposes as a passive foreign
456
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investment company), certain dividends (qualified dividends) received
by an individual eligible US holder before 2011 generally will be subject to
US taxation at a maximum rate of 15 per cent. Based on the
companys audited financial statements and relevant market and shareholder
data, HSBC Holdings believes that it was not treated as a passive foreign investment
company for US federal income tax purposes with respect to its 2008 taxable year.
In
addition, based on the companys current expectations regarding the value
and nature of its assets, and the sources and nature of its income, HSBC Holdings
does not anticipate being classified as a passive foreign investment company
for its 2009 taxable year. Accordingly, dividends paid on the shares or ADSs
generally should be treated as qualified dividends.
Taxation of capital gains
Gains realised by an eligible US holder on the sale or other disposition of
shares or ADSs normally will not be subject to UK taxation unless at the time
of the sale or other disposition the holder carries on a trade, profession
or vocation in the UK through a branch or agency or permanent establishment
and the shares or ADSs are or have been used, held or acquired for the purposes
of such trade, profession, vocation, branch or agency or permanent establishment.
Such gains will be included in income for US tax purposes, and will be long-term
capital gains if the shares or ADSs were held for more than one year. A long-term
capital gain realised by an individual holder generally is subject to US tax
at a
maximum rate of 15 per cent.
Stamp duty and stamp duty reserve tax ADSs
If shares are transferred into a clearance service or depository receipt (ADR)
arrangement (which will include a transfer of shares to the Depository) UK
stamp duty and/or stamp duty reserve tax will be payable. The stamp duty or
stamp duty reserve tax is generally payable on the consideration for the transfer
and is payable at the aggregate rate of 1.5 per cent.
The amount of stamp
duty reserve tax payable on such a transfer will be reduced by any stamp duty
paid in connection with the same transfer.
No stamp duty will be payable on the transfer of, or agreement to transfer, an ADS, provided that the ADR and any separate instrument of transfer or written agreement to transfer remain at all
times outside the UK, and provided further that any such transfer or written agreement to transfer is not executed in the UK. No stamp duty reserve tax will
be payable on a transfer of, or agreement to transfer, an ADS effected by the
transfer of an ADR.
On a transfer
of shares from the Depository to a registered holder of an ADS upon cancellation
of the ADS, a fixed stamp
duty of £5 per instrument of transfer will be payable by the
registered holder of the ADR cancelled.
US backup withholding tax and information reporting
Distributions made on shares and proceeds from the sale of shares or ADSs that
are paid within the US, or through certain financial intermediaries to US holders,
are subject to information reporting and may be subject to a US backup withholding
tax unless, in general, the US holder complies with certain certification procedures
or is a corporation or other person exempt from such withholding. Holders that
are not US persons generally are not subject to information reporting or backup
withholding tax, but may be required to comply with applicable certification
procedures to establish that they are not US persons in order to avoid the
application of such information reporting requirements or backup withholding
tax to payments received within the US or through certain financial intermediaries.
History and development
of HSBC |
|
|
1865
|
The founding member of the HSBC
Group, The Hongkong and Shanghai Banking
Corporation, is established in both
Hong Kong and Shanghai. |
|
1959
|
The Mercantile Bank of India
Limited and The British Bank of the
Middle East, now HSBC Bank Middle East
Limited, are purchased. |
|
1965
|
A 51 per cent interest (subsequently
increased to 62.14 per cent) is acquired
in Hang Seng Bank Limited. Hang Seng
Bank is the fourth-largest listed bank
in Hong Kong by market capitalisation. |
|
1980
|
A 51 per cent interest in Marine
Midland Banks, Inc., now HSBC USA, Inc,
is acquired (with the remaining interest
acquired in 1987). |
|
1981
|
The Hongkong and Shanghai Banking
Corporation incorporates its then existing
Canadian operations. HSBC Bank Canada
subsequently makes numerous acquisitions,
expanding rapidly to become the largest
foreign-owned bank in Canada and the
seventh-largest overall at 31 December
2007. |
457
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H S B C H O L D I
N G S P L C |
|
Shareholder Information (continued) |
|
|
|
|
History and development /
Organisational chart |
|
1987 |
A 14.9 per cent
interest in Midland Bank plc, now HSBC Bank plc, one of the UKs
principal clearing banks, is purchased. |
|
|
|
|
1991 |
HSBC Holdings
plc is established as the parent company of the HSBC Group. |
|
|
|
|
1992 |
HSBC purchases
the remaining interest in Midland Bank plc. |
|
|
|
|
1993 |
As a consequence
of the Midland acquisition, HSBCs Head Office is transferred
from Hong Kong to London in January. |
|
|
|
|
1997 |
HSBC assumes
selected assets, liabilities and subsidiaries of Banco Bamerindus do
Brasil S.A., now HSBC Bank Brazil, following the intervention of the
Central Bank of Brazil, and in Argentina completes the acquisition
of Grupo Roberts, now part of HSBC Bank Argentina S.A. |
|
|
|
|
1999 |
HSBC acquires
Republic New York Corporation, subsequently merged with HSBC USA, Inc.,
and Safra Republic Holdings S.A. |
|
|
|
|
2000 |
HSBC completes
its acquisition of 99.99 per cent of the issued share capital of Crédit
Commercial de France S.A., now HSBC France. |
|
|
|
|
2002 |
HSBC acquires
99.59 per cent of Grupo Financiero Bital, S.A. de C.V., the holding
company of what is now HSBC Mexico. |
|
|
|
|
2003 |
HSBC acquires
Household International, Inc., now HSBC Finance Corporation. HSBC Finance
