FORM 6-K
 
SECURITIES AND EXCHANGE COMMISSION
 
Washington, D.C. 20549

 
Report of Foreign Private Issuer
 
Pursuant to Rule 13a - 16 or 15d - 16 of
 
the Securities Exchange Act of 1934
 
For the month of October 2018

Commission File Number: 001-14930

HSBC Holdings plc
 
42nd Floor, 8 Canada Square, London E14 5HQ, England
 
(Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F).
 
Form 20-F   X             Form 40-F ......
 
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):   ______
 
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):   ______


(Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934).
 
Yes.......             No    X
 
(If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82- ..............).
 
 
 
This Report on Form 6-K with respect to our quarterly results for the three-month and nine-month period ended September 30, 2018 is hereby incorporated by reference in the following HSBC Holdings plc registration statements: Registration Statements on Form F-3 (Nos. 333-92024, 333-135007, 333-158065, 333-180288, 333-202420, 333-223191) and Registration Statement on Form F-4 (No. 333-126531).

                                                                                       
Neither our website referred to herein, nor any of the information contained on our website, is incorporated by reference in the Form 6-K




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29 October 2018
HSBC HOLDINGS PLC

3Q18 EARNINGS RELEASE – HIGHLIGHTS
Financial performance
Reported profit before tax for 9M18 of $16.6bn was 12% higher than for 9M17, reflecting revenue growth in all of our global businesses, partly offset by higher operating expenses. Adjusted profit before tax of $18.3bn was 4% higher than for 9M17, excluding the effects of foreign currency translation differences and movements in significant items.
Reported revenue for 9M18 of $41.1bn was 5% higher, notably driven by a rise in deposit revenue across our global businesses, primarily in Asia, as we benefited from wider margins and grew our balances. These increases were partly offset by lower revenue in Corporate Centre. Adjusted revenue of $41.4bn was 4% higher, excluding the effects of foreign currency translation differences and movements in significant items.
Reported operating expenses for 9M18 of $25.5bn were 2% higher, primarily reflecting investments to grow the business and enhance our digital capabilities, and the effects of foreign currency translation differences, partly offset by a favourable movement in significant items. Adjusted operating expenses of $24.1bn were 6% higher, excluding the effects of foreign currency translation differences and movements in significant items.
Adjusted jaws for 9M18 was negative 1.6%.
Reported profit before tax for 3Q18 of $5.9bn was 28% higher than for 3Q17, reflecting strong revenue growth and lower operating expenses. Adjusted profit before tax of $6.2bn was 16% higher, excluding the effects of foreign currency translation differences and movements in significant items.
Reported loans and advances to customers increased by $8.0bn during 3Q18. Excluding foreign currency translation differences, loans and advances grew by $14bn or 1% from 2Q18.
Capital base remained strong with a common equity tier 1 (‘CET1’) ratio of 14.3% and a CRD IV leverage ratio of 5.4%.
John Flint, Group Chief Executive, said:
“These are encouraging results that demonstrate the revenue potential of HSBC. We are doing what we said we would – delivering growth from areas of strength, and investing in the business while keeping a strong grip on costs. We remain committed to growing profits, generating value for shareholders and improving the service we offer our customers around the world.”
Financial highlights and key ratios
 
9 months ended 30 Sep
Quarter ended 30 Sep
 
2018

2017

Change
2018

2017

Change
 
$m

$m

%
$m

$m

%
Reported profit before tax
16,634

14,863

12
5,922

4,620

28
Adjusted profit before tax
18,332

17,698

4
6,193

5,332

16
 
%

%

%
%

%

%
Return on average ordinary shareholders’ equity (annualised)
9.0

8.2

9.8
9.6

7.1

35.2
Return on average tangible equity (annualised)

10.1

9.3

8.6
10.9

8.2

32.9
Adjusted jaws
(1.6
)
 
 
 
 
 
We use adjusted performance to understand the underlying trends in the business. The main differences between reported and adjusted figures are foreign currency translation and significant items, which include litigation and regulatory items, offset by the non-recurrence of costs to achieve in 9M18.
Capital and balance sheet
 
 
At
 
 
30 Sep

30 Jun

31 Dec

 
 
2018

2018

2017

 
Footnotes
%

%

%

Common equity tier 1 ratio
1
14.3

14.2

14.5

Leverage ratio
1
5.4

5.4

5.6

 
 
$m

$m

$m

Loans and advances to customers
 
981,460

973,443

962,964

Customer accounts
 
1,345,375

1,356,307

1,364,462

Risk-weighted assets
1
862,652

865,467

871,337

1
Calculated using the EU’s regulatory transitional arrangements for IFRS 9 in article 473a of the Capital Requirements Regulation. Figures at 31 December 2017 are reported under IAS 39.


HSBC Holdings plc  Earnings Release 3Q18
1


Earnings Release – 3Q18

Contents
 
Page
 
 
Page
Highlights
 
Capital
Group Chief Executive’s review
 
Leverage
Adoption of IFRS 9 ‘Financial Instruments’
 
Risk-weighted assets
Adoption of IAS 29 ‘Financial Reporting in Hyperinflationary Economies’
 
Summary information – global businesses
Adjusted performance
 
Summary information – geographical regions

Financial performance commentary
 
Appendix – selected information


Cautionary statement regarding forward-looking statements
 
– Reconciliation of reported and adjusted results – global businesses



Summary consolidated income statement
 
– Reconciliation of reported and adjusted risk-weighted assets

Summary consolidated balance sheet
 
– Reconciliation of reported and adjusted results – geographical regions
Credit risk
 
Terms and abbreviations
HSBC Holdings plc – Earnings Release
HSBC Holdings plc will be conducting a trading update conference call with analysts and investors today to coincide with the publication of its Earnings Release. The call will take place at 07.30am GMT. Details of how to participate in the call and the live audio webcast can be found at www.hsbc.com/investor-relations.
Note to editors
HSBC Holdings plc
HSBC Holdings plc, the parent company of HSBC, is headquartered in London. HSBC serves customers worldwide from approximately 3,800 offices in 66 countries and territories in our geographical regions: Europe, Asia, North America, Latin America, and Middle East and North Africa. With assets of $2,603bn at 30 September 2018, HSBC is one of the world’s largest banking and financial services organisations.

2
HSBC Holdings plc  Earnings Release 3Q18


Review by John Flint, Group Chief Executive
Our June 2018 Strategy Update outlined how we intend to bring HSBC back to growth and create value for shareholders. We are starting to see progress. We grew both reported and adjusted profits significantly compared with 3Q17, thanks largely to strong revenue growth in our three main global businesses.
Retail Banking and Wealth Management and Commercial Banking built on the momentum generated in the first half of the year, with both using the benefits of past investment to grow lending and deposit balances. Adjusted revenue growth in Retail Banking and Wealth Management came primarily from current accounts, savings and deposits, particularly in Hong Kong. In Commercial Banking, all of our transaction banking businesses generated higher adjusted revenue, including a sixth consecutive quarter of double-digit year-on-year adjusted revenue growth in Global Liquidity and Cash Management.
Global Banking and Markets had a very good quarter on the back of our strength in transaction banking and Foreign Exchange. Our differentiated Global Banking and Markets business model continues to deliver for our clients, leverage our strengths and generate stable, balanced revenue returns for the Group.
The strong revenue environment continues to enable us to invest in growth and in the simplification of the organisation to make it easier for our customers to bank with us and for colleagues to do their jobs.

