FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
Report of Foreign Private Issuer
Pursuant to Rule 13a - 16 or 15d - 16 of
the Securities Exchange Act of 1934
 
For the month of February
 
HSBC Holdings plc
42nd Floor, 8 Canada Square, London E14 5HQ, England
(Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F).
Form 20-F X Form 40-F  
(Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934).
Yes  No X
(If "Yes" is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82-   ).
 
 
 
HSBC HOLDINGS PLC
 
2017 RESULTS - HIGHLIGHTS
Strategic execution
 
 
Delivered growth from our international network with a 6% increase in transaction banking product revenue and a 13% rise in revenue synergies between global businesses compared with 2016.
 
 
 
Achieved annualised run-rate savings of $6.1bn since our Investor Update in 2015, while continuing to invest in growth, and regulatory programmes and compliance; exit run-rate in line with 2014 adjusted cost base.
 
 
 
Exceeded our RWA reduction target; extracting a total of $338bn of RWAs from the business since the start of 2015.
 
 
 
Pivot to Asia generating returns and driving over 75% of Group reported and adjusted profit in 2017.
 
 
 
Delivered a return on equity of 5.9% in 2017, up from 0.8% in 2016. We will continue to invest for growth and manage our capital efficiently to achieve our medium term ROE target of >10%.
 
Stuart Gulliver, Group Chief Executive, said:
"These good results demonstrate the strength and potential of HSBC. All our global businesses grew adjusted profits and we concluded the transformation programme that we started in 2015. HSBC is simpler, stronger, and more secure than it was in 2011. It has been my great privilege to lead HSBC for the last seven years, and in handing over to John I am confident the organisation is in great hands."
 
John Flint, Group Chief Executive Designate, said:
"These results and the achievements of the last couple of years give us a great platform to build on. I am working with the management team and the Board to evolve our strategy and execute it at pace, and I will update shareholders on this work by our half year results. The fundamentals of HSBC will remain the same as they always have - strong funding and liquidity, strong capital, and a conservative approach to credit."
 
Financial performance
 
 
Reported profit before tax of $17.2bn was up $10.1bn or 141% on 2016, in part reflecting favourable movements in significant items, which included a loss on sale and trading results of the operations in Brazil that we sold on 1 July 2016; adjusted profit before tax of $21.0bn was $2.1bn or 11% higher, as revenue growth and lower LICs more than offset higher operating expenses.
 
 
 
Reported revenue of $51.4bn was $3.5bn or 7% higher, in part due to adverse fair value movements on our own debt in 2016, which are now reported in other comprehensive income. This was partly offset by the adverse impact of foreign currency translation; adjusted revenue of $51.5bn rose by $2.2bn or 5%, primarily driven by higher revenue in our three main global businesses.
 
 
 
Reported LICs of $1.8bn were $1.6bn or 48% lower, in part reflecting the impact of the sale of our operations in Brazil in 2016 of $0.7bn; adjusted LICs of $1.8bn fell by $0.8bn, spread across our Commercial Banking and Retail Banking and Wealth Management businesses.
 
 
 
Reported operating expenses of $34.9bn fell by $4.9bn or 12% due to lower significant items, which included a $3.2bn write-off of goodwill in our Global Private Banking business in Europe in 2016; adjusted operating expenses of $31.1bn were $1.1bn or 4% higher, lifted by investments in business growth programmes and higher performance-related pay.
 
 
 
Positive adjusted jaws of 1%.
 
 
 
Strong capital base with a common equity tier 1 ('CET1') ratio 14.5% and a leverage ratio of 5.6%.
 
 
 
Maintained the dividend at $0.51 per ordinary share; total dividends in respect of 2017 of $10.2bn; confident of maintaining at this level.
 
 
 
Share buybacks as and when appropriate, subject to the execution of targeted capital actions and regulatory approval.
 
 
 
Additional Tier 1 Capital issuance of between $5bn to $7bn planned during the first half of 2018.
 
 
 
 
 
 
 
 
 
 
Financial highlights and key ratios
 
 
Year ended 31 Dec
 
 
 
2017
 
2016
 
Change
 
 
Footnotes
$m
 
$m
 
%
 
Reported profit before tax
 
17,167
 
7,112
 
141.4
 
Adjusted profit before tax
1
20,990
 
18,934
 
10.9
 
Return on average ordinary shareholders' equity (annualised)
 
5.9%
 
0.8%
 
 
Adjusted jaws
2
1.0%
 
 
 
 
For footnotes, see page 2.
We use adjusted performance to understand the underlying trends in the business. The main differences between reported and adjusted are foreign currency translation and significant items. 
 
 
 
 
 
 
 
 
Capital and balance sheet
 
At 31 Dec
 
 
2017
 
2016
 
Change
 
Common equity tier 1 ratio
14.5%
 
13.6%
 
 
Leverage ratio
5.6%
 
5.4%
 
 
 
$m
 
$m
 
$m
 
Loans and advances to customers
962,964
 
861,504
 
101,460
 
Customer accounts
1,364,462
 
1,272,386
 
92,076
 
Risk-weighted assets ('RWAs')
871,337
 
857,181
 
14,156
 
 
 
 
 
Registered Office and Group Head Office: 8 Canada Square, London E14 5HQ, United Kingdom
Web: www.hsbc.com
Incorporated in England with limited liability. Registered number 617987
 
 
 
 
Highlights
 
 
 
 
 
 
 
 
 
 
Year ended 31 Dec
 
 
2017
 
2016
 
 
Footnote
$m
 
$m
 
Reported
 
 
 
Revenue
3
51,445
 
47,966
 
Loan impairment charges and other credit risk provisions
 
(1,769
)
(3,400
)
Operating expenses
 
(34,884
)
(39,808
)
Profit before tax
 
17,167
 
7,112
 
 
 
 
 
Adjusted
 
 
 
Revenue
3
51,524
 
49,290
 
Loan impairment charges and other credit risk provisions
 
(1,769
)
(2,594
)
Operating expenses
 
(31,140
)
(30,084
)
Profit before tax
 
20,990
 
18,934
 
 
 
 
 
 
Significant items affecting adjusted performance
 
 
 
Revenue
 
 
 
Customer redress programmes
 
(108
)
2
 
Debit valuation adjustment on derivative contracts
 
(373
)
26
 
Fair value movements on non-qualifying hedges
 
128
 
(687
)
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/(loss) and trading results from disposed-of operations in Brazil
 
19
 
(273
)
Investment in new businesses
 
(99
)
-
 
Other acquisitions, disposals and dilutions
 
78
 
-
 
Own credit spread
 
-
 
(1,792
)
Portfolio disposals
 
(158
)
(163
)
Loan impairment charge and other credit risk provisions ('LICs')
 
 
 
Trading results from disposed-of operations in Brazil
 
-
 
(748
)
Operating expenses
 
 
 
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 Global Private Banking - Europe goodwill
 
-
 
(3,240
)
Regulatory provisions in Global Private Banking
 
(164
)
(344
)
Settlements and provisions in connection with legal matters
 
362
 
(681
)
Trading results from disposed-of operations in Brazil
 
-
 
(1,059
)
Share of profit in associates and joint ventures
 
 
 
 
Trading results from disposed-of operations in Brazil
 
-
 
(1
)
 
 
 
1
Adjusted performance is computed by adjusting reported results for the year-on-year effects of foreign currency translation differences and significant items which distort year-on-year comparisons.
 
