Strategic Initiatives

9 Months Ended

Sep. 30, 2021

Restructuring and Related Activities [Abstract]

As discussed in our 2020 Form 10-K, in February 2020, our Board of Directors approved a strategic plan to restructure our operations ("Restructuring Plan") in alignment with HSBC’s global strategy to refocus our wholesale operations to better serve our international corporate clients and restructure our retail operations to better meet the needs of globally mobile and affluent clients. Our Restructuring Plan also includes streamlining our functional and operations support model by removing duplication and reducing the size of our balance sheet to better align with the scope and scale of the U.S. opportunity. We previously disclosed that we expect to incur pre-tax charges in connection with this Restructuring Plan largely over the two year period of 2020-2021 of approximately $520-$590 million ($390-$450 million after-tax). As a result of the May 2021 decision to further reposition our Wealth and Personal Banking business, along with the identification of additional restructuring activities primarily relating to further simplifying our wholesale operations and support service functions as well as additional investments in systems infrastructure and new technologies, we determined we would incur additional pre-tax charges of approximately $380-$410 million ($290-$310 million after-tax). We currently expect we will incur our remaining estimated pre-tax charges through 2022. The following table presents a summary of the total pre-tax charges we expect to incur by reportable segment:


	Expected Charges in Connection with Restructuring Plan
	Minimum		Maximum
	(in millions)
Wealth and Personal Banking	$	160	$	180
Commercial Banking	25		35
Global Banking and Markets	115		130
Corporate Center(1)	600		655
Total	$	900	$	1,000

(1)Includes restructuring charges primarily related to lease impairment and other related costs, support service project costs and severance costs associated with certain centralized activities and functions.

Throughout 2020 and into the third quarter of 2021, we continued to progress our Restructuring Plan, including simplification of our support service functions, the exit or transfer of certain derivative contracts and consolidation of our wholesale and retail middle and back office functions, each under a single operations structure. The consolidation of our wholesale middle and back office functions was completed in the second quarter of 2021. As noted above, during the second quarter of 2021, we made the decision to exit our mass market retail banking business, including the sale or closure of certain branches, and transferred certain assets and liabilities to held for sale. See Note 3, "Branch Assets and Liabilities Held for Sale," for additional information. During the three and nine months ended September 30, 2021, we recorded pre-tax charges in connection with our Restructuring Plan totaling $47 million and $183 million, respectively. In 2020, we also completed the initial consolidation of our retail branch network and the creation of our Wealth and Personal Banking business. During the three and nine months ended September 30, 2020, we recorded pre-tax charges in connection with our Restructuring Plan totaling $84 million and $244 million, respectively. In total, we have recorded $463 million of pre-tax charges in connection with our Restructuring Plan. We remain committed to our multi-year strategic plan to re-profile our business.

The following table summarizes the changes in the liability associated with our Restructuring Plan during the three and nine months ended September 30, 2021 and 2020:


	Severance and Other Employee Costs(1)		Lease Termination and Associated Costs(2)		Other(3)		Total
	(in millions)
Three Months Ended September 30, 2021
Restructuring liability at beginning of period	$	6	$	46	$	—	$	52
Restructuring costs accrued during the period	3		2		3		8
Restructuring costs paid during the period	(2)		(2)		(3)		(7)
Restructuring liability at end of period	$	7	$	46	$	—	$	53

Three Months Ended September 30, 2020
Restructuring liability at beginning of period	$	22	$	23	$	—	$	45
Restructuring costs accrued during the period	13		4		—		17
Restructuring costs paid during the period	(12)		(3)		—		(15)
Restructuring liability at end of period	$	23	$	24	$	—	$	47

Nine Months Ended September 30, 2021
Restructuring liability at beginning of period	$	10	$	23	$	—	$	33
Restructuring costs accrued during the period	8		32		9		49
Restructuring costs paid during the period	(11)		(9)		(9)		(29)
Restructuring liability at end of period	$	7	$	46	$	—	$	53

Nine Months Ended September 30, 2020
Restructuring liability at beginning of period	$	—	$	—	$	—	$	—
Restructuring costs accrued during the period	35		28		—		63
Restructuring costs paid during the period	(12)		(4)		—		(16)
Restructuring liability at end of period	$	23	$	24	$	—	$	47

(1)Severance and other employee costs are included in salaries and employee benefits in the consolidated statement of income (loss). The majority of these costs were reported in the Wealth and Personal Banking and the Global Banking and Markets business segments. Not included in these costs are allocated severance costs from HSBC Technology & Services ("HTSU") discussed further below.