HSBC Holdings plc  Earnings Release 3Q18
3


Earnings Release – 3Q18

Adoption of IFRS 9 ‘Financial Instruments’
HSBC adopted the requirements of IFRS 9 on 1 January 2018, with the exception of the provisions relating to the presentation of gains and losses on financial liabilities designated at fair value, which were adopted from 1 January 2017. The adoption of IFRS 9 reduced our net assets at 1 January 2018 by $1.6bn.
Under IFRS 9, the recognition and measurement of expected credit losses differs from the approach under IAS 39. The change in expected credit losses relating to financial assets under IFRS 9 is recorded in the income statement as the ‘change in expected credit losses and other credit impairment charges’ (‘ECL’). As prior periods have not been restated, changes in impairment of financial assets in the comparative periods remain in accordance with IAS 39 and are recorded in the income statement as ‘loan impairment charges and other credit risk provisions’ (‘LICs’) and are therefore not necessarily comparable to ECL recorded for the current period.
Further explanation of the impact of the implementation of IFRS 9 is provided in Note 1 on the Financial Statements on page 82 of the Interim Report 2018.
Adoption of IAS 29 ‘Financial Reporting in Hyperinflationary Economies’
From 1 July 2018, Argentina was deemed a hyperinflationary economy for accounting purposes.
The results of HSBC’s operations with a functional currency of the Argentine peso have been prepared in accordance with IAS 29 ‘Financial Reporting in Hyperinflationary Economies’ as if the economy had always been hyperinflationary. The results of those operations for the nine-month period ended 30 September 2018 are stated in terms of current purchasing power using the Indice de Precios al Consumidor at 30 September 2018 with the corresponding adjustment presented in 3Q18. In accordance with IAS 21 ‘The Effects of Changes in Foreign Exchange Rates’, the results have been translated and presented in US dollars at the prevailing rate of exchange on 30 September 2018, and the Group’s comparative information presented in US dollars with respect to the three-month and nine-month periods ended 30 September 2017 have not been restated.
The impact of applying IAS 29 and the hyperinflation provisions of IAS 21 in the current period was a decrease in the Group’s profit before tax of $145m, comprising a decrease in revenue of $304m, a decrease in ECL of $20m, and a decrease in operating expenses of $139m.
Adjusted performance
Adjusted performance is computed by adjusting reported results for the effects of foreign currency translation differences and significant items, which both distort period-on-period comparisons.
We consider adjusted performance to provide useful information for investors by aligning internal and external reporting, identifying and quantifying items management believes to be significant, and providing insight into how management assesses period-on-period performance.
Foreign currency translation differences
Foreign currency translation differences reflect the movements of the US dollar against most major currencies. We exclude them to derive constant currency data, allowing us to assess balance sheet and income statement performance on a like-for-like basis and better understand the underlying trends in the business.
Foreign currency translation differences
Foreign currency translation differences for 9M18 and 3Q18 are computed by retranslating into US dollars for non-US dollar branches, subsidiaries, joint ventures and associates:
the income statement for 9M17 at the average rates of exchange for 9M18;
the income statement for quarterly periods at the average rates of exchange for 3Q18; and
the closing prior period balance sheets at the prevailing rates of exchange on 30 September 2018.
No adjustment has been made to the exchange rates used to translate foreign currency denominated assets and liabilities into the functional currencies of any HSBC branches, subsidiaries, joint ventures or associates. The constant currency data of HSBC’s Argentinian subsidiaries has not been adjusted further for the impacts of hyperinflation. When reference is made to foreign currency translation differences in tables or commentaries, comparative data reported in the functional currencies of HSBC’s operations have been translated at the appropriate exchange rates applied in the current period on the basis described above.
Significant items
‘Significant items’ refers collectively to the items that management and investors would ordinarily identify and consider separately to understand better the underlying trends in the business.
The tables on pages 37 to 47 detail the effects of significant items on each of our global business segments and geographical regions during 9M18, 3Q18 and the respective comparatives in 2017, as well as 2Q18.
Adjusted performance – foreign currency translation of significant items
The foreign currency translation differences related to significant items are presented as a separate component of significant items. This is considered a more meaningful presentation as it allows better comparison of period-on-period movements in performance.
Global business performance
The Group Chief Executive, supported by the rest of the Group Management Board (‘GMB’), is considered to be the Chief Operating Decision Maker (‘CODM’) for the purposes of identifying the Group‘s reportable segments.
The Group Chief Executive and the rest of the GMB review operating activity on a number of bases, including by global business and geographical region. Global businesses are our reportable segments under IFRS 8 ‘Operating Segments’. Global business results are assessed by the CODM on the basis of adjusted performance, which removes the effects of significant items and currency translation from reported results. We therefore present these results on an adjusted basis as required by IFRSs.
A reconciliation of the Group’s adjusted results to the Group’s reported results is presented on page 5. Supplementary reconciliations of adjusted to reported results by global business are presented on pages 37 to 41 for information purposes.

4
HSBC Holdings plc  Earnings Release 3Q18


Management view of adjusted revenue
Our global business segment commentary includes tables that provide breakdowns of adjusted revenue by major product. These reflect the basis on which revenue performance of the businesses is assessed and managed.
Reconciliation of reported and adjusted results
 
 
Nine months ended
Quarter ended
 
 
30 Sep

30 Sep

30 Sep

30 Jun

30 Sep

 
 
2018

2017

2018

2018

2017

 
Footnotes
$m

$m

$m

$m

$m

Revenue
 
 
 
 
 
 
Reported
 
41,085

39,144

13,798

13,577

12,978

Currency translation
 


586



(360
)
(314
)
Significant items
 
291

(52
)
43

111

54

– customer redress programmes
 
(46
)
3


(46
)
3

– disposals, acquisitions and investment in new businesses
 
142

(353
)

30

5

– fair value movement on financial instruments
1
195

290

43

124

45

– currency translation of significant items
 


8



3

1

Adjusted
 
41,376

39,678

13,841

13,328

12,718

ECL/LICs
 










Reported
 
(914
)
(1,111
)
(507
)
(237
)
(448
)
Currency translation
 


25



22

19

Adjusted
 
(914
)
(1,086
)
(507
)
(215
)
(429
)
Operating expenses
 
 
 
 
 
 
Reported
 
(25,515
)
(24,989
)
(7,966
)
(8,166
)
(8,546
)
Currency translation
 


(489
)


228

201

Significant items
 
1,407

2,700

228

39

762

– cost of structural reform
2
300

289

89

85

109

– costs to achieve
 

2,347



677

– customer redress programmes
 
162

383

62

7

84

– disposals, acquisitions and investment in new businesses
 
54

14

51

1

4

– restructuring and other related costs
 
51


27

4


– settlements and provisions in connection with legal and regulatory matters
 
840

(426
)
(1
)
(56
)
(104
)
– currency translation of significant items
 


93



(2
)
(8
)
Adjusted
 
(24,108
)
(22,778
)
(7,738
)
(7,899
)
(7,583
)
Share of profit in associates and joint ventures
 










Reported
 
1,978

1,819

597

783

636

Currency translation
 


65



(38
)
(10
)
Adjusted
 
1,978

1,884

597

745

626

Profit before tax
 










Reported
 
16,634

14,863

5,922

5,957

4,620

Currency translation
 


187



(148
)
(104
)
Significant items
 
1,698

2,648

271

150

816

– revenue
 
291

(52
)
43

111

54

– operating expenses
 
1,407

2,700

228

39

762

Adjusted
 
18,332

17,698

6,193

5,959

5,332

Loans and advances to customers (net)
 
 
 
 
 
 
Reported
 
981,460

945,168

981,460

973,443

945,168

Currency translation
 
 
(20,174
)
 
(6,358
)
(20,174
)
Adjusted
 
981,460

924,994

981,460

967,085

924,994

Customer accounts
 
 


 




Reported
 
1,345,375

1,337,121

1,345,375

1,356,307

1,337,121

Currency translation
 
 
(24,114
)
 
(7,402
)
(24,114
)
Adjusted
 
1,345,375

1,313,007

1,345,375

1,348,905

1,313,007

1
Includes fair value movements on non-qualifying hedges and debit value adjustments (‘DVA’) on derivative contracts.
2
Comprises costs associated with the UK’s exit from the European Union, costs to establish the UK ring-fenced bank (including the UK ServCo group) and costs associated with establishing an intermediate holding company in Hong Kong.


HSBC Holdings plc  Earnings Release 3Q18
5


Earnings Release – 3Q18

Financial performance commentary
Distribution of results by global business
 
 
Nine months ended
Quarter ended
 
30 Sep

30 Sep

30 Sep

30 Jun

30 Sep

 
2018

2017

2018

2018

2017

 
$m

$m

$m

$m

$m

Adjusted profit before tax
 
 
 
 
 
Retail Banking and Wealth Management
5,726

5,077

2,096

1,716

1,681

Commercial Banking
5,999

5,183

1,888

1,962

1,619

Global Banking and Markets
5,379

5,043

1,811

1,804

1,500

Global Private Banking
285

200

95

76

55

Corporate Centre
943

2,195

303

401

477

Total
18,332

17,698

6,193

5,959

5,332

Distribution of results by geographical region
 
Nine months ended
Quarter ended
 
30 Sep

30 Sep

30 Sep

30 Jun

30 Sep

 
2018

2017

2018

2018

2017

 
$m

$m

$m

$m

$m

Reported profit/(loss) before tax
 
 
 
 
 
Europe
744

522

634

128

(50
)
Asia
13,839

11,659

4,459

4,612

4,029

Middle East and North Africa
1,158

1,168

322

399

364

North America
509

1,080

467

638

127

Latin America
384

434

40

180

150

Total
16,634

14,863

5,922

5,957

4,620

Adjusted profit before tax
 
 
 
 
 
Europe
1,372

2,638

908

191

536

Asia
13,810

12,176

4,450

4,523

3,953

Middle East and North Africa
1,157

1,177

323

398

361

North America
1,576

1,297

472

664

353

Latin America
417

410

40

183

129

Total
18,332

17,698

6,193

5,959

5,332

Tables showing adjusted profit before tax by global business and region are presented to support the commentary on adjusted performance on the following pages.
The tables on pages 37 to 47 reconcile reported to adjusted results for each of our global business segments and geographical regions.
Group
3Q18 compared with 3Q17 – reported results
Movement in reported profit before tax compared with 3Q17
 
Quarter ended
 
30 Sep

30 Sep

Variance
 
2018

2017

3Q18 vs. 3Q17
 
$m

$m

$m

%

Revenue
13,798

12,978

820

6

ECL/LICs
(507
)
(448
)
(59
)
(13
)
Operating expenses
(7,966
)
(8,546
)
580

7

Share of profit from associates and JVs
597

636

(39
)
(6
)
Profit before tax
5,922

4,620

1,302

28

Reported profit before tax
Reported profit before tax of $5.9bn in 3Q18 was $1.3bn or 28% higher than in 3Q17. The increase included net favourable movements in significant items of $0.5bn, which were partly offset by an adverse impact of foreign currency translation differences of $0.1bn.
Excluding the effects of significant items and foreign currency translation differences, profit before tax rose by $0.9bn or 16% as revenue growth of $1.1bn was partly offset by a $0.2bn increase in operating expenses.
Reported revenue
Reported revenue of $13.8bn in 3Q18 was $0.8bn or 6% higher than in 3Q17, reflecting growth in our RBWM, CMB and GB&M global businesses, partly offset by a reduction in Corporate Centre.
Foreign currency translation differences reduced revenue growth by $0.3bn, while movements in significant items between the periods were minimal. Excluding foreign currency translation differences and significant items, revenue increased by $1.1bn or 9%.