 
 
2
Includes UK bank levy.
 
 
 
3
Net operating income before loan impairment charges and other credit risk provisions, also referred to as revenue.
 
 
 
 
2
HSBC Holdings plc 2017 Results
 
 
 
 
 
Statement by Mark E Tucker, Group Chairman
With an international network covering 90% of global trade flows and a leading presence in the world's fastest growing region, we are in a prime position to help our customers capitalise on broad-based global growth.
 
Our 2017 results demonstrate both the strength and the potential of the Group. A large increase in reported profit before tax reflected both a healthy business and the non-recurrence of significant items from 2016. All of our global businesses grew adjusted profits and our three main global businesses generated improved adjusted revenue.
 
Strong revenue growth more than covered the cost of business investment, and increased lending laid a foundation for future performance. Asia again contributed a substantial proportion of the Group's profits, particularly in Commercial Banking and Retail Banking and Wealth Management. Together, this delivered an adjusted Group profit before tax of $21bn, up 11% on 2016.
 
This performance has enabled us to approve an unchanged fourth interim dividend of $0.21. This brings the total dividend for 2017 to $0.51, representing a total shareholder return of 24% for 2017.
 
Board changes
As I start my first full year as Group Chairman, I am very grateful to my predecessor, Douglas Flint, and to Stuart Gulliver for ensuring a smooth handover. They steered HSBC through challenging waters during and after the global financial crisis, and renewed HSBC's reputation as one of the world's strongest and safest international banks. They have passed on a strong legacy.
 
My first responsibility as Group Chairman was to appoint a successor to Stuart who would be capable of building on his achievements while further enhancing the qualities that make HSBC unique. With an exceptional record of managing a diverse range of international businesses and a deep understanding of HSBC's heritage and culture, John Flint was clearly the outstanding candidate. The Board and I look forward to working closely with John and his management team.
 
2017 also saw other Board changes as we said goodbye to Rachel Lomax, Sam Laidlaw and Paul Walsh. All three provided valuable service and wise counsel to the Board and I thank them warmly for their advice and support. I am especially grateful to Rachel for her excellent work as the Senior Independent Director and to Sam for his thoughtful leadership of the Nomination Committee.
 
The year ahead
The Board is focused on sustaining resilience by enhancing reputation and performance. We will further develop our strategy to deliver value to all of our stakeholders within a governance framework that provides stability, prudence and effective oversight.
 
We expect the world's major economies to show reasonable growth in 2018, helped by relatively low unemployment, recovering consumer confidence and improving trade. Fears of a hard landing in China have receded, and markets across Asia look set for a strong year. The anticipated conclusion of large regional trade agreements in 2018, mostly involving Asian nations, also provides cause for optimism. With an international network covering 90% of global trade flows and a leading presence in the world's fastest growing region, we are in a prime position to help our customers capitalise on this broad-based global growth.
 
While we are optimistic about the prospects for the global economy, rising international tensions, the threat of protectionism and a lack of inclusive growth all have the potential to disrupt economic activity. We continue to model and anticipate a wide range of scenarios as part of our day-to-day risk management, to cover unlikely but not impossible events. As a well-diversified business underpinned by historically stable revenue generation and significant capital strength, HSBC is well equipped to manage the risks and uncertainty inherent in today's world.
 
Transparency and disclosure
Last year, we published a range of environmental, social and governance ('ESG') metrics to enable investors and customers to assess our non-financial performance. The data we disclose will continue to evolve as we learn more about what our stakeholders find useful and improve our ability to collect the necessary information. We will publish our next ESG Update on our website in April 2018.
 
We are also making our first disclosure under the terms of the Financial Stability Board's Task Force on Climate-related Financial Disclosures. This can be found on page 27 of the Annual Report and Accounts 2017. As one of the world's largest international banks, we take seriously our responsibility to help develop a voluntary, consistent and comparable system of climate-related financial disclosure. We intend to continue to expand and improve the quality and specificity of these disclosures, and to encourage all those who work with us to do the same.
 
Supporting our people
It is important not just to achieve good results, but to do so in a way that treats all of our stakeholders - employees, customers, regulators and shareholders - in a fair and transparent way. We are committed to holding ourselves to account in meeting that aim, and to being accountable to our stakeholders for our actions.
 
As part of this commitment, the Board and I are determined to ensure that HSBC remains a place where all our people have the opportunity to fulfil their potential in a nurturing environment that encourages the right behaviour. Our stakeholders expect honesty and integrity and we will continue to promote a culture in which people do the right thing.
 
My special thanks are due on behalf of the Board to each of the 229,000 people who work for HSBC around the world. In my short time as Group Chairman I have been enormously impressed by the effort, energies and ability of our people in each country I have visited. These results are a testament to their hard work and dedication.
 
 
 
 
 
 
HSBC Holdings plc 2017 Results
3
 
 
 
 
Review by Stuart Gulliver, Group Chief Executive
HSBC is simpler, stronger and more secure than it was in 2011, and better able to connect customers to opportunities in the world's fastest growing regions.
 
2017 was an important year for HSBC. We completed the transformation programme that we started in 2015, maximising the benefits of our network and increasing our competitive advantages. By the end of the year we had exceeded our risk-weighted asset and cost-saving targets, rebuilt our Mexico business, delivered revenue growth from our international network in excess of global economic growth, and accelerated investment in our operations in Asia. We also opened new businesses and launched products that considerably strengthen the service that we offer our international clients.
 
These achievements, and the work that preceded them, were a critical factor in delivering a strong financial performance in 2017. The strength of our three main global businesses generated significant increases in both reported and adjusted Group profit before tax ('PBT'), while reported PBT also benefited from the non-recurrence of a number of large significant items from 2016. Adjusted PBT and adjusted revenue were up in four out of five regions. We grew adjusted revenue faster than adjusted costs, and continued to increase our market share in strategic product areas.
 
Business performance
Retail Banking and Wealth Management had an excellent 2017, with strong adjusted revenue increases across a number of business lines. In Retail Banking, interest rate rises helped to grow revenue as our robust balance sheet and capital strength continued to attract deposits, particularly in Hong Kong. We continued to grow lending in our target markets, especially Hong Kong, the UK and Mexico. Wealth Management benefited from improving customer investment appetite, strong product sales across all categories and the impact of market movements on our life insurance manufacturing businesses.
 
Commercial Banking adjusted revenue grew well on the back of an outstanding performance in Global Liquidity and Cash Management. Higher lending volumes helped Credit and Lending overcome the impact of narrower spreads. Global Trade and Receivables Finance revenue stabilised after a difficult 2016 and we increased our share of major markets, including trade finance in Hong Kong and receivables finance in the UK. HSBC was voted market leader for trade finance in Euromoney's annual trade finance survey in January 2018.
 
Global Banking and Markets grew adjusted revenue, driven particularly by strong growth in Global Liquidity and Cash Management, and Securities Services. Growth in the first three quarters of the year in Markets and Banking enabled both to withstand the effects of subdued market activity in the fourth quarter.
 
Global Private Banking adjusted revenue reflected the impact of historical repositioning, but was stable over the course of 2017. The business grew adjusted revenue by 10% in its target markets.
 
Our strong revenue generation meant that the Group achieved positive adjusted jaws in 2017. We accelerated investment to grow the business, particularly in Retail Banking and Wealth Management, which contributed to an increase in adjusted costs. Performance-related compensation also grew in line with profit before tax.
 
