RNS Number : 0281H
HSBC Holdings PLC
07 March 2018
 

 

Report of the Directors | Financial summary

 



Financial summary

 

Page

Use of non-GAAP financial measures

32

Critical accounting estimates and judgements

32

Consolidated income statement

33

Group performance by income and expense item

34

Net interest income

34

Net fee income

36

Net trading income

36

Net income/(expense) from financial instruments designated at fair value

37

Gains less losses from financial investments

38

Net insurance premium income

38

Other operating income

39

Net insurance claims and benefits paid and movement

in liabilities to policyholders

39

Loan impairment charges and other credit risk provisions

40

Operating expenses

41

Share of profit in associates and joint ventures

42

Tax expense

43

Consolidated balance sheet

44

Movement in 2017

45

The management commentary included in the Strategic Report, the Report of the Directors: 'Financial Review', together with the 'Employees' and 'Corporate sustainability' sections of 'Corporate Governance' and the 'Directors' Remuneration Report' is presented in compliance with the IFRSs Practice Statement 'Management Commentary' issued by the IASB.



Use of non-GAAP financial measures

Our reported results are prepared in accordance with IFRSs as detailed in the Financial Statements starting on page 175.

To measure our performance we also use non-GAAP financial measures, including those derived from our reported results that eliminate factors that distort year-on-year comparisons. The 'adjusted performance' measure used throughout this report is described below, and where others are used they are described. All non-GAAP financial measures are reconciled to the closest reported financial measure.

The global business segmental results on pages 46 to 59 are presented on an adjusted basis in accordance with IFRS 8 'Operating Segments' as detailed in 'Basis of preparation' on page 46.

Adjusted performance

Adjusted performance is computed by adjusting reported results for the effects of foreign currency translation differences and significant items, which both distort year-on-year comparisons.

Foreign currency translation differences are described below. '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.

We consider adjusted performance provides 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 year-on-year performance.

Foreign currency translation differences

Foreign currency translation differences reflect the movements of the US dollar against most major currencies during 2017. 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 2017 are computed by retranslating into US dollars for non-US dollar branches, subsidiaries, joint ventures and associates:

the income statements for 2016 and 2015 at the average rates of exchange for 2017; and

the balance sheets at 31 December 2016 and 31 December 2015 at the prevailing rates of exchange on 31 December 2017.

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. 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.

Changes to presentation from 1 January 2017

Own credit spread

'Own credit spread' includes the fair value movements on our long-term debt attributable to credit spread where the net result of such movements will be zero upon maturity of the debt. This does not include fair value changes due to own credit risk in respect of trading liabilities or derivative liabilities. On 1 January 2017, HSBC adopted the requirements of IFRS 9 'Financial Instruments' relating to the presentation of gains and losses on financial liabilities designated at fair value. As a result, the effects of changes in those liabilities' credit risk is presented in other comprehensive income. These requirements were adopted in the separate financial statements of HSBC Holdings plc on 1 January 2016. Refer to 'Compliance with International Financial Reporting Standards' on page 186 for further detail.

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 year-on-year movements in performance.

Significant items

The tables on pages 49 to 51 and pages 55 to 57 detail the effects of significant items on each of our global business segments and geographical regions in 2017, 2016 and 2015.



Critical accounting estimates and judgements

The results of HSBC reflect the choice of accounting policies, assumptions and estimates that underlie the preparation of HSBC's consolidated financial statements. The significant accounting policies, including the policies which include critical accounting estimates and judgements, are described in Note 1.2 on the Financial Statements. The accounting policies listed below are highlighted as they involve a high degree of uncertainty and have a material impact on the financial statements:



Impairment of loans and advances: For collective impairment allowances, estimation methods include the use of historical information supplemented by significant management judgement about whether current economic and credit conditions are such that actual incurred losses are likely to be greater or less than experienced in the past. For individually assessed loans, judgements are made about the financial condition of individual borrowers, which can involve a wide range of factors relating to their business and the value of any security. The exercise of judgement requires the use of assumptions that are highly subjective and sensitive, in particular to changes in economic and credit conditions across a large number of geographical areas. See Note 1.2(d) on page 190.



Deferred tax assets: The most significant judgements relate to those made in respect of expected future profitability. See Note 1.2(h) on page 194.

 




32

HSBC Holdings plc  Annual Report and Accounts 2017

 

 



Valuation of financial instruments: In determining the fair value of financial instruments a variety of valuation techniques are used, some of which feature significant unobservable inputs and are subject to substantial uncertainty. See Note 1.2(c) on page 189.



Impairment of interests in associates: Impairment testing involves significant judgement in determining the value in use, and in particular estimating the present values of cash flows expected to arise from continuing to hold the investment, based on a number of management assumptions. See Note 1.2(a) on page 188.



Goodwill impairment: A high degree of uncertainty is involved in estimating the future cash flows of the cash generating units ('CGUs') and the rates used to discount these cash flows. See Note 1.2(a) on page 188.

 



Provisions: A high degree of judgement may be required due to the high degree of uncertainty associated with determining whether a present obligation exists, and estimating the probability and amount of any outflows that may arise. See Note 1.2(i) on page 194.

Given the inherent uncertainties and the high level of subjectivity involved in the recognition or measurement of the items above, it is possible that the outcomes in the next financial year could differ from the expectations on which management's estimates are based, resulting in the recognition and measurement of materially different amounts from those estimated by management in these Financial Statements.



Consolidated income statement













Summary consolidated income statement

 

2017


2016


2015


2014


2013


 

$m


$m


$m


$m


$m


Net interest income

28,176


29,813


32,531


34,705


35,539


Net fee income

12,811


12,777


14,705


15,957


16,434


Net trading income

7,719


9,452


8,723


6,760


8,690


Net income/(expense) from financial instruments designated at fair value

3,698


(2,666

)

1,532


2,473


768


Gains less losses from financial investments

1,150


1,385


2,068


1,335


2,012


Dividend income

106


95


123


311


322


Net insurance premium income

9,779


9,951


10,355


11,921


11,940


Other operating income/(expense)

337


(971

)

1,055


1,131


2,632


Total operating income

63,776


59,836


71,092


74,593


78,337


Net insurance claims and benefits paid and movement in liabilities to policyholders

(12,331

)

(11,870

)

(11,292

)

(13,345

)

(13,692

)

Net operating income before loan impairment charges and other
credit risk provisions

51,445


47,966


59,800


61,248


64,645


Loan impairment charges and other credit risk provisions

(1,769

)

(3,400

)

(3,721

)

(3,851

)

(5,849

)

Net operating income

49,676


44,566


56,079


57,397


58,796


Total operating expenses

(34,884

)

(39,808

)

(39,768

)

(41,249

)

(38,556

)

Operating profit

14,792


4,758


16,311


16,148


20,240


Share of profit in associates and joint ventures

2,375


2,354


2,556


2,532


2,325


Profit before tax

17,167


7,112


18,867


18,680


22,565


Tax expense

(5,288

)

(3,666

)

(3,771

)

(3,975

)

(4,765

)

Profit for the year

11,879


3,446


15,096


14,705


17,800


Attributable to:

 

 

 

 

 

- ordinary shareholders of the parent company

9,683


1,299


12,572


13,115


15,631


- preference shareholders of the parent company

90


90


90


90


90


- other equity holders

1,025


1,090


860


483


483


- non-controlling interests

1,081


967


1,574


1,017


1,596


Profit for the year

11,879


3,446


15,096


14,705


17,800















Five-year financial information

 

 

2017


2016


2015


2014


2013


 

Footnotes

$


$


$


$


$


Basic earnings per share

 

0.48


0.07


0.65


0.69


0.84


Diluted earnings per share

 

0.48


0.07


0.64


0.69


0.84


Dividends per ordinary share

13

0.51


0.51


0.50


0.49


0.48



 

%


%


%


%


%


Dividend payout ratio

14

106.3


728.6


76.5


71.0


57.1


Post-tax return on average total assets

 

0.5


0.1


0.6


0.5


0.7


Return on average risk-weighted assets

15

2.0


0.7


1.6


1.5


2.0


Return on average ordinary shareholders' equity

 

5.9


0.8


7.2


7.3


9.2


Average foreign exchange translation rates to $:

 






$1: £

 

0.777


0.741


0.654


0.607


0.639


$1: €

 

0.887


0.904


0.902


0.754


0.753


For footnotes, see page 62.

Unless stated otherwise, all tables in the Annual Report and Accounts 2017 are presented on a reported basis.

For a summary of our financial performance in 2017, see page 14.

For further financial performance data for each global business and geographical region, see pages 46 to 53 and 53 to 59, respectively.

 




HSBC Holdings plc  Annual Report and Accounts 2017

33

 

 

Report of the Directors | Financial summary

 



Group performance by income and expense item

Net interest income










 

 

2017


2016

2015

 

Footnotes

$m


$m


$m


Interest income

 

40,995


42,414


47,189


Interest expense

 

(12,819

)

(12,601

)

(14,658

)

Net interest income

 

28,176


29,813


32,531


Average interest-earning assets

 

1,726,120


1,723,702


1,726,949


 

 

%


%


%


Gross interest yield

16

2.37


2.46


2.73


Less: cost of funds

 

(0.88

)

(0.87

)

(1.00

)

Net interest spread

17

1.49


1.59


1.73


Net interest margin

18

1.63


1.73


1.88


For footnotes, see page 62.

In July 2016, we completed the sale of operations in Brazil. During 2016, we earned net interest income of $0.9bn in Brazil from

 

average interest earning assets of $25.8bn. In 2016, our net interest margin excluding Brazil was 1.70%.



















Summary of interest income by type of asset

 

 

2017

2016

2015

 

 

Average

balance


Interest

income


Yield

Average

balance


Interest

income


Yield

Average

balance


Interest

income


Yield

 

Footnotes

$m


$m


%

$m


$m


%

$m


$m


%

Short-term funds and loans and advances to banks

 

236,126


2,030


0.86

203,799


1,510


0.74

221,924


2,277


1.03

Loans and advances to customers

 

902,214


28,751


3.19

865,356


29,272


3.38

909,707


33,104


3.64

Reverse repurchase agreements - non-trading

 

173,760


2,191


1.26

168,207


1,227


0.73

162,308


1,301


0.80

Financial investments

 

389,807


7,440


1.91

430,775


7,248


1.68

396,113


7,508


1.90

Other interest-earning assets

 

24,213


583


2.41

55,565


3,157


5.68

36,897


2,999


8.13

Total interest-earning assets

 

1,726,120


40,995


2.37

1,723,702


42,414


2.46

1,726,949


47,189


2.73

Trading assets and financial assets designated at fair value

19, 20

186,673


4,245


2.27

179,780


3,897


2.17

195,285


4,626


2.37

Impairment allowances

 

(7,841

)




(9,127

)




(10,606

)




Non-interest-earning assets

 

616,688





653,115





682,143





Year ended 31 Dec

 

2,521,640


45,240


1.79

2,547,470


46,311


1.82

2,593,771


51,815


2.00

For footnotes, see page 62.



