brings to the Group national coverage in the US for consumer lending,
credit cards and credit insurance through multiple distribution channels. |
|
|
|
|
2003 |
HSBC acquires
Banco Lloyds TSB S.A. Banco Múltiplo in Brazil and the
countrys leading consumer finance company, Losango Promotora
de Vendas Limitada. |
|
|
|
|
2004 |
HSBC Bank USA,
Inc. merges with HSBC Bank & Trust (Delaware) N.A. to form HSBC
Bank USA, N.A. |
|
|
|
|
2004 |
The acquisition
of The Bank of Bermuda Limited is completed. |
|
|
|
|
2004 |
HSBC acquires
Marks and Spencer Retail Financial Services Holdings Limited, which
trades as Marks and Spencer Money (M&S Money) in the
UK. |
|
|
|
|
2004 |
HSBC acquires
19.9 per cent of Bank of Communications, and Hang Seng Bank |
|
|
acquires 15.98 per cent of Industrial
Bank. |
|
|
|
|
2005 |
HSBC increases its holding in
Ping An Insurance to 19.9 per cent, having made its initial investment
in 2002. Ping An Insurance is the second-largest life insurer and the
third-largest property and casualty insurer in mainland China. |
|
|
|
|
2005 |
HSBC Finance completes the acquisition
of Metris Companies Inc., making HSBC the fifth-largest issuer of MasterCard
and Visa cards in the USA. |
|
|
|
|
2006 |
HSBC acquires Grupo Banistmo
S.A. (Banistmo), the leading banking group in Central America,
through a tender offer to acquire 99.98 per cent of the outstanding shares
of Banistmo. |
|
|
|
|
2007 |
HSBCs three associates
in mainland China, Industrial Bank, Ping An Insurance and Bank of Communications,
issue new shares. HSBC does not subscribe and, as a result, its interests
in the associates equity decrease from 15.98 per cent to 12.78
per cent, from 19.90 per cent to 16.78 per cent and from 19.90 per cent
to 18.60 per cent, respectively. Subsequently, HSBC increases its holding
in Bank of Communications from 18.60 per cent to 19.01 per cent for US$308
million. |
|
|
|
|
2007 |
HSBC agrees to acquire 51.02
per cent of the issued share capital of Korea Exchange Bank for US$6.5
billion. (HSBC terminated the agreement in September 2008.) |
|
|
|
|
2007 |
HSBC is named the successful
bidder in a government auction to acquire the assets, liabilities and
operations of The Chinese Bank in Taiwan. |
|
|
|
|
2008 |
In July, HSBC completes the
sale of its seven French regional banks, Sociètè Marseillaise
de Crèdit, Banque de Savoie, Banque Chaix, Banque Marze, Banque
Dupuy, de Parseval, Banque Pelletier and Crèdit Commercial du
Sud Ouest, for US$3.2 billion. |
|
|
|
|
2008 |
In October, HSBC enters into
an agreement to acquire 88.89 per cent of PT Bank Ekonomi Raharja Tbk
in Indonesia for US$608 million in cash. The transaction is subject
to regulatory approval. |
458
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H S B C H O L D I
N G S P L C |
|
Organisational structure |
|
|
|
|
|
|
459
Back
to Contents
Form 20-F Item Number and Caption |
Location |
Page |
|
|
|
|
|
PART I |
|
|
1. |
Identity of Directors, Senior Management and
Advisers |
Not required for
Annual Report |
|
2. |
Offer Statistics and Expected Timetable |
Not required for
Annual Report |
|
|
|
|
|
3. |
Key Information |
|
|
|
A. |
Selected Financial Data |
Five-Year Comparison |
4-5,
449 |
|
B. |
Capitalisation and Indebtedness |
Not required for
Annual Report |
|
|
C. |
Reasons for the Offer and use of
Proceeds |
Not required for
Annual Report |
|
|
D. |
Risk Factors |
Challenges and
Uncertainties |
12-17 |
|
|
4. |
Information on the Company |
|
A. |
History and Development of the
Company |
Operating and Financial Review |
12-143, 457-458, 468 |
|
|
|
|
|
|
|
|
Shareholder Information |
448-459 |
|
|
|
Impact of Market
Turmoil |
144-187 |
|
B. |
Business Overview |
Operating and Financial Review |
12-143 |
|
|
|
Regulation and Supervision |
188-191 |
|
|
|
Impact of Market
Turmoil |
144-187 |
|
C. |
Organisational Structure |
Principal Activities |
12 |
|
|
|
Organisational Structure
Chart |
459 |
|
|
|
Note 24 Notes on the Financial
Statements |
416-418 |
|
D. |
Property, Plants and Equipment |
Property |
141 |
|
|
Note 23 Notes
on the Financial Statements |
413-415 |
|
|
|
|
4
A.
|
Unresolved Staff Comments |
Not Applicable |
|
|
|
|
|
5. |
Operating and Financial Review and Prospects |
|
|
|
A. |
Operating Results |
Operating and
Financial Review |
12-143 |
|
|
|
Impact of Market
Turmoil |
144-187 |
|
B. |
Liquidity and Capital Resources |
Risk |
253-239, 270-272, 274-279 |
|
C. |
Research and Development, Patents
and Licences, etc. |
Not Applicable |
|
|
|
|
|
|
|
D. |
Trend Information |
Operating and Financial Review |
12-143 |
|
E. |
Off-Balance Sheet Arrangements |
Special Purpose Entities |
173-187 |
|
|
|
Other off-balance
sheet arrangements and commitments |
187 |
|
|
|
|
|
|
F. |
Contractual Obligations |
Operating and Financial Review |
57 |
|
|
|
|
6. |
Directors, Senior Management and Employees |
|
|
|
A. |
Directors and Senior Management |
Governance |
281-289 |
|
B. |
Compensation |
Directors Remuneration
Report |
315-328 |
|
C. |
Board Practices |
Report of the Directors |
290-293 |
|
|
|
Directors Remuneration
Report |
315, 317-318 |
|
|
|
Directors Remuneration
Report |
322-324 |
|
|
|
|
|
|
D. |
Employees |
Governance |
303-304 |
459a
Back
to Contents
|
E. |
Share Ownership |
Governance |
301-302 |
|
|
|
Directors Remuneration
Report |
326-328 |
7. |
Major Shareholders
and Related Party Transactions |
|
|
|
A. |
Major Shareholders |
Governance |
314 |
|
B. |
Related Party Transactions |
Note 43 Notes
on the Financial Statements |
444-447 |
|
C. |
Interests of Experts and Counsel |
Not required
for Annual Report |
|
|
|
|
|
|
8.
|
Financial Information |
|
|
|
A. |
Consolidated Statements and Other Financial
Information |
Financial Statements |
332-447 |
|
|
|
Legal Proceedings |
142-143 |
|
|
|
Note 42 Notes
on the Financial Statements |
443-444 |
|
|
|
Shareholder Information |
448-449 |
|
B. |
Significant Changes |
Not Applicable |
|
|
|
|
|
9. |
The Offer and
Listing |
|
|
|
A. |
Offer and Listing Details |
Shareholder
Information |
449-450 |
|
B. |
Plan of Distribution |
Not required
for Annual Report |
|
|
C.