6
HSBC Holdings plc  Earnings Release 3Q18


Reported ECL/LICs
The reported change in expected credit losses and other credit impairment charges (‘ECL’) was $0.5bn in 3Q18. This mainly related to charges in RBWM ($0.3bn) and CMB ($0.2bn). There were minimal net releases of ECL in GB&M, Corporate Centre and GPB.
In 3Q17, reported loan impairment charges and other credit risk provisions (‘LICs’) of $0.4bn were mainly related to RBWM ($0.2bn) and CMB ($0.2bn), partly offset by net releases in Corporate Centre. The effect of foreign currency translation differences between the periods was minimal.
Reported operating expenses
Reported operating expenses of $8.0bn were $0.6bn or 7% lower than in 3Q17 and included a favourable movement in significant items of $0.5bn and favourable currency translation differences of $0.2bn.
The favourable movement in significant items included the non-recurrence of costs to achieve, which were $0.7bn in 3Q17. This was partly offset by a lower net release related to settlements and provisions in connection with legal and regulatory matters (down $0.1bn).
Excluding significant items and foreign currency translation differences, operating expenses increased by $0.2bn or 2%.
Reported share of profit from associates and JVs
Reported income from associates of $0.6bn decreased by $39m or 6%. Excluding unfavourable foreign currency translation differences of $10m, income from associates decreased by $29m.
Third interim dividend for 2018
On 2 October 2018, the Board announced a third interim dividend for 2018 of $0.10 per ordinary share.
Group
3Q18 compared with 3Q17 – adjusted results
Movement in adjusted profit before tax compared with 3Q17
 
Quarter ended
 
30 Sep

30 Sep

Variance
 
2018

2017

3Q18 vs. 3Q17
 
$m

$m

$m

%

Revenue
13,841

12,718

1,123

9

ECL/LICs
(507
)
(429
)
(78
)
(18
)
Operating expenses
(7,738
)
(7,583
)
(155
)
(2
)
Share of profit from associates and JVs
597

626

(29
)
(5
)
Profit before tax
6,193

5,332

861

16

Adjusted profit before tax
On an adjusted basis, profit before tax of $6.2bn was $0.9bn or 16% higher than in 3Q17. This reflected revenue growth, which was partly offset by a rise in operating expenses. In addition, ECL in 3Q18 were $0.5bn compared with LICs of $0.4bn in 3Q17.
From 1 July 2018, Argentina was deemed a hyperinflationary economy for accounting purposes. The impact of applying IAS 29 ‘Financial Reporting in Hyperinflationary Economies’ from 1 July 2018 and presenting in accordance with IAS 21 ‘The Effects of Changes in Foreign Exchange Rates’ resulted in a $0.1bn decrease in profit before tax.
Adjusted revenue
Adjusted revenue of $13.8bn was $1.1bn or 9% higher than in 3Q17, driven by RBWM, CMB and GB&M, although revenue fell in Corporate Centre and was broadly unchanged in GPB.
In RBWM, revenue increased by $0.7bn or 14%, driven by growth in Retail Banking, which benefited from wider margins and balance growth in current accounts, savings and deposits. However, personal lending revenue fell mainly due to mortgage spread compression, notably in Hong Kong and the UK. In Wealth Management, revenue was broadly unchanged as the increase in insurance manufacturing revenue was mostly offset by a decrease in investment distribution revenue, notably in Hong Kong.
In CMB, revenue increased by $0.5bn or 15%, primarily in Global Liquidity and Cash Management (‘GLCM’) as we benefited from wider deposit margins, notably in Hong Kong, as well as growth in average balances across most regions. In addition, revenue increased in Credit and Lending (‘C&L’), reflecting balance sheet growth across all regions. In Global Trade and Receivables Finance (‘GTRF’), revenue increased from growth in Asia and Europe.
In GB&M, revenue increased by $0.4bn or 10%. Strong growth in GLCM and Securities Services reflected interest rate rises and deposit balance growth, primarily in Hong Kong. Despite lower primary corporate issuances and reduced secondary client activity, revenue in Global Banking was broadly unchanged, while Global Markets revenue increased by 5%. In Global Banking, growth in lending balances was offset by lower event-driven business and narrower lending spreads. In Global Markets, revenue rose in Foreign Exchange, as we capitalised on higher volatility in emerging markets and increased client flow, and revenue in Credit increased from higher client activity. Revenue fell in Rates and Equities, reflecting reduced client flow and spread compression.
In GPB, revenue was broadly unchanged. Higher deposit revenue resulting from interest rate rises and growth in annuity fees from strong mandate flows were offset by the effects of our client repositioning actions, primarily in the US, and lower brokerage and trading revenues, mainly in Hong Kong due to a weaker market sentiment.
In Corporate Centre, we recorded negative adjusted revenue of $0.3bn in 3Q18 compared with adjusted revenue of $0.2bn in 3Q17. This reduction included the adverse effects of hyperinflation accounting in Argentina of $0.3bn and adverse fair value movements in 3Q18, compared with favourable fair value movements in 3Q17, relating to the hedging of our long-term debt (down $0.1bn). These factors were partly offset by higher revenue from our legacy credit portfolio (up $45m), reflecting gains from asset sales in 3Q18.

HSBC Holdings plc  Earnings Release 3Q18
7


Earnings Release – 3Q18

Adjusted ECL/LICs
Adjusted ECL of $0.5bn in 3Q18 mainly related to charges in RBWM ($0.3bn) and CMB ($0.2bn). In RBWM, the charges were mainly in Mexico and the UK against unsecured lending balances, and to a lesser extent in Hong Kong, also against unsecured lending. In CMB, ECL were mainly against a small number of customers in Asia and in MENA, as well as charges reflecting the challenging economic conditions in Turkey.
The Group applied a charge in the period reflecting concerns over possible impacts of escalating tariffs and other trade restrictions, primarily in Hong Kong, across RBWM, CMB and GB&M.
In 3Q17, adjusted LICs of $0.4bn related to charges in RBWM ($0.2bn), mainly in Mexico, reflecting growth in unsecured lending together with an associated rise in delinquency.
Adjusted operating expenses
Adjusted operating expenses of $7.7bn were $0.2bn or 2% higher than in 3Q17. This reflected investments in business growth programmes mainly in RBWM and GB&M, and continued investment in digital across all global businesses. The effects of hyperinflation accounting in Argentina resulted in a $0.1bn decrease in adjusted operating expenses.
Adjusted share of profit from associates and JVs
Adjusted income from associates of $0.6bn decreased by $29m or 5%.
Group
9M18 compared with 9M17 – reported results
Movement in reported profit before tax compared with 9M17
 
Nine months ended
 
30 Sep

30 Sep

Variance
 
2018

2017

9M18 vs. 9M17
 
$m

$m

$m

%

Revenue
41,085

39,144

1,941

5

ECL/LICs
(914
)
(1,111
)
197

18

Operating expenses
(25,515
)
(24,989
)
(526
)
(2
)
Share of profit from associates and JVs
1,978