Summary of interest expense by type of liability and equity

 

 

2017

2016

2015

 

 

Average

balance


Interest

expense


Cost

Average

balance


Interest

expense


Cost

Average

balance


Interest

expense


Cost

 

Footnotes

$m


$m


%

$m


$m


%

$m


$m


%

Deposits by banks

21

47,337


451


0.95

49,782


342


0.69

55,863


378


0.68

Financial liabilities designated at fair value - own debt issued

22

60,566


1,261


2.08

62,042


942


1.52

58,489


717


1.23

Customer accounts

23

1,094,920


5,405


0.49

1,074,661


5,492


0.51

1,075,901


7,401


0.69

Repurchase agreements - non-trading

 

136,561


1,665


1.22

118,789


626


0.53

117,947


355


0.30

Debt securities in issue

 

108,677


3,130


2.88

114,343


2,807


2.45

129,039


3,521


2.73

Other interest-bearing liabilities

 

7,009


907


12.94

22,387


2,392


10.68

28,396


2,286


8.05

Total interest-bearing liabilities

 

1,455,070


12,819


0.88

1,442,004


12,601


0.87

1,465,635


14,658


1.00

Trading liabilities and financial liabilities designated at fair value (excluding own debt issued)

 

153,776


2,325


1.51

138,486


1,986


1.43

151,294


2,071


1.37

Non-interest bearing current accounts

 

197,104




184,016




190,914




Total equity and other non-interest bearing liabilities

 

715,690




782,964




785,928




Year ended 31 Dec

 

2,521,640


15,144


0.60

2,547,470


14,587


0.57

2,593,771


16,729


0.64

For footnotes, see page 62.

 




34

HSBC Holdings plc  Annual Report and Accounts 2017

 

 







Significant items and currency translation

 

2017


2016


 

$m


$m


Significant items

(108

)

1,110


- customer redress programmes

(108

)

2


- trading results from disposed-of operations in Brazil

-


949


- currency translation on significant items



159


Currency translation

 

524


Year ended 31 Dec

(108

)

1,634


Net interest income of $28.2bn decreased by $1.6bn or 5% compared with 2016, including the effects of significant items and foreign currency translation totalling $1.7bn. Excluding the effects of significant items and foreign currency translation, our net interest income remained broadly unchanged from 2016.

Net interest margin of 1.63% was 10 basis points ('bps') lower than in 2016, including the effects of the significant items and foreign currency translation, which decreased net interest margin by 7bps in total. Excluding these factors, net interest margin decreased by 3bps, mainly reflecting the run-off of our US CML portfolio, pressures on asset yields, notably in Europe and Asia, and higher cost of Group debt. These were partly offset by higher yields on surplus liquidity due to US dollar and Hong Kong dollar rate rises.

Interest income

Interest income decreased by $1.4bn compared with 2016, including the adverse effects of the significant items and foreign currency translation totalling $3.7bn. Excluding these, interest income increased by $2.3bn mainly driven by higher income on surplus liquidity and reverse repurchase agreements.

Interest income on short-term funds and financial investments increased by $0.7bn compared with 2016, which included adverse effects of the disposal of our operations in Brazil and currency translation of $0.2bn. Excluding these, interest income on short-term funds and financial investments increased by $0.9bn, primarily in Asia and North America, reflecting the central bank rate rises. This was partly offset by a reduction in Europe, notably due to the base rate cut in the UK in 2016.

Interest income on reverse repurchase agreements - non-trading was $1.0bn higher, driven by increased income in all regions, notably in Asia and North America, reflecting higher balances and increased market rates. This movement is in line with an increase in interest expense on repurchase agreements.

Interest income on loans and advances to customers was marginally higher, excluding the adverse effects of the UK customer redress programme, our sale of operations in Brazil and foreign currency translation totalling $0.7bn, reflecting increases in:



Asia, mainly due to growth in term lending and mortgage balances, although term lending yields decreased as a result of competitive pressures; and



Latin America, notably in Mexico reflecting higher yields on mortgages and term lending driven by central bank rate rises, and growth in mortgage balances.

 

These increases were partly offset by lower income in:



North America, primarily as a result of the continuing run-off of the higher-yielding CML portfolio in the US; and



Europe, as the effects of decreased lending yields more than offset balance growth in mortgages, term lending and overdrafts, resulting from lower central bank rates, negative interest rates in continental Europe, and market competition.

Interest expense

Reported interest expense increased by $0.2bn, including the effects of the disposal of our operations in Brazil in 2016 and foreign currency translation totalling $2.0bn. Excluding these impacts, interest expense was $2.2bn higher, primarily due to increases in interest expense on repurchase agreements and Group debt.

Interest expense on repurchase agreements increased by $1.0bn, in line with the increase in interest income on reverse repurchase agreements, notably in North America reflecting increased balances and higher market rates, and in Europe reflecting increased balances.

Interest expense on debt securities in issue and own debt at fair value was $0.6bn higher. The increase reflected a rise in the cost of funds, although average balances fell as an increase in debt issued by HSBC Holdings to meet regulatory requirements was more than offset by redemptions of senior debt across the Group. The increase in the cost of debt reflected both longer maturities and the structural subordination of our new issuances.

Interest expense on customer accounts was $0.1bn higher, excluding the effects of our sale of operations in Brazil and foreign currency translation, reflecting average balance growth in most of our geographical regions. The net increase also reflects changes in interest rates in key markets, including:



rate rises in North America and Mexico; partly offset by,



the 2016 reduction in the UK base rate and negative interest rates in continental Europe on current and savings and deposit accounts; and



central bank rate reductions in Asia, notably in India and Australia, and a change in portfolio mix.

 




HSBC Holdings plc  Annual Report and Accounts 2017

35

 

 

Report of the Directors | Financial summary

 









Net fee income

 

2017


2016


2015


 

$m


$m


$m


Account services

2,244


2,417


2,745


Funds under management

2,188


2,076


2,570


Cards

1,994


1,970


2,281


Credit facilities

1,718


1,795


1,919


Broking income

1,191


1,060


1,441


Unit trusts

1,010


863


1,007


Underwriting

829


705


762


Remittances

759


766


772


Imports/exports

736


820


971


Global custody

692


662


721


Insurance agency commission

410


419


519


Other

2,082


2,116


2,308


Fee income

15,853


15,669


18,016


Less: fee expense

(3,042

)

(2,892

)

(3,311

)

Year ended 31 Dec

12,811


12,777


14,705








Significant items and currency translation

 

2017


2016


 

$m


$m


Significant items

-


271


- trading results from disposed-of operations in Brazil

-


233


- currency translation on significant items



38


Currency translation



111


Year ended 31 Dec

-


382


Net fee income of $12.8bn was broadly unchanged compared with 2016 and included the disposal of our operations in Brazil which reduced net fee income by $0.2bn, notably fee income from account services and cards. It also included the adverse effects of currency translation of $0.1bn.

Excluding the effects of our sale of operations in Brazil and currency translation, net fee income increased by $0.4bn, mainly due to higher fee income from broking and unit trusts in RBWM and higher fee income from corporate finance (disclosed within 'Other') and underwriting in GB&M.

Fee income from Broking and Unit trusts increased by $0.3bn, largely due to a strong performance in Hong Kong as renewed investor confidence resulted in higher sales of mutual funds and retail securities compared to a weaker performance in 2016.

 

Fee income from corporate finance and underwriting increased by $0.2bn, reflecting continued momentum across our investment banking products, primarily in the UK, the US and Hong Kong.

Fee income from funds under management rose by $0.1bn, notably in Hong Kong, reflecting higher turnover due to a more favourable equity market environment.

These increases were partly offset by lower fee income from credit facilities, primarily due to lower commercial lending activity in the US in CMB.

In addition, fee expense increased by $0.2bn, in part from cards due to increased customer activity in Hong Kong.










Net trading income

 

 

2017


2016


2015


 

Footnote

$m


$m


$m


Trading activities

 

5,990


8,702


7,285


Net interest income on trading activities

 

1,621


1,386


1,775


Gain/(loss) on termination of hedges

 

3


1


(11

)

Other trading income - hedge ineffectiveness

 







- on cash flow hedges

 

(5

)

(5

)

15


- on fair value hedges

 

4


23


(11

)

Fair value movement on non-qualifying hedges

24

106


(655

)

(330

)

Year ended 31 Dec

 

7,719


9,452


8,723


For footnotes, see page 62.








Significant items and currency translation

 

 

2017


2016


 

Footnote

$m


$m


Significant items

 

(245

)

(475

)

- debit valuation adjustment on derivative contracts

 

(373

)

26


- fair value movement on non-qualifying hedges

24

128


(687

)

- trading results from disposed-of operations in Brazil

 

-


179


- currency translation on significant items

 



7


Currency translation

 



219


Year ended 31 Dec

 

(245

)

(256

)

For footnotes, see page 62.

 




36

HSBC Holdings plc  Annual Report and Accounts 2017

 

 

Net trading income of $7.7bn was $1.7bn lower than in 2016. The net favourable effects of $0.2bn of significant items was largely offset by the adverse effect of currency translation of $0.2bn summarised in the prior table.

The decrease of $1.7bn, excluding the fair value movement on non-qualifying hedges, debit valuation adjustment on derivative contracts, the disposal of our operations in Brazil and currency translation, was primarily driven by:



adverse movements on assets held as economic hedges of foreign currency debt designated at fair value of $0.3bn in 2017 compared with favourable movements of $1.6bn in 2016. These

 

movements were offset by favourable movements in foreign currency debt designated at fair value in 'Net income/(expense) from financial instruments designated at fair value'; and



decreases in GB&M ($0.2bn), notably in Foreign Exchange and Rates, reflecting subdued trading activity in the fourth quarter, partly offset by Credit and Equities, where we gained market share in Prime Financing. We also recorded adverse movements of $262m in credit and funding valuation adjustments compared with adverse movements of $51m in the prior year, primarily relating to movements in our own credit spread on structured liabilities.










Net income/(expense) from financial instruments designated at fair value



2017


2016


2015



Footnote

$m


$m


$m


Net income/(expense) arising from:








Financial assets held to meet liabilities under insurance and investment contracts


3,211


1,480


531


Liabilities to customers under investment contracts


(375

)

(218

)

34


HSBC's long-term debt issued and related derivatives


672


(3,975

)

863


- change in own credit spread on long-term debt (significant item)

25

-


(1,792

)

1,002


- other changes in fair value


672


(2,183

)

(139

)

Other instruments designated at fair value and related derivatives


190


47


104


Year ended 31 Dec


3,698


(2,666

)

1,532


For footnotes, see page 62.

The majority of our financial liabilities designated at fair value are fixed-rate, long-term debt issuances, and are managed in conjunction with interest rate swaps as part of our interest rate management strategy.

These liabilities are discussed further on page 230.

 

In accordance with IFRS 9 'Financial Instruments', fair value movements attributable to changes in our own credit spread on our own debt designated at fair value are now reported in other comprehensive income; by contrast, 2016 included adverse movements of $1.8bn in the fair value of our long-term debt reflecting changes in credit spread.








Significant items and currency translation

 

 

2017


2016


 

Footnote

$m


$m


Significant items

 

-


(1,477

)

- own credit spread

25

-


(1,792

)

- trading results from disposed-of operations in Brazil

 

-


304


- currency translation on significant items

 

 

11


Currency translation

 



(186

)

Year ended 31 Dec

 

-


(1,663

)

For footnotes, see page 62.