|
Markets |
Shareholder
Information |
449-450 |
|
D. |
Selling Shareholders |
Not required
for Annual Report |
|
|
E. |
Dilution |
Not required
for Annual Report |
|
|
F. |
Expenses of the Issue |
Not required
for Annual Report |
|
|
|
|
|
|
10. |
Additional Information |
|
|
|
A. |
Share Capital |
Not required
for Annual Report |
|
|
B. |
Memorandum and Articles of
Association |
Shareholder Information |
451-452 |
|
C. |
Material Contracts |
Not Applicable |
|
|
D. |
Exchange Controls |
Exchange controls
and other limitations affecting security holders |
448 |
|
E. |
Taxation |
Shareholder
Information |
455-457 |
|
F. |
Dividends and Paying Agents |
Not required
for Annual Report |
|
|
G. |
Statements by Experts |
Not required
for Annual Report |
|
|
H. |
Documents on Display |
Shareholder Information |
454 |
|
I. |
Subsidiary Information |
Not Applicable |
|
|
|
|
|
|
11. |
Quantitative and
Qualitative Disclosures About Market Risk |
Management of
Risk |
241-251 |
|
|
|
Note 18 and 34 Notes
on the Financial Statements |
399-402, 429-430 |
|
|
|
|
|
|
|
|
|
|
12.
|
Description of
Securities Other than Equity Securities |
|
|
|
A. |
Debt Securities |
Not required for
Annual Report |
|
|
B. |
Warrants and Rights |
Not required
for Annual Report |
|
|
C. |
Other Securities |
Not required
for Annual Report |
|
|
D. |
American Depositary Shares |
Not required
for Annual Report |
|
|
|
|
|
|
|
PART II
|
|
|
13. |
Defaults, Dividends
Arrearages and |
Not Applicable |
|
459b
Back
to Contents
|
Delinquencies |
|
|
|
|
|
|
|
14. |
Material Modifications to the Rights
of Securities Holders and Use of Proceeds |
Not Applicable |
|
|
|
|
|
|
15. |
Controls and Procedures |
Statement of Directors Responsibilities
in respect of the Annual Report
and Accounts 2008 and the Financial Statements |
329 |
|
|
Report of Independent Registered
Public
Accounting Firm to the Board of Directors and shareholders of HSBC Holdings
plc |
330-331 |
|
|
Disclosure Controls |
66a |
|
|
|
|
|
16. |
[Reserved] |
|
|
|
A. |
Audit Committee Financial Expert |
Report of the Directors |
296-298 |
|
B. |
Code of Ethics |
Report of the Directors |
294-296 |
|
C. |
Principal Accountant Fees and Services |
Report of the Directors |
296-298 |
|
|
|
Note 9 Notes
on the Financial Statements |
375-376 |
|
D. |
Exemptions from the Listing Standards
for Audit Committees |
Not Applicable |
|
|
E. |
Purchases of Equity Securities by
the
Issuer and Affiliated Purchasers |
Report of the Directors |
314 |
|
F. |
Changes in Registrants
Certifying Accountant |
Not
Applicable |
|
|
G. |
Corporate Governance |
Report of the Directors |
294-296 |
PART III |
|
|
17. |
|
Financial
Statements |
Not Applicable |
|
18.
|
|
Financial Statements |
Financial Statements |
332-447 |
19. |
|
Exhibits (including
Certifications) |
|
* |
459c
Back to Contents
H S B C H O L D I
N G S P L C |
|
Glossary |
|
|
|
|
|
|
|
Accounting terms
used |
US equivalent or brief description |
|
|
|
|
Accounts |
Financial Statements |
|
Articles of Association |
Bylaws |
|
Associates |
Long-term equity investments
accounted for using the equity method |
|
Attributable profit |
Net income |
|
Balance sheet |
Statement of financial position |
|
Bills |
Notes |
|
Called up share capital |
Ordinary shares, issued and
fully paid |
|
Capital allowances |
Tax depreciation allowances |
|
Creditors |
Payables |
|
Debtors |
Receivables |
|
Deferred tax |
Deferred income tax |
|
Depreciation |
Amortisation |
|
Finance lease |
Capital lease |
|
Freehold |
Ownership with absolute rights
in perpetuity |
|
Interests in associates and
joint ventures |
Long-term equity investments
accounted for using the equity method |
|
Loans and advances |
Lendings |
|
Loan capital |
Long-term debt |
|
Nominal value |
Par value |
|
One-off |
Non-recurring |
|
Ordinary shares |
Common stock |
|
Overdraft |
A line of credit, contractually repayable on demand unless a fixed-term
has been agreed, established through a customers current account |
|
Preference shares |
Preferred stock |
|
Premises |
Real estate |
|
Provisions |
Liabilities |
|
Share capital |
Ordinary shares or common stock
issued and fully paid |
|
Shareholders equity |
Stockholders equity |
|
Share premium account |
Additional paid-in capital |
|
Shares in issue |
Shares outstanding |
|
Write-offs |
Charge-offs |
460
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|
Abbreviations used |
Brief description |
|
|
ABS |
Asset-backed security |
|
ADR |
American Depositary Receipt |
|
ADS |
American depositary share |
|
AIEA |
Average interest-earning assets |
|
ALCO |
Asset and Liability Management Committee |
|
ARM |
Adjustable-rate mortgage |
|
ASF |
Asset and Structured Finance |
|
Asscher |
Asscher Finance Ltd, a structured investment vehicle managed by HSBC |
|
ATM |
Automated teller machine |
|
Banca Nazionale |
Banca Nazionale del Lavoro SpA |
|
Bank of Bermuda |
The Bank of Bermuda Limited, which was acquired in February 2004 |
|
Bank of Communications |
Bank
of Communications Co., Limited, mainland Chinas fourth largest bank
by market capitalisation, in which HSBC currently has 19.01 per cent interest |
|
Barion |
Barion Funding Limited, a term funding vehicle |
|
Basel Committee |
Basel Committee on Banking Supervision |
|
Basel I |
1988 Basel Capital Accord |
|
Basel II |
Final Accord of the Basel Committee on proposals for a new capital adequacy
framework |
|
Bps |
Basis points. One basis point is equal to one hundredth of a percentage point |
|
Brazilian operations |
HSBC
Bank Brasil S.A.Banco Múltiplo and subsidiaries, plus HSBC