Adjusted loan impairment charges were significantly lower than 2016, mainly due to improved conditions in the oil and gas industry in North America.
 
Our strong common equity tier one ratio of 14.5% included the effect of recent changes in US tax legislation, which reduced our capital position by 9 basis points. It also included the impact of our most recent $2bn share buy-back. In 2017, we returned a total of $3bn to shareholders through share buy-backs and paid more in dividends than any other European or American bank. We achieved this while maintaining one of the strongest capital ratios in the industry.
 
Strategic actions
The strength of our business is due in large part to the strategic actions that we first announced in June 2015. This programme concluded at the end of 2017 with eight out of ten actions completed on time and on target (see pages 12 to 13 of the Annual Report and Accounts 2017).
 
HSBC is much more capital efficient and capable of producing stronger returns for investors as a consequence of these actions. Our cost-reduction programmes have enabled us to absorb the cost of growing the business and protecting HSBC from financial crime, while improving the efficiency and security of our processes.
 
Our previously underperforming Mexico business is increasingly profitable and well positioned for further growth. Whilst our US business remains a work in progress, it is a valuable source of business for other regions and continues to make important progress. We also completed the run-off of our legacy US consumer and mortgage lending portfolio, bringing an end to a difficult chapter in HSBC's recent history.
 
Our international network is now much better able to connect customers to opportunities and delivering revenue growth above that of the global economy. 53% of client revenue now comes from international clients, up from 50% in 2015. Global Liquidity and Cash Management in particular is now a major component of the bank's success, and Global Trade and Receivables Finance has extended its leadership of the global trade finance market.
 
The Group's business mix is more oriented towards Asia, improving our ability to channel the economic and social changes taking place within the world's fastest growing region. Asia contributes a larger proportion of the Group's profits than in 2015, reflecting regional investment in growing our loan book, building our insurance and asset management businesses, and connecting customers to opportunities within the region.
 
We continued to expand our presence in mainland China with the launch of new retail banking products and increased lending in the Pearl River Delta. In December we launched HSBC Qianhai Securities, the first securities joint venture in mainland China to be majority-owned by an international bank. This allows us to offer our clients increased access to China's rapidly expanding capital markets and provides an unprecedented opportunity to establish and grow a securities business in mainland China with strong international standards. This underlines our status as the leading international bank in mainland China.
 
We won a number of significant new business mandates related to the China-led Belt and Road Initiative in 2017, and opened new China desks in Poland, Luxembourg, Thailand and Macau to capture further opportunities. We now have a total of 24 China desks aimed at supporting Chinese businesses with global outbound ambitions, 20 of which are along the 'Belt and Road' routes. In November we were named 'Best Bank for Belt and Road' at the FinanceAsia Achievement Awards 2017.
 
 
 
 
4
HSBC Holdings plc 2017 Results
 
 
Fighting financial crime
For the past five years, we have been weaving Global Standards into the fabric of HSBC. The investment that we have made in our financial crime risk management capabilities has considerably strengthened our ability to protect the integrity of the financial system. We have assembled a highly expert team which is helping to shape the debate about our industry's role in the fight against financial crime. We have made great strides in building a compliance function fit for the many evolving challenges we face, and built partnerships to combat financial crime with regulatory and law enforcement authorities around the world. 
 
The expiration in December of the five-year deferred prosecution agreement that we entered into with the US Department of Justice in 2012 ('AML DPA') was an important milestone for HSBC. Nevertheless, exiting the AML DPA was a product rather than the focus of the essential work that we have done to transform our compliance capabilities and protect the financial system. This work will continue as we seek to ensure that the changes we have made are effective and sustainable. Combating financial crime is a never-ending exercise and will be a constant focus for the Group's management.
 
Thank you
As I prepare to pass on the stewardship of HSBC to my successor, I am proud of our achievements of the last seven and a half years. After the most extensive transformation programme in HSBC's 153 year history, HSBC is simpler, stronger and more secure than it was in 2011, and better able to connect customers to opportunities in the world's fastest growing regions. We have also delivered excellent value to shareholders through a higher share price, $64.7bn in declared dividends and $5.5bn in share buy-backs, representing a total shareholder return of 70.3% from 2011 to the end of 2017.
 
I am pleased to be handing over to such a capable successor as John Flint, whose intimate knowledge of HSBC and its culture will be a considerable asset to the bank and its clients. I am grateful to my colleagues on the Group Management Board for their support since 2011, and to Douglas Flint and Mark Tucker for their backing.
 
Finally, my sincere thanks go to all of my HSBC colleagues around the world, past and present, whose hard work and commitment are the foundation of the bank's success. It has been my privilege to work with them for the last 38 years.
 
 
 
 
 
 
 
HSBC Holdings plc 2017 Results
5
 
 
 
 
   
Financial summary
 
 
 
 
 
 
 
 
 
 
Year ended 31 Dec
 
 
2017
 
2016
 
 
Footnote
$m
 
$m
 
For the year
 
 
 
Profit before tax
 
17,167
 
7,112
 
Profit attributable to:
 
 
 
- ordinary shareholders of the parent company
 
9,683
 
1,299
 
Dividends declared on ordinary shares
 
10,193
 
10,099
 
At the year-end
 
 
 
Total shareholders' equity
 
190,250
 
175,386
 
Total regulatory capital
 
182,383
 
172,358
 
Customer accounts
 
1,364,462
 
1,272,386
 
Total assets
 
2,521,771
 
2,374,986
 
Risk-weighted assets
 
871,337
 
857,181
 
Per ordinary share
 
$
 
$
 
Basic earnings
 
0.48
 
0.07
 
Dividends
1
0.51
 
0.51
 
Net asset value
 
8.35
 
7.91
 
Share information
 
 
 
Number of $0.50 ordinary shares in issue (millions)
 
20,321
 
20,192
 
 
 
 
1
Dividends per ordinary share declared in the year.
 
 
 
 
 
Distribution of results by global business
 
 
 
 
 
 
 
 
 
Adjusted profit/(loss) before tax
 
Year ended 31 Dec
 
2017
2016
 
$m
 
%
$m
 
%
Retail Banking and Wealth Management
6,478
 
30.9
5,236
 
27.7
Commercial Banking
6,780
 
32.3
5,904
 
31.2
Global Banking and Markets
5,774
 
27.5
5,509
 
29.1
Global Private Banking
296
 
1.4
272
 
1.4
Corporate Centre
1,662
 
7.9
2,013
 
10.6
Profit before tax
20,990
 
100.0
18,934
 
100.0
 
 
 
 
 
Distribution of results by geographical region
 
 
 
 
 
 
 
 
 
 
 
Reported profit/(loss) before tax
 
Year ended 31 Dec
 
2017
2016
 
$m
 
%
 
$m
 
%
 
Europe
(1,864
)
(10.8
)
(6,774
)
(95.2
)
Asia
15,329
 
89.3
 
13,779
 
193.7
 
Middle East and North Africa
1,501
 
8.7
 
1,503
 
21.1
 
North America
1,601
 
9.3
 
185
 
2.6
 
Latin America
600
 
3.5
 
(1,581
)
(22.2
)
Profit before tax
17,167
 
100.0
 
7,112
 
100.0
 
 
 
 
 
6
HSBC Holdings plc 2017 Results
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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
1
453
 
539
 
5,995
 
170
 
807
 
7,964
 
Other income
2
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 (unaudited)
4
121,466
 
300,995
 
299,272
 
16,036
 
130,848
 
868,617
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2016
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
1
426
 
442
 
6,231
 
183
 
2,426
 
9,708
 
Other income/(expense)
2
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
 
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 (unaudited)
4
114,683
 
286,912
 
307,736
 
15,649
 
153,324
 
878,304
 
 
 
 
1
Net trading income includes interest expense relating to the internal funding of trading assets, in GB&M. In the statutory presentation, internal funding in GB&M net trading income is eliminated through Corporate Centre, and in our other global businesses it is eliminated within net interest income.
 