Net income from financial instruments designated at fair value was $3.7bn in 2017, compared with a net expense of $2.7bn in 2016. This included a net favourable movement in significant items and currency translation of $1.7bn, primarily due to the effects of adverse fair value movements attributable to changes in our own credit spread on our own debt designated at fair value of $1.8bn in 2016, now reported in other comprehensive income, as mentioned above.

The remaining movement reflected an increase in 'Other changes in fair value' on our long-term debt and related derivatives, which included:



favourable movements of $0.3bn compared with adverse movements of $1.6bn in 2016 on foreign currency debt designated at fair value and issued as part of our overall funding strategy (offset in 'Net trading income' by assets held as economic hedges); and

 



favourable movements of $0.1bn compared with adverse movements of $0.3bn in 2016 relating to the economic hedging of interest and exchange rate risk on our long-term debt, reported in Corporate Centre.

In addition, net income from financial assets and liabilities from insurance and investment contracts increased by $1.6bn, primarily due to improved equity market performance in Asia and Europe in 2017.

Net income arising from financial assets held to meet liabilities under insurance and investment contracts results in a corresponding movement in liabilities to customers, reflecting the extent to which they participate in the investment performance of the associated asset portfolio. These offsetting movements are recorded in 'Net income/(expense) arising from liabilities to customers under investment contracts' and 'Net insurance claims and benefits paid and movement in liabilities to policyholders'.

 




HSBC Holdings plc  Annual Report and Accounts 2017

37

 

 

Report of the Directors | Financial summary

 









Gains less losses from financial investments


2017


2016


2015



$m


$m


$m


Net gains from disposal

1,248


1,421


2,179


- debt securities

403


357


345


- equity securities

838


1,058


1,829


- other financial investments

7


6


5


Impairment of available-for-sale equity securities

(98

)

(36

)

(111

)

Year ended 31 Dec

1,150


1,385


2,068








Significant items and currency translation


2017


2016



$m


$m


Significant items

434


648


- gain on disposal of our membership interest in Visa - Europe

-


584


- gain on disposal of our membership interest in Visa - US

308


116


- gain on disposal of our investment in Vietnam Technological and Commercial Joint Stock Bank

126


-


- trading results from disposed-of operations in Brazil

-


1


- currency translation on significant items



(53

)

Currency translation



70


Year ended 31 Dec

434


718


Gains less losses from financial investments of $1.2bn decreased by $0.2bn compared with 2016. This was largely due to a decrease in gains on the disposal of equity securities $0.2bn, notably the non-recurrence of the gain on disposal of our membership interest in Visa Europe of $0.6bn in 2016. This was partly offset by higher gains on disposal resulting from the sale of our shares in Visa Inc. of $0.3bn, compared with $0.1bn in 2016. We also recorded gains on disposal of our investment in Vietnam Technological and Commercial Joint Stock Bank ('Techcombank') of $0.1bn in 2017.

 

In addition, the decrease in gains less losses from financial investments included higher impairments of AFS equity securities in GB&M.

These decreases were partly offset by gains on disposal of debt securities, which included higher gains on disposal of AFS assets in BSM in Corporate Centre, notably in the UK and Hong Kong.









Net insurance premium income

 

2017


2016


2015


 

$m


$m


$m


Gross insurance premium income

10,802


10,588


11,012


Reinsurance premiums

(1,023

)

(637

)

(657

)

Year ended 31 Dec

9,779


9,951


10,355








Significant items and currency translation

 

2017


2016


 

$m


$m


Significant items

-


420


- trading results from disposed-of operations in Brazil

-


362


- currency translation on significant items

 

58


Currency translation

 

(33

)

Year ended 31 Dec

-


387


Net insurance premium income was $0.2bn lower than in 2016, and included reductions due to the disposal of our operations in Brazil ($0.4bn) and minimal currency translation movements.

Excluding these, net insurance premium income increased by $0.2bn due to the following:



growth in Hong Kong driven by increased gross premium income, partly offset by the effect of a new reinsurance agreement;

 



an increase in France, driven by higher volumes of unit-linked products.

This was partly offset by:



lower sales through third-party channels in Singapore.

 




38

HSBC Holdings plc  Annual Report and Accounts 2017

 

 









Other operating income

 

2017


2016


2015


 

$m


$m


$m


Rent received

171


157


171


Gains/(losses) recognised on assets held for sale

214


(1,949

)

(244

)

Gains on investment properties

48


4


61


Gain on disposal of property, plant and equipment, intangible assets and non-financial investments

46


35


53


Change in present value of in-force long-term insurance business

24


902


799


Other

(166

)

(120

)

215


Year ended 31 Dec

337


(971

)

1,055










Change in present value of in-force long-term insurance business

 

2017


2016


2015


 

$m


$m


$m


Value of new business

919


900


809


Expected return

(599

)

(532

)

(552

)

Assumption changes and experience variances

(280

)

513


504


Other adjustments

(16

)

21


38


Year ended 31 Dec

24


902


799








Significant items and currency translation

 

2017


2016


 

$m


$m


Significant items

(160

)

(1,928

)

- portfolio disposals

(158

)

(163

)

- gain/(loss) and trading results from disposed-of operations in Brazil

19


(1,763

)

- investment in new businesses

(99

)

-


- other acquisitions, disposals and dilutions

78


-


- currency translation on significant items



(2

)

Currency translation



(14

)

Year ended 31 Dec

(160

)

(1,942

)

Other operating income was $0.3bn in 2017, compared with a net expense of $1.0bn in 2016. This was primarily due to net losses recognised on assets held for sale in 2016, most notably a loss of $1.8bn from the disposal of our operations in Brazil. This compared with gains of $0.2bn on assets held for sale in 2017, which included a gain on the sale of our holding in VocaLink in the UK, and a gain on the sale of our operations in Lebanon.

This increase was partly offset by lower favourable movements of $0.9bn in the present value of in-force ('PVIF') long-term insurance business, of which $0.8bn related to 'Assumption changes and experience variances' (for further details, please see Note 20 on the Financial Statements). This reflected:

 



adverse movements in Hong Kong of $0.4bn, reflecting the future sharing of investment returns with policyholders; and



adverse movements in Hong Kong and Singapore of $0.4bn, reflecting adjustments offsetting the impact of regulatory-driven changes in the valuation of liabilities (the corresponding movement is recorded in 'Net insurance claims and benefits paid and movement in liabilities to policyholders').

These adverse movements were partly offset by favourable movements in France, due to market-driven changes in interest rate assumptions.









Net insurance claims and benefits paid and movement in liabilities to policyholders

 

2017


2016


2015


 

$m


$m


$m


Gross

13,208


12,508


11,872


Less reinsurers' share

(877

)

(638

)

(580

)

Year ended 31 Dec

12,331


11,870


11,292








Significant items and currency translation

 

2017


2016


 

$m


$m


Significant items

-


627


- trading results from disposed-of operations in Brazil

-


538


- currency translation on significant items



89


Currency translation



(89

)

Year ended 31 Dec

-


538


 




HSBC Holdings plc  Annual Report and Accounts 2017

39

 

 

Report of the Directors | Financial summary

 

Net insurance claims and benefits paid and movement in liabilities to policyholders were $0.5bn higher compared with 2016, and included reductions due to the disposal of our operations in Brazil ($0.5bn).

This increase was primarily due to improved returns on financial assets supporting contracts where the policyholder shares the investment risk, reflecting improved equity market performance in Hong Kong and France compared with 2016.

In addition, movements in liabilities to policyholders were higher due to increased premium income.

 

These increases were partly offset by the impact of regulatory-driven changes in the valuation of liabilities in Hong Kong and Singapore (the corresponding movement is recorded in 'Assumption changes and experience variances' in PVIF).

The gains or losses recognised on the financial assets designated at fair value that are held to support these insurance contract liabilities are reported in 'Net income/(expense) from financial instruments designated at fair value' on page 37.









Loan impairment charges and other credit risk provisions

 

2017


2016


2015


 

$m


$m


$m


New allowances net of allowance releases

2,636


3,977


4,400


Recoveries of amounts previously written off

(644

)

(627

)

(808

)

Loan impairment charges

1,992


3,350


3,592


- individually assessed allowances

1,114


1,831


1,505


- collectively assessed allowances

878


1,519


2,087


Releases of impairment on available-for-sale debt securities

(190

)

(63

)

(17

)

Other credit risk provisions

(33

)

113


146


Year ended 31 Dec

1,769


3,400


3,721


Impairment charges on loans and advances to customers as a percentage of average gross loans and advances to customers

0.22%


0.39%


0.39%








Significant items and currency translation

 

2017


2016


 

$m


$m


Significant items

-


867


- trading results from disposed-of operations in Brazil

-


748


- currency translation on significant items



119


Currency translation



(61

)

Year ended 31 Dec

-


806


Loan impairment charges and other credit risk provisions ('LICs') of $1.8bn were $1.6bn or 48% lower compared with 2016. This reduction included the favourable effects of the disposal of our operations in Brazil ($0.9bn) in July 2016, which was partly offset by the impact of adverse foreign currency translation. Excluding these factors, LICs decreased by $0.8bn or 32%, driven by lower LICs in our CMB and RBWM businesses.

Individually assessed LICs of $1.1bn were $0.7bn or 39% lower compared with 2016. This included a reduction of $0.2bn following our sale of operations in Brazil.

The remaining variance arose:



In CMB (down $0.5bn), notably in North America primarily against exposures in the oil and gas sector, as well as reductions in France, Spain and Singapore, as 2016 included a small number of specific charges in relation to corporate exposures. This was partly offset by higher individually assessed LICs in Hong Kong relating to a small number of customers across various sectors.



In GB&M, individually assessed LICs were broadly unchanged, with LICs in 2017 primarily related to two large corporate exposures in Europe, partly offset by a net release of allowances in the US. In 2016, individually assessed LICs included charges in the US against exposures in the oil and gas sector, as well as a single mining-related corporate client.

Collectively assessed LICs of $0.9bn were $0.6bn or 42% lower compared with 2016. This included a reduction of $0.6bn following the sale of operations in Brazil and the adverse effects of foreign currency translation of $48m.

 

The remaining variance arose:



In Corporate Centre (down $0.1bn), driven by the run-off of the CML portfolio in the US.



In RBWM (down $0.1bn), notably in Turkey reflecting improved credit quality and lower lending balances, and in the US and Hong Kong from improvements in credit quality. These decreases were partly offset by increased collective allowances in Mexico, reflecting growth in unsecured lending balances and an increase in delinquencies. In addition, we increased collective allowances in the UK against our mortgages and cards exposures, in part offset by a release following the sale of a portfolio of loans. LICs in the UK remain at low levels, representing approximately 10bps of the overall portfolio.

This was partly offset:



In GB&M (up $0.1bn), notably in the UK, as 2016 included net releases of collective allowances.



In CMB (up $38m), notably in Hong Kong in part due to asset growth and an increase in historical loss rates, partly offset by lower charges in the UK relating to reduced exposures in the oil and gas sector.

In 2017, we recorded higher net releases of impairment allowances against available-for-sale debt securities ($0.2bn). These were primarily related to asset-backed securities in our legacy credit portfolio in Corporate Centre and reflected an improvement in collateral values.

A net release of other credit risk provisions of $33m in 2017 largely related to oil and gas sector exposures in the US and the construction sector in Canada. This compared with a net charge in the prior year in these markets, also related to the oil and gas sector.