Serviços e Participações Limitada |
|
Cash flow hedges |
Hedges
of the variability in highly probable future cash flows attributable to
a recognised asset or liability, or a forecast transaction |
|
CCF |
CCF S.A., the former name of HSBC France |
|
CD |
Certificate of deposit |
|
CDS |
Credit default swap |
|
CDO |
Collateralised debt obligation |
|
CGU |
Cash-generating unit |
|
CNAV |
Constant Net Asset Value |
|
Combined Code |
Combined Code on Corporate Governance issued by the Financial Reporting Council |
|
CP |
Commercial paper |
|
CPI |
Consumer price index |
|
CRR |
Customer risk rating |
|
Cullinan |
Cullinan Finance Ltd, a structured investment vehicle managed by HSBC |
|
Decision One |
Decision
One Mortgage Company, HSBC Finances subsidiary which originates
loans referred by mortgage brokers |
|
DPF |
Discretionary participation feature of insurance and investment contracts |
|
Enhanced VNAV |
Enhanced Variable Net Asset Value |
|
EPS |
Earnings per share |
|
EU |
European Union |
|
Fair value hedges |
Hedges of the change in fair value of recognised assets or liabilities or
firm commitments |
|
FDIC |
Federal Deposit Insurance Corporation (US) |
|
Financiera Independencia |
Financiera Independencia S.A.B. de C.V. |
|
FSA |
Financial Services Authority (UK) |
|
FTSE |
Financial Times - Stock Exchange index |
|
GAAP |
Generally Accepted Accounting Principles |
|
GCRO |
Group Chief Risk Officer |
|
GDP |
Gross domestic product |
|
Global Markets |
HSBCs treasury and capital markets services in Global Banking and
Markets |
|
GMB |
Group Management Board |
|
GMO |
Group Management Office |
|
Group |
HSBC Holdings together with its subsidiary undertakings |
|
Hang Seng Bank |
Hang Seng Bank Limited, the third largest bank listed in Hong Kong by market
capitalisation |
461
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H S B C H O L D I
N G S P L C |
|
Glossary (continued) |
|
|
|
|
|
|
|
Abbreviations used |
Brief description |
|
|
|
|
HELoC |
Home equity lines of credit |
|
HFC |
HFC
Bank Limited, the UK-based consumer finance business acquired through
the acquisition by HSBC of HSBC Finance |
|
HKMA |
Hong Kong Monetary Authority |
|
HKSE |
The Stock Exchange of Hong Kong Limited |
|
Hong Kong |
The Hong Kong Special Administrative Region of the Peoples Republic
of China |
|
HSBC |
HSBC Holdings together with its subsidiary undertakings |
|
HSBC Assurances |
HSBC
Assurances, comprising Erisa S.A., the French life insurer, and Erisa
I.A.R.D., the property and casualty insurer (together, formerly Erisa) |
|
HSBC Bank |
HSBC Bank plc, formerly Midland Bank plc |
|
HSBC Bank Argentina |
HSBC Bank Argentina S.A. |
|
HSBC Bank Brazil |
HSBC
Bank Brasil S.A.Banco Múltiplo, HSBCs retail banking
operation in Brazil, formerly Banco Bamerindus do Brasil S.A. |
|
HSBC Bank China |
HSBC
Bank (China) Company Limited, HSBCs banking subsidiary in mainland
China which was incorporated in March 2007 |
|
HSBC Bank Malaysia |
HSBC Bank Malaysia Berhad |
|
HSBC Bank Middle East |
HSBC Bank Middle East Limited, formerly The British Bank of the Middle East |
|
HSBC Bank Panama |
HSBC Bank (Panama) S.A., formerly Grupo Banistmo S.A. |
|
HSBC Bank USA |
HSBCs
retail bank in the US. From 1 July 2004, HSBC Bank USA, N.A. (formerly
HSBC Bank USA, Inc.) |
|
HSBC Direct |
HSBCs online banking and savings proposition |
|
HSBC Finance |
HSBC
Finance Corporation, the US consumer finance company acquired in March
2003 (formerly Household International, Inc.) |
|
HSBC France |
HSBCs French banking subsidiary, formerly CCF S.A. |
|
HSBC Holdings |
HSBC Holdings plc, the parent company of HSBC |
|
HSBC Mexico |
HSBC
México S.A., the commercial banking subsidiary of Grupo Financiero
HSBC, S.A. de C.V. |
|
HSBC Premier |
HSBCs premium global banking service |
|
HSBC Private Bank (Suisse) |
HSBC
Private Bank (Suisse) S.A., HSBCs private bank in Switzerland (formerly
HSBC Republic Bank (Suisse) S.A.) |
|
IAS |
International Accounting Standard |
|
IASB |
International Accounting Standards Board |
|
IFRSs |
International Financial Reporting Standards |
|
IFRIC |
International Financial Reporting Interpretations Committee |
|
Industrial Bank |
Industrial
Bank Co. Limited, a national joint-stock bank in mainland China of which
Hang Seng currently has a 12.78 per cent interest |
|
IPO |
Initial public offering |
|
IRB |
Internal ratings-based approach to implementing Basel II |
|
Key management personnel |
Directors and Group Managing Directors of HSBC Holdings |
|
KPI |
Key performance indicator |
|
KPMG |
KPMG Audit Plc and its affiliates |
|
LIBOR |
London Interbank Offer Rate |
|
Losango |
Losango
Promoções e Vendas Ltda, the Brazilian consumer finance
company acquired in December 2003 |
|
Madoff Securities |
Bernard L Madoff Investment Securities LLC |
|
Mainland China |
Peoples Republic of China excluding Hong Kong |
|
Malachite |
Malachite Funding Limited, a term funding vehicle |
|
MasterCard |
MasterCard Inc. |
|
Mazarin |
Mazarin Funding Limited, an asset-backed CP conduit |
|
MBS |
US mortgage-backed security |
|
Metrovacesa |
Metrovacesa, S.A. |
462
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|
Abbreviations used |
Brief description |
|
|
Monoline |
Monoline insurance company |
|
M&S Money |
Marks
and Spencer Retail Financial Services Holdings Limited, acquired by HSBC
in November 2004 |
|
MSCI |
Morgan Stanley Capital International index |
|
MTN |
Medium-term note |
|
NA |
Nationally Chartered, a designation for certain categories of banks in the
US |
|