1,819

159

9

Profit before tax
16,634

14,863

1,771

12

Reported profit before tax
Reported profit before tax of $16.6bn in 9M18 was $1.8bn or 12% higher than in 9M17. The increase included a net favourable movement in significant items of $1.0bn and favourable foreign currency translation differences of $0.2bn. Excluding these items, profit before tax increased by $0.6bn to $18.3bn.
Reported revenue
Reported revenue of $41.1bn in 9M18 was $1.9bn or 5% higher than in 9M17, which primarily reflected revenue growth in all global businesses, although revenue fell in Corporate Centre.
The increase in reported revenue included favourable foreign currency translation differences of $0.6bn, partly offset by a net adverse movement in significant items of $0.3bn.
Significant items included a net loss on disposals, acquisitions and investment in new businesses of $0.1bn in 9M18, mainly relating to the early redemption of subordinated debt in the US. This compared with a net gain of $0.4bn in 9M17, largely related to the disposal of our membership interest in Visa Inc.
This was partly offset by lower adverse fair value movements on financial instruments (up $0.1bn).
Excluding significant items and currency translation differences, revenue increased by $1.7bn or 4%.
Reported ECL/LICs
ECL were $0.9bn in 9M18. These mainly related to charges of $0.8bn in RBWM and $0.3bn in CMB, partly offset by net releases of ECL in GB&M and Corporate Centre.
LICs in 9M17 were $1.1bn and were mainly incurred in RBWM ($0.8bn) and CMB ($0.3bn). These charges were partly offset by a net release of $0.1bn in Corporate Centre.
The effect of foreign currency translation differences between the periods was minimal.
Reported operating expenses
Reported operating expenses of $25.5bn were $0.5bn or 2% higher than in 9M17. The increase included an adverse impact of foreign currency translation differences of $0.5bn and a favourable movement in significant items of $1.3bn, which included:
the non-recurrence of costs to achieve, which were $2.3bn in 9M17; and
customer redress programme costs of $0.2bn in 9M18, compared with $0.4bn in 9M17.
These were partly offset by:
settlements and provisions in connection with legal matters of $0.8bn in 9M18. This compared with a net release of $0.4bn in 9M17.
Excluding significant items and foreign currency translation differences, operating expenses increased by $1.3bn or 6%.
Reported share of profit from associates and JVs
Reported income from associates of $2.0bn was $0.2bn or 9% higher than in 9M17, primarily reflecting an increase in income from Bank of Communications Co., Limited (‘BoCom’).
Excluding favourable foreign currency translation differences of $0.1bn, income from associates increased by $0.1bn.

8
HSBC Holdings plc  Earnings Release 3Q18


Tax expense
The effective tax rate for 9M18 of 22.3% was unchanged compared with 22.3% in 9M17. This reflected a decrease arising from a change in profit mix, modifications to the UK rules governing the utilisation of tax losses and a lower level of non-deductible customer redress expense, offset by the impact of higher non-deductible regulatory settlements and the effects of hyperinflation accounting with respect to Argentina.
Group
9M18 compared with 9M17 – adjusted results
Movement in adjusted profit before tax compared with 9M17
 
Nine months ended
 
30 Sep

30 Sep

Variance
 
2018

2017

9M18 vs. 9M17
 
$m

$m

$m

%

Revenue
41,376

39,678

1,698

4

ECL/LICs
(914
)
(1,086
)
172

16

Operating expenses
(24,108
)
(22,778
)
(1,330
)
(6
)
Share of profit from associates and JVs
1,978

1,884

94

5

Profit before tax
18,332

17,698

634

4

Adjusted profit before tax
On an adjusted basis, profit before tax of $18.3bn was $0.6bn or 4% higher, reflecting strong revenue growth from our global businesses. Operating expenses rose, reflecting the ongoing impact of a number of investments to grow the business. In addition, ECL in 9M18 were $0.9bn compared with LICs of $1.1bn in 9M17.
The impact of applying IAS 29 ‘Financial Reporting in Hyperinflationary Economies’ from 1 July 2018 and presenting in accordance with IAS 21 ‘The Effects of Changes in Foreign Exchange Rates’ resulted in a $0.1bn reduction in profit before tax.
The growth in adjusted operating expenses exceeded the growth in adjusted revenue, resulting in negative adjusted jaws of 1.6%. The Group remains on track to achieve positive adjusted jaws for the full year based on our current operating plans, while noting the sensitivity of the impact on adjusted jaws of any differences between actual and currently expected revenue and cost growth during the final quarter of the year.
Adjusted revenue
Adjusted revenue of $41.4bn increased by $1.7bn or 4% compared with 9M17, reflecting strong revenue growth in all our global businesses, partly offset by lower revenue in Corporate Centre.
In RBWM, revenue increased by $1.5bn or 10% with growth in both Retail Banking and Wealth Management. In Retail Banking, revenue increased in current accounts, savings and deposits, reflecting wider margins and balance growth, primarily in Hong Kong, the UK and Mexico. This was partly offset by lower personal lending revenue, reflecting mortgage spread compression, notably in Hong Kong, the US and the UK. In Wealth Management, higher investment distribution revenue, reflecting increased investor confidence, more than offset lower life insurance manufacturing revenue, which included a net adverse movement in market impacts.
In CMB, revenue increased by $1.3bn or 13%, notably in GLCM as we benefited from wider deposit margins, primarily in Hong Kong, and growth in average balances, notably in the UK. In addition, revenue increased in C&L, notably in the UK and Hong Kong, driven by higher average balances.
In GB&M, revenue was $0.4bn or 4% higher mainly due to strong growth in GLCM and Securities Services, reflecting interest rate rises and deposit balance growth, primarily in Asia. These increases were partly offset by lower revenue in Global Markets as revenue growth in Foreign Exchange was more than offset by reductions in Rates and Credit due to lower volatility and reduced client activity.
In GPB, revenue was $0.1bn or 4% higher, mainly in Hong Kong from higher deposit revenue as we benefited from wider margins and from higher investment revenue, reflecting strong mandate flows. This increase was partly offset by lower revenue resulting from client repositioning.
These increases were partly offset:
In Corporate Centre, negative adjusted revenue of $0.4bn in 9M18 compared with adjusted revenue of $1.1bn in 9M17. This reduction included the adverse effects of hyperinflation accounting in Argentina of $0.3bn, lower revenue in Central Treasury due to adverse fair value movements relating to the hedging of our long-term debt compared with favourable movements in 9M18, a reduction in Balance Sheet Management (‘BSM’) revenue and a loss arising from swap mark-to-market movements following a bond reclassification under IFRS 9 ‘Financial Instruments’. Revenue from our legacy portfolios also decreased, mainly driven by losses on portfolio disposals.
Adjusted ECL/LICs
Adjusted ECL of $0.9bn were mainly related to charges in RBWM ($0.8bn), notably in Mexico against our unsecured lending balances, and in the UK and Hong Kong, also against unsecured lending. The overall allowance for ECL remained broadly unchanged compared with 1 January 2018 as these new allowances broadly offset releases, mainly from write-offs.
In CMB, ECL of $0.3bn were mainly in Turkey, the UAE and Mexico across multiple sectors, and in Asia there were charges against a small number of customers. These charges were partly offset by a net release in GB&M ($0.1bn), mainly relating to a small number of clients in the US. There was also a net release of ECL in Corporate Centre ($0.1bn) related to our legacy credit portfolio.
The Group applied a charge in the period reflecting concerns over possible impacts of escalating tariffs and other trade restrictions, primarily in Hong Kong, across RBWM, CMB and GB&M.
In 9M17, adjusted LICs of $1.1bn mainly related to RBWM ($0.8bn). These included LICs in Mexico, reflecting our strategic growth in unsecured lending and an associated rise in delinquency, and in the UK against unsecured lending. In CMB, LICs of $0.3bn in 9M17 included charges in Hong Kong and MENA relating to a small number of customers across various sectors. These were partly offset by net releases in Canada and in the US.

HSBC Holdings plc  Earnings Release 3Q18
9


Earnings Release – 3Q18

Adjusted operating expenses
Adjusted operating expenses of $24.1bn were $1.3bn or 6% higher. This primarily reflected an increase in investments to grow the business ($0.6bn), notably in RBWM and GB&M. We also increased investment in both our digital capabilities across all of our global businesses ($0.2bn), and in our productivity programmes ($0.3bn), mainly in Technology and Operations. In addition, performance-related pay was $0.2bn higher. The impact of our cost-saving efficiencies more than offset inflation.
We have maintained our momentum to grow the business, including:
in RBWM, we have continued strong growth in new credit card accounts, notably in the US, Asia and the UK. Issuance of HSBC sole-branded credit cards in the Pearl River Delta continued to grow;
in GB&M, we have made strategic hires in Global Markets and Global Banking, and continued to invest in the securities joint venture in mainland China; and
in CMB, we have made relationship manager hires, primarily in Hong Kong and mainland China.
The number of employees expressed in full-time equivalent staff (‘FTEs’) at 30 September 2018 was 233,731, an increase of 5,044 from 31 December 2017. This was primarily driven by investments in business growth programmes across RBWM, GB&M and CMB, supported by Technology.
The effect of hyperinflation accounting in Argentina resulted in a $0.1bn decrease in adjusted operating expenses.
Adjusted share of profit from associates and JVs
Adjusted share of income from associates of $2.0bn was $0.1bn or 5% higher than in 9M17, reflecting an increase in share of income from BoCom.
Retail Banking and Wealth Management
9M18 compared with 9M17 – adjusted results
Management view of adjusted revenue
 