 




40

HSBC Holdings plc  Annual Report and Accounts 2017

 

 

Operating expenses




In addition to detailing operating expense items by category, as set out in the table below, we also categorise operating expenses as follows:

'Run-the-bank' costs comprise business-as-usual running costs that keep operations functioning at the required quality and standard year on year, maintain IT infrastructure and support revenue growth. Run-the-bank costs are split between front office and back office, reflecting the way the Group is organised into four global businesses ('front office') supported by global functions ('back office').

'Change-the-bank' costs comprise expenses relating to the implementation of mandatory regulatory changes and other investment costs incurred relating to projects to change business-as-usual activity to enhance future operating capabilities.

'Costs to achieve' comprise those specific costs relating to the achievement of the strategic actions set out in the Investor Update in June 2015. They comprise costs incurred between 1 July 2015 and 31 December 2017, and do not include ongoing initiatives such as Global Standards. Any costs arising within this category have been incurred as part of a significant transformation programme. Costs to achieve are included within significant items and incorporate restructuring costs that were identified as a separate significant item prior to 1 July 2015.









Operating expenses

 

2017


2016


2015


 

$m


$m


$m


By expense category

 

 

 

Employee compensation and benefits

17,315


18,089


19,900


Premises and equipment (excluding depreciation and impairment)

3,530


3,758


3,830


General and administrative expenses

12,177


12,715


13,832


Administrative expenses

33,022


34,562


37,562


Depreciation and impairment of property, plant and equipment

1,166


1,229


1,269


Amortisation and impairment of intangible assets

696


777


937


Goodwill impairment

-


3,240


-


Year ended 31 Dec

34,884


39,808


39,768








 

2017


2016


 

$m


$m


By expense group

 

 

Run-the-bank - front office

14,254


13,240


Run-the-bank - back office

12,974


13,003


Change-the-bank

2,996


2,919


Bank levy

916


922


Significant items

3,744


9,393


Currency translation



331


Year ended 31 Dec

34,884


39,808










Staff numbers (full-time equivalents)

 

2017


2016


2015


Global businesses

 

 

 

Retail Banking and Wealth Management

129,402


124,810


145,868


Commercial Banking

44,871


44,712


48,651


Global Banking and Markets

45,725


46,659


47,894


Global Private Banking

7,250


8,054


8,513


Corporate Centre

1,439


10,940


4,277


At 31 Dec

228,687


235,175


255,203


Reported operating expenses of $34.9bn were $4.9bn lower than in 2016. This reflected a reduction in significant items of $5.6bn which included:



a $3.2bn write-off of the goodwill in our GPB business in Europe in 2016 (please see Note 20 on the Financial Statements for further details);



a net release of $0.4bn in settlements and provisions in connection with legal matters, compared with charges in 2016 of $0.7bn;

 



the operating expenses incurred by our Brazil business of $1.1bn in 2016; and



costs to achieve of $3.0bn, compared with $3.1bn in 2016.

The reduction in reported operating expenses also included the favourable effects of currency translation of $0.3bn.

 




HSBC Holdings plc  Annual Report and Accounts 2017

41

 

 

Report of the Directors | Financial summary

 







Significant items and currency translation

 

2017


2016


 

$m


$m


Significant items

3,744


9,393


- costs associated with portfolio disposals

53


28


- costs associated with the UK's exit from the EU

28


-


- costs to achieve

3,002


3,118


- costs to establish UK ring-fenced bank

392


223


- customer redress programmes

655


559


- gain on partial settlement of pension obligation

(188

)

-


- impairment of GPB - Europe goodwill

-


3,240


- regulatory provisions in GPB

164


344


- settlements and provisions in connection with legal matters

(362

)

681


- trading results from disposed-of operations in Brazil

-


1,059


- currency translation on significant items

 

141


Currency translation



331


Year ended 31 Dec

3,744


9,724


Excluding the significant items and currency translation tabulated above, operating expenses of $31.1bn were $1.1bn higher than in 2016. This increase reflected investments in business growth programmes (up $0.6bn), primarily in RBWM, where investments were partly funded by the proceeds from our disposal of Visa Inc. shares, as well as higher performance-related pay (up $0.4bn). The impact of our cost-saving initiatives more than offset inflation and continued investment in regulatory programmes and compliance.

Our total investment in regulatory programmes and compliance was $3.0bn, up $0.2bn or 7% compared with 2016. This reflected the continued implementation of our Global Standards programme to enhance our financial crime risk controls and capabilities.

In 2017, we realised $2.1bn of cost savings, and achieved annualised run-rate savings of $6.1bn since our Investor Update in June 2015. We have completed our 'costs to achieve' transformation programme, incurring a total cost of $7.0bn since 2015, and continue to realise the benefits of our cost-saving initiatives:

 



In global businesses, savings of $0.6bn reflected the impact of our branch optimisation programme enabled by our digital initiatives as well as transformation of online and mobile banking for corporates.



In Operations and Technology, savings of $1.1bn reflected migrations to lower cost locations, automation, the simplification of our IT structure and the implementation of target operating models.



In our back office functions, savings of $0.4bn were realised as a result of the re-engineering and simplification of processes and the implementation of global operating models.

The number of employees expressed in FTEs at 31 December 2017 was 228,687, a decrease of 6,488 since 31 December 2016. This included a 18,601 reduction realised across global businesses and global functions from our transformation programme, partly offset by investment in Global Standards of 3,016 FTEs and an increase of 9,097 FTEs, in part attributable to investment for growth.






Share of profit in associates and joint ventures


2017

2016

2015


$m

$m

$m

Share of profit in associates

2,349

2,326

2,518

- Bank of Communications Co., Limited

1,863

1,892

2,011

- The Saudi British Bank

422

415

462

- other

64

19

45

Share of profit in joint ventures

26

28

38

Year ended 31 Dec

2,375

2,354

2,556

Our share of profit in associates and joint ventures was $2.4bn, an increase of $21m or 1% compared with 2016 and including the adverse effects of currency translation of $33m.

Excluding the effects of currency translation, our share of profit in associates and joint ventures increased by $53m, compared with 2016. This mainly comprised gains from the sale of investments held by Business Growth Fund, a joint venture with other UK banks to support small- and medium-sized enterprises ('SMEs') in the UK.

Our share of profit in our largest associate, BoCom, was $1.9bn. This was broadly unchanged from 2016 after excluding the effects of currency translation. At 31 December 2017, we performed an impairment review of our investment in BoCom and concluded that it was not impaired, based on our value in use calculation (see Note 17 on the Financial Statements for further details).

In future periods, the value in use may increase or decrease depending on the effect of changes to model inputs. It is expected that the carrying amount will increase in 2018 due to retained profits earned by BoCom. At the point where the carrying amount exceeds the value in use, HSBC will determine whether an impairment exists. If so, we would continue to recognise its share

 

of BoCom's profit or loss, but the carrying amount would be reduced to equal the value in use, with a corresponding reduction in income, unless the market value has increased to a level above the carrying amount.

 




42

HSBC Holdings plc  Annual Report and Accounts 2017

 

 









Tax expense

 

2017


2016


2015


 

$m


$m


$m


Profit before tax

17,167


7,112


18,867


Tax expense

(5,288

)

(3,666

)

(3,771

)

Profit after tax for the year ended 31 Dec

11,879


3,446


15,096


Effective tax rate

30.80%


51.55%


19.99%


The effective tax rate for 2017 of 30.8% includes a charge of $1.3bn due to the remeasurement of US deferred tax balances to reflect the reduction in the US federal tax rate from 35% to 21% from 2018. This charge increased the 2017 effective tax rate by 7.5%. The effective tax rate in 2017 was lower than the 51.6% in

 

2016 as 2016 included the unfavourable impact of a non-deductible goodwill write-down and loss on disposal of operations in Brazil. Further detail is provided in Note 7 on the Financial Statements.

 




HSBC Holdings plc  Annual Report and Accounts 2017

42

 

 

Report of the Directors | Financial summary

 



Consolidated balance sheet














Five-year summary consolidated balance sheet

 

 

2017


2016


2015


2014


2013


 

Footnote

$m


$m


$m


$m


$m


Assets

 

 

 

 

 

 

Cash and balances at central banks

 

180,624


128,009


98,934


129,957


166,599


Trading assets

 

287,995


235,125


224,837


304,193


303,192


Financial assets designated at fair value

 

29,464


24,756


23,852


29,037


38,430


Derivatives

 

219,818


290,872


288,476


345,008


282,265


Loans and advances to banks

 

90,393


88,126


90,401


112,149


120,046


Loans and advances to customers

26

962,964


861,504


924,454


974,660


992,089


Reverse repurchase agreements - non-trading

 

201,553


160,974


146,255


161,713


179,690


Financial investments

 

389,076


436,797


428,955


415,467


425,925


Other assets

 

159,884


148,823


183,492


161,955


163,082


Total assets at 31 Dec

 

2,521,771


2,374,986


2,409,656


2,634,139


2,671,318


Liabilities and equity

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

Deposits by banks

 

69,922


59,939


54,371


77,426


86,507


Customer accounts

 

1,364,462


1,272,386


1,289,586


1,350,642


1,361,297


Repurchase agreements - non-trading

 

130,002


88,958


80,400


107,432


164,220


Trading liabilities

 

184,361


153,691


141,614


190,572


207,025


Financial liabilities designated at fair value

 

94,429


86,832


66,408


76,153


89,084


Derivatives

 

216,821


279,819


281,071


340,669


274,284


Debt securities in issue

 

64,546


65,915


88,949


95,947


104,080


Liabilities under insurance contracts

 

85,667


75,273


69,938


73,861


74,181


Other liabilities

 

113,690


109,595


139,801


121,459


120,181


Total liabilities at 31 Dec

 

2,323,900


2,192,408


2,212,138


2,434,161


2,480,859


Equity

 

 

 

 

 

 

Total shareholders' equity

 

190,250


175,386


188,460


190,447


181,871


Non-controlling interests

 

7,621


7,192


9,058


9,531


8,588


Total equity at 31 Dec

 

197,871


182,578


197,518


199,978


190,459


Total liabilities and equity at 31 Dec

 

2,521,771


2,374,986


2,409,656


2,634,139


2,671,318


For footnotes, see page 62.

A more detailed consolidated balance sheet is contained in the Financial Statements on page 178.














Five-year selected financial information



2017


2016


2015


2014


2013



Footnotes

$m


$m


$m


$m


$m


Called up share capital


10,160


10,096


9,842


9,609


9,415


Capital resources

27, 28

182,383


172,358


189,833


190,730


194,009


Undated subordinated loan capital


1,969


1,967


2,368


2,773


2,777


Preferred securities and dated subordinated loan capital

29

42,147


42,600


42,844


47,208


48,114


Risk-weighted assets

27

871,337


857,181


1,102,995


1,219,765


1,092,653


Financial statistics












Loans and advances to customers as a percentage of customer accounts


70.6


67.7


71.7


72.2


72.9


Average total shareholders' equity to average total assets


7.33


7.37


7.31


7.01


6.55


Net asset value per ordinary share at year-end ($)

30

8.35


7.91


8.73


9.28


9.27


Number of $0.50 ordinary shares in issue (millions)


20,321


20,192


19,685


19,218


18,830


Closing foreign exchange translation rates to $:












$1: £


0.740


0.811


0.675


0.642


0.605


$1: €


0.834


0.949


0.919


0.823


0.726


For footnotes, see page 62.

