Business Segments

3 Months Ended

Mar. 31, 2017

Segment Reporting [Abstract]

Business Segments

Business Segments

We have five distinct business segments that we utilize for management reporting and analysis purposes, which are aligned with HSBC's global business strategy: Retail Banking and Wealth Management ("RBWM"), Commercial Banking ("CMB"), Global Banking and Markets ("GB&M") and Private Banking ("PB") and a Corporate Center ("CC") which was created in 2017 and is discussed further below.

We previously announced that we made the decision to implement changes to our internal management reporting for certain activities and functions and report them within a new CC segment beginning in January 2017. These activities and functions include Balance Sheet Management and our legacy structured credit products which historically were both reported in GB&M, as well as a portfolio of residential mortgage loans previously purchased from HSBC Finance, including certain loan servicing activities performed on behalf of HSBC Finance, which were historically reported in RBWM. In addition, we have reviewed central costs historically reported in the Other segment and have reallocated these costs to the global businesses where appropriate. Remaining residual costs are reported in the CC along with all other remaining items historically reported in the Other segment. As a result, beginning in the first quarter of 2017, we have aligned our segment reporting with the changes made to our internal management reporting and are reporting these changes as part of the newly created CC segment for all periods presented.

The following table summarizes the impact on reported segment total assets, total deposits and profit before tax as of and for the three months ended March 31, 2016:

	2016
	(in millions)
Increase (decrease) in segment profit before tax during the three months ended March 31:
RBWM	$	3
CMB	4
GB&M	(8		)
CC (as compared with previously reported Other)	1
Increase (decrease) in segment total assets at March 31:
RBWM	$	(672	)
GB&M	(93,516		)
CC (as compared with previously reported Other)	94,188
Increase (decrease) in segment total deposits at March 31:
GB&M	(8,920		)
CC (as compared with previously reported Other)	8,920

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 evaluate the financial information used to manage our businesses, including the presentation of 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.

During the first quarter of 2017, we adopted new accounting guidance under the Group Reporting Basis which, for financial liabilities measured under the fair value option, requires recognizing the change in fair value attributable to our own credit in other comprehensive income consistent with the new accounting guidance also adopted under U.S. GAAP. The adoption of this guidance did not require periods prior to 2017 to be restated. During the three months ended March 31, 2016, total other revenues under the Group Reporting Basis included a gain of $149 million from the change in fair value of our own debt attributable to credit spread for which we have elected fair value option accounting.

There have been no additional changes in the basis of our segmentation or measurement of segment profit as compared with the presentation in our 2016 Form 10-K.

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 2016 Form 10-K. Other than the change discussed below, there have been no other significant changes since December 31, 2016 in the differences between U.S. GAAP and the Group Reporting Basis impacting our results.

Structured notes and deposits - Structured notes and deposits are classified as trading liabilities under the Group Reporting Basis and are carried at fair value with changes in fair value recorded in earnings. We elected to apply fair value option accounting to these structured notes and deposits under U.S. GAAP. Beginning January 1, 2017, the adoption of new accounting guidance under U.S. GAAP requires the fair value movement on fair value option liabilities, including structured notes and deposits, attributable to credit spread to be recorded in other comprehensive income.

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(3)			GB&M(3)			PB			CC			Adjustments/ Reconciling Items			Total			Group Reporting Basis Adjustments(4)			Group Reporting Basis Reclassi- fications(5)			U.S. GAAP Consolidated Totals
	(in millions)
Three Months Ended March 31, 2017
Net interest income(1)	$	213	$	180		$	152		$	53		$	8		$	—		$	606		$	(13	)	$	4		$	597
Other operating income	137		52			121			21			94			—			425			140			(4		)	561
Total operating income	350		232			273			74			102			—			1,031			127			—			1,158
Loan impairment charges	9		(36		)	(35		)	2			(1		)	—			(61		)	(27		)	11			(77		)
	341		268			308			72			103			—			1,092			154			(11		)	1,235
Operating expenses(2)	275		139			203			61			110			—			788			10			(11		)	787
Profit (loss) before income tax expense	$	66	$	129		$	105		$	11		$	(7	)	$	—		$	304		$	144		$	—		$	448
Balances at end of period:
Total assets	$	19,057	$	24,175		$	84,949		$	7,808		$	103,804		$	—		$	239,793		$	(38,255	)	$	45		$	201,583
Total loans, net	16,802		23,170			21,108			5,928			3,564			—			70,572			(323		)	(1,582		)	68,667
Goodwill	581		358			—			325			—			—			1,264			348			—			1,612
Total deposits	34,811		19,914			22,960			11,355			6,638			—			95,678			(4,430		)	38,010			129,258
Three Months Ended March 31, 2016
Net interest income(1)	$	202	$	190		$	149		$	51		$	44		$	(2	)	$	634		$	(19	)	$	39		$	654
Other operating income	74		62			260			23			153			2			574			(70		)	(42		)	462
Total operating income	276		252			409			74			197			—			1,208			(89		)	(3		)	1,116
Loan impairment charges	14		12			205			(1		)	2			—			232			(69		)	(6		)	157
	262		240			204			75			195			—			976			(20		)	3			959
Operating expenses(2)	253		147			223			58			48			—			729			(6		)	3			726
Profit (loss) before income tax expense	$	9	$	93		$	(19	)	$	17		$	147		$	—		$	247		$	(14	)	$	—		$	233
Balances at end of period:
Total assets	$	20,051	$	26,877		$	104,090		$	8,221		$	94,650		$	—		$	253,889		$	(50,109	)	$	4		$	203,784
Total loans, net	17,033		23,905			25,989			6,461			3,461			—			76,849			4			3,856			80,709
Goodwill	581		358			—			325			—			—			1,264			348			—			1,612
Total deposits	32,506		19,699			21,942			13,813			8,940			—			96,900			(5,195		)	34,598			126,303

⁽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 the segments.

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

⁽³⁾  During the fourth quarter of 2016, we transferred certain client relationships from CMB to GB&M as discussed further in Note 22, "Business Segments," in our 2016 Form 10-K. As a result, we reclassified $22 million of profit before tax from the CMB segment to the GB&M segment during the three months ended March 31, 2016 to conform with the current year presentation. In addition, we reclassified $4,733 million of loans and $2,789 million of deposits from the CMB segment to the GB&M segment at March 31, 2016.

⁽⁴⁾  Represents adjustments associated with differences between U.S. GAAP and the Group Reporting Basis.

⁽⁵⁾  Represents differences in financial statement presentation between U.S. GAAP and the Group Reporting Basis.