(2)Primarily includes real estate taxes, service charges and decommissioning costs. Lease termination and associated costs are included in occupancy expense, net in the consolidated statement of income (loss) and were reported in the Wealth and Personal Banking and the Corporate Center business segments.

(3)Primarily includes professional fees and other staff costs, which are included in other expenses in the consolidated statement of income (loss).

In addition to the restructuring costs reflected in the table above, during the second quarter of 2021, as part of our decision to exit our mass market retail banking business we determined that we would exit approximately 30 branches. As a result, we recorded impairment charges during the second quarter of 2021 to write-off the assets associated with these branches, including $29 million of lease right-of-use ("ROU") assets, $18 million of leasehold improvement assets and $3 million of equipment assets. During the three and nine months ended September 30, 2021, we also recorded impairment charges of $4 million and $9 million, respectively, to write-down the lease ROU assets and leasehold improvement assets primarily associated with certain office space that we determined we would exit.

During the first quarter of 2020, we determined that we would exit approximately 60 branches (in addition to the approximately 20 branches for which we disclosed plans to exit in 2019). As a result, we recorded impairment charges during the first half of 2020 to write-down the lease ROU assets, net of estimated sublease income, by $46 million and to write-down the leasehold improvement assets associated with these branches by $16 million based on their estimated remaining useful lives. The branches were closed by the end of the second quarter of 2020. During the third quarter of 2020, we recorded additional impairment charges of $7 million to write-down the lease ROU assets associated with certain office space that we determined we would exit. Lease impairment charges are reflected in occupancy expense, net in the consolidated statement of income (loss) and were reported in the Wealth and Personal Banking and the Corporate Center business segments.

In addition, during the three and nine months ended September 30, 2021, we recorded $22 million and $32 million, respectively, of trading losses associated with the continued exit of certain derivative contracts as part of our Restructuring Plan

compared with trading losses of $47 million and $57 million during the three and nine months ended September 30, 2020, respectively. These losses are included in trading revenue (expense) in the consolidated statement of income (loss) and were reported in the Global Banking and Markets and the Corporate Center business segments. During the first nine months of 2021, as part of our Restructuring Plan, we also continued to transfer interest rate derivative contracts associated with Fixed Income activities to HSBC Bank plc. These activities are being consolidated in and operated from HSBC Bank plc to better utilize HSBC Group's global scale, which allows us to record revenue as a business introducer and hold fewer assets on our balance sheet. Transfers of interest rate derivative contracts with a notional value of $20.4 billion were completed during the first nine months of 2021. The remainder of these contracts, with a current notional value of approximately $33.9 billion, not transferred by December 31, 2021 are expected to be retained as a run-off portfolio. The transferred derivatives were substantially fully collateralized which resulted in an immaterial impact on our consolidated balance sheet.

Our Restructuring Plan also resulted in costs being allocated to us from HTSU, primarily support service project costs and severance costs, which are reflected in support services from HSBC affiliates in the consolidated statement of income (loss). During the three and nine months ended September 30, 2021, we recorded $13 million and $43 million, respectively, of allocated costs from HTSU related to restructuring activities compared with $13 million and $55 million of allocated costs during the three and nine months ended September 30, 2020, respectively. These costs were reported in the Corporate Center business segment.

HSBC Group Restructuring Separate from the charges related to our Restructuring Plan as detailed above, during the three and nine months ended September 30, 2021, we also recorded $14 million and $32 million, respectively, of allocated costs from other HSBC affiliates related to the HSBC Group's restructuring activities, primarily support service project costs and severance costs. These costs are reflected in support services from HSBC affiliates in the consolidated statement of income (loss) and were reported in the Corporate Center business segment.