 




43

HSBC Holdings plc  Annual Report and Accounts 2017

 

 

Movement in 2017

Total assets of $2.5tn were 6% higher than at 31 December 2016 on a reported basis, and 1% higher on a constant currency basis.

We increased the strength of our balance sheet by targeting growth in lending, notably in Asia, where we increased balances by 14% on a constant currency basis, reflecting continued momentum from our initiatives to grow corporate lending in the region. During 2017 we also completed the run-off of our US CML portfolio.

Our ratio of customer advances to customer accounts was 71%, up from 68% at 31 December 2016, reflecting our focus on lending growth. Loans and advances increased on a reported basis by $101bn or 12%, and customer accounts increased by $92bn or 7%.

Assets

Cash and balances at central banks increased by $53bn. This included higher euro-denominated balances in continental Europe, and higher sterling balances in the UK, as we deployed our commercial surplus to maximise returns. This increase was partly offset by a reduction in the US as we redeployed our surplus to maximise returns, notably to reverse repurchase agreements - non-trading.

Trading assets increased by $53bn, notably equity securities, in the UK, reflecting higher client activity in our Equities business, and from increased debt securities in Asia.

Reverse repurchase agreements - non-trading increased by $41bn, notably in Europe and the US, driven by customer demand in our Markets business. In the US, balances also increased as we redeployed our commercial surplus to maximise returns.

Derivative assets decreased by $71bn, primarily reflecting revaluation movements, as a result of changes in yield curves and exchange rates, notably in the UK, Hong Kong and France. These movements were broadly offset by a reduction in derivative liabilities.

Financial investments decreased by $48bn. In the UK this was due to our redeployment of available-for-sale investments into cash to manage our liquidity, as well as for risk management purposes, whereas in Hong Kong this primarily reflected a managed reduction in our commercial surplus.

Loans and advances to customers increased by $101bn compared with 31 December 2016, notably in Asia and Europe. This included:



favourable currency translation of $45bn, primarily affecting Europe; partly offset by



the $5bn transfer to 'Assets held for sale', and subsequent disposal, of the US first lien mortgage balance in Corporate Centre.

Excluding these factors, customer lending balances increased by $62bn or 7%. This growth was primarily in Asia, which contributed $53bn of this increase.

In Asia, lending grew in GB&M (up $24bn) and CMB (up $16bn), particularly in Hong Kong, from increased term lending reflecting our continued focus on loan growth in the region and higher customer demand. Trade lending in Hong Kong contributed $3bn of the increase in CMB, reflecting increased market share, but it was broadly unchanged in GB&M. We also increased balances in RBWM in Asia by $11bn, primarily in mortgages in Hong Kong, where we grew our market share.

In addition, we grew lending in Europe by $10bn, notably in UK mortgages (up $8bn), reflecting our focus on broker originated mortgages. We also grew balances in CMB by $9bn, driven by higher term lending, which more than offset an $8bn fall in GB&M, notably due to a reclassification of short-term balances to reverse repurchase agreements. Balances also decreased in our Global Banking business, as a small number of customers paid down large balances, as well as a reduction in short-term lending.

 

 

Liabilities

Customer accounts increased by $92bn on a reported basis, including a favourable foreign currency translation movement of $56bn.

Excluding the effect of currency translation, customer accounts increased by $36bn, notably in RBWM which grew by $28bn. The increase was driven by Hong Kong (up $18bn), reflecting higher customer inflows from surplus liquidity in the region, and the UK (up $6bn), primarily in current accounts. We grew balances in GB&M in France ($5bn) and Germany ($2bn), from higher foreign currency corporate deposits, as we priced competitively to facilitate higher stable funding. In addition we grew CMB balances (up $8bn), notably in the UK, as we won new client mandates and increased balances with existing customers.

These increases were partly offset by a reduction in GB&M in the UK, reflecting a large deposit from 2016 being withdrawn in 2017, as well as an increase in customers who settled their asset and liability balances net, resulting in lower lending and customer accounts. Deposit balances also fell in GPB (down $6bn), partly reflecting the customer repositioning during 2017, as well as active redeployment of clients' deposits to maximise their returns.

Repurchase agreements - non-trading increased by $41bn primarily in the UK and the US, mainly driven by an increased use of repurchase agreements for funding in our Markets business.

Trading liabilities increased by $31bn, notably in the UK and France, the latter reflecting an increase in net short positions.

Derivative liabilities decreased by $63bn, which is in line with the decrease in derivative assets because the underlying risk is broadly matched.

Equity

Total shareholders' equity increased by $14.9bn or 8%. This was driven by the effects of profits generated in the period, a reduction in accumulated foreign exchange losses reflecting the appreciation of the euro and sterling against the US dollar during 2017, and the issue of convertible capital securities. These increases more than offset the effects of dividends paid to shareholders and the $3.0bn share buy-back completed during 2017.

Risk-weighted assets

Risk-weighted assets ('RWAs') were $871.3bn at 31 December 2017, an increase of $14.1bn compared with 31 December 2016. After foreign currency translation differences, RWAs reduced by $13.6bn in 2017. This reflected targeted RWA reduction initiatives of $70.8bn and improvement in asset quality of $4.6bn, less increases due to growth in asset size of $48.4bn, methodology and policy changes of $8.2bn and model updates of $6.2bn.

The RWA initiatives included:



$21.3bn from the accelerated sell-down of our consumer mortgage portfolio in the US and our legacy credit book; and



$40.0bn from process improvements, exposure reductions, trade actions and refined calculations.

Asset size movements principally represent:



$40.4bn lending growth, mainly in GB&M and CMB in Asia and Europe; and



new transactions and movements in market parameters increasing counterparty credit risk and market risk by $9.0bn.

 




HSBC Holdings plc  Annual Report and Accounts 2017

44

 

 

Report of the Directors | Financial summary

 







Customer accounts by country

 

2017


2016


 

$m


$m


Europe

505,182


446,615


- UK

401,733


361,278


- France

45,833


35,996


- Germany

17,355


13,925


- Switzerland

7,936


9,474


- other

32,325


25,942


Asia

657,395


631,723


- Hong Kong

477,104


461,626


- mainland China

45,991


46,576


- Singapore

41,144


39,062


- Australia

20,212


18,030


- Malaysia

14,027


12,904


- Taiwan

13,459


11,731


- India

13,228


11,289


- Indonesia

4,211


5,092


- other

28,019


25,413


Middle East and North Africa (excluding Saudi Arabia)

34,658


34,766


- United Arab Emirates

16,602


16,532


- Turkey

3,772


4,122


- Egypt

3,912


3,790


- other

10,372


10,322


North America

143,432


138,790


- US

89,887


88,751


- Canada

45,510


42,096


- other

8,035


7,943


Latin America

23,795


20,492


- Mexico

17,809


14,423


- other

5,986


6,069


At 31 Dec

1,364,462


1,272,386


 




45

HSBC Holdings plc  Annual Report and Accounts 2017

 

 



Global businesses and

geographical regions

 

Page

Analysis of adjusted results by global business

47

Reconciliation of reported and adjusted items

49

Reconciliation of reported and adjusted items - global businesses

 

50

Supplementary tables for RBWM and GPB

53

Analysis of reported results by geographical regions

54

Reconciliation of reported and adjusted items - geographical regions

56

Analysis of reported results by country

59



Summary

The Group Chief Executive and the rest of the Group Management Board ('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'.



Basis of preparation

The Group Chief Executive, supported by the rest of the GMB, is considered the Chief Operating Decision Maker ('CODM') for the purposes of identifying the Group's reportable segments.

Analysis by global business is considered more prominent than the geographical region view in the way the CODM assesses performance and allocates resources. The global businesses are therefore considered our reportable segments under IFRS 8.

 



Global business results are assessed by the CODM on the basis of adjusted performance that 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. The 2016 and 2015 adjusted performance information is presented on a constant currency basis as described on page 32.

As required by IFRS 8, reconciliations of the total adjusted global business results to the Group reported results are presented on page 46. Supplementary reconciliations from reported to adjusted results by global business are presented on pages 49 to 51 for information purposes.

Our operations are closely integrated and, accordingly, the presentation of data includes internal allocations of certain items of income and expense. These allocations include the costs of certain support services and global functions to the extent that they can be meaningfully attributed to operational business lines and geographical regions. While such allocations have been made on a systematic and consistent basis, they necessarily involve a degree of subjectivity. Costs which are not allocated to global businesses are included in the Corporate Centre.

Where relevant, income and expense amounts presented include the results of inter-segment funding along with inter-company and inter-business line transactions. All such transactions are undertaken on arm's length terms. The intra-Group elimination items for the global businesses are presented in the Corporate Centre.

The expense of the UK bank levy is included in the Europe geographical region as HSBC regards the levy as a cost of being headquartered in the UK. For the purposes of the presentation by global business, the cost of the levy is included in the Corporate Centre.

The results of geographical regions are presented on a reported basis.

Geographical information is classified by the location of the principal operations of the subsidiary or, for The Hongkong and Shanghai Banking Corporation, HSBC Bank plc, HSBC Bank Middle East and HSBC Bank USA, by the location of the branch responsible for reporting the results or providing funding.

A description of the global businesses is provided in the Strategic Report, pages 3 and 18 to 21.



Analysis of adjusted results by global business
















HSBC adjusted profit before tax and balance sheet data

 

 

2017

 

 

Retail
Banking and
Wealth
Management


Commercial
Banking


Global
Banking and
Markets


Global
Private
Banking


Corporate Centre


Total


 

Footnotes

$m


$m


$m


$m


$m


$m


Net interest income/(expense)

 

13,959


9,062


4,886


816


(439

)

28,284


Net fee income/(expense)

 

5,156


3,518


3,489


704


(56

)

12,811


Net trading income

31

453


539


5,995


170


807


7,964


Other income

33

719


104


721


13


908


2,465


Net operating income before loan impairment charges and other credit risk provisions

3

20,287


13,223


15,091


1,703


1,220


51,524


- external

 

17,040


13,383


16,378


1,438


3,285


51,524


- inter-segment

 

3,247


(160

)

(1,287

)

265


(2,065

)

-


Loan impairment (charges)/recoveries and other credit risk provisions

 

(980

)

(496

)

(459

)

(16

)

182


(1,769

)

Net operating income

 

19,307


12,727


14,632


1,687


1,402


49,755


Total operating expenses

 

(12,847

)

(5,947

)

(8,858

)

(1,391

)

(2,097

)

(31,140

)

Operating profit/(loss)

 

6,460


6,780


5,774


296


(695

)

18,615


Share of profit in associates and joint ventures

 

18


-


-


-


2,357


2,375


Adjusted profit before tax

 

6,478


6,780


5,774


296


1,662


20,990


 

 

%


%


%


%


%


%


Share of HSBC's adjusted profit before tax

 

30.9


32.3


27.5


1.4


7.9


100.0


Adjusted cost efficiency ratio

 

63.3


45.0


58.7


81.7


171.9


60.4


Adjusted balance sheet data

 

$m


$m


$m


$m


$m


$m


Loans and advances to customers (net)