Net investment hedges |
Hedge of a net investment in a foreign operation |
|
NYSE |
New York Stock Exchange |
|
OFT |
Office of Fair Trading (UK) |
|
OTC |
Over-the-counter |
|
Performance Shares |
Awards
of HSBC Holdings ordinary shares under employee share plans that are subject
to corporate performance conditions |
|
Ping An Insurance |
Ping
An Insurance (Group) Company of China, Limited, the second-largest life
insurer in the PRC, in which HSBC currently has 16.78 per cent interest |
|
Premier |
See HSBC Premier |
|
PVIF |
Present value of in-force long-term insurance business |
|
Repo |
Sale and repurchase transaction |
|
Restricted shares |
Awards
of HSBC Holdings ordinary shares to which the employee will become entitled,
normally after three years, subject to remaining an employee |
|
Reverse repo |
Security purchased under commitments to sell |
|
RMM |
Risk Management Meeting |
|
RPI |
Retail price index (UK) |
|
RWA |
Risk weighted asset |
|
Seasoning |
The emergence of credit loss patterns in portfolios over time |
|
S&P |
Standard and Poors rating agency |
|
SEC |
Securities and Exchange Commission (US) |
|
SIC |
Securities investment conduit |
|
SIP |
Statement of investment principles produced by trustees of defined pension
plans |
|
SIV |
Structured investment vehicle |
|
SME |
Small and medium-sized enterprise |
|
Solitaire |
Solitaire Funding Limited, a special purpose entity managed by HSBC |
|
SPE |
Special purpose entity |
|
Sub-prime |
A
US description for customers who have limited credit histories, modest
incomes, high debt-to-income ratios, high loan-to-value ratios (for real
estate secured products) or have experienced credit problems caused by
occasional delinquencies, prior charge-offs, bankruptcy or other credit-related
actions |
|
Techcombank |
Vietnam Technological and Commercial Joint Stock Bank |
|
The Chinese Bank |
The Chinese Bank Co., Ltd., the business of which HSBC acquired in March
2008 |
|
The
Hongkong and Shanghai Banking Corporation |
The
Hongkong and Shanghai Banking Corporation Limited, the founding member
of the HSBC Group |
|
TSR |
Total shareholder return |
|
TSR award |
TSR
measure applied to a proportion of the award of Performance Shares under
The HSBC Share Plan |
|
UAE |
United Arab Emirates |
|
UK |
United Kingdom |
|
US |
United States |
|
VAR |
Value at risk |
|
Visa |
Visa Inc. |
|
VNAV |
Variable net asset value |
|
WWF |
World Wide Fund for Nature |
463
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H S B C H O L
D I N G S P L C |
|
lndex |
|
|
|
|
|
|
Accounting 340 |
Client assets 80 |
|
developments (future)
342 |
Collateral and credit
enhancements 199, 222 |
|
policies (critical) 61 |
Commercial Banking |
|
policies (significant) 150 |
|
business highlights 73 |
Accounts |
|
financial performance 72 |
|
approval 447 |
|
products and services 138 |
|
basis of preparation 67, 340 |
|
strategic direction 72 |
Acquisitions and disposals 418 |
|
underlying/reported profit 74 |
Annual General Meeting 314, 452 |
Committees (board)
296, 315 |
Areas of special interest 208 |
Communication with
shareholders 453 |
Asset-backed securities 145, 150 |
Conduits 174 |
Assets |
Constant currency
23 |
|
by customer group 67, 389 |
Contents 1, 67,
87, 188, 281, 315, 332, 448 |
|
by geographical region 88, 389 |
Contingent liabilities
and contractual |
|
charged as security 430 |
|
commitments 440 |
|
held in custody and under administration
141 |
Contractual obligations
57 |
|
intangible 409 |
Corporate governance |
|
movement in 41 |
|
codes 294 |
|
other 418 |
|
report 281 |
|
trading 396 |
Corporate sustainability
254, 312 |
Associates and joint ventures |
|
committee 299 |
|
dilution gains 31 |
Cost efficiency
ratio 2, 37 |
|
interests in 360, 406 |
Credit coverage
ratios 3 |
|
share of profit in 38 |
Credit exposure
197 |
Audit committee (Group) 296 |
Credit quality 195,
212, 217, 268 |
Auditors remuneration 375 |
Credit risk |
Auditors Report 330 |
|
challenges and uncertainties
15 |
Balance sheet |
|
management thereof 192 |
|
average 42 |
|
insurance 267 |
|
consolidated 40, 334 |
Critical accounting
policies 61 |
|
data 4, 68, 72, 75, 78, 79,
83, 90, 96, 99, 104, |
Cross-border exposures
207 |
|
116,
120, 126, 130, 135 |
Customer accounts
89, 109, 119, 129 |
|
HSBC Holdings 337 |
|
satisfaction 20 |
Basel II 274 |
Customer groups and
global businesses 67, 84 |
Borrowings (short-term)
56 |
Daily distribution
of revenues 243 |
Brand perception 20 |
Dealings in HSBC Holdings
plc shares 314 |
Business highlights
69, 73, 76, 80 |
Debt securities in
issue 210, 420 |
Business model 149 |
|
accounting policy 359 |
Business performance
review |
|
rating agency designation 175 |
|
Europe 91, 93 |
Deferred tax 66 |
|
Hong Kong 100, 102 |
Defined terms inside
front cover |
|
Latin America 131, 133 |
Deposits |
|
North America 121, 123 |
|
average balances and average
rates 59 |
|
Rest of Asia-Pacific 111, 114 |
|
time 61 |
Calendar (dividends)
448, 449 |
Derivatives 201, 398 |
Capital |
|
accounting policy 351 |
|
management and allocation 274 |
Dilution gains 31 |
|
return on invested capital 2 |
Directors |
|
structure 278 |
|
appointments and re-election
293 |
Capital and performance
ratios 3 |
|
biographies 281 |
Cash flow |
|
board of directors 290 |
|
accounting policy 359 |
|
emoluments 324, 374 |
|
consolidated statement 336 |
|
interests 301 |
|
HSBC Holdings 339 |
|
non-executive 323 |
|
notes 439 |
|
other directorships 323 |
|
payable under financial liabilities
240 |
|
pensions 322, 324 |
|
projected scenario analysis 238 |
|