 
Nine months ended
Quarter ended
 
 
30 Sep

30 Sep

Variance
30 Sep

30 Jun

30 Sep

 
 
2018

2017

9M18 vs. 9M17
2018

2018

2017

 
Footnotes
$m

$m

$m

%

$m

$m

$m

Retail Banking
 
11,346

10,103

1,243

12

3,930

3,680

3,353

– current accounts, savings and deposits
 
6,216

4,637

1,579

34

2,326

1,995

1,568

– personal lending
 
5,130

5,466

(336
)
(6
)
1,604

1,685

1,785

    mortgages
 
1,522

1,799

(277
)
(15
)
426

503

591

    credit cards
 
2,162

2,231

(69
)
(3
)
711

710

720

    other personal lending
2
1,446

1,436

10

1

467

472

474

Wealth Management
 
4,975

4,832

143

3

1,595

1,541

1,555

– investment distribution
3
2,711

2,510

201

8

804

850

882

– life insurance manufacturing
 
1,448

1,529

(81
)
(5
)
529

424

413

– asset management
 
816

793

23

3

262

267

260

Other
4
504

397

107

27

235

62

141

Net operating income
1
16,825

15,332

1,493

10

5,760

5,283

5,049

Adjusted RoRWA (%)
5
6.3

5.9

 
 
6.7

5.6

5.7

RoTE excluding significant items and UK bank levy (%)

11
22.8

22.5

 
 
 
 
 
For footnotes, see page 16.
Adjusted profit before tax of $5.7bn was $0.6bn or 13% higher, reflecting strong revenue growth in both Retail Banking and Wealth Management. This was partly offset by higher operating expenses (up $0.8bn), which included investments in digital capabilities and investments to grow the business.
Adjusted revenue of $16.8bn was $1.5bn or 10% higher.
In Retail Banking (up $1.2bn or 12%), the growth reflected:
higher revenue from current accounts, savings and deposits (up $1.6bn or 34%), due to wider spreads and balance growth in Hong Kong, the UK and Mexico.
This was partly offset by:
lower personal lending revenue (down $0.3bn or 6%), reflecting mortgage spread compression, notably in Hong Kong, the US and the UK, despite strong balance growth.
In Wealth Management (up $0.1bn or 3%), the growth reflected:
higher investment distribution revenue (up $0.2bn or 8%), mainly in Hong Kong, driven by increased investor confidence in the equity markets, higher mutual fund distribution and higher wealth insurance distribution; and
life insurance manufacturing new sales growth, albeit this was more than offset by net adverse market impacts of $0.4bn, which resulted in a net decrease in life insurance manufacturing revenue of $0.1bn or 5%.
In 9M18, the credit quality of our loan portfolio remained stable. Adjusted ECL of $0.8bn were mainly related to charges in Mexico and the UK, notably against unsecured lending as new allowances broadly offset write-offs.
In 9M17, adjusted LICs of $0.8bn were mainly related to targeted unsecured lending growth in Mexico and increased allowances against mortgage and card exposures in the UK.
Adjusted operating expenses of $10.3bn were $0.8bn or 9% higher, primarily reflecting a $0.6bn increase relating to investments. This included $0.4bn of investments in digital capabilities and marketing to help deliver improved customer service, as well as investments to

10
HSBC Holdings plc  Earnings Release 3Q18


grow the business, particularly in the UK, Hong Kong, mainland China (including the Pearl River Delta) and the US. We also invested an additional $0.2bn in staff to support front-line growth and technology initiatives, including in Hong Kong, the Pearl River Delta and Mexico.
Commercial Banking
9M18 compared with 9M17 – adjusted results
Management view of adjusted revenue
 
 
Nine months ended
Quarter ended
 
 
30 Sep

30 Sep

Variance
30 Sep

30 Jun

30 Sep

 
 
2018

2017

9M18 vs. 9M17
2018

2018

2017

 
Footnotes
$m

$m

$m

%
$m

$m

$m

Global Trade and Receivables Finance
 
1,411

1,380

31

2
468

466

455

Credit and Lending
 
4,007

3,819

188

5
1,336

1,313

1,275

Global Liquidity and Cash Management
 
4,277

3,536

741

21
1,485

1,408

1,202

Markets products, Insurance and Investments, and Other
6
1,494

1,158

336

29
461

461

339

Net operating income

1
11,189

9,893

1,296

13
3,750

3,648

3,271

Adjusted RoRWA (%)
5
2.6

2.4

 
 
2.4

2.6

2.2

RoTE excluding significant items and UK bank levy (%)

11
14.5

14.2

 
 
 
 
 
For footnotes, see page 16.
Adjusted profit before tax of $6.0bn was $0.8bn or 16% higher as strong revenue growth was partly offset by higher operating expenses, while ECL remained stable.
Adjusted revenue was $1.3bn or 13% higher, driven by increases in GLCM and C&L across all regions. Revenue also increased in Other products, notably in Asia and the UK, as well as in GTRF.
In GLCM, revenue increased by $0.7bn or 21%, notably in Asia reflecting wider margins in Hong Kong and to a lesser extent in mainland China, as well as growth in average balances notably in the UK. Revenue was also higher in North America, which reflected wider margins and average balance sheet growth.
In C&L, revenue was $0.2bn or 5% higher as we grew average balances, notably in the UK and Hong Kong, partly offset by the effects of margin compression.
In GTRF, revenue increased by $31m or 2%, reflecting average balance sheet growth in Asia and the UK.
Adjusted ECL were $0.3bn in 9M18 as charges in MENA, Asia and Latin America were partly offset by net releases in North America.
In 9M17, adjusted LICs of $0.3bn, notably in Hong Kong and MENA across various sectors, were partly offset by net releases in North America.
Adjusted operating expenses of $4.9bn were $0.5bn or 11% higher, reflecting increased staff costs (up $0.1bn), including performance-related pay, continued investment in digital capabilities (up $0.1bn), regulatory and compliance costs, and inflation.
Global Banking and Markets
9M18 compared with 9M17 – adjusted results
Management view of adjusted revenue
 
 
Nine months ended
Quarter ended
 
 
30 Sep

30 Sep

Variance
30 Sep

30 Jun

30 Sep

 
 
2018

2017

9M18 vs. 9M17
2018

2018

2017

 
Footnotes
$m

$m

$m

%

$m

$m

$m

Global Markets
 
5,218

5,577

(359
)
(6
)
1,744

1,567

1,657

– FICC
 
4,229

4,550

(321
)
(7
)
1,460

1,294

1,329

Foreign Exchange
 
2,378

1,994

384

19

826

786

595

Rates
 
1,179

1,766

(587
)
(33
)
384

341

543

Credit
 
672

790

(118
)
(15
)
250

167

191

– Equities
 
989

1,027

(38
)
(4
)
284

273

328

Securities Services
 
1,479

1,310

169

13

498

486

435

Global Banking
 
2,968

2,966

2


908

1,027

928

Global Liquidity and Cash Management
 
1,951

1,622

329

20

677

623

552

Global Trade and Receivables Finance
 
550

540

10

2

191

175

170

Principal Investments
 
280

260

20

8

109

100

177

Credit and funding valuation adjustments
7
(5
)
(164
)
159

97

38

22

(64
)
Other
8
8

(109
)
117

>100

19

2

(45
)
Net operating income
1
12,449

12,002

447

4

4,184

4,002

3,810

Adjusted RoRWA (%)
5
2.5

2.2

 
 
2.6

2.5

2.0

RoTE excluding significant items and UK bank levy (%)
11
12.5

12.0

 
 
 
 
 
For footnotes, see page 16.

HSBC Holdings plc  Earnings Release 3Q18
11


Earnings Release – 3Q18

Adjusted profit before tax of $5.4bn was $0.3bn or 7% higher, reflecting increased revenue (up $0.4bn) and a net release of ECL of $0.1bn in 9M18 compared with LICs of $0.1bn in 9M17. This was partly offset by higher operating expenses as we continued to invest in the business.
Adjusted revenue of $12.4bn was $0.4bn or 4% higher, which included a net favourable movement of $0.2bn on credit and funding valuation adjustments.
We grew revenue across all our transaction banking products. GLCM rose by $0.3bn or 20% and Securities Services by $0.2bn or 13% as we grew average balances since 3Q17, reflecting continued momentum in winning customer mandates, and from higher interest rates, notably in Asia. GTRF revenue increased as we grew lending balances by 6% since 3Q17, although margins remained stable compared with 9M17.
Global Banking revenue was broadly unchanged as we continued to grow lending balances, partly offset by narrower spreads in Asia and Europe, and from lower capital markets and advisory fees.
Global Markets revenue decreased by $0.4bn. In fixed income, Rates revenue fell by $0.6bn and Credit fell by $0.1bn, reflecting narrower margins and lower activity in emerging markets. By contrast, Foreign Exchange revenue grew by $0.4bn or 19%, notably within emerging markets, as higher volatility resulted in increased client volumes.
In 9M18, a net release of ECL of $0.1bn related to a small number of clients in the US, notably in the oil and gas sector. This more than offset charges in the UK against exposures in the retail and construction sectors.
In 9M17, adjusted LICs of $0.1bn were primarily in the US, reflecting net charges against specific clients, notably in the oil and gas, and mining sectors.
Adjusted operating expenses of $7.2bn were $0.3bn or 4% higher, driven by higher regulatory costs, higher volume-related transaction costs and investments to grow the business. Our continued cost management, efficiency improvements and reductions of FTEs broadly offset the impact of inflation.
Global Private Banking
9M18 compared with 9M17 – adjusted results
Management view of adjusted revenue
 