 

346,148


316,533


252,474


40,326


7,483


962,964


Interests in associates and joint ventures

 

366


-


-


-


22,378


22,744


Total external assets

 

468,281


348,243


980,485


45,745


679,017


2,521,771


Customer accounts

 

639,592


362,908


283,943


66,512


11,507


1,364,462


Adjusted risk-weighted assets

34

121,466


300,995


299,272


16,036


130,848


868,617


 




HSBC Holdings plc  Annual Report and Accounts 2017

46

 

 

Report of the Directors | Global businesses

 
















HSBC adjusted profit before tax and balance sheet data (continued)

 


2016

 

 

Retail

Banking
and Wealth
Management


Commercial
Banking


Global
Banking and
Markets


Global
Private
Banking


Corporate Centre


Total


 

 

$m


$m


$m


$m


$m


$m


Net interest income

 

12,919


8,491


4,798


801


1,170


28,179


Net fee income/(expense)

 

4,756


3,559


3,394


749


(63

)

12,395


Net trading income

31

426


442


6,231


183


2,426


9,708


Other income/(expense)

33

441


127


292


15


(1,867

)

(992

)

Net operating income before loan impairment charges and other credit risk provisions

3

18,542


12,619


14,715


1,748


1,666


49,290


- external

 

16,052


12,641


17,412


1,487


1,698


49,290


- inter-segment

 

2,490


(22

)

(2,697

)

261


(32

)

-


Loan impairment charges and other credit risk provisions

 

(1,142

)

(969

)

(461

)

-


(22

)

(2,594

)

Net operating income

 

17,400


11,650


14,254


1,748


1,644


46,696


Total operating expenses

 

(12,184

)

(5,746

)

(8,745

)

(1,476

)

(1,933

)

(30,084

)

Operating profit/(loss)

 

5,216


5,904


5,509


272


(289

)

16,612


Share of profit in associates and joint ventures

 

20


-


-


-


2,302


2,322


Adjusted profit before tax

 

5,236


5,904


5,509


272


2,013


18,934


 

 

%


%


%


%


%


%


Share of HSBC's adjusted profit before tax

 

27.7


31.2


29.1


1.4


10.6


100.0


Adjusted cost efficiency ratio

 

65.7


45.5


59.4


84.4


116.0


61.0


Adjusted balance sheet data

 

$m


$m


$m


$m


$m


$m


Loans and advances to customers (net)

 

323,986


294,952


237,655


36,972


12,494


906,059


Interests in associates and joint ventures

 

394


-


-


-


20,340


20,734


Total external assets

 

435,839


320,173


981,893


43,234


708,320


2,489,459


Customer accounts

 

611,846


356,885


272,159


72,730


15,037


1,328,657


Adjusted risk-weighted assets

34

114,683


286,912


307,736


15,649


153,324


878,304

















 

 

2015

Net interest income

 

12,299


8,287


4,422


819


2,167


27,994


Net fee income/(expense)

 

5,446


3,672


3,514


939


(121

)

13,450


Net trading income

31

427


460


5,960


206


721


7,774


Other income

33

666


88


382


2


66


1,204


Net operating income before loan impairment charges and other credit risk provisions

3

18,838


12,507


14,278


1,966


2,833


50,422


- external

 

16,451


12,585


16,633


1,689


3,064


50,422


- inter-segment

 

2,387


(78

)

(2,355

)

277


(231

)

-


Loan impairment charges and other credit risk provisions

 

(1,023

)

(1,447

)

(71

)

(11

)

(27

)

(2,579

)

Net operating income

 

17,815


11,060


14,207


1,955


2,806


47,843


Total operating expenses

 

(12,332

)

(5,826

)

(8,903

)

(1,582

)

(2,814

)

(31,457

)

Operating profit/(loss)

 

5,483


5,234


5,304


373


(8

)

16,386


Share of profit/(loss) in associates and joint ventures

 

23


-


(1

)

-


2,387


2,409


Adjusted profit before tax

 

5,506


5,234


5,303


373


2,379


18,795


 

 

%


%


%


%


%


%


Share of HSBC's adjusted profit before tax

 

29.3


27.8


28.2


2.0


12.7


100.0


Adjusted cost efficiency ratio

 

65.5


46.6


62.4


80.5


99.3


62.4


Adjusted balance sheet data

 

$m


$m


$m


$m


$m


$m


Loans and advances to customers (net)

 

313,927


281,826


243,662


42,592


23,690


905,697


Interests in associates and joint ventures

 

391


-


-


-


18,673


19,064


Total external assets

 

422,322


309,266


886,750


51,190


651,847


2,321,378


Customer accounts

 

569,183


341,717


256,374


80,442


13,956


1,261,672


Adjusted risk-weighted assets

34

116,047


282,149


318,818


17,661


313,100


1,047,775


For footnotes, see page 62.

 




47

HSBC Holdings plc  Annual Report and Accounts 2017

 

 



Reconciliation of reported and adjusted items

(Audited)  


























Adjusted results reconciliation

 

 

2017

2016

2015

 

 

Adjusted


Significant items


Reported


Adjusted


Currency translation


Significant items


Reported


Adjusted


Currency translation


Significant items


Reported


 

Footnote

$m


$m


$m


$m


$m


$m


$m


$m


$m


$m


$m


Revenue

3

51,524


(79

)

51,445


49,290


736


(2,060

)

47,966


50,422


3,727


5,651


59,800


LICs

 

(1,769

)

-


(1,769

)

(2,594

)

61


(867

)

(3,400

)

(2,579

)

(127

)

(1,015

)

(3,721

)

Operating expenses

 

(31,140

)

(3,744

)

(34,884

)

(30,084

)

(331

)

(9,393

)

(39,808

)

(31,457

)

(2,434

)

(5,877

)

(39,768

)

Share of profit in associates

and joint ventures

 

2,375


-


2,375


2,322


33


(1

)

2,354


2,409


149


(2

)

2,556


Profit/(loss) before tax

 

20,990


(3,823

)

17,167


18,934


499


(12,321

)

7,112


18,795


1,315


(1,243

)

18,867




















Adjusted balance sheet reconciliation

 

2017

2016

2015

 

Reported and Adjusted


Adjusted


Currency translation


Reported


Adjusted


Currency translation


Brazil operations1


Reported


 

$m


$m


$m


$m


$m


$m


$m


$m


Loans and advances to customers (net)

962,964


906,059


(44,555

)

861,504


905,697


18,757


-


924,454


Interests in associates and joint ventures

22,744


20,734


(705

)

20,029


19,064


75


-


19,139


Total external assets

2,521,771


2,489,459


(114,473

)

2,374,986


2,321,378


39,164


49,114


2,409,656


Customer accounts

 

1,364,462


1,328,657


(56,271

)

1,272,386


1,261,672


27,914


-


1,289,586




1

Includes effects of foreign currency translation.










Adjusted profit reconciliation

 

 

2017


2016


2015


 

Footnotes

$m


$m


$m


For the year ended 31 Dec

 

 

 

 

Adjusted profit before tax

 

20,990


18,934


18,795


Significant items

 

(3,823

)

(12,321

)

(1,243

)

- customer redress programmes (revenue)

 

(108

)

2


(10

)

- DVA on derivative contracts

 

(373

)

26


230


- fair value movements on non-qualifying hedges

32

128


(687

)

(327

)

- gain on disposal of our investment in Vietnam Technological and Commercial Joint Stock Bank

 

126


-


-


- gain on disposal of our membership interest in Visa - Europe

 

-


584


-


- gain on disposal of our membership interest in Visa - US

 

308


116


-


- gain on the partial sale of shareholding in Industrial Bank

 

-


-


1,372


- gain/(loss) and trading results from disposed-of operations in Brazil

 

19


(2,081

)

(13

)

- investment in new businesses

 

(99

)

-


-


- other acquisitions, disposals and dilutions

 

78


-


-


- own credit spread

25

-


(1,792

)

1,002


- portfolio disposals

 

(158

)

(163

)

(214

)

- costs associated with portfolio disposals

 

(53

)

(28

)

-


- costs associated with the UK's exit from the EU

 

(28

)

-


-


- costs to achieve

 

(3,002

)

(3,118

)

(908

)

- costs to establish UK ring-fenced bank

 

(392

)

(223

)

(89

)

- customer redress programmes (operating expenses)

 

(655

)

(559

)

(541

)

- gain on partial settlement of pension obligation

 

188


-


-


- impairment of GPB - Europe goodwill

 

-


(3,240

)

-


- regulatory provisions in GPB

 

(164

)

(344

)

(172

)

- restructuring and other related costs

 

-


-


(117

)

- settlements and provisions in connection with legal matters

 

362


(681

)

(1,649

)

- currency translation on significant items

 



(133

)

193


Currency translation

 



499


1,315


Reported profit before tax

 

17,167


7,112


18,867


For footnotes, see page 62.

 




HSBC Holdings plc  Annual Report and Accounts 2017

48

 

 

Report of the Directors | Global businesses

 



Reconciliation of reported and adjusted items - global businesses

Supplementary unaudited analysis of significant items by global business is presented below.
















Reconciliation of reported and adjusted items



2017



Retail
Banking and
Wealth
Management


Commercial
Banking


Global
Banking and
Markets


Global
Private
Banking


Corporate Centre


Total



Footnotes

$m


$m


$m


$m


$m


$m


Revenue

3













Reported


20,519


13,120


14,617


1,723


1,466


51,445


Significant items


(232

)

103


474


(20

)

(246

)

79


- customer redress programmes

 

3


103


2


-


-


108


- DVA on derivative contracts


-


-


373


-


-


373


- fair value movements on non-qualifying hedges

32

-


-


-


-


(128

)

(128

)

- gain on disposal of our investment in Vietnam Technological and Commercial Joint Stock Bank


-


-


-


-


(126

)

(126

)

- gain on disposal of our membership interest in Visa - US


(308

)

-


-


-


-


(308

)

- investment in new businesses


-


-


99


-


-


99


- portfolio disposals


73


-


-


(20

)

105


158


- gain on disposal of operations in Brazil

 

-


-


-


-


(19

)

(19

)

- other acquisitions, disposal and dilutions


-


-


-


-


(78

)

(78

)

Adjusted


20,287


13,223


15,091


1,703


1,220


51,524


Loan impairment charge and other credit risk provisions ('LICs')














Reported


(980

)

(496

)

(459

)

(16

)

182


(1,769

)

Adjusted


(980

)

(496

)

(459

)

(16

)

182


(1,769

)

Operating expenses














Reported


(13,734

)

(6,001

)

(8,723

)

(1,586

)

(4,840

)

(34,884

)

Significant items


887


54


(135

)

195


2,743


3,744


- costs associated with portfolio disposals


-


-


-


31


22


53


- costs associated with the UK's exit from the EU


-


1


8


-


19


28


- costs to achieve


270


44


240


3


2,445


3,002


- costs to establish UK ring-fenced bank


6


2


-


-


384


392


- customer redress programmes

 

637


16


2


-


-


655


- gain on partial settlement of pension obligation

 

(26

)

(9

)

(9

)

(3

)

(141

)

(188

)

- regulatory provisions in GPB

 

-


-


-


164


-


164


- settlements and provisions in connection with legal matters


-


-


(376

)

-


14


(362

)

Adjusted


(12,847

)