remuneration (executive) 317 |
Cautionary statement
regarding forward-looking |
|
responsibilities (statement
of) 329 |
|
statements 6 |
|
service contracts 322 |
Certificates of deposit
and other time deposits |
|
share plans 326 |
|
(maturity analysis) 61 |
Disclosure policy 144 |
Challenges and uncertainties
12 |
Dividends 2, 313,
384, 448, 449 |
464
Back to Contents
Donations 312 |
Financial statements
23, 332 |
Earnings per share 2, 19, 320, 384 |
Five-year comparison
4 |
Economic briefing |
Foreign exchange |
|
Europe 90, 93 |
|
accounting policy 357 |
|
Hong Kong 100, 101 |
|
exposures 248, 429 |
|
Latin America 130, 132 |
|
rates 4 |
|
North America 119, 123 |
Funds under management
140 |
|
Rest of Asia-Pacific 109, 113 |
Geographical regions
87 |
Economic profit 39, 319 |
Global Banking and
Markets |
Efficiency and revenue mix ratios 3 |
|
asset-backed securities 147 |
Employees 303 |
|
balance sheet data 78 |
|
compensation and benefits 311, 363 |
|
business highlights 76 |
|
disabled 303 |
|
financial performance 75 |
|
engagement 19 |
|
products and services 139 |
|
involvement 303 |
|
strategic direction 75 |
|
remuneration policy 303 |
|
underlying/reported profit 77 |
Enforceability of judgements made in the US 448 |
Goodwill |
Enquiries (from shareholders) 453 |
|
accounting policy 353 |
Equity 42, 436 |
|
and intangible assets 409 |
Equity securities 246 |
|
critical accounting policy 63 |
Europe |
Governance codes 294 |
|
balance sheet data 90, 96 |
|
HSBC Holdings/New York Stock
Exchange |
|
business performance 91, 93 |
|
corporate governance differences
294 |
|
challenges and uncertainties 14 |
Group Chairmans
Statement 8 |
|
customer accounts by country 89 |
Group Management
Board 296 |
|
economic briefing 90, 93 |
Health and safety
313 |
|
lending 205, 207 |
History and development
of HSBC 457 |
|
loan impairment charges 223, 226, 229, 232 |
Hong Kong |
|
loans and advances to customers 89 |
|
balance sheet data 99, 104 |
|
profit/(loss) 89, 90, 96 |
|
business performance 100, 102 |
|
regulation and supervision (UK) 189 |
|
challenges and uncertainties
14 |
|
underlying/reported profit 91, 94 |
|
economic briefing 100, 101 |
Events after the balance sheet date 447 |
|
lending 205, 207 |
Exchange controls and other limitations affecting |
|
loan impairment charges 223,
226, 229, 232 |
|
equity security holders 448 |
|
profit/(loss) 99, 104 |
Exposures 150, 178, 183, 200 |
|
regulation and supervision 189 |
Fee income (net) 27 |
|
underlying/reported profit 100,
102 |
Fair value |
HSBC Holdings plc |
|
accounting policy 345 |
|
balance sheet 337 |
Financial assets |
|
cash flow 339 |
|
critical accounting policy 64 |
|
credit risk 232 |
|
designated at fair value 397 |
|
dividends 449 |
|
not qualifying for de-recognition 405 |
|
employee emoluments 374 |
Financial assets and liabilities |
|
financial assets and liabilities
395 |
|
accounting policy 346, 353 |
|
liquidity and funding management
240 |
|
by measurement basis 392 |
|
market risk 249 |
|
reclassification 145 |
|
maturity analysis of assets
and liabilities 429 |
Financial guarantee contracts |
|
related party transactions 447 |
|
accounting policy 357 |
|
share plans 379 |
Financial highlights 2 |
|
statement of changes in total
equity 338 |
Financial instruments |
|
structural foreign exchange
exposures 249 |
|
accounting policy 349 |
|
subordinated liabilities 427 |
|
credit quality 217 |
Impairment |
|
fair value 162 |
|
accounting policy 346 |
|
net income from 29, 360 |
|
allowances and charges 34, 223 |
|
not at fair value 170 |
|
assessment 195 |
|
critical accounting policy (valuation) 63 |
|
critical accounting policy 62 |
Financial investments 403 |
|
losses as percentage of loans
and advances 224 |
|
accounting policy 350 |
|
movement by industry and geographical |
|
gains less losses from 30 |
|
region
224, 225 |
Financial liabilities designated at fair value 419 |
Income statement (consolidated)
24, 333 |
Financial risks (insurance) 262 |
Information on HSBC
(availability thereof) 454 |
465
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H S B C H O L
D I N G S P L C |
|
lndex (continued) |
|
|
|
|
|
|
Insurance |
|
past due 219 |
|
accounting policy 358 |
|
renegotiated 216 |
|
claims incurred (net) and movements in |
|
to banks by geographical region
210 |
|
liabilities to policyholders 33, 362 |
|
to customers by industry sector
and |
|
liabilities under contracts issued
421 |
|
geographical
region 204, 205, 206 |
|
net earned premiums 31, 361 |
Market risk |
|
PVIF business 272 |
|
impact of market turmoil 242 |
|
risk management 255 |
|
insurance 263 |
Interest income (net)
26 |
|
management thereof 241 |
|
accounting policy 344 |
Market turmoil 144,
239, 242 |
|
analysis of changes in 50 |
Maturity analysis
of assets and liabilities 428 |
|
average balance sheet 42 |
Maximum exposure to
credit risk 197 |
|
forgone on impaired loans 233 |
Memorandum and Articles
of Association 451 |
|
sensitivity 58, 246 |
Minority interests
431 |
Interim management
statements 452 |
Money market funds
179 |
Internal control 299 |
Monoline insurers
158 |
IFRS and Hong Kong
Financial Reporting |
Mortgage lending 210,
211, 213 |
|
Standards comparison 340 |
Nomination committee
298 |
Investment contracts |
Non-interest income |
|
accounting policy 358 |
|
accounting policy 344 |
Investor relations
454 |
Non-life insurance
business 256 |
IT performance 20 |
Non-trading portfolios
245 |
Key performance indicators |
North America |
|
financial 17 |
|
balance sheet data 120, 126 |
|
