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Business Segments
9 Months Ended
Sep. 30, 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 profit before tax, total assets and total deposits as of and for the three and nine months ended September 30, 2016:
 
2016
 
(in millions)
Increase (decrease) in segment profit before tax during the three months ended September 30:
 
RBWM
$
1

CMB
3

GB&M
(50
)
PB

CC (as compared with previously reported Other)
46

 
 
Increase (decrease) in segment profit before tax during the nine months ended September 30:
 
RBWM
$
1

CMB
9

GB&M
(131
)
PB

CC (as compared with previously reported Other)
121

 
 
Increase (decrease) in segment total assets at September 30:
 
RBWM
$
(611
)
CMB

GB&M
(107,318
)
PB

CC (as compared with previously reported Other)
107,929

 
 
Increase (decrease) in segment total deposits at September 30:
 
RBWM
$

CMB

GB&M
(6,672
)
PB

CC (as compared with previously reported Other)
6,672


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 spread in other comprehensive income (loss) 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 and nine months ended September 30, 2016, total other revenues under the Group Reporting Basis included gains of $5 million and $113 million, respectively, from the change in fair value of our own debt attributable to our own 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 changes 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 our own credit spread to be recorded in other comprehensive income (loss).
Property - The sale and leaseback of our 452 Fifth Avenue property, including the 1 W. 39th Street building, in 2010 resulted in the recognition of a gain under the Group Reporting Basis while under U.S. GAAP, such gain is deferred and was being recognized over the lease term (which was ten years) due to our continuing involvement. During the second quarter of 2017, we extended the lease for an additional five years as well as the amortization of the deferred gain to reflect the new lease term.
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 September 30, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net interest income(1)
$
231

 
$
187

 
$
131

 
$
56

 
$
(10
)
 
$

 
$
595

 
$
(9
)
 
$
(26
)
 
$
560

Other operating income
54

 
55

 
111

 
31

 
33

 

 
284

 
61

 
23

 
368

Total operating income
285

 
242

 
242

 
87

 
23

 

 
879

 
52

 
(3
)
 
928

Loan impairment charges
11

 
(8
)
 
(18
)
 
(2
)
 
1

 

 
(16
)
 
1

 
(7
)
 
(22
)
 
274

 
250

 
260

 
89

 
22

 

 
895

 
51

 
4

 
950

Operating expenses(2)
281

 
142

 
200

 
67

 
103

 

 
793

 
(2
)
 
4

 
795

Profit (loss) before income tax expense
$
(7
)
 
$
108

 
$
60

 
$
22

 
$
(81
)
 
$

 
$
102

 
$
53

 
$

 
$
155

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended September 30, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net interest income(1)
$
206

 
$
187

 
$
133

 
$
53

 
$
29

 
$

 
$
608

 
$
(18
)
 
$
14

 
$
604

Other operating income
69

 
49

 
183

 
22

 
34

 

 
357

 
(27
)
 
(10
)
 
320

Total operating income
275

 
236

 
316

 
75

 
63

 

 
965

 
(45
)
 
4

 
924

Loan impairment charges
30

 
(18
)
 
31

 
1

 
(2
)
 

 
42

 
16

 
4

 
62

 
245

 
254

 
285

 
74

 
65

 

 
923

 
(61
)
 

 
862

Operating expenses(2)
278

 
151

 
242

 
56

 
87

 

 
814

 
(11
)
 

 
803

Profit (loss) before income tax expense
$
(33
)
 
$
103

 
$
43

 
$
18

 
$
(22
)
 
$

 
$
109

 
$
(50
)
 
$

 
$
59

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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)
Nine Months Ended September 30, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net interest income(1)
$
665

 
$
548

 
$
439

 
$
165

 
$
(9
)
 
$

 
$
1,808

 
$
(38
)
 
$
(31
)
 
$
1,739

Other operating income
416

 
159

 
385

 
73

 
205

 

 
1,238

 
190

 
30

 
1,458

Total operating income
1,081

 
707

 
824

 
238

 
196

 

 
3,046

 
152

 
(1
)
 
3,197

Loan impairment charges
17

 
(49
)
 
(55
)
 
1

 

 

 
(86
)
 
(47
)
 
13

 
(120
)
 
1,064

 
756

 
879

 
237

 
196

 

 
3,132

 
199

 
(14
)
 
3,317

Operating expenses(2)
830

 
422

 
635

 
191

 
338

 

 
2,416

 

 
(14
)
 
2,402

Profit (loss) before income tax expense
$
234

 
$
334

 
$
244

 
$
46

 
$
(142
)
 
$

 
$
716

 
$
199

 
$

 
$
915

Balances at end of period:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total assets
$
18,968

 
$
24,154

 
$
90,779

 
$
7,684

 
$
90,262

 
$

 
$
231,847

 
$
(33,961
)
 
$

 
$
197,886

Total loans, net
16,781

 
22,959

 
18,843

 
5,900

 
3,751

 

 
68,234

 
(1,039
)
 
(401
)
 
66,794

Goodwill
581

 
358

 

 
321

 

 

 
1,260

 
347

 

 
1,607

Total deposits
34,275

 
23,919

 
21,628

 
9,737

 
8,394

 

 
97,953

 
(3,874
)
 
27,761

 
121,840

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended September 30, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net interest income(1)
$
613

 
$
562

 
$
440

 
$
153

 
$
119

 
$
(2
)
 
$
1,885

 
$
(59
)
 
$
70

 
$
1,896

Other operating income
214

 
166

 
598

 
67

 
209

 
2

 
1,256

 
(111
)
 
(70
)
 
1,075

Total operating income
827

 
728

 
1,038

 
220

 
328

 

 
3,141

 
(170
)
 

 
2,971

Loan impairment charges
57

 
13

 
385

 

 
(4
)
 

 
451

 
(72
)
 
(26
)
 
353

 
770

 
715

 
653

 
220

 
332

 

 
2,690

 
(98
)
 
26

 
2,618

Operating expenses(2)
793

 
451

 
711

 
173

 
220

 

 
2,348

 
(22
)
 
26

 
2,352

Profit (loss) before income tax expense
$
(23
)
 
$
264

 
$
(58
)
 
$
47

 
$
112

 
$

 
$
342

 
$
(76
)
 
$

 
$
266

Balances at end of period:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total assets
$
20,108

 
$
25,262

 
$
92,055

 
$
8,149

 
$
108,400

 
$

 
$
253,974

 
$
(45,673
)
 
$
9

 
$
208,310

Total loans, net
17,116

 
24,170

 
24,065

 
6,433

 
1,846

 

 
73,630

 
(447
)
 
3,382

 
76,565

Goodwill
581

 
358

 

 
325

 

 

 
1,264

 
348

 

 
1,612

Total deposits
31,702

 
21,858

 
26,547

 
13,216

 
6,672

 

 
99,995

 
(4,919
)
 
36,006

 
131,082

 
(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 $23 million and $67 million of profit before tax from the CMB segment to the GB&M segment during the three and nine months ended September 30, 2016, respectively, to conform with the current year presentation. In addition, we reclassified $3,570 million of loans and $3,068 million of deposits from the CMB segment to the GB&M segment at September 30, 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.