(5,947

)

(8,858

)

(1,391

)

(2,097

)

(31,140

)

Share of profit in associates and joint ventures














Reported


18


-


-


-


2,357


2,375


Adjusted


18


-


-


-


2,357


2,375


Profit/(loss) before tax














Reported


5,823


6,623


5,435


121


(835

)

17,167


Significant items


655


157


339


175


2,497


3,823


- revenue


(232

)

103


474


(20

)

(246

)

79


- operating expenses


887


54


(135

)

195


2,743


3,744


Adjusted


6,478


6,780


5,774


296


1,662


20,990


 




49

HSBC Holdings plc  Annual Report and Accounts 2017

 

 
















Reconciliation of reported and adjusted items (continued)



2016



Retail
Banking and
Wealth
Management


Commercial
Banking


Global
Banking and
Markets


Global
Private
Banking


Corporate Centre


Total



Footnotes

$m


$m


$m


$m


$m


$m


Revenue

3













Reported


20,338


13,405


15,213


1,745


(2,735

)

47,966


Currency translation


(257

)

(242

)

(182

)

(7

)

(48

)

(736

)

Significant items


(1,539

)

(544

)

(316

)

10


4,449


2,060


- customer redress programmes

 

-


-


-


(2

)

-


(2

)

- DVA on derivative contracts


-


-


(26

)

-


-


(26

)

- fair value movements on non-qualifying hedges

32

-


-


-


-


687


687


- gain on disposal of our membership interest in
Visa - Europe


(354

)

(230

)

-


-


-


(584

)

- gain on disposal of our membership interest in
Visa - US


(72

)

-


-


-


(44

)

(116

)

- own credit spread

25

-


-


-


-


1,792


1,792


- portfolio disposals


-


-


-


26


137


163


- loss and trading results from disposed-of operations in Brazil


(987

)

(288

)

(268

)

(12

)

1,828


273


- currency translation on significant items


(126

)

(26

)

(22

)

(2

)

49


(127

)

Adjusted


18,542


12,619


14,715


1,748


1,666


49,290


LICs














Reported


(1,633

)

(1,272

)

(471

)

1


(25

)

(3,400

)

Currency translation


(45

)

(12

)

(6

)

(1

)

3


(61

)

Significant items


536


315


16


-


-


867


- trading results from disposed-of operations in Brazil


462


272


14


-


-


748


- currency translation on significant items


74


43


2


-


-


119


Adjusted


(1,142

)

(969

)

(461

)

-


(22

)

(2,594

)

Operating expenses














Reported


(14,138

)

(6,087

)

(9,302

)

(5,074

)

(5,207

)

(39,808

)

Currency translation


133


69


125


(8

)

12


331


Significant items


1,821


272


432


3,606


3,262


9,393


- costs associated with portfolio disposals


-


-


-


10


18


28


- costs to achieve


393


62


233


6


2,424


3,118


- costs to establish UK ring-fenced bank


2


1


-


-


220


223


- customer redress programmes

 

497


34


28


-


-


559


- impairment of GPB - Europe goodwill


-


-


-


3,240


-


3,240


- regulatory provisions in GPB


-


-


-


341


3


344


- settlements and provisions in connection with legal matters


-


-


94


-


587


681


- trading results from disposed-of operations in Brazil


805


155


82


8


9


1,059


- currency translation on significant items


124


20


(5

)

1


1


141


Adjusted


(12,184

)

(5,746

)

(8,745

)

(1,476

)

(1,933

)

(30,084

)

Share of profit in associates and joint ventures














Reported


20


-


-


-


2,334


2,354


Currency translation


-


-


-


-


(33

)

(33

)

Significant items


-


-


-


-


1


1


- trading results from disposed-of operations in Brazil


-


-


-


-


1


1


- currency translation on significant items


-


-


-


-


-


-


Adjusted


20


-


-


-


2,302


2,322


Profit/(loss) before tax














Reported


4,587


6,046


5,440


(3,328

)

(5,633

)

7,112


Currency translation


(169

)

(185

)

(63

)

(16

)

(66

)

(499

)

Significant items


818


43


132


3,616


7,712


12,321


- revenue


(1,539

)

(544

)

(316

)

10


4,449


2,060


- LICs


536


315


16


-


-


867


- operating expenses


1,821


272


432


3,606


3,262


9,393


- share of profit in associates and joint ventures


-


-


-


-


1


1


Adjusted


5,236


5,904


5,509


272


2,013


18,934


 




HSBC Holdings plc  Annual Report and Accounts 2017

50

 

 

Report of the Directors | Global businesses

 
















Reconciliation of reported and adjusted items (continued)



2015



Retail
Banking and
Wealth
Management


Commercial
Banking


Global
Banking and
Markets


Global
Private
Banking


Corporate Centre


Total



Footnotes

$m


$m


$m


$m


$m


$m


Revenue

3













Reported


22,624


14,198


15,972


2,076


4,930


59,800


Currency translation


(1,486

)

(969

)

(984

)

(55

)

(233

)

(3,727

)

Significant items


(2,300

)

(722

)

(710

)

(55

)

(1,864

)

(5,651

)

- customer redress programmes

 

22


18


-


(30

)

-


10


- DVA on derivative contracts


-


-


(230

)

-


-


(230

)

- fair value movements on non-qualifying hedges

32

-


-


-


-


327


327


- gain on the partial sale of shareholding in Industrial
Bank


-


-


-


-


(1,372

)

(1,372

)

- own credit spread

25

-


-


-


-


(1,002

)

(1,002

)

- portfolio disposals


-


-


-


-


214


214


- trading results from disposed-of operations in Brazil


(2,239

)

(712

)

(483

)

(29

)

(69

)

(3,532

)

- currency translation on significant items


(83

)

(28

)

3


4


38


(66

)

Adjusted


18,838


12,507


14,278


1,966


2,833


50,422


LICs














Reported


(1,878

)

(1,761

)

(47

)

(13

)

(22

)

(3,721

)

Currency translation


82


40


8


2


(5

)

127


Significant items


773


274


(32

)

-


-


1,015


- trading results from disposed-of operations in Brazil


731


262


(28

)

-


-


965


- currency translation on significant items


42


12


(4

)

-


-


50


Adjusted


(1,023

)

(1,447

)

(71

)

(11

)

(27

)

(2,579

)

Operating expenses














Reported


(15,970

)

(6,852

)

(10,767

)

(1,840

)

(4,339

)

(39,768

)

Currency translation


1,119


403


768


29


115


2,434


Significant items


2,519


623


1,096


229


1,410


5,877


- costs to achieve


153


163


69


16


507


908


- costs to establish UK ring-fenced bank


-


-


-


-


89


89


- customer redress programmes

 

541


18


(19

)

-


1


541


- regulatory provisions in GPB


-


-


-


171


1


172


- restructuring and other related costs


9


5


22


18


63


117


- settlements and provisions in connection with legal matters


-


-


949


-


700


1,649


- trading results from disposed-of operations in Brazil


1,822


434


222


23


78


2,579


- currency translation on significant items


(6

)

3


(147

)

1


(29

)

(178

)

Adjusted


(12,332

)

(5,826

)

(8,903

)

(1,582

)

(2,814

)

(31,457

)

Share of profit in associates and joint ventures














Reported


23


-


-


-


2,533


2,556


Currency translation


-


-


(1

)

-


(148

)

(149

)

Significant items


-


-


-


-


2


2


- trading results from disposed-of operations in Brazil


-


-


-


-


1


1


- currency translation on significant items


-


-


-


-


1


1


Adjusted


23


-


(1

)

-


2,387


2,409


Profit/(loss) before tax














Reported


4,799


5,585


5,158


223


3,102


18,867


Currency translation


(285

)

(526

)

(209

)

(24

)

(271

)

(1,315

)

Significant items


992


175


354


174


(452

)

1,243


- revenue


(2,300

)

(722

)

(710

)

(55

)

(1,864

)

(5,651

)

- LICs


773


274


(32

)

-


-


1,015


- operating expenses


2,519


623


1,096


229


1,410


5,877


- share of profit in associates and joint ventures


-


-


-


-


2


2


Adjusted


5,506


5,234


5,303


373


2,379


18,795


For footnotes, see page 62.

 

 




51

HSBC Holdings plc  Annual Report and Accounts 2017

 

 















Reconciliation of reported and adjusted risk-weighted assets

 

At 31 Dec 2017

 

 

Retail

Banking and

Wealth
Management


Commercial
Banking


Global
Banking and
Markets


Global Private
Banking


Corporate Centre


Total


 

$bn


$bn


$bn


$bn


$bn


$bn


Risk-weighted assets

 

 

 

 

 

 

Reported

121.5


301.0


299.3


16.0


133.5


871.3


Disposals

-


-


-


-


(2.7

)

(2.7

)

- Brazil operations

-


-


-


-


(2.6

)

(2.6

)

- Lebanon operations

-


-


-


-


(0.1

)

(0.1

)

Adjusted

121.5


301.0


299.3


16.0


130.8


868.6


 

 

 

 

 

 

 

 

At 31 Dec 2016

 

Risk-weighted assets

 

 

 

 

 

 

Reported

115.1


275.9


300.4


15.3


150.5


857.2


Currency translation

3.0


12.4


8.0


0.4


3.5


27.3


Disposals

(3.4

)

(1.4

)

(0.7

)

-


(0.7

)

(6.2

)

- Brazil operations

(3.2

)

(1.0

)

(0.7

)

-


(0.2

)

(5.1

)

- Lebanon operations

(0.2

)

(0.4

)

-


-


(0.5

)

(1.1

)

Adjusted

114.7


286.9


307.7


15.7


153.3


878.3
















 

At 31 Dec 2015

 

Risk-weighted assets

 

 

 

 

 

 

Reported

130.7


302.2


330.3


18.0


321.8


1,103.0


Currency translation

(1.0

)

(3.5

)

1.4


(0.1

)

(5.0

)

(8.2

)

Disposals

(13.7

)

(16.5

)

(12.9

)

(0.2

)

(3.7

)

(47.0

)

- Brazil operations

(13.5

)

(16.1

)

(12.9

)

(0.2

)

(3.1

)

(45.8

)

- Lebanon operations

(0.2

)

(0.4

)

-


-


(0.6

)

(1.2

)

Adjusted

116.0


282.2


318.8


17.7


313.1


1,047.8




Supplementary tables for RBWM and GPB

A breakdown of RBWM by business unit is presented below to reflect the basis of how the revenue performance of the business units is assessed and managed.

For GPB, a key measure of business performance is client assets, which is presented below.