 
Nine months ended
Quarter ended
 
 
30 Sep

30 Sep

Variance
30 Sep

30 Jun

30 Sep

 
 
2018

2017

9M18 vs. 9M17
2018

2018

2017

 
Footnotes
$m

$m

$m

%

$m

$m

$m

Investment revenue
 
555

537

18

3

166

177

172

Lending
 
298

293

5

2

96

97

98

Deposit
 
371

297

74

25

126

122

103

Other
 
137

182

(45
)
(25
)
44

47

61

Net operating income
1
1,361

1,309

52

4

432

443

434

Adjusted RoRWA (%)
5
2.3

1.7

 
 
2.3

1.8

1.3

RoTE excluding significant items and UK bank levy (%)
11
10.9

6.0

 
 
 
 
 
For footnotes, see page 16.
Adjusted profit before tax of $285m was $85m or 43% higher, reflecting revenue growth and a net release of ECL, while operating expenses were broadly unchanged.
Adjusted revenue of $1.4bn increased by $52m or 4%, mainly in Hong Kong from higher deposit revenue as margins widened following interest rate rises, and from higher investment revenue from strong mandate flows. Other income decreased, notably as a result of client repositioning.
In 9M18, we attracted net new money inflows of $11.5bn in key markets targeted for growth, of which more than 60% was from collaboration with our other global businesses. Net new money inflows were mainly in key geographies in Asia and Europe.
In 9M18, there was a net release of ECL of $16m. This compared with LICs of $17m in 9M17.
Adjusted operating expenses of $1.1bn were broadly unchanged, as an increase in staff costs was offset by lower costs following the wind-down of our operations in Monaco.
Corporate Centre
9M18 compared with 9M17 – adjusted results
Management view of adjusted revenue
 
 
Nine months ended
Quarter ended
 
 
30 Sep

30 Sep

Variance
30 Sep

30 Jun

30 Sep

 
 
2018

2017

9M18 vs. 9M17
2018

2018

2017

 
Footnotes
$m

$m

$m

%

$m

$m

$m

Central Treasury
9, 12
359

1,448

(1,089
)
(75
)
111

249

481

Legacy portfolios
12
(81
)
44

(125
)
>(100)

27

(109
)
(18
)
Other
10, 12
(726
)
(350
)
(376
)
>(100)

(423
)
(188
)
(309
)
Net operating income
1
(448
)
1,142

(1,590
)
>(100)

(285
)
(48
)
154

For footnotes, see page 16.
Adjusted profit before tax of $0.9bn was $1.3bn or 57% lower, mainly reflecting a reduction in revenue. The reduction in adjusted profit before tax included the net adverse effect of $0.1bn from hyperinflation accounting in Argentina.

12
HSBC Holdings plc  Earnings Release 3Q18


We recorded negative adjusted revenue of $0.4bn in 9M18 compared with adjusted revenue of $1.1bn in 9M17. This reduction reflected lower revenue in Central Treasury and legacy credit portfolios, as well as a reduction in Other income.
In Central Treasury, revenue was $1.1bn lower, reflecting:
adverse fair value movements of $0.2bn in 9M18, compared with favourable movements of $0.2bn in 9M17, relating to the economic hedging of interest rate and exchange rate risk on our long-term debt with long-term derivatives;
lower revenue in BSM (down $0.3bn), mainly as a result of de-risking activities undertaken during 2017 in anticipation of interest rate rises, together with lower reinvestment yields and lower gains from available-for-sale (‘AFS’) disposals;
higher interest expense on debt issued by HSBC Holdings plc (up $0.3bn), driven by an increase in issuances and higher average cost of debt issued to meet regulatory requirements; and
a $0.2bn loss arising from adverse swap mark-to-market movements following a bond reclassification under IFRS 9 ‘Financial Instruments’.
Lower revenue from legacy portfolios (down $0.1bn) reflected losses related to portfolio disposals.
Other income decreased by $0.4bn, mainly due to the adverse effects of hyperinflation accounting in Argentina. In addition, the reduction reflected a change in the allocation of liquidity costs in anticipation of a change in regulatory environment.
A net release of adjusted ECL of $0.1bn in 9M18 and the prior year’s net LICs releases were both primarily related to our legacy credit portfolio.
Adjusted operating expenses of $0.7bn decreased by $0.2bn or 27% due to the favourable impact from hyperinflation accounting in Argentina and the lower costs in relation to the run-off of the Consumer and Mortgage Lending (‘CML’) portfolio, which was completed during 2017.
Adjusted income from associates of $2.0bn increased by $0.1bn or 4%.
Balance sheet commentary compared with 30 June 2018
At 30 September 2018, our total assets of $2.6tn decreased by $4.3bn on a reported basis. On a constant currency basis our total assets increased by $11.0bn.
Our ratio of customer advances to customer accounts was 73%, up from 72%, reflecting targeted lending growth. On a reported basis, loans and advances to customers increased by $8.0bn, and customer accounts decreased by $10.9bn.
Loans and advances to customers
Reported loans and advances to customers grew by $8.0bn or 1%, and included adverse foreign currency translation differences of $6.4bn.
Excluding foreign currency translation differences and a reduction in corporate overdraft balances of $0.8bn, which primarily related to GB&M customers in the UK that settled their overdraft and deposit balances on a net basis, loans and advances to customers grew by $15.2bn.
This growth was primarily in Europe (up $10.6bn), notably in UK mortgages (up $4.0bn), reflecting our focus on broker-originated mortgages. We also grew balances in GB&M (up $3.3bn) and in CMB (up $2.4bn), reflecting higher term lending and overdraft balances, notably in the UK.
In North America, loans and advances to customers increased by $1.5bn, primarily from increased term lending to CMB customers in the US, which reflects our strategic focus on growth in the US. In Latin America, we grew lending by $1.4bn, notably in term lending in Mexico, mainly in GB&M.
Customer lending increased in Asia (up $1.1bn). This included a rise in mortgage lending in Hong Kong (up $2.3bn), which was consistent with our strategy to maintain our market share. Customer lending also increased in CMB (up $1.1bn), reflecting higher term lending across the region from our continued strategic focus on growth in Asia. These increases were partly offset by lower lending in GPB in Hong Kong (down $1.3bn), driven by reduced leverage due to weaker market sentiment. In GB&M, lending fell by $0.9bn, notably in GTRF reflecting challenging market conditions.
Customer accounts
Customer accounts decreased by $10.9bn or 1% on a reported basis, including adverse foreign currency translation differences of $7.4bn.
Excluding foreign currency translation differences and a reduction in corporate current account balances of $0.8bn, primarily relating to GB&M customers in the UK that settled their overdraft and deposit balances on a net basis, customer accounts decreased by $2.7bn.
This decrease was notably in North America (down $5.4bn), mainly in the US. This reflected a reduction in GB&M in the US (down $3.1bn) from lower balances of interest- and non-interest-bearing demand deposits, along with lower savings deposits. CMB customer accounts fell (down $2.7bn), mainly in the US and Bermuda.
In Asia, customer accounts decreased by $2.7bn, reflecting lower customer demand and a reduction in short-term deposits from our corporate clients. These decreases were partly offset by growth in GPB (up $1.4bn), driven by large inflows from a small number of individual customers.
Customer accounts in MENA were higher (up $2.6bn), including an increase in the UAE in GB&M (up $1.2bn), driven by a large deposit from a single customer.
Customer accounts also increased in Latin America (up $1.7bn), notably in Argentina, reflecting higher savings and term deposits, and the impact of currency devaluation on foreign currency deposits booked on our Argentina balance sheet.
Risk-weighted assets
RWAs totalled $862.7bn at 30 September 2018, a $2.8bn decrease during the third quarter that included a reduction of $5.4bn due to foreign currency translation differences. The $2.6bn increase (excluding foreign currency translation differences) was primarily due to an increase in asset size of $7.9bn less a decrease of $5.0bn due to methodology and policy changes.