 
 
2
Other income in this context comprises where applicable net income/expense from other financial instruments designated at fair value, gains less losses from financial investments, dividend income, net insurance premium income and other operating income less net insurance claims and benefits paid and movement in liabilities to policyholders.
 
 
 
3
Net operating income before loan impairment charges and other credit risk provisions, also referred to as revenue.
 
 
 
4
Adjusted risk-weighted assets are calculated using reported risk-weighted assets adjusted for the effects of currency translation differences and significant items.
 
 
 
 
 
HSBC Holdings plc 2017 Results
7
 
 
 
Consolidated income statement
for the year ended 31 December
 
 
 
 
 
 
 
2017
 
2016
 
 
$m
 
$m
 
Net interest income
28,176
 
29,813
 
- interest income
40,995
 
42,414
 
- interest expense
(12,819
)
(12,601
)
Net fee income
12,811
 
12,777
 
- fee income
15,853
 
15,669
 
- fee expense
(3,042
)
(2,892
)
Net trading income
7,719
 
9,452
 
- trading income excluding net interest income
6,098
 
8,066
 
- net interest income on trading activities
1,621
 
1,386
 
Net income/(expense) from financial instruments designated at fair value
3,698
 
(2,666
)
- changes in fair value of long-term debt and related derivatives
672
 
(3,975
)
- net income from other financial instruments designated at fair value
3,026
 
1,309
 
Gains less losses from financial investments
1,150
 
1,385
 
Dividend income
106
 
95
 
Net insurance premium income
9,779
 
9,951
 
Other operating income/(expense)
337
 
(971
)
Total operating income
63,776
 
59,836
 
Net insurance claims and benefits paid and movement in liabilities to policyholders
(12,331
)
(11,870
)
Net operating income before loan impairment charges and other credit risk provisions
51,445
 
47,966
 
Loan impairment charges and other credit risk provisions
(1,769
)
(3,400
)
Net operating income
49,676
 
44,566
 
Employee compensation and benefits
(17,315
)
(18,089
)
General and administrative expenses
(15,707
)
(16,473
)
Depreciation and impairment of property, plant and equipment
(1,166
)
(1,229
)
Amortisation and impairment of intangible assets
(696
)
(777
)
Goodwill impairment of Global Private Banking - Europe
-
 
(3,240
)
Total operating expenses
(34,884
)
(39,808
)
Operating profit
14,792
 
4,758
 
Share of profit in associates and joint ventures
2,375
 
2,354
 
Profit before tax
17,167
 
7,112
 
Tax expense
(5,288
)
(3,666
)
Profit for the year
11,879
 
3,446
 
Attributable to:
 
 
- ordinary shareholders of the parent company
9,683
 
1,299
 
- preference shareholders of the parent company
90
 
90
 
- other equity holders
1,025
 
1,090
 
- non-controlling interests
1,081
 
967
 
Profit for the year
11,879
 
3,446
 
 
$
 
$
 
Basic earnings per ordinary share
0.48
 
0.07
 
Diluted earnings per ordinary share
0.48
 
0.07
 
 
 
 
 
 
8
HSBC Holdings plc 2017 Results
 
 
 
 
Consolidated statement of comprehensive income
for the year ended 31 December
 
 
 
 
 
 
 
2017
 
2016
 
 
$m
 
$m
 
Profit for the year
11,879
 
3,446
 
Other comprehensive income/(expense)
 
 
Items that will be reclassified subsequently to profit or loss when specific conditions are met:
 
 
Available-for-sale investments
146
 
(299
)
- fair value gains/(losses)
1,227
 
475
 
- fair value gains reclassified to the income statement
(1,033
)
(895
)
- amounts reclassified to the income statement in respect of impairment losses
93
 
71
 
- income taxes
(141
)
50
 
Cash flow hedges
(192
)
(68
)
- fair value (losses)/gains
(1,046
)
(297
)
- fair value losses/(gains) reclassified to the income statement
833
 
195
 
- income taxes
21
 
34
 
Share of other comprehensive income/(expense) of associates and joint ventures
(43
)
54
 
- share for the year
(43
)
54
 
Exchange differences
9,077
 
(8,092
)
- foreign exchange gains reclassified to income statement on disposal of a foreign operation
-
 
1,894
 
- other exchange differences
8,939
 
(9,791
)
- income tax attributable to exchange differences
138
 
(195
)
Items that will not be reclassified subsequently to profit or loss:
 
 
Remeasurement of defined benefit asset/liability
2,419
 
7
 
- before income taxes
3,440
 
(84
)
- income taxes
(1,021
)
91
 
Changes in fair value of financial liabilities designated at fair value due to movement in own credit risk
(2,024
)
-
 
- before income taxes
(2,409
)
-
 
- income taxes
385
 
-
 
Other comprehensive income/(expense) for the year, net of tax
9,383
 
(8,398
)
Total comprehensive income/(expense) for the year
21,262
 
(4,952
)
Attributable to:
 
 
- ordinary shareholders of the parent company
18,914
 
(6,968
)
- preference shareholders of the parent company
90
 
90
 
- other equity holders
1,025
 
1,090
 
- non-controlling interests
1,233
 
836
 
Total comprehensive income/(expense) for the year
21,262
 
(4,952
)
 
 
 
 
 
HSBC Holdings plc 2017 Results
9
 
 
 
Consolidated balance sheet
at 31 December 
 
 
 
 
 
 
 
 
 
2017
 
2016
 
 
 
$m
 
$m
 
Assets
 
 
 
Cash and balances at central banks
 
180,624
 
128,009
 
Items in the course of collection from other banks
 
6,628
 
5,003
 
Hong Kong Government certificates of indebtedness
 
34,186
 
31,228
 
Trading assets
 
287,995
 
235,125
 
Financial assets designated at fair value
 
29,464
 
24,756
 
Derivatives
 
219,818
 
290,872
 
Loans and advances to banks
 
90,393
 
88,126
 
Loans and advances to customers
 
962,964
 
861,504
 
Reverse repurchase agreements - non-trading
 
201,553
 
160,974
 
Financial investments
 
389,076
 
436,797
 
Prepayments, accrued income and other assets
 
67,191
 
63,909
 
Current tax assets
 
1,006
 
1,145
 
Interests in associates and joint ventures
 
22,744
 
20,029
 
Goodwill and intangible assets
 
23,453
 
21,346
 
Deferred tax assets
 
4,676
 
6,163
 
Total assets at 31 Dec
 
2,521,771
 
2,374,986
 
Liabilities and equity
 
 
 
Liabilities
 
 
 
