Business Segments

6 Months Ended

Jun. 30, 2016

Segment Reporting [Abstract]

Business Segments

Business Segments

We have four distinct business segments that we utilize for management reporting and analysis purposes, which are aligned with HSBC's global businesses and business strategy: Retail Banking and Wealth Management ("RBWM"), Commercial Banking ("CMB"), Global Banking and Markets ("GB&M") and Private Banking ("PB").

We previously announced that with effect from January 1, 2016, a portion of our Business Banking client group, generally representing those small business customers with $3 million or less in annual revenue (now referred to as Retail Business Banking), would be better managed as part of RBWM rather than CMB given the similarities in their banking activities with the RBWM customer base. Therefore, to coincide with the change in our management reporting effective beginning in the first quarter of 2016, we have included the results of Retail Business Banking in the RBWM segment for all periods presented. As a result, loss before tax for the RBWM segment increased $8 million and $16 million during the three and six months ended June 30, 2015, respectively. There have been no other changes in the basis of our segmentation or measurement of segment profit as compared with the presentation in our 2015 Form 10-K.

During the first half of 2016, we determined that a portion of our Large Corporate client group, generally representing those large business customers with more complex banking activities which require the levels of support routinely provided by relationship managers in GB&M, would be better managed as part of GB&M rather than CMB. We currently anticipate this transfer will occur effective October 1, 2016. Therefore, beginning in the fourth quarter of 2016, we will include the results of the transferred client relationships in the GB&M segment.

Our segment results are presented in accordance with HSBC Group accounting and reporting policies, which apply IFRSs as issued by the IASB and as endorsed by the EU, and, as a result, our segment results are prepared and presented using financial information prepared on the Group Reporting Basis as operating results are monitored and reviewed, trends are evaluated and decisions about allocating resources, such as employees, are primarily made on this basis. However, we continue to monitor capital adequacy and report to regulatory agencies on a U.S. GAAP basis.

We are currently in the process of re-evaluating the financial information used to manage our businesses, including the scope and content of the U.S. GAAP financial data being reported to our Management and our Board. To the extent we make changes to this reporting in 2016, we will evaluate any impact such changes may have on our segment reporting.

A summary of differences between U.S. GAAP and the Group Reporting Basis as they impact our results are presented in Note 22, "Business Segments," in our 2015 Form 10-K. There have been no significant changes since December 31, 2015 in the differences between U.S. GAAP and the Group Reporting Basis.

The following table summarizes the results for each segment on a Group Reporting Basis, as well as provides a reconciliation of total results under the Group Reporting Basis to U.S. GAAP consolidated totals:

	Group Reporting Basis Consolidated Amounts
	RBWM			CMB		GB&M			PB			Other			Adjustments/ Reconciling Items			Total			Group Reporting Basis Adjustments(3)			Group Reporting Basis Reclassi- fications(4)			U.S. GAAP Consolidated Totals
	(in millions)
Three Months Ended June 30, 2016
Net interest income(1)	$	204		$	205	$	190		$	49		$	(5	)	$	—		$	643		$	(22	)	$	17		$	638
Other operating income	77			67		178			22			(19		)	—			325			(14		)	(18		)	293
Total operating income	281			272		368			71			(24		)	—			968			(36		)	(1		)	931
Loan impairment charges	9			18		150			—			—			—			177			(19		)	(24		)	134
	272			254		218			71			(24		)	—			791			(17		)	23			797
Operating expenses(2)	268			166		249			59			63			—			805			(5		)	23			823
Profit (loss) before income tax expense	$	4		$	88	$	(31	)	$	12		$	(87	)	$	—		$	(14	)	$	(12	)	$	—		$	(26	)
Three Months Ended June 30, 2015
Net interest income(1)	$	199		$	207	$	132		$	50		$	(5	)	$	(3	)	$	580		$	(18	)	$	64		$	626
Other operating income	87			70		219			27			75			3			481			(15		)	(63		)	403
Total operating income	286			277		351			77			70			—			1,061			(33		)	1			1,029
Loan impairment charges	15			4		4			(1		)	—			—			22			(27		)	(1		)	(6		)
	271			273		347			78			70			—			1,039			(6		)	2			1,035
Operating expenses(2)	313			172		264			58			50			—			857			(9		)	2			850
Profit (loss) before income tax expense	$	(42	)	$	101	$	83		$	20		$	20		$	—		$	182		$	3		$	—		$	185
Six Months Ended June 30, 2016
Net interest income(1)	$	405		$	418	$	366		$	100		$	(10	)	$	(2	)	$	1,277		$	(41	)	$	56		$	1,292
Other operating income	157			140		397			45			158			2			899			(84		)	(60		)	755
Total operating income	562			558		763			145			148			—			2,176			(125		)	(4		)	2,047
Loan impairment charges	25			31		354			(1		)	—			—			409			(88		)	(30		)	291
	537			527		409			146			148			—			1,767			(37		)	26			1,756
Operating expenses(2)	527			328		473			117			89			—			1,534			(11		)	26			1,549
Profit (loss) before income tax expense	$	10		$	199	$	(64	)	$	29		$	59		$	—		$	233		$	(26	)	$	—		$	207
Balances at end of period:
Total assets	$	20,899		$	30,240	$	202,708		$	8,244		$	492		$	—		$	262,583		$	(51,717	)	$	7		$	210,873
Total loans, net	17,791			29,025		21,787			6,555			—			—			75,158			(192		)	3,781			78,747
Goodwill	581			358		—			325			—			—			1,264			348			—			1,612
Total deposits	31,854			23,685		28,593			13,670			—			—			97,802			(4,994		)	40,011			132,819

	Group Reporting Basis Consolidated Amounts
	RBWM			CMB		GB&M		PB			Other			Adjustments/ Reconciling Items			Total		Group Reporting Basis Adjustments(3)			Group Reporting Basis Reclassi- fications(4)			U.S. GAAP Consolidated Totals
	(in millions)
Six Months Ended June 30, 2015
Net interest income(1)	$	400		$	404	$	250	$	99		$	(11	)	$	(8	)	$	1,134	$	(32	)	$	130		$	1,232
Other operating income	175			146		485		51			157			8			1,022		(25		)	(130		)	867
Total operating income	575			550		735		150			146			—			2,156		(57		)	—			2,099
Loan impairment charges	37			14		12		(1		)	—			—			62		(13		)	(2		)	47
	538			536		723		151			146			—			2,094		(44		)	2			2,052
Operating expenses(2)	607			328		523		116			77			—			1,651		(26		)	2			1,627
Profit (loss) before income tax expense	$	(69	)	$	208	$	200	$	35		$	69		$	—		$	443	$	(18	)	$	—		$	425
Balances at end of period:
Total assets	$	20,059		$	31,868	$	181,541	$	8,174		$	779		$	—		$	242,421	$	(45,816	)	$	13		$	196,618
Total loans, net	17,111			30,711		24,489		6,498			—			—			78,809		906			3,254			82,969
Goodwill	581			358		—		325			—			—			1,264		348			—			1,612
Total deposits	31,139			21,209		30,343		12,766			—			—			95,457		(4,512		)	31,602			122,547

⁽¹⁾  Net interest income of each segment represents the difference between actual interest earned on assets and interest paid on liabilities of the segment adjusted for a funding charge or credit. Segments are charged a cost to fund assets (e.g. customer loans) and receive a funding credit for funds provided (e.g. customer deposits) based on equivalent market rates. The objective of these charges/credits is to transfer interest rate risk from the segments to one centralized unit in Balance Sheet Management and more appropriately reflect the profitability of segments.

⁽²⁾  Expenses for the segments include fully apportioned corporate overhead expenses.

⁽³⁾  Represents adjustments associated with differences between the Group Reporting Basis and the U.S. GAAP basis of accounting.

⁽⁴⁾  Represents differences in financial statement presentation between Group Reporting Basis and U.S. GAAP.