non-financial 19 |
|
business performance 121, 123 |
Latin America |
|
challenges and uncertainties
14 |
|
balance sheet data 130, 135 |
|
customer accounts by country
119 |
|
business performance 131, 133 |
|
economic briefing 119, 123 |
|
challenges and uncertainties 15 |
|
lending 205, 207 |
|
customer accounts by country 129 |
|
loan delinquency in the US 215 |
|
economic briefing 130, 132 |
|
loan impairment charges 223,
226, 229, 232 |
|
lending 205, 207 |
|
mortgage lending 210 |
|
loan impairment charges 223, 226,
229, 232 |
|
profit/(loss) 119, 120, 126 |
|
loans and advances to customers
129, 206 |
|
regulation and supervision (US)
190 |
|
profit/(loss) 129, 130 |
|
underlying/reported profit 121,
124 |
|
underlying/reported profit 131/133 |
Off-balance sheet
arrangements 187 |
Lease commitments
442 |
Operating expenses
36 |
|
accounting policy 355 |
Operating income 32,
363 |
Legal |
Operational risk 252 |
|
proceedings/risk 16, 142, 252 |
|
challenges and uncertainties
16 |
|
litigation 443 |
Organisational structure
chart 459 |
Leveraged finance
transactions 160 |
Other (notes) 82 |
Liabilities |
Pensions |
|
by geographical region 389 |
|
accounting policy 356 |
|
movement in 47 |
|
for directors 324 |
|
other 421 |
|
risk 246, 253 |
|
subordinated 424 |
Personal Financial
Services |
|
trading 419 |
|
business highlights 69 |
Life insurance business
255 |
|
financial performance 69 |
Liquidity and funding |
|
products and services 138 |
|
challenges and uncertainties 15 |
|
strategic direction 68 |
|
management thereof 235 |
|
subsequent developments 70 |
|
impact of market turmoil 239 |
|
underlying/reported profit 71 |
|
insurance 271 |
Personal lending 208 |
Loans and advances |
Principal activities
12 |
|
accounting policy 346 |
Private Banking |
|
collateral 200 |
|
business highlights 80 |
|
concentration of exposure 200 |
|
financial performance 79 |
|
credit quality of 195 |
|
products and services 140 |
|
delinquency in the US 215 |
|
strategic direction 79 |
|
impairment 220 |
|
underlying/reported profit 81 |
|
maturity and interest sensitivity
58 |
Products and services
138 |
466
Back to Contents
Profit before tax |
|
Sale and repurchase agreements |
|
by country 89, 107, 119, 129 |
|
|
accounting policy 351 |
|
by customer group 67, 68, 72, 75, 79, 82, 84,
390 |
|
Securities held for trading
(concentration of |
|
by geographical region 88, 90, 96, 99, 104,
110, 116, 386 |
|
|
exposure) 200 |
|
consolidated 333 |
|
Securitisations 182 |
|
data 4 |
|
Segment analysis 385 |
|
underlying/reported
reconciliations 21, 22, 71, 74, 77, 81, 83, 91, 94, 100, 102, 111, 114,
121, 124, 131, 133 |
|
|
accounting policy 345 |
Property, plant and equipment
141, 413 |
|
Senior management |
|
accounting policy 354 |
|
|
biographies 286 |
|
valuation of land and buildings 141 |
|
Share-based payments 376 |
Provisions 424 |
|
|
accounting policy 356 |
|
accounting policy 357 |
|
Share capital 431 |
PVIF 272 |
|
|
accounting policy 359 |
Ratios |
|
|
and reserves 53 |
|
advances to deposits 236 |
|
|
notifiable interests in 314 |
|
capital and performance 3 |
|
Share information 3 |
|
credit coverage 3 |
|
Share plans |
|
cost efficiency 3 |
|
|
Bank of Bermuda plans 310, 434 |
|
earnings to combined fixed charges 57 |
|
|
discretionary plans 307 |
|
financial 4 |
|
|
for directors 326 |
|
net liquid assets to customer liabilities 237 |
|
|
for employees 304 |
Regulation and supervision 17,
188 |
|
|
HSBC Finance plans 309, 381, 434 |
Related party transactions 444 |
|
|
HSBC France plans 308, 380, 433 |
Remuneration committee 298,
315 |
|
|
long-term incentives 318 |
Renegotiated loans 216 |
|
|
performance shares and restricted share awards
326 |
Repricing gap 250 |
|
Shareholder (communications
with) 313, 453 |
Reputational risk 254 |
|
|
profile 451 |
Residual value risk management
252 |
|
Social and community investment
312 |
Rest of Asia-Pacific |
|
Special purpose entities 149,
173, 183, 187 |
|
balance sheet data 110, 116 |
|
Staff numbers 36, 303 |
|
business performance 111, 114 |
|
Statement of changes in total
equity 338 |
|
challenges and uncertainties 14 |
|
Statement of recognised income
and expense 335 |
|
customer accounts by country 109 |
|
Stock symbols 450 |
|
economic briefing 109, 113 |
|
Strategic direction 12, 68,
72, 75, 79 |
|
lending 205, 207 |
|
Structural foreign exchange
exposure 248 |
|
loan impairment charges 223, 226, 229, 232 |
|
Structured investment vehicles
(SIVs) 174 |
|
loans and advances to customers 108, 206 |
|
Subsidiaries 87, 416 |
|
profit/(loss) 107, 110, 116 |
|
|
accounting policy 353 |
|
underlying/reported profit 111, 114 |
|
Supplier payment policy 313 |
Risk elements in loan portfolio
233 |
|
Sustainability 312 |
Risk management 150, 191 |
|
|
risk 254 |
|
capital management and allocation 274 |
|
Taxation |
|
contingent liquidity 238 |
|
|
accounting policy 355 |
|
credit 192 |
|
|
challenges and uncertainties 17 |
|
credit spread 244, 245 |
|
|
deferred tax critical accounting policy
66 |
|
insurance operations 262 |
|
|
expense 381 |
|
legal 252 |
|
|
UK residents 455 |
|
liquidity and funding management 235 |
|
|
US residents 456 |
|
market 241 |
|
Tier 1 capital 279 |
|
operational 252 |
|
Total shareholder return 3,
19, 319, 322 |
|
pension 253 |
|
Trading assets 396 |
|
rating scales 218 |
|
|
accounting policy 349 |
|
reputational 254 |
|
Trading income (net) 28 |
|
residual value 252 |
|
Trading liabilities 419 |
|
security and fraud 253 |
|
|
accounting policy 349 |
|
sustainability 254 |
|
Trading market (nature of) 449 |