Hong Kong currency notes in circulation
 
34,186
 
31,228
 
Deposits by banks
 
69,922
 
59,939
 
Customer accounts
 
1,364,462
 
1,272,386
 
Repurchase agreements - non-trading
 
130,002
 
88,958
 
Items in the course of transmission to other banks
 
6,850
 
5,977
 
Trading liabilities
 
184,361
 
153,691
 
Financial liabilities designated at fair value
 
94,429
 
86,832
 
Derivatives
 
216,821
 
279,819
 
Debt securities in issue
 
64,546
 
65,915
 
Accruals, deferred income and other liabilities
 
45,907
 
44,291
 
Current tax liabilities
 
928
 
719
 
Liabilities under insurance contracts
 
85,667
 
75,273
 
Provisions
 
4,011
 
4,773
 
Deferred tax liabilities
 
1,982
 
1,623
 
Subordinated liabilities
 
19,826
 
20,984
 
Total liabilities at 31 Dec
 
2,323,900
 
2,192,408
 
Equity
 
 
 
Called up share capital
 
10,160
 
10,096
 
Share premium account
 
10,177
 
12,619
 
Other equity instruments
 
22,250
 
17,110
 
Other reserves
 
7,664
 
(1,234
)
Retained earnings
 
139,999
 
136,795
 
Total shareholders' equity
 
190,250
 
175,386
 
Non-controlling interests
 
7,621
 
7,192
 
Total equity at 31 Dec
 
197,871
 
182,578
 
Total liabilities and equity at 31 Dec
 
2,521,771
 
2,374,986
 
 
 
 
 
 
10
HSBC Holdings plc 2017 Results
 
 
 
 
Consolidated statement of cash flows
for the year ended 31 December
 
 
 
 
 
 
 
 
 
2017
 
2016
 
 
Footnotes
$m
 
$m
 
Profit before tax
 
17,167
 
7,112
 
Adjustments for non-cash items:
 
 
 
 
 
Depreciation, amortisation and impairment
 
1,862
 
5,212
 
Net gain from investing activities
 
(1,152
)
(1,215
)
Share of profits in associates and joint ventures
 
(2,375
)
(2,354
)
(Gain)/Loss on disposal of subsidiaries, businesses, associates and joint ventures
 
(79
)
1,743
 
Loan impairment losses gross of recoveries and other credit risk provisions
 
2,603
 
4,090
 
Provisions including pensions
 
917
 
2,482
 
Share-based payment expense
 
500
 
534
 
Other non-cash items included in profit before tax
 
(381
)
(207
)
Elimination of exchange differences
1
(21,289
)
15,364
 
Changes in operating assets and liabilities
 
 
 
Change in net trading securities and derivatives
 
(10,901
)
4,395
 
Change in loans and advances to banks and customers
 
(108,984
)
52,868
 
Change in reverse repurchase agreements - non-trading
 
(37,281
)
(13,138
)
Change in financial assets designated at fair value
 
(5,303
)
(1,235
)
Change in other assets
 
(6,570
)
(6,591
)
Change in deposits by banks and customer accounts
 
102,211
 
(8,918
)
Change in repurchase agreements - non-trading
 
41,044
 
8,558
 
Change in debt securities in issue
 
(1,369
)
(23,034
)
Change in financial liabilities designated at fair value
 
8,508
 
17,802
 
Change in other liabilities
 
13,514
 
8,792
 
Dividends received from associates
 
740
 
689
 
Contributions paid to defined benefit plans
 
(685
)
(726
)
Tax paid
 
(3,175
)
(3,264
)
Net cash from operating activities
 
(10,478
)
68,959
 
Purchase of financial investments
 
(357,264
)
(457,084
)
Proceeds from the sale and maturity of financial investments
 
418,352
 
430,085
 
Net cash flows from the purchase and sale of property, plant and equipment
 
(1,167
)
(1,151
)
Net cash flows from disposal of customer and loan portfolios
 
6,756
 
9,194
 
Net investment in intangible assets
 
(1,285
)
(906
)
Net cash flow on disposal of subsidiaries, businesses, associates and joint ventures
2
165
 
4,802
 
Net cash from investing activities
 
65,557
 
(15,060
)
Issue of ordinary share capital and other equity instruments
 
5,196
 
2,024
 
Cancellation of shares
 
(3,000
)
-
 
Net sales/(purchases) of own shares for market-making and investment purposes
 
(67
)
523
 
Purchase of treasury shares
 
-
 
(2,510
)
Redemption of preference shares and other equity instruments
 
-
 
(1,825
)
Subordinated loan capital issued
 
-
 
2,622
 
Subordinated loan capital repaid
4
(3,574
)
(595
)
Dividends paid to shareholders of the parent company and non-controlling interests
 
(9,005
)
(9,157
)
Net cash from financing activities
 
(10,450
)
(8,918
)
Net increase/(decrease) in cash and cash equivalents
 
44,629
 
44,981
 
Cash and cash equivalents at 1 Jan
 
274,550
 
243,863
 
Exchange differences in respect of cash and cash equivalents
 
18,233
 
(14,294
)
Cash and cash equivalents at 31 Dec
 
337,412
 
274,550
 
Cash and cash equivalents comprise:
3
 
 
- cash and balances at central banks
 
180,624
 
128,009
 
- items in the course of collection from other banks
 
6,628
 
5,003
 
- loans and advances to banks of one month or less
 
82,771
 
77,318
 
- reverse repurchase agreements with banks of one month or less
 
58,850
 
55,551
 
- treasury bills, other bills and certificates of deposit less than three months
 
15,389
 
14,646
 
- less: items in the course of transmission to other banks
 
(6,850
)
(5,977
)
 
 
337,412
 
274,550
 
Interest received was $41,676m (2016: $42,586m), interest paid was $10,962m (2016: $12,027m) and dividends received were $2,225m (2016: $475m).
 
 
1
Adjustment to bring changes between opening and closing balance sheet amounts to average rates. This is not done on a line-by-line basis, as details cannot be determined without unreasonable expense.
 
 
 
2
In July 2016, we completed the disposal of the Brazilian operations resulting in net cash inflow of $4.8bn.
 
 
 
3
At 31 December 2017 $39,830m (2016: $35,501m) was not available for use by HSBC, of which $21,424m (2016: $21,108m) related to mandatory deposits at central banks.
 
 
 
4
Subordinated liabilities changes during the year are attributable to repayments of $(3.6)bn (2016: $(0.6)bn) of securities. Non-cash changes during the year included foreign exchange loss/gain ($0.6bn) (2016: $2.1bn) and fair value losses of ($1.2bn) (2016: ($0.3bn)).
 
