Business Segments

9 Months Ended

Sep. 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 $9 million and $25 million during the three and nine months ended September 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, 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 for all periods presented. We currently expect this transfer will result in an increase to loans and deposits for the GB&M segment of approximately $3.4 billion and $2.4 billion, respectively. The profit before tax associated with these relationships was approximately $83 million and $54 million during the years ended December 31, 2015 and 2014, respectively.

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 continue to review the financial information used to manage our businesses, including the scope and content of the financial data, including the U.S. GAAP financial data, being reported to our Management and our Board. To the extent we make changes to this reporting in the future, 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 September 30, 2016
Net interest income(1)	$	204		$	205		$	156	$	53		$	(10	)	$	—		$	608	$	(18	)	$	14		$	604
Other operating income	72			66			188		22			9			—			357		(27		)	(10		)	320
Total operating income	276			271			344		75			(1		)	—			965		(45		)	4			924
Loan impairment charges	27			(19		)	33		1			—			—			42		16			4			62
	249			290			311		74			(1		)	—			923		(61		)	—			862
Operating expenses(2)	283			167			241		56			67			—			814		(11		)	—			803
Profit (loss) before income tax expense	$	(34	)	$	123		$	70	$	18		$	(68	)	$	—		$	109	$	(50	)	$	—		$	59
Three Months Ended September 30, 2015
Net interest income(1)	$	197		$	209		$	142	$	49		$	(5	)	$	(1	)	$	591	$	(19	)	$	45		$	617
Other operating income	85			82			287		26			109			1			590		(11		)	(48		)	531
Total operating income	282			291			429		75			104			—			1,181		(30		)	(3		)	1,148
Loan impairment charges	15			23			5		(1		)	—			—			42		4			1			47
	267			268			424		76			104			—			1,139		(34		)	(4		)	1,101
Operating expenses(2)	280			171			247		62			37			—			797		(7		)	(4		)	786
Profit (loss) before income tax expense	$	(13	)	$	97		$	177	$	14		$	67		$	—		$	342	$	(27	)	$	—		$	315

	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)
Nine Months Ended September 30, 2016
Net interest income(1)	$	609		$	623	$	522	$	153		$	(20	)	$	(2	)	$	1,885	$	(59	)	$	70		$	1,896
Other operating income	229			206		585		67			167			2			1,256		(111		)	(70		)	1,075
Total operating income	838			829		1,107		220			147			—			3,141		(170		)	—			2,971
Loan impairment charges	52			12		387		—			—			—			451		(72		)	(26		)	353
	786			817		720		220			147			—			2,690		(98		)	26			2,618
Operating expenses(2)	810			495		714		173			156			—			2,348		(22		)	26			2,352
Profit (loss) before income tax expense	$	(24	)	$	322	$	6	$	47		$	(9	)	$	—		$	342	$	(76	)	$	—		$	266
Balances at end of period:
Total assets	$	20,719		$	28,832	$	195,803	$	8,149		$	471		$	—		$	253,974	$	(45,673	)	$	9		$	208,310
Total loans, net	17,727			27,740		21,730		6,433			—			—			73,630		(447		)	3,382			76,565
Goodwill	581			358		—		325			—			—			1,264		348			—			1,612
Total deposits	31,702			24,926		30,151		13,216			—			—			99,995		(4,919		)	36,006			131,082
Nine Months Ended September 30, 2015
Net interest income(1)	$	597		$	613	$	392	$	148		$	(16	)	$	(9	)	$	1,725	$	(51	)	$	175		$	1,849
Other operating income	260			228		772		77			266			9			1,612		(36		)	(178		)	1,398
Total operating income	857			841		1,164		225			250			—			3,337		(87		)	(3		)	3,247
Loan impairment charges	52			37		17		(2		)	—			—			104		(9		)	(1		)	94
	805			804		1,147		227			250			—			3,233		(78		)	(2		)	3,153
Operating expenses(2)	887			499		770		178			114			—			2,448		(33		)	(2		)	2,413
Profit (loss) before income tax expense	$	(82	)	$	305	$	377	$	49		$	136		$	—		$	785	$	(45	)	$	—		$	740
Balances at end of period:
Total assets	$	20,177		$	32,143	$	196,535	$	8,491		$	787		$	—		$	258,133	$	(54,496	)	$	729		$	204,366
Total loans, net	17,217			30,905		25,025		6,711			—			—			79,858		286			4,120			84,264
Goodwill	581			358		—		325			—			—			1,264		348			—			1,612
Total deposits	31,260			22,580		31,621		13,137			—			—			98,598		(5,167		)	38,019			131,450

⁽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 U.S. GAAP and the Group Reporting Basis.

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