RBWM - adjusted profit before tax data

 

 

Consists of

 

 

Total

RBWM


Banking

operations


Insurance manufacturing


Asset

management


 

Footnote

$m


$m


$m


$m


Year ended 31 Dec 2017

 

 

 

 

 

Net operating income before loan impairment charges and other credit risk provisions

3

20,287


17,235


1,997


1,055


- net interest income

 

13,959


11,947


2,012


-


- net fee income/(expense)

 

5,156


4,642


(494

)

1,008


- other income

 

1,172


646


479


47


LICs

 

(980

)

(980

)

-


-


Net operating income

 

19,307


16,255


1,997


1,055


Total operating expenses

 

(12,847

)

(11,748

)

(408

)

(691

)

Operating profit

 

6,460


4,507


1,589


364


Income from associates

 

18


7


11


-


Profit before tax

 

6,478


4,514


1,600


364


 

 

 

 

 

 

Year ended 31 Dec 2016

 

 

 

 

 

Net operating income before loan impairment charges and other credit risk provisions

3

18,542


16,029


1,526


987


- net interest income

 

12,919


11,015


1,895


9


- net fee income/(expense)

 

4,755


4,361


(538

)

932


- other income

 

868


653


169


46


LICs

 

(1,142

)

(1,142

)

-


-


Net operating income

 

17,400


14,887


1,526


987


Total operating expenses

 

(12,181

)

(11,147

)

(374

)

(660

)

Operating profit

 

5,219


3,740


1,152


327


Income from associates

 

20


-


20


-


Profit before tax

 

5,239


3,740


1,172


327


For footnote, see page 62.

 




HSBC Holdings plc  Annual Report and Accounts 2017

52

 

 

Report of the Directors | Global businesses | Geographical regions

 

Insurance manufacturing

RBWM insurance manufacturing performance reported above excludes insurance manufacturing related adjusted net operating income of $202m (2016: $167m) and adjusted profit before tax of $145m (2016: $117m) contributed by other global businesses.

Of the total RBWM insurance manufacturing adjusted revenue of $1,997m, $1,893m was disclosed within Wealth Management (2016: $1,401m) and $104m within Other (2016: $125m) in the Management view of adjusted revenue on page 18.

 

Annualised new business premiums of $2,805m (2016: $2,626m) were generated in Insurance manufacturing, of which $2,730m (2016: $2,557m) related to RBWM.

Distribution of insurance products by HSBC channels contributed $1,035m of net fee income (2016: $1,034m) of which RBWM channels earned $911m (2016: $909m). Of this total income, $629m was in respect of HSBC manufactured products (2016: $612m) and a corresponding fee expense is therefore recognised within insurance manufacturing.









GPB - reported client assets35

 

2017


2016


2015


 

$bn


$bn


$bn


At 1 Jan

298


349


365


Net new money

-


(17

)

1


- of which: areas targeted for growth

15


2


14


Value change

21


(1

)

1


Disposals

(10

)

(24

)

-


Exchange and other

21


(9

)

(18

)

At 31 Dec

330


298


349











GPB - reported client assets by geography

 

 

2017


2016


2015


 

Footnote

$bn


$bn


$bn


Europe

 

162


147


168


Asia

 

129


108


112


North America

 

39


40


61


Latin America

 

-


3


8


Middle East

36

-


-


-


At 31 Dec

 

330


298


349


For footnote, see page 62.



Analysis of reported results by geographical regions


















HSBC reported profit/(loss) before tax and balance sheet data

 

 

2017

 

 

Europe


Asia


MENA


North America


Latin America


Intra-HSBC
items


Total


 

Footnotes

$m


$m


$m


$m


$m


$m


$m


Net interest income

 

6,970


14,153


1,752


3,441


2,098


(238

)

28,176


Net fee income

 

4,161


5,631


619


1,880


520


-


12,811


Net trading income

 

3,425


2,944


180


527


405


238


7,719


Other income

33

2,864


3,078


109


865


202


(4,379

)

2,739


Net operating income before loan impairment charges and other credit risk provisions

3

17,420


25,806


2,660


6,713


3,225


(4,379

)

51,445


Loan impairment charges and other credit risk provisions

 

(658

)

(570

)

(207

)

189


(523

)

-


(1,769

)

Net operating income

 

16,762


25,236


2,453


6,902


2,702


(4,379

)

49,676


Total operating expenses

 

(18,665

)

(11,790

)

(1,394

)

(5,305

)

(2,109

)

4,379


(34,884

)

Operating profit/(loss)

 

(1,903

)

13,446


1,059


1,597


593


-


14,792


Share of profit in associates and joint ventures

 

39


1,883


442


4


7


-


2,375


Profit/(loss) before tax

 

(1,864

)

15,329


1,501


1,601


600


-


17,167


 

 

%


%


%


%


%


 

%


Share of HSBC's profit before tax

 

(10.8

)

89.3


8.7


9.3


3.5




100.0


Cost efficiency ratio

 

107.1


45.7


52.4


79.0


65.4




67.8


Balance sheet data

 

$m


$m


$m


$m


$m


$m


$m


Loans and advances to customers (net)

 

381,547


425,971


28,050


107,607


19,789


-


962,964


Total assets

 

1,169,515


1,008,498


57,469


391,292


48,413


(153,416

)

2,521,771


Customer accounts

 

505,182


657,395


34,658


143,432


23,795


-


1,364,462


Risk-weighted assets

37

311,612


357,808


59,196


131,276


36,372


-


871,337


 

 




53

HSBC Holdings plc  Annual Report and Accounts 2017

 

 


















 

 

 

 

 

 

 

 

 

HSBC reported profit/(loss) before tax and balance sheet data (continued)

 

 

 

 

 

 

 

2016

 

 

Europe


Asia


MENA


North America


Latin America


Intra-HSBC

items


Total


 

Footnotes

$m


$m


$m


$m


$m


$m


$m


Net interest income

 

8,346


12,490


1,831


4,220


3,006


(80

)

29,813


Net fee income

 

4,247


5,200


709


1,898


723


-


12,777


Net trading income

 

4,949


3,127


385


462


449


80


9,452


Other income/(expense)

33

(2,026

)

2,503


44


485


(1,492

)

(3,590

)

(4,076

)

Net operating income before loan impairment charges and other credit risk provisions

3

15,516


23,320


2,969


7,065


2,686


(3,590

)

47,966


Loan impairment charges and other credit risk provisions

 

(446

)

(677

)

(316

)

(732

)

(1,229

)

-


(3,400

)

Net operating income

 

15,070


22,643


2,653


6,333


1,457


(3,590

)

44,566


Total operating expenses

 

(21,845

)

(10,785

)

(1,584

)

(6,147

)

(3,037

)

3,590


(39,808

)

Operating profit/(loss)

 

(6,775

)

11,858


1,069


186


(1,580

)

-


4,758


Share of profit/(loss) in associates and joint ventures

 

1


1,921


434


(1

)

(1

)

-


2,354


Profit/(loss) before tax

 

(6,774

)

13,779


1,503


185


(1,581

)

-


7,112


 

 

%


%


%


%


%


 

%


Share of HSBC's profit before tax

 

(95.2

)

193.7


21.1


2.6


(22.2

)



100.0


Cost efficiency ratio

 

140.8


46.2


53.4


87.0


113.1




83.0


Balance sheet data

 

$m


$m


$m


$m


$m


$m


$m


Loans and advances to customers (net)

 

336,670


365,430


30,740


111,710


16,954


-


861,504


- reported in held for sale

 

1,057


-


474


2,092


-


-


3,623


Total assets

 

1,068,446


965,730


60,472


409,021


43,137


(171,820

)

2,374,986


Customer accounts

 

446,615


631,723


34,766


138,790


20,492


-


1,272,386


- reported in held for sale

 

2,012


-


701


-


-


-


2,713


Risk-weighted assets

37

298,384


333,987


59,065


150,714


34,341


-


857,181


 

 

 

 

 

 

 

 

 

 

 

2015

Net interest income

 

9,686


12,184


1,849


4,532


4,318


(38

)

32,531


Net fee income

 

4,702


6,032


822


2,018


1,131


-


14,705


Net trading income

 

3,968


3,090


418


545


664


38


8,723


Other income

33

2,116


3,997


90


562


479


(3,403

)

3,841


Net operating income before loan impairment charges and other credit risk provisions

3

20,472


25,303


3,179


7,657


6,592


(3,403

)

59,800


Loan impairment charges and other credit risk provisions

 

(519

)

(693

)

(470

)

(544

)

(1,495

)

-


(3,721

)

Net operating income

 

19,953


24,610


2,709


7,113


5,097


(3,403

)

56,079


Total operating expenses

 

(19,274

)

(10,889

)

(1,721

)

(6,501

)

(4,786

)

3,403


(39,768

)

Operating profit

 

679


13,721


988


612


311


-


16,311


Share of profit/(loss) in associates and joint ventures

 

9


2,042


504


2


(1

)

-


2,556


Profit before tax

 

688


15,763


1,492


614


310


-


18,867


 

 

%

%

%

%

%

 

%

Share of HSBC's profit before tax

 

3.6


83.5


7.9


3.3


1.7




100.0


Cost efficiency ratio

 

94.1


43.0


54.1


84.9


72.6




66.5


Balance sheet data

38

$m


$m


$m


$m


$m


$m


$m


Loans and advances to customers (net)

 

385,037


356,375


36,898


128,851


17,293


-


924,454


- reported in held for sale

 

-


-


-


2,020


17,001


-


19,021


Total assets

 

1,121,401


889,747


70,157


393,960


86,262


(151,871

)

2,409,656


Customer accounts

 

491,520


598,620


42,824


135,152


21,470


-


1,289,586


- reported in held for sale

 

-


-


-


1,588


15,094


-


16,682


Risk-weighted assets

37

327,219


459,680


70,585


191,611


73,425


-


1,102,995


For footnotes, see page 62.

 




HSBC Holdings plc  Annual Report and Accounts 2017

54

 

 

Report of the Directors | Geographical regions

 



Reconciliation of reported and adjusted items - geographical regions




















Reconciliation of reported and adjusted items



2017



Europe


Asia


MENA


North
America*


Latin
America


Total


UK


Hong
Kong



Footnotes

$m


$m


$m


$m


$m


$m


$m


$m


Revenue

3

















Reported 

39

17,420


25,806


2,660


6,713


3,225


51,445


12,922


16,117


Significant items


64


121


1


(93

)

(14

)

79


54


(51

)

- customer redress programmes

 

108


-


-


-


-


108


108


-


- DVA on derivative contracts


211


123


1


34


4


373


179


43


- fair value movements on non-qualifying hedges

32

(157

)

25


-


3


1


(128

)

(155

)

32


- gain on disposal of our investment in Vietnam Technological and Commercial Joint Stock Bank


-


(126

)

-


-


-


(126

)

-


(126

)

- gain on disposal of our membership interest in Visa - US


-


-


-


(308

)

-


(308

)

-


-


- investment in new businesses


-


99


-


-


-


99


-


-


- portfolio disposals


(20

)

-


-


178


-


158


-


-


- gain on disposal of operations in Brazil

 

-


-


-


-


(19

)

(19

)

-


-


- other acquisitions, disposals and dilutions


(78

)

-


-


-


-


(78

)

(78

)

-


Adjusted 

39

17,484


25,927


2,661


6,620


3,211


51,524


12,976


16,066


LICs


















Reported


(658

)

(570

)

(207

)

189


(523

)

(1,769

)

(492

)

(396

)

Adjusted


(658

)

(570

)

(207

)

189


(523

)

(1,769

)

(492

)

(396

)

Operating expenses


















Reported 

39

(18,665

)

(11,790

)

(1,394

)

(5,305

)

(2,109

)

(34,884

)

(15,086

)

(6,131

)

Significant items


2,804


640


34


200


66


3,744


2,469


308


- costs associated with portfolio disposals


36


-


-


17


-


53


-


-


- costs associated with the UK's exit from the EU


28


-


-


-


-


28