 
 
 
 
HSBC Holdings plc 2017 Results
11
 
 
 
 
Consolidated statement of changes in equity
for the year ended 31 December
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other reserves
 
 
 
 
Called up share capital and share premium
 
Otherequityinstru-
ments1
 
Retainedearnings
 
Available- for-sale fair valuereserve
 
Cash flowhedgingreserve
 
Foreignexchangereserve
 
Mergerreserve
 
Totalshare-holders'equity
 
Non-controllinginterests
 
Totalequity
 
 
$m
 
$m
 
$m
 
$m
 
$m
 
$m
 
$m
 
$m
 
$m
 
$m
 
At 1 Jan 2017
22,715
 
17,110
 
136,795
 
(477
)
(27
)
(28,038
)
27,308
 
175,386
 
7,192
 
182,578
 
Profit for the year
-
 
-
 
10,798
 
-
 
-
 
-
 
-
 
10,798
 
1,081
 
11,879
 
Other comprehensive income(net of tax)
-
 
-
 
328
 
131
 
(194
)
8,966
 
-
 
9,231
 
152
 
9,383
 
- available-for-sale investments
-
 
-
 
-
 
131
 
-
 
-
 
-
 
131
 
15
 
146
 
- cash flow hedges
-
 
-
 
-
 
-
 
(194
)
-
 
-
 
(194
)
2
 
(192
)
- changes in fair value of financial liabilities designated at fair value due to movement in own credit risk
-
 
-
 
(2,024
)
-
 
-
 
-
 
-
 
(2,024
)
-
 
(2,024
)
- remeasurement of defined benefit asset/liability
-
 
-
 
2,395
 
-
 
-
 
-
 
-
 
2,395
 
24
 
2,419
 
- share of other comprehensive income of associates and joint ventures
-
 
-
 
(43
)
-
 
-
 
-
 
-
 
(43
)
-
 
(43
)
- exchange differences
-
 
-
 
-
 
-
 
-
 
8,966
 
-
 
8,966
 
111
 
9,077
 
Total comprehensive income for the year
-
 
-
 
11,126
 
131
 
(194
)
8,966
 
-
 
20,029
 
1,233
 
21,262
 
Shares issued under employee remuneration and share plans
622
 
-
 
(566
)
-
 
-
 
-
 
-
 
56
 
-
 
56
 
Shares issued in lieu of dividends and amounts arising thereon
-
 
-
 
3,206
 
-
 
-
 
-
 
-
 
3,206
 
-
 
3,206
 
Capital securities issued
-
 
5,140
 
-
 
-
 
-
 
-
 
-
 
5,140
 
-
 
5,140
 
Dividends to shareholders
-
 
-
 
(11,551
)
-
 
-
 
-
 
-
 
(11,551
)
(660
)
(12,211
)
Cost of share-based payment arrangements
-
 
-
 
500
 
-
 
-
 
-
 
-
 
500
 
-
 
500
 
Cancellation of shares
(3,000
)
-
 
-
 
-
 
-
 
-
 
-
 
(3,000
)
-
 
(3,000
)
Other movements
-
 
-
 
489
 
(4
)
(1
)
-
 
-
 
484
 
(144
)
340
 
At 31 Dec 2017
20,337
 
22,250
 
139,999
 
(350
)
(222
)
(19,072
)
27,308
 
190,250
 
7,621
 
197,871
 
 
 
 
 
 
 
 
 
 
 
 
At 1 Jan 2016
22,263
 
15,112
 
143,976
 
(189
)
34
 
(20,044
)
27,308
 
188,460
 
9,058
 
197,518
 
Profit for the year
-
 
-
 
2,479
 
-
 
-
 
-
 
-
 
2,479
 
967
 
3,446
 
Other comprehensive income(net of tax)
-
 
-
 
59
 
(271
)
(61
)
(7,994
)
-
 
(8,267
)
(131
)
(8,398
)
- available-for-sale investments
-
 
-
 
-
 
(271
)
-
 
-
 
-
 
(271
)
(28
)
(299
)
- cash flow hedges
-
 
-
 
-
 
-
 
(61
)
-
 
-
 
(61
)
(7
)
(68
)
- remeasurement of defined benefit asset/liability
-
 
-
 
5
 
-
 
-
 
-
 
-
 
5
 
2
 
7
 
- share of other comprehensive income of associates and joint ventures
-
 
-
 
54
 
-
 
-
 
-
 
-
 
54
 
-
 
54
 
- foreign exchange reclassified to income statement on disposal of a foreign operation
-
 
-
 
-
 
-
 
-
 
1,894
 
-
 
1,894
 
-
 
1,894
 
- exchange differences
-
 
-
 
-
 
-
 
-
 
(9,888
)
-
 
(9,888
)
(98
)
(9,986
)
Total comprehensive income for the year
-
 
-
 
2,538
 
(271
)
(61
)
(7,994
)
-
 
(5,788
)
836
 
(4,952
)
Shares issued under employee remuneration and share plans
452
 
-
 
(425
)
-
 
-
 
-
 
-
 
27
 
-
 
27
 
Shares issued in lieu of dividends and amounts arising thereon
-
 
-
 
3,040
 
-
 
-
 
-
 
-
 
3,040
 
-
 
3,040
 
Net increase in treasury shares
-
 
-
 
(2,510
)
-
 
-
 
-
 
-
 
(2,510
)
-
 
(2,510
)
Capital securities issued
-
 
1,998
 
-
 
-
 
-
 
-
 
-
 
1,998
 
-
 
1,998
 
Dividends to shareholders
-
 
-
 
(11,279
)
-
 
-
 
-
 
-
 
(11,279
)
(919
)
(12,198
)
Cost of share-based payment arrangements
-
 
-
 
534
 
-
 
-
 
-
 
-
 
534
 
-
 
534
 
Other movements
-
 
-
 
921
 
(17
)
-
 
-
 
-
 
904
 
(1,783
)
(879
)
At 31 Dec 2016
22,715
 
17,110
 
136,795
 
(477
)
(27
)
(28,038
)
27,308
 
175,386
 
7,192
 
182,578
 
 
 
 
1
During 2017, HSBC Holdings issued $3,000m, SGD1,000m and €1,250m of perpetual subordinated contingent convertible capital securities, on which there were $14m of external issuance costs, $37m of intra-group issuance costs and $10m of tax benefits. In 2016, HSBC Holdings issued $2,000m of perpetual subordinated contingent convertible capital securities, after issuance costs of $6m and tax benefits of $4m. In 2015, HSBC Holdings issued $2,450m and €1,000m of perpetual subordinated contingent convertible capital securities, on which there were $12m of external issuance costs, $25m of intra-group issuance costs and $19m of tax. Under IFRSs these issuance costs and tax benefits are classified as equity.
 
 
 
 
 
12
HSBC Holdings plc 2017 Results
 
 
 
 
 
1
Basis of preparation and significant accounting policies
The basis of preparation and summary of significant accounting policies applicable to the consolidated financial statements of HSBC and the separate financial statements of HSBC Holdings can be found in Note 1, or the relevant Note, in the Financial Statements in the Annual Report and Accounts 2017.
 
 
(a)
Compliance with International Financial Reporting Standards
The consolidated financial statements of HSBC and the separate financial statements of HSBC Holdings have been prepared in accordance with IFRSs as issued by the IASB, including interpretations issued by the IFRS Interpretations Committee, and as endorsed by the European Union ('EU'). At 31 December 2017, there were no unendorsed standards effective for the year ended 31 December 2017 affecting these consolidated and separate financial statements, and HSBC's application of IFRSs results in no differences between IFRSs as issued by the IASB and IFRSs as endorsed by the EU.
 
Standards adopted during the year ended 31 December 2017
HSBC has adopted the requirements of IFRS 9 'Financial Instruments' relating to the presentation of gains and losses on financial liabilities designated at fair value from 1 January 2017 in the consolidated financial statements. As a result, the effects of changes in those liabilities' credit risk is presented in other comprehensive income with the remaining effect presented in profit or loss. As permitted by the transitional requirements of IFRS 9, comparatives have not been restated. Adoption increased profit after tax by $2,024m and basic and diluted earnings per share by $0.10 with the opposite effect on other comprehensive income and no effect on net assets.
 