HSBC Holdings plc  Earnings Release 3Q18
13


Earnings Release – 3Q18

Net interest margin
 
Nine months ended
Year ended

 
30 Sep

30 Sep

31 Dec

 
2018

2017

2017

 
$m

$m

$m

Net interest income
22,780

20,904

28,176

Average interest-earning assets
1,827,337

1,711,493

1,726,120


%

%

%

Gross yield
2.64

2.36

2.37

Less: cost of funds
(1.13
)
(0.87
)
(0.88
)
Net interest spread
1.51

1.49

1.49

Net interest margin
1.67

1.63

1.63

The net interest margin in 9M18 was 1.67%, which was 4 basis points (‘bps’) higher compared with the year ended 2017. This was driven by a 27bps increase in gross yields, partly offset by a 25bps increase in the cost of funds, following interest rate rises during 9M18.
Gross yields benefited from rate rises in Hong Kong, the US and the UK, in particular term lending in Asia but also in most regions. Gross yields on surplus liquidity also increased in most regions, mainly on AFS securities. These benefits were partly offset by the completion of the run-off of our higher-yielding US CML portfolio in 2017 and the adverse effect from hyperinflation accounting in Argentina in 9M18.
The cost of funds rose by 25bps from the increased cost of customer accounts; this was driven by deposit accounts in Asia reflecting the rate rises in Hong Kong while deposit margins continued to improve. The cost of Group debt also rose, primarily relating to the higher cost of issuances of senior debt by HSBC Holdings plc.
Average interest-earning assets increased, driven by loan portfolio growth mainly in Asia and Europe. Surplus liquidity also increased in Europe to meet the liquidity requirements of the non-ring-fenced bank.
Compared with the first half of 2018, net interest margin in 9M18 rose by 1bp, reflecting higher gross yields, driven mainly by rising lending yields and increased yields on surplus liquidity in most regions. This was partly offset by a higher cost of funds, notably from increased cost of customer accounts in Asia.
Return on Equity and Return on Tangible Equity
We provide Return on Tangible Equity (‘RoTE’) in addition to Return on Equity (‘RoE’) as a way of assessing our performance which is closely aligned to our capital position.
RoTE is computed by adjusting reported ‘profit attributable to the ordinary shareholders of the parent company’ for the post tax movements in the present value of in-force long-term insurance business (‘PVIF’) and adjusting the reported equity for goodwill, intangibles and PVIF, net of deferred tax. The adjustment to
reported results and reported equity excludes amounts attributable to other equity instrument holders and non-controlling interests.
For our global businesses, we provide RoTE excluding significant items and the UK bank levy which is more closely aligned to the basis on which the global business performance is assessed by the Chief Operating Decision Maker (further information on the basis of preparation for our global businesses is provided on page 30 of the Interim Report 2018).
RoTE excluding significant items and UK bank levy is computed by adjusting ‘profit attributable to the ordinary shareholders, excluding PVIF’ for significant items (net of tax) and the bank levy, and adjusting the ‘average tangible equity’ for the change in fair value on our long-term debt attributable to credit spread through other comprehensive income (‘fair value of own debt’), and debit valuation adjustments (‘DVA’).
The following table details the adjustments made to the reported results and equity:
Return on Equity and Return on Tangible Equity
 
Nine months ended
Quarter ended
 
30 Sep

30 Sep

30 Sep

30 Jun

30 Sep

 
2018

2017

2018

2018

2017

 
$m

$m

$m

$m

$m

Profit
 
 
 
 
 
Profit/(loss) attributable to the ordinary shareholders of the parent company
11,071

9,957

3,899

4,087

2,958

Increase in PVIF (net of tax)
(317
)
(60
)
(75
)
(164
)
30

Profit/(loss) attributable to the ordinary shareholders, excluding PVIF
10,754

9,897

3,824

3,923

2,988

Significant items (net of tax) and bank levy
1,602

1,855

 
 
 
Profit attributable to the ordinary shareholders, excluding PVIF, significant items and UK bank levy
12,356

11,752

 
 
 
Equity
 
 
 
 
 
Average ordinary shareholders’ equity
164,290

162,546

161,406

164,632

165,783

Effect of goodwill, PVIF and other intangibles (net of deferred tax)
(22,037
)
(20,466
)
(22,036
)
(22,093
)
(21,091
)
Average tangible equity
142,253

142,080

139,370

142,539

144,692

Fair value of own debt, DVA and other adjustments
2,495

2,562

 
 
 
Average tangible equity excluding fair value of own debt, DVA and other adjustments
144,748

144,642

 
 
 
 
%

%

%

%

%

Ratio
 
 
 
 
 
Return on equity
9.0

8.2

9.6

10.0

7.1

Return on tangible equity
10.1

9.3

10.9

11.0

8.2

Return on tangible equity excluding significant items and UK bank levy
11.4

10.9

 
 
 

14
HSBC Holdings plc  Earnings Release 3Q18


Earnings Release – 3Q18

Return on tangible equity by global business
 
Nine months ended 30 Sep 2018
 
Retail Banking and Wealth Management

Commercial Banking

Global Banking and Markets

Global Private Banking

Corporate Centre

Total

 
$m

$m

$m

$m

$m

$m

Profit before tax
5,544

6,034

5,535

182

(661
)
16,634

Tax expense
(983
)
(1,272
)
(1,212
)
(28
)
(207
)
(3,702
)
Profit after tax
4,561

4,762

4,323

154

(868
)
12,932

Less attributable to: preference shareholders, other equity holders, non-controlling interests
(630
)
(642
)
(429
)
(19
)
(141
)
(1,861
)
Profit attributable to ordinary shareholders of the parent company
3,931

4,120

3,894

135

(1,009
)
11,071

Increase in PVIF (net of tax)
(300
)
(16
)

(1
)

(317
)
Significant items (net of tax) and UK bank levy
134

(25
)
(110
)
81

1,522

1,602

Balance Sheet Management allocation and other adjustments
399

418

641

61

(1,519
)

Profit attributable to ordinary shareholders, excluding PVIF, significant items and UK bank levy
4,164

4,497

4,425

276

(1,006
)
12,356

Average tangible shareholders’ equity excluding fair value of own debt, DVA and other adjustments
24,462

41,324

47,340

3,392

28,230

144,748

Return on tangible equity excluding significant items and UK bank levy (%)
22.8%

14.5%

12.5%

10.9%

(4.8)%

11.4%

 
 
Nine months ended 30 Sep 2017
Profit before tax
4,687

5,066

4,877

212

21

14,863

Tax expense
(906
)
(1,220
)
(1,249
)
(49
)
114

(3,310
)
Profit after tax
3,781

3,846

3,628

163

135

11,553

Less attributable to: preference shareholders, other equity holders, non-controlling interests
(544
)
(508
)
(411
)
(17
)
(116
)
(1,596
)
Profit attributable to ordinary shareholders of the parent company
3,237

3,338

3,217

146

19

9,957

Increase in PVIF (net of tax)
(56
)
(3
)


(1
)
(60
)
Significant items (net of tax) and UK bank levy
296

16

83

(11
)
1,471

1,855

Balance Sheet Management allocation and other adjustments
482

508

689

79

(1,758
)

Profit attributable to ordinary shareholders, excluding PVIF, significant items and bank levy
3,959

3,859

3,989

214

(269
)
11,752

Average tangible shareholders’ equity excluding fair value of own debt, DVA and other adjustments
23,574

36,456

44,460

4,780

35,373

144,642

Return on tangible equity excluding significant items and UK bank levy (%)
22.5%

14.2%

12.0%

6.0%

(1.0)%

10.9%



Events after the balance sheet date
On 26 October 2018, the High Court of Justice of England and Wales issued a judgment in a claim between Lloyds Banking Group Pension Trustees Limited as claimant and Lloyds Bank plc and others as defendants regarding the rights of female members of certain pension schemes to equality of treatment in relation to pension benefits.
The judgment concluded that the claimant is under a duty to amend the schemes in order to equalise benefits for men and women in relation to guaranteed minimum pension benefits. The judgment also provided comments on the method to be adopted in order to equalise benefits, on the period during which a member can claim in respect of previously underpaid benefits, and on what should be done in relation to benefits that have been transferred into, and out of, the relevant schemes.
The issues determined by the judgment arise in relation to many other occupational pension schemes. The extent to which the judgment will increase the liabilities of the HSBC Bank (UK) Pension Scheme and reduce the net accounting surplus of $8.1bn as at 30 September 2018 is under consideration.  Any adjustment necessary will be recognised by the Group in the fourth quarter of 2018.
Notes
Income statement comparisons, unless stated otherwise, are between the quarter ended 30 September 2018 and the quarter ended 30 September 2017. Balance sheet comparisons, unless otherwise stated, are between balances at 30 September 2018 and the corresponding balances at 30 June 2018.
The financial information on which this Earnings Release is based, and the data set out in the appendix to this statement, are unaudited and have been prepared in accordance with HSBC’s significant accounting policies as described on pages 188 to 194 of our Annual Report and Accounts 2017 and the new policies for financial instruments as described on pages 16 to 20 of our Report on Transition to IFRS 9 ‘Financial Instruments’ 1 January 2018. Comparative periods have not been restated. IFRS 9 does not require restatement and the impact of other new policies is not material.
The Board has adopted a policy of paying quarterly interim dividends on ordinary shares. Under this policy, it is intended to have a pattern of three equal interim dividends with a variable fourth interim dividend. Dividends are declared in US dollars and, at the election of the shareholder, paid in cash in one of, or in a combination of, US dollars, sterling and Hong Kong dollars or, subject to the Board’s determination that a scrip dividend is to be offered in respect of that dividend, may be satisfied in whole or in part by the issue of new shares in lieu of a cash dividend.