Risk-weighted assets |
|
Trading portfolios 244 |
|
by principal subsidiary 280 |
|
Troubled debt restructurings
233 |
|
|
|
Value at risk 241, 251 |
467
Back to Contents
HSBC HOLDINGS PLC |
STOCKBROKERS |
Incorporated in England on 1 January 1959
with |
Goldman Sachs International |
limited liability under the UK Companies
Act |
Peterborough Court |
Registered in England: number 617987 |
133 Fleet Street |
|
London EC4A 2BB |
REGISTERED OFFICE AND |
United Kingdom |
GROUP MANAGEMENT OFFICE |
|
8 Canada Square |
HSBC Bank plc |
London E14 5HQ |
8 Canada Square |
United Kingdom |
London E14 5HQ |
Telephone: 44 (0) 20 7991 8888 |
United Kingdom |
Facsimile: 44 (0) 20 7992 4880 |
|
Web: www.hsbc.com |
|
|
|
REGISTRARS |
|
Principal Register |
|
Computershare Investor Services PLC |
|
PO Box 1064, The Pavilions |
|
Bridgwater Road |
|
Bristol BS99 3FA |
|
United Kingdom |
|
Telephone: 44 (0) 870 702 0137 |
|
|
|
Hong Kong Overseas Branch Register |
|
Computershare Hong Kong Investor Services Limited |
|
Rooms 1806-1807 |
|
18th
floor, Hopewell Centre |
|
183 Queens Road East |
|
Hong Kong |
|
Telephone: 852 2862 8555 |
|
|
|
Bermuda Overseas Branch Register |
|
Corporate Shareholder Services |
|
The Bank of Bermuda Limited |
|
6 Front Street |
|
Hamilton HM11 |
|
Bermuda |
|
Telephone: 1 441 299 6737 |
|
|
|
ADR Depositary |
|
BNY Mellon Shareowner Services |
|
PO Box 358516 |
|
Pittsburgh |
|
PA15252 - 8516 |
|
USA |
|
Telephone: 1 877 283 5786 |
|
|
|
Email: shrrelations@bnymellon.com |
|
|
|
Paying Agent (France) |
|
HSBC France |
|
103 avenue des Champs Elysées |
|
75419 Paris Cedex 08 |
|
France |
|
Telephone: 33 1 40 70 22 56 |
|
468
Back to Contents
|
|
|
|
© Copyright HSBC Holdings plc 2009 All
rights reserved |
|
|
|
|
|
No part of this publication may be reproduced,
stored in a retrieval system, or transmitted, in any form or by any means,
electronic, mechanical, photocopying, recording, or otherwise, without the
prior written permission of HSBC Holdings plc. |
|
|
|
|
|
Published by Group Finance, HSBC Holdings plc,
London |
|
|
|
|
Back to Contents
Item 19. Exhibits
Documents filed as exhibits to this Form 20-F:
Exhibit
Number |
|
Description |
|
|
|
1.1 |
|
Memorandum and Articles of Association of HSBC Holdings plc. + |
|
2.1 |
|
The total amount of long-term debt securities of HSBC Holdings plc authorized
under any instrument does not exceed 10 percent of the total assets of the
Group on a consolidated basis. HSBC Holdings plc hereby agrees to furnish
to the Commission, upon its request, a copy of any instrument defining the
rights of holders of long-term debt of HSBC Holdings plc or of its subsidiaries
for which consolidated or unconsolidated financial statements are required
to be filed. |
|
4.1 |
|
Service Agreement
dated October 14, 2008 between HSBC Holdings plc and Douglas Jardine Flint.
|
|
4.2 |
|
Service Agreement dated May 24, 2007 between HSBC Holdings plc and Stephen
Keith Green, as amended February 28, 2008. * |
|
4.3 |
|
Service Agreement dated May 24, 2007 between HSBC Asia Holdings BV and Michael
F Geoghegan, as amended February 29, 2008. * |
|
4.4 |
|
Service Agreement dated August 29, 2008 between The Hong Kong and Shanghai
Banking Corporation Limited and Vincent Cheng Hoi Chuen. |
|
4.5 |
|
Service Agreement dated December 2, 2008 between HSBC Asia Holdings B.V.
and Alexander Flockhart. |
|
4.6 |
|
Service Agreement dated September 5, 2008 between HSBC Asia Holdings B.V.
and Stuart Gulliver. |
|
7.1 |
|
Computation of ratios of earnings to combined fixed charges (and preference
share dividends). |
|
8.1 |
|
Subsidiaries of HSBC Holdings plc (set forth in Note 24 to the consolidated
financial statements included in this Form 20-F). |
|
12.1 |
|
Certificate
of HSBC Holdings plcs Group Chief Executive pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002. |
|
12.2 |
|
Certificate
of HSBC Holdings plcs Group Finance Director pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002. |
|
13.1 |
|
Annual
Certification of HSBC Holdings plcs Group Chief Executive and
Group Finance Director pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002. |
|
14.1 |
|
Consent of KPMG Audit plc. |
|
|
|
Back
to Contents
14.2 |
|
Pages of HSBC Holdings plcs 2000 Form 20-F/A dated February 26, 2001
relating to the Memorandum and Articles of Association of HSBC Holdings plc
that are incorporated by reference into this Form 20-F. ** |
|
|
|
14.3
|
|
Pages of HSBC Holdings plcs 2001 Form 20-F dated March 13, 2002 relating
to the
Memorandum and Articles of Association of HSBC Holdings plc that are incorporated
by reference into this Form 20-F. ** |
|
|
+ |
|
As previously filed with the Securities and Exchange Commission as Exhibit
4.3 to
HSBC Holdings plcs Registration Statement on Form S-8 (333-155338)
dated
November 13, 2008. |
|
|
|
* |
|
As previously filed with the Securities and Exchange Commission as an exhibit
to
HSBC Holdings plcs Form 20-F dated March 20, 2008. |
|
|
|
** |
|
As previously filed with the Securities and Exchange Commission as an exhibit
to
HSBC Holdings plcs Form 20-F dated March 20, 2006. |
Back to Contents
SIGNATURES
The registrant hereby certifies that it meets
all of the requirements for filing on Form 20-F and that it has duly caused
and authorized the undersigned to sign this annual report on its behalf.
|
HSBC Holdings plc |
|
|
|
|
|
|
|
By:
|
|
/s/ Douglas J Flint |
|
|
|
|
|
|
Name: |
|
Douglas J Flint |
|
|
|
Title: |
|
Group Finance Director |
Dated: 10 March 2009
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