There were no other new standards applied in 2017. However, during 2017, HSBC adopted a number of interpretations and amendments to standards which had an insignificant effect on the consolidated financial statements.
 
 
(b)
Differences between IFRSs and Hong Kong Financial Reporting Standards
There are no significant differences between IFRSs and Hong Kong Financial Reporting Standards in terms of their application to HSBC, and consequently there would be no significant differences had the financial statements been prepared in accordance with Hong Kong Financial Reporting Standards. The Notes on the Financial Statements, taken together with the Report of the Directors, include the aggregate of all disclosures necessary to satisfy IFRSs and Hong Kong reporting requirements.
 
 
(c)
Going concern
The financial statements are prepared on a going concern basis, as the Directors are satisfied that the Group and parent company have the resources to continue in business for the foreseeable future. In making this assessment, the Directors have considered a wide range of information relating to present and future conditions, including future projections of profitability, cash flows and capital resources.
 
 
 
2
Tax
 
 
 
 
 
 
Tax expense
 
2017
 
2016
 
 
$m
 
$m
 
Current tax1
4,264
 
3,669
 
- for this year
4,115
 
3,525
 
- adjustments in respect of prior years
149
 
144
 
Deferred tax
1,024
 
(3
)
- origination and reversal of temporary differences
(228
)
(111
)
- effect of changes in tax rates
1,337
 
(4
)
- adjustments in respect of prior years
(85
)
112
 
Year ended 31 Dec
5,288
 
3,666
 
 
 
 
1
Current tax included Hong Kong profits tax of $1,350m (2016: $1,118m). The Hong Kong tax rate applying to the profits of subsidiaries assessable in Hong Kong was 16.5% (2016: 16.5%).
 
 
 
 
HSBC Holdings plc 2017 Results
13
 
  
Tax reconciliation
The tax charged to the income statement differs from the tax charge that would apply if all profits had been taxed at the UK corporation tax rate as follows:
 
 
 
 
 
 
 
 
 
 
 
2017
2016
 
$m
 
%
 
$m
 
%
 
Profit before tax
17,167
 
 
 
7,112
 
 
 
Tax expense
 
 
 
 
 
 
 
 
Taxation at UK corporation tax rate of 19.25% (2016: 20.0%)
3,305
 
19.25
 
1,422
 
20.00
 
Impact of differently taxed overseas profits in overseas locations
407
 
2.3
 
43
 
0.6
 
Items increasing tax charge in 2017 not in 2016:
 
 
 
 
 
 
 
 
- deferred tax remeasurement due to US federal tax rate reduction
1,288
 
7.5
 
-
 
-
 
Other items increasing tax charge in 2017:
 
 
 
 
 
 
 
 
- local taxes and overseas withholding taxes
618
 
3.6
 
434
 
6.1
 
- other permanent disallowables
400
 
2.3
 
438
 
6.2
 
- bank levy
180
 
1.0
 
170
 
2.4
 
- non-deductible UK customer compensation
166
 
1.0
 
162
 
2.3
 
- UK banking surcharge
136
 
0.8
 
199
 
2.8
 
- UK tax losses not recognised
70
 
0.4
 
305
 
4.3
 
- adjustments in respect of prior period liabilities
64
 
0.4
 
256
 
3.6
 
- change in tax rates
49
 
0.3
 
(4
)
(0.1
)
- non-UK tax losses not recognised
33
 
0.2
 
147
 
2.1
 
- non-deductible goodwill write-down
-
 
-
 
648
 
9.1
 
- non-deductible loss and taxes suffered on Brazil disposal
-
 
-
 
464
 
6.5
 
Items reducing tax charge in 2017:
 
 
 
 
 
 
 
 
- non-taxable income and gains
(766
)
(4.4
)
(577
)
(8.1
)
- effect of profits in associates and joint ventures
(481
)
(2.8
)
(461
)
(6.5
)
- non-deductible regulatory settlements
(132
)
(0.8
)
20
 
0.3
 
- other deferred tax temporary differences previously not recognised
(49
)
(0.3
)
-
 
-
 
Year ended 31 Dec
5,288
 
30.8
 
3,666
 
51.6
 
 
The Group's profits are taxed at different rates depending on the country in which the profits arise. The key applicable tax rates for 2017 include Hong Kong (16.5%), the US (35%) and the UK (19.25%). If the Group's profits were taxed at the statutory rates of the countries in which the profits arose then the tax rate for the year would have been 21.15% (2016: 20.60%). The effective tax rate for the year was 30.8% (2016: 51.6%) and includes a charge of $1.3bn relating to the remeasurement of US deferred tax balances to reflect the reduction in the US federal tax rate to 21% from 2018. The effective tax rate for 2017 was significantly lower than for 2016 as 2016 included the impact of a non-deductible goodwill write-down and loss on disposal of our operations in Brazil, tax losses not recognised and adjustments in respect of prior periods.
 
Accounting for taxes involves some estimation because the tax law is uncertain and its application requires a degree of judgement, which authorities may dispute. Liabilities are recognised based on best estimates of the probable outcome, taking into account external advice where appropriate. We do not expect significant liabilities to arise in excess of the amounts provided. HSBC only recognises current and deferred tax assets where recovery is probable.
 
 
 
 
14
HSBC Holdings plc 2017 Results
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Movement of deferred tax assets and liabilities
 
 
Loan
impairment
provisions
 
Unused tax
losses and
tax credits
 
Derivatives,
FVOD1
and other
investments
 
Insurance
business
 
Expense
provisions
 
Other
 
Total
 
 
Footnote
$m
 
$m
 
$m
 
$m
 
$m
 
$m
 
$m
 
Assets
 
950
 
2,212
 
1,441
 
-
 
893
 
1,857
 
7,353
 
Liabilities
 
-
 
-
 
(274
)
(1,170
)
-
 
(1,369
)
(2,813
)
At 1 Jan 2017
 
950
 
2,212
 
1,167
 
(1,170
)
893
 
488
 
4,540
 
Income statement
 
(235
)
(873
)
(397
)
12
 
(269
)
738
 
(1,024
)
Other comprehensive income
 
3
 
(6
)
368
 
-
 
-
 
(1,255
)
(890
)
Equity
 
-
 
-
 
-
 
-
 
-
 
29
 
29
 
Foreign exchange and other adjustments
 
(5
)
40
 
51
 
(24
)
19
 
(42
)
39
 
At 31 Dec 2017
 
713
 
1,373
 
1,189
 
(1,182
)
643
 
(42
)
2,694
 
Assets
2
713
 
1,373
 
1,282
 
-
 
643
 
2,313
 
6,324
 
Liabilities
2
-
 
-
 
(93
)
(1,182
)
-
 
(2,355
)
(3,630
)
 
 
 
 
 
 
 
 
 
Assets
 
1,351
 
1,388
 
1,400
 
-
 
1,271
 
1,050
 
6,460
 
Liabilities
 
-
 
-
 
(230
)
(1,056
)
-
 
(883
)
(2,169
)
At 1 Jan 2016
 
1,351
 
1,388
 
1,170
 
(1,056
)
1,271
 
167
 
4,291
 
Income statement
 
(279
)
876
 
18
 
(123
)
(370
)
(314
)
(192
)
Other comprehensive income
 
-
 
-
 
28
 
-
 
-
 
259
 
287
 
Equity
 
-
 
-
 
-
 
-
 
-
 
20
 
20
 
Foreign exchange and other adjustments
 
(122
)
(52
)
(49
)
9
 
(8
)
356
 
134
 
At 31 Dec 2016
 
950
 
2,212
 
1,167
 
(1,170
)
893
 
488
 
4,540
 
Assets
2
950
 
2,212
 
1,441
 
-
 
893
 
1,857
 
7,353
 
Liabilities
2
-
 
-
 
(274
)
(1,170
)
-
 
(1,369
)
(2,813
)
 
 
 
1
Fair value of own debt.
 
 
 
2
After netting off balances within countries, the balances as disclosed in the accounts are as follows: deferred tax assets $4,676m (2016: $6,163m); and deferred tax liabilities $1,982m (2016: $1,623m).
 