15
HSBC Holdings plc  Earnings Release 3Q18


Earnings Release – 3Q18

Footnotes to financial performance commentary
1
‘Net operating income’ means net operating income before changes in expected credit losses and other credit impairment charges (also referred to as ‘Revenue’).

2
‘Other personal lending’ includes personal non-residential closed-end loans and personal overdrafts.
3
‘Investment distribution’ includes Investments, which comprises mutual funds (HSBC manufactured and third party), structured products and securities trading, and Wealth Insurance distribution, consisting of HSBC manufactured and third-party life, pension and investment insurance products.
4
‘Other’ mainly includes the distribution and manufacturing (where applicable) of retail and credit protection insurance.
5
Adjusted return on average risk-weighted assets (‘Adjusted RoRWA’) is used to measure the performance of RBWM, CMB, GB&M and GPB. Adjusted RoRWA is calculated using annualised profit before tax and reported average risk-weighted assets at constant currency adjusted for the effects of significant items.
6
‘Markets products, Insurance and Investments and Other’ includes revenue from Foreign Exchange, insurance manufacturing and distribution, interest rate management and Global Banking products.
7
From 1 January 2018, the qualifying components according to IFRS 7 ‘Financial Instruments: Disclosures’ of fair value movements relating to changes in credit spreads on structured liabilities, were recorded through other comprehensive income. The residual movements remain in credit and funding valuation adjustments, and comparatives have not been restated.

8
‘Other’ in GB&M includes net interest earned on free capital held in the global business not assigned to products, allocated funding costs and gains resulting from business disposals. Within the management view of total operating income, notional tax credits are allocated to the businesses to reflect the economic benefit generated by certain activities that is not reflected within operating income, such as notional credits on income earned from tax-exempt investments where the economic benefit of the activity is reflected in tax expense. In order to reflect the total operating income on an IFRS basis, the offset to these tax credits is included within ‘Other’.
9
Central Treasury includes revenue relating to Balance Sheet Management (‘BSM’) of $535m (2Q18: $696m; 3Q17: $568m), interest expense of $340m (2Q18: $288m; 3Q17: $195m) and adverse valuation differences on issued long-term debt and associated swaps of $15m (2Q18: adverse movements of $124m; 3Q17: favourable movements of $124m). Revenue relating to BSM includes other internal allocations, including notional tax credits to reflect the economic benefit generated by certain activities which is not reflected within operating income, for example notional credits on income earned from tax-exempt investments where the economic benefit of the activity is reflected in tax expense. In order to reflect the total operating income on an IFRS basis, the offset to these tax credits is included in other Central Treasury.
10
Other miscellaneous items in Corporate Centre include internal allocations relating to legacy credit.
11
Return on average tangible equity (‘RoTE’) is calculated as Profit Attributable to Ordinary Shareholders (based on annualised Reported PBT, as adjusted for tax, insurance balances, certain capital securities and associates) divided by allocated Average Tangible Shareholders’ Equity. In 9M18, Group RoTE on this basis was 10.1%.
RoTE excluding significant items and the UK bank levy adjusts RoTE for the effects of significant items, the UK bank levy, tax and other items. This is the RoTE measure used at the global business level. In 9M18, Group RoTE excluding significant items and the UK bank levy was 11.4%.
The main reconciling item between Group RoTE and Group RoTE excluding significant items and the UK bank levy in 9M18 was significant items (+1.3% points).
12
‘Interest expense’ within ‘Central Treasury’ has been re-presented to include only the cost of debt retained by HSBC Holdings plc. Other amounts previously included in ‘Interest expense’ are now within ‘Other’. ‘US run-off’ balances are now included in ‘Other’.


16
HSBC Holdings plc  Earnings Release 3Q18


Cautionary statement regarding forward-looking statements
This Earnings Release contains certain forward-looking statements with respect to HSBC’s financial condition, results of operations, capital position and business.
Statements that are not historical facts, including statements about HSBC’s beliefs, targets and expectations, are forward-looking statements. Words such as ‘expects’, ‘anticipates’, ‘intends’, ‘targets’, ‘plans’, ‘believes’, ‘seeks’, ‘estimates’, ‘potential’ and ‘reasonably possible’, variations of these words and similar expressions are intended to identify forward-looking statements. These statements are based on current plans, estimates and projections, and therefore undue reliance should not be placed on them. Forward-looking statements speak only as of the date they are made. HSBC makes no commitment to revise or update any forward-looking statements to reflect events or circumstances occurring or existing after the date of any forward-looking statements.
Written and/or oral forward-looking statements may also be made in the periodic reports to the US Securities and Exchange Commission, summary financial statements to shareholders, proxy statements, offering circulars and prospectuses, press releases and other written materials, and in oral statements made by HSBC’s Directors, officers or employees to third parties, including financial analysts.
Forward-looking statements involve inherent risks and uncertainties. Readers are cautioned that a number of factors could cause actual results to differ, in some instances materially, from those anticipated or implied in any forward-looking statement.
These include, but are not limited to:
changes in general economic conditions in the markets in which we operate, such as continuing or deepening recessions and fluctuations in employment beyond those factored into consensus forecasts; changes in foreign exchange rates and interest rates, including the accounting impact resulting from financial reporting in respect of hyperinflationary economies; volatility in equity markets; lack of liquidity in wholesale funding markets; illiquidity and downward price pressure in national real estate markets; adverse changes in central banks’ policies with respect to the provision of liquidity support to financial markets; heightened market concerns over sovereign creditworthiness in over-indebted countries; adverse changes in the funding status of public or private defined benefit pensions; consumer perception as to the continuing availability of credit and price competition in the market segments we serve; and deviations from the market and economic assumptions that form the basis for our ECL measurements;
changes in government policy and regulation, including the monetary, interest rate and other policies of central banks and other regulatory authorities; initiatives to change the size, scope of activities and interconnectedness of financial institutions in connection with the implementation of stricter regulation of financial institutions in key markets worldwide; revised capital and liquidity benchmarks which could serve to deleverage bank balance sheets and lower returns available from the current business model and portfolio mix; imposition of levies or taxes designed to change business mix and risk appetite; the conduct of business of financial institutions in serving their retail customers, corporate clients and counterparties; the standards of market conduct; the costs, effects and outcomes of product regulatory reviews, actions or litigation, including any additional compliance requirements; expropriation, nationalisation, confiscation of assets and changes in legislation relating to foreign ownership; changes in bankruptcy legislation in the principal markets in which we operate and the consequences thereof; general changes in government policy that may significantly influence investor decisions; extraordinary government actions as a result of current market turmoil; other unfavourable political or diplomatic developments producing social instability or legal uncertainty which in turn may affect demand for our products and services; and the effects of competition in the markets where we operate including increased competition from non-bank financial services companies, including securities firms; and
factors specific to HSBC, including our success in adequately identifying the risks we face, such as the incidence of loan losses or delinquency, and managing those risks (through account management, hedging and other techniques). Effective risk management depends on, among other things, our ability through stress testing and other techniques to prepare for events that cannot be captured by the statistical models we use; our success in addressing operational, legal and regulatory, and litigation challenges; and other risks and uncertainties we identify in the ‘top and emerging risks’ on pages 63 to 66 of the Annual Report and Accounts 2017 and on pages 16 and 17 of the Interim Report 2018.
For further information contact:
Investor Relations
Media Relations
UK – Richard O’Connor
UK – Heidi Ashley
Tel: +44 (0) 20 7991 6590
Tel: +44 (0) 20 7992 2045
 
 
Hong Kong – Hugh Pye
Hong Kong – Patrick Humphris
Tel: +852 2822 4908
Tel: +852 2822 2052


HSBC Holdings plc  Earnings Release 3Q18
17


Earnings Release – 3Q18

Summary consolidated income statement
 
 
Nine months ended
Quarter ended
 
 
30 Sep

30 Sep

30 Sep

30 Jun

30 Sep

 
 
2018

2017

2018

2018

2017

 
Footnotes
$m

$m

$m

$m

$m

Net interest income
 
22,780

20,904

7,680

7,644

7,127

Net fee income
 
9,793

9,746

3,026

3,260

3,255

Net income from financial instruments held for trading or managed on a fair value basis
2, 3
7,485

6,326

2,602

2,499

2,094

Net income/(expense) from assets and liabilities of insurance businesses, including related derivatives, measured at fair value through profit or loss
2
(44
)
2,210

178

(67
)
711

Changes in fair value of long-term debt and related derivatives
3
(129
)
270

(3
)
(136
)
66