Business Segments

We have four distinct business segments that we utilize for management reporting and analysis purposes, which are aligned with HSBC's global business strategy: Wealth and Personal Banking ("WPB") which was created in the second quarter of 2020 and is discussed further below, Commercial Banking ("CMB"), Global Banking and Markets ("GB&M") and a Corporate Center ("CC").

We previously announced as part of our Restructuring Plan that we would combine our Retail Banking and Wealth Management ("RBWM") and Private Banking ("PB") businesses to create a single WPB business. During the second quarter of 2020, we implemented a change to our internal management reporting to begin reporting what was historically RBWM and PB together within a newly created WPB segment and, as a result, we have aligned our segment reporting to reflect this change for all periods presented.

During the second quarter of 2020, we also decided to implement a change to our internal management reporting to begin allocating Balance Sheet Management ("BSM"), which was historically reported within the CC segment, to the WPB, CMB and GB&M businesses to better align the revenue and expense to the businesses generating or utilizing this activity. As a result, we have aligned our segment reporting to reflect this change for all periods presented.

The following table summarizes the impact of these changes on reported segment profit (loss) before tax, total assets and total deposits as of and for the three months and six months ended June 30, 2019:



	As Previously Reported			After Reporting Changes
	(in millions)
Segment profit (loss) before tax during the three months ended June 30, 2019:
RBWM	$	(26	)	NR
WPB	NR			$	(8	)
CMB	106			114
GB&M	94			126
PB	(4		)	NR
CC	19			(43		)

Segment profit (loss) before tax during the six months ended June 30, 2019:
RBWM	$	(72	)	NR
WPB	NR			$	(34	)
CMB	221			236
GB&M	231			295
PB	(3		)	NR
CC	16			(104		)

Segment total assets at June 30, 2019:
RBWM⁽¹⁾	$	18,907		NR
WPB	NR			$	50,886
CMB	26,735			35,568
GB&M	87,114			126,864
PB⁽¹⁾	6,952			NR
CC	76,055			2,445

Segment total deposits at June 30, 2019:
RBWM	$	33,606		NR
WPB	NR			$	42,942
CMB	23,554			24,299
GB&M	29,674			32,840
PB	7,226			NR
CC	6,021			—


⁽¹⁾	Segment total assets at June 30, 2019 included goodwill that was previously allocated to RBWM and PB of $581 million and $321 million, respectively.

NR Not Reported

There have been no additional changes in the basis of our segmentation as compared with the presentation in our 2019 Form 10-K.

Net interest income of each segment represents the difference between actual interest earned on assets and interest incurred on liabilities of the segment, adjusted for a funding charge or credit that includes both interest rate and liquidity components. 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 that incorporate both repricing (interest rate risk) and tenor (liquidity) characteristics. The objective of these charges/credits is to transfer interest rate risk to one centralized unit in BSM. BSM income statement and balance sheet results are allocated to each of the global businesses based upon tangible equity levels and levels of any surplus liabilities.

Certain other revenue and operating expense amounts are also apportioned among the business segments based upon the benefits derived from this activity or the relationship of this activity to other segment activity. These inter-segment transactions have not been eliminated, and we generally account for them as if they were with third parties.

Our segment results are presented in accordance with HSBC Group accounting and reporting policies, which apply IFRSs as issued by the IASB and 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. We continue, however, to monitor capital adequacy and report to regulatory agencies on a U.S. GAAP basis.

There have been no changes in the measurement of segment profit as compared with the presentation in our 2019 Form 10-K.

A summary of significant differences between U.S. GAAP and the Group Reporting Basis as they impact our results are summarized in Note 24, "Business Segments," in our 2019 Form 10-K. Other than the changes discussed below, there have been no other significant changes since December 31, 2019 in the differences between U.S. GAAP and the Group Reporting Basis impacting our results.

Expected credit losses - As discussed further in Note 21, "New Accounting Pronouncements," on January 1, 2020, we adopted new accounting guidance under U.S. GAAP which requires entities to recognize an allowance for credit losses based on lifetime ECL. However, under the Group Reporting Basis for the requirements of IFRS 9, "Financial Instruments" ("IFRS 9"), only financial assets which are considered to have experienced a significant increase in credit risk or for which there is objective evidence of impairment require an allowance based on lifetime ECL. Under the Group Reporting Basis, financial assets which have not experienced a significant increase in credit risk since initial recognition only require an allowance based on expected credit losses resulting from default events that are possible within the next 12 months. Principally as a result of this difference, the allowance for credit losses remains higher under U.S. GAAP than under the Group Reporting Basis. In addition, the new guidance requires inclusion of expected recoveries, limited to the cumulative amount of prior write-offs, when estimating the allowance for credit losses for in scope financial assets (including collateral-dependent assets) under U.S. GAAP, which results in an impact to earnings substantially consistent with the Group Reporting Basis. Prior to January 1, 2020, these expected recoveries were not recognized under U.S. GAAP.