 
In applying judgement in recognising deferred tax assets, management has critically assessed all available information, including future business profit projections and the track record of meeting forecasts.
 
The net deferred tax asset of $2.7bn (2016: $4.5bn) includes $3.2bn (2016: $4.8bn) of deferred tax assets relating to the US, of which $1bn relates to US tax losses that expire in 16 -19 years. Management expects the US deferred tax asset to be substantially recovered in six to seven years, with the majority recovered in the first five years. The most recent financial forecasts approved by management covers a five-year period and the forecasts have been extrapolated beyond five years by assuming that performance remains constant after the fifth year.
 
The US reported a loss for the prior period, mainly due to the Household International class action litigation settlement, and a profit for the current period. Excluding the Household International class action settlement the US would have reported a profit for the prior period. Management does not expect the prior period loss to adversely impact future deferred tax asset recovery to a significant extent.
 
US tax reform enacted in late 2017 and effective from 2018 included a reduction in the federal rate of tax from 35% to 21% and the introduction of a base erosion anti-avoidance tax. The US deferred tax asset at 31 December 2017 is calculated using the rate of 21%. The remeasurement of the deferred tax asset due to the reduction in tax rate results in charges of $1.3bn to the income statement and $0.3bn to other comprehensive income. The impact of the base erosion anti-avoidance tax is currently uncertain and will depend on future regulatory guidance and actions management may take. It is not currently expected that the base erosion anti-avoidance tax will have a material impact on the Group's future tax charges.
 
Unrecognised deferred tax
The amount of gross temporary differences, unused tax losses and tax credits for which no deferred tax asset is recognised in the balance sheet was $18.1bn (2016: $18.2bn). These amounts included unused state losses arising in the Group's US operations of $12.3bn (2016: $12.3bn). Of the total amounts unrecognised, $4.8bn (2016: $4.9bn) had no expiry date, $0.8bn (2016: $1.0bn) was scheduled to expire within 10 years and the remaining balance is expected to expire after 10 years.
 
Deferred tax is not recognised in respect of the Group's investments in subsidiaries and branches where HSBC is able to control the timing of remittance or other realisation and where remittance or realisation is not probable in the foreseeable future. The aggregate temporary differences relating to unrecognised deferred tax liabilities arising on investments in subsidiaries and branches is $12.1bn (2016: $10.6bn) and the corresponding unrecognised deferred tax liability is $0.8bn (2016: $0.7bn).
 
 
 
 
HSBC Holdings plc 2017 Results
15
 
 
 
 
 
3
Dividends
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Dividends to shareholders of the parent company
 
2017
2016
 
Per
share
 
Total
 
Settled
in scrip
 
Pershare
 
Total
 
Settled
in scrip
 
 
$
 
 
$m
 
 
$m
 
 
$
 
 
$m
 
 
$m
 
 
Dividends paid on ordinary shares
 
 
 
 
 
 
 
 
 
 
 
 
In respect of previous year:
 
 
 
 
 
 
 
 
 
 
 
 
- fourth interim dividend
0.21
 
4,169
 
1,945
 
0.21
 
4,137
 
408
 
In respect of current year:
 
 
 
 
 
 
 
 
 
 
 
 
- first interim dividend
0.10
 
2,005
 
826
 
0.10
 
1,981
 
703
 
- second interim dividend
0.10
 
2,014
 
193
 
0.10
 
1,991
 
994
 
- third interim dividend
0.10
 
2,005
 
242
 
0.10
 
1,990
 
935
 
Total
0.51
 
10,193
 
3,206
 
0.51
 
10,099
 
3,040
 
Total dividends on preference shares classified as equity (paid quarterly)
62.00
 
90
 
 
 
62.00
 
90
 
 
 
 
On 4 January 2018, HSBC paid a coupon on its €1,250m subordinated capital securities, representing a total distribution of €30m ($36.3m). On 17 January 2018, HSBC paid a coupon on its $2,200m subordinated capital securities of $0.508 per security, a distribution of $45m. On 17 January 2018, HSBC paid a coupon on its $1,500m subordinated contingent convertible securities issued at 5.625% of $28.125 per security, a distribution of $42m. No liability was recorded in the balance sheet at 31 December 2017 in respect of these coupon payments.
 
The reserves available for distribution at 31 December 2017 were $38.0bn.
 
Fourth interim dividend for 2017 on ordinary shares
After the end of the year, the Directors declared a fourth interim dividend in respect of the financial year ended 31 December 2017 of $0.21 per ordinary share, a distribution of approximately $4,199m. The fourth interim dividend will be payable on 6 April 2018 to holders on the Principal Register in the UK, the Hong Kong Overseas Branch Register or the Bermuda Overseas Branch Register on 23 February 2018. No liability was recorded in the financial statements in respect of the fourth interim dividend for 2017.
 
The dividend will be payable in US dollars, sterling or Hong Kong dollars, or a combination of these currencies, at the forward exchange rates quoted by HSBC Bank plc in London at or about 11.00am on 26 March 2018. A scrip dividend will also be offered. Particulars of these arrangements will be sent to shareholders on or about 7 March 2018 and elections must be received by 22 March 2018.
 
The dividend will be payable on ordinary shares held through Euroclear France, the settlement and central depository system for Euronext Paris, on 6 April 2018 to holders of record on 23 February 2018. The dividend will be payable in US dollars or as a scrip dividend. Particulars of these arrangements will be announced through Euronext Paris on 20 February 2018, 2 March 2018 and 9 April 2018.
 
The dividend will be payable on American Depositary Shares ('ADSs'), each of which represents five ordinary shares, on 6 April 2018 to holders of record on 23 February 2018. The dividend of $1.05 per ADS will be payable by the depositary in US dollars or as a scrip dividend of new ADSs. Elections must be received by the depository on or before 16 March 2018. Alternatively, the cash dividend may be invested in additional ADSs by participants in the dividend reinvestment plan operated by the depositary.
 
Ordinary shares in London, Hong Kong, Paris and Bermuda and ADSs in New York will be quoted ex-dividend on 22 February 2018.
 
Any person who has acquired ordinary shares registered on the Principal Register in the United Kingdom, the Hong Kong Overseas Branch Register or the Bermuda Overseas Branch Register but who has not lodged the share transfer with the Principal Registrar, Hong Kong or Bermuda Overseas Branch registrar should do so before 4.00pm local time on 23 February 2018 in order to receive the dividend.
 
Ordinary shares may not be removed from or transferred to the Principal Register in the United Kingdom, the Hong Kong Overseas Branch Register or the Bermuda Overseas Branch Register on 23 February 2018. Any person wi