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
	WPB			CMB			GB&M		CC			Total		Group Reporting Basis Adjustments⁽¹⁾			Group Reporting Basis Reclassi- fications⁽²⁾			U.S. GAAP Consolidated Totals
	(in millions)
Three Months Ended June 30, 2020
Net interest income	$	197		$	204		$	122	$	(7	)	$	516	$	2		$	20		$	538
Other operating income	99			52			263		85			499		(19		)	(16		)	464
Total operating income	296			256			385		78			1,015		(17		)	4			1,002
Expected credit losses / provision for credit losses	36			181			19		—			236		(17		)	—			219
	260			75			366		78			779		—			4			783
Operating expenses	326			142			201		63			732		(9		)	4			727
Profit (loss) before income tax	$	(66	)	$	(67	)	$	165	$	15		$	47	$	9		$	—		$	56

Three Months Ended June 30, 2019
Net interest income	$	265		$	206		$	156	$	(17	)	$	610	$	3		$	(73	)	$	540
Other operating income	104			60			189		12			365		(3		)	74			436
Total operating income	369			266			345		(5		)	975		—			1			976
Expected credit losses / provision for credit losses	13			9			3		—			25		23			(2		)	46
	356			257			342		(5		)	950		(23		)	3			930
Operating expenses	364			143			216		38			761		10			3			774
Profit (loss) before income tax	$	(8	)	$	114		$	126	$	(43	)	$	189	$	(33	)	$	—		$	156



	Group Reporting Basis Consolidated Amounts
	WPB			CMB			GB&M			CC			Total			Group Reporting Basis Adjustments⁽¹⁾			Group Reporting Basis Reclassi- fications⁽²⁾			U.S. GAAP Consolidated Totals
	(in millions)
Six Months Ended June 30, 2020
Net interest income	$	429		$	414		$	212		$	(20	)	$	1,035		$	5		$	2		$	1,042
Other operating income	173			110			526			61			870			(23		)	4			851
Total operating income	602			524			738			41			1,905			(18		)	6			1,893
Expected credit losses / provision for credit losses	176			304			135			—			615			330			—			945
	426			220			603			41			1,290			(348		)	6			948
Operating expenses	1,361			289			393			198			2,241			85			6			2,332
Profit (loss) before income tax	$	(935	)	$	(69	)	$	210		$	(157	)	$	(951	)	$	(433	)	$	—		$	(1,384	)
Balances at end of period:
Total assets	$	61,326		$	41,511		$	155,090		$	2,449		$	260,376		$	(47,514	)	$	—		$	212,862
Total loans, net	24,059			28,125			17,673			—			69,857			(3,931		)	5,350			71,276
Goodwill	—			358			—			—			358			100			—			458
Total deposits	49,871			39,245			54,414			—			143,530			(4,874		)	17,377			156,033

Six Months Ended June 30, 2019
Net interest income	$	538		$	412		$	329		$	(45	)	$	1,234		$	9		$	(141	)	$	1,102
Other operating income	194			121			379			9			703			(20		)	143			826
Total operating income	732			533			708			(36		)	1,937			(11		)	2			1,928
Expected credit losses / provision for credit losses	34			15			(14		)	—			35			64			5			104
	698			518			722			(36		)	1,902			(75		)	(3		)	1,824
Operating expenses	732			282			427			68			1,509			18			(3		)	1,524
Profit (loss) before income tax	$	(34	)	$	236		$	295		$	(104	)	$	393		$	(93	)	$	—		$	300
Balances at end of period:
Total assets	$	50,886		$	35,568		$	126,864		$	2,445		$	215,763		$	(31,700	)	$	—		$	184,063
Total loans, net	23,683			25,792			20,853			—			70,328			(2,340		)	3,877			71,865
Goodwill	902			358			—			—			1,260			347			—			1,607
Total deposits	42,942			24,299			32,840			—			100,081			(3,434		)	20,314			116,961


⁽¹⁾	Represents adjustments associated with differences between U.S. GAAP and the Group Reporting Basis.


⁽²⁾	Represents differences in financial statement presentation between U.S. GAAP and the Group Reporting Basis.